Confused about filing a chapter 13....

[Irishrainy]

I saw a BK attorney the other day for our tax problems, since we were recently informed that my husband's paycheck is being garnished for $11,500 in state taxes.

We also owe about $30,000 to the IRS, for which my check was being garnished for almost 4 years. However, I was laid off in December so they haven't been getting anything for quite some time now. The IRS has filed 3 liens but the state has not.

We don't own a house, and our cars are worth less than $10,000 altogether.

We make about $5250 net per month and our bills are about $4500. The taxes owed are all over 3 years old and filed more than 2 years ago, so the attorney said most or all of them could be discharged.

If we pay the trustee $750/mo x 60 months, that's $45,000, which is about what we owe plus attorney fees (about $2,000)! So that means we'll be paying 100% of the taxes, even though we qualify to have them discharged.

In that case, does a 13 make any sense at all? And does anyone have any better remedies for our situation than bankruptcy?

I should mention that we've been paying on the federal taxes for years now and it hasn't really seemed to make a dent in the amount owed since the interest and penalties have just kept accruing. I really feel that we've paid what we originally owed and then some, so I don't particularly want to give the IRS a single dime more than I have to at this point.

Thanks for any help you can give me!

[IamOld]

This is a really good question - we owe a similar sum to IRS, but so far....payments were enough for them.

My spouse is in a 13, and I hope to be in a 7 soon - IRS is getting bulk from the 13 - what a 13 does do for you is this: it STOPS all interest and penalties. AND!! here is the thing...if taxes qualify to be discharged, then they (IRS and state) may not get 100% - those debts are ordinary unsecured debts. Anything (roughly)less than 3 years old, you have to pay back 100% BUT that's w/out any more interest/penalties. So you actually get out of it.

If you all could do a 7, then you could discharge those taxes (roughly) which are over 3 years old and timely filed. That is, the timely filing was done more than 3 years ago.

Did your atty say if you could do a 7 or if it would have to be a 13?

OR what about at tax lawyer to negotiate some more reasonable payment?

[forgotten]

Sounds like you are a good canidate for a Chapter 7, this tax debt should be dischargable and it doesn't sound like you have any disposible income. Speak to several attorneys, don't just take a no from one of them.

[StaciMM]

If you really have $750 a month left at the end of the month, you are not a likely candidate for ch. 7. Ch. 7 means you have little or no money left. Is your budget realistic? Are you accurately counting your net income? Do your bills of $4500 include any other debt payments?

For your present household income, are tax with holdings accurate so that you are not incurring new tax debts each year? If not, you need to increase the amount taken out which would decrease your disposable income.

[IamOld]

Right Staci!!!

Also - irishrainy - in the monthly bills you mentioned - does that INCLUDE $$ that you have to/garnished to IRS?? If it does not, INCLUDE that as those are pre-petition priority tax payments that diminish disposable income.

[forgotten]

If you really have $750 a month left at the end of the month, you are not a likely candidate for ch. 7. Ch. 7 means you have little or no money left.

When OP said "bills" I took that to mean things like mortgage, car loan, etc. Not living expenses such as food, clothes, operating expenses and things like that which would easilly exceed $750. If they meant total expenses then I would definatly be mistaken about the CH7.

[Irishrainy]

Thanks for the replies, guys!

I calculated our income and expenses using the US Bankruptcy Court's forms; I think they were schedules I and J. And yes, we changed our withholding in 2007 so we haven't owed anything since then.

The main reason for the attorney consultation was because the state was garnishing my husband's day job, which would only leave us with $873 per paycheck. However, that job already has a garnishment in place for his student loan (20% after deductions). So yesterday, payroll informed him that they're not sure which garnishment/levy has precedence or if he can even be garnished by 2 different government entities at the same time (say what?), and that for now they're going to only garnish his check 25% (15% for the student loan and 10% for the state). He doesn't make much in that job after deductions except for his quarterly bonus (about $3k) which is coming on his next check....yep, right around the time the levy was supposed to start....which would put a serious dent in our budget.

At this point, I think we'll delay filing for 6 months or so and just try to get our ducks in a row...such as increasing our 401k contributions so we have even less income, etc. Then if they start sniffing around his 2nd job (he's a waiter on the weekends), we'll quickly file to stop any additional garnishments, since that job has minimal deductions.

My job as a medical transcriptionist was shipped to India last November, courtesy of Dictaphone/Nuance/Focus Informatics, and since it's all I've done for 26 years, I have to go back to school. However, under a government plan for displaced workers, I can be trained for a new skill on "Uncle Sam's" dime (that guy is so rich, lol) AND continue to collect unemployment for up to 130 weeks. But if the government ever runs out of other people's money (yeah, I know - what are the odds of THAT happening?) and my unemployment checks cease to exist, that would reduce our income by about $1000 bucks a month and actually improve our situation, bankruptcy-wise at least.

While I definitely think a BK is in our future, we're going to bide our time and see how things go. But I'll continue to peruse this board in the meantime because I've learned so much from you all so far. Thanks again for your responses.

[IamOld]

I wish you both all the VERY best of good luck!!! (I know I'm just being nosy, but what will you be studying?)

Re 401k - if you're filing jointly - and others please please correct me if I'm wrong - 401k contributions are NOT a reduction in income - BUT you are turning your $$ into an exempt asset!

Also, re garnishment - I believe the max is 25% ... doesn't apply to IRS...but to state taxing authorities I believe it does...

Thanks for the replies, guys!

I calculated our income and expenses using the US Bankruptcy Court's forms; I think they were schedules I and J. And yes, we changed our withholding in 2007 so we haven't owed anything since then.

The main reason for the attorney consultation was because the state was garnishing my husband's day job, which would only leave us with $873 per paycheck. However, that job already has a garnishment in place for his student loan (20% after deductions). So yesterday, payroll informed him that they're not sure which garnishment/levy has precedence or if he can even be garnished by 2 different government entities at the same time (say what?), and that for now they're going to only garnish his check 25% (15% for the student loan and 10% for the state). He doesn't make much in that job after deductions except for his quarterly bonus (about $3k) which is coming on his next check....yep, right around the time the levy was supposed to start....which would put a serious dent in our budget.

At this point, I think we'll delay filing for 6 months or so and just try to get our ducks in a row...such as increasing our 401k contributions so we have even less income, etc. Then if they start sniffing around his 2nd job (he's a waiter on the weekends), we'll quickly file to stop any additional garnishments, since that job has minimal deductions.

My job as a medical transcriptionist was shipped to India last November, courtesy of Dictaphone/Nuance/Focus Informatics, and since it's all I've done for 26 years, I have to go back to school. However, under a government plan for displaced workers, I can be trained for a new skill on "Uncle Sam's" dime (that guy is so rich, lol) AND continue to collect unemployment for up to 130 weeks. But if the government ever runs out of other people's money (yeah, I know - what are the odds of THAT happening?) and my unemployment checks cease to exist, that would reduce our income by about $1000 bucks a month and actually improve our situation, bankruptcy-wise at least.

While I definitely think a BK is in our future, we're going to bide our time and see how things go. But I'll continue to peruse this board in the meantime because I've learned so much from you all so far. Thanks again for your responses.

[Irishrainy]

I'm either going to study to be a paralegal (would like to know more about the field of law anyway) or a closed captioning reporter (supposed to be a growing field and it's the same kind of job environment as transcription....working independently at home....which I love.)

I didn't know that little tidbit about 401k money can't be used to reduce your income. Interesting. Guess we'll definitely have to wait until my unemployment runs out in order to file.

[Irishrainy]

IamOld: The IRS garnishment ended when I was laid off last November. One of these days they're gonna figure out I'm no longer paying them and come after me, but until that "happy" day, I'm gonna be vewwy vewwy quiet.

[jange]

I believe a 401K contributions are valid deductions, but you will need to show you have been contributing for a while. They usually want to see the last 6 months of pay statements. They may also limit the amount you can contribute. Depends on the trustee.

[despritfreya]

I believe a 401K contributions are valid deductions. . .

We all know that a 401K deduction is not reported on form 22. As it relates to using the deduction on Schedule I to reduce monthly income. . .

Maybe not in the context of a Chapter 13. . .

While none of the 13 Trustees in AZ currently take issue with the deduction, the ability to do so will be decided by the 9th Cir BAP within the next few months. Once decided (yes or no) all Trustees in the 9th Cir will be bound by that decision until the 9th Circuit Court of Appeals looks at this issue (if ever).

Des.