How are back taxes repaid through Ch. 7?

[southernbelle]

My debt is over 50% non-consumer because of back sales taxes (City, State and Federal business related).

I fail the means test (because of income) I automatically assumed that I would be forced to file Ch. 13, but I REALLY don't want to file Ch. 13 because I don't want to feel like I have my hands tied for 5 years. I have business equipment that isn't worth anything and will gladly give the trustee whatever he/she wants in terms of assets as long as I have a place to live and transportation to work.

If I filed Ch. 7 although you have tax debts, would I make arrangements to pay back the taxes directly or is it through a plan in Ch. 7? I would like to file Ch. 7 as opposed to filing Ch. 13, but everything I read seems to push Ch. 13 in this case eventhough I am not behind on my consumer debts. I understand that penalties and interest stop once you file Ch. 13, but I still prefer Ch. 7.

I will be filing in a couple of months and would like as much info as possible.

[keepmine]

A Chapter 7 is a liquidation. There is no provision for a payment plan.
You'll be dealing with the various tax authorities on your on.
In some circumstances IRS debt can be discharged. Have you spoken with a few bk lawyers?

[southernbelle]

I spoke to a couple of BK attys already, but in general terms through just the initial free consultation. I have 2 more to interview, but the hardest part is making sure they don't handle consumer BK only.

I was wondering about a payment plan since I've seen a couple of posters here file for Ch. 7 in a similar situation to mine with more than 50% non-consumer debt. I was wondering how the non-discharable debt was handled (assets siezed, etc?) Is there a presumption of abuse if I file Ch. 7 and have assetsg and make more than the median income for Louisiana? I have a small amount of business property that I will gladly hand over because it's not worth much.

[biotechsolution]

if 50% or higher is non-consumer you can still file a 7...

But you must include all debt, mortgage and car loans. If your taxes end up still being more than 50% of the total debt it doesn't matter how much you make you can still file a chapter 7.

But if the taxes are non-dischargeable in a Chapter 7 and you don't have any real consumer debt you are essentially wasting a 'silver bullet'. Once your Chapter 7 is discharged and closed you'll be back at the current situation on the taxes.

The problem I believe you have is sales tax differs from income taxes. Since they are sales taxes it depends on the state you are in if they are considered 'trust fund taxes', if they are, then they are never dischargeable. The only state you may have a chance discharging sales tax is California.

If you owe mostly sales taxes or payroll taxes you best bet is trying an Offer in Compromise because a Chapter 7 discharge or a Chapter 13 isn't going to really do much because in a Chapter 13 you still have to pay the tax in full 100% plus and pre-petition interest and post-petition interest. You will also continue to pay interest during your Chapter 13 plan. If the sales taxes are more than 3 years old the penalties can be discharged even if the tax is not but if the taxes are less than 3 years old the penalties are not discharged either.

Your best bet would be to try an Offer in Compromise first to see if you can work out a settlement for less than the amount you owe.

[biotechsolution]

You want a business bankruptcy attorney......

I spoke to a couple of BK attys already, but in general terms through just the initial free consultation. I have 2 more to interview, but the hardest part is making sure they don't handle consumer BK only.

I was wondering about a payment plan since I've seen a couple of posters here file for Ch. 7 in a similar situation to mine with more than 50% non-consumer debt. I was wondering how the non-discharable debt was handled (assets siezed, etc?) Is there a presumption of abuse if I file Ch. 7 and have assetsg and make more than the median income for Louisiana? I have a small amount of business property that I will gladly hand over because it's not worth much.

you want a big firm that handles only business bankruptcies. Hopefully chapter 11, most personal attorneys won't touch a chapter 11. You will pay quite a bit so if you don't owe say more than 50K is sales taxes you'd be better off trying an offer in compromise. You're most likely looking at at least 6-9K for a business bankruptcy attorney.

[southernbelle]

Are you saying that I would have to pay 6 to 9k for the atty? I don't have any money right now. I am living paycheck to paycheck just to keep bills current so that my credit doesn't suffer too much in the long run. I don't think Ch. 11 would work for me since I closed the business in July. The overall taxes should amount to about $45-$50k and with everything else eliminated, I thought it would be possible to handle since Ch. 13 chains me to a babysitter for 5 years.

Do most people offer a compromise for taxes owed? Keep in mind these are personal income taxes, these are business sales and employment taxes my husband was supposed to take care of but stole the money. I kinda think these taxes are owed no matter what. Maybe I can negotiate with the penalties and interest that has been accumulating, but I don't know about that. Do you think I should contact them to negotiate prior to filing? I have to wait about 2 more months before filing due to 2 loans I got to help pay some of this debt in the very beginning. Thanks again

[southernbelle]

Sorry the taxes mentioned are NOT personal income taxes.

[biotechsolution]

there lies your problem. If the taxes are sales and employment taxes the chapter 13 bankruptcy isn't going to do anything for you.

You will still have to pay back at 100% the interest will still assessed pre-petition and post-petition during your 13 plan.

The penalties will only be discharged on the taxes that are over 3 years old. Anything newer than that will be paid 100% thru the plan.

Your best bet is first to try an 'offer in compromise' for say 1/3-1/2 of the total amount. If you are living paycheck to paycheck and you can document the low income you can justify the OIC. They will settle for less because it could be doubtful that they could ever get the full amount.

[biotechsolution]

If you pretty much just owe the sales and employment taxes you'd be completely wasting a bankruptcy filing because it will do absolutely nothing to reduce either liability.

The majority of tax problems are resolved through 'OIC's'. The IRS used to be much better about taking settlements, they have gotten much stricter but if you can raise objections has to 'liability' of the taxes you are in a much better position to deal.

The sales taxes would be a state OIC and you would have to work that out with the state.

You can also try the Tax court for both the federal and state taxes. If it was your ex's responsibilty to handle the taxes you be able to reduce your liability.

You may really need a good tax acccountant instead of bankruptcy attorneys.

[CindyLou]

you should answer one of those tax attorney ads off tv or from the yellow pages advertising "pennies on the dollar" .....might be a good place to start. good luck

[southernbelle]

There's still LOTS of other business debt, thanks to the ex. I didn't know until I closed the business just how much he messed up. He took out loans in the business name and didn't pay anybody on time. It was so bad that when I had enough and kicked him out, closed the business and filed for divorce, there were about 4 employees that had payroll checks he wrote that bounced. I don't know where the money went, but my business account is a mess.

There are liens on my home and everything is a real mess. Trust me, if I filed it would help eliminate lots more than just the taxes. My personal debts are all current and I will continue to pay them until I file just so that my credit isn't messed up too much, but the business stuff doesn't show up on my credit report and I stopped paying that stuff the beginning of this month. I just let the harassing phone calls go to voicemail until it fills up and only answer the calls I can identify with caller id. Unfortunately, I have to endure 2 more months of this and hope I don't get sued before Nov. or Dec.

I've never heard of tax court or hiring a tax accountant or lawyer. Should I do this prior to filing or just talk to them to get some input? I am still in the process of filling out back returns because my ex apparently did nothing but steal from me. He should be put in jail.

[biotechsolution]

You need to first file the past returns.

You cannot start an Offer in Compromise unless all your tax returns are filed. Disputes in Tax Court will also require that all your tax returns be current.

What you really need is a good accountant.

[southernbelle]

I have an accountant that handles the income tax prep. Is he who I would need or someone else and what would I ask him? Do I ask how to proceed with negotiations or what is allowed or not allowed within my area? I have all returns filled out except IRS withholding, I just need to send them. I have been in phone contact with the people assigned to my cases so that they at least know what's going on. I will fax and mail the hard copies to them by Monday. I just need to know what the final total is so that I can be in a better position to handle this because it's keeping me awake at night. Not to mention the fact that my home A/C went out about 3 weeks ago and it is usually 90 degrees in my house (I think the ex sabotaged it). I need some sort of resolution to this mess and to be rid of my ex. When it rains it really pours doesn't it?

[CindyLou]

Again, one of these tax attorney's would be a GREAT place to start. They would do a free consulation and be able to tell you where to go with all this. It can't hurt. I wouldn't mail ANYTHING in without legal advice!! There is such a thing as innocent spouse or something when it comes to taxes. You need some serious tax attorney advice!!!! and QUICK!

[southernbelle]

You're right. I will do some research tonight/tomorrow and will start calling around Monday. I need to figure something out quick since two of these guys have liens on my house and they can act on it whenever they feel like it, which is why I at least wanted to send in the returns so that they don't think I'm trying to ignore the situation.

I guess the gears turn pretty slow around here because I didn't know the liens existed until a month ago when I considered refinancing my home to take care of some of the debt, but I didn't refi. because it would not have made a dent in the taxes. Apparently the liens have been there for about 2 years.

Somehow my crafty ex hid the notifications of the liens from me and the bank told me about it. Talk about a shock!! I didn't really understand what a lien was until I researched it online. I will find a tax atty. and ask a few questions before doing anything. Thanks again guys for all of your help. Before I found this message board, I thought I was the only one struggling and having some serious problems, but it's good to know at least I have people to talk to that really understand.