Chapter 7 and Federal Taxes

[biotechsolution]

2003 and 2004 are beyond 3 years assuming you file in 2010.

if you filed them more than 2 years ago. the chaper 13 super discharge went away for taxes with the 2005 bankruptcy law changes

[LexiPoo]

Hi. Had a quick question about my Chapter 7 filing.

I made a mistake on my income when filing my taxes and I will be fixing it with the IRS, but it has not been fixed yet, for 2009. I am dropping off my tax information to my lawyer this week, but will this error cause me any problems when we go to court. The income that I filed doesn't match what is on my W2. Do they dig deep into your taxes, or do they just go by what you give them? I don't have any assets, just pretty much credit card debt and personal loans, if they makes any difference.

Just don't won't to look like a big dumbo.


Thanks in advance.

[scaredinnh75]

Hi guys, I posted this in the general forum but maybe I should have posted my situation here:
After being laid off in mid 2008 I was unemployed for a year and 4 months and got some part time jobs thereafter. I am currently employed full time but making 60% less than I did before (like alot of people)

I have over $100,000 in credit card debt from failed business attempts, ect. I have a car with a $700.00 car payment that I simply cannot afford any longer (and I am $5000.00 upside down so I cannot sell it.)

I was going to contact a lawyer regarding Chapter 13 or 7 until I learned about taxes of the "previous year needing to be paid"..

I have filed all of my tax returns for the last 16 years I have been working. But for 2008 (due April 15th 2009 I owed $600.00 to the state of Ma and got a refund of $600.00 Federal. I am on an installment plan with the state and have been paying $40.00 a month.

Last week I get an assessment/audit from the IRS stating that I owe $5000.00 from 2008. Due to the fact that I had a $13000 401K that I took a lump sum to live off of and on my taxes it was filed as ROLLOVER, which it was not. They are completely correct and I have a form to send back to ask for a payment plan on that tax debt.

Now here is the bigger issue- for 2009, which I just filed, I owe the state of Ma $1000.00 and the Federal $1500.00. )I did not have taxes taken out of my unemployment checks.) I relocated to NH in January.

I simply do not have the capability financially of handling all of this debt. If I give back the car to the bank they will garnish my wages (from what I am reading) and I will be left with $200.00 a week. And that's not including credit cards I stopped paying in January.

My questions:

Regarding Prior years tax must be payed- If I filed in July of 2010 does that mean 2009's taxes that I just filed need to be payed? Since I do not have $2500.00, if I set up a payment plan would Chapter 7 or 13 still be disallowed because the full tax owed needs to be payed in full?

Or would I have to wait until 2011 to file? (I will not owe anything for 2010 because since I became reemployed in March I claimed zero and the IRS will be taking any "refunds" in the future to pay off the $6500.00 I owe.

I may not be responsible for being laid off, but I feel like the biggest idiot alive for not handling my finances better when I made a decent living. And now I feel there is no way to come out of this. I have to be able to support myself and keep a roof over my head.

Any advice would be so appreciated.

[biotechsolution]

your taxes don't have to be paid, just filed before you file for bk.

[olivies]

So, what can you do? In today's real estate market you can do a quasi lien strip. Lets say you owe the IRS $40k, but only have $5K in home equity at the time you file the petition (i.e. the equity is Fair market value - superior liens to IRS, i.e. your mortgages). You need to file a Motion to Determine Value of Lien with the BK court. This act starts an adversarial proceeding. The reason to do so is to establish the value of the IRS's lien. Take this one step further, if there is no value to the home, then the lien attaches to no value and you can extinguish the lien.

Interesting. Dismissed my 13, will be filing for a 7. The IRS has a lien for us, however we have no assets. We own no vehicles outright (we are relinquishing the one that is financed) and we don't own a house, boat, large amounts of stock, etc. One would think it would be fairly easy to value the lien at $0 and extinguish it then? Or am I missing something?

[sworks2]

Nothing is exempted when dealing with the IRS lien. So in theory they could still attach to anything of value you have pre-petition (all your exempted items) and make that the amount of the lien.

Also if you have any 401K or retirement accounts, they are 'excluded' from you bankruptcy estate, which makes them fair game for levy from the IRS.

[olivies]

Nothing is exempted when dealing with the IRS lien. So in theory they could still attach to anything of value you have pre-petition (all your exempted items) and make that the amount of the lien.

Also if you have any 401K or retirement accounts, they are 'excluded' from you bankruptcy estate, which makes them fair game for levy from the IRS.

Truly- if they want my 8 year old couch that has a tear in it and my 4yo took sharpie to 2 years ago, or my broken entertainment center, my 6 and 14 year old tvs, etc. I will let them. We have 6 kids, we don't own "nice" things. LOL Retirement account has $5,800 in it so I suppose that's at risk. I'm pretty sure our attorney is competent this time around- I'll just have to ask him about how to strip the lien so it doesn't survive the bankruptcy.

[sworks2]

If your attorney tells you he can strip the IRS lien with your Chapter 7 bk, find a new attorney.
Your liability to the IRS ends with your bankruptcy discharge but your pre-petition estate still is liable for the IRS debt. This IRS will not want anything to do with your property, they would have to sell it to collect.

But they are very willing to levy retirement accounts to collect taxes discharged in bankruptcy. If fact since your retirement accounts are 'excluded' from your bankruptcy filing, they don't even need a lien filed to levy the account after your bankruptcy has closed.

My previous account was 'biotechsoution', I have dealt with the IRS for a long time.

[olivies]

Perhaps "strip" is the wrong word. I'm going off of the info HHM gave in the original posting:

However, at the same time, the value of the lien is established at the time of filing petition. Let me explain...

So, what can you do? In today's real estate market you can do a quasi lien strip. Lets say you owe the IRS $40k, but only have $5K in home equity at the time you file the petition (i.e. the equity is Fair market value - superior liens to IRS, i.e. your mortgages). You need to file a Motion to Determine Value of Lien with the BK court. This act starts an adversarial proceeding. The reason to do so is to establish the value of the IRS's lien. Take this one step further, if there is no value to the home, then the lien attaches to no value and you can extinguish the lien.

If we have no property, nothing of value except for the $5800 we have in a 401K, then if I'm following correctly we can ask the court to establish the value of the lien at the value of any real asset we have. Correct? So in other words, sure right now they have filed a lien in the amount of $29,000 but we have no assets except for the 401k, then the lien value could be revalued thru an AP filed by our attorney.

But here's where things are "sticky" and our attorney will have to know his stuff because I get lost. Our total tax liability is almost $50k. The lien that is filed with the county is about $29,000. They filed a bk claim as:
Unsecured: $4867.33
Secured: $16213.40
Priority: $28836.78
So I'm assuming the lien filed applies to the secured debt, but for some reason encompasses more than the secured amount? Not sure what type of magical calculator the IRS used when determining the amount they filed a lien for. The attorney says when all is said and done, we'll still be left with having to pay the priority portion of the debt (it's a chapter 7). The lien is less than the total amount, but more than the priority or secured amount separately, less than them combined, and more than any asset we have in or out of the bankruptcy estate.

[sworks2]

this only works if you're filing a chapter 13.

[carmiekay]

taxes

I was just reading about the discharge of taxes and wanted to be clear on some things. We filed for bankruptcy and our creditors meeting is next week. We included our taxes for 2000, 2001 and 2002 and were on a payment plan. We haven't received anything from the IRS yet telling us to stop paying but our attorney did. Are we going to have any trouble with those years being discharged? We sold our home in 2000 and haven't owned one since.

[Vibrant]

Just want some confirmation that I'm reading this IRS letter correctly...if it says "Tax Period: 12-31-2006," then that would be return filing deadline 4-15-07, and not eligible for discharge until after 4-15-10, correct?

[ariz207]

I have a question... I owe the IRS for 97,00,01,02,03,06,07...was on an installment agreement before another creditor garnished my wages. The total tax debt now is 17K...it started as 25k. Is some of this dischargeable? If My debts are discharged under chapter 7...will I be charged the taxes for the debt that is discharged?

thx ariz207

[cmcfall]

One of the requirements is that the return was filed. So it would be 2 years from the date you filed the return.

Hello HHM, here is my situation. I owe taxes for 2003-2009 but I just filed them all in 2008 and 2009 so I know they cannot be discharged. I am on an installment agreement paying the IRS 800.00 a month and State $146.00 a month. In an earlier post I listed my schedule J to get some feedback and someone mentioned that my installment agreement may cause me some issues. Do you know how this could affect my filing (chapter 7)?

Thanks, verymuch appreciated.

[HHM]

Actually, your installment agreement should be a non-issue, and yes, you can include it in BOTH the means test and schedule J. In fact, if your current Installment agreement is longer than 60 months (not likely, but if), you can raise the expense amount on the means test and schedule J because that is the amount you would need to pay in a chapter 13.