Taxes due April 15 and Filed Chapter 7

[lolie]

My attorney is not the clearest of people, so here is my question:

We are filing Chapter 7, and we have 43K income taxes due on April 15 for 2009. Now, I know they are not able to be discharged for the obvious reason, but how are these dealt with?

Does the trustee or our attorney make the deal with the IRS for a payment plan in a Chapter 7?

Obviously, no liens have been set because the taxes aren't due for another week. I'm really confused. We don't have any property for them to take and we have a small 401K and equity in one vehicle, but that's it.

What can I expect??

[biotechsolution]

nothing will happen. the IRS won't be able to process with any collection procedures while you are in your chapter 7.

When your chapter 7 is discharged you will have to set up an installment agreeemnt for the tax liability.

If you can't pay it in 3 years, you will have an extensive process where the IRS will determine how much you can payback a month.

They will give you less to live on than what a Chapter 13 plan will.

[qsr]

I've never owed more than about $13k, but I've always been able to do an installment plan, and that includes dragging it out over years without paying for a while. You might think about a 13 or a settlement of something less than that. How much is your income?

[AngelinaCatHub]

By ALL MEANS file your 1040. Pay them a token amount. 100 bucks or so. Not filing and waiting for the automatic stay will not work well. Once you get your papers filed, your lawyer will/should list IRS as a debt. The IRS bk department will tell you NOT to pay anything. Yes that is true. One discharged, then set up a payment plan. Some of the tax and some of the interest "may" be discharged. We are down to 17K paying 400 a month. We are on SS as our main income now but we have few bills to speak of. Only insurances and utilities. 'Hub

[lolie]

Thanks for the replies. We own our own business, but we are filing personal bankruptcy, and yes we have a lot of income. We're lucky there, however we have a lot of personal debt.

Just had another conversation with my husband and personally I think he is delusional when it comes to the IRS. We will be able to save over the amount we owe to the IRS in the 4 months that we are awaiting for all of this to be discharged. So on the day of discharge we would be able to pay the IRS debt in FULL. He seems to thinks that in the Chapter 7 they will be setting up some kind of payment plan with the IRS.

If we have the money sitting in the bank, won't they take it?? Why not pay it and be done with it right? Logic tells me that we would pay the FULL amount, (if we have it), and move on.

The IRS debt was listed as a debt, when in fact it isn't even due for 3 more days. So, what will happen when we don't pay in 3 days? They have already been notified of our filing. Will nothing happen until after discharge? I really don't want the IRS on my back.

[GWBcasualty]

Thanks for the replies. We own our own business, but we are filing personal bankruptcy, and yes we have a lot of income. We're lucky there, however we have a lot of personal debt.

Just had another conversation with my husband and personally I think he is delusional when it comes to the IRS. We will be able to save over the amount we owe to the IRS in the 4 months that we are awaiting for all of this to be discharged. So on the day of discharge we would be able to pay the IRS debt in FULL. He seems to thinks that in the Chapter 7 they will be setting up some kind of payment plan with the IRS.

If you can pay $43k in 4 months how do you qualify for a Ch. 7?

About money in the bank... that kind of cash in the bank cannot be exempted unless it's in a IRA, than you can take out to pay the IRS.

[ForumReader]

Like 'Hub recommended, please file your taxes and pay a certain amount to the IRS and then deal with the debt after the automatic stay has been completed. However, I am not sure how it works with the trustee when he or she reviews your petition and the IRS debt that you are dealing with:

"If we have the money sitting in the bank, won't they take it?? Why not pay it and be done with it right? Logic tells me that we would pay the FULL amount, (if we have it), and move on."

What did your attorney say about your IRS debt?

[lolie]

That's all the money that would be going to loans for our business and mortgage and estimated taxes for the following year. But, because we aren't keeping our house we stopped paying our mortgage and because we were already behind on payment to our partner for the business, we aren't paying him and taxes, well, we won't pay them until after discharge.

So, if our taxes are included in our bankruptcy as a priority debt and we are able to save up enough to pay them off, wouldn't we pay up after discharge?

We would never have that kind of money in our account if were weren't filing for Ch. 7. Bankruptcy gives us the time to save it and puts all our other debts on hold for that time. We already had our accounts frozen with 10K sitting in it and that money is exempt.

From my understanding, anything saved up passed filing is off limits to the trustee unless it is for taxes. Am I wrong? We are still going about our normal lives, it just so happens we own a business and don't pay our taxes until the end of the year. We didn't pay our estimated taxes and that's why it is such a hefty amount.

[SMinGA]

I don't think you're wrong - about $ saved after filing is yours.

I think the question was more along the lines of if you can save $43k in a few months time, then you have a hefty DMI and therefore won't qualify for ch. 7. Ch. 7 says you have no (or very little) DMI each month.

[gmk]

If you go to form f9465 - Installment Agreement - They have special instructions in there on if you're in BK. They have a department that specializes in us miscreants.

I just filed and I owe them a tad under $3,000 so I'm sending them $100 and I'll wait for the first letter then I'll call the local office.

Here's a cut and paste from Page 2 of the Installment Agreement form:
"Bankruptcy or offer-in-compromise. If you are in bankruptcy
or we have accepted your offer-in-compromise, do not file this
form. Instead, call 1-800-829-1040 to get the number of your
local IRS Insolvency function for bankruptcy or Technical
Support function for offer-in-compromise."

[blockhead]

Irs

posted in error

[lolie]

We have a negative DMI, believe it or not. Without going into to much detail, we make 162K/year, but after all of our creditors and business loan we are in the negative by 26K every year. As I stated before, once we filed for Ch.7, we stopped paying everything. Therefore we are able to save what we earn monthly rather than paying. We had 10K sitting in our bank account waiting to pay our state taxes, but we didn't have enough to pay federal and we were instructed by our attorney not to pay anything, especially after we file. So, we stopped. Now we will be accumulating all the money that would be going out and hopefully able to pay our tax bill in FULL. It will be 3 months late, but it will be paid.

As far as I see it, that's not DMI if it has to go to taxes, especially taxes that should be paid in 3 days.

[keptdigging]

IIRC, penalties for paying the IRS late are not that bad. Payments for FILING late are much more extreme.

[lolie]

Good to know about the penalties. Because of the business, we have a tax preparer and everything is filed on time. In fact, we filed in March. This is just all new to us. We had never been late on anything. All the way up to the day that we filed BK. Never late.

It's disheartening, but we had to file. There was no other option and no other way around it. We are ultimately to blame for our situation, but the economy sure didn't help. Both sets of our parents had to move away to vacation/second homes and rent or foreclose on primary residence because of the economy. For a lack of a better word, it just sucks. At least we have income and have a place to live. I feel for people that are WAY worse off than I could imagine. I'm just done with everything going downhill and can't wait for it all to pass.

Thanks for all your advice.