Taking the plunge to a BK I need some help

[BrokeBrody]

Greetings everyone,

I have enjoyed reading peoples posts and experiences and while they are sad and I feel very badly for anyone who has been through this process it has helped me personally relieve some anxiety. So here is my "little" situation along with the results of 2 consults thus far.

I am 30 years old and I am on SSDI (Social Security Disability) and have been since August of 2008. My condition is considered "improvement unlikely" which means for the next several years I can expect to be taking in $1,407.30 after an IRS garnishment. This is a far cry from what I was making pre-disability. Onto where I am now.

Due to not caring and downright being an idiot I did not file tax returns for 2004-present. I also was unemployed in Minnesota (I now live in FL) and had an unemployment overpayment of 4,240.00. I let the IRS file all the returns automatically and they did so and charged me a fortune in the process (21k and change) I did not have to file 2009-present due to being SSDI income below 25k. The unemployment overpayment has now ballooned to 14.5k due to 18.5% interest. I have a car that has been repossessed, I have no license, I live with my parents and my health is sub-par at best.

So I have a ton of tax debt/state unemployment debt. Maybe 3k in various other unsecured debts such as CC's. 7k in the car repo. When it's all said and done with medical debt I owe roughly 45-55k. I still have to file 2008 taxes on my own.

I had two consultations. The first said everything could be discharged but they refused to take on my tax debt due to not filing for 2008 which they claim would throw out the previous years and I would have to refile the whole Bankruptcy. They recommended I also retain a Tax Attorney in addition to their services. (1900.00 for the chapter 7) of course they do not have any lawyers that do tax services.

Conversation two was with a tax service locally to me. He explained that due to my expenses and income I would be classified as a "negative" payer. Essentially he said that using the IRS's own formula's regarding expenses they would determine I would not be able to afford any plan. He guaranteed that all tax debt would be negotiated down to the lowest amount (500.00) and that would include them filing 2008 for me. The thing that worries me is they want $3385.00. Also, he admitted on the phone that everything EXCEPT 2008 could be discharged as far as tax debt goes.

Obviously here is my problem. I have a very very limited income. I have collection agencies calling me every day. I have medical bills that pile up. The IRS is garnishing my SSDI. I don't know what is true and what is not true thus far, I feel as if the lawyers I have talked to thus far are just doing what they can to sign me up as a client. For me a Chapter 7 would essentially be a slam dunk, but if I can't include the 21k in tax debt I don't know what I would do.

Does anyone have any advice? Sorry for the rambling, I am just frustrated and very tired of googling attorneys and talking to paralegals. I have had so many people say my tax debt I will have to pay. I have had many others say it can be discharged. I am just worried since the IRS filed the documents for me, will I be punished forever on this?

For the record, I have ZERO assets. The numbers we came up regarding the IRS cost of living is 1936.54 and obviously I take in less then that.

Thanks in advance for any help.

[LadyInTheRed]

Welcome to BKforum!

My very quick advice before getting to bed:

Get your 2008 taxes filed. Even if you owe taxes you can't pay, get the returns filed.

Consult with more bankruptcy attorneys to confirm that pre 2008 taxes are dischargeable. Bring correspondence from the IRS to your consultations so they can give you accurate advice.

Taxes seem to be your main problem. If you can handle the rest of your debt without BK, consult with tax attorneys regarding offers in compromise and/or payment plans. You say you talked to a tax service. Be careful about who you hire to negotiate with the IRS on your behalf. It should be a CPA or an attorney with experience in negotiating with the IRS.

Keep talking to attorneys until you find one you have confidence in. Try your local bar association for referrals.

ETA: I missed that the unemployment overpayment is also a big problem. I'm not sure what your options are for that.

[Drazil65]

Hi and welcome, glad you are here! Ok wow, I agree that first off you should just go ahead and file 2008. Get it over with, no matter what the outcome of those taxes are its one thing off the list right? You may feel better just for the fact that the attorneys will not talk about it any longer! Keep at it with the free consults as well, you have nothing to lose at this point by seeing a couple more attorneys and asking questions. Create a paper plan or at least lay it all out on paper, something tangible that you can look at and see. It may help with putting it all in perspective and breaking it out, tackle one issue at a time, the stuff you can do something about and the stuff you cannot.

I feel for you as this is a lot to handle at your age, as you look back and go through the events that put you where you are today you will have to make a solid decision (whether or not you can file bankruptcy) on how to move forward. It sounds like you are ready to put all this behind you and go forward and that is the first step. Good Luck!

[despritfreya]

Welcome to the Forum. My recommendation is that you continue interviewing attorneys as, apparently no one has picked up on the fact that you cannot discharge the taxes since you did not file the returns on time or at least 2 years ago. Instead, you allowed the IRS to file substitute returns. Copying a post of mine from a different forum, please note the following:

To address your issue you must first look at the distinctions between substitute returns that can be filed by the IRS pursuant to the Internal Revenue Code (IRC). The section of the IRC that allows for substitute returns is 26 USC 6020. It states:

26 USC § 6020 - Returns prepared for or executed by Secretary

(a) Preparation of return by Secretary

If any person shall fail to make a return required by this title. . ., but shall consent to disclose all information necessary for the preparation thereof, then, and in that case, the Secretary may prepare such return, which, being signed by (the taxpayer), may be received by the Secretary as the return of such person.

(b) Execution of return by Secretary

(1) Authority of Secretary to execute return

If any person fails to make any return required. . . at the time prescribed therefor, or makes, willfully or otherwise, a false or fraudulent return, the Secretary shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise. . .

___________



Based upon the language above, if you gave the information to the IRS and allowed it to prepare a return that YOU signed, you have filed a proper tax return under 6020(a). If, on the other hand, you simply failed to do anything and the IRS filed a return under 6020{b] you have a problem.

In a very recent case out of Texas, In re Hernandez, decided January 11, 2012, a debtor sought a determination that taxes are discharged. The debtor filed the tax returns more than 2 years before filing the bk BUT the IRS had previously filed substitute returns under 6020(b). The IRS filed a motion for summary judgment arguing that the debtor's tax debts for the years 1999, 2003 and 2004 were not dischargeable because they were debts for which returns were not "filed" within the meaning of 11 U.S.C. 523(a)(1)(B)(I).

The Court correctly held that substitute returns filed under 6020{b]are not properly filed returns:

Section 523(a)(1) provides that the discharge provided in section 727(a)(1) "does not discharge an individual debtor from any debt . . . for a tax . . . with respect to which a return . . . if required . . . was not filed or given." Section 523(a) was amended by the 2005 changes. An unnumbered paragraph was added addressing the meaning of "filed" in subsection (a)(1). The added paragraph states: For purposes of this subsection, the term "return" means a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements). Such term includes a return prepared pursuant to section 6020(a) of the IRC.

This means that unless your substitute returns were filed by the IRS under 6020(a) you cannot discharge the tax debt no matter how old it is.

Further, numerous decisions (like Hernandez) hold that once a substitute return is filed by the IRS under 6020 (b), the taxpayer cannot rectify the problem by filing a return and then waiting two years to file the bk.

For the taxes that are more than 3 years old, if you allowed the IRS to file under 6020(a) of the IRC and those returns were filed either on time or more than 2 years before filing you should be fine.

If the substitute returns were filed under 6020(b) the tax debt is not dischargeable. You would need to discuss this matter with a local bk attny who is familiar with any decisions in your jurisdiction that may allow you to discharge the taxes two years after YOU file the tax returns.

Lastly, the unemployment overpayment IS dischargeable unless you collected the money due to some fraudulent conduct.

When you meet with the attny, make sure you reference the information contained herein - even make a copy of this as you need to make sure the attny understands what is and what is not dischargeable.

Des.

[BrokeBrody]

Wow, I want to thank everyone thus far who has replied. I have never had so many mixed emotions on a forum, but it sure feels better than talking to paralegals who try to do anything to get me into his or her office to meet with their lawyers. I do have a few questions after the post Des made.

For the years I did not file (2005, 2006, 2007) and the IRS prepared the returns they charged me numerous fees including a preparation fee. I have also discussed with the IRS over the phone that currently the big issue with everything regarding my tax file is the missing 2008 tax return which will add roughly 3500.00 to my tax debt (penalties and fees included.) I also did something stupid and asked an IRS rep on the phone if my past debt would be discharged if I were to file bankruptcy and he declined to answer. Granted it was probably a stupid question for me to answer in the first place.

So as of right now I already have my 2008 1040 that I have filled out. The IRS instructed me that I can fax it to them while on the phone with them and they will remove the garnishment (nearly 257.00) and set me up on a payment plan that is 125.00 a month for over 9 years. This amount will still hurt but the agent I spoke with said that is the best they could do.

So now for my question regarding your post Des. No tax attorney or BK attorney can truly help me at all regarding this would that be a correct statement? I know I never returned anything. I just remember receiving a notice they were filing on my behalf and then receiving bills several months later. However, this was never done with 2008 and I still have to send this in. 2009-present are irrelevant due to what I currently make.

So in the end if I were to file for Chapter 7 even on SSDI I would still have roughly 21k of tax debt that is hanging over my head? I understand jurisdictions are different and whatnot and I apologize if my question comes across as blunt. I am just very scared about this whole process and this morning another "Free Consultation" resulted in another attorney saying he could take care of any taxes pre-2008 assuming I did not do anything fraudulent.

Also, regarding this statement

" If the substitute returns were filed under 6020(b) the tax debt is not dischargeable. You would need to discuss this matter with a local bk attny who is familiar with any decisions in your jurisdiction that may allow you to discharge the taxes two years after YOU file the tax returns."

I assume that would mean obtaining all W-2's for those years and refiling and submitting the 1040's all over again? I never have any deductions, I always just file as a single individual.

Sorry if these questions sound stupid or redundant. I don't want to be taken advantage of by an attorney who claims he or she can do things which laws would prevent them to do and from what I have been told thus far the only year that I would personally be responsible for by itself when filed is 2008. Which obviously brings me here to post this.


I also want to add since my garnishment was imposed over 2 years ago I have not received any letters or phone calls from the IRS so I am just going by what agents have told me on the phone.

[BrokeBrody]

Just to update, I talked to an attorney who seemed to know quite a bit a few moments ago. I am screwed. I am going to have to retain two attorneys and seek an offer in compromise with the IRS due to my financial situation.

[NoMoreCards]

My fiancee owed the IRS 10K plus for not filing back taxes. He was able to do a OIC on his own (no attorney needed) and used his disability as a reason he could not be reasonably expected to pay. He made a offer of 550.00 to settle the entire amount due, and they accepted. He has paid this off, and the only other stipulation is he MUST file his taxes each year for the next 5 years. Although he is on disability and not normally required to file taxes due to such a low income...he files them anyway, to make sure their demands are met.

Get the paperwork for the OIC and see if you can make sense of it. You don't always need a lawyer to file this for you. The IRS was great in helping him to complete this form, and get this done. Keep in mind, there is no guarantee the IRS will ever approve a OIC, but it does not hurt to try.

[BrokeBrody]

NoMoreCards,

Thank you so much for this advice! The quotes I have been getting just from the tax services are over 3k. Obviously that 3k in addition to 1500+ for a chapter 7 is almost half my income for the year. Also I still need to see doctors and get medications. What is even more hilarious is while typing this e-mail I received a call from "Taxreliefnow" and they said for 7 easy affordable payments of 500 dollars they would take care of all my tax debt and file my 2008 return for me. Obviously some of these companies do not understand common sense. If I make 1407 a month and already using the IRS formula I am at a negative income rate monthly for my county, how can I afford any payments after all of my expenses are factored in.

Regarding the OIC. I have my 2008 return I have to call on Tuesday and fax to the IRS while I am on the phone with them. Before then I will fill out the OIC form (assuming it is fairly easy to find) and discuss that option with them at the same time.

[LadyInTheRed]

Here's the IRS webpage on offers-in-compromise: http://www.irs.gov/individuals/artic...243822,00.html It includes a link to a booklet that contains the forms you will need.

IMO, doing it yourself is better than hiring a tax service that is not a CPA or attorney.

Look into the availabilty of legal aid in your area. With your low income, you may be able to get free legal services for the BK, negotiations with the IRS or both.

[despritfreya]

Just to update, I talked to an attorney who seemed to know quite a bit a few moments ago. I am screwed. I am going to have to retain two attorneys and seek an offer in compromise with the IRS due to my financial situation.

I am curious. Did this attny advise on similar lines as my concerns? And, do you still need me to elaborate more as requested in the post you did asking me a question?

Des.

[BrokeBrody]

I am curious. Did this attny advise on similar lines as my concerns? And, do you still need me to elaborate more as requested in the post you did asking me a question?

Des.

Des,

The attorney admitted he was not an expert on the tax code however after repeating several items you listed he said they sounded very familiar from a seminar he took. However, he did say that any chapter 7 he files for clients he would still list the IRS as a creditor for a potential discharge. Which admittedly he did not sound very hopeful about and gave me numbers to tax attorneys he works with.

To make things even more strange another Lawyer from Ft Myers which is south of where I live called and he is classified as both a tax attorney and a bankruptcy lawyer. I explained verbatim "The IRS filed the taxes for me and the only year that has left to be filed is 2008, I was told that due to this my tax debt would not be dischargeable is this correct?" The lawyer actually told me it can be discharged depending on a few different variables regardless if the IRS filed the taxes and I signed nothing. But this Lawyer wanted $100.00 just to sit down for a face to face consultation.

So in the end here is what I am going to do. Send in 2008 on Tuesday along with an OIC form. I am also going to make a request that the IRS send what I believe is called a master list which will list the years filed and debts associated with those years and how they were filed. I am going to see if I can tackle the IRS portion myself since I have received quotes from tax attorneys starting at 3k and going as high as 5k. But hey in their words "Affordable monthly payments of 500 dollars". Right... for someone on a very fixed income.

I am open to any other ideas or advice. I am just starting to discover when it comes to taxes you were completely right Des, not every attorney seems to know his or her tax law in and out.


In the end to all my blabbering. I just want a fresh start. A payment plan for 9 years paying 125 a month would impact me heavily financially but it would be better than the current 256 a month garnishment. I am willing to do what it takes to achieve this within reason. Your post was extremely informative and disheartening at the same time Des because the hope of going through 1 attorney and paying 1900.00 went out the window. However, you saved me from probably being completely heartbroken down the road had it not been discharged.

I forgot to thank everyone who has responded again! Thanks to everyone!

[despritfreya]

BB,

Just so that you understand why many attorneys do not pick up on the substitute return issue. . .

Prior to the implementation of BAPCPA (the bk law that went into effect on 10/17/05), the issue of substitute returns was not a factor so long as the taxpayer took steps to file a return (which replaced the substitute one) and then waited 2 years to file bk - or elected to file a Chapter 13 and, once the case was filed, file the missing returns. Of course, the taxes had to meet the other prongs of the test for discharging, but the filing of a substitute return was not really a problem. The language of the Code changed in 10/05. It added a "hanging paragraph" that "defined" what a “return” was. “For the purpose of this subsection, the term "return" means a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements). Such term includes a return prepared pursuant to section 6020(a) of the IRC. . . or similar State or local law . . . but does not include a return made pursuant to section 6020(b) . . .”

The cases that I have seen that interpret this "hanging paragraph" have held that if a 6020(b) return is filed the taxpayer cannot undo the damage at least to the amount of tax assessed by the 6020(b) return. Since I have not reviewed all cases my strong recommendation is to discuss this issue with a bk/tax attny in your area who has or can research decisions in your district. In addition, you need to find out if the substitute returns were filed under 6020(a) or 6020(b). If under (a), they should be dischargeable if they returns were filed more than 2 years ago, the tax year is over 3 years old and no assessments have been done within the 240 days prior to filing bk.

Des.

[arthoralbert]

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[BrokeBrody]

Des,

Yeah thanks again for all the advice. The only criteria I am certain on is that I never sent anything back to the IRS. I do remember them sending me confirmations informing me my taxes were prepared and they charged over 1k for each return they took care of. I have not had to file any return since 2009 due to being on disability. But I understand exactly what you mean.

I will try to do what I can with an OIC on my own and if that turns out not so good I will just continue my quest to find an attorney that does both and is willing to accept small(ish) payments. I just can't afford to drop 100 dollars here and there for a consult that might turn into chasing a runaway dream. Out of everything that you have discussed the things that are on my side are as follows.

1. All years are older than 3 years
2. No fraud
3. No liens exist on my credit reports
4. Also one lawyer called me a complete "No Asset" case which the IRS typically does not want to bother with.

In the end the best case scenario I can think of is I send in 2008 and the rest could be discharged. I can handle 3012.98 but not 21,819.00 on a 1400 dollar a month income. Then tackle the chapter 7 and that sounds like a slam dunk. Aside from getting all the debts together and writing letters to Chexsystems and EWS.