Lawsuit threatened, past due taxes...what now???

[pdxgrrrl]

My financial situation has gotten to the point where I am thinking of filing for bankruptcy. I get collection calls every day, a lawyer is threatening to sue me for a B of A credit card that I defaulted on, and according to my credit report, I have about $20,000 of consumer debt. Close to $5,000 of that is a car loan that I am current on; the other debts are charged off credit cards, medical bills, etc. I also have $20,000 of student loan debt, and about $12,000 in back taxes that I owe. (I'm not sure of the exact amount -- I haven't filed taxes in three years because I'm scared to find out how much I owe.)

Should I consider filing for BK? My credit is completely trashed and I can't afford the debt. I really don't want my wages to get garnished because I've read that a creditor can take up to 25% of your take-home pay. I use that money every month to feed myself and take care of the car; everything else goes to bill (rent, utilities, etc.). That 25% is my only disposable income and if I lose it, I'm screwed. Will my failure to file tax returns come back to haunt me in a BK? Can I even file a BK without them?

I am freaked out beyond belief. Help!

ETA: I know Chapter 7 is a liquidation BK. I have no assets and don't own a house or anything. Does that make Chapter 7 the best choice?

[Trixie007]

Hello & Welcome! You don't say what your income is, but generally they say that if your unsecured debt is 40% of your income (or was it 30%? Hmm), you may be a good candidate to file. At first glance, you really only have 15k of debt that can be forgiven in BK, which seems a very small number to me - but it's all relative.

Definitely get those taxes filed. At the very least, fill out the forms so you'll know where you stand. Nothing ever gets solved by sticking your head in the sand! Good luck to you.

[StartingOver08]

You might want to explore the option of a CH 13.
This way your back taxes can be paid in the 13, first and your car can be paid in the 13. You may even be able to reduce the amount owed or the interest rate on the car.

Depending upon your actual income and expenses, there may be nothing left over to pay the unsecured debt. We would not know without having all the info. But it certainly is worth your while to contact a BK attorney to try to figure it out.

The advantage to you is all the creditors stay off your back. The IRS gets paid, but the penalties and interest are reduced. You can learn to get back on a steady budget and have really only one payment.

Yes, you have to file your taxes to file BK. BUT, you have to file your taxes anyway. This way you actually have the protection of the BK court to help you get through all your back taxes. BTW, the IRS will work with you on this. Many BK attornies have CPA's that work with them to help you file. This could be an opportunity for you. It is worth checking out.

[pdxgrrrl]

Thanks for the responses.

I absolutely want to keep the car. I've had it for five years (no money down -- d'oh) and have about 22 more payments until it is paid off. The payments alone are rough -- nearly $300 every month, plus insurance and maintenance. Aside from rent, that's where most of my money goes.

Anyway, I make $43,000 per year and have been at the same job for almost a year and a half. I live alone (never been married) and have no assets. Don't even have a savings account because it was closed on me. I am a financial moron.

I'm feeling the pressure to do something quickly because a local lawyer is threatening to sue me for the credit card. I sent him a letter last week asking him to verify the debt because the letter had no account number on it and the amount supposedly due is way, way, WAY more than I thought it should be. (The credit limit was $1,000 and maxed out. The lawyer wants me to pay $6,200+.) I'm very scared I'll have a judgment filed against me and have my wages garnished before I can do anything. I really don't know what to do.

[StartingOver08]

Do you get paid as an independent contractor (1099) or W-2 income where the employer takes out $$ from your check to provide to the IRS?

If you are a W-2 type employee, then if you have not filed in 3 yrs, you may actually have funds at the IRS to be refunded to you! But you will not know without filing your taxes first. You may have some money waiting for you, but you need to hurry. You can only go back 3 yrs - so you need to check right away to see if there are funds due you.

I think you need to file your taxes first - because if you have a refund coming then you may have the funds to get back on your feet.

However, if you decide to file BK because you owe the IRS then:
Step 1: Gather your paystubs, w-2's, bank statements, car loan and other debt in a file.
Step 2: Call several, 3 or 4, attorney's and set up for the "free consultation" to find out what you can do. Make sure to disclose that you need help filing your past due tax returns.
Step 3: Select an attorney you are comfortable with to file.

Don't talk to the lawyer that is trying to sue you anymore. Don't give him any information. Bring this info with you to the BK attorney consults.

Keep coming here to read and learn so you know what questions to ask your attorney on their consults.

With a Ch 13, you may be able to roll the fee into the monthly payments - so that will help you too. This is the time to get your new start.

[HHM]

Yep, you are a prime BK candidate, with the taxes, you should file a chapter 13.

Advice for other readers...even if you owe taxes, ALWAYS File your tax return on time even if you can't pay the tax due...the Failure to File a Return Penalty is up to 25% of the tax due.

[pdxgrrrl]

Thanks again for the replies. I've been wrestling with this stuff for a week now and it's nice to hear from people who actually know what I'm going through.

As for the taxes, the reason why they're weren't filed is because I was working as an independent contractor during most of the past three years. I kept meaning to set aside money to save for tax time, but never did thanks to personal reasons, including an abusive relationship I needed to leave and moving around a lot. The year 2006 is almost all 1099 wages. 2007 is a mix of 1099 and W-2. What makes that one (even more) complicated is I lived in two states that year: Oregon and California. And half of 2008 is 1099, although I was converted to a W-2 employee in June. (I spent all last year in Oregon.) To make things even worse is I never even received a 1099 until just the other day -- I had to request it. The company I was contracting for never bothered to send my tax info to me. And I think on some level, I guess I assumed everything was under the table and I had no tax liability. Ha!

Oh, and I have never received any correspondence from the IRS, Oregon, or California about any of this, which I find odd.

I KNOW I owe the IRS and Oregon (and possibly California) mega bucks. Before I got the 1099 this week, I did my 2008 tax return using just my W-2 wages and TurboTax said I was due a refund. When I added the 1099 income, it said I owed the feds over $5,000 and Oregon over $1,500. Whimper. I simply don't have that kind of money. I make a half-decent wage but it all goes to rent, the car, living expenses, and court fees from another screw-up. (Almost done paying the fees. Can't wait!) I don't save anything. I struggle every month. I'm broke until Friday. I have $6 in my wallet. It's scary enough without all the tax and debt stuff.

Is Chapter 13 really a viable option? How much would I have to pay every month? I looked into Chapter 7 and that one looked pretty straightforward, to the point where I could possibly go it alone. Chapter 13 seems a lot more complicated, seeing as it would involve my car and the IRS.

ACK!!!!!!!!

[HHM]

You need an attorney, your issues are bit more complex than an average chapter 13 (I generally do not recommend anyone go pro se in a chapter 13).

If you want it, you will find the money.

Because you have back taxes, your mimimum payment would be the total of your [Tax liability + 10%) divided by 60]

As for not filing returns, I understand why "you" didn't file your taxes, what I am saying is to ALWAYS file your taxes regardless if you owe. You are just shooting yourself in the foot and needlessly increasing the amount of tax you owe by not filing the return.

[StartingOver08]

Commonman - your post is IRRESPONSIBLE. This person needs help and your comments are unwarranted and uneducated.

pdxgrrrl, the thing with CH 13 for you is it would stop the other creditors (the one's you are currently paying) dead in their tracts. Talk to an attorney (several) right away.

Most likely your car payment can be reduced (by a lot) AND your taxes would get paid. HHM can jump in to confirm, but I believe some of the IRS penalties can be waived in a 13 - which will help you a great deal.

This is the hard part - making the decision. Don't listen to people (Commonman) that are here to disrupt and do not have your best interests ar heart. It does not hurt to speak with an attorney with a free consult. You will feel much better once you get this done and put behind you.

[pdxgrrrl]

Just a quick update.

I have appointments set up with two attorneys. One this afternoon and another one on Tuesday night. I am extremely nervous about this, to the point where it's making me sick. (Ugh.) I have pretty much decided that I will be filing for BK because there's no way I can pay everything back and I don't want to get sued. I'm not happy with this decision, but I think it's really the only way I can save myself. Nevertheless, I feel like a total failure.

I managed to get all of W-2's and 1099's this week. I am planning on downloading tax software this weekend so I can get the taxes done. My 2008 return is more or less finished. I just need to file it.

How can a Chapter 13 help with my car loan? My monthly payments are $288 with an interest rate of 8.95%. I'm current with the loan (just sent off a payment this morning), but I do owe over $200 for late fees and miscellaneous charges. Can those fees get discharged in a BK? And what about state taxes? Can those be discharged through a Chapter 13?

Wish me luck. I am stressed out and scared beyond belief.

[StartingOver08]

Good luck with your attorney consults. You probably will feel much better after you have actually attended a few. Please let us know how it went - you are making the right choice!

[OhioFiler]

Your tax liability may be significantly less than you think. As a contract employee you were essentially a small business. The number of deductions you are allowed is extensive.

You need to complete a Schedule C for your tax forms each year you worked as a contractor. I suggest you hook up with a good tax preparer as well. I think you could be pleasantly surprised.

My small business includes my home office deduction, auto expenses, part of my home's utilities and many other items. I lose money every year even though I receive 1099's from businesses.

[pdxgrrrl]

I had my first consult with a lawyer yesterday. I got both good and bad news.

The good: He thinks I could win the lawsuit if this other lawyer does try to sue me for my old credit card debt.

The bad: The lawyer I saw wanted a $750 retainer and charges $225 per hour. He didn't think I should file for bankruptcy. He referred to it as "giving up." As for the taxes, he told me to file them, wait three years, and discharge them through BK.

I have problems with what he told me. I have a couple of other debts that I'm worried I could be sued for -- one is an old loan for $3,000 and the other is another credit card that was charged off for $1,500. If I pay this lawyer to fight the current potential lawsuit, it still leaves me at risk for other lawsuits and I don't really want to shell out more money for more lawyers if someone else tries to sue me. And I still have to deal with the taxes on top of everything else.

Is the lawyer just trying to milk me for money? He does do bankruptcies, but told me he doesn't do them much anymore because there's no money in them.

I see another lawyer on Tuesday. Who knows what this one will tell me.

[StartingOver08]

It sounds like you did not see a BK lawyer. Most true bankruptcy lawyers only do BK and not much else legal work (specialization in the field is more efficient). The plan that this attorney has for you could be much, much more expensive then filing for a CH 13 and still not get you the results you need.

I do not agree with this attorney just based on your original post. But you will get a better idea if you speak with a true bankruptcy attorney (or several). Go see other BK attorney's right away.

[HHM]

I agree, sounds like you went to a civil litigation attorney. Go see a dedicated bankruptcy attorney for a different perspective.

The lawsuit is only ONE of your challenges. You need a total solution to your issues.