Question Can I be forced into a Chapter 11?

[unsupported]

My questions are, in a nutshell:
- Can the BK Judge selectively discharge tax years to force a chp11?
- Can or will the IRS/CAFTB amend their claims to force a chapter 11?
- Will postponed expenses (home repair/car for work) be helpful in fighting a chp11?

Background:
I owe over 400k in income taxes to both IRS/CAFTB, this is all W2 stuff. This is for several years. I’m current/in compliance now and have been for the past 3 years. I will be able to file in mid August once I run out the clock on the tax age.

I’m a high income earner I’m currently being garnished at 25% and I have a lock-in order at 0 on my w4. I have no assets; I mean nothing not even a car. I currently rent a car through a company cc; I don’t have a bank account because the IRS/CAFTB put a levy on it. The house I live in is in my GF’s name, she is in a chp13, confirmed 2 years into a 5year. We share all of expenses; however, we do NOT have a joint account anywhere. The utilities are in my name; the house is in her name. Her ch13 was confirmed and was straight forward.

Running the numbers I have 1.5K income monthly that “could be used” towards a chp 11, that’s after removing the garnishment. FWIW running the complete numbers means a 5 year plan would be 8.4K per month, I cannot afford that as that is more that my monthly income. All of the IRS manuals refer to a 5 years plan for ch11s (correct me if I'm wrong). Doesn't matter I couldn't afford a 6,7,8, or 9 year plan either. But quite frankly I prefer to move on and not have a ch11 hang over my head. I need to buy a car but I can’t save the money to do so. I’ve tried the sleaziest dealerships they all want 2k-3k down for a Honda/Ford etc.. We need to fix our only full bath in our house (mold issue), 6 months ago when my income took a hit we looked at renting, all the places wanted 3 months security deposit if they were willing to accept us. When we were upfront about our credit the 2 places we explained the situation to were very nice/honest and said don’t waste your $25 on the credit app fee, you’ll be passed on. FWIW I’m in the bay area where it’s crazy again, so moving isn’t an option.

To that end I don’t have enough money to move or buy a car. I’ve only heard and read rumors that chp11’s are expensive as far as attorney fees go. I’ve met with 3 bk attorneys and they’ve all said they don’t do chp11’s because of the high cost and failure rate. I’m in discussion with a chp13/ch7 attorney; he had mentioned the “possibility” of a forced chp11. But he said that if that happened he’d fight it but if we lose then I’d have to find a chp11 attorney. Sounds strange to some but I’ve heard this scenario before for other legal matters (not their specialty). This is where I start freaking out; chp11 would mean, min 10K attorney fees up front (?), 2K down payment on a car, 2k bathroom repair. I can’t do that. Even given the 120-180 days to come up with a plan I can’t do all of this.

I mention the car and bathroom stuff because these are legitimate expenses that I can't afford now nor under a chp11. The attorney knows about the car issue, I haven't told him about the bathroom. I'm debating on getting 3 estimates but I hate wasting people's time just to get "a quote" for a "quote" sake but I'm thinking it might be needed here.

If I’m able to file ch7, then this wipes out most of them I’ll still owe 40K combined in taxes which I can handle, so it is not as though I’m a tax avoider etc.. Also I’ve paid close to 70K through the garnishment/refund forfeiture. But yes, I’m still way above the ch13 debt limit.

[justbroke]

My questions are, in a nutshell:
- Can the BK Judge selectively discharge tax years to force a chp11?
- Can or will the IRS/CAFTB amend their claims to force a chapter 11?
- Will postponed expenses (home repair/car for work) be helpful in fighting a chp11?

First, the simple answer is NO... you cannot be forced into a Chapter 11/12/13. They are voluntary bankruptcies. You would need to choose to convert or file Chapter 11/12/13.

I personally believe that you are asking the wrong question(s).

You mention that you have no property at all. If so, why would you not file a non-consumer Chapter 7? If that $400K in tax debt is larger than all your other "consumer" debt, then you are a non-consumer (11 USC 101(8)).

Maybe you should get some more consultations and seek attorneys that specialize in non-consumer Chapter 7 cases.

[bookworm]

You haven't mentioned in any of your posts whether you have any credit card debt. And what sort of tax debt is it? Income tax?

Try not to freak out over something that one attorney said (I know...easier said than done). I second JB's suggestion of finding an attorney who specializes in non-consumer 7's. In a non-consumer case, you don't have to worry about being a higher earner. You may find out your situation isn't as dire as it seems.

Good luck!

[unsupported]

JustBroke, I called the one of the attorneys handling my GF's case. Her assigned attorney is just ok, but the partner is much stronger and skilled. We spoke about my situation, he agreed non-consumer is right. He handles a fair amount of them. My concern is that he will delegate this to his weaker partner, the tax situation usually scares off most attorneys because of the amount and my consistent employment. I will circle back with my original attorney and prod him on the non-consumer ch7. He is more seasoned we had only met for 20 min and during which he was yelling at my tax attorney. Maybe he was just stressed.

Bookworm, I did mention that all of the tax debt was income W2 stuff. As far as everything else, it's $20k at best (medical/tax attorney/timeshare). I haven't had a personal CC in years. That's the first thing the IRS or FTB ask and/or look into.

Thanks for the replies. I'll post an update as things progress.

[justbroke]

Even with the non-consumer Chapter 7, you will still need to deal with the tax issue. Hopefully, some of that tax was last due for payment 3 years or more from your filing date! If you wait until April 16th, you "could" be able to discharge taxes last due (without penalty) from "tax year" 2009 and earlier! (It's tax year 2009 because the 2009 taxes were due, without penalty, around April 15, 2010.)

I guess you wrote that you have over $400K in income taxes and that you should have $40K left over after you discharge some portion of the taxes (about $360K). You could then work with your tax "expert" to negotiate an Offer In Comprise (OIC). With any luck, you may be able to get the tax lowered. In the end, as you know, you will need to pay some portion of those taxes. Your payment could be $600+ a month on a $40K tax bill over 6 years if you do a regular payment agreement. The nice thing is that the IRS is doing streamlined payment agreements for amounts up to $50K with a 6 year payback.

You have some things working to your advantage. Now, let's just find a bankruptcy attorney that can do a non-consumer Chapter 7 where the bulk of the non-consumer debt is related to income tax.

[bookworm]

Bookworm, I did mention that all of the tax debt was income W2 stuff. As far as everything else, it's $20k at best (medical/tax attorney/timeshare). I haven't had a personal CC in years. That's the first thing the IRS or FTB ask and/or look into.

Yes, you did mention that. Sorry I missed it.

But believe me, I understand your panic. I made myself sick with worry. Literally! My sister, who lives 200 miles away graciously gave up two weeks of her life to come up to help me care of my son (she's a very good sister). Just take a deep breath and try not to lose sleep. You can't file until August, so that gives you plenty of time to prepare and shop for an attorney. Come fall, things will be so much brighter.

Do keep coming to this forum. You're among friends here.

[unsupported]

Justbroke, to be exact I owe 488K in taxes (as of 3/1/13), 445K of that will be dis-chargeable in Aug 2013. So the remaining 40K will be paid over 3 years via installment agreement/refund forfeiture. I'm not a candidate for an OIC, in fact I wasted too much effort in finding a tax attorney. I won't trash tax attorneys but I'm not a criminal/fraud/audit case, really that's only when you need a tax attorney I discovered. Yes, my tax liabilities are large and daunting but OICs are for folks who have had a significant loss of income, sickness etc.. The attorney I hired did his best but in reality I could have done the same on my own and saved myself 10K out of pocket (I still owe him 9K). When I met with my local IRS officer she explained to me the OIC process in depth and applied it to my situation. They would have only accepted it at 85% with 10% down over 5 years. I got myself into this over a very long and in-depth custody battle (child support, evaluations, experts, etc..)

Just to so you understand, my tax attorney setup a $1500 a month payment for the first year and then it accelerates to $6.4k per month for 5 years. BTW that wasn't really addressing the CA state stuff. Anyway, it was explained to me that after a "thorough" investigation by an enforcement officer the same plan would have been put in place. I don't know the exact meaning of "thorough" but I'm going to assume its similar to an audit. Since I'm not denying the liabilities and I'm in compliance, they see it as a "non-compliance period". I was hoping for a deferred plan of some sorts but the IRS doesn't do that unless you have IP/royalties/deferred income. I have none of that. And being a straight W2 makes it easier for them to collect. I made offers of all sorts; voluntary lifetime lock-in, forfeiture of all refunds until taxes paid, notice of new employment and offer letter. But they wanted none of it, they simply wanted a steady and sizable payment from me.

The only thing I learned from my tax attorney was to request, in writing, a local resource. This really helps when you live in an area such the Bay area, LA, NY, Dallas etc.. The census numbers that they use to calculate the medium income are always off. A local IRS agent will understand that, however, an ACS agent is AZ or KS won't.

Thanks for the replies and support from you both, even I have to repeat certain things/go into detail I think it only helps those other folks out there in similar situations.

BTW a lock-in-letter is an IRS Order to restrict the number of exemptions claimed on a W4 which is issued to your employer. Usually they are at 0 but I have seen them at 2, this is usually dependent upon your previous tax year filings. You can file an appeal with the IRS to alter/remove it but it is very difficult not impossible but difficult. I never appealed mine due to the aging of taxes (letting them age runs out the clock, any appeal stops the clock). I wish I had researched tax aging 2 years ago. OICs stop the clock, BKs stop the clock for min 90 days even if you case is dismissed in 30 days, certain IRS hearings stop the clock. Everyday counts, I can't post link yet but if you owe back taxes request your transcript (its all automated so don't worry about talking to a human), research tax transcript codes, if you have $500 there is an attorney in CO that does the analysis, there are others and they charge more usually. Once I get the ok/confirm from the BK attorney on the date I'll post a reference/referral. Some BK attorneys do it for free but with my case the ones who offered to research them all wanted $ up front as a retainer. I never felt comfortable with any of them so I outsourced it, now I can have the BK attorney of my choice confirm.

[justbroke]

I am impressed with the amount of time and effort you put into this! It seems as though you are doing this in the correct way and should you get your Chapter 7 discharge, will be in a much better position to do the payment agreement.

Certainly, best of wishes to you on your journey.

[LadyInTheRed]

He is more seasoned we had only met for 20 min and during which he was yelling at my tax attorney. Maybe he was just stressed.

Most attorneys are stressed. That's no execuse for yellling at other attorneys. If I were you, I'd find an attorney who can act professionally in all circumstances, even when stressed.

[unsupported]

JustBroke,

BTW thanks so much for redirecting me and my thinking, I have a bad case of "bk tunnel vision". I had "glossed over" the non-consumer ch 7 stuff.

LadyintheRed,

I can understand your sentiment, trust me. However, being involved as much as I have been in the legal bureaucracy (family, tax, now bk) nothing really surprises me when it comes to attorneys' behaviors. That said, my tax attorney made a mistake in one of my IRS hearings which stopped my taxes from aging, only 34 days but again everyday counts. The BK attorney questioned him on it. I can't blame either of them, I think any good attorney tries their best to represent you. That said, 2 attorneys arguing over my case and both being on my side was kind of refreshing, they both had my best interest but they were coming at it from 2 different perspectives. What made it kind of "interesting/funny" is they are both a bit older, which made it like a legal version of 2 old grumpy men.

All things considered, I'm reading this forum and reading all of yours and everyone else's posts which give me comfort that I'm not alone and since I have time I can find the right attorney.

[LadyInTheRed]

LadyintheRed,

I can understand your sentiment, trust me. However, being involved as much as I have been in the legal bureaucracy (family, tax, now bk) nothing really surprises me when it comes to attorneys' behaviors. That said, my tax attorney made a mistake in one of my IRS hearings which stopped my taxes from aging, only 34 days but again everyday counts. The BK attorney questioned him on it. I can't blame either of them, I think any good attorney tries their best to represent you. That said, 2 attorneys arguing over my case and both being on my side was kind of refreshing, they both had my best interest but they were coming at it from 2 different perspectives. What made it kind of "interesting/funny" is they are both a bit older, which made it like a legal version of 2 old grumpy men.

All things considered, I'm reading this forum and reading all of yours and everyone else's posts which give me comfort that I'm not alone and since I have time I can find the right attorney.

I've worked in the legal field for over 20 years, so nothing surprises me either. Even when attorneys make terrible mistakes, yelling at them, especially in front of a client, is really bad form. A good attorney knows how to make a point without yelling. I have nothing against a good argument. But, the attorneys who have to yell to make their point don't tend to get much respect from their peers. Now, I don't necessarily consider raising one's voice as yelling. It's a fine line. Maybe what you call yelling, I would call a passionate debate. Nothing wrong with that.

[bookworm]

What made it kind of "interesting/funny" is they are both a bit older, which made it like a legal version of 2 old grumpy men.

Glad you got some comic relief out of it.

[justbroke]

BTW thanks so much for redirecting me and my thinking, I have a bad case of "bk tunnel vision". I had "glossed over" the non-consumer ch 7 stuff.

While we don't offer legal advice, we are here to listen and then offer our observation. Sometimes, you're too close to the problem to see the solution! I see this every week here on BKForum, especially when it comes to property.

I am glad that I was able to ignore your tax issue, and think about getting you through a bankruptcy discharge. (Your tax issue is daunting!)