Wednesday, April 24, 2013

What Happens When You Can't Repay Your Tax Debt?

It is possible to eliminate your federal income taxes in Chapter 7 bankruptcy if all of the following conditions are met:
  • Your tax debt is from income taxes. Any taxes other than income, such as payroll taxes or fraud penalties, will not be eliminated by bankruptcy. 
  • You didn't defraud the system. If you filed a fraudulent tax return, or tried to avoid paying taxes in any way, bankruptcy won't discharge your debt. 
  • Your income tax debt must be at least three years old. It must be three years from the date the tax return was due to be eligible for bankruptcy. 
  • You must file the tax return. The tax return debt you wish to discharge must be filed at least two years before filing for bankruptcy. 
  • You must meet the "240 day rule." Your income tax debt must have been determined by the IRS a minimum of 240 days before you file for bankruptcy, or must not have been assessed yet. This time limit can be extended if collection activity was suspended because of an "offer in compromise" or a prior bankruptcy filing. 
Previous bankruptcy cases or offers in compromise can stop the running of these time periods. If you meet the requirements mentioned above, you may qualify to have your income tax debt eliminated in Chapter 7 bankruptcy. It is important to know that filing for bankruptcy will not eliminate any tax liens. Filing for Chapter 7 bankruptcy will only help prevent you from getting a tax lien in the first place.

Contact Minnesota Bankruptcy Attorney Gregory Wald at 952-921-5802 if you have tax debt that you would like eliminated through bankruptcy.

Wednesday, April 3, 2013

Common Bankruptcy Myths

Everyone will know that I filed for bankruptcy...
While filing for bankruptcy is a matter of public record, people generally won't find this information unless they are looking for it.

All of my debts will be wiped out in Chapter 7 bankruptcy...
Sadly, not every debt is able to be discharged. Non-dischargeable debts include, but are not limited to: child support, some types of taxes, student loans (unless there is "undue hardship"), and debts incurred fraudulently.

I will lose everything that I have...
There are exemptions put into place to protect parts of your life. Exemptions are laws that specify amounts and types of property that you can keep from creditors. Some of the most common exemptions are for your car, clothing, your house, household goods, and money in qualified retirement plans. The majority of people who file bankruptcy don't lose anything.

I'll never have good credit again... 
You can begin to rebuild your credit simply by paying the bills on time. You can also apply for a secured credit card. The best way to build good credit is to use only 10 percent of your available credit. Keeping your debt to income ration low is best.

I will have to file bankruptcy with my spouse...
It's not always necessary for spouses to file bankruptcy together, but it could be in your best interest. If you and your spouse share many of the debts, it's better to file together. However, if only one spouse is responsible for most of the debt, it may be better for just that spouse to file. Your bankruptcy attorney will help you determine this.

I don't want to include all of my creditors in my bankruptcy...
When filing for bankruptcy, all creditors must be listed. However, you can pay any creditor you wish after you file bankruptcy, even though you may not be legally required to do so. For instance, you can continue to make payments on a car loan or a mortgage in order to keep the car or the house.

I can only file bankruptcy once...
While there are limitations, you may file more than once. Chapter 7 bankruptcy can be filed once every 8 years. Chapter 13 bankruptcy can be filed every 2 years. If you filed Chapter 7 bankruptcy the first time and would like to file for chapter 13 next, 4 years must pass between filings. If you filed Chapter 13 first and want to file Chapter 7 next, 6 years must pass between filings.

I can max out all of my credit cards before I file for bankruptcy...
This would be considered fraudulent and may jeopardize your dischargeability. It's best to stop using your credit cards if you think that you may need to file bankruptcy.

I have to have a certain amount of debt before I can file...
There is no minimum amount of debt a person must have to file for bankruptcy. If the debt is beyond your ability to repay, you can file for bankruptcy if it's the best choice for your financial situation.

You should always consult and work with an experienced attorney when filing for bankruptcy. If you have any questions surrounding these common myths regarding filing for bankruptcy, contact Minnesota bankruptcy attorney Gregory Wald at (952) 921-5802.