Tag Archives: lowering payment

Discharging Income Taxes In Bankruptcy

Leave a reply

Introduction

Dispelling common myths surrounding income-tax debts is crucial for making informed financial decisions. While Chapter 13 bankruptcy is often associated with a prolonged repayment plan, the reality is that various options exist, and each individual’s situation is unique. Let’s explore the truth behind these myths and how a personalized approach can guide you towards the most effective solution.

Myth 1: Chapter 13 is the Only Solution for Income-Tax Debts

Contrary to popular belief, filing for Chapter 13 bankruptcy isn’t the sole solution for handling income-tax debts. The myth persists because Chapter 13 is indeed an excellent option for certain cases. However, the key lies in understanding the specifics of your situation, which requires a tailored evaluation by an experienced attorney.

Myth 2: Income Tax Debts Cannot Be Discharged in Bankruptcy

While it’s true that not all income-tax debts are dischargeable, the blanket statement that they cannot be discharged is a myth. There are conditions that, if met, allow for the discharge of income-tax debts. An attorney, equipped with your tax account transcripts, can assess each tax year individually to determine eligibility for discharge.

Navigating Chapter 7 vs. Chapter 13

Determining whether Chapter 7 or Chapter 13 is more suitable depends on various factors, including the recency of the income-tax debt. Chapter 13 may be preferable for recent debts, offering a chance to avoid penalties and interest. However, if most of your tax debts are dischargeable, Chapter 7 might be a more favorable option based on your overall financial circumstances.

Conditions for Discharging Income Tax Debt

Understanding the conditions for discharging income-tax debt in Chapter 7 is crucial. This includes meeting criteria such as the tax return due date, filing date, assessment period, and avoiding fraudulent activities. These factors, when evaluated by an attorney, contribute to a well-informed decision.

Conclusion

Debunking myths and understanding the nuanced conditions for dealing with income-tax debts requires a personalized approach. Consultation with a knowledgeable attorney, like Jennifer Weil, Esq., ensures a thorough evaluation of your specific circumstances.

Schedule a free bankruptcy consultation with Jennifer Weil, a New Jersey bankruptcy attorney, to discuss your options.

Taxes and bankruptcy – debunking a myth

Leave a reply

2334280048_61c3a13b9a_zLots of people think, “bankruptcy can’t help me with my tax debt.”

Lumping tax debts in with child support and alimony—which indeed cannot be legally written off, or discharged—is wrong. But taxes and bankruptcy can be confusing, because these are complicated areas of law.

The fact is that bankruptcy can discharge taxes of many types and in many situations. Sometimes ALL of a taxpayer’s taxes can be discharged, or most of them. But there ARE significant limitations.

Even if you cannot discharge your taxes in bankruptcy, filing a bankruptcy case can still help by:

1. Keeping the taxing authorities from garnishing your wages and bank accounts, and from “levying on” (seizing) your personal and business assets.

2. Stopping them from filing tax liens and from piling on greater penalties and interest.

3. Avoiding monthly tax payments, all the while penalties and interest continue to accrue.

Overall, bankruptcy gives you breathing room from your creditors, including the IRS, or the state or local taxing authority, that you can’t get any other way. It gives you a lot more control over a very powerful class of creditors. And your tax problems are resolved as part of your whole financial package, so you don’t find yourself working hard to deal with your taxes while worrying about being blindsided by other creditors.

If you have tax debt or any other kind of unmanageable debt, call me for a consultation: (201) 676-0722, or email me at weilattorney@gmail.com.

 

Photo credit: Liquidnight

How bankruptcy can help save your small business

Leave a reply

Bankruptcy isn’t just for winding up after the end of a business.  It can help keep your business around for longer.

Bankruptcy saves a lot of companies.  Companies can get out of a lot of debt, restructure their operations, and save a lot of jobs.  If you own and run a small business, bankruptcy may be able to save your job, too.

Let’s assume you have a small, simple business.  One so simple that you did not form a corporation or any other kind of legal entity when you set it up.  And let’s assume that you don’t have any partners – that is, you have a sole proprietorship.

In a sole proprietorship, you and your small business are treated as a single unit—unlike a corporation, which is legally separate from you and which owns its own assets and has its own debts.  In the right circumstances, a sole proprietorship can be easier to handle in a bankruptcy.

A Chapter 7 liquidation is seldom a good option if you own a business that you want to keep operating during and after the bankruptcy.  You can discharge your debts in return for liquidation—the surrender of your assets to the trustee to sell and distribute to your creditors. Except that in most Chapter 7 cases everything you own is protected–“exempt”—so that you lose nothing or very little. But if you own an ongoing business, you are likely to have some non-exempt assets.  So the Chapter 7 trustee could take some important parts of your business to sell off or otherwise shut down.

Instead, a Chapter 13 case— sometimes called a “wage-earner plan”—is much better designed to enable you keep your personal and business assets.  You get immediate relief from your creditors under the automatic stay, and for a much longer period of time, usually with a significant reduction in the amount of debt to be repaid.  So Chapter 13 can help both your immediate cash flow and your long-term prospects.  It is also a good way to address tax debt, which is often an issue for struggling businesses.  Overall, it can be a relatively inexpensive tool that combines the discipline of a court-approved payment plan with the flexibility of continuing the operation of your business.

Please understand that when you own ANY kind of business, solving your financial problems will be more complicated.  This is because you are  not dealing merely with the size and timing of a paycheck, but instead with all the financial and practical aspects of running a business.  In addition,  timing issues are often more important in business bankruptcy cases and they require more pre-bankruptcy planning to plot out the best path for you.  So, no matter how small your business, be sure to get thorough legal advice as soon as possible.

Photo by Ruben Schade.

Don’t Give Up Your Vehicle Before Knowing Your Options

1 Reply

Why not? Because you may be able to keep a vehicle you thought you couldn’t afford. Under certain conditions, a Chapter 13 bankruptcy might allow you to pay smaller monthly car loan payments. You may be able to pay off the debt and own the it free and clear for less than the loan balance.

It may very well be a good decision for you to give up an unaffordable car, but you should consider all of your options first.

If you need a car but cannot afford the monthly payments, you probably figure that you don’t have any choice but to lose it. You know the contract requires you to make the payments or else the vehicle gets repossessed. You may have been trying hard for months to keep or to get the payments current, putting up with late fees and constant notices or phone calls from the creditor threatening repossession. You would have already let the car go except you’ve got to have it for work and/or other family obligations, and you have no way to replace it. You feel stuck, with no good options.

On top of everything else, you might have heard that a bankruptcy can’t help much, at least for hanging onto the car—that you still have to either make the payments, and catch up if you’re behind, or else lose it.

That’s true, in a “straight bankruptcy,” a Chapter 7.

But it’s not necessarily true in a Chapter 13 case. If you meet two conditions, you may be able to do a “cramdown” on the vehicle loan: lower your payments and likely pay less overall on the loan. You may well also be able to lower your interest rate.

The two conditions to be able to do a “cramdown”:

1) Your vehicle loan was entered into more than 910 days before your Chapter 13 case is filed (that’s just about two and a half years before); and

2) At the time your case is filed, the value of your vehicle is less than the balance on your loan.

If your car loan meets these two conditions, your loan could be essentially re-written through a Chapter 13.  The total amount you must pay down could be reduced to the value of the car, which is known as a “cramdown”. That’s called the “secured portion” of the debt. Also, a new monthly payment is calculated—representing the amount needed to pay off the smaller balance, often at a lower interest rate, and often on a longer remaining term.

What happens to the “unsecured portion”—the part of the debt beyond the value of the vehicle? It gets lumped in with the rest of your unsecured debts, usually not requiring you to pay anything more to all your unsecured creditors regardless of your vehicle loan.

And what if you’re behind on your vehicle loan when you file your Chapter 13 case—when do you have to pay that arrearage? You don’t. It’s just part of the re-written, new “crammed down” obligation.

As you can see, you may not want to surrender a car or allow it to be repossessed if you could keep it while having it cost you much less to do so. Sometimes having a reliable vehicle is essential to achieving a successful re-start of your financial life.  Before you lose that essential part of your financial plan, carefully consider all of your options.

Photo by m.gifford.