In the current economy with people losing their jobs left and right, the one word we have not heard as frequently as “recession” is “bankruptcy.” There are more mentions of foreclosures in the aftermath of the credit crash than mentions of people filing for personal bankruptcies. When I was on the LA Talk Radio with TJ McCormack last month, we chatted about the possible boons of filing for bankruptcy and how it can actually help reduce taxpayer’s debt with the IRS when filed correctly.
Highlights are below, but you can also go to the Tax Resolution Services web site listen to my LA Talk Radio interview with TJ McCormack.
If You File For Bankruptcy Correctly, You Can Reduce Your IRS Debt
Not only can filing for bankruptcy completely discharge all tax debt, it is a great financial planning tool if and when used correctly. Most bankruptcy attorneys commit malpractice for the client, unbeknown to the client and unbeknown to the attorney because they don’t file the bankruptcy petition on the correct date.
There Are Three Rules to be Met to File Correctly For Bankruptcy:
1) The returns must be 3 years old or older than the due date
2) The returns have to be filed with the IRS 24 months prior to the petition, therefore Substitue for Returns (SFRs) do not count (SFR cannot be filed for bankruptcy). It has to be an originally filed return. And it must have been filed at least 2 years prior to bankruptcy.
3) 240 days have to pass from the date of assessment. Date of assessment is usually the date of filing, but if they do an audit and they assess additional tax, that establishes a new assessment date for that year. So it is possible for a taxpayer to have two assessment dates for one year. If it’s used correctly, taxes can definitely be discharged
The New Bankruptcy Law and How It Affects You:
The reason that people are not hearing a lot about bankruptcy isn’t that there aren’t a lot of people doing it (there are close to 1.5 million personal bankruptcies this year—which is the highest that it has ever been; though it really should be twice or three times as high), it’s because the new bankruptcy law passed in 2005 really kicked a lot of people out who would qualify for Chapter 7s into Chapter 13s. The difference is that Chapter 7 is a full liquidation, a full discharge and Chapter 13 is a five-year payment plan of what you owe to the Trustee. Most Chapter 13s never make it. People never get discharges because a lot can happen in five years. If one payment to the Trustee during those five years is missed, the case will get dismissed. Then the Chapter 13 a taxpayer may have been paying 3.5 to 4 years into their five year plan is suddenly moot and everything comes back that is owed less what you have paid. Chapter 7 is the best way to go but the filer must be able to preposition assets and do strategic planning.
(Credit card companies are responsible for changing the bankruptcy rule. The credit card companies were suspicious of cardholders abusing the bankruptcy code of the time to get out of debt. Later they discovered that it was only 10% abuse—which is a lot less than they suspected.)
Read the Previous Blog Post from my LA Talk Radio interview with TJ McCormack on negotiating an Offer In Compromise settlement with the IRS.
For more advice and information on resolving tax debt, visit the Tax Resolution Services web site for a free income tax relief consultation or call 866-IRS-PROBLEMS.
More Tax Help, IRS News and Tax Relief Tips:
- Michael Rozbruch Interviewed in Opportunist Magazine
- IRS Tax Relief News: Tax Case Convictions on the Rise For Americans with IRS Problems
- Delinquent and Unfiled Tax Returns? 8 Steps to Resolving Them
- Tax Help Tip-Avoid the Delinquent Tax Return Trap
- New Offer in Compromise Policies Bring Tax Relief
Tags: Bankruptcy, income tax relief, IRS debt, irs problems, LA tax radio, Michael Rozbruch, new bankruptcy law 2005, Offer in Compromise, SFR, substitute for return, tax attorney, tax debt, tax expert, tax problems, tax resolution, tax resolution expert, tax resolution services, taxpayer debt, TJ McCormack