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Archive for the ‘tax lien’ tag

Buy Time to Deal with Multiple Years of Income Tax Debts

October 25th, 2017 at 7:00 am

What if you have some income tax debt that qualifies for discharge but one (or more) tax year that doesn’t? Does Chapter 7 ever help enough? 

 

Tax Liens under Chapter 7 

Last week we showed how Chapter 7 can sometimes permanently prevent an income tax lien from hitting your home. It does that by stopping the recording of the tax lien, and then discharging (writing off) the tax debt. 

This works under Chapter 7 “straight bankruptcy” when both:

  • that income tax debt meets the conditions for discharge (mostly it’s old enough)
  • the IRS/state has not already recorded a tax lien

But what if your tax debt meets these circumstances but you have other reasons to file a Chapter 13 case? (For example, you need to do a “cramdown” on your vehicle loan, catch up on a mortgage or on child/spousal support, or financially don’t qualify for a Chapter 7 case.) In particular what happens if you owe other income taxes that do not qualify for discharge? And what happens if a tax lien has already been recorded before you could stop it with a bankruptcy filing?

We’ll look into these circumstances in the upcoming blog posts. Today we get into what to do if you owe two kinds of income tax—those that qualify for discharge and those that don’t. (For the rules about what taxes can be discharged, see our blog post last month about this.)

When Chapter 7 is Appropriate

Assume that you have an income tax debt for one tax year that meets the conditions for discharge and another one from a later year that does not. To keep things simpler for now, assume that neither has had a tax lien recorded on it. So filing a Chapter 7 case would completely write off the first tax but leave you owing the second one.

That would be okay as long as, after discharging your other debts, you could afford to pay that remaining tax. The IRS and most state tax agencies have monthly payment plans that, under the right circumstances, give you a decent way of paying off a tax debt.

Common sense says that Chapter 7 tends to make more sense in two circumstances:

  • The tax(es) being discharged are relatively large
  • The tax(es) left owing are relatively small

An Example

Here’s an example of the combination of these two.

Assume that, after making payments of a while you still owe the IRS $10,000 for the 2012 tax year. And now you’ve just submitted your 2016 tax return (after getting an extension) and owe another $2,000. Assume also that your 2012 tax debt qualifies for discharge while the 2016 one does not. You’ve avoided filing bankruptcy so far, but because of new financial problems are now looking into it.

If you now filed a Chapter 7 case the $10,000 older tax debt would be permanently discharged. The newer $2,000 one would not. But especially if the bankruptcy case leaves you otherwise debt-free, paying off that $2,000 may be quite manageable.

Interest and penalties would continue to accrue during the payment period, so you need to consider that. Of course less interest and penalties would accrue if you paid the tax off faster.

The IRS would not likely record a tax lien for such a relatively small amount. But you should ask your bankruptcy lawyer about this, and about the practices of your state tax agencies if applicable.

Other Considerations

 But what if you:

  • can’t reliably pay anything monthly to the IRS/state because of other debts surviving the Chapter 7 case? (For example, if you’re behind on your home mortgage or vehicle loan or support payments.)
  • don’t qualify for Chapter 7 because of your income and expenses?
  • need to file a Chapter 13 case for its other benefits? (For example, you can “strip” a second mortgage from your home’s title, “cramdown” your vehicle loan, or delay collection of your student loans.)

 In these situations Chapter 13 “adjustment of debts” would likely be the better option. More on that in our next few blog posts.

 

Internal Revenue Service Issues: Tax Levies vs. Tax Liens Part Two

August 29th, 2014 at 8:58 am

tax levyNeither a tax lien nor a tax levy from the Internal Revenue Service is a positive situation, and can certainly have dire consequences for you as a consumer and a taxpayer. A lien simply assigns the government’s right to your assets before any private creditor and is normally a result of unpaid income taxes and can be more than an inconvenience for anyone. In contrast, a levy is much more serious. Fortunately, there are remedies for both scenarios. A tax lien can result in high bills owed, a public filing of the tax lien, as well as attaching the label to every type of property you own.

Although selling the property can certainly help the situation in some cases, it is important to remember that all proceeds will go towards paying the lien, often leaving you in even more hardships. There are other ways to get rid of a tax lien, however, and use of a Texas attorney can make all the difference in how your case is resolved.

Consider the following options when a lien is placed on you by the Internal Revenue Service to help your case:

  • Paying off the overdue debt: Although most often easier said than done, should you have the means to do so, this is your best option. All tax liens will be removed within 30 days of the resolved debt, although this must be done in full;
  • Discharge of property: This option can make certain property that you owe exempt from the lien, and taking its equity out of the hands of the IRS and the federal government. While this will not always apply, it may help you save your residence or vehicle;
  • Withdrawal of the lien: While you are still liable to pay the full amount you owe the IRS, a withdrawal of the lien assures all other creditors that the government is not longer competing for your assets. Certain criteria must be met, such as ongoing compliance with payment plans and tax code.

A tax levy can be more complex, although there are ways to get this removed as well. The following is a short list of ways an experienced attorney can cause the least amount of hardship on you possible by getting a levy removed:

  • If you filed for bankruptcy before the levy notice was issued;
  • Proving the levy will cause undue economic hardship;
  • You did not have adequate opportunity to dispute the claim;
  • A desire to set up a payment plan of some sort;

These tax levies are no joking matter and can result in you losing your credit, property, as well as significant financial losses. A Texas bankruptcy lawyer with experience dealing with the IRS can not only help you protect your assets, but also your livelihood. Contact The Law Offices of Chance M. McGhee today for a free initial consultation regarding your economic hardships.

Internal Revenue Service Issues: Tax Levies vs. Tax Liens Part One

August 13th, 2014 at 8:35 am

tax lienIt is not uncommon for a person to find themselves behind on their income taxes, and many across Texas and the rest of the country suffer from this same problem. Everyone has seen the proverbial person walking through the door of his or her accountant’s office with years worth of paperwork in hand. However, this only generally occurs when they receive notices from the Internal Revenue Service or simply have all of their money frozen.

In many cases, filing for bankruptcy can assist you in your financial predicament with the government. First, you should consult a Texas bankruptcy attorney to assess what is really going on and to find the best way to remedy the problem. In this way, it is critical to understand the key differences between a tax levy and a tax lien.

Consider the following deviations between a tax levy and a lien, and why one is more critical than the other to your short and long term financial health:

  • The IRS is not seizing your property when a lien is imposed: A tax lien only secures the governments interest in your property should your debt become a liability. This does not mean it is not a big deal, however; all levies are reported to all creditors, and becomes public on your credit scores, making it much more difficult to obtain a loan;
  • Tax liens can turn serious very quickly: While your property is not seized during a lien, a levy works completely differently. In this case, the government is, in fact, taking your property to settle a passed debt–often the result of a grossly overdue lien.
  • Almost nothing is safe during a levy: If you are subject to a tax levy by the IRS, they can seize almost any asset you own to repay the debt. This includes your home, car, wages, and even bank and retirement accounts. This extends to accounts that are in someone else’s name as well; including things such as life insurance and joint accounts.

If you have received a notice from the Internal Revenue Service regarding unpaid income taxes of your own, it is imperative that you act as soon as possible. A professional and experienced Texas bankruptcy attorney can assist you by presenting you with all the information, and advising you how to move from there.

Contact The Law Offices of Chance M. McGhee today for a free consultation and personal legal assistance from a San Antonio bankruptcy attorney on how to move forward in your IRS tax situation for the best possible outcome.

Call today for a FREE Consultation

210-342-3400

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