Is Tax Debt Dischargeable in Bankruptcy?

Most people who come into my office are very confused about past tax debt. Some think that taxes are never dischargeable while others believe they always are. The truth lies somewhere in between. Tax debt is considered a dischargeable debt in bankruptcy so long as certain requirements are met. Bankruptcy Code §523(a)(1) lists the requirements that must be met for taxes to be discharged in bankruptcy.

The first requirement for determining whether tax debt is dischargeable is to look at how recent the debt has been incurred. If the tax debt was incurred over three years ago it is presumed to be dischargeable. If the tax debt has been incurred within the previous three years, the debt is considered to be a priority debt and will not be dischargeable. Taxes are typically due on April 15th, every year. Thus, making the debt incurred when the taxes are due. For example, tax year 2011 will not be considered incurred until the taxes are filed which is generally by April 15th, of the following year.

The second requirement is that the tax return must have been filed more than two years ago. This rule is meant for people who file their tax returns late. You cannot wait until you are filing for bankruptcy and then file on the eve of bankruptcy to discharge tax debt. You must make an effort to timely file your taxes.

The third requirement is that the taxes cannot have been assessed within the last 240 days.This is typically a problem if the tax return was not accurate and the IRS has corrected your return recently.

The fourth requirement states that you cannot have willfully made an effort to defeat or evade your tax debt. If you have engaged in some type of fraud to avoid owing tax debt then the debt will be non-dischargeable. The good news is that simply not paying your taxes is not reason enough for the court to deny the dischargeability of tax debt.

The fifth requirement to dischargeability is that a lien cannot have been placed on any property. If a tax lien has already been instituted against any of your property then the lien will not be discharged in the bankruptcy and the property will still be encumbered.

There are additional factors that may contribute to the dischargeability of tax debt that have not been discussed here. If you are facing a large amount of tax debt I recommend that you speak with a bankruptcy attorney in your area. Tax law is complicated and the best way to determine if your tax debt is dischargeable it to contact the IRS directly and obtain a decision from them regarding your specific tax situation. A bankruptcy attorney will then be able to help you possibly eliminate your tax debt through bankruptcy.

If you have questions regarding bankruptcy in Indiana please contact Jackson & Oglesby Law at (877) 489-0908 or visit us at www.IndyBankruptcyLaw.com. Jackson & Oglesby Law can assist you with all aspects of your bankruptcy case. If you have questions regarding Chapter 7 bankruptcy, Chapter 13 bankruptcy, stopping foreclosure or wage garnishment, avoiding liens, stopping law suits, discharging debt, etc. we can help! Please call us today for your free phone consultation to determine which bankruptcy may be right for you.

What is the Principal Paydown Plan?

Lawmakers in Congress have been struggling with a solution to the foreclosure crisis for nearly five years.  The fact is, many Americans want to keep their homes, but falling housing prices and a somewhat stale economy have forced many to walk away from the place they call home.  Unfortunately, many people are upside down on their mortgages and cannot sell their property for what it’s worth.  Chapter 13 bankruptcy can help those mortgagees who have a second under-secured mortgage but it does nothing to alter the terms of the first under-secured mortgage.

The proposed Principal Paydown Plan (“PPP”) offers some help to homeowners who are upside down on their first mortgage.  If enacted, the Principal Paydown Plan would restructure underwater mortgages in Chapter 13 bankruptcy.  Homeowners would continue to pay their current mortgage rate while in the Chapter 13, but all payments would go towards the principal loan balance.  The mortgage company would not be allowed to collect interest during the life of the Chapter 13 bankruptcy, which can be up to 60 months or five years.   Homeowners would be able to eliminate negative equity during this time, acquiring positive equity and then refinance the mortgage into a market rate loan at the end of the bankruptcy.

There is obviously no “easy fix” for the mortgage crisis, and this plan will not help every home owner, but I believe it is a step in the right direction.  According to the NACBA, recent research has shown a strong correlation between negative equity and mortgage delinquency.  Homeowners may have less incentive to stay in the home if they are unlikely to move into a positive equity position in the near future.  For these homeowners, reducing the monthly payment to a more affordable level does not solve the underlying problem of negative equity.  Through Chapter 13 bankruptcy and the Principal Paydown Plan, homeowners now have a possible solution to their negative equity nightmares. 

There are approximately 1.6 million active and pending Chapter 13 bankruptcy cases in the country, and of those, approximately 880,000 include mortgages.  The Principal Paydown Plan could apply to most if not all of these cases.  This plan hopes to help stabilize the housing market, as well as individual communities across the country.  If you’d like to help support the effort to get the Principal Paydown Plan enacted into law simply go to http://wh.gov/g8d and click “sign the petition” after you have created an account.

If you have questions regarding bankruptcy in Indiana please contact Jackson & Oglesby Law at (877) 489-0908 or visit us at www.IndyBankruptcyLaw.com. Jackson & Oglesby Law can assist you with all aspects of your bankruptcy case. If you have questions regarding Chapter 7 bankruptcy, Chapter 13 bankruptcy, stopping foreclosure or wage garnishment, avoiding liens, stopping law suits, discharging debt, etc. we can help! Please call us today for your free phone consultation to determine which bankruptcy may be right for you.

Can I Be Thrown in Jail For Not Paying My Creditors?

I find this to be a fairly common question among my clients. Collection agents frequently advise clients that if they do not pay their debts then they will have them thrown in jail. The practice of putting people in jail for not paying private debts was done away with in the 1800's. There are no longer Debtor Prisons in the United States. Don't be too happy though, because there just maybe a grain of truth to the creditors assertion that you could go to jail. How can you be sent to jail if it is illegal? Simple, disobey the court and be held in contempt.

Many people find it difficult to make their debt payments whether they be for credit cards, medical bills, home, or cars. If the situation becomes too difficult most people will only pay the things that are the most important. When this starts to happen creditors will start calling. After the creditor has tried to call, and still not received payment they will likely refer your case to a collection agency. Collection agents often tell all kinds of lies to people in the hopes of trying to collect payment for their debts. The most common threat is that the person could be thrown in jail.

After calling with no result, the collection agency might file a lawsuit. A lot of people who receive a lawsuit like to bury their heads in the sand and not respond. Many people even fail to attend the court date. This will result in a default judgment being entered against you. Even if you do not attend this hearing you still will not be thrown in jail. After the judgment is entered, the creditor will try to the have the court seize your assets in some way or another. If the creditor is unsuccessful they will then ask the court to make you appear with a list of your assets. This is known as an asset citation hearing.

This is where things become tricky. If you do not show up with a list of your assets at this meeting then you are directly defying a court order. The court will order that you are in contempt of court and issue a body attachment. Once this has been done you can be arrested until you comply with the court order and provide a list of your assets. If you think you are in danger of having a lawsuit filed against you and cannot pay the debt speak to an experienced bankruptcy attorney immediately.

If you have questions regarding bankruptcy in Indiana please contact Jackson & Oglesby Law at (877) 489-0908 or visit us at www.IndyBankruptcyLaw.com. Jackson & Oglesby Law can assist you with all aspects of your bankruptcy case. If you have questions regarding Chapter 7 bankruptcy, Chapter 13 bankruptcy, stopping foreclosure or wage garnishment, avoiding liens, stopping law suits, discharging debt, etc. we can help! Please call us today for your free phone consultation to determine which bankruptcy may be right for you.