income taxes and chp7

[Dis0314]

UGH!

I'm filing chp7 personal bankruptcy and part of that requires taxes to be filed for past years. Taxes are just about done and it looks like I will be owing a lot of money to the IRS for income tax. i.e. $250,000.00+ owed.


From what I've read I will be liable for all this but it just boggles my mind that this so called fresh start option is going to leave me with debt that I will never be able to pay. Am I reading it wrong, or is there some clause that could potentially allow me to include it and move on or am I doomed?

If I am screwed and will owe every penny will the courts make sure it is some payment I can afford even though I won't make enough money in my lifetime to pay the taxes that I owe. Is there some sort of tax reduction clause and/or late fee and interest clause?

I was stressed beyond understandable levels prior to the chp7 decision and it actually made me feel positive and see a light at the end of this horrible tunnel but with this news I'm right back down to the bottom again and it sucks.

[LadyInTheRed]

If you could just file your tax returns after a few years of not filing and then immediately have the taxes you owe discharged, it would be too easy for tax dodgers to get out of paying taxes for a long time without consequence.

Income taxes do become dischargeable after the passage of time, which I think is 3 years from the date a return is filed or a later assessment of tax. Your options may include delaying filing your Chap 7 or filing a Chap 13 now and converting to a Chap 7 after enough time has passed to discharge the tax debt. But, I am not sure if the debt could be discharged in a conversion. It may be that you would have to have your Chap 13 dismissed and file a separate Chap 7 case. You could also file a Chap 7 now and apply for an offer in compromise or payment plan with the IRS.

I do not know all of the hazards of any of the above options. Please discuss this issue with an experienced bankruptcy attorney.

[Dis0314]

lol yeah you make a good point.

I will be discussing it with my attorney once all the returns are complete I was just hoping I would hear of some positive outcomes of others that had a similar dilemma.

[Drazil65]

I would suggest that you search for all the threads here on this forum that have to do with taxes and read everything you can on the subject. That will give you a really good idea of what others in similar situations have dealt with and the outcomes. Knowledge is power and its pretty common knowledge that taxes and student loans are rarely dischargeable in bankruptcy.

The silver lining is that all of your returns are almost done and filed so you no longer have that hanging over your head as I am sure that was a big burden for you knowing you needed to do it. That puts you on the right path to cleaning up your financial life so that could be considered a start on the path to your fresh start. One step at a time my friend....Good Luck!

[Dis0314]

thanks Drazil, yeah it has all been a big burden over me and filing not only taxes but also bankruptcy is a huge relief.

I did look into other posts here but it started getting pretty dated and I know bk laws change so I was hoping for a better picture than reality lol. I'm still going to go into the meeting with the trustee and breakdown adn cry and see if something can be done.. the IRS website does say this:

"If you owe past due federal taxes that you cannot pay, bankruptcy may be an option. Other options include an IRS payment plan or an offer in compromise."

so maybe a compromise and payment plan can be done to help get past it all.

[avengers]

Contact the IRS and see if you can start a payment plan. Ask your attorney when you'll be able to file a chapter 7 that will discharge those tax debts. Wait until you can file until then. Keep in mind that, in general, the tax debt has to be 3 years old. If you had filed your 2011 taxes on April 15, 2012, you'd be able to discharge those taxes by filing Chapter 7 on April 16, 2015.

However, I have no idea how that rule works if you haven't filed any tax returns at all. Ask your attorney.

[Dis0314]

I wish I could postpone but I have a few million in lawsuit that are forcing my into chp7 now.

[BarkingCat]

If you had filed your 2011 taxes on April 15, 2012, you'd be able to discharge those taxes by filing Chapter 7 on April 16, 2015..

Bit more to it than that. The taxes must have been due 3 years ago, filed 2 years ago, and assessed 240 days ago. Lots of things toll those time periods, too. Taxes must be income taxes, i.e. taxes on income or gross receipts, but not things like payroll taxes. IRS has been clear that it will accept a late-filed return as dischargeable so long as they have not assessed that year before you filed the late return, but lots of states won't.

This is a long-winded way of saying: It would be a good idea to use a bankruptcy lawyer who is also experienced with tax matters. Or, if you like your current lawyer and he or she isn't a tax expert, consider finding tax representation, someone like an enrolled agent. It looks like you're going to have to submit an OIC or get into an installment agreement and it's my experience that someone who understands the system looking out for your interests is key in those situations.