Chapter 7 and Federal Taxes

[HHM]

HHM- Maybe you can help....

My plan is to file Chapter 7 on a variety of debt. I am self employed, no employees. No assets what so ever.

I have approximately $65,000 of unsecured debt. My income is considerably lower now than it was in recent years(join the club right!?!?).

In Sept of 2007 an IRs examination(audit) began for tax year 2005. After a few weeks of review the agent decided to include 2006 and 2007.

I was assessed an increased tax owed + penalties/interest for 2005 for $25,000. For tax years 06 and 07, it will be about the same according to the paperwork I have received. A total of $75k will be the rough total for the tax years in question.

My question is as follows-

I plan to file on my unsecured debt, as well as ALL of my 3 years of back taxes owed. Although I am confused as to how to include the 06 and 07 back taxes since the BK law states back tax debts have to be a minimum of 3 years old, and 240 days from assessment. Do I just sit on the 05 assessment, and eventually the 06 assessment and hope the IRS fails to levy my bank accounts or earnings until the 07 becomes BK eligible(2011)?

How likely is the IRS to levy my business income or my bank accounts?

Should I file a OIC to thwart their levy efforts until the statute runs to my date I can file?

Thanks...

Correct, you will need to sit on the taxes. You have 2 options, however, (1) if your income is that low, you can request non-collectable status, if granted, that way you will not face the threat of levy, or (2) get into some sort of payment plan with the IRS, again, to remove the threat of levy.

Since you had a recent audit, you need to be careful of the 240 day rule (8 month rule). Since new tax was assessed, you will need to wait a minimum of 8 months (even for 2005) from the date of when the tax was assessed. To determine that date, you will need to pull your IRS transcripts.
Big picture, with taxes involved, you MUST hire an BK attorney familiar with tax issues in BK, there simply are too many pitfalls and you can really screw up your BK if you file at the wrong time.

Right now, the SOONEST 2006 could be discharged is April 16, 2010 (and that assumes you satisfy the other rules (2 years from date of return, 240 days from subsequent assessments, no fraud).

[HHM]

Interesting. Assume that there is some value (debtor has assets) -- say $3,000 and the lien is for $30,000 originally. Does the new value of the lien become $3,000 after a successful AP? So the debtor would only need pay $3,000 now to satisfy the lien?

Just to help me understand say the BK and the AP occurred in March 2008 and the value of the lien was then determined to be $3,000 (from $30,000). Now it is April 2009 and the debtor has acquired more assets. Can the debtor still satisfy the lien (if that is the case) by paying only $3,000 even though they now have more assets?

If the underlying taxes were dischargeable taxes (non-priority), then the value of the tax lien for those taxes would be $3,000, or, whatever equity are in assets that are PART OF the BK estate.

IF the underlying taxes were non-dischargeable, the IRS can file a new tax lien after the case was discharged and attach any new property (strictly speaking, I am not sure if the IRS actually has to "file" a new lien, but bottom line is, for non-dischargeable taxes, the tax lien reaches beyond the BK estate to future assets), OR any increase in the value of those assets that were part of the BK estate.

[pba1817]

HHM- Maybe you can help....

My plan is to file Chapter 7 on a variety of debt. I am self employed, no employees. No assets what so ever.

I have approximately $65,000 of unsecured debt. My income is considerably lower now than it was in recent years(join the club right!?!?).

In Sept of 2007 an IRs examination(audit) began for tax year 2005. After a few weeks of review the agent decided to include 2006 and 2007.

I was assessed an increased tax owed + penalties/interest for 2005 for $25,000. For tax years 06 and 07, it will be about the same according to the paperwork I have received. A total of $75k will be the rough total for the tax years in question.

My question is as follows-

I plan to file on my unsecured debt, as well as ALL of my 3 years of back taxes owed. Although I am confused as to how to include the 06 and 07 back taxes since the BK law states back tax debts have to be a minimum of 3 years old, and 240 days from assessment. Do I just sit on the 05 assessment, and eventually the 06 assessment and hope the IRS fails to levy my bank accounts or earnings until the 07 becomes BK eligible(2011)?

How likely is the IRS to levy my business income or my bank accounts?

Should I file a OIC to thwart their levy efforts until the statute runs to my date I can file?

Thanks...

[southernbelle]

That's a great question debt and I would love to know the answer to that one. Also, if I have a federal tax lien could it possibly be lien stripped in a chapter 13 due to the fact that it was filed last (after all other liens) and I have 0 equity after the mortgage and liens and don't own anything else of value? Is that how it works because if so, the IRS's lien is worth 0 and I'll be able to pay the taxes owed in a chapter 13 because all but the trust fund portion would be considered non-priority.

[debtprison]

Yes. But you still need to go through the process of valuing the IRS lien. Once the IRS files a tax lien, the taxes become secured debt. As with any secured debt, the lien survives the BK. If you have no assets (keep in mind, for IRS taxes, exemptions DO NOT APPLY), you would need to file a Motion to Value the IRS Tax Lien to establish that the lien has zero or very little value.

Interesting. Assume that there is some value (debtor has assets) -- say $3,000 and the lien is for $30,000 originally. Does the new value of the lien become $3,000 after a successful AP? So the debtor would only need pay $3,000 now to satisfy the lien?

Just to help me understand say the BK and the AP occurred in March 2008 and the value of the lien was then determined to be $3,000 (from $30,000). Now it is April 2009 and the debtor has acquired more assets. Can the debtor still satisfy the lien (if that is the case) by paying only $3,000 even though they now have more assets?

[67caprice427]

Angelina Cat & Hub-PM when you get a chance. I was on the payment plan with the IRS for ~$3500.originally. When my case changed to an asset case, the $ that I sent the trustee, minus his expenses, went to the IRS and now my balance is less than 200. and I'm waiting on a bill to pay. I got ahold of a guy w/IRS who knows his stuff and actually helps you, yeah imagine that!!! First time I've ever enjoyed speaking with the IRS....

[HHM]

That is why you hire an attorney.

NO ONE, not even the judge, sits down with your case and makes a check list of what debt is and is not discharged. The BK code has already predetermined what debts are and are not discharged, (section 523 of the BK code). All you are reading is the summary report of the trustee.

Those taxes are not discharged.

[gizmosmom232]

I know the Trustee doesnt determine what is or isnt discharged. Thank you again for the reminder however I am still concerned. How do I know exactly which debts were and werent discharged in my matrix? This is what was sent to the judge:

Key information about this case as reported in schedules filed by the debtor(s) or otherwise found in the case record: This case was pending for 1 months. Assets Abandoned: $ 6470.00, Assets Exempt: Not Available, Claims Scheduled: $ 61151.82, Claims Asserted: Not Applicable, Claims scheduled to be discharged without payment: $ 61151.82.


(the 6470 abandoned was not the tax debt but a repoed car from 2005)

The amount of the IRS correction is included in the $61,151.82. I received my discharge letter and on it it listed all the ppl they sent the notice to. I am still awaiting the closing. Will this closing actually go through and list exactly all the items discharged? If not how would it prevent a creditor from coming back and saying "yes you listed it but it wasnt discharged?".

Again thank you thank you so much for your advice.

[HHM]

My dicharge was final September 3 of this year. This was a no asset Chapter 7. In February of this year I was informed that I made an error on my 2007 taxes and to please review the corrected tax return for 2007 and if I agree do nothing and if I disagree then I owed them $6,453. I did not have a lein with the IRS. I included this $6,453 in my bankruptcy. According to the information given to the bankruptcy judge by the trustee ALL $61k I am requesting be discharged be discharged. I have now been discharged. IRS was provided with notice of bankruptcy and I did not hear from them.
My question is... Will this come back to bite me or was it discharged. I am aware it does not meet the criteria but according to the trustee it is discharged. Please help. Thank you

There is NO way that tax was discharged. The trustee does NOT make a determination of what is, and is not, discharged.

[gizmosmom232]

Discharged was taxes included???

My dicharge was final September 3 of this year. This was a no asset Chapter 7. In February of this year I was informed that I made an error on my 2007 taxes and to please review the corrected tax return for 2007 and if I agree do nothing and if I disagree then I owed them $6,453. I did not have a lein with the IRS. I included this $6,453 in my bankruptcy. According to the information given to the bankruptcy judge by the trustee ALL $61k I am requesting be discharged be discharged. I have now been discharged. IRS was provided with notice of bankruptcy and I did not hear from them.
My question is... Will this come back to bite me or was it discharged. I am aware it does not meet the criteria but according to the trustee it is discharged. Please help. Thank you

[Shaunae]

I have had similar experiences, and the best source of information that I got came from calling law firms and asking questions. Many law firms will give you free consultation, and that is where I got most of my information from. Check out [admin removed URL] for really good information on CH 7.

[cinderella]

Thanks definitely great news. I am in the EXACT situation and I hope to have to same fortune you did. I owe $51,000 to the IRS all Liened. I owe $14,000 to the state of GA of which ($5,100) is liened. I will ask my attorney about that "unsecured" option you mentioned. Mine are from 2002-2007 and I am hoping to get 2002-2005 discharged. I have no assets also, a house with negative equity.

You said the lien was released but you still have to pay for the recent years that are not dischargeable or are your debt all tax debt over 3 years old.?

Did you have state tax debt also? Were you required to file all your State taxes before you filed?

[BKin2009]

My husband and I filed BK (chapter 7) in Feb and discharged on May 18th. We had tax debt both joint and individual. I had IRS liens from prior to our marriage. Our attorney filed our debt as unsecured even though I had liens. My own IRS debt was 60,000+ (all liened) and joint of about $2500.00. (not liened). We did not file Motion to Value Lien and were prepared that we would have to make payment arrangements on my tax debt because of the lien.

Monday in the mail I received Release of Lien on all my tax debt. Huge surprise and relief. We were no asset.

[Kim2009]

Hi, here is my situiation, my tax file for 2007 is $90k,2008 is $ 40k and i lost my job 2008 June and still no job.I had $10,000 only . I am planning to file Bankruptcy voluntarily. My question is which chapter 11,7,13 is good for me?

[cinderella]

I messed up on my 2002 taxes big time. I was hoping to get those discharged in a Chapter 7 however I am realizing not that the IRS filed it for me in 2004, NOT ME. I don't know how I missed this. Maybe because they sent me billing statements and I have been paying on it since 2004, now I fear it is not dischargeable. Can someone help me to if the above "3 year" rule still applies if they filed it for me and I did not actually do the filing?

Also, does anyone one if the IRS will let you know which ones are dischargeable and/or set up payment arrangements DURING the BK or after?

Thanks