IRS Means Never Having to Say….

Posted by Robert Weed / in After Bankruptcy, Blog, Chapter 7, Chapter 7 Bankruptcy / No comments yet

IRS Means Never Having to Say….Anything

The IRS is not like most creditors. (Your probably knew that.)  The IRS in bankruptcy is not like most creditors in bankruptcy, either.

Knowing what debts have been cleared (discharged) by your bankruptcy is easy for most debts. For credit cards, loans (including payday loans, who want you to think they are somebody special), car loans, medicals. When those debts are properly listed (scheduled) in the bankruptcy, they are automatically discharged, unless they object.

So, for example, Capital One. Was your Capital One card listed on the schedule of debts? (Schedule F.) Yes. Did they object? No. Then they are discharged.

That’s NOT the rule for the IRS in bankruptcy.

IRS and Bankruptcy: Not Like Other Debts

First of all, not all income tax debts can be discharged. (Some people assume none can be, but you know better than that.) The main rule is you can discharge taxes that were due more than three years ago, and were properly filed. See 11 USC § 523(a)(1).

More than Three Years—Look at the Calendar

The due date for taxes is usually April 15, unless there was a holiday, or you asked for an extension, or because of some natural disaster (Covid-19 in 2020) there was an automatic extension.  523(a)(1).

That you can figure out for yourself, usually. (There are other rules on timing that do apply. This is NOT a complete analysis.)

Properly Filed—Lots of Gray Area

I say “properly filed” but that’s not the wording in the law. It’s my shorthand.

Your taxes do have to be filed, by you. (When people are chronically late, the IRS will often look at the W-2’s, estimate a tax and send you a bill. That does NOT count as filing a return for bankruptcy purposes).

You can’t file a fraudulent return. And you can’t willfully attempt[ed] in any manner to evade or defeat such tax.

That gray area is enough to give anyone who owes taxes some worry about what the IRS will do. You might feel certain you don’t pay because you were broke, but worry the IRS says you were evading.

I Got My Discharge. Am I OK?

The IRS does NOT have to say. The IRS does NOT have to tell the bankruptcy court, or you, if they say you filed a fraudulent return or willfully attempted to evade. They can decide whenever they want that they think you’re an evader.  You find out when you get collection notices again.

Should we ask the bankruptcy judge to decide?

Instead of waiting to see what they do, we can force the IRS to explain their position to the bankruptcy judge. Experts in that field say that’s a bad idea. A lot of times the IRS will let something borderline slide, but if you bring in the judge, they will fight you.  (At least that was the consensus at the NACBA convention panel in May 2021.)

Is There Anything I Should Do?

Actually there is. You should get your account transcript and look at the IRS notes. You can see if they have your debt coded as discharged in bankruptcy. Or are they showing something else.  You can get your transcripts here.

Get your tax account transcript.  The IRS has several different transcripts, For what we are talking about, the tax account transcript is the one you want.

What If There’s an IRS and Bankruptcy Problem?

So at the end of your bankruptcy, there might still be a problem.  The IRS might claim a tax is still there that we think should be discharged.  Going back to fight that in front of the bankruptcy judge can be way harder and more expensive than the bankruptcy itself.  

After bankruptcy….the car still has to pay!

Posted by Robert Weed / in After Bankruptcy, Blog, Chapter 7 Bankruptcy, Weekly Posts / No comments yet

…But the Car Still Has to Pay.

When you file Chapter 7 bankruptcy, that means you don’t have to make the car payments.

But that does not mean you get a free car. You don’t have to make the car payments, but the car still has to pay.

That’s because the car finance company is attached to the car title. Lawyers call that a lien.  If the debt that’s attached to the car isn’t paid, the lien holder will repossess the car.

Don’t Forget to Make the Car Payment

It’s easy after bankruptcy to forget to make the car payment.  If it slips your mind, the car finance company won’t send you a reminder. Why? Because you don’t have to pay. They also won’t send the car a reminder letter. They know the car doesn’t open its mail.

And if you get a week behind, they won’t call and demand payment. Because you don’t have to pay. And they won’t call the car, because the car doesn’t have a phone. Only one thing happens if you forget to pay. You wake up in the morning and the car is gone.

Does Paying the Car Help Your Credit Score?

Suppose you forget to pay and the car gets repossessed. The repossession won’t show up on your credit report.  That’s because the bankruptcy discharges the debt from you. But that also means your car payments won’t show up on your credit report if you do pay. You don’t have to pay.

Only one thing happens if you pay. You keep the car.

Only one things happens if you don’t pay. When you wake up in the morning, the car is gone.

You need to make the car payments if you want to keep the car. 

After Bankruptcy, OneMain Offers Car Reaffirmation Negotiation

Posted by Robert Weed / in After Bankruptcy, Blog /

In the last few months, OneMain has been contacting me about reaffirmation negotiation on car loans.

That took me by surprise.

With the exception of Ford Credit, I’ve been strongly opposed to reaffirming cars.  Usually you can keep the car without reaffirming. and then give it back when your credit improves. I explain more about that, here. 

OneMain figured out that they don’t want you to give them the car back when your credit improves, so they are offering you a better deal now. Up ’til now, I had never seen a car finance company really offer car reaffirmation negotiation. They wanted people to reaffirm the entire balance at the current interest rate on a take it or leave it basis. 

But OneMain has come through with real balance and interest reductions. Taking a terrible loan and making it pretty good. If that’s on a car that you have been taking good care of–and been lucky to avoid problems with–then that makes sense.

Basically, here’s how this works. Get an accurate value on your car. Kelly Blue Book is one place. (Carmax offers on line, here.) We need to email OneMain, at this email [email protected], with the Blue Book value and say we’re willing to reaffirm based on that value at 6.0%.  

OneMain then will send back a reaffirmation on that basis. At least a lot of the time. (Sometimes I’ve seen them add a little.)

PS  I need to apologize to one of my clients last year, Kandy. Kandy believed OneMain’s offer when I thought it was just more smoke and mirrors. She was right and I was wrong. OneMain does seem to genuinely be willing to work out a new deal for you to keep the car.  This is my apology, Kandy.