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.  

Reaffirmation: It’s like an episode of Law and Order.

Posted by Robert Weed / in Chapter 7, Weekly Posts /

“What was that? Law and Order?”

Today I was at the bankruptcy court asking the Judge to approve two credit card reaffirmations. One for a little more than $500; one for a little less.

Both because my clients had a good relationship going back years with their credit union. So they wanted to keep them.  (Reaffirmations require approval by the judge; and the judge is supposed to go easier on credit union reaffirmations. See 11 USC §524(m)(2))

Since the judge is supposed to go easy on credit unions, I thought we had a good chance of getting them both approved.

The Judge approved the one for less than $500; but she turned the other one down.

“What was that?” said the wife of the consumer whose reaffirmation was approved. “Was that like, Law and Order?”

Our Judge does NOT like reaffirmations. So, if you want your reaffirmation approved here, the judge will go line by line through your budget. “What’s this dental insurance?” “How much is your car payment?”

The consumer whose reaffirmation was turned down is divorced, and said she often doesn’t get her support paid on time. That was enough to get her turned down.

The one that was approved was a married couple, both with steady work, and no kids.

If the judge thinks there’s any question at all that you can’t afford to pay–even on a bill that’s only $17.00 a month–she’ll turn it down.

In a simple Chapter 7 case here in Alexandria Virginia, your bankruptcy is approved in a three minute trustee hearing.

Getting a reaffirmation approved is seven minutes of tough cross examination by the Judge.

 

Getting Sued After a Short Sale?

Posted by Robert Weed / in Before Bankruptcy, Chapter 7, The 2005 Bankruptcy Law / No comments yet

Getting Sued After Short Sale?

Getting sued after a short sale is highly probable.  Saw three couples this month who needed to file bankruptcy, because they were getting sued–garnished in one case–by the second mortgage after a short sale.

It was surprising that they were surprised.   At the peak of the crisis, four or five years ago, second mortgages would take what they could get at a short sale and let the rest of it go.  But they don’t often do that anymore.  (At least not without intense negotiation.  I’ve seen it once in the last year.)

And usually they make you sign that you KNOW that you still owe the money.  So, where’s the surprise?