Arizona Bankruptcy Lawyer Blog

If you have serious income tax debt, you have 5 ways to deal with it:

1. Challenge the Assessment

Challenge the amount of the tax by filing correct returns, amending returns, appealing the audit results, litigating the audit results etc.

2. Statute of Limitations Defense

The IRS has a limited period of time to collect debt. If they don't collect within this period, they are out of luck. Many taxpayers are able to use this to their advantage, especially in combination with non collectible status or installment agreement arrangements.

3. Installment Agreement/Non Collectible Status

The IRS must typically allow a taxpayer to set up a monthly payment on what is owed if the taxpayer will comply with a few requirements. The amount paid does not have to be enough to pay the tax debt off within the statute of limitations period. In fact, the amount paid monthly may be nothing. It all depends on the taxpayers ability to pay. This number is based on how much the government will agree that you need to live on, subtracted from your income. Assets are taken into account as well.

These programs are used to pay the debt in full over time, OR to get the taxpayer to the statute period mentioned above. In our office, they are also often used to buy time until the tax debt can be considered "dischargeable" or can be wiped away in bankruptcy.

Continue reading "Tax Motivated Bankruptcy in Arizona" »

The typical consumer files a bankruptcy case in order to obtain a "discharge" of overwhelming debt. An unfortunate word that is used to describe what for many is a life changing "event". Why?

When a debt is "discharged", the obligation of the debtor to pay it, no longer exists. The obligation is simply gone...poof. It is government intervention in the realm of private contract relationship at it's "finest", and with some careful planning and preparation, it works like a charm.

Now, having said that, this powerful discharge has it's limits. It isn't perfect.

1. It doesn't deal with every debt. Some debts cannot be "discharged" by statute, like child support, newer income tax debt, spousal maintenance etc.

2. Even though the personal liability may no longer exist as a result of the "discharge", liens recorded against the debtor's property, may survive the bankruptcy unless they are modified or removed.

3. You can't get very many of them too close together. There are time limits that prevent "serial" bankruptcy filings and thus too many discharge "events". The creditor has to have some time to collect the debt between discharge dates.

4. Not everyone needs bankruptcy for purposes of obtaining a discharge. Some need it for other reasons, like saving a home from foreclosure or restructuring the repayment of debt. These people don't care as much about the discharge as others.

For those debts like credit card, repossession related, old income tax and medical bill debt that are typically governed by it, not only are they "gone", the discharge acts as a "permanent injunction" or a court order at the close of the case, against those same creditors. It replaces the "automatic stay".

If the creditor continues, post discharge, to attempt collection, that order is being violated, and can result in "punishment" for the offending creditor. Possibly even "punishment" in the form of money to the debtor.

If you have overwhelming debt, have been losing sleep consistently over it, and see no way to pay it in a reasonable amount of time, you probably need to "aquaint" yourself with the "discharge" provisions of the U.S. Bankruptcy Code.

Debts owed to payday lenders can be wiped away in bankruptcy.

The real issue is not the fact that they are. It is that once the consumer reaches a point that a very high interest payday loan is necessary, there is usually a serious income and budget problem. A problem that if it hasn't already done so, will lead to other debt, repossessed car(s) and even foreclosure.

If you feel like a payday loan may become necessary, do everything you can to avoid it. Payday loans and credit cards, for that matter, should only be used in emergency situations.

If it is too late and you are in over your head, talk to an experienced bankruptcy attorney.

The goal of most bankruptcy cases, be they of the chapter 7 or chapter 13 variety, is reduction in debt. Reduction of debt occurs in a bankruptcy at the end of the successful case and is called a "discharge".

If a debt is "discharged" legally, the debtor's obligation to pay is ended.

In a chapter 13 bankruptcy there are two types of bankruptcy discharge.

1. A "completed plan discharge" which is granted to a debtor who has...completed the plan. Surprising to many as well, is that a chapter 13 plan does not require that all debt be repaid. More often than not, the chapter 13 debtor in Arizona, only ends up paying a small fraction of unsecured debt during the plan and the rest is...discharged.

and

2. A partial discharge. This type of discharge is granted to the debtor who does not complete the plan. What??? you ask. I can file a chapter 13 bankruptcy, not complete the plan and still obtain forgiveness of debt? Yes. If the debtor is unable to complete payments for reasons for which they "shouldn't be held responsible".

This type of discharge is more commonly called a "hardship" discharge. This hardship discharge gets rid of fewer types of debts than does the full discharge.