Getting Relief from Tax-Debt Garnishments
Most people have at least passing knowledge of wage garnishment –the process of deducting money from an employee’s monetary compensation (including salary) as a result of a court order. Fortunately for those who find themselves in the unfortunate position of having their wages garnished, these payments are limited by federal law to 25 percent of the employee’s disposable income. Unfortunately, those payments will continue until the entire debt has been paid off. Any kind of debt can lead to garnishment of wages, but the most common types include back child support, unpaid court fines or judgments, defaulted student loans , and the biggie–taxes owed to either state governments or the IRS.
Once the garnishment has been served on an employer, the company takes a portion of the employee’s salary during the payroll process in order to cover the required payment. Employers are sent an official notice giving them the amount to hold back and cannot refuse to garnish wages. Wage garnishments can have a negative impact on credit, reputation, and the willingness of lenders to extend offers of credit and loans.
When Can the IRS Garnish Your Wages?
Several conditions must be met for the IRS to begin wage garnishment for tax debts:
- The IRS must have assessed the tax and sent a Notice and Demand for Payment
- The taxpayer must have neglected or refused to pay the tax.
- The IRS must have sent a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. The IRS can serve the Final Notice in person, leave it at the taxpayer’s home or workplace, or send it to the last known address by certified or registered mail.
Of course, that last condition only requires the IRS to send the Final Notice to the last address known to it. They are under no obligation to ensure that taxpayers actually received the Notice, meaning taxpayers may not actually find out about the garnishment until it starts being deducted from their wages. This makes it imperative that taxpayers make sure they keep the IRS updated with their current address at all times.
One option that can help take away the stress of a wage garnishment you can’t afford is that of filing for bankruptcy. If you’re already up to your ears in debt and barely able to make ends meet each month, one wage garnishment can be the straw that breaks the camel’s back. Filing for bankruptcy stops tax garnishments. Taxing authorities must immediately stop garnishments as soon as they receive notification of the bankruptcy, no matter what kind of tax debt you owe. Of course, you must still pay back the taxes you owe, but this will at least help protect your paycheck for the time being, putting you in a stronger position for dealing with the tax debt on terms you can afford.
In certain cases, you may be able to discharge specific kinds of tax debt and the bankruptcy attorney can also structure an easier repayment plan with a chapter 13 bankruptcy . Either way, however, it’s a good idea to consult a bankruptcy attorney who may be able to get rid of the tax garnishment forever–or at least help you get the breathing room you need to dig yourself out of your current financial hole.
Under Certain Circumstances, it is Possible to Get Tax Debt Relief
Let’s roll back the clock a bit. Assume it is 2003, and you are in the middle of filing your taxes. You realize that, for one reason or another, you did not pay enough in taxes for that year. Instead of getting a nice refund, you now owe Uncle Sam a sum of money that you do not have. What is the best thing to do in this situation? Without a doubt, you still should file your taxes. Even if you cannot send payment with your return, filing your taxes and not paying immediately will put you in a much better position than not filing at all.
The IRS might take a few years to realize the shortfall. You can be assured that by the time the IRS decides to try to collect the tax from you, the original amount you owed will have increased significantly, due to penalties and years of interest accruing. It would even be safe to say that the small sum of money you owed the IRS in 2003 has now doubled, or even tripled in size. Dealing with the IRS can be a very scary situation. You did not file fraudulently, you did not file late, and the tax due is more than three years old. Do you have any options? Can bankruptcy help you in this situation?
With the help of a qualified bankruptcy attorney, yes it can! You may be able to get tax debt relief under certain circumstances. With a skilled bankruptcy lawyer by your side, it is certainly possible if the debt meets certain criteria. The tax year in question must have been filed in a timely manner, and without the intent of fraud. The tax liability also must be more than three years old in order to qualify for tax debt relief. In addition, the IRS must not have assessed your liability for the tax debt within 240 days prior to your bankruptcy filing date. If you have not received the formal notice of assessment from the IRS within 240 days of your filing date, you should be eligible.
Although you may feel guilty about not paying your tax debt, there is little reason to feel this way. Most working people, over the course of their lifetimes, pay more than their fair share of property taxes, income taxes, sales taxes, and utility taxes. You should not feel guilty for not being able to pay your tax debt. You should feel proud to live in a country that allows responsible, hardworking citizens to have a second chance when they fall on hard times. It can be very easy to make a mistake with today’s overly complicated and bulky tax code, as well. If you have a tax debt that you cannot pay, bankruptcy may be the solution you need. Contact a lawyer in your area today to find out if you qualify for tax debt relief.
Is Discharged Debt Taxable?
One of the most defining aspects of bankruptcy is the discharge of debts that comes at the end of a case. Whether you file under Chapter 7 or Chapter 13 of the U.S. bankruptcy code, you will receive a discharge charge of your debts following liquidation under Chapter 7, or the completion of a payment plan under Chapter 13. This debt discharge frees you from obligations to make payments on certain unsecured debts, such as credit card debt, and it can provide the financial freedom needed to gain control of your finances.
Although a debt discharge does help consumers find a financial fresh start after struggling with insurmountable debt, many people considering bankruptcy or other forms of debt relief harbor concerns about tax implications.
With bankruptcy, discharged debts have no income tax consequences – and it is excluded from gross income. However, individuals who have filed bankruptcy and received a discharge may receive a form from the IRS regarding Cancellation of Debt. This form can be completed and sent to the IRS informing them that the debt was discharged in bankruptcy.
Although there are no income tax consequences to debt discharges, tax attributes such as a loss, can pass to the bankruptcy estate and may be used by a bankruptcy trustee when administering the estate. This is often the case when businesses are involved.
Bankruptcy may not have tax implications for consumers, but other forms of debt relief can. For example, credit card debt that has been partially or fully cancelled with the help of a debt settlement company could result in a tax bill for the debtor. The IRS can even charge a tax if your home if foreclosed on if the value of the house was less than what you owed on your mortgage. But debt that is discharged in bankruptcy is never subject to taxation by the IRS, because debt discharged in bankruptcy is never considered income.
If you are considering canceling debt using a debt settlement firm or if you are preparing for a short-sale which will create “income” in the eyes of the IRS you may want to consider the tax implications first.
Also before considering efforts to cancel individual debts, make sure that those actions make measurable impacts on your financial situation. Often debtors expend lots of energy using debt settlement that does not help them in the long-term. To avoid this take, a look at all of your debts when considering how you will tackle your financial problems.
For more information about your current financial situation, bankruptcy, and tax implications, you can speak with a Dallas bankruptcy lawyer from
Tax Settlement: 6 Solutions to Resolve Tax Debt
Solutions to Resolve Tax Debt
The Internal Revenue Service (IRS) offers multiple methods for taxpayers to settle their tax debt . Many find it easier to just ignore what they owe but this only makes things worse. The longer you put off paying your taxes the more you will owe penalties and interest.
If you can’t afford to pay what you owe in full, the following options may help you get in good standing with the IRS and avoid legal action:
- Installment agreement – This is the most common tax settlement option available that lets taxpayers make monthly payments meeting a minimum amount.
- Partial payment installment agreement – If you are unable to make the required payment under the installment plan, this option lets you make smaller monthly payments. It’s also possible to pay less than the original tax amount.
- Offer in compromise – This method lets you settle taxes for less than you owe by making an offer to the IRS on what you can pay.
- Declared currently uncollectible – The IRS may review your situation and temporary stop collection proceedings if you meet qualifications. Your financial situation will be reviewed at a future date to proceed with collections giving you time to improve your finances.
- Penalty abatement – This allows penalties to be waived from payment that accrued on the overall tax amount due. For many, this may give a big decrease in what is repaid.
- Financial hardship – If you have no way of making payments or have no cash or assets of value the IRS may cease collection efforts against you until your financial situation improves.
A tax attorney or tax expert can provide assistance in settling taxes. Working with a professional gives a better understanding of how certain options fit your situation and make sure procedures are followed accordingly when applying.
Tackling Tax Debt When You’re Financially “Up Against The Wall”
The IRS has wide reaching powers to collect on delinquent tax debt, which includes levies, wage garnishments and liens. But if you’re drowning in tax debt , there are a few things you can do to resolve your tax debt issues.
Things you should do immediately to handle your tax issues:
- Contact the IRS immediately. Or, if you owe state taxes, contact your state taxing authority. Communication in key when you owe back taxes. Failure to communicate with taxing authorities will only exacerbate your situation. You can call or even write the IRS or state taxing authority detailing your financial situation.
- Understand your rights. In the case of the IRS you have a right to challenge the validity of a tax assessment made against you. You also have a right to request a payment arrangement or even request a settlement. However, the IRS has the right to deny your request; but only if they provide a valid reason. Also, the IRS and state taxing authorities are prohibited from treating tax debtors in a demeaning or disrespectful way. For example, the IRS agents or state taxing authorities are prohibited from making threats against your person or using profanity when speaking with you.
- When asking for a payment arrangement, be prepared to provide financial data that proves that you cannot pay your taxes immediately. The IRS and state taxing authorities will generally request that you provide bank statements, paystubs and a monthly budget that details your income and expenses. Generally speaking if your payment arrangement only spans a year, you will not be denied a payment arrangement.
- If you are facing a tax levy or wage garnishment, filing bankruptcy will stop the collections actions of the IRS and if your taxes meet certain criteria, you may be able to discharge than in bankruptcy.
How Can I Get Tax Debt Relief in Bankruptcy?
Eliminating Tax Debt in Bankruptcy
It is possible to have certain tax debt eliminated in bankruptcy but under special circumstances. While you can include them in your bankruptcy filing along with other outstanding debt, in some cases, you’ll still be responsible for them at the end of a Chapter 7 bankruptcy or make payments on them as part of your Chapter 13 bankruptcy repayment plan. If you are looking to have tax debt discharged, Chapter 7 is a better option; only if they qualify.
There are certain conditions that apply for having tax debt be eligible for tax debt relief:
- Taxes have been accessed by the IRS within 240 days of your bankruptcy filing. The timing could vary on this if an offer in compromise was made, the IRS suspended collection activity or you filed a previous bankruptcy.
- Tax returns have been filed for the debt that you wish to have discharged. Taxes should have been filed at least 2 years prior to your bankruptcy filing.
- The tax debt in question should be at least 3 years old prior to filing.
- The taxes should be income taxes.
- Tax fraud or evasion has not been committed. Tax returns previously filed should contain correct information.
Bankruptcy may prevent the IRS from garnishing your wages or seizing funds from your bank account (also known as a bank levy). If you have a tax lien on your property, bankruptcy may not be able to remove it through tax debt relief. You may qualify to pay off your tax debt through Chapter 13 in which, you could be required to pay all or a portion of your outstanding debt. Review your financial situation with a legal expert to determine if bankruptcy is the best option.
Taxes, Debt Forgiveness and Bankruptcy
Debt Forgiveness and Bankruptcy
Debts forgiven in bankruptcy are never taxable. However, some debts forgiven outside of bankruptcy may create a tax liability for the debtor. Let’s take a look at few tax issues debtors may face after settling debts outside of bankruptcy:
Debt Settlement On Credit Cards
As we have mentioned previously, many debtors are so anxious to avoid bankruptcy that they are willing to pay to have debts settled for “pennies on the dollar.” The biggest problem with credit card debt settlement, outside of the fact that it rarely works out as advertised, is that the forgiven debt is treated as income by the IRS. This means that if the debtor does manage to have $10,000 of credit card debt forgiven without the help of bankruptcy, the IRS will require the debtor to pay taxes on it. If the debtor doesn’t have the cash, this could create an even larger problem.
In an attempt to avoid foreclosure and bankruptcy, some homeowners seek out short sells and the forgiveness of their mortgage balance. This may seem like a sweet deal for debtors wanting to avoid bankruptcy; but the deal can sour if the mortgage balance is not forgiven in a timely manner. Right now, the IRS is waiving tax liability for mortgage debt forgiven if the short sale was for at least $50,000 less than the balance of the mortgage. However, this waiver expires December 31, 2012. That means that the short sale and debt forgiveness must happen before that date and if it doesn’t, the debtor will owe taxes on the mortgage balance.
Before a debtor decides to seek debt forgiveness outside of bankruptcy, they need to closely examine how such a move will impact their tax liability.
Can Bankruptcy Be a Solution for Tax Debt Relief?
Taxpayers are often under the impression they cannot get tax debt relief . While bankruptcy is a powerful legal tool that may help you gain control of your finances and eliminate qualifying debt, it can help discharge tax debt in certain circumstances.
There are different types of tax debt consumers deal with, yet in bankruptcy income tax debt is the most common that is dischargeable after meeting specific requirements. If you intend to include income tax with your bankruptcy filing you are required to have all income tax returns filed and current. This means tax returns in relation to the debt you want to discharge should be filed with the Internal Revenue Service (IRS) prior to your bankruptcy filing.
Debt associated with filed returns after 3 years have a better chance of being discharged if the IRS is unsuccessful in collecting against them. If your tax debt doesn’t qualify to be discharged, you may still benefit from filing Chapter 13 bankruptcy . This option may help you come up with an affordable repayment plan that may last from 3 to 5 years. You can negotiate an amount to pay and once the court approves the plan, the IRS will accept payments under the new payment schedule.
Bankruptcy may help reduce or eliminate penalties and interests associated with outstanding tax debt. The filing process may also stop IRS collection attempts including property seizure and garnishments. In understanding if your tax debt is eligible for bankruptcy relief, factors such as the type of tax, when it was filed, the age of the tax and when it was assessed should be reviewed with an experienced bankruptcy attorney.
Tax Debt Relief In Bankruptcy
Under bankruptcy law, debtors can discharge certain types of tax debt in Chapter 7 bankruptcy or Chapter 13 bankruptcy. However, if a tax debt is secured by a lien against your assets, you will not be able to use bankruptcy to get rid of the lien.
Rules that apply to discharging taxes in bankruptcy:
- You cannot discharge tax debt that was just an assessment for taxes on a tax return you NEVER filed. You must file your taxes in order to discharge any tax debt associated with that filing. This is just one of the reasons why it is important to file your taxes in a timely manner, failing to do so could delay or eliminate your ability to discharge tax debt.
- The tax returns for which you want to discharge the tax debt must have been due three or more years before you file bankruptcy. For example, if you filed bankruptcy in 2010, then you might be able to discharge tax debt from 2007.
- If you were convicted of trying to evade paying taxes you will not be able to discharge your tax debt in bankruptcy.
- The taxes you owe must have been due to the government for at least 240 days before filing bankruptcy. For example, if you received a tax bill from the government for the first time 30 days ago, you would not be able to have it discharged in bankruptcy.
If you owe tax debt and are unable to pay it, please contact the taxing agency to let them know about your situation. State, local and federal taxing authorities have the power to grant hardship deferments to those who are unemployed or have some other financial crisis.
Keeping Tax Records
In order to avoid getting into tax debt, you must file your tax returns promptly and accurately. Keeping a file of your transaction records is very important so that you don’t miss out on anything when it’s time to file your tax return. However, they can accumulate over time so you need to check your files every now and then to make sure that you don’t keep the ones you no longer need!
Some transaction records need not stay in your files too long. Examples of these are ATM receipts and deposit slips. You can discard them right after you find the corresponding transaction on your monthly bank statement. You can also throw away your cable, telephone and utility bills once you have received the new bill showing your latest payment. You will not need these! The same thing applies to your credit card statements as well. However, you may still want to keep your bills if you think your going to need it later as reference for tax exemption.
You can keep a file of your monthly bank statements until you receive your year-end statement. After you have checked that the year-end statement is accurate, you can trash the monthly statements. Even after you have already filed your tax return, you still need to keep those year-end statements for the next three years. For those who are self-employed, you can keep those statements for up to six years.
If you have purchased stocks or funds, you must keep any documents relating to them for as long as you have those investments. Make sure you also keep year-end statements of these types of investments. This may come handy when you sell your shares.
Although it is ok to discard your tax returns after six years, you may want to keep them for record purposes. Your tax return contains information that you may need in the future. Supporting documents like cancelled checks, receipts, etc. can go to the trash bin. Once you have received your W-2, you won’t need your pay stubs, so that can also go. You may still want to retain receipts for home improvement expenses. You may need them if ever you have to sell the house, so you can show how much you have spent.
In discarding paper documents, always make sure that you destroy them thoroughly to save yourself from being a victim of identity theft. It is best to shred statements, bills and other important documents before you throw them away.
Unpaid Taxes: What You Should Know about Tax Liens
What You Should Know about Tax Liens
A tax lien is placed by the Internal Revenue Service (IRS) when taxes have not been paid. Basically, it’s a claim from the government on your property and once it is issued, it can attach to just about anything you own.
When the IRS places a tax lien because a taxpayer has unpaid taxes the action is enforced if a taxpayer neglects to appeal or work out a solution with the IRS to resolve the liability. Once your tax liability is assessed, you receive a notice demanding payment from the IRS but fail to pay toward tax debt within 10 days of being notified, the IRS files a lien. Even if you receive notice of a lien being filed, you still have an opportunity to stop the process but working out an agreement with the IRS. There are installment plans available or if you qualify an offer in compromise may help resolve tax debt .
The lien covers taxes owed, including penalty fees and accumulating interest. Items subject to a lien include rental income, a vehicle, a house and securities. Any personal property with value is subject to a lien. When you sell you property the IRS is entitled to profit; taking it and applying it to the outstanding taxes. A lien stays in place until the tax liability is satisfied. A tax lien may have serious effects on your credit rating so many taxpayers look to avoid the action. Questions and concerns can be discussed with a tax attorney or tax expert.
How Waiting to File Bankruptcy May Discharge Tax Debt
Many are under the impression that tax debt cannot be discharged through bankruptcy. Yet, tax debt could qualify for elimination under certain conditions in either Chapter 7 or Chapter 13 bankruptcy .
Tax debt may be eligible for discharge under these requirements:
- Three years before filing your petition your taxes were due. The timing may vary if tax returns related to outstanding tax debt had an extension request.
- Two years before filing your petition you filed your tax returns. This means tax returns have been filed for years before filing for bankruptcy protection.
- Tax debt should be accessed 240 days before submitting your bankruptcy petition. This means the Internal Revenue Service (IRS) has reviewed your debt before your filing. Timing on this may vary if an offer in compromise was submitted before the filing.
- No fraud or tax evasion was committed. It’s unlikely you’ll be granted a discharge for outstanding tax debt if tax fraud was committed or you purposely tried to evade tax payments.
You may still need to satisfy debt if you have a tax lien before your bankruptcy is filed. A lien may be against your property but if you sell it, the IRS may look to satisfy outstanding taxes owed from proceeds. On the other hand, the filing may wipe your personal obligation to pay. Since certain requirements have time restrictions this may be an advantage for you in getting tax debt discharge. If you are considering bankruptcy as an option for tax debt, discuss your situation with an experienced Dallas bankruptcy attorney .