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Taxes and Bankruptcy


It's tax season. That means a lot for some potential bankruptcy filers. It signals the passage of another year of dischargeable taxes.   Not all taxes are dischargeable, of course.  But April 15 will mark the first date for which personal income taxes owed for the tax year 2010 could potentially be discharged.   Figuring out what taxes can be discharged is critical to the timing of some bankruptcy cases.  Filing too early can mean substantial amounts of debt will remain after the bankruptcy is complete.  Knowing how to calculate the correct periods is complicated.  Start here to learn more about taxes and bankruptcy.

Bankruptcy Spotlight10

Best Interest of Creditors in Chapter 13

Tuesday April 15, 2014
The Bankruptcy Code has always been a study in contradictions. In fact, the Code is itself inconsistent with how we are expected to conduct our business affairs. Because bankruptcy can be such a game changer, the Bankruptcy Code strives for fairness between the debtor and the creditors. It doesn't always succeed, and as we've seen over the years, the prevailing mood in Washington can have a profound affect on whether the creditor or the debtor is "more equal". The Best Interest of Creditors Test is one way the Code attempts to balance the needs of the creditors to recoup their stake against the need of the debtor for a fresh start. It first appeared in the Bankruptcy Act of 1898 and was refined over the years until it was codified in essentially the current form in the Bankruptcy Reform Act of 1978. Read more about it in Chapter 13: Best Interest of Creditors Test.

Breaking News: No federal statute of limitations for government claims?

Monday April 14, 2014
Thanks to the Washington Post, we've learned today about efforts of the Social Security Administration to collect old debts for overpayment of benefits. Old news, right? What makes this newsworthy is that the the SSA is confiscating the tax refunds of children of woman who may have received survivor benefits decades ago. All thanks to a change in the statute of limitations for collection of claims by the federal government. Last year's Farm Bill included a tiny section buried deep within the huge bill that lifted the government's limitations period for administrative offset, meaning that federal agencies can direct the Treasury Department, more specifically the IRS, to withhold refunds for debts older than ten years. Consequently, the SSA is seeking refunds from children who may have received some benefit when their parents were awarded survivor benefits after the death of a spouse. In case you can't get your hands on it right away, Section 14219 is sandwiched between a provision that establishes a "Coordinator for Chronically Underserved Rural Areas" and one granting authority to the Department of Agriculture to pass along surplus computers. You can read a copy of the bill here. It is unclear just how far this statute of limitations issue goes. The provision appears to apply to all government "judicial, executive and legislative agencies." Although some of the provisions governing claims by the US Government reference "non-tax claims," others do not. The Social Security Administration is using it to collect overpayment of benefits. Can the IRS use it collect old tax debts? This could have a profound effect on bankruptcy cases. Section 523(a)(3) of the Bankruptcy Code specifically excepts from discharge any debt "neither listed nor scheduled" unless the creditor had notice or actual knowledge of the case in time to file a proof of claim. Question #1: Does this apply to tax debts? Question #2: For clients who've already received discharges, will the discharge apply to these debts even if the applicable agency wasn't listed as a creditor? Question #3: How do we ensure that the proper agency is listed as a creditor? Must we list all agencies with which our clients (or their parents) may have had some tangential relationship sometime during their lives?

The Effect of Debt on the Public Health

Saturday April 12, 2014
Debt and illness. Can there by any doubt that our economic condition has a direct impact on our physical and mental health. We've seen story after story over the course of this so-called Great Recession of the effect of the country's woes and our personal financial circumstances on our bodies and our minds. This week is National Public Health Week. Let's explore some of the ways that debt has a tangible and measurable impact on the soma and the psyche at The Effect of Debt on the Public Health.

Bankruptcy in the News - Take the Money and Run Edition

Saturday April 12, 2014
Here's your bankruptcy news for the week ending April 12, 2014. Read about: a fellow accused of concealing assets and lying about it (gasp!), another who allegedly tried to transfer his company's assets to Central America for his personal use, one overzealous (perhaps) consumer bankruptcy attorney who got his hand slapped (but won anyway), and this week's filings of note.

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