What Happens If I Owe Taxes While In A Chapter 13 Bankruptcy?
When you file for a Chapter 13 bankruptcy, there may be a chance you could end up owing taxes over the three to five years that you are in the bankruptcy. If you do happen to owe taxes while in a chapter 13 bankruptcy, the IRS or State that you owe may file a proof of claim. This is a legal document that states how much you owe a creditor. Depending on the amount you owe, the bankruptcy Trustee may need to increase your payments. The amount that the payments would increase depends on how much you owe.
In a Chapter 13 bankruptcy, taxes owed are paid back in full. Depending on what you end up owing, your payments could end up needing to be increased to ensure you pay back everything owed in taxes before your bankruptcy is closed. Your attorney and the Trustee will typically work this out and let you know what the payments will end up being.
To ensure the greatest chance of success in your Chapter 13 bankruptcy you should be sure you try to fix your deductions so you are breaking even each year. Ideally, you don’t want to get a large refund each year (the Trustee could take this if you do) and you don’t want to owe each year because that could cause your monthly payments to increase to an amount more than you can afford within your Chapter 13 bankruptcy.
So what’s the bottom line? Fix your deductions so you don’t continually owe more in taxes over the course of your bankruptcy. If you do owe, contact your attorney and they can work with the Chapter 13 Trustee and the taxing agency to try to ensure you can stay within your Chapter 13 bankruptcy.
Am I Personally Responsible for the Taxes Owed On My Business?
The Internal Revenue Service (IRS) uses a basic logic that if you have any signing authority over the business bank account, then you can be held personally responsible for certain taxes owed by that business. So, yes, if you own a business or part of a business, be prepared to pay certain accrued taxes. This is especially true if you have a sole proprietorship. Additionally, no matter what type of business you own or owned, you also need to be careful when it comes to taxes that you should have paid as an employer – for example, the necessary taxes you pay to the government for your employees (social security, etc.). These can later be assessed as “civil penalties” which you are personally responsible for, even if the business later dissolves.
The general rule when it comes to taxes is that the government – state or federal – almost always gets paid.
What if you have dissolved the company? Unfortunately, dissolving a business will not eliminate any tax debt or liability. Even filing bankruptcy will not take care of all taxes. Generally speaking, the only time taxes may be wiped out in a bankruptcy is if they were filed three years prior to the bankruptcy filing date. The civil penalties mentioned above are also taxes that you can be personally responsible for even if the business has been dissolved.
If you owe a large amount to the government for taxes and are having a hard time coming to terms for a payment plan with the IRS, you may want to look into filing a Chapter 13 bankruptcy, which is a structured repayment plan. This will keep the penalties from accruing and enlarging your original balance owed.
If your business is still operational, you may look into reorganizing your business debt in a Chapter 11 bankruptcy.
The bottom line is that even though you can still be held personally responsible for certain business taxes, you are not limited to repaying your taxes outside of bankruptcy. Certain types of bankruptcy may actually be a better alternative for you when it comes to setting up a repayment plan.
What Should I Expect at a Workers’ Compensation Mediation?
In North Carolina, if a party to a workers’ compensation case, such as an injured worker or an employer/insurance company, has requested a hearing in front of the North Carolina Industrial Commission by filing a Form 33, a mediation is required by state law. However, if an agreement or settlement is reached by all parties before the mediation, the mediation is not necessary. Sometimes, the parties agree to an informal mediation between themselves.
The purpose of the mediation is for the parties to come together, with the assistance of an approved mediator, and try to settle the matter without the cost and expense of a formal hearing in front of a deputy commissioner, who is similar to a judge.
Want To Know What It’s Like To Be Harassed By A Creditor? Real Phone Call
Many of those who are facing financially tough times right now are stressed out even more by creditors who call non-stop. Creditors push the boundaries on what they may and may not do to collect a debt.
For example, here is a voicemail a client of ours emailed us the other day. Our client allowed us to post this voicemail so others could see they are not alone with the constant and harassing phone calls.
After receiving the voicemail we called the number back and spoke with someone with the company. They explained they didn’t know our client had filed bankruptcy. However, we confirmed their mailing address was accurate and explained we had previously sent proper notice of the bankruptcy. We then let them know they were violating the Fair Debt Collection Practices Act and any further attempt to collect on this debt would be met with a motion for sanctions.
They told me they didn’t do anything illegal and, after explaining I had a recording of the voicemail, they hung up on us. Before doing so, they explained they would notate in their system that our client had filed bankruptcy and she would not be contacted again. To date, she hasn’t received another call.
Regardless, this phone call shows some creditors will do whatever it takes to collect on debts. If you believe a debt collector is overstepping the boundaries let them know that they are violating the Fair Debt Collection Practices Act. It is important to keep detailed notes about who you spoke with (including their identification information), what time they called and what they said. Without this information it is difficult to be successful in a motion for sanctions against the creditor.
Should I Refinance My House to Pay Off Debt?
Desperate times require desperate measures or so the saying goes. If you are struggling to pay your debts, primarily the result of the minimum payments on credit cards, medical bills, personal loans, taxes, student loans, etc., should you consider refinancing your home to pay off the debt?
There are several factors to consider. First, you must determine if you have any equity in your home that would allow you to refinance and take the excess proceeds to pay off your debt. Unfortunately, with the downturn in the economy fewer and fewer people find they have equity in their home. However, if you are one of the lucky ones that have equity in the home, you need to decide if consolidating the debts into the mortgage loan is your best option. Is it always a bad idea to refinance your home to pay off debt, no, but you need to consider the pros and cons before you make the decision.
Pros:
The payment on the debt can be spread over the terms of a mortgage, often 30 years, therefore reducing the payment each month.
The interest rate on the mortgage is usually considerably less than what would be paid on credit cards, so there is an automatic savings.
The interest from the mortgage loan can be deducted on your taxes; interest on credit cards and most other personal debts cannot be deducted. (Interest on student loans is the exception. It can be deducted, but the deduction is limited and phased out as income reaches a threshold.)
You will be making one consolidated payment each month so there is a convenience factor.
This all sounds great, so why wouldn’t everyone just refinance their home to pay off their other debt.
Cons:
The monthly payment on the home mortgage is larger after refinancing and can be a stretch for the family budget.
If you are unable to make payments on the mortgage due to illness, loss of job, etc., the mortgage company can foreclose on the home.
Again, refinancing the home is not always a bad idea, but you must realize you have placed your largest asset, your “home”, at risk.
Do I Have To List My Business Assets on My Personal Bankruptcy?
This is an excellent question. For the most part, our bankruptcy clients who have businesses fall into two categories. The first category consists of those who feel as though they and their business are “one” entity. The second category consists of those who feel as though their business is a completely separate entity. Often, when clients drop their paperwork off at our office and we question what business assets exist, clients will reply, “Well, that doesn’t belong to me, that belongs to my business.” So the real question is: what needs to be listed as assets in your bankruptcy and what does not?
Technically, ALL of your assets need to be listed. Therefore, going back to our previous blog post on whether or not tools are protected we can examine debtor-owned businesses based upon the same scenarios. Let’s use the example of Joe Blow’s Lawn Care. Joe owns Joe Blow’s Lawn Care. The lawn mower, rakes, blower, hedgers, etc. all belong to Joe. If he decided to no longer run the company next week, the only difference would be that the tools would move from his truck to his garage at home. These tools would need to be listed in Joe’s personal property and protected by the exemption known as “Tools of the Trade” as long as Joe is using them in his business. If Joe were to be sued, he would need to protect those tools as he would any other asset (such as a bank account or vehicle) he has from seizure.
Referring back to the same situation as discussed in the previous blog post, let’s use the scenario that Joe went to the Secretary of State and registered his company as a corporation. Now Joe Blow’s Lawn Care, Inc. is the owner of the tools. Even though the company at this point in time owns the tools, let us not forget that in the end scheme of things the debtor owns the company. That company is an asset in itself; therefore the tools would be listed on the business balance sheet, included as an asset and the Joe’s portion of equity from the corporation must be listed in the bankruptcy and protected.
Regardless of how large or small, the court looks as personal assets all in the same; they need to be listed and at least attempted to be protected in the bankruptcy. Again, it goes back to the confusing question of how the business should be treated for bankruptcy purposes. Since businesses can get quite complicated at times, we strongly suggest that you thoroughly discuss your business and any other assets you or your business may have with your attorney so they may advise you properly to ensure your assets are protected.
