Articles Posted in Taxes

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protect-money-umbrellaAs 2016 comes to an end, the 2017 Tax Season will begin. Federal law requires that all employers provide their employees with their W2s no later than January 31st, so that federal income taxes may be filed by April 18th. Bankrate predicted in 2015 that thirty percent of the public who would receive a 2014 tax refund would use that refund to assist them with lowering their debt and that many of this thirty percent would use their tax refund to file a Chapter 7 or Chapter 13 Bankruptcy. This statistic has remained unchanged for many years.

The most advantageous benefit to using your tax return to help you file a Chapter 7 or Chapter 13 Bankruptcy is that using your tax refund to fund your bankruptcy allows you to use your refund in an essential and reasonable manner. When you use your tax refund in an essential and reasonable manner such as filing bankruptcy, then your tax refund most likely will be protected from your creditors and well spent. Continue reading →

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IRS Passport Revocation and Discharge of Income Tax DebtsSenate Bill 1813 will allow for the revocation of passports from anyone who owes more than $50,000 to the Internal Revenue Service. The Bill will Amend Sub-chapter D of Chapter 75 of the Internal Revenue Code of 1986 to read:

“SEC. 7345. REVOCATION OR DENIAL OF PASSPORT IN CASE OF CERTAIN TAX

DELINQUENCIES.

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Home Foreclosure Debt Forgiveness BankruptcyThe Mortgage Debt Relief Act of 2007 was enacted as a response to the growing foreclosure problem. More specifically, it addresses the issue of “Debt Forgiveness Income.” Debt Forgiveness Income is an IRS theory that if a debt you owe is forgiven, you have gained in monetary value because you no longer are required to pay that debt. That gain in value is taxable as income despite the fact that you didn’t actually earn any money. For example: Stephen owes $5,000 in old medical bills. He can’t pay the bills, so the hospital forgives the debt and writes it off on their taxes. Come tax time, he will receive a Form 1099 for $5,000 of additional, previously untaxed, income for that year. Now, $5,000 may not be too much of a problem, even in the highest tax bracket this would only increase his taxes by $1,750, the trouble starts when the amount forgiven is higher, as it is with a house.

If Stephen’s home is foreclosed upon and the bank forgives a $50,000 debt, he will owe taxes for his actual annual income, plus this $50,000. You could’ve argued that $5,000 wouldn’t effect what bracket he was in before, but $50,000 is almost certain to increase his tax bracket and will leave him with a minimum of $12,500 in additional tax debt. As a result, Stephen may be in debt for a long time. If he didn’t have the money to pay his mortgage, it doesn’t make sense that he’d have enough money to pay the taxes.

It was because of Stephen’s scenario that the Mortgage Debt Relief Act of 2007 was passed. The act allows a person whose homestead has been foreclosed on to have his debt forgiveness income waived so long as it is less than a million dollars per year.

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When a home is foreclosed on and sold for less than the amount owed, the bank has two options:

1. Sue the ex-homeowner for the deficiency (an amount the bank knows they’re not going to get) or 2. Write the loss off on their corporate taxes.

When a bank writes a loss off on corporate taxes, the amount of the write off becomes Debt Forgiveness Income to the ex-homeowner. The IRS says that when someone’s debt has been forgiven, their total worth has gone up, therefore this counts as income. When this happens, the ex-homeowner will actually get a 1099-C for the difference and will owe income taxes on the new amount.

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Debt can be classified as secured, unsecured, or priority. A secured debt is one that is collateralized by property. This means that if you default on the debt, the creditor can take the property that secures the loan. Your mortgage loan is probably secured by your home. Your auto loan is probably secured by your auto.

An unsecured debt is when you make a promise to repay the debt, but the debt is not secured by any collateral. If you default on the promise, the creditor cannot take your property without obtaining a judgment.

A priority debt is a debt that is entitled to repayment ahead of other debts that you owe. Taxes and some attorney fees are priority debts. A list of priority debts can be found in 11 U.S.C. §507.

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Most debts are dischargeable in bankruptcy. However, there are a few debts that are not:

1. Debts arising from fraudulent conduct 2. Government-backed student loans (unless severe hardship can be shown)

3. Debts stemming from death or personal injuries related to your operation of a motor vehicle while intoxicated 4. Certain taxes and fines 5. Some debts not listed on your bankruptcy 6. Domestic support obligations (alimony, child support, etc.)

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When you file for Chapter 13 bankruptcy, you will pay off your debts through a Chapter 13 Plan that lasts anywhere from 3-5 years. A Chapter 13 Plan allows a debtor to catch up on most any debt, including mortgage arrearages, owed taxes, missed payments on vehicles, HOA dues, legal fees, fines owed to the city or state, and more.

Your unsecured creditors might also get some payments through the Chapter 13 Plan. If they will and how much will they receive is determined by your means test and the amount of unexempt property that you have. Any amount of unsecured debt that you have over this amount will be discharged at the successful conclusion of your Chapter 13 bankruptcy. For example, if you owe $20,000 in unsecured debt and your case only dictates that you must repay $5,000 to unsecured creditors, the $15,000 balance gets discharged or forgiven when you successfully complete your Chapter 13 Plan. If your case dictates that no money must be paid to unsecured creditors, then the entire balance of $20,000 would be forgiven.

To see how a Chapter 13 Plan would be structured for your specific situation, contact a Jacksonville Bankruptcy Attorney today for a free consultation.

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bankruptcy-thumb-250x186-1907.jpgYes, if it is a non-priority debt. Taxes become non-priority debt when 1. the return was due more than 3 years prior to filing the bankruptcy 2. the return was filed at least 2 years before you filed for bankruptcy 3. the tax debt was assessed at least 240 days prior to filing AND 4. you are not guilty of any type of fraudulent behavior, like tax evasion. Also, you cannot have signed a settlement agreement with the IRS. This can be an in-depth analysis, so it is best to have a competent attorney look at your specific situation. To schedule a free consultation today, get in touch with a Jacksonville Bankruptcy Attorney by calling 904-685-1200.

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