CAN UNPAID TAXES BE DISCHARGED IN A CHAPTER 7 BANKRUPTCY?

Most people believe that unpaid taxes cannot be discharged in a chapter 7 bankruptcy. However, they may actually be dischargeable in some circumstances. If the below criteria are met, then your unpaid federal income taxes will be dischargeable:

1. The taxes must be more than three years old. The clock starts ticking the date the tax return is due, not when the return was filed. If the tax year in question is 2007, then the return would typically be due on April 15, 2008 and that is the date where you would start your analysis. Any extension filed delays the start time to the date the return was due under the extension;
2. The tax return (or equivalent notice or report, if required) for the year in question must have been filed more than two years prior to the bankruptcy filing;
3. The taxes must have been assessed by the Internal Revenue Service and the assessment must have occurred more than 240 days before the bankruptcy was filed;
4. The tax return for the year in question cannot be fraudulent; and,
5. The taxpayer has not engaged in any activity that was a willful measure to evade or defeat the tax.

Please note that there are intricacies to each one of these criteria so it is important to have a bankruptcy attorney review your situation prior to filing. Additionally, you will also need to obtain Account Transcripts from the IRS for the years in questions. However, contrary to popular belief, tax can sometimes be discharged in a chapter 7 bankruptcy. Contact one of our bankruptcy attorneys for more information.

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HOW TO RECOVER AFTER BANKRUPTCY

A lot of clients ask what steps they should take after a bankruptcy is completed to rebuild their financial situation. The first, and probably most important, is to create a post-bankruptcy budget. Most bankruptcies results from over spending or incurring too much debt that can never be repaid. Each person should create a budget after completing a bankruptcy to avoid falling into that situation again.

Secondly, start saving money as soon as you can. This may sound obvious, but many clients use the money they save from the bankruptcy to spend on other items, a lot of time unnecessarily. If you are beginning a bankruptcy, make sure you are putting together a savings plan as well.

Finally, take steps to restore your credit after a bankruptcy. Many companies will offer credit to individuals with a recent bankruptcy, but the terms will include low maximum balances and high interest rates. In order to repair your credit, it is important for individuals to use this credit responsibly so they can improve their credit score as quickly as possible.

For more tips on post-bankruptcy option, contact one of our bankruptcy attorneys for a free consultation.

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STUDENT LOANS STILL NON-DISCHARGEABLE IN BANKRUPTCY

Last month, the Supreme Court declined to hear an appeal aimed at allowing student debts to be more easily discharged in bankruptcy. While there has been some pressure to make certain students loans dischargeable, it appears under the current structure, Congress will need to pass a law allowing for these debts to be discharged.  Until then, only very specific students debts that meet all requirements will be dischargeable in bankruptcy. For more information on this, please feel free to contact a bankruptcy attorney at our office.

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CAN I MAKE TOO MUCH MONEY FOR CHAPTER 7 BANKRUPTCY?

The federal bankruptcy statute governs all personal and commercial bankruptcies.  According to the statute, you have to "qualify" for a Chapter 7 bankruptcy.  There is a maximum household income level based on the amount of people living in your household.  Additionally, even if you are below that income level, if you have too much disposable income, measured as income minus necessary monthly expenses, the trustee can contest your discharge as an abuse.  In this case, a hearing could be held.

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CAN TENANCY BY THE ENTIRETY PROTECT MY HOUSE?

In Illinois, there are several ways to take title when more than one person owns real estate.  Generally, primary residences of married couples are owned through tenancy by the entirety, which offers certain benefits, including additional protection from creditors.  In general, if one spouse is filing bankruptcy, and the property has been owned through tenancy by the entirety since before the "look-back" period, then any equity in the property would be protected and exempt.  However, if both spouses file bankruptcy, or if the property has not been owned in this manner, any equity above the state exemption level could be at risk of seizure by the trustee.  Talk to one of our bankruptcy attorneys for additional information about protecting the equity in your house.

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CAN BANKRUPTCY DELAY A FORECLOSURE?

Yes, a bankruptcy can delay a foreclosure, but how long is a different question.  When a bankruptcy petition is filed, all ongoing litigation and collection activities must be stopped due to the automatic stay.  A lender involved in a foreclosure must comply with this requirement as well.  The automatic stay usually remains in effect for the length of the bankruptcy, which can be at least a couple months. However, if a lender that has started the foreclosure proceedings and does not believe the debtor will be attempting to keep the property, they can file a Motion to Lift the Automatic Stay, which would allow them to continue with the foreclosure proceedings.  As a result, a bankruptcy may only delay a foreclosure a couple weeks or a month in some instances, while it can delay the process several months in other cases.  Contact a bankruptcy attorney below for additional information.

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CAN I WITHDRAW A BANKRUPTCY PETITION ONCE IT IS FILED?

The bankruptcy code details exactly when a debtor can withdraw a petition that is filed with the bankruptcy court.  In order to be allowed to withdraw, a petition must be filed and approved by the court itself.  The major issue the court considers is whether the creditors will be prejudiced by allow the debtor to withdraw, however, the court will consider other factors as well.  If you are considering withdrawing a petition, contact your bankruptcy lawyer for more information on if you may qualify.

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