Bankruptcy and IRS Tax Debt

It is not uncommon that the people who come to me for back tax help have already deeply considered filing for bankruptcy. It is common to wonder if bankruptcy will solve all debt issues, including an IRS bill. The answer is: Well, sometimes bankruptcy will, but it all depends. (How’s that for a lawyer’s answer?) In any case, you must be careful because while bankruptcy might stop the IRS from filing a tax lien or pursuing collection activities, in most cases, penalties and interest are still accruing! Also, bankruptcy extends the amount of time the IRS has to collect on your debt—tax law normally limits the IRS to 10 years to collect against you. So all in all, after bankruptcy, your IRS tax debt may still be lurking around—and may even have more zeros tacked on.

The type of bankruptcy you file is a factor in whether or not your tax debt will be “discharged”. There are so many rules and exceptions when it comes to bankruptcy and unpaid tax debts. I recommend that if this is something you are considering that you talk to a professional—do not attempt to do this on your own.

For more information, check out this article I recently read on the topic of bankruptcy and taxes: http://bit.ly/dvn5h9.

Personal Bankruptcy Filings Soar

From the Wall Street Journal:

Consumer bankruptcies topped one million for the first nine months of this year, the highest point since the system was overhauled in 2005.

The number of personal bankruptcy filings for the nine months rose to 1,046,449 as of Sept. 30, the American Bankruptcy Institute, an organization made up of attorneys, accountants and other bankruptcy professionals, said Friday, using data from the National Bankruptcy Research Center. There were 773,810 personal bankruptcy filings for the same time period in 2008.

September's filings reached 124,790, 41% higher than the same month last year.

The 2005 revamp was intended to make it harder for Americans to shed their debts by filing for bankruptcy. In that year, before the law took effect, there were 1.35 million bankruptcy filings in the first nine months.

But a tough economic climate has sent filings soaring again and ABI expects personal bankruptcies to exceed 1.4 million by the end of the year. "Bankruptcy filings continue to climb as consumers look to shelter themselves from the effects of rising unemployment rates and housing debt," the institute's Executive Director Samuel J. Gerdano said.

Personal Bankruptcies Surge in Southern California

It is getting harder to go anywhere in California these days with out seeing signs of economic struggle. Businesses are closing, houses are getting foreclosed upon, and the government began issuing IOU’s for debt payments. However, in addition to the financial struggles of the state government, citizens in California are also struggling. Just this week, the LATimes.com released an article discussing the surge in Southern California bankruptcies over the past year. Check out a snippet of their article below.

In a recession, bankruptcies are common, but as the numbers continue to rise, some financial experts are hoping the word is being spread as to what a bankruptcy is, and how they work. Luckily, the Sacramento Business Journal recently posted an article all about bankruptcies and how to know if one is right for you. Read more below

Hundreds of thousands of American families have declared bankruptcy in the past two years and foreclosures locally remain high. For-sale signs are staying up longer than in any period in recent memory, neighborhoods are half-empty, and we all know people who have moved out of state.

Bankruptcy lawyers are seeing a lot of people with more than $30,000 in debt, and the volume of filings has increased at all levels.

Are you in this situation? If so, how can you tell when to stay the course, or when to cut and run?

Signs that you can’t go it alone any longer include being unable to meet basic living needs, and needing to borrow to pay past-due debt.

So what are your alternatives? You could declare bankruptcy, but that’s a heavy decision. Here are some of the mechanics to help you make up your mind.

Continue reading this story, here.