Bankruptcy is a negative term, and with new amendments in the law, it is now also a mind-boggling word. However, it is the only resort for a lot of people. Understanding what bankruptcy is, what the filing needs and guidelines are, and the nitty-gritty of the process is important if you think this is your last alternative to get away from financial mishap. To add, it is a wonderful move to consult a Tampa tax professional if you intend to resort to filing for bankruptcy. Click here to read or watch more IRS Help resources.
First, how is bankruptcy defined? It is when a person or business is deemed incapable of settling his financial obligations. There are three different forms, or more legally referred to as Chapters, of bankruptcy for individuals, married or domestic partners. Let us visit each Chapter.
*Chapter 7 – debtors, mostly individuals or couples, are granted with the time to liquidate their assets to settle their dues and permitted to handle sufficient funds to help them regain their balance in the financial arena.
*Chapter 12 is tailored-fit for family farmers or fishermen
*Chapter 13 or debt reorganization – usually provided to those who display the possibility settling their debts in three or five year’s time
Businesses have three options: Chapters 7, 11, and 15. Chapter 7 business bankruptcies lead to the termination of the business. Chapter 11 assists businesses in reorganizing debt and operations while staying open. Chapter 15 focuses on the eradication of foreign debt. Your Tampa tax lawyer will help you identify which, if any, form of bankruptcy you can be classified into.
Bankruptcy relief covers, among others, credit card debt, medical bills and unsecured loans. Child or spousal support and some tax debts, however, cannot form part of it.
What are the filing guidelines? Again, this is an area where a Tampa tax lawyer can offer very useful pieces of information. The bankruptcy regulations were amended in 2005, making the procedures more intricate and harder for debtors. Written below are a few of the rules and regulations:
*Numerous amounts of documentations regarding earnings and expenses are needed for filing. Your Tampa tax lawyer can help you determine which forms you need and help you prepare them.
*Debt counseling from approved counseling institutions is required six months before filing.
*You have to meet income requirements. The new regulations are directed at decreasing the number of people who file for Chapter 7. You have to fall within your state’s median income, and meet other qualifications which differ county by county. People who do not meet the requirements of Chapter 7 will make use of the provisions of Chapter 13.
To check if you qualify for the requirements for Chapter 7, you can refer to the US Trustee Program of the Department of Justice or ask the assistance of a qualified Tampa tax lawyer.
How do you declare bankruptcy? It is possible to do it on your own, but do not forget that it is a legal proceeding with far-reaching consequences. You may need an expert who is experienced in bankruptcy laws. You pick whether you are filing for Chapter 7 or 13 and then file with the bankruptcy court. You are then assigned a trustee who is in-charge of making sure that you gather all the needed information. Then, you tell your creditors of your move to file for bankruptcy. They will need to discontinue their attempts of collecting payments from you. As the cycle goes on, you will need to meet with creditors. Filing for bankruptcy is a long-and-winding process, so be prepared to see it through.
Lastly, what is the effect of a bankruptcy claim on your income taxes or IRS standing? It depends. First, a forgiven debt is treated as a taxable income, except in the case of bankruptcy. Second, filing for one reduces the other tax benefits due to a debtor. Third, it generates a bankruptcy estate, which includes all your assets and is considered another taxable entity when the claim is filed under Chapter 7 or 11. Consequently, you have to pay taxes for this other asset.
The rules and procedures of bankruptcy can be very complex. For additional information, you can check with the IRS for detailed tax queries. You must also consult with a Tampa tax lawyer. The decision to file for bankruptcy is a huge life decision: make sure you have all the assistance and paperwork you need to make an informed choice.
Darrin T. Mish is an experienced, nationally recognized tax attorney who has been practicing tax law for over a decade. He has an AV rating by Martindale-Hubbell and has been honored with a listing in Martindale-Hubbell’s Bar Register of Preeminent Lawyers. His passion is providing IRS help to taxpayers, and with that in mind, he travels the country training other attorneys, CPAs and
He is also a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 888-GET-MISH.