Filing and IRS Bankruptcy Basics

In its original sense, bankruptcy already has a depressing implication and this negativity is increased with the recent developments in the laws governing it. For a number of people, unfortunately, this turns out to be their only alternative. Thus, it is imperative that we comprehend what the concept really is, what the filing requirements and guidelines are and what the process is. The option to consult a Tampa tax lawyer should not be overlooked as his professional assistance is instrumental in bankruptcy filings.

First, how is bankruptcy defined? It is when a person or business is declared incapacitated to settle 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 is mostly filed by individuals or couples.  Debtors have a period of time to liquidate assets to pay off debts.  They are allowed to keep enough to start over financially (meaning they do not have to sell everything)
*Chapter 12 especially formulated for family farmers and fishermen
*Chapter 13 is also referred to as debt reorganization.  This is for people who have the ability to settle some or all of their debts.  Usually, debtors are given three to five years to pay off their financial obligations.

Businesses have three choices: Chapters 7, 11, and 15.  Chapter 7 business bankruptcies lead to the dissolution of the business.  Chapter 11 helps businesses reorganize debt and operations while staying in operation.  Chapter 15 specializes in the eradication of foreign debt. Your Tampa tax lawyer will help you distinguish which, if any, form of bankruptcy you can be classified into.

Bankruptcy relief includes, among others, credit card debt, medical bills and unsecured loans.  Child or spousal support and some tax debts, on the other hand, cannot form part of it.

A Tampa tax lawyer can very much help you in your filing requisites especially since bankruptcy laws were reworked in 2005.  The process is now more complicated.  Let me to demonstrate this fact through a few examples:

*Numerous amounts of documents regarding earnings and cost are required for filing.  Your Tampa tax lawyer can help you distinguish which forms you need and help you prepare them.
*Debt counseling from pre-screened counseling outfits is required six months prior to filing.
*You need to hit income requirements.  The recent regulations are geared at decreasing the number of individuals who file for Chapter 7.  You need to be in your state’s median income, and meet other qualifications which change area by area.  People who do not qualify for Chapter 7 will refer to Chapter 13.

There are two methods in checking if you qualify for Chapter 7:
a.    Turn to the US Trustee Program of the Department of Justice
b.    Seek advice from a qualified Tampa tax lawyer

How do you file for bankruptcy?  You may do it on your own, but remember that it is a legal proceeding with far-reaching effects.  You may want a professional 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 collect all the required documents. Then, you notify your creditors of your decision to file for bankruptcy.  They will need to discontinue their attempts of collecting money from you.  As the cycle keeps on, you must to talk with creditors.  Filing for bankruptcy is a lengthy process, so be prepared to see it through.

Finally, what is the consequence of a bankruptcy claim to 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 minimizes the other tax benefits due to a debtor. Third, it creates a bankruptcy estate, which has all your assets and is considered a separate taxable entity when the claim is filed under Chapter 7 or 11.  This means then that you have to pay taxes for this other entity.

To learn more about the guidelines in bankruptcy, you can check with the IRS. Another brilliant strategy is to employ the services of a Tampa tax lawyer.  Deciding to file for a bankruptcy is big move; therefore, it is necessary that you have everything you need to make this intelligent choice.

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