Chintamani Abhyankar, is a well known expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of personal finance. His famous eBook Stop donating your money to IRS which is now running in its second edition, provides intricate knowledge and valuable tips on personal finance and income tax.
As per research made about the causes of bankruptcies in US, the major cause is medical emergency which counts up to 50%, and the next significant contributor is tax debt! Remember, even a successful bankruptcy filing is not enough to waive off the IRS tax debt (which can happen in case of unpaid medical bills). To the contrary, bankruptcy may multiply your tax debt. There are some important facts that you need to know - how bankruptcy can impact your tax debt positively or if ignored may be adversely.
You need to file all tax returns before you proceed to file Bankruptcy. This is a law. The Internal Revenue Service is authorized to put a stay on the bankruptcy proceeding in case tax returns for the last four years are not filed. If you disregard the income tax law, the bankruptcy judges may be inclined to dismiss your case.
You should not depend totally on the Bankruptcy option as your savior. The bankruptcy legislation came into law in 2005 and it has changed the previous interpretation of bankruptcy. It is more stringent now and you should never think that you will be easily qualified. It has now provided for strict tests on your income and your means to pass through. You can also choose the option of compromise and settlement plan before you opt for bankruptcy process. Take help of a money management counselor to know all your options. One has to handle the tax debt related bankruptcy very carefully.
If you have filed Chapter 13 Bankruptcy, your assets such as your house, car, rental properties and bank accounts will be sequestered off into individual entity and they are called as ‘estate’ by the IRS. This estate is again a taxable income as in case of a bank account, as it may earn interest. You may need a lawyer experienced to handle tax-debt issues if you hold assets which are earning for you and you plan to file bankruptcy.
He will brief you about 1099-C Forms. These forms are very crucial in case of bankruptcy. These tax forms specify canceled debts which will be taken as your taxable income. In case the issue of such form is delayed, you can avoid them by including tax on them in your bankruptcy proceedings. I know it is unfortunate to pay your credit card debt along with a burden of income tax bill!
You need to pay the income tax due even when you are in bankruptcy court as your bankruptcy will not save you from such tax payable on your income. Never ignore this reality. So never ignore the taxes in such situation.
Taxes are facts of life for everybody and if timely attention is not paid even bankruptcy cannot save you!
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