How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Fritz Your Own Question
Fritz, Attorney
Category: Bankruptcy Law
Satisfied Customers: 302
Experience:  Florida attorney with extensive experience in Chapter 7 and Chapter 13 consumer bankruptcy cases
Type Your Bankruptcy Law Question Here...
Fritz is online now
A new question is answered every 9 seconds

An embarrassing and impossible issue Ive never known about

This answer was rated:

An embarrassing and impossible issue I've never known about bankruptcy laws, as I've always had nearly perfect credit.
I'm in a bind. Sickness in my household and important things did not get taken care of for about a year. Let me explain more:

I got a portion of inheritance which included some mineral rights. I've always had upper-middle class income, and the monthly royalty checks would often equal half of my former net income for a year. So, 1 month / old yearly inc. = 50 % or more

The royalty checks began in mid 2008: For the next 2.5 years, I had tax money, several debts payed off, and some left over. The problem that I was warned about but did not heed: NEVER count on royalty income for tomorrow's expenses.

Again, illness at home and I basically let my responsibilities go. And am I ever paying dearly. Royalty checks have dropped 80 of what they were for over a year. Other trust fund income has been cut in half as well. So here I am , faced with a mountain that I cannot climb:

So here's how it crunches out: A large credit card bill which I will probably never get paid. Two other accounts sent into collection. My home and automobiles, insurance, utilities, have been and likely will continue to be taken care of via trust fund. Here's the good part: THE IRS!

My tax bill is so large, Im still inching along and struggling to pay even a tiny fraction each month for 2011. Then, county taxes al valor em (spelling gets me on that one) add to the burden. Basically, I'm in worse shape income-wise now than I was years ago on a much more modest budget.

It's impossible for everyone to get their money each month. And it doesn't look like income is going to increase anytime soon -- the wells are depleting.

I just need an avenue to start doing whatever it is that I need to do to chip away at this mountain. And I know bankruptcy doesn't relieve me of any tax burden whatsoever, right?

To sell my home would produce over $120,000 cash in hand. I live in an area where large homes, such as mine, do not sell quickly if at all.

Whew! That was a load! Any suggestions as to where I should start? I can't keep running from this ...

Thank you dearly for your considerations. I live the site and have RE dived much valuable information over the past year.


Fritz :

Hi, I'd like to assist you with your bankruptcy questions this afternoon.

Customer: Great! Much appreciated
Fritz :

Hi, can you provide rough estimates of the types and amounts of debts you owe that you can no longer afford?

Customer: Absolutely. Give me a quick second
Customer: Student Loan = $18,000
Customer: Credit Card Bill (Am Exp) = $40,000 (which I once could pay off immediately)
Customer: still getting the info -- bear with me
Fritz :

No problem.

Customer: High pharmacy bill for household: usually $3,000.00 a month approximately
Fritz :

And again very roughly, what is the total value of your assets (i.e. everything you own that could be sold, including your mineral rights)?

Fritz :

Also, do you think your mineral rights are worth enough that you could sell them, pay off your debts, and have some money left over?

Customer: I forgot to mention: I have a same-sex companion and we treat our finances as any married couple would. Meaning, that we BOTH have large debts. This adds a different twist to things. I didn't even think to tell you that part. I have an American Express Card with a $2,000 limit, MasterCard with a 5,000 limit. I am a second cardholder on his MasterCard (17,000.00 outstanding balance, and another card with an 8,000.00 balance. The charges are mostly mine. Again, a cardholder. Such was the case with the one with balance of 40,000. I was a cardholder and most of the charges were mine. This sounds horrible!
Customer: This was in reference to first question
Fritz :

If you both signed for the joint credit card, each of you would be potentially be liable for the entire amount. Even if you were to have all of these debts discharged in bankruptcy, your partner would still owe them.

Customer: With the minerals producing between $15,000 and $19,000 a month, I've been offered 100,000 for them. Didn't seem worth it.
Fritz :

How much of that gets paid to you each month?

Customer: Ill cut to the chase: vehicles are financed: can continue to pay; house is financed with good equity. Could clear about 120,000 if sold at market value: however, that would barely cover the tax bill. That entire amount gets paid to me each month.
Fritz :

Is it possible to work out a payment plan with the IRS?

Fritz :

It sounds like you may have too much income (compared to the amount of your debts) to file bankruptcy.

Customer: I'm doing the bare minimum that they require. The problem: other taxes that are close to 11,000 are also due now.
Fritz :

I don't know the entire situation, but my gut instinct is that you are not a good candidate for bankruptcy.

Customer: Ok. That makes sense. What options are available to me at this point?
Fritz :

You cannot discharge the student loan in bankruptcy, so you're left with the credit card debt of around 40k, 11k in property taxes, and 120k (?) owed to the IRS, is that about right?

Fritz :

You have a fairly substantial income stream from these mineral rights, so I think you would be able to work out payment plans with your creditors.

Customer: Yes, that is roughly correct.
Fritz :

If you filed for Chapter 13 bankruptcy, which you might be eligible for, you would have to pay all of your disposable income into a Chapter 13 Plan for 5 years. I suspect that this would pay off close to 100% of your debts, so you're probably better off not filing.

Customer: I can see that that would be true. The tax bill is the damper. I can't afford to pay debts AND the minimum taxes.
Fritz :

Which years are these taxes from?

Customer: 2011. The amount due was $120,000.00. The amount payable is about $110,000
Fritz :

These tax debts are too recent to be discharged in bankruptcy, so the best you could do in a Chapter 13 is essentially force the IRS to accept a 5-year repayment plan.

Fritz :

Have you applied for an Installment Agreement Request from the IRS?

Customer: yes, with my CPA. Yet, I am barely able to make the payments. Don't see me being able to do it much longer
Fritz :

You CAN always refinance and pull cash out of your home; however, 90% of financial advisors would tell you not to do this.

Customer: Re: IRS QUESTION: no, wait. We presented a payment plan, but it wasn't contingent on time. It was based on a monthly amount. Five years would help, but then I've got current taxes building during the payback period
Customer: Refinancing: I will look into that. But with this sudden heap of bad credit?
Fritz :

If your financial struggles continue for the next few years, you might be a candidate for Chapter 13. However, I don't see much advantage to filing bankruptcy at this point in time.

Fritz :

Back taxes owed to the IRS can be discharged in bankruptcy if the tax return was due at least 3 years ago, you filed the return at least 2 years ago, and the taxes were assessed at least 240 days ago.

Fritz :

So in the worst-case scenario, if this becomes a spiral of tax debt, you'd still be better off waiting a few years so you could discharge at least some of this debt in a bankruptcy.

Fritz :

I would think you could refinance because you have a steady stream of income. However, the IRS penalties and interest may actually be lower than the interest rate on a home equity loan if your credit isn't very good.

Customer: I did not know that. I know I'm being long-winded, and I won't get too far off into the tax issue (for your sake), but couldn't and wouldn't they levy my property/assets before they would wait three years??
Fritz :

Here are the two IRS forms you would fill out to request an Installment Agreement:

Fritz :

I know your accountant most likely already filled this out, but if you look at the form, it gives you up to 72 months to pay the debt.

Fritz :

So you can probably fill out a new form and put in lower monthly payments. Your accountant was probably putting higher than minimum payments so you'd pay off this debt more quickly, which would be the prudent thing to do, but it sounds like you can no longer afford whatever this payment was.

Fritz :

You could probably pay as little as $1,500-$1,600 per month.

Customer: You are right. That amount, I could easily (for now) do....
Fritz :

The tax lien issue is a concern, that's why you want to be on some type of payment plan rather than just defaulting on your payments.

Fritz :

Once the IRS has a lien on your property, the LIEN cannot be discharged in bankruptcy (you wouldn't be personally liable, but there would be a huge tax lien on your home that you really wouldn't be able to get rid of).

Fritz :

The IRS won't often levy your property, although they could if you defaulted on your payments.

We usually levy only after these three requirements are met:

  • We assessed the tax and sent you a Notice and Demand for Payment;

  • You neglected or refused to pay the tax; and

  • We sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. We may give you this notice in person, leave it at your home or your usual place of business, or send it to your last known address by certified or registered mail, return receipt requested. Please note: if we levy your state tax refund, you may receive a Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing after the levy.

Fritz :

<------ From the IRS Website

Fritz :

It's more cost-effective for the IRS to simply put a lien on everything you own and collect if/when you ever sell anything of value. Obviously, you don't really want this to happen either.

Fritz :

Do you have any more questions for me this afternoon?

Customer: yes. I was concerned about that. So the amounts you gave, considering my income, would in your opinion likely work?
Customer: Thats my last question and thank you much for walking me through this..
Fritz : On Line 9 of this form, it says it will divide the amount you owe by 72 months if you leave the line blank.

Fritz :

So I assumed $110,000 / 72, which = $1527.28 per month

Fritz :

The real amount would probably be a bit higher due to penalties and interest, but that's a good ballpark figure.

Fritz :

And then you don't have to worry about tax liens and the like

Fritz :

Please remember to rate my answer so I can receive credit for assisting you this afternoon, and good luck!

Customer: excellent. Thanks for the help! I will give you a great rating. Take care!
Fritz :

You too! Have a happy holiday season.

Fritz and 5 other Bankruptcy Law Specialists are ready to help you