IRS and Bankruptcy Questions
What is the correlation between IRS and bankruptcy?Bankruptcy is what a person files to relieve them of debt that they cannot repay. When a person files for bankruptcy, then their assets and debts are placed into what is called a bankruptcy estate. The tax obligation for the person filing for bankruptcy will depend on what type of bankruptcy that the person files. When a person has a debt that they owe to another person and that debt is canceled, then the IRS sees that as an income taxable to the person who owes the debt. When a debt is canceled through bankruptcy, the amount canceled is not treated as income. The canceled debt would also reduce the benefit amount the person would generally be entitled to had the debt not been canceled. Below are the most commonly asked questions about IRS and bankruptcy laws.
If a person files for Chapter 13 Bankruptcy, would this allow for some relief of tax payments?When a person files for Chapter 13 Bankruptcy, he/she may be able to stop the tax penalties and interest from accruing. If the person did not qualify for a discharge and he/she has a new Chapter 13 case, then the taxes and penalties would spring back and the person would have to pay them. The person can have an attorney research if he/she would fall under some exception, as this can vary from case to case. The IRS does offer payment plans, and this may be something that the person may consider.
In the state of Colorado, if a person is married and the spouse has a IRS lien on a house they own together, and one spouse files for bankruptcy, can the other spouse be held accountable for any debt?In the state of Colorado, the spouses are not responsible for each other’s debts unless they cosign or guarantee the debt for the other spouse, if the spouse files bankruptcy. If the spouse was not to file bankruptcy, then the creditors may be able to come after both spouses that are on joint assets, for the repayment of the debt. Colorado is a non-community state, so the debts of one spouse would not affect the other one.
What should a person do if the IRS is trying to tax a home for a debt that was owed on a foreclosed home?The person would need to go and meet with an accountant and try to figure out if any of the income they have is taxable. The accountant may be able to reduce or even eliminate the taxable consequences. If the debtor wants to pursue the person, then filing bankruptcy might be a solution and it would eliminate the debt as well as the tax issue.
If a person owns land and assets in a foreign country and wanted to file bankruptcy, would the trustee look these assets up?When a person files for bankruptcy, the trustee will use any means that they have to gain the information regarding the person’s foreign assets. In many third-world nations, there is not a way to identify the assets that the person has in the country. If the person has assets in a country that does not record the assets through government means, then the trustee would not be able to find the assets, but the person would need to claim these assets on his/her bankruptcy claim because misrepresentation of the assets is against the law.
IRS debt and bankruptcy can be confusing to most people. When a person owes IRS debt and files for bankruptcy, they may have questions regarding what can be included in the bankruptcy, if the IRS debt can be included, or if the IRS has a way for the person to pay the debt or obligation. When these questions arise, then the person should ask an Expert to assess the particulars of their case and provide legal insight.