Filing and IRS Bankruptcy Procedures

Bankruptcy is a scary term, and with new developments in the law, it is now also a mind-boggling construct. Sadly, it is the only choice for a lot of people. Getting a good grasp of what bankruptcy is, what the filing requisites and procedures are, and the nitty-gritty of the process is vital if you feel this is your last option out of financial mishap. Also, it is a wonderful insight to consult a Tampa tax lawyer if you plan to go on with bankruptcy filings.

First, what is bankruptcy? It is when a person or business is deemed unable to pay debts. There are three different kinds, or more legally referred to as Chapters, of bankruptcy for individuals, married or domestic partners. Let’s gloss over each Chapter.

• Chapter 7 is mostly filed by individuals or couples. Debtors have a grace period to liquidate assets to settle debts. They are allowed to keep enough to make a fresh start financially (meaning they do not have to sell everything)
• Chapter 12 is tailored-fit for family farmers or fishermen
• Chapter 13 is also referred to as “debt reorganization.” This is for people who have the ability to pay some or all of their debts. Usually, debtors are given three to five years to pay off their debts.

Small-Medium Enterprises can employ the use of Chapters 7, 11 or 15. In the first chapter, businesses are terminated as a consequence of bankruptcy. The 2nd option allows businesses to stay open while re-organizing their debts. Chapter 15 specializes on foreign debt management. Again, the importance of referring to a Tampa tax lawyer should not be taken for granted.

What is covered under bankruptcy relief? Credit card debt, professional fees, and unsecured loans are examples of debt that can be covered. Child or spousal support and some tax debts do not qualify for coverage.

Your Tampa tax lawyer can very much help you in your filing requisites especially since bankruptcy legislations were amended in 2005. The method is now more intricate. Let me to illustrate this fact through a few cases:

• A pile of documents detailing your earnings as well as expenses is required to support your filed bankruptcy.
• Debt counseling from accredited counseling agencies is needed six months before filing.
• You have to meet income requisites, which should fall along your state’s median income. Incidentally, this changes from county to county.

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 a qualified Tampa tax lawyer.

How do you file for bankruptcy? It is possible to do it on your own, but don’t’ forget that it is a legal process with far-reaching consequences. You may need to consult an expert who is experienced in bankruptcy laws. You decide whether you are filing for Chapter 7 or 13 and then file with the bankruptcy court. You are then provided with a trustee who is in-charge of making sure that you collect all the necessary pieces of information. Next, you advise your creditors of your decision to file for bankruptcy. They will have to discontinue their efforts of collecting money from you. As the course continues, you are required to discuss with creditors. Filing for bankruptcy is a long-and-winding process, so be willing to see it through.

Finally, what is the result 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 reduces the other tax benefits entitled to a debtor. Third, it creates a bankruptcy estate, which has 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 entity.

The regulations and guidelines of bankruptcy can be very confusing. For additional information, you can check with the IRS for specific tax inquiries. You should also consult with a Tampa tax lawyer. The choice to file for bankruptcy is a huge life decision: make sure you are equipped with all the support and documentations you require to make an intelligent choice.