Filing and IRS Bankruptcy Guidelines

In its original sense, bankruptcy already has a negative connotation and this negativity is magnified with the recent developments in the laws pertaining to it. For some people, unfortunately, this turns out to be their last bet. Therefore, it is imperative that we understand what the concept really is, what the filing requirements and guidelines are and what the process is. The need to consult a Tampa tax lawyer should not be neglected as his professional assistance is very important in bankruptcy filings.

Bankruptcy is a state when a person or business is no longer able to pay debts.  When applied to individuals, three types of bankruptcy come out:

•    Chapter 7 – debtors, mostly individuals or couples, are provided with the time to liquidate their assets to pay off their financial obligations and allowed to handle enough funds to help them recover their balance in the financial world.
•    Chapter 12 is made specifically for family farmers or fishermen
•    Chapter 13 or “debt reorganization” – usually granted to those who exhibit the possibility to settle their debts in three or five year’s time

Small-Medium Enterprises can employ the use of Chapters 7, 11 or 15. In the first chapter, businesses are shut down as a result of bankruptcy.  The 2nd alternative permits businesses to stay open while re-organizing their debts.  Chapter 15 specializes on foreign debt management. To repeat, the importance of consulting 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 are not covered.

A Tampa tax lawyer can very much assist you in your filing requisites especially since bankruptcy legislations were amended in 2005.  The method is now more intricate.  Allow me to demonstrate this fact through a few instances:

•    A pile of documentation detailing your earnings as well as expenses is necessary to support your bankruptcy claim.
•    You have to receive debt counseling from a pre-determined credit counseling agency within half a year before filing.
•    You are supposed to meet income requirements, which should fall within your state’s median income. Incidentally, this changes from state to state.

To see if you qualify for the requisites for Chapter 7, you can check out the US Trustee Program of the Department of Justice or ask the assistance of a qualified Tampa tax lawyer.

How do you declare bankruptcy?  You may do it on your own, but remember that it is a legal method with broad consequences.  You may need to consult an expert who is experienced in bankruptcy laws.  You choose 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 ensuring that you have all the necessary documents. Then, you inform your creditors of your decision to file for bankruptcy.  They will need to end their attempts of collecting money from you.  As the method keeps on, 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 due 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.  This means then that you have to pay taxes for this other asset.

The rules and procedures of bankruptcy can be very daunting.  For more information, you can refer to the IRS for specific tax questions. You should also consult with a Tampa tax lawyer.  The decision to file for bankruptcy is a monumental life decision: ensure that you have all the assistance and paperwork you require to make an informed choice.

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Originally posted 2008-06-27 15:36:29. Republished by Blog Post Promoter

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