Filing and IRS Bankruptcy Basics

Bankruptcy is a negative word, and with new modifications in the law, it is now also a confusing construct. However, it is the only resort for many. Understanding what bankruptcy is, what the filing requirements and guidelines are, and the nitty-gritty of the process is essential if you think this is your last choice out of financial problems. In addition, it is a wonderful idea to refer to a Tampa tax lawyer if you intend to go on with 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 emerge:

*Chapter 7 debtors, mostly individuals or couples, are granted with the time to liquidate their assets to settle their dues and allowed to have sufficient money to help them recover their balance in the financial world.
*Chapter 12 – especially designed for family farmers and fishermen
*Chapter 13 or debt reorganization – usually given to those who exhibit the ability to settle their financial obligations in a period of three to five years.

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 alternative permits businesses to stay in operation while re-organizing their debts.  Chapter 15 specializes on foreign debt management. To repeat, the importance of referring to a Tampa tax lawyer should not be overlooked.

Bankruptcy relief includes, among others, credit card debt, hospitalization expenses and unsecured loans.  Child or spousal support and some tax debts, on the other hand, cannot form part of bankruptcy relief.

Your Tampa tax lawyer can very much assist you in your filing requirements especially because bankruptcy laws were redone in 2005.  The procedure is now more intricate.  Allow me to illustrate this fact through a few instances:

*A pile of documentation outlining your income and expenditure is important to support your filed bankruptcy.
*Debt counseling from pre-screened counseling institutions is needed six months prior to filing.
*You have to meet income requisites, which should be along your state’s median income. Incidentally, this varies from one place to another.

There are two ways in examining if you qualify for Chapter 7:
a.    Refer to the US Trustee Program of the Department of Justice
b.    Seek advice from a qualified Tampa tax lawyer

How do you file for bankruptcy?  It is possible to do it on your own, but do not forget that it is a legal method with extensive effects.  You may require a professional 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 ensuring that you gather all the required pieces of information. Next, 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 cycle continues, you will have to confer with creditors.  Filing for bankruptcy is a long process, so be set to see it through.

Finally, how does filing for bankruptcy affect your income taxes or IRS standing?  The straightforward answer is that it depends. In general if a debt is forgiven, then that amount is considered taxable income by the IRS, with the exception of bankruptcy.  On the other hand, bankruptcy will decrease the other tax benefits the debtor otherwise may have been eligible for.  One more thing to keep in mind is that when you file for bankruptcy, it creates a bankruptcy estate, which contains all your assets.  If you file under Chapter 7 or 11, this generates a separate taxable entity, implying that you will have to pay taxes on the estate.

The rules and guidelines of bankruptcy can be very daunting.  For additional information, you can consult the IRS for detailed tax questions. You must also consult with a Tampa tax lawyer.  The choice to file for bankruptcy is a huge life decision: ensure that you have all the support and paperwork you need to make an informed choice.

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