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The IRS is a Creditor Like Any Other Business Owed Money

Posted by: Admin User

The Internal Revenue Service (IRS) may seize a tax refund at any time. Sometimes this is done in error.

Filing bankruptcy does not stop the IRS from collecting tax refunds before the process is started. What many people do not realize is that if the bankruptcy trustee is the one behind the seizure of a tax refund, the refund will not be forthcoming. It will be used to pay creditors. On the other hand, if the bankruptcy trustee did not seize the tax refund, the seizure can be corrected.

When it comes to bankruptcy, the courts view the IRS as a creditor, just like any other bank, credit institution, or company that is owed money. If the IRS moves to seize someone’s tax refund, they must advise the individual of their actions, and include the reason for doing so. For example, if the reason is to pay back taxes written off in bankruptcy, contact your lawyer, the bankruptcy trustee and the IRS promptly. You will need to provide proof your bankruptcy has been discharged to correct this error and get your tax refund back.

Why call the trustee? They have a great deal of latitude to file motions to seize funds and redirect the money to pay creditors. Letting the trustee know the IRS seized a tax refund may trigger the legal process to have that money returned. Provided the trustee is able to demonstrate the IRS acted illegally to seize the refund in the first place, the motion should result in the money being returned.

There are instances in which you may owe more in taxes than you expected. If you file bankruptcy, the IRS might audit your previous tax returns, to see if you made any extra cash. They could then seize the refund to pay for the extra owing they found in your records. This extra money is usually not written off in bankruptcy, as you did not know the debt existed. Despite the fact this kind of gold mining in a debtor’s past tax records is unsettling and seems underhanded, it is legal.

In both Chapter 7 and Chapter 13 bankruptcy proceedings, bankruptcy trustees may file motions to seize tax refunds to pay creditors and back taxes owed the IRS. In a Chapter 7 filing, the liquidation of assets takes the tax refund and uses it to pay off the maximum amount of the debt. The rest is written off. In a Chapter 13 filing, the taxes are seized to roll them into an individual’s court-approved payment plan.
Kevin Ahrenholz is an Iowa bankruptcy lawyer and Iowa bankruptcy attorney. To contact him, visit http://www.iowachapter7.com or call 1.877.888.1766.

Posted on Wednesday, April 24th, 2013 and filed under Bankruptcy, News and Press | Comments Off on The IRS is a Creditor Like Any Other Business Owed Money .
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Unemployment Compensation is Factored into the Bankruptcy Means Test

Posted by: Admin User

If you are receiving unemployment, it is considered in a bankruptcy means test.

For those considering filing for personal bankruptcy, and receiving unemployment, you must provide this information to your Iowa bankruptcy lawyer. This includes all pay stubs from the past year and anything that demonstrates ownership and the value of property you own. This information is used to fill out bankruptcy forms, and that includes Form B22A, referred to as the “means test.” Overall, the Iowa bankruptcy lawyer uses your income, plus unemployment, to perform a means test.

If your income is just above the state median income parameters, you will be told whether you are eligible to file for Chapter 7 bankruptcy, after the means test results are determined. Your means test must include records of any and all income within the past six months, aside from your regular job. The means test process starts by figuring out your current monthly income and what income types are present.

For instance, there are a wide variety of income types that may include:

Salary
Tips
Wages
Bonuses
Commissions
Overtime
Real property income
Retirement income
Business income
Unemployment
Contributions to the household income

Note: Social security benefits are not included in the means test.

 

What happens next is the Iowa bankruptcy lawyer adds up all of your income and divides by six, representing your average monthly income for the six months prior to filing for bankruptcy.  This average monthly income figure is then multiplied by 12 to show your yearly income.  This is compared to the median family income across the state for a household of your size.  If the figure is above the state median, you will initially appear to be ineligible for Chapter 7 Bankruptcy, but the lawyer will take additional steps to figure out your disposable income in order to see if you could get back into a Chapter 7 category.  Disposable income figures are calculated by deducting allowable expenses from your monthly income.

The final step is to determine if the presumption of abuse may rear its head should you file for Chapter 7. In short, if your monthly disposable income is under $6,000, there is no presumption of abuse. If it is more than $10,000, abuse is presumed and you would not be eligible to file for Chapter 7 bankruptcy protection.

Each state is different when it comes to the means test, but in general, your income is figured out along those lines no matter where you live. Always discuss your situation with a skilled bankruptcy lawyer, and avoid the very real possibility that should you attempt to file on your own, you may run afoul of the hundreds of rules and regulations governing bankruptcy.

Kevin Ahrenholz is an Iowa bankruptcy lawyer and Iowa bankruptcy attorney. To contact him, visit http://www.iowachapter7.com or call 1.877.888.1766.

Posted on Thursday, April 11th, 2013 and filed under News and Press | Comments Off on Unemployment Compensation is Factored into the Bankruptcy Means Test .
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