By J. C. Bailey III

As I presented a young couple with some of their financial options the other day the option of filing a Chapter 7 Bankruptcy was discussed. The term “liquidation” is used to differentiate a Chapter 7 from some other options and for some reason the word stuck in my throat. In Texas we have a long tradition of protecting our citizens from being stripped to the bone during the course of financial crisis. The term I used could easily be interpreted as meaning that this couple would have to surrender their house and cars along with personal effects and furnishings. THIS IS NOT THE CASE. Numerous exemptions allow property to be protected under the Bankruptcy code and allow you to get a FRESH START. Don’t let misinformation or frightening words force you into bad decisions. Get advice from a knowledgeable experienced professional who is on your side.


Detroit Given The Green Light to Proceed With Bankruptcy

Many of the media talking heads have expressed some surprise that the bankruptcy judge has given the City of Detroit permission to proceed with the bankruptcy. Several hundred people and entities objected to the fact that the bankruptcy was filed and basically argued that it would not be fair to them. Neither the press nor the individuals who objected really understood bankruptcy. Many individual who seek help from a bankruptcy attorney are similarly worried that the creditors can “stop” them from filing. It does not work that way. Bankruptcy is viewed from the perspective of the person or entity which needs help. So, in the Detroit case the judge reviewed the facts and determined that the only solution for the City of Detroit is to proceed with the bankruptcy.

If you are in a bad financial situation where you cannot escape your finances without help, see a qualified bankruptcy attorney. At Bailey & Galyen, we care about the situation you are in and will try very hard to help you out. Will bankruptcy work for everyone? Absolutely not. That is why we offer a free, no-obligation appointment. We will go over the facts of your individual case and let you know what options are available. We will give you non-bankruptcy options as well.


Addressing Property Taxes in Bankruptcy

Real Property Taxes in Texas

Texas has no state income tax, so homeowners and owners of other real estate here pay comparatively high property taxes. These property taxes pay for more of your local governmental services than any other source of funds.

It’s expensive to not be current on your property taxes. If you fall behind, you will have to pay a penalty of up to 12 percent of the tax, in ADDITION TO interest at one percent per month. You could also be sued for collection, which adds even more penalties and costs. Your property could even be sold at auction to pay the taxes. (For your convenience, the Texas Window on State Government website has more helpful general information on property taxes.)

Be Able to Afford to Pay Property Taxes by Discharging Other Debts

If you’ve fallen behind on your property taxes, then most likely your income has not been high enough to meet your expenses, including whatever you’ve been paying on your other debts. Sometimes just discharging (legally writing off) the other debts will enable you to catch up on your property taxes.

Some tax entities will set you up on a 36-month payment plan to catch up. If your county or other local tax entity has such a policy and you can afford the payments you need to pay, a Chapter 7 “straight bankruptcy” could be what you need.

Chapter 13 Gives You More Leverage over Property

But a catch-up payment plan may not work in your situation if:

  • You can’t afford the required monthly payments.
  • This kind of payment plan is not offered by your tax collector.
  • You are no longer eligible for the payment plan because the collection process has gotten too far along.
  • You’ve already tried a payment plan, but could not make payments consistently.
  • Your mortgage lender requires you to bring the taxes current much more quickly.
    • Under a Chapter 13 “adjustment of debts” case, you can stretch your catch-up property tax payments out over as many as five years, thus reducing the amount of each month’s installment and making the payments more affordable. During that time the tax authority would not be able to take any other collection action, which would save you worry. You would just need to continue fulfilling the terms of your court-approved Chapter 13 plan.

      Chapter 13 may also allow you to catch up on your property taxes relatively quickly — to keep the accruing interest and penalties down — by delaying payment to other important creditors, such as the IRS or a support enforcement agency.

      Also, if you are behind on property taxes, you are likely also behind on your mortgage. Chapter 13 could be the best way to address that problem as well since it enables you to stretch out your mortgage catch-up payments for up to five years, while protecting you from foreclosure and other collection efforts by your mortgage holder.

      So if you have a problem with your property taxes and you live in the Dallas-Fort Worth metroplex, please call Bailey & Galyen to schedule a no-obligation, free, confidential consultation. We can review your situation and advise you about your options. Call us today at 800-208-3104 or reach us here. We look forward to helping you.


How do firefighters die?

By J. C. Bailey III

I’ve seen movies and television shows about firefighting and am acquainted with numerous first responders. I would think the biggest risks would be smoke inhalation or being trapped in a collapsed structure. I would be wrong. In their excellent book “Scarcity” Sendhil Mullainathan and Eldar Shafir point out that firefighters are dying in motor vehicle accidents at an alarming rate. They point out that although these professionals are wonderfully prepared for emergencies they become so focused on responding to the fire that they neglect to fasten their seat belts. They would never drive their personal vehicles without wearing seat belts, but the time scarcity of responding to the emergency causes them to “tunnel”, “to focus single mindedly on managing the scarcity at hand”.

The scarcity for those first responders is a lack of time. For many of us it is a lack of money. Our single minded focus on making this month’s payment can cause us to ignore the consequences of the further extension of credit, the cash advance, or the payday loan. One of the best ways to avoid this destructive and potentially financially fatal tunneling is to talk to a professional. A consultation with an objective party could help you stop the cycle of borrowing at punitive interest rates in order to survive the month. There may be alternatives to the vicious cycle you find yourself in and the professionals you speak to will not be surprised nor judgmental about your circumstances.


The Conditions for Discharging Income Taxes in Bankruptcy

For an income tax obligation to be discharged (legally written off) in bankruptcy depends mostly, but not only, on the how old it is.

Discharging an income tax debt involves meeting all of four conditions. So it may sound easy to know whether you can discharge a particular tax owed — you just check off these conditions to see that they are all met.

It may sound easy, but often these conditions are not necessarily easy to apply. There is a good reason why people can be confused about taxes under bankruptcy — the laws are more complex than they may sound.

Here are the four conditions. But be sure to meet with a very experienced bankruptcy attorney about how these would apply to your personal situation.

1. The Three-Year Condition
Have three years passed since the tax return was due? Every income tax debt has a specific date when its tax return must be filed. That’s of course usually April 15 of the following year, or the Monday/first weekday after when that date when it falls on a weekend or holiday. Three years must have passed since that specific due date to meet the first condition.

But there’s an important twist. If you filed an extension of time to file the return for that year — usually extending the due date from April 15 to October 15 — the three-year period begins only at that extended due date. For example, the tax return for the 2009 tax year was due on April 15, 2010, but if you got an extension it was due on October 15, 2010. The three-year condition would then be met by filing for bankruptcy after April 15, 2013, if there was no extension, but only after October 15, 2013, if there was an extension.

2. The Two-Year Condition
Have two years passed since the tax return was actually filed, regardless of when that return was due?

To meet this condition, you must have in fact filed the tax return — a substitute-for-return (SFR) prepared by the IRS on your behalf doesn’t count.

3. The 240-Day Condition
Have 240 days passed since “assessment” of the tax? “Assessment” is the formal determination of your tax liability by the IRS or other tax authority. That usually occurs when the IRS reviews and accepts your tax return, generally within a few weeks after filing. However assessment can be delayed because of a disputed tax amount resulting from an audit or a challenge in tax court. In these situations, the above three-year or two-year time periods may have already passed by the time of the assessment. That relatively rare situation is when this third condition applies: the tax cannot be written off unless the bankruptcy case is filed more than 240 days after this assessment.

4. The Fraudulent Tax Return/Tax Evasion Condition
If you are dishonest on your tax return — not reporting some of your income or claiming nonexistent deductions — or if you evaded paying the tax in any way, that tax will not be discharged, even after meeting the other three time-based conditions.

Again, this blog is intended to give you an idea of whether a particular tax debt will get discharged in bankruptcy. But it is very important to understand that, beyond the challenges of applying these four conditions, there can be various other complications, like the effects of tax liens, a prior bankruptcy, amended returns and mistakes on returns. So if you owe taxes and are considering bankruptcy, there is no question that you should get legal advice from an experienced attorney.

So if you live in the Dallas-Fort Worth metroplex, please schedule a no-obligation, free, confidential consultation with us at Bailey & Galyen so that we can analyze your tax debts and advise you about your options. Call us today at 800-208-3104. Or you can reach us here. We look forward to helping you get beyond your current tax worries to a well-deserved peace of mind.

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