Archive for April, 2015

Can Bankruptcy Help with Tax Debt?

Tuesday, April 28th, 2015

It is a common misconception that bankruptcy can’t help you with income tax debt. Some taxes can be forgiven. Penalties and interest can be forgiven.

Also, it is very likely that your attorney can arrange for a comfortable no interest payoff agreement.

Determining which back taxes are dischargeable can be a little complex. However, it is possible to discharge significant income tax debt in bankruptcy, if your tax debt fits within the following rules:

The 3 Year, 2 Year, and 240 Day Rules. The Bankruptcy code sets out specific time periods that determine if you can discharge your taxes, often called the 3-year, 2-year, and 240-day rules (or the 3-2-240 rules). Under these rules, you can discharge taxes that came due 3 years before filing for bankruptcy, as long as it has been at least 2 years since you filed the tax forms and 240 days since the taxes were assessed. These rules are often misunderstood. However, the important thing to understand is that you must meet the requirements of all three rules to discharge your taxes.

1. The 3-Year Rule. This rule states that to discharge your back income taxes, they must become due at least three years before you file for bankruptcy. B Typically, your federal and most state income taxes become due on or around April 15th of each year. In most cases, it is simply a matter of adding three years to this due date to determine the earliest date you can file for bankruptcy and still discharge your taxes.

Regardless of the initial due date, if you file for and receive an extension of time in which to file your taxes, the due date falls on the day the extension expires.

2. The 2-Year Rule. Under the 2-year rule, your income tax returns must have been filed at least two years before filing your bankruptcy petition. This requirement allows you to discharge your taxes, even if you filed your tax forms late, as long as you file them at least two years before filing for bankruptcy.

What if you did not file? If you did not file an income tax return in a given tax year, any taxes assessed by the IRS for that year are not dischargeable.

Quick Point: If the IRS files a return on your behalf, it is not considered a filed return for the purposes of this rule. You must still file a tax form for that year.

3. The 240-Day Rule. Taxes must be assessed at least 240 days before you file for bankruptcy under this rule or not assessed at all. As a practical matter, the date of assessment is typically on or near the date you filed your income tax form (assuming the IRS and you agree on the amount of taxes owed). However, if you file a correction or a change results from an IRS audit, the assessment date may be substantially later.

Carolyn Secor P.A. focuses its practice in the areas of Bankruptcy and Foreclosure Defense in Clearwater, Florida.  For more information, go to our web site
or call (727) 254-1704.

Combine Bankruptcy and Mortgage Mediation

Tuesday, April 7th, 2015
It is a new concept to combine bankruptcy and mediation. It might be something to consider.

There are benefits to conducting mediation in conjunction with a bankruptcy proceeding as other bankruptcy strategies for dealing with liens can be used at the same time.  These include lien stripping to eliminate second mortgages or homeowners association liens, and cram down to reduce mortgages on investment property.  There is also an advantage in that bankruptcy generally discharges any personal obligation on the debt underlying the mortgage.  If the property is returned to the lender, the lender cannot obtain a deficiency judgment against you personally for any amounts that they were not able to recover from the sale of the property.  This can encourage the lender to more seriously consider principal reduction where the amount of the mortgage exceeds the value of the property. Other unsecured debt may also be discharged in full or part, making the modification payments more affordable.

How Mortgage Mediation Works in Bankruptcy Court

After filing for bankruptcy, you can request mortgage mediation for the purpose of modifying your mortgage (including obtaining a reduction in principal) or to negotiate a surrender of the property if you do not wish to keep it. You and the bank will choose the mediator from a list of independent certified mediators on file with the Court and all application documents will be uploaded to an internet document portal.

The document portal is designed to avoid disputes over whether documents were provided.  Documents in the portal will be immediately available for review by the mediator, the mortgage holder or servicer, and the debtor’s attorney. Documents can be added or updated at any time.  They will not be viewable by the general public or by creditors in your bankruptcy case other than the mortgage holder you are mediating with.

While a Chapter 13 case is pending mediation, you will be required to make adequate protection payments to the bankruptcy trustee as part of your proposed Chapter 13 plan.  The payments will generally track the general HAMP requirements and will likely be an amount equal to 31% of your gross monthly income.  Each party will be required to pay a $300 mediator cost prior to the scheduling of the mediation.  The attorneys fee for the mediation are capped by the Court and are paid through your Chapter 13 plan.  It is anticipated that the additional attorneys fees will add approximately $50 per month to your Chapter 13 plan payments.

A mediation will take place with the mediator acting as a facilitator to assist with the modification process.  Modifications may include traditional HAMP modifications, other government programs (excluding Florida’s Hardest Hit), or in-house modifications.  Modifications can include extension of the loan term, principal reductions, and interest rate reductions.  If you chose not to modify, the mediation can also be used to negotiate the terms of the surrender of the property, including occupancy time, deeds in lieu, short sales and cash for keys.

Carolyn Secor P.A. focuses its practice in the areas of Bankruptcy and Foreclosure Defense in Clearwater, Florida.  For more information, go to our web site
or call (727) 254-1704.