Tax Debt – August 2016 Interview

Katherine:

All right, thank you so much for joining us on This Needs to be Said, and our friend, Pete Moak, is back with us on today. He’s going to talk with us about bankruptcy matters. He’s gone over so much, you’ve explained thoroughly chapter seven and chapter thirteen and even some that are in between and who those apply to. So on today, we’re going to continue our conversation with you and I want to start with this first question, as it pertains to bankruptcy. Do I have to list all of my creditors in my bankruptcy?

Pete Moak:

Yes, you do. There’s an obligation on the part of the debtor to be completely honest and to disclose both all of their assets, the things that they own, and all of their debts. That’s one of the questions that has to be asked and will be asked again when the person meets with the trustee and they’re under oath, both with regard to the things that are put on their schedules and statements. Those lists of creditors and assets are made as a declaration under oath and as well as the time when the debtor meets with the trustee. They’re under oath to disclose all of their assets and all of their debts. Yes, you do have to disclose them.

Now, the rate that this comes up most the time when I meet with people, is that they would like it very much if they could keep one of their credit cards, because people have become dependent upon the ability to use the credit card as sort of an emergency fund. When there’s a short fall and they have to buy something, they want the access to have some credit so that they can go ahead and make the purchase even though there’s not money in the bank right now to cover that debt. But the problem is, of course, that they are going to have to list those credit cards even though they may would like to keep the credit card.

If you have a credit card that has no balance on it. In other words, the amount … It’s an open account, but there’s no balance owed at the time that you file your bankruptcy, then they’re not listed in the bankruptcy as a creditor because you don’t owe them anything at the time. Those people, that you have open accounts on, but don’t owe any money to, do not have to be listed in the bankruptcy. Now, whether or not they’re the creditor, the credit card issuing company is going to be willing to allow you to keep that credit card, is an uncertain thing because most of the creditors, most of the credit card companies will do a … Or get a report from the credit bureaus every sixty days with regard to everybody who has filed bankruptcy. Even though you may have an open account and not owe them anything, it’s very likely that the creditor will find out within about sixty days that you have filed bankruptcy.

Katherine:

Oh wow.

Pete Moak:

There’s is a policy that many of the credit card companies have to go ahead and terminate the credit card once they learn that you filed bankruptcy. Now, many of my clients have told me that this is how they’ve handled it and it works well. Before you file your bankruptcy, you can call the credit card company and basically give them the following story or script: “Hi, this is so-and-so. I’m one of your customers, I’ve been a customer for a long time and I’m calling you because I have some good news and some bad news. The bad news is, is I’m going to have to file bankruptcy and, of course, the good news from your point of view is that I don’t owe you folks any money, so I’m not going to list you in my bankruptcy.”

Click Here to Schedule an Appointment
Katherine:

Okay.

Pete Moak:

“Now, because I’m not listing you in the bankruptcy, I just want you to know though, that I would like to remain a customer of yours and so I want to know now or at least would like to have you consider allowing me to keep that credit card and continue to use it after I file my bankruptcy. Let me know if you can, you know, whether that’s something you’re willing to do.” Many of my clients have reported that this is a successful strategy for being able to keep the credit card that they have had for maybe a long time, and as long as the credit card company has heard from you and recognized that you’re taking care of your debts, they wouldn’t usually want to lose you to some other credit card company.

Katherine:

I see, so if you don’t call them, it could come across as you are trying to hide something from them or this person isn’t taking care of their debt, so they may not take care of us in the event that they start using this card. They’re cutting off the possible risk of you, I guess, maxing out that credit card.

Pete Moak:

Yeah I think that basically … Yeah basically the credit card company is appreciative of knowing what you’re doing and they don’t know that if they just get your name on a list of people who have filed bankruptcy. But if you contact them and let them know what you’re doing, and you do intend to keep … Would like to remain a customer of theirs, and you let them know because the truth is that you’re going to get hundreds, maybe … I don’t know how many hundreds or how many actual applications, but the credit card companies all try to get you to get a new credit card after you file bankruptcy.

I know people are thinking, “What? Why would they do that?” Well the reason-

Katherine:

It sounds crazy huh?

Pete Moak:

Yeah, the reason is because these credit card companies are in the business of making money on interest and so they want to get you back into the credit card usage strategy of living. They’re going to send you applications for a credit card. After your bankruptcy case is discharged, your mailbox is going to get stuffed full of applications and offers for a credit card. Of course, you need to be careful and make wise decisions regarding applications for credit because these things will have an impact upon your credit score. We actually have a program that we use for our clients that will help them to rehabilitate their credit and give them some specific direction with regard to applications for new credit cards after their bankruptcy case is filed.

There’s more to be learned about what you should do in order to help rebuild your credit after bankruptcy and we’re on top of that. In other words, it’s part of the program that we offer to our clients. With regard to the issue or question: Yes, you do have to disclose those credit cards. The ones that you owe money on and then the other ones, the best thing to do is to make that call that I’ve talked about so that at least the credit card company has the opportunity to say, “Yes, we now feel comfortable allowing you to go ahead and continue to use that card after your bankruptcy.”

Click Here to Schedule an Appointment
Katherine:

Mm-hmm (affirmative). Now, let’s talk about tax debts and bankruptcy. Explain a little bit of, I guess, the types of tax debt people come to you about and how is that handled during the proceedings for bankruptcy.

Pete Moak:

Okay, and this is one of my favorite topics. The taxman has some special considerations, if you will, in the law. Of all of your creditors that you may owe money to, every other one has to obtain some sort of judicial ruling that you owe them money before they can do anything to take money out of your account or to garnish your wages etc., but the taxman doesn’t. The taxman can garnish without having to go to court and that, of course, irks me and it irks most people. Why should the government or the taxing authority have more power than any of my other creditors?

At any rate, most tax debts, people probably think are not allowed to be discharged in bankruptcy and the reason is because the law has given to the taxing agencies a special priority type of debt that’s not allowed to be discharged in bankruptcy. That’s only true if the tax is a tax that is a recent tax. In other words, the main priority or the main criteria for determining whether or not the tax that’s owed is a priority or not a priority is how old is the tax? If the tax was last due more than three years before you filed the bankruptcy, then that’s good for you because the likelihood is that you’re going to be able to discharge that tax debt just as if it was a credit card debt.

There’s another criteria though. What if you never filed a tax return for that tax year? Let’s say we’re looking now at 2011 okay? Or 2012. 2011 tax debt was due April 15th of 2012, unless you got an extension. If you got an extension, then it was going to be due in October of 2012. Well in either of those cases, here we are in August of 2016, that tax debt was last due more than three years ago. If you filed a tax return more than two years before you filed bankruptcy and the tax debt was last due more than three years before you filed bankruptcy, then you can discharge that tax debt.

Sometimes people who have filed a tax return and it has been more than two years since the tax return was filed and it’s been more than three years since the tax was last due, that’s fine, but what if the taxing authority has issued a new assessment? Maybe they reviewed your tax return and said, “You calculated it wrong and we now have come up that you owe us another $850 more than what you indicated on your tax return.” That also figures in to whether that $850 that you owe is going to be dischargeable. If the assessment was more than eight months before you filed the bankruptcy, then that tax is also dischargeable.

The three main criteria is that the tax is older than three years from when it was last due, and you actually filed a tax return more than two years before you filed the bankruptcy, and there’s been no new assessments within the last 240 days. Then you can discharge those taxes, unless they are payroll taxes.

Sometimes people have a business and they have withheld money from the employee’s wages and they’re supposed to turn that over to the taxing authority and they never did. Those are what we call trust fund type taxes. Technically, 940 on the big taxing code. Those can never be discharged. Those are what we call a trust fund type tax and you’re not going to be able to discharge those regardless of how old they are. Long story?

Katherine:

Okay. No, I mean it makes sense.

Pete Moak:

Yeah.

Katherine:

I was.

Pete Moak:

There are other things-

Katherine:

Mm-hmm (affirmative).

Pete Moak:

There are other things that can happen. Let’s say a person has a tax debt and it’s been around for many years and the taxing authority filed a tax lean. The tax lean now is recorded in the county where you own property. Well then that places a lean on your property. Let’s say you own a piece of land or you own a house and they file a tax lean, well, filing bankruptcy does not discharge or prevent the taxing authority from being able to collect out of the asset that you own. In other words, the house or the land that you own has a lean on it. When you go to sell it, then that lean has to be paid.

If a lean has actually been filed, even though the tax debt may be older than three years, you file the tax return more than two year ago. There have been no new assessments, but there’s this tax lien on your property, well they’re still going to be able to collect that money if you later sell your house or try to refinance your house. That tax lean is an issue that has to be dealt with and paid.

Click Here to Schedule an Appointment
Katherine:

Okay, this has been great. I’m thinking that the questions are going to be so simple, it’s going to be like yes or no, but it’s so much to think about and my mind is blown and you cover everything from personal and you definitely talked about the professional. You said the 940 cannot be discharged so employers beware. Make sure you take care of your taxes, but this has been a lot of information in these few questions that we’ve been able to address. The time, so next week we’re going to have some more time with you. I’m going to say, Pete, thank you so much for being on This Needs to be Said. However, before you go, how can people get in touch with you outside of this interview?

Pete Moak:

That’s a great question. Please call us at 480-755-8000, extension 1. My assistant, Tim, will answer the phone and set you up with an appointment. You’ll have an opportunity to ask some questions, of course. We’ll schedule a time to meet with you in person or to give you a call to discuss what I can recommend for you. Give us a call: 480-755-8000, extension 1.

Katherine:

Awesome, until next week. Have a good day.

Pete Moak:

Thank you.

x

Online Case Evaluation