In essence, bankruptcy already has a negative tone and this negativity is increased with the recent developments in the laws governing it. For many people, however, this becomes their best alternative. Therefore, it is imperative that we understand what the concept really is, what the filing requirements and guidelines are and what the process is. The option to consult a Tampa tax lawyer should not be overlooked as his expert opinion is instrumental in bankruptcy filings.
First, how is bankruptcy defined? It is when a person or business is proven unable to pay his financial obligations. There are three different classifications, or more legally referred to as Chapters, of bankruptcy for individuals, married or domestic partners. Let’s examine each Chapter.
• Chapter 7 – debtors, mostly individuals or couples, are provided with the time to liquidate their assets to settle their financial obligations and permitted to handle enough money to help them recover their balance in the financial realm.
• Chapter 12 is made specifically for family farmers or fishermen
• Chapter 13 or “debt reorganization” – commonly provided to those who exhibit the promise to settle their financial obligations in a period of three to five years.
Small-Medium Enterprises can make use of Chapters 7, 11 or 15. In the first chapter, businesses are closed as a result of bankruptcy. The 2nd choice allows businesses to stay open while re-organizing their debts. Chapter 15 specializes on foreign debt management. Again, the importance of referring to a Tampa tax lawyer should not be taken for granted.
What does bankruptcy relief encompass? Credit card debt, medicine bills, and unsecured loans are examples of debt that can be covered. Child or spousal support and some tax debts do not qualify for coverage.
Your Tampa tax lawyer can very much help you in your filing requirements especially because bankruptcy laws were reworked in 2005. The process is now more complicated. Allow me to illustrate this fact through a few instances:
• A pile of paperwork outlining your income and expenses is needed to support your bankruptcy claim.
• You need to undergo debt counseling from an accredited credit counseling agency within half a year before filing.
• You need to hit income requirements. The recent rules are directed at decreasing the number of entities who file for Chapter 7. You have to be in your state’s median income, and also qualify for other requirements which change county by county. People who don’t qualify for Chapter 7 will make use of the provisions of Chapter 13.
To check if you qualify for the requirements for Chapter 7, you can refer to the US Trustee Program of the Department of Justice or employ a qualified Tampa tax lawyer.
Now, the ultimate question is on how to file for bankruptcy. Yes, you can do it by yourself but the fact that this is a legal process implores for the services of a Tampa tax lawyer. Then , after deciding as to which provision you will file under, whether Chapter 7 or 13, you can now file your claim in any bankruptcy court. A trustee, responsible for ensuring you have all the information, is then assigned to you. You will also be demanded to tell your creditors so they will terminate in their attempts of collecting payment from you. As your bankruptcy claim is being processed, you may be required to confer with your creditors. With all these detailed steps, it can be seen that filing for bankruptcy is a long-and-winding process; you are then required to have enough patience to wait it out.
Lastly, what is the effect of a bankruptcy claim to your income taxes or IRS standing? It depends. First, a forgiven debt is taken as a taxable income, except in the case of bankruptcy. Second, filing for one reduces the other tax benefits entitled to a debtor. Third, it generates a bankruptcy estate, which contains all your assets and is considered a separate taxable entity when the claim is filed under Chapter 7 or 11. This means then that you have to pay taxes for this newly-formed asset.
The regulations and guidelines of bankruptcy can be very confusing. For additional information, you can refer to the IRS for detailed tax questions. You should also consult with a Tampa tax lawyer. The choice to file for bankruptcy is a monumental life decision: ensure that you have all the assistance and documentations you need to make an informed choice.
