One of the questions asked on the Statement of Financial Affairs (one of the forms that comprise a bankruptcy petition) is whether the debtor had any interest in a business within the last six years, and if so they need to be listed. If the debtor has a current interest in a business, that interest must also be disclosed in his Schedules. Failure to list these interests could jeopardize the debtor’s right to a discharge.
An example of this can be found in a recent case in the Bankruptcy Court in West Virginia. In this case the debtor had a 10% interest in a business and his brother owned the other 90%. Prior to filing the case the debtor received a total of $1,000 of income from the business. The day after he filed, he received another $1,200.00 of income. He did not disclose his interest in this business or the income he received anywhere in his petition. One of his creditors filed a complaint objecting to his discharge due to his failure to disclose this information. The court found that although his interest in the business may not be valuable, it was no excuse for the debtor’s failure to disclose it. The court also found that the debtor knew of his business interest as it was disclosed in his tax returns. Therefore, the court ruled that the debtor either made an intentional false statement or at a minium showed a reckless indifference to the truth and denied him a discharge.
It is therefore critical that if you own an interest in a business, even if it is a very small interest, that information must be disclosed in your petition. I have found clients may forget about a business that they may have started a few years ago, but did not earn much money, if any, from that business during its operation. A review of the tax returns they filed for the last few years however, discloses this business interest. When I then meet with the debtors, I remind them of this business and get its starting and ending dates, the type of business it was and their interest in the business and put all that information in the petition. If you are filing a case without a lawyer make sure to review all your past tax returns so that information on those returns is consistent with the information on your petition.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
Wednesday, August 26, 2009
Monday, August 17, 2009
Can Taxes be Discharged in a Bankrutpcy?
A common belief is that income taxes are never dischargable in a bankruptcy. This belief is incorrect. In some cases, income taxes can be discharged in a bankruptcy. Under the bankruptcy code, both Federal and State income taxes may be discharged if they meet certain requirements.
In order to discharge income taxes in a bankruptcy, the taxes must be for a tax year that occurred three or more years prior to filing the bankruptcy case. This is usually calculated by using the April 15 (tax day) date and counting forward. For example, if a person owes taxes for the tax year of 2005 and files his or her case before April 15, 2009, he or she would not be able to discharge the 2005 income tax liability. However, if one files the case after April 15, 2009 the taxes likely can be discharged. (The date is usually moved from April 15 to October 15 if an extension was filed). The IRS or State must also have assessed the liability more than 240 days before the case is filed.
The next requirement is that the taxes have to have been filed more than two years prior to filing the bankruptcy. Therefore, if a person did not file his or her taxes on time, the taxes may not be dischargable, even though they were for a tax year that ended more than two years before the case was filed.
There are other exceptions, including the rules that a person who filed a fraudulent tax return, or was trying to evade tax liability, will not have the tax debt discharged. A good attorney can tell you more about the ability to discharge taxes in a bankruptcy and whether your income tax debt can be wiped out if you file for bankruptcy.
Seth W. Diamond is an attorney at Laura Margulies & Associates, LLC. in Rockville, Maryland. His firm represents individuals and companies in bankruptcy and litigation matters in Maryland and the District of Columbia. For more information about bankruptcy and the services offered by his firm, please feel free to visit the firm's website. If you would like to schedule an appointment to discuss bankruptcy with an attorney, call 301-816-1600, or click here.
In order to discharge income taxes in a bankruptcy, the taxes must be for a tax year that occurred three or more years prior to filing the bankruptcy case. This is usually calculated by using the April 15 (tax day) date and counting forward. For example, if a person owes taxes for the tax year of 2005 and files his or her case before April 15, 2009, he or she would not be able to discharge the 2005 income tax liability. However, if one files the case after April 15, 2009 the taxes likely can be discharged. (The date is usually moved from April 15 to October 15 if an extension was filed). The IRS or State must also have assessed the liability more than 240 days before the case is filed.
The next requirement is that the taxes have to have been filed more than two years prior to filing the bankruptcy. Therefore, if a person did not file his or her taxes on time, the taxes may not be dischargable, even though they were for a tax year that ended more than two years before the case was filed.
There are other exceptions, including the rules that a person who filed a fraudulent tax return, or was trying to evade tax liability, will not have the tax debt discharged. A good attorney can tell you more about the ability to discharge taxes in a bankruptcy and whether your income tax debt can be wiped out if you file for bankruptcy.
Seth W. Diamond is an attorney at Laura Margulies & Associates, LLC. in Rockville, Maryland. His firm represents individuals and companies in bankruptcy and litigation matters in Maryland and the District of Columbia. For more information about bankruptcy and the services offered by his firm, please feel free to visit the firm's website. If you would like to schedule an appointment to discuss bankruptcy with an attorney, call 301-816-1600, or click here.
Tuesday, August 4, 2009
Creditors Cannot Take Action to Collect Debts After Filing
Under the bankruptcy law, once you file the case all collection activity must come to a stop. The court notifies all your creditors of your filing usually within a few days of the date you filed the case. That means that once the creditors get notice of the filing they may not send you any bills in the mail, call you on the phone or file a law suit to collect the amount owed. If they ignore the law, they can be subject to both compensatory and punitive damages.
In a recent case in New York, the Bankruptcy Court ordered a bank to pay the debtor $15,910.00 in damages because it had sent the debtor nine collection letters after the case was filed and also called her asking for money despite having notice of the filing. At the trial the bank representative testified that its operations division does not stop sending collection letters to its customers even if they tell the bank that they had filed for bankruptcy. The court found that the bank did get notice of the filing from the Clerk’s Office and therefore should have ceased all collection efforts. Because it did not, it was liable to the debtor for damages, including reimbursing her attorney’s fees and punitive damages.
The lesson from this case is that if you have filed a bankruptcy case and continue to receive collection letters or harassing phone calls, you should let your attorney know. You may be entitled to damages including punitive damages.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
In a recent case in New York, the Bankruptcy Court ordered a bank to pay the debtor $15,910.00 in damages because it had sent the debtor nine collection letters after the case was filed and also called her asking for money despite having notice of the filing. At the trial the bank representative testified that its operations division does not stop sending collection letters to its customers even if they tell the bank that they had filed for bankruptcy. The court found that the bank did get notice of the filing from the Clerk’s Office and therefore should have ceased all collection efforts. Because it did not, it was liable to the debtor for damages, including reimbursing her attorney’s fees and punitive damages.
The lesson from this case is that if you have filed a bankruptcy case and continue to receive collection letters or harassing phone calls, you should let your attorney know. You may be entitled to damages including punitive damages.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
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