By Albert B. Crenshaw
Defalcation laws accommodate filers with aegis from abounding kinds of creditors, but tax collectors about are not amid them.
It has continued been the case that tax debts per se are not dischargeable in a Chapter 7 bankruptcy, unless a boxy alternation of altitude are met. And alike then, if the Internal Revenue Service or added tax ascendancy has placed a affirmation on your property, that affirmation will remain.
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The defalcation bill awaiting in Congress would acclimate things up alike further. A almost contempo activity of application a acclaim agenda to pay accompaniment taxes and afresh accepting the acclaim agenda debt absolved would be cut off. Also beneath the bill, Chapter 13 filers would accept to appearance that they accept filed all their tax allotment due during the antecedent four years.
Chapter 7 is basically a liquidation, in which best of the filer’s debts are wiped out, while Chapter 13 is a workout, in which the debtor repays some or all of his debts over three to bristles years.
All of this doesn’t beggarly that defalcation is abortive if you’re abaft on your taxes. In fact, the IRS, like added creditors, is backward from demography accumulating activity adjoin you while your case is afore the defalcation court. This break can be helpful, but the rules are so complicated that they can actualize pitfalls for both the debtor and the IRS, as two contempo cases in the U.S. Tax Cloister show.
The rulings of the Tax Cloister achieve bright that the IRS cannot avoid a break of collection, alike back there is little likelihood it will achieve annihilation added than a delay, and that if the debtor is offered a adventitious to altercation his tax accountability by the defalcation court, he had bigger achieve the best of it. It may be the alone adventitious he’ll get.
In the aboriginal case, an Illinois woman alleged Catherine Beverly filed a address for abatement beneath Chapter 13, which about allows individuals to pay some or all of their debts over time. She filed her address on Nov. 2, 2001. On Nov. 26, 2001, the IRS issued her a apprehension that it advised to appropriate her assets because of several years of contributed assets taxes in the 1980s and 1990s. On Nov. 27, 2001, the defalcation cloister issued an adjustment absolution her case for abortion to book appropriate schedules.
Beverly refiled for defalcation on Dec. 5, 2001; on Dec. 19, she filed a anatomy with the IRS gluttonous what is alleged a due activity hearing, to claiming the levy; on May 17, 2002, the defalcation cloister afresh absolved her case; on June 5, 2003, the IRS notified her that it advised to advance with collection; and on July 7, she took her case to the Tax Court.
Noting that defalcation law confined “the admission or assiduity of . . . a judicial, authoritative or added activity or proceeding adjoin the debtor,” the cloister assured that the IRS “violated the automated stay” back it issued the Nov. 26 apprehension of absorbed to collect.
The IRS argued that Beverly should accept told it she had filed a defalcation proceeding, and because she didn’t, she should not be able to altercate that the bureau abandoned the defalcation stay. But the Tax Cloister assured that Beverly was acting in acceptable acceptance and that the IRS, in effect, should accept accepted better. It accordingly declared the agency’s accumulating activity adjoin Beverly void.
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