Bankruptcy planning.Bankruptcy bankruptcy, in law, settlement of the liabilities of a person or organization wholly or partially unable to meet financial obligations. The purposes are to distribute, through a court-appointed receiver, the bankrupt's assets equitably among creditors and, in most is a harsh fact of life in the current economy. Many taxpayers consider filing for bankruptcy to solve their problems with creditors as well as possible under the circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or and to get on with their financial lives. However, even after considering bankruptcy, many taxpayers realize they must work to regain their economic status. Before they file, they should consider the consequences of the various proceedings. The proper type of filing can minimize liabilities and hasten has·ten v. has·tened, has·ten·ing, has·tens v.intr. To move or act swiftly. v.tr. 1. To cause to hurry. 2. economic recovery. BANKRUPTCY FILING Normally, the bankruptcy process begins when a debtor One who owes a debt or the performance of an obligation to another, who is called the creditor; one who may be compelled to pay a claim or demand; anyone liable on a claim, whether due or to become due. files a bankruptcy petition. However, creditors also can initiate bankruptcy proceedings bankruptcy proceedings n. the bankruptcy procedure is: a) filing a petition (voluntary or involuntary) to declare a debtor person or business bankrupt, or, under Chapter 11 or 13, to allow reorganization or refinancing under a plan to meet the debts of the party . Bankruptcy petitions are based on different chapters of the bankruptcy law. (A taxpayer's situation may fall in more than one area of the bankruptcy law.) The consequences vary depending on the provisions under which a petition is filed. Taxpayers must consider these possibilities carefully before they decide on a course of action. CONSEQUENCES OF A BANKRUPTCY PETITION Some filing consequences are common to all bankruptcy proceedings. Automatic stay. Once a petition has been filed, the debtor's creditors (anyone with a security or adverse interest in property) may not take any actions to collect, assess or recover claims against the debtor or his or her property. Priorities. Filing a petition automatically establishes the sequence in which administrative expenses and other unsecured claims must be paid. Debt discharge. On filing a petition, an individual may have some of his or her debts discharged. The nature and scope of debt discharge depends, however, on the type of bankruptcy petition filed. Preferences. Under the bankruptcy law, certain recent transfers may be avoided; however, which transfers are affected (and which are not) must be examined. CHAPTER 7 VS. CHAPTER 13 Two of the alternatives available to many individual taxpayers are chapter 7 proceedings Chapter 7 Proceedings Provisions of the Bankruptcy Reform Act under which the debtor firm's assets are liquidated by a court because reorganization would fail to establish a profitable business. (liquidations) and those under chapter 13 (debt adjustments for individuals with regular incomes). Which of these proceedings is used determines the consequences regarding priorities, debt discharges and preferences and exemptions. Tax-related government claims. Frequently, debtors owe individual taxes, penalties and interest, which may be discharged depending on the bankruptcy petition's timing and type. These tax claims survive both chapter 7 and chapter 13 filings: * Taxes due within three years of a bankruptcy filing. * Any taxes assessed within 240 days before the petition filing date. * Employment and FICA FICA abbr. Federal Insurance Contributions Act Noun 1. FICA - a tax on employees and employers that is used to fund the Social Security system income tax - a personal tax levied on annual income taxes collected for employees. * The employer's share of employment taxes. * Penalties compensating for actual monetary losses (such as prebankruptcy petition interest on taxes). * Taxes not previously assessed that are legally assessable. Chapter 13 considerations. All unsecured taxes, penalties and interest that are not priority claims (as previously discussed) are dischargeable in chapter 13 bankruptcy proceedings. For example, taxes due more than three years before a bankruptcy filing are discharged even if they involve fraud or a failure to file; postpetition interest on unsecured claims also may be discharged. Chapter 7 considerations. If a bankruptcy petition was filed under chapter 7, there are additional exceptions to the discharge of tax-related matters. These amounts are not discharged by the bankruptcy: * Taxes on a return that was not filed within two years of the bankruptcy petition filing date. * Taxes on fraudulent The description of a willful act commenced with the Specific Intent to deceive or cheat, in order to cause some financial detriment to another and to engender personal financial gain. returns. * Penalties incurred within three years of a bankruptcy petition. * Interest accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. after the bankruptcy petition filing date. Tax liens Tax Lien A claim imposed by the federal government to liquidate a persons property until owing tax and debt is fully paid. Notes: Tax liens can be purchased from the government in the form of an investment. . Liens placed by the Internal Revenue Service on a taxpayer's property before a bankruptcy filing are not necessarily discharged. In chapter 7 bankruptcies, liens survive intact and are not affected by the bankruptcy process. However, in chapter 13 proceedings debtors may request that a lien lien, claim or charge held by one party, on property owned by a second party, as security for payment of some debt, obligation, or duty owed by that second party. be divided into its secured and unsecured portions. Depending on the circumstances, the IRS's claim may fall in the unsecured category and may then be treated as an unsecured claim and be discharged. For a detailed discussion of this topic, see "Individual Taxes, Penalties and Interest Forgiven in a Chapter 7 Versus a Chapter 13 Bankruptcy," by Kenneth Hansen Kenneth Kruse Hansen (born 19 October 1987 in Herlev, Denmark)[1] is a motorcycle speedway rider who currently rides in the United Kingdom for the Wolverhampton Wolves in the Elite League. , in the August 1993 issue of The Tax Adviser. |
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