Taxes

New Jersey Attorney Explains The Tax Process Of A Chapter 13 Case

I have written extensively in other blogs about how to determine the amount of a debtor’s tax debt, the portion of the tax debt that is dischargeable and the amount that must be paid through a New Jersey chapter 13 bankruptcy plan. This blog explains the chapter 13 process of handling tax debt. The bankruptcy code applies the same laws and procedures to the IRS and State of New Jersey, Division of Taxation, which includes federal and state income tax debt.
In a New Jersey chapter 13, all tax returns must have been filed with the taxing authorities, including both federal and state tax returns. If any returns have not been filed, the trustee may ask for the case to be dismissed at the first scheduled Confirmation Hearing. Dismissal means that the case is thrown out. The trustee is responsible for administering the bankruptcy case and to ensure that the debtor pays the appropriate creditors, in the appropriate amounts.
The IRS and the State of New Jersey, Division of Taxation, must file a Proof of Claim with the court, reflecting the amount of debt owed for each year and the classification of the debt for each year. If the taxing entity’s proof of claim reflects that a tax return has not been filed with the taxing entity, the trustee will not permit the debtor to move forward with their case. The trustee will require that the taxing authority file an amended claim with the court, reflecting that all returns have been filed.
However, the trustee will typically agree to postpone the Confirmation Hearing to allow time for the taxing authority to modify their claim. The debtors’ attorney may forward the debtors’ returns to the IRS or State, directly, and resolve the matter without court intervention. However, if the parties are unable to resolve the matter, the debtors’ attorney may need to file a motion with the court objecting to their proof of claim. In most circumstances, all issues are resolved after the motion is filed with the court, and without the need for the judges determination.
If the taxing authority files a claim reflecting an incorrect classification or amount due, the debtors’ attorney may attempt to resolve the matter in the same manner, as explained. Under these circumstances, the Confirmation Hearing date, must be postponed to allow for the resolution of these tax issues. The trustee’s job is to ensure that the tax claim reflects that all returns have been filed and that the debtor has sufficient disposable income to pay secured and priority class tax debt. It is the debtors’ attorney’s job to ensure that the tax claim reflects an accurate figure, not the trustee.
Robert Manchel may be reached at 866 503 5644 to discuss your bankruptcy questions.

New Jersey Bankruptcy Lawyer Explains How to Reduce Tax Liens In Bankruptcy

I have drafted numerous blogs explaining how tax debt is treated in a New Jersey bankruptcy case. This blog deals with how income tax debt may be partially eliminated, in the event that the taxing entity has filed a lien against the debtor in the county recording office.
In general, there are four criteria that relate to income tax debt, regarding the Internal Revenue Service and the State of New Jersey, Division of Taxation. If the four criteria are met, the tax debt becomes unsecured, which may be dis-chargeable in bankruptcy. No. 1. The date of the filing of the bankruptcy petition must be more than 3 years after the tax return filing due date, for such years return. No. 2. The date of the filing of the bankruptcy petition must be filed more than 2 years after the returns were filed for such year. No. 3. The date of the bankruptcy filing must be more than 240 days after such years taxes are assessed. No. 4. If the taxing authority filed a county lien against the debtor for such tax year, the tax liability for that year will be classified as secured and may not be dischargeable. If fraud is involved, the taxes for such year may not be discharged.
Criteria Number one above relates to when taxes are due. In other words, the returns for tax year 2012 are due on April 15, 2013. Criteria number three above relates to the date on which the taxing entity assesses the taxes for each particular year. The assessment date is typically the date on which the returns were filed. However, the filing date may not be the assessment date in various circumstances. Also, the same years taxes may be assessed, again, if the taxing authority believes that the return is inaccurate. Also, the 240 day period, may be tolled (delayed) if a payment agreement was entered into with the taxing authority.
If  the taxing authority files a county lien against a person for a particular tax year, the tax liability for that year may be partially dischargeable. The filing of a  county lien classifies the debt as secured. In general, a bankruptcy debtor cannot eliminate secured debt. However, a debtor may be able to reduce the amount of the claim that is classified as secured. Ultimately, the debtor only need to pay the secured portion of the debt and may possibly eliminate the unsecured portion of the debt.
Initially, the lien may only be reduced if the first three criteria listed above are met. I will explain how to reduce or “cram down” the secured portion of the IRS’s claim. For example, we will assume the following facts for income tax year 2011, in connection with an IRS tax liability of $15,000.00. The debtor filed his 2011 tax returns on time and filed his chapter 13 bankruptcy petition on March 17, 2016. The IRS filed a $15,000.00 county tax lien against the debtor, in 2014, for the tax year 2011. We will assume that the taxes are assessed on or about April 15, 2012 and no fraud was involved.
The debtor may attempt to cramdown the lien into a secured and unsecured portion. The secured portion of the lien must be paid in bankruptcy. However, the unsecured may possibly be eliminated (discharged) if he meets the bankruptcy criteria, which is explained, in numerous other blogs. The secured interest may be reduced by the equity in all of the debtor’s property, at the time of the bankruptcy filing. This means all and not some of the debtor’s property.
Lets assume that all of the debtors property values, at the time of the bankruptcy filing, is as follows: sofa-value of $300; refrigerator-value of $100.00; pencil-value of $.01; car-value of $1,000, with an auto financing payoff of $200.00; house-value of $200,000, with a mortgage payoff of $201,000; TV-value of $75.00. Based on the above, the total IRS.’s secured interest may be reduced to $1,275.01, with the balance of $13,724.99. This means that the total amount that must be paid to the IRS, through the bankruptcy plan is $1,275.01. The balance of $13,724.99 is classified as unsecured and may be eliminated based on certain criteria.
Robert Manchel is available to answer your NJ. bankruptcy law questions at 866 503 5644.

New Jersey Attorney Details How Tax Returns Are Handled In A Chapter 13

All tax returns must be filed to proceed with a chapter 13 bankruptcy case. If any return is not filed, the trustee may possibly dismiss the case at the Confirmation Hearing. A case dismissal means that the case is thrown out. It may be possible to reinstate and continue with the same case.
In New Jersey, each creditor files a Proof of Claim (claim) with the court that indicates the details of the debt. All taxing entities, such as the Internal Revenue Service and the State of New Jersey, Division of Taxation, will file a Proof of Claim. The claim indicates whether all of the debtors returns are filed. Sometimes the tax claim will reflect that return for specific years were not filed even though the return was actually filed. In this situation, the taxing entity must file a modified proof of claim reflecting that all tax returns have been filed.
In addition to the non filing of a tax return, there may be many other more complicated tax issues related to the proofs of claim and tax debt. Typically, the State of New Jersey and the IRS are very easy to deal with and will amicably resolve various issues. For simple issues, the matter may possibly be resolved by forwarding  the taxing authority the appropriate tax return. However, in a number of circumstances, it may be necessary to file a motion with the court objecting to the taxing entity’s claim. If the matter cannot be resolved, the issues may be argued before the judge, who will make a decision regarding the tax debt.
The NJ. bankruptcy practitioner, Robert Manchel, may be contacted at 866 503 5644.

This Blog deals with the requirement of filing state and federal income tax returns, not whether any taxes are dischargeable.
Chapter 13 tax return filing requirements
In a chapter 13, the debtor is required to have filed any and all state and federal tax returns that were required to have been filed for the four years prior to the bankruptcy filing. The deadline to file all of these returns is the day before the first scheduled Meeting of Creditors, which is approximately 30 days after the bankruptcy filing.
Under the bankruptcy case, if the debtor fails to file the returns within the required time period, the trustee may extend such period, no more than an additional 120 days past the Meeting of Creditors.This period is about 150 days after the bankruptcy filing.However, the debtor may ask the judge for an additional time period, if the reason for not filing the returns were due to circumstances beyond the debtor’s control.
As a practical matter, without a judges approval to extend the filing period, the case will be dismissed at a Confirmation Hearing that is held later than 120 days after the Meeting of Creditor’ hearing.
Please note that if the Federal or state government does not require a debtor to file a return, for whatever reason, the returns, for that year need not be filed.
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chapter 7 tax return filing requirements
In general, everyone is required to timely file any and all federal and state tax returns. However, the failure to file a tax return is not grounds for the dismissal of a chapter 7 case.
Please call Attorney Robert Manchel at (866) 503-5655, to discuss your bankruptcy protection questions.

While in a Chapter 13, you are making monthly payments to a bankruptcy trustee. You pay your creditors whatever you can afford over three to five years (three years for lower income earners, five years for higher wage earners). You are required to commit your disposable income to the repayment plan during the repayment period. You are also required to pay as much to unsecured creditors as they would receive in a Chapter 7 bankruptcy.
Unfortunately, an expected income tax refund is property of the bankruptcy estate. Many filers are able to protect all or a portion of their income tax refunds by applying their bankruptcy exemptions to the expected refund. Generally, after using all of your available exemptions, the remaining unprotected amount is often little or nothing.
If you cannot protect your tax refund with exemptions, you are required to pay the non-exempt amount in your monthly plan payments. This is because your unsecured creditors would get this money if you filed a Chapter 7 bankruptcy.
Working closely with my office will maximize the amount of money you get to keep.
If you are expecting a large income tax refund, but need to file a Chapter 13 bankruptcy case, contact the NJ bankruptcy law expert, Robert Manchel, at (866) 503-5655 to discuss your options for bankruptcy protection. We can explain how the federal laws can protect your assets and discharge your debts.