Bankruptcy Lawyer Blog

If you owe back taxes, then you should first determine if you will have the means to pay that amount off. First it will take some conversations with the IRS to determine if you are available to pay off the balance over a set period of time. Also you will owe back taxes and penalties, so the important thing is that you first develop a gameplan.

A strong plan of attack when you owe back taxes is to find a tax attorney. A tax attorney can help you work through the issues and then you may determine that bankruptcy may be your best option. It’s not automatic that you will need to file for bankruptcy if you owe a lot of back taxes, plus you should note that many times even if you file for bankruptcy you will still owe the back taxes after you come out of bankruptcy. A payment plan will need to be established for your back taxes so you can determine a proper schedule to pay back all your creditors.

Many people have at one time or another considered filing for bankruptcy on their own without the help of a lawyer. While you can do that, it’s very similar to defending yourself in court or buying a house without a real estate agent. You can do all of those things, but most likely you’re not an expert at any of them and because of that you’re more prone to mistakes.

For example if you choose to file your own bankruptcy and accidentally omit a crucial form, your entire bankruptcy may be nullified or invalidated by a judge or trustee. That would be awfully painful to have your bankruptcy process halted because you made a crucial mistake. If you’ve looking to turn a new page in the chapter of your life, you should strongly consider going with a professional bankruptcy lawyer. That way you know you got your bankruptcy done right and won’t have to worry about any big hangups in the process.

Many consumers are still able to qualify under Chapter 7 – close to 85%, because they can pass the “means test”. A “means test” was created to screen consumers for their income levels and a large percentage of people have been able to pass this test and continue on to file bankruptcy under Chapter 7.

The means test is based on the gross income of the filer over the last 6 months prior to filing. The consumer’s income is compared to the median income of people in their same state. If the consumer’s income is below the median income they automatically qualify for a Chapter 7 filing. If the consumer has income above the median income they next need to calculate their disposable monthly income (DMI) to see if they can qualify for a Chapter 13 filing. If the consumer’s DMI is less than $100 a month the consumer can file for Chapter 7, otherwise they need to file for Chapter 13.

The outcome of this act is that consumers must undergo mandatory credit counseling and education. They must also incur additional filing fee, attorney costs and are subject to fewer automatic protections. Small businesses have higher compliance costs and if you get categorized as Chapter 13 you will find yourself with an increased amount of debt repayment (compared to before the law was enacted).