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The Persistent Myth About Taxes and Bankruptcy

Posted by Kevin on March 29, 2017 under Bankruptcy Blog | Be the First to Comment

Many people believe that bankruptcy can’t write off any income taxes. In fact, it is not uncommon for non-bankruptcy attorneys to lump taxes in with other priority debts like alimony and child support payments (which are not dischargeable) and student loans (which are dischargeable in bankruptcy upon a showing of undue hardship).

Through the next few blog posts, you’ll learn what taxes can be discharged and what can’t. The fact is that bankruptcy can discharge taxes of many types and in many situations. Sometimes ALL of a taxpayer’s taxes can be discharged, or most of them. But there ARE significant limitations, which I will explain carefully in those blogs.

Besides the possibility that you may be able to discharge some or all of your taxes, bankruptcy can also:

1. Stop tax authorities from garnishing your wages and bank accounts, and levying on (seizing) your personal and business assets.

2. Prevent post petition accrual of interest and penalties in certain situations.

3. If paid through a plan, limits your payments to what is affordable as opposed to what the taxing authority demands.

4. Eliminate other debts so that money is available to pay the taxing authority.

Overall, bankruptcy gives you unique leverage against the IRS and/or your state or local tax authority. It gives you a lot more control over a very powerful class of creditors. Your tax problems are resolved not piecemeal but rather as part of your entire financial package. So you don’t find yourself focusing on your taxes while worrying about the rest of your creditors.

The laws relating to taxes and bankruptcy are somewhat complex and not easily handled by “do it your selfers”.  It is recommended that a prospective debtor seek out an attorney with experience in taxes and bankruptcy.


Note I mentioned students loans above.  If that is your issue, you can contact me on this website or on


Bankruptcy Filings Continue Down- Better Economy??

Posted by Kevin on March 10, 2013 under Bankruptcy Blog | Be the First to Comment

In May, 2012, I published a blog entitled “Bankruptcy Filings Down- Better Economy?.  My conclusion was that filings were down but the increased cost of filing bankruptcy  may have had more to do with the decrease in filings than the economy getting better.

Well, ten months have passed.  There has been a presidential election.  Certain segments of the economy are doing much better (like the stock market), others not so well (housing).  Filings are down in New Jersey17% from March 1, 2012 to February 28, 2013.   But does that mean that we have a better economy?

Maybe and maybe not.  A few days ago, the Labor Department announced that unemployment was 7.7%, the lowest since the meltdown/recession.  But is that an accurate number?   You see, the unemployment number goes down when employment goes up.  But, it also goes down when  people stop looking for work or take part time work instead of full time. If you consider the number of people who have dropped out the work force or who are working part time, the unemployment number (known as the U-6 unemployment number) is greater than 14%.  So, if you factor in the broader measure of employment (U-6), the economy is still struggling.

How do you apply that to number of bankruptcy filings.  While it is true that if you cannot afford the filing fee, you usually cannot afford bankruptcy, it is also true that if you don’t have any assets or income, creditors have nothing to go after.  So, if you can put up with a few unpleasant telephone calls, people can generally avoid their creditors.  As they say, you cannot get blood out of a stone.  So, why file?

Unless the US slips back into recession, real unemployment should go down eventually.  People will shift from government benefits to wage paying jobs. Rather than writing off your debts like in the old days (1980’s),  credit card companies, hospitals and even doctors are selling your debt for pennies on the dollar to hedge funds or other debt collection agencies.  Those guys do not go away.  First, you will get letters and calls.  Eventually, when they find out where you work, you will get judgments against you (if they do not have them already), and then wage garnishments.  Something to think about.

So, if you have been out of work for a year or more, and get a job- congratulations.  But if you also have judgments or owe lots of money and you get a  job, you may want to give serious thought to speaking with a reputable debt counselor or bankruptcy attorney.  Why?  Because at that time you have options.  However, if you want until your wages are garnished, your only recourse may be bankruptcy.   The automatic stay, which occurs when you file a bankruptcy petition, will stop a garnishment dead in its tracks.

Word to the wise.