keeps an individual rom qualiying is theailure to le the tax return. The tax rulescan be ound in 11 USC Section 507 andSection 523. The ive items are as ol-lows:1. The most recent due date or lingthe return is more than three yearsold.2. The tax return was led more thantwo years ago.3. The assessment is more than 240days old.4. The tax return must not have beenraudulent.5. The taxpayer must not have beenguilty o a willul attempt to deeator evade the tax.The law specically states that back taxesrelated to noniled or late iled returnscannot be discharged. Nondischarge-able taxes include ederal, state and localtaxes that became due within three yearso ling or bankruptcy, and also includetrust und taxes. Additionally, trust undtaxes include employees’ withholding andemployers’ share o Social Security andMedicare taxes.The age o the debt does not matter.Nondischargeable debt includes loans thedebtor borrows to pay the nondischargeabletaxes, and penalties and interest associatedwith the taxes are nondischargeable. Al-though, in some cases, Chapter 13 penaltiesare dischargeable to the same extent as anygeneral unsecured debt.
Even though the taxes, interest andpenalties are discharged, the tax liabilityhas oten been secured with a led tax lien — and the basic rule is that a properly ledtax lien survives bankruptcy.
Individuals who obtain a discharge o debts in bankruptcy ater ve years willcontinue to owe taxes, interest and penal-ties that have not been ully paid. O course,they can try to obtain an oer in compro-mise to reduce the liability.So are there benets or taxpayers whoowe back taxes? The ling o bankruptcyprovides an automatic stay to prevent col-lection activities on the taxes prior to bank-ruptcy ling. Another pro-taxpayer benetis a single interest rate or the computationo interest on tax claims. Bankruptcy canalso stop oreclosure and repossession.
Nondischargeable consumer debt in-cludes court-ordered alimony and childsupport, as well as any debt due to obtain-ing money, property or services by raudor alse pretenses.Credit card charges or oods and servic-es o more than $500 made within 90 dayso bankruptcy, and cash advances o morethan $750 within 70 days o bankruptcy, arenot dischargeable. Car loans are subject toull repayment.
What about possessions?
A new section, 522 ()(4), limits thenonpossessory, non-purchase money se-cured interest in household goods that can be avoided under section 521()(1)(B).The denition limits electronic equipmentto one radio, one TV, one VCR and onepersonal computer with related equipment.It excludes works o art not created by thedebtor (or a relative) and jewelry worthmore than $500 (except wedding rings).Section 523(a)(8) is amended to makestudent loans dischargeable, in the absenceo undue hardship, regardless i they arerom nongovernmental and prot-makingorganizations.In Virginia, bankruptcy law allows an in-dividual to keep clothes worth up to $1,000,household goods worth up to $5,000, carequity up to $2,000, and cash or debtor’schoice o valuables up to $5,000. Clothingand household goods can be valued at thritvalue. I the debtor has something o valueover $5,000, the courts will normally sellthe asset to pay o the debts.
Retirement andinsurance investments
Protected unds include traditionaland Roth IRAs (exempted or the rst $1million and indexed or infation). The ex-emption amount is unlimited or employeeretirement plans, SEPs and SIMPLE IRAs.But debtor beware! Employer retirementunds do not keep exempt status i they arerolled into an IRA. However, i IRAs arerolled into employer retirement unds, theexemption amount is unlimited.
• Disclosures •