Filing and IRS Bankruptcy Basics

In essence, bankruptcy already has a negative implication and this negativity is amplified with the recent developments in the laws governing it. For some people, however, this is their only bet. Hence, it is necessary that we understand what the concept really is, what the filing requirements and guidelines are and what the process is. The option to refer to a Tampa tax lawyer should not be overlooked as his professional assistance is instrumental in bankruptcy filings.

First, how is bankruptcy defined? It is when a person or business is deemed incapacitated to settle debts. There are three different kinds, or more legally referred to as Chapters, of bankruptcy for individuals, married or domestic partners. Let’s examine each Chapter.

• Chapter 7 is most often filed by individuals or couples. Debtors have a grace period to liquidate assets to settle debts. They are allowed to keep enough to start over financially (meaning they need not have to sell everything)
• Chapter 12 – especially made for family farmers and fishermen
• Chapter 13 is also called “debt reorganization.” This is for people who have the ability to settle some or all of their debts. Usually, debtors are given three to five years to pay off the debts.

Corporations can employ the use of Chapters 7, 11 or 15. In the first chapter, businesses are terminated as a result of bankruptcy. The 2nd alternative permits businesses to stay open while re-organizing their debts. Chapter 15 specializes on foreign debt management. Again, the importance of employing the services of a Tampa tax lawyer should not be taken for granted.

What is covered under bankruptcy relief? Credit card debt, medical bills, and unsecured loans are examples of debt that can be covered. Child or spousal support and some tax debts are not covered.

What are the filing requirements? Again, this is an area where a Tampa tax lawyer can give worthy pieces of information. The bankruptcy regulations were reworked in 2005, making the method more intricate and challenging for debtors. Written below are a few of the rules and regulations:

• A pile of documentation detailing your earnings and expenses is necessary to back up your filed bankruptcy.
• Debt counseling from accredited counseling outfits is needed six months prior to filing.
• You have to meet income requisites, which should fall somewhere in your state’s median income. Incidentally, this varies from one place to another.

There are two methods in examining if you qualify for Chapter 7:
a. Refer to the US Trustee Program of the Department of Justice
b. Seek advice from a qualified Tampa tax lawyer

How do you declare bankruptcy? It is possible to do it on your own, but recognize that it is a legal proceeding with extensive effects. You may need a professional who is experienced in bankruptcy laws. You pick whether you are filing for Chapter 7 or 13 and then file with the bankruptcy court. You are then provided with a trustee who is in-charge of making sure that you collect all the required documents. Next, you advise your creditors of your decision to file for bankruptcy. They will have to discontinue their efforts of collecting money from you. As the process goes on, you should to discuss with creditors. Filing for bankruptcy is a long process, so be willing to see it through.

Lastly, how does filing for bankruptcy affect your income taxes or IRS standing? The plain response is that it depends. Generally if a debt is forgiven, then that amount is considered taxable income by the IRS, with the exception of bankruptcy. However, bankruptcy will decrease the other tax benefits the debtor otherwise may have been qualified for. One more item to consider is that when you file for bankruptcy, it generates a bankruptcy estate, which contains all your assets. If you file under Chapter 7 or 11, this generates another taxable entity, which means that you will have to pay taxes on the estate.

To learn more about the basics in bankruptcy, you may refer to the IRS. Another bright strategy is to employ the services of a Tampa tax lawyer. Deciding to file for a bankruptcy is stressful move; hence, it is imperative that you have all you need to make this informed choice.