As I’ve discussed in prior threads, this Baltimore Bankruptcy Attorney has noticed a tendency for people to Bury Their Heads in the Sand when it comes to dealing with their debts. One of the worst creditors to ignore, maybe the worst, is the Internal Revenue Service. The IRS is one of the toughest creditors to ignore because they are very prolific. They send a lot of correspondence and frequently will send items by Certified Mail. If you continue to ignore them, they will place a lien on your property; this includes your house, your car, your furniture, even your toothbrush. As a Baltimore Bankruptcy Attorney, I see people get caught with tax liens resulting in higher costs to resolve their debts in a Chapter 13 Bankruptcy. This can also result in the inability to discharge otherwise eligible debts in a Chapter 7 Bankruptcy where a lien has attached. Liens also change how the IRS negotiates with you on payment plans and/or Offers in Compromise.
The IRS can also place a levy on bank accounts. There is no worse feeling than knowing you’ve got enough money in the bank, but having your debit card denied as you try to buy groceries for your family. I’ve experienced it myself and as a Baltimore Bankruptcy Attorney, quite a number of my clients have experienced this pain as well. These levies can come on suddenly. They are unannounced for a reason. If you knew that your bank account would be locked and the money sent to the IRS you would do the same thing that I would do, empty the account. This is not the kind of surprise you want to deal with.
Next come the wage levies. Unlike a credit card judgment creditor, the IRS doesn’t have to stretch very far to figure out where you work if you are employed. After all, your employer reports your income to them on a fairly regular basis as they pay your income tax withholdings and issue W2’s. So, for the IRS, the wage levy is a very simple process, and the best part for them is that they don’t even require a judgment first. Working as a Baltimore Bankruptcy Attorney, I’ve seen what an IRS levy can do to a family. Suddenly the rent or mortgage falls behind, the car note can’t be paid, and the utility companies are clamoring for their money too. It’s hard to survive on the hit that an IRS wage levy can put on you.
What happens when you ignore the IRS is the IRS does whatever it takes to get your attention. Usually with devastating affect.
What other ways do people ignore their problems with the IRS? One of the most common I’ve seen in my time as a Baltimore Bankruptcy Attorney is by refusing to file subsequent years tax returns. The reasoning goes, well, I know I owe them and I can’t afford to pay it, so I just didn’t file the taxes. I cannot stress enough how bad this idea is. File your taxes. It doesn’t matter if you still owe, get them filed and get them filed on time. If you can’t file them on time, file for an extension on time. Don’t know how? Ask me! Seriously. This is crucial.
The Bankruptcy Code allows for tax debts to be wiped out in Bankruptcy, BUT, only if they were (1) DUE 3 or more years ago, (2) Filed more than 2 years ago, and (3) assessed more than 240 days ago. (The computations are pretty complex when factoring tolling events, but this is the general rule). So, let’s talk about number (2) above. When the rule says FILED more than 2 years ago, that means actually filed by you, the taxpayer. Not filed by the IRS or any other agency because you didn’t or just wouldn’t file your own taxes. This means that at best, your failure or delay in filing your returns could postpone your ability to get a discharge. Well, it gets worse. 3 Federal Circuit Jurisdictions have now adopted a rule that says that if you filed your taxes late, then you will NEVER be able to wipe them out in Bankruptcy. Fortunately, as a Baltimore Bankruptcy Attorney, we don’t have to follow those 3 jurisdictions, but it may not be long until this becomes the law of the land here as well.
The moral of this post is that you should not ignore the IRS. If you prepare your taxes and see that you will owe and you can’t afford to pay, file them anyway. If you’re notified that you owe taxes, don’t ignore them. Call a Baltimore Bankruptcy Attorney who has discharged more than $2,000,000.00 in delinquent taxes.