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Can my new husband's past IRS debt be eliminated by filing bankruptcy?

Denver, CO |

We married in June of 2013. We are both around 60. We decided to sell his house and move into mine. We have no joint credit cards, the house is in my name, so is my car. I recently found out his FICO score is 537, he owes the IRS $25,000 from 2008 & 2009, and he has credit card debt which he brought into the marriage. I want him to file bankruptcy. Will the IRS debt be forgiven? Will he be able to keep his car (heavily financed) in order to get to work? How will his bankruptcy affect me?

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Attorney answers 6

Posted

Money owed to the government does not go away and will not be discharged in a bankruptcy

Ryan M. Wood

Ryan M. Wood

Posted

I disagree - if certain conditions are met, it is possible to discharge tax debt in bankruptcy. As others have mentioned, you can discharge income taxes if the taxes are at least 3 years old and were filed at least 2 years before the bankruptcy is filed.

Posted

Since Colorado is not a community property state your status will not be affected if your husband files a bankruptcy. Your property will be protected and your credit score will not suffer. If your husband files a bankruptcy it might be possible to wipe out the IRS debt, depending on what type of tax he owes. If his car is heavily financed then it will probably be considered an exempt asset so he will be able to keep it. What I am wondering about is the sale of his house. Did he make much of a profit? What did he do with the proceeds? Your husband should contact a bankruptcy attorney and consult with him to see if he qualifies for a chapter 7 or maybe a chapter 13. The first consultation is usually free.

The information provided herein is general information only and not legal advice. The information provided herein does not create an attorney client relationship and is not a substitute for having a consultation with an attorney. It is important to have a consultation with an attorney as the information provided in this forum is limited and cannot possibly cover all potential issues in a given situation.

Asker

Posted

He had to bring money to the table at closing.

Lynda Wesley

Lynda Wesley

Posted

For purposes of filing a bankruptcy that is good.

Posted

If the IRS debt is due to income taxes from the 2008 and 2009 tax years as you mentioned, the taxes were filed timely, and the IRS has not filed a lien against your husband, then the past due IRS debt could be dischargeable. If you and your husband have no joint debt, the bankruptcy could have little to no effect on you, though your income would have to be "included" to determine what type of Bankruptcy he could file.

If the vehicle is underwater, in a Chapter 7, you could simply reaffirm the vehicle. In a Chapter 13, it may be possible to reduce the amount owed on the vehicle down to market value, contingent on a few factors.

It's important to discuss this with an attorney, who will check to see if the IRS has filed a tax lien against your husband.

Dorothy G Bunce

Dorothy G Bunce

Posted

Brad, you mentioned the most important issue which the others overlooked, which is that to discharge tax debt for this year, the taxes HAD TO BE FILED ON TIME. As an aside, I wanted to also mention that to discharge the tax debt for these years, the debt should not have arisen as a result of an audit.

Matthew Scott Berkus

Matthew Scott Berkus

Posted

Good point Dorothy, but even if the tax debt arose as a result of an audit (which would mean the taxpayer filed the returns), and audit results in a "additional" assessment of tax. Assuming all other rules satisfied, the additional assessment need only satisfy the 240 day rule.

Posted

Up front Colorado Revised Statute 14-10-113 defines marital property as any property which either spouse acquires during their marriage, except for property acquired by gift, inheritance or property excluded by a prenuptial agreement. Pretty much the same as most states do, since title means nothing as between spouses. But it ends there.

Colorado is an "equity" state but a divorce action does not presume an equal division as an equitable distribution or community property state may begin the process. Its divided based on equity and fairness not equality in division of assets.

Absent a divorce, your husband's premarital debts are treated as separate under Colorado law.

Now this is another question that has an "it depends" answer because a few more pieces have to fit into this puzzle.

You write that he owes the IRS 25k from 2008 and 2009. The questions then remains, are these from returns that were actually filed? What are they owed for? Income or withholding taxes? Did the IRS impute this and file a return for him? Or were these returns he voluntarily filed? Was there any fraudulent attempt by him to avoid payment of taxes?

Now comes the timing issue. The "statute of limitations" in a bankruptcy for the IRS to enforce a tax debt and by that I mean file a lien, a levy or garnishment or impose the liability itself is 3 years from the date the tax returns were filed and the disputed taxes were voluntarily reported in the returns. Or if the levy was instituted, or garnishments began, that might be the start date. Typically a bankruptcy lawyer will time the bankruptcy 3 plus years beyond the latest reasonable date.

The filing date is important because some people get extensions of time to file returns. Its when they are filed, that's the 'start' date. Then you count 3 years and add some extra days for good measure from that date, and that is going to be the date that you file the Ch. 7 bankruptcy.

Its extremely vital that you know when those 2008 and 2009 returns were filed, as in precise date. And its extremely vital that he filed them, not the IRS for him. And that the disputed taxes that are owed are reported in the returns by him. If there are other dates, then those may be the start dates if the IRS imputed income and taxes. Remember its the latest reasonable date, not the day the taxes might have come due.

If you have that, then yes, he can file a Ch. 7 and chances are pretty good under the right circumstances, he will be discharged.

Your husband should hire a seasoned bankruptcy lawyer to file this bankruptcy for him. Discharging taxes in bankruptcy is simple in concept, not so easy to understand in practice.

Remember the government gets every advantage in the bankruptcy court. So you have to account for every possible date that starts the clock ticking and file 3 years plus beyond that date.

Finally there's another point. Since the IRS is a priority creditor, it is not obligated to file a claim in a no-asset bankruptcy case, and if they are a lien creditor, they don't have to either. They can wait until after the discharge and then begin levying on any tax amounts due that did not fall within the 3 year period. You may not realize it until after discharge. So again timing is extremely important.

This is a public forum. Any questions or answers published here should not be construed as the giving or receiving of legal advice or the formation of any attorney-client relationship. You should consult with a competent attorney in the jurisdiction where your legal issues are pending and get good, solid legal advice. This being a public forum, those answers you do read are merely given for informational purposes only.

Asker

Posted

The amount owed to the IRS was due to tax audits for those years. As far as I know no liens have been brought against him. He has an agreement with the IRS to make monthly payments.

Richard Glenn Elie

Richard Glenn Elie

Posted

Then I believe the date the agreement was accepted by the IRS or at least the first payment he made, may control. Again you are going to have to talk to a bankruptcy lawyer in Colorado where you live and get this straightened out so you know your timing. One last note: The repayment agreement may be dischargeable in part. It depends on how the bankruptcy court treats each installment. It likely may strip off all the penalties and interest leaving only the principal or it may strip off all of it. Depending. Again, this is a highly technical area and your local bankruptcy lawyer is going to know how the judges generally rule locally, to address this issue properly.

Matthew Scott Berkus

Matthew Scott Berkus

Posted

Great points Richards. I would point out that IRS installment agreements are really not that big a problem in discharging tax debt. The only time installment agreements affect discharging tax debt is from the time the agreement was requested (by the tax debtor) and the time the agreement was accepted. During that time frame, the IRS is generally prevented from collecting, so that tolls the timelines (off hand, I don't remember which one, but I think the 3 year rule). Once the installment agreement is in place, it has no affect on a taxpayers ability to discharge tax debt in BK.

Richard Glenn Elie

Richard Glenn Elie

Posted

True, true. But its the IRS that does its thing separate from the BKC court. Had one some years back where they sat back and waited on an installment agreement. They did nothing. The guy thought he was in the clear. Well ... they snuck up on him like a swamp gator in the middle of the night. That resulted in an adversary. Let's just say we got lucky. If we'd known a little more at the time, your observation would be 100 percent correct. Which is why timing can get razor thin sometimes.

Matthew Scott Berkus

Matthew Scott Berkus

Posted

True. That is a horrible story.

Asker

Posted

To make matters worse, my husband failed to make the November and December payments. He was away on a business trip when 3 registered letters arrived for him. Since I was suspicious of his answer that night, I opened the letters. The IRS was asking for immediate payment. The IRS did allow him to enter into a new installment agreement with them. But I am certain that if he misses one payment or is one day late they will call for immediate payment, which he will not be able to make. This is the only reason I am suggesting he file bankruptcy. I have good credit but not the finances to pay off his past debts.

Matthew Scott Berkus

Matthew Scott Berkus

Posted

Sounds like you and he need to get in front of an attorney and explore your options, get your questions answered, so the two of you can make an informed decision. Bankruptcy is sounding more and more like a good option.

Asker

Posted

Thank you everyone. I will have him make an appointment we can both attend.

Posted

Sounds like you should have a consultation with an attorney, you have a lot of questions. As to discharging the income taxes, probably. If the taxes were from 2008 and 2009, and if he filed the tax returns, then those taxes can probably be discharged bankruptcy. However, an attorney experienced in discharging income tax debt would need to review his IRS Account Transcripts. I happen to be one of those attorneys experienced in discharging income tax in bankruptcy.

Posted

If it's income taxes and the IRS has not alleged fraud or negligence it is possible to discharge. However, there are very specific rules as to when income taxes may be discharged. If instead he had a small business and this is some other tax, then it's probably not going to be dischargeable. You should definitely speak with a bankruptcy attorney that understands the tax rules.

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