Carol Stream Bankruptcy Attorneys Answer Frequently Asked Questions About Tax Debt, Lien Stripping and More
Below are answers to some frequently asked questions commonly fielded by the bankruptcy attorneys at Johnson, Westra, Broecker, Whittaker and Newitt, P.C. If you have other questions, or if you need help filing for bankruptcy or finding debt relief, contact us at our offices in Carol Stream, St. Charles or Chicago to speak with a knowledgeable and experienced bankruptcy lawyer.
Can I get rid of a tax debt in bankruptcy?
For the most part, tax debt is not dischargeable in bankruptcy, but there is a limited exception for federal income tax that meets certain requirements. If the debt is related to a tax return whose filing deadline is over three years old (including extensions) and was actually filed at least two years ago, the debt may be dischargeable. Also, the tax assessment must be 240 days old or older, and of course there must not be any fraud or tax evasion associated with the return.
Even if the tax debt is not dischargeable, filing for bankruptcy can stop collection efforts and stop the government from putting a lien on your property while you figure out what to do. Whether you get a discharge of other debt under Chapter 7 or develop a repayment plan under Chapter 13, bankruptcy should leave you in a position with enough disposable income to pay the IRS and avoid civil penalties from the government for having a delinquent tax debt.
Is it true that I can get rid of a second mortgage in bankruptcy?
Yes. If you are “upside down” or “under water” regarding your mortgage, meaning that you owe more on the house than it is worth on the market, there are steps you can take in bankruptcy to remove a second mortgage, or break up a first mortgage into secured and unsecured portions, so that the unsecured portion may be discharged. These processes are commonly called “lien stripping,” “cram down” or “bifurcation.” Chapter 13 is an excellent tool for homeowners who cannot afford their mortgage to save their home from foreclosure and adjust their mortgage to a sensible and affordable monthly payment.
Will bankruptcy wreck my credit so that I can never get a loan or another credit card?
No. A bankruptcy will negatively affect your credit rating for a time, meaning it will be harder to obtain financing and your interest rates will be higher, but it will not stop you from getting credit. In fact, most bankruptcy filers are flooded with offers for pre-approved credit soon after they file. A bankruptcy will stay on your credit report for seven to ten years, depending upon whether you file Chapter 7 or Chapter 13. Soon after bankruptcy, however, you can begin to rebuild and reestablish your credit by paying bills on time, buying small items on credit and maintaining a current manageable balance, and paying off debts. Bankruptcy is meant to protect people from financial ruin and give them a fresh start.
What can I do to stop bill collectors from threatening and harassing me?
Collection agencies and professional bill collectors are subject to the Fair Debt Collection Practices Act (FDCPA). The FDCPA restricts the times of day bill collectors can contact you, whether they can contact you at work, and which other people they can contact about your bill. They cannot use abusive language or threaten legal action they do not intend to carry out, and they must stop contacting you once you have told them to stop, with limited exceptions.
The FDCPA only applies to collection agencies and not to the original creditor, such as your credit card company, doctor’s office, or department store. For these creditors or for collection agencies, once you hire a lawyer they are obligated to deal directly with your lawyer and leave you alone. Also, filing for bankruptcy places an automatic stay on all collection efforts from any type of creditor, including wage garnishments, liens, repossessions and foreclosures.