Many of my clients ask me about criminal charges for un-filed tax returns.  While the IRS doesn’t always seek criminal action against non-filers.  It DOES happen.  Singer Lauryn Hill was recently charged with failing to file 2005-2007 tax returns. She faces JAIL time – one year in prison and $100,000 on each count if convicted.  So, be careful. If you haven’t filed your tax returns, you need an attorney.  Call me at 312-664-6649.

Another great question by a former client today: She has some outstanding student loans and is worried about student loan garnishment on her wages and/or her checking account.  She also questioned whether she was breaking the law. Here is my answer:

First, it is NOT illegal to owe someone money.  So, it is not a crime.

Usually, the loan company can get a student loan garnishment  without a court order – they don’t have to go to court. All they have to do is send you written notice:

• at your last known address (right?)
•  at least 30-days before issuing a garnishment order to your employer.

With a student loan garnishment, they get 15% of your after tax income (The amount must be less than 30 times the hourly minimum wage). – Unless, the student loan company takes you to court and gets a judgment (they usually don’t).  The rules are a little different for a judgment creditor garnishment. The creditor gets 15% of the gross.

It is my understanding, if you were recently unemployed, the student loan garnishment cannot be issued until you have been continuously re-employed for more than 12-months.

Without a court order, I do not believe they can reach the money in your bank account (I have seen some conflicting stories on that). I have never seen that happen.  (remember, without a court order).

You have to know they can take your Tax Refund too, again without a court order.  Same rules apply. They have to send you notice, just like the wage notice.  If you file married filing  jointly (usually the best way for a husband and wife to file) any refund will be used to set off the student loan – all the refund.  They do not split between husband and wife – they take it all.

It may be best to try to workout some sort of payment with them.  You know I would be happy to help you do that.

 

It’s tax time!  What do you do if you receive a 1099 C (Cancellation of Debt) from a creditor after you file bankruptcy.

When a creditor forgives (charges off) a debt, the IRS recognizes this as a “taxable event”   That means you must pay taxes on that amount, as if you received the forgiven debt as income.  With the mortgage foreclosure problems many have been facing, this could mean a tremendous increase in the amount of taxes that are due.  For example, I received a call today from a client who received a 1099 C in the amount of $40,000.00.  This increase in income could translate into thousands of dollars of additional income taxes.  Not a good alternative.

Take heart.  If you filed for protection under the bankruptcy code and received a discharge, the IRS has a process to exclude this type of income – so you don’t have to pay taxes on that forgiven debt.  You need to file Form 982 with your federal income tax return for a year a discharge of indebtedness is excluded from your income.  The purpose of Form 982:

“Generally, the amount by which you benefit from the discharge of indebtedness is included in your gross income. However, under certain circumstances described in section 108, you can exclude the amount of discharged indebtedness from your gross income. You must file Form 982 to report the exclusion and the reduction of certain tax attributes either dollar for dollar or 331/3cents per dollar.”

You must complete Form 982 and attach that form, along with the 1099 C , to your tax return.  Don’t just ignore this matter.  Often people receive these documents and simply discard them because they received a Discharge.  But the IRS is funny that way.  The IRS expects you to document and file all matters involving your income.

So, if you received a discharge  of your debt in  bankruptcy and you receive a 1099 C from a creditor, you should file the 1099 C along with IRS Form 982 along with your tax return, and protect yourself from additional taxes.

 

 

Avvo.com is a web site people can go to “Get free advice from  top-rated lawyers, doctors and dentists.”  I found Avvo about 30 days ago.  I know this, because Avvo has a pretty go0d analytic function that tracks my use of the site.  I was visiting a colleague’s web site and noticed an Avvo Rating Badge on the bottom of her page.  I clicked through for the first time, and have visited Avvo everyday since.  I found the Avvo Answers to legal questions posted on Avvo to be thoughtful and helpful.  I wanted to participate to the Avvo Answers.

Now I act as a contributor on Avvo; that means I answer questions presented by “Askers” from around the country.  I field questions from the Tax, Chapter 7, Chapter 13 and Foreclosure practice areas (mostly).  In the first 30 days I have answered 409 questions, and risen to “Contributor Level 14.”  It’s been interesting.

Some years ago, I answered legal questions through email I received from a bankruptcy site. I answered thousands of questions.   That turned out to be good preparation for learning how to answer complex legal questions in a clear, understandable way.  Avvo has given me the forum to put this ability to good use, and help lots of people too!

From both of these experiences, I noticed that many of the same questions rise again and again.  For example, on the Avvo Tax Practice Area the most common questions revolve around which party gets the child tax deduction after divorce.  For the Chapter 7 Bankruptcy Practice Area, the most common questions ask about Schedule C Exemptions.

Over the next several months, I will present some of my Avvo Answers to these, and other, Avvo Questions.  In addition, I will convert these blog posts to Legal Guides, published on Avvo.  My goal is to make answers to common questons available to those who need these answers, when they need the answers.