Morris County Attorney Helping People Get Out of Debt
Popular singer Dionne Warwick revealed in a recent bankruptcy filing that she owed nearly $10 million in back taxes. The New Jersey resident, singer of such classics as “Walk On By” and ”I Say a Little Prayer” filed a Chapter 7 bankruptcy petition, saying a little prayer that she would be able to walk on by her troubles with the IRS.
In the filing, Warwick stated that she owed nearly $7 million to the Internal Revenue Service, and more than $3 million in state business taxes to California. Her rep stated although she has paid the taxes, the large outstanding sums are penalties and interest which accumulated over the years.
What Kind of Taxes are Dischargeable in Bankruptcy?
Income taxes are the only type of taxes that may be discharged. The tax must be unsecured to be discharged, meaning the IRS has not filed a tax lien on any property yet. There are additional eligibility requirements for back taxes to be discharged in bankruptcy:
- The tax returns were filed at least two years prior;
- The tax obligations are at least three years old;
- The tax was assessed prior to 240 days by the IRS, or was not assessed at all.
It is also a requirement that no fraud was committed regarding the back taxes owed. Since Warwick’s tax obligations are older than three years (her debts are for the years 1991 to 1999), and assuming the singer filed returns over two years ago and the taxes were assessed over 240 days prior, she should be eligible under Chapter 7 to have her federal tax debts discharged. As it was reported she owes “state business taxes” to California, it is unclear whether those would be dischargeable without more information. Payroll taxes, sales taxes or anything other than income taxes are not dischargeable.
If the tax debt is not considered dischargeable once the court receives all the information, the tax debt may be classified as “priority debt.” In cases of non-dischargeable taxes, a Chapter 13 bankruptcy assists people to pay back tax debts over a three to five year repayment plan.
Receiving IRS Notices You Cannot Pay?
If you are receiving tax notices from the IRS, the worst thing you can do is ignore them. If the IRS places a tax lien on your property, it will be too late to discharge the debt (but bankruptcy can still help you.) The earlier you reach out for bankruptcy help, the more options you will have.
If you are thinking about filing bankruptcy in New Jersey to manage your debts, contact our experienced bankruptcy attorney in Morris County to review your financial situation in a no cost, no obligation consultation.