Today TaxMama hears from William in Houston who just filed bankruptcy. He has two questions. “I currently owe IRS approximately $2,500. I was wondering if that debt qualifies for my bankruptcy (my lawyer was somewhat vague on it)? And if I get a refund in the spring for my 2010 taxes can the IRS still take the balance out of my refund? I am getting married in 2 months and my fiancé is worried the bankruptcy will penalize us somehow or our refund will get garnished.”
I am so sorry to hear about your troubles. But it IS disturbing (and somewhat mind-boggling) to encounter a bankruptcy attorney in 2010 who has not bothered to take at least one or two in-depth courses about discharging taxes in bankruptcy. As far as I am concerned, that’s practically malpractice. How can he possibly do his job without knowing the rules on what taxes can and cannot be discharged, and the timing of when to FILE the bankruptcy to ensure the taxes are dischargeable?
The time to ask if the taxes can be discharged is BEFORE the BK is filed. And sometimes, a day or two can make all the difference. Personally, since I am not a BK attorney, I do not know the specific timing. That’s why I always contact an expert and have my clients, who are in this fix, consult the attorney with the SPECIFICs of their situation before making any moves.
However, I think that it is too soon for your 2008 tax debt to be discharged. This firm seems to understand the concept and has an excellent overview of tax bankruptcy on their website. (note: This is not a recommendation of Moran Law. I do not know these folks – and JUST found a coherent answer on their site for you this minute.)
At this point, you either go forward with your filing and take your chances that the taxes can be discharged – or your attorney does the research to get the specific information and, if need be, cancels this filing and refiles when the time is right – at his cost, due to his own irresponsible ignorance. Let it be a cost of his education.
If you have filed too early for your taxes to be discharged, then yes, IRS will grab any joint refunds. However, your new bride can file an injured spouse form, Form 8379, with your joint tax return to protect her share of the refund.
Of course, to avoid having any refund taken at all, you can both compute your withholding properly and make sure that you have a tiny refund or none at all. But, if you were not able to discharge the taxes in BK, you will have to pay them sooner or later – so you may as well clear up that debt and get IRS off your back. It’s not a huge debt – $2,500 isn’t worth carrying around for years.
I hope all this works out for you and your new bride. Regardless of what happens now, you can have a clean slate by next year – and start a wonderful life together.
And remember, you can find answers to all kinds of questions about tax bankruptcy and other tax issues, free. Where? Where else? At www.TaxMama.com.