Bankruptcy Reform Impacts Harshly on Individuals’ Ability to Discharge Overwhelming Tax Debts in Bankruptcy;1 June 2005
The bankruptcy reform legislation just passed by the Congress and signed by President Bush will do almost nothing to protect consumers, according to tax lawyer and former IRS special agent Burton J. Haynes. Instead, it will protect the big banks and credit card companies from consumers, Mr. Haynes says in a new article.
The new legislation will have another effect as well -- protecting the government itself (namely the IRS) from taxpayers by making it much harder for them to discharge taxes in bankruptcy.
Mr. Haynes’ new article explains how the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 will make it harder for individuals to resolve unmanageable tax debts through bankruptcy after the Oct. 17, 2005, effective date of most of the Act's "reform" provisions. The article was written for publication by the Maryland Society of Accountants in its journal, "The Freestate Accountant." MR. Haynes serves on the editorial board of the Freestate Accountant and writes a series of articles on "Dealing with the IRS Collection Division."
The article explains that the "superdischarge" provisions of Chapter 13 have been eliminated; the time required between bankruptcy cases has been increased; and the period of time tax debts retain a priority nondischargeable status has been lengthened. The status has been lengthened to include any period of time the IRS is barred from taking collection action because of an administrative procedure such as the filing of an installment agreement request, a request for a collection due process hearing, or the filing of an offer in compromise, Haynes said.
Furthermore, the IRS's miserly standards for "allowable" living expenses have been engrafted into the Bankruptcy Code, with the result that debtors will be deemed to have a greater ability to repay their debts -- often much greater than is realistic, Mr. Haynes added. The entire bankruptcy process for individuals will utilize a "means tested" approach, under which anyone with any significant ability to make payments on his or her debts (applying the IRS's standards) will be forced out of Chapter 7 and into either Chapter 13 or Chapter 11, where payments for at least five years will be required.
The Act, Mr. Haynes concludes, will be a disaster for debtors, particularly taxpayers with income tax debts that they can't afford to pay, and will be a boon to their creditors -- the banks, the credit card companies, and ironically the IRS. Since the bankruptcy reform bill had a 180-day delay period for most of its provisions, Mr. Haynes notes that there is a deadline of Oct. 16th to file cases under the current law. As of Oct. 17th, the bankruptcy world as we know it will be gone, and will be replaced by a much less debtor-friendly set of rules, he said.
Mr. Haynes' series of articles on "Dealing with the IRS Collection Division," as published by the Maryland Society of Accountants, is available on his website at www.bjhaynes.com.
Source: PR Web
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