Bankruptcy/foreclosure/tax lien (401k, credit card, refinance, property)

[leanderpam]

After 4 years of attempting to resolve issues regarding back taxes from 1998-2006 with the IRS we have consulted a bankruptcy attorney due to them once again threatening to take what is left of our property which is our home. We have tried the OIC process and simply do not have the money to pay what they say we owe. We will never have the money...

The home was purchased 7 years ago for 165,000 and we owe about 85,000 on it. There are notices of federal tax liens on it for over $300,000 due to the huge interest and penalty charges. We have always been current on the mortgage. The current market value is about $135,000. We live in Texas.

We have recently experienced a significant loss of income due to changes in my spouse's pay (making about 1/2 of what he was 2 months ago) and we, like many others, are struggling to make ends meet. We have no savings or 401K whatsoever (already taken by the IRS) and 1 leased car and one motorcycle.

Anyway, the bankruptcy attorney has advised us to immediately quit paying the mortgage and she will file a Chapter 7 in about 2-3 months and then let the house go to foreclosure after the bankruptcy is over. The lender will certainly make their money back when the house sells. We owe about $5000 to one credit card which will also be in the bankruptcy. Not paying the house payment for that long will allow us to save enough cash to move to a rental in the future.

This whole thing seems wrong to me but I don't see another solution. I can not and never will be able to pay anywhere close to the amount they say we owe. Once the house is gone, there is nothing else to take but the attorney says they will continue to threaten us unless we do the bankruptcy too.

Thanks in advance for any insight.

[piyf]

Well I would sell the house and give uncle sam as much as I could. Bankruptcy can't make Uncle Sam go away. You'll have to pay him sooner than later.

[Modification Specialist]

Originally Posted by leanderpam

......any insight.

I am familiar with tax cases like yours, from what you have told us - you went to the wrong type of attorney for advice.

Today I spoke to a man who got talked into a chapter 7 being past due owing $12,000 total on his credit cards. Going through bankruptcy - a chapter 7 can be listed for ten years on your credit history. In the future you will be pay more because you are deemed a Credit Risk.

In the case I just mentioned - $12.000 can be easily settled for 1/3 of the balance own your own, by not making the payments, and save up enough for a settlement amount. When settled this can be listed as Settled As Agreed on your credit report. I do not know your situation other than what you listed. Owing $5000 and filing chapter seven is totally the wrong way!!

Giving up a home with equity, speaking to an Attorney thinking about her next paycheck, this is the wrong way to go and choosing a path that will cause you to pay more in the future.

Analyzing your case further - the back taxes from 1998-2006, owing $300k to the IRS, there is a method you can do on your own to get this amount lowered majorly. The IRS knows there is no way you can pay this, they are inflating the amount to intimidate you. They inflate the numbers, because if you do get legal help this amount can be negotiated down.

Did your Attorney tell you about this???

The mortgage is not your problem - the IRS tax lien is. That lien is tied to your SS# and will follow up around for the rest of your life.

Many people do know know there is a branch of the government that will represent you legally at no charge in a case involving the IRS. Look up to find a Tax Advocate cost to you and speak to them. See link - Taxpayer Advocate Service (http://www.irs.gov/advocate/ - broken link)

Your best resolution is working out lower settlements with the IRS into affordable payments.

I cannot believe the attorney you talked you, advising the not pay your mortgage and let the home go into foreclosure so there can get nothing from you. She can get into serious trouble advising you this, bet she will not put that in writing...

I think that Attorney was looking for ways to get you to pay her. She has no concern for your future!!!The point is - when you go talked to a bankruptcy attorney, they will talk you into one becuase that is all they do.

You have so many options available, 1st is getting organized - writing out all your bills, what can be settled and what worked out in lower payments.

Good Luck...

[leanderpam]

Thanks for the responses.

We have been in contact with the Taxpayer Advocate who has communicated to us that to avoid losing our home and becoming homeless we need to refinance the house and "cash out" the equity. The current lender (Chase) and another local mortgage company have declined to refinance due to the liens. Borrowing "up to the maximum" on our Visa card was also suggested by the revenue officer which I flat out refuse to do.

The IRS will not settle for anything less that the amount of equity in the home (which I can not access) but I can not sit here and pay for the house for however long it takes to sell and then simply move somewhere with no money. I have been trying to solve this problem since 2006, don't know how much more stress I can take.

[Modification Specialist]

Originally Posted by leanderpam

....165,000 - 85,000 = $80,000
tax liens over $300,000
IRS will not settle for anything less that the amount of equity in the home....

I am happy you spoke with a Tax Advocate - they are attorneys that help you Pro-Bono. I was hopping he would of been more aggressive. It is evident you do not have the equity to take from your home. You are not in a financial position to repay the debt.

Going further...

What type of company did you have, was it a "Doing Business As" (DBA) firm? As a DBA you can write off many expenses on taxes for three years before showing a profit. Once incorporated, you can write off losses for 15yrs. Mentioning an LLC, not requiring to show profit for 7 yrs. As a business owner - did you take advantage of what you could deduct?

Over the decade plus have worked in Mortgages, have spoken to several home owners in similar IRS predicaments. One out come in CA was he sold his business, and was in a repayment plan. Another in TN had family help him, Another one in GA, with the aid of the tax advocate, worked out a lower settlement.

In my opinion - you need to work out a payment an affordable plan with IRS, since it easy to prove you are a hardship situation. Before any plan is worked out, you need to analyze further - as a business owner were there other deductions.

Lastly - in the mid-90's one of my former companies was audited by the IRS. They said I owed $100+. I met with them 18 times in their office, each time going lower and lower on what I owed (I had every receipt plus some I didn't even right off). It got down to $400 was arguing they owed me - they politely told me to get the "F" out of their office.

Dont let the IRS push you around, make sure you had everything you had coming to you.

Good Luck....

..

[Lacerta]

Someone correct me if I'm wrong, but I believe that IRS tax liens are NOT wiped out in a bankruptcy. So even if you no longer own the house, the IRS will continue chasing you forever.

[ShanetheMortgageMan]

I'm not 100% certain Lacerta, but I think if you file BK you can prevent the IRS from going after you personally, but if there is already a tax lien on a home then it must be paid in order to sell or refinance it.

Can You File Bankruptcy on a Federal Tax Lien? | eHow.com

[Carla Hailey]

Some state have tax lien redemption period provided but different states have different prerequisites which you must know and follow, so be familiar with the redemption rules in your state.