Credit Card and IRS Problems

[REWahoo]

I just got a call from DD#2, who is asking ol’ dad for some advice. It seems a co-worker and her husband have a checkered past regarding credit card debt and problems with the IRS. She is telling my daughter she and her husband are planning to respond to a daytime TV lawyer ad ("Call me and I’ll take care of all your IRS and credit problems!”) in an effort to get their financial lives straightened out.

DD#2 and others in her office have told the co-worker that the TV lawyer route probably isn’t a good idea, but they don’t know what to recommend to her. So I get the phone call this morning asking for my input.

My initial thougths were to seek credit counselling help (are any of those places reputable?) or to look for an attorney who specializes in bankruptcy/IRS problems but who isn't blasting ads over the tube every day. But then I thought maybe the lawyers with the ads had more volume and therefore maybe more experience?

Since I have never had to deal with this before (thankfully), I'm asking the forum for some ideas. Any thoughts I could pass along would be appreciated. And yes, I know this isn’t much information, but it’s all I’ve got.

 

[JPatrick]

It really depends on the scope of the problem.
Not knowing that, I'd start cheap/simple by scouting out a not for profit credit counselor.  Maybe a referral from a church, bank, sometimes the local TV station runs stuff on this.
By getting an educated look at the problem, it would become clear if it truly is time for a TV lawyer 
PS: Really got to be careful when selecting the CC.  Some are nothing but crooks 

 

[cube_rat]

It's my understanding the offer and compromise approval process with the IRS is VERY low. I frankly don't know how these lawyers could advertise how they could reduce your tax debt for pennies on the dollar. I've been down this route with IRS and other types of debt in the early 90's. It took 10 years, a fairly high paying job, perseverance and chapter 7 (which just fell off my credit report this month) to rid myself of the albatross around my neck. I will never get myself in the position I was in 10-12 years ago, ever.

 

[HFWR]

Were you married to my ex??

 

[Texas Proud]

If they are in trouble with the IRS, I do not think bankruptcy will help...

With the CCs... the first thing they need to do is cut them up... if they are not willing to STOP using (just like a drug) then they are not ready to get help..

But on the help side.. from what I read, the new bankruptcy law requires you to go through credit counseling anyhow.. so they might as well go there first... and I had a friend go there many years ago and they had to get rid of all their CCs... it takes a long time to get it fixed and unless you change how you handle money, you will be right back there in a few years..

 

[cube_rat]

If they are in trouble with the IRS, I do not think bankruptcy will help...

Under the old chapter 7 laws, taxes were relieved prior to 2 -3 years of filing(sorry, can't remember the exact date). I can't speak for new bankruptcy laws as do not ever want to explore that area again.

No, Heather (lol), I was not married to your ex

 

[Texas Proud]

Under the old chapter 7 laws, taxes were relieved prior to 2 -3 years of filing(sorry, can't remember the exact date).  I can't speak for new bankruptcy laws as do not ever want to explore that area again.

No, Heather (lol), I was not married to your ex

Guess my BIL was different... the IRS pursued him and he went in bankruptcy... they took funds from banks etc and garnished my sisters wages... got it back and off as they did not follow the law.. was in bankruptcy for about 8 years as it kept them away.. came out and they started to send letters again... he thinks he is finally over it as the statue of limitations has run its course...

 

[cube_rat]

Guess my BIL was different... the IRS pursued him and he went in bankruptcy... they took funds from banks etc and garnished my sisters wages... got it back and off as they did not follow the law.. was in bankruptcy for about 8 years as it kept them away.. came out and they started to send letters again...  he thinks he is finally over it as the statue of limitations has run its course...

It also depends on what type of taxes.  For instance, P/R taxes are never exempt from bankruptcy.  My personal taxes were relieved up to 2-3 years of the filing date.  It wasn't a clean slate but it certainly helped at that time.

I certainly can't speak for the BK laws today.  It was a different world for me in 96 and a VERY hard lesson indeed.

The sad part is I hear from my mortgage broker friend how people file BK only to run up their CC's, car loans and over extend their real estate all over again.  Apprarently, it's common practice. WTF??

 

[Martha]

Wahoo, there are lawyers who concentrate on representing people with tax problems and who do bankruptcy work as well. I used to do quite a bit of that work. Stay away from those guys that advertise cutting deals with the IRS. Call a good bankruptcy lawyer and get a recommendation. The good bankruptcy lawyers will know the good credit counselors as well.

What taxes get eliminated in bankruptcy involve a number of factors. For example, if you failed to pay withholding taxes those taxes will not be discharged. If you filed your returns, were honest on those returns, certain older income taxes can be discharged in bankruptcy.

It sounds like Texas Proud new someone who filed Chapter 11 or Chapter 13, where you have a plan to pay the debt over time. I used to do what we called "chapter 20." First, file a chapter 7 bankrupty to get rid of all the debt you could eliminate, including some older taxes and including penalties. Then, file chapter 13 immediately afterwords and make a plan to pay the remaing tax debt over time.

One twist on all this is that the IRS often has a tax lien on your assets so the IRS is entitled to the equity in those assets or the assets themselves if you file bankruptcy.

Your DD's coworker may end up getting credit counseling, then filing chapter 7 bankruptcy if their income isn't too high, and then working out a deal with the IRS to pay them over time or to settle up with them through an offer in compromise.

 

[wallygator69]

Hi,

This months Kiplinger's has an article on this very subject. I got my issue yesterday so it should be on the news stand by now.

W

 

[LOL!]

I don't see why DD's colleague at work cannot try out this lawyer.  Then DD can tell you the outcome, you can tell us, and the next time you ask we can tell you what we learned about these kinds of things.  We will help you give informed advice.

 

[REWahoo]

Thanks to all (JPatrick, cube_rat, HFWR, TX Proud, Martha, Wallygator, and LOL) for your input. DD#2 has been following this thread and I’m curious to hear if she passed any of your advice on to her friend at work. I’ll let you know if I find out what happens, especially if she does what LOL suggests...

 

[wallygator69]

Hi,

Article in Kiplingers is called Honest Credit Repair.

"The US Trustee's Office vets credit-counseling agencies and lists 132 approved firmsin the Credit Counsling and Debtor Education section of it's website (www.usdoj.gov/ust).

Only other real piece of advise was to "avoid agencies that press you to enter a debt management program, under which you give your bills and payments to agencies which in turn pay your creditors and negotiates debt relief, if necessary. Some agencies focus on this arrangement because creditors pay them to sign up consumers"

Hope this helps

Wally

 

[REWahoo]

Thanks Wally, I'll make sure she gets this.

 

[Martha]

One issue with the US trustee's office vetting of credit counseling agencies is that they are way behind. They haven't reviewed any based in Minnesota yet. I don't know about Texas.