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Chapter 13 Bankruptcy is Applicable on Back Taxes Owed to the Federal Government

What about back taxes that are owed to the IRS? Would Chapter 13 protect against that?

Great question. the answer is Yes.  Chapter 13 applies to the IRS.  The IRS is a debt collection agency that represents the federal government.  They’re collected just like everyone else.  And when you file the bankruptcy, they have to stop debt collection activities, like garnishments, levies.  They may have already placed a lean against some of your assets, the lean is valid.  In bankruptcy, you would have to avoid like a second or a third but you can avoid it if the circumstances are right and we actually just do that for the client of ours.  But the — when it comes to the government, there’s what we call priority debt and non-priority debt.  If the debt is priority, which usually is 3-years old on a filed return, it has to be paid in full.  If the debt is non-priority, which is more than 3-years old on a filed return, let’s say you owe money for 2010 and you filed your return in 2011 when you were supposed to, that debt is probably non-priority and can be discharged.

Utilize Chapter 13 to Get Mortgage Payments Accepted by the Lender

The lender actually won’t accept payments from you?  Again, a lot of people just say “You know what?  I had a hardship, but I’m back on my feet.  I got a new job.  Why won’t they accept my payments?  I don’t know what to do”.  I say, well, you’ll have to do Chapter 13 because when you’re in Chapter 13, the lender has to accept your payments. So, a lot of people use Chapter 13 to get their mortgage payments accepted by the lender.

A Bankruptcy Allows an Individual to Settle the Arrears by Spreading them out over a 5 Year Period

The requirement of Chapter 13 is that you resume your pre-default regular monthly mortgage payments beginning in the month after we file for you. However, your only alternative under the state law is to clear the arrears on a lump sum, which many people cannot do. So, the bankruptcy allows you to take those arrears and spread them out over a 5-year period while resuming your monthly mortgage payment. The reason that’s important is because once the lender issues a Notice of Default, under California state law, they are not allowed to accept a payment from you. So, you couldn’t pay the mortgage if you wanted to. If you want to just try to start paying your mortgage again, they can’t accept those payments because if they do, it resets the foreclosure timeline and they don’t want to do that.

A Bankruptcy Allows an Individual to Settle the Arrears by Spreading them out over a 5 Year Period

The requirement of Chapter 13 is that you resume your pre-default regular monthly mortgage payments beginning in the month after we file for you. However, your only alternative under the state law is to clear the arrears on a lump sum, which a lot of people cannot do.  So, the bankruptcy allows you to take those arrears and spread them out over a 5-year period while resuming your monthly mortgage payment.  The reason that’s important is because once the lender issues a Notice of Default, under California state law, they are not allowed to accept a payment from you.  So, you couldn’t pay the mortgage if you wanted to.  If you want to just try to start paying your mortgage again, they can’t accept those payments because if they do, it resets the foreclosure timeline and they don’t want to do that.