Tag Archives: bankruptcy protection

Community Property and Filing Separately

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Many of you who are considering filing bankruptcy separately from your spouse are often confused as to what belongs to you and what belongs to your spouse. In all bankruptcy filings, you have to list your assets owned and all your expenses when you make your application to file.

Depending on whether or not you live in a community property state will determine how you divide up your assets when filing bankruptcy separately from your spouse, but when filing bankruptcy jointly with your spouse, there is really no need to divide up your assets. Filing bankruptcy jointly would require you to list all your current assets regardless of how and when you acquired them.

Importance of Knowing State Property Laws

When you are filing bankruptcy, it is important to know whether or not you live in a community property state. If you do, you are required to abide by the community property laws when you file bankruptcy. There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska is an opt-in community property state that gives both parties the option to make their property community property.

Community Property States

A community property state presumes both spouses equally own all marital property and it will be split 50-50 in a divorce. For filing bankruptcy purposes in a community property state, unless your spouse owns property you can prove has never been owned jointly, you will have to list 50% of the value of the property as part of your assets. If you can prove certain property owned by your spouse has never been owned jointly, you do not have to list the property as one of your assets when filing a bankruptcy.

Non-community Property States

In non-community property states, you need only to prove your share of ownership in order to list the asset when filing bankruptcy separately. When filing bankruptcy jointly, there is no need to prove what share of the assets you own.

The IRS can help you decide how community property is determined for a bankruptcy.

IRS publication 555 defines community property as:

  • that which you, your spouse, or both acquire during your marriage while you and your spouse are domiciled in a community property state

  • that which you and your spouse agreed to convert from separate to community property
  • that which cannot be identified as separate property

IRS guidance is also given regarding what is considered separate property:

  • property you or your spouse owned separately before your marriage
  • money earned while domiciled in a non-community property state
  • property you or your spouse received separately as a gift or inheritance during your marriage
  • property you or your spouse bought with separate funds, or acquired in exchange for separate property, during your marriage
  • property you and your spouse converted from community property to separate property through an agreement valid under state law
  • the part of property bought with separate funds, if part was bought with community funds and part with separate funds

As you can see, filing bankruptcy separately or jointly can be a complicated process that may require the experience of a bankruptcy lawyer.

 

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Bankruptcy in the US Economy and 10 predictions for 2012

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Here are my 2012 predictions on what will happen to the economy that might affect bankruptcies for the New Year. With this list of predictions and about $4.00, you can buy a decent cup of coffee in a lot of the places near where you live in the United States.

Bankruptcy Prediction #1

Individual bankruptcies will continue to fall for the first six months of 2012, but when interest rates start to rise, individual bankruptcies will increase at an alarming fast pace near the end of 2012.

Bankruptcy Prediction #2

Business bankruptcies will start to rise after the New Year. Bankruptcy will increase even faster on businesses heavily leveraged once interest rates start to rise and the economy reels from it.

Bankruptcy Prediction #3

Because of the poor overall economy and tax collections, more local governments will consider filing for bankruptcy protection than any other time in history.

Bankruptcy Prediction #4

There will be a surge of new young farmers entering the farming industry for the first time. Farming bankruptcies will continue to drop, and farming overall will be very profitable for the first time in a long time. Most new farming opportunities will be provided in the organic and natural farming sectors as Americans return to basics to survive.

Bankruptcy Prediction #5

A hot issue affecting bankruptcy is the housing crisis. Foreclosures and their effects on the American economy will be the hottest subject to surface during the Presidential debates in 2012. The candidate coming up with a fresh new remedy to solve this potentially dangerous economic phenomenon to the American economy will have the inside edge to the White House.

Bankruptcy Prediction #6

The second hottest debate during the Presidential election will be over the National Debt and how to solve it. As the debt spirals out of control, the debates will make most Americans aware how close to bankruptcy the United States really is. The United States credit rating will continue to drastically drop.

Bankruptcy Prediction #7

One of the most important economic factors facing the United States are the interest rates paid for obtaining money. Superficially controlled by the Feds at present, the Feds will lose control in 2012 when the American citizens and the rest of the world realizes the United States cannot or will not meet its minimum interest payments for the first time in its history. Few will risk taking a chance to buy US bonds or other federal instruments without higher interest rates attached. As interest increases for these security instruments, all other lending sectors will follow suit.

Bankruptcy Prediction #8

China will wrench up its rhetoric about the United States inability to get a grasp on its finances, and the rhetoric will create new tensions for the two countries.

Bankruptcy Prediction #9

The three top industries most affected by bankruptcy in 2012 will be the Oil Services Industry, the Entertainment Industry, and the Gaming Industry, all heavily leveraged, will begin to file for bankruptcy in record numbers.

Bankruptcy Prediction #10

Despite all the bankruptcy bad news, the United States economy will still lead the world in Gross Domestic Product at the end of 2012.

While bankruptcy indicates economic problems, filing bankruptcy is a chance to start over. Starting over could actually be a good thing in 2012.

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Bankruptcy and 3 Excellent Reasons for Filing for Protection

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Filing for bankruptcy protection is your Constitutional and individual right, but filing for bankruptcy protection is a personal decision only the bankrupt should make. Here are 3 excellent reasons you might want to consider filing for bankruptcy protection.

1. You are Completely Bankrupt

You are completely bankrupt, as a general rule of thumb, when your current sustainable income plus any cash reserves will not pay all of your living expenses, all the interest on the debts you owe, and a portion of the principal of those debts owed within a five year period.

In using this general rule of thumb definition of bankrupt, you should not figure using money held by retirement accounts to pay off creditors. Retirement accounts are normally protected against creditor actions, and are there for your future. Why give your future away to your creditors when you don’t have to?

You should also not sell assets you own that are exempt from creditor actions. Exempt assets you own can be protected from creditor actions through filing bankruptcy. Bankruptcy protection is all about protecting the exempt assets that will help you make a fresh new financial start. Why give your fresh new start to your creditors when you don’t have to?

Recognizing you are completely bankrupt and without means to pay your bills is an excellent reason to start over financially by filing for bankruptcy protection.

2. To Eliminate All of Your Unsecured Debt

Unsecured debt is any debt you owe where collateral has not been offered for securing the debt. The asset obtained through unsecured debt will not have a lien attached to it.

A Chapter 7 bankruptcy will discharge any unsecured debt not satisfied through the liquidation process of your non-exempt assets. That means all of your unsecured debt will be eliminated at the close of the bankruptcy.

Secured debt will also be discharged at the close of bankruptcy, but the lien on the secured debt will not be discharged. The lien will have to be satisfied by either a foreclosure on the asset or a repossession of the asset.

Eliminating all your unsecured debt is an excellent way to get a fresh new financial start and is a excellent reason to file for bankruptcy protection.

3. Stop All Collection Activities

The moment you file for bankruptcy protection, a federal bankruptcy court automatic stay goes effect. That means the federal court is ordering all collection activities to immediately and legally cease until the bankruptcy court has had time to legally change the status of the existing and listed debts.

The federal stay automatically and immediately stops these creditor actions on collecting debts: lawsuits, foreclosures, utility shut-offs, evictions, repossessions, garnishments, attachments, and debt collection harassment. These actions cannot start again: unless the creditor can successfully petitions the bankruptcy court showing good cause; unless the creditor is a secured creditor seeking a claim against a lien after the bankruptcy closes; or when debt has been discharged through the bankruptcy process.

When you file for bankruptcy protection, you immediately and temporarily stop all collection activities. All discharged collection activity is stopped on a permanent basis eliminating the debt and providing you with a chance to start financially afresh. Stopping collection activities is another excellent reason for filing bankruptcy protection.

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IRS Offer in Compromise

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Nature of the IRS on Income Tax Debt

The Internal Revenue Service (IRS) understands that its tax payers can have financial difficulties ultimately causing you to go bankrupt. Contrary to the myths and images you might have about the IRS, the government is only interested in getting what it is realistically owed them.

The IRS is really like any other creditor except they are more prone to follow the federal law and guidelines than most when collecting their debts, they can be more reasonable to deal with than most creditors, but they still have unprecedented power to collect debts when the federal law favors them in doing so.

The two primary laws affecting what the IRS will or will not do when it comes to an income tax debt are federal tax law and federal bankruptcy law. Either or both types of federal law can be very complicated for the average taxpayer to understand without professional legal help.

When you get into financial trouble and behind on your income tax debt, expect the IRS to ask for penalties and interest like any other creditor. Like any other creditor who might extend you a loan, the IRS deserves to be paid on time, but when you cannot, the IRS has built into the federal law ways you can pay them based on a fair evaluation of your given circumstances.

Income Tax Debt and Bankruptcy

Federal law allows for income tax debt to be discharged in a bankruptcy filing under certain circumstances within certain guidelines. The tax can be discharged if the tax owed was due more than 3 years in the past, the income tax debt at issue was included in a tax return more than 2 years before the filing of the bankruptcy, the income tax debt was assessed by the taxing authority more than 240 days prior to filing for bankruptcy, and the debtor filing the return must not have attempted to evade paying the tax.

Income Tax Debt and an Offer in Compromise

Before handling an income tax debt through the bankruptcy process, the IRS will also consider an Offer in Compromise. An offer in compromise is a settlement made with the IRS for less than the full amount you owe, and normally requires you to provide evidence to the IRS for a financial hardship in paying the full amount of taxes, penalties, and interest owed.

According to the IRS government website, they give this warning to prospective applicants: “We generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time. Explore all other payment options before submitting an offer in compromise. The Offer in Compromise program is not for everyone.”

To be a successful applicant for an offer in compromise, you must meet all the Offer Terms listed in Section8 of IRS Form 656, including filing all required tax returns and making all payments.

Because and offer in compromise is complicated and sensitive in nature, it might be wise to consult with a tax attorney and/or a bankruptcy attorney before making such an offer.

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Organic Farming Might be Future for Potentially Bankrupt

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Spiritual Hope for the Future

Being bankrupt carries a deeper meaning than not having the finances to provide you with living expenses. You can have a good job with all the money in the world to sustain your current lifestyle, but still be completely bankrupt spiritually.

According to a recent Associated Press news article posted on the WSB radio website in Atlanta, Georgia, many of America’s youth are beginning to turn to organic farming as a release from being spiritually bankrupt. It seems many of America’s youth are getting disillusioned with Corporate America, high salaries, and enslavement to long work weeks. The efforts might provide a high level lifestyle, but it does not provide a fulfilling one.

A Wisconsin factory worker worried about layoffs became a dairy farmer. An employee at a Minnesota nonprofit found an escape from her cubicle by buying a vegetable farm. A nuclear engineer tired of office bureaucracy decided to get into cattle ranching in Texas.” All three of these are examples not of people going bankrupt financially but of people who seemed spiritually dissatisfied with their current lifestyle of living.

Strangely enough, youth are entering into organic farming when farming in general, especially independent small family farmers, have been going financially bankrupt in droves and devoured in the past fifty years by growing large corporate farming groups.

Practical Help for the Future

The United States Government has been concerned about the direction farming has been taking these past decades and have responded by offering United States Department of Agriculture support and loan programs to those youth wanting to start family farms. Organic farming is the one area still not controlled by large corporate farming groups.

The young entrepreneurs typically cite two reasons for going into organic farming: Many find the corporate world stifling and see no point in sticking it out when there’s little job security; and demand for locally grown and organic foods has been strong enough that even in the downturn they feel confident they can sell their products.”

With the average income of around $10,000 per year for the small family farmer of today, most family farmers still have to have a supplemental income to make ends meet. Nevertheless, this prompted one of the new youth to comment, “When you’re self-employed it’s so much more fulfilling. You get paid what you’re worth. It’s really nice that what you put into it is what you’re going to get back out.”

Support When Things Go Wrong

So, the young people risk the possibility of becoming financially bankrupt after being spiritually bankrupt. Organic farming, or any type of farming for that matter, comes with a high risk for returns.

If you are a organic farmer or farmer in general, you may have been spiritually rewarded with a good life, but if you are financially bankrupt, the possibility may still exist you need a chance to financially start over. You can only do that by filing for bankruptcy protection.

Bankruptcy laws are often complicated, and you will most likely need a bankruptcy attorney to help you understand how these laws might apply to you.

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Will Increasing or Decreasing Income Affect a Bankrutpcy Plan?

A Chapter 13 bankruptcy is commonly called a wage earner’s plan. It is a type of bankruptcy most individuals can file requiring you to design a pay back plan with your disposable monthly income to pay your unsecured creditors. During the plan, all secured debts will be expected to be paid on time and up to date.

The plan can be designed to pay all or a portion of your debts over 3 to 5 years, depending on the amount of your disposable income. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” If your income is more than the state median, the plan is normally for five years. In no circumstances can a plan be for more than five years. Any unsecured debts still existing at the end of the pay out plan will be discharged.

What happens in a Chapter 13 if your income increases or decreases during the plan period?

Basically, if your income decreases for some reason through no fault of your own, and you cannot make the planned monthly payments to the bankruptcy trustee, you must petition the bankruptcy court to alter your payment plan to account for the loss. Otherwise, you run the risk of getting your bankruptcy dismissed if you cannot make the payments on time.

If your income is lowered enough to bring your total family income below the state median, there exists the possibility you can convert you bankruptcy to a Chapter 7. It would be wise to consult with a bankruptcy lawyer before you convert to consider all the ramifications for converting.

One recent question about increasing your income came from a debtor on a bankruptcy forum website who got a small raise, less than 3%, and an increase in tips. She was in a Chapter 13 plan, and her question was, “In bankruptcy, will increasing your income affect a Chapter 13 plan?”

She was afraid her meager earnings would be quickly gobbled up by the bankruptcy trustee, and she felt like she needed the cost of living raise to compensate for the rise in the cost of living. She also felt like the increase in tips might be temporary as they often are. She also wanted to know whether or not she was required to turn in the increase.

Bankruptcy laws require the woman to turn in any change of income to the bankruptcy court, or for that matter, any other kind of financial change that may occur during a Chapter 13 plan. It is not likely the bankruptcy trustee is going to be interested in such a meager and unstable increase in income. The raise was a cost of living raise and the increase in tips would have to hold up for a long period of time to make any difference.

A Chapter 13 plan is one of the harder types of bankruptcies to file because the bankruptcy laws governing it are complicated, and it requires an ongoing disciplined maintenance of the plan once filed. By filling out the form below, we can help you find a bankruptcy attorney in your area who can help design a Chapter 13 plan for your particular circumstances.

Foreclosure, Bankruptcy, and a Mortgage Bank Not Quit Claiming

The environment in the mortgage industry is quickly changing. With foreclosures and bankruptcies on the rise these past few years, mortgage banks are not as quickly to cooperate in short sales, quit claims, or a deed in lieu of foreclosure. With houses losing their value at a record pace, especially if it has been abandoned during a bankruptcy and has now been vandalized, mortgage banks are not willing to pay the expenses of taking back the worthless homes.

Not long ago, a mortgage bank would jump at the chance for a quit claim, a short sale, or a deed in lieu of foreclosure because those options were a less expensive alternative to foreclosure. Recent bankruptcy stories on the internet are providing us with a different reality today.

One debtor evolving from a bankruptcy and filing a quit claim to avoid the tax consequences of owning a home not yet foreclosed, shared that his mortgage bank is suing him for removal of the claim. The bank said the value of the home was not worth the ongoing expenses of ownership.

In most states, mortgage banks can take up to 20 years before they are forced to foreclose on a property. That means a homeowner can be potentially responsible for the taxes on the home during that time because he still technically owns the home. Twenty years of unpaid taxes with interest tacked on them can amount to a lot of money in a hurry. Since the taxes would be new debt, they would not be covered by any bankruptcy filed in the past, and they may be exempt from the filing of a bankruptcy anyway.

A bankruptcy discharges only the debt in a mortgaged home. A bankruptcy does not discharge a lien. Whether or not a mortgage company begins the foreclosure process after a bankruptcy is up to them. Foreclosure costs money and is a legal process that the banks have to abide.

When a foreclosure takes place and finalized is when a lien is released, and the homeowner no longer owns the home. Up until that point, the home is legally owned by the ones whose names are on the title of the deed.

Before a transfer of a title of deed becomes legal, both parties of a secured contract have to sign off on the transfer. A quit claim normally is a one sided transfer made by an homeowner who wants out of a lien. Not challenged too much in the past by mortgage companies because of the convenience of not having to foreclose, mortgage banks are now beginning to challenge the procedure in a court of law. It will be interesting to see what happens if more and more mortgage banks begin to challenged quit claims.

As the lack of foreclosure phenomenon begins to shape up, it will be interesting to see how the federal and local governments respond to the plight of taxpayers who have been financially wounded enough to file for bankruptcy only to be forced to pay taxes they cannot pay. It will be equally interesting to see how the taxpayers themselves respond when the governments begin to crack down to get their money.

Can You Buy a House Before a Bankruptcy is Complete?

One of the more difficult things to do once you file bankruptcy is to buy a house. A bankruptcy can remain on your credit report for up to 10 years. There are circumstances that are exceptions to a spouse having poor credit when a report prevents the spouse from buying a house, and that is when the other spouse has good credit, separate accounts, and can independently buy a house under his or her own volition.

A debtor recently reported on a bankruptcy forum website about similar circumstances. The debtor had private student loans and a huge amount of credit card debt that she could not pay off because of not making enough income. Her husband had a good job, good credit, separate accounts, and could qualify for a mortgage loan by himself. She was concerned that once the bankruptcy had been filed, that the filing would reflect on her husband’s ability to buy a house. She worried whether or not the bankruptcy court trustee would allow the husband to buy a house while still married to her as a filer. So, she asked the question, “Can you buy a house before a bankruptcy is complete?”

Technically, a bankruptcy trustee cannot keep the non-filing spouse from buying a house under those circumstances. Federal bankruptcy laws, even in a common law property state, generally states that if only one spouse files for a Chapter 7 bankruptcy, only that spouse’s debts will be discharged. The non-filing spouse’s debts will not be discharged.

If the spouse filing has no joint debt with the non-filing spouse or joint accounts for the trustee to go after, there is really no conflict of interest that would prevent the spouse from buying a house during the bankruptcy. Even though in a common property state a debt is owned equally by both spouses, federal bankruptcy law prevents the trustee from going after the non-filing spouses debts.

In other words, the trustee, bound by federal law, is not going to try to manipulate a new debt made by the non-filing spouse just because a state law says the debt is joint owned. Federal law always overrides state law in most all circumstances.

A concern some may have that may seem more significant in this case is whether or not a lender will loan the non-filing spouse the money to buy a house, especially if they get wind of the filing spouse’s bankruptcy. A Chapter 7 bankruptcy is normally concluded in most cases in six months or under, so some question the wisdom of buying a house during this time. Their reasoning might include the question, why not wait?

If you are going to include both spouse’s names on the title of the house at closing, it really does not matter whether or not you wait to buy a house. When you apply for a loan to buy a house, during the application process, many lenders include those names that will be on the title, and many lending institutions will run credit checks on both names, even though only one spouse is borrowing the money to buy the house. Running a credit check will alert the lending institution of a bankruptcy filing. This may or may not kill the transaction.

Nothing really prevents a non-filing spouse from buying a house if he or she puts it in their own name. That may be hard to do in a common property state.

What are Your Options on Inheritance Before Filing Bankruptcy?

Many of you who are needing to file bankruptcy sometimes come into a small financial windfall in the form of an inheritance. What are your options on inheritance before filing bankruptcy?

To help you understand your options if you suddenly come into an inheritance and are considering bankruptcy, lets assume you shared an inheritance with siblings after one of your parents suddenly passed away.

Let us assume you live in Texas, you have not yet filed for bankruptcy, you just got a new job for the first time in three years, you owe a credit union money for an unsecured loan of $7,500, you owe over $75,000 in credit card debt, a collection agency is currently threatening a lawsuit against you, you have student loan payments due that are incurring interest, and you have back taxes due. Your inheritance will be around $25,000 for your share. What are your bankruptcy options to protect yourself?

Option number one is to hold off on filing bankruptcy until the inheritance is settled. The bankruptcy code prevents you from giving preferential treatment to creditors up to twelve months before you file for bankruptcy protection. Bankruptcy court trustees pay particular attention to preferential insider treatment like paying off the debt of a family member, but here are some options for using the inheritance money during the time before filing for bankruptcy:

  • You might use the money to pay off debt that is exempt from discharge in a bankruptcy. Under the illustrated assumptions made, you might use the inheritance money to pay off your student loans and/or back tax burdens. This may be done if your filing either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.

  • If you want to keep some of the money for yourself, you may be able to dump some of the money in an eligible Individual Retirement Account (IRA).

  • If most of the inheritance is coming from the sale of the home of the deceased, you may rent the home from your siblings using the Texas homestead exemption for your percent of ownership. After the bankruptcy is closed, you can sell the home and keep the proceeds.

  • If willing, your siblings could buy out your share of the inheritance before you file bankruptcy and before the estate of the deceased is settled. The bankruptcy court trustee would most likely give you the the option of buying back your part of the home received in an inheritance anyway if the home becomes a part of the bankruptcy estate.

The second option is to go ahead and file for bankruptcy protection realizing some inheritance estates take years to settle. Regardless of how long it takes the administrator to distribute the assets from the estate of the deceased, your right to any future distribution is a part of the bankruptcy estate. If the asset is not exempted, it is subject to liquidation by the trustee in a Chapter 7 bankruptcy, and he may wait on a settlement of an inheritance as long as it takes.

Theses are just a few of the options you might consider when dealing with bankruptcy and inheritance. If you have inheritance and bankruptcy issues, it may be wise to consider consulting with a bankruptcy lawyer. Let us help you find a bankruptcy attorney in your area of Texas that will answer you questions about bankruptcy laws.

Will Bankruptcy Always Solve Forgiveness of Debt Issues?

When you have two or more loans on a home and you are facing foreclosure, one or more of the lending companies may decide to write off their loan and forgive the debt. Many will send the IRS a 1099-C income tax form when they write the loan off of their books. The IRS views this forgiveness of debt as income because actual money was spent at one time on your home, and you are the beneficiary of the financial windfall when the forgiveness is ordered.

The automatic stay of the bankruptcy court can stop foreclosures in their tracks, at least temporarily, but the stay cannot necessarily stop the lender from forgiving the debt and sending the 1099 IRS tax forms. The timing of when you file for bankruptcy on the latter issue is important. This complexity of the bankruptcy laws begs the question, will bankruptcy always solve the forgiveness of debt issues?

The answer to the question is, in itself, complicated because the issue falls into a gray area of the bankruptcy law. If the debt was forgiven prior to filing bankruptcy, you may still have a tax issue, but many say you must file bankruptcy prior to foreclosure or short sale to avoid the 1099 tax issue situation that arises from forgiveness.

If you make a close examination of the 1099-C rules, forgiving a debt is a separate event than foreclosure or a short sale because both of these involve a 1099-A tax form.

A foreclosure or short sale brings a different type of 1099 form into play because both of these events are actual taxable events held at closing. On the other hand, a secondary lender who realizes they will not receive any financial benefits at a closing can choose to forgive a debt at any time they see fit, barring receiving an order from the bankruptcy court like the automatic stay.

Nevertheless, when a secondary or primary lender sends a 1099 to the IRS, the issue is not necessarily concluded. If you can prove to a bankruptcy court that the act of forgiveness was a result of an insolvent act at the time the 1099 was filed, there is always the possibility the bankruptcy court will forgive the tax debt.

Will bankruptcy always solve the forgiveness of debt issues? Obviously, the answer to this question lies in a gray area. The answer to the question should be “not necessarily,” it depends on the bankruptcy court in which you file.

If you have these types of tax issues on the foreclosure of your home and are considering filing for bankruptcy, the complexity of the situation is a good reason for you to seek out the advice of a bankruptcy lawyer. A bankruptcy attorney is better equipped to help you find specific answers and how they apply to your particular situation than what general information you may find in bankruptcy forums and websites.

Contact us here at www.bankrutpcyhome.com . We will help you find a bankruptcy attorney in your area starting the moment you inquire.