When Tax Debt and Bankruptcy Overlap
Tax debt is not just a collection problem. For some California taxpayers, bankruptcy can be part of evaluating whether tax debt may be discharged, repaid over time, or managed alongside other debt. Lever Law helps clients compare Chapter 7 and Chapter 13 options before they respond to IRS or private collection pressure.
Start with the related guide Do you need to discharge tax debt?, the video Discharging taxes, and the bankruptcy tax article The dreaded SFR: bane of the bankruptcy tax case. If repayment through a plan is the better fit, Chapter 13 may be part of the discussion.
Private Tax Debt Collection
Last September, the IRS entered into tax collection contracts with third parties for the collection of certain outstanding inactive tax receivables. The year before, in December 2015, the Fixing America’s Surface Transportation (FAST) Act was enacted, which required the IRS to enter into these contracts for generating sufficient revenue to fix public transportation. The passing of this act means if you owe the IRS any tax receivable meeting certain conditions, private debt collection agencies will soon be contacting you this spring in 2017. Inactive tax receivables that will be targeted include the following:
- Tax receivable that has been removed from the IRS’s active inventory
- Tax receivable for which more than 1/3 of the applicable limitation period has passed and no IRS employee has been assigned to collect it
- Tax receivable that has been assigned for collection but no more than one year has elapsed without interaction with the taxpayer for purposes of furthering collection
The cases the IRS does not have the resources to take care of will move to four different private debt collection companies, including CBE, ConServe, Performant, Pioneer.
FDCPA
If you are in debt, be aware you are protected by the Fair Debt Collection Practices Act (FDCPA), which requires these four companies to pursue the debt in a courteous and fair manner. If one company violates the terms by harassing you in any way, you have the right to file a complaint with the Consumer Financial Protection Bureau and collect damages or with the Treasury Inspector General for Tax Administration (TIGTA) in your area.
Exception from Private Debt Collectors
Some accounts won’t be transferred to private collection agencies, including the following types of taxpayers:
- Deceased
- Under 18
- In designated combat zones
- Victims of tax-related identity theft
- With pending or active offers in compromise
- With installment agreements
- Whose cases are classified as innocent spouse cases
- Who have a right to appeal their tax cases
- In presidentially declared disaster areas who are requesting relief from collection
If you become one of these kinds of taxpayers after your account has been assigned to a private debt collection agency, the agency must return your case back to the IRS.
Options for Avoiding Private Debt Collectors
To avoid private debt collectors this spring, you do have a number of choices. Depending on what kind of debt you have and how substantial it is, you could consolidate your debt, file for bankruptcy, or see if your debt can be discharged. Our experienced debt relief attorney can review your case and make recommendations regarding your best course of action.
Contact Us Today
Lever Law is dedicated to not only helping you obtain a sense of financial freedom but also works with you toward true debt relief. Our Long Beach bankruptcy attorney can help you if you experience creditor harassment or need to modify your loans or declare bankruptcy. Our founding attorney has filed thousands of bankruptcy cases over the course of his career and handles both Chapter 7 and Chapter 13 bankruptcy cases. Our skilled attorney offers more than 25 years of legal experience, which he has used to help consumers get out of debt and have a second chance financially.
If you’re worried about tax debt collection, contact us at (562) 436-5456 or fill out our online form to schedule a free consultation today.