U.S. Bankruptcy Courts
U.S. Bankruptcy Courts: handling civil tax litigation during bankruptcy
Money is tight. For many, a large tax debt is devastating. Not surprisingly, increasing numbers of taxpayers are electing to file for bankruptcy. For instance, in 2010, there were over 1.5 million bankruptcy filings in the United States. (1)
The U.S. Bankruptcy Court can, at its election, determine a wide range of tax issues regarding a taxpayer in a pending bankruptcy case. See 11 U.S.C. §505(a). Like cases in the U.S. Tax Court, in U.S. Bankruptcy Court a taxpayer can challenge the IRS’s tax assessment before paying its demand. However, there are a number of requirements and prerequisites that must be considered before filing for bankruptcy in order to deal with tax debt. Merely filing for bankruptcy is not enough to get tax relief. Careful planning is critical. Unfortunately, many people learn this after it is too late.
When done correctly, filing a bankruptcy petition is like throwing holy water on a vampire. There’s an “automatic stay” in the U.S. Bankruptcy Courts. This means that the IRS’s blood sucking collection efforts must stop. If the IRS has seized assets but not yet sold them, then the bankruptcy trustee can demand that they are surrendered to the estate to benefit its creditors. The IRS becomes merely one of the creditors.
U.S. Bankruptcy Courts: a basic overview
The purposes of U.S. Bankruptcy Courts are to help those who cannot pay their creditors to get a fresh start and provide for orderly distributions to the creditors. In almost all of the 94 federal districts around the county, bankruptcy cases are filed in federal bankruptcy court. In a U.S. Bankruptcy Court, a judge decides the case and there is no right to a jury trial.
Appeals of U.S. Bankruptcy Court decisions are handled by the federal circuit court for the federal district in which a particular U.S. Bankruptcy Court is located. For instance, an appeal of a final order or judgment of the U.S. Bankruptcy Court for the District of Arizona is filed in the Ninth Circuit Court of Appeals.
(1) See Bankruptcy Statistics for the Administrative Offices of the United States Courts: http://www.uscourts.gov/Statistics/BankruptcyStatistics.aspx
U.S. Bankruptcy Courts: learn more
If you would like to discuss whether bankruptcy is right for your situation or discuss some of the other options, contact us.
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