Not that long ago, the values of many homes here in California Bay Area have dropped dramatically and the real estate bubble has burst.
Or has it?
The real estate market has been bouncing back in many parts of the Bay Area. A fairly typical situation was described by my potential client last week. She purchased her home in San Jose in 2003 for about $560,000; the value reached $825,000 in 2006; then it dropped by half, to a little over $400,000 in 2009; and it has been going up like crazy since last year, reaching approximately $680,000 per latest home valuation calculators.
Do rising home values matter if you are thinking about filing bankruptcy? Yes, they do, whether or not you own real estate.
If you do own real estate, the difference is particularly stark. Bankruptcy court considers value of all of the person’s assets and overall financial situation to see if creditors are entitled to any pay-out. If a home has no equity, it’s generally not treated as an asset of value and does not entitle your creditors to any payments. If a home has limited amount of equity, then we should be able to protect it with a homestead exemption when the bankruptcy case is filed. If a home has a lot of equity that cannot be protected, then you either risk losing this home to creditors if you file Chapter 7, or you have to make some payments to creditors through a court-approved plan in a Chapter 13 case if you want to protect the home from creditors’ reach.
At least here in California, the homestead exemption is quote modest. Also, if a home has some equity and we use the homestead exemption to protect it, our available exemptions (and bankruptcy protection) for all other types of assets are much more limited.
It doesn’t end there. If the value of the home is low enough, we may be able to strip and void second mortgages and home equity liens and judgment liens as being worthless. However, if the value of the home has gone up to the point that the value exceeds (even slightly) the balance of the first mortgage loan, then we likely would not be able to get rid of the junior liens on the property.
People sometimes think that stripping junior mortgages and judgment liens in bankruptcy is a new phenomenon, especially since many homeowners have been able to do it in the last few years. It’s not new – it’s just that previously, when the home values were high and many homes had equity, almost no one qualified to clear the junior liens. If the value of your home goes up, it’s great in the long run, of course, and may mean you have a better nest egg – but it may also mean that you may not be able to clear the junior liens if you wait to file bankruptcy until after the value has gone up significantly.
If you don’t own real estate, rising home values may also affect you: you may be having to pay more for rent, and may have less funds available for all other living expenses.
If you are having financial difficulties and are thinking about filing bankruptcy, don’t delay scheduling an appointment with a bankruptcy attorney to find out about your options. Your bankruptcy options may be more limited if you wait to file when the home values are going up.
David* and Maria*, a couple in San Jose, California found out first hand just what a powerful and positive solution filing bankruptcy can be.
David and Maria have been married for over 20 years and have three teenage daughters. They have a small business, offering gardening and landscaping services. When the economy was better, they did well financially. They worked long hours, had a good client base and made good money. They saved funds for a house down payment and bought a modest, but lovely home, which they made even better through renovations and repairs, and by planting and nourishing a small garden all of their own. They did not have any significant savings left after the purchase of the home and these repairs, but they believed they the home would rise in value, the business would grow and they would be able to build up their savings.
However, as the economy slowly spiraled into recession, David and Maria started losing clients. Their profits dropped to half of what they used to be. Their home lost value, and they were not able to refinance the loan to lower their mortgage expenses. Believing that the business was slowing down temporarily, they relied more and more on credit cards to pay even the most basic living expenses, and expected to be able to repay their debt once the business picked up. They always made the credit card payments on time, but eventually they found themselves having to pay more than a thousand dollars a month just in interest. Although they cancelled health insurance, cable and tried to live very frugally, the payments that they were making for the credit cards were barely making a dent in the total amount of debt they owed.
David and Maria turned to a debt settlement and debt consolidation company in an effort to take control of their debt. The company set up a schedule of monthly payments for them and directed David and Maria to start making payments to this company instead of making payments to the creditors directly. David and Maria believed that all of their creditors agreed to work with the debt settlement company, and that all debt was covered by the debt settlement plan. They realized this was not true when one of their creditors, American Express, filed a lawsuit against them, seeking a judgment for the amount David and Maria owed them, plus attorney’s fees and accumulated interest.
This is when David and Maria came to see me to find out if filing bankruptcy could help them. They were extremely distraught. David said he could barely sleep at night, fearing that the family would lose their house and the business, and would not be able to provide for their daughters. Maria was very nervous, shaking as we spoke. After analyzing their situation, I saw that they qualified to file bankruptcy which would clear all of their credit card debts and allow them to get a fresh financial start. They owed a fairly significant amount of personal income taxes, since in an effort to have more available cash they were underpaying their taxes in the last few years. Although their tax liability would not be discharged through bankruptcy, David and Maria were eligible to repay it through a court-approved Chapter 13 plan without penalties and without new interest over five years, and this is what they opted to do.
Their bankruptcy plan was approved by the bankruptcy judge within a couple of months after the case was filed, and David and Maria are now about a year into their payment plan. I talk to them periodically. Their business is starting to improve, although slowly. They are grateful that they were able to file bankruptcy to reorganize financially, and to resolve their debts. When I first met them, they had no hope that they could ever find a way out of their financial problems. Now they are much more relaxed and confident, and I am truly glad I was able to help them.
* Names and some other identifying information have been changed to protect clients’ confidentiality. Each case is different, and David and Maria’s story is not a guarantee or representation of outcome in your particular situation.
In many cases, yes.
A bankruptcy judge can issue a specific order voiding a lien or other outcome of the judgment. Even without such specific order, if the debt that resulted in the judgment is discharged through bankruptcy, a creditor does not have a right to enforce the judgment.
Generally, if a creditor put a lien on a person’s real estate using the judgment, then we would need to obtain a very specific order of the bankruptcy court to overturn or reduce the lien. Otherwise, a general order discharging the debt at the completion of the case should be sufficient to avoid the judgment.
Before the case is completed and the debt is discharged, creditors have to put their collection activities on hold as soon as the case is filed and either wait for the outcome of the bankruptcy case, or go to bankruptcy court if they believe they are entitled to another resolution.
Most common example is wage garnishment. Let’s say that Citibank had filed a lawsuit against Mike because of his delinquent credit card account, obtained a judgment against him, and started garnishing his wages on October 1st. One month later, on November 1st, Mike files a bankruptcy petition. As soon as the case is filed, Citibank has to stop the wage garnishment, and it does not have a right to resume the garnishment later assuming the case is completed successfully and the credit card debt in question is discharged. Citibank also would not have a right to send collection letters to Mike, call him or use other tactics to collect once the petition has been filed. Not only this, but Mike may be entitled to get back the wages that were garnished from him before the filing of the bankruptcy case.
While this is good news, being able to void the effects of the judgment without losing money or property is very time-sensitive. The longer you wait after the judgment, the higher the chances that a judgment lien may not be voidable, or that the funds garnished or levied from you would not be refunded, at least fully. If a creditor filed a lawsuit against you and especially if there has already been a judgment, act quickly and consult an attorney to protect your wages and property.
Generally, no. Most retirement accounts are not considered to be part of the bankruptcy estate, and are out of the creditors’ reach. This includes traditional 401(ks), IRAs, government retirement accounts such as CalSTRS and more.
If you are expecting a pension or are receiving a pension, creditors also usually don’t have a right to go after it, especially if you are receiving a defined amount each month and don’t have a right to cash out the pension or to ask for higher payments.
Also, the creditors do not have a right to go after Social Security benefits.
A quick way to gauge whether the retirement funds are risk, is to ask a question: can you withdraw all these funds today without a tax penalty? If no, then you likely have a traditional retirement account which will not be affected by bankruptcy. But, if the funds are freely available to you without a penalty – for example, if you opened a regular savings account and earmarked it for “retirement” savings – then the funds will be counted among your regular assets when you file bankruptcy.
This sometimes comes up as an issue with the self-employed – they may believe the account they opened has been properly set up as a retirement account, and later find out that the proper formalities have not been followed. If you are not sure that the retirement account has been properly set up, double check with your bank or accountant.
Another rare issue involving retirement accounts sometimes comes up with tax liens. It is unusual for the IRS to go after retirement accounts, and usually they would only do it in the most egregious situations when the tax debt is really large, and they are not able to collect any other way. If you find yourself in this situation, the bankruptcy case can help you to repay or defer the tax debt.
You can normally continue making retirement contributions even while you are in the bankruptcy case, and sometimes you may even have to pay less to creditors because you are making retirement contributions.
Don’t make any rushed decisions with regard to retirement funds and contributions if you are thinking about bankruptcy. If you are making retirement contributions, don’t stop. Don’t close or cash out your retirement accounts, and don’t transfer your retirement funds to anybody else – if you do, it will likely only hurt your case and you will have to pay a tax penalty.
Consult a bankruptcy attorney in your area to find out how your retirement funds and contributions would be treated by the court in your particular situation.
We have been conditioned by stores and banks that we “have” to purchase gifts, and expensive gifts at that, for friends and relatives for every possible occasion: Christmas, New Year, birthdays, anniversaries, weddings, baby showers, Mother’s Day, Father’s Day, reunions, retirements, graduations, housewarmings and more. The gift-giving expenses snowball, and the guilt mounts if we can’t give a gift of “proper” value, or as nice of a gift as the other person has given us.
How meaningful and genuine are most of the gifts? You may find that you are giving many gifts out of the sense of obligation, and not because you think the recipient would really need or enjoy that item.
How useful are the gifts, and would they only create additional clutter in the recipient’s home? Just yesterday, I was at Costco and saw a couple hauling away a cart with about ten large boxed crystal vases. My guess is that the vases will wind up as stock gifts for the holidays – and, while a big crystal vase looks nice on display, most recipients of the vase would likely be mostly preoccupied with finding a place to store it.
Do you feel any closer to your friends and relatives because of these gifts? You may find yourself wishing for longer conversations or get-togethers rather than merely exchanging gifts.
And last but not the least – can you afford these gifts? As a bankruptcy attorney, I see that often people incur liabilities not just to purchase necessities for themselves, but to give gifts and to demonstrate their generosity towards others.
Gifts can easily wreck an already tight budget and can cause money that you are counting on for rent and groceries to disappear in the most puzzling and mysterious ways. While gift expenses may seem sporadic, they add up over the course of the year and can consume a significant part of your earnings. Based on my conversations with clients, I often find that people don’t budget or account for gifts when they reflect on their regular income and expenses.
I am not against gifts, especially unexpected and unscheduled gifts and gifts for kids – but I do think that in general, gift-giving has gotten out of control, and is often wasteful, meaningless and too costly. Let’s stop the obsession with gifts and find other ways to connect with those we love. Talk to your friends and relatives about it, and see what they think – suggest to cut down on gifts this holiday season. You may be pleasantly surprised they feel the same way and would be relieved to follow suit.
Yes, as long as the previous case has been closed.
However, you many not have the full benefits of bankruptcy protection and bankruptcy discharge, depending on how long ago you filed previously, how many previous cases you had, whether the previous case was Chapter 7 or Chapter 13, and whether it was completed successfully.
The first issue is whether you have bankruptcy protection when you file the new case. If you do, the court will impose automatic stay against collection activities by creditors, such as foreclosures, garnishments, lawsuits and more. If you don’t have the stay, the creditors usually still have a green light to proceed.
If this is your first time filing the case within the last 12 months, you have the automatic stay against creditors’ collection actions. If you had another case that was dismissed (not completed successfully), then the automatic stay is limited to 30 days. It may be extended if you submit a proper request to the court, and explain why the previous case did not work out. If you filed more than one other case in the last 12 months that was dismissed, there is no automatic stay.
The reason for this rule is that the court has limited resources and does not want to be getting multiple petitions from the same person within a short time frame. Multiple petitions usually indicate that important documents were not presented to the court or were not presented correctly, or the person failed to follow orders of the bankruptcy court. Additionally, multiple bankruptcy filings may prejudice the rights of creditors, which the court also does not see as being fair. The court does not want someone to file a bankruptcy petition as a quick fix to temporarily stop a creditor, but wants the bankruptcy case to be a fair and reasonable solution, and to be successfully completed.
For this reason, it is important to make sure that your bankruptcy petition is correctly submitted the first time you file, and that you fully understand requirements of the bankruptcy court, and know what you need to do to make sure the case is successful.
The second issue is whether you are able to get your debts discharged in a new case. If your debts have already been discharged (cleared through bankruptcy) recently, the answer is “no” although you may have other good reasons to file a case, for example, to catch up on mortgage or repay tax liabilities. How recent is too recent? If you got a discharge in a Chapter 7 case that was filed within the last eight years, you will not qualify for a new Chapter 7 discharge yet. If your previous case was a Chapter 13 or if you are planning to file a Chapter 13, you don’t have to wait as long and have more options available to you.
Don’t automatically rule out Chapter 13 as an option, even if you filed Chapter 13 before and it was not successful. A Chapter 13 payment does not have to be high or burdensome. A properly prepared Chapter 13 petition shows all of your household expenses, accounts for income variations or instability, and proposes a payment that should be doable for you to make.
If you are considering filing bankruptcy, discuss your financial situation in detail with an attorney and be sure to provide complete information about your household’s income, assets and expenses so that your petition is prepared correctly. Don’t rush to file – it’s better to make sure all required documents have been assembled and prepared correctly, than to have to come back to court with another case.
Beware of “same-day”, lightning-speed bankruptcy filings – while it’s possible to file the petition the same day you come in, it is generally impossible to file a petition that’s complete, accurate, and has a good chance of success in this time frame.
If you have an emergency, such as a lawsuit or pending wage garnishment, you would likely save time and money and have a better chance of success in the bankruptcy case if you don’t delay contacting an attorney to discuss your concerns.
If you have any any joint or co-signed loans or leases, typically your liability for them will be cleared when you file bankruptcy, if the debt is of type that can be discharged. For example, if you co-signed a student loan, your liability for the student loan will not be discharged; but if you co-signed for a car loan or credit card, this liability could be wiped out.
The other person on the loan (known as the “codebtor”) would remain liable. The creditors’ efforts to collect from him or her may be slowed down because you filed bankruptcy, and the creditor may even need to get permission from the court to go after codebtor, but ultimately the codebtor is still liable.
Although often you don’t have to pay for co-signed loans when you file bankruptcy, you may decide to do it for family or economic reasons. For example, let’s say you co-signed a car loan for your child or spouse, and the loan has 20% APR over 7 years. If you file a Chapter 13 case, your plan could include payment for this car loan at 5% interest over 5 years – if you wish to be involved, and feel comfortable that it would be financially doable for you.
Lastly, if you are considering filing bankruptcy, take note of any joint liabilities or co-signed loans or leases, and be prepared to provide details about them to the court. People sometimes tend to overlook these liabilities, especially if the other person is making the payments. It is, however, important to include and properly present this information to ensure that your bankruptcy case is successful, and that it’s clear to the court, the codebtor and the involved creditor what you are planning to do with respect to these debts.
According to a report by Fair Issaac, a company that issues FICO credit scores, Chapter 7 bankruptcy remains on a person’s credit report for up to 10 years from the date the case was filed.
In contrast, completed Chapter 13 bankruptcies typically get removed faster from the credit report – 7 years from the date the case was filed. For example, if you complete a 5-year Chapter 13 plan, that means that the record of your case would stay on your credit report for only two more years after completion of the case.
Keep in mind that court records can include older history of case filings.
Also, keep in mind that the credit report would include a notation about the the bankruptcy filing regardless of whether the case is successfully completed. This is one of the many reasons to make sure you understand the bankruptcy process, hire competent counsel who prepares the case right the first time so that you don’t have to refile, and who can help you change the bankruptcy plan as needed to make sure it works for you.
Also, just because the bankruptcy is still on your credit report, doesn’t mean you cannot take steps to improve your FICO credit score. Fair Isaac recommends checking your credit report periodically to make sure there are no mistakes; checking your report to make sure the bankruptcy is removed as soon as it is eligible to be removed from the credit report; and obtaining a secured credit card and continually making all payments on time. These steps will help your credit score rebound faster.
When excessive debt gets discharged through bankruptcy, and the person takes active steps to rebuild credit as suggested above, the credit score often becomes higher than before the bankruptcy case was filed within a period of less than a year.
The bankruptcy trustee‘s job is to make sure that he examines your financial situation carefully to see if your creditors should be paid – and if yes, how much. The trustee will prepare a report with his recommendations and give it to the judge. In most cases, the judge follows the trustee’s recommendations and the judge’s role in the case is very limited unless there is some dispute that needs her attention, or if any involved party needs a court order on a bankruptcy-related matter before the case is over.
The trustee’s primary source of information about your financial situation is your bankruptcy petition and basic supporting documents such as taxes and pay stubs. However, the trustee can ask for additional documents such as bank statements, or may have her own questionnaire which she may ask you to fill out. Also, if there is information about you or posted by you in any public records or online, that’s also up for grabs and the trustee will often look at it as well.
If any information that the trustee finds about you seems inconsistent with other information in your case, or if it suggests that your financial situation has changed, the trustee will likely question you about it.
For example, “Jen” described her household goods and furniture as being worth only a few hundred dollars. The trustee was no doubt amused when she came across a YouTube video of “Jen” in her home showcasing her antique furnishings. The trustee asked “Jen” to amend her petition to provide a list and detailed description of each of these antique items.
“Doug” was described as unemployed in his bankruptcy paperwork. However, the trustee found “Doug’s” website where he was advertising his accounting services. This prompted the trustee to ask “Doug” if he was now running his own business, when he started the business, how much he made so far, and what the assets of the business were.
“Maya” had no real estate – or so it seemed. The trustee saw a party invitation on the web, inviting “Maya’s” friends over to a party at “Maya’s” home in Mexico. The trustee asked “Maya” about this invitation, and asked where the house was located, and if “Maya” owned it, co-owned it, or rented it for some purpose.
These were actual situations as observed in the bankruptcy court. Now, in many cases, the inconsistency has a reasonable explanation or, if there is any new information, it may not necessarily make a difference. Also, not everything that is posted online or in the public records is complete or accurate. But be careful: if the trustee concludes you were trying to hide assets or income, it would jeopardize the discharge of your debts and may expose you to criminal liability.
This leads to several suggestions. First, strive to be complete and accurate in your bankruptcy documents. If you realize you forgot about some relevant information, or that there was a mistake – don’t panic; just have your bankruptcy attorney amend the documents as soon as possible. If anything changes after the case is filed, but while the case is still pending – you should also amend the documents as soon as possible. If you feel any information in your background is confusing or can be misunderstood – be proactive and offer the extra explanation about it. And remember that in this day and age, for better or worse, there is a lot of easily accessible data floating around, and the trustee’s research and inquiry are not limited to your bankruptcy petition.
Yes. Really, we can.
This is a question prospective clients often ask in one form or another. After all, if you file a bankruptcy petition, your credit cards would usually be cancelled by the banks, and you would have very limited access to credit while the case is open.
Banks condition us that we need to have credit. Credit cards are advertised as (1) convenient; (2) more safe than debit cards; and (3) well, as a source of credit – a cushion between our needs and wants and our available resources.
Actually, we can get all of these perks without the credit cards, and have more money by not paying ridiculous interest and fees.
Are credit cards really the only convenient method of payment? Many debit cards can be used the same way as credit cards.
Do credit cards offer unsurpassed safety? There are other ways to keep you safe. Use cash if possible when you are going out. Check your bank records daily to make sure there are no suspicious transactions and you have not been overcharged. If you are making purchases online, the bank which has your checking account may generate a single-use account number to be used for an online purchase, or may ask for a password whenever you are trying to use your card online. These are pretty common available safety features; check with your bank to see how you can sign up for them, and to see if any other features are available.
Do credit cards offer the best cushion for extra expenses? The proven way to provide financial security for your family is to build up your savings. It’s tough to save, especially when you are experiencing financial hardship, but you should always try. Saving may be more important than investing or paying back existing debt. If you pay off one debt but fall into another because you did not have enough left for rent or other basic expenses, you usually end up owing more, and are worse off in the end.
Also, plan ahead. Some emergencies are true emergencies which you have no control over, but luckily they are far and between for most people. Most “emergencies” fall into the category of ordinary expenses that do not occur on a regular basis (for example, having to pay for car insurance, new tires, or school supplies at the beginning of the school year) or events we can more or less control or predict (for example, an occasional sports injury if you play sports). Figure out how often these events and expenses have happened on an average basis, assume they will happen again, and build them into your budget and savings plan.
If you are going to be filing bankruptcy, think about ways to make your budget work for you without credit, so that you truly get a fresh start and get liberated from debt. Despite what credit card companies want you to believe, the world does not come to an end if you have no credit or limited credit. Living without credit cards is entirely possible, and gets easier with time.
In most cases, the only court meeting you have to attend is the Meeting of Creditors, which is conducted by the bankruptcy trustee. The judge is not present, and the meeting is normally held in a conference room in a federal building, not a courtroom. Your bankruptcy attorney attends this meeting with you. The trustee reviews your paperwork, asks you some general questions, and may request some additional documents. The trustee will then file a report with the court regarding his or her findings.
This meeting shouldn’t be taken lightly, and is very important in the case. However, it is not as lengthy, formal or stressful as people sometimes fear. If you know what to expect, your attorney is prepared, and there have not been major changes in your situation, the meeting usually goes by very quickly and smoothly.
The short answer is “yes.”
Many bankruptcy cases are closed without discharge. Here are the common reasons:
- not all of required paperwork was submitted to the court or the trustee
- paperwork was submitted, but was not prepared correctly
- paperwork was submitted untimely, past the applicable deadlines
- debtor did not complete one or both of required credit counseling classes
- debtor did not come to the mandatory meeting with the trustee, or did not show current identification and valid proof of Social Security number to the trustee
- debtor did not respond to trustee’s requests for additional information, or did not cooperate with the trustee in some other way (for example, refused to turn over some valuable asset that the creditors were entitled to have)
- debtor did not comply with the terms of their bankruptcy case (for example, he or she had a Chapter 13 payment plan, and did not send in required payments, or sent them in untimely)
- debtor submitted incomplete, misleading or fraudulent information (for example, misrepresented income, misrepresented marital status, failed to disclose ownership of real estate in the States or in another country, failed to list all of their bank accounts, failed to disclose or properly describe transfers of their property that happened within a couple of years before the bankruptcy case, failed to disclose settlement or inheritance they were expecting)
That said, if you hire a diligent and knowledgeable attorney who understands the court’s requirements and guides you through the case, disclose all required information fully, and cooperate with the court and the trustee to the extent your cooperation is necessary, bankruptcy discharge is not difficult to obtain. Your case can be (blissfully) uneventful, proceed smoothly, and wrap up successfully.
It is true that bankruptcy law is a federal law, and is applicable everywhere throughout the country. Bankruptcy petitions are filed in federal courts.
However, even a federal court has to have jurisdiction to accept your case. Most commonly, your case would be filed in the district and division to which your county of residence is assigned. Sometimes, you have a choice where to file if you have real estate or business in other counties, or if you spouse or affiliate has a pending case in another county.
Keep in mind that although basic bankruptcy law is the same nationwide, the way it is interpreted by local judges and trustees is not. The implications of these different interpretations are sometimes very significant – for example, you may be able to file a specific type of case in one district, but not another; you may have to pay more to creditors, or you may have to provide more supporting documentation in some bankruptcy courts. Your attorney should be familiar with practices of the court which would handle your case to provide adequate advice.
Did you know that federal government issues a lot of user-friendly articles and handbooks for the public? These are mostly free, and available via publications.usa.gov
Articles and handbooks are available for download, and additionally you can order hard copies of some of the handbooks. They are available on a wide variety of topics, including: information about medical conditions, disaster readiness, wills and trusts, Social Security benefits, finding a government job, and more.
There is a good selection of financial articles about credit reports, insurance, bank policies, identity theft and scams, and online financial safety. Whether you are thinking about ways to increase your savings and cut costs, protect your finances, or build up your credit after bankruptcy, look at this resource for helpful tips and advertisement-free information.
No. Prior to the changes in bankruptcy laws in 2005, the scope of the discharge of taxes was considerably broader. Discharge of debts in a Chapter 13 case was aptly called a “super” discharge.
While you can still discharge some old tax liabilities, be sure that all of your returns have been filed and accepted by the IRS and the state.
If you put delay filing taxes, the consequences are serious. First, even if you eventually file a return, the tax for that year may still end up being non-dischargeable if the IRS and the state had already finalized their assessments by that point.
Second, if you wait long enough, IRS and the state may put tax liens on your property – the tax liens attach to all of your real and personal property, including your home, clothing, furniture, bank accounts, and retirement funds. Tax liens are secured debts, and don’t go away when you file bankruptcy – or at the very least don’t go away completely.
Third, failure to file taxes can result in additional penalties and even criminal prosecution.
Fourth, if you don’t work the issues out with the IRS and the state, they can garnish your wages, seize refunds that are due to you, take money from your bank accounts as well as other property.
Fifth, if you would like to file a bankruptcy case, your ability to get your plan confirmed and to get other debts discharged will be eliminated or delayed if you have unfiled taxes.
The more time goes by, the more difficult it is to fix the situation, so don’t put it off. If you are not able to submit complete payment with your tax return, that’s ok – don’t let it stop you from filing the returns. If you have liabilities, IRS and the state will usually work with you to set up a payment plan. You may also be able to repay your tax liabilities on better terms through the Chapter 13 plan.