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Can They Take My House For Property Taxes in Texas?

Bankruptcy Lawbooks

Once in a while I have a prospective client come in, and they are being sued for property taxes or as they are called, “ad valorem” taxes. Here at my bankruptcy law office in Houston, we see quite a few such folks, as you can imagine. If you are a homeowner or other property owner, you likely have been served with a lawsuit by one of the big property tax collection law firms, and you don’t know what to do.

If you own personal property that is used in a business, you may have instead or also been sued for “business personal property” taxes.

If you don’t do anything, they will eventually get a judgment against you, and the judgment is a court order which will also likely order the sale of your property at auction. If your property has equity in it (value over debts), don’t let that happen, obviously.

Any time you are served with a lawsuit, I recommend that you immediately hire an attorney to file an answer to the lawsuit, or otherwise deal with it. Possibly a settlement could be reached, whereby you catch up the delinquent property taxes, or sell the property to pay the taxes. But if you let it go to auction, it likely won’t receive the best price- you could lose all of your equity.

If you have other debt problems besides the property taxes, or if you just can’t reach a reasonable deal with the tax authorities to pay the tax, it is possible to file a Chapter 13 bankruptcy, to give you up to 60 months to catch up the delinquent taxes, through a court-supervised plan.

While you are in Chapter 13, there is a court-ordered “automatic stay” which prevents your creditors from trying to collect from you, sue you, or taking any of your property, at least without first getting permission from the bankruptcy court. And so long as you do your part, and propose a feasible reorganization plan (with our help) and pay the payments, the court would not give a creditor permission to do anything to you.

I DO NOT recommend that you use these “tax rescue” type services that loan you the money, often on exorbitant terms, high interest rates and costly closing costs. If you have a mortgage company, your mortgage company would prefer to pay the taxes, and then try to reach agreement with you about how to pay the mortgage company back. If that happens, we can use the Chapter 13 to catch up the mortgage company’s debt for paying the property taxes.

Whatever you do, don’t wait and do nothing. You can consult with my firm at no cost, and we can file a typical Chapter 13 case involving property taxes or mortgage debt for a down payment of as low as $349, so long as you don’t own a business, you are a first time filer and the chapter 13 trustee payments can be deducted from your pay through a “wage order.” Then the rest of my fee is paid through the trustee, along with your other creditors.

Remember, if you’ve been sued for property taxes, or if it is looking like that is going to happen, don’t wait. If you ignore it, it will only get worse. For an appointment with my office call 713-772-8037 or go to my main website at www.jthomasblack.com and you can make an appointment online.

Posted in Ad Valorem Tax, Bankruptcy, Chapter 13, Property Taxes. Tagged with , , , .

By Thomas Black
September 10, 2011

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Do I Owe Tax On Debts Forgiven In Bankruptcy?

Some people ask me, if I file bankruptcy and obtain a discharge of debts in bankruptcy, do I owe income taxes on the forgiven debts? The answer is no. Under the Internal Revenue Code, 26 U.S.C. sec. 108, you do not owe income tax if a debt was cancelled in bankruptcy.

Outside of bankruptcy, the general rule is that yes, you can owe taxes if someone forgives a debt that you owe. For example, let’s say that you owe Citibank for a credit card debt of $10,000. If you settle with Citibank, and pay them $3000 to settle the debt, they can send the IRS a 1099 Form showing that they forgave $7,000 in debt to you. And that $7,000 is additional income to you that you must report on your tax return.

But if instead of settling the debt, you filed bankruptcy, so that the $10,000 debt was completely cancelled and discharged in bankruptcy, and you had to pay them nothing, then you owe no tax at all.

There are certain other exceptions to the income from cancellation of indebtedness rule, the most common being insolvency. If you were insolvent when the debt was cancelled, then you will not owe tax, at least up to the amount by which you were insolvent.

There are certain other exclusions, you can get IRS Form 982 on their website at www.irs.gov, and it lists the other exceptions.

However, if you have tax attributes, such as a capital loss carryforward, if you have debts discharged in bankruptcy, your tax attributes are supposed to be reduced. This is a very complicated area and you should consult a tax professional that is familiar with all of these rules and how they impact your particular situation.

For more general information, see IRS Publications 334, 523, 544, 551, 908, 4681, and 4702. I offer a free consultation for people that have serious debt or tax problems, if they live in the Houston Texas metro area. Please call my main telephone number, 713-772-8037, or visit my main web site at www.jthomasblack.com to make an appointment.

Posted in Bankruptcy, I.R.S.. Tagged with , , .

By Thomas Black
January 8, 2011

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Don’t Fall For Crazy “Land Trust” Schemes

Saguaro Cactus Outside of Tucson, Arizona

Saguaro Cactus Outside of Tucson, Arizona

I had a client recently, she was in Chapter 13 and paying her past-due property taxes through her Chapter 13 plan. That is why she filed, the property tax (or “ad valorem” tax) authorities had threatened to seize her house.

That is very serious. This lady didn’t have a mortgage, but even if you have a mortgage, the property tax authorities can foreclose on the mortgage company too! At least here in Texas, and probably in all states, ad valorem taxes are first priority, ahead of mortgages, homestead claims, and everything else.

So we had her in a Chapter 13, which can allow you to pay past-due property taxes over a long period of time, up to 60 months, and it can also help you save your car or truck, and pay part or all of your other debts, depending upon your income and other circumstances.

Anyhow, this lady was continuing to not pay taxes, even while in bankruptcy. That is a no-no, and can result in the bankruptcy being dismissed and her losing the house. So her brother talks her into putting her house into a “land trust” scheme that he found on the internet.

Folks, don’t believe everything you hear on the internet! Once she did that, the tax authorities were not prevented from seizing her house for the back taxes, as she had signed the house over to the Land Trust! They immediately sued the Land Trust for the taxes, and to sell the house for taxes.

Well, long story short, we got the house back in her name, and protected by the bankruptcy again, so she is safe now. We will likely try to modify her plan to add the delinquent taxes, so she can pay them through her plan.

Hopefully she will get to keep her house. But it will have cost her additional attorney fees, interest and penalties that she could have avoided.

Please, don’t try to be your own lawyer, or do things behind your lawyer’s back! And don’t believe everything you find on the internet. This Land Trust scheme almost cost my client her house.

Posted in Ad Valorem Tax, Bankruptcy, Property Taxes. Tagged with , , , , .

By Thomas Black
November 21, 2009

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Are Your IRS Taxes “Currently Not Collectible”?

I have prospective clients come in to my law office in Houston to talk about their I.R.S. problems, and some of them can qualify for what is called “currently not collectible” status.

That means that the IRS cannot currently collect from them. The IRS puts the taxpayer’s file on a shelf, and the 10 year “statute of limitations” continues to run. Many people think that taxes owed to the government never go away. Or that they go to jail if they can’t pay their taxes in a way acceptable to the IRS. Wrong and wrong!

The IRS has only (I say “only” but it is a long time) 10 years to collect taxes from you, that includes income taxes and payroll taxes. That 10 years is measured from the “assessment” date, when the IRS determines how much you owe, which usually occurs within a couple of weeks after you have filed your tax return.

If you are in “uncollectible” status, the IRS does not try to collect from you. When the 10 years runs, the taxes are no longer enforceable against you, and the bills stop coming. This is not a panacea for everyone; you must have low or no income, and few if any assets.

If you have IRS tax liens filed against you, when the statute of limitations runs, the liens are either released or you can ask the IRS to release them, and they only have 30 days to do so.

Now if your situation changes, and you start making significant money again during the 10 years, of course the IRS can try to collect from you again.

That’s why they call it “currently not collectible” or CNC for short. Sometimes they call it “53ing” the account, for the IRS code 53 that signifies that the account is being considered currently not collectible.

Examples of situations where they can report the account are: (a) unable to locate taxpayer or assets; (b) running of part or all of statute of limitations; (c) death of an individual with no assets; or (d) collection of taxes from an individual would create a hardship and leave the person with no way to pay necessary living expenses.

It is possible for the IRS to chase you for more than 10 years for taxes, in certain limited circumstances. For example, if the collection of the taxes was “tolled,” such as by filing an Offer in Compromise, or a bankruptcy. Or they can sue you in U.S. District Court and obtain a judgment for the taxes, which can last a lot longer than 10 years.

But they generally only go to the expense of suing if you are someone famous, like Willie Nelson, or if it is an awful lot of money, and it may be collectible some day. They do not usually sue ordinary people to reduce tax debt to judgment, and the IRS loses billions of dollars every year that becomes unenforceable by lapse of time.

If you have serious IRS problems, please consult a professional such as myself that handles these matters on a regular basis. You have many other rights in dealing with the IRS, too numerous to mention here.

If you live in the Houston metro area or surrounding counties, give my office a call at 713-772-8037 to make an appointment to meet with me. The first visit is free and takes about an hour.

For an overview of the IRS Collection process, go to: http://www.irs.gov/pub/irs-pdf/p594.pdf

Posted in Currently Not Collectible, I.R.S., Statute of Limitations. Tagged with , .

By Thomas Black
September 26, 2009

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“Senior” Texans: Deferring Your Property Taxes? If you have a mortgage, you may get in trouble

Seagulls at Moody Gardens, Galveston Texas

Seagulls at Moody Gardens, Galveston Texas

In Texas, a person over 65 can “defer” or put off paying their property taxes. No, you’re not totally “exempt” from paying them. You do get an “over-65 exemption” which reduces the taxes that you owe. And if your house is paid for, you can defer paying the property taxes as long as you are kickin’ and continue to live in the house.

But if you move, sell the house or pass away, the property taxes come due. And they earn interest at 8% all the time that they are deferred. So if you are planning on leaving the house to someone “free and clear,” that is not going to happen, there will be a big tax bill. And if you live “too long,” say 20 years or so, guess what, the house may just have to be sold to pay the taxes. There won’t be anything left.

An article in the Houston Chronicle this last Sunday entitled “Deferral of Taxes being denied” reminded me of a problem that some of my clients have. They are over 65, but they still have a mortgage on their home, and they are trying to defer paying their property taxes. See the full article at http://www.chron.com/disp/story.mpl/business/realestate/6582721.html.

I’m sympathetic with the folks in the article. And I understand the problem; but if I was the mortgage company, I wouldn’t let people defer their taxes either. Why not?

Because the tax authorities have “first dibs” on the house. In other words, those unpaid taxes can sell the house first, mortgage company or no. And like I said, after 20 years or so, there is nothing left of the house equity anyway; it’s used up.

If the homeowner passes, or just moves away, the mortgage company is out of luck (unless you happen to have a very wealthy homeowner, who could be sued and the mortgage money recovered).

Some people want it disclosed in the closing documents, that you cannot defer taxes if you buy the house and have a mortgage. I think that is fair, but there are already clauses that say that you can’t impair the collateral, not pay taxes, etc. But making it more explicit, I don’t have a problem with that.

Best answer: don’t have any debt when you retire. That’s what people used to do, pay off the mortgage before they would retire. And it is still the best way to go.

What if you are “covered up” in property taxes and can’t pay them? If you can work out a deal with the property tax authority, fine. But once you get delinquent, they often want at least 1/3 down, followed by monthly payments.

If you can’t do a payment plan, and can’t figure anything else, you can file a Chapter 13 bankruptcy, and pay the delinquent taxes out over 5 years. Please don’t use those tax services that buy the tax debt and then charge you 18%-20%. That is crazy expensive. At least through a Chapter 13 plan, it is 12% interest (the tax rate for delinquent taxes under state law).

If you have a mortgage, they will pay the taxes and then bill you. If that happens and you cannot afford to pay the mortgage company back as quick as they want, we can then file a Chapter 13 to repay the mortgage company tax advance over 5 years. And if the mortgage company has paid the delinquent taxes, they don’t accumulate 18% or even 12% interest; they are at 0% interest.

Posted in Bankruptcy, Property Taxes.

By Thomas Black
August 24, 2009

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I.R.S. has Levied on my Bank Account!

J. Thomas Black, Attorney at Law

J. Thomas Black, Attorney at Law

I get calls from people sometimes, that have already had bank accounts levied by the IRS. If this has happened to you, you have probably chose to ignore your IRS problem for a long, long time. They send you a number of notices before seizing property.

What to do to hopefully get your money released? Number one, you must be “in compliance.” That is, you must have filed all of your tax returns, and if you are self employed or otherwise required to make estimated tax payments, you must be current on those.

If you are in compliance, and you can pay the money that you owe soon, you can ask for a short term extension; a short 30-90 days to pay the tax in full. Or, you may be able to have the IRS release the levy if you enter into an Installment Agreement or Offer in Compromise (good luck- they may still want to keep the money that they trapped in the bank).

Or, if you have other debt problems, or have IRS problems that are too big for you alone to handle, you may want to consider filing a bankruptcy case. By filing a bankruptcy, the IRS has to immediately release the levy.

If you are filing Chapter 13, you stay in control of your property, and make a monthly payment to a Chapter 13 trustee to repay the “priority” or “secured” portion of the tax debt. Generally speaking, if the taxes are more than 3 years old, the “unsecured” portion of the debt may be discharged or cancelled as part of the bankruptcy filing.

To review all of your options in dealing with the I.R.S., if you live in the Houston Texas area or surrounding counties, give my office a call at 713-772-8037 and make an appointment to meet with me. There is no charge for your first visit with me to discuss your bankruptcy or I.R.S. tax collection defense problem.

Posted in Bankruptcy, I.R.S., Tax Levy. Tagged with , .

By Thomas Black
August 17, 2009

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Has I.R.S Put a Tax Levy On Your Wages? What Do You Do?

My Office Building at 2600 So. Gessner, Houston Texas

Office Building at 2600 So. Gessner, Houston Texas

Most Texans are not used to having their wages garnished! The Texas Constitution prohibits it. But I.R.S. wage levies “trump” the Texas Constitution, so the government can take your wages, at least most of them, if you fail to pay Uncle Sam.

What to do? You must come into “compliance” as the IRS likes to say, by filing any delinquent tax returns. Then you can try to convince them that you are uncollectible, or enter into a repayment plan, which they call an Installment Agreement.

But if you have other debt problems besides the I.R.S., it can be quicker and more expedient to file a Chapter 7 or Chapter 13 bankruptcy. When a bankruptcy is filed, an “automatic stay” or federal court order goes into effect, which immediately prohibits creditors from trying to collect their debts, at least without first getting permission from the Bankruptcy Court.

And the I.R.S. must immediately release any wage levies, so that you begin receiving your full check again. In fact, if your employer has not yet sent the funds to the IRS, it is often possible to have the wage levy released before any money is deducted, but you must act quickly.

Call my office at 713-772-8037 to make an appointment with me to discuss your situation, to see if it makes sense for you. Your first visit with me is free, and takes about an hour.

Posted in Bankruptcy, Garnishment of Wages, I.R.S., Tax Levy. Tagged with , , , .

By Thomas Black
August 8, 2009

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