If you owe the IRS big money for 2003 and maybe some back taxes too, you're probably stressing out about now. Thoughts of bankruptcy may even have crossed your mind. There is no simple solution to major tax debt problems, but some approaches are a lot more productive than others.
1. Stress stability. When you apply, the lender will want to see a history of stable employment. If you've recently changed jobs, that might raise a red flag, but if you've worked in the same field for years, be sure to point that out.
2. Obtain copies of your credit report by contacting the three major national credit bureaus by phone or the Internet: Equifax 1-800-685-1111 or www.equifax.com) Experian (1-888-397-3742 or www.experian.com) TransUnion (1-800-916-8800 or www.transunion.com) Each bureau may charge you up to $9 for your report.
3. Review your credit report carefully. Be on the lookout for inaccurate or outdated information that could hurt your application. If you find errors, dispute them with the credit bureau and inform the lender about the dispute.
4. Got credit problems? If so, did extenuating circumstances contribute to those problems, such as a job loss or high medical bills? Then write a letter to the lender explaining your situation. The lender must consider this information.
5. If your application is rejected, the lender must give you the specific reason for that decision if you request it within 60 days. Acceptable reasons might be: "You haven't been employed long enough" or "Your income is too low." A response of "You didn't meet our minimum standards" is not specific enough.
6. Check out the property appraisal. Poor appraisals can cause mortgage applications to be rejected. Get a copy from the lender and make sure it contains accurate information. Find out whether the appraiser considered illegal factors, such as the racial composition of the neighborhood.
7. Complain to the lender first if you suspect discrimination. Be specific about your concerns. The lender may reconsider your application.
8. Know the next steps. If that doesn't work, call the Florida Attorney General's Office to report your problem and find out whether the lender violated state laws. The toll-free number in Florida is (866) 9-NO-SCAM (1-866-966-7226); if calling from out of state, dial (850) 414-3990. You also can call the Florida Department of Financial Services' consumer hotline at toll-free 1-800-848-3792.
9. Other agencies are at the ready. To find out about private and government fair-housing agencies in your area, go to the Web site of the National Fair Housing Advocate Online (www.fairhousing.com) and click on "Get Help Near You."
10. You can sue. If you sue the lender in federal district court and win, you could recover your actual damages and be awarded punitive damages.
- Sources: Federal Trade Commission (www.ftc.gov) U.S. Department of Housing and Urban Development (www.hud.gov)
0987$temp$$STPT$Paper:+Date: 3/14/04+Page: 0+Section: COLUMNS+Byline: HELEN HUNTLEY+Headline: Steps for getting a grip on tax debt+
The first rule for people who owe and can't pay is to file a return anyway. It is very unlikely that the IRS will forget you exist, especially if any company sent you a W-2 or 1099 form. Failing to file can result in serious penalties and even potential criminal charges.
For some people the solution is as simple as setting up an installment plan (use Form 9465), which allows you to pay off your debt in monthly payments over as long as five years. You do have to pay interest and penalties. There's also a $43 fee to set up the installment plan.
If your tax bill is so big you see no chance of being able to pay it, you can propose an "offer in compromise," a settlement for less than you owe (use Form 656). The IRS is most receptive to offers if it is convinced you really cannot pay or if there is some question about whether you owe the money. The agency also takes economic hardship and special circumstances into consideration, but don't expect to get through the process without some real pain. An offer usually requires a $150 application fee.
If tax debts are part of a bigger debt problem, bankruptcy may be an alternative. Tax obligations are not as easy to wipe out as credit card balances and medical bills, but they sometimes can be eliminated and often can be managed in a repayment plan. The tradeoff is that bankruptcy may wipe out most of your assets aside from your home and retirement plans and taint your credit record for a decade.
Most personal bankruptcy filings fall under Chapter 7, which is a straight liquidation of debts, or Chapter 13, which sets up a repayment plan.
Under Chapter 7, it is possible to get a discharge for old tax obligations. Among the requirements is that the return on which the taxes are owed was due at least three years ago and that a return was actually filed at least two years ago. If you failed to file a return and the IRS calculated your tax obligation on a return substitute, you are out of luck.
Under Chapter 13, you cannot wipe out your tax debts, but you may be able to get some of your old debts reduced. In addition, filing stops penalties and interest from accruing and stops IRS collection efforts.
Q. Could you please explain the difference between "joint tenants with right of survivorship" and "tenancy by the entireties"? My wife and I have all our finance accounts titled as joint owners. Would it be better if we retitled them as tenants by the entireties?
Tenancy by the entireties is a special type of joint ownership available only to husbands and wives. The advantage of using this is that assets owned as tenants by the entireties cannot be seized by a creditor of only one spouse without the permission of the other.
Whether it is worth going to the trouble of retitling accounts depends on how big the accounts are and how likely it is that one of you would be sued for a bad debt or for liability that exceeds your insurance coverage.
Generally, when a husband and wife set up a joint account it is presumed to be held as tenants by the entireties, but if there's a lot of money involved, you might not want to take any chances. Some lawyers suggest simply writing the initials "TBE" after your names on a new account application.
Q. I am retired and had no earned income except my pension. My wife earned $3,000 cleaning houses. Can we make a contribution into our existing Roth IRAs based on those earnings?
Yes, but your combined contributions cannot exceed $3,000. A pension is not earned income.
Q. My wife and I live at two separate addresses, although we are not legally separated. Can we file a joint return?
Yes.
- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to huntley@sptimes.com or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.
