What About Your "Other Unsecured Debts"?

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Occasionally our clients are strapped with other unsecured debts besides their tax debt and they seek advice on whether or not they should file bankruptcy, believing that a bankruptcy would wipe out everything they owe. 

Sometimes it makes sense to file bankruptcy to achieve tax relief, but it is definitely not for everyone.  There is a formula used to determine if your tax liabilities may legally be discharged in bankruptcy.  Tax debts more than three years old are normally dischargeable, but this is only the general rule.  Each tax year must meet a fairly elaborate set of criteria (they are called “eighth priority” taxes by the IRS)  otherwise they are not dischargeable in bankruptcy.

In a chapter 7 bankruptcy, besides taxes that are entitled to eighty priority, the following tax liabilities are not subject to discharge:

  • taxes for which no return was filed
  • taxes for which a fraudulent return was filed
  • taxes that the taxpayer willfully attempted to evade
  • taxes for which a late return was filed (after 2 years before the bankruptcy)

The Last of the Airline Industry Bankruptcies?

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AMR Corp., the parent company of American Airlines, filed for Chapter 11 bankruptcy on Tuesday. With the exception of Southwest, all major US airlines have filed for bankruptcy protection following the September 11, 2001 terrorist attacks. American was the only holdout, until now.

Although no single factor is to blame for the company’s failure, American cited high fuel prices and expensive labor contracts as contributing factors. Most of the day-to-day operations (at least from the consumer’s point of view) will remain the same. The company will continue to honor tickets and even frequent flyer credits. The flight schedule may be trimmed during the reorganization process, but not in any dramatic way according to the airline.

With the other airlines already out of their bankruptcies and making money I’m sure some are wondering what took American Airlines so long. However, maybe this is a testament that the bankruptcy laws are working properly; allowing a company to languish just long enough so as to be sure that bankruptcy is truly the last resort.

Greece on the Verge of Bankruptcy

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In a conference call earlier today, Greek finance minister, Evangelos Venizelos, spoke with the “troika” — the Commission, the European Central Bank and the International Monetary Fund — with the hopes of convincing them that Greece will be able to pay its debts and should continue to receive financial assistance. The phone call didn’t go as well as Greece had hoped it would. But then again, the door has not completely closed for them either.  A follow-up call is scheduled for tomorrow.

It is still unclear whether or not the country is going to get another installment from its current assistance package. Without it, Greece is expected to go bankrupt by mid October. Stocks took quite a hit around the world today as a result of this news.

Dodgers Bankruptcy

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The Los Angeles Dodgers filed for Chapter 11 Bankruptcy protection today.  MLB Commissioner recently rejected a $3 billion deal with Fox that may have helped pull the club out of its $630 million in debt. The Commissioner did not approve the deal, saying it was self-serving for the Dodger’s owner and not in the best interest of the Dodgers or its fans. Some of the unsecured creditors are actually former players, including Manny Ramirez whom they owe nearly $21 million. According to Forbes, the Dodgers franchise is MLB’s third most valuable franchise, worth an estimated $800 million.

Even though the team insists that the bankruptcy will in no way affect the salaries and benefits of their players, it is hard to imagine that this won’t get in their heads and in some way affect their play. It certainly can’t help as they find themselves struggling with a winning percentage of .443 and 9.5 games behind the leading team in the NL West. By the way, who is that leading team?