Tax debts can bedevil debtors. They are not easily discharged in a chapter 7 New York bankruptcy, and they are priority claims that must be paid in full without interest in chapter 13. Unsurprisingly, the IRS’s collection efforts will cause more anxiety to debtors than mere credit-card-debt collectors. However, a recent New York Times article discusses how the agency outsourced its collections operations to four companies, which naturally began engaging in abusive tactics, particularly Pioneer Credit Recovery, a subsidiary of Navient. Here are the acts U.S. senators and the NYT allege it committed.
- Failing to protect taxpayers from IRS imposters. When the IRS started hiring companies for its collections, it opened the door to all kinds of scammers to imitate the collectors and abuse debtors. Of course, scammers can always impersonate people, even the IRS, but with the added layer of debt collectors, it becomes harder for debtors to know whether they are dealing with an authorized agent. The agency put in place some safeguards to prevent scammers from impersonating debt collectors, but Pioneer does not give debtors enough time to verify if they are dealing with a real debt collector. This gives scammers an opportunity to shake down debtors.
- Encouraging debtors to take on risks to pay their tax debts. Pioneer’s collections agents sometimes tell debtors to sell their assets, borrow against their retirement accounts, take on credit-card debt, or even take out second mortgages against their homes to pay their debts—actions other debt collectors tend not to demand of debtors. Surprisingly, the IRS responded that it endorsed these behaviors as valid collection efforts.
- Crafting illegally long repayment plans. Debt collectors are allowed to strike repayment plans with debtors that last up to five years, but the IRS is allowing debtors to agree to seven-year plans with its collectors. These plans may violate the Fair Debt Collections Practices Act (FDCPA)
- Not referring cases of hardship back to the IRS. The agreements between the IRS and the collections companies require them to refer back to the IRS cases in which debtors claim tax-debt repayment would inflict serious hardship on them. Pioneer does not allow its agents to do so, which in theory breaches its agreement with the IRS.
Skirting or breaking federal law and their agreements with the IRS can be quite profitable for the debt collectors because they keep 25 percent of the amount they collect as commissions. Consequently, debtors who owe tax debts should consider the benefits bankruptcy offers. If a tax debt is three years old, it was included in a tax return that is at least two years old, and it was assessed more than 240 days before the bankruptcy petition was filed, then it can be discharged in chapter 7. Bankruptcy courts are less forgiving about late tax returns, so debtors must be wary of that as well.
The New York Times article is here.
If you owe tax debts, then talking to an experienced New York bankruptcy attorney can help you assess your options, especially if IRS tax collectors are calling you.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
