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Wage Attachment by the I.R.S.
Chapter 13 can also be used when there is a delinquent and unpaid obligation due and the Internal Revenue service is threatening to attach wages or a homeowner is threatened with the loss of their house in a tax sale.
Walt and Mary had owned and operated their own business until they were forced to cease operations when the road in front of their establishment was closed. They were unable to pay their IRS income taxes for several years prior to the closing. After they finally shut down and had both found jobs, the Internal Revenue service began garnishing their wages for the employee withholding taxes at the rate of $250 per week, for the $40,000 due. Thus, the couple did not have enough income to live on. In addition, since interest and penalties were accruing at more than 15 percent per year, it appeared that this delinquent tax obligation would not be repaid for several years.
By filing a Chapter 13 Petition, Walt and Mary were able to stop the attachment of their wages by the IRS. The scheduled payments through the Chapter 13 were substantially lower than what the Internal Revenue Service was receiving from the wage attachment, and Walt and Mary then had sufficient money to live on and still repay the Internal Revenue Service. They were also able to repay the Internal Revenue Service without interest, because they had very little or no equity in their home.
It should also be noted that the Internal Revenue Service will usually make every effort possible to work out a payment arrangement with a taxpayer before they will attach wages. They customarily send out many notices of the delinquent tax and notices of intention to levy. It is only after the taxpayer has ignored those warnings and those collection letters that the Internal Revenue Service begins collection proceedings and will seize bank accounts, garnish wages, lien houses, and padlock businesses. Once they have taken those steps, they are less likely to work out payment arrangements. That's where bankruptcy comes in.
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