Gary Busey and Chapter 7
Chapter 7 bankruptcies are known for discharging (wiping out) the debts of the debtor and giving the debtor a “fresh start.” So, how in the world did actor Gary Busey go through a Chapter 7 bankruptcy, have his debts discharged, and still end up owing the Internal Revenue Service over $450,000
Busey filed for Chapter 7 bankruptcy in February 2012, claiming that he was broke and owed creditors over $500,000. During the bankruptcy, he was exonerated from over $57,000 worth of debt. He was also allowed to keep his assets, which amounted to $26,000. After completing a money management course, he was discharged from bankruptcy on November 26, 2012.
However, Busey ended up still owing the IRS $450,000 because of the nature of the debt. When filing under Chapter 7, a debtor is allowed to keep any property that is considered “exempt” by bankruptcy exemption laws. Busey still owed the IRS for back taxes because those back taxes are not dischargeable in a Chapter 7 bankruptcy unless certain conditions are met. The debt is dischargeable only if all of the following conditions are met:
The taxes are income taxes. Taxes such as payroll taxes or fraud penalties cannot be eliminated in bankruptcy.
The debtor did not commit fraud or willful evasion. If you filed a fraudulent tax return or otherwise willfully attempted to evade paying taxes, bankruptcy won’t get rid of your debt.
The debt is at least three years old. To eliminate a tax debt, the tax must have been originally due at least three years before you filed for bankruptcy.
The debtor filed a tax return. You must have filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy.
You pass the “240-day rule.” The IRS must have assessed the income tax debt at least 240 days before you file your bankruptcy petition, or must not have been assessed yet. The time limit can be extended if the IRS suspended collection activity for some reason.
If you owe creditors, including the IRS, it’s important to consult with a knowledgeable Virginia bankruptcy attorney to understand your rights and make sure that filing for bankruptcy eliminates as many of your debts as possible.