Question: IRS, sued by creditors, garnished bank acct - Will this work with PayPal?

[him8nc]

Not sure if this is the right forum, so I apologize if it is not.

I need someone to tell me if my way of thinking is on the right track for my situation. Basically, the question boils down to: Will it work if I have my 18-year-old set up a bank account in his name and then attach it to my PayPal account so I can still get paid for my work (independent contractor and people I work for will only pay through PayPal -- will not send checks -- but I have worked for them for 3 years and they are legit, so please don't tell me to find another place to work -- this is my only option at this point).

A little background info:

Two years ago I lost my traditional, full-time job. Have not been able to find a full-time job since. My only work has been odd jobs, here and there, mostly working online as an independent contractor writing and editing for a legit company that I have been associated with for almost four years.

The recession and my inability to find steady work have created huge financial problems for me. I have been making about one-fourth of what I used to make, plus no taxes are being withheld since I am an independent contractor.

Last year 4 credit card companies sued me (and won) because I owe them money and am behind on payments.

I had two bank accounts at this point. One company garnished my bank account quickly and took about $1,000 of the $2,000 I owed them. The bank said the other bank account would not be touched because of their policy -- they don't let garnishments come out of an account if that account gets deposits for child support, unemployment or disability. At that time, I had two of the three -- unemployment and child support. Currently, unemployment is long gone so I just have child support coming in to that account. A couple of other people who sued me have tried to garnish from this account, but the bank refuses.

My employment situation is not getting any better. In fact, it has been a lot worse with fewer independent contractor opportunities coming through.

I filed my 2008 taxes on time but could not send the money I owe to state and fed, since I was an independent contractor and had not planned ahead for taxes. I did not earn much, but owe about $2,000 total. Did my own taxes. Maybe that was a big mistake. Maybe I should have someone go over my taxes to see about amending in case I don't really owe as much as I thought.

Just set up a monthly payment schedule with the state (which began in December 2009 for the late 2008 tax payments). So my second payment is coming up.

I have not yet answered the fed's phone calls or letters.

Yesterday (New Year's Eve) I was gone and the mailman left a notice that the IRS has sent me a certified letter. Can't get it today since it is New Year's Day. Will try to get it Saturday.

Meanwhile, my stomach is in knots and I am getting physically ill wondering what this certified letter might be.

I am hoping I will be able to call the IRS and make arrangements for monthly payments, although I don't know how I'll get the money for the payments when I am having trouble keeping my electricity and phone on.

My big concern is if the IRS tries to garnish my bank account and the possibility of the bank telling me, "Sorry. We were able to keep the credit card companies from garnishing due to our policies, but this is the IRS and we can't stop them."

My bank balance is extremely low since I am barely scraping by.

But I need to have a bank account open somewhere because the only way I can get paid from my independent contractor work is via PayPal, and PayPal must be attached to a bank account.

If this bank account gets shut down, I would need to attach my PayPal account to another bank account immediately.

So now I am wondering if this would work. Have my 18-year-old child open a bank account in his name at the local credit union, attach that account to my PayPal account, and then get paid for my independent contractor work through that account.

Then each month, when it is time to make my payment to the state for the taxes I owe (and hopefully the fed will let me set up payments -- not sure what else they might try since the only thing I own is a 13-year-old vehicle, no real estate, no stocks, no bonds, no farm equipment) I would get a money order to send payment.

Any other ideas for me to ponder?

I can't file bankruptcy yet. I am considering it, but right now I barely have money to feed us, let alone pay the lawyer to get started.

My past due credit card and medical debt is only $14,000, but I also owe about $90,000 in student loans (and I understand these are very rarely dismissed in bk), and this $2,000 for fed and state taxes. Plus it is almost time to file taxes for 2009 and I have nothing saved to pay for those taxes.

A friend told me it seems silly to file bk over $14,000, but another friend told me just do it so I will be that much ahead and begin rebuilding.

I made probably $14,000 this year as an independent contractor, by the way.

I'm just sitting here, worried that I won't be able to earn a living at all if there is no way for me to accept my pay via PayPal, and if I can't earn a living at all, I am screwed.

Thanks!

[Denita]

Your situation sounds dire. I know you don't have the funds to file BK right now, but it really sounds like you qualify for a Ch 7. You might be able to do that yourself (pro se) by getting the NOLO Ch 7 book/download. It is very inexpensive, in the neighborhood of $17 and worth reading in your situation.

The other option is a Ch 13 where you pay the IRS debt inside of your ch 13 (and the attorney fees). But with your income, you probably do not have enough to sustain a payment. There are payment plans in Ch 13's where the plan consists solely of IRS debt, attorney fees and trustee percentages with zero going to the unsecured debt! That is one possibility for you to explore. That way you do not have to come up with fees in advance (or you come up with a small portion).

The other option is to not be afraid of the IRS. They will make installment arrangements with you for the payment of your past due taxes. You will want to make sure that you have 2009 taxes filed before you make the arrangements so you can combine any 2009 shortage with the 2008 shortage. BUT, before you go this route, please consider hiring a tax professional to review your last 3 yrs tax returns to make sure the amounts are correct and to file 2009. Given your lack of income, I am surprised you owe taxes at all.

I know I did not answer your original question because what happens is this just is a temporary fix (using your son's SS to open an account) for a big problem. I don't think it is a good idea at all to use your son's social sec # for your own business - JMO. It's time to fix the problem permanetly for you and your son.

Edited January 1, 2010 by Denita

[him8nc]

Thanks for the response. I appreciate it.

I will definitely look into having someone look at my last three years.

I am wondering if it should be someone bigger than the type of business that prepares taxes, like HR Block. I have never used them. I have done my taxes myself online, and maybe that is part of the problem.

Just wondering if I should look for any certain qualifications, such as initials behind someone's name like CPA or something.

Thanks!

[Tex_Tea]

Sorry to hear about your difficulties. Unfortunately, I do not have any easy answers, but I can throw some ideas out there.

Some creditors may not be so kind, so avoid leaving large amounts of money in any accounts with those judgements out there.

With the paypal situation, if the IRS were to look at your son's bank account they might have some questions about the inflows of money for your work. But, one tends to wonder about the probabilities of that occuring.

With the IRS, putting them off often leads to major penalties and interest, and in relatively short time, 2k can grow to 20k. I would explore the web or their site for economic hardship options.

I do my taxes with forms and by hand because I set it up so I always have to pay a little but not enough for a penalty. If I had money coming, I would file electronically. But, to check myself, I download Tax Act and run my numbers through it. The download is free. Tax Act has an interview mode that will help you capture any deductions you may have missed.

In the past couple years, I think HR Block offered free reviews of prior years tax returns. You could call them and ask.

If you miscalculate your taxes, you just file a 1040X with a corrected return. The IRS has info on this. I suppose you could tell them you are in the process of filing a 1040X.

Student Loans are generally non-dischargable in bankruptcy. The law makes it sound like severe hardship is an out. Courts rarely if ever give it. I researched it and saw no way to a discharge; a BR attorney confirmed that to me. We live in changing times, so you can always hope.

Most student loans have up to 36 months for unemployment deferment. I believe there is a new program that allows repayment based on a percentage of your income, also. I have not explored that, but it might be worth a look.

Anyway, just some ideas. Wish the best for you, though!

Edited January 1, 2010 by Tex_Tea

[JSH in Missouri]

Thanks for the info, Tex Tea.

The student loan people refuse to do a hardship deferment with me at this point. I called them more than two years ago, when I was still employed full-time, and told them that I needed a deferrment because I was not making enough at my full-time job to make full payments. I spoke with someone on the phone who screwed things up for me. I thought we had things taken care of, but then later I started getting letters.

I have spoken to the student loan people since then. They send letters. I called to let them know I thought I was in hardship deferment and they said no. Told them I spoke to someone about it and they said it didn't matter.

So they put me in collections and added a few thousand more dollars to the total.

Now I get letters and calls saying to contact them. I called back once and they said that my only option was to start making monthly payments of about $500.

I do not even make $500 total for a whole month at this point.

So that's where I stand with the student loan people. Guess I should call them again and tell them that I can't make payments and I don't have a full-time job just so they can document it.

[rippedoff]

I didn't read all, but, look up the rules in your state on garnishment/levying of bank accounts. You might find there are limits. Find the paperwork and file it.

These things I do know - the IRS has offer in compromise forms on their website. It's like a settlement offer. You'd have to research how to qualify yourself - what story you'll present. My state has that too so check yours.

I've seen that PayPal is being targeted as a collection place. I wouldn't leave money there either. I don't think Paypal has to be connected to a bank account necessarily. They would send you a check. 2 wk delay so maybe the direct transfer is a good idea- cash in hand. I don't think the tax folks are going to check the connection to your son. But I wouldn't co-mingle your money with his. Keep a whole separate account in his name in case you or he has to prove something.

Paypal is using an email address as the account name. If you've ever sent email with that address or had it connected to any credit card etc, I'd get a new one. Only use it for the paypal because a subpoena or levy could be sent to paypal asking for the email address account.

I'm not to the levying stage yet, but the bank I've been using for checking and to accept my exempt income, allows me to cash checks even when I don't have money there to cover them. It isn't their official policy but I've done it a lot. They also have allowed electronic withdrawals like bill payments and ach to make my balance negative and as long as I cover it by an early time the next day, they don't charge me or anything. Sometimes I've worried (unnecessarily so far) that someone would take money if I left it there, so I paid my bills first and then made the deposit so it couldn't be taken. They can only levy what's there - which includes unpaid checks written.

[rippedoff]

Oh, and when you make your new email address for a new paypal account, don't put your whole real name on the email info. That gets published too.