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Tax authorities fail to force mogul into filing for bankruptcy

While Massachusetts residents have heard and have read on this blog about how one can choose to file an individual bankruptcy should he or she face financial challenges, one recent case that has been in the national news illustrates that sometimes a person may want to consider their options before filing for bankruptcy In some situations, however, creditors may try to force the person into a bankruptcy against his or her will.

Such has been the case for a developer who, according to taxing authorities in another state, owes $57 million in taxes incurred in connection with a loan. The authorities claim that the developer used the proceeds from the loan in such a fashion that the man now owes state taxes on the proceeds. The man supposedly owes at least two other states back taxes as well.

By asking for an involuntary bankruptcy, the state is seeking access to the man's trust fund, in which he effectively holds the majority of his wealth. However, a bankruptcy judge overseeing the state's request for the man's involuntary bankruptcy has rejected the state's request for a second time. In doing so, the judge concluded that before a person can be forced in to bankruptcy, three undisputed creditors must make the request. In this case, the developer has challenged the tax assessments of each state that now seeks to have him declared bankrupt, and two of these states have since reached settlements with the developer.

Like in the case of this man, there are many issues to consider before filing for bankruptcy. For many, complex questions will need to be addressed prior to entering the bankruptcy process. Sometimes, it makes better financial sense for a family attempt to work out individual deals with the family's creditors and, as in this man's case, to fight for the right to do so. However, most Massachusetts residents who truly need debt relief will want to speak to bankruptcy attorney to understand their options, which may include voluntarily filing for bankruptcy so as to get a fresh start on their futures.

Source: ABC News, "Court rejects bid to put Blixseth into bankruptcy," Matthew Brown, July 11, 2013