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Pop Star Aaron Carter Files for Chapter 7 Bankruptcy for Fresh Start

Sometimes even celebrities need a fresh start. This month, pop star Aaron Carter filed for Chapter 7 bankruptcy. Carter was formerly a child pop star, releasing his first hit single at age 9 and the popular album Aaron’s Party (Come Get It) at age 12. With three platinum albums by the age of 14, Carter made – by most standards – a lot of money early in his life. However, like many Americans, the child star had trouble managing his money.

In 2003, Carter sued his manager, Lou Pearlman, for mismanaging his money. Pearlman, who was also sued by many other celebrities who he managed, is now in federal prison. Carter also filed for emancipation from his mother in 2003, alleging that she mismanaged his money and took $100,000 from his bank account.

Forbes Magazine reports that now, at age 25, Carter claims more than 2 million dollars in liabilities and only $8,232.16 in assets. Among his assets are a 61-inch television, several laptop computers, a Luis Vuitton backpack, and a watch. Although he reported substantial credit card debt, Carter’s largest liability is about $1.3 million dollars in taxes owed to the Internal Revenue Service.

Chapter 7 Bankruptcy and Tax Liens

The effect of Chapter 7 Bankruptcy on tax debt can be complex, and will likely require the help of a California Bankruptcy Attorney. Like Carter, many Americans that file for Chapter 7 Bankruptcy also struggle with back taxes. However, it can be difficult to discharge tax debt in bankruptcy. For starters, the only type of tax debt that can be discharged in bankruptcy is income tax debt. And bankruptcy will also not help debtors who evaded taxes through fraud or “willful evasion,” intentionally violating the legal duty to pay taxes (for example, by improperly filling out a tax form).

There are also time constraints on discharging tax debt in Chapter 7 bankruptcy. The tax return must have been due at least three years before the filing, and you must have filed a tax return for the debt at least two years before the bankruptcy. Lastly, Chapter 7 Bankruptcy has a 240-day rule. The 240 rule means that the tax debt must have been assessed more than 240 before the filing.

Although income tax debts can be discharged in Chapter 7 if they meet the above criteria, tax liens will remain on property. For Carter, this means that his property will continue to remain subject to federal tax liens, for which the IRS has a lien of about $1 million dollars for Carter’s 2003 taxes alone.

Despite the persistence of the IRS tax liens, according to Forbes, Carter views Chapter 7 Bankruptcy as a positive move and a “step forward.” For celebrities and non-celebrities alike, bankruptcy can help persons who are behind on debts – including tax debts – to manage their money and move forward with their lives.

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