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Emergency Tax Relief Act
On September 23, 2005, President Bush signed the Katrina Emergency Tax Relief Act of 2005 into law with massive bipartisan support. The Act contains numerous provisions with one of the most important being the extension of tax filing deadlines. Specifically, victims of Hurricane Katrina have been granted an automatic extension until February 28, 2006. The extension covers the filing of taxes, paying of taxes and other related tax items
To benefit from the Tax Relief Act, hurricane victims need to take the following steps. For victims located in areas designated as “individual assistance areas” by FEMA (Federal Emergency Management Agency) the tax relief is automatic and no action is required to be taken. Of course, you need to make sure FEMA has actually gotten around to visiting your area.
If FEMA has designated your area a “public assistance” area, you are actually going to have to contact the IRS to claim relief under the Act. To do this, you must simply write “Hurricane Katrina” in red ink on the top of any tax filings with the IRS. If you're not sure what to do, you can contact the IRS disaster hotline at 866-562-5227.
Obviously, taxes and the IRS are and should be low priority items for victims of Hurricane Katrina. The IRS, however, should be commended for taking immediate action to grant tax relief instead of staggering around like a drunken sailor as we observed with FEMA.
The world remains horrified at the tremendous destruction caused throughout the Gulf Coast recently by Hurricane Katrina. An unknown number of people are dead and thousands more are homeless, jobless and completely destitute. It may be months before the city of New Orleans is inhabitable again, and in the meantime, most residents of the city will have little or no income. This is a problem, as most people will continue to have payments due for credit cards, auto loans and mortgages. A number of people will probably be forced to file for bankruptcy as their debts continue to pile up with no income to offset them. Unfortunately for them, recently passed legislation may make it difficult, if not impossible, for them to have their debts wiped away through bankruptcy.
The Bankruptcy Abuse and Consumer Protection Act, signed into law by President Bush last April, makes it more difficult to file for bankruptcy than in the past. New, stricter guidelines, which take effect next month, require proof of income for six months prior to filing as well as credit counseling. The documentation requirements of the new law are fairly strict, and even hold attorneys who represent bankruptcy filers liable for incorrect information filed on their clients' behalf.
These will be huge obstacles for hurricane victims, many of whom have lost their homes and contents. Along with their furniture, clothes and other possessions, victims of the storm have also lost vital paperwork outlining their debt obligations and income. Without this paperwork, it will be virtually impossible to file under Chapter 7 of the Federal code, which allows the courts to wipe out most consumer debts. Instead, filers will have to file under Chapter 13 and establish a repayment plan. This will undoubtedly create an undue burden on thousands of largely uninsured hurricane victims as they try to pay the bills for personal belongings that no longer exist.
Congress has taken note of this situation and a number of Democrats are attempting to pass new legislation that will assist victims of Hurricane Katrina with bankruptcy filings. It appears at present that no Republicans are willing to support this legislation, so anyone who has suffered a loss from the storm should try to gather financial information together as best they can and prepare for a long and expensive day in court.