Grammy winning singer Dionne Warwick filed for personal bankruptcy recently, citing financial mismanagement and an overwhelming debt to the Internal Revenue Service.
Her filing indicates that despite many years of success in the music business, Ms. Warwick has only $10 of excess income each month after she takes care of her expenses, and that is not enough to pay off the more than $10 million she holds in debt.
The singer's publicist said that she is currently bankrupt as a result of many years of mismanaging her finances during the 1990s, when the tax debt was originally accumulated. At that time she did not address the growing debt to the IRS and eventually amassed significant late fees and interest on the principal sum that she owed, contributing to today's total.
She has apparently paid of the principal amount but finds herself unable to pay the remaining fines and interest and says that the IRS rejected her proposals to settle the debt, leading to her have to file bankruptcy out of necessity.
As tax season approaches, Ms. Warwick's unfortunate story shows how important it is to be careful with income tax filing and to address concerns about paying owed taxes right away, instead of waiting. Many Tennessee readers already know that trying to avoid debts does not make them go away, particularly when that debt is to the United States government.
Typically tax debt cannot be discharged using the bankruptcy process, but like exceptions for extreme cases involving student debt, sometimes it is possible to seek a discharge or a reduction in the principal in a specific circumstance.
Source: The Star-Ledger, "Singer Dionne Warwick declares bankruptcy citing $10M in back taxes," Victoria St. Martin, March 26, 2013.
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