Be Able to Write Off More Debts by Not Being Rushed into Filing Bankruptcy Too Quickly
More income taxes and credit card debts can be discharged (written off) by tactically delaying bankruptcy. See an attorney to do this right.
Last week we introduced the idea that many of the laws about bankruptcy are time-sensitive. When your case is filed can have significant consequences. Last week we focused on the how timing can affect whether you can file a Chapter 7 case or are forced to do a Chapter 13 one. Today we address how timing of a bankruptcy filing can effect what debts can be discharged.
1. Most Income Taxes Can Be Discharged, with the Right Timing
Federal and state income taxes are forever discharged if you meet a number of conditions. Two of the most important of these conditions are met by just waiting long enough before filing your bankruptcy case:
Three years must have passed since the time that the tax return for that tax was due (plus any extension if you asked for one).
Two years must have passed since you actually filed the pertinent tax return.
For example, assume a taxpayer owes $10,000 to the IRS for the 2009 tax year. She had asked for an extension to file that year to October 15, 2010, but then did not actually file that tax return until October 31, 2011. The above 3-year condition is met after October 15, 2013, because that is three years after the tax return was due. But the 2-year condition has to be met as well, which would not occur until after October 31, 2013, two years after the actual tax return filing date. So filing a bankruptcy case on or before October 31, 2013 would leave that $10,000 tax debt still owing; filing on November 1, 2013 or after would result in it being discharged forever. Simply waiting this one day makes a difference of $10,000.
2. Recent Credit Card Purchases and Cash Advances More Easily Challenged
If a person incurs a debt without intending to repay it, that creditor can challenge the person’s ability to discharge that debt. It’s considered fraudulent—incurred with the intent to cheat the creditor.
Along the same lines, a debt that was entered into a very short time before the person files bankruptcy understandably leads the creditor to wonder if the person already intended to file bankruptcy at the time of that debt. The law takes this situation and creates a “presumption”: under very specific facts, recent credit card purchases and cash advances are “presumed” to be fraudulent. This presumption does not necessarily mean that that particular portion of the debt is not discharged, but that the creditor has a much easier time making that happen.
Here are the specific facts creating the presumptions. The law says that purchases on a single credit card totaling more than $650 made within 90 days before filing bankruptcy are “presumed” not to be dischargeable. Same thing with cash advances on a single account totaling more than $925 made within 70 days before filing bankruptcy.
As shown in our discussion about income taxes above, a delay in filing the bankruptcy case can also work to your advantage with these presumptions. We can avoid giving a creditor the benefit of these presumptions two ways. First, if possible do not use any credit or make any cash advances in the few months before filing bankruptcy—or certainly no more than the stated threshold dollar amounts on any single credit card. Or second, if you’ve already made such purchases and/or cash advances, we could simply hold off filing bankruptcy until the indicated 70-day and 90-day presumption periods have passed.
Be aware that while doing these would solve the presumption problem, a creditor could still challenge the debt’s discharge. But it needs to have evidence that you incurred a debt which you did not intend to pay, or that there was some other kind of fraud or misrepresentation. But because proving such bad intentions is difficult, such challenges without the benefit of a presumption are relatively rare.
So as long as you avoid filing bankruptcy within the 70/90 day presumption periods, you will significantly reduce the chance that the creditor will challenge the discharge of its debt.