How Credit Card Use Can Affect Your Bankruptcy

If you plan on filing for bankruptcy, it is never a good idea to run up credit cards immediately beforehand. While it may be tempting, using your credit cards directly before filing for bankruptcy can lead to complications that include not being able to discharge that portion of your debt.

Generally, credit card debt is dischargeable through filing for bankruptcy. However, fraudulent debt is not. If you run up credit card debt with the intention of discharging it in bankruptcy, it is a fraud against your creditors and they may ask the court not to discharge the debt. You should be especially careful not to charge as much as $600.00 on a single card for luxury items within 90 days prior to filing bankruptcy. Also avoid cash advances on a single credit card of $875.00 or more within 70 day before filing bankruptcy, because in both situations, the court must presume that you incurred the debt fraudulently.

Additionally, some creditors will look at overall credit card usage in the 6 to 12 months prior to filing and object to a discharge if the charges are excessive and appear to be done in contemplation of bankruptcy. So the best practice is not to use any credit cards once you have met with an attorney and/or know you plan to file bankruptcy.

Once you have consulted with an attorney, be sure to inform your them of any purchases of $600 or more that you’ve made on your credit cards because in most instances it may be in your better interest to delay filing until after the 90 day presumption period has passed.

If you purchase necessities like food and diapers on your credit cards within 90 days prior to filing bankruptcy, your credit card company probably will not complain. However, you should stop making charges of all types once you have made the decision to file bankruptcy.

In some cases, it makes sense to incur debt with the intention of filing bankruptcy. For instance, if you car needs to be replaced, it may make sense to finance a dependable replacement vehicle before you file bankruptcy. However, you should always obtain the advice of a bankruptcy attorney before taking any financial steps in contemplation of filing bankruptcy case.

If you are unsure about any purchases you’ve made within the 90 days before you are planning on filing for bankruptcy and are wondering if your credit card debt can be discharged, consult with bankruptcy attorney Gregory J. Wald for more information.

Gregory J. Wald, Attorney at Law
1500 Northland Plaza
3800 American Boulevard West
Bloomington, MN 55431
Telephone: 952-921-5802
Toll Free: 1-866-747-1130
Fax: 952-831-1346
BankruptcyMinn.com
Gwald314@msn.com

Tax Debt Relief And Bankruptcy

If you have an income tax debt, and are filing for bankruptcy, that may be eligible for discharge under Chapter 7 or Chapter 13 of the Bankruptcy Code.

The difference between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy is that Chapter 7 allows for a full discharge of permitted debts while Chapter 13 issues a payment plan to repay some debts, with the rest of the permitted debts being discharged. Keep in mind, not all tax debts are able to be discharged in bankruptcy, but taxes that are eligible to be discharged in a Chapter 7 are also eligible for discharge in Chapter 13. When you file for bankruptcy, your tax debts must meet a certain standard in order to be discharged.

The criteria for income tax debt to be discharged are:

• All tax debt must be from income taxes 
• The tax debt must be part of a tax return that was due at least three years prior to the taxpayer filing for bankruptcy. The due date includes any extensions. 
• The tax return has to have been filed at least two before the taxpayer files for bankruptcy. This date starts when the return was actually filed. 
• The tax assessment that the IRS sent you has to be at least 240 days old. 
• The tax return cannot be fraudulent. 
• The taxpayer cannot be guilty of tax evasion. 

Some of the tax debt that is not dischargeable is for taxes for which no returns have been filed. While the IRS routinely assesses taxes on un-filed returns, these tax liabilities cannot be discharged until the taxpayer files a return for the year in question. The return must be filed by the taxpayer. A commissioner-filed return does not qualify.

If you file for Chapter 13 bankruptcy, money owed to the IRS that does not meet the qualifications to be discharged can be repaid through a payment plan that lasts anywhere between three and five years without penalties or continuing interest. (Although in some cases interest and penalties must be paid if there is a tax lien). One of the benefits of filing a Chapter 13 bankruptcy is if the IRS rejected your previous payment plan, this is a way to get them to accept one.

It is recommended that you speak with your attorney regarding this matter before deciding between filing Chapter 7 or Chapter 13 to get rid of or aid with the burden of tax debt.

Gregory J. Wald, Attorney at Law
1500 Northland Plaza
3800 American Boulevard West
Bloomington, MN 55431
Telephone: 952-921-5802
Toll Free: 1-866-747-1130
Fax: 952-831-1346
BankruptcyMinn.com
Gwald314@msn.com