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Don’t Rush to File Bankruptcy

How to File for Bankruptcy in Lafayette, IN

There are many laws about filing for bankruptcy that are time-sensitive. When you file a case there can be some significant consequences; be sure to visit Lafayette, Indiana bankruptcy attorney Brad A. Woolley. Today we are going to address how timing of a bankruptcy filing can effect what debts can be discharged.

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1. Most Income Taxes Can Be Written off, with the Right Timing

You can have your federal and state income taxes discharged if you can meet certain criteria. Two of these issues can be met by just waiting to file. These two conditions are:

  • 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, let’s say a taxpayer owes $10,000 to the IRS for the 2009 tax year. She had asked for an extension to October 15, 2010, but did not file until October 31, 2011. The 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 before October 31, 2013 would mean there is still $10,000 in tax debt that is still owed however, filing on November 1, 2013 or after could get that discharged forever. By just waiting one day could make 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, the creditor can challenge that person’s discharge of that debt. This is considered fraudulent. Fraudulent is when debt is taken on with the intent to cheat the creditor by not paying that debt.

A debt that was entered into a short time before the person files bankruptcy will understandably lead to a suspicion that the person intended to file bankruptcy at the time of the debt so they wouldn’t have to pay it back. When this happens the law makes a “presumption” all recent credit card purchases and cash advances are “presumed” to be fraudulent. This presumption does not necessarily mean a particular portion of the debt is not discharged, but the creditor has an easier time making that happen.

 

Like the example above with the income taxes, a delay in filing a bankruptcy case can also work to your advantage. There are two ways to avoid giving a creditor presumptions:

  • 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.
  • 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.

You should be aware that while doing these would help with a presumption problem, a creditor could still challenge the debt’s discharge but they have to have proof the debt was incurred with the intent not to pay, or 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 days of gaining a large debt, you significantly reduce the chance of a creditor challenging the discharge of that debt. In other words, don’t make a large purchase anything soon if you are looking to file bankruptcy.