Bankruptcy: Hidden Secrets
Filing bankruptcy is not an easy choice but may be necessary to get a "fresh start." However, there are some little known facts that may impact your ability to file bankruptcy or dictate which bankruptcy you can file.
With the economy less than stellar in these last few years, we see families using credit cards to fill in the gap for many expenses that would normally be paid for out of a checking or savings account. As a result, some surprises can occur when filing bankruptcy (we are not an attorney and the following is not to be considered legal advice but for educational purposes only).
In a chapter 7 bankruptcy you can't discharge a debt you incurred to pay off taxes you owed to a government agency
Let's say you owed income taxes last year and the only way you could pay them was by using your Visa card. Now you want to put that credit card into your bankruptcy. Can you place that card into your bankruptcy? Yes, BUT..your Visa may bill you for the amount you charged to pay your taxes after your bankruptcy is over.
Property taxes can be discharged: maybe
Property taxes must become due more than a year before you file bankruptcy to be able to be discharged. However, in Chapter 7 bankruptcy, the lien on your property will stay. This discharge may have no value for you if you are planning on selling your property. You will have to satisfy the lien before you can sell.
Loans from tax-deferred retirement plans
If you borrow money from your 401K or other type of retirement plan that would qualify under the IRS rules for tax-deferred status, that debt cannot be discharged in a chapter 7 bankruptcy. It will survive your bankruptcy and will need to be addressed.
Fraudulent purchases
Lets say you went to on a cruise. You spent more than $550.00. You bought some jewelry and other luxury items on your Visa. You get back from your cruise and find you have been fired. You panic and want to file bankruptcy. In a chapter 7 bankruptcy those charges may not be dischargable. It will be presumed by the court that you did not intend to repay the debt unless you can prove you were not going to defraud the credit card company.
Many of these debts discussed in this blog can be discharged in a chapter 13 repayment plan but if you want to qualify for chapter 7, do your homework. Bankruptcy law is very complicated. Get advise from an attorney. Don't leave anything out when you talk to them. It is the little things that come up at the 341 meeting that can hang up your bankruptcy discharge. Be honest with your attorney and don't try to hide information. If you want further information on bankruptcy visit our website at www.FLRMinistry.com. We invite you to read our other blogs, like us on Facebook and follow us on Twitter.
Some of the above information was taken from the following resources: Nolo: Solve Your Money Troubles, Nolo: The New Bankruptcy , United States Bankruptcy Code & Rules Booklet, The National Consumer Law Center: Guide to Surviving Debt.
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