Got some newish tax debt? Your bankruptcy attorney probably told you that it’s not going to get eliminated when you file for bankruptcy.
But she also said something else. She told you that most if not all of your credit card debt will get wiped out when you file.
So your clever little brain gears started spinning and you thought to yourself, “I’ll just pay off the tax debt with my credit cards. That way, when I file for bankruptcy it will be completely eliminated. Huzzah!”
But not so fast. Cleverness killed the cat faster than curiosity. And it will wreak havoc on your bankruptcy case as well. Here is the story of one of our clients who paid off her taxes with a credit card right before filing her case.
And by the way, before we even get started – here’s the moral of the story. Don’t do anything without asking your bankruptcy attorney first.
Our client faced this very same scenario. She had about $10,000 in tax debt from her last two years of federal income taxes. She also had plenty of spending room left on her credit card to pay it off. So that’s exactly what she did. And she failed to let us know about it.
Shortly after her case was filed, we received a letter from her credit card company letting us know what had happened. They were seeking the full amount that she had charged on the card to pay the taxes. They were also asking for extra money to cover their legal fees.
She was forced to pay back this money, plus their legal fees. If she had not done so, her case could have been dismissed. Luckily, the credit card company allowed her to make payments. Otherwise, she could have never afforded it.
So if credit cards get eliminated when we file for bankruptcy, why aren’t we allowed to do what our client did?
Stay tuned. In part 2 we will learn why it’s not okay to pay off your tax debt with a credit card before you file for bankruptcy.