I recently discussed the factors that affect when New York bankruptcy debtors should consider filing their cases. However, it’s worth pointing out that sometimes debtors might feel tempted to file in January rather than a better month: April. Why January, and why is April better? There are a couple reasons.
1). Taxes. Specifically, unpaid income taxes. The issue is when tax debts arise versus when they become due. Income taxes that aren’t paid as either estimated taxes or payroll taxes during the year arise as debts after December 31 of that year, but they are due on April 15. Debtors might think that waiting until January will allow them to include these new tax debts in their petitions, which is true, but waiting until after April 15 will allow debtors to discharge older tax debts if they’re more than three years old. Also, if debtors are lucky enough to receive an income-tax refund, they can use it to help pay for their chapter 7 filings.
A recent tax debt is not going to be dischargeable in a chapter 7 New York bankruptcy, but it can be included in a chapter 13 repayment plan—but only when it becomes due on April 15. Because tax debts are priority debts, they must be repaid in full under the plan. Thus, debtors can shift plan payments away from dischargeable debts towards nondischargeable ones.
2). Credit-card debt. Debtors tend to charge gifts to their credit cards in December. Thus, they tend to have more credit-card debts in January, making that time a likely candidate for seeking a discharge. However, the Bankruptcy Code presumes that consumer debts incurred within 90 days of filing that are greater than $675 are luxury purchases. Trustees can still scrutinize debts outside of that range, but the job becomes harder for them.
The reason to delay a January filing until April, then, is to avoid the risk of a lender objecting to a debtor’s spending on gifts or travel. By April the 90-day period will have expired, so the likelihood that the debts will cause a problem with the luxury rule will largely disappears. Debtors should still be responsible with their spending, but waiting until April avoids the issue entirely. Note, by the time debtors consider filing bankruptcy, they should cease using their credit cards because continuing to use them suggests an absence of intention to repay debts.
When and whether to file bankruptcy is not a decision that should be made lightly. If you are experiencing financial difficulties, then consulting with an experienced New York bankruptcy attorney can help you strategize the best course of action.
For answers to more questions about bankruptcy, when to file, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.