Bankruptcy

Who Would You Rather Owe, A Credit Card or Uncle Sam? An Interesting Article About Using Credit Cards to Pay Taxes Prior to Bankruptcy

By Joseph McDaniel, Esq.

There's a specific statute that makes credit card debt use to pay taxes nondischargeable. It's one of the sub-sub-subs at 11 USC 523:

(14) incurred to pay a tax to the United States that would be nondischargeable pursuant to paragraph (1);
(14A) incurred to pay a tax to a governmental unit, other than the United States, that would be nondischargeable under paragraph (1);

Now, the idea of using credit cards to pay off what would otherwise be nondischargeable debt, and then filing a bankruptcy to discharge the credit card debt, is clearly one that has arisen independently in many creative minds, because Congress specifically built a statute to make the credit card debt incurred to pay off taxes non-dischargeable.

And other lawyers have written about this topic, including Rob Rickman, in the excellent GA Bankruptcy Blog.

And Rob Rickman has pointed out that in his experience, credit cards often don't notice.

Nota bene: I am not suggesting or advising that you run out and use ten different credit cards to pay off a big non-dischargeable tax debt, and then wait six or seven months to file a bankruptcy.

For one thing, I am forbidden by the 2005 Amendments to advise a client to incur new debt prior to a bankruptcy for any purpose whatsoever.

But I can easily see how a debtor might prefer owing money to a credit card company to owing money to the IRS, and how a debtor might make that decision independent of any bankruptcy advice from any experienced or inexperienced bankruptcy lawyer in Arizona, in Georgia, or in Tokyo.

You know?

Or to paraphrase Ghostbusters, "Who Ya Gonna Owe?"

NOTHING HERE CONSTITUTES LEGAL ADVICE RE A CHAPTER 7, CHAPTER 13, CHAPTER 11, OR CHAPTER 12. FIND AN ARIZONA BANKRUPTCY LAWYER WHO IS BOARD CERTIFIED IN BANKRUPTCY LAW, AV RATED, AVVO 10 RATED, ON SUPERLAWYERS, OR JUST VERY EXPERIENCED AND A FORMER CHAIR OF SOME BANKRUPTCY SECTION OR COMMITTEE. NOTHING HERE MAY BE USED AS LEGAL ADVICE IN CONNECTION WITH ANY BANKRUPTCY, WHETHER THAT BANKRUPTCY IS IN PHOENIX, GLENDALE, TEMPE, MESA, SCOTTSDALE, OR ANYWHERE ELSE.

Full post as published by Arizona Bankruptcy Attorney Blog on August 04, 2010 (boomark / email).