Question Nondischargeable Debts?

[rainypass]

I have finally come to the realization that I may have to file for bankruptcy so I have been researching and trying to figure out what would be best for my unfortunate situation. I am self employed and have few assets other than my small business which will be protected with exemptions. I am considering filing for ch 7 bankruptcy, all of my outstanding debt is unsecured credit cards and my income is well below the state median.

It has come to my attention that I may have a complication with using credit to pay non-dischargeable debts. I am a sole proprietor and used my credit card to pay off collected sales tax the past few years. Do the credit card companies scrutinize their records to see what kind of charges were made on the card? If a creditor does object how would the amount be calculated since I have been making payments towards the debt?

This is all very nerve-racking to me as I have been trying to get a handle on my financial situation for some time and only recently started looking into bankruptcy.

[justbroke]

It really depends on the credit card company, how long ago you did this, and the amounts. I had used a credit card for property taxes -- to get the rewards points -- and the card was discharged! The creditor never filed a complaint to determine dischargeability.

So, there is no way to tell. Regardless, it is what it is. You would not have been able to discharge the taxes anyhow (trust fund taxes), so you would still be in the same position. If you are lucky, the creditor ignores the charges and does not seek to have them non-dischargeable. I would ask any attorney that I am interviewing, specifically about this topic. Who knows? Your State may not treat sales tax as non-dischargeable because it is an excise tax. In any event, dischargeability of taxes is a very precarious area of bankruptcy and you should really lean upon any attorney that you consult with.


(My quick research for Washington State shows that sales tax is a "trust fund" tax (http://openjurist.org/792/f2d/829/sh...e-tax-division).

[kornellred]

If you used one card repeatedly and exclusively for the payment of taxes, that creditor would almost certainly question your bankruptcy petition. After all, it would be the same thing as having them assume responsibility for a debt that is not the responsibility of that creditor. And if you did not mention that situation up front and it was discovered later, the US Trustee would certainly raise an eyebrow towards your case. Think iron bars and striped suits.

If paying your taxes was random, among many cards used for other purposes, and relatively low in amounts, then just as justbroke counsels - you may be able to slip through the cracks (so to speak). In any case, make sure you are completely honest with your attorney when planning your BK filing.

[bcohen]

If you used the credit cards for more than just to pay the taxes, and have been paying on them for a long time (a couple years or more) then your risk goes down. It's the same with putting tuition and textbooks on a credit card. If you file for BK immediately after putting educational expenses on a credit card, you can expect an AP. If you file for BK years down the road, the risk is much smaller.

[LadyInTheRed]

And if you did not mention that situation up front and it was discovered later, the US Trustee would certainly raise an eyebrow towards your case. Think iron bars and striped suits.

Where on the petition is one supposed to list such a thing? I can't find it. The U.S. Trustee is not concerned with whether a credit card debt is non dischargeable, regardless of what was paid with the card. This issue is between the creditor and the debtor.

[rainypass]

When I used the credit card to pay the taxes the plan was to pay it back over time, that is how I have been doing things for a number of years. I used the credit card to pay the taxes and have been making payments so if a creditor did object I am not sure how they would determine what amount was still owed. It has been about 7 months since I last paid approximately 2,000 in taxes and have been making payments on the cards until just recently. I will be filing in the near future so I have stopped paying on all my credit cards now.

Since there is nowhere in the filing papers that asks about this I will file and wait to see if this even comes up. I do plan on consulting with a attorney soon and will be asking about this. I may file Pro Se if I am confident I can handle it, even if I hire a lawyer I want to fully understand the whole process.

Right now as I am preparing to file I am trying to learn all I can, and I am actually finding bankruptcy law to be a interesting subject.

[LadyInTheRed]

When I used the credit card to pay the taxes the plan was to pay it back over time, that is how I have been doing things for a number of years. I used the credit card to pay the taxes and have been making payments so if a creditor did object I am not sure how they would determine what amount was still owed.

That would be decided in the AP, if they decide to file one. I suspect it would be determined by considering the first thing charged as the first thing paid off.