The After-Christmas Bankruptcy

It’s human nature to hold off filing bankruptcy until after the holidays. Here’s what you need to know once you think again about filing.

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Keep these in mind:

1. Credit used within a few months before filing bankruptcy can, but does not necessarily, cause problems.

2. If you expect to owe 2012 income taxes and file bankruptcy after December 31, 2012, that debt can be included in your case in certain limited but important ways.

3. Money received in the second half 2012 as a bonus or gift, even if not very much, can bump up your “income” for the “means test,” possibly with big consequences.

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 The Quietest Time of the Year

For most bankruptcy attorneys December is the quietest time of the year. Because:

  • people understandably want to focus on family and friends, instead of on their financial troubles;
  • the materialism of the season discourages people from taking a realistic view of their finances;
  • many mortgage companies ease off on foreclosures, and other creditors and collection agencies back off their collections, during this season, to avoid looking like Scrooges, taking some of the pressure off debtors;
  • people don’t have time to see an attorney—especially about bankruptcy–with everything they have to get done for the holidays; and
  • no one has the emotional space to go talk with an attorney about messy personal finances during this already emotionally taxing time of the year.

Things to Keep in Mind Starting December 26

After getting through the holidays, and with the time for New Year’s resolutions approaching, one of your likely resolutions is to defeat your debts once and for all. If you are considering bankruptcy as one possible way to meet that resolution, be aware of the following after-Christmas, turn-of-the-year issues:

  1. Some debts you rang up during the few months before filing bankruptcy—to buy holiday gifts or pay for holiday expenses, for example–might not be discharged (legally erased). That depends on some nitty-gritty details of your use of credit, as well as your intentions at the time.
  2. If you are going to owe income taxes for the 2012 tax year expect to be filing your bankruptcy case soon after the turn of the year, that 2012 tax debt presents both some challenges and opportunities. Oddly, sometimes that debt can be paid in effect without costing you anything.
  3. A holiday bonus from your employer or a cash gift from a well-meaning relative can increase your “income” for purposes of the “means test,” either making qualifying for Chapter 7 more difficult or potentially turning your 3-year Chapter 13 case into a 5-year one. These major financial disadvantages can often be avoided through smart timing.

If you understand how bankruptcy works, these potentially troublesome issues can be turned to your advantage. The next three blogs will show you how. 

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