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When Should I File For Bankruptcy? -‘Tis The Season

When Should I File For Bankruptcy? -‘Tis The Season

Many individuals who are facing mounting consumer debt issues may begin to wonder: “When should I file for bankruptcy?” When it comes to filing for bankruptcy, as with many other legal proceedings, timing is a major factor and should be considered when deciding when is the right time to file for bankruptcy. Many debtors may substantially benefit from filing a bankruptcy petition in December rather than in January or other ensuing months. First, many employers give their employees annual bonus checks at the end of the calendar year to coincide with the holidays. The bonus money becomes part of an individual’s income and is factored into the Means Test calculation if the debtor files in January. This may cause the debtor’s average income amount, for the purposes of the test, to exceed the allowable amount thus disqualifying him from filing for Chapter 7 bankruptcy. Therefore, it would be beneficial for a debtor to file after he receives a bonus check, but before the income is used as part of the Means Test calculation. Next, if a debtor owes federal taxes and expects a tax refund, he can avoid a federal tax offset if he files before December 31st . The Bankruptcy Code permits a creditor to decrease the refund amount that is owed to a creditor by the amount that a debtor owes to that creditor. Stated differently, if the IRS owes a debtor a tax refund and the debtor owes the IRS a tax debt for a previous year, the IRS can keep that debtor’s tax refund and use it to satisfy his tax debt, even with the automatic stay that bankruptcy provides to debtors. Although, there are some rules that the Bankruptcy Code includes, one being the “mutuality of the debts.” As expressed in the court case, In re Meyer Med. Physicians Group, Ltd., 385 F.3d 1039, 1041 (7th Cir. 2004), most courts find that mutuality requires that: 1) the debts are held by the same parties; 2) in the same capacity; and 3) the off-setting debts are both either pre-petition or post-petition. A debtor’s tax debt is a pre-petition obligation owed by the debtor to the IRS. If the debtor files for bankruptcy in December rather than in January, the income tax refund is a post-petition debt owed by the IRS to the debtor – as a refund for tax year 2013 is not owed by the IRS until after December 31, 2013. The Bankruptcy Code does not allow the IRS to take and apply your post-petition income tax refund to offset a pre-petition tax debt because there is no mutuality of the debts. If you are having trouble dealing with your consumer debt and are wondering when it would be the right time to file for bankruptcy it is imperative that you seek the advice of experienced legal counsel to advise you about the timing of your bankruptcy filing. For more information regarding when you should file for bankruptcy, Chapter 7 bankruptcy, Chapter 13 bankruptcy, foreclosure or any other consumer debt issues in New Jersey visit TheNJBankruptcyAttorney.com. This blog is for informational purposes only and not intended to replace the advice of an attorney

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