Should I File BK?

Today TaxMama hears from Bruce in the TaxQuips Forum who needs to make a decision. “My business failed last year and my wife and I are mulling over whether to declare personal bankruptcy due to this.  Towards the end of the life of the business, I put a lot of money on my credit cards, which I’m paying down.  We also have some back taxes as well.”

 Hi Bruce,

That is such a let-down, isn’t it?

You put so much of yourself into making the business work – and then…collapse. You have my sympathy.

What would happen with the credit card debt if you DID declare bankruptcy? Under the new rules that came into effect in October of 2005, it’s not as easy to BK credit card debt as it used to be. Be sure to read up on this or consult with an attorney. The credit card debt must be at least 6 months old, maybe longer, in order to qualify for discharge.

As far as discharging tax debt?  Yes, you can do that – if the tax debt is ripe.  You can find a lot of information outlining those issues here at

Other than that, SHOULD you file for BK? That decision is a combination of moral and economic issues. It’s entirely up to you. Sometimes, BK is the only choice – where trying to pay off all the debt with the stream of income you expect to have, will take you 20 years or more.  Sometimes, if you look at your debt carefully and work out a repayment plan, you may be able to deal with it without filing BK.  Talk to folks like the guys at to see if they can help. 

Sometimes, you just have no logical choice but to file BK.  I have counseled a few clients through this decision – especially where the husband was very hesitant due to pride. But, in their situation, it didn’t make sense to keep struggling – especially since they were over 60.  After he got used to the idea, it completely changed his mood, his energy and his spirits. Read this – it will help you decide.  

Nolo, the legal publisher has some information about Bankruptcies on their website – even tools to help you file on your own.  Specifically, they have information about the new rules, since the law changed in October of 2005.

Bear in mind, you will need a tax professional to help you deal with certain adjustments to your tax return, to carryforwards, to the basis of any property you own. Find someone who understands the effect of bankrupcty. Not all of us do. Good luck!

 And remember, you can find answers to all kinds of questions about bankruptcy and other tax issues, free. Where? Where else? At

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