How long before OCs or CAs sue?

[ProgressiveChick]

Hi - I'm considering bankruptcy due to a large Fed & State back tax bill ($62k all told). I'd like to focus on paying down that debt and stop making payments to creditors now and then claim bankruptcy in about 6 months. There is one CC I'd like to pay off - it's from my credit union - before I claim bankruptcy.

Does anyone know how long it takes for OCs and CAs to sue? I have two "hardship payment plans" with Citi Card and Applied Card Bank. I know that if I break those agreements, collection actions will start again. I'm wondering how much time I have before they take legal action. What about the CCs on which I am current? How long?

I don't know if I'm actually going to do any of the above, but am curious about the ramifications.

My credit is already hosed, so I don't really care about the collection actions.

Any insight would be great. Thanks!

[RockDaddy]

Hi - I'm considering bankruptcy due to a large Fed & State back tax bill ($62k all told). I'd like to focus on paying down that debt and stop making payments to creditors now and then claim bankruptcy in about 6 months. There is one CC I'd like to pay off - it's from my credit union - before I claim bankruptcy.

Does anyone know how long it takes for OCs and CAs to sue? I have two "hardship payment plans" with Citi Card and Applied Card Bank. I know that if I break those agreements, collection actions will start again. I'm wondering how much time I have before they take legal action. What about the CCs on which I am current? How long?

I don't know if I'm actually going to do any of the above, but am curious about the ramifications.

My credit is already hosed, so I don't really care about the collection actions.

Any insight would be great. Thanks!

A couple things -

First, Claiming BK won't take care of your taxes as far as I know.

Second, if you claim BK, even if you paid off a credit card, the OC for that card will likely cancel you anyway. It happened to me. I paid off $3k to Amex because I wanted to keep it after the BK. They cancelled me immediately upon BK.

OC's can hold debt forever and never sue, or even sell your debt to CA's. It doesn't always happen, so there is no way to answer how long it takes for them to sue. Some go years, or even let the SOL lapse. And some CA's just keep the debt and try and collect but never sue.

Of course if you're planning on claiming BK in the next six months, this stuff is moot anyway. It likely won't be before then...

[ProgressiveChick]

Thank you. The reason I am thinking of declaring BK is so that I can focus on paying the tax debts off.

[Flyingifr]

I will assume the larger of the tax debts is IRS. How old is the Federal tax debt? There is a point in time where Federal income tax debts do become dischargable in BK.

[1stStep]

Wrong - back taxes can be discharged in BK if the following conditions are met:

**the taxes must come due 3 years before the filing,

**the original tax return was late (and more than 2 years before filing BK),

**the tax must be assessed 240 days before filing BK and

**there is no fraud or attempt to evade taxes.

Additionally, you cannot be missing returns - in other words, you have to have filed your returns prior to filing BK.

[ProgressiveChick]

Yes, the tax debt is the lion's share of the debt at $62k. Consumer debt is about $14k and student loan is $20k. Wow, when I see it all laid out like that, I feel REALLY defeated!

I worked with an Enrolled Agent to help me with the IRS. We have worked out a deal with them for $680 a month. I have sent a payment plan request to the state of MN for monthly payments of $300 a month. I discussed with my agent the possibility of getting some of the tax debt erased by BK, but my case does not fit that scenario. Since I've already set up a payment arrangement with them, I don't want to back down now. I probably can't anyway.

I also know I can't discharge my student loan. So I'm thinking that I can get rid of the roughly $14k in consumer debt via BK. My salary as a single person puts me over the threshold for the means test for Chapter 7, but I'm wondering if I'd qualify because of the tax debts.

Again, any insight would be great. I know we've gone off topic a bit, but since we're discussing BK and taxes, I thought I'd ask here in this thread.

Thanks!

[1stStep]

You can include tax and student loans into your total debt...but like you mentioned, student loans are not going to be discharged, and who knows what can happen with your taxes.

Look into a BK13 - you may be able to cram down some of the tax debt...

[Flyingifr]

Strategy: First, renegotiate the payment amount with IRS. Have the Enrolled Agent pullout the Form 433A and look at the last page (Income/Expense Table). What is your monthly surplus? Did the EA include the student loan payments as part of your allowable expenses? If not, you have grounds to reduce the IRS payment by the amount of the Student loans. The principle is that the Federal Government is on the hook for both debts anyway.

Then have the student loans paid through a salary attachment. This frees the remainder of your paycheck from the rest of the creditors who will have to stand in line until you either BK them and the IRS or the Student loan is paid in full.

I am also an Enrolled Agent.

Edited March 21, 2012 by Flyingifr

[usagi555]

Citi took 2 years after the alleged (and impossible) date of last payment to sue me, but from looking at many of their other cases, they'll sue within 6 months of the date of first deliquency. The latter seems like it is becoming more common. Once they sue, it'll be over quick if you don't respond. If you do respond and mount a proper defense, it'll take a long time for it to be over. My case was over in 5 months, and that is extraordinairly fast for somebody who didn't lose via summary judgment. (I won, and it was against Citi.) I would have dragged it out 2 years if I had needed to.