“Dear Steve,
I am currently unemployed. I have approximately $20k in credit card debt. I have been contacted by the IRS that my CPA is under investigation for fraud and I have to refile my taxes from 2002-present.
So far, I owe $4k for 2007 to the IRS but have not refiled the previous years. I have completely stopped paying on all my credit cards- it has been over a year now I believe. I no longer own a house and put my car note in my mothers name. I rent a duplex. I had considered bankruptcy but I was advised that it would be just the same to stop paying on the debt.
My question to you is whether I should just keep ingnoring the creditors or actually go through with filing bakruptcy. I had perfect credit until I got divorced in 2003. I am not able to make any monthly payments at the current time.
Tina”
Dear Tina,
I would have to disagree that stopping paying your creditors is the same as bankruptcy. The only thing they both have in common is that you are not sending payments.
When you stop paying your creditors without closing the door on the past debt it can and will resurface latter. There is a huge market in selling old bad debts downstream to collection companies and unless your euthanize your old debt with bankruptcy, it will limp along and struggle to come back to life at the worst moment and choke you.
If there is no realistic expectation that you are going to be able to pay the $20,000 in credit card debt then talk to a bankruptcy attorney and go bankrupt now. Bankruptcy is not going to be able to deal with your unfortunate tax situation and that is a much bigger mess to deal with at the moment.
An alternative plan would be to stop paying your creditors, use the money to re-file your previous taxes and then if you are left with a big tax liability, file then. The IRS is the most powerful creditor in the land. You don’t want to mess around with them and have them sieze your bank account or garnish your wages. If you are not left with a big tax bill then you can resume paying your creditors. Although you’ll probably be so far behind at that point that you will be fed up.
After the IRS issue is resolved, if you can or want to repay your discharged bankruptcy debt, you can. There is nothing stopping anyone from repaying discharged debt. Just don’t expect a thank you from your creditors.
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