Tax Withholding Hides Financial Hole
By Cathy Moran, California bankruptcy lawyer on Apr 11, 2007 in General Bankruptcy Information, Tax Issues
As we approach April 15th (or its equivalent this year) I am reminded how often clients tell me that they have increased their claimed tax exemptions to increase their take home pay. They hope to be able to better manage a budget out of whack that way, seemingly forgetting that the IRS has the greatest arsenal of collection tools around.
These folks have usually let collection pressures persuade them to pay the least important bills first, the credit card bills. Once they recognize that they can’t retire their debt and consider bankruptcy, they find that the credit card debt is dischargeable. Recent taxes are not. So the money they sent to credit card companies rather than Uncle Sam has insured that a hunk of debt to the taxing authorities survives the bankruptcy discharge.
Moral of the story: pay the most important things first, not the creditor who calls most often.
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