Case Filed One Day Too Soon Costs Debtor $20,000

A recent case filed in the Southern District of Georgia illustrates the danger of guessing about deadlines. As you may know, the Bankruptcy Code provides that income tax debt may be discharged if the tax debt came due more than three years prior to filing. In the Elkins case, the debtor filed his 2001 tax return on October 15, 2002, and filed his Chapter 7 bankruptcy on October 14, 2005.

The debtor argued that three years was equal to 1,095 days (3 x 365). The debtor noted that 2004 was a leap year meaning that October 15, 2002 was 1,096 days before October 14, 2005.

The Bankruptcy Judge disagreed, ruling that “one year” meant “one calendar year” not 365 days. Since the debtor filed his Chapter 7 less than three years from the date that he filed his 2001 tax return, his tax debts amounting to over $20,000 were not discharged in bankruptcy.

This case demonstrates the wisdom of not assuming anything. If you are trying to discharge tax debt, try to avoid filing your bankruptcy on the first day that it appears you would be eligible to discharge the debt. I always wait a day or two after the date I calculate as three years and one day unless there is a looming tax lien or some other reason to rush the filing.