People who are struggling financially, often, make their situation worse by making poor decisions.   Within bankruptcy, these are called “pre-bankruptcy mistakes”.  One such mistake that people make is that they try to take out loans to pay off tax debts before filing bankruptcy.  The thought is often, “this tax debt isn’t dischargeable, but this loan will be.”  Well that’s just not true, and the book Bankruptcy For Dummies clears that up.

The book speaks of Chapter 7 bankruptcies slightly different than Chapter 13 bankruptcies in regards to this situation when it says, “Loans taken to pay nondischargeable federal taxes aren’t dischargeable in a Chapter 7.  They’re treated similarly to any debt incurred while contemplating bankruptcy.”

Then it goes on to talk about a Chapter 13 bankruptcy.  The book says, “If you’re contemplating a Chapter 13, you may be tempted to borrow money to pay nondischargeable taxes with the aim of wiping out this new loan in bankruptcy (because debts from fraud get discharged in a Chapter 13).  In our view, this is a lousy stunt if indeed you are intending to defraud that lender.  And it may even cause your Chapter 13 to get dismissed if the judge thinks you acted with suspicious motives.”

Nevertheless, the best thing you can do is speak to a bankruptcy attorney before doing anything.  They are the experts in this type of situation, and they will know exactly what you should do.  You do not want to risk having your bankruptcy thrown out due to some kind of trick you come up with.  If you would like to find out more, please contact a bankruptcy attorney.