DebtStoppers USA Bankruptcy Blog

There are many reasons why bankruptcy may be a better solution to overwhelming debts than debt settlement. And here's another one: tax savings.

Millions of Americans unable to pay credit card debt and other large debts turn to debt settlement each year. But while creditors may agree to discount your debt, that doesn't mean you've seen the end of it.

Consumer debts that are forgiven through debt settlement are considered to be taxable income by the IRS if the savings is over $600, according to Today.

That means that if you negotiate to settle a $20,000 credit card debt for $10,000, you would owe taxes on the forgiven $10,000 come April. If you're in the 15 percent tax bracket, that comes out to $1500.

Of course, because consumers don't see any cash from the settlement, many don't realize they need to report their savings - resulting in costly audits and fees in addition to their tax bill.

Some credit counselors and debt settlement companies fail to explain this tax liability to consumers because they want to make the debt settlement process sound more appealing than it actually is.

There's only one way to make debts disappear for good. Debts discharged through bankruptcy are exempt from taxes, so you won't have to worry about the IRS knocking on your door. Or harassing bill collectors, for that matter.

Another benefit of bankruptcy is its flexibility. Depending on your situation, you may be eligible for either Chapter 7 or Chapter 13 bankruptcy.

Chapter 13 bankruptcy is ideal for homeowners who have a reliable income source but simply can't afford to keep up on debt payments. Chapter 13 allows the consumer to spread out debt payments over a period of three to five years, during which time their home is protected from foreclosure. Debts remaining after that period are typically forgiven - and non-taxable.

For those without major assets or on a limited income, Chapter 7 bankruptcy offers an even faster solution. With Chapter 7, it's often possible to completely eliminate unsecured debts like credit card debt, payday loans and medical bills in just months.

When debts have snowballed out of control, bankruptcy can be the most effective - and affordable - way to rein them in.

Continue reading "Forgiven But Not Forgotten: IRS Considers Forgiven Debt As Taxable Income" »

Lawmakers may have stopped us from going over the dreaded fiscal cliff, but the deal reached on Jan. 1 isn't a perfect solution.

The agreement hammered out just in the nick of time will extend many tax cuts that were set to expire this year, from the Mortgage Forgiveness Debt Relief Act of 2007 to the $5 million threshold on estate taxes.

Unfortunately, one very important tax cut wasn't preserved: the payroll tax cut.

In 2009, the federal government temporarily lowered the amount of taxes taken out of workers' paychecks from 6.2 percent to 4.2 percent in an effort to boost the economy. Since the cut applied only to the first $113,700 of annual earnings, it was mostly beneficial to middle class earners.

Because the cut wasn't extended in the fiscal cliff deal, an estimated 160 million workers will receive noticeably smaller paychecks in 2013.

If you earn $30,000 a year, for instance, that means $50 less in your pocket each month.

With many Americans shouldering large burdens of post-holiday credit card debt, the timing probably couldn't be worse, say bankruptcy attorneys.

Growing credit card debt often pushes folks deeper into financial trouble by putting a steadily increasing strain on the ability to handle everyday expenses, from the mortgage payment to gas and groceries.

It's all too easy to get caught up in a cycle of debt that includes increasing minimum payments that never seem to touch your actual debt, rising interest rates and fees, and unrelenting harassment by debt collectors.

Often times, people don't realize their debt is spiraling out of control until it's too late. Or maybe they're waiting for that pay raise or windfall to come along so they can pay off debt once and for all.

The truth is that creditors design repayment structures so that borrowers will have to keep paying for a long time. If you're making minimum payments on your bills, it's unlikely that you'll be able to pay down debt without help - especially now that your paycheck may be shrinking.

For many of us, bankruptcy can provide the means for getting debt under control while protecting important assets.

Bankruptcy has the ability to reorganize, reduce and even eliminate debt. When you're free from the burden of growing debt, interest rates and fees, your paycheck will suddenly feel a lot more substantial - with or without the payroll tax cut.

Continue reading "As Paychecks Shrink and Debts Grow, Bankruptcy Becomes a Viable Solution for More Americans" »

U.S. consumers had more money in their pockets this year. Unfortunately, those fatter wallets may not last long.

The household debt service ratio, which looks at the amount of mortgage and consumer debt in relation to disposable personal income, fell to its lowest level since 1983 - nearly 30 years ago - in the third quarter of 2012, according to the Federal Reserve.

U.S. household debt reached its highest point during 2007, as consumers took on home equity loans and other debts.

Since then, credit card debt has risen as borrowers struggled to pay down unaffordable mortgages on homes that were now underwater.

The news should mean that consumers will have more money to spend, giving the economy a much-needed boost in 2013. Right now, though, the looming fiscal cliff stands in the way.

According to the Tax Policy Center, nearly 90 percent of households would be impacted if a deal isn't reached by Jan. 1. But with just days left until dozens of tax cuts expire and spending cuts take effect, lawmakers are still bickering over what to do.

What happens if they are unable to agree on a deal? Here's a taste.

Payroll taxes would rise by 2 percent as a temporary tax cut expires. Income taxes would go up across the board. Over 2 million out-of-work Americans could lose unemployment benefits.

Most significantly for families facing foreclosure, the Mortgage Forgiveness Debt Relief Act of 2007 - also known as the mortgage tax break - would expire.

As our bankruptcy attorneys have pointed out, that means homeowners will owe income taxes on the amount of their mortgage forgiven by lenders in a foreclosure, principal reduction or short sale. In other words, if you owe $200,000 and your house goes for $150,000 in a short sale or foreclosure auction, you're on the hook for taxes on that $50,000 gap.

Additionally, lower debt levels aren't always a good thing. Some debts - such as mortgages and car loans (when you can afford them, of course) - help improve personal credit and grow the economy through demand for loans.

But right now, many Americans are resistant to or unable to take on new debt, choosing to rent instead of own and to continue driving the same vehicles.

When it comes to debt, it's all about balance. In a perfect world you'd be free of overwhelming and unnecessary debts - such as credit card debt - that hurt your credit score and impact your ability to keep up on your mortgage and pay your tax bill.

However, you'd also be able to qualify for a home loan with decent rates and a credit card for emergencies.

For millions of Americans, bankruptcy can turn that dream of financial freedom into reality.

Whether you're behind on mortgage payments and facing foreclosure, drowning in credit card debt, or buried under a mountain of medical bills, the right bankruptcy plan can grant a clean slate by reducing or eliminating debt.

Whether or not we go over the fiscal cliff is up to lawmakers. But it's up to us to take steps to protect our family finances, regardless of the decision in Washington. If debt has been a thorn in your side for far too long, bankruptcy can be the relief you need.

Continue reading "Household Debt Hits New Low, But Expiring Tax Cuts Could Obliterate Savings" »

Usually the first day of a new year means a fresh start. But if a federal tax exemption is allowed to expire, this Jan. 1 could mean disaster for troubled homeowners.

When a portion of debt is canceled or forgiven, that amount is often considered taxable income by the IRS. However, thanks to the Mortgage Debt Relief Act of 2007, mortgage debt is currently forgiven by lenders in a short sale, foreclosure, or loan modification if the home is a primary residence.

In 2011, the law saved borrowers an estimated $1 billion, according to The New York Times.

Unfortunately, it's scheduled to expire Jan. 1, 2013.

What does that mean? Let's say you owe $300,000 on a home you can no longer afford. If the property goes for $200,000 in a short sale, the government will tax you on the remaining $100,000 forgiven by the lender - even though you never saw a dime of the money.

Additionally, any mortgage relief rendered under this spring's $26 billion foreclosure settlement, such as a loan modification, will only make homeowners liable for taxation.

While it's still possible that the exemption could be extended, it's also highly possible that lawmakers will be too busy grappling with current fiscal woes to renew existing laws.

Since short sales and foreclosures typically take several months (or even longer, depending on state laws) to complete, homeowners just entering the process today could already be looking at facing taxes.

So what do you do when you can't afford to keep your house - but you can't afford to lose it, either?

If the exemption expires as planned, filing for bankruptcy may be the only way to avoid a large tax liability.

When you have no choice but to walk away from your home, bankruptcy ensures that the remaining debt - and any associated taxes - can be discharged.

Of course, if there's a chance of saving your home, bankruptcy can also be your best friend.

As they say, an ounce of prevention is worth a pound of cure. Filing for bankruptcy has the power to relieve debt, often making it possible for delinquent homeowners to get current on mortgage payments.

If you're struggling to pay the mortgage, attempting to work out a solution with lenders, or in the foreclosure process, time is of the essence. The right bankruptcy plan can keep you from losing your home - and the shirt off your back.

Best of all, bankruptcy can provide the financial boost needed to get you and your family back on your feet. Laws may come and go, but bankruptcy is one consumer protection that's here to stay.

Continue reading "Losing a Home to Foreclosure Could Mean Big Taxes If Exemption Expires in January" »

In the past, Americans have tended to put their tax refunds toward family vacations, new cell phones, and other fun indulgences.

This year, however, many cash-strapped consumers are spending their checks from Uncle Sam on something a little less frivolous - but potentially more rewarding in the long-run.

More than 200,000 Americans hope to apply their refunds toward a bankruptcy filing, according to the National Bureau of Economic Research.

Personal bankruptcy filings typically rise around the time when refunds get mailed out, but the surge should be even more pronounced in 2012, reports The Tennessean.

While Tennessee bankruptcy usually pays for itself many times over by helping consumers reduce all-consuming debts, it has become significantly more expensive since 2005, when U.S. bankruptcy laws were made more complex in order to prevent bankruptcy abuse.

As a result, many of the people who stand to benefit most from bankruptcy - such as families at high risk of foreclosure and swamped in credit card debt - tend to put off filing while they wait for an infusion of cash. Meanwhile, their debts grow larger and unpaid bills pile up.

Some argue that, rather than prevent bankruptcy abuse, the new laws have just made it more difficult for those most in need of help to receive relief.

With the average tax refund expected to be approximately $3,000 in 2012, many families will have more than enough to file for bankruptcy in Tennessee.

Obviously, consumers who can afford to pay down debt with their refund won't need to file. However, many of us have debts that have spiraled completely beyond our control.

Whether it's due to overwhelming credit card debt or massive medical bills, it can be almost impossible to catch back up when you've missed numerous payments and put your credit score through the ringer.

It may be hard to commit to covering bankruptcy costs when other bills need paying, but only bankruptcy has the ability to pay off for years to come. For many folks, bankruptcy has the power to stop foreclosure and either reorganize debts into manageable payments or discharge them entirely.

Filing for bankruptcy may not be as fun as putting your refund toward a family vacation, especially when you've been scrimping and saving for months and are in desperate need of a splurge. But bankruptcy can put you on the path to financial recovery so that one day you'll hopefully be able to enjoy life's little indulgences - without the guilt of having too much debt.

Continue reading "Rising Number of Consumers Plan to Put Tax Refund toward a Tennessee Bankruptcy Filing" »

It turns out that filing your income taxes can save you money - even if you don't get that refund.

Have you ever gotten a late fee, but not remembered missing the payment? Have you ever gone to return something you just bought - and found you've already lost the receipt? Tax season is the one time when we're forced to organize our receipts, bank statements, and other important documents. If you can figure out how to maintain that organization all year, not only will you be more prepared when the next April 15 rolls around, but you'll have an easier time paying your bills on schedule, making a budget, and even improving your credit, say Atlanta bankruptcy attorneys.

Continue reading "How Atlanta Taxpayers Can Lower Debt By Getting Organizing For Taxes" »

It's that time of year again - and I'm not talking about doing your taxes.

Spring starts tomorrow, and it's the perfect excuse to get organized. If you've been neglecting your family budget, your growing debt, or your spending habits, it's time for a financial version of spring cleaning. Even if you've gotten organized in the past, it's good to give your finances an annual tune-up, explain Chicago bankruptcy attorneys. Here's how.

Continue reading "How Organizing Finances Can Help Chicago Consumers Save Money" »

This year's average tax refund is more than $3,000 - but there may be a way to stretch it even farther.

With gas and grocery prices going up, it would be easy to allow that money to simply disappear, say Chicago bankruptcy attorneys. A couple bills here, a little shopping splurge there, some unexpected car repairs, and - poof - your bank account is back to where it was before. But there's a way to keep your refund alive long after you deposit it. How? By putting it to work for your future.

Continue reading "Chicago Taxpayers Find Secret to Getting Bigger Refund" »

At first glance, this year's average tax refund of $3,000 might seem like a lot - but for most Americans, it won't last long.

If you simply put your check in the bank, it won't be long before its whittled away by things like rising gas prices and food costs, growing credit card bills and health insurance premiums, and the occasional shopping spree. But there's a way that many of us can stretch our refund, say Atlanta bankruptcy attorneys. How? By using it to get rid of current debt - and prevent future debt.

Continue reading "How Atlanta Taxpayers Can Boost Their Tax Refund" »

Uncle Sam is extending your tax deadline - but you might prefer to say no thank-you, say Chicago bankruptcy lawyers.

Because of a Washington D.C. holiday on April 15, the government is giving taxpayers until the following Monday - April 18 - to mail in our tax returns. But there's no reason to wait until the 15th or the 18th. The IRS officially began accepting returns this week - even for folks who plan to itemize deductions (officials previously told itemizers to hold off until new tax laws went into effect). And the sooner you file your taxes, the sooner you may be able to get that tax refund - and reap the benefits.

Continue reading "Chicago Taxpayers See Benefits of Filing Tax Return Early" »

Just like early birds get the fattest worms, early tax filers might get the fattest tax refunds.

Even though Uncle Sam is extending this year's tax deadline from April 15 to April 18 due to a Washington holiday, taxpayers may want to file early this year, explain Atlanta bankruptcy attorneys - particularly those who think they're going to be getting money back. This Tuesday, the IRS began accepting returns, even for taxpayers planning on itemizing deductions (though most of us can file as soon as we receive our W2 and 1099s, itemizers had to wait a bit longer this year while the government put some tax law changes into effect). Maybe the idea of doing your taxes now doesn't exactly have you jumping up and down - but here's why it should.

Continue reading "Filing Early Tax Return Can Mean More Money For Atlanta Taxpayers" »

It looks like taxpayers might already have a use for that extra money from President Obama's payroll tax cut - filling up the gas tank.

Legislators hoped that the tax cut - which gives many Americans the equivalent of a 2 percent raise by shaving the amount of paycheck withholdings for Social Security from 6.2 to 4.2 percent - would boost the economy. But with today's gas prices almost 40 cents higher per gallon than they were a year ago, it looks like the savings will be boosting the bottom line of oil companies instead, say Chicago bankruptcy attorneys.

Continue reading "Rising Gas Prices Put Financial Burden on Struggling Consumers" »

Atlanta residents might not be looking forward to paying taxes on April 15. But hey, at least Georgians don't have to worry about a state income tax increase like the ones in California and Illinois - and potentially a handful of other states with major budget gaps.

That said, paying an ordinary tax bill is no cakewalk in today's economy. On the one hand, many Americans will save a little bit of money thanks to the Social Security payroll tax cut President Obama signed last December. On the other hand, years of tough financial times and growing debts are really starting to take a toll on U.S. consumers, say Atlanta bankruptcy attorneys.

Continue reading "Many Americans Will Struggle to Pay Taxes Amid This Year's State Income Tax Hikes" »

As if it isn't hard enough to afford your federal income taxes come April, now Chicago residents have to worry about a state income tax hike as well.

Illinois - like California and a handful of other states - is facing a major budget shortfall. To cover it, lawmakers agreed to raise the personal income tax from 3 percent to 5 percent, at least temporarily. On the one hand, it's probably long overdue - the state of Illinois has not raised income taxes since 1989. On the other hand, it's not the best timing for thousands of Chicago residents currently struggling with unmanageable debts.

Continue reading "How Illinois Income Tax Hike Will Affect Chicago Residents" »

Millions of Americans are about to finally get a pay raise. But here's the really surprising part - millions aren't even going to realize it until the money's all gone.

If you haven't already heard, President Obama signed a payroll tax cut into law in December. Starting this month, just 4.2 percent--instead of the typical 6.2 percent--will be withheld from your paycheck for Social Security. That means you'll get to keep the extra 2 percent--or about $1,000 for a person earning $50,000 a year ($2,000 if you also have a spouse who brings home 50K). But because the money will be divided throughout the year among your paychecks, chances are most people won't even notice the increase--and therefore won't spend it wisely, say Atlanta bankruptcy attorneys.

Continue reading "Increase the Impact of Your Tax Cut By Paying Down Debt" »