Most people in America have credit cards. Most of those people also have credit card debt. This debt requires you to pay interest and late charges on that debt.
The interest and late charges on credit card debt can be as much as 30%. Normally, it would be illegal to charge that amount, but credit cards get an exemption because they so powerfully lobby the state legislatures in Florida and other states. Once you start paying less than full payments on your credit card debt, you are in trouble financially. There may be no way out of paying those credit card payments. Some debt consolidation companies make promises, but the majority of those deals never make it to completion. When you go to a debt consolidation company, they tell you to stop paying your credit card debt. They will tell you to just make the credit card payments to them. They will hold their money for you, and after they take their fee, they will have to have enough money to negotiate with the credit card companies. That may take a long time depending on how much you are paying the debt consolidation company every month. Let’s assume after a year, the debt consolidation company settles all of your debt for 50%. If you owed say $30,000.00 in credit card debt, that means you have paid $15,000.00, plus any fees the credit consolidation company charged you. After these settlements, you will start to get 1099’s from the credit card companies because you didn’t pay the entire credit card debt. They want to write off the balance that you owed. But, because the credit card companies wrote the amount you didn’t pay off, you will have to pick up the income for next year’s taxes. So, not only have you paid 50% of the credit card debt, $15,000.00, and the credit consolidation companies fee, you now have additional income tax that you have to pay. After waiting a rear, in our example, what have you saved? No a lot. And you will still have a tax liability.
There are other options. If you file for a Chapter 7 bankruptcy, the credit card debt would immediately be discharged or wiped out. You would not have to pay back anything if you meet the criteria for filing a Chapter 7 bankruptcy. Also, there is a provision in the United States Tax Code that if you have filed bankruptcy, and your credit card debt is discharged or wiped out, there are no tax consequences to the amount of credit card debt you didn’t pay. So even if you do get a 1099 from the bank, all you have to do is explain to the IRS that the credit card debt was discharged in bankruptcy. You can attach any form from the bankruptcy court with your case number, and the IRS will never bother you again regarding the 1099 that you received. There are no tax consequences to filing bankruptcy. To qualify for a chapter 7 bankruptcy in Florida, you are entitled to several exemptions. An exemption on property means that the property cannot be attached by a creditor or a bankruptcy trustee. If you own a homestead property in Florida, each person who files the bankruptcy will get a $1,000.00 exemption on personal property, and $1,000.00 in equity in a vehicle. This doubles if you file jointly with a spouse. Personal property includes, but is not limited to things like cash on hand, money you have in a checking or savings account, security deposits with your landlord or utility company, the value of your clothing, jewelry and furniture, tax refunds, equity you have in a car that’s greater than $1,000.00, if you can sue someone and if you can inherit money from someone who has died. There are a lot of assets you may have which you wouldn’t think are attachable. An example of this is rental income you are receiving during the bankruptcy. The court doesn’t care that you are going to be falling behind on your mortgage because the trustee is taking the rent. We have to follow the rules. If you do not own a homestead property, you will get exemptions of $5,000.00 plus $1,000.00 in a vehicle. Again, this doubles if you are married. If you have assets in excess of the amount that you are allowed, the Chapter 7 trustee can take any amount over your allowed exemptions. That is not something we want to happen. When you see a qualified bankruptcy attorney, your case will be reviewed, and you will be told what is at risk, if anything.
The other option is to file a Chapter 13 bankruptcy. The advantage of filing a Chapter 13 bankruptcy is that if you are over the exemption limitations, you do not have to pay the bankruptcy trustee immediately. You will have between three and five years to repay your creditors the value assets over and above all allowed exemptions. The only requirements of a Chapter 13 bankruptcy for a Debtor is that they supply all documents necessary to allow the Chapter 13 trustee to analyze your case, and most importantly, that you make payments to the Chapter 13 trustee starting 30 days after the case is filed, and every 30 days until your case is over. Once your case is over, and you receive a discharge, you officially no longer have the debts you had when you first filed for bankruptcy. During this time, you will be able to rebuild your credit. So, if you had $30,000.00 in credit card debt when you filed the bankruptcy, once it’s over, you will have zero debt, zero tax liabilities for that debt, and your credit score will be in the mid-700’s if you rebuild your credit properly.
Even though there is a stigma attached to filing for bankruptcy, either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, it’s not real. If you do what you are supposed to do during the bankruptcy, everything will work out the way it should, and you will be able to move on with your life. As long as you listen to the advice given to you from your qualified bankruptcy counsel, your credit score will be very good, you will have no debt, and if you can afford to buy a car or a house, you will be able to at a normal interest rate. It usually takes two years after filing for bankruptcy for you to buy a new house, but you will be able to save for the down payment during this time.
