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Top divorce and bankruptcy considerations before filing
Financial struggles faced by Maryland residents can cause a marriage to fail. When the couple decides to split and file for bankruptcy to start life anew, there are a few considerations before filing one or the other. Keep in mind individuals should assess their situations carefully before making a decision.
Mediate.com recognizes the difficulties in making either decision. Depending on the type of bankruptcy a person considers filing can have a huge impact on whether they file for bankruptcy or divorce first. A Chapter 7 bankruptcy only takes a few months while a Chapter 13 bankruptcy can take a few years to resolve.
When considering which type of bankruptcy to file, look at the assets, income, situation and marital debts. Couples with too much money in income and assets may not qualify them for Chapter 7. However, amicable situations may benefit from double exemptions when filing for bankruptcy. Marital debts decided and separated during bankruptcy can help with the division of assets during the divorce proceedings.
What is the best way to avoid owing the IRS money?
No matter the time of year, it is always best to think about the upcoming tax season. Being caught unawares could result in you owing the IRS money rather than receiving a refund check.
To help, the Nest provides several ways to keep your tax bill as low as possible. Be sure to keep the following in mind, no matter the time of year.
Take advantage of all your deductions and credits
Sit down with your accountant to discuss all credits and deductions for which you qualify. This is an especially good idea if you leased a car for work, recently made upgrades to your home designed to save energy or enrolled in school.
Make changes to your W-4 form with your employer
Have you married or divorced since the last time you filed your taxes? Maybe you welcomed a new baby or simply got a promotion at work. Any major changes to your life (or your tax bracket) may require a change to your W-4 form with your employer so that you do not incur an unnecessarily high tax bill.
Understanding unfamiliar bankruptcy terms
Bankruptcy is a scary prospect for many consumers. However, it is not necessarily as bad as you might imagine. Its purpose is not to ruin your financial prospects forever. Rather, it is to help you rehabilitate your financial situation.
As a consumer, there are usually two types of bankruptcy available to you: Chapter 13 and Chapter 7. The former helps you to repay a portion of what you owe by reorganizing your debt. The latter eliminates at least a portion of your debt, and sometimes all of it, but may require you to sell some assets.
Part of the reason bankruptcy may seem intimidating is that the legal terminology associated with it is unfamiliar to you. Understanding common bankruptcy terms may give you a better idea of what to expect from the process.
- Discharge
This is the ultimate goal of the bankruptcy process. Discharge of your debts means that the bankruptcy process has completed and your creditors have received whatever payment the court has deemed appropriate.
How can I prevent medical debt?
Injuries and illness can strike just about everyone, which is why it is so important to have the right health coverage in place. However, even with health insurance, you might find yourself mired in medical debt. Here are a few ways to prevent accruing debt, even when you are covered by health insurance.
Have you ever received a medical bill that seemed much too expensive? It helps to look into each and every bill you receive to verify its accuracy. It is possible that the bill you received has errors, and without checking you may end up paying more than your treatment was actually worth. Contact your doctor or insurance company if you have questions about the charges listed on your bill. In most cases, the erroneous charges can be easily rectified and your bill can be adjusted.
You should also take steps to ensure treatments are priced correctly. While you should never sacrifice quality care for cost, keep in mind that not all clinics and hospitals charge the same for the same services. As a result, it may be possible for you to get the same procedure or test at another location for a lower cost. Being smart about healthcare costs can save you quite a bit of money, especially when you require frequent care.
Who is at risk for high medical debt?
There is no denying that the cost of medical care is way too high. One serious illness or injury can put your family in serious financial trouble. This is true even if you have medical insurance. The out-of-pocket costs seem to only be going up. This poses a huge problem for many people in Maryland who simply cannot afford medical care and end up in debt because of it.
The Kaiser Family Foundation explains that medical debt is an issue at almost every age and income level. The costs are so astronomical that even those who have high incomes and good insurance are at risk of struggling with medical debt. The problem is even worse for those in lower income brackets with many lower income individuals often having to choose between basic necessities and paying medical bills.
Many times, debt starts out with a medical emergency. This is something that requires medical attention immediately. All it takes is one surgery or stay in the hospital to accumulate debt that often is higher than what you make working in one year. It is very easy to end up with medical debt that rivals student loan debt, which is another area that causes severe financial issues for many.
What are some basic facts about discharging tax debt?
The intimidating power of the IRS can make it seem there is no way to escape the burden of mounting tax debt even with bankruptcy. However, that is not the case. It is possible to successfully discharge some tax debt by going through bankruptcy in Maryland, though it is more likely under some circumstances than others. Understanding these circumstances may be beneficial as you contemplate a possible bankruptcy.
Per FindLaw, if you are going to discharge tax debt, you are more likely to do it under Chapter 7 bankruptcy than Chapter 13. The reason is that Chapter 13 is focused primarily on repaying your debts, including tax debts you may have. Since Chapter 7 involves liquidating the assets of a person to pay off debts without a long term repayment plan, there is more latitude to discharge debts. While some tax debt cannot be discharged, it is possible to discharge some debt under Chapter 7.
Some people who cannot pay their taxes incur penalties from the IRS. To collect back taxes you owe, the IRS may seek to garnish your wages. The good news is that if unpaid taxes are discharged, the penalties are discharged along with them. This means once a bankruptcy is completed, the IRS cannot follow through with garnishment measures intended to collect on unpaid taxes.
How are credit scores calculated?
A great credit score can get you great interest rates on loans, help you secure employment, and even make the dream of owning a home a reality. There are a lot of different factors looked at when calculating a credit score, each of which gives an indication of your financial soundness.
Payment history
Your bill pay history has the most significant impact on your credit score. Late and missed payments typically bring your score, with more recent payment issues having a greater impact than late and missed payments in the past. A poor bill pay history makes up about 35% of your total credit score.
Amount of debt
Credit utilization is the amount of debt you currently have vs. how much your credit balances are. A high debt-to-balance ratio causes lenders to question your ability to pay back loans. For a good credit utilization score, your credit card balance should make up about 30% of your credit limit.
What can be discharged after Chapter 7?
If you are filing for Chapter 7 bankruptcy in the state of Maryland, you are probably looking to understand the whole process. While you will be counseled thoroughly throughout the bankruptcy process, it is also important for you to know what happens after you leave court. The entire point of going through Chapter 7 is to help you get back on your feet, but not all debts may be discharged under Chapter 7. According to FindLaw, there are even some debts that cannot be discharged under Chapter 7 that may be discharged under Chapter 13.
The vast majority of unsecured debt will be discharged as you go through Chapter 7. However, there are some very important exceptions to the allowed discharges. For example, if you have government-funded student loans, these are not able to be discharged. You are also still responsible for any child support or alimony that you are responsible for paying. If you have most varieties of tax debt, tax liens, or cooperative housing fees these are also not dischargeable.
After a divorce, your credit may take a hit
Many things change when you get a divorce in Maryland. You have to learn to live as a single person again. You need to parent your children by yourself. You may have to move. There may also be a change to your credit report. It is not uncommon to have a drop in your credit score, especially if there are issues with joint debts.
Experian explains that while the court may order your ex-spouse to pay a portion of the debts you had together, it does not mean that your former spouse will do that. If he or she fails to pay the debt, you still have a responsibility in the eyes of the creditor to pay the debt. If this happens, your credit score could take a nosedive if you do not pay.
Going back to court
You could go back to court and bring the issue before the judge. However, this is not a swift solution. It will take time to get through court and hold your ex-spouse responsible. In the meantime, the creditor will work to collect its money, and your credit report will reflect this action.
What happens during a Chapter 13 bankruptcy?
Many people in Maryland and elsewhere assume that bankruptcy is all the same – that you apply for a personal bankruptcy, get a discharge of your debts and start over with a clean slate, albeit a mark on your credit report for several years. However, bankruptcy is not always so simple. There are different types of personal bankruptcy that can apply to people in diverse financial situations.
In a Chapter 13 bankruptcy, for instance, your debt is not fully discharged. Instead, you have the opportunity to restructure and repay your debts in a more manageable way, according to the Administrative Office of the U.S. Courts. Why would you choose a Chapter 13 bankruptcy over Chapter 7, which is knowns as the "clean slate bankruptcy" for its ability to discharge most types of debt? With a Chapter 13 bankruptcy, you may protect your home from foreclosure, as well as other qualifying assets like additional vehicles, home furnishings and appliances. Also, having a steady income may simply disqualify you from applying for Chapter 7 but allow you to utilize Chapter 13. Chapter 13 bankruptcy works in the following ways:
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