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What qualifies federal taxes for discharge?
Whether tax debt can be discharged in bankruptcy is not always clear. Maryland residents may be stuck with paying off tax debt even after they complete bankruptcy. However, no matter whether you file for Chapter 7 or Chapter 13 bankruptcy, it is possible to get rid of some tax debt, provided that your taxes, as well as your history of paying taxes, meets certain qualifications.
FindLaw lists a number of conditions that can qualify or disqualify taxes from being discharged. One of them involves the nature of the taxes themselves. Not all federal taxes can be discharged. Income taxes are eligible, but payroll taxes, which are used to pay into Social Security, are not. You also cannot discharge tax penalties stemming from tax fraud.
Time is also a factor. You must have filed a tax return within the previous two years prior to your bankruptcy filing. The unpaid taxes must also stem from a return that was due to the IRS no more than three years before you filed bankruptcy. Additionally, the IRS must have assessed your tax debt within two hundred and forty days before you made your bankruptcy filing.
Debtors should respond to legal debt collection notices
In Maryland and across the United States, people in debt do not enjoy dealing with debt collectors. However, debt-related problems continue to grow. The Consumer Financial Protection Bureau released statistics showing that approximately 70 million Americans feel intimidated by phone calls about the money they owe. Some debt collectors use forceful words to convey their concerns, including threatening to withdraw money from financial accounts.
While it is tempting to ignore calls from debt collectors, the issue is not going to disappear. The best thing is to comprehend the issues surrounding debt and learn how to approach the dilemma by taking the right legal steps. Protecting assets is a crucial part of the equation. Plus, some debtors must deal with potential lawsuits. One common error made by debtors involves not responding to legal notices. A legal notice is typically in the form of a court summons.
Many American consumers do not know they owe money
In Maryland and across the United States, a lengthy marriage culminating in divorce may cripple a spouse's financial circumstances. Many women with children were previously living comfortable lives only to find themselves financially struggling as single individuals. Numerous divorced seniors must cope with living on fixed Social Security payments. According to a recent U.S. News & World Report survey, 20% of consumers living in the United States do not know if they have any outstanding debts.
Numerous Americans do not know anything about their credit line interest rates. The survey indicates that 24% of Americans owe at least $10,000 on their credit cards. Many survey takers admit they have revolving credit card balances of at least $2,000. Furthermore, 16% of the participants say they do not know whether they have credit card balances. Numerous consumers do not have a debt plan or strategy.
Have your debt problems led to insolvency?
When you wake up in the morning, do your thoughts immediately go toward how little money you have in your bank account and how many bills have piled up on your table? If so, you are not alone. Numerous people in Maryland and across the country struggle with financial issues that they feel are insurmountable.
Because your money problems come to mind first thing in the morning, you may never feel as if you will have a good day. You may even wonder how you will pay for your necessities if your situation continues to decline. In fact, you may already be insolvent.
Define insolvency
If the amount of debt you have accrued is more than the number of assets you have, you have become insolvent. Insolvency is a state of financial distress, and it can come about for many reasons. You may have lost your job and, along with it, your income. You may have experienced a medical emergency that left you with substantial medical bills. In another scenario, you may have put your money toward an investment that did not work out in your favor.
Why younger people are struggling with credit card debt
Generally speaking, younger adults in Maryland and throughout the country were less likely to use credit cards or take on debt. However, new data indicates that 8% of credit card balances among individuals aged 18-29 are 90 days or more past due. Younger individuals are signing up for credit cards in greater numbers because credit card companies are offering perks that they desire. These perks include travel credits and cash bonuses upon signing up for a card.
According to a report from Creditcards.com, only 11 percent of respondents said that paying 0% on new purchases was most enticing for them. Furthermore, only 6 percent said that paying no interest on balance transfers was their top reason for signing up for a new card. Rising interest rates have also put borrowers in a tough spot as those with good credit can expect to pay 18% on revolving balances. The interest rate rises to 25% or higher for those who don't have good credit.
Ideally, an individual will be able to pay his or her balance in full each month to avoid paying interest. Roughly 40% of those who have credit cards manage to do so regularly. Being able to pay a balance in full means that there is no need to pay interest. Alternatively, individuals may want to consider transferring their balance to a card with a lower interest rate.
How medical debt can affect credit scores
Even the most financially responsible person in Maryland can have difficulty keeping up with obligations when faced with mounting medical debt. According to Consumer Reports, 3 out of every 10 Americans has unpaid medical debt of $500 or more. This type of debt can have an adverse effect on credit scores and contribute to other financial difficulties.
The bright spot with medical debt is that it's treated differently than other forms of debt. Healthcare providers do not directly report it to credit reporting agencies. But if an outstanding balance remains unpaid, they often pass it along to a collection agency, and they may then report it. However, the three leading agencies do not officially report the debt to credit bureaus until 180 days of delinquency. Furthermore, a widely used credit reporting model does not consider balances under $100.
Patients with medical debt obligations are advised to be proactive as much as possible to minimize potential issues that could affect the ability to secure loans, buy a home, and obtain new credit. Such efforts could include reviewing a health insurance company's Explanation of Benefits to develop a better understanding of what portions of a bill are the responsibility of the patient. Individuals receiving medical care are also advised to regularly review monthly statements and request an itemized bill. In some instances, it may be possible for a patient to work out a mutually agreeable payment plan with a medical provider.
Congress to vote on student loan bankruptcy relief
Maryland residents who are struggling to make ends meet due to overwhelming student loan debt currently have few options, but their situations could soon change if a bill introduced recently in both the House of Representatives and U.S. Senate garners enough support to pass. The bicameral bill, which has been named the Student Borrower Bankruptcy Relief Act of 2019, would change the Bankruptcy Code by eliminating the provision that makes student loans non-dischargeable.
The bill faces an uphill battle and will need bipartisan support as it is opposed by trade groups such as the Consumer Bankers Association. A CBA representative said that the bill's passage would make matters worse for students and taxpayers because more student loans would be discharged and new loans would be more difficult to obtain and more expensive. However, the bill is not without supporters. The Center for Responsible Lending, the National Consumer Law Center, and Americans for Financial Reform have all come out in support of the legislation.
Bankruptcy may be easier to handle in time
If a Maryland resident filed for bankruptcy nine years ago, that bankruptcy will generally have little impact on his or her credit score or history. However, if that bankruptcy was filed just a year ago, it could have a significant impact on that person's credit score and history. It is important to note that individuals who file for bankruptcy may not experience negative consequences after doing so.
In some cases, a credit score can actually go up after seeking protection from creditors. This is because a person can have many debts discharged after doing so. Since these debts no longer appear on a credit report, a credit card company or other lender may see that person as creditworthy. Of course, the bankruptcy itself will remain on a credit report for up to 10 years. A Chapter 13 bankruptcy remains on a credit report for seven years.
Individuals should know that not all lenders will want to work with them right away. Furthermore, borrowers will likely be subject to higher interest rates and other less favorable terms until they prove themselves to be responsible again. It is possible for a person to completely rebuild his or her credit in about two years after debts are discharged.
Chapter 7 versus Chapter 13 bankruptcy: What's the difference?
When it comes to serious financial problems, it's a good idea to try to stay calm and explore all available options to get things back on track. The good news is that most financial crises are temporary. However, it's also true that a solution that works for one Maryland resident might not even be a viable option for another. No two financial situations are exactly the same.
It's important to know where to seek support if you're facing financial problems that you feel ill-equipped to handle on your own. Contrary to the stigma that often exists, bankruptcy is often a good choice to obtain immediate debt relief and lay the groundwork for a stronger financial future. Chapter 7 and Chapter 13 are the most common types. You must be eligible to apply, so it pays to learn as much as you can about each program to determine which one best fits your needs.
One bankruptcy is not like the other
Both Chapter 7 and Chapter 13 bankruptcy can help you get out of debt. Whether you have a credit card balance you can't pay, are unable to meet your mortgage obligations or have mounting medical bills because of an injury or illness, these programs may be able to help you resolve your financial problems. The following list shows specific differences between the two types and why you may qualify for one but not the other:
Debtors are protected by the FDCPA
The actions that debt collectors in Maryland can and cannot take are governed by the Fair Debt Collection Practices Act, or FDCPA. While debt collectors are allowed to contact individuals about a valid debt, those who are contacted have a right to verify what the debt collector is saying. If a person makes a request to verify a debt balance, verification must be provided in writing. Collection agencies are also generally barred from making contact before 8 a.m. or after 9 p.m.
Furthermore, they cannot contact an individual about a debt at their place of employment. If an individual requests that a debt collector put a stop to collection calls or letters, the entity attempting to collect a debt must comply. It is also a violation of the FDCPA to contact a family member other than a spouse or a friend about a debt.
According to the terms of the FDCPA, a debt collector cannot threaten or harass a person. For instance, a person cannot be told that a lawsuit is forthcoming if the entity collecting the debt has no intention of filing one. Harassment may include abusive language or making multiple phone calls on the same day. If debt collectors violate the law in any way, complaints can be made to a state's attorney general or the Consumer Financial Protection Bureau.
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