Home » 2013 » January

Financial Health — how to get there?

Financial HealthThe New Year often brings several resolutions on how to change one’s life for the better. These resolutions come in general categories. People want to be healthier, lose weight, spend more time with their families or get their debt reduced or under control. Financial health is probably the first step to achieving all resolutions at a new year. Once financial health is achieved then it is easy to think about taking time or spending money to get healthier, lose weight or spend more time with your family. Debt issues cause so much stress on the mind and body that often the need for financial health is not just a desire but a requirement to live in the future.

So, how can a person get to financial health when they are burdened with greater debts than what they make? The first step in finding financial health is accepting your position in life. You have to say and admit, “I have a debt problem.” Why is this so important? If you are not completely committed to resolving your debt problems you will not be able to do so effectively and you will not achieve financial health.

Once you accept your debt problem, you can then work on resolving your issues that you debt causes you. It is impossible to write about everyone’s individual debt circumstances for everyone’s situation is different. However, there are several key methods to consider when trying to find financial health. All of these key methods should be considered when dealing with your debt.

  1. Know your finances:
    One of the biggest problems with people today is that they do not take the time to know their finances. I know the world is busy but you must know what you make and where your money goes each month. If you know your finances, you can make adjustments that may allow you pay down your debt without great stress rather a discipline way of resolution of your debt.
  2. Settlement of Debts:
    One method of dealing with a lopsided financial circumstance is to consider settlement of debts for less than what is owed. You will know that this a good option if you owe just a couple of debts and that you have some money left over each month and you can work with your creditors either directly or through counsel to settle debts for less than what is owed. The issue here is whether settlement is ascertainable in your circumstances.
  3. Bankruptcy:
    A quick and effective way of getting financial health is filing a bankruptcy case. Some people will think that filing a bankruptcy case is complete failure but in reality filing a bankruptcy case is a constitution right to give financial health back to United States citizens.


These are three key methods to consider in dealing with your financial health resolutions. The best way to start this process is to take each one of these steps and see if your debt circumstances apply and can be resolved with the method. The one is absolute true no matter your debt circumstances is that any debt must dealt with appropriately in order to improve your credit report as well as your financial health in the new year.

Yes Tax Liens Can Be Eliminated!

If you are reading this blog, you might be facing IRS or state tax liens that have been placed upon all your property. You might be thinking that there is no way out of these liens and your credit life is over. I am writing this blog to tell you that there is a way out and your life is not over. You can eliminate these tax liens.

Now you are saying, “Really?” I am going to say to you, “yes, really.” A tax lien often occurs when a person does not arrange a payment arrangement with the IRS or state and the IRS or state are forced to put a lien on the person’s property because they have no other option to try and collect those taxes. The lien allows the IRS or state 10 years to try to liquidate property or collect from the person owing the taxes.

Since the tax lien is placed against property, the lien’s value is only as good as the value of that property. If you do not have any property, the lien will have very little to attach to. Therefore, despite what your lien notice says and appears to say to do to you, it is only as good as you are. In a common man’s nut shell, if you are poor and worth nothing, then the tax lien is poor and worth nothing and has really no effect on a person. The only issue is that the person facing a tax lien must take actual steps to demonstrate the lien is worth nothing.

How to do this? The fastest way and most effective way is to file a Chapter 13 bankruptcy case and seek an avoidance of this lien. The Chapter 13 case has a dual purpose. It had the processes which a lien can be avoided for good and allows the person to catch up on the past due taxes or discharge past due taxes that are eligible. Otherwise, to eliminate the tax lien is a painful and often takes years to do so through the IRS and state lien processes. Some attorneys even say it is nearly impossible to strip tax liens because of the difficult process the IRS and state lien processes are in reality. However, the Chapter 13 process only takes about 6 months to complete and the tax payer will be able to deal with these taxes once and for all on their own terms.

Therefore, you can eliminate tax liens if you want to take the appropriate steps to do so. Your life does not have to end because a tax lien.

Curing and Maintaining Student Loan Arrears Under 1322(b)(5)

Graduation means debt
Graduation means debt

Judge Feeney, of the Boston Bankruptcy Court, ruled today that 11 USC 1322(b)(5)may be used to cure arrears on student loan debt. Under this section, a Debtor may elect to “provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due.” 11 USC 1322(b)(5).

This section has generally been considered to apply to defaulted payments on mortgages or car loans, but not necessarily to student loan debt. Previously, the Courts have determined that, after concluding that 1322(b)(5) applies, in the case of student loan or other unsecured debt the Debtor must then meet an additional burden to show that the different treatment of the student loan does not unfairly discriminate against the other unsecured creditors. Today, however, Judge Feeney decisively stated that the analysis ends once it has been determined that the Debtor may cure under 1322(b)(5). Therefore, if a Debtor can show that he or she owed pre-petition arrears, and that the last payment on the debt is due after the plan ends, a Debtor may cure his or her defaulted payments through the plan, at least in Judge Feeney’s courtroom. The Judge did clarify, however, that her ruling related to non-dischargeable debt, and indicated that she may rule differently if it was not clear that the unsecured debt being treated differently was non-dischargeable.

This ruling lifts a huge weight off of Debtors with defaulted payments on student loan debt. Before this ruling, a Debtor in this situation could only pay the same percentage on that student loan as was paid to every other unsecured creditor, unless he or she could overcome the presumption of unfair discrimination against the other unsecured creditors. This was true even if the debt was non-dischargeable. This treatment would result in the Debtor emerging from the plan still in arrears on the debt and in no better position than when filing for Chapter 13 protection. Now, Debtors who find themselves in this situation, which is growing more and more common due to skyrocketing education costs, have an alternative to emerging from a Chapter 13 plan in more arrears than when they started.


Mortgage Forgiveness Relief Act Extended

Just in time to avoid the disastrous fiscal cliff, Congress voted to extend the Mortgage Forgiveness Debt Relief Act of 2007 for one more year.  This may be good news for many distressed home owners who are looking to walk away from their homes that have either no equity or negative equity.   The problem that many Americans face is that they have mortgages where the payoff cost far exceeds the fair market value of the home.  As a result, these homeowners are in a situation where they must short sell their homes and hope the bank forgives the deficiency between what the home sells for and what is owed on the mortgage.  In other situations, homeowners are facing foreclosures, where the bank will sell their property for much less than is owed.  If the bank forgives the difference in debt, than the homeowner receives a monetary gain.

In the past, when a bank forgave debt, the homeowner would receive a 1099 tax form, which would trigger a taxable event.  Sure, the homeowner would not have to pay the bank back tens of thousands of dollars, which frankly was an unsecured debt and could be discharged in bankruptcy, but they would owe the Internal Revenue Service up to a third of the forgiven debt as a capital gain.  Even worse, this false profit could put the homeowner into a higher tax bracket, which would result in more taxes on all  other income.  This tax could not be discharged in bankruptcy unless very special circumstances occurred and no liens or levies were issued for 3 years from the date  the taxes were assessed.

Had Congress allowed this law to expire, it may have triggered the end of shortsales as we know them.  Why would anyone put the time and effort into a short sale only to incur significant taxes that they could not pay?  Rather, this likely would lead to even more foreclosures, which, of course, would only weaken the already fragile real estate market and increase the housing crisis.

           It would appear that even though Congress has extended the Act, at the end of the day they may have only put off the inevitable. Once this Act expires, it will only create serious tax problems for many Americans without the ability to ever pay off those taxes.  Perhaps a better solution would be to modify the bankruptcy law, to allow homeowners to cram down the value of their primary residences in Chapter 7 bankruptcy cases, so that they can stay in their homes and pay based upon the true value of their homes and the prevailing interest rates.