Don’t charge taxes on a credit card before filing

When preparing to file a bankruptcy, there are a number of things which an individual should not do. One of these is to use a credit card or loan to pay taxes.

If one pays for owed taxes by charging them on a credit card or taking out a loan, the credit card company or creditor will be able to object to the discharge of that debt. There is a rule in bankruptcy that allows a creditor to object to the discharge of a debt that was incurred because a debtor used that creditor’s loan to pay taxes if the taxes were charged or paid within the last year.

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1. Credit Cards After Bankruptcy?
2. Credit Card debt still can be discharged in a bankruptcy
3. Sometimes Income Taxes Are Dischargeable In a Bankruptcy

Despite all the negative headlines, debt is not always bad. Good debt can allow people to do what they otherwise could not, including, going to college, or buying a house or car. Bad debt is used to make purchases that are not necessary and purchases the borrower cannot afford. One way to determine if something is good debt or bad debt is the interest rate. Generally, good debt is more affordable and can be tax deductible. There is an additional type of debt in-between good and bad debt, which can be referred to as “convenience debt.” This debt represents the monthly credit card balance that builds up because it is easier to pay for purchases with a credit card. Convenience debt should be paid off on time each month to avoid interest charges.
It is important to remember that the fastest way to get out of debt is to pay off the most expensive debt first. Therefore, if you are behind on more than one credit card, you should put the most money toward paying off the most expensive card and pay the minimum balance on the others. Another important step is to take care of your credit report and credit score. To maintain a high credit score you should pay bills on time, pay down credit card debt to below 10% of the card’s limit, do not apply for new credit cards or close credit card accounts, and maintain a history of paying phone and utility bills on time.
If debt becomes overwhelming or something occurs that will make repayment more difficult, inform creditors of what has happened. Many companies will be willing to work with you by lowering interest rates or fees, extending the term of the debt, or reducing the amount of debt.

Source:
Jean Chatzky, How To Avoid Debt Problems Before They Start, http://today.msnbc.msn.com/id/31507914/ns/today-money/ (accessed August 1, 2011).

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1. Americans Are Reducing Credit Card Debt
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What is a deed in lieu of foreclosure?

With so many individuals unable to afford to keep their homes, many people are looking for ways to walk away from their home.

One option is to do a deed in lieu of foreclosure. When a person signs a deed in lieu of foreclosure, the person is essentially signing the property over to the mortgage without forcing the mortgage company to go through a foreclosure to reclaim the property. When a property is foreclosed upon, the mortgage company must follow state laws which set up a number of steps a mortgage company must complete in order to take over possession of the property. This can be a drawn out process and typically the mortgage company will incur costs such as attorney’s fees when undertaking a foreclosure.

When an individual signs a deed in lieu of foreclosure that person is essentially giving the mortgage company permission to bypass the foreclosure process and take back possession of the property immediately.

Clearly, in this situation the mortgage company benefits by skipping over the expensive step of foreclosure; however, the property more quickly enters onto their books as a foreclosed property. Some mortgage companies have “Cash for Keys” programs that will offer financial compensation for owners willing to vacate their property more quickly.

The benefit for the homeowner in a deed in lieu of foreclosure is not as obvious. Many individuals believe that their credit will be spared by doing a deed in lieu of foreclosure. This is not the case. A deed in lieu of foreclosure can still adversely affect a person’s credit score.

In addition, when a person signs the deed in lieu of foreclosure that person is giving up his or her right to occupy the property during the redemption period. In Minnesota as in many states, a homeowner is allowed a time period after a sheriff sale to try to refinance the property or pay off the entire mortgage in full in order to keep the home. During the redemption period, the homeowner is entitled to keep possession of the home. In Minnesota, this period typically last 6 months. In certain circumstances it can last a full year. Essentially this means that a person can lose their home to a foreclosure and yet remain in the property until the redemption period expires. During this time the homeowner’s name remains on the title of the property and the homeowner is responsible for the property. The homeowner is not required to make mortgage payments on the property during this time and therefore has a chance to save up money that would have been spent on rent.

Signing a deed in lieu of foreclosure ends this right. It can however occasionally be in a homeowner’s best interest to sign a deed in lieu of foreclosure. For example, if an individual has already moved out of the property, having their name remain on the title is a liability for them if the property is not being maintained.  For example, if the lawn is not mowed, the city could cite the homeowner for the violation.

Another concern that an individual should have when considering signing a deed in lieu of foreclosure is whether the mortgage company will choose to go after the homeowner for a deficiency balance if the property subsequently sells for less than the homeowner owes the mortgage company. One should be wary about signing an agreement that makes them responsible for the difference.

Not all mortgage companies will willingly allow a homeowner to sign a deed in lieu of foreclosure straight away. Often the mortgage company will force the homeowner to put the property up for sale before considering the option of a deed in lieu of foreclosure. A homeowner may incur unnecessary costs in doing this.

Whether or not signing a deed in lieu of foreclosure is in a person’s best interest depends on a number of factors. Before making such a decision, an individual would be wise to consult with an attorney regarding their options.

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Pet Care Costs Putting Some in Debt

Americans spend a significant amount to care for their pets. An estimate by the American Pet Products Association predicts that Americans will spend $50 billion on pet care in 2011. The estimate includes the cost of food, supplies, medicine, grooming, boarding, and veterinary services. Unexpected medical care causes the most problems financially for pet owners. Many Americans are willing to put their finances at risk to care for their pets. For example, Betsy Lampe, a Florida woman, went into debt to pay for treatment for her dog’s renal disease. Lampe was also struggling to pay bills from her own kidney cancer.

There are a few ways to avoid huge vet bills. Fees for medical procedures and medications can vary widely. Therefore, comparing the costs of different veterinarians is a good idea. Additionally, pet insurance can save owners a significant amount in medical costs. The average monthly insurance premium for dogs is $30 and $17 for cats. According to a representative from Petplan, a pet insurance company, his company has reimbursed some policyholders over $40,000 for pet care. Without insurance, these pet owners would have gone into significant debt paying for their pet’s medical care. Many veterinarians also work with companies to offer payment plans with no interest. Experts recommend pet owners save at least $500 to pay for unexpected medical care.

Source:

Erica Sandberg, Pet Debt: How Animals Cost You, http://www.msnbc.msn.com/id/43612902/ns/business-personal_finance/ (accessed July 13, 2011).

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Many Americans are facing difficult financial situations. Results from a new Harris study show how consumers are reducing their expenses. (Today) The survey asked consumers to respond to whether they had thought about using different methods of saving money in the past six months. The results are listed below, along with the percentage of those surveyed that considered the method. (DailyFinance)

1. Saving money at the grocery store, 67%
2. Packing a lunch instead of buying one, 46%
3. Going to a hairstylist less often, 43%
4. Switching to reusable water bottles instead of buying bottled water, 39%
5. Ending magazine subscriptions, 31%
6. Reducing amount of dry cleaning, 24%
7. Cancelling or reducing cable TV service, 22%
8. Stopping morning coffee purchases, 21%
9. Ending newspaper subscriptions, 18%

10.  Ending landline phone service, 16%

11.  Ending or reducing cell phone service, 14%

12.  Using public transportation or carpooling, 14%

Source:

12 Ways Americans Are Cutting Back on Spending, http://lifeinc.today.com/_news/2011/07/06/7029594-12-ways-americans-are-cutting-back-on-spending (accessed July 10, 2011).

Top 10 Ways Americans Are Cutting Back on Spending, http://www.dailyfinance.com/photos/top-ways-americans-are-cutting-everyday-spending/4276496/?icid=sphere_copyright# (accessed July 10, 2011).

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The Los Angeles Dodgers have filed for Chapter 11 bankruptcy protection in Delaware. Dodger’s owner Frank McCourt was relying on a TV deal worth billions to help ease financial troubles. However, Major League Baseball did not approve the deal. McCourt is asking for time to secure another media deal, and he is seeking $150 million to finance daily expenses. The Dodgers owe millions to former players, who have filed claims. The team has also experienced a substantial decrease in fan attendance at games.

The Dodgers likely would have been unable to make their next payroll. McCourt filed for bankruptcy before a takeover by MLB could become an option. Analysts believe MLB will fight the bankruptcy, because the league wants the issue to stay within baseball. Additionally, the MLB constitution gives commissioner Bud Selig the power to takeover a team in bankruptcy.

McCourt has been a controversial owner since he acquired the team in 2004. McCourt purchased the Dodgers for $430 million in a highly leveraged transaction. Selig hired Tom Schieffer to monitor the Dodgers in April, because he was worried about the financial situation. The bankruptcy filing has been an embarrassment for the team.

Source:

Associated Press, Los Angeles Dodgers File For Bankruptcy, http://msn.foxsports.com/mlb/story/los-angeles-dodgers-file-for-bankruptcy-frank-mccourt-blames-bud-selig-decision-062711 (accessed June 27, 2011).

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Beware of credit repair scams.

There are many credit repair companies that are essentially scams. They take your money and they do not improve your credit or they only temporarily improve it. The Federal Trade Commission (FTC) offers this advice for avoiding credit repair scams:

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A new study conducted by Bankrate.com suggests that the majority of Americans are not financially ready to deal with emergencies. Analysts suggest that Americans save enough to cover their expenses for six months. However, the study found that only 24% have enough savings to cover six months of expenses. Additionally, 24% of Americans have no money saved for emergencies. The findings are slightly surprising because the economic downturn and high unemployment rates have demonstrated the need to save for emergencies. The weak economy and unemployment have also made it more difficult for Americans to save significant amounts.

People who are most likely to have no money saved for emergencies include young adults under 30 and people who earn under $30,000. High-income earners and those aged 50 to 70 are most likely to have emergency savings to cover six months of expenses.

The study also found that Americans’ feelings about their financial security have decreased slightly in June. Also, 26% feel better about their debt than they did in 2010, while 19% feel worse about their debt.

Source:

Dave Carpenter, Americans’ Rainy-day Plan: Hope It Doesn’t Rain, http://today.msnbc.msn.com/id/43470019/ns/business-personal_finance/ (accessed June 22, 2011).

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Welcome to hoglundlaw.com. We will soon have useful information available regarding Bankruptcy, Social Security, Debtor Education, and Mass Torts. In the meantime,  feel free to browse our website to learn about our areas of practice. To learn how Hoglund, Chwialkowski & Mrozik PLLC can best assist you, give us a call at 1-800-850-7867.

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