Considering Bankruptcy? Here are 3 Tips to Head in the Right Direction

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bankruptcyIf you are facing a financial situation in which your debt load is unsustainable and your creditors are unwilling to negotiate, then filing for bankruptcy may be both viable and advisable. This is fundamentally because, despite the fact that the word “bankruptcy” is emotionally-loaded (and rather terrifying), it is not a moral judgement: it is a legal protection.

Furthermore, while it is certainly not a step that anyone wishes to take or a decision that should be taken lightly, the fact is that filing for bankruptcy is fairly common. For example, in 2016 nearly 800,000 individuals and businesses filed for bankruptcy. 

If bankruptcy is something that you are considering — or may have decided to do based on your research and analysis — then here are 3 tips to head in the right direction: 

Advice for Filing Taxes After Bankruptcy

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filing taxes after bankruptcyMany people are confused or concerned — or both — about filing taxes after bankruptcy. The first thing to keep in mind is that, while there are indeed some steps to take, the post-bankruptcy filing process should not a bureaucratic nightmare. Here is what you need to keep in mind: 

After filing for bankruptcy, there are two returns associated with your identify/profile as a taxpayer as far as the IRS is concerned: an individual filing (Form 1040), and a return on behalf of your estate (Form 1041).

Filing Taxes After Bankruptcy: Chapter 7

If you have filed (or will file) for chapter 7 bankruptcy, then the two returns are completed and submitted separately. That is, you fill out and send a Form 1040 return, and the Bankruptcy Trustee fills out and sends a Form 1041 return on behalf of your estate.

How Long Will a Bankruptcy Stay on Your Credit Report?

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bankruptcyOne of the biggest concerns that virtually all people have regarding bankruptcy, is how it will impact their financial future. Specifically, they want to know how long the bankruptcy filing will stay on their credit report.

Under the current rules (and there is no anticipation they will change in the foreseeable future), the answer to this question is 10 years. But there is more to the story that all prospective bankruptcy filers need to know.

The first thing to note is that bankruptcy is essentially a process designed to protect a debtor, and give them the opportunity to have a fresh financial start. Naturally, serving the rights of legitimate creditors and helping them potentially recover some of the money they are owed is part of the process (potentially because many chapter 7 bankruptcy filings are “no asset” filings, and as such creditors do not receive anything). However, the court does not have a legal or, frankly, a moral interest in permanently damaging or limiting a petitioner’s financial health and future prospects. Nor for that matter does society-as-a-whole. The chance at a fresh start really means a chance at a fresh start!

What are the Consequences of Forgetting to List a Creditor in Your Chapter 7 Bankruptcy Filing?

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bankruptcyThe defining feature of a bankruptcy filing — regardless of the chapter under which is filed — is one word: structure. And obviously, ensuring that all of the rules and processes are meticulously followed is essential (and there are many, many such rules and processes).

Yet, with this being said, mistakes can and do happen — such as forgetting to list a creditor in a chapter 7 bankruptcy filing. There are several reasons why this may happen, but often the most common cause is when a debtor is simply overwhelmed by the sheer number of bills and creditors. For example, some people with serious heath conditions may get a dozen medical bills for a single hospital visit, since each doctor — and even the hospital itself — can bill separately.

Discover the Positive Consequences of Filing for Bankruptcy

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Positive Consequences of BankruptcyThe word “consequences” is almost always associated with negative effects and outcomes, such as losing money, feeling pain, or enduring something unfortunate and regrettable.

However, in life there are positive consequences as well. For example, people who follow their doctor’s advice and achieve a health body-mass index enjoy consequences that include more energy, stronger bones, and probably a longer life as well. Similarly, drivers who follow the rules and laws of the road are more likely to enjoy the positive consequence of safely getting from point A to point B (and avoiding a costly traffic ticket).

And indeed, there are immediate positive consequences of filing for bankruptcy that do not get talked about much, but are nevertheless relevant when people weigh the pros and cons of taking this serious — but sometimes necessary — financial step. These include:

  • It’s a pivotal and potentially life-changing starting point to regain control over debt.

For many people, the most debilitating and terrifying aspect of being in serious and sustained debt is that they feel powerless to do anything. They are in a hole that gets deeper and darker by the day. Aside from the obvious financial damage this does, the psychological and emotional impact is severe — and for many people, it is traumatic.

Filing for bankruptcy will NOT instantly make financial problems go away. However, it does represent a definitive — and indeed, uplifting —starting point to regain control over debt. As the old saying goes, a journey of 1,000 miles starts with a single step. For some people, filing for bankruptcy is the step they need to take, in the direction they need to go.

What’s more, people who file for bankruptcy must complete a credit counseling course within 45 days of filing. This course, which can be taken in-person or online, provides sound, practical advice that can help people get — and stay — out of unhealthy and debilitating debt for the rest of their lives.

  • It puts an immediate end to collection action.

Many people who are deep in debt are terrified to hear the phone ring or open their mail — because they have been traumatized by endless, and often illicit aggressive collection action (illicit in that lenders/third parties hired on their behalf must follow certain laws, but frankly, many of do not because they know the harder they push, the more likely they are to “psychologically break” a debtor and get a payment).

However, the instant that a debtor files for bankruptcy, all collection action must stop. This includes all phone calls, emails, text messages, and any wage garnishments that have been enacted per court order (the paperwork on this can take a couple of weeks, but the wage garnishment will effectively cease on the date of the filing, and any clawed-back salary will be paid out).

Learn More

Obviously, filing for bankruptcy is a serious, life-changing step, and one that cannot be taken lightly. However, while the road ahead will be challenging, people who opt for bankruptcy can look forward to some immediate relief: financially, as well as psychologically and emotionally.

To learn more, contact the Law Office of Charles H. Huber today.