There is Life After Bankruptcy
Many people are fearful about filing for bankruptcy because they worry that their financial record will be permanently damaged. They worry that they may never again be able to get a credit card or purchase a home.
At The Law Offices of Neil Crane, LLC, in Hamden, Connecticut, our attorneys place great emphasis on working closely with our clients. When you hire our law firm, we will work directly with you. Our attorneys answer your questions and give practical advice with one goal in mind: Restoring you to financial health in your life after bankruptcy.
In our conversations, we may talk about many basics of financial health:
- Your debt-to-income ratio: Debt-to-income ratio considers what level of income you need to sustain for you to remain current on your debts.
- How to budget: We will guide you through the process of making a monthly budget and — most importantly — sticking to it.
- How to avoid credit card solicitations: In your life after bankruptcy, you will probably be faced with offers for pre-approved credit cards. These should be thrown directly in the trash.
- Avoiding second mortgages: We believe that any second mortgages are bad mortgages. Houses are designed to provide your family with stability. Never use your house as a bank.
We understand that many people originally filed for Chapter 7 or Chapter 13 bankruptcy for reasons that were not their fault. They faced unexpected medical bills, experienced a divorce, or lost a job. While these things were beyond your control, your financial future can be in your control again. With your lawyer’s help, you can truly have a successful life after bankruptcy.
Rebuilding Your Credit
When you struggle with debt, you watch your credit take a tumble. Many people think that the only way to really rebuild your credit after struggling with debt is to claw their way out; but that is not true. Whether you consolidate your debt or file for bankruptcy, taking proper steps to solve problems with your creditors will help your long-term credit concerns and rebuild your credit score. Credit scores are enhanced by debt reduction and can be easily rebuilt with the proper professional help.
The Myth of the Credit Score
Do not let concerns over your credit score prevent you from taking real action when it comes to your debt. Debt reduction and an improved debt-to-income ratio are the beginning of a fresh credit report and a high credit score
Besides, taking real action to get the debt relief you deserve could end up helping your credit score. By working with your creditors to consolidate your debt into a plan you can actually afford, you can make timely payments and build your credit score faster than you could on your own.
Your Debt to Income Ratio
Debt to income ratio is the percentage of your gross monthly income that goes toward paying debts. When it comes to your financial health, maintaining a good debt to income ratio is critical. Your family should have enough income to pay the debts it incurs every month — while paying all bills due and hopefully saving for the future.
There are many financial habits that lead to a good debt to income ratio:
- Using only credit cards that are underwritten
- Paying off the balance due each month
- Using debit cards instead of credit cards
- Limiting the amount of credit you have available
- Not taking out second mortgages
- Saving for items instead of taking out loans or putting them on the credit card
Filing a Form 1099-C After Bankruptcy
Form 1099-C is an information return used to report canceled debt to borrowers for tax purposes. A borrower does not have income when an amount is borrowed. However, if the borrower does not pay the loan back and the bank forgives all or part of the loan, then the forgiven portion of the debt constitutes taxable income to the forgiven debtor.
When is a Form 1099-C Not a True Release of Debt?
Without the issuance of a true and binding legal release, a 1099-C does not, on its own, constitute a legally binding release. Instead, various court holdings throughout the country have allowed for the collection of debt from borrowers who have already received 1099-C cancellations of indebtedness. This puts the burden on the forgiven debtor and their counsel or accounting professional to properly assure true debt forgiveness and not mere tax liability.
As a result, there has been a significant increase in cancellation of debt reporting. Some of those were sent to people for old debts that they never thought they would hear about again.
If you have incurred significant tax liability as the result of the issuance of a 1099-C for cancellation of debt income, contact our office to learn what legal options may be available. Our office has been helping middle class taxpayers in dealing with IRS issues since 1983, and we are more than happy to answer any questions that you may have.