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The Secret Risks of Debt Settlement

If you’re maxing out credit cards every month and just making the bare minimum payment, you’re going about all this the wrong way.  You’re financing a lifestyle at a very high rate of interest and creating a lot of financial risks for yourself.  

I know you hear the ads all the time.  “USA FREEDOM CREDIT CARD DEBT RELIEF WILL SAVE YOU THOUSANDS!” Shouts some announcer on the radio, or maybe you’re scrolling social media and see smiling happy people with a prompt to contact someone to settle your debt for pennies on the dollar.  

It sounds too good to be true and it often is.   The FTC gives warnings about these types of schemes and I’m linking to it here.

The problem is, most of the companies don’t disclose how this actually works and that opens you up to tons of risks.  You’re not getting something for nothing.  

In fact, you could actually end up in more debt and with worse credit than you had when you started. 

So, how does it actually work?

In a debt settlement arrangement, a borrower (you) or someone representing the borrower contacts a credit card company and asks for a settlement.  Mind you, this only works if you can pay off the full balance at one time. 

The guy at Monster Mega Bank, N.A. hears this and thinks, “OMG, these people are going to file bankruptcy and we’re going to get nothing, let’s see if they’ll settle for half.”

Now, here’s the problem.  You don’t have thousands to pay them, even if they will settle for a significantly reduced amount. 

So, what do we do? Well, the debt settlement company opens up a shiny new line of credit in your name and uses that money to pay off the credit card company.  

Now, that may not sound too bad…but here’s the catch.  1. The debt settlement company is going to make tons of money off of you.  2. Monster Mega Bank, N.A. is going to report a “settlement” on your credit, and that’s going to hurt your score. 3. You’re still making payments to the debt settlement company and guess what? Now you don’t have revolving credit to help make ends meet. These are the biggest risks of the debt settlement process.  

Why Bankruptcy Eliminates the Risks

Debt settlement services rely on credit card companies writing off a portion of your debt.  Not only does that hurt your credit score, it can also have serious tax implications.  

The IRS treats forgiven debt like income but debts discharged in bankruptcy are completely tax free. 

If Monster Mega Bank, N.A. forgives $25,000 worth of debt, you’re going to get a 1099 that will treat that forgiven debt as income.  Then you’re going to owe taxes on  $25,000 in extra income. 

That’s a risk they didn’t tell you about.

Additionally, there’s no guarantee that Monster Mega Bank, N.A. is going to work with USA Freedom Debt Relief Company anyways. 

Then you’re right back at square one. 

That’s where bankruptcy comes in.  

In bankruptcy, Monster Mega Bank, N.A., has no choice but to work with you. It’s federal law. 

In bankruptcy you may be entitled to a full discharge of your unsecured debts or you may be able to pay back only a small portion of them with a very manageable interest rate.  

Another good thing is, bankruptcy increases your credit score starting the day you file.  

Is that too good to be true? Actually, no.  A government study confirmed it

Bankruptcy actually gets rid of the derogatory marks on your credit report and allows most people to obtain new credit within months of your discharge.  

If you’re concerned about the risks of debt settlement or you’ve already been the victim of a debt settlement gone wrong, give us a call.  Bankruptcy is a powerful tool that can help clean up a lot of the messes that debt settlement causes. 

Straight to Jail

Jail

What would you do if you found out there was an arrest warrant out for you because you hadn’t paid your bills? Would you go around and borrow money from family and friends? Pack your bags and skip town? Change your name and head to France? Laugh?

If you said laugh, you’re correct.  In the United States we don’t arrest people for owing money you don’t have. 

There are scammers out there that are banking on the fact that you didn’t pay attention in Civics.  They’ll call you or email you, maybe even send something over in the mail.  

You’ve heard the calls and they all go something like this: “You have arrest warrant. Call this number now to avoid arrest by authorities. Court case filed in your name soon. Agent Bill William, Federal Department Revenue Service.”

As laughable as this is, it’s just another scam…and somehow it works.  

Preying on the vulnerable

If it didn’t work, they wouldn’t keep doing it.  This scam works because it preys on the emotions people have when they can’t pay their legitimate bills.  

These pieces of human garbage want to exploit you and your emotions to try to squeeze as much cash out of you as possible.  It’s a scare tactic and it works.  

That money isn’t going to your actual creditors, it’s going to end up in the pocket of some scammer in a rogue country. 

When can you go to jail?

There are some situations that can cause you to be arrested and go to jail for your debts.  Blatant refusals to pay child or spousal support ordered by a court can sometimes land you in jail.  Occasionally, a creditor can sue you and get a subpoena to make you show up in court.  If you defy that subpoena, you can sometimes be arrested, but not for failure to pay.  

Get “scam immunity”

If you’re in a bad enough place financially that the thought of getting arrested over your debts is keeping you up at night, you need to seek professional help.  That’s where we come in.  

Bankruptcy was a system created to eliminate debts, legally.  We have filed thousands of cases and eliminated nearly hundreds of millions of dollars in debt for our clients.  

Our website has countless articles about collection rights and we offer free consultations to discuss how bankruptcy can help you become free of the burden of debt.  We’re here to help when you need it most.  

But, just in case we need to say it again, don’t send your money to Agent Bill William.  The Federal Department Revenue Service isn’t coming to put your in jail. 

 

Emotional Barriers to Bankruptcy

Rock Bottom

Generally speaking, debt evokes strong emotions.  Those strong emotions often keep people from filing bankruptcy.  While these emotions are understandable, they shouldn’t be the reason why people keep slogging through years of debt related stress long after they should have sought help. The barriers we must overcome are:

Fear

Hardheadedness

Pride

These three emotional barriers keep people stuck in the cycle of debt.  

Fear

It’s the unknown.  While this kind of fear probably kept our primitive predecessors alive, today, there’s no excuse for not being informed.  

People are scared that they may not be able to access credit, they fear being viewed as a failure, they fear that somehow, others will judge them. Those things keep people on the sidelines and stop them from seeking the help they so desperately need.

Some of this fear is irrational but most of it stems from heaps of band information.  Some of this bad information is just a misunderstanding but a lot of it is deliberately spread by people who profit from your fear. Unscrupulous creditors seeking to keep you out of bankruptcy so they can squeeze just a few more bucks out of you before you seek the help you deserve. 

In the end, fear of bankruptcy is understandable. However, I’m going with FDR’s thought.  All we have to fear is fear itself. 

Hardheadedness

Hardheadedness is a trait that you really have to appreciate.  It causes people to finish the race, to follow through, to succeed against the odds.  It’s a virtue. Sometimes though, hardheadedness keeps you from seeking the assistance you need. 

You say to yourself, “I created this mess for myself, now I am the only one who can get out of it.” While that feeling may be honorable, it isn’t always logical. 

You’ll keep trying to chip away at the mountain of debt you’ve gotten yourself in and you’ll end up neglecting the things you need to focus on.  You’ll forego a real and important need that can make your life better and more fulfilling.  Often people skip medical treatments, let their mental health suffer and they’ll often neglect the biggest thing you can do to improve your life…save for retirement. 

Pride

 “I can pay my debts.  I’m not the kind of person who files bankruptcy.”

I hear that garbage all the time and I want to scream. 

Well, who files bankruptcy anyways?

A lot of times it’s people you know. People just like you. People who have gotten sick, people who have lost their job or seen a decline in income, people who got sucked in by the flashy and expensive world we live in. 

You don’t file bankruptcy because you’re immoral.  It’s a legal solution that fixes an economic problem.  After all, not having enough money isn’t a crime. Even Jesus associated with people who couldn’t afford the trappings of life. 

Look at the people who have filed bankruptcy.  Former Presidents, major corporations, even Walt Disney.  Do we look at people or companies in a lesser light just for asking for help to start over?

For far too many people, it takes hitting rock bottom to get over the emotional barriers:  when these irrational emotions are finally whittled away, rationality wins out and people seek the help they truly need. 

If you need help, don’t wait.  Call us today. We can get you the help you deserve. 

 

Unfiled Taxes: A Life Sentence

Unfiled Taxes

We have a long and unpleasant relationship with taxes in this country.  We literally fought the most powerful country on earth over a few pennies tax on some tea and paper.  In life though, there are two certainties.  You will die and you will definitely pay taxes. The longer you wait to handle this reality, the longer you wait to get relief.  Unfiled taxes are a life sentence.  

Tax debt can be overwhelming and unfiled taxes just make it worse.  This is especially true if you happen to have something go wrong with your job or your business.  People hold off filing their taxes for a number of reasons and at the time, many of them seem to make perfect sense.  There is a problem with that though and it can be very costly.  

Bankruptcy can discharge many kinds of old tax debt.  It’s one of the best tools you can use to combat the IRS and their seemingly unlimited desire to squeeze every penny out of you that they can.  But there’s a catch.  You have to file your tax returns.  

Unfiled tax returns turn your ability to discharge those old debts upside down.  Below, I’ll outline two different scenarios that I’ve dealt with in the last month.

Filed, On time tax returns

My first client came to see me.  He owed $91,500 to the IRS in back taxes.  He certainly didn’t have that kind of money and he was stuck between a rock and a hard place.  But, he had filed his return on time, complete and accurate. 

The second client had a different situation.  She owed $65,000.  She also didn’t have the means to pay that, but she was in way more trouble than my first client.  She had unfiled taxes dating back nearly a decade.  

The first client I can help…today. The second client is going to have to keep treading water for two more years before I can help her.  

You’d think that the second client would be better off, but you’d be wrong.  The golden rule in bankruptcy when it comes to taxes is… you can’t discharge tax debts that you haven’t filed a return on. 

Bankruptcy eliminates some taxes

You can discharge most taxes in bankruptcy. While taxes are a big deal, if you handled your obligations correctly, your old taxes can be eliminated in bankruptcy.  You just have to file your return and let the clock start ticking.  

Even if you can’t file bankruptcy on your taxes, there is a statute of limitations on collecting taxes, but that doesn’t start until you actually file the return.  

The 2 year rule

In order to qualify for the two year rule you’ve got to adhere to the policy.  To get a tax discharged, the return must be on file with the IRS for at least 2 years before the bankruptcy case is filed.  Extensions move the starting point, so avoid them if you can.  Here’s an example:

  • If you get an extension until July 15th, that’s your start date.  Even if you ultimately file your taxes on April 21st. 
  • If you don’t get an extension and you file on June 1st, you start counting the day you filed, June 1st. 

 

Always be aware of filing dates that fall on weekends or holidays.  April 15th is typically the “last day to file without penalty” but that can change from time to time. 

Unfiled taxes

My client who hasn’t filed in a decade is in a precarious situation.  She is looking at retiring in the next 5 years.  Very few creditors can get their hands on Social Security benefits.  The IRS can. 

We have to get the clock ticking on discharging those taxes. It’s going to take a lot of leg work on the part of this client.  They’ll have to find W-2s and other income reports.  They’ll likely even have to contact the IRS for a list of reported income that they have.  However, they’ll be able to file a return.  

This will get the ball rolling, but it would have been better to do things the right way from the start.  This person would be gliding into the last few years of working, footloose and fancy free.  Instead, they’re like David, trying to hold off the biggest Goliath of them all, the IRS. 

Unfiled taxes can ruin your life.  If you’ve gotten yourself into a situation that you can’t seem to get out of without help, call us.  Let our attorneys take a look at your situation to see how we can help.  Our consultations are always free.  You literally have nothing to lose. 

Taxes, Taxes…Taxes

Unfiled Taxes

It’s that time again in America.  The final deadline for filing your taxes looms large. People who got extensions will have to file their taxes by October 15th and that day looms large for those who owe.  You’ve done your taxes and gotten to the bottom line.  You owe… way more than you have in your bank account.  

So…what now?

File your taxes anyways.  

The IRS, horrible as they are, won’t start harassing you for money on April 16th or July 16th or even October 16th.  They likely haven’t posted the returns that have been filed yet, especially in years like this with COVID lurking in office buildings.  

There are serious advantages to filing your return, even if you don’t have the money to pay right now.  In fact, filing your return and starting the clock has way more advantages than hiding behind the fact that you don’t have the money to pay.

Payment plans available

The number one thing you can do is send in what you can.  It lowers your tax debt and the penalties and interest that will accrue on that debt from the word go.  Look, the IRS is greedy.  They just want your money and they want all they can manage to get from you.  That’s how the government is.  Send them what you can, when you can.  You don’t have to enter into an installment agreement with the IRS.  Just make sure that when you send in your payments, you notate your social security number, name and what year you want the money to go to on your check. 

If you’re really in need (for whatever reason) of a formal payment plan with the IRS, you can set one up online so long as you owe less than $50,000. 

Additional penalties for failure to file

If you don’t file a tax return and don’t get an extension, you’ll be up the creek without a paddle. You’ll be smacked with a separate penalty for failure to file the return.  That’s on top of the penalty you’ll pay for failure to pay as required.  Trying to hid from the IRS is way more expensive than doing the right thing. 

Filing returns starts the clock

On the escape option that is.  Taxes aren’t eternal.  Yes, I said that and it’s true.  Taxes can go away after time.  There is a statute of limitations on taxes that can make them uncollectable. 

There’s also the silver bullet, Bankruptcy. 

Bankruptcy law allows you to discharge certain taxes that are of a certain age before they can even expire.

But there’s a catch.  You have to file.  The clock doesn’t start ticking until you file your tax return.  That’s why filing, even when you can’t pay, is supremely advantageous.  

You need to adjust your withholdings

The final reason why you need to get last year’s return ready is that you need to get your withholding right for this year.  Even an extension can cause problems because it delays your ability to adjust your withholding on your W-4 to account for the fact that you owed this year.  You want to adjust your withholding so you don’t have to pay out of pocket again next year when everything is said and done.  

The bottom line is, hiding from a problem isn’t going to make it go away.  Especially if that problem is with a government agency as nasty as the IRS.  If you owe back taxes and you can’t pay them, contact the attorneys at Harmon and Gorove to see how bankruptcy can help you get a handle on your tax debt.  We have a dedicated team of professionals that understand your rights under bankruptcy and how they can help eliminate tax debt.  

It’s never too late

Timing

Did I wait too long? 

Oh no, I didn’t mess this up did I?

What am I going to do?

Sound familiar? It does to us. If you’ve put off filing bankruptcy because you were hanging on for a miracle that didn’t come through or you thought it would just go away just know that miracles, at least in the harsh world of finance, almost never happen and I can assure you, if someone has gone to the trouble to serve you with suit papers, they aren’t just going to go away.  

But is it too late? Has time truly run out on you?

No, it hasn’t.  Bankruptcy can pull your bacon out of the fire at just about any point in the collections process.  Should you have filed sooner. Yeah, you should have, but you didn’t.

We don’t recommend that you procrastinate.  In fact, people need to stop waiting till the last second to get in touch with a bankruptcy attorney.  Bankruptcy shouldn’t be a last resort.  

Suit papers

When a summons and a complaint is served to you, the clock starts running.  You only have a certain amount of time to answer the complaint.  If you don’t answer the complaint, whoever is suing you gets whatever they asked for. 

Guess what?

You don’t have to answer the complaint if you file bankruptcy.  

Bankruptcy stops the complaint and the lawsuit dead in its tracks.  That’s the beauty of the automatic stay.  Federal law supersedes state law and the state court must then all action in the case and the creditor must withdraw the suit. Additionally, at the end of your bankruptcy, the amount that you supposedly owed, is discharged.

Remember, It’s not too late.

You get sued and lose, is it too late?

You lost.  Losing stinks, especially in court, or so we’ve heard. 

Now you have a judgement against you. 

Just because a judge has ruled in favor of your creditor, bankruptcy can still help.  The debt can probably still be discharged in bankruptcy.  The only time a debt can’t be discharged is if you are being sued over family support obligations, very recent tax debts, criminal fines or debts created through fraud.

If you’re sued by your every day average credit card, someone with a personal loan of any kind of medical debt, you can wipe it out.  Even after a judgement has been entered. 

The only problem with all this is, Chapter 13 has limits on how much debt you can have and still qualify.  Once a creditor has the judgement against you the debt is fixed.  If this debt is too large, it can put you over the debt limits for a 13. 

One more problem is the fact that waiting until a judgement is on the books could also mean that a court found that you committed fraud. In that case, the bankruptcy court may find the same problem and then the debt would be excluded from discharge.

All that said, it’s still not too late. 

A creditor gets a lien, is it too late?

Bankruptcy isn’t a silver bullet, but it does change the balance of power.  If you got sued, and lost, and the creditor has perfected a lien against an asset it’s probably still not too late.

But that depends.

One of the things about bankruptcy is that it generally eliminates your personal liability for a debt.  However, some liens can survive bankruptcy once they’re attached to certain assets. 

There’s hope though.  You are allowed to avoid a judgement lien if it interferes with your exemptions.  It doesn’t matter how old a lien is, if it interferes with an exemption you can claim on an asset, you can avoid it. 

Bankruptcy can change the balance of power even if you’ve waited til the creditor with a judgment has perfected a judgment lien against your assets.  How much change is possible depends on the exemptions available when you file bankruptcy. Avoiding a lien isn’t automatic and you have to file a motion but even if you forget you can reopen your case in the future and file that motion. 

Again, in almost every circumstance, it’s not too late.

You’re being garnished, is it too late?

If you’re being threatened with a garnishment, your creditor has already obtained a judgement from a court.  That judgement can then be used to collect that debt. 

Just like every other situation I’ve discussed, a bankruptcy stops a garnishment dead in its tracks. Your creditor may end up being able to keep the money they collected before you filed, but from then on, all your money is yours. 

In certain cases, bankruptcy law allows you to recover money your creditor got from you before you filed, but you need to talk to your attorney about what that entails.

Because of the effect bankruptcy has on garnishments, it’s not too late.

When you do it is up to you

At virtually any point during a collection action, filing bankruptcy can put the brakes on a bad situation and give you the ability to eliminate your debt. Once it’s discharged, it’s gone for good and is henceforth, uncollectable.

There are some situations bankruptcy can’t undo.  If you take out a second mortgage or do a cash out refinance to “consolidate” your debt or you raid your 401k to pay back debts you could have otherwise dismissed in bankruptcy, that money is gone and we can’t undo that.  

That’s why it’s always better to plan early rather than wait. 

The attorneys at Harmon and Gorove are ready when you are.  We provide free consultations and seek to give you the best advice, regardless of whether we make money or not.  If you’d like to speak with one of our award winning attorneys, click here to schedule a consultation today.