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Recent Blog Posts
What is the Difference Between Debt Settlement and Bankruptcy?
Being in debt is not uncommon. According to Bankrate, consumer debt across the United States has reached $14.2 trillion, with the average American being nearly $93,000 in total debt. There are many different types of debt, including credit card debt, student loans, car loans, or personal loans. When you are in debt over your head, you have a couple of options when you are seeking assistance. Both debt settlement and bankruptcy can help you get out of debt, but the method through which they do that could not be any more different.
Debt Settlement
Debt settlement is an alternative to bankruptcy that may be right for some people. Debt settlement occurs when you or a representative from a debt settlement company contact your creditor to negotiate a settlement amount that is typically much lower than the original amount you owed. In some cases, you may be able to negotiate the settlement so that you are only left responsible for 50 to 70 percent of what your total debt was. The upside to debt settlement is that it is not a legal process. You do not have to file anything with the court. Furthermore, debt settlement does not have the same long-term effect on your creditworthiness as bankruptcy.
Answers about Medical Bankruptcy
Even though legally, there’s no such thing as a medical bankruptcy, many bankruptcies are caused by medical problems. Here’s a Q&A about these.
In the last two weeks, we’ve written about health insurance. Two weeks ago, we discussed the six months of free health insurance provided by the recent American Rescue Plan Act. Last week we got into the broader topic of health insurance and bankruptcy. Today we broaden it out even more with a Q&A about medical bankruptcy.
What is Medical Bankruptcy, Legally?
Although the phrase is thrown around a lot, legally, there is no such thing. The legally designated types of bankruptcy are labeled according to their Chapters in the U.S. Bankruptcy Code. Chapter 7, the so-called “straight bankruptcy,” and Chapter 13 “adjustment of debts,” are the most common forms of personal bankruptcy. Both Chapter 7 and 13 can deal effectively with medical debts and other financial problems arising from medical events.
Health Insurance and Bankruptcy
Having health insurance is extremely important. Both Chapter 7 and Chapter 13 bankruptcy can help you get and keep your health insurance.
Last week we discussed the 6 months of free health insurance provided by the recent American Rescue Plan Act. It may apply to you if you lost your job and your health insurance with it. If this applies to you please check out that blog post.
Today’s blog post gets into the broader topic of health insurance and bankruptcy.
There’s lots of evidence “that medical bills are the single largest causal factor in consumer bankruptcy.” Medical Debt as a Cause of Consumer Bankruptcy. Studies have been showing this for many years.
What may be more surprising is that most people who file for bankruptcy have health insurance at the time of filing. According to one study, nearly 70% of personal bankruptcy filers had health insurance. Medical Bankruptcy in the United States, The American Journal of Medicine.
What Is a 341 Meeting of Creditors During a Texas Bankruptcy?
The United States Bankruptcy Code allows for different types of bankruptcy under certain circumstances. Only some of these are available to individuals, with the two most common types of bankruptcies being Chapter 7 and Chapter 13 bankruptcies. Even though the steps taken to discharge debts are different, both Chapter 7 and Chapter 13 bankruptcies must take a few common steps. One of those steps is the meeting of creditors, also known as the "341 meeting of creditors" or the "341 hearing" after the portion of bankruptcy code it is written into. No matter the type of bankruptcy you end up filing for, understanding the steps of the bankruptcy process are important.
What Is a 341 Meeting of Creditors?
In most cases, you will not have to appear in court before a judge to complete your bankruptcy. One of the most important steps of the bankruptcy process is the 341 meeting of creditors, which typically takes place in a courthouse, with a trustee presiding over the hearing, rather than a judge. The purpose of the meeting of creditors is essentially for the bankruptcy trustee to verify your identity, ensure your forms are filled out correctly and that all of the information given is accurate.
Get 6 Months of Your Health Insurance Premiums Paid
You could get 100% of your health insurance paid from April through September 2021 if you lost your employer-based insurance during the pandemic. Last month’s American Rescue Plan Act included the $1,400 stimulus payments, expanded unemployment insurance, and many other benefits. One other lesser-known benefit pays your health insurance if you’ve lost your job and your health insurance with it. Today’s blog post talks about this new free health insurance.
What is This Health Insurance Benefit?
This benefit could potentially pay your and your family’s entire health insurance premiums for April through September of 2021. The White House, American Rescue Plan.
That could save you lots of money. You’d save by not having to pay the monthly insurance premiums. You could especially save by having coverage for any health care costs that would arise during this time.
How Does the Process Work When You File for Bankruptcy in Texas?
If you intend on filing for bankruptcy, then you likely already have a decent idea of what a bankruptcy is. For many people, filing for a bankruptcy is a way to get a fresh financial start and change their lives immensely, yet many people do not actually understand what the process entails. The bankruptcy process consists of various steps that must be taken in order to accurately complete the process. Though the majority of the process consists of paperwork and other administrative tasks, it can be daunting to some, which is why hiring a skilled bankruptcy attorney is recommended.
- Attend Pre-Bankruptcy Credit Counseling: Before you even begin your case, you are required to complete pre-bankruptcy credit counseling. This is typically one meeting that lasts for an hour or two with a credit counselor who is approved by the U.S. Department of Justice. This course must be completed within six months prior to your bankruptcy filing and usually involves discussing your financial situation and your options for bankruptcy.
If You Already Owe Income Taxes
What do you do (and not do) if you already owe 2018 or 2019 income taxes, or taxes from earlier years, and haven’t sent in the latest tax returns? What if you owe 2020 income taxes even though the IRS is not taxing $10,200 of unemployment income that year? That was our topic last week. The first $10,200 of unemployment is not being taxed because of last month’s American Rescue Plan Act. This week’s topic covers your options if you owe income taxes for prior tax years. Even if you don’t owe for 2020, or owe less, that may not help much if you were already behind.
If You HAVEN’T Submitted Recent Tax Returns
For tens of millions of Americans, the last year has been the most financially disruptive in their lifetimes. Many lives were turned upside down around a year ago. If that includes you it’s understandable that you had trouble preparing and sending in your 2019 income tax returns.
If You Owe Taxes (Even If Unemployment Benefits Aren’t Taxed)
Do you owe 2020 income taxes even though the IRS is now not taxing the first $10,200 of unemployment income? What to do and not to do.
Last week we discussed the extent to which unemployment income is not taxed because of the American Rescue Plan Act. Generally, you don’t pay federal (and possibly state) income tax on the first $10,200 in benefits you received in 2020. Section 9042(a) of the Act. (See our last blog post about qualifying for this, and other details.)
Let’s get into two significant practical problems you may still have in spite of this substantial benefit:
- You received more than $10,200 in unemployment benefits and so you owe income taxes on that extra amount.
Unemployment Benefits Not Taxed
If you are among the one in four Americans who received unemployment benefits during the pandemic, the IRS is not taxing the first $10,200 of it.
Unemployment Benefits Are Generally Taxable
As the IRS states plainly, “[i]f you received unemployment compensation during the year, you must include it in gross income.” Unemployment Compensation, IRS Topic No. 418. Furthermore, “unemployment compensation” explicitly includes not just the usual “state unemployment insurance benefits.” It also includes “Federal Pandemic Unemployment Compensation provided under the . . . CARES Act of 2020.” Unemployment Compensation.
If you received unemployment benefits in 2020, you had the option of having income taxes withheld. Or you could have paid quarterly estimated tax payments. But you may not have been aware that unemployment benefits were taxable. Or money was so tight that there just was not enough to have some of it withheld. And there was not any money to pay estimated tax payments if you even realized when those were due.
Avoid Misuse of Your $1,400 Stimulus Funds
Paying your stimulus money to various combinations of creditors, in the hopes of avoiding bankruptcy or before a planned one, is dangerous.
Before You Make Decisions That Hurt You
Last week we introduced the radical idea that the best use of your upcoming or already received $1,400 stimulus payment might be to pay for a bankruptcy case. We focused then on how to figure out when you should throw in the towel and decide to file bankruptcy. One clue is if you find yourself making questionable decisions. That can mean that you are starting to feel desperate. Then the bad decisions can turn your situation even worse.
The problem is that you often do not have enough information to know whether a financial decision is a smart one. They often involve having legal knowledge that you would have no reason to know. It is often impossible to know what is sensible and what is not without understanding the legal consequences. Today we give some examples where sensible-seeming choices end up being a mistake.
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