File Bankruptcy To Discharge Your Credit Card Debts
Bankruptcy should only be used as a last-ditch option to rid yourself of debt. But under extreme circumstances as when you have no income or you have completely unmanageable credit card payments or medical bills a Chapter 7 bankruptcy filing is appropriate to discharge credit card bills in their entirety.
If you feel morally obligated to repay your debts, you can also look into Chapter 13, which reduces some of your credit card bills. Then you repay the remaining debt over a three- to-five year period.
Lynnette Khalfani-Cox, The Money Coach, is a personal finance expert, television and radio personality, and regular contributor to AARP. You can follow her on and on .
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Get Current On Your Bills
That means you need some extra cashand fast! Whether that means you get a second or third job, start a side hustle making cupcakes, or sell that fancy wedding china youve never taken out of the box.
Dont worrytheres plenty of things you can do to make ends meet:
- Sell your vehicle for a cheap-but-reliable used car instead.
- Have the biggest yard sale ever.
- Dont step foot inside of a restaurant unless you work there.
- Get a second job.
- Consider downsizing your home so you can make more manageable payments.
- Switch your cell phone plan to a pay-as-you-go serviceand use your phone only for emergencies.
- Get a roommate and share the living expenses.
- And no matter if its $5 or $500, any extra money you make should go toward past-due bills.
You always have options!
Work With Your Creditors
Reach out to your creditors to explain your situation. A credit card issuer may be willing to negotiate payment terms or offer a hardship program, especially if youre a longtime customer with a good track record of payments.
If your issuer offers a hardship program, it may provide relief when circumstances beyond your control like unemployment or illness impact your ability to manage payments. Whether you negotiate with your issuer or accept the terms of a hardship program, either option could lead to more affordable interest rates or waived fees, depending on the issuer.
These small changes might be just enough to help you get a handle on your debt, and the worst that can happen is they say no.
Make Changes That Will Lower Your Tax Burden In The Future
Its intimidating to know you owe money right now. But, there are solutions for that debt and stress.
Look ahead at how you can address future tax bills that youll have to pay. Perhaps you need to adjust how much you withhold from your paychecks, or how much you pay for your estimated taxes.
Can you make changes to your budget and spending so you have better cash flow? If you have more available money, you can potentially pay down future installment plans earlier. You also may not have to worry about where the money is coming from to pay your next tax bill.
Finally, get assistance from a tax professional or financial advisor on effectively planning for future tax burdens. Maybe you can start a retirement account that can lead to deductions that lower how much you end up paying. When you improve your financial planning, youll put yourself in a position that lessens the worry and stress associated with tax time.
Covid Relief For Homeowners
The forbearance program for homeowners whose loans are backed by HUD, FHA, USDA or the VA came with a June 30, 2021, deadline to apply for relief. There is no deadline for those with home loans backed by Fannie Mae or Freddie Mac, but the catch is to get an extension, they have had to have been in a forbearance program as of February 2021. If you are having trouble paying your mortgage, because of COVID-19 or anything else, the best thing to do is to find out who services your mortgage , and contact them to find out what can be done to help.
The U.S. Department of Housing and Urban Development has programs, set up long before the pandemic, to help people avoid foreclosure.
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Can Medical Debt Be Forgiven
If you have outstanding medical bills that are past due, your creditors might be willing to agree to a debt settlement. This would allow you to pay less than what’s owed to satisfy the debt, with the remainder forgiven. You can negotiate a debt settlement on your own or hire a debt settlement company to do so on your behalf.
Is The Debt Gone Forever
Not always. If the debt is statute barred, or your bankruptcy period has passed, then it is probably gone.
Otherwise, if you get money in the future for example, if you are on Centrelink payments now but get a job later the creditor may be able to get back the money you owe them.
Any remaining debt will get bigger because interest will be added, so the creditor may get back more money than you originally owed.
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Consider Cashing In Your Life Insurance
Cashing in your life insurance may be a viable debt payoff strategy because it will give you a chance to pay down larger amounts of debt quickly. If you feel like you are drowning in debt and don’t have beneficiaries that need to benefit from your life insurance policy for example a spouse or children then it might make sense to use those funds to pay off debt.
This strategy doesn’t apply if you own a term life insurance policy. It only works for those with whole life policies that have built up cash value. It’s also important to note that even if you do have beneficiaries, you may be able to tap into part of the cash value of your whole life policy, getting cash for debt reduction and still leaving some life insurance proceeds to your loved ones.
Know Where To Get Help
If you’re having trouble paying down your debt on your own, get help.
If you need help you can contact:
- an accredited not-for-profit credit counsellor
- a financial advisor
They may suggest you explore other community and professional services first.
With their help, you’ll be able to:
- evaluate your current debt situation
- determine your present and future needs
- make a budget
- find ways to pay off the debt
Before you sign up for services to get help to pay off your debt, it’s important to explore your options and compare the different services offered.
Consider Debt Settlement Or Bankruptcy
If you have a serious amount of debt that there’s no real way you can feasibly repay, debt settlement or bankruptcy may be your only solutions.
Debt settlement involves working out a deal with your creditors to pay back less than the current total you owe. This deal could involve making one big lump sum payment or entering into a payment plan that reduces interest and fees owed.
If you can’t escape your debt problems by settling debt, bankruptcy is an option of last resort. Chapter 7 bankruptcy allows for debts to be discharged after certain non-exempt assets are taken to pay back your creditors. Chapter 13 allows for debts to be discharged after you complete a three- to five-year repayment plan.
Bankruptcy, of course, does serious long-term damage to your credit. But it also helps you escape from the debt trap once and for all. After bankruptcy, you can get a secured card and start slowly working on rebuilding credit. This is better than continuing to throw good money away trying to pay back debt you’ll never repay completely while your credit score keeps going down because of month after month of maxed out credit cards and late payments.
Dont Just Stop Paying Your Bills
The worst thing you can do in a financial crisis is to just stop paying your bills, or to assume you will automatically get a payment holiday. Dont stop paying until you have spoken to your credit providers. If you stop paying your bills without talking to your lenders, or making arrangements for a payment holiday, your credit score will be affected negatively.
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How Can I Avoid Being Affected By The Right Of Set
Ideally, Joan should do the following as soon as possible:
- Close her bank account at ABC Bank or withdraw all or virtually all of the money she currently has on deposit in that account
- Open a new bank account at another financial institution
- Deposit some money into her new bank account at her new financial institution
- Contact her employer and arrange to have her paycheque deposited into her new bank account
- Contact the government and make arrangements for her baby bonus payments to be deposited into her new bank account
- Contact her creditors to whom she was making monthly payments using Pre-Authorized Debit payments and provide them with authorization for Pre-Authorized Debit payments from her new bank account
- Contact her creditors to whom she was making monthly payments using Pre-Authorized Debt payments using her ABC Bank VISA and make alternative arrangements for paying these creditors
Contact Your Creditors Asap And Let Them Know About Your Financial Shortfall
If you know there are creditors you aren’t going to be able to pay, you shouldn’t just skip your payment. You should contact the creditor as soon as possible and explain that you’re having a hard time and can’t pay the bill.
The creditor may be willing to put your loan into temporary forbearance if your financial shortfall is a short-term one, or may allow you to work out a repayment plan. If you’re able to work with your creditor, it’s sometimes possible to limit fees and other fallout that comes from not paying what you owe.
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Pay As Much As You Can
When it comes to the IRS, paying something is better than paying nothing. Consider using your savings, home equity, or credit cards to make some kind of payment. It should help you reduce tax debt and penalties at a faster rate.
Determine what you think you can pay that doesnt create a bigger burden on yourself and your family. This is important when deciding your next plan of action, which is going to the IRS to negotiate an installment plan.
Covid Relief For Parents
One of the most beneficial programs for parents is the enhanced Child Tax Credit, which was part of the March 2021 American Rescue Plan. It is not a tax deduction, its not an advance on your tax return. It is free money $3,000 for each child between 6 and 17, and $3,600 for each child under the age of 6. Its for single parents who make less than $75,000 a year, or couples who make less than $150,000. Beginning in July 2021, parents who qualify and paid 2020 taxes will begin getting monthly checks of $250 for each child for the older child bracket and $300 for the younger bracket. The checks come every month through December 2021. The second half of the tax credit $1,500 or $1,800, depending on the childs age will arrive in a lump sum in April 2022.
Another new feature is that low-income families who didnt make enough money to file taxes will still get the credit. They must sign up for it at the IRS Child Tax Credit Non-Filer Signup Tool.
The IRS estimated nearly 39 million households representing 90% of the children in the United States will get the money. While the enhanced credit is only a one-year thing, a movement is on to make it permanent.
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Check If You Can Get An Individual Voluntary Arrangement
If you get an IVA you agree to pay off your debts with one monthly payment, usually over 5 years.
Your IVA will be organised by a specialist, called an insolvency practitioner. This will usually be a solicitor or an accountant and theyll deal with your creditors for you.
Youll have to pay the insolvency practitioner for their services. The fees will be added to your repayments. The fees for an IVA can vary and are usually much higher than for other debt solutions. If you get an IVA you should make sure you understand how much youll have to pay the insolvency practitioner and when.
Not all your creditors need to agree to an IVA for you to get one. You’ll need the agreement of creditors who cover at least 75% of the total amount you owe. Read more about how creditors agree to an IVA proposal.
Your creditors can’t contact you about the debts included in the IVA while it’s in place or take any action against you to get their money back.
An IVA might be a suitable option if you:
- have more than one debt and 2 or more different creditors
- owe more than £10,000
- have a regular, steady income
- can pay at least £100 a month towards your debts
- it might be harder for you to borrow money while you have an IVA – check how an IVA affects your credit rating
File Your Tax Return Regardless Of Whether You Can Pay Or Not
Youll see how much you owe when you calculate your taxes or have your tax professional do it. At that point, you havent filed or e-filed your tax return yet. When you see the amount owed and know you dont have the funds to cover it, your first reaction may be not to file your taxes yet.
Thats the worst decision you can make, however. Not only will you owe money to the IRS for those taxes, but you may also have to pay a failure-to-file penalty. This penalty can be as much as five percent of your unpaid tax bill owed for each month you go past the usual April 15th deadline . This penalty tops out at 25 percent of what you owe on your taxes for that year.
In contrast, if you go ahead and file your taxes but dont pay, the penalty is a fraction of that. The IRS will tack on half a percent of what you owe for each month you dont pay your tax bill in full.
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What To Do If You Cant Pay Your Taxes
May 18, 2021
Canada Revenue Agency
If you are struggling with your tax payments, you can work with the Canada Revenue Agency to find ways to pay your tax debt based on your financial situation. Let us help you.
We know these are still challenging times. If you cant make any payment, your tax debt will grow with the addition of interest charges. Lets work together to determine what your options are.
You have several payment options if you cant pay your tax debt in full:
How Can You Dig Yourself Out Of Debt And Save At The Same Time
Yes. You can dig yourself out of debt and save at the same time, but it takes planning. First, tackle the high-interest debt, and always pay the minimum balance on your credit cards and loans. Plan to save a small percentage of your paycheck for your nest egg, as you pay down your loans. Even a small amount in a savings or money market account will add up over time.
Another way to dig out of student debt is to consider finding a job with a higher salary and allocate more money to paying down your loans.
Can You Be Sued By Your Creditor
If you owe monies to your creditor and have stopped making payments as agreed, there is a chance that your creditor will sue you. However, launching a law suit isnt free your creditor will incur significant professional and administrative expenses. It is possible for a creditor to sue a debtor and not to recover a penny from them. Your creditor will be much more inclined to sue you if they are confident the odds are high that they will actually recover monies from you.
1. When might your creditor be inclined to sue you?
Your creditor might sue you under the following three conditions:
- The dollar amount owing is significant enough
- The relevant limitation period on the debt has not expired
- You own real property in your own name
Most large creditors in Canada will not sue regarding outstanding accounts of less than $4,000. This threshold for suing could be significantly higher depending upon the creditor.
Creditors are not likely to sue consumers if the relevant limitation period, or statute of limitations has expired such a suit would not likely succeed.
2. When might your creditor not be inclined to sue you?
To learn more about the likelihood of being sued, read the article, Nine Reasons Why Your Creditor Might Never Sue You.
3. What will a creditor do when it intends to sue you?
In event that a creditor wants to sue an account, it might do one of the following:
Use Caution When Shopping For Debt Relief Services
Avoid any debt relief organization whether its credit counseling, debt settlement, or any other service that:
- charges any fees before it settles your debts or enters you into a DMP plan
- pressures you to make “voluntary contributions,” which is really another name for fees
- touts a “new government program” to bail out personal credit card debt
- guarantees it can make your unsecured debt go away
- tells you to stop communicating with your creditors, but doesnt explain the serious consequences
- tells you it can stop all debt collection calls and lawsuits
- guarantees that your unsecured debts can be paid off for pennies on the dollar
- wont send you free information about the services it provides without requiring you to provide personal financial information, like your credit card account numbers, and balances
- tries to enroll you in a debt relief program without reviewing your financial situation with you
- offers to enroll you in a DMP without teaching you budgeting and money management skills
- demands that you make payments into a DMP before your creditors have accepted you into the program
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