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Top Causes of Bankruptcy

This post is the first in a series about the most common causes of personal bankruptcy. The stereotype of a person who declares bankruptcy is generally not flattering. Often they are depicted as someone who spends without thinking, uses credit cards recklessly, and has absolutely no financial discipline. The truth be told though is most people find themselves facing a bankruptcy through circumstances over which they have no control. The five most common causes of personal bankruptcy are medical expenses, job loss, out-of-control spending, divorce, and unexpected disasters.  Of all these reasons, medical expenses are the cause of most personal bankruptcies.

A Greater Percentage than Expected

According to a study published in the American Journal of Medicine, in 2007, medical bankruptcies accounted for 62.1% of all bankruptcies. This percentage of bankruptcies had increased 49.6% from 2001. Surprisingly, most of the people who declared bankruptcy due to medical expenses were not poor but well-educated homeowners with middle-class incomes. However, even with a middle-class income, these people had to declare bankruptcy because their illnesses caused significant income loss.

Three-quarters of people who declare medical bankruptcy have health insurance. Unfortunately, health insurance is usually insufficient when the medical bills start to pile up. For instance, if a person is covered by an 80/20 health insurance plan and their final medical bill is $100,000, they’re on the hook for $20,000. Most people are not able to absorb an unexpected $20,000 shortfall in their income, and if they lost wages during that period it gets even more disastrous.

Getting Legal Help

Illness can overwhelm you with stress. In addition, the financial strain that results from hospitalization can be unbearable. If you are in financial trouble from medical bills there is help available to you. Stephen Behm is a Minnesota bankruptcy attorney that will treat you with the respect you deserve and show you how a medical bankruptcy can provide you with the financial relief and protection you need.

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Dealing with Financial Mistakes in a Tough Economy

When thrown into the depths of financial hardship you simplify your life as much as possible. You cut corners on all of your spending; you pinch your pennies as hard as possible and even cut coupons to stretch every cent. But still, the bills continue to arrive in your mailbox each day. The electricity, water, gas, garbage and phone bills come due. You’re upside down on your mortgage, the car needs repairs, the repairman just told you your furnace is in serious need of replacement. The stress is unimaginable and unending. What can you possibly do in this time of unrelenting strain and anxiety?

First try a few simple steps:

•    Organize yourself to be certain you have cut costs in every area of your life. For example, can you cut back on eating out to pay the garbage bill? Can you rent a movie instead of going to the theater? Would taking a mini-vacation instead of spending big bucks on a full blown retreat make better financial sense?

•    Consolidate your debt at a low interest rate. Once done, cut up or cancel the credit cards so they can no longer be used.

•    If you have established so-called “payment plans” with your creditors or their collection agents, try to determine if you are able to significantly reduce your debts or if you are just treading water and not reducing your debts. Keep in mind that creditors and their collection agents make a lot of money with interest rates and penalty fees. The longer you participate in a “payment plan” the longer they can charge those interest rates and penalty fees and the more money they make.

•    Try to focus on and pay off the debts with the lowest balances first. By eliminating at least some of the debtors, you will be able to simplify your debt portfolio. This will allow you to focus your attention and resources on debts with higher balances.

If you have truthfully done these things and there is still no light at the end of the tunnel, then bankruptcy may be your only option. Stephen Behm and the Behm Law Group specialize in bankruptcy law and can help you through the stressful financial worries overwhelming you and your family. They will work with you to determine which type of bankruptcy will best resolve your situation and they will guide you through the misinformation that is spread throughout the media.

No matter how you have accumulated the debt, keep in mind that it will get better and you can regain your peace of mind. Contact the Behm Law Group to take a healthy and productive step forward to relieve yourself of the stress and emotional and physical tension that debt can cause.

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Can Taxes be Discharged in Bankruptcy?

If you have oppressive tax debt that is only metastasizing larger, like a cancer, because of interest and penalties assessed by the IRS, you may have abandoned all hope that you will ever be rid of them. Indeed, many people believe that tax debt is something that is next to eternal — something that will be with someone throughout one’s entire life. In bankruptcy, some tax debts are not subject to discharge but many are subject to discharge as long as certain criteria are met.

Under 11 U.S.C. §523 (Exceptions to Discharge), certain taxes are not discharged in bankruptcy if they are deemed “priority” tax debts under 11 U.S.C. §507 (Priorities). In other words, a particular tax debt must have certain characteristics that cause it to fall within one of the priority categories enumerated in §507.

Consider for instance debt stemming from property taxes. In order to be given priority status in bankruptcy under §507 and, therefore, not be subject to discharge in bankruptcy, a property tax debt must be incurred prior to the start of a bankruptcy case and last payable, without penalty, after one year before the filing date of  a bankruptcy. This means that if a property tax was incurred and last payable, without penalty, more than one year before the filing of a bankruptcy it can be discharged.  Consider that someone has a property tax debt for tax year 2009 and that the debt would have been payable, without penalty, by December 31, 2009. Consider also that the same person files for bankruptcy relief on January 1, 2011. Under these circumstances, the property tax debt would be subject to discharge in bankruptcy because it was incurred in 2009 and last payable, without penalty, by December 31, 2009, more than one year before the filing of the bankruptcy on January 1, 2011.

Consider also tax debt that arises from someone not withholding sufficient funds out of one’s paycheck to satisfy the appropriate tax liabilities for one’s particular level of income. Such tax debt is typically referred to as “1040 tax debt.”  Even this kind of tax debt can be and is discharged in bankruptcy as long as certain criteria are satisfied.  Under 11 U.S.C. §§507 and 523, 1040 tax debt will be priority debt as long as the tax is for a tax year ending on or before the filing of a petition AND:

a. Stems from a tax return or an equivalent report or notice that is due less than 3 years before the filing of a bankruptcy case;
b. Is assessed within 240 days of the filing of a bankruptcy petition;
c. The tax return or an equivalent report or notice for the tax debt is filed less than 2 years before the filing of a bankruptcy case.

So, let’s say that someone owes 1040 taxes on a return for tax year 2000 and let’s further assume that the person files for bankruptcy on January 1, 2011.  The tax returns for 2000 would be due by April 15, 2001. Let’s assume still further that the person duly files the tax returns by April 15, 2001.  In this circumstance, the 1040 tax debt would be discharged in bankruptcy because it stems from a tax return that was due on April 15, 2001 which is more than three years before January 1, 2011. Upon the filing of the tax return on April 15, 2001, the tax debt owed for tax year 2000 would be deemed “assessed” as of that date. The date of the assessment – April 15, 2001 – would be more than 240 days prior to January 1, 2011. Since the person filed tax returns on April 15, 2001, the third part of the above rule would also be satisfied because April 15, 2001 is more than 2 years before January 1, 2011, the filing date of the hypothetical bankruptcy petition.

Be advised, however, that the discharge of tax debt in bankruptcy is a highly nuanced and complicated area. There can be ways to discharge tax debt but an experienced, highly qualified and specialized attorney is required to get it done right. Contacting and scheduling a free appointment with a knowledgeable and reputable bankruptcy attorney who can offer expert advice and customize a path towards true financial freedom is only the first step.

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Top 10 Bankruptcy Do’s and Don’ts for Those Contemplating Bankruptcy

If you are contemplating filing for bankruptcy relief, you need not be afraid of the bankruptcy process.   However, the filing of a bankruptcy should not be perceived as being “easy.”  In short, serious problems may arise if you do not approach the process with due care and respect.   There are some things that you want to avoid which could make the process a lot more complicated than it needs to be.  Conversely, there are things that you can do that could make the process a lot more simple and uncomplicated.

TOP 10 BANKRUPTCY DON’TS

1.  Don’t transfer or give any of your property to friends or relatives.

2.  Don’t “pay off” any debt to any friend or relative thinking that you then will not have to include that person in your bankruptcy.

3.  Don’t pay off  friends’ or relatives’ debts for them.

4.  Don’t sell any of your property for less than its fair market value.

5.  Don’t invest any of your limited time, energy and resources with any so-called “debt settlement companies” who will only take your money and make false promises about being able to “settle” with your creditors.

6.  Don’t incur new debt on your credit cards and do not use them to gamble at casinos or otherwise.

7.  Don’t rely on or put faith in much of your own research that you may have done on the internet because a lot of the information is just flat wrong, even from the sites of attorneys who claim to be “experienced.”

8.  Don’t believe the threats and fear-mongering collection agents and creditors may be giving you because they can’t do what they may be threatening at all or for a very long time.

9.  Don’t cash in life insurance policies or 401k plans to pay off or pay down creditors.

10. Don’t use one credit card to pay off another or to pay your taxes.

TOP 10 BANKRUPTCY DOS

1.  Do retain a qualified and truly experienced bankruptcy professional and thoroughly investigate anyone whom you are considering hiring because there are a lot of attorneys who are actually very new to the practice of bankruptcy law but who purposefully misrepresent themselves as “experienced” or “highly qualified.”

2.  Do make sure that all of your state and federal tax returns have been filed.

3.  Do disclose ALL of your property for your attorney and expect your attorney to explain why you need to disclose ALL of your property and how you are to disclose it in your bankruptcy petition and related schedules.

4.  Do understand that bankruptcy is nothing to be afraid of but that it merits a very healthy respect because the bankruptcy petition and related schedules that you complete with your attorney are not just “forms”; rather, they are legal pleadings that you and only you sign subject to penalty of perjury.

5.  Do expect your attorney to be knowledgeable about the bankruptcy process, to be able to thoroughly explain the bankruptcy process to you, to timely answer all of your questions, to return your telephone calls and to get you through the bankruptcy process with as little disruption to your life as possible.

6.  Do disclose ALL of your creditors, including student loans, friends and relatives, criminal fines, overdraft fees, medical bills, tax debts, child support debts, past due utility bills and ALL other creditors and all other parties who MAY have any legal claims against you, such as via a motor vehicle accident or damage to property.

7.  Do maintain documentation concerning your debts and assets including, but not limited to, billing statements, state and federal tax returns, mortgages and vehicle purchase agreements,  title certificates for your vehicles, boats, ATV’s, etc., deeds and property tax statements concerning land in which you may have an ownership or possessory interest, 401k statements, life insurance policies, savings bonds, homeowners insurance policies, divorce decrees, and jewelry appraisals.

8.  Do understand that bankruptcy DOES nullify or discharge your legal and contractual obligations to pay most of your creditors’ claims but that it DOES NOT necessarily make your debts go away or disappear and that some claims, such as criminal fines, survive bankruptcy.

9.  Do accept the reality that sometimes people can and do lose property in bankruptcy but that this is the exception rather than the rule.  Sometimes the loss of property is unavoidable and one must accept that but keep in mind that a truly competent bankruptcy professional can minimize such a consequence and can even, sometimes, prevent it from happening.

10.  Do consult with parents or friends or relatives (you do not have to tell them why) about whether they have listed you in a will or put your name on their land or on any of their bank accounts.

Keep in mind that you WILL  get bankruptcy relief as long as you follow the road map which is the bankruptcy code.  Your case will be approved as long as you are honest and forthright in your bankruptcy petition and related schedules.  The key to a successful bankruptcy proceeding is to disclose, disclose, disclose in your bankruptcy petition and related schedules and to testify truthfully at your bankruptcy hearing.   Know that bankruptcy may not be right for everyone.  Sometimes, the best option is not to file a bankruptcy at all.  However, hiring a competent and qualified bankruptcy professional will make all the difference.  Any truly skilled professional will help determine whether the bankruptcy process could be either a benefit to you or a nightmare.

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What is Bankruptcy?

The word “bankruptcy” has roots from two words found in ancient Latin; “bancus” which translates to “bench,” and “ruptus,” which can be interpreted as “break” or “shattered.” In ancient times a “banker” would set-up his bench in the market area and conduct his business. When a banker failed or lost his money, the bench would be broken and put on public display so everyone would know that this particular banker was out of business or “broke.”

In ancient Greece, bankruptcy did not exist. If someone became indebted to another, they became “debt slaves” until their obligation was discharged. Thankfully, England began to write laws and statutes in the 14th century that dealt with insolvency, providing the model for laws adopted by the United States and specifically dealt with in our Constitution. Although guidelines exist, bankruptcy law varies from state to state.

Across Minnesota and the country there has been an alarming, and news-making, increase of bankruptcy cases filed over the past several years. Student loan debt is a hot topic issue as students, carrying many thousands of dollars in student loan debt, graduate and face a struggling economy and sluggish job growth.   Along with an alarming increase in medical costs (which is the number one cause of bankruptcy), these two dilemmas can add to the financial burden of those subjected to sudden lay-offs, lengthy unemployment, prolonged unproductive employment searches and/or underemployment. Divorce can also put tremendous financial strain on both parties. These are not rare occurrences but things folks deal with every day which can stress financial wellbeing past tolerable limits.

Whatever may have caused an accumulation of unmanageable debt, make sure that you take the time to find a qualified attorney to advise and represent you. If you live in Southern Minnesota, the certified and experienced legal firm you can trust to work hardest for you when your financial future is at stake is the Behm Law Group.

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Financial Dysfunction and Fun Have Never Gone Together

The phrase “Let’s put the fun back into dysfunctional!” has become famous over the years. It can be found on coffee mugs, bumper stickers, magnets and more. The one place it can’t be found is your finances, especially if you are going through a bankruptcy. Since the Great Recession hit a few years ago, many people who thought the big b-word could never happen to them have had to file for personal bankruptcy.

Even businesses that appeared rock-solid, from mega retailers to mom and pop stores, have had to file for bankruptcy protection during these times of financial meltdowns. Banks and lending institutions that previously provided loans have experienced fiscal woes of their own, crippling manufacturers and retailers alike in their ability to refinance and obtain credit in order to continue production and sales.

The good news: bankruptcy filings have gone down. The bad news: they’ve gone down from recent record highs. The record high number of bankruptcy filings was not an isolated event. It happened all across the country, in small towns and big cities alike. Mankato, Minnesota, a community that’s received lots of praise on the national level, was just as financially rocked as the communities that surround it.

Many who face a potential bankruptcy cringe at the thought of having a spotlight cast upon their financial troubles. To protect assets however, one must fully disclose all financial information to their bankruptcy lawyer when filing for bankruptcy. Bankruptcy attorneys are there to help, not to judge those filing to seek financial protection. Whether you need to file a Chapter 7, Chapter 11 or Chapter 13 bankruptcy, your bankruptcy lawyer is going to need all pertinent financial records so they can help you protect your assets.  With their professional assistance your dysfunctional finances can receive renewal, giving you a fresh start and a way back to being in control of fully functioning finances.

Typically, Mankato likes to “rock it” in the music scene. Rolling Stone magazine recently shone a light on Mankato, Minnesota’s music scene and ranked Mankato among the top 50 college towns for its vibrant music scene. Many would agree that it’s fun to “rock on” in life but being “on the rocks” financially and facing bankruptcy is no fun in any sense of the word.  If you find yourself helplessly staring at a financial crisis with no apparent way to work it through, contact us and let us provide you with “rock solid” and professional support if a bankruptcy is required.

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Sometimes Bad Things Happen to Good People

Few things in life can be as embarrassing as having to admit that you need to declare bankruptcy.  Maybe you associate bankruptcy with some sort of failure: be it a financial or even moral failure.

However, there are many things that can lead to bankruptcy that are not your fault such as a job loss, mounting medical bills, a lawsuit, or other types of financial hardship.

And even if you feel like it is your fault, our experience is that there are many things out of your financial control that may have led to your need to declare bankruptcy.  Many good people have had to declare bankruptcy, and declaring bankruptcy doesn’t make you a bad person.

If you are in a position where you have to declare bankruptcy, the best way to look at it, is a means to getting a fresh start in controlling and rebuilding your financial life.  It is a legal process by which you can get relief from overwhelming bills and start to rebuild your finances again.

However, bankruptcy is not something to enter into lightly.  It can be complex, and there are consequences you need to know about.  That’s why you need an experienced bankruptcy lawyer who can lead you through the maze of legal requirements you will need to navigate regarding bankruptcy law.

At the Behm Law Group, located in Mankato, Minnesota, we pride ourselves on our extensive experience and expertise in bankruptcy law and limit our practice to bankruptcy cases only.

We know that sometimes bad things happen to good people, and we’ll treat your case with privacy and respect.  We will work at your side to achieve the legal relief your case demands in order to help you attain a new and fresh start.