Indianapolis Bankruptcy Law Blog

The New Year is a time for reflection as well as a time for turning the page and new beginnings. Many people take the opportunity to make New Year's resolutions. Perhaps your resolution has to do with better managing your finances, and eliminating some or all of your credit card debt in 2012.

Getting rid of debt and taking charge of your financial life may seem challenging, but it is also very possible. Below are some suggestions for getting your finances back on track:

1) Make a list of all your debts: Although it may be hard to face the total amount you owe, it is necessary to allow you to plan appropriately.

2) Don't be too hard on yourself: Once you realize how much debt you are carrying resist the temptation to beat up on yourself about how you got there. You want to learn from your mistakes, but focus on moving forward.

If you are buried in debt it is likely you are also behind on your taxes. If you have substantial tax debt you may even be subject to wage garnishment, property seizure or an IRS tax lien. You may think that the IRS would never be willing to forgo collecting unpaid taxes, but this is not the case. In fact, it is possible to discharge some tax debts through bankruptcy.

Filing for Chapter 7 or Chapter 13 bankruptcy may provide you with some tax relief. Not all tax debt, however, is able to be discharged. This list below provides several guidelines about which taxes are eligible:

• Type of Taxes: although income taxes are dischargeable, other types of tax obligations like payroll taxes, business taxes and sales taxes are not dischargeable
• Due Date: the taxes must have been due at least three years prior to your bankruptcy filing
• Return Filing Date: you must have filed the related tax return at least two years prior to your bankruptcy filing
• Tax Assessment Date: the IRS must have assessed the taxes 240 or more days before your bankruptcy filing

Last year banks were required to start complying with the Credit Accountability, Responsibility and Disclosure Act (CARD Act). The CARD Act was passed to protect credit card consumers from unfair billing practices. Unfortunately, there are some loopholes in the CARD Act that allow for rather misleading actions by credit card companies.

Two major loopholes are explained below. Both may be particularly harmful to consumers with significant credit card debt.

An interest rate increase may take effect in 14 days instead of 45 days:

Many consumers are under the impression that they have 45 days before an interest rate increase is applied. This is not really the case. Under the CARD Act credit card companies can actually start applying a higher interest rate/APR 14 days after sending you notice (according to the postmark). Consumers are allowed 45 days before they need to make a payment including the higher interest rate.

Sound confusing? Say your credit card company wants to increase your interest rate. If they send you a notice postmarked September 1^st any purchases you make from September 15 onward will be subject to the higher interest rate. After 45 days, your statement will show the higher interest rate that has been applied to all your purchases since September 15^th.

Essentially instead of a receiving a 45 day notice of an interest rate change, you are given 45 days to determine how you will pay your balance subject to the higher rate.

It's true that bankruptcy negatively impacts your credit score; however, in this tumultuous economy, it is sometimes the only option for individuals to get out of debt and start anew. Bankruptcy may feel like rock bottom, but your credit might have been worse had you not proactively filed for bankruptcy, and instead chosen attempt to manage mounting debts on your own.

By filing for personal bankruptcy your credit may drop between 150-200 points. The plus side, however, is that you can begin to earn those points back through making consistent payments on your accounts going forward.

Without declaring bankruptcy, you may have developed a pattern of late or missed payments on multiple debts. Delinquent payments would register as late every following month. Consistently missed payments may cause your creditor to write the balance off as uncollectible and sell your debt to a collection agency.