Many Americans struggle with paying their federal taxes. Even though you know you have to pay taxes every year, you have found it impossible to do. You may hear people complain about student loans, credit cards, and rent or mortgage payments, but their tax debt can be just as much of a headache.
Bankruptcy has helped many people who have found themselves unable to manage their debt, but if you are considering bankruptcy, you may have questions about your tax debt and whether or not this debt can be included.
What is bankruptcy?
Tax debt is just another financial burden that many Americans are looking to unload, making bankruptcy very appealing to those who have an ever-growing pile of debt. Bankruptcy is a legal process of eliminating or decreasing a person’s debt. There are several bankruptcy chapters available to individuals, but you’ll likely choose between Chapter 7 and Chapter 13 bankruptcy when dealing with tax debt.
Each chapter will determine how much of your debt, what kinds of debts, and how the debt will be reduced or discharged. For example, Chapter 7 will require the debtor’s assets to be sold to repay debts. Chapter 13 requires debtors to repay all or a portion of the debt over three to five years. Depending on your financial situation, you may not even qualify for Chapter 7.
Can you include tax debt in bankruptcy?
Your primary motivation for filing bankruptcy may be to relieve yourself of all responsibility for your debt. You may have accrued various debts over the years, but your tax debt may be the one that is the most overwhelming. Bankruptcy can give you the relief you need, but keep in mind that certain debts cannot be discharged through bankruptcy. Luckily, Federal tax debt can be included in a bankruptcy, so it could be the answer to your problems when you simply can’t afford to pay off this debt.
Between the available bankruptcy Chapters, or options, many consumers opt for Chapter 13. This specific chapter of bankruptcy does have requirements, so not every taxpayer is eligible. You’ll want to make sure you are what the IRS considers a wage earner, self- employed or sole proprietor of a business.
Additionally, if you are planning to file Chapter 13, there are a few things you will want to note about filing your taxes.
- Taxes must be filed every year during your bankruptcy.
- Taxes must be filed for every year within four of your bankruptcy.
- Taxes must be paid by the due date.
Should you file for bankruptcy?
Many people choose to file bankruptcy when they can’t afford to pay down their debt. Before opting for bankruptcy, you will need to have a clear picture of things. Consider evaluating your circumstances and financial situation, including your income, total amount of debt, expenses and more, to determine if you truly cannot afford to pay down your debt.
Keep in mind that while filing bankruptcy may eliminate or reduce a person’s debt, the negative impacts shouldn’t be ignored. For example, filing bankruptcy will affect your credit score and your ability to obtain new credit. Before filing for bankruptcy, consider the effects, how long they will last and what plans you may have for your financial future that may have to be put on hold until you recover from bankruptcy.
Ultimately, it is up to you if you wish to file for bankruptcy. It is understandable that when your debt becomes overwhelming, you will start to consider the many ways you can get relief. If bankruptcy is the ideal solution for your situation, then you should be debt-free in a matter of years.
Have questions about how bankruptcy may affect your credit or how you can recover from bankruptcy quickly? Schedule a free consultation with us today!
Managing Your Finances When Living Paycheck to Paycheck (Tips)
It is never ideal for a person to live paycheck to paycheck. And if the idea of living paycheck to paycheck sounds stressful, imagine actually living life this way. Many people who don’t have a high-paying job have to find a way to live comfortably, and learning to manage your finances is a great start.
Managing your finances may seem like a difficult task when you live paycheck to paycheck, but there are things you can do to ensure your success.
Create a budget
When you have a limited income and live paycheck to paycheck, it is important for you to create a budget. The reason being you can successfully manage your finances when you keep a close eye on your income and expenses. Additionally, you can cut out unnecessary expenses and have some extra cash.
Use the half method
The half method requires you to pay bills in two separate payments rather than one lump sum. For example, if your cell-phone bill is $100, rather than pay the full balance on the due date, you can pay $50 with one paycheck before the due date, and the last $50 with another paycheck on or around the due date. With each check, you will then have $50 to save or spend.
Pay the minimum balance
If you have credit cards, consider paying at least the minimum balance when the bill comes due. It may be tempting to just not pay it, but ignoring your credit card payment will only result in you owing more money and damaging your credit score. Between the additional amount you could pay in interest and late fees, it makes sense to just pay the minimum balance and keep your account in good standing. Of course, if you can comfortably pay the full balance, that is always an option.
Renegotiate your bills
Renegotiating your bills doesn’t mean you have to eliminate the expense but find a more affordable option for you. For example, you may be able to reduce your auto insurance payment by a few dollars if you change coverage or inquire about discounts. If you have both internet and cable, perhaps you could change the plan or discuss the possibility of a more reasonable price for your budget with your provider. Maybe even dropping cable and using online streaming services is an appealing option.
Put your savings on auto
Just because you live paycheck to paycheck, doesn’t mean you can’t save. Even if it is a small amount that you are putting away every payday, over time it will add up. Whether you are building an emergency fund in preparation for the unexpected or just saving for life, you can put your savings on auto and select an amount to automatically be withdrawn from your checking and deposited into your savings.
Why managing your finances is necessary
So, why is managing your finances necessary? Poor management of your finances will do more harm than good. In fact, if you don’t properly manage your finances, you could end up spending more money than necessary and even damage your credit score. And when your credit score is poor, you will have a difficult time getting approved for credit cards, loans, and even an apartment.
When you think about the issues that can arise when you don’t have a handle on your finances, you may think twice about your situation and what you can do to change it. When you are living paycheck to paycheck, you may feel helpless, but you have options. And with all of the financial troubles you could face leading to more stress, it could easily be avoided if you take the time to manage your finances.
Made poor financial decisions in the past that negatively impacted your credit? We can help! Contact Credit Absolute today for a free consultation.
Tips to Help Manage & Maintain a Good Credit Utilization Rate
When you think of your credit score, you may not consider how this number is calculated or how your actions play a role. Simply put, every credit score is made up of certain criteria, and each criteria can cause an increase or decrease in credit score. With credit utilization being one of the things that can impact your score, it may be time to learn how to manage your credit utilization.
In order to successfully manage your credit utilization rate, you’ll need to understand what it is and how it can negatively or positively impact your life.
What is credit utilization rate and how is it calculated?
Credit utilization rate is a number used to compare the amount of debt you owe to the amount of credit you have available. By dividing the amount of credit that you use by the amount of credit available, you can determine your credit utilization rate. The more of your available credit you use the higher your credit utilization rate.
For example, if you have several credit cards, one with a credit limit of $500, one with a credit limit of $200, and another with a credit limit of $300, your total available revolving credit amount is $1,000. If you use $400 of the $1,000 of available credit, your credit utilization rate will be 40%. Whereas if you were to use $100 of your available credit, your credit utilization rate would be 10%.
Why does your credit utilization rate matter?
Credit utilization is one of the many factors that can affect your credit score. It actually makes up 30% of your FICO credit score, which means it is one of the most important factors that influence your credit score. Depending on the number, creditors and lenders may or may not approve your application. This is because your credit utilization rate is another way for creditors and lenders to measure your ability to manage your finances.
If you have $2,000 of revolving credit available to you between one or multiple credit cards, in order to keep your credit utilization at or below 30%, you’ll want to use no more than $600 if you don’t want to see your credit score drop significantly.
Managing your credit utilization
Since your credit utilization rate accounts for 30% of your credit score, you want to pay close attention to this number to ensure it doesn’t start to negatively impact your score. This is especially true when you want to improve your score to increase your chances of being approved for things that require good credit such as applying for a home loan or apartment.
You can successfully manage your credit utilization rate by:
- Increasing your credit card limit
- Paying your credit balance in full instead of just the minimum balance
- Keeping credit accounts open even when there is little to no use
- Pay down debts
- Actively monitor your credit usage
Keep in mind that the goal of managing your credit utilization rate is to keep it at 30% or less. This doesn’t mean that you have to completely stop accessing your revolving credit, but you want to do so responsibly if you don’t want to see your credit score suffer.
For credit repair assistance and financial advice, contact Credit Absolute today for a free consultation!
Financial Literacy for Kids: How Kids Should Spend Their Money
Bad Credit8 months ago
All you Need To Know about Bad Credit Scores in 2020
Bad Credit7 months ago
How to Get an SBA Coronavirus Disaster Loan
Bad Credit7 months ago
Bad Credit Payday Loans Online
Credit Repair Companies9 months ago
How to improve your credit score
Bad Credit8 months ago
Bad Credit? Best Bad Credit Mortgage Refinance Companies • Benzinga
Bad Credit6 months ago
Have Bad Credit? Here’s How You Can Still Get A Loan
Credit Repair Companies10 months ago
11 Ways to Improve Your Credit Score
News9 months ago
Global Credit Repair Services Market Demand and Status, Forecast 2025 | • CreditRepair.com • MyCreditGroup • The Credit People • Veracity Credit Consultants • TransUnion • MSI Credit Solutions • Lexington Law • USA Credit Repair