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Ann Arbor Law Blog

Tax debts and bankruptcy

Some Michigan consumers who feel overwhelmed by their financial obligations might consider filing for bankruptcy. Most types of unsecured debt can be discharge, but people should be aware that most tax liabilities cannot be.

Generally, it is not possible for a person to discharge tax debt for which a return was not filed, withholding taxes that the person is liable for or taxes related to a fraudulent return. If a person willfully tried to evade taxes or filed returns late within two years of bankruptcy, these also cannot be discharged. For tax debts that are dischargeable, a few elements must be in place. They must be related to a tax return filed at least two years prior to the bankruptcy filing or due at least three years prior to it. The tax must be assessed a minimum of 240 days prior to the bankruptcy filing. There are other rules associated with different types of taxes such as penalties and property tax. An involuntary bankruptcy may also have different rules.

Bankruptcy could be the first step toward financial stability

When unemployment or medical problems strike Michigan residents, incomes could fall and bills may go unpaid. However, bankruptcy could represent a viable approach for eliminating debts and reclaiming financial health.

Legal and financial advisers view bankruptcy as a tool to open a new path forward. People can take proactive steps to get debt under control and rebuild their credit rating during and after the bankruptcy process. Depending on whether the bankruptcy is filed under Chapter 7 or Chapter 13, a person could expect the discharge of most debts or a payment plan that takes the pressure off of the monthly budget. During this time, debtors need to monitor their credit reports from all three major credit bureaus. When consumers see errors on their reports, they should dispute them. Roughly 30 to 50 percent of negative items on a credit report could be removed just by disputing them.

How divorced parents can help children

Divorce can be hard on children, but there are a number of things parents in Michigan can do that will make the transition easier. For example, it is important for parents to talk to children about everything from whether they think they are responsible for the breakup to encouraging the child's relationship with the other parent. If the child is speaking negatively about the other parent, there should be a conversation about this as well although parents should withhold their opinions.

However, it is important for parents to keep in mind that younger children may act out instead of talking about their problems. Parents may also need to ask teachers and others who are in regular contact with the children how they are doing as well as looking for signs of anxiety or depression. They should work to keep a constructive co-parenting relationship with each other.

Do both spouses have to file for bankruptcy?

Many Michigan residents have started their lives afresh after filing for bankruptcy, and you may be considering joining their ranks, or maybe your spouse is. Whichever scenario you are in, you could be wondering, "Do both spouses have to file?"

The answer is no, although both spouses filing makes sense in some situations.

Costs hold back many from filing for bankruptcy

When people in Michigan struggle with overwhelming debt that seems impossible to repay, there may be only one way forward to help protect their financial future: bankruptcy. However, for many, the costs associated with filing for bankruptcy can make this option difficult to access. As many people who file for bankruptcy are dealing with an extremely tight financial situation, the potential costs can seem insurmountable.

For this reason, annual bankruptcy filings tend to peak in March and April before declining. As tax refunds come in, many people struggling with debt use their refunds to hire a bankruptcy lawyer and get started on the process of seeking debt relief. Hiring an attorney makes a major difference in the success of bankruptcy petitions; when people file for Chapter 7 bankruptcy with an attorney, their petitions for debt relief are almost always accepted. However, people who try to deal with the complicated issues of bankruptcy court on their own often struggle, making mistakes or failing to complete the necessary steps to erase their debts.

Myths to ignore about bankruptcy

Michigan residents and others who file for bankruptcy may see their credit score drop by as many as 200 points. However, a lack of negative information on a credit report prior to the bankruptcy has little impact on how much damage it will do to a specific individual. Typically, the fact that a person has filed and how long ago it occurred play the biggest roles in impacting a person's credit.

It is important to know that only a Chapter 7 bankruptcy stays on a credit report for 10 years. All other information falls off after seven years, and this includes the fact that a person filed for Chapter 13 bankruptcy. However, the impact of a bankruptcy tends to be less significant as time passes, and credit scores may improve significantly within four or five years. Individuals can obtain new credit to help repair their credit immediately after a bankruptcy case is over.

During divorce, retirement accounts should be handled with care

When couples in Michigan divorce, they may find that the financial aspects of ending a marriage can outstrip even the emotional obstacles. This can be especially true in the case of retirement funds, which generally represent significant investments. Often, both parties plan to rely on the savings in these funds for their financial futures. Not surprisingly, the division of retirement assets can be a contentious and sensitive matter.

It's important for couples to understand that retirement funds are governed by a number of specific financial and legal regulations. Therefore, dealing with the distribution must be handled in accordance with these guidelines. Mistakes in distributing retirement accounts after a divorce can lead to a loss of money through taxes and penalties.

Handling student loans in bankruptcy

Michigan residents and others who have student debt may be familiar with the fact that those debts usually cannot be discharged in bankruptcy. The only way they can be discharged is if a student would experience an undue hardship if forced to repay them. While undue hardship is meant to be a high standard to reach, there is no specific criteria for determining what that looks like.

In testimony given to the Senate Banking Committee, the chairman of the Federal Reserve said that he doesn't understand why that is the case. Currently, 40 million Americans have student loan balances that total $1.4 trillion. Laws against discharging student loans were first passed in the 1970s, and efforts are underway today to ease these rules. However, it may take an act of Congress for meaningful change to occur.

Is drug court an option for you?

If you are currently grappling with a drug addiction, it may be wreaking havoc on your life. Addiction can make people act in ways they typically never would, and in some cases, it can lead people to commit crimes, even if they are typically law-abiding citizens.

If you are facing a criminal charge and possible time behind bars, you may want to find out whether drug court is an option for you. An alternative to imprisonment, drug courts are sometimes available to nonviolent offenders, and these closely supervised programs may be just what you need to kick your drug addiction once and for all. If you are able to gain entry into a Michigan drug court, know that these programs are proven to:

Divorce over 50 has its own complexities

While divorce is often associated with younger people, statistics show that in Michigan and across the United States, an increasing number of divorces happen later in life. Over the past 25 years, the rate of divorce for Americans over the age of 50 has more than doubled, and that rate is continuing along that upward trend. While divorce at any age is accompanied by a wide range of emotional, practical and financial concerns, this can be especially true when the divorce involves people who have had a lengthy marriage stretching across decades.

Over a partnership of such length, it is common for people to accumulate significant financial assets, including real estate, retirement plans and investment accounts. When people choose to divorce later in life, they may be dealing with a complex financial relationship and many assets. This requires significant attention to detail in order to fully understand the financial picture and secure a just divorce settlement. One factor that can be important in divorce negotiations is a comprehensive inventory of the property that belongs to the couple.

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