Many of our clients are receiving Form 1099s from creditors reporting income to the Internal Revenue Service. This "income" is actually debt that the creditor forgave or wrote off, and to the IRS, this forgiveness of debt is considered taxable income just as if you had earned wages from employment. Receiving the 1099 can be potentially harmful if you do nothing to respond, but there are some exceptions that can help you avoid the tax liability.

The first exception is that if the debt was discharged in bankruptcy it is not taxable income. This is an important advantage that bankruptcy provides over debt settlement programs and negotiated agreements to write off debt. If you receive a 1099 for debt that was discharged in bankruptcy, ask your tax accountant to file a Form 982 along with your tax returns. The form will notify the IRS that a bankruptcy was filed and the discharged debt is not taxable. 

The second exception is when the debtor is insolvent immediately before the debt was forgiven. The forgiven debt is tax free to the extent of the insolvency. In other words, if your debts exceed the fair market value of your assets by $20,000 you can have up to $20,000 of debt forgiven tax free. You'll again need to have your tax accountant file Form 982 with your tax returns to avoid having the forgiven debt treated as income.

The last exception is that only the forgiveness of principle is treated as income so writing off accrued interest should not be taxable. There are also some special rules related to farmers when debt is forgiven so if you're a farmer and have debt forgiven be sure to consult with a tax accountant.

For all debtors, if you're facing the forgiveness of debt be sure to consult with an attorney about what tax liabilities you might face if this write off occurs outside bankruptcy.

One of the most important aspects of bankruptcy law and a key reason why bankruptcy should usually be considered sooner rather than later is the "automatic stay" that's created the moment a case is filed. This "stay" means that all efforts by a creditor to collect a debt or to enforce rights against a debtor's property have to stop immediately. So foreclosures, garnishments, tax offsets, license revocations, arbitration, evictions and any other proceeding to collect a debt must end. Sometimes a secured creditor is able to later get "relief" from the stay but unsecured creditors, like credit card companies or medical providers almost never do. The result is that filing bankruptcy will immediately end a creditor's right to garnish wages or bank accounts.

Because this "stay" prohibits creditors from continuing debt collection efforts, any violation of the stay can result in actual and punitive damages being awarded to the debtor, plus attorney's fees. Sometimes there are disputes over whether a creditor received notice of the bankruptcy filing so it's important for debtors to provide the most recent address for a creditor or debt collector. It's also better to list the customer service address rather than the address to which payments should be sent. Listing both the creditor and any collection agency to which the debt has been assigned or sold is also a good idea to make sure notice is provided to everyone possible.  At Thompson Law Office we've been able to obtain many damage awards for clients who file bankruptcy and then continue to face debt collection from creditors in violation of the automatic stay.  

Are you keeping a secret about your debt? Are you keeping it from your spouse, your children....maybe even from yourself. Financial hardship and debt is a taboo subject. Of course everyone wants to hear if you're doing well in life. We readily "brag" on a booming business, a new promotion, the birth of a child. What we don't disclose to one another is our debt (even though nearly everyone's got it), and this can ruin relationships.

We see it everyday. A couple comes to us as their financial "last straw". They've done all they can do and need to seek the financial relief that only a bankruptcy can provide. Once we start diving into the credit reports and billing statements it can be a shock to yourself and your spouse just exactly how big the problem is. Sometimes this flash of reality helps ease the decision to file bankruptcy in the first place. It's always a good idea to have a reality check with yourself when it comes to your finances. You can do this by pulling a credit report (FREE) from www.annualcreditreport.com and reviewing just exactly what's being reported. Adding up your total liabilities can be the best eye opening experience.

Another suggestion for keeping debt "real" in your family is to share your income and expenses with your spouse. For whatever reason partners tend to keep separate checking/savings accounts. Perhaps you split your income and deposit half into a household account and save some for your own money. Pooling your money together allows both spouses to know exactly what they have at any given time. It also allows you to know just where the money is going.

The second suggestion for keeping debt "real" in your family is to share the discussion of money with your kids. In my day a $50 at Christmas was a HUGE deal. Nowadays, kids are asking for $200-$300 gaming systems as if money is no object.  Don't hide the expenses of life at any age. It's ok to say NO and it's ok to tell your loved one that it's too expensive or not in your budget. Teach your kids how to save!

Any form of infidelity can be devastating in a relationship.  Get real with yourself and get real with your partner about money.

As published in the Des Moines Register 1/8/12:

Last year St. Louis bankruptcy attorney Wendell Sherk published his riff on a popular Christmas song – Do You Owe What I Owe?  We thought it worthy of sharing it with you again this holiday season.

(To the tune of “Do You Hear What I Hear?”)

Said the neighbor to the young man,
“Do you owe what I owe?
Bills up to the sky, young man,
Do you see what I see?
A choice, a choice, waiting in the night
A new start to end the year alright,
A fresh start for a New Year’s Night.”

Said the collector to the young man,
“I know what you owe,
Bills up to the sky, little debtor man,
Do you hear what I say?
Pay what you can’t pay, little debtor man!
With a voice as big as the sea,
With a voice as big as the sea.

Said the young man to the lawyer kind,
“Do you know what I owe?
In your palace warm, lawyer man,
Do you know what I owe?
An arm, a leg, I’ll be out in the cold–
Help me save a little silver, or gold,
Help me save a little silver, or gold.”

Said the judge to the people everywhere,
“Listen to what I say!
Be at peace, people, everywhere,
Listen to what I say!
A fresh start, a new start, waiting in the night
To bring you peace and goodness,
To bring you quiet in the night.”

If financial stability is your new years resolution, email us today!

Nancy & Staff

Many clients wonder whether they are the only ones facing the kind of financial hardships that lead people to file bankruptcy. That's obviously not the case since millions of people file bankruptcy every year. But it's good to know what causes most people to have to file bankruptcy. A study a few years ago by researchers at Harvard Law School looked at the causes of bankruptcy and found that more than two-thirds of debtors in bankruptcy had experienced a significant period of unemployment before filing bankruptcy. Half of all debtors had filed bankruptcy following serious health problems. This was especially true for people over 65 years old filing bankruptcy.

Another large portion of bankruptcy filings are by single women. The study found that a divorced woman is 300% more likely to find herself in bankruptcy than a married or single woman and a divorced woman raising children is even more likely to need to file bankruptcy.

The study also reported substantial financial problems for small business owners. Small business owners are three times more likely to file bankruptcy than someone who's employed because the personal loan guarantees required of small business owners put them at risk when things turn sour. 

This Harvard study points out that most bankruptcies have good reasons behind them and that the causes aren't the fault of the debtors. Filing bankruptcy can provide relief from the debt burdens caused by unavoidable events.

Every day we discuss financial problems with our clients. Usually we start the conversation by asking our clients to give us a brief history—how did they get to the point of needing to discuss a bankruptcy? Most of the time the answers wouldn’t surprise you; job loss, divorce, medical bills, lay-off/mandatory furlough. BUT, it might surprise you to hear how frequently we hear a story that involves financial aid to adult children…ultimately leaving dear ole’ mom & dad flat broke.

Rearing a child is a struggle, whether you’re married, single, divorced, widowed, separated, etc. From a very early age parents generally struggle with saying “no” to their child, and setting boundaries. For example, how long do you let your baby cry in her crib before tending to her? When your sixteen year old son asks for a curfew extension to 11:00 on a weeknight, do you give in? Parents are constantly trying to strike the right balance of give and take while inevitably trying to avoid the curse of a spoiled child. This is a daily struggle for me, mother to a one year old boy, who is constantly pushing his boundaries and still learning the meaning of “no.”  

If you, or someone in your family is struggling to make ends meet, and you’re having to consider filing bankruptcy e- mail our office at melissaatthompsonlaw@gmail.com or visit our website at www.thompsonlawoffice.net for more help.

There are two very important statutes that serve to protect consumers from some of the consequences of too much debt.  The first is the United States Bankruptcy Code.  The other statute is the Fair Debt Collections Practices Act or FDCPA.  Both statutes individually can help consumers but when you combine the two that is when some really good things can happen.

First, the Bankruptcy Code allows for the discharge of certain types of indebtedness.  If you find yourself struggling with credit card debts or other types of debts, a bankruptcy filing may be appropriate.  Depending on your situation (and you should always consult with experienced bankruptcy counsel), a bankruptcy filing can help restore your personal finances by discharging unsecured debts and/or reducing the amount that you pay on certain secured debts.  Because you potentially are paying less money for certain secured debts such as automobiles and less on unsecured debts such as credit cards, this frees up more money so that you can meet your monthly expenses.  Often times, if you are struggling with certain bills such as a credit card, a bankruptcy filing offers a more global, comprehensive, and often, inexpensive, solution to debt problems.

The second statute is the Fair Debt Collections Practices Act or FDCPA.  The FDCPA regulates how debt collectors may go about attempting to collect any debts that are claimed owed.  For example, the FDCPA prohibits a debt collector from making false or misleading statements in any attempt to collect a debt.  The FDCPA further prohibits any harassment or abuse such as using obscene for profane language in talking with the consumer or by causing a telephone to ring repeatedly with the intent to annoy, abuse, or harass any person at the called number.  There are also requirements that a debt collector must meet and provide information to the consumer about the debt upon request.  It is a comprehensive statute and violations of the FDCPA can result in the consumer being awarded actual damages and statutory damages of up to $1,000.00 plus attorney’s fees.

But, before embarking on using both statutes, you should be sure that your attorney is experienced in using both statutes.  If you file an FDCPA case while you are in your bankruptcy case, you want to make sure that your bankruptcy attorney has “exempted” the FDCPA claim if you want to recover any of your damages.  Otherwise, the trustee assigned to your bankruptcy case may have his hand out to recover those damages as a pre-petition claim is an asset of the bankruptcy estate.  

If you follow these steps and appropriately document any potential debt collection abuses, you can literally have certain creditors “pay” for your bankruptcy case because you will recover money from your creditors to possibly pay or recoup the legal fees paid to your bankruptcy attorney. *

The Thompson Law Office offers free consultations to new clients who are struggling with their debt obligations, and/or are being harassed by their creditors. E-mail Melissa or Nancy at melissaatthompsonlawoffice.net and tell us your story!

In August 2010 the Iowa Court of Appeals laid out some important rules for anyone trying to collect on a credit card debt. The ruling came after Capital One sued two Iowans in small claims court. The cases had been dismissed because Capital One failed to provide documentation showing transactions on the credit cards starting with a zero balance. On appeal the Iowa Court of Appeals said it wasn't necessary for there to be documentation going back to a zero balance but a credit card collector did have to provide evidence of how the amount claimed to be owed was determined.

The Court said there were two ways a creditor could get a judgment on a credit card debt in Iowa. The first way is "by providing an account agreement with the consumer, a final or 'charge-off' statement with the consumer's address, and a sworn statement from a person with knowledge that regular monthly account statements were sent to the consumer at the address provided by the consumer, the charge-off statement is the sum total of those statements, the consumer used the credit card, and the consumer never objected to the monthly statements. If the creditor cannot prove the consumer never objected to any item, as an alternative the creditor may provide a sworn statement detailing the objections and demonstrating they were resolved without further objection by the consumer, or a statement establishing that during the last 90 days before the charge-off statement (or during any longer period of time leading up to the charge-off statement), the customer used the credit card and made no objections during that time."

The second way a judgment on a credit card debt can be obtained is "by filing an account agreement with the customer and a transaction history ending at a recent charge-off statement, together with a sworn statement form a person with knowledge authenticating these two items. In this event, the creditor is limited to recovering any increase in debt shown on the transaction history, plus ongoing interest."

Although either of these two methods allow creditors to collect without having to show a complete transaction history, the Court has still set forth some important standards for obtaining judgments on credit cards. Contact Thompson Law Office if you're being sued on a credit card and are interested in discussing possible defense of the lawsuit based on this Court ruling.