Published Friday, September 3, 2010 @ 3:32 pm

While many people consider it common knowledge, the last-minute fear before deciding to file bankruptcy could end up costing you even more come retirement. Turns out, that as the recession deepens, more people are looking toward their long-term savings for an influx of cash to help stay afloat.

Well, don’t ever be one of those people. Typically, what ends up happening is that you wind up without retirement money and still filing bankruptcy. We’ve seen it happen. And it’s hard to watch.

An article on USAToday.com pointed to figures that show a record number of people in the second quarter of this year used their retirement accounts to help stave off a financial problem. Specifically, the article cited Fidelity Investments’ report that 2.2 percent of their 401(k) customers accessed their accounts for “hardship withdrawals.” That rate demonstrates a two percent increase from last year. And, almost half of those that accessed funds last year did it again this year.

So what does that tell you? It says to us that accessing your retirement savings doesn’t help you.

Look, we’re all for doing everything you can to prevent and treat an economic illness. But typically, we recommend a second job, selling an extra car and drastically cutting expenses. If bankruptcy enters the picture, please add to its benefits the preservation of your retirement savings. What many people don’t understand about bankruptcy is that once you open the 401(k) coffers, many creditors are automatically invited in should you have to file. If the chest remains locked, they hardly ever see the key.

Additionally, most of the bills that are bogging you down can be discharged in a bankruptcy.

Federal guidelines prevent you from contributing to your 401(k) for six months after you withdraw funds early, meaning you are also losing those gains, furthering your losses and reducing the value of the withdrawal itself.

And probably the most important reason to not prematurely access your retirement accounts is that you have to pay for doing it. The money you withdraw is considered taxable income by the good ‘ole IRS. So come April, guess what? That’s right: more out of pocket expenses.

A scarier fact than the mere increase in retirement savings access is the primary reason why people are doing it: to avoid foreclosure. Wow. Now there’s a sign about the state of our economy.

Financial companies that manage 401(k) plans allow hardship withdrawals for things like buying a home or paying for college without a penalty directly to the company. But you still have to pay the taxes. And given the behavior of much of the financial industry today, namely banks and credit card companies, don’t expect the penalty-free trend to last much longer.

The USA Today article goes on to mention to that college tuition is the second most popular reason people want early access to retirement savings. Our first reaction is that if paying for college requires any form of money granted under the title of “hardship,” you should find another way to take care of it. Sure, we have not been overly positive about the state of the student loan undustry here on this blog but provided your child never ends up having to file bankruptcy, they are a proven way to help people get a college diploma.

Instead of using your retirement savings like an ATM machine, use it as a benchmark to signify that it’s time consider bankruptcy. If that is all you have left to access, then you have nothing left to access.

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Published Thursday, August 26, 2010 @ 11:49 am

While it is well known that the United States is a nation of givers—with an estimated $227.41 billion sent to charitable organizations in 2009—what might be surprising is what groups are actually giving the most.

According to a recent New York Times article entitled The Charitable Giving Divide, “For decades, surveys have shown that upper-income Americans don’t give away as much of their money as they might and are particularly undistinguished as givers when compared with the poor, who are strikingly generous. A number of other studies have shown that lower-income Americans give proportionally more of their incomes to charity than do upper-income Americans. In 2001, Independent Sector, a nonprofit organization focused on charitable giving, found that households earning less than $25,000 a year gave away an average of 4.2 percent of their incomes; those with earnings of more than $75,000 gave away 2.7 percent.”

The fact that Americans are still giving, especially the poorest of our citizenry, is striking given the nation’s continuing economic malaise, high unemployment rates and ever-increasing number of bankruptcy filings. But, as the NYT reports, “Empathy and compassion appeared to be the key ingredients in the greater generosity of those with lower incomes. And these two traits proved to be in increasingly short supply as people moved up the income spectrum.”

As long as those facing the toughest financial times and feeling it the most, are also feeling the most empathetic and giving the most, it’s important to understand how declaring bankruptcy can affect your ability to give to your favorite charities. While, bankruptcy courts can find fraud in charitable donations if a debtor is perceived to be deliberately avoiding paying their  creditors, courts will also take into account the timing of the gift, the payment amounts, and the circumstances surrounding these gifts. For example, if you’re a lifelong devout Catholic who has given an annual 5% donation to your local Catholic church, your donation will likely not be strenuously judged following a bankruptcy filing. Instead, bankruptcy will allow you to free up the savings to support your favorite charity in the near, and distant future.

Some simple tips for keeping track of your charitable donations before and during your bankruptcy filing, include:

Staying Informed About Charitable Organizations

Before giving money or time to any charitable organizations, it’s important to obtain written details, including the organization’s financial report, the amount of your donation that will go to overhead costs and the specific project your gift will support. This will give you the peace of mind that your piece of the financial pie is being eaten up by the right initiatives. Click here to find charities registered with the Better Business Bureau and meet their Wise Giving Alliance Standards.

Avoiding Cash Donations
To avoid being taken for a ride by a charitable solicitor, always make your donation by check: payable directly to the appropriate organization.

Protecting Your Personal Information
Avoid solicitor scams by resisting the urge to give credit card or other personal information directly to that person. Always request official organizational confirmation and materials for submitting individual donations.

Keeping Track When You Give Back
Like your mortgage payment or utility bills, it’s best to always budget for charitable giving in your monthly payment plan. In terms of keeping the right records, for gifts of less than $250, a cancelled check or credit card statement will meet IRS documentation requirements. For larger gifts, you will need to obtain a properly worded receipt from the charitable organization as proof of your tax-deductible contribution.
In these uncertain economic circumstances, it’s important to realize that you can decline a donation and give at a later time.

When in Doubt, Just Say “No.”

Want to find out more about how bankruptcy protects charitable givers—givers who may end up needing help themselves? Check it out with the Law Offices of John T. Orcutt. In North Carolina, call for a totally FREE consultation at 1-800-899-1414 or visit their website at www.billsbills.com.

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Published Thursday, July 1, 2010 @ 10:09 am

A typical tax time stressor is the idea of an IRS audit, during which the IRS reviews your previous year’s tax return for discrepancies. Similarly, the IRS can do the same in the case of bankruptcy, assessing the information offered during your bankruptcy case.

While many bankruptcy bound individuals might recoil at the idea of setting themselves up for a second potential audit, it is important not to panic or consider this possible evaluation as a deterrent to heading down the road of removing or reducing your debts through bankruptcy.

In actuality, the chances of an audit are extremely low; and, if you are audited, your liability is easily minimized (or rendered non-existent) by maintaining as much transparency as possible during the bankruptcy process; and by not willfully withholding important details about your particular bankruptcy case.

Speaking to the former point of the unlikelihood of a bankruptcy audit, it’s important to understand that there are much fewer bankruptcy audits than IRS audits.  For example, in 2009, one of every 583 bankruptcy cases received an audit; this can be compared to one in 100 tax returns that the IRS audited that same year.

In essence, approximately half of bankruptcy audits are randomly selected from the pool of bankruptcy filings in a given year. The remaining 50 percent receive an audit as a result of a “red flag” or irregularity in a bankruptcy case, leading the bankruptcy court to clarify a case and determine that the information provided is honest and accurate.

So what happens if you roll the dice and do receive a bankruptcy audit? In the unlikely event you are tapped for a bankruptcy audit, you and your attorney will be notified within 10 days of filing your bankruptcy petition.  As a result, if your bankruptcy filing has already occurred some weeks, months or years ago, you are in the clear and need not worry about an audit at all.

However, if you do receive a notice of selection for an audit, a private audit firm is hired to assess your case.  This independent firm will explore your bankruptcy, examining the debts, assets, income and expenses in your particular bankruptcy filing, including a comprehensive search of any additional assets not listed in your initial filing. Once your case has been evaluated, the results are distributed to the relevant bankruptcy court.

In a very few cases, the private audit firm will determine that a bankruptcy case includes a  “material misstatement”—an omission in the filing or an inaccurate piece of information that could impact the court’s assessment of your bankruptcy claim. Don’t be alarmed. In many cases, these “material misstatements” are unintentional: simple clerical errors in accounting for your income or your understanding of assets in your bankruptcy estate.  As a result, it’s important to take care in your estate assessment, working with a bankruptcy attorney to dot every “i” and cross every “t” in your bankruptcy case. Most importantly, it’s vital to be truthful about all relevant assets and income as a finding that your misstatement was intentional can result in a dismissal of your case or possibly charges of fraud.

As a result of the need for precision and accuracy, it’s important that you seek competent and experienced bankruptcy counsel from the very start. An experienced bankruptcy attorney knows the ins and outs of the bankruptcy process and the audit process and can assist throughout your case.

The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to 1-800-899-1414, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.

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Published Tuesday, February 9, 2010 @ 6:39 pm

If you couldn’t tell by the utter onslaught of tax preparation service ads and the sudden presence of temporary cubicles in that once abandoned retail space at the corner of your favorite strip mall, let us be the first to remind you that it’s tax season.

We take interest in this time of year because tax returns can mean one of two things to our readers: more debt or more money. Since we are all about helping you figure out what to do with your debt, we hope this post will educate you regarding what tax season can mean for your financial well-being.

There are number of tax deductions out there that get ignored by a lot of families. Worse yet, they are not even addressed by many of the “come-and-go” tax return preparation services out there. On that note, we encourage you to take caution when deciding who to work with if you are not someone who handles returns on your own. We should also point out that there is good reason to hire someone to help with your tax returns, primarily to alleviate stress and ensure they get done correctly.

That being said, make sure that the person you hire is an actual financial professional, not someone who was just trained to punch data into a computer program. Ask friends or co-workers if they can recommend a reliable Certified Public Accountant that has a tax service. Yes, it will cost you more money, but not that much more.

If you have no choice but to use a temporary tax shop, ask for the most senior member of the team. Many of these operations do have supervisors on staff with actual accounting and tax experience. Remind them that there are countless shops just like theirs that would prefer your business to encourage the top person to give you appropriate attention.

To further ensure you are getting the service you deserve, remind your tax preparer about the most often missed tax deductions. An article on MSNBC.com highlighted seven of them, which do require you to itemize:

• Home ownership deductions can include mortgage interest, property taxes, fees involving the sale of your home and agent commissions.
• In North Carolina, the personal property tax you pay on your car each year can also be a deduction.
• Always hang on to your receipts for charitable donations, even the bags of clothes you gave to Goodwill. When any charity asks you if you want a receipt, say yes.
• Did you know you can deduct mileage expenses if you use your own car in a charitable effort? You can. Go back and write down when you did and even keep receipts for bus trips to the location of your volunteering. Parking fees and other tolls count, too.
• If you had to travel for work, keep track of any dry cleaning and laundering receipts for clothes you needed on behalf of the company. This only counts if you are required to look the part and don’t try it with the torn jeans you wear on the flight.
• Also related to business travel are the costs of shipping materials or paying for your baggage, which many airlines now require. So hang on to those receipts as well.
• Other miscellaneous deductions related to work include costs for faxes, Internet access or hotel phone calls.  You may also be able to deduct moving expenses. Make sure you provide good proof that the costs you incurred are directly related to the available deduction category.

We would hate to see your tax bills become the reason you have to file bankruptcy.   However, if you have been stuck with a large tax bill from the past, or if you anticipate owing taxes that you can’t pay all at once, you should consider bankruptcy as an option to either discharge taxes eligible for discharge or pay certain taxes that can’t be discharged over a period of several years through a Chapter 13 plan.   If you have any questions about how tax bills are handled in Chapter 7 or Chapter 13 bankruptcy, give us a call, we’ll be glad to help.  Call 1-800-899-1414 to schedule a FREE consultation with an experienced bankruptcy attorney at the Law Offices of John T. Orcutt.

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Published Monday, January 25, 2010 @ 6:33 pm

It’s tax season. Which means that for most people, it’s time to realize just how much we give to Uncle Sam every year. For some, the prospect of a refund provides a glimmer of hope that some new money is coming in soon to pay off debts.

Just a quick little note on your tax dollars before we get into the meat of this post: it is actually better to owe just a little bit of money after filing because that means that you have used more of our your own money throughout the year instead of giving it all to the government. Sure, a nice windfall come April is a nice thing. But keep in mind that it’s your money—you’re just getting it later. And, when it comes to investing, “money now” is always better than “money later.”

Because it’s tax season, we thought it important to discuss how taxes and personal bankruptcy can relate to one another. It is possible to use bankruptcy as a way to get rid of large, outstanding tax obligations but it’s not as easy as discharging a few grand in credit card debt.

Chapter 13 bankruptcy in most cases requires you to pay back what’s owed within your monthly payment plan and Chapter 7 rarely allows for the complete expulsion of your tax debts. (If you’re not sure of the differences between Chapters 13 and 7, simply do a search on our blog for each.)

There are, however, some precedents set for removing tax obligations as part of a bankruptcy. Although we encourage you to understand that it is a complicated process and the results are not always what you may be hoping for.

(Understand this post is only scratching the surface. Only in person can we provide a full breakdown of taxes and bankruptcy.)

One reason tax debt and bankruptcy tend to get tangled is that past due taxes can fall into all three categories of debt type: Dischargeable, Nondischargebale priority debts, and Nondischargeable priority debts.

Provided you filed your taxes on time, legally and provide no evidence of tax evasion other than legitimately being unable to pay, you can discharge tax debt in Chapter 7 and 13. Still, what’s owed must be more than three years late and assessed more than 240 days before you file. That means that you were officially declared late and in debt that many days before you filed. This ensures the IRS that you are not declaring just to get rid of a recent tax debt.

BUT (you knew there was one), that 240 day window starts only after the last extension expires, not when the original debt was assessed. Other impediments to that three year time-frame include a 90-day addition if a previous bankruptcy case of yours was still open while you were assessed the tax debt; the addition of any time the IRS was prevented from collecting as a result of a court ordered due process hearing plus an additional 90 days; and any time that a debt assistance professional formally asked the IRS to temporarily halt collection efforts.

Basically, any effort you make to delay the collection of tax debt, even if perfectly legal, counts against your ability to discharge tax debt in a bankruptcy.

The key to bankruptcy and taxes, like all things in life really, is to be completely honest and upfront. Any attempt to hide or even coyly plead ignorance will be considered an attempt to obscure or defraud the court and even worse, the IRS. Not being able to pay your taxes, especially after a mid-year job loss, is a common thing. Don’t make it worse.

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Published Sunday, June 28, 2009 @ 8:45 pm

Planning for your retirement early is extremely important, yet appreciating this point can be difficult for people who aren’t looking to retire soon. It’s even harder to remember the importance of planning for retirement when it remains years or even decades off…all while the harsh realities of the economy are here today. Credit card companies compound the problem, advertising instant gratification while minimizing focus on long term financial stability. As the credit markets tighten, it’s tough to resist cutting back on retirement contributions. For those with a significant nest egg, it’s very tempting to cash out now and rebuild later.

Unfortunately, many of us approach bankruptcy as a last resort, an option to be avoided at all costs in the interest of our future financial soundness. In order to avoid bankruptcy, we make serious mistakes that betray the security of our financial futures. Those kinds of mistakes are precisely what this blog is intended to highlight and discourage. Before you make a mistake you may regret years if not decades from now, just to avoid declaring bankruptcy, make sure you have the facts straight. One classic mistake people make in a misguided effort to avoid declaring bankruptcy is dipping into― yep, you guessed where this is going― their retirement funds.

But it’s your money, so why is spending it such a bad idea, especially if it may save you a lot of trouble or help you avoid bankruptcy? An important clue can be found in the status of retirement funds in bankruptcy law. Did you know that in most states, your creditors cannot touch your retirement unless your actions enable them to do so? 401lks, IRAs, 529 plans- all protected by state and federal exemptions Even your rollovers are protected. Generally, a creditor will only be able to call in money from your retirement funds if you withdraw the money or take out a loan and fail to repay. For this reason, it is very important to avoid taking withdrawing any money from your retirement. Bankruptcy protection can’t protect you unless you allow it to!

What if you have high credit card debt, and you are thinking about borrowing against your retirement in order to chip away at those payments? This is exactly the kind of move you want to avoid and exactly the kind of situation where you need to think of bankruptcy as the next step, and not a last resort. Bankruptcy protection can allow you to discharge unsecured debts like credit card debt while keeping your retirement funds safe for the time they’re meant to be used: retirement. You may also be creating a whole new host of problems for yourself by borrowing against your 401k, even if you are able to address some issues in the short term.

What if you borrow against your retirement but then can’t repay it on time? You will likely face some serious tax consequences; remember, recent tax liabilities are one area where bankruptcy protection won’t be able to help you. Or what if you borrow against your retirement funds, but then you lose your job? You may be responsible for repaying the loan almost immediately, and this will naturally be difficult if you are out of work. As these scenarios illustrate, dipping into the well of retirement funds can be more trouble than it’s worth. Bottom line, if you’re thinking about withdrawing from your retirement to deal with your debt, it’s time to call a bankruptcy attorney. Protect your financial future, file bankruptcy now!

From: The Law Offices of John T. Orcutt, with convenient office locations in Raleigh, Durham, Fayetteville, and Wilson. Call (toll free) 1-800-899-1414, to set up a free, confidential debt consultation. Visit www.billsbills.com for more information.

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