Debthelper: In Debt at Tax Time

    This year, tax time might be a little more complicated than normal. A large segment of people who plan to pay down their debt with their tax returns may not be doing so. Instead they will be trying to meet normal expenses that they have left untouched during the holiday season. Post Holiday Stress Syndrome generally happens when the holiday bills come in and of course set an individual or couple behind to begin the New Year. They then shift the focus to the tax return and hopefully will then catch up on those first quarter bills. That is when they see that they are not going to be able to do that and they are placed in the negative economic situation.

It is not unusual at this time to see couples, who are already stressed, start to argue more often, the result of which can be heading to marriage counseling or to the divorce attorneys. It looks as though 2009 is already going to be a tougher year for couples, with increased unemployment and the stock market in disarray.

What couples need to be looking to do is the following:

1. Cooperate with each other on all financial matters.
Do not place undue blame on what has happened. Whether they are facing divorce or not, they need to get all their financial affairs in order. Among the steps:

• Gather all your bills, prioritize them and look at the numbers.
• If you know you are going to have difficulty paying them, call all your creditors and see if they offer a delayed repayment program.

2. Consider your financial options.
Those include:

• Call a credit counseling or debt management company. They can determine if you are eligible for a debt management program, which usually takes between three to four years to complete. Your credit is generally restored and your score most probably will increase.
• Call a debt settlement company. This is not an ideal solution, because you are not paying your entire debt through a settlement. It be listed on your credit report as "paid as settled" not "paid in full." Anything you save over $600 dollars will be reported to the IRS for taxes. Any part of the debt not settled may then be sold to another company, so you could face collectors again in the coming years. In addition, there are companies that are not ethical and may never pay the creditors.
•  Consider bankruptcy. There are two forms,including a Chapter 13 (Partial or wage earner's) or Chapter 7 (Total liquidation). Both will stay on your credit report for seven to 10 years and although creditors will attempt to offer you new credit, you will have to include that when you fill out questionnaires for credit.
• You can contact the creditors on your own. The drawbacks include: It is sometimes difficult to get through to them. Plus, they generally have limited programs that cover a short period of time. Most importantly, if you don't get the agreement in writing you are liable to get billed again for the original amount.

3. Put together a feasible and realistic economic game plan.
This may include financial counseling, bankruptcy or contacting creditors. You should always start with a certified credit counselor. They will be able to breakdown your bills, your income and the different options you have. You will have to answer three major questions:

• Where am I now financially?
• What do I need to do?
• Can I commit to a plan?

4. Make sure that any counseling organization is fully researched before they are contacted.
They need to be a 501-C-3 non-profit agency. All counselors are certified by a recognized agency. If the counselors are certified, they are generally held to a higher standard. If the company is not a 501-C-3 non-profit, they will sometimes charge higher fees and may not have working agreements with the banks and credit card companies. They may also not report your payments to the credit bureaus in a timely manner, so that your score can remain lower for a longer period of time.

5. Make sure you understand any repayment plan before signing anything.
This is important because you want to know what you are committing to. There have been clients that sign up and realize after a few payments that either they cannot afford it or they didn't realize this is an ongoing process that may take several years to complete. A counselor can offer support, particularly in the first few months of the repayment (or DMP) plan.

6. Commit to the plan.
Understand that it may take an extended period of time to complete the plan. You have to commit to a plan like you would with anything else. You will know from the counselor how long it will take, how much your monthly payment will be and what else you need to do to create a successful economic atmosphere.

7. Set future financial goals to be commenced in a reasonable amount of time.
Understand that financial goals need to be attainable, flexible and measurable. Financial goals will be important because they can lead to a true measure of success. For example, having a monthly budget and sticking to it can save hundreds of dollars each month. That money can then be directed to savings, which can lead to achieving short, mid-term and long term goals. Long term goals can be such things as buying a home, college funds and saving for retirement.

8. Make sure you are familiar with The Fair Debt Collection Practices Act, so they are not harassed by third party collection companies.
The Fair Debt Collection Practices Act prohibits third party collectors from calling more than once a day or calling after 9 p.m. or Sundays. It allows collectors to contact the debt holder (and spouse or attorney) only. They can not threaten legal consequences until they mean to follow through with that. They can not threaten to take the home away. Finally, they can not call you at your place of employment.

9. Obtain a free copy of your credit report at annualcreditreport.com.
You can get the free report once a year. It is good to check it to see if anything appears on the report that shouldn't be there, in which case the item(s) can be disputed. It also is a good way to prevent identity theft. You can see if there is any unusual activity on your cards or bank account.

10. Do not be misled by companies who claim that they can get a large portion of the debt forgiven or removed from their credit report.
These companies are what is called debt solution or dispute companies. Anyone can dispute a charge on their credit report, but if the charge belongs to them, it will simply return and appear again on the report after 45 days. The companies will claim that they can get all items off the credit report, but fail to say that the items can and will re-appear later.