Smart Money: Your Tax Return Could be a Ticket to Financial Freedom

This tax season, the average American taxpayer is receiving a $3,000 return. What

will you spend your tax return on this spring? Studies have shown that 43% of

Americans put their tax return into savings, 36% put the money towards paying off

their debt, 10% put money towards vacation, 6% purchase a luxury item, and 5%

make a necessary purchase, such as a house or car. While all are worthy ways to

spend money, paying off your debt could be the best investment you can make

with your tax return if you are in debt. Carrying around high-interest debt, with

interest compounding against you every month can be especially stressful. Surveys

tell us that debt is the most common cause of financial stress in the United States.

Your tax return could be a ticket to financial freedom.

If you have excessive amounts of debt that you are struggling to pay off, you could

spend your tax return most efficiently by putting the money towards filing for

bankruptcy. Bankruptcy offers the opportunity for you to get caught up on mortgages

or car loans without the threat of repossession or foreclosure and sometimes you can

be relieved from the legal obligation to pay some debts. To better understand if this

is something worthy of investing your tax return in, set up a consultation with your

local bankruptcy attorney to learn more.

After Bankruptcy: What is Next?

Bankruptcy gives you a fresh start in your financial life. But once you’ve received your discharge
from your bankruptcy, you may not know exactly what steps to do moving forward.

1. Collect and file all your bankruptcy paperwork

Be sure to keep a copy of your bankruptcy petition, the 40-50 page document that details your
financial information. Also keep your notice of bankruptcy filing  as well as a copy of your
discharge order that you received from the court.

Why should you do this? Sometimes when lenders are considering you for new credit, they want to
see your bankruptcy papers. It is also important to keep these documents in case anyone wants to
collect on your old debt in the future.

2. Start a budget and review it frequently

Many bankruptcies begin as a result of unforeseen medical expenses, job losses, or sudden family
changes such as divorces or birth of children. Creating a budget allows you to prepare and set goals
for the future. There are many great budgeting tools you can access through apps on your phone.

3. Start an emergency fund

As part of starting a budget, you will want to designate some funds for unforeseeable emergency
financial events. This fund could even turn into retirement savings or college tuition savings in
the future.

Why should you do this? This fund will prevent you from creating new debt when emergencies
arise. This fund will also make you feel less anxious about your finances and prevent panic when
emergencies happen.

4. Think about ways to improve your credit

Fresh out of your bankruptcy, you will have little to no debt. This is a great opportunity to build
your credit. However, be careful not to let yourself get carried away. Begin with a small credit
limit, monitor your charges, and pay more than just the minimum amount every month. Another
opportunity for building credit is by investing in a secured-CD.

5. Explore financial management resources in the area

Because bankruptcy allows a fresh start on your financial life, it never hurts to learn more tips
and tricks to navigating personal finance in the future. You can check out free seminars offered
by local non-profits or community colleges.

Discharging Student Loans

If you are looking to discharge your student loans, it is a complex process, but not impossible.
After 1990, student loans are no longer considered “dischargeable.” This means that in order
to seek relief, an adversary proceeding is required--a lawsuit must be filed separate from the
bankruptcy case. You must prove that the payment on your student loans causes an undue
hardship. Most courts use the Brunner test to measure the burden of the debt. It is a three-
pronged evaluation that requires the following: 1) the individual and their dependents cannot
maintain a minimal standard of living if they were required to pay the student loan, 2) there
must be additional factors that guarantee this poor standard of living will continue throughout
the whole payment period, and 3) the individual has made good faith effort to pay the loans. If
you can demonstrate that you meet these conditions, your student loan could be cancelled as a
whole.

There are advantages and disadvantages to discharging student loans. To better understand if
filing for an adversary proceeding is for you, it is recommended that you set up a consultation
with your local bankruptcy attorney.