You Need to be Proactive... | Tax Tip of the Week | No. 190

In Debt and Unemployed?

A job loss is an unfortunate event that can throw household finances and debt repayment for a loop. When it happens to you or your family, it's essential to make a list of your monthly payments and any expected household income, and to begin prioritizing them.As soon as it's obvious your income isn't going to cover your household budget and monthly debt payments, you should proactively contact creditors and your attorney to find out what kind of modified payment plan and other options are possible.Be sure to write down the full name of the person you spoke with, along with the date and time. Ask the representative to mail you a letter to confirm the new terms discussed.For a mortgage, contact the lender currently holding the loan and explain your family situation. Ask them about any temporary or permanent loan-modification arrangements they might have.You may also qualify for assistance under the Making Homes Affordable Program. Depending on your needs and the terms of your loan, you may qualify for different types of assistance. Don't count on your bank to bring the options to your attention.If a loan modification is not sufficient, you may want to consider a short sale of your home, in which a buyer is willing to pay less than the underlying mortgage balance, and the bank agrees to forgive the balance of the loan. Be aware that this loan forgiveness will have a negative impact on your credit rating and score for a long time, and could create reportable taxable income.Bankruptcy is a serious decision that should, in most circumstances, be taken only as a last resort when no other options are available.Bankruptcy proceedings stay on your credit reports for 10 years and could hamper your ability to obtain credit for at least that long. A bankruptcy can hurt your chances of landing a job or may trigger an increase in your auto and homeowner insurance premiums.Sometimes, bankruptcy is unavoidable when the amount of your debt payments greatly overwhelms your ability to repay them, usually when the amount of debt exceeds the value of your assets by a large amount.Despite disadvantages, Chapter 7 bankruptcy can wipe out most unsecured debts, such as credit card and medical bills; it can also stop bill collectors and give you a fresh start.If you feel that bankruptcy is your only option, call or visit the folks at the National Foundation for Credit Counseling, a non-profit organization that can help you make sense of your options. 

As always, give us a call with any questions or concerns you may have. 

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt - the guy behind TTW...until next week.