Credit scores of the 5 richest neighborhoods in America

By Michael Bratton

A credit score is a number a credit agency assigns to individuals that lenders use to determine risk for repaying loans and credit card debt. According to Spendonlife.com, a website that helps educate consumers about personal finance and credit, credit scores range from 349 to 849. The higher your credit score the more likely you are to secure low-interest bank loans, credit cards and other financial products.

Recently, Spendonlife.com compiled data on five zip codes in the U.S. with the highest credit scores and five zip codes with the lowest. Interestingly, the cities with the lowest scores are in landlocked southern or Midwestern states while the top five are exclusively coastal. To give you some context on where the five most affluent zip codes stand, the average credit score for the entire U.S. population is 683 and the average income per return $55,019.

1. Weston, MA, 02493

Weston, MA, with a population of about 11,787, is located just over 15 miles west of Boston. The average credit score in Boston's wealthiest suburb is 715 with a combined average income of $400,022. Included on CNNMoney's list of America’s best small towns and "Best Places to Live" in 2011, credit card debt in Weston is $1,540, auto debt is $14,854 and the average mortgage balance is $298,028.

2. West Atherton, CA, 94027

A San Francisco Bay Area city located less than five miles northeast of Silicon Valley, West Atherton has a population of about 7,000 residents. With an average credit score of 708, West Atherton has the second-highest credit score in the country. Included on a CNNMoney list of neighborhoods with the highest percentage of million dollar homes, the average mortgage balance is $518,706, average credit card debt is $2,554 - the highest on this list - and average auto debt of $18,224.

3. Greenwich, CT, 06831

Greenwich, CT is an affluent suburb situated just 37 miles north of New York City. With a population of just over 15,000, Greenwich has the third-highest average credit score in the country at 702 and average income of $414,686. This Fairfield county town, which Money magazine ranked number-two in its 2012 "Biggest Earner" category, in part for being home to several financial service companies, has an average credit card debt of $1,856 and auto debt of $16,607. The mortgage balance in Greenwich comes to about $425.887.

4. Palm Beach, FL, 33480

Palm Beach, FL, located 65 miles north of Miami, has the fourth highest average credit score in the U.S. at 691 and average income of $457,517. Originally established as a resort town, thanks to its tropical climate and miles of stunning coastline, residents on this 16-mile long barrier island have an average credit card debt of $1,449 while auto debt averages $16,494. The mortgage balance of Palm Beach’s roughly 10,000 yearly residents averages $314,165.

5. Los Angeles, CA, 90067

Known for being the entertainment capitol of the world, Los Angeles has the fifth highest average credit score in the U.S., at 685. The average income in this west coast paradise is $546,627. Compared to the country's other wealthiest zip codes, L.A. has the second highest average credit card debt at $2,112. But where they falter in debt, they make up for in income with an average income per return of $546,672, making the City of Angels the number-one earner on this list. Auto debt in L.A. averages $19,264 and the average mortgage balance is $407,998.

While the income disparity between the richest and poorest neighborhoods in the country is staggering - the bottom earner of the top five is $400,922 for Weston, MA, and the top average income of the bottom five is $13,951 for San Antonio, TX - the average credit score for wealthiest five zip codes is 700 compared to 676 for the poorest five zip codes. However, since credit score is just one consideration lenders evaluate in a potential borrower's financial profile, clearly those at the top five are in a much more advantageous position when purchasing a home, applying for financing, buying a car and making other big-ticket purchases and loan requests.

The author of this article is Michael Bratton, PR Director of Best Credit Repair Companies.

Things you need to know about debt collectors

By Valentine Smith

Having a debt is one of the most unpleasant things you can experience. Does not matter if you owe money to a bank or to payday lenders online, debt collectors always take place when it comes to irresponsible customers.

Of course, there are plenty of reasons regarding why one is not capable of making payments. In order to be ready for these people everyone has to know certain terms and regulations. A lot of debt collectors simply break law and we may not even know this.

  

The FDCPA - The Fair Debt Collection Practices Act- it is the federal law that manages collections for household, personal and family debts ( mortgages and car loans, credit cards, student loan debt and utility bills that are past due, insurance and medical debt).

The FDCPA has an association with outside deferred collectors of debt, anyhow not to a bank's particular in-house duty authorities (importance deferred payment gatherers who are representatives of a lender).

Law regarding debt collectors may have difference according to your state. It may even be way tougher than the federal regulations. A person is going to need to contact a general office of the state’s attorney to find out more specific information.

            

Here is the list of what the FDCPA collectors are not allowed to do:

It is no allowed for them to contact you before 8 am or after 9 pm. They can only do this if you give permission to do so. You have a right not to talk to them at all.

They cannot: 

• Call you on Sunday.

• Call or somehow get in touch with your friends, family and even neighbors trying by embarrassing you in front of them make you pay off the debt.

• Call you at work if the collector of debt is informed that your boss doesn’t want you to be reached in the middle of working hours.

• Contact your current employer regarding owed debt, only if past-due child support is the case.

• Communicate via postcard.

• Use language or symbols indicating the business of the debt on or within mail.

• Constantly call you within short period of time. It is considered to be a harassment, which makes it illegal per the FDCPA.

• They cannot threaten you in any way: For example, they may not mention jail or insult you with bad words.

• Try to collect more than you actually owe. Only in one case they can do this: if you creditor allows collectors to do that.

Be careful with debt collectors; make sure you know your rights to avoid nasty situations.

Valentine Smith is a financial consultant at PaydayLoans@ Online Company wants to tell you how to deal with debt collectors.

Finance tips for this generation

By Terrence Stoker

Times, they are a changing. Personal finances, priorities and their frameworks change from each generation to the next.

While your grandfather may have some excellent methods of how he managed his finances during the earlier years, often the changing face of modern economics will render his advice less than perfect.

So what are some of the key lessons that we can pass on to this generation that will make their financial lives easier to manage? Managing the little lessons of finance now and following them throughout our adult lives can lead to larger and more important rewards in your later years.

 

Organising your finances

Make a concerted effort to track all your finances in some form. With the multitude of personal finance apps and the familiarity of people of the computer generation to make use of spreadsheets and simpler software to track finances is easier than ever before.

Gone are the days of shoe-boxes of receipts, most days simply by using the data form your internet banking accounts, its simple to mark your expenditure and income for each month. If you are using these digital systems, try to use cash as often as possible as it’s easier to keep records of, and most banks have flat card transactions rates.

Set up monthly savings payments into your account or ask your employer about long term retirement fund options. Your employer will often have policies such as the 401k (if you’re in the US) where before tax you will get an allocation of your salary paid into a long term savings account.

Many employers will contribute to this as well to improve your growth year in and year out.  If your employer does not offer a retirement plan package for their staff, ensure that you set up monthly debit orders at the beginning of the month to put away a savings amount that you can invest on your own.

 

Dealing with debt

Prioritise any long term credit payments so that they work for you. Many of us throughout our life will require some form of credit, be they mortgages, bonds, student or personal loans. Make sure that you manage the repayments in priorities, for example focus on paying those with the highest interest rates back first.

Check the stipulations of each contract and pay back the credit earlier that yields you benefits for early payment. Some long term credit has no benefit for early payment and can actually cause you to be penalised by the lender.

Personal finances have changed greatly over the last few decades, from apps, payment methods and lending systems based on the modern economy. Make sure you keep up with the times, watch your cash flow and ensure that you start saving early for the benefits during the rainy days. 

Terrence Stoker is a Blogger with a keen interest in the development of finances over the ages. Whether its savings, loans or day to day expenses, Terrence is fascinated in ways that he can control finances better, simpler and make the execution of his budgeting faster each and every month.

How to make peer-to-peer capital a part of your investment portfolio

The words "peer to peer" have the ability to drive fear into the heart of the most seasoned investor, but in terms of venture capital lending, peer to peer is just another name for "private equity" done on a more middle class level. The only difference is regulations that apply to private equity do not necessarily apply the same way to peer to peer investments.

What this means is that the peer-to-peer investment industry is a much more free way of making money, but it is also much more dangerous for those who do not know what they're doing. There are many advantages to peer-to-peer investing that no other sort of investment class has. Below are some of the ways in which you will know if peer-to-peer lending is right for you. 

One: You have studied successful peer-to-peer investment campaigns and you have personal knowledge of campaigns that resemble those successes. 

With any form of investment, paper trading is definitely a way to figure out the ins and outs of an investment without losing any money. Before you begin investing real money in any peer to peer lending campaigns, follow a few of them and test your instincts on paper first. Once you have success on paper and you have found campaigns that are similar, you will know that you are ready to put real money down on a peer to peer lending campaign. 

Two: You note those peer-to-peer campaigns that have been successful in the past. 

Do not think that just because an investment class is called peer-to-peer that there will be any greater percentage of bad ideas versus good ideas. The only difference between peer-to-peer investing and the venture capital industry is the amount of money that exchanges hands. You want to look for peer-to-peer campaigns that have been successful in the past. Do not waste your time with pie-in-the-sky ideas from would-be business owners that are looking for their "shot." Real business owners know how to make money for their investors, whether they get those monies from peers or venture capitalists. 

Three: You take heed of the interest rates and probability structure of peer-to-peer investing campaigns. Do not be fooled by an idea alone. 

There have been many studies done on the mathematics of business, and as long as return rates are comparable to the market, you can take them as a very true indicator of the probability of success of a business. This means that if you want to invest in a peer-to-peer investing opportunity that has a high return on investment, you must be prepared to take more risk. This does not mean that the idea is bad; it simply means that you must do more research into the management team and the industry before you invest. 

Four: You take an assessment of your own financial situation. 

Many financial experts agree that you should not begin investing in peer-to-peer investing campaigns beyond 10% of your expendable income. On top of that, many financial experts agree that you should not invest in anything until your gross income is above $100,000 per year. No matter how good an idea for a business is, there is always the chance of failure. You do not want to put yourself in a precarious financial situation because an investment went downhill. 

 Interested in keeping your credit score up? Check out Kel Credit Report for more information on credit as well as answering the question, “How do you fix credit?”

Special kinds of bankruptcy

Chapter Twelve

This chapter is specifically for “family farmers” and “family fishermen” with a “regular annual income.”  It allows them to repay all or some of their debt through a repayment plan that is set up with their creditors. Most repayment plans lasts between three to five years, and the court will need a good cause to allow the plan to go longer than three years. A five year plan will assigned if the individual is required to pay 100 percent of domestic support. Chapter 12 is better for farmers and fishermen because it is tailored towards them specifically because their income is seasonal. Chapter 11 is too expensive for them, and chapter 13 is for wage earners. 

 

Chapter Fifteen

Chapter 15 is a new chapter that was added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.  It was made to help find better ways of dealing with insolvency cases with debtors, claimants, assets and individuals or parties of more than one country.  The main purpose of this chapter is:

-To promote cooperation between United States Courts and foreign countries involved in cross-border insolvency cases

-Allows for a greater legal certainty for investment and trade

-Protects creditors, debtors and other entities by giving fair administration in cross-border insolvency cases

-Protects the debtors assets allowing for the best value of their assets

-Protects investment and employment by saving failing businesses

This is an ancillary case, which allows a case trustee to act on behalf of the United States court in a foreign country. The petition filed under this chapter must show documents of foreign proceedings and the foreign representative involved. After the hearing, the court will rule it a foreign hearing, then it will have to follow United States bankruptcy codes. 

Chapter 15 allows foreign creditors to follow U.S. bankruptcy codes prohibiting discrimination against them. The most important goal of chapter 15 is to create cooperation between the United States and those involved with foreign countries and cross-border insolvency cases. United States courts and representatives are required to fully cooperate with foreign representatives and foreign courts. 

 

Chapter Nine

Chapter 9 allows for municipalities (cities and towns) to reorganize their debt.  The purpose of this is to provide protection for these municipalities as they make plans to pay off their debts. They can rearrange these debts by reducing principal or interest, extending debt maturities or by refinancing to get a new loan. This chapter does not allow for liquidation because it breaks the Tenth amendment and takes away states’ rights.  The court can be given jurisdiction if the municipality allows it, which gives them extra protection. 

V.K. writes about bankruptcy and reputable bankruptcy lawyers like Jasmine Motazedi.

When transaction receipts and records become redundant

Image attribution: FreeDigitalPhotos.net; standard royalty free license

Knowing how long to keep household records and receipts avoids problems such as inaccurate tax filings, inability to reconcile checkbooks or cash-flow, and inefficient debt management. Some documents are needed for a lifetime, others expire in months. In any case, being able to identify the functionality, validity and utility of household records and receipts is key in knowing how long they are needed.

One way to make individual or household archival decisions is with the help of a record-keeping reference guide. For example household record tips from the Ohio State University suggest warranties should be kept for as long as the corresponding property is owned, but recommend income records only be kept for six years. However, knowing the reasoning behind such references is also helpful in evaluating the accuracy of record-keeping decisions because individuals can have different record requirements.

Verification

Household records and receipts are used to document transactions, evaluate credibility, and verify tax claims. They can also protect and confirm identity, legal rights, health records and ownership. If the records are expired, invalid or so old they are no longer given any legal or financial credence, then there is a good chance they won't be needed for documentation and verification purposes. However, some household records such as birth-records never expire and should generally be kept for as long as one is alive.

Statutes

In terms of financial records, statutory limitations determine how long a particular financial transaction, debt or income can be legally enforced. These statutory limitations range between 2-15 years depending on the state, type of agreement and debt. For example, according to Nolo, in Kentucky a lawsuit on debt agreed to in writing can be filed for up to 15 years. However, the majority of states limit legal action to 2-6 years for the same contractually defined debt. Each states' specific allowable statutory time limitations and provisions can be obtained via state code or websites such as Nolo and CreditCards.com.

Taxation

The federal government also has a statute of limitations on money owed to it. In regard to taxes, the Internal Revenue Service (IRS) generally has up to ten years to collect taxes and 3-6 years to assess additional taxes per the online CPA Journal. Moreover, also per the CPA Journal, the amount of extra tax assessed affects how long the IRS has to make that determination. State taxes also have collection limitations; after determining what those limitations are and if they apply to particular tax situations, then a determination of the redundancy of tax records can be made.

System

Organizing household records is a skill because if it is done well, it can provide quick access to a variety of valid documentations for multiple tasks such as filing taxes, applying for loans, documenting assets, confirming identity etc. With digital record-keeping, retaining useful financial records and copies of important documents for decades is more feasible, but not necessarily practical. This is because too many records can affect computer processing speed and those records may also be redundant in the sense they cannot serve a functional purpose.

Debt management warning signs

 US-PDGov

Increased debt burden often has the capacity to magnify financial stain on household budgets. Tackling that increased debt before it gets out of control is assisted by recognizing the warning signs you are headed into debt problems. Moreover, the reason it is beneficial to spot financial red flags early on is it better facilitates amelioration of debt related financial obstacles before they get big enough to cause financial damage.

The Experian credit rating agency recommends keeping credit card balance to limit ratios low. In other words, if you find credit card debt becoming an increasingly higher percentage of total credit limit, it could be an early warning of larger debt problems. Small debt problems can creep up incrementally and sometimes go unnoticed. These small increases in debt snowball after time and become larger debt problems that make money management more difficult.

Depletion of savings

A savings account balance that declines even just a few dollars a month could be a warning sign debt problems are ahead. To find out if it is a warning sign follow the money trail. If the money from savings is being transferred into another savings account then it is more likely to be a re-shuffling of assets. However, if that savings balance is declining because of transfers to a checking account or for debt payments, then it could be signaling a potential debt issue.

Lower credit rating

By keeping track of credit scores consumers stay aware of how credit rating agencies view their credibility. Since these agencies themselves have measured credibility, it naturally follows a declining credit score means they have found financial reasons to substantiate a lower credit score. This credit score is itself an indicator of decreased ability to manage debt and potential warning sign of debt problems. The industry credibility of credit rating agencies such as Equifax and Transunion is measured by credit research performed by 'non-partisan' organizations such as the Policy and Economic Research Council (PERC).

Higher monthly debt payments

Another warning sign of potential debt problems is higher monthly debt payments. In some cases, a higher monthly debt payment may be due to mismanagement of cash-flow, however at other times it may indeed be a debt warning sign. Moreover, if higher debt is due to cash-flow, it may be resolved by a rescheduling of payments to fit income schedules. However, if the higher debt payment is due purely from increasing debt, then that too could be a warning sign of bigger debt problems down the road. The relevance of that warning also rises if the pattern of increasing debt payment continues over time. 

Overdraft charges

Overdraft charges are another potential debt warning sign. As with high monthly debt payments, these charges may be due to mismanagement of cash-flow. However, at other times they may indeed be a debt warning signal, especially if they increase in frequency and deplete the ability to pay debt. Said differently, overdraft charges themselves are a debt related expense, and too many of these charges can throw off monthly budget payments designed to pro-actively manage debt leading to higher debt payments later on.

Guest post: How to manage your business debt

US-PDGov

 By: Mickey Colon

Managing your business debt wisely is a top priority if you want to run your company efficiently. In some cases the debt is tied to the business entity instead of the owner. But even though the creditor can only go after business bank accounts and assets, poor management of the account can negatively affect your business reputation.

In other cases creditors will hold you, the owner or representative, personally responsible for a debtyou accrued while running the business — particularly if you signed a personal guarantee to start the account. Either way it’s important to stay on top of your business debt accounts and make every effort to get them under control.

Create a Business Budget

Whether you’re a large tech conglomerate with over 100 employees or the owner of a small main street flower shop, you must have a business budget in place. Lack of a budget is one of the top reasons why many business owners get into debt in the first place and also why they continue to stay in debt.

Your business budget should accurately list your estimated monthly business income and expenses. That includes employee wages, office rent, office supplies and other costs to operate the business including your monthly debt expense. Your income may vary each month depending on the type of company you run, so estimate the revenue for each month in advance.

Pay Down Plan

Make a commitment to funnel your business profits (income less expenses) to your debt accounts until your balances are more manageable. If necessary, be prepared to make major sacrifices to put your business in a better position debt-wise in the short-term. For instance, you may have to pay yourself a lower wage or no wage at all for a few months until your accounts are paid off.

If you find yourself with a shortfall (loss) or breaking even every month it’s time to make some tough decisions on how to run a more lean and mean operation. In the meantime, avoid continuing a pattern of accumulating debt — if your past expenditures haven’t helped you turn a profit, it may be time to re-evaluate your entire business strategy.

New Habits

Once you get back on track with your business debt, make it a habit going forward to try to pay off your balances before each billing period ends. So for instance, if you charge $1,000 at the beginning of the billing cycle for inventory, make it a point to pay off that $1,000 as soon as you receive the proceeds from the associated sale. This way you avoid interest expenses.

Also, as a savvy business owner you should constantly be on the lookout for a better credit deal. Shop for new business card deals periodically and talk to your local credit union.

Bio: This article was provided by America’s debt help Organization, serving the public with unparalleled content about a range of topics, such as reducing debt, credit card consolidation help, mortgage modifications, planning retirement and helping Veterans get out of debt.

Debit card review: Maestro debit card

Image attribution: FreeDigitalPhotos.net; standard royalty free license

Maestro debit card services is a division of MasterCard that is licensed to financial institutions that issue debit cards. These debit services allow clients to make payments from their checking accounts or using pre-paid debit cards. Maestro cards use the MasterCard Maestro transaction network which is a payment system that communicates between merchants and financial institutions to authorize debit transactions. Cards that use Maestro debit card services can be used to make payments at merchant locations that subscribe to the Maestro network. The cards can also access a vast number of ATMs findable using the MasterCard ATM locator.

Interchange fees

The costs charged for allowing Maestro card consumer debit transactions across European Economic Area country borders were limited by a December 2007 ruling by the European Commission per MasterCard’s 2011 Q1 Form 10-Q. However, in 2009 this ruling was bypassed with MasterCard’s compliance with the EU's condition that MasterCard “create efficiencies that outweigh the restriction of competition.” For Maestro debit card transactions this fee is limited to .003 percent of the transaction cost.

Wireless transactions

A unique feature of the Maestro debit card service network is that it includes the Maestro Paypass. This is allows Maestro Debit Card holders to simply tap their Maestro card instead of swiping and entering in a personal identification number. Only merchants with tap technology equipment are able to process debit card transactions in this way. As easy as the wireless tap payment method is for the Maestro card holders, it is limited to 10 pounds sterling and is only functional at merchants with tap technology equipment. This may protect against the wireless theft of account information or funds, but also limits the functionality of the technology.

International use

The Maestro debit card service can be used in numerous countries and primarily serves the United Kingdom and European Economic Union countries including France, Germany and Italy. According to MasterCard, The Maestro debit card is accepted at over 960,000 locations within the U.K. Additionally, MasterCard claims there over 100 countries with Maestro card access in its 2011 Q1 Form 10-Q. This network integration assists with making payments while overseas and limits the need for cash. MasterCard’s quarterly report also claims these types of transactions are also more profitable for them as a corporation.

Prepaid debit cards

In addition to account based debit cards, Maestro cards can also be acquired using a prepaid method. Prepaid Maestro cards do not require a credit check, but do require identification to be purchased; these cards are also re-loadable. According to Maestro card services, Maestro prepaid cards can be used at millions of retail locations worldwide and allow both internet transactions and internet access to card information via the Masestro debit card online services.

Security features

Maestro debit cards issued by HSBC, NatWest and The Royal Bank of Scotland can be registered for a security protection feature called SecureCode. SecureCode protects transactions with an additional secret code. A transaction history is also recorded when transactions are made using these cards. Since debit card transactions are recorded on account statements, the identification of possible fraudulent transactions in real time and via historical records also facilitates the security of using the Maestro card.

U.S. Debt Collection Abuse On The Rise

Despite regulations including the Fair Debt Collection Practices Act, the Fair Credit Reporting Act and the Wall Street Reform and Consumer Protection Act, enforcement has its obstacles as evident in the following infographic syndicated courtesy of Frugal Dad. According to the infographic, complaints against debtors have increased 66 percent and a Harvard Law Professor is quoted as saying mobsters would be envious of student-loan debt collectors' power.

Source: http://FrugalDad.com

Why finance for A is not always finance for B

Finance like most things can be as simple or as complicated as one chooses to make it. With roots stretching back in history, finance began when things of value began to be equivocated with wealth. However, financial management does not have to be about wealth at all, it also pertains to debt management and the valuation of resources considered essential in day to day life.

How assets and debts are measured, utilized, exchanged and valued also differ considerably from individual to individual and society to society, in part because of an aspect of behavioral finance called behavioral heuristics, but also because of variances among individual and cultural values, and knowledge systems.

Money Transfer from person A to B: Each have different financial goals

Image attribution: Horatius License: Public Domain

Financial measurement is constructed

As with many modernizations, finance is a socially constructed reality that makes use of a selectively chosen deductive knowledge. For example, our numerical system is 'base 10' which according to Kenny Felder of North Carolina University really only means that all numbers larger than 9 are created using the original numbers 0-9. In a base 5 system, all numbers larger than 4 are derived from the numbers 0-4 and 5-9 are not used. Thus, numbers are only the result of meaning we as human allow them to have.

Different financial systems represent the same things

Multiple financial meanings can also be construed from exactly the same phenomenon. To illustrate, a commodity futures contract for the delivery of 5 tons of seal meat  may represent a present value of future cash flow to an investor, but absolutely nothing to a traditional Inuit who's currency consists of seal meat and not a derivative financial instrument. Both realities are the same, i.e. 5 tons of seal meat, but the former creates things based on other things whereas the latter simply deals with what is easily accounted for.

Financial management is linked to cultural values

In addition to the system used to measure things of value, and the extent to which that system derives meaning, finance also has cultural values associated with it. In a post-apocalyptic or purely agrarian culture, non-technological culture with limited products, currency may still exist, but may play a considerably smaller role in civilization. For example, a culture with no factories, automobiles, laboratories etc. is more likely to be indicative of one with less materialistic goals, and consequently, less products and services. Such being the case, finance and economics is less elaborate and are less likely to be a priority in that society.

The goals of finance are not always the same

Another inconsistency in finance is that financial goals are not always the same. Investing for one person may both be a completely different activity and may even serve antithetical purposes. To illustrate, suppose a farmer plants a seed that is intended to grow into an apple tree that will provide fruit for his family and livestock. That seed is an investment and has no affiliation with money because it was traded for a different kind of seed. Yet, another person may invest $100 which itself is a digital concept because it was transferred  through an Automated Clearinghouse, an electronic funds transfer service managed by the Department of the Treasury. Moreover, the goal of that investment is for it to appreciate in value alone.

Inflation as an extended source of economic stimulus is questionable

In a back issue of the New Yorker Magazine the idea of inflationary stimulus is discussed as a way to facilitate debt reduction and possible increases to consumer spending. The example given in the magazine is debt accumulated by the United States during the 1940s as it became more manageable after inflation. This is because the debt management metrics were presumably not chained to inflation, and therefore as the amount of currency within the system increased, old debts shrunk proportionally to the money supply. The subsequent paying off of such debt then increases confidence in the economy and causes its borrowing costs to decline.

This strategy has been suggested as a remedy for the current weak U.S. Economy by experts such as Harvard Professor Kenneth Rogoff in a PBS interview. Moreover, when a central bank prints more money or indirectly increases the money supply via open market operations, the value of equity and commodities rise. In one sense this is good if those commodities are local. However, when they are not, as in the case of imported oil, inflationary pressure serves as a financial weight or tax to consumers. In the case of inflation of equity and oil commodities, artificially inflated 401(k) values counteract consumer price increases. However, this balancing out combined with a decline in national debt could perhaps serve as an economic stabilizer by not allowing things to get worse.

When an economy has systemic issues not tied to inflation, the above measures are not as effective. Moreover, inflation that's costs are paid for by the government also cancel out lowered debt. For example, a rise in healthcare costs paid for by government services such as Medicare does little to improve an economy that has lowered its debt burden via central bank monetary policy on interest rates. Additionally, exports can rise when the value of the dollar declines. However, that's no guarantee businesses won't up prices to keep up with costs. The value of currency also declines with inflation in which case individual net worth declines with out the proper inflation protection.

Increasing inflation at a slow rate can correspond to economic expansion when the amount of real national product increases and inflation rate rises along with it. This kind of inflation is not necessarily fiscally toxic, however higher levels can be risky. For example, if inflation rises too high, confidence in national Treasury Securities can wane causing higher costs to the government. The Federal Reserve Bank takes its inflation management seriously, and monetary policy that is too loose can cause it to increase. This makes the addition of a third round of quantitative easing by the Federal Reserve Bank questionable amidst an inflation rate that has risen to approximately 3.6 percent as of June 2011 per the Bureau of Labor Statistics.

A measured amount of inflation can be helpful, and can cushion the affect of a recession. Over a prolonged period of time however, an above rate of inflation has an eroding affect where the net benefits of lower cost of national debt and increased equity values don't stop the problem they were meant to ease i.e. the economic affects of recession. This is because the expenses for consumers and government continue to rise without economic growth leasing to less overall national worth with a higher denomination of asset values. Systemic economic issues have to be dealt with while inflationary stimulus serves to make it easier. When that doesn't work, as economists and observers have noted, the affects of monetary policy decline.

Ways to finance college costs

Paying for college is something that can be facilitated by a few practical and thoughtful steps. The opportunity cost of going to college can be in the tens of thousands of dollars, not to mention the actual expenses associated with enrolling in college programs. Despite these education costs and expenses, there are ways to lower both the opportunity cost and the expenses of college education significantly. This article will outline some of those methods.

College savings plans

Depending on how far into the game you are, your parents may have set up a college savings plan such as the 529 college savings plan for you when you were a child. If you don't plan on attending college for several more years it may be a good idea to look into this type of plan as they are completely tax free in terms of deductions and withdrawal so long as the money is used for designated college expenses.

Living with family

Residence is one of the biggest expenses at college. A typical college year can last 8 months and include room and board and dining expenses in excess of $8000/yr. After 4 years that's a lot of money. While living at home doesn't include the complete college experience, it might be worth  not incurring tens of thousands of dollars of student loan debt to miss out on dorm and near campus life depending on how intent you are on paying for college.

Transfer credit from community college

Some community colleges offer courses that can be transferred with relative ease into a University program. If you are planning on enrolling in a university program, looking into the local community college courses and transferability to universities may well be worth it. Additionally, depending on the community college, one may not want to or have to attend university if the program one is interested in can be achieved through community college.

Corporate tuition assistance

If you are lucky, you might be able to land a job with a company that has tuition assistance. Even if it isn't 100 percent assistance or grade based assistance it is worth the time spent filling out the application to try and redeem such valuable job benefits. Additionally, one doesn't always have to be employed by a savvy large corporation to receive such benefits, a small business owner may see such assistance as the perfect tax deduction and might be worth asking for instead of a raise.

Consortium universities

Some universities may be members in a regional tuition consortium allowing students from one state to attend universities in another state at a discount to the normal out of state tuition. After establishing residency which is usually a period of 1 year, those students may qualify for instate tuition. Calling different universities admissions offices is a good place to start in researching this possibility.

Register as in-state not out of state/attend state vs private school

The difference between instate and out of state tuition can be enormous. It might be worth establishing residency before hand in order to qualify for the lower tuition at State schools. Private schools may not honor the in state and out of state guidelines since they are private institutions. Additionally private schools tend to charge much steeper tuition costs. There are many credible state universities that's education program is considered at par with if not better than some top tier private schools.

Buy used text books

Many college and university bookstores offer resale programs for books that are used in consecutive or repeated semesters. This allows new students to buy books from previous students who have resold their books back to the college or university bookstore. After 40 classes of course work, some with 2 or 3 textbooks each the savings on used books can add up. The price of used textbooks can be marked down by 10% or more depending on the condition.

Sell text books online

If the textbooks your class uses are new editions they could be worth something through online retailers. To optimize on this technique, purchase used text books through the book store or online and then resell them to minimize costs. Since textbooks can cost up to and sometimes over $500.00/semester, the potential savings are in the thousands of dollars over a traditional 4 year university program.

Employment during enrollment

Working during school can help pay for costs in addition to making graduating on time a lot tougher. Depending on whether you work full or part time will make a difference on how much you can earn versus how many credits to enroll in. Burn out is possible when working full time and attending a rigorous academic program so be realistic with yourself as well.

Avoid student loans and credit card expenses

Student loans may seem like the easy option at first but depending on the interest rate upon graduation and thereafter, the interest on the loans can multiply the real cost of attending college or university. Avoiding these methods of payment may be impossible, but keeping the future cost in mind is prudent.

Apply for scholarships and grants

Good grades and standardized test scores can mean one very good word, scholarship. While test scores alone don't translate to scholarship they can be a big help. Researching the different types of scholarships and grants available and applying for them properly is key to qualifying for this type of free education. It is worth the time to work for and try for these types of funding.

Paying for college may seem daunting at first and the prospect of debt may not seem appealing at all and that is because it isn't. However, if you decided the opportunity cost of an education is worth it and will pay back more in the future, then the next step is to find ways to minimize these costs and expenses. The tips and methods in this article can help with just that. The more of the tips that are utilized and the more consistently they are applied, the greater the potential savings, affordability and practicality of paying for school can be.

Disadvantages of small business loans

The disadvantages of small business loans aren't always made clear by lenders who may collect lending interest regardless of whether or not a small business fails. Between 2006-2008 business bankruptcies rose from 19,695 to 43,546 according to the American Bankruptcy Institute (ABI). 

Included in those bankruptcies are the approximately 50% of small businesses that are reported to fail within the first 5 years of operation by the U.S. Small Business Administration website (sba.gov). Some of the disadvantages of a small business loan can include 1) loan objective failure, 2) cost of the loan, 3) affect on business credit rating and 4) implication to shareholders.

• Impact on business credit

Creditors use total credit used in relation to total available credit in calculating credit scores. If this ratio is too high it could negatively affect future financing activities for the business. For example, if a line of credit or business credit cards are used to sustain daily operations during the cash conversion cycle and to facilitate accrual accounting, that credit may be negatively impacted by a business loan for another project. When obtaining a small business loan it is a good idea to assess any potential financial impact on other loans or credit.

• Loan non-performance

Small business loans can and do have pitfalls or disadvantages. The business plan which was used to obtain the loan could fail making the cost of the loan higher than the rate of return on the loan. Consumer trends can dip, cyclical markets may stay in downturns, and a long drawn out secular market may lead to potentially unsustainable leverage for a small business. In other words, it may be a good idea to build in a reasonable amount of cash flow redundancy into a small business in case forecasts and otherwise consistent projections do fall short.

• Cost of loan

Some loans simply are too expensive to be beneficial even if the loan is considered a calculated bridge to a future financial or business goal. This is especially the case with unsecured loans or small business loans with fiscally oppressive terms of agreement. A loan cost that exceeds the return on debt is usually a risky decision unless the loan is implemented in a solid two-step forecast. For example, a seasonal loan that allows a retail business to stock up inventory for the up season or continue operations during the down season.

• Implications to shareholders

If the small business has shareholders, the shareholders may be displeased if directors and officers poorly acquire and implement business loan activities. The displeasure of shareholders could have negative consequences to the equity positions within the business or the roles of directors in the business. Some loans may take a complete business cycle to have its desired impact in which case strong reasoning and evidence for the loan may be useful in regard to discussion with shareholders.

• Faulty risk assessment

If a lending bank is insured against loan defaults they may only apply the minimum risk assessments required to issue a loan and secure debt which may simultaneously increase the risk of loan assessments made by small businesses. This is especially the case for unsecured loans. Unsecured loans don't require collateral, have high interest rates, aren't always offered with borrower scrutiny and are generally higher risk. If a secured loan is risky for a small business, then an unsecured loan may not always be a good choice.

In summary, small business loans have potential disadvantages as well as real disadvantages. The differences between potential disadvantages and real disadvantages are their financial actuality such as cost, and credit impact whereas potential disadvantages may include leveraging of a failing business and loss of shareholder confidence and equity. 

Small business loans vary in risk that make the riskier loans more potentially disadvantageous than low risk loans. However, even with low risk loans, there may be way to finance business projects and operations in a more effective way. Adequate inventory control, reorganization, internal audits, business strategy adjustment ext. may all contribute to less need for debt and a more profitable and functional business.

How Debt Is Used to Build Wealth

Debt has the ability to be both a positive and negative catalyst for wealth. Too much debt becomes out of control, too little debt and opportunities may pass by. Debt has been used as a financial instrument for centuries and is means by which lenders can make a profit and borrowers can 1) engage in financial ventures otherwise unfunded 2) increase standard of living and 3) allow businesses to finance activities more profitably. 

This article will focus on the use of debt as a potentially wealth building business venture. Financial ventures and expenditures financed through debt can go very well or terribly wrong if the debt is unrealistic, cannot be paid back or does not create a return higher than the cost of debt. An example of beneficial debt leveraging is Coca-Cola's use of "debt financing to lower the cost of capital, which increases return on shareholder equity" (Coca-Cola 10Q, 4Q 2007) In other words, the cost of debt is cheaper than other sources of capital for Coca-Cola company.

Business use of debt

Businesses utilize debt to increase potential returns whether those returns be through expanded operations, more inventory, research and development, project development etc. It is not uncommon for businesses to use debt because business owners and directors realize the potential debt has in creating wealth. One need only look at the financial statements of the thousands of publicly traded companies to realize just how much debt is used to finance one or more aspects of a business. A few examples of business use of debt to generate profit are the following:

• Leveraged buyouts
• Debt funded price wars
• Increasing product quality
• Capital investments
• Vertical and/or horizontal integration

Debt as a tool for growth

Without debt, businesses are left only with liquid assets and equity. While assets and equity may be a wiser choice in a higher interest rate environment, there are some times in the business and economic life cycle in which debt may be a worthwhile risk for growth. For example, there may be times when a proven demand for a product is there, and market research has demonstrated both competitors and customers are fueling the supply and demand equation.

To illustrate the above point, if company A is a grower and seller of tomatoes however in order to expand its product line to include a greater variety of tomatoes it needs more greenhouse space. Company A decides to take on a debt of $10,000.00 at an interest rate of 7.5% to build the extended greenhouse and increase its product line to include hybrid tomatoes. Sales that spring increase 4 fold from 2000 tomatoes to 8000 increasing revenue from a monthly revenue of $10,000 to $40,000. In this example the debt paid off immediately and turned a profit.

Debt funded opportunity

There are many types of debt and also many types of debt funded opportunities. Depending on the nature of the business venture, and the debt markets, the potential benefits and costs of debt can vary. Debt can include business credit cards, vehicle and equipment loans, property mortgages, lines of credit etc. and the opportunities that debt can make possible also differ, a few of which are provided below:

• Debt leveraging can put more control into the hands of business managers through capital restructuring

• New facilities, equipment and/or products can lead to increased efficiency and higher sales. The lower costs and higher revenue may translate into higher retained earnings.

• Tax Benefits: Debt costs may have tax benefits that reduce the cost of debt. For example, if the cost of debt lowers a businesses tax bracket by 19% for a corporation that would otherwise make between $75,000-$100,000 for a given tax year i.e. the tax bracket changes from 34% to 15% the savings on $74,000 of revenue would be approximately $14,060 excluding nominal base tax dollar amounts.

• Asset retention: Debt can also enable a business to retain assets that may be needed for other areas of business operation that would otherwise cost more to run. For example, if a line of credit charges 9% but a fixed asset loan costs 6% the latter debt is more cost effective.

Tips to consider when using debt leveraging

Research

Knowing what the debt will finance and if such financing is likely to prove profitable is an important aspect of the debt decision.

Ratios 

Ratios such as the current ratio i.e. assets/liabilities, debt to asset ratio, and the debt/equity ratio can be used to determine if the level of debt taken on is risky. Generally a current ratio between 1-2, and debt/asset below 50% are considered acceptable for businesses, but these numbers are relative to some extent.

Interest rates 

The cost of debt can change depending on the interest rates. Since interest rates change, choosing not to take on debt at certain times may be beneficial.

Economic cycle

If an economy is heading into a recession, sales may decline or not increase. The benefits of taking on debt for business expansion during these times may require more strategic thinking.

Sales forecasts and market research 

Having an idea how the market will react to debt leveraged expansion or projects can be key in the decision to take on debt.

To recap, debt can be used to finance opportunity, business revenue growth, capital investments, tax savings and other forms of financial activity that may prove profitable. Taking on debt does open the opportunity for increased wealth but only under certain circumstances and environments. The information in this article outlines some of key aspects of debt value, consequences and uses. Knowing how much debt to take on, if it is the right time to take on debt and the affects of debt on profitability are all useful considerations to take into account when deciding to take on debt.

Sources:

1. http://yahoo.brand.edgar-online.com/fetchFilingFrameset.aspx?dcn=0001193125-08-041768&Type=HTML
2. http://www.iht.com/articles/2008/02/26/business/rtrcol27.php
3. http://www.buffettsecrets.com/warren-buffett-debt.htm
4. http://www.taxgaga.com/pages/c-business/taxrate.html
5. http://www.cato.org/pubs/pas/PA120.HTM

Financial Factors Couples Should Consider Before Adding a Second Income

Financial factors couples should consider before adding a second home may be a surprise to some, a reality to others and not an issue for still more. In other words, second incomes can have correlated debt management issues if not considered carefully. It is easy to think of a second income as a good thing as it usually means more money. However, more money doesn't necessarily equate to a better life or even an improved financial situation. This article will outline some of the financial considerations that couples may face before adding a second income. It will do so in terms of 1) the couples pre-second income financial profile, 2) the affects of second incomes, and 3) financial management of the second income.

The couple's financial profile:

A second income usually comes in addition to the couple's pre-existing financial conditions such as monthly expenses, budget, financial plan, fiscal know how, life-style costs etc. This financial profile can influence how the new money is to be used, perceived, managed etc. The reason why these pre-conditions and financial profile are important, is because they are partly responsible for how well the new income will be utilized. The following list indicates some of the financial factors that a couple might want to consider when contemplating a second income.

• Full or part time work
• Amount of income
• Number of members in household
• Existing budget and financial plan
• Financial expectations and know how

If the couple is in good financial shape, additional income may be put to good use, and planned for with logical financial objectives. Otherwise, the second income may be abused and simply proliferate existing negative financial habits to a new level. The impact of the new income is thus determined by some of the aforementioned financial factors.

The affects of a second income on couples:

A higher income can mean higher costs in some cases. This is because higher income households may be taxed higher if either the married filing single or married filing jointly tax bracket minimums are surpassed. The same would hold true for a non-married couple as a higher income could mean a higher tax bracket.

If the couple are both working full time for the two incomes, and have children, the question of day care becomes an issue if the children are young. Also, housecleaning may become too difficult to keep up with requiring potentially higher housekeeping fees, and if the couple are too tired to make dinner after work, they may get into the habit of eating out which adds additional expense. Also, if stress is a factor related to the new income, medical or psychological therapy may become an added issue requiring additional financing along with higher spending due to increased discretionary income.

These and other costs can eat away at a second income and in some cases make the income redundant or not worthwhile. For example, if the couple's income increases by $35,000/year, and the additional taxes and costs associated with the higher income add up to $19,000 not including intangible costs, then the net financial gain is only $16, 000 which may not be worth the effort in terms of stress, time and effort. Listed below are some of the potential added costs that may come with a second income and/or financial decisions associated with such.

• Tax bracket
• Child care costs
• Food expenses
• New mortgage
• Housekeeping fees
• Stress related therapy co-pays
• Higher cost of living
• Increased debt

Higher net household income can lead some couples to believe they can afford to carry more debt. This in actuality is taking on more risk because if one of the two lose an income, the debt remains thereby increasing financial risk even if the debt to income ratio is the same as when the household income was lower. It is for these reasons managing a second income can be important.

Managing the second income:

Second incomes don't have to mean more spending; rather they could mean more saving, better investing, less debt and increased financial security. When a second income is managed well, it isn't redundant, meets financial objectives and can improve the couple's financial profile. For example, less reliance on debt could lead to a higher credit score, or increased savings could mean more financial opportunities later on. Below are a few of the variables that managing a second income may encompass.

• Investment choices
• Savings adjustments
• Debt payoff
• Retirement planning
• Future financial opportunities
• Credit building

Managing a second income is financially relevant because it can help optimize the use of that income so it is more beneficial to the couple and hence more worthwhile. An un-optimized second income is financially inefficient and financial inefficiency can lead to financial stasis and even financial disadvantage. If the affects of a second income don't outweigh the advantages, then the couple is better positioned to make good use of the money. And good use of money is less likely to occur if the couple's financial profile is not suited to such, in which case the couple may benefit from an alteration in their financial profile and/or planning.

An overview of sweep loans

Sweep loans are a type of loan that allow the borrower to move funds between accounts to pay off a loan balance. Sweep loans are established to allow for more convenient financing options, enhanced debt management via optimized debt pay off and automated loan payments as made according to predetermined criteria. This article will discuss types of sweep loans, how sweep loans work and the benefits of using sweep loans in managing one's finances.

Types of sweep loans

Several types of financial sweeps are utilized in banking services, not all of which pertain to sweep loans. For example, in the case of an investment sweep, excess funds as defined by the account holder are periodically swept" into a higher yielding account. However, since these types of sweeps don't involve loans, they are not sweep loans.

Other types of sweep loans consolidate debt by sweeping all the debt into one loan. These latter types of loans are referred to as clean sweep loans. A third type of sweep loan involves applying automatic payment of existing loans and/or lines of credit.

Yet another type of sweep loan is an automated margin call on brokerage accounts. When an investor's options become valued at a percentage below their selling price, the broker who sold the option to the borrower on credit may require a margin call. At some point or another an option fee may also be charged for the financial service and the fee may be swept from the investor's account.

How sweep loans work

Sweep loans work by implementing electronic triggers that automatically transfer money between accounts. For example, if borrower A has a line of credit, and a checking account, (s)he may request that any money in excess of a certain balance be swept into the line of credit to ensure payments are made on the loan whenever possible. This same sweeping of funds can take place for other types of loans such as car loans, business loans, home loans, credit cards etc. In the case of debt consolidation sweeps, several loans from different financial institutions may be transferred into one lower rate loan.

Benefits of sweep loans

Clients of banks or other financial institutions utilize sweep options to properly manage debt and debt payment. The automation of payments and consolidation assist in reducing the amount of steps required to pay off debt and transfer money when payments are needed and/or when excess funds are available.

• Potentially reduces cost of loan
• Avoids bounced checks
• Reduces need for transfers between checking, savings, line of credit etc.
• Helps maintain credit availability
• Can potentially lower interest in the case of debt consolidation sweep
• Supports borrower credit score and/or rating

Summary

Sweep loans are any loan that involve the movement of money from one place to another. The term sweep refers to the sweeping effect of the transaction(s) within the terms of the loan. Many types of loans can be modified for a sweep or existing loans may be swept into a new loan. Depending on the criteria, terms of service, and pre-specified criteria, loan sweeps may automatically transfer funds between a borrower's account for the purposes of optimizing cash flow, automating loan payments and maintaining credit. Several advantages of using sweep loans exist that assist individuals in effectively managing their debt.

Sources:
1. www.bankatlantic.com/documents/category1/file1833.pdf
2. http://www.cardinalbank.com/CashManagementSweepServices.asp
3. http://tinyurl.com/bflryd (Getoutofdebt.org)
4. http://tinyurl.com/6e3z73 (Get out of debt.org)

What Are Circular Loans

Circular loans are loans made by an entity owned by the entity receiving the loan. For example, Company A owns a subsidiary company B. Company B makes a loan to company A making the loan circular in the sense the assets all belong to the parent company. This article will discuss circular loans in terms of how they are made, why they are made and tax implications regarding the loans.

How a circular loan takes place 

Circular loans are similar to check kiting which is a form of check fraud and is punishable by law. The difference between kiting and circular loans however is that third parties are not involved and the intent is more likely to involve tax evasion than check fraud. Moreover, unless the funds do not exist, the circular loans do not constitute a form of kiting especially if the loaned funds are not used to pay expenses incurred from purchases or services received.

Circular loans are quite conceptually simple and the following example illustrates a circular loan. Mac is the sole owner and shareholder of three small businesses called 1, 2 and 3. Each of these businesses perform different functions. Business 1 is a dry cleaning company, business 2 is pawnshop and business 3 is an accounting practice. The owner of the company decides business 1 requires additional funding for an equipment purchase then "applies" for a loan from business 3. Business 3 then approves the loan and transfers the money to business 1.

Reasons why circular loans take place

The reason(s) the shareholder(s) and/or owner(s) of businesses and the businesses themselves may make circular loans vary. Some of these reasons may be legitimate in the sense that one company may have extra liquid assets that can be better used by the second company to create more profitability. In some cases however, the practice of circular lending may be fraudulent or illegal. For example, if the loans are used to disguise money laundering or to create company worth that does not exist, then the circular loans are probably fraudulent or illegal in some way. Below is a list of reasons circular loans may take place.

• Legitimate financing of business operations

• Owner investment of personal assets

• Money laundering

• Generate false asset value

• Tax evasion

Tax implication of circular loans 

Circular loans between some types of corporations are not deductible as an expense if certain conditions are met. For example, if an owner of a S Corporation/Small business makes a loan to a company that then makes a loan to another S Corporation and conditions with the loan terms protect the company and the capital provider from loss, then the loan is not tax deductible.

When the same shareholder as above owns multiple S Corporations between which loans occur, the loans are circular in terms of ownership. Moreover, as per a cost basis adjustment with the shareholders ownership of the company, such loans are not deductible as losses if unpaid because the value of loss is transferred rather than lost.

A similar situation arises when the recipient of the loan is also the owner of the company that makes the loan. In this case, the loan is also circular and may be questioned by tax authorities as being non-deductible due to the circularity of the loan.

Summary

Circular loans are a form of lending between separate businesses with the same ownership. The loans are circular in the sense that the net gain or loss is unchanged in terms of the ownership of the funds. Circular loans may be performed for a number reasons that may or may not be legitimate, thus the discovery of circular lending between businesses of shared ownership may be a red flag to banks, financial institutions or minority investors.

A company that lends a circular loan to the business owner or another company owned by the same party may not perform and thus be at greater risk of default on that loan. However, this is not directly related to the circumstances surrounding the loan itself. Circular loans performed for the purpose of reducing taxes is considered illegitimate in some cases as documented within the sources provided within this article.

Sources:

1. http://www.mobar.org/405bc858-3bcc-4faa-96ea-5607d75e5772.aspx http://www.allbusiness.com/personal-finance/individual-taxes-tax-deductions/950077-1.html http://www.bankrate.com/brm/news/chk/20021203b.asp
2. http://www.cpeforum.org/fall2006docs/Partnership%20-%20MSCPA.doc

How Does Filing Bankruptcy Affect IRS Tax Debt

Filing for bankruptcy may or may not affect Internal Revenue Service (IRS) debt depending on 1) the type of bankruptcy, 2) judicial decisions, 3) IRS regulations and 4) Documentation filed with the IRS by the individual or persons filing for bankruptcy.

There is no one answer for how bankruptcy affects taxes because there are multiple situations and rules that affect money owed. In light of this, a methodology for assessing tax due to IRS is discussed hereafter. Numerous factors can affect whether or not, and how much tax a bankruptcy petition filer may owe in taxes. Some of these factors are listed below:

• Ability to repay as assessed by the IRS
• Formal discharge of tax debt by bankruptcy court
• Compliance with tax code and bankruptcy regulations
• Taxable bankruptcy exempt assets owned by the filer
• Carrying out of tax and bankruptcy related filings

Direct tax benefits of filing for bankruptcy

Bankruptcy can affect IRS debt by legally demonstrating the inability to pay taxes. This inability to pay taxes can be determined by both the bankruptcy court and the Internal Revenue Service.

Filing for bankruptcy can also affect IRS debt by reducing the total amount of assets one owns that can be used for the purpose of paying taxes depending on the priority of debt in order of repayment.

Since bankruptcy is a second chance financially, taxes that do not enable this second chance in principle may be exempt from repayment. Some of the ways filing for bankruptcy may affect IRS debt are as follows:

• May redistribute payment obligations
• Taxes due can be negotiated with the IRS
• May reduce taxable value of personal assets
• Can limit tax liens and back taxes due

Bankruptcy tax assessment methodology

Since the purpose of bankruptcy is to reduce or make debt manageable, taxes due to the IRS are no exception. For this reason, realistically, factually and thoroughly approaching the question of how filing for bankruptcy affects IRS tax debt may involve a number of techniques, and/or methodologies. An example methodology is provided below.

1. Determine type of bankruptcy and if judicial rule will override IRS regulation
2. Identify assets not included in the bankruptcy which taxes may be due against
3. Consult with the IRS bankruptcy division, and bankruptcy lawyer
4. File an ‘offer in compromise’, IRS Form and other required documents

IRS tax forms used in relation to bankruptcy

Extensive documentation is often required for bankruptcy filing as debtors, the bankruptcy court, and the IRS should all be made aware of the financial scenario the party filing for bankruptcy faces in order to determine, and asses payment or non-repayment of debt obligations. In terms of IRS debt, some of the forms and information used during bankruptcy proceedings include those mentioned below:

• IRS Form 656-Offer in compromise
• IRS Form 1040 (and related documents)
• Internal Revenue Bulletin (IRB) 2006-40
• IRS Publication 538: Offer in compromise information
• Information pertaining to reduced tax year filing during bankruptcy
• IRS Publication 908: Bankruptcy tax guide
• Bankruptcy Abuse Prevention And Consumer Protection Act of 2005: BAPCPA ACT: Title VII

Bankruptcy filing tips

Filing for bankruptcy involves bankruptcy law, US Statutory law and dynamic individual financial situations. For this reason not seeking professional assistance is generally not a good idea. There are many legal requirements, options and stipulations that if not abided by, may disqualify, hamper or reduce the potential tax advantages of filing for bankruptcy. Hence, the following tips are not guaranteed to be completely accurate due to the complexity of tax law, and are just a few of the several things to consider when dealing with taxes due to the IRS when filing for bankruptcy.

• File taxes regardless of bankruptcy. Not doing so can complicate or disqualify the bankruptcy.

• For a chapter 7 bankruptcy, File an IRS Form 1040 shortly after the bankruptcy case begins. This can minimize the amount of tax due under Section 1398 of Title 26 of the US Code. IRS Publication 538 has more information on this.

• Utilize all legal bankruptcy related tax deductions, reduction techniques and options to minimize non-qualifying tax debt. For example deduct bankruptcy lawyer fees in Schedule A of bankruptcy tax year.

• Signing over of real estate that had equity value prior to bankruptcy filing to an offshore trust may protect the equity in the property from tax liens if in compliance with U.S. Code statutory law.

• Some taxes from tax years prior to filing for bankruptcy may still be claimed by the IRS

• For unanswered questions or concerns contact the IRS Taxpayer Advocate Service at 1-877-777-4778 and/or speak with a qualified tax professional.

Sources consulted:

1. http://www.moranlaw.net/taxfaq.htm (Moran Law Firm)
2. http://www.irs.gov/pub/irs-pdf/p908.pdf (Internal Revenue Service)
3. http://www.mckenzielaw.com/BANKRUPT.html (Mckenzie law firm)