Did you know that Thomas Jefferson, widely considered a genius & the smartest of all U.S. Presidents, filed bankruptcy multiple times? It’s not surprising then that people file bankruptcy as a viable vehicle to get out of bad debts.

Filing for bankruptcy means that your debts - only those you filed for - are forgiven. It does not mean you own nobody anything, it just means you would not have to pay your existing creditors any more.

The one thing you would have to pay is taxes! The IRS considers forgiven debt to be INCOME. So, if one settles $30,000 of debt for $17,000, then they’ll OWE TAXES on the $13,000 that was forgiven. It is a good idea to keep money for taxes!

Once you are in debt and start falling behind, you have three options:

• Balance your budget
• Settle your debt
• File bankruptcy

Note that the banks do not actually want you to go bankrupt but want to keep you in debt and paying interest. They loose the interest you pay them every month if you declare bankruptcy. That option is the last resort for you, and definitely the last resort for the bank as well.

We will talk more about each of the three debt relief options in the coming posts.

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