Every member of the military must apply for a personal military security clearance.  A person entering the military does not automatically receive a security clearance; it must be formally applied for and granted.  Along with relevant personal data, the security clearance application requires specific disclosure about financial delinquencies, which include personal Chapter 7 and Chapter 13 bankruptcies occurring within the last seven years  It usually takes over a year from the time of security clearance application to successful granting of the security clearance.  A good portion of this time may be the investigation stage of the approval process.  During the investigation stage a credit check is performed.  If a credit problem (such as bankruptcy) is discovered, further investigation is performed which may include requests for additional information and interviews.  A PRSI, or Personal Subject Interview, is a regular part of the security clearance process which all applicants, regardless of credit history, must complete.  Grounds for denial of security clearance include being found to have serious, repeated financial problems or intentionally giving false statements regarding your finances.  A security clearance is usually successfully granted if one can honestly present plausible reasons for financial problems in the past, including a bankruptcy.   Financial mitigation of security concerns includes the following:   behavior that happened long ago or infrequency; financial problems outside of one’s control, such as illness or loss of a job; good faith efforts to repay debts; evidence of successful counseling for past issues; and sudden affluence from a legal source of income such as an inheritance.    On the other hand, if there are repeated bankruptcies or ongoing financial problems that are not resolved a security clearance will most likely be denied.  Often times it has been reported that underlying unacceptable actions in the eyes of the military, such as alcohol, drug or gambling problems, result in denial of the security clearance.  In addition, frivolous or irresponsible spending and an unwillingness to pay debt (as well as fraudulent or illegal financial practices) can also be cause for denial of a security clearance.   Conclusion:  If you are truthful and specific on your military security clearance application you will most likely not be denied a security clearance if the reasons that led you to bankruptcy have been eliminated.

Oftentimes folks wait until they've spent every last penny they have before contacting a lawyer regarding bankruptcy. This seems like common sense: You go broke and then you go bankrupt. However, this is not how you should go about it. There's a saying that goes, "Bankruptcy is not for people who are broke. Bankruptcy is a process that costs money and therefore you don't want to wait until you are without funds". Go figure!So what is a person in financial trouble supposed to do exactly? This depends on your particular situation. Situation 1: You still have some savings. In this case the smart move is to take an honest look at your budget. Calculate the number of months you have left to burn through your cash while living and paying your ongoing bills and contact a bankruptcy lawyer a few months before the end of this period. If bankruptcy is recommended to you, the lawyer will be able to acquire his fee out of the funds you would have otherwise spent on bills and help you get a break from the ongoing need to pay debts. If the lawyer advises bankruptcy is not a good idea for you, then you can go about your regular business. Situation 2: You have no savings, have significant debt, and now you lost your job that's been keeping you afloat. Unless you can rebound and find another job quickly, you need to start thinking about obtaining a source of funds to start the bankruptcy process. One source of funds may be your tax return. Another source is to borrow the money from a family member or a really close friend. After the bankruptcy case is closed you are not legally bound to pay them back, but that does not mean you can't pay them back if you choose. Situation 3: Same as situation 2, however you don't have a big tax return coming or you can't ask any family members for the money to start the bankruptcy process. All is not lost. You will have to stop paying your bills and start saving whatever you can for the bankruptcy. This can be done by taking a job or two at a much lower pay rate and save whatever you can for the bankruptcy. Some lawyers, like myself, recommend payment plans to help make this a bit easier, but you must finish the payment plan before your case can be filed. Why? This is true for all lawyers because continuing a payment plan after a Chapter 7 bankruptcy case is filed is illegal.Conclusion: Do the smart thing and seek out a bankruptcy lawyer where you live to consult with before you run completely out of money. The attorney can give you free advice and help you decide if Chapter 7 or Chapter 13 bankruptcy is an option for you.

Plenty of my clients are worried about where they will live if they file for personal bankruptcy and hand over their (usually far under water) house. They've heard horror stories about people with bankruptcies being incapable of finding a place to rent. But things aren't as horrible as they fear.My usual recommendation is to not check out the traditional large apartment complexes. Many will, indeed, decline applicants possessing a recent personal bankruptcy on their credit.Much more inclined to rent are private landlords. They are usually far more concerned about you, the person, than about your credit. A good job and first and last month's rent are often sufficient to satisfy these landlords.Another option is a "Lease with Option to Buy," or LWOB. A LWOB gives one who has filed for bankruptcy more than a few advantages. First, you are usually able to get a nicer condo, townhouse or single family home than what would ordinarily be available for rent. Second, the owner usually offers the LWOB because he or she can't sell the property and is actually desperate for cash flow. The owner often cares much less about poor credit and the bankruptcy. Third, you are locking in the possible purchase of the property at today's lower prices, rather than the price the property might sell for in 2-3 years. And finally, you are developing a considerable down payment if you decide to buy the property later. "Lease with Option to Buy", or LWOB, typically involves three provisions in addition to the usual rental clauses:1. You have the first right to buy the property at some point in the future (usually 2 or 3 years);2. Some (or all) of the monthly rent payment is credited towards the purchase price if you decide to buy the property.3. You can set the purchase price at the beginning of the lease.

Walking around Greenwich Village, it's easy to find reinforcement for the popular stereotype of New York University as a rich-kid school. On a fall evening, the bars and restaurants near the campus can feel completely overrun with a swarming mass of fashionably dressed students splashing out on Mom and Dad's credit card, apparently heedless of the recession and living the downtown dream.Lyndsey always resented that stereotype. That's not to say she doesn't acknowledge some truth to it, but she knew it didn't apply to her. Like so many undergraduates, she came to NYU because it was her dream school, but it wasn't a dream she came by easily. Lyndsey financed her NYU education in large part with loans, which she is now paying back a little at a time.When Lyndsey is done paying them, she will be 54 years old, and she will have spent more than a third of a million dollars on her undergraduate education.During her college years, as it became clear to Lyndsey just how deep in the hole her education was going to put her, she dialed back her living expenses to a bare-bones survival budget. She moved out of the overpriced university dorm and into a tiny apartment off campus, dropped out of the meal plan, and put herself on a strict $20-a-week regimen for food and entertainment."I joined clubs just because they had food at the meetings," Lyndsey says. "I knew all the popular meeting places, and I always had tinfoil and plastic bags with me to snatch up anything on the table. If I came across a leftover pizza, I'd take the whole thing and put it in my bag. When I did buy groceries, it was in Chinatown, and I'd haggle for everything. I'd buy things that I didn't even know what they were, just because they were cheap."Upon graduation, it became obvious to Lyndsey that what she wanted to do with her life—why she'd gone to NYU and into debt—wasn't going to pay the bills as her loans started coming due."My dream career was to be a cinematographer on films about nature, to be involved with shaping how the public perceives nature and our relation to it," Lyndsey says. "It became clear that that wasn't going to pay nearly enough. I had a six-month grace period after graduation to get a job and start paying back those loans, so I got work that paid better in a field completely different from why I wanted to go to school in the first place."And so began a blurred, twilight existence that has lasted years for Lyndsey. She works nine-to-five in a surgical-simulation lab at a medical school, then rushes home to immediately start her other job, working until 10:30 as tech support for a company in California."It's pretty murderous," Lyndsey says. "There's no time in my day to think, to breathe, to eat, to shop for groceries. Weekends I try to catch up on laundry, get groceries, cook as much as possible, and see my friends if I can."Still, the punishing work schedule was better than the alternatives Lyndsey sometimes considered. "I'm basically trying to avoid the more extreme ways of doing it: stripping and prostitution," she says. "Stuff you can't tell your parents and your friends about."Working 70 hours a week, Lyndsey was able to stay on top of her $1,232 monthly loan repayment and even put a little aside. But it wasn't sustainable: She was chronically exhausted, her relationships were suffering, and she was miserable. Earlier this year, her boyfriend moved out, and she found herself scrambling to make rent by placing a rotating series of Craigslist roommates on the couch of her one-bedroom apartment in South Williamsburg.Now the possibility of getting behind on her loans, or even defaulting, seems perilously close. But there's no way out. Bankruptcy wouldn't clear her obligations, and if she falls behind, the bank wouldn't just come after her, but also after her mother, who took on much of the debt. Their salaries could be garnished and so could her mother's Social Security benefits.Lyndsey doesn't want to use her full name in this story. She's worried that if she ever does default on her loans, her comments might be used against her in court. Worse yet, she says, they could be used against her mother.But even trapped in this untenable situation, when she's asked if she wishes she hadn't gone to NYU in the first place, Lyndsey doesn't have a simple answer. She's angry at NYU, feels used and misled by the school, sure. Yet she's got nothing but good things to say about the schooling she received."Would I want a different education? I have to say, the education I got was pretty great," Lyndsey says. "I got to know this city that I love. And going to NYU has made people look at my résumé that wouldn't have if I went to U Mass Amherst. Do I wish I hadn't gone to NYU at all? It's not that easy."In the clutches of the great recession, after the home-borrowing bubble burst, the education-borrowing bubble lives on. Teenagers continue to borrow tens and hundreds of thousands of dollars to finance their educations, even as they increasingly find there aren't jobs waiting for them on the other side. Down in Zuccotti Park, Occupy Wall Street protesters are talking about demanding student-loan forgiveness.In some respects, NYU is the poster child for the excesses of 21st-century student debt in America. Although most NYU undergraduates haven't borrowed as much as Lyndsey (who owes $165,000 and will end up paying $350,000 because of interest), the average student is still a whopping $35,000 in debt when they graduate, a figure $11,000 higher than the national average. In fact, NYU creates more student debt than any other nonprofit college or university in the country. The only schools putting students into more debt are the kind of for-profit diploma mills currently being investigated by the United States Senate.But at the same time, NYU's status as an iconic and prolific generator of student debt is an awkward fit with the populist outrage of national education funding activists and Occupy Wall Street protesters. Prospective NYU students have less-expensive options, and NYU isn't exactly positioning itself as an affordable institution for the masses. In fact, its tuition is so high and its financial aid so low precisely because the university is on a multi-decade spending spree, attempting to launch itself into the highest tiers of elite universities with a state-of-the-art campus and top-notch faculty.That sort of aspirational spending—the idea that, as former NYU president L. Jay Oliva once said, "There's no way to get excellence, other than buying your way into it"—is, of course, only the institutional mirror of the aspirational spending NYU's students are doing when they pay their tuition bills. For many, the belief that a diploma from a prestigious school like NYU can catapult a student into a higher socioeconomic register makes NYU's staggering tuition seem worth it.There is a significant difference between these double strands of big dreams and lavish spending, though: NYU is financing its dreams with student tuition. The students are financing theirs with enormous loans that can weigh on them and limit their options for decades to come.Why does NYU put its students in so much debt? Some of the answers are obvious and come quickly to the tongue of university spokesmen when asked the familiar question: NYU is in the heart of New York City, one of the most expensive real estate markets in the world. Everything is more expensive here, from buildings to salaries to food and laundry.School officials also point to the school's relatively meager endowment. At $2.5 billion, NYU's endowment sounds like a lot until you start comparing it with those of the big-name schools with which NYU competes: Five miles uptown, Columbia has $7.8 billion. Yale has almost $20 billion. Harvard has $32 billion.Schools like these can use the interest accrued by their massive endowments to help cover their costs, lessening their reliance on tuition and increasing the generosity of their financial aid. Princeton funds nearly half of its operating budget with its endowment. At NYU, the figure is 5 percent.But while NYU pleads poverty to its students, it's worth understanding why its endowment is so small. For one thing, NYU hasn't been around collecting compound interest for as long as some of its ivy-covered brethren. It was founded in 1831, nearly 200 years after Harvard. And for much of its history, NYU wasn't exactly serving the sort of old-money elites and future captains of industry that could be counted on to give generously to their alma mater.For most of the past century, NYU was a modest regional commuter school. Most of its operations were in the Bronx, in a spacious, conventional campus in University Heights. But faced with a financial crisis in the early 1970s, the school's board of directors began implementing a sort of moon-shot effort to save the school. If the challenge was to go big or go home, NYU was going to go big.It sold the Bronx campus, now home to Bronx Community College, and rebranded itself as the school in the heart of downtown. President John Brademas launched a billion-dollar fundraising campaign. But contrary to conventional doctrine, NYU socked little of the money away, instead going on a spending spree, expanding the university's Greenwich Village footprint, and upgrading its existing facilities.Longtime residents fought back against this construction boom and the institutionalization of their neighborhood, but though the resistance to NYU's ongoing expansion is still noisy, in decades of struggle, they have had little success in reining in the NYU juggernaut.The development was mostly for dorms and academic buildings, but NYU's holdings also include a lot of swanky faculty housing, which, combined with a generous war chest, have helped to lure big-name professors who would never have considered NYU 30 years ago.The spending spree struck many at other universities as risky and dangerous. Spending so much and saving so little allowed NYU to grow rapidly in size and stature, but it left the school with little to fall back on in hard times and placed an outsize share of the burden of running the school on the backs of students.Still, by most measures, the strategy was an unqualified success. Forty years after its near bankruptcy, NYU's Hail Mary transformation is complete. The Bronx now far behind, the school is firmly entrenched in the Village, with 15 million square feet citywide. It has a world-class faculty and now competes for some of the best students in the world.But the school isn't stopping its spendthrift strategy. It's not even slowing down. If anything, NYU's metastatic expansion is only speeding up. Last year, the school announced plans to grow its space by another 40 percent, further saturating the Village and expanding into Brooklyn and Governors Island. And the school isn't confining itself to New York City. Last year, it opened NYU Abu Dhabi, a sort of clone of itself in the United Arab Emirates. In 2013, the school plans to do it again, this time in China. These global forays are for the most part funded by their host countries, but many students see this relentless focus on growth as coming at their expense.NYU's thirst for money to fuel its rocket ride to the top has certainly led it to some unsavory places. In 2007, then-attorney general Andrew Cuomo busted the school for a kickback scheme involving student loans. When students were accepted to NYU, the school would direct them to Citibank as its "preferred lender" for all private loans. In return, Citi would kick back a percentage of its loans to the school. NYU's take amounted to $1.4 million over five years.Citi did offer lower rates than the seven other institutions that vied to be NYU's preferred lender, and NYU says the money was plowed back into student aid anyway. But the relationship was still unsettlingly cozy.Lyndsey, the alumna who will have paid $350,000 for her NYU education, went to Citibank for her private loans because NYU directed her there. When she was accepted in 2003, she was ecstatic. That enthusiasm dimmed somewhat when she saw the meager financial aid package NYU was offering her. If she wanted to attend her dream school, she'd be paying for 90 percent of it with loans.Despite living in a swanky suburb northwest of Boston, Lyndsey's parents were hardly wealthy. Her mother ran a café, where Lyndsey often helped out. Her father worked in sales for the telecom industry but had lost his job, and the past few years had been difficult. Lyndsey's mother had never gone to college. Her father is English, and had no familiarity with the American university system."We relied on the University to help explain it to us," Lyndsey says. "We didn't take it lying down. We called financial aid to ask what was up. They told us that NYU has a fairly high dropout rate, so to protect themselves, they don't offer a lot of financial aid the first semester, but we could expect the financial aid to increase in future semesters."With that reassurance, Lyndsey and her mother inked promissory notes to Citibank. But when the second semester started, Lyndsey's financial aid didn't change. The next year, tuition went up, and her aid actually went down."The relationship with Citi just shows how little incentive NYU had to limit their tuition or offer me better financial aid," Lyndsey says. "They were getting my $40,000 in tuition plus a 15 percent kickback for everything I borrowed. Everybody was winning: NYU was getting paid; the bank was getting a guaranteed revenue stream of 8.5 percent interest guaranteed by the government. Everyone was winning but me."The feeling that her education financing had turned her into an indentured servant made Lyndsey political. Her activities have connected her with a network of other NYU students and alumni saddled with crushing debt and looking to do something about it. A Facebook group she runs called "The $100,000 Club" for students with six figures of debt has more than 60 members. Some students have staged publicity-ready actions like storming into the NYU bursar's office and attempting to exchange their diplomas for a full refund.In 2009, the "Take Back NYU" occupation of the school's student center was motivated in no small part by frustration at ever-increasing tuition and the administration's refusal to reveal meaningful details about how it spends its money. But these were larded up with nearly a dozen other demands, including opening the school library to all and offering 13 scholarships to Palestinian students. By the time the occupation ended, it had become caricatured in the media as an unfocused tantrum by privileged kids.Last winter, the NYU debt protest movement got another shot in the arm as MTV's Andrew Jenks used NYU as the backdrop to his "Casualties of Debt" demonstration. On a cold February day, Jenks organized students in Washington Square to don Anonymous-style masks and T-shirts emblazoned with their amount of debt.The event was long on theatricality, but Jenks wasn't exactly a terrific spokesman for the movement. When MSNBC's Dylan Ratigan asked him what the masks were all about, he said, "We're all wearing masks to show that as a whole, right now, we may not be doing enough, and we sort of have these blank faces, and we're looking around, and we're not sure what to do."A more cogent perspective came from Charlie Eisenhood, then an NYU senior and the editor of school's unofficial newspaper, NYU Local."When you think about it, people trying to make a financial decision that's going to affect the next two decades of their life when they're 17 and 18 years old is crazy," Eisenhood told Ratigan. "A lot of the time, they don't understand what they're getting into, and it's really up to the universities and Congress to make sure that the banks and the universities are focused on making sure these young students are making financial decisions that aren't going to leave them penniless when they're 25 and 30 years old."Talking to the Voice this fall from Abu Dhabi, where he is working for NYU, Eisenhood elaborated: "It seems to me that the libertarians are off-base when they say, 'Well, they're adults, they should know better,'" he says. "There needs to be more information from universities and the government and even from banks—you know, 'Are you sure you want to take on this debt to get this degree? It's not free. It seems free now, maybe, but you're going to have to pay it back.'"That call, for NYU to take more responsibility for educating prospective students about the realities of debt, is actually one that the university has heeded to some extent.In 2009, NYU called more than 1,800 of 7,300 accepted students whose scholarship packages wouldn't come close to covering their tuition and asked if they were really sure that going to NYU was such a good idea.But that gesture generated its own backlash. Some students who received the calls told the press they found them discriminatory, and an editorial in the student-run Washington Square News worried the calls would discourage lower-income students from enrolling. "If promising and motivated students choose not to attend, and any student able to pay the bill fills their spot, NYU risks undermining both its prestige and its socioeconomic diversity," the piece stated. "NYU must turn inward and ask itself which quality it values more in its students: motivation, or financial solubility?"In this instance at least, NYU found itself damned either way. If it made it easy for students to finance their educations with massive loans, it was guilty of economic exploitation and collusion with banks to create a generation of highly educated wage slaves. If it took steps to counsel students about the real consequences of those loans, it was shutting the door to a transformative opportunity to the people who could most benefit from it.As much as students and activists blamed the university for greasing the wheels on their precipitous roller-coaster dive into crippling debt, many were profoundly uncomfortable with the idea of the university doing anything that would limit enrollment to students who could put cash down on the spot.Zac Bissonnette, a U Mass graduate who wrote Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents, was unimpressed by what he saw as an ineffective infantilism in the NYU debt protests."Protesting the amount of money you decided to borrow in order to go to NYU is sort of like moving to New England in the middle of January and then holding signs protesting the cold temperatures and abundant snow," Bissonnette wrote on Daily Finance. "NYU students have a legitimate concern—the amount of money that they're borrowing is insane—and the way that they should handle it is to vote with their feet. Transfer to another school. Deprive NYU of its source of revenue and save yourself in the process. But voluntarily borrowing huge amounts of money to give it to a school while simultaneously shaking your fist at it doesn't help anyone."Bissonnette's critique is a striking one, because it brings home what makes NYU's debt debate different from the national one. If states are gutting funding for public universities, as they are, that has profound implications for access to education in this country. If a burgeoning industry of for-profit schools is going to extraordinary lengths to put those most in need of education into massive debt for often worthless degrees, that's criminal.But if NYU thinks it can fund its ascent to the top tier of universities by charging massive tuition and offering minimal student aid, it's not as though prospective students don't have other options. Schools with even better reputations than NYU have more generous aid packages, and there are literally scores of other colleges that offer "the New York experience" where you won't have to put your life in hock for a diploma. Yet last year, 42,242 students applied to the school—the largest applicant pool ever. What gives?Talking to undergraduates and recent alumni, it seems the answer has a lot to do with youthful optimism and with a vision of their lives that extends through their happy days of schooling in the great metropolis but perhaps not much further."Students go to NYU because it's in New York City," Eisenhood says. "When I applied, they had a question on their application: 'Other than living in New York, why do you want to attend NYU?' And I was like, wow, that's actually really hard. I forget what I said—'Great research opportunities,' or something, but I didn't really believe it."But as much as NYU sells itself on its location, it has some strong programs to recommend it. The university's Stern School of Business is ranked number five among undergraduate business programs by U.S. News & World Report, and students can reasonably expect that between their degree and some well-chosen internships at New York firms, they will be well-poised for a career that will allow them to easily pay back any debt they take on.Other NYU programs, if equally well-regarded, can't promise the same financial return on investment, but that doesn't stop students from signing on for the ride. Ryan Hamelin, in his last semester of a film and television major at NYU's Tisch School of the Arts, has borrowed roughly $24,000 per semester to finance his education but feels confident he'll be able to make the $1,000 monthly payments when he graduates. He's pulling together his portfolio in the hopes of getting some directing gigs. If that doesn't work out, he plans to fall back on crewing for shoots across the city, something he has already done a bit of.Early last semester, the reality of his financial situation—even for graduates of the celebrated Tisch program, the jackpot of a directorial gig right out of college is rare—finally sank in. "I was thinking, 'Shit, why did I do this?'" Hamelin says. "I was having anxiety attacks about it."Now, with a few months to go before his first payments come due, Hamelin is more reconciled to where his path has taken him. "Once this kicks in, I don't see myself being able to do the things I want to be doing for a number of years, which is really a drag," he says. "But that's what you get when you go to NYU: You get NYU, and you get paying for NYU. I'm not going to go down to Wall Street and yell and scream and hope that will make my debt go away."Lyndsey says she isn't wishing for her debt to go away. "I never want to not pay for what I got," she says. But there are government actions that would make her life easier without giving her a free ride."Even changing the interest rate on the PLUS Loans to 3 percent would cut my repayment time in half," Lyndsey says. "Or give us the right to refinance. Banks are borrowing money for free right now, and students are locked in to paying banks back at 8 percent or more."Since she graduated, Lyndsey has paid back about $40,000 of her loan. But because her loans carry 8.5 percent interest with no chance of refinancing, that $40,000 has put only a tiny dent in her actual balance."Do I wish I had been more savvy about how financial aid worked? Of course I do," Lyndsey says. "I'm now guaranteed locked into the system for the rest of my working life to make money for Citibank."And sure, sometimes Lyndsey fantasizes about what would have happened if she hadn't gone to NYU or to college at all, if she had instead spent her money on high-end film equipment and made the kind of documentaries she had in mind when she enrolled at the university.But like many NYU students mired in debt, she doesn't think that should be the only choice—between an NYU education and a lifetime of debt or forgoing the university entirely."There are so many people with so much potential, and they're going to school because they have visions of what they want to do and be and accomplish and contribute to the world," Lyndsey says. And because of the way we're doing things now, they get locked down, and they have to pay these bills, and they don't get to follow through. And that's a waste."Copyright 2011 Village Voice, LLC. All rights reserved.

Before anyone decides to take action on whether or not bankruptcy is the solution to their financial solution, a true gauge of their financial situation must be taken into consideration. While a high amount of debt on say, a mortgage, may be daunting, depending on the payments and length of terms versus a smaller amount of short term, high interest debt, $20,000 of credit card debt may be a more difficult slope to climb than $200,000 in a mortgage. How does one determine if a bankruptcy may be their best option? Rather than focusing on your long-term debt-to-income ratio, take a monthly snapshot of the following - your net monthly income, your monthly debt payments, and your necessary living expenses. If your net monthly income is less than your monthly debt payments, this is an immediate red flag that action needs to be taken. However, if you are in a situation where an adjustment to your living expenses or lifestyle can alter your monthly balance, lifestyle choices may be able to fix your budget. Consider that when filing for bankruptcy, alternative forms of income, albeit non-taxable, such as child support, alimony, gifts, and annuities, may count as income when filing. Another way to check if bankruptcy may be an option is the "Chapter 7 Bankruptcy Means Test". This test was designed to allow individuals who truly have a need to file bankruptcy under Chapter 7 instead of Chapter 13 the ability to do so. If your median income falls below the state or regional average based on your household size over a six month time span, you automatically pass. However, if your income is above this number, a series of financial factors based on your basic needs and adjusted cost of living take into effect. Speaking with an attorney will give you a better idea of what the law sees as income and what your local and state laws translate into for your situation. The means test can be found at www.bestcase.com.

As many Americans continue to struggle financially through this tough economy, a flurry of debt counselors and debt reduction options have flourished and become big business. While many of these companies provide plans to settle your debt for less than you owe or negiotiate short sales on mortgages for overvalued homes, these programs typically fail to mention one important factor - your tax burden from the debt you are not paying. Within the tax code, when a debt is forgiven, a creditor must file this debt with a 1099-C form. This means, for all taxable purposes, one's gain in not paying the debt is translated into taxable income. In short, the debt you aren't paying is now counted as income earned and you will still have to pay something for this cancelled debt in the form of income tax. For instance, if your annual income is $45,000 and you have $10,000 in credit card debt cancelled or "forgiven" through the use of a debt reduction agency, your new taxable income through the IRS is $55,000, resulting in about $2,600 in additional taxes owed for a single filer. The 1099-C form will be sent to you from the creditor as they will take the deduction for their tax purposes. Keep in mind that a failure to pay taxes may have significantly more severe consequences than a failure to pay the initial debt, and the interest rates from the IRS can also be significant. There are exclusions to cancelled debt being considered taxable income, most notably if "the discharge occurs in a Title 11 case" [Internal Revenue Code Title 26, Section 108] which would be in the instance of bankruptcy (Chapter 7 or Chapter 13 for example). While an individual would still receive a 1099-C, they can also file a Form 982 so that the debt is not considered taxable income. It is best to consider speaking with a bankruptcy attorney first to measure your personal situation in regards to the implications of cancelled debt and tax liability. While a cancellation of debt may seem a great short term option, the lingering effects of taxes may prove bankruptcy as a better financial move.

A report from the Administrative Office of the U.S. Courts highlights a disturbing trend: since the adoption of the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005, pro se filings have grown dramatically. You can read the report here. In the past five years, filings by attorneys have increased by 98%, while pro se filings increased by 187% over the same period. During the twelve months ending June 30, 2011, there were 130,086 pro se cases filed accounting for 9% of the total filings in bankruptcy. During 2011, pro se filings accounted for 8% of chapter 7 cases and 10% of chapter 13 filings.Pro se filings were most common in the Western United States, Florida and Georgia. In the Central District of California, pro se cases made up a staggering 27.1% of the total filings. Pro se filings were more modest in Texas. The Northern, Eastern and Western Districts of Texas had pro se filing levels in the range of 2.1% to 4.0% while the Southern District fell in the range of 4.1% to 8.0%. The surge in pro se filings has two important consequences for the court system. One is that pro se filings are much less likely to succeed than filings by represented debtors. According to data presented by Professors Katie Porter and Jay Westbrook at the National Conference of Bankruptcy Judges, nearly 90% of pro se chapter 13 debtors had their cases dismissed prior to confirmation of a plan and only 4% still had a case pending after four years. Among pro se chapter 7 debtors, a 2001 sample showed that 100% received a discharge. A 2007 sample showed that 17.6% of pro se chapter 7 debtors had their cases dismissed for technical problems as compared to just 1.9% of represented debtors. When people file for bankruptcy but are unable to obtain relief from the court system, they are likely to become angry, frustrated and cynical. It would not be surprising to see unhappy pro se debtors manning the barricades of the Occupy movement or acting out their frustrations in court.Another problem identified by the Administrative Office is that pro se filings are frequently accompanied by filing fee waivers. According to the report:Filing fees supply a significant amount of revenue to the courts, so a decline in bankruptcy fees collected will affect the resources available to the Judiciary at a time when they are needed to address an increase in workload.While the Administrative Office report did not specifically identify the cause of the rise in pro se filings (other than noting a rise in districts where the foreclosure crisis is acute), one answer seems to be that BAPCPA has created a class of debtors who are too broke to file bankruptcy. By increasing the complexity of bankruptcy, Congress both increased the cost to file and made it more difficult to file pro se. This is a cause for concern.

When a layoff or catastrophic, unmanageable debt begins to pile on, many people look to extreme or knee-jerk reactions in finding solutions to manage their financial situation without first consulting an attorney or financial advisor. Here are five common conundrums to keep yourself from acting on when you owe more than you can afford and are facing bankruptcy. 1. Borrowing from your retirement to pay off debt. Retirement funds and nest eggs sitting within 401k's and IRA's are protected from both creditors and bankruptcy trustees. Most people will need this money upon retirement, and therefore it is categorized as a protected asset that cannot be touched during the bankruptcy process. There is only one way creditors can grab cash from these coffers, when individuals voluntarily withdraw it to pay debt. Unfortunately, while this may handle minimum payments for a period of time, it usually is not a final solution and on top of the liquidation of the retirement assets, the individual is now responsible for the taxes associated with the premature withdrawals. 2. Do not pay off debt to family members. While most people sitting in debt would prefer to pay off debt to the people closest to them rather than creditors, it could put family members in peril. This could be considered "insider preferences", and any repayment or transfer of assets to family could be recouped by the bankruptcy trustee and land a lawsuit in the hands of a family member. 3. Don't borrow from retirement to pay off family members. A combination of these two could leave you without a retirement, responsibility for taxes owed from borrowing from your retirement, and trouble for the recipient of the transfer for insider preferences. This combination can be caustic. 4. Do not transfer away assets before bankruptcy. Under the bankruptcy code, a transfer of assets can be deemed fraudulent conveyance, which can have severe consequences, and may even restrict or disqualify the bankruptcy relief one is seeking. With the advice of an attorney, certain assets can be exempt which creditors cannot touch. However, if these assets are transferred, they are no longer protected. 5. Don't exhaust your short term savings. If one is facing an uncertain future, such as a layoff or change in income, it is important to keep short term savings on hand to cover the important human needs of shelter and food before paying off creditors. Seeking advice from a financial advisor or an attorney can better protect your relief fund.(rn/tl)

As if the economy was not bringing enough bad news to debtors, recent developments in the Southern District of New York (which covers New York (Manhattan), Bronx, Westchester, Putnam, Rockland,Orange, Dutchess, and Sullivan counties) are making it more difficult to file for personal bankruptcy. A recent case, In re Goldman, Case No. 11-11371 (SHL), involved an attempt by a Bankruptcy Trustee to sell the rent stabilized co-op unit of a long-time resident at 420 Riverside Drive in the Morningside Heights neighborhood of Manhattan. The case was a Chapter 7 bankruptcy filing assigned to Judge Lane, who recently entered a consent order permitting the Bankruptcy Trustee to have the U.S. Marshals Service evict Mr. Goldman from his apartment, and then the rights to the lease on the co-op unit would be sold back to the landlord, who would pay the Bankruptcy Trustee $60,000 when the apartment was delivered free and clear of all tenancies, including that of Mr. Goldman, the rent-stabilized tenant.In the way of background, this is the third decision permitting a rent-stabilized apartment to be sold by a Bankruptcy Trustee to a landlord in the Southern District of New York. The other two cases are In re Stein, 281 B.R. 845 (Bankr. S.D.N.Y. 2002) and In re Toledano, 299 B.R. 284 (Bankr. S.D.N.Y. 2003). In both of these cases, the debtors lived in luxury apartments just south of Central Park–171 West 57th Street, Apartment 3C and 230 Central Park South, Apartment 9/10B.Many people will be surprised by these decisions, however the Bankruptcy Code and Rules seem to allow the result. Section 541 of the Bankruptcy Code states that when a debtor files for bankruptcy, a hypothetical estate is created, and all property of the debtor (with certain exemptions created by state and federal statute) is owned by the Bankruptcy Trustee. Section 365 of the Bankruptcy Code allows a debtor or a Bankruptcy Trustee to assume and assign (sell) a lease to a third party. Additionally, bankruptcy is federal law, and federal law generally primes (supersedes) state law. When you put this all together, the transaction looks as follows:A Bankruptcy Trustee will review a bankruptcy petition and determine how many years the debtor has lived in the apartment, the rent that the debtor is presently paying under the rent-stabilized lease and the market value rent if the apartment was not rent-stabilized. The Bankruptcy Trustee will then contact the landlord or owner of the unit and offer to evict the tenant and deliver the apartment broom clean for a certain sum of money. In the Goldman case, the landlord and the Bankruptcy Trustee entered into a stipulation that was “so ordered” by the Bankruptcy Court, which provided that the landlord would pay the Bankruptcy Trustee $60,000, which would be held in escrow until the Bankruptcy Trustee had the U.S. Marshals Service evict or remove the debtor from the apartment and delivered possession of the apartment to the landlord. The Bankruptcy Trustee receives a commission and legal fees are paid to the Bankruptcy Trustee’s counsel. The balance of the monies is distributed to the debtor’s unsecured creditors. While the result may seem harsh and surprising to many, three Bankruptcy Judges have ruled that these sales are allowed. None of these cases have been appealed to the Second Circuit Court of Appeals or the Supreme Court.An individual who is contemplating filing for bankruptcy and lives in a rent-stabilized unit must go through the following analysis:1. How many years has the debtor lived in the apartment?2. What rent are they paying under the rent-stabilized lease and what is the market value rent if the apartment was vacant and not rent-stabilized?3. Is the apartment in a gentrifying area or a high income area, such as the Upper East Side, Central Park West or Central Park South?4. Has the apartment building recently undergone a condo or co-op conversion? And did the debtor decline to buy the unit, and therefore become a non-purchasing tenant?There is one recourse for the debtor. The Bankruptcy Code allows the debtor to match the offer (in this case, $60,000) and pay that money to the Bankruptcy trustee to keep the apartment unit. Few individuals filing for bankruptcy have that type of money, however they may be able to borrow that money from friends or family to keep the unit. Additionally, if a husband and wife are married and only one elects to file for bankruptcy, or two people who are unmarried live in the apartment and both names are on the lease, since the Bankruptcy Trustee would only be able to assign the unit for the individual who filed for bankruptcy, the result may be that a landlord would be unwilling to pay a significant sum of money in that scenario, because the other party remaining in the unit would still be rent-stabilized. However, other than those two scenarios, this situation is a significant risk, and we are seeing more and more of these cases.It would seem that either the New York State legislature or Congress needs to address this issue, and create some type of a safe harbor. Again, debtors in rent stabilized apartments must proceed with caution and consult an experienced bankruptcy attorney before filing for bankruptcy. Any individuals who are contemplating bankruptcy and live in rent-stabilized or rent-controlled apartments or unsold rental units in buildings that are being converted to condo or co-op ownership should feel free to contact Shenwick & Associates for an analysis of their situation.

While many associate the word "bankruptcy" with "epic failure", history shows us that through the adversity of life one must use knowledge and tenacity to turn "epic failure" into, just, "epic". In 1923, Walt Disney's creditors forced bankruptcy upon him and assumed his assets to settle his debts. Likewise, after many ups and downs, including being fired from the company he created, Steve Jobs returned to Apple in the mid 90's while it was on the verge of bankruptcy. Today, Apple sits as one of the most powerful and highly valued companies in the world, with a net worth over 65 billion dollars. Walt Disney was reportedly worth over $1 billion when he passed, and Disney continues to be a household name in places across the world. So, what happened? Both men did not allow failure as an option. Rather, they accepted their failure and used it as a learning experience to catapult them to the next level. Through their struggle, they both discovered valuable lessons and let their mistakes serve as springboards to correcting their paths in achieving their ultimate dreams. Bankruptcy can serve as a springboard for many who have made mistakes in a difficult economy under difficult circumstances. Rather than the perception of bankruptcy as a failure in our lives, it can serve as a new beginning and learning experience to protect and educate us towards a brighter future. Inaction results in nothing, and through the examples of champions in business and innovation in both Steve Jobs and Walt Disney, action and tenacity through tough times has been proven to be successful. The more knowledge one has about bankruptcy, the more power one has over their future. With the help and guidance of an attorney, a strong team can navigate the path towards future success. (RN/tl)