Hello, everyone. Thank you so much for joining us on “This needs to be said”, this is our legal segment of the show and our friend, attorney Charles Laputka has been with us before. And, I’m excited whenever there’s like a light at the end of the tunnel that I can see. And every time he comes, he helps us with some debt relief ideas because that’s his sweet spot in the bankruptcy law area. Welcome back, Charles, how are you?
I am well, thank you, Katherine. And I’m happy to be speaking to you again today, this beautiful month of February, 2022.
Yes. Yes. And it just seems like the month, the year just started and we’re about halfway through a new one, Tom waits for no man. So before we got started, we were, I’m thinking of what to share with the, this needs to be said, audience today. And you hit the nail right on the head. It is tax time. And so, I have been a single mom. I’m married now, but I’ve been a single mom. And Tech’s time for me was definitely a sign of relief. Now it may not be what you’re going to share with us today, but I felt relief during tax season. It just at least for a little bit. So today we’re going to talk about today. We’re going to talk about how other people can use this season, this tax season, as a way as an option, to relief, to relieve debt and some other topics. I don’t know everything. Attorney Charles is going to talk with us about, but when he said tax time, I was like, yes, that takes me back to fill in relief year after year as a single mom. So I want to hear what you have to say. I definitely have pen and paper out classes in sessions.
Great! Great! Well, I, I’m glad to hear that. And I think that your sentiment is echoed by many in this country that a lot of folks throughout the year, you know, especially single parents are not able to save a lot of money. So they have their deductions increased from their monthly or weekly payroll checks. And that builds up a little bit of a credit with the IRS so that when tax returns are filed in January and you get to the end of that road and say, oh, you know, I’m getting a thousand dollars back or I’m getting $2,500 back. And you know, I’ve had clients that get 10, 11 or $12,000 back. It is the time of year when folks who have been struggling and don’t have savings, get this, this windfall. I mean, it’s not a windfall because it’s money they’ve earned, but it’s money that they’ve banked with the IRS through overpaying, their taxes all year long.
And when you get that money back, there’s a couple of things that you need to consider doing with it before you consider going out and buying a PlayStation five or a new TV or, or something like that. a lot of people have built up that throughout the year, the last five years, maybe their entire life. And they’ve never really had an opportunity to get ahead because when that tax return money comes and goes so quickly, maybe it’s a set of tires. You know, maybe, maybe it’s a furnace or a water heater, but you know, we, we tend to use that for those big items once a year, to try and maintain our quality of life. And instead, what we might ought to do is take a look at how we can spend that money to eliminate debt or make some improvements because a lot of folks that are waiting on a tax return also have debt.
And if they’re paying those monthly debt fees, they’re incurring interest and they’re, they’re making payments on those cards. But if they didn’t have those debts, those monthly payments in those interest amounts would be money back in their pocket every month for the rest of the year. So if you invest your tax refund wisely in debt, settlement, or debt, consolidation, or bankruptcy, if you invest that tax refund wisely, it can be the gift that keeps giving because everybody thinks about, income. And we don’t often focus on reducing expenses. You know, one of the best ways to, to make more money every month is to reduce your expenses. And yeah, we’ve all, we’ve all seen this with our cable bill and our internet bill. You get that introductory rate for 25 or $35 a month. And then a year later you get charged $99 a month because the introductory rate has expired.
But if you call back and try and get into the next introductory rate program, you can save money. So that’s what we’re talking about here today. Well, yeah, no saving money is the best way to make money. And that kind of sounds silly, but it’s really true. So let’s talk about that. So let’s say for example, a person will do a couple of different examples. A person has $20,000 worth of debt, and they’re getting a seven or $8,000 refund. Well, if you have $20,000 worth of debt and you’re getting a seven or $8,000 refund, you have a couple of options. One of the options would be to just use that money to pay down the debt. You could pay your highest interest first, and that would decrease some of the amount of interest in the amount of money you owe for the year. However, that’s not necessarily the most effective, but that is one way.
So you could just take that money and you could Dole it out on your cards to pay them down, but there’s not a whole lot of satisfaction there. And there’s not a whole lot of relief, right paying down debt is not fun. Just like buying tires for your car. Probably isn’t fun. It’s just the thing that you have to do. So another option that has a little bit more satisfaction in it would be debt settlement. So for example, if you, those creditors $20,000, instead of just paying contractually on the bill, you could call and try to make a settlement offer. And this is the time of year for that. A lot of people that are in debt might notice Katherine that this time of year, they start to get letters from their creditors saying, Hey, we know you owe us $2,500, but if you can send us $1,500 today, we’ll call it even kind of thing that, yeah, that’s a better way to eliminate debt than just paying contractually.
What you owe. You kind of can call these creditors and try and make a deal with them. Some of them will even send you letters to make a deal with you and if you get one of those letters and this is the option that you choose, I want you to know a couple of things. The first thing is, you know, if you owe them 2,500 and they say, pay us 15, you may be able to call back and ask them to pay a thousand and only pay half of the debt instead of three quarters of the debt. So that’s the first thing. If they’ve opened the door to a settlement conversation, you should be asking for a lower amount they always want to start from negotiating at their high point, but you can get lower. The other thing I want you to know, is there a potentially tax consequences related to that
So one of the things that a lot of folks don’t know, and this example will illustrate it perfectly! If you owe somebody $2,000 and they agree to settle the debt for a thousand, you pay them a thousand bucks and you think, great, I just saved a thousand dollars. The problem is that creditor is required to send you a 10 99 statement, for you to pay taxes on the thousand dollars that you saved. So you’ll get basically a tax document. You know, a W2 is when you are, employed by an employer at 10 99 is when you’re self-employed. So you will get what’s called a 10 99 C and you’ve got to pay taxes on that debt. And your tax rate will determine how much you have to pay your, your tax bracket might be 20 or 25% somewhere in there. So in theory, if you’re in a 25% tax bracket and you settle a $2,000 debt for a thousand, you’re still going to owe $250 to the IRS. So you’re really settling a $2,000 debt for 1,250, because you’re going to get that bill from the IRS next year. So that’s, that’s an explanation of how that works the tax consequence doesn’t mean you’re not getting a deal. It’s just something that a lot of folks don’t know about. So it’s important to bring that up.
It is very important to bring that up. I’ve never heard anyone explain that. And is it, cause when you say, make that settlement for half of the amount or less than half of the amount, it, you know, it sounds like, well, you know, I, that other half just kind of goes out there nowhere or the thought is that the company must be able to write it off so-
Well, and that’s exactly what happens when they write it off. The IRS gives them the credit, but it transfers that money to you as if it were income and in the breaking this down, I’ll be quiet. And in that example, I used, it doesn’t sound so bad, right cause it’s, it’s an extra 250 bucks. You can figure that out. But if you multiply the numbers, let’s say you have a 20 that you get a $10,000 tax refund and you settle a $20,000 debt for 10 grand. Now your IRS bill is 2,500. And if you spent the entire tax refund settling the debt, now you’ve got another bill for 2,500. So percentage wise it’s the same, but you can basically see the more you save, the more you’re going to owe the IRS. So that can be a dangerous way to settle this because the IRS is one of the last people that you want to owe money to.
And one of the reasons is because it’s difficult to get rid of and you know, the IRS can garnish your wages or your social services like social security or disability checks where other creditors often can’t. So you just want to be careful about that a third option that I want to discuss is that settlement. So there are lots of debt settlement plans out there. Most of the debt settlement companies are partially owned or wholly owned by some of the major creditors nationally. So that settlement, you know, a lot of debt settlement companies will tell you they have special relationships with the creditors and the answer is they do, right so a creditor’s goal is to get you to pay. So you think as a consumer, you might think, oh, you know, I talked to this debt settlement company and they told me that I’m going to pay 30 cents on a dollar, and they’re going to put me into this great payment plan.
And you know, that could be true, but just understand that, that those debt settlement companies are created and funded by the creditors. And the reason is it’s, it’s an arm of their collections process, so right. You don’t pay your bill, they send you letters. You don’t respond to the letters, they get your phone calls. If you don’t pay, they’ve got to get you to pay somehow. So offering this alternative kind of tricks you into thinking you’re getting a deal when really they’re the one getting the deal because they’re getting paid. So I’m not saying it’s a bad thing. I’m just saying you have to understand the motivation and how the process works. And just like I was saying with the lump sum debt settlement, any debt that’s forgiven as part of a consolidation program is also taxable in the year that it’s forgiven. So you want to make sure that you understand that because like I said, the numbers just compound from there and then, you know, last but not least, because I know we’ve got a finite amount of time today.
I just want to touch base on the concept of bankruptcy. Bankruptcy is not for everybody, and it’s not the only thing that we do here at my firm. But one of the things that’s great about bankruptcy is if you qualify for a general chapter seven bankruptcy, essentially somewhere in the neighborhood of a two $2,500 spend eliminates the amount of debt that you have regardless of the amount and the chapter seven. So whether you owe 10,000, 20,000, 50,000, a hundred thousand, 2,500 bucks eliminates all of that, that. So if you’re going to get a $10,000 refund or a $5,000 refund, you can use 2,500 bucks to make yourself that free. And then you can keep the rest of the money for savings or for those emergencies that come up throughout the year and the best part. And this is the way that this is very different from all of the other options we discussed.
There are no tax consequences. So if you eliminate a hundred thousand dollars- worth of debt in bankruptcy for 2,500 bucks, you don’t have to pay any taxes like with those other three options. So that’s just, you know, I’ve been talking for a while. I feel like I’m sucking up all the air here, but I just, I’m so passionate about this. And I want everybody to know the options and know that there are different strategies and there’s no one size fits all for everybody, right If you reach out and you contact our office to talk about your debt troubles, we’re going to sit down and we’re going to look at exactly what’s best for you because bankruptcy might be the easiest might be the most relief possible, but it’s not necessarily the best option for everybody. So there are other options and that’s, that’s what we really need to know.
And I think that this opens up because I know people have heard the term consolidation leads and repairs and any other word around, something financial, but just how it works. And when, when the pros and cons and the word consequences, it’s the result of, so when you said we would get taxed for the income that we, we didn’t have to pay, we basically gained that income in a sense of not having to pay the debt back. I would have been completely shocked out of an upset. I want to call somebody and I will probably have choice words. Where’s this coming from I didn’t get this money. So I had not understanding that I was like, yeah, I’ve never heard that I’ll probably eat. Or, or if I didn’t get pissed off, I will discard it thinking, well, this isn’t mine or this isn’t accurate and not know how to handle it. So
That’s dangerous because what happens if you do that Katherine, if you, if you get one of these 10 99, like let’s say somebody listening to us that had this happen last year, if you get one of these 10 90 nines in the mail and he, it gets worse because if you don’t handle it and pay it as part of your tax return, it’ll catch up with you usually two to three years later. So the audit process takes about two years. And if you don’t include that money, you’ll think everything was fine. You threw it away. You don’t worry about it until about two years later you get a letter in the mail that now has penalties and interest on top of that money. You can’t ignore these things.
Yeah. But it, 1250 is still less than 2,500. So it sounds like, oh, I don’t want to do all of this stuff. And a lot of times when people don’t want to do all of this stuff with which is understand the process of how something works, it costs us more, sometimes
Time and time again.
Yeah. It doesn’t always, but the, the example you gave us, it makes sense to me. So I just want to say, thank you. I have. Wow. Wow. Wow, because I’ve heard it. And either people say it’s good or it’s bad that it could be good. If this is you, it could be bad. If this is you and to understand that why we talking about this and this needs to be said with attorney Charles Laputka about debt relief and bankruptcy law, this, this isn’t it. This is an information session. And if something about the conversation has piqued your interest, please reach out to him because your dad is custom fit to your life. It’s how you came up with it. You got yours different from the way I got mine. And there will be a different plan on how we best resolve. And then what works for us. I’m starting to look, look up. Thank you again for being here and tell people how to get in touch with you outside of this to be said.
Absolutely! Absolutely! The best way to get ahold of us is to give us a call or to check out our website. The phone number is (610) 477-0155. And the website is www dot LAPUTKA law.com. That’s L A P U T K A L a w.com. We also offer a couple of books that I’ve written about this situation in eBooks or in physical books. So if you’re not ready to make a consultation appointment just yet, and you want to call up or go on a website and fill out a form to get one of our books in your email and your mail, you can read about this a little bit and educate yourself before setting up your consultation. And that’s a great plan of action too. So I just want everybody who has any questions about their or anybody that’s struggling with that relief. Just give us a call. Your situation is unique and your solution will be unique when you work with our office. Thank you, Katherine.
Thank you so much. And until next time you have a super day.