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The Financial Landscape of 2008 and Beyond - Bankruptcy and IRS Liens Abound

Posted on 25, Mar, 2013


When the whole world got caught up in the sheer fervor of the economic boom years from the late 90s until 2008 very few of us paused to look around and wonder where it might end. If you spoke to banks, developers or mortgage companies during those same economic boom years you'd have been under the impression that any property or investment had an infinite amount of value and that no matter what you paid for it then, it would double or triple in value in “x” number of years.

In retrospect how foolish were we, because even though we knew that nothing in the world is capable of having infinite value we still allowed ourselves to be convinced that the economic bubble simply didn't exist. We were responsible for kicking our financial can down the road and left behind a pile of unpaid bills, where we could simply ignore it and hoped that it never became a problem.

Unfortunately your finances are not something you can ignore and the outcome of people following this type of "policy" was the financial destruction of the middle and lower middle classes in the United States. Suddenly all of the people who had access to a stream of "free" money found the loans drying up, the credit card companies calling, secured creditors banging on their doors and the banks ready to foreclose.

Suddenly the courts were filled with people seeking protection from their debts by declaring themselves bankrupt and those same people were getting notification of a lien being put on their property by the IRS for non-payment of taxes, or just as part of a court judgment from another of their many creditors. The good news in all of this is that being a citizen of the United States means that you can actually declare bankruptcy and essentially reset your financial clock to zero in as little as five years. Once you've cleared your debts you can then start to restore your FICO score and live your life in a more sensible manner.

The same is true of tax liens in that they're not a permanent feature of your life and once you've either cleared your debt with the IRS directly or through an offer in compromise then the lien on you personally or your property will be lifted and your home will be 100% yours all over again.

Being able to file for Chapter 7 or Chapter 13 bankruptcy also affords you a certain level of protection in terms of your personal assets and living expenses - such protection is simply absent in other countries. In other countries when you can't afford to pay your debts your property is simply repossessed by the bank and that's the end of that particular discussion.

Nobody ever wants to consider bankruptcy as an option to manage their debts but in many cases it makes more sense to simply file for bankruptcy and then have the entire matter adjudicated by the courts instead of by your creditors. This is doubly true of any situation where you might have secured creditors who possess a significant financial interest in your home or your car for example - a stay of proceedings from a judge can stop creditors like this in their tracks.

We do live in harsh economic times with bankruptcies and tax liens abound, but as citizens of the United States we are fortunate to have the protection that our legal system offers us against indebtedness.

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