Tax and money questions answered by WalletPop experts
I receive Social Security disability, and my husband works full time. I make less than $11,000 a year in Social Security, and last year he made roughly $17,000. We have a daughter in college, living at home and not working (she's a freshman in her first semester). Am I supposed to claim my income even if they don't take out taxes on it? I don't want to get hit with not reporting income.
Answer from Barbara Weltman of The J.K. Lasser Institute
You must report your Social Security disability benefits as they have been reported to you in Box 5 of Form SSA-1099. Social Security benefits for disability are treated the same as Social Security retirement benefits. Whether and to what extent they are taxable depends on the income reported on your joint return. The taxable portion of the benefits depends on your "provisional income," which is the total income reported on your joint return, increased by 50% of your disability benefits and any tax-exempt interest. If this provisional income does not exceed $32,000, then your benefits aren't taxed. If you cross this threshold, benefits are included in income at 50% or 85%, depending on the amount of provisional income.
I have about $40,000 in credit card and other debts. I got behind in payments about five months ago. What is a better choice: file for bankruptcy or make a debt settlement with creditors, or get a debt consolidation company to work with? In either case, which one will have the worse impact on my credit history? Or does it not matter which one I choose, since all of them might have the same effect on my credit rating? And how long does it take to have my credit back, at least in fair or good standing?
Answer from Daniel Press, a partner at Chung & Press and member of the Bankruptcy Law Network
It will depend on a number of factors, including your assets and disposable income. Assuming you don't have the ability to just get caught up on the payments or to pay off the debt (without raiding any retirement accounts), you will need to consider one of the options your list. Debt settlement with the creditors, either on your own or through a credit counseling/consolidation service, could make sense if you have the income or assets to fund it (again, without raiding retirement accounts), but generally speaking, this will cost you a lot of money and will result in longer-term damage to your credit.
Bankruptcy will be a big hit to your credit score, but it's already damaged. Afterward, you can begin to rebuild your credit without all of the prior bad credit holding you down. It's not possible to predict how quickly a credit score can come back, but for most people, bankruptcy will result in better credit sooner. At the end of the day, you need to consider other factors besides just your credit score, like whether you can maintain a reasonable standard of living for yourself and your family while making the payments on a debt settlement or debt consolidation plan. For many people, it's not worth the hardship, and they would be better off with the fresh start that bankruptcy would offer. You should discuss these options with an experienced bankruptcy lawyer in your community, as every person's situation is different.
Answer from Mark Britton, founder of Avvo.com, a free online legal directory