Your Own Fiscal Cliff

We're hearing a lot lately about the fiscal cliff that the country is about to plunge over if Congress doesn't act before December 31.  Many people might be facing their own fiscal cliffs with the coming holiday season.  This is a time for giving but don't get carried away by all the marketing hype.  If your finances are precarious, this is not the time to throw caution to the winds and spend recklessly.

Some may have the idea that they can run up a large credit card bill, have a great holiday season and then declare bankruptcy.  That would be possibly the worst thing you could do from a financial standpoint.  Creditors look closely at expenditures just before a person files bankruptcy with an eye to objecting to the discharge on the grounds that the debt was fraudulently incurred.  A debt is fraudulently incurred if, among other things, the debtor knew or should have known that she couldn't pay the debt at the time it is incurred.  Filing right after running up a big credit card debt, especially for non-necessities such as gifts, movies, dining or luxury items is an indication that the person knew she wouldn't be able to pay those debts.

Even worse, the United States Trustee might look into the case and decide to challenge the entire bankruptcy as opposed to a single debt.  Or, in the worst case scenario, the Trustee refers the case to the Department of Justice for possible prosecution as bankruptcy fraud.  That's a federal crime punishable by imprisonment.

Remember that bankruptcy is intended for the honest debtor who simply can't make ends meet.  It isn't meant as a way of letting someone have their cake and eat it too.  This holiday season make sure to use your common sense before you use your credit cards.

Post Election Uncertainty

The great election of 2012 is now history and President Obama will serve another four years.  In response to  his re-election the NYSE dropped to its lowest point in a year.  That's probably the best indication that business doesn't favor what the future might hold under a second Obama administration.

One issue that has been waiting for resolution until after the election is the estate and gift tax.  The Bush era tax cuts are set to expire at the end of the year, reverting the estate and gift tax exemption to $1,000,000 from its current $5+ million.  If that should happen (and that's a big IF), a lot of families could get caught with an unexpected estate tax.  Five million is a lot of money in an estate, but one million, even with today's depressed real estate values, is not that uncommon.

There's no clear-cut answer.  President Obama has said he's in favor of allowing the tax cuts to expire. Does that mean he would veto an extension if passed by Congress?  Give that the House is under Republican control while the Senate is under the Democrats, will Congress even work together to pass a bill in time to present to the president?  Most advisers are saying to use your exemption while it exists if you would have an estate tax issue under a reduced, $1,000,000, exemption.  If you fall in that category, or even think you might, talk to a qualified estate planning attorney.