(Image: Thinkstock)

If you’re ready to get your finances in tip-top shape for the New Year, there is one simple strategy that can help you achieve economic security and success.

The strategy is to ask yourself these “What if?” questions, and then come up with a preventive or proactive solution.

“What if”:

1. I lose my job (Would you consider entrepreneurship if no one re-hired you?)
2. I lose my spouse through death or divorce (Does he or she have life insurance; or do you have a prenup and credit in your own name?)
3. I don’t get that raise or promotion (Would you regret overspending?)
4. I don’t make as much money as I thought I would make (Would you still be able to pay off all those hefty student loans?)
5. My car gets involved in an accident? (Would you have the car insurance you need?)
6. I get sick (Would you lament being uninsured and having no healthcare coverage?)
7. My child needs surgery (Would medical bills drive you into bankruptcy?)
8. I lose my wallet or my credit cards and personal information get stolen? (Would you wish you had looked into identity theft protection?)
9. I lose a big chunk or all of my savings/investments (Would you wish you had hired a financial advisor?)
10. I am sued (Would you know how to deal with a lawsuit or court action?)
11. My house is destroyed (Would you be covered with homeowners insurance to rebuild and know how to avoid contractor scams?)
12. My home needs a major repair (Would you have the extra cash needed to fix things?)
13. My taxes go up (Would you know how to lower your income taxes or slash your property taxes)?
14. My mortgage or rent payment goes up (Would your know whether to walk away from your residence?)
15. I am fined (Would you know how to earn additional money to avoid living paycheck to paycheck?)
16. My ex stops paying his child support (Would you know how to get child support that’s rightfully due?)
17. The court orders me to pay someone else (Would you have to withdraw IRA or 401(k) retirement funds to satisfy this obligation?)
18. My wages are garnished (Would you know how to stop wage garnishment?)
19. My employer asks me to relocate…or else (Would you have other job or career options?)
20. Financial Armageddon happens…and the economy has a repeat of 2008 (could you and your family survive yet another recession?)
21. The Mayans were right (The Mayan Prophecy suggests a cataclysmic or world-ending event will occur on 12/21/2012. If they’re right, what will your financial afterlife look like?)

OK, so I just threw that last one in there for shock value. But I hope you get my point: The single best financial strategy anyone can ever take to prepare for the future is to do some contingency planning.

You Need a Financial Plan B. If any one of these things listed above happened to you, how would you cope?

If you’d be financially sunk by any of these personal and financial challenges, it’s time to stop procrastinating and get serious about fixing your money problems and creating an economic backup plan. Today is as good a day as any to get started.

Do you have a solution to any of these dilemmas or did any of these things happen to you already? Sound off on this topic.

“Ask The Money Coach” is a syndicated column written by personal finance expert Lynnette Khalfani-Cox, co-founder of the free financial advice blog, AskTheMoneyCoach.com. Follow Lynnette on Twitter at @themoneycoach.

“Getting organized before the end of the year allows me to see where my business is.” BLE, which serves as a satellite office for other small business owners, is an outgrowth of Clay’s personal experience. For years she worked out of her home, but occasionally needed a place to meet with clients, thus the birth of the “share an office” concept. The 48-year-old Clay now takes a more proactive approach to the tax-planning process in general, which she says is the secret to ensuring that the tax season runs smoothly. She reviews profit and loss statements and cash flow projections frequently, giving herself time to maximize her deductions and prepare for upcoming tax bills.

A lack of continual planning and preparation is the biggest mistake self-employed people can make, says Robbie Hampton, managing partner of Bishop, Hampton and Associates L.L.C., an accounting firm in Atlanta and Stockbridge, Georgia. Without planning, “There could be business tax deductions left on the table,” Robbie Hampton says. There could also be mistakes and audits. Between 2005 and 2009, the Internal Revenue Service increased the amount of hours it spent auditing small businesses by 30%, according to the Transactional Records Access Clearinghouse, a data-gathering organization at Syracuse University. By examining their tax situation before the end of the year, business owners can take steps to raise or lower their tax liability. For example, decreasing net profit will lower a tax bill.

On the flip side, business owners may want to increase the tax liability this year if they think they will make significantly more money next year. A pre-tax planning appointment with a certified public accountant can help you come up with strategies that directly affect your situation, says Robbie Hampton.

You can still make good on that promise by doing a year-end review.

For the last few years Chantay Bridges has practiced the annual ritual of year-end planning. This time though, “The economy made this a necessity.”

In August, she sat not only with her pastor for spiritual advice, but with a financial planner. What topped the agenda? “Retirement. I have been concerned with the stock market and pensions being on a financial roller coaster. You have to make preparations ahead of time instead of hoping everything will fall together later on,” says Bridges, 35, a senior real estate specialist in Los Angeles.

Her meeting was fruitful. “I got a reminder of why it’s important to have your money working for you, a lesson on mutual funds, a report on the current gold and silver prices, and how to set up a financial plan that fits within our current and future lifestyle goals,” says Bridges, who is married and has a grown stepson. In addition to retirement planning, she reviewed her credit report, insurance policies, as well as her will.

At a time when it’s about the parties and festivities, it can be hard to focus on all things financial. But year-end financial planning should be just as much a tradition as mistletoe. To make the task seem less daunting, don’t even think about going it alone. Pull together a team of professionals to help you: a financial planner, tax adviser, insurance agent, and estate-planning attorney. Getting expert advice is less costly than you might think, and whatever you spend you’ll recoup in savings. Remember the three C’s: credentials, character, and chemistry. Here’s what you need to build a dream team that can help you ring in financial success next year and beyond.

Why You Need a Financial Planner
A financial planner can provide a comprehensive look at the past year and plot a path for the next one, not only for investments, but debt, taxes, life changes, and more. Look for someone with credentials, specifically the certified financial planner (CFP) designation, awarded by the Certified Financial Planner Board of Standards Inc. to those who meet education, examination, experience, and ethics requirements.

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Once you have a few candidates, ask questions. “Who is the planner’s typical client?” asks certified financial planner and chartered financial consultant Ivory Johnson, director of financial planning at Scarborough Capital Management Inc. in Annapolis, Maryland. “There’s nothing wrong with asking how they get paid, particularly in writing. Are they the subjects of any litigation or customer complaints? Read the finance section and form questions that professionals should be able to answer,” says Johnson.

Don’t simply choose someone based primarily on proximity. “Many people believe that proximity makes for a more comfortable relationship, only to discover that their process of picking an adviser was marginalized.” Another no-no: choosing whoever is cheapest, with little regard for competency. “You may pay the price in the currency of bad advice,” says Johnson.

Advisers are paid three ways: per hour, as a percent of assets under management, or commission. As a general rule, says Johnson, advisers charge from 1% to 1.5% of assets under management. To find a financial planner and for general information on financial planning, check out the websites of the National Association of Personal Financial Advisors, and the Certified Financial Planner Board of Standards.

Why You Need a CPA
A certified public accountant can help you with tax strategies. For example, should you donate to charity to lessen your tax burden? Would you benefit from increasing your 401(k) contributions for the rest of the year, or accelerating payments so that you get the credit for 2011, or deferring income to next year? A CPA might also determine that you could maximize tax benefits by matching stock losers and winners so you have no capital gains.

Meeting before the close of the year is important, too, when it comes to tax planning. Action steps taken before Dec. 31, can save you come tax time. When you’re looking for an accountant to add to your team, you want not only the CPA credential, but someone active in professional societies and who maintains continuing education requirements, and works with people in your income level and profession.

Ask how long they’ve been in business and where they worked previously. How much you will pay for a CPA’s advice depends on the scope of services you will need, but can start at $500 and go up from there, says certified public accountant Genevia Gee Fulbright, president of Fulbright & Fulbright, CPA in Durham, North Carolina. She suggests asking what the minimum fee is.

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“Sometimes unscrupulous individuals claim to have licenses and experience. It’s easy to check online lists with boards certifying professionals to see that the individual is licensed before you hire them,” says Gee Fulbright. A good place to start is the American Institute of CPAs , which can direct you to your state’s CPA society.

To prepare for the meeting, peruse prior records and come up with questions and concerns that you’ve had in the past. Ask the CPA what specifically you should bring.

Why You Need an Insurance Agent
A life insurance agent needs to know about any life changes that would impact the level and type of coverage needed. Significant life events include marriage, divorce, birth or adoption of a child, a considerable increase in income from a promotion or job change, or an increase in liabilities, due to major purchases such as a new car or home.

“Most people do their financial planning when a financial tragedy happens to one of their family members or someone they know,” says Kenneth J. Royster, senior financial planner and chartered life underwriter (CLU) with First Genesis of Virginia, an office of MetLife. Why wait?

You want to ask questions similar to those posed to other team members, as well as, “Will you be accessible when I have questions? What licenses do you hold? Where did you receive your training?” recommends Royster. You can check with your state department of insurance to see if they are licensed and whether there have been any problems with your prospective agent.

If you’re wondering how much insurance you might need and to learn more about the various types of insurance, the Life and Health Insurance Foundation for Education and www.lifeinsuranceindepth.com can get you on your way.

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Why You Need an Estate Planning Attorney
“As long as you are not dead, you need to do estate planning,” says Lori Anne Douglass, a partner with Moses and Singer L.L.P., specializing in estate planning. While nobody likes to contemplate their end, it will come. Choose to be financially ready. Estate planning isn’t only about transferring generational wealth, it’s about having your final say. Everybody needs a will.

“People don’t often realize how much their assets are worth,” she explains. It’s important to put assets in a trust because you can structure it with stipulations, such as how the money is to be used, or when. By making lifetime gifts, you remove not only the value of the asset gifted, but any subsequent appreciation on the asset, from your taxable estate. If, for example, you have a house currently worth $3 million, “you can make a gift of the house now, and if, upon your death in 20 years, the house is worth $10 million, you have removed that additional $7 million from your taxable estate.”

Douglass cautions, however, that one should never attempt to gift assets without first speaking to a qualified trusts and estates attorney because in addition to estate tax considerations there are gift tax, income tax, and other federal and state transfer tax consequences that must be taken into consideration. The cost of working with an estate attorney will vary depending on your location and estate planning needs. Some attorneys will charge an hourly rate or offer flat fee billing.

–By Karen Thomas

To me, the occupy movements sweeping this nation represent the American version of the protests in Africa and the Arab world, collectively known as the Arab Spring. Many of us watched those historic uprisings in Tunisia, Egypt, and Bahrain and wondered if and when such a mass movement could ever be possible in America. The occupy movements occurring nationwide have answered such wonderment with a resounding “Yes,” and an emphatic “Now.”

While headed to my first protest, Occupy Wall Street, I wondered whom I would encounter? If I believed the sparse and antagonistic coverage by some of the media outlets out there, the only ones protesting were “hippies,” beatniks, uninformed youth and other fringe elements of society. While those elements can often be found at any large movement, when walking through the crowd at Occupy Wall Street I saw a cross-section of America. There were Blacks, Whites, young, old, employed, unemployed, democrats, republicans and representatives of various religious and ideological persuasions. There were even visits and showings of support by some who worked on Wall Street. It became clear that, despite attempts by some traditional media outlets to discredit the movement, Occupy Wall Street was a serious movement of and for the average American.

Some have argued that a major drawback of the occupy movement is the lack of official goals or demands. In my conversations with participants, I found a vast array of issues being protested, but even in the diversity of issues there was a common theme: the rich and powerful have unfairly eroded our rights, wrecked our economy and “foreclosed on our future.”

For example,

• Some were there protesting the fact that the average CEO pay rate is nearly 350 times more than the pay of average employees.
• Some were protesting the ongoing erosion of civil liberties.
• Some were protesting the fact that, between 1979 and 2007, household incomes of the wealthiest Americans tripled, while the household incomes of average Americans stagnated and fell.
• Some were protesting the rising threats to privacy and the ubiquitous nature of the U.S. surveillance state.
• Some were protesting the fact that, despite earning billions in profits and receiving billions in bailouts, 30 major U.S. corporations paid no income taxes for the last three years and another 280 corporations paid very little in taxes.
• Still, others were protesting the debilitating fiscal austerity measures being implemented in an increasing number of states.

David Banner

In truth, there were as many issues being protested as there were protesters, but I soon realized that all of the issues voiced were relevant and NEEDED to be heard. But, to the critics I have a question(s); how does one put all of those valid concerns into a single document? How are all of those relevant issues crafted into cogent and well-argued talking points? Why would a movement based (in part) on expressing discontent with our corrupt political process be expected to draft legislation to send through that same corrupt process? Ultimately, the lack of an official set of demands reflects the long process of wading through the numerous issues plaguing this country. As a result, the current lack of demands highlights the failings of our society rather than the failings of the occupy movements.

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Wall Street protesters take to the streets of Manhattan's Financial District (Image: Janel Martinez)

The people criticizing the “lack of demands” given by organizers and/or protestors, should also be mindful of the original purpose of Occupy Wall Street. I was told that the sole intent of the organizers was merely to show up in large numbers and be seen. Motivated by bailouts for millionaires, never-ending wars, massive home foreclosures and pervasive layoffs, the only goal of Occupy Wall Street was “protest via presence.” In light of the ever-growing numbers at Zuccotti Park, the spontaneous occupy movements that it spawned in over 100 U.S. cities and the additional 1,500 protest movements it has inspired globally, the original goal of Occupy Wall Street has indeed been achieved.

What has been particularly interesting are the responses of law enforcement to the mostly non-violent occupy movements. While Occupy L.A. has been relatively peaceful, the same cannot be said for the occupy movements in other cities. Footage from Occupy Oakland is hardly distinguishable from the footage of clashes between protestors and police in Tunisia or Egypt. Thanks to YouTube we’re able to watch the police attack on an Iraq War veteran and those coming to his aid; police pepper-spraying unarmed women; and the unprovoked police shooting of a photographer complying with their commands.

Occupy Wall Street has seen several clashes between peaceful protesters and the NYPD. The forceful actions of the NYPD in service of Wall Street bring to mind the forgotten history of the U.S. labor movement. During this time corporations enlisted the use of the Pinkertons, the U.S. Army and the National Guard to control strikes and protests, often violently. Given this history, recent revelations of substantial monetary contributions from JP Morgan Chase to the NYPD reminds many of the “good ole days” where these hired hands were used for strikebreaking. These “donations” also shed light on what many deem the excessive and adversarial posture taken by the NYPD toward the protesters.

What would be humorous, if they weren’t so troubling, are the creative methods cities are deploying to arrest protesters and otherwise end the occupy movements. By invoking rarely used ordinances against everything from the use of umbrellas, to a 150 year old law banning the public wearing of masks, police seem to have left no stone unturned in their quest to curtail fundamental rights of assembly and free speech.

Police aren’t the only ones who seem to view themselves as adversaries of the occupy protesters. Politicians in general seem to, at best, tolerate the movement and, at worst, demonize citizens choosing to exercise their constitutional rights. Elected officials like House Majority Leader Eric Cantor, Republican Presidential candidates Herman Cain, Mitt Romney and Michelle Bachman, and Rep. Peter King are just a few of the politicians who have made hostile, crude and disparaging remarks about movement participants.

This should come as no surprise. Since the founding of our nation, politicians have deemed themselves separate and distinct from those they are entrusted to represent. Let us remember, it was none other than James Madison, the principle framer of our Constitution, who argued that the primary goal of government should be “to protect the minority of the opulent against the majority.” This adversarial view that pits those governing against those governed has remained intact since the very founding of our nation. This too is what is being protested at occupy movements all across America.

As I reflect back on my visits to Occupy Wall Street and Occupy L.A. I now recognize that I was in the midst of the rawest manifestation of democracy—dissent. Being well aware of the “un-patriotic” labels given to participants by detractors, I’ve come to believe that the opposite is true. By the time my visits to the occupy movements were over I not only understood that “dissent is the highest form of patriotism,” but also, as Mark Twain, wrote:

“In the beginning of a change, the patriot is a scarce man, and brave and hated and scorned. When his cause succeeds the timid join him, for then it costs nothing to be a patriot.”

As I see it, the occupy participants are indeed those brave, hated and scorned patriots at the forefront of change, their cause… to check the unrestrained opulence of the minority—the 1%.

Face off. (Image: Getty)

If you think Herman Cain versus Barack Obama is not possible, think again.

Just as President Obama defied the odds when he scored a decisive 2008 election victory, so too is Cain so far defying the odds with his unlikely status as the Republican Presidential frontrunner.

A mid-October 2011 Rasmussen survey of likely U.S. voters even showed Cain garnering 43% support, while Obama earned 41%. So again, anything can happen.

Whether or not Cain can maintain his popularity and ultimately earn the Republican Presidential nomination in 2012 remains to be seen. Meantime, here’s a look at how Cain stacks up against Obama, based purely on economic issues.

Taxes

Cain: His tax and economic policy can be summed up as the “9-9-9 Plan.” Under this proposal, Cain would overhaul America’s current tax code with a 9% personal income tax, a 9% business transactions tax, and a 9% federal sales tax. Cain has touted his plan as one that “expands the base” of taxpayers, thereby allowing the “lowest possible” rate of taxes for everyone.

But others have challenged Cain’s figures and assumptions, arguing instead that the poor would bear a greater tax burden. Other critics have even ridiculed “9-9-9” as lacking in merit and substance. In response, Cain recently tweaked his plan to carve out exclusions for low-income Americans. Nevertheless, Cain is steadfastly defending his idea, which would ultimately involve abolishing the IRS as we know it, removing all payroll taxes, reducing capital gains taxes, and eliminating the death tax.

Obama: The President has consistently called for “comprehensive tax reform” via greater tax breaks for the poor and middle class and increased taxes on America’s wealthiest citizens – especially millionaires and billionaires. At a fundraiser in Dallas in October, the president told the crowd: “I’ll tell you what, if asking a billionaire to pay the same tax rate as a plumber or a teacher or a bus driver makes me a warrior for the middle class, I will wear that charge with honor.”

Highlights of other tax-related proposals by Obama include: allowing the 2001 and 2003 tax cuts for upper income earners to expire ($866 billion); limiting deductions and exclusions for those earning above $250,000 annually ($410 billion); and closing corporate loopholes and eliminating special interest tax breaks (roughly $300 billion).

(Image: Thinkstock)

Big Business and Wall Street

Cain: The 65-year-old businessman is perhaps best known as being a former CEO of Godfather’s Pizza. But that was just one of a string of high-profile jobs and ventures that have given Cain a lot of real world business experience. Yet, some say Cain is too cozy with Wall Street and Big Business and out of touch with average Americans.

For example, less than one month into the Occupy Wall Street movement, Cain drew a lot of ire when he stated, in a Wall Street Journal interview, “Don’t blame Wall Street. Don’t blame the big banks. If you don’t have a job and you’re not rich, blame yourself.”

Obama: The President has long had a tenuous relationship at best with Wall Street and Big Business, neither of whom embrace Obama in part because of regulations and reforms he has pushed through during his presidency. Also, Obama is being supportive of the Occupy Wall Street protestors, going so far as to say that he too is fighting for the “99 percent” of Americans that don’t represent the country’s economic elite.

That’s a risky strategy for the President, considering America’s economy remains in the doldrums on his watch. Indeed, the Obama Administration hasn’t yet been able to successfully curb major economic problems like rampant foreclosures and high unemployment – two issues that are repeatedly brought up by Occupy Wall Street protestors and others.

(Image: Thinkstock)

Job Creation

Cain: Can the former pizza magnate, who was known for slashing headcount, be a massive job creator? On the one hand, Cain says no – at least in theoretical terms. “First of all, government can’t create jobs,” Cain has said. “The business sector creates jobs when businesses grow, and 9-9-9 encourages and inspires businesses to grow.”

On the other hand Cain has also said his 9-9-9 plan would create the right environment for growth, allowing him to create 6 million jobs and cut America’s jobless rate in half.

Obama: In September 2011, President Obama unveiled the American Jobs Act, a $447 billion plan that has already been rejected by the Senate. The centerpiece of this proposal involves more loans and access to capital for entrepreneurs, as well as greater tax cuts to small businesses to help them hire and grow.

The tax breaks would be accomplished in three ways: slashing the payroll tax in half for the first $5 million in wages paid; temporarily eliminating employer payroll taxes on wages for new employees or raises for existing workers; and allowing large and small businesses alike to claim 100% expensing in 2012 for the investments they make in new plants and equipment.

Other components of the American Jobs Act involve tax credits up to $9,600 for those who hire veterans; increased investments to the tune of $50 billion in roads, railroads and airports; and $25 billion to update more than 35,000 schools nationwide. All of these efforts and more, Obama says, will put 2 million people back to work and bring down the U.S. unemployment rate, which now tops 9%.

Government Spending

Cain: On his campaign website, Cain talks tough about reducing government spending. “Though it might not be politically popular to modernize and eliminate some of our entitlement programs, responsible leaders should be willing to do it all the same,” he says, adding: “Nothing should be off the table. Every federal agency, every government program and expenditure must be reviewed and revised with a keen eye and a red pen…to shrink budgets by target percentages.”

Three programs he would slash presumably include Social Security, Medicare and Medicaid. In his new book, This is Herman Cain! My Road to the White House, Cain writes that he would “take this entitlement society to an empowerment society” by making cuts. What size cuts is not yet known. But observers say a 20% reduction would be needed to meet Cain’s “9-9-9 plan.” Such drastic cuts far exceed what other Republicans have proposed, and would be politically risky for Cain too.

Obama: In light of the federal budget deficit, which has topped $1 trillion in each of the past three years, Obama has acknowledged the need to rein in spending. But it’s not exactly clear which programs he would support cutting back. The President is currently waiting on a “super-committee” to offer recommendations by Thanksgiving about what programs should be cut in a bid to slash the deficit by $1.2 trillion over 10 years.

In the meantime, the President continues to be criticized by Republicans and others who say Obama is too focused on government spending and taxing the rich. Obama has countered those critics by saying such spending on social programs is necessary to get the economy moving and to help cash-strapped Americans stay afloat.

The cost of a college education could quickly empty out your pockets. It’s probably the most expensive purchase you’ll make besides a home. Who wouldn’t want a break on tuition? The good news is you can lighten your financial load by taking advantage of tax incentives that are available to you. The April 2012 tax deadline is several months away, but you can start tracking educational expenses that might be eligible for a tax break. Here are some tax deductions, credits, and savings plans that will help loosen the chokehold on your wallet.

American Opportunity Credit. Tax credits are beneficial because they reduce the amount of income tax you might have to pay. The American Opportunity Credit adds required course materials to the list of qualifying expenses and allows taxpayers to claim the credit for four years of college instead of two. The maximum annual credit of $2,500 per student is available to individuals whose modified adjusted gross income is $80,000 or less or $160,000 or less for married couples filing a joint return.

Business Deduction for Work-related Education. Deductions reduce the amount of your income that is subject to tax, which can reduce the amount of tax you might have to pay. If you’re self-employed and you itemize your deductions, you might be able to claim a deduction for money used to pay for education related to your job. According to the Internal Revenue Service, the deduction will be the amount by which your qualifying work-related expenses in addition to any other job expenses is more than 2% of your adjusted gross income. If you are self-employed, you can subtract your expenses for qualifying work-related expenses from your income. Consequently, this can lower the amount of your income subject to both income tax and self-employment tax.

Scholarships and Fellowships. Whether the amount is tax free or taxable depends on the expense paid with the scholarship or fellowship and whether you’re a candidate for a degree. A scholarship or fellowship is tax free if you’re using it to pay qualified educational expenses and if you’re a degree candidate. Qualified educational expenses include tuition and fees and course-related expenses such as books, supplies, and required equipment. Non-qualified expenses include the cost of room and board, travel, research, clerical help, and equipment or other expenses that aren’t required for courses.

Expansion of 529 Plans. These plans come with a tax-free withdrawal of earnings that build up in the plan based on the contribution made. Tax-free college savings plans and prepaid tuition plans can also be used to purchase computer equipment used for school.

For additional information and a detailed list of restrictions, go to the IRS website and check out the Tax Benefits for Education Information Center.

While it’s true that Chapter 7 bankruptcy can wipe out many consumer debts, such as credit card payments and medical bills, it’s also the case that a lot of different types of debts don’t get eliminated in bankruptcy court.

Additionally, Chapter 13 bankruptcy—which consumer advocates say many African-Americans have been steered into recently—isn’t designed to allow you to completely walk away from your debts, but rather to reorganize your finances and pay off debt over a period of three to five years.

So before you take the step of filing for bankruptcy protection as a cure-all, it’s important to be aware of the various financial obligations you will still have to handle even after you go through the process of bankruptcy.

Student Loans

Generally speaking, you can’t say goodbye to those huge student loan balances when you declare bankruptcy. However, the bankruptcy court may make an exception if you can prove that repaying your student loans would pose an “undue hardship” for you.

In this situation, you have to prove that you cannot maintain a minimum standard of living and repay your loans, and that your financial situation is not expected to improve any time soon. Being unemployed isn’t proof enough. You must convince a court that you are practically unemployable and may not ever get a job.

So it is extraordinarily difficult to prove undue hardship. That’s why even though there were 1.5 million personal bankruptcy filings in the U.S. in 2010, virtually none of those bankruptcy petitioners received an undue hardship ruling from a court allowing them to discharge their student loan debt.

Child Support and Alimony

Bankruptcy courts will not discharge any child support payments or alimony you owe. If you owe back child support, you are still responsible for paying that debt. Any debts incurred from “the nature of support”, which are debts that are the result from a child’s care and medical expenses, are also not discharged by the bankruptcy courts.

Federal, State and Local Taxes

If you have outstanding tax debts to federal, state and local governments, you will be responsible for paying these off entirely. This includes any payments you charged on a credit card. However, there are some exceptions.

If you have income tax debt that appeared on a tax return that you filed at least three years ago; on a tax return that was filed at least two years ago; the tax assessment is at least 240 days old; the tax return was not fraudulent; and you are not guilty of tax evasion, you may be able to have your tax debts discharged under Chapter 7 and Chapter 13. Keep in mind that Chapter 13 bankruptcy means you will need to set up a payment plan to repay some of your debt.

Miscellaneous Debts

Other types of debts that are not discharged by filing bankruptcy include:

• Fines or restitution charges imposed after a criminal proceeding
• Any court fees associated with filing a case, motion, complaint or an appeal
• Debts from intoxicated driving
• Debts that you tried to have discharged from a previous bankruptcy filing, but were dismissed because of fraud or misfeasance

Clearly, filing for bankruptcy isn’t necessarily the solution for making all of your debt disappear. So if you were hoping that bankruptcy would free you from any of the debts mentioned above, that was wishful thinking. Instead, you should consider other financial alternatives, such as negotiating a lump sum settlement or coming up with an installment plan acceptable to your creditors.

Since a bankruptcy filing will stay on your credit reports for up to 10 years, bankruptcy should only be used as a last-ditch strategy. But you should know that bankruptcy doesn’t have the stigma it once had. You can definitely rebuild your credit, finances and emotions after bankruptcy—and it won’t take a decade to do it.

Also, if you truly need bankruptcy protection, don’t let anyone make you feel guilty about using this financial safety net. Bankruptcy is a legal process that exists for a reason. The simple fact is that people run into unexpected and unmanageable financial challenges due to a host of reasons—ranging from job loss to divorce.

If you are unsure of whether you can or should file for bankruptcy, read my advice on when to file for bankruptcy protection (and when not to). Should you choose to file bankruptcy, it’s also usually in your best interest to find a good bankruptcy attorney to work with so that an experienced professional is guiding you through the process.

Lynnette Khalfani-Cox is a weekly money and finance columnist for BlackEnterprise.com and founder of the free financial advice blog, AskTheMoneyCoach.com. Follow her on Twitter @themoneycoach and see her column every Tuesday on BlackEnterprise.com.

Here’s how to handle this unpleasant surprise—along with pointers on avoiding an audit in the future.
Contact your tax preparer.  “Determine if you’ll represent yourself or be represented by a certified public accountant, enrolled agent, or tax attorney. Have your representative contact the examiner to schedule the appointment and acknowledge receipt of the information document request,” says Spiceada A. Davis, CPA and owner of Atlanta-based eXFinancial Inc.

Understand the triggers. Some triggers are earned income credit (a high dollar refund would cause the IRS to question whether children claimed are actually dependents), home offices (in cases of high deductions in comparison to earnings, home depreciation, or withholding), tax shelter losses, unreported income on 1099 forms, and inaccurate W2 forms. “If the IRS thinks you made a minor mistake, they’ll send a paper or correspondence audit. The triggers of a paper audit can be large charitable deductions, large itemized deductions, and mileage logs.  Letters from your church [or other charitable organizations] on letterhead and proof of the itemized deductions and mileage should satisfy their request,” says Terry J. Ellis, president of Alliance Tax & Financial Services Inc. “The triggers of an in-person audit would be investments such as stock loss and repeated late filing of quarterly reports for a business.”

Maintain accurate records. Keep tax returns for three years and receipts for everything you intend to report. Be sure there are no mathematical errors. This will help avoid an audit and prepare for future audits. “Review your tax return. Many don’t and are amazed, when the return is audited, the items that are reported,” says Koreen Jervis, enrolled agent and owner of Korje’ Tax Professionals Inc. in New York.

Beware of costs. Only an enrolled agent, CPA, or tax attorney is qualified to represent you before the IRS. The IRS doesn’t charge for representing you, but your tax professional will. “It’s usually an hourly rate that varies by company based on the complexity of the return,” says Jervis. “Most firms offer audit insurance so there’s no additional costs for audits.”

Know your rights and the rules. The IRS website has a section dedicated to explaining taxpayer rights. Click “individuals” and then “taxpayer rights.” Also read IRS publication Your Rights as a Taxpayer.

Get a handle on large tax bills (Image: Thinkstock)

If you’re one of the unlucky taxpayers who got hit with a large tax bill, you’re probably trying to figure out how to pay. Fortunately, you do have some options. Here are a few tips on what to do if you can’t pay your bill.

Don’t ignore the bill. Whatever you do, don’t ignore your tax bill. The Internal Revenue Service will find ways to get their money. For example, they can garnish your wages. Another important reason not to ignore your bill is the possibility that the amount due is incorrect. If you discover an error, immediately call the number on your bill, send a letter to the IRS office that sent the bill, or visit your nearest IRS office.

Request an installment agreement. An installment agreement allows you to pay a debt over a period of time. If you owe the IRS less than $25,000, you can apply for an installment agreement online via their Online Payment Agreement or call the number printed on your bill. If you owe more than $25,000, you might still qualify, but you’ll most likely have to fill out Collection Information Statement, Form 433F. You’ll also have to fill out the Request for Installment Agreement (Form 9465) and mail it to the address printed on the bill or notice.

Request an Offer in Compromise. If your bill is absolutely beyond what you can afford to pay, the IRS might agree to arrange an Offer In Compromise. This means that the IRS will agree to accept less than the amount due. The only catch is, you cannot have any assets, such as equity or retirement accounts, or any means of obtaining enough income to pay the bill. However, do know that this arrangement could cost you a lot of money (in the thousands) in CPA fees. Negotiating an Offer in Compromise could take more than a year.

For more tax tips, see:

11 Last Minute Tax Tips