Bankruptcy Indiana

As an Indianapolis bankruptcy lawyer, I'm always reading up on tax matters, employee benefits, and financial planning.  My purpose in doing that is to offer the most up-to-date Indiana bankruptcy information to my bankruptcy clients and blog readers.

Usually, in these blogs, when I talk about tax, I'm referring to federal income taxes.  As a debt consolidation lawyer, I'm explaining that only certain types of tax debt can be discharged in bankruptcy in Indiana. Today, though, I want to share an interesting article by Dan Carpenter in the Indianapolis Star, having to do with Indiana state income taxes.

It seems a study done by the Center on Budget and Policy Priorities places Indiana as one of only six states that tax families who are in severe poverty.  The example given is a two-parent family with $16,500 in annual income.  That family would owe $200 in Indiana income tax!

The reason the Carpenter article is so interesting to me as a bankruptcy attorney in Indiana is what he says about the "cliff effect".  When families are trying hard to work their way out of poverty, an ironic problem arises.  As people begin to earn more, they lose benefits such as food stamps, Medicaid, and housing assistance.  That, Carpenter explains, is like falling off a financial "cliff".

How does this situation relate to the work I do (along with the Anderson, Bloomington, and Columbus bankruptcy lawyers who work in the different bankruptcy law offices of Mark Zuckerberg)? After all, families in severe poverty are not likely to have the kinds of credit card debt or even unpaid medical debt we see in middle to upper class situations as a result of divorce or layoffs.  Nor are families like the one in the example likely to need student loan debt help.

Could a $200 Indiana income tax bill be "the straw that broker the camel's back" for a family in extreme poverty?  Sure.  Suppose, in desperation, the breadwinner of that family took out - and then renewed and renewed again - a payday loan?  Suppose, on top of that, their one old car was repossessed because they couldn't make the payments. With close to twenty-five years' experience advising bankruptcy clients in Indiana, I can tell you the "cliff effect" can happen at any economic level.

The bankruptcy safety net can't change the Indiana income tax.  You might say, though, that the purpose of the new Indiana bankruptcy laws is to help people climb back out after suffering the "cliff effect", giving them a chance at a fresh financial start.