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Dionne Warwick files for bankruptcy

Bankruptcy can happen to anyone, even those with psychic friends. For many consumers struggling with financial challenges, bankruptcy can be a scary prospect. However, much of this is based on a misunderstanding of the process. Tennessee consumers facing financial challenges, but hesitant to file for bankruptcy, might find the following on the bankruptcy of Dionne Warwick and the difference between Chapter 7 and Chapter 13 bankruptcy helpful.

According to a recent report by Reuters, singer Dionne Warwick filed for bankruptcy after citing significant tax liabilities associated with financial mismanagement. According to the U.S. Bankruptcy Court petition filed in New Jersey, the signer listed a total of $25,500 in assets and liabilities in excess of $10 million. The Internal Revenue Service and the state of California claim more than $10.2 million of the $10.7 million in tax liabilities outstanding.

According to representatives for Ms. Warwick, the actual back taxes were already paid. The current difficulties were stemming from penalties and interest incident to the back taxes that continued to accrue. Ms. Warwick's representative further noted that attempts to offer re-payment plans and proposals to both the IRS and the state of California were made. The plans, however, were reportedly not accepted resulting in more interest and more penalties.

When someone files for bankruptcy, they often have the option to choose between Chapter 7 and Chapter 13 bankruptcy. While Chapter 7 bankruptcy, known as liquidation bankruptcy, is more common, for some wealthier consumers with significant assets, Chapter 13 may be more appropriate. Under Chapter 13, known as debt reorganization, the filer enters into a repayment plan for a period of time, typically 5 years, before the debt is discharged.

The major benefit for some consumers filing for Chapter 13 bankruptcy is that not all of their property is exempt and, therefore, subject to liquidation. Under Chapter 13 a debtor can keep nonexempt property, whereas a trustee will sell nonexempt property to repay creditors under Chapter 7. There are also some debts that are not dischargeable under Chapter 7, but are dischargeable under Chapter 13. These, however, are just a few of these examples.

The key is to understand that bankruptcy is not scary. Bankruptcy is simply an opportunity at a fresh start, and a way out from under ever increasing debt.

Source: USA Today, "Dionne Warwick filed for personal bankruptcy," Ann Oldenburg, March 26, 2013.

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