Should You File for Bankruptcy?

A common question people ask me is whether they should file for bankruptcy. They don’t want to file, but they also know that they cannot continue with the status quo. Here is what I ask them:

1.     Can you pay your bills as they come due and owing?

2.     Can you pay off your credit card bills in full in the next 12 months?

3.     If you own a house, do you have a fixed rate mortgage that you can payoff by the time you retire? Is your house worth what you owe against it?

If you have answered “no” to any of these questions, you should be considering whether a fresh start through bankruptcy maybe the right decision for you.

A fresh start has been provided to the Banks, the Investment Companies, and the Insurance Companies and a fresh start is available to consumers. Most home loan made between 2001-2007 could not be paid off on a person income. More than anyone, the banks knew that a person can only pay off in home loan debt of 2-21/2 times their gross household income in this lifetime and save for retirement and raise a child or two.

A fresh start for a consumer is usually a Chapter 7 bankruptcy. A Chapter 7 is a straight bankruptcy also known as a liquidation case. In a Chapter 7 case, all assets and liabilities are included and the Chapter 7 Trustee will have the right to liquidate non-exempt assets for the benefit of creditors. In exchange for including all assets and liabilities, an individual’s promise to pay on most debts are forgiven through a discharge.

In most cases, there are no assets available to creditors because all of the assets are exempt or encumbered by liens to the full extent of their value. Exempt assets that the Chapter 7 Trustee cannot reach include 401k, IRA, Annuity, retirement plan, equity in a car up to $3,525, most household goods and furnishing, life insurance, most personal injury actions, and then $23,250 in other assets such as motorcycles, boats, RV or additional equity in cars or other items.

Most people who are having problems paying their bills qualify for Chapter 7 Bankruptcy either because their income is low or because their mortgage payments and other secured loans such as car loans are too high in relation to their income. However, a person should not delay in seeking legal advice. The loss of a home prior to a bankruptcy filing either through a short sale or foreclosure may make an individual’s income too high for a Chapter 7 and the only option will be Chapter 13 repayment plan which will last between 3-5 years. In addition, there may be personal liability and tax consequences which could have been eliminated in a bankruptcy.

In conclusion, if you are having financial problems, seek legal counsel. You did not make this real estate and credit card meltdown. There are serious personal liability and tax consequence of a short sale and foreclosure. Make sure you understand your legal rights prior to undertaking either a short sale or allowing your property to be foreclosed. Do not lose sleep and your sanity worrying about financial problems. Help is available to you just like it was to the Bank, Investment Companies and the Insurance Companies.

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION. © 2010

Advice From People Who Filed Bankruptcy

I have been asking people who come into my office if they have any advice/regrets about their actions prior to filing bankruptcy.  Here is their advice:

1. Seek Legal Counsel.  Don’t wait to find out your options.  Almost every person said they wish they had come in sooner.  Many have said they would have done things differently had they known the law and available options.

2. Don’t borrow or take money from your 401k, IRA, Savings Account, Children’s Saving Account, Deferred Compensation to cure to the default.  So many people regret borrowing or taking a distribution from their retirement plan.  Unfortunately, many people don’t know that this money, if borrowed, must be repaid in full or it will be considered income and taxed accordingly.  In addition, this tax cannot be discharge in bankruptcy.  It is heart breaking to see people take money out of their retirement to stay current on the mortgage, to only lose the house at the later time, but are still responsible for tax liability of the distribution.  

3. Don’t borrow money from family or friends to stay current on mortgage or other bills.    Family and friends want/expect to be repaid irrespective of whether you file bankruptcy.   In the eyes of the bankruptcy code, your family and friends are just another lender and will not receive preferential treatment.  

4. Don’t juggle credit cards to pay mortgage.  Cash advances and balance transfers may cause problems in a bankruptcy.  In addition, depending on the type of real estate debt you have, a short sale or foreclosure may be possible without a bankruptcy.  However, if you run up your credit cards trying to keep the house, a bankruptcy may be evitable.

5.  Don’t leave house until property forecloses or short sale is complete.  Almost every person that has left their home prior to the foreclosure or short sale being completed regrets the decision.  Once you stop paying on the mortgage, your rent is “free” with the exception of paying the Homeowners Dues and keeping insurance on the property.  Further, since you are still responsible for the maintenanceof the property until the foreclosure or short sale, you might as well enjoy it and save some money.  No reason to pay rent any soon than necessary.

6.  Don’t let your cultural pride stand in the way of you making sound financial decisions.  There is nothing to be ashamed of.  You did not make this economic meltdown.  You are not responsible for the economic collapse facing the Bay Area.  The economy of your parents’ generation is not the same as today.   

7.  Don’t co-sign for anyone.  No one can promise the future.  So many clients regret co-signing for a friend or relative. Co-signing for cars,furniture, Time-Shares and homes seemed like a good idea, but times change and suddenly there is a default.  Worst of all, don’t co-sign on Student Loans.  The defaultrate by students who have had a friend or family member co-sign is much higher and YOU CANNOT DISCHARGE CO-SIGNED STUDENT LOANS IN BANKRUPTCY!

If you do not have sufficient income to pay your bills as they come due and owing, you should seek legal counsel before withdrawing any monies from a retirement account, savings account or taking a loan against your home or car.  These are difficult times, but do not miss the help and protection provided by the Bankruptcy Code and California law by waiting too long.  Just because this ship is underwater does not mean that you should give up your life vests that you will need to keep you afloat!

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE BANKRUPTCY.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.              

© 2011 Joan Grimes

Debt Collectors Calling You?

Know Your Rights

When people come into my office, one of the first things they talk about is the endless calls from debt collectors both at work and home.   If you are receiving calls and letters from debt collectors on consumer debt i.e. debts incurred for personal, family and household purposes, here is the law you need know. 

1.     First Contact-  The first communication to you by a debt collector whether on the phone or in writing, must (a) describe the purpose of that communication and (b) inform you that any information that it obtains from you will be used for collection of the debt.

2.     Disclosure of Identity-  Whenever a person representing a creditor or debt collection agency contacts you, the person must correctly identify himself and must not misrepresent himselfor the entity he represents.

3.     Right to Dispute Debt-  When a debt collection agency initially contacts you or within five days of the initial contact, it must notify you in writing of your right to dispute the debt and to obtain verification of the debt, and it must provide you with verification if you request it.  If you do  not believe the debt is enforceable i.e. the lender doesn’t have the original note, it was not properly perfected or the amount of the debt is incorrect, this is a right time to request verification and dispute the debt.

4.     Right to Stop Communications- You havethe right to require a debt collection agency to stop contacting you!!!  In addition, your spouse,parent (if the debtor is a minor) or guardian can also require that such communication stop. To do this, it is necessary that you ask the debt collection agency IN WRITING, to do so.  While such a notice halts communications, it does not stop the debt collection agency from filing a lawsuit to collect on the debt.

5.     Obligation to Respect Your Privacy – You absolutely have the right to specify what times are ok and what times are not ok for debt collectors to call you.  Collectors are permitted to act on the assumption that anytime between 8 a.m. and 9 p.m. debtor’s local time are convenient to the debtor, but a collector cannot assume that those times are ok once the debtor notifies the collector that any portion of that period is, in fact, inconvenient and unsuitable for the debtor.  In addition, the debtor can also specifically request that the collector not contact the debtor at work.

6.     Communications to Your Employer  A collector may only communicate with your employer to verify your employment, to locate you, or to garnish your wages. 

7.     Communications with Family Members-  A collector is prohibited, with certain exceptions, from attempting to collect a debt by communicating information regarding the debt to any of your family members.  However, a collector can communicate with your spouse, can contact any family member to locate you and contact your parents if you reside with them.  The California statute prohibiting contacting family members no longer applies once the debt becomes a judgment.

The above highlights your rights in California with respect to collection of consumer debts.  If you are receiving calls and letters from debt collectors, I urge you to seek legal counsel before entering into any debt consolidation programs either with the lender or a third party. I see people every day for a FREE 30 minute consultation at my offices located in Walnut Creek, Antioch and Brentwood.

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.   © 2011 Joan Grimes