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January 6, 2012

Getting Rid Of Debts

Most-but not all-debts are written off, or "discharged," in a bankruptcy case. Is there a simple way to know what will and what will not be discharged?

As part of getting a fresh start for the new year, I'm covering the most basic concepts about bankruptcy in the first few blogs of the year. And there is nothing more basic than bankruptcy's main purpose, getting a fresh financial start through the legal discharge of your debts.

Both kinds of consumer bankruptcy can discharge debts. But most Chapter 13s tend to have other purposes as well, and the discharge usually occurs only 3 to 5 years after the case is filed. In contrast, most Chapter 7 "straight bankruptcy" cases are filed for the sole purpose of discharging debts. And in most Chapter 7 cases, all debts that the debtors want to discharge are discharged, and it happens within just three months or so after your case is filed. So I'm focusing in this blog on Chapter 7 discharge of debts.

So is there a simple way of knowing what debts will and will not be discharged in a Chapter 7 case?

Sorry. Not really.

I can give you a list of the categories of debts that can't, or might not, be discharged (and will give you that list in a couple paragraphs), but some of those categories don't have clear boundaries, and some depend on whether a creditor is going to challenge the discharge and how a judge might rule.

But why can't it be simple? Because in the political tug of war between creditors and debtors over the last few centuries, there have been lots of compromises, leaving us today with a bunch of hair-splitting rules about what debts can and can't be discharged. Believe it or not, the original bankruptcy laws in England did not even include ANY discharge of debt, since bankruptcy was originally designed as a procedure to help creditors collect from debtors.

But I'm making it sound a lot worse than it is in practice. Here's what you need to know:

#1: All debts are discharged, EXCEPT for those that fit within an exception.

#2: There ARE a lot of exceptions, BUT if you are thorough and candid with your attorney you will almost always know whether you have any debts that may not be discharged. Surprises are rare.

#3: Some debts are never discharged, NO MATTER WHAT: for example, child or spousal support, criminal fines and fees, and withholding taxes.

#4: Some debts are never discharged, but THAT'S ONLY IF the particular debt fits certain conditions: for example, income taxes, depending on conditions like how long ago the taxes were due and the tax return was filed; and student loans, as long as conditions of "undue hardship" are not met.

#5: Some debts are discharged, UNLESS timely challenged by the creditor and resulting in a ruling by the judge that the debt meets certain conditions involving fraud, misrepresentation, larceny, embezzlement, or intentional injury to person or property.

#6: A few debts (used to be many more) can't be discharged in Chapter 7, BUT can be in Chapter 13: for example, divorce debts other than support.

The bad news: as simple as I would like to make it, determining what debts aren't dischargeable is simply not simple. But there's more good news than bad. First, for many people all the debts they want to discharge WILL be discharged. Second, an experienced bankruptcy attorney will be able to predict quite reliably whether all of your debts will be discharged. And third, if you have troublesome nondischargeable debts, Chapter 13 is often a decent way to keep those under control. More about that in my next blog about simple Chapter 13.

December 29, 2011

After Bankruptcy Creditor Problems

Even though it's illegal for creditors to try to collect on a debt that's been discharged (legally written off) in bankruptcy, once in a while they may try. What makes chasing a discharged debt illegal? And what penalties can get awarded to you if a creditor breaks the law?

Capital One Bank illegally filled documents in 15,500 bankruptcy cases demanding payment on debts which had already been written off in prior bankruptcies. This extensive pattern of bad behavior was discovered when the U.S. Trustee in Massachusetts learned about one case in which the Bank was trying to get payment from a couple whose $5,500 debt had been discharged in a bankruptcy 14 years earlier. The U. S. Trustee (an office of the U.S. Department of Justice which acts to protect "the integrity of the bankruptcy system") came to realize that this was not an isolated event for Capital One, and sued the bank because of all of its illegal filings. Nobody-including Capital One-knew how many cases all over the country it had filed claims for money it was not owed. So as part of the settlement of that lawsuit, the bankruptcy court required Capital One "to hire an independent auditor, chosen by the court and paid for by Capital One" to do an audit of about 2.2 million claims that it had filed in bankruptcy cases from the beginning of 2005 through 2010. It is from this audit that Capital One's 15,500 illegal filings were uncovered.

While the Bankruptcy Code makes it perfectly clear that trying to collect on discharged debt is illegal, it does not clearly say what, if anything, the penalties are for a creditor caught doing so. Section 524(a)(2)of the Code says a discharge of debts in a bankruptcy "operates as an injunction against" any acts to collect debts included in that bankruptcy case. But that section of the Code says nothing about what happens if a creditor violates that injunction. Feel free to read the whole section through the link above. Have fun-Section 524 goes on for pages!

Well, even though no penalties are specified in Section 524, there is a strong consensus among courts all over the country that bankruptcy courts can penalize creditors for violating the discharge injunction through another section of the Bankruptcy Code, Section 105, titled appropriately enough "Power of Court." The basic idea is that the injunction against pursuing a discharged debt is a court order, and so a creditor violating it is in contempt of court. So the standard penalties for being in civil contempt of court apply.

Depending on the circumstances, the penalties for civil contempt can include "compensatory" damages and "punitive" damages. Compensatory damages are to compensate you for harm you suffered because of the creditor's violation of the injunction. These potentially include actual damages such as time lost from work or other financial losses, emotional distress caused by the illegal collection, and attorney fees and costs you've incurred as a result. Punitive damages are to punish the creditor for its illegal behavior, and so the judge looks at how bad the creditor's behavior was in determining whether it punitive damages are appropriate and how much to award.

The vast majority of the time creditors in a bankruptcy case write the debts off their books and you never hear about those debts again. But, as the Capital One story illustrates, some creditors don't keep good records or simply aren't all that vigorous about following the law. So if, after you receive your bankruptcy discharge, you hear from one of your old creditors trying to collect its discharged debt, contact your attorney right away. It's something that you want to nip in the bud. And if the creditor's behavior is particularly egregious, you and your attorney may want to discuss whether to strike back at the creditor for violating the law. There might possibly even be some money in it for you.

December 22, 2011

Can I really keep everything I own if I file bankruptcy?

A two-part answer:

1) Yes, you can, usually, keep those possessions that are all yours (you don't owe any money on them).

2) Yes, you can, usually, keep those particular possessions on which you are making payments to a creditor (like your home or vehicle), IF you want to keep it them, AND are willing and able to meet certain conditions. (Hint: those conditions are usually lots better in bankruptcy than without one.)

In today's blog I'll get into the first part of that answer. I'll get to the second part later.

Most people who file bankruptcy can keep what they own for two reasons: 1) exemptions and 2) Chapter 13 protections. I'm covering exemptions today.

Make no mistake: at the heart of bankruptcy is the basic principle that your debts are discharged-legally written off forever-in return for you giving all your assets to your creditors. Except you can keep any of your assets which fit within an exemption. As the saying goes, this exception swallows the rule. Most of the time, all assets are exempt and so debtors get a Chapter 7 discharge without giving anything to the trustee.

Exemptions are simply a list of the types and amounts of assets that are protected from your creditors, and thus from the Chapter 7 trustee acting for those creditors. But exemptions are anything but simple.

First, the Bankruptcy Code contains its set of federal exemptions, and each state also has its own exemptions. If you file a bankruptcy in certain states, you have a choice between using the federal exemptions and the state ones, while in other states you can only use the state exemptions. In states where you have a choice, picking which of the two exemption schemes is better for you is often not at all obvious and you need an experienced attorney to advise you.

If you live in Ohio, you must choose Ohio exemptions. Federal exemptions are available to Kentucky residents. But don't worry about it. I will select the correct exemptions for you.

Second, if you have moved relatively recently from another state, you may have to use the exemption rules of your prior state. Because different state's rules can differ wildly, thousands of dollars can be at stake depending on what day your bankruptcy is filed.

Third, once you know which set of exemptions apply to you, whether any of your particular assets is covered by an exemption, and thus protected from your creditors, is often not clear. The exemption statues were often written many decades ago, use archaic language, and have a whole history of court ruling to interpret what they include. Plus the local trustees often have unwritten rules about how they interpret the exemption categories in practice. So, determining whether an asset is exempt or not is often much, much more than checking down a list of exemptions. By way of example, if you and your spouse each have one vehicle that you use for getting to work, and a third one used by your 18-year-old to get back and forth to school, will your vehicle exemption cover all three vehicles? Under what circumstances?

So navigating through exemptions can be much more complicated than it looks, and is one of the most important services provided by a bankruptcy attorney.

The fact remains that among most people who do end up filing a Chapter 7 bankruptcy case, everything they own DOES fit within the exemptions. So the bankruptcy trustee takes nothing from them.

But what if you DO own one or more assets which do not fit any of the available exemptions? How can those still be protected through a Chapter 13 case? I cover that in my next blog.

December 16, 2011

You've Come A Long Way, Baby.

You think the present Congress can't get anything done? It took more than a hundred years for Congress to pass the first permanent bankruptcy law.

Lots of people know that bankruptcy was important enough to our founders to be included in the U.S. Constitution. But that's just the very beginning of the story:

• The Bankruptcy Clause, giving power to Congress to "pass uniform laws on the subject of bankruptcies" was added with very little debate, late in the Constitutional Convention's proceedings. There had been no provision for nationwide bankruptcy in the earlier doomed-to-fail Articles of Confederation.

• The only vote against the Bankruptcy Clause was by Connecticut, which already had a detailed bankruptcy law and wanted to keep it instead of ceding that authority to the federal government. One of their delegates also was concerned that a federal bankruptcy law would include the death penalty for debtors for certain bankruptcy offenses, as English law still did at the time.

• But just because Congress was empowered by the Constitution to pass bankruptcy legislation, for nearly half our history it did so in an extraordinary irregular and knee-jerk fashion. Three different times during the 19th century a federal bankruptcy law was passed, each time immediately after a devastating financial "Panic," only to be repealed after just a few years. During the majority of the time that no federal law was in effect, the states developed a patchwork of bankruptcy and debtor-creditor laws, which became less and less effective as commerce became ever more interstate.

• Then finally Congress passed the Bankruptcy Act of 1898, which lasted 80 years. Although primarily inspired by commercial creditor interests, it included the following debtor-friendly provisions: most debts became dischargeable, creditors no longer had to be paid a certain minimum percentage of their debts, and no longer could withhold their consent to the debtor's discharge.

• The Bankruptcy Act of 1898 survived many attempts at repeal, in contrast to its predecessors. It was amended numerous times, in a major way in 1938 in response to the Great Depression. That 1938 amendment added the "chapter XIII "wage earners' plans, the predecessor to the current Chapter 13s.

• The 1978 Bankruptcy Reform Act, which brought into existence the Bankruptcy Code, was the result of a decade of study and debate. It is the only major enactment of bankruptcy law in U.S. history which was not enacted in reaction to a severe economic downturn. It has been tweaked every few years since then, most significantly in 2005.

December 7, 2011

Bankruptcy Law Has Come A Long Way

American bankruptcy law was of course based on the law of England at the time of the colonies. Today's blog tells how incredibly different pre-Revolutionary War bankruptcy laws were from current law.

• The first bankruptcy law in England was enacted more than 450 years ago during the reign of Henry the Eighth, the one who had a habit of decapitating his former wives. Debtors were called "offenders" under this first law, essentially as perpetrators of a property crime. The purpose of this law, and as if was expanded during the following hundred and fifty years, was not to give relief to debtors but rather to give creditors a more effective way to collect on the debts owed by their debtors.
• Consistent with that, the law included no discharge of debts. After a bankruptcy was finished-with the assets of the "offender" seized and sold and distributed to creditors-separate creditors could still continue chasing the individual for any remaining balance.
• Only creditors could start a bankruptcy proceeding. Creditors had to allege an "act of bankruptcy" by the debtor. Physically hiding from creditors was "an act of bankruptcy," as was hiding assets by conveying them to others. Today's very seldom used "involuntary bankruptcy" is a throwback to this.
• Since credit was seen as immoral, only merchants were allowed to use credit, for whom it was seen as a necessary evil. So only merchants could become bankrupt.
• For the following century and a half, Parliament made the law even stronger for creditors, allowing bankruptcy "commissioners" to break into the homes of "offenders" for their assets, put them into pillories (those wooden structures with holes for head and hands used for public shaming), and even cut off their ears.
• The discharge of debts was finally introduced in the early 1700s for cooperative debtors, but was given only upon consent of the creditors.Furthermore, to induce cooperation, fraudulent debtors were subject to the death penalty (although it was very seldom used).
• Cooperative debtors received an allowance from their own assets, a bit of a foreshadowing of Chapter 13 payment plans.

This was the English bankruptcy law in effect that the U.S. Constitution was adopted, with its Bankruptcy Clause giving Congress power to "pass uniform laws on the subject of bankruptcies." More on that and the very rocky history of U.S. bankruptcy laws in my next blog.

December 2, 2011

Foreclosure Crisis Is At The Halfway Mark

Going on five years into our foreclosure disaster, a major report is now authoritatively giving us that sobering news.

The Center for Responsible Lending (CRL) is a respected non-partisan research and policy organization with the mission of "protecting homeownership and family wealth by working to eliminate abusive financial practices." In mid-November it released the results of its comprehensive analysis of foreclosures calledLost Ground, 2011: Disparities in Mortgage Lending and Foreclosures. This study reviewed and tabulated 27 million mortgages originated from 2004 and 2008, and looked at the borrowers' performance on those loans through last February. As its title signals, the study addresses at how different socio-economic groups, different parts of the country, and different racial groups have been affected by the flood of foreclosures. Its findings contain a number of meaningful surprises, which I'll tell you about some other time. But its first finding-that we're not even halfway through these foreclosures-is what most caught my attention.

The analysis shows that of all mortgages entered into from 2004 through 2008, at least 2.7 million of them have been gone all the way through to completed foreclosure. This is about 6.4 percent of all mortgages entered into during that period of time. And this 2.7 million does not include foreclosures that have occurred in these last few years on earlier mortgages, those entered into before 2004.

Of this same set of 2004-2008 mortgages, another 3.6 million households are "at immediate, serious risk of losing their homes." The study defined this category as those mortgages already in the midst of the foreclosure process, or more than 60 days delinquent. Not all of these will result in completed foreclosures, but a large percentage likely will.

So, about 2.7 million foreclosed, 3.6 million to go.

It's important to realize that this 3.6 million in seriously troubled mortgages does NOT include other troubled mortgages which originated outside the 2004-2008 period, nor those which are performing decently now but will nevertheless go to foreclosure in the near future because of new unemployment, etc. So it is very likely that there will be more than that 3.6 million number.

I realize that for many people, this constant talk about foreclosures gets tiring, frustrating, even maddening. Unless you are dealing with a foreclosure yourself, or are close to someone who is, it's one of those things that's in the news so much, year after year, that the stories start sounding the same so you start tuning it out.

But I can't tune it out. I don't want to tune it out. Much of my job is to listen attentively to those stories, told to me virtually every day by hard-working men and women who are fighting to save their family home, their place of shelter and stability and dignity. Behind every single foreclosure, and every threatened foreclosure, there is a very human story. Some of the stories are rather straightforward, but most are messy. Human beings being who we are, our lives don't tend to travel down a neat and tidy path. My job is to take your financial story, lay out your options, and help you chose among them to get to the best place you can get to. Including with your home.

The country is nowhere close to working through its foreclosure epidemic. But let me help you get through your own personal part of it. -Patrick J. Conway, attorney at law. www.patrickconwaylaw.com

November 30, 2011

Save Your Business With Chapter 13

Here's how to focus on running your business, by stopping your creditors from taking the wind out of your sails.

In the last few blogs I've been talking about some of the extra considerations that come into play when you own a business, are having financial troubles, and wonder if bankruptcy can help. No question-most of the time, having a business adds an extra layer of issues for me to help you work through in deciding whether bankruptcy is the best option, and then putting your case together if it is. But a business Chapter 13 case does not have to be complicated. Let's take a very simple business situation, and walk it through a Chapter 13 case, to get a practical feel for how it works.

So let's say Mark, a single 30-year old, started a handyman business when he lost his job three years ago. Before that he'd done about ten years of all kinds of construction and maintenance work, already owned all the tools he needed, and had even taken a few courses at the local community college in small business management because he'd always wanted to run his own business. He had good credit at the time, owed nothing but about $3,000 on some credit cards, plus had never been late on his modest mortgage. Mark had lived all his life in the same city, was the kind of guy who knew tons of people, and had well-earned reputation that he could fix anything. He put a lot of time into putting together a detailed and realistic business plan. He knew he should have some money saved up to get him past the start-up phase, but then the recession hit, he was out of work, and decided it was now or never. Besides, he had $7,000 of credit available on his credit cards if he got desperate.

His business started off slowly, partly because he didn't have any money for advertizing. But he was creative and worked very hard building a customer base and a good business reputation. His income was creeping steadily upwards, but way too slowly. Over the course of the first year Mark maxed out his credit cards, and simply didn't have enough money to pay income taxes to the IRS, falling behind $7,000 to them. Then during the second year he managed to service the credit card debt but couldn't pay it down any, and fell behind another $7,000 to Uncle Sam. Then this last year, the IRS forced him to start making $500 monthly payments on his $14,000 debt, plus the estimated payments for the current year so that he didn't continue falling further behind with them. As a result he'd gotten spotty on his credit card payments, which jacked up the interest rates and pushed him over the credit limits, piling on all kinds of fees. And now he's missed a total of 4 payments on his mortgage, putting him $6,000 in arrears.

In the midst of all this his business now has steady-and still slowly increasing-income, Mark enjoys his work in spite of all the financial pressures, and believes he can keep growing it, especially if/when the economy improves. But the IRS has him in a vice, the credit cards creditors are sending their accounts to collection agencies, and his home is heading sooner or later to foreclosure.

A Chapter 13 case filed now for Mark would:

• Stop the pressure by the IRS on the $14,000 debt, by cancelling the $500 payments, and giving him much longer-3-to-5 years-to pay that debt, usually with NO additional ongoing interest or "failure to pay" penalties, thus reducing the total amount to be paid to the IRS.
• Stop collection efforts by the credit card creditors and collection agencies, who would only receive money AFTER he caught up on the house arrearage AND paid off all the taxes, with the amount received depending on what Mark could afford and how much in assets he needed to protect.
• Immediately and consistently protect all his business and personal assets-tools and supplies, his business truck and/or personal vehicle, receivables owed by customers for prior work, and his business and personal bank and/or credit union accounts.
• Allow him to focus on his business instead of his creditors, giving that business much more of a chance at success.
• Get him debt-free-at the end of the 3-to-5 years Chapter 13 Plan, his mortgage would be current, he would owe nothing more to Uncle Sam, and he would have paid as much as he could afford on the credit cards, with the rest written off.

And the business that he loves, and in which he invested so much hope and dedication, would be alive and well. If you live in Ohio or Kentucky and own a business, give me a call.

-Patrtick J. Conway, attorney at law. www.patrickconwaylaw.com

November 28, 2011

Basic Bankruptcy Rules About Business

If your Ohio or Kentucky business needs bankruptcy help, getting it done might not be much harder than a personal bankruptcy. But it depends on how your business is set up and how much you owe.

A couple blogs ago I said that I would soon explain some of the most important benefits of filing a business Chapter 13 case. And I said we'd start by assuming that your business is a sole proprietorship. In other words, the business and you are together legally as a single entity. That is, you have NOT set up your business as a separate legal entity-a corporation or limited liability company (LLC), or a formal or informal partnership.

But first, what if your business IS NOT a simple sole proprietorship, but instead is in one of these other forms?

If so, and you want to preserve your business through some kind of bankruptcy solution, I've got no choice but to start by telling you that it's time (probably past the time) to have a meeting with a competent business bankruptcy attorney. There are advantages and disadvantages of every form of doing business. But one practical disadvantage of running your business as a corporation/LLC/partnership is that this tends to make things significantly more complicated in the bankruptcy world.

That being said, here are a few straightforward things I can tell you that will make you just a bit more prepared when you visit me or another attorney:

1. Only an "individual" can file Chapter 13. Meaning that you and your sole proprietorship can together file a Chapter 13. But a corporation, or LLC, or partnership can't.

2. Chapter 13s are sometimes called "wage-earner plans," probably because one legal requirement is that you have a "regular income." But that just means "income sufficiently stable and regular to... make payments under a plan under Chapter 13." So if your sole proprietorship business income-combined with any other income-is even somewhat stable, you may well qualify under this requirement.

3. But even if your business IS a sole proprietorship, you and your business together CAN'T file a Chapter 13 case if your total unsecured debt is $360,475 or more, or your total secured debt is $1,010,650 or more. These may seem like relatively high amounts but remember they include BOTH personal and business debts. Also the unsecured debt amounts can include less obvious ones such as the portions of your mortgages and other secured debts in excess of the value of the collateral. So a $750,000 debt secured by real estate now worth $550,000 equates to $200,000 in unsecured debt. And that's before even looking at your regular unsecured debts.

4. If you are over one of the above debt limits, you can still file a Chapter 7 case, but that is almost never a way to save a business. Otherwise, your option is a Chapter 11, which is a hugely more complicated repayment procedure than Chapter 13.

5. A business corporation, LLC, or partnership can file a Chapter 11 case to keep the business afloat. But because of the very high attorney fees (easily 10 times the cost of a Chapter 13), and high filing fee plus ongoing court and U.S. Trustee fees, Chapter 11 is unfortunately not a practical solution for most small businesses. One of the biggest shortcomings in the bankruptcy world is the lack of a cost-effective method to deal with small business reorganizations. Many local bankruptcy courts have tried to address this with streamlined "fast-track" Chapter 11s, but the cost is often still prohibitively high.

As I said, if you are trying to save your financially struggling business, it is very important that you get competent business bankruptcy advice, and as soon as possible. You have likely been working extremely hard at trying to keep your business alive. Now you need a game plan to start directing your energies in a constructive direction.

-Patrick J. Conway, attorney at law. www.patrickconwaylaw.com

November 23, 2011

Bankruptcy isn't just for cleaning up after the death of a business. It can keep your business alive.

Bankruptcy saved General Motors. That business got out of a lot of it debt and restructured its operations, and ended up saving a lot of jobs. If you operate your own small business, bankruptcy may be able to save your job, too.

Let's assume you have a small, very simple business. One so simple that you did not form a corporation or any other kind of legal entity when you set up the business. And to keep this blog simple, assume you don't have any partners. You own and operate your business by yourself for yourself, in what the Ohio and Kentucky law calls a sole proprietorship.

There are advantages and disadvantages of operating your business this way. For better or worse you and your business are legally treated pretty much as a single unit-unlike a corporation which owns its own assets and has its own debts distinct from the owner(s). In the right circumstances, a sole proprietorship is a much easier type of business to deal with in a bankruptcy.

Chapter 7, "straight bankruptcy," is seldom the right option if you own a business that you want to keep operating during and after the bankruptcy. Chapter 7 is also called "liquidating bankruptcy." You can write off ("discharge") your debts in return for liquidation-the surrender of your assets to the trustee to sell and distribute to your creditors. Except that in most Chapter 7 cases everything you own is protected-"exempt"-so that you lose nothing or very little. But if you own an ongoing business, although some of the assets of an ongoing business may be exempt, usually not all of them are. So the Chapter 13 trustee could require you to give crucial parts of your business to him or her to liquidate.

Instead, a Chapter 13 case-ironically sometimes misnamed a "wage-earner plan"-is much better designed to enable you keep your personal and business assets. You get immediate relief from your creditors, and for a much longer period of time, usually along with a significant reduction in the amount of debt to be repaid. So Chapter 13 helps both your immediate cash flow and the business' long-term prospects. It is also an excellent way to address tax debts, often a major issue for struggling businesses. Overall, it is a relatively inexpensive tool that combines the discipline of a court-approved plan of payments to creditors with the flexibility of allowing you to continue operating your business.

In the next few blogs I'll explain some of the most important benefits of filing a business Chapter 13 case. But in the meantime, please understand that when you own ANY kind of business, solving your financial problems will be more complicated. Sometimes only a little more complicated, other times much more so. Because we're not just dealing with the size and timing of a paycheck, but rather with all the financial and practical aspects of running a business. Plus, issues of timing are often important in business bankruptcy cases, requiring more pre-bankruptcy planning to chart the best path for you. So, no matter how small your business, be sure to get competent legal advice, and do so as soon as possible. You have a lot at stake.

-Patrick J. Conway, attorney at law. www.patrickconwaylaw.com

November 18, 2011

Chapter 13 Conquers Both Older and Newer Income Taxes

If you owe a number of years of income tax debt, Chapter 13 allows you to favor those taxes that have to be favored, while dumping the taxes that can be dumped.

In my last blog I gave an example showing how Chapter 13 can be an extremely good way to handle income tax debts particularly when you owe multiple years of taxes. In that hypothetical case, without a bankruptcy a couple would have had to pay about $30,000 to the IRS for back taxes, plus about another $45,000 in medical bills and credit cards, a total of $75,000. And paying this huge sum of money on their income would have taken them many, many years of pressure and uncertainty. In huge contrast, in a Chapter 13 case this same couple would only need to pay about $17,500, less than 1/4^th the amount. And they would be allowed to do so through pre-arranged affordable monthly payments, for three years, all the while not having to worry about aggressive actions by any of their creditors, including the IRS.

How does Chapter 13 pull this off?

1) Tax debts that are old enough are lumped in with the lowest priority "general unsecured" creditors-like medical bills and credit cards-and so in many cases do not need to be paid anything unless there is enough "disposable income" to do so. This means that often those taxes are paid either nothing-as in the example-or only a few pennies on the dollar.

2) The more recent "priority" taxes DO have to be paid in full in a Chapter 13 case, along with interest accrued until the filing of the case, but a) penalties-which can be a large part of the debt-are treated like "general unsecured" debts rather than "priority" ones, and 2) usually interest or penalties stop when the Chapter 13 is filed. These can significantly reduce the amount of tax that has to be paid.

3) "Priority" taxes are paid in a Chapter 13 case before and instead of "general unsecured" debts. This often means that having these taxes to pay simply reduces the amount of money which would otherwise have gone to those "general unsecured" creditors. So sometimes, amazingly, having tax debt does not increase the amount paid in a Chapter 13 case. In our example, the couple paid about $500 per month for three years, which is the same amount they would have paid even if they did not owe a dime to the IRS! They met their obligations under Chapter 13 by paying the IRS instead of their other creditors.

4) The bankruptcy law that stops creditors from trying to collect their debts while a bankruptcy case is active-the "automatic stay"-is just as binding on the IRS as on any other creditor. The IRS can continue to do some very limited and sensible things like demand the filing of a tax return or conduct an audit, but it can't use the aggressive collection tools that the law otherwise grants to it. Gaining relief from collection pressure from the IRS AND all the rest of the creditors is one of the biggest benefits of Chapter 13.

I confess that I put this example together in a way that would showcase the advantages of Chapter 13 in dealing with income tax debts. If the facts were different, the advantages could easily be less. If, for instance, more of the taxes were "priority" debts that had to be paid, the debtors would have to pay more, either through larger monthly payments or for a longer period of time. There are definitely situations where it is a close call choosing between Chapter 7 or Chapter 13, or possibly even not filing bankruptcy at all but doing an offer in compromise with the IRS. To decide what is best for you, you need the independent advice of an experienced bankruptcy attorney, who is ethically and legally bound to look out for your best interests.Regardless whether your tax debts and other circumstances point strongly in one direction or it's a closer call, you need a professional qualified both to help you make an informed decision and then to execute on it.

-Patrick J. Conway, Attorney At Law. www.patrickconwaylaw.com

November 10, 2011

Four Hoops to Jump Through to Write Off Income Taxes in Bankruptcy

The conditions you have to meet to write off an income tax debt actually make sense. And understanding those conditions is a lot easier if you understand the sense behind them.

In my last blog I introduced the four conditions for discharging taxes in a Chapter 7 "straight bankruptcy," and said I'd explain them in this blog today.

This is made easier by the fact that there is a single principle behind all four of these conditions: bankruptcy law believes that taxpayers who pretty much follow the tax laws should be able to write off their tax debts just like the rest of their other debts, after first giving the IRS (or other tax authority) a sensible amount of time to collect the taxes.

How long is this sensible amount of time? How much of an opportunity do the tax authorities have to collect before you can discharge the tax debt? Each of the four conditions measures this amount of time differently, based on 1) when the tax return for the particular income tax was due, 2) when the tax return was actually filed, 3) when the tax was "assessed," and 4) whether the tax return that was filed was honest and therefore reflected the right amount of tax debt when it was filed. You must meet all four of these conditions, all four of these measures of time.

Taking them one at a time:

1) Three years since tax return due: Every income tax debt has a fixed point in time when its return had to be filed. That date is extended by a certain number of months if you asked for an extension, but it's still a fixed point in time, one that can be easily ascertained. So this first condition gives the tax authorities three years to collect, three years from a fixed point not affected by your actions (the timing of filing the return) or their actions (audits, legal disputes).

2) Two years since tax return actually filed: In contrast, this is a time period triggered by your own action. Notice above when I stated the overall principle at work here, I said you must "pretty much" follow the tax law. Thus you can file a tax return late and still be able to discharge the debt if at least two years has passed since you filed the return.

3) 240 days since assessment: Assessment is the tax authority's formal determination of your tax liability, usually by its review and acceptance of your tax return. Normally an income tax is assessed within a few weeks that it is received, so the 240 days since assessment usually passes way before the above three-year or two-year time periods. But the law has to account for the less common situations when assessment is delayed. So, when a tax is subject to a lengthy audit or litigation, or an "offer-in-compromise" (a taxpayer's formal offer to settle), and the three-year and two-year periods have passed, the tax authority still has 240 days after assessment to chase that tax debt.

4) Fraudulent tax returns and tax evasion: This last condition essentially says that none of the above time periods are triggered at all if you are intentionally dishonest on your tax return or try to avoid paying the tax in some other way. If you are cheating on your taxes then the tax authority has no opportunity to collect the debt, so you cannot discharge the debt, regardless how old the tax is.

If your tax debt can jump through these four hoops, you should be able to discharge that tax in a Chapter 7 bankruptcy.

But what if you owe taxes which do not meet these four conditions? What if some of your taxes do but others do not? Or what if the IRS has recorded a tax lien? Or if a lot of the taxes came from operating a business, or are not income taxes but some other kind? I'll tell you about these situations in my next blogs.

- Patrick J. Conway, attorney. www.patrickconwaylaw.com

November 10, 2011

Tax Troubles

You don't always need to file a Chapter 13 case-with its 3-to-5-year payment plan--to deal with income tax debts. Thinking that you do is a myth, alongside the broader myth that "you can't write off taxes in a bankruptcy." Both have a kernel of truth, which is why they persist. It's true: some taxes cannot be discharged (legally written off) in bankruptcy. But some can. And it's true: Chapter 13 is often an excellent way to solve tax problems. But that does not necessarily mean it is the best for you. Instead Chapter 7 might be.

Chapter 13 tends to be the better tool if you owe a string of income tax debts including relatively recent ones. Why? Because in this situation Chapter 13 gives you the best of both worlds. First, if you owe recent income taxes which cannot be discharged, you get lots of advantages under Chapter 13, including paying less by avoiding most penalties and interest. That can be a huge savings, especially if you can afford only relatively small payments. Second, if you have older back taxes, these are also wrapped into the Chapter 13 plan, often without you paying any more into your plan, then they are discharged at the end of your case.

But you DON'T NEED the best of both worlds if all or most of your income tax debts are dischargeable. Then Chapter 7, the straightforward "straight" bankruptcy is enough.

So, WHAT are the conditions for a specific income tax debt to be discharged in Chapter 7? How are you going to know if Chapter 7 will discharge all or most of your taxes so that it is the right option for you?

Some of the conditions for discharge of taxes are quite straightforward. Some are more complicated. And as you'll see, some are even purposely vague. So unfortunately it's not as simple as plugging a particular tax debt into a clear formula to see if it is dischargeable. Determining whether a particular tax debt will be discharged requires the careful judgment of an experienced attorney.

I'll just list these conditions for discharging income taxes here, and then explain them in my next blog. Don't be surprised if they sound confusing in this list. It's true: anything having to do with taxes tends to be complicated!

To discharge an income tax debt in a Chapter 7 bankruptcy case, it must meet these conditions:

1) Three years since tax return due: The applicable tax return must have been due more than three years before you file your Chapter 7 case. And if you requested any extensions for filing the applicable tax returns, you have to add that extra time to this three-year period.

2) Two years since tax return actually filed: Regardless when the tax return was due, you must have filed at least two years before your bankruptcy is filed in court.

3) 240 days since assessment: The taxing authority must have assessed the tax more than 240 days before the bankruptcy filing.

4) Fraudulent tax returns and tax evasion: You cannot have filed a "fraudulent return" or "willfully attempted in any manner to evade or defeat such tax."

You can see that these are begging for some clarification. For that please come back to read my next blog. Or else call to set up a consultation with me. If you have substantial tax debts, you should definitely get some thorough personal advice. Know your options so you can make an informed choice, about bankruptcy and otherwise.

October 24, 2011

Hope For Homeowners

A receont story from Reuters:

Talks between U.S. states and top banks over mortgage abuses are nearing agreement on resolving a major sticking point that has bogged down settlement negotiations for more than a year.

A deal could be reached by the end of the month, according to three people familiar with the talks.

Under the proposed terms of the settlement -- which could total $25 billion -- banks would get a broader relief from potential state civil lawsuits in exchange for refinancing underwater loans, those mortgages where borrowers owe more than their homes are worth, the sources said.

October 18, 2011

Shrinking Income

Household incomes are shrinking. Over the last two years average income dropped more than 6 percent. The median income now stands at $49,909. If you look at income since the start of the recession in 2007, income has dropped nearly 10 percent. That is the largest drop in income in several decades.

The reason wages are falling? People who lost jobs during the recession have taken pay cuts in order to get hired again. They average 17 percent less income in their new jobs.

News on the job front is not much better. Unemployment remains over 9 percent. The average time a person remains unemployed averages 40 weeks, the longest in more than 60 years.

If you are experiencing financial difficulties, you are not alone. Bankruptcy offers protection of your wages and assets from creditors. Give me a call if you need help.

October 3, 2011

Rising Foreclosures Affect Health

Foreclosures are on the rise once again.

AFTER slowing down in the first half of the year, the rate of homes entering foreclosure is rising again. First-time default notices were served on 78,000 homes in August, a 33 percent increase from July. A $1 billion federal program to help jobless and underemployed homeowners ended Friday. Foreclosure notices were filed against a record 2.9 million properties last year, and an additional 1.2 million in the first half of this year.

The health effects of foreclosure and stress are becoming clear. According to a recent study. The finds appeared in the New York Times.

A growing body of research shows that foreclosure itself harms the health of families and communities. In our 2008 survey of 250 people undergoing foreclosure in the Philadelphia area, 32 percent reported missing doctor's appointments and 48 percent said they let prescriptions go unfilled, significantly higher rates than others in their community. A paper released last month by the National Bureau of Economic Research found that people living in high-foreclosure areas in New Jersey, Arizona, California and Florida were significantly more likely than those in less hard-hit neighborhoods to be hospitalized for conditions like diabetes, high blood pressure and heart failure.
More than one-third of homeowners in our study had symptoms of major depression.

The N.B.E.R. study found significantly more suicide attempts in high-foreclosure neighborhoods. For every 100 foreclosures, it found a 12 percent increase in anxiety-related emergency-room visits and hospitalizations by adults under 50. Losing a home disrupts social ties to neighbors, schools, jobs and health care providers - ties that under better circumstances promote good health. Neighborhoods suffer, not just homeowners.

September 23, 2011

Foreclosures Are Down - But Not For Long

The short-term effect of the recent foreclosure scandal is a reduction in new foreclosures. The scandal involved employees at the mortgage companies signing affidavits without first reviewing the underlying facts. The resulting uproar led to a decline in foreclosure filings. Foreclosure have dropped by 27% during the last six months. But this is because the banks are tightening their procedures. Expect the number of foreclosures to rise during the coming months.

September 7, 2011

Don't Deplete Your Retirement

I seen many clients who have used up their retirment accounts to keep from filing for bankruptcy. Its a bad idea. Hold on to your retirement. If you can't make ends with your income, come in to see me about filing a bankruptcy. Using your retirement only delays a bankruptcy. It never prevents it from happening. Trust me, you will need your retirement for when you retire.

August 29, 2011

Bankruptcy Basics

People file bankruptcy to discharge unsecured debts. Bankruptcy discharge elimiates persoal liability to pay back debts. Some debts are not discharged in bankruptcy. The discharge does not eliminate liens on property. For example, a lien on a vehicle title is not removed by the bankruptcy discharge.

Bankruptcy protects people's assets from creditors. It blocks garnishments of wages and bank accounts. Bankruptcy prevents creditors from recording judgment liens against real estate. If a creditor files a judgment lien, bankruptcy can often get rid of it.

August 18, 2011

Change Your Plans

Its possible to change the terms of your chapter 13 plan. Payment terms can, with court approval, change even after the plan is confirmed. For example, if you have a permanent change to your income, the court can approve a lower payment. There are limits to the changes possible. The plan must complete within five years, for example.  Call me if you are experiencing problems with your plan payments.

August 5, 2011

Garnishment

Garnishments allow creditors to collect on debts. Most creditors have to obtain a judgment from a court before they can garnish you.

The government can garnish 15 percent of disposable pay to collect a defaulted student loan. They do not need a court judgment to do so. The maximum total amount that can be taken from you is 25 percent of your disposable income.

"Disposable pay" means the amount of money left in your paycheck after amounts required by law, like taxes, come out. However, you are always guaranteed to be left with an amount per week that is 30 times the federal minimum wage, which is now $7.25 per hour.

Being subject to a garnishment is tough, but there are strategies for dealing with it. One option is to rehabilitation the loan by arranging to make payments. Another option is to consolidate out of the defaulted loan. Some people even file Chapter 13bankruptcy cases to stop the garnishment.

July 30, 2011

Chapter 7 Bankruptcy

Most people have heard of chapter 7 bankruptcy. In this posting, I want to explore how it works.

Chapter 7 is based on the idea that you cannot afford to make any payments on your debts. To put it another way, even if you had no debts, your living expenses alone leave you broke by the end of the month. The court doesn't take your word for this. You have to prove you can't pay your debts. You submit a statement of your monthly income and living expenses. You must provide proof of earnings and tax returns as well. People with above-median income have additional requirements.

If you successfully prove you meet the income and expense test, you qualify for chapter 7 discharge. But there is a catch. The law limits the assets you retain in chapter 7. If your assets exceed those limits, you lose them to your creditors. Basic assets are protected, such as ordinary household furnishings and clothes. Other exemptions protect home and vehicle equity, but only up to a point. If an asset is worth a lot more than the amount you owe on it, you can lose it.

Can you transfer valuable assets before you file for chapter 7? No. The law permits the court trustee to cancel transfers that occur within the prior year. If you transfer a valauble asset, you may have to wait a year or longer before filing a case.

Another common problem in chapter 7 cases is paying loans from relatives. If you make payments of more than $600 within the prior year, it can cause problems. The court trustee can sue the relative that receive the payments.

Debts are treated differently in chapter 7. Credit cards, loans, utility bills, and medical debts are normally discharged. Student loans are never discharged. Income taxes older than three years might be discharged depending on certain factors. House and vehicle payments continue if you want to keep the house or car. The creditor can require you to be current in payments before they agree to let you keep the loan. The court discharges the debt if you give up the house or vehicle.

Chapter 7 is a powerful tool for getting rid of debts. It does require some planning. You need to qualify by proving you are broke just paying living expenses. It does require planning ahead with your lawyer to make sure you don't lose assets or subject relatives to lawsuits over loan payments.

July 21, 2011

Strip And Save On Vehicle Debt

Its possible to reduce the debt on your vehicle by filing a bankruptcy case. This benefits vehicle owners who owe more than their car is worth. Both chapter 7 and chapter 13 allow for reducing the vehicle loan.
In chapter 7, you can reduce the debt if you qualify for a redemption loan. The new creditor pays the vehicle's fair market value to your lender. The remaing debt is discharge by the bankruptcy court.
In chapter 13, you may propose a plan that pays the fair market value provided the loan is at least 2.5 years old. The payment for the vehicle is included in the monthly payment you make on all your debts.

July 14, 2011

Debt Consolidation Problems

Debt consolidation companies advertise that they can negotiate with your creditors for lower payments and interest rates. They claim they can help you repay your debt quickly and improve your credit score immediately. If this sounds too good to be true, that's because it is. Problems with debt consolidation include:

• It is an unregulated industry under investigation by the federal and state authorities
• These companies are not forced to deliver what they promise
• People using these services can pay thousands of dollars in fees before any money goes to creditors

I routinely see people who are being sued even thugh they are current on their payments on their debt consolidation plan. Debt consolidation scams abound. If you want to pay on your debts, chapter 13 is a much better alternative.

July 7, 2011

Modify Your Chapter 13 Plan

A client told me recently that her employer reduced her hours. She expects to earn $500 per month less that her previous income. Fortunately, chapter 13 provides flexibility in situations like hers. In many cases, its possible to change the payment amount. The law requires a showing of a substantial change in circumstances. She should have no trouble in meeting this requirement.
We can't always change the amount of a chapter 13 plan payment. For example, plans must pay out in a maximum of five years. If the proposed payment change is too great, then the court does not approve it. But if you have a change, don't hesitate to call to see if we can't change the plan payment.

June 16, 2011

Unemployment Must Be Our Focus

Consider the following statistics:

• 12 million - Number of people unemployed.
• 4 million- Number of people unemployed for one year or more.
• 30% - chance of someone unemployed for five weeks finding a job.
• 10% - chance of someone unemployed for twenty-seven weeks finding a job.
• 25% - increase in unemployed people from December 2009 to December 2010.
• 30% - people, including college graduates, unemployed for more than a year.

Shouldn't politicians be focused on ways to reduce unemployment?

June 10, 2011

Business Spends On Equipment Not Employment

Corporate profits are at record highs. The economy is producing as much as before the downturn. Yet business spending goes more to equipment purchases than hiring employees. Consider:

• Equipment purchases are up twenty-six per cent, aided by tax incentives.
• Most of the equipment is manufactured overseas.
• Equipment costs have dropped by two per cent since the recovery,

Yet news for workers remains bleak. There are seven million fewer jobs in 2011 than at the start of the recovery. Hiring by businesses is up only two per cent since 2009, the start date for the recovery. Labor costs have risen over six per cent during the period, mostly due to health care increases.

There is devastating news for working people.

June 2, 2011

Credit Report And Job Applications

About 60 percent of employers now check credit reports on job applicants. In the 1990's, only 20 percent of employers used credit reports. The bottom line is that your poor credit score can hold you back from getting a job.

Bankruptcy helps you to clean up your credit history. In my experience, about 9 out of 10 of my clients see an improvement in their credit score within a year of filing for bankruptcy.

May 26, 2011

Errors In Credit Reports Difficult To Fix

From today's New York Times editorial:

The credit reporting industry has vast reach and power. The information it gathers and sells is used to determine eligibility for credit cards, mortgages and even some jobs. Federal regulators haven't had the authority or the means to protect consumers who have been victims of inaccurate reports. The new Consumer Financial Protection Bureau will have that authority. It has a big job ahead.

Reporting agencies gather consumer payment histories from creditors that are sometimes less concerned with accuracy than they should be. Those aren't the only problems. As The Times reported earlier this month, the agencies sometimes merge the credit records of people with similar names and Social Security numbers.

Estimates of the error rate in credit reports vary anywhere from 3 percent to 25 percent. But even 1 percent would mean that two million people could be saddled with erroneous credit histories that cause them to pay higher interest rates or to be denied credit altogether.

Judy Johnson of Louisiana told The Times about how a credit reporting company confused her records with those of another woman. She tried for nearly seven years to get a credit bureau to correct errors in her record, finally suing the reporting company after being denied a credit card. She has since reached a settlement, but a sheriff recently showed up at her door to serve her papers for a debt she says she does not owe.

Its important to check your credit report. I obtain a credit report for all my clients when preparing a bankruptcy case. Its just as important to check your credit report at the end of the bankruptcy. You want to see that the credit agency shows the debts as discharged by the bankruptcy. You need to bring errors to the attention of the credit agency. Write to them. They must respond within 30 days.

May 20, 2011

Checking Accounts

From the New York Times:

A new report by the Pew Charitable Trust's Safe Checking in the Electronic Age Project analyzed the policies of the nation's 10 largest banks. It shows why checking account holders - in other words most adult Americans - are in desperate need of better protections.

Required disclosure documents run an average of 111 pages and often hide penalty and fee information in several places so that customers cannot easily find it. Checking overdraft fees are not "reasonable and proportional," as late fees must now be for credit cards. According to the study, the average overdraft charge of $35 on an average overdraft of $36 amounts to an annualized interest rate of more than 5,000 percent. The banks deserve to make money on these transactions. But certainly not that much.

Most of the banks studied reserve the right to reorder transactions in ways that maximize overdraft fees. They can post withdrawals before deposits. They can also clear checks out of the order in which they are presented - processing the largest item first - so that the account is emptied quickly and they can levy multiple overdraft charges.

The study estimates that the banking industry will reap $38 billion in overdraft fees this year - a record high - much of that because of tricky disclosure, processing and fee schemes. That is outrageous.

Amen. Is it any wonder why the banks oppose the Consumer Protection Agency?

May 3, 2011

The Deadly Trap

Credit cards are so useful and convenient. At least until you suffer a loss of income. Or unexpected medical expense. Or divorce. Or any other problem that impacts your ability to make monthly payments. Then credit cards become a trap. Think you can talk to the credit card company about lowering payments? Don't count on it. My clients tell me that they get nowhere when they ask for a break. Miss three payments and watch your interest rate climb to 30%. Good luck trying to catch up payments after that.

You could get lucky and have a way to pay off the card. You could borrow against your home, but that is getting hard to do. You may have a retirement account you could tap into. If you can get together a lump sum payment, your creditor may settle for 50 cents on the dollar.

Other alternatives include debt consolidation companies and bankruptcy. Be careful with debt consolidation. I hear many horror stories from clients about them. It's an unregulated industry. Many companies are being sued for false promises and fraud.

Chapter 13 bankruptcy lets you adjust payments on your debts based on an amount you can afford. You get the payment amount approved by a court trustee. You don't need your creditors to agree.

If you are in default on your payments, your credit score has already taken a hit. Bankruptcy can stop the downward slide and help you to rebuild it. It's a way to avoid the deadly credit card trap.

April 22, 2011

Local Property Values Keep Dropping

Local property values by eight percent from last year's values. This from a new report by the Hamilton County Auditor. Values declined in nearly every county neighborhood. Other reports show that home sales and prices continue to fall across the Greater Cincinnati and Northern Kentucky region. Forty-five percent of all sales in March were lenders selling properties recently in foreclosure or a short sale.

All this is bad news from people trapped with a house payment that can no longer afford. Declining values make it more difficult to borrow or sell their homes.

Bankruptcy can help in a couple of ways. Chapter 13 gives people a way to catch up missed house payments. It some cases it allows the home owner to eliminate a second mortgage. Chapter 7 protects the owner from the mortgage debt if the owner wants to give up the house.

April 12, 2011

Family Matters

People get into financial trouble all the time when dealing with family. One problem involves paying back loans from family before filing for bankruptcy. The second consists of giving loans or paying bills for family. I'll talk about each of these two problems below.

You may want to pay back family member for a loan. The payment often come from tax refund. But paying family back before bankruptcy causes a problem. The law allows the bankruptcy trustee to sue any family member who received $600 or more loan payback or more during the last 12 months. Avoiding this problem is simple. Pay back the loan after you file bankruptcy. Not before.

Another common problem is helping family. Parents help children, girl friends help boy friends, adult children help parents. Lending money or paying debts for family are one way to get in trouble. Another is to let someone use your credit card. I estimate that one out of five of my clients get into financial trouble as a result of helping family. The worst part is that people ruin their credit as a result. The person who tries to help ends up filing a bankruptcy. Don't extend your credit to family because it can cause a problem for you later. You have to learn to say no.

If these problems sound familiar, call me. I may be able to help you.

April 1, 2011

Many Can No Longer Afford Health Care

The number of people who skipped seeing a doctor so they could pay for food and housing more than doubled during the last five years. the number who went without prescription medications doubled during the same period. Overall, 16%of adults in the Cincinnati area went without medical care, up from 10% in 2005. 25% of adults in the region having trouble paying medical bills. This information comes form a survey conducted by the Health Care Foundation of Greater Cincinnati and the University of Cincinnati.

Filing bankruptcy helps people keep up with medical expenses. It eliminates past medical and other debts. That allow them to pay ongoing expenses without having to make debt payments at the same time.

March 18, 2011

What is MERS?

MERS is a way for mortgage companies to sell mortgages to one another quickly and with low cost. MERS is a straw party named as the owner of the mortgage. But it doesn't really own it. But on county records across the country, MERS appears as the owner of millions of mortgages. As I said, the system was designed to avoid the costs involved in transferring mortgages among different owners. In theory, MERS keeps track of who owns the underlying mortgage. In practice, MERS does not keep accurate records. According to a recent study, fewer than 30% of mortgages held by MERS had accurate records.

And so the system, designed by the mortgage companies for speed and to control costs, is going to make solving the foreclosure problem much slower and more expensive.

March 11, 2011

Jobless Rate On The Rise

Unemployment in Greater Cincinnati and Northern Kentucky climbed to 10% as of January 2011. January marks the twenty-third month with more than 100,000 people unemployed in the region. During the same period, more workers gave up looking and dropped out of the job market.

If you find yourself in financial difficulties because of a job loss, don't blame yourself. A lot of people are in the same boat. Use the bankruptcy law to protect your assets and clear your credit report. Contact me for a free consultation.

March 5, 2011

Foreclosure News

Currently two million homeowners are in foreclosure nationwide. Another two million home loans are severely distressed.

The state attorney generals have presented a list of demands to mortgage lenders that prohibit foreclosure during pending loan modification. That would be a major change from the way lenders now conduct business. Usually I see modifications and foreclosures pending on the same loan with homeowners hopelessly confused.

Another demand would require a permanent loan modification once the borrower made three payments on the loan. An independent review panel would check loan modifications that were denied.

February 25, 2011

Recovering Garnishments

In some cases debtors can sue to recover garnishments taken within 90 days of the bankruptcy filing. The catch is that the debtor must be able to claim the garnished funds exempt.

Ohio residents can exempt a maximum of $1,500. Kentucky residents can exempt much more, almost $10,000. Kentucky residents can claim federal exemptions. Ohio residents must claim Ohio exemptions in most cases.

February 17, 2011

Time-Barred Debts

Creditors have only a limited period of time to collect their debts. Once the time has passed, you are not legally oblgated to pay them. The length of time varies depending on the type of debt and state law. Here is a breakdown for Ohio and Kentucky.

Ohio

• Written or oral account: 6 years, (O.R.C. §2305.07).
• Written contract: 15 years, (O.R.C. §2305.06).
• Oral contract: 6 years (O.R.C. §2305.07).
• Note payable at a definite time: 6 years, (O.R.C. § 1303 .16(A)); (2)).
• Demand note: 6 years after the date on which demand is made or 10 years if no demand is made and neither principal nor interest has been paid over that time (O.R.C. §1303.16(B)).
• Dishonored check or draft: 3 years after dishonor, (O.R.C. §1303.16 (C)).

Kentucky

• Recovery of real property: 15 years (KRS 413.0 10).
• Judgment, contract or bond: 15 years (KRS 413.110).
• Breach of sales contract: 4 years (KRS 355.2- 725).
• Contract not in writing: 5 years (KRS413.120). NOTE: Action for liability created by statute when no there is no time fixed by statute: 5 years (KRS413.120).
• Action on check, draft or bill of exchange: 5 years (KRS 413.120).
• Action for fraud or mistake: 5 years (KRS 413.120).
• Actions not provided for by statute: 10 years (KRS 413.160)

February 11, 2011

The One-Sided Recovery

US business as a whole has recovered from the rescession. Profits for US companies are up 12 per cent since 2007. That is much better than businesses in Canada, Japan and most of Europe.

Despite the increased profits, US businesses are not hiring. Jobs available to new employees are often part-time with no benefits.

This is the third economic recovery in twenty years with little job growth. Gallup poll shows US with higher unemployment than Britain, Germany, Japan, Russia, and China. Even if pace of job growth accelerates to record levels, we will not reach full employment until 2016.

So the recovery is one-sided. US business is on the rebound and doing better than ever. Unemployment for many remains on the horizon for years.

February 4, 2011

Can I Keep My Tax Refund?

In Ohio chapter 7 cases, you may keep up to $1,500 of your refund. Add to that amount child tax credit and earned income credit claimed on your return. In most Kentucky 7 cases, you can keep it all because the exemption law is better than Ohio.

In Ohio chapter 13 cases, you can keep $800 of the refund per person plus child tax credit and earned income credit. In Kentucky 13 cases, you may have to turn over part of the refund if the trustee requests it.

Tax refund that you pay to the court is distributed to your creditors.

January 28, 2011

Can Employer Fire You For Filing Bankruptcy?

No private employer may terminate an employee solely because the employee filed for bankruptcy. Its part of the Bankruptcy Code. The government cannot fire an employee and cannot withhold or deny a llcense, permit, records and so on. You cannot be denied a student loan because you filed a bankrutpcy case.

January 21, 2011

Chapter 7 and Chapter 13: What Is The Difference?

Both bankruptcies protect you from lawsuits, garnishments, and contact with creditors. Both give you a discharge from personal liability on most debts.

Chapter 7 is designed for people with low income. So low that even if they had no debts they could just pay their monthly living expenses. The court gives these people a discharge of debts without requiring them to make payments on them.

Chapter 13 is for people with enough income to cover monthly living expenses and still pay part of their debts. They pay on the debts for three to five years. Once they complete the payments, they receive a discharge of most unpaid debts.

Chapter 13 has advantages over chapter 7. It allow people to catch up past due house and vehicle payments. It can lower monthly payments for debts that survive chapter 7, like taxes and student loans. When you meet with me, I can discuss the pros and cons of both types of bankruptcies.

January 14, 2010

What's Worse: Foreclosure or Bankruptcy?

Foreclosure is worse than bankruptcy in at least three ways.

• Foreclosure means you will lose your home. Forever.
• Following the foreclosure, you will probably owe the mortgage company money and they will try to collect it from you.
• Foreclosure looks worse on your credit report than bankruptcy.

January 4, 2011

Its possible to file a bankruptcy case without your spouse.

But the fact that you are married can affect your case.

If you and your spouse are married and living together, then you have one household. Your spouse's earnings count and must be considered to determine if you are eligible to file a chapter 7 case - straight liquidation - or whether you must file a chapter 13 debt adjustment case - along with payments to creditors for up to 5 years.

A married person must take into account his or her spouse's income. The spouse's separate expenses, like personal credit card bills, are deducted from household income. Anything remaining is considered disposable income which is placed to household uses and therefor available to pay the filing spouse's debts. If the non filing spouse makes enough money, then the filing spouse may be required to file a chapter 13 case or run the risk of having his or her chapter 7 case be subject to a motion to dismiss as abusive.

If you are married and living separate and apart, you probably won't have to include your non-filing spouse's income. Each of you now has your own household. If you are married but divorcing, you may be deemed to have separate households even if you live in the same dwelling.

So if you are married but are thinking of filing bankruptcy separately, ask a bankruptcy lawyer who understands marital law what this means to you and your non-filing spouse.

December 30, 2010

Improve Your Credit Score After Bankrutpcy

Nothing lasts forever. A bankruptcy legally can remain on your credit report for up to 10 years, but its effect on your credit score can start to diminish the day your case is closed -- if you adopt responsible credit habits such as paying your bills on time, using only a small portion of your available credit and not applying for too much credit at once.

You have to get and use credit to build your credit score. Living on a cash-only basis may be a smart choice for those who really can't handle credit. But if you want to rebuild your credit score, you can't sit on the sidelines.

December 23, 2010

Mortgage Refiance Program: Is HAMP Helping?

HAMP is the government program for helping struggling homeowners. It provides a way to reduce montly mortgage payments. Unfortunately, permanently modified home loans are defaulting at a rate of 21% per year. That's a huge number. Predictions are that the percentage of defaults will continue to grow.

December 14, 2010

So Why Do People File Bankruptcy?

Its my experience that loss of income leads more people to file bankruptcy than any other reason. Folks think that they are in good economic shape if they can handle their monthly payments. That plan works most of the time. But if they experience a loss in income, it can make it impossible to keep the bills current.

The income loss can coome from loss of employment, cut backs to overtime, divorce, or downsizing, for example. The results are the same regardless of the cause. Many creditors can be unwilling to negotiate reduced payments to help those who are struggling with payments. So people are forced into bankruptcy due to unexpected circumstances.

December 9, 2010

Medical Debt and Bankruptcy

I came across some interesting statistics recently. According to a recent study in the American Journal of Medicine:

• 62% of all bankruptcies have a medical cause
• Most medical debtors were well-educated and middle class; 3 out of 4 had health insurance
• The share of bankruptcies attributable to medical problems rose by 50% between 2001 and 2007

My own expreience with my clients bears this out. Medical debt continues to rise, even for those with insurance. Medical insurance is a fig leaf for many people, covering only a small part of their medical debts. Fortunately, bankruptcy can help you eliminate medical debt once and for all.

December 2, 2010

Elderly Bankruptcy Filings On The Rise

The elderly are filing more bankruptcies than ever before. Twice as many as they did 15 years ago. My experience with older clients is that their cost of living keeps increasing. The live on fixed incomes and can't keep up with expenses. They don't want to turn to family for help. So they end up using credit cards to make ends meet. Eventually, they can't keep up with credit payments. When things get out of hand, they seek my help.

The problems the elderly face are not much different than those faced by working people. They confront the same rising expenses as every one else. But its more difficult for them to increase their income. Bankruptcy is a way for them to eliminate the debts they can no longer afford to pay.

November 18, 2010

Bankruptcy Filings Up 14%

New bankruptcy cases increased 14% over the last year. This continues a trend that started several years ago. Since 2006, new bankruptcy case filings have increased. Expect the case filings to rise during the next year.

Its not difficult to understand why this is happening. High unemployment, foreclosure and credit card payment defaults also continue to go up. People need protection from creditors because their income doesn't keep up with expenses.

November 11, 2010

How Much Can You Earn And Still File Chapter 7?

To qualify for chapter 7 bankruptcy, you must prove you cannot afford to make payments on your debts. Bankruptcy law presumes that if your income is low enough you can receive a chapter 7 discharge of debts. The latest chart of annual income looks like this:

*Add $7,500 for each additional person in the family.

If, for example, you have a family of four in Kentucky and earn under $62,739, you should qualify for chapter 7. Everyone must file a monthly budget showing monthly expenses. The court examines the monthly expenses to determine if you truly cannot afford to pay back part of your debts.

If your income is more than amounts listed above, you have to show the court you can't afford to pay back even part of your debts. You can do it, but you must persuade the court that your circumstances are exceptional.  If that is not possible, I recommend filing a chapter 13 banrkuptcy. With chapter 13, you ask the court to approve  a monthly payment on your debts.

November 2, 2010

Homeowners Running Out Of Options To Avoid Foreclosure

The latest statistics in the housing market are bleak. They include the following:

• permanent loan modifications in September were at their lowest number since the start of the goverment program
• home sales fell sharply compared to 2009 levels
• home prices are falling again after a period of holding steady
• 4.4 milllion homeowners are in severe default on mortgage payments but not yet in foreclosure

October 20, 2010

Foreclosures: What You Need To Know

Bank of America and GMAC, two of the biggest mortgage lenders, announced that they will resume filing foreclosures on Monday. Expect other mortgage companies to follow suit.

Why did they stop filing foreclosures two weeks ago? Mostly in response to news about faulty courtaffidavits. Some affidavits were signed by employees without first reviewing the records. The mortgage companies paused filing new foreclosures in order to get their records straight. They say things are in order and they are starting to file new cases.

October 13, 2010

The Long Road To Recovery

Recent economic news provided two important statistics. At the current rate of job creation, it will take nine years to get back the number of jobs lost during the recession. The unemployment numbers could get worse in the months ahead.

Median house prices have declined 20 percent since 2005. The outlook is that it will take thirteen years for housing to recover its value. That explains why so many people own houses worth less than their mortgages.

Commerical real estate vacancy rates are high. So high, it may take a decade for them to get back to where the rates were.

It looks like a long road to recovery.

October 1, 2010

Foreclosure Suspensions

You may have heard that GMAC Mortgage and Chase Mortgage recently suspended foreclosures. They aren't doing this to be nice. They got caught submitting improper affidavits to court. What does this mean for people facing foreclosure? Probably a delay for a one or two months before foreclosures resume.

If you are in foreclosure you can still lose your home. The incorrect affidavits don't elimiate foreclosure. Once the affidavits are corrected, the foreclosures will resume.

September 23, 2010

Recession and Recovery

The recssion of 2007-2009 is officially over. It was the longest recession in 50 years. The economy lost more jobs during this recession than during any other recession since the depression. Unemployment is at its highest level since World War II, if you include people working part-time who wish to work full-time and those who have given up looking for work.

But for many people the recovery has not started. The enconomy has lost more jobs than it has added since June 2009 when the recovery began. And the outlook for job creation remains bleak. Many economists estimate that job growth seems likely to stagnate or grow worse in the near future.

People's need for protection from creditors has never been greater. Loss of income remains the biggest reason for people to file for bankruptcy protection.

September 15, 2010

Bad News Economy

Is the economy going to recover anytime soon? Don't look to the middle class to help. In a word, people are tapped out. Consider the following: since the 1970's, income for the average worker has not kept up with inflation. That means sons are earning less than their fathers. Meanwhile, he costs for necessities like health care, energy, and education continue to rise. If you are struggling to keep your head above water, this is probably the reason.

The growth in earnings went mainly to those at the top. In the 70's, the top 1% of earners had an 8% share of the nations income. Today 23% of the nation's income goes to the top 1%.

So don't look to the middle class for increased spending to fuel an economic recovery. They have their hands full just paying the bills.

September 8, 2010

What Happens If You Stop Paying Credit Cards?

I advise my clients to stop paying on credit cards once they decide to file a bankruptcy case. What happens if you stop paying them? You can expect to receive collection notices from the credit card company for about three months. Your account then gets sold to a collection company. The collection company will attempt to collect the debt for about three months. Finally the debt is sold to a lawyer. It takes the lawyer about three months to file a lawsuit and obtain a judgment. The judgment can lead to garnishment and a judgment lien on real estate.

So why do I tell clients to stop paying credit cards? To eliminate unnecessary spending prior to filing bankruptcy. Clients use their income to pay for the fees and costs of bankruptcy. Getting the bankruptcy case filed stops all debt collection activities. Stop paying credit cards helps to get the bankruptcy case filed quicker.

August 30, 2010

Do You Need To Save Your Home?

If you are behind on your mortgage payments, and cannot get current, Chapter 13 bankruptcy may be a good way to save your home. In Chapter 13 bankruptcy, you pay all or a portion of your debts over time through a repayment plan. Chapter 13 bankruptcy lets you pay off a mortgage "arrearage" (late, unpaid payments) over the length of the repayment plan -- usually three or five years, depending on your income and the time it will take you to meet all the plan's requirements.

In order for this option to work, you'll need enough income to at least meet your current mortgage payment and your other basic expenses at the same time you're paying off the mortgage arrearage. Assuming you make all the required payments up to the end of the repayment plan, you'll avoid foreclosure and keep your home. Give me a call if you want to discuss your situation.

August 23, 2010

Bankruptcy, Defaults And foreclosures Continue To Rise

The Federal Reserve Bank issued a report that paints a mixed picture about consumer debt. People are no longer spending like they used to. Overall debt is dropping. That's the good news. But people are having a difficult time getting rid of the debt they have.  In the U.S, the average debt per person is $49,000.  Foreclosures and delinquent payments are on the rise. Many people had to file bankruptcy to deal with their debts. Consumer bankruptcies jumped in the last quarter by 34%.

Added to high unemployment and a slowing recovery, the outlook for consumers is not encouraging. Expect expect to see even more bankruptcies for the remainder of the year.

August 13, 2010

Home Equity Loans

The default rate on home equity loans is higher than all other types of consumer loans, according to the American Bankers Association. Home equity delinqencies exceed the defaults on auto loans, personal loans and credit cards. Lenders wrote off $30 billion in home equity loans in 2009.

Some people think they don't have to worry about the banks collecting on these loans. I think that is a big mistake. Its true that the banks seldom foreclose on home equity loans. But the banks can still obtain a judgement and garnish wages and bank accounts. Or they can sell the account to one of many companies that buy bad debts and try to collect them.

A bankruptcy is the best way to protect yourself on these debts. In some cases, people can get rid of the home equity loans by filing a chapter 13.

August 6, 2010

Clean Up Your Credit Report

Once you complete your bankruptcy, you need to check your credit report. The report should state that debts were "discharged in bankruptcy." Sometimes debts discharged in bankruptcy continue to appear as unpaid on the report. What should you do if the debt does not show it was discharged? You need to send a letter to to the credit reporting agency. The letter should dispute the accuracy of the debt. If you don't, the inaccurate information can lower your credit score. That makes it harder to rebuild your credit standing following bankruptcy.

July 31, 2010

Old Credit Card Debts Never Die?

Did you know you can be sued on old credit card debt for 15 years? Even worse, every time you make a payment the 15 year time frame is extended. Some companies specialize in collecting old debts. They try to get people to make payments on debts that are more than 15 years old. The Federal Trade Commission recently issued a report recommending changes to the law. But for now, collectors will still try to collect on the debts. Even if the debts are so old th law will not allow them to sue you.

July 22, 2010

Report Confirms Failure Of Federal Mortgage Modification Program

Only 340,000 homeowners received a permanent modification of their mortgages under the federal program in the last 15 months. This falls far short of the expected three to four million people the program should have helped. Why has the program failed to assist more homeowers? Two reasons were cited in a recent report to Congress. The Treasury Department, the agency that oversees the program, failed to provide clear goals. The program pays mortgage service providers for loans that get modified. But in many cases, the service providers may more money if the family goes through foreclosure.

So for many people, getting rid of credit card, medical and other debt through bankruptcy is the only way to afford house payments.

July 7, 2010

Debt Settlement Often Makes Things Worse

Have you considered using a debt settlement company to deal with your debts? Be careful. The New York Times reported settlement companies typically have fees of 15 to 20 percent of credit card balances. Even worse, they tend to collect fees upfront, regardless of whether a customer's debt is actually reduced.

Since 2004, 21 states have brought 128 enforement actions against debt relief agencies. Consumer complaints received by states attorney generals more than doubled between 2007 and 2009.

Typically, customers make monthly deposits into special accounts while skipping credit card payments. Once the money in the account reaches a sufficient size, the settlement company negotiates a lump sum payment with the creditor.

What they don't tell you is that once you stop making payments, the creditor get angry. Collection calls and lawsuits quickly follow. After getting a law suit, one customer called her settlement company, Financial Freedom. She was told, "we don't have any control over that, and you don't have enough money in your account for us to settle with them." Her account held only $1,470 even though she paid $3,700 into it. The rest went to the settlement company as fees.

June 28, 2010

Walking Away From Home Mortgage Is A Bad Idea

At least if you plan to buy another house. Fannie Mae, the big mortgage finance company said that homeowners who intentionally default because they owe more thn the house was worth would be ineligible for new Fannie Mae-backed loan for seven years.

If you owe more than your house is worth, bankruptcy could allow you to get rid of a second mortgage in some cases. Call me to discuss the details.

June 8, 2010

Documents, Documents, Documents

Many documents are needed for preparing a bankruptcy petition. My clients provide some of the documents and I obtain others. My clients normally provide me with

• six months of paystubs
• three years of tax returns
• six months of bank statements
• vehicle title copies
• retirement statement

The items I usually obtain for clients include

• Deeds and mortgages for Hamilton County real estate
• real estate appraisals for Ohio chapter 13 cases
• credit reports
• counseling services

There are other documents needed in some cases. When you meet with me I provide you with a list of documents that pertain to your case.

May 27, 2010

What Can Bankruptcy Do For Me?

Bankruptcy is very good at

• getting rid of credit card and other unsecured debt
• stopping creditor harassment and lawsuits
• eliminating judgment liens on real estate
• cleaning up your credit history

Some things bankruptcy can't do

• letting you keep real estate and vehicles that you don't want to pay for
• wiping out student loans
• eliminating alimony and child support
• getting rid of recent tax debts

Chapter 13 can help you

• catch up house and vehicle payments
• pay debts based on your monthly income and expenses

May 20, 2010

School Transcripts Protected By Bankruptcy Code

The Bankruptcy Code contains an anti-discrimination provision. It protects your right to a school transcript if you file a bankruptcy case. The school cannot withhold your transcript from you even if you list them as a creditor in your case. Bankruptcy gives you to discharge tuition debts but not student loans.

May 11, 2010

Mortgages: Walking Away

I watched an interesting story on 60 Minutes about people giving up homes. Its understandable if they owe more on the mortgage than the home value. But its not without serious consequences. These include deficiency debt following foreclosure and additional income tax. And a 200-300 point credit score drop. A bankruptcy can shield you from some of these problems.

You can view the video by clicking on the link below.

http://www.cbsnews.com/video/watch/?id=6470184n&tag=api

May 5, 2010

Get Rid Of Second Mortgage In Chapter 13

Chapter 13 allows some people to get eliminate second mortgages. For example, let's say you have a first mortgage of $100,000 and a second mortgage of $25,000. If the appraised value of of your house is $95,000, the $25,000 second mortgage can be eliminated. Chapter 13 bankruptcy permits "stripping" the second mortgage in this case. The reason is that the amount of the first mortgage, $100,000, is greater than the value of the home, $95,000. In this situation, bankruptcy law allows for treating the second mortgage as an unsecured debt.

April 30, 2010

Don't Ignore Citations From City of Cincinnati

I know many property owners who intend to surrender their real estate and file for bankruptcy. But even if you file a bankruptcy case, don't igore a citation from the City of Cincinnati. The City has the power to issue fines that cannot be discharged in bankruptcy. The City issues fines for such things as failing to maintain the premises. In some circumstances, they condemn and tear down the structure, generating expenses that you as the property owner are responsible for. So if you receive a citation, follow the instructions and attend the hearing. The City will consider economic hardship, including bankruptcy. And of course, if you can prove you transferred ownership prior to the issuance of the citation, the City will let you off the hook.

If you are stuck with the fines, chapter 13 bankruptcy allows you to pay them. The bankruptcy court allows monthly payments based upon your ability to pay

April 23, 2010

Short sale vs Foreclosure

Think a short sale is better than a foreclosure on your credit report? It's like the difference between being hit by a train or a bus, according to mortgage broker, Catherine Coy. Either will lead to a drop of 200 to 300 points on your credit report.

The one advantage of short sale over foreclosure is the shorter waiting period before buying another home. Short sale will allow you to get FHA financing withing two years. You will end up waiting from two-to-five years for the same loan following a foreclosure.

You can read more about this at

http://homebuying.about.com/od/4closureshortsales/qt/060907SScredit.htm

April 15, 2010

Foreclosure Rise So Home Values Fall

In a recent interview on CNN, bank analyst Meredith Whitney stated that home foreclosures will continue to rise. As a result, home values will continue to suffer. Meanwhile the Congressional Budget Office issued a report critical of the administration's foreclosure rescue program. The report states that for every home loan modified under the program, ten homes fall into foreclosure. How can we have a real economic recovery while this problem continues to grow?

Here's the link to the CNN story:

http://money.cnn.com/2010/04/14/real_estate/COP_foreclosure_mitigation_report/index.htm

April 5, 2010

More People Choose To Walk Away From Their Homes

The latest bankruptcy statistics show new cases filed in March were at the highest level since the bankruptcy law changed in 2005. More people are choosing chapter 7 over chapter 13. That's because fewer people are choosing to save their homes. That's unfortunate because these abandoned homes add to the already depressed real estate values.

Why are people giving up their homes? I see two factors at work: lower income and declining home equity. Many people struggle to keep up with basic expenses as their employers eliminate jobs, benefits and overtime. As foreclosure rates climb, housing values fall and equity is reduced. So more home owners are walking away from their homes rather than trying to save them.

March 23, 2010

Can I still file for bankruptcy?

Most people have heard about the change to bankruptcy law that went into effect in 2005. Did the law change eliminate bankruptcy? No, it didn't. The law changed the process for filing for bankruptcy. For most of my clients the law requires they produce more documents before they file. Documents like tax returns and pay stubs. They must complete two hour-long classes on line or by telephone. If they have higher than average income, they must show living expenses that prevent them from paying their bills.

The law still allows them to protect assets up to a certain amount. In fact, changes in the law allows people to keep more assets than ever before.

So if you hear than you that the law changed and you can no longer file for bankruptcy, don't believe it.

March 18, 2010

Stop Lawsuits Now!

Can you stop a law suit by filing for bankruptcy? You sure can. Filing a bankruptcy case stops all collection law suits and foreclosures. It protects you from your creditors obtaining garnishments and liens. And it does even more. Your creditors cannot contact you and they cannot collect from you. Filing a bankruptcy case is a powerful tool to protect yourself and your assets.

March 3, 2010

Recovering From The Recession

29 million people currently unemployed or underemployed. 11 million people with home worth less than their mortgages. 5 million people with mortgage debt exceeds their home value by 25% or more. Analysts believe the only thing keeping housing prices from declining further is government incentives that end in the spring.

Its going to take a long time to recover from this recession.

February 22,2010

Foreclosure News Is Not Looking Good

A recent New York Times editorial paints a grim picture of increasing foreclosures. You can see it at http://www.nytimes.com/2010/02/15/opinion/15mon2.html

The points made by the article include

• the value of homes continued to decline in 2009
• foreclosure filings increased by 15% in January compared to a year ago
• 88,000 people had their homes foreclosed in January, a 31% increase from a year ago
• the Obama administration's foreclosure program is not helping

I don't think the foreclosure problem will be solved as long as home values are less than the amounts owed on the mortgages. The banks don't want to write down the value of the mortgages to the current home value. Their balance sheets take a hit and makes them look undercapitalized.

Bankruptcy legislation that allowed judges to reduce a mortgage loan to the value of the home was defeated last year. That is too bad because I believe it would have reversed the trend and forced the lending industry to bite the bullet.

February 16, 2010

Do you have a lot of Medical Debt?

If you do, you are not alone. A study reported in The American Journal of Medicine in 2009 found that 62 percent of American bankruptcies are linked to medical bills. These medical bankruptcies had increased nearly 50 percent in just six years. Astonishingly, 78 percent of these people actually had health insurance, but the gaps and inadequacies left them unprotected when they were hit by devastating bills.

February 11, 2010

Older Americans Bankruptcy Filings Increase Dramatically

According to a recent study, the rate of bankruptcy filings for people 65 and older doubled since 1991. The reason? Increasing financial pressure from health related problems. And the increase in bankruptcy filings is expected to continue. Economic turmoil, instability in the stock market, cuts in social services and increasing health care costs hit seniors hard. You can view the study at www.hlpronline.com/Vol3.1/Thorne-Warren-Sullivan_HLPR3-1.pdf

February 5, 2010

Should I stay or should I go?

The old song by the Clash expresses something felt by a lot of homeowners. New research suggest that when a home's value falls below 75 percent of the amount of the mortgage, the owner starts to think about walking away, even if they can afford the payments. By June, the numbers are exepcted to increase to 5 million homeowners or 10 percent of all homes nationwide.

Though you might be tempted to leave, their are good reasons to stay in your home. Property values will eventually rise over the next several years. Your credit score will suffer if you default on your loan. You will likely be liable to the mortgage company for additional money following a foreclosure.

Chapter 13 can help you catch up missed mortgage payments. The court gives you up to five years to make up the payments while you are protected from your creditors. If you simply can no longer afford your mortgage, chapter 7 can discharge your liability to the mortgage company so that can never collect money from you.

January 27, 2010

Would you pay back your debts if you didn't have to?

Chapter 13 protects you from your creditors while you pay down your debts. And it can reduce your overall payments. Chapter 13 allows you to

• reduce interest payments on vehicle loans to about 5%
• reduce the pay off on vehicle loans over 2.5 years old
• pay off recent tax debts over three-to-five years
• catch up past due mortgage payments
• stop student loan payments for up to five years

Chapter 13 can protect you from your creditors even if you filed another bankruptcy recently. Call me to learn more and see if it can help you.

January 19, 2010

Debt Collection: Frequently Asked Questions

Federal law can protect you from debt collection. The Fair Debt Collection Practice Act prohibits debt collectors from using abusive, unfair, or deceptive practices. A debt collector is someone who regularly collects debts owed to others. The law covers personal, but not business debt.

• A debt collector may not call you at incovenient times, such as before 8:00 AM or after 9:00 PM. They may not call you at work if you tell them you are not allowed to get calls there.
• You can tell the collector to stop contacting you. Send them a letter by certified mail and keep a copy for yourself.
• If an attorney represents you, the debt collector must contact the attorney and not you. If you don't have an attorney, the collector may contact other people but only to learn your address, phone number and place of employment.

January 13, 2010

December Bankruptcy Filings Increase 33%

Consumer bankruptcies increased by 33% in December 2009 over the prior year. A total of 113, 274 cases were filed during the month. Of these cases, 28% were filed under chapter 13 and 72% under chapter 7. The December filings were the highest since the bankruptcy law changes that took effect in 2005.

January 4, 2010

Yes, you can still file a Chapter 7 bankruptcy

I can't tell you how many times people say to me that chapter 7 is no longer available. That the bankruptcy laws changed and eliminated chapter 7. Not true! The changes referred to happened in 2005. Congress passed legislation pushed by the credit industry to "reform" bankruptcy. The legislation made it more time-consuming to prepare a case for filing. It did not eliminate chapter 7. More people file a chapter 7 case than ever before. Over a milliion bankruptcy cases were filed in 2009, an increase of 35% over the previous year. So if you feel that you are in over your head with way out, chapter 7 may help you.

December 17,2009

Most Temporary Mortgage Loan Modifications Never Become Permanent

A lot of people hope to get a temporary mortgage loan modification. Lenders are willing to grant them if you tell them your house payment takes about 31% of your income. And lenders don't ask for written proof of income when considering a three month temporary modification. But they do require proof of income in order to make the payment change permanent. Only one in four people can prove their income meets the 31% test. And so most temporary loan changes never become permanent.

December 9, 2009

How To Prepare For Bankruptcy

Here are some simple steps that you can take to avoid common problems.

• Don't use credit. No more credit card purchases, no more loans.
• Don't borrow from your retirement account to pay bills. Many people use up their retirement savings and then file for bankruptcy.
• Don't transfer real estate, savings, vehicles or other assets.
• Get together these documents:
  • six months pay stubs
  • three years of tax returns
  • vehicle titles
  • six months of bank statements
  • retirement statement
  • Don't repay loans to family members or friends.
  • Stop paying credit cards and other unsecured debts.Make the payment on vehicles you intend to keep to avoid repossessions.

November 30, 2009

Persistent Unemployment

Employment data continues to look bleak. Job seekers outnumber job openings by six to one. Workers who lose their jobs spend an average of six months unemployed. The rate of unemployment across the country now stands at 10%. Experts expect high unemployment to continue until 2012. All of which leads to more people having to file for bankruptcy protection. Expect the number of bankruptcies to continue to rise.

November 24, 2009

Mortgage Defaults At Record High

Mortgage defaults are at their highest level since 1972. One out of ten homeowners are behind on their mortgage payments. If you add mortgages in foreclosure, the number climbs to 14% of home loans in default. That means one out of every seven homeowners are in default. And these are not just subprime mortgages. Prime fixed-rate mortgages are defaulting at record numbers. This unfortunate trend is predicted to continue until 2011.

August 19, 2009

Is debt consolidation better than chapter 13?

What advantage is there to chapter 13 over debt consolidation? There are several. Chapter 13

• protects all your assets from all your creditors by court order. Debt consolidation cannot protect your from lawsuits, garnishments and judgment liens;
• allow you stop foreclosure and catch up house payments. Debt consolidation does not do this;
• reduces payments on vehicle loans and lower interest to about 5%. You won't get this benefit with debt consolidation;
• consolidate all debts like credit cards, loans and medical bills. Debt consolidation often only covers part of your debts;
• end interest and penalty charges on unsecured debts. Debt consolidation may reduce interest but seldom eliminates it completely.

Payments in most chapter 13 cases are based on your ability to pay. That means the court looks at both your income and monthly living expenses in determining your monthly payment on your debts.

You make payments to the court from three to five years. Then the court wipes out the unpaid portion of debts except for student loans.

So while debt consolidation may seem like the way to go, chapter 13 is much better at protecting you and getting you out of debt.

August 13, 2009

Why don't banks modify more loans?

Lenders modified less than nine per cent of loans of eligible mortgages between March and July. Why is that? The federal government has put up $75 billion in incentive money for banks who rewrite loans. There are a couple of reasons why the federal program is not stopping more foreclosures. Some lenders prefer foreclosure because it delays reporting to investors a loss on the loan. Modifying loans also takes more time and effort than foreclosing. Another reason is that fees and costs generated by delinquencies outweigh the incentive payment the government offers banks. The result is that the number of foreclosures is at an all time high with no end in sight.

So what can be done? Change the bankruptcy laws to allow judges to modify mortgage loans. It would force lenders to get serious about modifying loans. And it would not cost tax payers anything.

July 10, 2009

Fewer mortgage loan modifications

You may recall back in April the federal govenment started the "Making Homes Affordable" program. It offered an incentive payment for each mortgage a lender agreed to refinance. Unfortunately, the number of mortgage modifications has declined each month since the start of the refinancing program.

Its not surprising that lenders don't modify loans because it reduces their income. The baffling part is that lenders are not better off choosing to foreclose rather than refinancing their loans. The average loss on a foreclosed property is 64% of the original loan balance, according to a recent study. So lenders are losing huge sums by foreclosing. But they continue to favor foreclosing over refinancing.

If your bank offers to refinance, don't be surprised if they start foreclosure proceedings. And to me that means the lender is not seriously considering refinancing your mortgage.

July 6, 2009

Inadequate medical insurance

Three out of four people who file bankruptcy because of medical expenses had insurance at the time they got sick. The number of uninsured people has increased as more have fallen victim to deceptive marketing practices and bought what essentially is fake insurance.

The New York Times article describes a man whose $150,000 insurance policy covered his mainly his room and board at the hospital. The insurance provided only limited coverage for his operations, drugs and testing. As a result he had to file a bankruptcy to get rid of everything not covered by his policy.

July 1, 2009

Medical bankruptcy study

A recent study published in the American Journal of Medicine had some eye-opening findings. These included

• 62% of all bankruptcies have a medical cause.
• Most medical debtors were well-educated and middle class; three-quarters had health insurance.
• The share of bankruptcies attributable to medical problems rose by 50% between 2001-2007.
• In 1981, only 8% of families filing for bankruptcy did so after serious medical problems. By 2007, that number grew to 50%.

If you are considering filing a bankruptcy due to unpaid medical bills, you are not alone.

June 11, 2009

Feds Investigate Foreclosure Scams

The Federal Trade Commission is seeking the assistance of Ohio homeowners in identifying companies engaged in foreclosure rescue scams for possible law enforcement actions. You can send the agency copies of advertisements, flyers, or other promotional materials from companies promising to stop foreclosures, modify loans, or otherwise save homeowners in financial straits.

Victims of foreclosure rescue or other scams should call the FTC's toll-free hotline, 1-877-FTC-HELP (1-877-382-4357) or file a complaint on-line at www.ftc.gov. By law, the FTC cannot represent individuals in disputes with companies. Consumer complaints, though, help the agency identify businesses whose practices warrant further inquiry.

June 2, 2009

Debt Settlement Companies Sued

People in debt are people who are stressed. Maybe thats why they turn to debt settlement companies for relief with their bills. I have seen scores of people who had a bad experience with these companies. Now the New York attorney general sued two large debt settlement companies. Both were accused of fraud, deceptive business practices and false advertising. Credit Solutions of America enrolled 18,000 people but settled the debts of less than 2,000 of them. Nationwide Asset signed up 2,000 people but only 64 completed the program. Credit Solutions charges a 15% fee of a person's total debt before any money is distributed to creditors.

May 31, 2009

Mortgage defaults on the rise

12% of all mortgages in the country are in default according to the Mortgage Bankers Association. Experts expect the numbers to continue to rise driven in part by an increased number of people who are unemployed. But the numbers suggest that the problem is spreading to include previously stable borrowers. The foreclosure rate on prime fixed-rate mortgages doubled in the last year. You can expect this trend to continue for some time.

May 13, 2009

Foreclosure swindlers

Beware of foreclosure rescue companies. They charge upfront fees to modify loans without doing anything to stop foreclosures. The upfront costs typically run $3,000. The industry is unregulated and there is no way for you to tell if the company is legitimate. Local prosecutors and the Federal Trade Commission have sued dozens of these companies.

You can obtain better results through bankruptcy. Chapt\r 13 stops foreclosure and protects you from your creditors.

May 7, 2009

Worried about credit rating?

Many of my clients worry about rebuilding their credit following bankruptcy. Think of rebuilding credit as a two-step process. The first step is the elimination of past-due debt. That is what bankruptcy does. It cleans up your credit history. The second step is staying current on debts that survive bankruptcy. These debts include debts you agree to repay, like mortgages and vehicle loans. It also includes debts such as student loans that bankruptcy does not eliminate. Staying current on these debts following bankruptcy is the quickest way to rebuild your credit score.

May 5, 2009

Sometimes bankruptcy just makes sense.

Don't wait too long to file a bankruptcy. According to Jane Bryant Quinn, personal finance columnist and author, people wait too long to file for relief. Many people use their retirement or college savings in an effort to keep from filing bankruptcy. It makes sense for them to file a bankruptcy before they use up all their assets.

People think that bankruptcy ruins their credit scores. Quinn believes the chances are their credit scores are terrible already. The bigger issue is planning a debt-free future that won't lead back to bankruptcy.

May 4, 2009

Bankruptcy legislation dies in the Senate

A law designed to allow bankruptcy judges to modify home mortgage loans failed to pass in the Senate. The legislation could have helped homeowners to reduce their mortgage debt to the value of their homes. As a result of the defeat, continued uncertainty in the value of real estate is likely to prolong the economic recession.

May 4, 2009

Who owns your mortgage?

MERS holds 60 million mortgages but most people have never heard of it. It is a computer registry system created by mortgage companies to help them save money. Unfortunately, for homeowners who need to resolve a problem with theeir mortgage company, MERS can hide who actually owns the mortgage. That means the homeowner may not know how to contact the company when a dispute arises.

April 27, 2009

BANKRUPTCY REFORM STALLED

Bankruptcy legislation designed to help the foreclosure crisis is stalled in the Senate. Republicans oppose giving bankruptcy judges the power to change home mortgages. Under the proposed law, judges could change mortgage principal, interest and payments on home loans. Passing the law would increase the pressure on mortgage lenders to negotiate with home owners outside bankruptcy. Let's hope the legislation passes. It offers a promising way to end the foreclosure mess that is dragging down the economy.

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