Why Filing Bankruptcy is Better Than Debt Settlement.

Friday 5th of October 2012 01:47:25 AM

If you have considered filing for bankruptcy, debt settlement may also be on your radar.  Here is how the two size up in my eyes.  The ads are everywhere, the straight talk is right here.

You may not qualify for bankruptcy, in which case debt settlement may by your only option.   However, if you do qualify for bankruptcy, here are some good reasons why it’s your better choice.

1. Cost:    When you work with a debt settlement company, you will be asked to send them a fixed sum of money on a monthly basis.  The money is pooled into a sizeable sum in the hope that they will be able to negotiate a lump sum payoff of your creditors; one by one.  The premise of the approach is fine; most creditors are more willing to cooperate if you can offer a lump sum settlement.  In practice however, it can get costly.  It could take you months to gather enough money to make any sort of reasonable cash offer that your creditors might accept.  Second, debt settlement companies take a hefty cut of each monthly payment, making it doubly difficult to accumulate enough money to entice a settlement.  If you are able to afford such payments, you can open a separate account for yourself and make the deposits every month without paying a cut to someone else.  Once a deal is made, you will have accumulated enough money to close the deal.

2. Debt Settlement Does Not Stop Collections!  When you are inbankruptcy, creditors cannot continue with ANY collection efforts (no nasty calls, no direct communication with you, no garnishments, levies, repos, foreclosures).  Debt settlement affords no such protection.  I have heard one horror story after the other of debtors hiring debt settlement negotiators only to be served with collections lawsuits in the meantime.  Most debtors are shocked to learn this, so consider yourself warned.  Creditors don’t have to (and usually won’t) stop collection against you just because you are trying to negotiate a settlement.  As long as you are behind on your payments and have not filed for bankruptcy, creditors are free to proceed with collection.

3. Debt settlement does not provide finality:  A bankruptcy can eliminate many debts (especially unsecured debt like credit card debt) once and for all within a matter of months.  Debt settlement plans can take years to complete, oftentimes without a guarantee that the creditor won’t come after you for the full balance.  In fact, most debt settlement plans are set for monthly payments over 2-5 years.  Most plans clearly state that if one payment is late, the creditor has the right to demand  the full original balance.  No such thing takes place in bankruptcy.  Once your bankruptcy is complete, the debt is dealt with and is final.

4. Tax Implications of debt settlement:  As a general rule, debt forgiven is considered taxable income.  If a creditor forgives some of your debt, they are going to issue you a 1099 for the forgiven amount.  You will likely owe taxes on the forgiven debt.  In bankruptcy, you will not be required to pay taxes on debt that is discharged.

5.  Credit Implications:  Let’s face it; if you fall behind on several payments to your creditors, your credit profile is already shot.  At such a point, you have to ask yourself whether worrying about a bankruptcy on your record is worth it.  Compared to the clean, fresh start that bankruptcy can offer you; it usually isn’t worth worrying about.  Which is easier, getting a fresh start and rebuilding your credit, or saddling yourself with settlement arrangements you may not be able to honor?

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Bankruptcy and tax debt: Can I discharge my tax debt in Bankruptcy?

Friday 5th of October 2012 01:46:25 AM

I am often asked this question by clients.  The short answer that most clients will get from their attorney is “No.”  However, this is oversimplifying it.  You CAN get a discharge of tax debt under the right circumstances.

I recently read an expertly written article on this topic.  Here is the link:

Bankruptcy: Can I discharge my tax debt if I file bankruptcy?

Thank You Attorney Coats for your very informative and well written article on the topic.

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I owe taxes. Can I discharge my tax debt in Bankruptcy?

Friday 5th of October 2012 01:45:57 AM

This question comes up often, and typically the answer is “No.”  However, there is hope.  I just read an excellent article which spells out how and when you can get a tax debt discharged.  Highly recommended reading; I simply couldn’t explain it any better, except to say that it distills down to a few points made by the author:

1. The due date for filing a tax return is at least three years ago.

2. The tax return was filed at least two years ago.

3. The tax assessment is at least 240 days old.

4. The tax return was not fraudulent.

5. The taxpayer is not guilty of tax evasion.

Here is the full article:


Bankruptcy: Can I discharge my tax debt if I file bankruptcy?

Whitney G. Coats, Esq., Dana Law Firm.


Thank You Attorney Coats for writing this informative article.  I’ll be sharing with my readers and clients.

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If I File Chapter 7 Bankruptcy, Can I Still Keep My House?

Friday 5th of October 2012 01:44:15 AM

If you are considering filing Chapter 7 bankruptcy Glendale, you are probably asking, “Can I keep my home in bankruptcy?” The answer to that is varied, depending on your personal situation.

Exemptions & Equity

The first thing to know is what your home equity is, and what state homestead exemption you qualify for. When you file for bankruptcy, lenders will want to know if you have any built up home equity (or value) that can go towards paying off your debts by selling the home. However, when filing bankruptcy you can also apply for state homestead exemption, so a certain amount that your home can be worth that is exempt from being used to pay off your debt. Be sure to find out the details  so that you can calculate if you have any non-exempt home equity. If it is, your home will likely be sold off (while leaving you with the state exemption amount). This will influence which of the following options you may want to look into when filing for bankruptcy:

If you are behind on mortgage payments, there are several paths you can take:If you’d like to work towards trying to keep your home, you may opt for a loan modification. This should be done before filing bankruptcy and will allow you to renegotiate your mortgage to a level where you can once again stay up to date on payments and not face foreclosure.If you are facing foreclosure because of being behind on your mortgage, when you file for bankruptcy any foreclosures can be given what is called an automatic stay. This will freeze the foreclosing process for a time, while also freeing you from paying the mortgage as you have filed for bankruptcy.If you are keeping up with your mortgage payments, here are your options: Reaffirm the loan. While Ch. 7 bankruptcy basically erases your responsibility for a home loan, if you do not file for reaffirmation the mortgage company will only let you stay in the home as long as you stay up to date with payments. Reaffirmation gives you more options should you get behind on payments.If you are up to date and your home does not have any non exempt equity, you can easily keep your home while also freeing you from debts when you file for bankruptcy. Consult a professional and discuss all options  in detail!  You may reach us at 888-607-7460.

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Can I keep my home in Chapter 13 bankruptcy

Friday 5th of October 2012 01:43:48 AM

It is no secret that the economy has been bad for several years. There have been many job cuts. Raises are not coming, bonuses are smaller or gone entirely. Jobs that are offered pay less than they used to.

Many adults are finding themselves in a financial bind. Often they wonder, “Is Chapter 13 bankruptcy for me? Will I qualify for Chapter 13? Can I keep my home if I’m in a Chapter 13 bankruptcy?  Is that the right choice for me? Can I work out a deal with the lender? ”

Have you already gotten so far behind that they won’t help you? Should you sell your home and downsize to a small payment? Do you need to take on a second job?  Do you make too much money to qualify for a Chapter 7?

All of these questions deserve answers.  For some, the answer is a Chapter 13 bankruptcy.

You can keep your home if you are in Chapter 13 bankruptcy.  In fact, Chapter 13 is commonly referred to as the homeowner’s bankruptcy.  One of Chapter 13′s principle goals is to help homeowners stay in their homes.

There are rules you must follow and it won’t be cheap.  You must know that you will be expected to pay your mortgage as it is currently moving forward, month after month.  You willalso need to pay something toward any arrears (if you have arrears on your mortgage) spread out over 5 years.

However, like a chapter 7, you can, at the same time, seek a discharge of your unsecured (usually credit card) debt.  This one-two punch is an invaluable feature of a chapter 13.  Remember, if you can eliminate your credit card debt, perhaps now you can afford to make your mortgage payments.  You may even be able to eliminate a second mortgage on your home (more on this later).  If you could eliminate your second and your credit card debts, perhaps now you could afford to keep your home?

When you file Chapter 13 bankruptcy you will be in the plan for a 3-5 year period to pay off the arrears. Can you follow through? In some states they take the payment directly out of your paycheck to ensure successful completion of the plan.  Missing a payment is not an option.  Your entire bankruptcy plan may fail.  However, if your income changes over the course of the 5 year repayment plan, adjustments can be requested based on how much you can afford.

While in Chapter 13 bankruptcy, you cannot take on any more debt without permission from the court until you have completed the plan.

If you fall behind again, you may be able to amend your plan to include new debt, but beware of that it could jeapordize your plan and will cost you more attorney fees and court costs. You may be able to work out a deal with the lender to pay extra payments, but you still have to make the Chapter 13 bankruptcy payments. Filing for Chapter 13 bankruptcy isn’t the right path for everyone, consult with an attorney before you make a decision.  Not all bankruptcy attorneys do chapter 13′s; they can be complicated and have a lot of moving parts.  Make sure that your attorney has filed several 13′s before you make a decision.

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Can Bankruptcy Stop an Eviction?

Friday 5th of October 2012 01:39:30 AM

Many tenants (or former homeowners after foreclosure) ask me this question. First, it is important to understand that no landlord in California can help themselves to possession of the property. That is, they cannot change the locks and throw you out. Landlords must go through with an eviction action, known as an action for Unlawful Detainer. Unlawful Detainers are a court process which begins with the posting of a notice (3 day, 30 day, 60 day or 90 day, depending on the situation). Once the notice period expires, the landlord must file their eviction action, serve it upon you and get a judgment against you before the Sheriff can physically remove you and your possessions from the property. The process can take anywhere from 20-75 days. If your landlord locks you out without doing any of the above, you have a great case for wrongful eviction against them. Consult an attorney.

Moving on to the Eviction itself. Once the process has begun, filing a bankruptcy may stay the proceeding…. temporarily. A landlord has grounds to ask the Bankruptcy Court for permission to proceed with your eviction. In almost every instance that permission will be granted and the landlord is free to proceed. How quickly a landlord moves to obtain this permission, called relief from the automatic stay, is what will determine how much extra time you gain.

It is entirely possible that your landlord will just wait for your bankruptcy to be over because they don’t want to spend the extra money to seek relief from the stay.

If your landlord sees the eviction process through and has now applied to the Sheriff for a lockout date, is it too late to file? There is a technical legal answer and a real life answer. Technically, once judgment has been entered against you, you no longer have a right to stay. This means that filing the bankruptcy does not have to stop a sheriff’s lockout. What happens in real life, may, MAY, be a little different. Sometimes, sheriffs are very reluctant to proceed with a lockout if the tenant is in bankruptcy. The Sheriff’s office may postpone the lockout until the bankruptcy is over or the landlord has formally sought relief from the stay. I can tell you Sheriff’s responses have gone either way in many bankruptcy and eviction cases that our office has handled.

If you are being evicted, then your time to file bankruptcy may be very short. Consult an attorney as soon as possible.

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Bankruptcy and Foreclosure; Part 1: The straight and the narrow

Friday 5th of October 2012 01:33:29 AM

Before you throw in the towel and walk away from the fight to save your home, let us take a look at your situation and see if there is anything we can do for you.  There is no fee and no obligation.

I want to congratulate you for taking the initiative to explore bankruptcy as an option.  As a real estate and bankruptcy attorney, I know that for circumstances beyond your control, you are very likely facing a financial situation that you cannot repair.  I want you to know that you are not alone.

Bankruptcy is a powerful and effective tool to remedy a person’s dire financial state, and many times today such difficulties begin with your mortgage.  If you have spent the last several

First, Bankruptcy has the power to stop a foreclosure sale until your bankruptcy matter has been reviewed by The Court.   This is because a bankruptcy filing imposes an automatic stay against all collection, IMMEDIATELY.  The stay is a federal court order which takes effect as soon as we file your case. .  Our office files its bankruptcies electronically, so we will obtain a case number and a stay order almost instantly for you.months, or even years, trying to find a way out of the problem by applying for a loan modification or other methods, and nothing has worked, then it’s time to take a hard look at the bankruptcy option and here’s why:

A second reason why bankruptcy may be for you is because it doesn’t have to interfere with your chances of being approved for a modification.  If you have applied for a modification, the process can still continue.

Third, here’s something that I want you to keep in mind.  If your bankruptcy eliminates all of your other debt (like credit card debt), then once the debt is eliminated, perhaps you may now be able to afford the mortgage,  even if it doesn’t get modified.  This way you eliminate a lot of the debt that is weighing you down, leaving only the mortgage as the only large payment you need to worry about.  I will cover this point in greater detail in later videos.

Fourth, under the right conditions, bankruptcy can even eliminate a second loan on your home.  If you have a second, third or even fourth loan secured against your home, there is a good chance that we can get those loans eliminated.  I’ll discuss this point in more detail in further videos as well.

Like I said before, don’t walk away from the fight to save your home before you let us take a look at your situation to see if there is anything we can do for you.  There is no fee and no obligation.  You can reach us through the form on this webpage, or you can call us directly at 888 607 7460.  I look forward to helping you.

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“I Won’t Qualify for Bankruptcy; I Make Too Much Money.”

Friday 5th of October 2012 01:24:34 AM

One of the biggest misconceptions held by people with a steady income is that they won’t qualify for bankruptcy.  Nothing could be further from the truth.  The short answer to this concern is that it doesn’t matter how much money you make; what matters is how much debt you are going to be able to discharge.

Let me explain this.  First, if someone has told you that you make too much money to qualify for a chapter seven bankruptcy, ask them if they have taken a look at your expenses.  True, there is a median income for your geographic area.  If you make less that median income then you will AUTOMATICALLY qualify for Chapter 7.  This does not mean that all is lost if you are over the median income, it simply means that the test goes to the second step; reviewing your expenses.  A bankruptcy attorney should review your expenses to see if you will qualify.  If someone tells you that you don’t qualify because you make more money then the median income and they have not reviewed your expenses, then run the other way because they are not qualified to assist you with a bankruptcy.

Second, if you still do not qualify for a 7, you might qualify for a 13.  There is no income limit in a 13, and there are in fact many benefits to a 13 which are only available in a 13. The only difference that your income will make in your 13 bankruptcy is in determining how much unsecured debt you will have to pay back. 

How much?  10%, 20%, 50%, 100%?  That question can only be answered once an office has thoroughly reviewed your income, debts and assets.  Our office has handled 13 plans which pay back NONE of the unsecured debt (usually credit cards) and have also handled 13 plans where clients have paid back ALL of the unsecured debt, and every scenario in between.

If you did in fact have steady income and couldn’t eliminate all of your debt, wouldn’t you want the chance to at least eliminate SOME of it?

Why would anyone want to file bankruptcy if they must pay back all of their debt?  There are several good reasons.  Keep in mind that a 100% plan is the usually the last bankruptcyoption available to a debtor.  The debtor may still find it better than not filing, because it gives them a better repayment plan than their creditors would otherwise offer them.  Example?  Debtor can keep their home and make payments toward the arrears of a mortgage loan instead of face a foreclosure.  Debtor can repay debts over the course of 5 years.  Debtors can strip junior liens from homes, making it easier to possibly sell or refinance their home should such an opportunity arise.  Debtors can reduce the principal balance on SOME auto loans.  Debtors AND THEIR SPOUSES can enjoy the protection of a stay against collection for the term of their repayment plan (up to 5 years).  All of these advantages may not have existed for the debtor prior to filing for bankruptcy.

If you are having debt concerns and want to know if bankruptcy is an option for you, finding out is free.

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“I Have Equity in my Home. Will I lose it in Bankruptcy?”

Friday 5th of October 2012 01:18:12 AM

Let me start by saying to those who were wondering; If you owe more on your home than it is worth, the Bankruptcy Trustee will have no interest in selling your home to pay creditors.

Now, what if you DO have some equity?  You are allowed to keep up to almost $150,000 of equity in the Central District of California.  How much you will be allowed to keep is a formula which includes your age, your spouse’s age, how many dependants you have and several other factors.

Don’t write off bankruptcy just because you are scared that you will be losing the equity in your home.  Let us figure out if you really run a risk of losing it.  There is no obligation and no fee.

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Cities seizing foreclosure properties to help homeowners

Friday 5th of October 2012 01:17:33 AM

The cash strapped (and now formally bankrupt) City of San Bernardino was brought to its knees by, among other things, the foreclosure crisis.  One of the hardest hit counties in the country, San Bernardino County (in which the eponymous City is located) has seen entire city blocks decimated by the real estate slump and the scourge of this foreclosure epidemic.

Some have said that there are entire streets in San Bernardino owned by the same lender.  Banks are quickly becoming the largest landlords in town.  Amongst many other problems that seem to be arising as a result (lack of maintanence, HOA dues delinquencies) is failure to pay property taxes.  Local cities and counties desperately count on property tax revenue.  With a now drastically reduced property tax revenue, the already troubled San Bernardino was forced to seek bankruptcy protection.

The City Fathers have thought of a novel approach to the problem: exercising their powers of eminent domain to seize troubled properties for the public purpose.  How does this help?  Well, lenders will now have to contend with a municipal owner and all of the complications that could arise as a result.  The lender will also have to contend with the Bankruptcy Trustee appointed to the City’s bankruptcy case.

Does this exact any sort of leverage?  Does this help homeowners?  Does this merely postpone the inevitable?  Is this even constitutional?  We’ll find out soon.

Approximately 9 months ago, clients were asking me, “How could an entire city go bankrupt?  What would happen?”  We have now seen what happens, after several California cities have already sought bankruptcy protection. Will trash continue to be collected if the City doesn’t pay its contractors?  ( a recent article suggests that it may not very soon)

Will law enforcement respond to calls?  (or will the LA County Sheriff have to bear the burden?)

Soon, we will know.  One things for certain, it’s not just the homeowners who are fed up anymore.

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