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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I filed for bankruptcy. When can I buy property again?

Friday 5th of October 2012 01:46:58 AM

I filed bankruptcy.  When can I buy property again?


This question comes up often in my bankruptcy consultations, so I decided that it would be interesting reading for some of you.

The subtitle to this blog post should probably be the related question, “When can I start re-building my credit?  I hear that bankruptcies stay on your record for 10 years.”

The truth of the matter is that EVERYTHING stays on your credit report forever.  I have seen credit reports with information (both good and derogatory) going back thirty years.  I see 30 day late reports from the 1980’s or earlier on credit reports.

However, something magical seems to happen around the 7-8 year mark; it stops mattering to many creditors.  That includes The Fair Isaac Company, the owners of the FICO score (which is independent of your credit report).  Understand that Fair Isaac compiles a credit score based on the information in your credit report.  The credit bureaus and Fair Isaac guard the secret ingredients to their formulas very jealously; they are after all in the business of selling their information.  What we do know is that many debtors notice a jump in their FICO scores coinciding with derogatory information passing the 7-8 year mark.

Many creditors these days are even more forgiving than that.  I have seen bankrupt debtors begin to rebuild their credit 6 months after receiving their discharge.  You may pay in the form of higher interest rates, but the offers are out there.

What does this mean in terms of buying property again?  As long as a creditor sees a steady rebuilding of your credit, you may be surprised what they are willing to offer you.  Times are bad, and lenders need to lend money to stay in business.  If they don’t find enough borrowers at the levels that they want to lend to, they are going to drop those standards (even if it means having to charge a little more).

The ultimate question to ask yourself is, “Do I continue to carry all this debt and damage my credit further with no end in sight, or do I opt for a fresh start and move forward with my life?”

Bankruptcy is a serious decision, but it’s not a credit death sentence.

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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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Do I Need an Attorney to file for Bankruptcy?

Friday 5th of October 2012 01:38:55 AM

Us Chapter 7 and Chapter 13 bankruptcy attorneys are fully aware that there is a long list of non attorneys willing to help you file bankruptcy for less than what an attorney would charge.

No doubt, it sounds completely self serving for me to tell you that I would never recommend anyone filing for bankruptcy without an attorney.

I am sure that there are many capable people doing good work to help debtors file chapter 7 or chapter 13 bankruptcy in Glendale, Burbank and Pasadena. I understand that debtors in financial trouble don’t have a lot of available cash. I tell you that this is not the time to skimp on costs.

Our Court system is complicated and difficult. It just is. Unless you have knowledge, training or familiarity with the bankruptcy court system, going it alone would be like to trying to perform surgery on yourself.

My other concern for you is getting legal advice. Paralegals, form preparers, or other non attorneys cannot give you legal advice. Non attorneys cannot advise you on whether you should keep a debt or not, oppose a motion or not, file papers on time, claim exemptions for assets you may keep, know which assets you stand to lose for payment to creditors, understand the long term implications of decisions you make in bankruptcy. There are so many considerations that could cause your bankruptcy to fail. If your bankruptcy fails, you do not get your debts discharged (forgiven
I receive several bankruptcy cases a week that were screwed up by debtors trying to go it alone or with non attorney assistance. It is oftentimes much harder and more expensive for the debtor to put these bankruptcy cases straight than it would have cost for me to do it right in the first place. It simply isn’t worth the risk in my opinion.). What’s worse, you could be barred from filing again.

Our consultations are free. Our offices serve the entire Greater Los Angeles area. We are local to anyone in the Glendale, Burbank or Pasadena area. You may reach us at our toll free number (888) 607-7460, which doesn’t cost you anything but your time. Find out where you stand.

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Do I Really Need to File For Bankruptcy?

Friday 5th of October 2012 01:35:31 AM

No, I really mean it.  Please check with a bankruptcy attorney before deciding to file.  If you read my last blog post you will know that I freely make comments that may sound self serving.  But
Almost every bankruptcy attorney I know, including myself, offers a free consultation.  I also volunteer my time at a free bankruptcy walk-in clinic organized by the Bankruptcy Court.  You could be committing a terrible mistake just by filing alone. I do mean it.  I have seen dozens of disastrous bankruptcy petitions filed by people representing themselves.  Listen, it’s not easy, I know attorneys cost money and many people facing financial difficulty cannot afford one.

What could go wrong?  What could not go wrong?

I received a call recently from someone who is of questionable legal status (perhaps even illegal) who filed their bankruptcy themselves only to be staring at two United States Marshalls waiting for them at their 341a meeting of creditors.   There are ways to deal with such problems and they don’t have to end this way.

If you are filing to avoid the heavy hand of a collection agency, they may not even have legal standing to harass you that way (they may have  blown the statute of limitations on collecting the debt).  If the law is on your side, you may avoid filing for bankruptcy altogether.

Are you completely ready to walk away from your home?  If so, perhaps you could just hand it back to the bank (a deed in lieu of foreclosure) and not have to file bankruptcy.  If you hand it back, you may or may not be on the hook for the rest of the loan.  You must check with an attorney.  If you are not on the hook for the remainder of the debt, you certainly don’t need to file bankruptcy for your mortgage alone.

These are just a few of the scenarios I’ve seen; there are many, many more.  Don’t file bankruptcy unless you understand what it can (and cannot) do to help you.  The cost to find out?  Zero.

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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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Banks Falsify Documents to Defraud Our Bankruptcy Court?

Friday 5th of October 2012 01:24:08 AM

The article speaks for itself.

Our Bankruptcy Courts and our Judges have their hands full. They rely on us to sound the alarm when necessary. Here’s the latest.

Chase Accused of Brazen Bankruptcy Fraud

If these allegations are true, it’s the last thing our judges need.

Let’s see where this goes. I’ll keep you updated.

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

Friday 5th of October 2012 01:12:55 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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Forgiven Debt, Taxable Income and Bankruptcy

Thursday 4th of October 2012 06:43:23 PM

Creditors can ‘write off’ debts; forgive them altogether.  Great, for you, right?  Well, not necessarily.

All of a sudden, you receive an IRS 1099 form, showing that your debt in the sum of (>>fill in your amount) was forgiven and can now be considered taxable income by Uncle Sam.

Such a scenario is very common in the case of junior mortgage holders who lose their lien on a property after the first mortgage holder forecloses.

However, there is still hope in bankruptcy.  Internal Revenue Code section 108 explicitly states that debts discharged in a bankruptcy case do NOT get included in income on the debtor taxpayer’s tax return.

The clincher:  Timing.  The Internal Revenue Code also states that such a discharge must take place before the event giving rise to the debt obligation.  This you would have to figure out with a tax professional, but there is hope, just make sure that you file your bankruptcy IN TIME.

There may be some exceptions carved out of the Tax Code if this scenario involves your home, but no such protections exist for other real property.

Tread carefully, take care of business in a timely fashion, and you may escape having to pay a bunch of extra tax on forgiven debt, an amount that could be sizeable if you are looking at a forgiven mortgage debt.

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