Top 10 Signs You Should See a Bankruptcy Attorney

These are difficult times and it is easy to ignore the signs of trouble when you are overwhelmed with work, spouses acting like children, children acting like teenagers and teenagers just being completely out of control.  So, to help you sort out the kind of trouble which warrants a visit to a bankruptcy attorney, here are my Top 10 signs you should see a Bankruptcy Attorney:

     10.  People are taking pictures of your house and it is not because they love your yard.

      9. You are contemplating taking money from your retirement account and you are not retired.

      8. You have taken money from your retirement account and you are not retired.

      7. You know all your creditors by their caller ID numbers.

      6. You cannot pay off your credit cards in full in the next 12 months and continue to eat.

      5. You go to get in your car and it is gone.

      4. You have run out of relatives willing to lend you money.

      3. Your wages are being garnished or your bank account has been levied.

      2. Your house is so far underwater that the sharks are circling and you do not live in a flood plain.

      DRUM ROLL PLEASE,

      1. You are actually contemplating moving in with your mother-in-law.

       If any of the above things are happening to you or have happened to you, it is time to see a bankruptcy attorney.  You did not make this economic meltdown, but you can make the CHOICE to stop letting it control your life.  The real estate speculation game is over for now. The banks won this round, but don’t let them continue to dictate your life.  Cut your losses now and leave the casino i.e. the house/car/motor home that is worth less than you owe on it.  Reclaim your financial future.  Save cash for your retirement.  It is much easier to buy food with cash than sheet rock.  There is not going to be any principal or long term payment reduction on home loans.  The banks are protected by this government and until that changes … (never), consumers must stop giving all the cards to the banks.  Cash is king.  If you don’t have the money to buy something outright, wait until you do.  The lenders have no problem doing what is in their best interest and you should not either.  I see people every day for a 30 minute FREE consultation at my offices in Walnut Creek, Antioch and Brentwood.   

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A  SHORT SALE OR FORECLOSURE. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION. GRIMESBKLAW.COM (925)323-7772

© 2011 Joan Grimes



Beware of Friends and Family

Co-Signing and Joint Ownership

After being a bankruptcy attorney for over 25 years, there is one thing I know for sure---sooner or later one of your friends or family will ask you to co-sign a loan for them or ask you buy something with them. It may be a car, boat, timeshare, vacation cabin, investment property or building. All you have to do is keep breathing and this will happen to you.

Co-signing or buying anything with a friend or family will have consequences. Here is just the tip of the iceberg.

1. Co-signing on a loan to something will affect your credit. It increases your debt to income ratios and it will reduce your ability to get other loans. Your credit will take an immediate hit.

2. When you co-sign on a loan or purchase agreement, you are jointly and severally liable on the whole obligation i.e. if the other person doesn’t pay, you are on the hook for the whole amount. The fact that you own only a portion of the boat, trailer, house etc per your agreement with the other owners is irrelevant to the lender. If the other co-signers stop paying, you responsible for the full balance still due and owing. Your credit score will fall if there is a default. It doesn’t matter if only 1 spouse signed. California is a community property state. One spouse can bind the other.

3. There is a HUGE difference between co-signing on a personal loan and real estate loan. If you default on a personal loan even if it is secured by a boat, trailer or car, the worst thing that is going to happen is the lender will repossess the collateral and get a judgment against you for the deficiency balance on the loan. However, if you co-sign a real estate loan, that loan will be characterized as recourse loan unless it is non-recourse debt which in California means it was a loan used to purchase a 1-4 unit property and YOU live in the property. If the loan is not a non-recourse debt and there is a default, there may be personal liability and tax liability.

4. Never underestimate the IRS and California State Franchise Board. When a lender determines that a debt is uncollectable either because it is time barred or a deficiency is prohibited by state law or the parties agree to a settlement for less than the balance due and owing, the lender is REQUIRED to issue a Cancellation of Debtor Statement known as 1099c if the lender is forgiving $600 or more. You NEED to know your tax liability BEFORE you get the 1099c. There are ways to minimize the tax liability. 

Do not jeopardize your future. If your friends or family ask you to co-sign on a loan or buy something with them, JUST SAY NO. If you have the resources to GIVE them money, that is a better option. If you have already co-signed a loan and you think there is going to be a default on the loan, seek legal counsel immediately. This is a complicated area of the law, but a real estate or bankruptcy attorney should be able to make to an analysis of your particular situation fairly quickly which will allow you to determine your personal liability and tax liability in the event of a default.

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

© 2011 Joan Grimes

Consumer Stress Test - Call To Action

 Everywhere we turn there seems to be a “stress test”.  First, the stress test is performed by my cardiologist to make sure my arteries aren’t clogged.  Thankfully, they aren’t.  My doctor just says that I need to lose 20 pounds, get more exercise and I will hopefully live to be at least 80.  Then, there was the government’s “stress test” for banks.  The “too big to fail” group passed which was not surprising after Congress passed the Troubled Asset Relief Program (“TARP”),which allowed them to borrow money at 0% and then charge borrowers 5%+ for the same money.

So, I decided we need to have a “consumer stress test” since I plan to live to 80 years old and I am not “too big to fail.”  Let’s see if we, as consumers, pass the “consumer stress test”:

1. Do you have credit card debt?  If you do, this is not a good sign.  Credit card lenders are like drug dealers.  Drug dealers give away drugs to get kids hooked and credit card lenders give away money to get consumers hooked.  They will give you money until you stop paying the balance in full each month.  They know it is just a matter of time before you will stop paying off the balance and then it is all over. It is a win-win situation for them every time.  Stop using credit cards, pay off them immediately. “Doctor’s” first piece of advice:  If you can’t pay off the balance in full in the next 12 months, see an attorney for options.

2. Do you have a car loan?  If you do, this is not a good sign.  Cars are depreciating asset.  If you have a car loan with a payment of $400 per month, you need to make $800 per month to just make that payment of $400 because of state, federal, social security and other applicable taxes.  Is that car really worth it?  Probably not.  If you cannot pay off that car loan in the next 2 years, see an attorney for options available to you.  “Doctor’s” second piece of advice: next time you purchase a car, no car loan.  Save until you can buy without a loan.

3. Do you have home loans?  If you have home loans that exceed 2-2 ½ times your gross household income, this is not a good sign.  What we know is that having home loan debt that exceeds 2-2 ½ times your gross household income, makes you “house poor” meaning you are spending too much of your income on shelter. For example: if you make $50,000 a year, your home loan should not exceed $125,000.  If your home loan balances exceed 2-2 ½ times your gross household income, see an attorney for options available to you.

4. Are you putting at least 10% of your gross household into a 401k/IRA/savings each year?  If not, this is probably the worst of sign of all.  We will need money when we can no longer work and want to retire.  If your income has recently been reduced, you can also reduce the amount you put into your 401k or IRA, but don’t stop thinking about tomorrow.

If you don’t take care of your money, no one will.  Everywhere we turn, there is someone trying to get it.  If you did not pass the consumer stress test, seek legal counsel.  The government may not be willing to give us money or let us borrow at 0% interest like they did for the banks, but we do have the Bankruptcy Code which can give us a fresh start.  We must take the time to think about tomorrow.  It will be here sooner than we think.   

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

If Your Ship is Sinking, Don’t Give Away Your Life Vest!

One of the saddest things is when a person comes into my office explaining that they have waited to come in until they have used up all their savings, retirement funds, equity in their home and/or have gotten a loan on their car just to keep paying their credit cards and other debts.  This just breaks my heart because it was completely unnecessary.

The Bankruptcy Code does not want or encourage people to wait until they have used up all of their assets to file bankruptcy.   In fact, the Bankruptcy Code and California law discourages these actions by specifically protecting certain assets in a bankruptcy case from the reach of creditors.  So what  are some of the assets which are generally protected and what actions should you be taking to protect these assets?

Retirement Accounts- All private retirement plans and profit sharing plans are exempt.   Also, exempt are IRAs, IRA rollovers, Roth IRA and Keogh plans held by self employed individuals to the extent necessary for the support.   Therefore, you should not be using retirement accounts to pay credit cards, bringing home loan payments current on a house that is underwater or other bills which could be discharged in a bankruptcy.  Every withdrawal from a retirement account will be taxed on both federal and state levels as well as incurring the 10% penalty for early withdrawal unless it falls under an exception for early withdrawals.  If you are in your 30’s-40’s, a withdrawal of $1,000 will amount to a loss of $10,000 in retirement income.  If you are in your 20’s, a withdrawal of $1,000 will amount to a loss of $20,000 in retirement income.  The withdrawal of even smallest amount will be a huge reduction in retirement income later.

Homestead Exemption- The California homestead exemption applies to your principal “dwelling” on the date the bankruptcy petition is filed.  The minimum homestead exemption in California effective January 1, 2010 is $75,000.  The exemption is increased to $100,000 if the you or your spouse reside in the homestead or at least other one member of the family resides in the residence and does not own an interest in the residence.  The homestead exemption is increased to $175,000 if you or your spouse meets the minimum age of 65, is disabled or meet the “low income” qualifications’.  Therefore, if you still have equity in your home, do not use it to pay dischargeable debt such as credit card or personal loans.

Personal Property, Cars and Jewelry-   A person can generally exempt all household furnishing and goods, wearing apparel, appliances, books, animals, crops or musical instrument held primarily for personal, family or household use as long as any individual items could not be sold at a garage sale for more than $525.00.  In addition, a person can have  equity in a car and certain amounts of jewelry depending on the exemptions used in the Bankruptcy case.  Therefore, no loans should be taken out on a vehicle which is paid off.

Wildcard Exemption-  If the homestead exemption is not used as discussed above, a person can have in addition to the car, jewelry and household goods and furnishing exemptions, retirement accounts and the other exemptions provided under California law, a person can have up to $23,250 in cash and other assets at the time of the bankruptcy petition which will be exempt.  That means there is no reason to sell the RV, boat or use up your savings unless that is really want you want to do so.  However, if you are not going to be paying your credit card or other installment debt, you should make sure that you are not putting money in a bank or credit union where you have debt.  Many banks and credit union have agreements that allow set-offs if a loan is in default from other checking or savings accounts.

Personal Injury and Workers Compensation Awards-  Personal injury settlements are generally exempt under “lost compensation” and future earning awards are exempt to the extent reasonably necessary for support.  In addition, Workers Compensation Awards are exempt.

Life Insurance-  Term Life Insurance is generally exempt and Universal or Whole Life up to a cash value of $11,800.  Therefore, term life/whole life insurance should not be cancelled since it is much more expensive to obtain as you get older.

The purpose of the Bankruptcy Code is to provide people with a fresh start.  A fresh start does not mean empty cupboards, empty retirement accounts, empty savings accounts or no equity in a car or home.  We are all living longer and we will need food in our cupboards, money in our retirement accounts and a car that is paid off. 

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

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

© 2010 Joan Grimes