DANGER , DANGER BEWARE OF FILING BANKRUPTCY WITHOUT AN ATTORNEY

Recently there has been an increase in the number of Debtors coming into the office asking for help.  The problems are always the same.  They filed bankruptcy without an attorney and the Chapter 7 Trustee is now threatening to take their assets or their case cannot be completed because something wasn’t done correctly.  It is very sad and in most cases completely unnecessary.  In an effort to save money, the Debtors are in fact spending far more in the value of the lost assets.    

Since 2005, a bankruptcy filing without an attorney is very difficult and full of pit falls for the unwary. Among the pits falls are the Means Test required to qualify for bankruptcy, pre-bankruptcy counseling, and analysis of exemptions, preferences, inheritance and tax issues.  And these are just for starters.

Before filing bankruptcy without an attorney, you should consider the following:

1.     Pro Se Debtors are easy prey for creditors and the Chapter 7 Trustee.  The creditors and the Chapter 7 Trustee are there to protect the interests of the creditors and the bankruptcy estate.  They are not there to help you. 

2.     Pro Se Debtors are led to believe that Bankruptcy is just a fill in the blanks process.  In fact, Bankruptcy law is very complicated area of the law. Filling in the blanks without knowing the law is a recipe for disaster.

3.     Pro Se Debtors are not going to be helped by the Chapter 7 trustee.  The bankruptcy trustee will not take responsibility for educating you.    For example, if you fail to claim an exemption or claim the wrong exemption, the trustee is not going to help you.

4.     Pro Se Debtors get into trouble because they do not understand the law as it applies to their assets.  Do you understand Joint Tenancy and Tenants in Common?  Does it affect your case?  Did you recently get divorced?  Is the trustee going to object to your settlement? Do you have past due income taxes which are eligible for discharge in bankruptcy? Are your mutual fund protected as an IRA? Do you have an exemption available to protect next year’s tax refund?  Do you have the right to an inheritance?  Did you transfer money in the last year to a family member?  How much equity do you have in your car or your home?  Is it protected? 

5.     Pro Se Debtors also get into trouble because they do not understand the extent of disclosure and filing requirements. Do you know the credit counseling and financial management requirements?  Do you know what it means when the US Trustee files a 707(b) motion? Do you know how to answer discovery requests?  Do you know what discovery is?

If you need to file bankruptcy, you should seek legal counsel.  The cost of legal counsel will be a faction of the debt you seek to discharge in the bankruptcy.  It is better in most cases for you to wait a month or two and pay for legal counsel and know your case was done right versus being one of the many cases where there are problems.  Don’t be a penny wise, but a pound foolish especially when you don’t know how many pounds it will.  I see people for a FREE 30 minute consultation at my offices located in Walnut Creek 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 ASHORT SALE OR FORECLOSURE. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.  GRIMESBKLAW.COM   (925)939-1680

Debt Settlement vs. Bankruptcy

Clients come into my office every week saying that they are in a debt settlement plan, BUT are now being sued by a creditor or they have received a 1099c income statement from a creditor that was included in the debt settlement plan.  How can this be?

First, just because you are in a debt settlement plan, it does not mean that a creditor cannot sue you on account.  It happens every day.  In some cases, the lawsuit is because a debt could not be included in the settlement because a creditor would not agree.  In other cases, the reason for the lawsuit was that the creditor was not receiving payments from the debt settlement plan in an amount that would satisfy the creditor.   

Second, just because you are in a debt settlement plan, it does not mean that the creditor will not issue you a 1099c for that portion of the debt which is forgiven.  In fact,  the IRS REQUIRES creditors to issue a 1099c to individuals where more than $600 in debt is forgiven.  Therefore, if you settle with a VISA for $5,000 on a $50,000 bill, you will receive a $45,000 1099c which will be considered income to you and will be taxed at your current tax rate.

Third, just because you are in a debt settlement/consolidation plan, it does not mean that your credit will not affected or that creditors will stop calling you.  Creditors can still contact you for the collection of debts they are owed unless or until you file bankruptcy. Also, a debt settlement program will impact your credit in the future and have long-term side effects because you will have late payments and even when you settle, your credit report will not show that the account was paid in full.

Debt settlement plans are alternatives to bankruptcy.  If you do not qualify for bankruptcy, then you will have no choice but to proceed with the settlement or consolidation plan. However, most people DO qualify for bankruptcy and in fact, most qualify for a Chapter 7 which requires NO payments back to creditors.  Even, if you do not qualify for a Chapter 7, the payments in Chapter 13 will in almost every instance be significantly lower than what you are paying to the debt settlement or consolidation company.  Better yet, there will be no 1099c received after the bankruptcy because Bankruptcy is one of the exceptions to the debt forgiveness rule.

In conclusion, these are very tough times.  You are not alone.  If you are having trouble paying your bills as they come due, I recommend you seek legal counsel before you enter into a debt settlement or consolidation plan.  Know all of your options and then you will be able to make the best decision for you and your family.  I see people for a FREE 30 minute consultation at my offices locate in Walnut Creek, Antioch and Brentwood.

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.   GRIMESBKLAW.COM(925) 323-7772     © 2011 Joan Grimes

Should You File for Bankruptcy?

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

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

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

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

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

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

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

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

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

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

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