Penny Wise, Pound Foolish - Filing Bankruptcy without a Bankruptcy Attorney

When a person is experiencing financial problems and knows a Bankruptcy must be filed, it is very tempting to consider filing without an attorney.   However, before you start down the road of filing on your own and opening up a GOLD MINE for the bankruptcy trustee and your creditors, consider the following:

1.  If you miss even one exemption for which you are entitled or the timing of bankruptcy filing is not correct, all the savings you made by filing on your own are GONE.  If you do not properly exempt assets, the bankruptcy trustee WILL take your assets and sell them for the benefit of creditors.  The Trustee is not there to help or educate you!  Their job is to maximize the recovery for creditors AFTER paying themselves.  Let me tell you that this is happening every day.  I can’t even begin to tell you the number of times I have seen trustees take money from bank accounts, tax refunds, jewelry and vehicles because the Debtors did not have representation.  

2.  If you omit property either intentionally or inadvertently, the trustee can take the omitted property and sell it for the benefit of creditors or can move for a denial of discharge.

3.  If you miss or don’t include debts, either intentionally or inadvertently, the debt may be deemed nondischargeable or the court may move for dismissal.

4.  If you don’t understand the Means Test, you may not qualify for bankruptcy or may end up filing the wrong type of bankruptcy case.

5.  If you have a business and your bankruptcy case is not filed properly, you may end up losing the business or assets of the business.

6.  If you are on title to bank accounts, personal property or real property with relatives, the trustee or creditors may attempt to take the property even if you claim to have only bare legal title versus an equitable interest in the property.  Do you understand the effect of inheritance after a bankruptcy filing?

7.  If you don’t understand real property law, you may end up filing an unnecessary bankruptcy or alternatively may increase your personal and/or tax liability by completing a short sale or foreclosure prior to the bankruptcy filing.

8.  If you don’t understand tax law and own real property or have significant amounts of debt, don’t even think about filing bankruptcy on your own especially if you have assets such pensions, IRA, 401k or other assets such as annuities.  You don’t want to trade bank and credit card collectors for the IRS or State Franchise Board.  The fact that you currently do not have equity in the property is irrelevant.

In conclusion, filing bankruptcy on your own is almost always a very bad idea and ends up costing more in the long run because of assets lost or other problems with the bankruptcy case.   The above is just a few of the issues which must be addressed prior the bankruptcy filing.  Bankruptcy is very complicated area of the law and is a mine field for the unwary.   Even attorney who are general practitioners will not generally file bankruptcy cases because of the complexities involved in the filings.  If you don’t have the money to file bankruptcy at this time, you should still seek legal counsel and discuss your options.  Most bankruptcy attorneys allow payment of fees over time.  Don’t be a Penny Wise and Pound Foolish.  I see people every day for FREE 30 minute consultations at my offices located in Walnut Creek, Antioch and Brentwood.

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE FOR 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. 

GRIMESBKLAW.COM(925) 939-1680 © 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

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