Make More Money and Live Longer

Fortune Magazine has a story summarizing a study showing that Chapter 13 bankruptcy protection “increases annual earnings by $5,562, decreases five-year mortality by 1.2 percentage points, and decreases five-year foreclosure rates by 19.1 percentage points.”

The authors of the study argue that bankruptcy protection stops garnishments and eliminates the garnishment’s disincentive to work (if a person being garnished has a low paying, unsatisfying job, losing 25% of their paycheck may convince them that working isn’t worth it.)

The authors also hypothesize that the automatic stay and discharge of bankruptcy relive a significant amount of stress for the debtor leading to a longer lifespan.

So if debt is causing you to make less money or making your lifespan shorter, make an appointment with your friendly neighborhood bankruptcy attorney and see what we can do for you.

Do You Really Need a Good Credit Score?

A older potential client comes into the office to discuss bankruptcy. After analyzing the client’s situation, I explain what bankruptcy can do for them. The client will lament that their credit score is/was so good and bankruptcy will give the client bad credit. At that point, I have to stop the client and ask them, Do you really need a good credit score?

Your credit score is based on various factors like amount of debt, are you in default on your debt, do you have a job, etc… All this info is crunched into a number that is supposed to tell a lender what the odds are you will pay back a debt. The higher the number, the more likely you are to pay back a debt. Generally speaking, the higher your credit score, the easier it is to get credit and the lower the interest rate will be.

For many older people, getting new credit in the future isn’t in the cards. They don’t want to get a mortgage, nor do they want to get a car loan in the future. They already have too much credit card debt and have sworn off using credit cards in the future. So if you’re not borrowing any money, a low credit score won’t effect you.

This leads to the other point I make, there is a cost to maintaining a high credit score. Lets say your minimum debt payment a month is $1000 and if you paid that $1000 for the next 5 years and didn’t borrow any more money, your debt would be paid off and your credit score would remain high. So in that scenario, your good credit score is going to cost you $60k over those 5 years.

Compare that to filing chapter 7 bankruptcy. Instead of paying the $1000 a month to creditors, the bankruptcy would discharge the debt within the first 3-4 months. So if you’re not going to get new credit in the future and the costs of food, gas, medical care, etc… going up, what’s more useful to you? $1000 extra per month or good credit?

How the Corinthian Colleges Shut Down will Effect Their Student Loans

In July, Corinthian Colleges, owners of Everest College, Heald College and WyoTech announced that they are closing down or selling off their schools. So what do their former students do about their student loans?

Jay Fleichman and Joshua Cohen, both attorneys doing student loan law, have put together an ebook outlining the rights of students attending Everest College, Heald College and WyoTech.

Check it out What You Need To Know About Your Corinthian Colleges Student Loans.

In re Clark and Inherited IRAs

In a recent US Supreme Court decision, the Justices took a look at the issue of is an inherited IRA exempt under Federal exemptions (522(b)(3)(C).

In bankruptcy, pretty much all retirement plans recognized by the IRS are protected from being used by the Trustee to pay a Debtor’s creditors. So if you had $200k in your 401k, the Bankruptcy Court couldn’t force you to use those funds to pay creditors. Congress felt that retirement savings were more important that paying creditors.

In the In re Clark case, Ruth Heffron, who was the original IRA owner, died and her IRA was inherited by her daughter. The daughter ended up filing bankruptcy and the Trustee wanted to use the money in the inherited IRA to pay creditors. The Supreme Court ended up siding with the trustee.

But not all is lost. While the inherited IRAs may not be exempt under Federal exemptions, it may still be exempt under your state exemptions. So if you are the recipient of an inherited IRA and you are looking at filing bankruptcy, you need to make sure your attorney is up to date because you could be risking a lot of money if they aren’t

Minors Filing Bankruptcy

While is is very unusual, it possible for people under 18 to file bankruptcy. Why would a minor, who is not normally liable for debts, need to file bankruptcy?

Imagine this scenario. Father of child owns a house with a mortgage. Father dies, thus the child would inherit the house. Problem is, no one is paying the mortgage, so the lender wants to foreclose. Child is expecting life insurance proceeds from deceased father, but the foreclosure will happen before the insurance is paid. If nothing is done, child will lose the father’s house.

This is the situation that faced Shawn Powell, 10 years old, and his attorney Brett Weiss. To resolve the problem, the attorney filed a Chapter 13 Bankruptcy for Shawn, staying the foreclosure. The bankruptcy proceeding stayed the foreclosure long enough for the life insurance to come in and pay the mortgage. Read Shawn Powell’s story.

Tax Refunds or Why Bankruptcy Flings Tend to Spike in the First Quarter of the Year

Here we are the the first business day of 2014. If this year is like the previous years, we will see an increase in filings from January through April. Why is that? Because it is tax refund season.

For a vast majority of people filing bankruptcy, every paycheck is already accounted for well before actually receiving the paycheck (first paycheck goes to rent, second goes to paying all the other bills). Thus coming up with the $2000 necessary to file a chapter 7 bankruptcy becomes a strain, even if paid in monthly installments. But once a year, during tax refund season, some people get back a a chunk of money that isn’t already accounted for. Due to tax credits like EIC and child tax credits, this refund can be quite large.

Say you got a $2000 tax refund check and you owe credit cards $40,000 and can’t really afford to pay the money minimums on the credit cards. What is going to be better for you, paying $2000 towards the credit cards (which after a few month, will be eaten up entirely by fees and interest) and continuing to make payments you can’t afford or paying it to your bankruptcy attorney and and eliminating the debt in its entirety?

Contact a bankruptcy attorney now so when you tax refunds come in, you can be ready to start the year on the right course. We can also advise you on what to do with any excess tax refunds you have to keep it out of the hands of your creditors.

Federal Government Shutdown and Bankruptcy

You can’t go more than a few seconds and not hear something about the government shutdown on the radio or TV. So how is this going to effect bankruptcies?

Right now, it is having some effect. Both the IRS and the Department of Justice are involved in many bankruptcy cases. Both of their bankruptcy staffs have been reduced so they may need extra time to properly respond to bankruptcy cases.

The Federal Courts have announced that they have about 10 days of cash on hand and can stay open until those funds dry up. So right now, cases are being filed, hearings are being heard; business as usual. What will happen after the 10 days are up is anyone guess right now.

The “non-essential” Federal employees are in a more tenuous situation. They have no idea if they will receive any retro-active pay. This on top of the sequestration cuts may be the thing that pushes their finances over the edge.

USPS Employees, Free Pre-Bankruptcy Credit Counseling

The USPS isn’t the only one with financial problems, the cuts are tricking down to the lowest level mail carrier.

If you are a postal employee and a member of the American Postal Workers Union or the National Postal Mail Handlers Union, Money Management International offers fee pre-bankruptcy credit counseling as a union benefit.

So if you find yourself in a situation where you might need to file bankruptcy, contact Money Management International or call 866.279.7197 for credit counseling.

Beanie Babies and the Housing Bubble

Remember Beanie Babies? They were a big thing back the the 90s. So big that people though they were an investment. A bubble formed in the market for Beanie Babies, ending with some people losing a lot of money. Take a look at these people who lost money on Beanie Babies and try mentally replacing “Beanie Babies” with “real estate”. There are many similarities in those bubbles and probably future bubbles.

Chapter 13 Hardship Discharge

In a Chapter 13 bankruptcy, you promise to pay creditors, via the Trustee, a certain amount of money in exchange for your discharge. But what happens if you can’t make all the plan payments?

Normally, your case would get dismissed if you don’t make all your plan payments. But §1328(b) allows what is called a hardship discharge.

To qualify for a hardship discharge, you must show three things. First, you must show that your inability to make the full plan payment is “due to circumstances for which the debtor should not justly be held accountable”. So things like disability, loss of a job, natural disaster, etc… should qualify you.

The second is “the value, as of the effective date of the plan, of property actually distributed under the plan on account of each allowed unsecured claim is not less than the amount that would have been paid on such claim if the estate of the debtor had been liquidated under chapter 7 of this title on such date”. In a nutshell, your creditors must have already received, via your plan payments, as much as they would have received in a chapter 7 liquidation.

Lastly “modification of the plan under section 1329 of this title is not practicable”. This can mean you are already at month 60 of a 60 month plan or you income is so low that you can’t afford any plan payments or other factors which make a plan modification unfeasible.

Since granting a hardship discharge is at the discretion of your Bankruptcy Judge, you should discuss this with your attorney to determine if it is appropriate and if the judge is likely to grant it.

Sinbad’s Bankruptcy or Why Consumer Debt vs. Business Debt is Important

As some of you may know by now, Comedian Sinbad recently filed chapter 7 bankruptcy. If you look at his bankruptcy schedules, you might wonder how a person making $16k per month file a chapter 7 bankruptcy.

On the first page of your bankruptcy petition, it asks if your debts are “primarily consumer debts” or “primarily business debts”. For this question, primarily means more than 50%.

If you can demonstrate that your debts are “primarily business debts”, things get easier in your chapter 7 bankruptcy. First off, you don’t need to complete Form 22A aka the Means Test. It also makes it very difficult for a party to dismiss your case for making too much money. Sinbad makes decent money and has multiple car leases that might be considered excessive, but that alone won’t be enough to sustain a 707a dismissal.

Independent Foreclosure Review Payments

The Independent Foreclosure Review’s individual review of foreclosure cases is over. The settling parties have decided the one by one review process was too cumbersome, so they will just to hand out settlement money directly to those effected by foreclosure.

If you had a mortgage in foreclosure in 2009-2010 with Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, or Wells Fargo, you may have received a notice form Rust Consulting about pending payment as part of the Independent Foreclosure Review. Don’t worry its not a scam, the checks are valid. Amounts vary from $300 into the 5 figure range.

If you are planning on filing a bankruptcy, tell your attorney about any notice you receive regarding the Independent Foreclosure Review payment or Rust Consulting. We can help you with exemption planning to keep the Independent Foreclosure Review payments away from creditors.

If you have already filed bankruptcy and receive a Independent Foreclosure Review payments, it becomes trickier. Simplest thing to do is to talk to your bankruptcy attorney first before cashing the check. Depending on your state, you may have enough exemption to exempt the Independent Foreclosure Review payment. There are some legal arguments to be made that the Independent Foreclosure Review payment is not property of the estate as it arose post-petition. Or the payment might just be too small for your bankruptcy trustee to care. Again, this is where your bankruptcy attorney’s knowledge of local trustees and practice will be invaluable.

School Transcripts and Bankruptcy

Colleges and universities treat your school transcript like it was top-secret information. Not only do you have to pay them to get the transcript sent to your new school, but if you owe the university or college anything (tuition, library fines, school parking tickets, etc.), they won’t send out your transcript. How does bankruptcy affect this?

School tuition (or other money owed to the school) is dischargeable debt. This is different from student loans. Student loans borrow money from a third party to pay to the school. Unpaid
tuition is money that is owed to the school itself. The filing of the bankruptcy should get your transcript released by the action of the automatic stay. The discharge you receive at the end of the bankruptcy should also eliminate the debt and clear the way for your transcript to be released.

If you have already received your bankruptcy discharge and/or filed your bankruptcy and the school will still not release your transcript, talk to your attorney. Sometimes a strongly worded letter to the school will help things along. If that doesn’t work, there are stronger measures that can be taken to obtain compliance.