HAPPY GROUNDHOGS DAY!

Lately the same refrain keeps cropping up in my practice:  why did you wait so long?  I understand that very few people want to file bankruptcy, and I agree that the decision to file bankruptcy is an important one.  And while it is common to hear that bankruptcy should be a last resort, it is also true that you can wait too long.  So, in honor of Groundhog Day, while we wait to find out when spring will arrive, here are some problems that might crop up if you wait too long to file bankruptcy.

You exhaust your reserves.  This is probably the most common consequence of just hanging on too long, trying to avoid bankruptcy.  You are trying to keep up with mortgage payments or credit card payments after a job loss, illness, divorce, or the like, and you exhaust your savings, tap into your 401k or IRAs, incur taxes and penalties as a result, which makes the whole financial situation still worse.  You use up the resources that would make it easier to make a fresh start, and make it harder to recover financially.  It is easy, and probably natural, to just try to hang on and keep doing what you have always done.  It’s smarter to take an honest look at your situation and ask yourself whether you are going to be able to deal with your debt without some help.

You may lose control of assets that might otherwise be used to help you make a fresh start.  That is often the case when creditors sue you and obtain judgments against you.  A judgment becomes a lien against real property, which can be especially significant if you have investment property, or have inherited property, or, God forbid, you are holding title to family property to “keep it safe.”  The effect of a judgment on property depends on several factors, including where the property is located, whether you are entitled to claim it as exempt, and even what state you are in, but you shouldn’t wait until its a done deal to figure out what the effect will be.  At that point it may be too late.

Other issues can be decided in a law suit that will affect your ability to make a fresh start.  The amount of a debt may be determined to be higher than you anticipate, for example, by the addition of attorney fees and expenses.  Or, the court may enter a finding a fraud against you that will allow a debt to survive bankruptcy.  Other findings may also impact your fresh start as well, and if you are already in financial distress, you may find that it is prohibitively expensive to fight a lawsuit, or worse, several lawsuits.

Don’t wait until the bitter end to consider bankruptcy, and seek out competent legal advice about your bankruptcy options.   You might think that if you go see a bankruptcy lawyer that lawyer is automatically going to recommend bankruptcy, but that is not the case.  Most reputable bankruptcy lawyers are also knowledgeable about alternatives, and will advise you about those options, as well as tell you what may happen if you do nothing.  I regularly advise clients against filing bankruptcy (and sometimes that advice is because there is nothing left to protect).  You have nothing to lose, and quite a bit to gain by talking to someone as soon as you recognize that there is a problem, rather than waiting until you have no options.

Don’t wait ….. call today.  Lorene Lynn Mies at 951-894-4791

Phone: 951.894.4791

On Thursday January 26, 2012 at 7:00 p.m. at the
Temecula Public Library on Pauba Road in Temecula.   Lorene will be presenting another  “Bankruptcy Evening”.  As always she will be covering the basics of bankruptcy, focusing on Chapter 7 and Chapter 13.   How each chapter works and the advantages of bankruptcy over debt settlement or debt consolidation programs.  assist you in keeping your home.  If you are facing foreclosure or have a second mortgage that is not supported by $1.00 in equity you don’t want to miss this evening.   This free educational seminar is packed with all the information you need to make an informed decision whether or not bankruptcy would be right for you and your family.  Bankruptcy may be the best investment you make in 2012.

Call today and reserve your space since space is limited.  951-894-4791

What will be covered:

• The Means Test
• Chapter 7 – Advantages and Disadvantages
• Chapter 13 – How to get rid of your second mortgage!
• Debt management and settlement programs
• Your Property – Do you get to keep your stuff!
• Credit rating after bankruptcy
• Short sale vs. foreclosure
• Bankruptcy and your employment
• Credit recovery after bankruptcy

Location:
Temecula Public Library

3060 Pauba Road
Temecula, CA 92591
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What attendees had to say after past Bankruptcy Evenings at the Embassy Suites:

Attendees were give a seminar evaluation sheet and asked to grade the evening 6 different criteria on a 1 to 5 scale from 1 being disagree to 5 being agree.

• “exceeded expectations, KM 5s on all criteria”
• “thank you, this meeting has already put me at ease, PM  5s on all criteria”
• “the new legislation was good information, KG  5s on all criteria”
• “very informative, MJ  5s on all criteria”
• “this was well worth the time spent to learn about chapter 7 / 13. Thank you for giving up your evening to educate us tonight, AC 5s on all criteria”

Come see and hear for yourself.

In talking with potential bankruptcy clients, it seems that a lot of them wait until the last minute before contacting a bankruptcy lawyer to find out how bankruptcy may help them.  While visiting a bankruptcy lawyer most likely does not rank high on most people’s “bucket list,” if you are struggling financially, it most likely makes sense to determine if and how bankruptcy can help you sooner rather than later.

So, how can “preparing” for bankruptcy help?  First, you will need to have the fees for the lawyer and for the court available.  For now, for a chapter 7 filing, just the filing fee is $306.00.  Additionally, before you file, you must complete a consumer credit counseling session and get the certification that must be filed with the court.  If you “fail to plan” for your bankruptcy filing by finding out what you need ahead of time, when your car is on the verge of getting repo’d, you may not have the time and/or money to retain a bankruptcy lawyer.

Second, you can carefully go over your income and expenses and see where the trouble lies.  Certainly a bankruptcy lawyer can help you identify the problem (with appropriate information) but you also need to know how you got into this financial mess.  Some problems are easy to identify–temporary loss of income; extraordinary medical bills; overspending for a bit, etc.  Bankruptcy can assist in overcoming those past problems but you need to be aware of the problem so that you can avoid it in the future.  Bankruptcy is designed to be a “fresh start.”  You can greatly assist in obtaining that “fresh start” by breaking or modifying some of the habits that perhaps got you here in the first place.

Third, make sure you know who you owe and how much.  Find out if there is any collateral associated with the debts and gather up loan documents.  Your lawyer will need this but, more importantly, you need to know your own financial picture.  Credit reports are freely available and can be a big help.  Also, if lawsuits or foreclosures have been filed against you, make sure you have that paperwork–all of it!  It is important!

Finally, change your mindset.  In dealing with individuals facing financial problems, it is often much more difficult instead of dealing with distressed businesses.  That is because a business looks at assets and liabilities and can make a rational decision as to whether keeping an asset is worth the corresponding liability.  Understandably, people are attached to their “things.”  But, after all, they are just “things” and you have to consider carefully whether retaining a “thing” is worth the potential stress and headache.  As an example, if you suffered a decrease in income and you have two relatively late model cars.  No one wants to give up one or two cars but sometimes it is better to surrender a vehicle or two in order to keep your house (if that is important to you).  There will be some emotional attachment to some “things” but it is imperative that you do this.  Determining what is important to you is important for your bankruptcy lawyer in setting achievable goals for your bankruptcy filing.

Finally, do some research.  There is a lot of information about bankruptcy that is freely available.  However, you should exercise extreme caution in considering the information.  Not that the information is inaccurate (some info may be outdated or simply inapplicable) but it takes an experienced profession to know what is appropriate and what is not.  But, by familiarizing yourself with some basic bankruptcy information, you will be in a better position to appreciate and assist your bankruptcy lawyer in setting realistic and achievable goals.

After all, the real goal of a bankruptcy filing is a “fresh start.”

Spending some time reading some of the articles in the educational center just to the right of this article then call the office and make an appointment for your free consultation.  Part of your preparation time is determining whether or not bankruptcy is the right option for you.  I have had many clients come in only discover that they didn’t really need to file bankruptcy and there was another alternative to their financial woes.  Education is the key.  Give me a call today at 951-894-4791.

A recent article, “The Homeownership Experience of Households in Bankruptcy” by Professor Sarah W. Carroll, of the University of Pennsylvania Law School and Wenli Li, of the Federal Reserve Bank of Philadelphia, provided the first in-depth analysis of the homeownership experience of homeowners in Chapter 13. Its conclusions mirror what most bankruptcy attorneys personal experience has been: Chapter 13 is one of the most effective ways to let you save your home.

The study followed homeowners who filed for Chapter 13 between 2001 and 2002 in New Castle County, Delaware, from the time of their filing to October 2007. (Since most Chapter 13 plans last five years, this was a fair trial period.) After analyzing the data, it found two important results:

First, the Chapter 13 filing was not always the solution: 27.9 percent of filers lost their houses in foreclosure despite filing for bankruptcy. This is typically a result of poor cashflow. If job loss, or illness continues and there is not enough money coming into the household, the house will be lost regardless of filing bankruptcy or not. Many of the homeowners in this group will end up converting their cases to one under Chapter 7, so that they can wipe out any personal liability for the mortgage(s), as well as most of their other debts.

However, when compared with homeowners who did not file, debtors who filed for bankruptcy were able to stay in their homes for, on average, 27.7 additional months, over two years. This figure includes those who ended up losing their homes.

So, if you’re behind on mortgage payments, consider a Chapter 13–it may let you stay in your home a lot longer than other options.

This article can be found here.

Please call my office today and see if bankruptcy is the right option for you.  If you have a second mortgage, HELOC, or a junior lien on your real property you may be able to lien strip that mortgage by filing bankruptcy.  Get rid of that mortgage that is dragging you down!  951-894-4791

When debt is cancelled or forgiven, the creditor must report the amount of debt cancelled or forgiven to the IRS through a Form 1099-C.  The amount of forgiven debt is then attributed to you as “income” for tax purposes.  This means that if you have a credit card or mortgage (more on this later) and $20,000.00 is cancelled or forgiven, then you will receive a Form 1099-C for that amount and it will also be reported to the IRS.  When you figure your taxes, basically, your income will increase by the amount of the forgiven debt.

So what does this really mean?  Potentially, if you are a single filer and, before you include the amount of cancelled debt, your adjusted gross income is $48,000.00, you will be obligated to pay $8,188.00 in taxes according to the 2010 tax tables.  But, if you had debt cancelled of $20,000.00, then, potentially, your adjusted gross income is $68,000.00.  This is because you add the $20,000.00 in cancelled debt to your income.  You would then be obligated to pay $13,188.00 in taxes–$5,000.00 more!!!  Of course, this is a simple example and for a lot of folks, cancelled debt may or may not make a big impact on their tax liability but nevertheless, the impact can be real and significant!

There are exclusions to the cancelled debt being included in your taxable income.  The exclusions are contained in the Internal Revenue Code under Title 26 of the United States Code at Section 108.  The biggest exclusion is (A) “the discharge occurs in a Title 11 case” which is bankruptcy.  If debt is discharged in bankruptcy, it is not attributed to you as income.  You may still receive a Form 1099-C but you can include another form with your tax return.  See here for a Form 982 and see here.

There is another major exclusion that is geneally applicable to consumer debtors.  If the cancellation of the debt occurs while the debtor/taxpayer is insolvent, then you may reduce the amount of the cancelled debt from your gross income.  See 28 U.S.C. § 108(a)(1)(B).  This may require substantial documentation of your insolvency.

Another major exclusion that is particuarly relevant to short sales is set forth under (a)(1)(E).  This provision states that if you have cancelled debt that stems from the a qualified principal residence, then the cancelled debt will not be included in your income for tax purposes.  So, if you negotiate a short sale for $50,000.00 less than what you owe on your home, under this provision of the tax code, the amount of the cancelled debt will not count towards your income for tax purposes.  HOWEVER–this provision expires at midnight on December 31, 2012!  If a mortgage creditor is negotiating with you for a short sale, be sure to include a cancellation of indebtedness in the negotiation.  If the cancellation comes after January 1, 2013, you could be facing a big tax liability if some other exclusion does not apply.

As you can see, negotiating debt issues can be a minefield just waiting to blow up in your face.  While bankruptcy may not always be the best option, it is certainly worth discussing your debt issues with me to explore your options.  Bottom line is there are not tax consequences when you file bankruptcy.  Bankruptcy is specifically exempted in the IRS code.

I am not a tax attorney and I refer all tax matters to my trust accountant Daniel Greene in Temecula.  This article originally appeared in part on the Bankruptcy Law Network.

Fear, pride, uncertainty, stubbornness, distraction, and cash flow keep people from getting their financial life  in order with a bankruptcy filing.

As a means of regaining control of your life and your pocketbook, however, it may be the best move you can make.

Inaction, however unpleasant, is easy.  It’s familiar and tolerable.  Like it or not, it’s a safe choice.

You can’t get more hurt by doing nothing, right?  It’s the devil you know, as opposed to the devil you don’t.

But what if the alternative is getting out from under your bill problems and jump starting your financial life?  Clearly, in that case it becomes far more attractive to leap than to stand still.

So if you’re having bill problems and are on the fence, these ten reasons that filing bankruptcy now may help you make your decision.

1. The stress of bills you can’t pay, collection calls, and worry about garnishment can ruin your health.
2. Current law and depressed property values may allow the voiding of junior liens on  your home. If values increase in future, this opportunity may be unavailable.
3. No tax is generally generated by discharging debts in bankruptcy, not so, if you settle debts outside of bankruptcy.
4. You can keep more of your assets when exemptions are applied to investments with depressed current value.
5. The federal tax exclusion for cancellation of debt on foreclosures of principal residences expires in 2012, is limited in scope, and doesn’t deal with state taxes.
6. Your credit report doesn’t start healing until the debts are paid off or discharged in bankruptcy.
7. Relationships suffer in times of financial distress.  Save your marriage, ditch your debts.
8. Anonymity in numbers:  there have been lots of bankruptcy filings over the past several years.  Your decision to file now makes you one of a crowd of people with the same problem.
9. Wait to file until your income improves and the means test may require that you file a repayment plan.
10. You aren’t getting any younger:  chances are you are poorly prepared for retirement. Every dollar spent making minimum payments is a dollar you’re not saving for retirement.

For most of those buried in debt, neither inaction nor incremental solutions will solve the problem.  Many of the “reasons” that hold people back from the bankruptcy solution are based in myth and misunderstanding. Think through my list, follow the links to read more, and imagine a life free of dischargeable debts.  I often tell my clients it is time to come out of the cabin and face the daylight.

Call my office today and set up an appointment for your free consultation.  The financial return on a bankruptcy filing is eye popping.  The hour you spend with me may be the best investment you make for 2012.  Lorene Lynn Mies, A PLC 951-894-4791

This article was orginally published in the Bankruptcy Law Network by Cathy Moran.

According to the Administrative Office of the U.S. Courts, bankruptcy filings for the year ending June 2011 marked a 2.7 percent decrease from the bankruptcy filings for the year ending June 2010.

During that same time span, the Administrative Office of the U.S. Courts also found a 2 percent increase in Chapter 13 bankruptcy filings, a 4 percent decrease in Chapter 7 filings, a 11 percent decrease in Chapter 11 filings and a nine percent increase in Chapter 12 filings.

While many districts are reporting significant decreases in filings for protection under bankruptcy law, 19 of the 94 districts reported an increase in filings, including the Southern District of Florida with a 15 percent bump and the Utah and California Central District with 13 percent hikes.

Kimberly Palmer of U.S. News Money writes of the increase in filings, “Just because bankruptcy is increasingly common doesn’t make it any less stressful. People who file for bankruptcy often feel ashamed, overwhelmed, and hopeless.”

Palmer added recovering from bankruptcy requires addressing the cause, identifying goals and re-establishing positive credit after the fact.

This article appeared August 9, 2011 in BankruptcyHome.com  and was written by Eric Sanderson.

Almost everyone wants to keep their car.  In Southern California, where public transportation is virtually non-existent, it is an unfortunate reality that most people need a car to get or keep a job.  Currently, in order to be absolutely sure of keeping your car after a Chapter 7 bankruptcy, you have to do three things:  make the payments, keep it insured, and sign a reaffirmation agreement. But that should not end the inquiry.  You (and your attorney) should both be looking at whether signing a reaffirmation agreement is in your best interests.  We know you want to keep your car.  But a reaffirmation agreement can have serious consequences, and can seriously interfere with the fresh start that you filed bankruptcy to obtain. So, here are some key factors you should consider.

1.  First, look at the value of your car and how much you owe on it.  If you owe more than the car is worth, reaffirming is a risk.  My clients always tell me that they can and will make the payments.  Maybe so, but what if the car is in an accident and is a total loss?  What if the insurance pays off on the value of the car, leaving you owing the difference?  Then you may have to make payments on a different car, but be stuck owing thousands of dollars on the wrecked car.  You are right back in financial trouble, and you take another hit to your credit rating.  You can check to see of you can buy GAP insurance to cover that difference.  If so, you eliminate some of the risk.  If you can’t buy the insurance, that may be a pretty good indication that you are taking too much risk.

2.  The current state of the law gives the lender the option of repossessing your car if you don’t reaffirm, even if you are making payments.  But they don’t have to repossess.  Many lenders will let you keep the car as long as you continue to make payments on time, and keep the car insured.  In many cases, they are better off doing that, and they recognize that fact.  There are some who will stand on their rights, and who may decide to take the car even if your payments are current. Your attorney can help you evaluate the risk, depending on your lender.  Your attorney can also advise you concerning other issues that may make repossession unlikely.  For example, in some states, if you have a co-borrower who has not filed bankruptcy, there may be no default as to that person, and so no right to repossess.

3.  You should also carefully evaluate your budget, and the available funds to pay the car payments.  In a nutshell, if your budget is tight, you probably shouldn’t reaffirm.  The tighter your budget, the more likely that you will be forced to miss a payment at some point, and that you will lose some of the benefit of going through bankruptcy if you default on a debt that has been reaffirmed.  Consider the overall picture here, too.  How long are you going to be making the car payments?  Are you going to have the car paid off soon, or are you going to have to pay for another four or five years?  Is there some other change in your budget that will make it more difficult (or easier) to make the car payments?  If you have already filed bankruptcy, and you are still struggling to make ends meet, you may want to take that as a sign.

4.  Can you negotiate a better deal from your lender?  Some lenders are willing to listen to a proposal that makes a reaffirmation more favorable to you, either by reducing principal, reducing the interest rate, or capitalizing arrears.   If your concern is that you owe more than the car is worth, ask the lender to reduce principal.  If you are concerned that the payments are too high, ask for a lower interest rate.  Not all lenders will meet you in the middle like this, but there is no harm in asking, and you might get a deal that will make you (and your attorney) a whole lot more comfortable.

5.  Consider your lender, and your relationship with them.  One of the big differences in dealing with reaffirmation agreements depends on whether your lender is a credit union or not.  If the lender is a credit union, you get less protection from the court (and your attorney) and should therefore be more cautious about signing a reaffirmation agreement.  If your account was sold to a new lender after bankruptcy, you may also want to factor that unknown into your thinking.

6.  While you are considering a request to reaffirm a car loan, be brutally practical and honest with yourself.  As noted above, most people who live outside major metropolitan areas in this country need “a” car.  That doesn’t necessarily mean you need the particular car you are driving.  Do you have a friend or family member who would let you borrow (or buy) a car that is underused?  Do you have a source of cash (a tax refund, or a retirement account) that could be used to buy basic transportation for cash?  Remember, practicality and honesty is key here.  I have heard all kinds of explanations over the years for keeping cars (and trucks and motorcycles and motor homes) that basically boil down to “I don’t want to give it up.”  I know you don’t want to–I want you to consider whether you need to.  I recently had a client explain to me that he had to keep a new truck because he had to have a reliable vehicle to get to work.  Okay, I get that.  But then it turned out that his wife, who doesn’t work, also had a new car.  And his teenage son also had a vehicle.  It seemed to me that alternative transportation was available, and that he was confused between “want” and “need.”  Given the serious consequences that go along with reaffirming on a car, I think it’s important to eliminate that confusion.

Give my office a call today and set an appointment for your free consultation.  951-894-4791

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