Ironically, bankruptcy is much the same as New Years.  It gives you a chance to put the financial challenges behind you!  You’ve may have fallen behind with your creditors or are just about to. You’re anxious, trying to avoid thinking about it, angry that life is so tough, trying to build up the courage to face up to the realities. You wonder whether you really have any decent options and then how to figure out the best option and make it happen.

As we start the new year, I wanted to offer some basics about bankruptcy and how it could be an effective tool to give you a “new year” financially!

You’re financially in over your head. You don’t know what to do, or where to get help. To get started, you need 1) some general information and then 2) some personal advice.

1) General Information:

Everyone learns differently and so it is important to pursue basic information in a way that you learn it best.  Internet, books, question friends or family who have similar experience are all valid means of obtaining some general info to help get you thinking about whether you need to start over.

2) Personal Advice:

People thinking about bankruptcy can be reluctant to talk with an attorney for lots of reasons.   But often those reasons are false or misunderstood:

• “If I see an attorney, he or she will make me file a bankruptcy”:   Attorneys are legally and ethically obligated to represent YOU, and to lay out your options honestly, in an understandable way so that YOU can make an informed choice. It’s not my job to make you do anything, certainly not to file bankruptcy. Certainly I’ll tell you if you do not qualify for any particular option. And I’ll advise you why I think certain options look better than others, and may even make a strong recommendation towards a certain option. But the choice is ALWAYS yours.
•  “I’m not really ready to see an attorney yet”:  There is virtually no downside to getting advice early in the process and there are many ways to hurt yourself by getting it late.  It is extremely common for people to come in to see me after they have already acted (or failed to act) in ways that were against their best interest. If on the other hand they see me earlier than necessary, they still get good advice on what they should do in the meantime and they start a relationship with me in case they want to or need to help later.
• “I don’t think I can afford an attorney, and I don’t even know if I need one”:  You may be able to file a bankruptcy by yourself, or take some other appropriate action, but wouldn’t it be good to find out whether in your situation you can or should do so? An effective attorneys job is to give you unbiased, straight talk about your options, including what you can do on your own, how much services would cost if you decide to go forward, and options about how that could be paid. There may be ways that you can afford fees that you did not expect.  Explore your options.

The beginning of the year offers a chance to rethink and plan how this year can be better than the last.  If that includes overcoming financial challenges, don’t hesitate to schedule a FREE CONSULTATION to talk about how I can help you.  In the meantime, Happy New Year!

Here to help,  Catherine King.  530 221 2640

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Post tags: bankruptcy options, nonbankruptcy options

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Why has this been a problem? The public focus during this long foreclosure crisis has been on the millions of homeowners losing their single family homes. But many of these homes in foreclosure are in fact rented out to others. And there are also many foreclosures of multiunit residences—everything from duplexes to apartment buildings. In fact research by the National Low Income Housing Coalition estimated that “renters represent as many as 40% of the American families who will lose their homes in this crisis.”

While homeowners have long had an established set of protections during the foreclosure process, renters have had virtually none. Renters often had no idea that their landlord had fallen behind on mortgage payments and that their rented home was being foreclosed.  They found out only after the foreclosure sale had occurred and the bank or the new owner shocked them with eviction papers. The “Protecting Tenants at Foreclosure Act” provides at least a modest cushion of time in almost all situations, and the right to the full term of their lease for tenants who bargained for such longer leases.

This straightforward law contains very few exceptions. They are:

1.  It does not apply if the tenant is also the owner of the property being foreclosed, or the owner’s spouse, child, or parent.

2.  The rental agreement must be genuine, and must provide for payment of rent at about fair market value (or with a legitimate governmental subsidy).

3.  If after the foreclosure the new owner intends to live in the home as his or her primary residence, then the tenant must surrender the property after 90 days even he or she has a longer term.

Good news is that this law is temporary in that it was to expire at the end of 2012 but last year’s financial reform law has extended that expiration to the end of 2014.  The extension is telling in terms of the government’s forecast of our foreclosure crisis’s future and duration.

Maybe the most important part of the “Protecting Tenants at Foreclosure Act” is that it sets a threshold standard, but also explicitly states that it shall not “affect the requirements… of any State or local law that provides longer time periods or other additional protections for tenants.” During these last two years many states have recognized the need for tenant protections. If you are a tenant in a house or apartment that you are afraid is being foreclosed upon, contact our office to set up a consultation to discuss this and any other financial concerns you may have.  It’s important to have qualified counsel to strategize how you can regain your financial stability in these economically unstable times.  Here to serve,   Catherine King   530 221 2640.

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Post tags: consumer protection, foreclosure, mortgage lenders, regulation of banks

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While not an overwhelming help, it’s a start as they say…Starting in 2012, about 1.6 million student loan borrowers will be able to make smaller monthly payments, and make less of these payments before the remaining balances are forgiven. On October 26, 2011 President Obama announced these improvements to the Income-Based Repayment Plan.

The changes are simple.

1. Monthly payments: Under the Income-Based Repayment Plan, payments are capped “at an amount intended to be affordable based on your income and family size.” The payment amount has been 15% of your disposable income. It is now going down to 10% of disposable income. (Click on the above link for more details on how to determine your disposable income and payment amount.)

2. Repayment term: The current 25-year repayment period is being shortened to 20 years.

Although 20 years is still a very long time, if your income is low enough the monthly payments can be very low, or even $0, meaning that you may not have to pay very much during those 20 years.

Unfortunately, this new improved Income-Based Repayment Plan only applies to people who 1) graduate in 2012 or later, 2) took out their first student loan no earlier than 2008, and 3) will be taking out at least one new federal student loan during 2012 or later. It’s clearly designed for current and future student loan borrowers.

But even if you don’t qualify for the 10%/20-year improved version, the older 15%/25-year Plan can also be very helpful—saving you money right away in your monthly budget, and also potentially saving a lot of money in your lifetime budget.

However, there ARE other limitations: none of this, including the Income-Based Repayment Plan, applies to private student loans. You need to contact your private lender to find out your options. And even if you do have a federal student loan, you cannot be in default on the loan to qualify for this Plan. To find out what type of student loans you have and their default status, go to the National Student Loan Data System for this and related information.

While not a comprehensive solution to crushing student loan debt the new legislation may be of assistance in your circumstances.  As always we encourage you to seek qualified legal counsel if your overall debts beyond student loans are more than you can handle.  Piecemeal solutions to a bigger problem rarely bring true resolution.  Consultation with bankruptcy counsel can give you a clearer picture as to your options and strategies to regain your financial footing.  Here to serve,  Catherine King   530 221 2640.

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Post tags: discharge, student loans

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One million more homeowners have just become eligible for refinancing at the current very low interest rates. Until now, the federal Home Affordable Refinance Program (HARP) has been limited to homeowners with mortgages of no more than 125% of the value of their homes. By way of example, for a home currently worth $200,000, the mortgage could be no more than $250,000. Now that 125% limitation has been eliminated, allowing homeowners more deeply underwater to qualify for HARP refinancing. So some people who have not been able to take advantage of the low interest rates will be able to do so and get the resulting lower monthly mortgage payments. This change should especially help homeowners in those parts of the country hardest hit by reduced home values, where a large percentage of homeowners have been cut off from being able to use HARP.

To qualify under the revised refinancing:

1. You must have a mortgage owned or guaranteed by Fannie Mae or Freddie Mac, which include about half of all U.S. home mortgages. You can find out whether yours is by looking that up online at Fannie Mae and Freddie Mac or calling 800-7FANNIE or 800-FREDDIE (8 am to 8 pm ET for both numbers).  

2. Your mortgage must have belonged to either of these two institutions by no later than May 31, 2009.

3. You cannot have been late on any of the mortgage payments during the last 6 months or on more than one payment in the last 12 months.

4. You can’t have already refinanced through HARP.

The program continues to be voluntary for the mortgage lenders, so there are additional incentives for them. Lenders have been accused of being extremely picky about income documentation and home valuation under HARP, apparently fearing that they would have to buy-back the new mortgages being sold to Fannie Mae or Freddie Mac. So the new changes eliminate most of that risk. As a result, the application process should be much easier and less expensive for borrowers.

Detailed rules are expected by the middle of November, with lenders ready to implement the revamped program starting around December 1.

So, if you are committed to keeping your home, there may be opportunities for you coming soon.  However, one word of caution:  it is always wise to have sound financial and legal review of your whole financial picture before making significant commitments of this nature.  As we have seen, just because credit may be available, it may not be to your advantage to take it!  See qualified legal counsel for a consultation and review before proceeding with refinancing options.

Here to help, Catherine King.  530 221 2640 for a Free Consultation about your particular circumstances.

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Post tags: homeowners, household wealth, housing values, loan modification, lowering payment, mortgage lenders

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Gift buying during the holidays with credit cards, even in relatively modest amounts, can mean that you will have to pay back those purchases if you file a bankruptcy. This could happen even if at the time you purchased you fully intended to repay that credit card—in other words, even if you weren’t planning to file a bankruptcy.

The Bankruptcy Code contains some very specific rules about the consequences of using credit to buy “luxury goods or services” during the months before filing a bankruptcy.

If you use a credit card—or any other type of consumer credit—to buy at least $500 of consumer “luxury goods or services” through any single creditor within the 90 days before filing bankruptcy, there is a “presumption” that the debt incurred this way is nondischargeable—that it can’t be legally written off.

Don’t be fooled by the word “luxury” in that rule. That means anything not “reasonably necessary.” Arguably anything not used for survival in not “reasonably necessary.” So even modest Christmas and holiday gifts could be considered “luxuries” for this purpose.

Similar rules apply to the use of cash advances, except that the trigger dollar amount is $750 per creditor, and the period of time is within 70 days before filing bankruptcy, with the same “presumption” that the debt would not be dischargeable.

You may be thinking that these rules only create presumptions, which can be defeated. So that you can still discharge these kinds of debts by showing that you in fact you had every intention of paying them at the time you used the credit. Yes, that true, in theory but not likely in practice. First, coming up with that kind of evidence—proving your intent at some point of time in the past– is usually not easy. And second, and more important, it is expensive to fight that type of charge.  Usually the amount of attorney fees it costs you to fight the issue is more than the amount at stake.

What all this means is that if during the holidays you use a credit card or other consumer credit greater than these dollar limits, and then file bankruptcy within the applicable 70-day and 90-day periods, you will still most likely have to pay for whatever credit was incurred during those periods. You can avoid these presumptions by waiting to file the bankruptcy until after those periods of time have expired, but that’s not always possible. At best you’ll delay getting your bankruptcy filed, and thus will delay the resolution of your financial problems. And even if you wait, the creditor can still try to show your bad intention. Avoid all this by not using your credit cards and/or lines of credit whenever there is a sensible chance that you’ll have to file a bankruptcy in the near future.

Here to help, Catherine King.  530 221 2640 for a Free Consultation.

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Post tags: bankruptcy, credit cards, creditors, discharge, fraud

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If you’re thinking about filing bankruptcy, resist the urge to rack up a big credit card bill for Christmas and other holiday gifts.  Otherwise you may be limited in what debts you can write off in bankruptcy or even when you can file your case. But before getting to these legal reasons, there are some more basic ones to look at.

When money is tight, your anxiety about paying for gifts and for special meals clouds the holidays. If you have room on your credit cards, and very little disposable income, the temptation to use the credit cards is nearly irresistible. We live in a materialistic culture, so when we express our love and affection through gifts we tend to let their price carry too much meaning. We feel that an expensive gift shows how much we care. We also let the gifts we give, and their price, define us and our own worth. We’re no good if we can’t give our loved ones nice gifts. That’s especially true with our spouse or that someone special, and certainly with our kids.  We don’t want to disappoint them, and have them be disappointed in us.

This feeling may be especially intense if there is tension in the marriage, or within the household, often the case when there are intense financial pressures. It can be a vicious circular pattern. 

In our hearts we know that the price of gift is not a true measure of the extent of our love, and certainly that gifts don’t buy love. To help you follow your wiser impulses, here are three suggestions.

First, give gifts appropriate to your financial circumstances, no matter how modest those gifts may be.  That is the only responsible way, and in fact shows your love—especially to family members—a lot more than if you gave gifts you could not afford.

Second, put the energy that you would put into fretting about how to pay for a relatively expensive gift instead into creatively thinking about an appropriately priced perfect gift. Come up with something that reflects the connection between the two of you, one that the person will enjoy but also shows that you really put your heart into it.  A gift from the heart means far more to the one receiving than the price tag.

Third, whenever possible communicate honestly with your loved ones about your financial constraints.   Instead of being negative, it can be a constructive conversation about priorities, honesty, and what love is really all about.   And it can open doors for new ways to express your love and care for those who are important to you.

I know, this may be easier said than done.

However, to help motivate you, in my next blog I’ll idenitfy for you some legal reasons why running up holiday charges onto your credit cards can tie your hands in ways you may not expect.

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Post tags: bankruptcy, creditors, discharge

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It will be just a little bit easier or a little bit harder to qualify to file a Chapter 7 “straight bankruptcy” as of November 1, 2011. Whether it’ll be easier or harder for you depends on the state where you reside and on your family size.

What changes on November 1? The bankruptcy system looks to the U.S. Census to calculate each state’s median income, as applicable to each size of family. Median income is the amount at which half of the state’s families have incomes higher and half have lower. If your income is below your state’s median income for your size of family, then in almost all situations you can file a Chapter 7 case. But if your income is above that median income amount and you still want to file a Chapter 7 case, then a long and rather complicated form is required which addresses your allowed expenses to determine whether or not filing a Chapter 7 case would be “abusive”.  So if you want to file a Chapter 7 bankruptcy, it’s easier if you’re below the median.

On November 1, new median income amounts become applicable. Some people were predicting these amounts would be lower because of the faltering economy. But in many states the income figures went up instead of down. For example, among single-person families, 31 of the states’ median incomes went up and only 19 went down. Remember, if the median income goes up, that makes it a little more likely that your income will fall below that median, and you’ll have smoother sailing qualifying for Chapter 7.

So, if your income is close to the applicable median amount, and the median is increasing for your family size in your state on November 1, then you have a better chance at falling under the median if you file on or after that date. But if the applicable median is decreasing, then you have a better chance of falling under the median if you file your bankruptcy before then, by no later than October 31.

I’m about to give you the two lists of median income amounts—the one applicable through October 1, and the other starting November 1. But before you start comparing those annual income amounts to your income, please understand that the meaning of “income” in this context is quite different than conventional meanings of that word. “Income” here is calculated using a six-calendar-month look back period that is doubled and then divided by 12 for an average monthly income. It includes all sources of income from all family members other than social security, not just taxable income.

Because of this and many other sorts of complications, yon truly need to consult with a bankruptcy attorney about whether this November 1 median income changes matter to you, and whether you should try to file before then or instead after. But to get you started, here are the two median income lists: the one to use until October 31, 2011, and the other to use after that.  Give me a call if you are concerned about your eligibility after   Nov 1.  Here to bring help and hope!  Catherine King  (539) 221 2640.

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Post tags: change in bankruptcy law, Chapter 7, income, means test, straight bankruptcy

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Sometimes the timing of your bankruptcy filing makes little difference, but at other times it’s huge.  The three examples here should convince you that you want to avoid being rushed to file your case because a creditor sued you earlier and is now garnishing your wages. Instead you want to preserve the ability to file bankruptcy at the most strategic time for you… 

1. Choosing between Chapter 7 and 13:  Being able to file a Chapter 7 generally requires you to pass the “means test.” This test largely turns on a very special definition of “income.” For many people, their “income” under that definition can change every month, sometimes by quite a lot. This means that you may not qualify to file a Chapter 7 case one month but then you do qualify the next month. Being able to delay filing your case means being able to file when you will pass the “means test,” or at least more likely would do so, and therefore not be forced to file a Chapter 13 case. This means usually finishing your case in three or four months instead of three to five years, and almost always saving many thousands of dollars.

2. Discharging or writing off debts:  Getting certain debts discharged is more difficult if those debts were incurred within a certain amount of time before the filing of your bankruptcy case. So being able to choose the timing for filing of your bankruptcy case makes it less likely the creditor on one of these debts would challenge your ability to discharge that debt. Or if such a creditor would still raise such a challenge, defeating it would be easier.  The amount at stake is the amount of that particular debt, in addition to creditor’s costs and their attorney fees, and your own attorney’s fees.  Avoid or reduce the risk of continuing to owe that after your bankruptcy is over by avoiding getting creditor judgments against you.

3. Choosing property exemptions:   In bankruptcy you are entitled to retain a certain amount of assets so you have a better “fresh start” than beginning at 0!  The possessions you are allowed to keep in a bankruptcy depend on which state’s exemption laws apply to your case. If you moved to your present state of residence within two years before your bankruptcy is filed, you will not be able to use that state’s exemptions but rather your former state’s. Especially if you are getting close to the two-year mark, having flexibility about when to file would allow you to pick whichever state’s exemptions were better for you. Otherwise, you may either lose an asset in a Chapter 7 case, have to pay the trustee to be able to keep it, or else even be compelled to file a Chapter 13 case to keep it.

You may ask: if I do get sued, what am I supposed to do to avoid getting a judgment, so that I’m not later rushed into filling bankruptcy at an unfavorable time?  The answer: see a bankruptcy attorney as soon as you get sued to figure out how to deal with that law suit and how to best address your entire financial landscape. The earlier you get advice, the more options you will have.

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Post tags: Chapter 13, Chapter 7, discharge, garnishment, judgment, property exemptions

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Many judgments against you don’t matter once you file a bankruptcy. But certain ones are very dangerous. How can you tell the difference?

Letting a creditor get a judgment against you after they have sued you can sometimes result in that debt not being written off (“discharged”) in a later bankruptcy case. Or that debt may instead become much more difficult to discharge, even if eventually it is. But in the meantime it can turn an otherwise straightforward case into one much more complicated. 

So how can certain judgments make a debt not dischargeable? Because of a basic principle of law which says that once one court has decided an issue, another court must respect that decision. The theory is that litigants should only get to use court resources once to resolve a dispute. Once a court decides an issue, it’s been decided (except for the limited exception of appeals to a higher court).

But as I said, most judgments by creditors are NOT a problem in bankruptcy. That’s because most creditor lawsuits are about only one thing: whether the debt is legally owed. A judgment that establishes nothing more than that can generally be discharged in a subsequent bankruptcy.

The judgments that are dangerous are more complicated. They arise in lawsuits in which the creditor is alleging that the person owing the debt incurred it in some fraudulent or inappropriate way. If the judgment clearly establishes that’s what happened, then the bankruptcy court later has to accept that decision. If the wording of the lawsuit and judgment shows that the behavior was of the kind that the bankruptcy laws say results in the debt not being discharged, then without further litigation the bankruptcy court would rule the same way.

These cases can get complicated because often it’s not clear precisely what the previous lawsuit decided, or whether what was decided meshes closely enough with the dischargeablility rules of bankruptcy. There’s also the question whether the matter was “actually litigated” if the person against whom the judgment was entered did not appear to defend the lawsuit or did not have an attorney.  In other words you may or may not be able to get your day in bankruptcy court depending on whether in the eyes of the law you really already had your day in the prior court.

This risk of losing your chance to defend your case in bankruptcy court can be avoided by not waiting until after a judgment has been entered against you to see a bankruptcy attorney. That is especially true if the allegations against you involve any bad behavior other than not repaying the debt. As a general rule, if you get sued by any creditor you should see an attorney, even if you don’t plan on fighting the lawsuit and hiring an attorney for that purpose. That allows you to find out if the lawsuit could lead to a judgment rendering the debt not dischargeable in a bankruptcy. And if so, you would then still have the option of filing bankruptcy to prevent a harmful judgment from being entered, instead of being stuck with it once you file a bankruptcy later.

Here to help…Catherine King.  530 221 2640

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Post tags: discharge, fraud, judgment, prevent judgment

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What you don’t know CAN hurt you, especially if it’s a judgment against you by a creditor. There are three primary ways that judgments can hurt.  First, they enable the creditor to use powerful collection mechanisms against you to collect the debt.  Secondly,  a judgment can force you into filing bankruptcy at a legally disadvantageous time. And, finally under some circumstances a judgment can make it harder to write off the debt in your bankruptcy.    The first of these is discussed below and later this week, and the other two in my next ones.

Most lawsuits by creditors and collection agencies filed to collect their debts do result in judgments against the people owing the debts. That’s because the main point of these lawsuits is to establish that the debt is legally owed, which is usually not disputed. Also, most of the time the debtors are at the end of their financial rope and can’t afford to hire an attorney to find out what their options are, much less to defend the lawsuit. So judgments are entered “by default”—meaning the deadline for the debtors to respond passed without any action by them, allowing the creditor to get a judgment. Often debtors are not given any notice that a judgment has been entered against them, so many do not realize that it has, especially when nothing seems to happen for months or even years afterwards. And very few people are fully aware of the possible consequences.

The options creditors have to pursue you to staisfy the judgment are extensive.  A judgment gives a creditor the power to garnish your wages and bank accounts. But avoiding garnishments and levies by keeping your money out of bank accounts and not being paid a regular wage or salary are often not enough to make you “judgment-proof.” For example, a judgment usually becomes a lien against any real estate you own, or will own in the future. That includes not just property under your own name but also your rights to property held jointly with a spouse, parent, or through a trust or estate. An aggressive creditor has a variety of other tools available to it, including getting a judge to order you to go to court to answer questions under oath about what you own. The creditor can also get an order to send out a sheriff’s deputy to your home or business to take your possessions to pay the debt. If you are owed money by anyone, that person can be ordered to pay the creditor instead of you. If you own a business, the creditor can require your customers to pay it instead of you, and sometimes can even come to your place of business and take money directly out of the cash register to pay the judgment debt.

I don’t want to give the impression that these kinds of strong-arm collection procedures are used in most cases. But I talk regularly with distressed new clients who have been surprised, and financially hurt, by what a creditor has done to them and their assets.

Beyond the direct damage a creditor with a judgment can do to you before you file your case, such a creditor can cause you very real problems in your subsequent bankruptcy case. I’ll introduce this here and then discuss it more in my next blog.

If you are induced to file bankruptcy quickly to stop an ongoing garnishment or other financially devastating collection activity, you lose one of your most important advantages: the timing of the filing of your bankruptcy case. A lot of what happens in your bankruptcy case turns on precisely when it was filed. Not having the flexibility to pick the best timing can, among other things, turn a hoped-for Chapter 7 case into a Chapter 13 one, can mean a difference of many thousands of dollars, and can generally turn a relatively simple case which meets your goals into much more complicated matter.

My entire job can be summarized as helping my clients meet their goals as smoothly and calmly as possible. The lesson here is that, whenever possible, the time to see an attorney—and if you have overall financial problems, specifically a bankruptcy attorney—is right when you get sued. It’s not too late to come in after a judgment has been entered but you’ve lost some of your precious power over your own destiny.  Here to help,  Catherine King.

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Post tags: automatic stay, garnishment, judgment, judgment lien, prevent judgment lien, stop judgment lien

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