8 Chapter 13 Bankruptcy Pitfalls You Can Avoid

Chapter 13 is a Great Tool, Unless . . . 


There are pitfalls to avoid. Getting your case dismissed when you thought it was your last hope to save your house is a disaster.  Yet, it happens much more often than not.

Pitfall 1: Losing Your Job

Such a no-brainer, yet it may sound like something you cannot avoid. However, we all know that sometimes it is.  If you don’t get along with your boss, take a deep breath.  Take an anger management course.  Take a Tylenol. Take a break. Take a nap. Because it could be a case of lose your job, lose your house. If you’re in a chapter 13 bankruptcy to catch up the arrears on your house, then you must keep up your mortgage payments current and you must keep up your plan payments.  Quit paying either one and your chapter 13 will be dismissed.  Once it gets dismissed, and you no longer have bankruptcy protection, you go back into foreclosure.

Pitfall 2: Don’t Get a Divorce

Again, while it may sound like something that probably can’t be avoided, often it can be. Be the best spouse that you can be. Bring flowers. Bring chocolates. Bring movie tickets. Read, How Full Is Your Bucket?  On my wedding day, the officiant gave me 5 little magic words for when you come home and find the baby in the highchair, his food is everywhere, the dishes aren’t done, and the other kids have homework, and you’re just back from work and the 5 little magic words are: “What Can I DO To Help?”

Pitfall 3: Re-evaluate Your House Situation Carefully Before You File

Before you file the case, you should reevaluate the house situation carefully. Chapter 13s are designed to put you on a seriously Draconian budget. So, unless you’re making great money, a budget that is too tight will ruin your marriage or your relationship to your significant other in a big fat hurry.  Don’t lose your spouse over a house.

If you DO qualify for a Chapter 7 but want to file a Chapter 13 to try to save the house, then your budget will be under a huge strain, there won’t be any money for fun, recreation or vacations and I’ve seen that lead to divorces and split ups over and over again and then neither of you will end up with the house.

Pitfall 3: Make Your Chapter 13 Plan Payment On Time Every Time

Get behind, you’re toast.  Nuff said.

Pitfall 4: Get Health Insurance If You Don’t Have It Yet

If you’re not properly insured, with health, life, auto and disability, you’re an accident waiting to happen. If you get sick or injured, you’re outta there.  If you cannot pay the plan, then you will lose that house. 

Pitfall 5: Not Filing a Chapter 13 When You Should

If you make great money, and if you could just get all of your credit cards to agree to zero interest (0%), then you’d be able to pay everyone no problem, then do it.  That’s exactly what a Chapter 13 can do for you.  If you pay the regular payments it will take forever and you’ll pay almost 3 times what you owe before you’re through.  If you go to a Debt Consolidation, they’ll be able to reduce your interest rates, but not to zero percent (0%).  Paying at zero percent interest (0%) for 5 years usually will cut your payments by a little under half.  Take the deal.

Pitfall 6: Including Your Car 

If you can file a Chapter 13 without having to include your car, then avoid putting it in the Chapter 13 payment plan like the plague. If your bankruptcy gets dismissed, you’ll find that you’re now perhaps months or years behind on your payments on your car.  You’ll also find that you’ve got mega late fees now attached to the car note.  Also the repo guys will be on their way soon after your Chapter 13 gets dismissed for non-payment. I had clients who wanted save a house, but to do that they had to lower the car payment by including it in the 13.  I suggested that they move out from the beginning.  When the case finally got dismissed the balance on the car was approximately twice what it was before filing.

Pitfall 7: Technical Tricks and Traps

Most of these are things your attorney is going to have to be familiar with and help you avoid them.  However, my favorite is one that you can help avoid: In the Central District of California, in Riverside, you are required to pay your plan payments directly to the Chapter 13 Trustee at the hearings until the judge approves your payment plan. This approval is called a Confirmation Order. Your Chapter 13 plan payments are due 30 days after your case is filed and then ever month on the anniversary of your filing date. However, your hearing date will be approximately 45 days after you file.  If for some reason your judge continues your confirmation hearing, it will most likely be for another 45 days.  When you show up to that hearing, you must bring two (2) payments with you to the 2nd hearing, not just 1.  Because 45 + 45 = 90, your plan requires that you pay 3 plan payments by that 2nd hearing date, not 2.  If you don’t bring the 3rd with you, your case will be dismissed.

Pitfall 8:  Mal-Adjusting Your Tax Withholdings on Your Pay Checks

Whenever you pay less than 100% of your credit cards and medical bills and so on through your Chapter 13 payment plan, the bankruptcy trustee will want to intercept your tax refunds as you get them from the IRS every year until your case is over. Phew!

Many people try to adjust the withholdings so that they end up zeroing out their tax refunds. However, if you reduce it too much, you end up creating a new creditor for yourself, and it’s the biggest most powerful collection agency in the world, the IRS. But at least it’s not the meanest, that distinction goes to the Franchise Tax Board of the State of California.

What pitfalls did you encounter?  Pin, Tweet, Plus and Share This Article.


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10 Things You Must Know About Chapter 13 If You Do Not Qualify for Chapter 7

So, Attorney Gandalf has told you that “You Shall NOT Pass!”

That’s what Gandalf in the Lord of the Rings told the Demon-Balrog as it attempted to cross a narrow bridge deep in the Mines of Moria. So now you’ve been told by another attorney that you don’t qualify for a Chapter 7 bankruptcy. You’ve failed the Means Test. Perhaps based on your own research you think your income might be too high. But it’s not like you’re wealthy and or made of money. You’re struggling just like everyone else, just at a higher level of income. At the end of the month, you have the same amount left over as everyone else; nothing.

What now?

Get a 2nd Opinion About the Means Test

I’ve seen cases where a client’s initial consultation with another attorney missed a couple of key items that made all the difference. When you come in for your free consultation, we’ll go over them together. Attorneys are not supermen, we’re fallible.

Okay, I’m not but some are. Some of the lawyers who are newer in the field of bankruptcy might not know all the ins and outs yet. I’ve filed several Chapter 7 cases where the first attorney thought that the clients didn’t pass the Chapter 7 Qualification Test called the Means Test.

Let me have a look at it if you’re in California, maybe I can help you. I’ve been a bankruptcy attorney since 1994 and I’m located in Murrieta conveniently close to Temecula, Riverside, Wildomar, Menifee, Lake Elsinore, Canyon Lake, Santa Ana and San Diego.

Sometimes Your Only Bankruptcy Option is Chapter 13

There are worse things, just ask Gandalf, more importantly ask the Balrog.  But if you have to file a Chapter 13, there are things you must know.  Here are the first 10 that come to mind off the top of my head.
First: It’s not the end of the world.  The sky will not fall. The police will not show up and arrest you (there is no debtor’s prison). Your friends will not laugh at you. In fact more of them have filed or are about to than you might imagine. You won’t walk around with a watermark of a B on your forehead. Frankly, if you make too much money to file a chapter 7 then that’s a good problem to have. You’re going to get to do what you promised to do in the first place; pay your debts.

Second: A Chapter 13 bankruptcy is a bankruptcy with a payment plan attached. If you don’t qualify for a chapter 7, your payment plan must be 60 months unless you’re able to pay it off earlier. You might even be able to strip your 2nd mortgage lien off of your house.

Third: If you don’t qualify for a chapter 7, your chapter 13 bankruptcy has a version of the Means Test too and it is used to determine, at least in part, how much of your unsecured non-priority debts you must pay back through your chapter 13 payment plan.

The definition of unsecured is any debt that is not attached to something that can be repossessed if you don’t make the payments. Priority debts, roughly speaking, are debts that either you owe directly to the government or that the government must pay if you don’t. So for instance, credit cards and medical bills are unsecured. So are student loans. Recent taxes are priority debts, which you do owe directly to the government. Child support is a priority debt too because if you don’t pay, then the custodial parent may be forced to go on welfare. But student loans on the other hand are not priority debts because if they were a lot of people would never qualify for Chapter 13. But that’s a whole nuther ball o’ wax!

Fourth: You may not have to pay all your credit cards, medical bills, student loans, old taxes (under the right circumstances and conditions of which there are many) and so on in full. Depending on your circumstances, you may be able pay off lates on your mortgage, back child support and recent taxes in full while paying only what you can afford to on your credit cards, medical bills, student loans, and old taxes.  Of course, you will still owe any unpaid student loans after your chapter 13 payment plan is over.

So, “it puts a book mark in the student loan.”  ~Anna.

Fifth: The other thing that determines how much of your unsecured non-priority debt is how much stuff you own. If you have accumulated a lot of stuff or a lot of unprotected savings, you may have to buy it back again. So, never ever have unprotected savings. Basically if you could protect only $50,000 worth of stuff but you have $75,000 then you must pay at least $25,000 into your chapter 13 bankruptcy. So, whichever requires you to pay more is the one that you go with.

Sixth:  Even if you have to pay everything in full, 100% of the principal on your unsecured non-priority debts, but if you can do it with 0% interest, then you will most likely have a lower payment than if you go to a debt consolidation program outside of a bankruptcy.

Seventh:  If you pay less than 100% of the principal they will take your tax refunds away from you every year you are in your chapter 13 bankruptcy so sometimes it’s better to bite the bullet do a 100% payment plan.

Eighth: If you owe more than $1,149,525 to secured debts such as your houses and cars, you can’t file a chapter 13.  Or if your credit cards and medical bills and other unsecured non-priority debts come to more than $383,175 then you cannot file a chapter 13. In those circumstances your options are consolidate your debts outside of bankruptcy, settle some of the debt and then file the 13 or try a 7 anyway and hope they don’t try to force you into a chapter 11 where you will have to pay more than $20K in attorney’s fees (and that’s just the beginning).

Ninth: If you’ve been behind on your payments to your houses and cars then in some jurisdictions your bankruptcy judge will require that you pay your regular monthly payment on your mortgage to your bankruptcy trustee rather than directly to your mortgage bank.  In the Central District of California in the Riverside Division, there is one judge that does require this.  Called a conduit payment, it helps to insure that you don’t get into any further trouble with your mortgage payments.  However, if you haven’t been behind in your house payments, then you are still allowed to pay directly even in that Judge’s Court.

Tenth:  A Chapter 13 bankruptcy has a qualification test too, it’s called the feasibility test, which means what it basically sounds like.  You have to be able to pay the payment plan.  If you can’t, then they dismiss your case or suggest that you convert to a chapter 7 bankruptcy.  So, if at a later date you lose a job, or your spouse loses their job or that second job, then maybe you can request that the judge assigned to your chapter 13 reduce your plan payment based on the new lower income or even request a conversion to chapter 7.

I’ll be expanding the list, so if there’s something you think should be on the MUST KNOW List, please put it in a comment below.  I look forward to your thoughts.

45 Famous Celebrity Bankruptcies

45 Celebrities and Entrepreneurs who Filed Bankruptcy

For many people, filing a Bankruptcy is the last thing they ever wanted to do. In fact, they probably never imagined that they would have ended up needing to file a Bankruptcy.They had always planned to pay their debts. They are the hard working American people.

The Key Word: Need

The key word is “need”. When you have tried everything else and still can’t fix your financial life, a Bankruptcy  is a wonderful relief. Maybe some unexpected life event has taken place such as medical bills, divorce, loss of job or any myriad of circumstances. What if your business partner steals all the money in your business bank accounts and flies off to Tahiti?  What if your album sales slow down and you can no longer afford to pay your tiger handlers and at the same time pay the employees who run the roller coaster and the carousel?  Or if your child support gets raised and you can’t pay your credit cards anymore?

Don’t Sweat the Small Stuff, and it’s All Small Stuff

If that is the case, that you find yourself needing to file a Bankruptcy, then there is no reason to feel bad for having to file. You will find yourself in good company! Here is a partial list of some of the famous and important members of the history that have had to do just that, file a Bankruptcy. Just seeing Walt Disney on the list, isn’t it a comfort to realize that filing a Bankruptcy didn’t put a stop to everything in his life, on the contrary, what a legacy he left to the whole world!

Historical figures that changed the world such as Walt Disney, Wolfgang Amadeus Mozart, Oscar Wilde, Mark Twain, PT Barnum, Milton Hershey. Celebrities such as Larry King, Anna Nicole Smith, Gary Busey, Kim Bassinger, Mickey Rooney, Debbie Reynolds, Burt Reynolds, Don Johnson. Worldclass Singers such as Michael Jackson, M C Hammer, Dionne Warwick, Wayne Newton, Cyndi Lauper, Tammy Wynette, Willie Nelson, Mick Fleetwood, Wayne Newton, Merle Haggard. Sports figures Mike Tyson, Dorothy Hamill, Tony Gwynn. Presidents of the United States  Abraham Lincoln, Thomas Jefferson, and World renown businessman (who some excepted to run for President) Donald Trump. Trump didn’t personally file, but four of the companies that bear his name filed. He understands business, and he understood it was necessary in order to be able to rebuild.

Of course if we are doing something unreasonable that makes us end up having to file, then we might feel bad that we didn’t change our life style and prevent it in time. An example would be Michael Jackson who filed because it was taking $10 Million dollars a month to run his Neverland Ranch. Is it really necessary to maintain a lifestyle that requires that much money per month? Wouldn’t it be possible to scale back and prevent having to file ahead of time?

But Don’t Do Something Stupid Either!

Wait, if someone was caught lying to the Bankruptcy Court they would feel bad! But really, with the penalties faced for lying to the Bankruptcy Court or for hiding Assets why would anyone do this? Teresa Giudice

(Reality TV Show Real Housewives of New Jersey) and her husband Joe are in plenty of hot water with the Bankruptcy Court, they are accused of hiding major assets and lying on their bankruptcy petition. Of course, at this point, we cannot say that they did lie, only that they’re accused of it.  They are facing more than 50 years in federal prison, and not the club fed version of it where we send regular white collar criminals and politicians.  Additionally they face Millions in fines. They have pleaded not guilty to charges of Fraud. That would be the moment when lying about the lavish lifestyle doesn’t make the fraud worth the time in court, the hassle, or prison.

If convicted you are not able to discharge your debts. This doesn’t mean your case is dismissed, you will still be turning over your property to the Trustee so the stuff you own can be auctioned off. And you can’t discharge your debts in future bankruptcies either. There is a big sign in the hearing room with the reminder that you are under penalty of perjury, you need to be telling the truth, and that the penalty for making a false statement or concealing property is a fine of up to $500,000 or imprisonment for up to five years, or both.
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What to do When You’ve Forgotten a Creditor

FORGOTTEN CREDITORS

Chapter 7

If you forgot a creditor, do you still owe it when your case is over?  In most Chapter 7 cases, no you don’t.

Of course the analysis is different for the different chapters of bankruptcy.  In Chapter 7 bankruptcy if you inadvertently leave a creditor off your petition, whether you have to pay them back or not depends on two things:  1. Did you rip this creditor off or cheat them out of their money or intentionally injure their person or property? OR 2. Did the Trustee assigned to your case set a deadline for creditors to submit claims for money.

Pretty much, if a creditor is left off your chapter 7 bankruptcy and if you didn’t cheat them out of their money in some way or intentionally harm them, then in most cases your debt will be discharged even though it was left out of the petition.

This is true only when your bankruptcy trustee did NOT set a deadline for creditors to make claims for money. The debt is automatically discharged. You don’t even have to reopen your case and add them to it, you just send them a copy of your discharge and remind them that you owed them before you filed your bankruptcy.  See Beezley v. California Land Title Co, (In re Beezley), 994 F.2d 1433, 1434 (9th Cir. 1993) (per curiam).

A bankruptcy trustee will only set that deadline if you have money or property that he can take away from you, sell, and pay the proceeds to your creditors.  For the vast majority of you, this will never happen.

To make the issue just a little clearer than mud, here’s a copy of the statute, 11 USC Section 523(a)(3):

[A debt is not discharged in bankruptcy if it is]

(3) neither listed nor scheduled . . .  with the name . . . of the creditor to whom such debt is owed, in time to permit—
(A) . . . timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing; OR
(B) [if you did commit fraud, embezzlement or intentional injuries or damage] . . . . , timely filing of a proof of claim AND timely request for a determination of dischargeability of such debt . . . unless such creditor had notice or actual knowledge of the case in time for such timely filing and request; 

11 USC Section 523(a)(3)(A)

ON THE LIGHTER SIDE: A bankruptcy trustee only sets a deadline for creditors to submit proofs of claim when he finds that you property that he can take away from you, sell, and pay your creditors.  This deadline is called a claims bar date.  So, for instance, you have a house with $50,000 in equity and you also have a cabin in the woods worth $10,000.  More typical is your home has $50,000 in equity and when that happens you can only protect about $3000 in cars.  If your car is worth $10,000 then your trustee is going to sell it and pay you a $3000 check.  You won’t be able to keep both the house and the car.

Your bankruptcy trustee will sell your car or cabin and split the proceeds among your creditors and that is true even if it would only pay your creditors 1% of what you owe them. Of course, if your cabin really is only worth $10,000 then he might not find a buyer.  What if he doesn’t?  Your trustee will still have already set the claims bar date anyway because he sets that long before he finds out that no one wants to buy your cabin afterall.

Your bankruptcy trustee might not set the claims bar date until months after your case has already discharged.  Once the trustee notifies the court that there may be assets, a claims bar date is set.  That date is usually 90 days after the bankruptcy trustee notifies the court.  At that point, you should definitely make sure that every creditor listed in your case is listed with the correct address.  Double check all of your records to make sure none were left out.  If you listed a creditor at the wrong address, then they won’t know about the bankruptcy and won’t get a share. So, Google all their corporate addresses.  Go to AnnualCreditReport.com or FreeCreditReport.com and to help make sure no one is missing.

If your creditor was not notified or if you used the wrong address, or if you found the right address but notified them too late to submit a proof of claim, then that creditor will not be discharged and you will owe them in full.  That is the start of a bad day.

Unless you can prove that the creditor had notice or actual knowledge.  So, for example, you had a business partnership and you listed both of your partners as creditors.  If however one of them moved but then he finds out that you filed from the other partner who didn’t move . . . then you just have to be able to prove that he knew in spite of the move.

It could be as simple as getting the one to testify and say that he told the other. Good luck with that one, they’ll probably collude to testify that he didn’t and then split what you owe the guy who moved.  Or if the move-away partner telephoned and left a snarky or nasty message about it.  You’ve got him.  If you scanned the notice of commencement of case and emailed it to him, then you’d be able to prove that you’d done that.

Best of course, if you realize that a creditor has been left out, and if you know that the bankruptcy trustee is setting the claims bar date, double check everything and amend your bankruptcy as necessary.  That’s going to cost some money, but it’s better than paying them back.

11 USC Section 523(a)(3)(B)

THE DARK SIDE: Basically the gist of this is: If you cheated a creditor either by fraud, theft, embezzlement, or intentional injury to person or property, then leaving them off your bankruptcy is not going to protect you from them.  You cannot beat these kinds of creditors by adding them late by amendment with only a week or two to go to the end of your case.  If a creditor would have a claim for this kind of debt, they must ask a judge to exclude them from your discharge.  But they must make that request in writing and file it with the court during the 60 days after your first hearing date.

Your first hearing date is called your first meeting of creditors.  The request that a creditor must file against you is a special type of lawsuit called an Adversary Proceeding.  If they were notified properly AND don’t file this lawsuit, then they have already lost.  It’s like a mini-Statute of Limitations, but it only works if they in fact knew about it.  If the creditor knew that you filed, and does not sue, then they lose by Default.

But subsection (B) of the statute has that little word, “and” in the text, what does that do?  “filing of a proof of claim and timely request for a determination of dischargeability”.  Does that mean that if you cheated a creditor out of money that the bankruptcy trustee must still file a notice to set a deadline to file proofs of claim in order for their claim to survive the bankruptcy discharge order?

Basically it works this way: Above on the lighter side, where there was NO fraud, NO embezzlement,  and NO intentional harm, the debt was discharged with nothing more happening.  In the dark side, where you DID cheat the creditor or you DID intentionally harm the creditor, the debt is NOT discharged.  However, the creditor has the same requirement to file an adversary proceeding to prove it.

When do they have to file that lawsuit though?  Since they didn’t get notice, then whenever they file it, it will be timely.  So, my recommendation is to reopen the case, add the creditor, and ask the court to determine a last date for that creditor to file their lawsuit against you.

Most creditors even when they have pretty good cases will still never bother to sue you in the bankruptcy court.  Especially when we’re talking about institutional creditors like the big banks.  A small creditor like The Piano Credit Company will sue you for fraud even when anyone can see that you never did it.  Your best friend who lent you some money or your former business partner, those are the ones that sue you.

Chapter 13

In chapter 13 bankruptcy, every case is an asset case and every case has a deadline set automatically for creditors to submit proofs of claim.

So, it is very important to make sure that your addresses are all correct, and that you have listed every one you might owe money or property.  You can download each of your three credit reports for free at AnnualCreditReport.com, and for a small fee you can download them at FreeCreditReport.com.  Keep in mind however that not all of your creditors will have reported to the credit reporting agencies and sometimes they are temporarily off of the reports.

If you are in bad financial circumstances, do not throw anything away.  Keep every invoice or billing statement that you ever get.  Keep every collection letter and every letter from an attorney.  If ever have to come and see me, you may wish you still had them someday.  Do not throw them away.

Bankruptcy Attorney’s Fees in Chapter 7 and Chapter 13

Chapter 7

Chapter 7 is a short procedure.  Also called a straight bankruptcy, it lasts about 4 months.  You pay for it in advance to your attorney via cash, check or money order.  I no longer take checks. I’ve learned something: Every time a client  makes the effort to tell me that his check is good, it isn’t.  And that’s the case so far, every single time that a client has told me that.  So most of us won’t ever take a check.

Reasonable Fees

Sometimes your bankruptcy will cost a pretty penny even with me.  Whether you file in Riverside, San Diego, Santa Ana or Los Angeles, whether you live in Murrieta, Temecula, Menifee, Wildomar, Lake Elsinore, or Canyon Lake, I’m nearby and my fees are reasonable.  I aim to keep things affordable by basing my fees on your income.  If you’re on social security disability my current fees are $800 + the Filing Fee for a chapter 7.

Higher fees are what you will usually find with the other guys.  If your attorney has a big expensive office or several names on the door, you’re going to pay more.  Sometimes that’s what you want, if you’ve committed fraud or basically if you’ve cheated a few people or banks out of money, then you may want a law firm with that kind of litigation support.  However, remember that defending against creditors that you cheated out of money is going to cost you a lot extra, so having a higher priced firm might be a bad idea. If you cannot afford to defend yourself for your misdeeds then if you get sued, you’re going to lose no matter who your attorney is, because we don’t defend those for free.

And if you’re just a regular person who got caught in bad circumstances such as a divorce, medical emergency, death in the family, your company closed etc, then a boutique firm is probably going to be a better option.  However, attorney’s fees in any bankruptcy case must be reasonable.

Within the bankruptcy petition, the fees must be disclosed on two different forms.  If the fees disclosed are not reasonable the bankruptcy trustee assigned to your case is supposed to ask your attorney about it.  Make sure as you review your petition that the fees disclosed match the fees you paid.  If they don’t, you might bring it up to your bankruptcy trustee at the hearing.  If for instance your attorney charged you $4000 for a chapter 7 bankruptcy then listed that he’s charged you only $2500, then he’s trying to hide the actual fees from the bankruptcy trustee.  If he says he’s charged you $700 when he charged you $900 it’s an insignificant typo.  Don’t sweat it.

Fees in California must be not “Unconscionable” which basically means something to the effect of does the fee charged shock the conscience of the court.  But in Bankruptcy, the fees must be reasonable even in California.  This is a safeguard for you to protect you from unscrupulous attorneys.

UNPAID Attorney’s Fees

Listen, this is my favorite issue:  If at time of filing of your Chapter 7 bankruptcy, there are any unpaid attorney‘s fees, they are added to your credit card balances and are discharged. From the moment of filing your attorney can never ask you to pay your balance of attorney’s fees ever again. Your attorney knows that of course, better than anyone, and therefore your attorney can never ask for you to ever pay your fees ever. Never, never, never.  Is that enough Nevers yet?

If he does you can most likely get the bankruptcy judge to order your attorney to pay you punitive damages.  See In Re Waldo, 417 B.R. 854 (Bankr. E.D. Tenn., 2009) and this Article. So, if an attorney suggested filing your Chapter 7 case without paying any attorney‘s fees prior to filing the case, take it.  If he then asks you to pay your attorney‘s fees after filing your case, let me know, and I’ll sue him for you, where he will lose and he will pay my attorney‘s fees to sue him and he may also be required to pay you punitive damages.  

Chapter 13

In Chapter 13 instead of a straight bankruptcy you are in a Chapter 13 reorganization plan where you pay a portion of your debts back usually over a 3 to 5 year period.  For attorney‘s fees you pay a down payment to your attorney via cash, check or money order, it could be as little as the filing fee, but could more.  I’ve seen a case where an attorney takes only $75 against the filing fee then he asks the court to allow you to pay your filing fee in installment payments.  Personally, I find that odd because if you can’t afford to pay even the filing fee how are you going to pay your chapter 13 plan payments?I usually charge as up front fees the same amount as a chapter 7 and of course you must also pay the filing fee for the chapter 13 prior to filing the case.  The balance of the $4000 in attorney‘s fees (standard for a chapter 13) are paid through the monthly payment plan.  So, if you put down $1000 plus the fling fee then the other $3000 would be divided by 60 months and added to your monthly payment.

These are Rare But I have Seen Them Happen

Often attorneys who have no morals will put you into a payment plan type bankruptcy, or chapter 13 when you cannot afford to pay your attorney‘s fees prior to filing the case.  That way they get more attorney‘s fees out of you.  It’s an Up-Sell to a chapter 13.  You cannot afford the $1000 or $1200 for a chapter 7 but your house is about to be foreclosed or your wages are about to be garnished or your bank account is about to be taken by a creditor called a bank levy.  Rather than suggesting you sell something or borrow from your mom, he just charges you the filing fee for a chapter 13, and presto your case is filed.  Your bankruptcy protection is started.

Is it just to get you to pay the $4000 in attorney‘s rather than the closer to  $1000 for a chapter 7?  Sometimes yes.  But if you easily qualify for a chapter 7 then filing a 13 is a disservice to you because you will not be able to sustain the plan payment in the long run, not even a little one, and then you’ll be wishing for a chapter 7 anyway.  Then he can charge you to convert your bankruptcy case to a chapter 7 and get coming and going.

I’ve met clients of an attorney who actually told people that their county, San Bernardino, only allowed a minimal amount of rent on the chapter 7 qualification test (means test) as an expense regardless of family size and that therefore those 4 clients could not file a chapter 7.  I went to the US Trustee’s Main Office in Riverside and told them so because this is patently false.  The housing expense in the means test increases as your family size increases in every state and county in the country.There was another attorney who told an old lady from Menifee that she could pay her attorney‘s fees after the case had been filed.  She paid her filing fee but after her case was over she could still not afford to pay.  So, that attorney’s paralegal called her and told her that her bankruptcy Trustee was going to reopen the case and start investigating assets again, however, the paralegal continued, the little old lady’s attorney could make it go away if the little old lady would just pay him $1000 in cash by the following Tuesday.So I telephoned her bankruptcy Trustee and found out that it was all a lie and that her bankruptcy trustee had not even contacted the attorney.  I suggested that the little old lady turn him in to bar, her bankruptcy Trustee, the US Trustee’s Office and to write a letter to the judge assigned to her case.  She did.

I’ve also seen attorneys who would file an emergency filing or “bare bones” case for you real cheap. When you do that you must within 14 days file the balance of the schedules and statements i.e. the pages of the petition which explain who your creditors are and what your income and expenses are and if you pass the means test or not.  So, what the attorneys did was to charge you a mere pittance to file the emergency case but an arm and a leg to file the balance of schedules.  The emergency case was $200 plus the filing fee but the balance of schedules was another $3500, and you’re over a barrel, you must file the balance or your case will be dismissed by the court.  

I recently saw a case where a client’s bankruptcy attorney was suspended by the California bar during their chapter 13 and they didn’t even get notified by their attorney.  They went to that attorney‘s former office and found out about it.  The new attorney working in the office offered to take over the case for $500 which they were supposed to pay to that attorney.  However, in a chapter 13, only the initial payment of attorney‘s fees is ever paid directly to the attorney by the client.  After that, no fees get paid without court approval.  I told them that.  They went back to that attorney in Temecula and that attorney “just stared at me blank faced”.  Once a chapter 13 plan is confirmed by a bankruptcy court judge, you can never accept any fees directly from the client without a court order.  Then the bankruptcy trustee on your chapter 13 case pays those attorney‘s fees to your attorney through the chapter 13 plan as a plan distribution.  

If you have any other concerns, questions or comments please write back back in the comments section below.

Murrieta Chapter 13 Bankruptcy

In Murrieta and Temecula a chapter 13 bankruptcy is a fantastic financial tool for restructuring your debt and making life easier and finances manageable. You could potentially reduce your monthly payments by several hundred or more than a thousand dollars.  Particularly when your debts are for the types of obligations that are revolving or renewing. 

If you’re considering a debt consolidation loan, a chapter 13 bankruptcy may be just what you need.  A chapter 13 bankruptcy allows you to consolidate your debts and separate them into classes.  You can reduce a car payment, both by cutting the interest rates and extending the term of the loan and paying it off ahead of the credit cards.  You can include child support and income taxes and give them a higher priority in the payment plan so that they get paid off completely and ahead of the credit cards too.  Your credit cards and medical bills and gambling markers get paid whatever is left over. 

Example: if you owed $15000 on a car, $15000 in back child support and $30,000 to credit cards, and if your budget only allowed a payment of $700.  You’d setup a 60 month plan for $700/mo.  Normally you’d have to pay probably $1500 to $2000 per month on that debt depending on interest rates and terms.  Of the $700/mo that you would pay for the 60 month plan, your credit cards would get approximately only $200/mo.  Less in fact because the bankruptcy trustee would take his fees out of that $200 and also the car would have a small interest rate applied but not compounded.

Call now to get started today or to see if a chapter 13 bankruptcy is right for you. Call 951-200-3613.

Debt Consolidation Loans

In Murrieta and Temecula there are great places to obtain debt consolidation loans.  In many cases a debt consolidation loan is a fantastic financial tool for restructuring your debt and making life easier and finances manageable.  Particularly when your debts are for the types of obligations that are not revolving or renewing. 

If you’re considering a debt consolidation loan, a chapter 13 bankruptcy may be just what you need.  A chapter 13 bankruptcy allows you to consolidate your debts and separate them into classes.  You can reduce a car payment, both by cutting the interest rates and extending the term of the loan and paying it off ahead of the credit cards.  You can include child support and income taxes and give them a higher priority in the payment plan so that they get paid off completely and ahead of the credit cards too.  Your credit cards and medical bills and gambling markers get paid whatever is left over. 

Example: if you owed $15000 on a car, $15000 in back child support and $30,000 to credit cards, and if your budget only allowed a payment of $700.  You’d setup a 60 month plan for $700/mo.  Normally you’d have to pay probably $1500 to $2000 per month on that debt depending on interest rates and terms.  Of the $700/mo that you would pay for the 60 month plan, your credit cards would get approximately only $200/mo.  Less in fact because the bankruptcy trustee would take his fees out of that $200 and also the car would have a small interest rate applied but not compounded.

Recent Taxes

While sufficiently old enough income taxes can be discharged in a bankruptcy, more recent income taxes cannot be.  Income taxes that date back only one, two or three years cannot be discharged in bankruptcy.  This is true in California for the Federal and State income taxes as well as California Sales Taxes.  If the debt is sufficently high you may want to consider waiting out the time required and then filing a bankruptcy when they are ripe enough to do a bankruptcy. 

However, if the debt would be manageable if you just had a low interest rate and a fixed payment for 36 or 48 or 60 months, then a debt consolidation loan might be right for you.  Keep in mind that the interest that the IRS charges is 10% but on top of that, stiff penalties are added whenever the debt has a remaining balance.  If you set up a minimum payment plan directly with the IRS, you’re having more than a 20% interest rate and unpaid interest and penalties are capitalized back into the loan.  Worse is that if you end up owing money next year your payment plan will be cancelled and the full balance on both years will be immediately required by the IRS.

A Debt Consolidation Loan may be exactly what you need in this situation.  As a quick side note there is a special bankruptcy rule which states that if you obtain a loan to pay a tax and then try to discharge the new loan in a bankrutpcy, you must follow the same bankruptcy rules as though it were still a tax in order to discharge it.

Student Loans and Back Child Support 

Neither of these is dischargeable in bankruptcy.  However, neither Student loans nor Child Support have that same rule as the income taxes.  If you obtain a consolidation loan to pay off student loans or child support, and you later find yourself unable to pay off the new loan, there is no bankruptcy rule forcing you to follow the student loan bankruptcy rules nor the child support rules for the consolidation loan.  So, they get discharged.

There are plenty of student loan debt consolidation programs and some have 20 year payment plans, or extended plans and some have income contingent plans.  However my favorite is to just get a normal consolidation loan.  It does better things for your credit files and credit scores and if you fall on hard times afterwards, you can discharge it in a bankruptcy. 

Open Credit Cards with Zero Balances

By far the worst thing you can do is to consolidate credit cards with a new loan or line of credit.  Examples I’ve seen come into the office include but are not limited to the following, a couple has $60,000 in debt consolidation loans and another $60,000 in revolving credit on 10 different credit cards.  Ike, the husband had gambled up $60,000 in credit cards so his wife, Inez went to the bank and got a consolidation loan and paid them off.  However, it left 10 credit cards open with zero balances.  

That’s like handing an open bottle of Rum to an alcoholic pirate; no impulse control and he gambled them all up again.  

In Murrieta and Temecula, if your debts are primarily credit cards consider filing chapter 7 bankruptcy or if you make too much money, file a chapter 13Imagine how much happier Inez would be if she’d talked him into filing a bankruptcy instead of running up the 10 credit cards over again.  How many arguments about money could have been avoided?  How many arguments did they have about the low income, the missed vacations, missed investments, missed retirement savings? If those credit cards had been closed permanently, they might have stayed married. 

I’ve seen a spouse get a consolidation loan, and then call all the credit card companies and close the accounts.  It didn’t work.  The other spouse just called all the credit card companies the next day and asked for the cards to be opened back up again.  And the credit card companies did it.

If you’re considering a debt consolidation loan, a chapter 13 bankruptcy may be just what you need.  A chapter 13 bankruptcy allows you to consolidate your debts and separate them into classes.  You can reduce a car payment, both by cutting the interest rates and extending the term of the loan, and you pay it off ahead of the credit cards.  You can include child support and income taxes and give them a higher priority in the payment plan so that they get paid off completely and ahead of the credit cards too.  Your credit cards and medical bills and gambling markers and whatnot get paid whatever is left over. 

All the cards are closed and no one is going to call back and reopen them either.  Call me now and lets get you started doing something about your debts.  Take action and fix your finances.  951-200-3613.

The Bankruptcy Minute

I heard from Attorney Lorene Mies who runs the Bankruptcy Minute ads.  She was unequivocal that she spends as much time as she needs to with you in your consultations.  I want to add that here.  A little while ago, an attorney who knows her well, Bankruptcy Attorney Michael Gouveia, just out of the blue expressed to me that he has great respect for her and her professionalism and her practice.  Rather than change this post, I’ve decided to add these two paragraphs. 

I believe that if you are considering Ms Mies as your attorney, then you should go for it.  I am adding my recommendation to that of Bankruptcy Attorney Mike Gouveia who stated that she’s professional and very good at what she does.  What I noticed recently about her is that she shows up to her own hearings.  A great many attorneys will never go the hearing with you and will hire another attorney to go to your hearing for you.  Sometimes we have to, but there are some attorneys who do it for every hearing just as a matter of routine.  I don’t think that’s fair to the client and clearly she doesn’t think so either.  Not only that, she was way early.  That day she didn’t beat me to the court house but she was dressed better.  To sum up, I apologize to Ms. Mies who didn’t like the way this post sounded without these two paragraphs. If you’ve already decided to use Ms. Mies, then be assured, you’ll be well taken care of.

Because I like her radio commercials, and the sound of her voice, I mentioned her here so you can ask her yourself.

Because Friends Don’t Let Friends Pay Credit Cards From Savings

Why Bankruptcy? Because Friends Don’t Let Friends Pay Credit Cards From Savings
Legal Notice: You are not my client, this is not legal advice, it’s a bunch of codswallop and hogwash, rely on it at your own peril, nor does reading this article make you my client. If you rely on this information and use it in your case and it goes badly for you, tough noogies.

So you’ve lost your job, broken your leg, gotten a divorce or someone has died.

You find out that on top of the $20K in credit card bills that you knew about, there’s another $30K that you didn’t.

I’ve heard all of this before.

Let this be a lesson to you, if you are letting your spouse do all of the finances, stop, wake up and smell the plastic. Go into the bills and read each one. If English is not your strong suit, bring a friend. Chances are, if only one spouse is ever doing all the accounting then that person may have bad things hiding in that pile of papers that he or she refers to affectionately as the bills.

No, it’s probably not a girlfriend or boyfriend, could be but probably not, but it could be a gambling problem or worse. And it could just be that after 15 years of spending $200 more per month than you earn, the total balances on all credit cards is now $36,000 higher than you thought. ($200 x 12months) x 15 yrs = $36,000. Of course it will be a bit smaller because of monthly payments or it could be a lot higher if some cards were used to pay other cards which usually happens after a few years of living that way.

I once had a client whose spouse had a gambling problem, that spouse had a friend who was a notary, who also had a gambling problem. They were partners in crime. While the innocent spouse was out to sea double entendre intended with the Navy, the stateside spouse and the in-cahoots-notary got together and created a 2nd mortgage and pulled all the equity out of the house and gambled it away while the innocent spouse was gone. Needless to say the innocent spouse also asked me if I do divorces, I don’t.

Face it, if you’re letting your spouse handle all of your finances, then guess what, eventually you’re going to end up alone and living la vida broke-a because you’ve only got a 50-50 chance of not getting divorced, but the other half end in death and either way, one or both of you ends up alone. I cannot begin to tell you how many widows and widowers I’ve met with who had no idea that the life insurance hadn’t been paid, had no idea that the cash value in the life insurance had been withdrawn and spent on girls, guns, boys, gambling, drugs, alcohol, and good times. More often, it’s like I stated in the first place, you’ve been living on $100 to $200 less per month and paying that difference with credit cards for the last 15 years, and I’ve seen that go on for 25 years as well. You’ve been just living a bit above your means, or your income.

So, you’re broke and alone and you realize that you’re not completely destitute, there’s some savings socked away somewhere.

Let’s say you find you’re left with $50K in debts on credit cards and unsecured loans, such as signature loans.

You’ve got $100K in your 401k plan, $20K in cash in the bank, some clothes, some furniture (no antiques or heirlooms), one 12 year old Honda Accord with a big rumple in the fender, you’ve got wedding rings that are 20 years old and you only paid $1000 for them back then (retail), your home is worth $200K and you’ve got a loan on it for $150K. And that’s all you’ve got.

You don’t have a job, you’re alone and you’re 50 years old, and you if you could get a job, you have no currently usable skills. Your only income is your dead spouse’s retirement which pays $1500/mo. What should you do? Please realize I can’t fit every scenario into one blog article. If you have specific questions you’ll have to call.

Most of your friends, Suze Orman and that buckets of money guy will probably tell you to pay off the credit cards with the cash and then tap into the 401k or pull some equity out of the house. Some of the financial pundits will get a little cheeky and say you should offer each credit card 30% or 40% and try to settle them for an average of about 35cents on the dollar. That way you could use the cash, not tap into the 401k or the house and still have a little left over. While it’s not a bad solution, remember that you still only have an income of about $1500/mo and your mortgage probably comes to about between $800/mo to $1200/mo depending on when it was refinanced last and many other factors. Even if your mortgage is low, how do you live on only $700/mo. It can be done but that’s a different article coming soon.

Why pay them even 35% when you could pay them 0%? After paying your bankruptcy attorney approximately $1500 in attorneys fees and the $300 filing fee for the case, you’ve only paid out about 3.5% of the total balances on the cards and loans. In CALIFORNIA you can keep the 401k, you can keep the equity in the house, you can keep the $20K in cash, you can keep the clothes and furniture, you can keep the little bit of jewelry, and yes, you can keep the old beater car. Is 3.5% better than 35%? No brainer.

In other words, you keep everything except the cost of filing the case. If any of the credit cards comes forward and says that that debt was created via fraud, you can say that it wasn’t your fraud, the missing spouse did it. And yes, even if the card is in your name, if it was identity theft, (your spouse stole your identity to create a card in your name), that’s not you committing fraud, it was your spouse. So sue him or her.

Bottom line, you’ve still got your 401k, your cash savings which must guard with your life because you don’t have a job. If you only spend $500/mo of it, it will last you 40 months on top of the $1500/mo in income that you do have in our little example above. You can see that if you can’t find a job in the next 40 months, then at least you had that much breathing room. If you paid out a 3rd of your savings to pay off credit cards then you’d have a year less than 40 months to find the next job. How much of a cushion is enough? With 40 months you could go back to school and finish a degree.

Sure they’ll tell you that employers are looking at your credit scores, and some do, but not if you have no interesting skills other than how to raise a family. I’ve got friends older than me who are working at Home Depot now. Great way to supplement the income but after years of raising a family there’s no other jobs they can do. I’m pretty sure credit was not an issue.

I’ll tell you about identity theft in another article.

For now, just realize that if you can keep all of your savings and file bankruptcy, why would you ever, ever do what the financial pundits tell you and pay off credit cards with savings when you don’t have a job? Anyone telling you to do that must have a freaking hole in their head. DON’T DO IT. Just Say NO. If you are not in California, go to the attorney of your choice and ask what you could keep if you filed a bankruptcy in that state. Also, if you live in Arizona, move to El Centro or the nearest California City closest to you and commute to work if you have a job or whatever you commute to and then file. That way you won’t be an Arizona resident when you file and, while you won’t get to keep $20K in cash like you would if you were from California, it will at least be substantially more than what Arizona will allow you to keep when you file.

Bankruptcy Means Test Basics

Bankruptcy Means Test Basics

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Bankruptcy Means Test is the Chapter 7 Qualification Test. However, if you do not qualify for a 7, it is also used to determine the amount of your chapter 13 plan payment. Additionally, it determines the duration of you chapter 13 plan.

If your income is above the median income your chapter 13 payment plan must last for 5 years.  If below then only 3 years.

You can always file a chapter 13 which is often a much better idea than a debt consolidation. A chapter 13 is a type of debt consolidation however, you as the consumer have the upper hand.  You have the power.

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Reaffirmation Agreements

REAFFIRMATION AGREEMENTS

A Reaffirmation Agreement is a new promissory note to keep paying on an old contract for the purchase of goods where the lender can repossess or foreclose the goods.  Because you have signed a security agreement the lender has the right to repossess or foreclose if you do not pay for it.

Chapter 7 bankruptcy discharges your personal obligation to pay the loan, or in other words, you no longer have to legally pay on the note.  However, the lender still has a lien on the object(s) in question. Jewelry, refrigerators or large appliances, and most notably cars can be repossessed in this way.

What a reaffirmation agreement does: It allows you and the lender to agree that you may keep the goods so long as you continue to pay for them.  When executing a reaffirmation agreement with the lender sometimes the lender will reduce the balance owing, the interest rate or both.  As a result the payment and term can be reduced.

Nowadays most lenders will not reduce the interest rates and balances on cars.  Home mortgages never do.  You can often reduce the balance and interest rates on appliances, jewelry, computers and motorcycles.

If you do sign a reaffirmation agreement, you will have 60 days to change your mind and rescind it.  Rescissions must be in writing, served on the creditor and preferably filed with the court.

MORTGAGES

You would never reaffirm a mortgage.  Never.  Seldom but sometimes a mortgage lender will tell a client that the client’s post bankruptcy mortgage account would show up as good credit on their credit report if the client had just done a reaffirmation agreement.  It’s all the bankruptcy attorney’s fault that the client’s credit is not better than it is right now because he didn’t tell the poor client to reaffirm the mortgage.

Most mortgage companies will not do this to you, just a few.  Ones that do are unscrupulous and are aiming to get you to sign your life away.  They want you tied to that mortgage through the reaffirmation agreement come hell or high water.  If they can just do that, then if you foreclose, maybe they can sue you.  If you are in a worse position later, maybe you have to short sell, and when you do, they will ask you to pay them back sometimes, $10,000 to $50,000 in order for them to approve the short sale.

No, we don’t know what will happen, but I have a client right now who is being sued by a lender, his former first mortgage, who asked him to sign just such a promissory note in order to approve his short sale.  Fortunately for him, he did not do a reaffirmation on his mortgage during his bankruptcy.  Therefore, his mortgage company cannot in fact stick him with the debt, but for some reason they think that they can.  Wrong, they cannot.  We will be suing them soon for violating the Bankruptcy Discharge Order.

Because we do not have a crystal ball, and because the length of the term of a mortgage is so long, we NEVER sign a reaffirmation agreement on a mortgage.  This is the industry standard.

CARS AND VEHICLES

Legally, WITHOUT a reaffirmation agreement the lender can repossess your car, even if the car payments are current.  However, at this writing, the only companies who do are Ford Motor Credit & Jaguar Credit & California Coast Credit Union.   I cannot promise that other companies will not change their policies and begin behaving like Ford.

WITH a reaffirmation agreement, as long as the payments are current, then they cannot take the car just as before the bankruptcy.  However, just as before the bankruptcy, if you get behind in payments they will take the car AND sue you for a deficiency balance.

If you get behind, WITH or WITHOUT a reaffirmation agreement, they will definitely repossess the car.  So, the thing to do is to ask yourself, is the economy getting better or worse?  Answer:  Worse, my business is constantly picking up.  Everyone who comes in tells me that the business they work for is dropping off.  Fewer orders, fewer sales, employees are being let go.

So, if you just keep making the payments and don’t worry about it, you have a great probability of nothing changing, and eventually once the vehicle is paid off, they will still have to give you the pink slip.

If you sign and file a reaffirmation agreement, and then change your mind, you have 60 days to do so in writing and it must be in writing, signed and filed with the court.

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Bankruptcy Attorney David Nelson

Temecula Bankruptcy Attorney David NelsonTEMECULA BANKRUPTCY ATTORNEY DAVID NELSON

I have been a Bankruptcy Attorney since the very beginning. Having graduated in the top 15% of my class I passed bar the first time and in June of 1994 I opened my law office.  Back then there was a recession and it was just natural to open a bankruptcy practice.  I saw a need and was able to fill it.

I’m an expert in the field of bankruptcy.  Since 1994, I have been passionate about getting my clients out of the troubles they find themselves in.  Certainly many of us might think that if we’d just planned better, we would have been able to avoid the challenges facing the country right now.  While it might be true, it’s probably more accurate to say that there was no way to plan our way out of the whole economy crashing down on us.

I’ve seen first hand the blessing that Bankruptcy can bring to individuals and families.  Think about this for a moment:  What is it that you fight about the most?  Is it too much money, “Dang what are we going to do with all these 20s honey?”  No, it’s the lack of money.

But what if we could cut the arguments in half?  What if we could at least take the arguments from: which debts do we pay this month with the little bit of money we have? and transform those to: how do we set up a savings for the little that we have?  That’s what Bankruptcy can do for you.

If you could start the day knowing that your credit cards, medical bills, repossessed cars, 2nd mortgages, and so on were all going to just disappear, how would you feel the rest of the day?

Wouldn’t you treat your spouse better?  Wouldn’t you be kinder to your children and co-workers?  Wouldn’t you have a better marriage, family, career?

I’ve probably saved more marriages than most marriage counselors over the same time period. You don’t need to know how to talk to each other about money, you must do something about it.

What if you could go back to paying your tithing or your favorite charity again?

Do something about it.  Make the Call Right now to set the Appointment that will change your lives.  Call 800 FILE AWAY or 800 345 3292, call right now.

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