Month: December 2019

Testifying at a Meeting of Creditors

in Bankruptcy

Are you heading for your first meeting of creditors?

I know you’re nervous, apprehensive, and possibly even nauseous. Clients often imagine a worst case scenario where they are raked over the coals and tricked into admitting something, just like in Matlock.  Believe me, the trustee isn’t Matlock and they aren’t going to go off the rails in a, “you can’t handle the truth” monologue like in the movie, A Few Good Men. 

In all reality, the Meeting of Creditors will most likely be a snooze fest. 

In the link below, I show you a pretty comprehensive list of questions you’ll likely be asked, depending your your circumstances list of questions a trustee might ask.

Below, I list my own rules for answering those questions.

ALWAYS listen carefully to the question

You’ve read the list above and you’ve been prepped by me prior to the hearing.  Now, it’s showtime. You need to pay close attention to the trustee and make sure that you really hear the questions. 

Number one, it’s polite.  There’s no need to be rude, shifty or evasive.  The trustee is just doing their job. Number two, you need to make sure that you know what the trustee actually wants to know from you.

Remember, your testimony is being recorded and you’ve sworn to tell the truth to the best of your knowledge.  It is imperative that you are answering the question that the trustee actually asked.

Answer Honestly

Honesty is the price of receiving bankruptcy protection.  This isn’t the best time to be dishonest. You’ve recently seen several celebrities go to jail for lying about things under their bankruptcy.  Just because you aren’t a celebrity doesn’t mean they won’t do the same thing to you if they find out you’ve knowingly lied. You are testifying under oath.  

Be brief

Just answer the question the trustee asked, honestly, without getting verbal diarrhea. Don’t try to explain your situation, don’t attempt to justify why you did what you did and most certainly don’t ramble on aimlessly. Just answer the question and if the trustee wants more information about a particular topic, they can follow up with other questions. In all honesty, the trustee usually just tries to make sure that it seems like they have done their job. The trustee has a long list of cases he must get through every day.  Don’t make their day any longer by rambling on. 

Don’t guess

If you don’t know the answer just say you don’t know the answer.  Not knowing is ok, remember, you’re just here to tell the truth. If not knowing is the truth, you’re set.  In all likelihood, your attorney can help. Chances are there are documents that provide the information that the trustee is looking for. That is why you’re paying us, afterall. 

This is one time where faking it most definitely won’t make it. 

In the end, just be yourself and just be honest.  If you follow these four rules, your first meeting of creditors will be your last.  Then you’ll be on your way to being debt free and having that fresh start you so desperately need. 

If you need help dealing with your debts and getting the fresh start you so desperately need, contact the attorneys at Harmon and Gorove and let us help you get back on your feet and brighten your future.  

Creditors and Senior Citizens: Lying in Wait to Steal from your Heirs.

in Bankruptcy

Everyone has an idea about the legacy they wish to leave behind.  What that legacy is in reality and what you want it to be can be two different things. Is your legacy to your kids an encounter with your unpaid creditors?

Often, problems with creditors for people over 65 may not be problems the elderly debtor at all. Most types of income and assets are protected by law from creditors.

Usually though, that doesn’t bother creditors.  They’ll just wait until you’re dead to steal your assets from those you wish to inherit from you. 

Seniors enjoy protection from collection

Elders  in Georgia have significant legal protections from creditors.  Exemption laws, pension law, and the Social Security Act often make it hard for creditors to seize the assets of elders, even to pay legitimate debts.

People often make the argument against seniors filing bankruptcy because of the following reasons. 

  • Social security is 100% protected from creditors (unless you owe the government).
  • Your Pensions and other retirement accounts are beyond the reach of even those with a judgment against you. 
  • Houses are not liquid assets and it’s extremely difficult for creditors to make you sell your house.
  • Seniors usually don’t have an income outside of these aforementioned sources so there’s nothing to garnish.

Because of these generous protections, senior citizens often ignore debts and use their money to pay for today’s expenses, at the expense of what they’ll leave their heirs. 

However, just because you can ignore old debt, is that really a part of the legacy you wish to leave behind?

Some debts outlive the debtor

So, what happens when you die? Does the debt go to the grave with you?  Turns out, the debt lives on.

That doesn’t mean your heirs inherit your debt; in other words, your heirs don’t become personally liable for your credit card balance.

What many people don’t realize is that debts are paid in full before heirs will receive anything.

As per probate laws, debts are paid before the estate is distributed to your heirs.  If the deceased created a living trust, the trust usually provides that the successor trustee pay the deceased’s debts first.

When debts survive the debtor, the intended heirs inherit a significantly diminished estate, or a ticking time bomb of debts that are owed to the deceased person’s creditors.

Creditors lie in wait

Everyone has heard about interest. Interest is a creditors best friend. Interest on outstanding debt is often meaningless to the senior citizen who can avoid paying it while they’re alive. The downside to this is the fact that time and interest silently eats up the senior citizen’s estate.

Who cares if there aren’t any real viable means of collection.

Waiting works for a creditor.

  • Wait til the senior dies.
  • Wait while the interest compounds.
  • Wait til the records conveniently get lost.

Creditors are often adept at lying and manipulation. They will work hard at making your heirs feel guilty and convince them to pay off the debt from their own pockets after you’ve passed on.

The generosity gene

The impulse to pass along something to your children seems to be genetically implanted in the human soul. It’s something that drives many seniors to live frugally, save and work hard. But under our legal system, paying debts is higher priority than leaving something behind for your heirs.

Despite arguments to the contrary, bankruptcy is not only appropriate for a senior with debts and assets that are protected from creditors during their lifetime, but highly advisable. 

The exemptions that protect the assets under state law and the laws that made the senior judgment proof to begin with are also there to protect you should you file bankruptcy.

Without filing bankruptcy, all the exemptions will do is just hold the creditors off during the life of the debtor.  That debt will lay in the grass, hiding like a snake, waiting to collect from your estate and ultimately, your heirs. 

Another thing you have to remember is that bankruptcy exemptions vastly more generous than probate exemptions. In fact, unless there is a surviving spouse, there may be no exemptions in probate at all. Exemptions are designed to protect the surviving spouse, not their heirs. 

Bankruptcy flips the equation

A bankruptcy, by its very nature, eliminates unsecured debts. Things like credit cards and medical bills are magically gone, while the exemptions protect assets.

One a debt is discharged that debt is gone, forever, never to be heard from again. Bankruptcy law returns complete and total ownership of exempt assets back to the debtor.

Your Social Security payments both current and future, doesn’t even enter the bankruptcy equation.  All of your Pensions and 401(k)s are also not subject to the bankruptcy. 

One thing you need to know is that in order to successfully pass your assets on to the next generation by using bankruptcy, you need a good bankruptcy lawyer who doesn’t dabble but actually KNOWS the law. It’s hard work and requires planning but the results are worth it.

By eliminating your debts before you die, there’s more left for your family, and that’s always a good thing. 

Asset Protection and Saving Money in a Chapter 13

in Bankruptcy

So many people come into my office wanting to file a Chapter 7 bankruptcy.  That’s all well and good and we love to get people into 7s when we can, but the reality is, even a Chapter 13 can save you money in the long run, even if you’re paying back 100% of your debt.

Clients with tons of equity in their home or with another asset or assets that can’t be protected in a Chapter 7 often are faced with a choice and usually, that choice is, do a 7 and risk my asset or do a 13 and pay everyone back. Clients often struggle with finding the benefit of using Chapter 13 to manage their debt.

An example I like to use stems from a client I helped a couple of  years ago. This client came in with a substantial amount of equity in their home and couldn’t understand why she needed to file a Chapter 13.  She didn’t want to file a Chapter 13 and was adamant about that. However, they also didn’t want to lose their home. I explained to this client that even though they technically could pay back their creditors due to their income, filing bankruptcy would ultimately save this person a great deal of money AND it would mean that creditors had to abide by the protections provided by the law.  Once I crunched the numbers to explain why a Chapter 13 would be good for this person, I gave them the answer. In this client’s case, the answer was $40,000. 

Chapter 13 saved $40,000 over the course of their case when compared to paying all the creditors what they were owed outside of bankruptcy.

It’s the interest rate

The $40,000 savings for this client originated from the difference between the interest rate that is forced on creditors during the bankruptcy as opposed to the rates on taxes and credit cards outside the bankruptcy.

When creditors are entitled to get interest on their claims in bankruptcy, the interest rate that applies is usually much lower than the rates claimed by the IRS and the credit card companies.  When credit card companies charge interest up to 30%, the 4-6% you’ll pay in a bankruptcy is a huge deal. 

Chapter 13s crush credit cards

If my client had paid his credit cards over 5 years (the same duration as the Chapter 13 plan)  according to contract terms netted the credit card issuers $37,000 in interest! The total cost to pay off those cards was roughly $90,000.

The cost to pay off the same amount of debt in Chapter 13 was $4250 in interest and just a small amount in Chapter 13 trustee commission. In the end, it was a major win for my client. They saved over $30,000 in interest on credit cards alone. 

Non economic benefits

In this post we’ve largely looked at the economic benefits of a Chapter 13, however, there are other benefits that come up as well.  You also have to look at your physical and mental wellbeing. Honestly, the stress of debt and constantly having to shuffle everything around just to make the bare minimum is quite taxing.  Financial distress is one of the leading causes of the following bad things in life:

  1. Divorce- Finances are a leading cause of divorce.
  2. Depression- Debt can lead to a vicious downward spiral and many people who are suffering from financial problems also suffer from depression.
  3. Stress– Debt causes stress, there’s no doubt about that.  Stress causes significant health problems including heart disease, stomach problems and reproductive issues.

 

If you’re someone who needs help with your debt contact the attorneys at Harmon and Gorove.  We have decades of experience helping people who are in debt, get out.  We might even be able to save you several thousand dollars by consolidating your debts into a Chapter 13 bankruptcy. 

The Devil in the Details: Tapping The Reverse Mortgage Piggy Bank

in Bankruptcy, Credit and Credit Cards

Actors Henry Winkler, Tom Selleck and Fred Thompson have all appeared on my television or computer screen at some point touting the benefits of a “government insured”,  safe, reverse mortgage. They want you to, “Get the money you deserve to live the good life”  by tapping the equity you have in your home.  .

I’ve seen the aftermath of that sales pitch play out for numerous clients, and it’s not “the good life” they promised that I’m watching unfold. In fact, all too often, the foreclosure sale on the home looms just weeks down the road.

Intentions thwarted

The borrower, often a retiree who took out the reverse mortgage and drew down on the loan in an effort to remain independent or take that trip of a lifetime, passes away and leaves the house to a loved one or to their estate. You often find that a house may have thousands of dollars in equity over and above the reverse mortgage amount, but once the house is gone, its equity gone too. Often times, when the borrower has passed away, the lender won’t take payments from anyone else.  The loan is considered due and payable only in full, says the lien holder, and that’s that.

There are times where you can refinance the house, or if you have tons of cash, you can pay off the loan, but… if you don’t, the house, and all that equity, may go, not to the relative chosen by the deceased, but to the “friendly”, reverse mortgage lender.

You MIGHT can use bankruptcy

A bankruptcy filing may solve this particular problem but not in all situations.

Bankruptcy is an option only if the heir to the house is an individual.  Individuals can file bankruptcy. If the home is left to a trust or estate, you’re toast. Trusts and estates cannot file bankruptcy.  

If you get a reverse mortgage on a house, you should always leave it to an individual.  If that individual files bankruptcy, the automatic stay that comes with a bankruptcy filing, would be available to the individual whereas it would not be available to the estate.  

Your House as a piggy bank

The risks associated with reverse mortgages are becoming more apparent to more people and have been summarized in this Consumer Financial Protection Bureau report to Congress.  Despite the economic crisis of the late 2000s and early 2010s, reverse mortgages are making a comeback. 

Another problem with reverse mortgages is that surviving spouses who are not on the loan may have no right to stay in the home on the borrower’s death.   These loans are complex and may encourage premature tapping of home equity for non essential things.  In the grand scheme, the pressure to tap home equity to support retirement becoming more and more irresistible.  This is a direct result of people regarding their  home as a piggy bank or your as a retirement nest egg. You should NEVER view your home this way.  You should instead take steps to build a retirement nest egg outside of your home’s equity. Homes are a long term investment, not a source of funding for your next vacation. If you have to use your home equity as a source of retirement funding, there are other ways to tap this equity than reverse mortgages.  Reverse Mortgages are almost ALWAYS a bad idea and I warn my clients against them 99% of the time.  

If you find yourself in a bad financial situation, call the attorneys at Harmon and Gorove to set up a free no obligation consultation to see what your options are.  You may be surprised to learn how Bankruptcy can help you secure your financial future.