Month: November 2021

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The HAVEN act and Bankruptcy

Do you ever wonder how bad rumors get started?  Bad headlines don’t help.

Congress is considering a new piece of legislation.  It’s called the HAVEN act.  The act will correct a problem that has existed since the 2005 overhaul of bankruptcy.  

If you are a veteran who receives disability income from the VA, that money is counted in your means test.  In other words, it counts against you in bankruptcy, whereas regular disability income does not. 

Frankly, that’s not fair. 

The HAVEN Act saves the day

That’s where the HAVEN act comes in.  

Chapter 7 bankruptcy is a liquidation bankruptcy (it’s what most people who are in big debt want) and it gets rid of all of your debts that are dischargeable.  The problem is, you have to qualify for a Chapter 7 via the means test.  

This military disability increases your total income, which in turn can cause your income to be so high that you are forced to do a Chapter 13 bankruptcy. 

The HAVEN act eliminates military disability income from the means test just like regular SSI disability and gives you a big boost.  

There is, unfortunately a lot of rumors going around about the current state of bankruptcy and military benefits.  

Misconceptions about the current system

 A reporter for the military times has stated that veterans who file bankruptcy under our current system risk having the benefits taken away.  He states “Bankrupt vets can lose their disability benefits.”

This is patently false.  

The current system allows the military disability benefits to be counted in the means test, but it by no means eliminates your disability benefits.  

All this means is that IF your income is high enough, it could cause you to have to do a Chapter 13 bankruptcy instead of a Chapter 7.  

But, I repeat, you do not LOSE your benefits.  You still get a check from the VA every month just like you always did and will continue to do for the rest of your life.  

If you file a Chapter 7 bankruptcy, the trustee can’t take your check from YOUR bank account. 

Additionally, the Chapter 13 trustee does not take them from you either.  They still go into YOUR bank account and you may have to use some of your disability money to make your Chapter 13 payment.  

While all of this may seem confusing, rest assured, as a bankruptcy lawyer, it’s my job to understand the nuances of the law and make sure you get the best outcome possible.  Trust me, I do and you will. 

If you’re a veteran who is concerned about your VA benefits and the bankruptcy process, call me.  I understand it a lot better than you may think (I actually work with veterans to get VA disability for them as well). 

We’re here to help, especially those who have worked so hard and sacrificed so much already.  

The Secret Risks of Debt Settlement

If you’re maxing out credit cards every month and just making the bare minimum payment, you’re going about all this the wrong way.  You’re financing a lifestyle at a very high rate of interest and creating a lot of financial risks for yourself.  

I know you hear the ads all the time.  “USA FREEDOM CREDIT CARD DEBT RELIEF WILL SAVE YOU THOUSANDS!” Shouts some announcer on the radio, or maybe you’re scrolling social media and see smiling happy people with a prompt to contact someone to settle your debt for pennies on the dollar.  

It sounds too good to be true and it often is.   The FTC gives warnings about these types of schemes and I’m linking to it here.

The problem is, most of the companies don’t disclose how this actually works and that opens you up to tons of risks.  You’re not getting something for nothing.  

In fact, you could actually end up in more debt and with worse credit than you had when you started. 

So, how does it actually work?

In a debt settlement arrangement, a borrower (you) or someone representing the borrower contacts a credit card company and asks for a settlement.  Mind you, this only works if you can pay off the full balance at one time. 

The guy at Monster Mega Bank, N.A. hears this and thinks, “OMG, these people are going to file bankruptcy and we’re going to get nothing, let’s see if they’ll settle for half.”

Now, here’s the problem.  You don’t have thousands to pay them, even if they will settle for a significantly reduced amount. 

So, what do we do? Well, the debt settlement company opens up a shiny new line of credit in your name and uses that money to pay off the credit card company.  

Now, that may not sound too bad…but here’s the catch.  1. The debt settlement company is going to make tons of money off of you.  2. Monster Mega Bank, N.A. is going to report a “settlement” on your credit, and that’s going to hurt your score. 3. You’re still making payments to the debt settlement company and guess what? Now you don’t have revolving credit to help make ends meet. These are the biggest risks of the debt settlement process.  

Why Bankruptcy Eliminates the Risks

Debt settlement services rely on credit card companies writing off a portion of your debt.  Not only does that hurt your credit score, it can also have serious tax implications.  

The IRS treats forgiven debt like income but debts discharged in bankruptcy are completely tax free. 

If Monster Mega Bank, N.A. forgives $25,000 worth of debt, you’re going to get a 1099 that will treat that forgiven debt as income.  Then you’re going to owe taxes on  $25,000 in extra income. 

That’s a risk they didn’t tell you about.

Additionally, there’s no guarantee that Monster Mega Bank, N.A. is going to work with USA Freedom Debt Relief Company anyways. 

Then you’re right back at square one. 

That’s where bankruptcy comes in.  

In bankruptcy, Monster Mega Bank, N.A., has no choice but to work with you. It’s federal law. 

In bankruptcy you may be entitled to a full discharge of your unsecured debts or you may be able to pay back only a small portion of them with a very manageable interest rate.  

Another good thing is, bankruptcy increases your credit score starting the day you file.  

Is that too good to be true? Actually, no.  A government study confirmed it

Bankruptcy actually gets rid of the derogatory marks on your credit report and allows most people to obtain new credit within months of your discharge.  

If you’re concerned about the risks of debt settlement or you’ve already been the victim of a debt settlement gone wrong, give us a call.  Bankruptcy is a powerful tool that can help clean up a lot of the messes that debt settlement causes.