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8 Things Finance “Experts” get Wrong

Personal finance “experts” love to run around spouting off about bankruptcy and other issues they don’t know much about.  While many of them do promote best practices when it comes to finance, many of them share blatant falsities about bankruptcy like this guy does.  

Number one, they often don’t even know basic facts about bankruptcy.  It’s complicated, so many people just spew what they think they know about bankruptcy and pass it off as legitimate advice.  

Number two, these so called “experts” make bankruptcy sound like it should be your last choice.  We have written about why bankruptcy should never be treated as a last resort. Instead, bankruptcy should be considered alongside a number of tools to help you improve your financial position.  Instead, they just continue to spread misconceptions and myths.   

So, considering I’ve been practicing bankruptcy for 11 years and I’ve handled more than 2,000 cases, I’ve got a few things to discuss that these finance “experts” should know.  

1. In 97% of bankruptcy cases the debtor loses nothing. 

Chapter 7s are considered a liquidation bankruptcy.  In theory, if you have a valuable asset that is unencumbered by liens, the trustee can sell that asset to recover money for your creditors.  The problem is, most Chapter 7 clients, don’t have enough assets to sell for two reasons.  First, most assets either have liens on them or aren’t really worth much and second, you have generous exemptions here in Georgia.  

2. If you have any assets, you can just file a Chapter 13 and keep them. 

If you do have assets and they could potentially be at risk in a Chapter 7, you can just file a Chapter 13 and then they’re protected.  You simply repay the value of the items you wish to keep at an extremely low interest rate and then you emergen from your bankruptcy with a discharge.

3. The means test just determines which chapter you are eligible for.

The means test doesn’t keep you from filing bankruptcy. Period. It’s just there to make sure that wealthy or high income people don’t abuse Chapter 7s. Even if the means test determines you don’t qualify for a 7, you can still do a 13 and pay back only a fraction of your debt. 

4. Credit scores improve immediately. 

We have written about this and we want to state it again.  Studies by the Consumer Financial Protection Bureau have shown that your credit score starts going up the month you file bankruptcy.  Yes, a bankruptcy can stay on your credit report for up to 10 years, but as we say so often, time heals all wounds and your bankruptcy will matter less and less as time goes on. 

5. You can get a loan, even in if you’re still in your bankruptcy

Filing bankruptcy changes how much you’ll pay for credit.  It doesn’t mean you can’t get credit at all.  People in Chapter 13s routinely take out (court approved) debt to buy cars in the event of an accident.  Just because you’ve filed bankruptcy doesn’t mean you’re not able to get credit at all. 

6. Stress is a health risk

We have only recently begun taking mental health seriously in our country. Stress, particularly stress related to money, can take a substantial toll on our mental and PHYSICAL health.  Stress leads to bad choices, mental health problems and unhealthy habits like drinking or drug use to cope.  Bankruptcy can help you get your financial house in order and lowers stress, immediately. 

7. Bankruptcy frees up cash to pay debts that can’t be discharged

Some debts can’t be discharged.  It’s just the way the bankruptcy code is written.  The bright side of this is, you’re freeing up cash you can use to pay off those debts by filing bankruptcy.  

Bankruptcy isn’t the last resort. ever.

Bankruptcy offers a quick, legal and certain fix for debts that have swamped you.  Every day we see people who have spent their retirement savings or strung along debts that have kept them from being able to start over.  Bankruptcy should always be in the discussion when it comes to eliminating overwhelming debt.  After all, cutting $5 lattes is a good practice to keep yourself on a budget but it isn’t going to fix a mountain of uncontrolled debt, no matter how many “experts” try to claim it will.

7 Things Every Attorney Should Know About Bankruptcy

The financial distress we are finding is absolutely mind numbing.  We can easily see that debt ridden small businesses and many consumers will soon be trying to find a way out of a terrible situation that they did not get themselves into.  That’s where we come in.  We have written extensively about what you should look for in a bankruptcy attorney and frankly, we tick all those boxes.  

Unfortunately we live in a world where the only attorneys who technically have to specialize are patent attorneys.  That means that anyone else can sit there and say they file bankruptcies, even if they don’t have a clue what they’re doing.  Below I list 7 things that every bankruptcy lawyer should know before they ever file a case. 

1. In 97% of Chapter 7s, the debtor gets to keep everything they want to keep. 

Everyone freaks out when they think about Chapter 7s.  They worry they’re literally going to be cast out on the street with nothing but their underpants.  That couldn’t be further from the truth.  In the overwhelming majority of Chapter 7s, most debtors walk away with everything they WANT to keep. A Chapter 7 is called a liquidation but in order to liquidate an asset, a trustee must find that there’s significant equity in an asset AND you don’t have enough exemptions to protect it.  While exemptions vary from state to state, the exemptions here in Georgia are pretty generous. 

2. Even high income people can file

The bankruptcy means test doesn’t mean you can’t file bankruptcy.  It’s simply there to to determine whether or not you have any disposable income to pay your debts back.  If you don’t pass the means test, you can still file a Chapter 13 bankruptcy in which you pay back a fraction of your debt. 

3. The automatic stay is a powerful tool

For the low cost of just a filing fee, you get to enjoy the benefits of an extremely powerful court injunction that protects you and your assets from collection.  It is broad and works even if your creditors don’t know about it.  You get to use the stay so long as you have an active bankruptcy case.  It can only be lifted in certain legal proceedings or once your case has been dismissed. 

4. Certain Taxes can be eliminated

Certain taxes can be made to disappear in bankruptcy.  If you’ve followed the law and filed a timely return on your taxes, many of them can be discharged in bankruptcy.  The formulation is very technical and involved, but done correctly,  you can eliminate a number of taxes. 

5. Support obligations aren’t dischargeable

Whether it’s child support, separate maintenance or alimony, you can’t get rid of it.  It follows you until you die or pay it.  Anyone who tells you otherwise, is a liar. Additionally, support gets first priority in a bankruptcy case.  If there is money moving through the case, it goes first to your support obligations before anyone else gets a dime. 

6. Informal notice stops collections

A creditor has rights under the bankruptcy code but most of those rights revolve around a deadline of some sorts.  Creditors have to file something called proof of claim to get paid in your case or they have to contest the dischargeability of your debts.  

However, even if a creditor doesn’t get formal notice of the bankruptcy from the court, they are still bound by the deadlines.  If they miss the deadline, their claim is toast. 

7. Bankruptcy can actually help your credit score

Yes, it sounds counterintuitive, but it’s not.  Bankruptcy doesn’t doom you to no access to credit.  You’ll probably be able to access credit within months of your case being discharged.  You know the old saying,”time heals all wounds” that’s especially true in bankruptcy.  It becomes less and less of an issue the longer it’s been since you filed.  

Filing bankruptcy does not doom the debtor to being without credit for 10 years. Instead, the proximity of the discharge affects the price of credit, and bankruptcy becomes less and less significant in the lending decision with the passage of time.

A recent government study by the CFPB shows that your credit score will actually improve the very month you file bankruptcy.  Even more important than your credit score, is your balance sheet.  That improves automatically. 

Bankruptcy is a specialty

Like I said before, you don’t want to go to a urologist if you’ve got a brain tumor.  Yes, doctors are smart, but they specialize.  Bankruptcy lawyers should too.  If you’re running around seeing lawyers that do bankruptcy, personal injury, government law, complex litigation, adoptions, immigration and 21 other things, you should probably avoid them, no matter what your need is.  The law is specialized, but bankruptcy law is very specialized.  It is no place for people who want to DIY or hire the occasional dabbler.  The 2005 revisions to the bankruptcy code threw up numerous hurdles and created various traps that can cause your case to get dismissed or cause you to lose valuable assets. Don’t make a huge financial mistake just because you saw a flashy ad.  Do your research. 

 

The Cure

We hear them every day and we have written extensively about get out of debt schemes and what an absolute scam most of them are.  People sit there and pitch the most unimaginable garbage to people who are struggling with debt.  They’re just like the snake oil salesmen of the wild west with all of their ridiculous cure all solutions.  “Buy my book and learn how to get out of debt fast” barks the salesman from his multimillion dollar radio perch or the best one is, “we’ll get your credit card company to settle for pennies on the dollar.” They’re selling you snake oil and without a proper diagnosis, you’ll get exactly…nothing. Except for a lighter wallet. 

You don’t treat a medical problem without a proper diagnosis.  Is it gas pains or colon cancer, a headache or an aneurysm?  You wouldn’t let someone start cutting or taking a dangerous therapy if you only needed to take a tylenol or quit eating so many beans. 

Much like medical problems, for a proper cure, your finances need a proper diagnosis too.  Do you have a temporary problem that will work itself out with a little discipline or are you throwing your hard earned money into a bottomless money pit. The answer is a big step in diagnosing and treating your debt problems. 

Rx for Debt

Any good physician needs to know things about you.  Your age, your medical history, family history, etc. 

An attorney assessing your financial situation will have similar questions.  We need to know your age, whether you have dependents, what your assets are, who and how much you owe as well as what your income is.  All those are questions we have to have answers to in order to recommend a good plan to get you out of debt.  

If you’re about to retire, you don’t have the luxury of time to get out of debt by just cutting a few frills but if you’re young and single with a good job, maybe selling that expensive car for a more frugal model and cutting back on the dinners out will help you get your financial house in order.  

The old, “cut out the lattes” line doesn’t exactly work if you’re staring retirement squarely in the face like it would for a 22 year old. Sometimes “buckling down” is:

Too little, too late

Most of the better known and more respectable “debt gurus” have advice that is better suited for how to live AFTER you cure your debt issues or if you have plenty of time and discipline and not much debt.  You have to start by comparing your income to your debt load.  Otherwise known as a Debt to income ratio.  If you’re using all your income just to service the bare minimums of your debt, you need a lot more help that someone who just spent a little too much this month.  

You have to assess your situation.  If you’re hunting squirrels, you don’t need a howitzer, but if you’re taking on a grizzly bear, you better come with some powerful options. 

How risky is the cure

The last question we need answered to give you a proper diagnosis is, how risky is the treatment.  In medicine, you don’t want to have brain surgery for a headache.  Think about the side effects of the medicine you take.  Every medicine has them and you don’t want to take something dangerous unless you have to.

When you are talking about curing debt though, you risk having to live with no safety net, especially if you’re doing it the “radio show” way. We have talked about how nearly half the country can’t cover a $1,000 emergency without having to borrow money from somewhere.  $1,000 isn’t much in this economy and don’t fool yourself into thinking that you can put your hands on a grand in a matter of minutes or that you’re not one of those people.  

One thousand dollars isn’t much in this economy.  Yet a $1,000 expense would imperil a huge swath of our citizens.  This list details more than 30 different everyday situations that could require you to spend at least $500.  None of those reasons are all that crazy or out there.  It could happen to any of us at any time.  Not long ago, we wrote about what to do when you’re in serious debt and I’ll link to that here.  It goes into greater detail and will help you understand more of your options.  

 

Taxes, Taxes…Taxes

It’s that time again in America.  The final deadline for filing your taxes looms large. People who got extensions will have to file their taxes by October 15th and that day looms large for those who owe.  You’ve done your taxes and gotten to the bottom line.  You owe… way more than you have in your bank account.  

So…what now?

File your taxes anyways.  

The IRS, horrible as they are, won’t start harassing you for money on April 16th or July 16th or even October 16th.  They likely haven’t posted the returns that have been filed yet, especially in years like this with COVID lurking in office buildings.  

There are serious advantages to filing your return, even if you don’t have the money to pay right now.  In fact, filing your return and starting the clock has way more advantages than hiding behind the fact that you don’t have the money to pay.

Payment plans available

The number one thing you can do is send in what you can.  It lowers your tax debt and the penalties and interest that will accrue on that debt from the word go.  Look, the IRS is greedy.  They just want your money and they want all they can manage to get from you.  That’s how the government is.  Send them what you can, when you can.  You don’t have to enter into an installment agreement with the IRS.  Just make sure that when you send in your payments, you notate your social security number, name and what year you want the money to go to on your check. 

If you’re really in need (for whatever reason) of a formal payment plan with the IRS, you can set one up online so long as you owe less than $50,000. 

Additional penalties for failure to file

If you don’t file a tax return and don’t get an extension, you’ll be up the creek without a paddle. You’ll be smacked with a separate penalty for failure to file the return.  That’s on top of the penalty you’ll pay for failure to pay as required.  Trying to hid from the IRS is way more expensive than doing the right thing. 

Filing returns starts the clock

On the escape option that is.  Taxes aren’t eternal.  Yes, I said that and it’s true.  Taxes can go away after time.  There is a statute of limitations on taxes that can make them uncollectable. 

There’s also the silver bullet, Bankruptcy. 

Bankruptcy law allows you to discharge certain taxes that are of a certain age before they can even expire.

But there’s a catch.  You have to file.  The clock doesn’t start ticking until you file your tax return.  That’s why filing, even when you can’t pay, is supremely advantageous.  

You need to adjust your withholdings

The final reason why you need to get last year’s return ready is that you need to get your withholding right for this year.  Even an extension can cause problems because it delays your ability to adjust your withholding on your W-4 to account for the fact that you owed this year.  You want to adjust your withholding so you don’t have to pay out of pocket again next year when everything is said and done.  

The bottom line is, hiding from a problem isn’t going to make it go away.  Especially if that problem is with a government agency as nasty as the IRS.  If you owe back taxes and you can’t pay them, contact the attorneys at Harmon and Gorove to see how bankruptcy can help you get a handle on your tax debt.  We have a dedicated team of professionals that understand your rights under bankruptcy and how they can help eliminate tax debt.  

Debts that follow you

Some debts just follow you out of bankruptcy.

There aren’t many but some do exist.

Debts on the list below can, and often are, collectible after your discharge in a Chapter 7. Chapter 13s however, are often better vehicles for ridding yourself of many of these debts.  

Family/Domestic support payments

It doesn’t matter what your state calls it, these types of payments, made to former spouses or children, are not dischargeable. 

Your most recent taxes

Income taxes are not dischargeable if they are less than three years old

Taxes that can still be assessed

If you file bankruptcy in the middle of the year, it doesn’t quash the ability of taxing authorities to continue to collect taxes for that year. 

Unfiled taxes

It doesn’t matter if the tax debt is 12 years old, if you didn’t file a tax return, the clock hasn’t started ticking yet. 

Payroll taxes

Your employer withheld taxes for things like medicare and social security are not dischargeable. 

Judgments for drunk driving

Liability for death or personal injury from impaired operation of a vehicle

Debts from divorce

If you owe money to your former spouse and/or your children because of a divorce, you may not have that debt discharged. 

Student loans

Student loans are almost never dischargeable….seriously.  Anyone who tells you otherwise, is lying.  

Loans you took to payoff taxes

You can’t pay your taxes with a loan you wish to file against. 

Government Fines

If you are being punished by a government for a criminal act, you may not discharge that debt.

Non dischargeable if….

There are three additional times where a debt can survive a bankruptcy, but it requires some fancy legal maneuvering by a creditor’s attorney.

Any debt you incurred through fraud, breach of fiduciary duty or deliberate injury to someone’s person or property.  Each of these debts require a victim to file suit or charges against someone to prove it actually happened.  

There are also actions where a creditor can object to the dischargeability of the debt based on evidence that you created that debt through bad faith or bad behavior.  The presumption favors the debtor, but if the creditor can establish that the debt was created by your bad faith, the law has a duty to see that those debts are not dischargeable. 

You do have to understand that the debt actually has to be incurred because of your bad behavior.  Not paying a debt is not bad behavior, you actually have to do something bad. 

Some liens survive…

Bankruptcy wipes out your personal liability for a debt, but if a lien exists before the bankruptcy is filed, that lien can survive the bankruptcy but you can’t be held liable for the debt. In other words, If your car is repossessed and the bank sells it for less than you owe, they can no longer sue you for the difference.  Same thing with your house.  If you don’t reaffirm your mortgage, but you keep making payments, the bank will be happy to take your money.  However, if you quit making the payments and the house is foreclosed upon, the bank can’t sue you if they sell it at a loss. 

After your bankruptcy, if you continue to make your payments on the secured debts, creditors are happy to get your money and leave you alone.  If for some reason you change your mind or if more financial trouble is coming down the pipe for you, you are allowed to walk away from the liened property and only lose the property. 

The attorneys at Harmon and Gorove can walk you through the process and tell you about your options.  Call us today to set up a free, no obligation consultation with one of our award winning attorneys do discuss your situation.

 

It’s never too late

Timing

Did I wait too long? 

Oh no, I didn’t mess this up did I?

What am I going to do?

Sound familiar? It does to us. If you’ve put off filing bankruptcy because you were hanging on for a miracle that didn’t come through or you thought it would just go away just know that miracles, at least in the harsh world of finance, almost never happen and I can assure you, if someone has gone to the trouble to serve you with suit papers, they aren’t just going to go away.  

But is it too late? Has time truly run out on you?

No, it hasn’t.  Bankruptcy can pull your bacon out of the fire at just about any point in the collections process.  Should you have filed sooner. Yeah, you should have, but you didn’t.

We don’t recommend that you procrastinate.  In fact, people need to stop waiting till the last second to get in touch with a bankruptcy attorney.  Bankruptcy shouldn’t be a last resort.  

Suit papers

When a summons and a complaint is served to you, the clock starts running.  You only have a certain amount of time to answer the complaint.  If you don’t answer the complaint, whoever is suing you gets whatever they asked for. 

Guess what?

You don’t have to answer the complaint if you file bankruptcy.  

Bankruptcy stops the complaint and the lawsuit dead in its tracks.  That’s the beauty of the automatic stay.  Federal law supersedes state law and the state court must then all action in the case and the creditor must withdraw the suit. Additionally, at the end of your bankruptcy, the amount that you supposedly owed, is discharged.

Remember, It’s not too late.

You get sued and lose, is it too late?

You lost.  Losing stinks, especially in court, or so we’ve heard. 

Now you have a judgement against you. 

Just because a judge has ruled in favor of your creditor, bankruptcy can still help.  The debt can probably still be discharged in bankruptcy.  The only time a debt can’t be discharged is if you are being sued over family support obligations, very recent tax debts, criminal fines or debts created through fraud.

If you’re sued by your every day average credit card, someone with a personal loan of any kind of medical debt, you can wipe it out.  Even after a judgement has been entered. 

The only problem with all this is, Chapter 13 has limits on how much debt you can have and still qualify.  Once a creditor has the judgement against you the debt is fixed.  If this debt is too large, it can put you over the debt limits for a 13. 

One more problem is the fact that waiting until a judgement is on the books could also mean that a court found that you committed fraud. In that case, the bankruptcy court may find the same problem and then the debt would be excluded from discharge.

All that said, it’s still not too late. 

A creditor gets a lien, is it too late?

Bankruptcy isn’t a silver bullet, but it does change the balance of power.  If you got sued, and lost, and the creditor has perfected a lien against an asset it’s probably still not too late.

But that depends.

One of the things about bankruptcy is that it generally eliminates your personal liability for a debt.  However, some liens can survive bankruptcy once they’re attached to certain assets. 

There’s hope though.  You are allowed to avoid a judgement lien if it interferes with your exemptions.  It doesn’t matter how old a lien is, if it interferes with an exemption you can claim on an asset, you can avoid it. 

Bankruptcy can change the balance of power even if you’ve waited til the creditor with a judgment has perfected a judgment lien against your assets.  How much change is possible depends on the exemptions available when you file bankruptcy. Avoiding a lien isn’t automatic and you have to file a motion but even if you forget you can reopen your case in the future and file that motion. 

Again, in almost every circumstance, it’s not too late.

You’re being garnished, is it too late?

If you’re being threatened with a garnishment, your creditor has already obtained a judgement from a court.  That judgement can then be used to collect that debt. 

Just like every other situation I’ve discussed, a bankruptcy stops a garnishment dead in its tracks. Your creditor may end up being able to keep the money they collected before you filed, but from then on, all your money is yours. 

In certain cases, bankruptcy law allows you to recover money your creditor got from you before you filed, but you need to talk to your attorney about what that entails.

Because of the effect bankruptcy has on garnishments, it’s not too late.

When you do it is up to you

At virtually any point during a collection action, filing bankruptcy can put the brakes on a bad situation and give you the ability to eliminate your debt. Once it’s discharged, it’s gone for good and is henceforth, uncollectable.

There are some situations bankruptcy can’t undo.  If you take out a second mortgage or do a cash out refinance to “consolidate” your debt or you raid your 401k to pay back debts you could have otherwise dismissed in bankruptcy, that money is gone and we can’t undo that.  

That’s why it’s always better to plan early rather than wait. 

The attorneys at Harmon and Gorove are ready when you are.  We provide free consultations and seek to give you the best advice, regardless of whether we make money or not.  If you’d like to speak with one of our award winning attorneys, click here to schedule a consultation today.