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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. 

Don’t be scared

Scared

Often,  I advise my clients to cease making payments to credit card companies in preparation for a bankruptcy filing.  After all, if the debt will be discharged anyways, that last $29 minimum payment isn’t going to break Wells Fargo. 

I often get looked at like I just asked them to shoot a puppy. 

They’re scared and bumfuzzled. What on earth?

“If I don’t make my payment, won’t they send me to collections?”

To many of my clients, being in “collections” is the worst thing ever.  Almost like a prison even, complete with the dank, dingy cells and the rattling bars. 

Chances are, as long as you file within a reasonable time, there’s no need to be scared. You’ll probably never even hear from a bill collector. 

The weapons they deploy

Most of the tools at the disposal of a debt collector are psychological.  

They call and harass (alot) to try to get you to pay up.  If you don’t there isn’t much else they can do without deploying their next weapon.  

A lawsuit.

This is where things get hairy.  In the State of Georgia, a lawsuit can (and often does) result in a garnishment.  They can take 25% of your pre-tax income. 

I don’t know about you, but if I lost 25% of my pre-tax income, I’d be up a creek. 

The good news is, bankruptcy stops garnishments dead in their tracks, but that’s not the point of this blog. 

What really matters 

The problem with debt collectors is that they have you focused on the wrong thing and they often have you scared for no reason. 

They want you to worry about their problem.  Namely, the debt you (supposedly) owe them. 

They are concerned about getting their money, but often, paying this one bill isn’t going to solve all your problems.  In fact, it may make them worse.  

You need to be focused on solving the bigger problem: What does the totality of your financial life look like? 

First, don’t let debt collectors distort your priorities. There are bills that absolutely need to be paid first.  Mortgages, child support, rent, car payments, taxes.  Without a roof over your head or a car under  your bottom, you can’t get to work. 

Additionally, the government is way more aggressive than any collection agency could ever dream of and the government doesn’t give up. 

I try to impart upon my clients this important lesson.  Don’t worry about one debt collector. Worry about the whole health of your finances.  

In the end, you need to be able to sort out your finances and find a way to live in financial peace and comfort.  

You need to be able to sleep at night, make ends meet and retire one day. 

That’s why you need to call me

How the Grinch could steal Christmas

The Grinch

We all know about the Grinch.  The curmudgeonly green guy with a severe dislike of Christmas.   After stealing Christmas from the people of Whoville and driving it up a mountain to push it off, he hears the people celebrating nonetheless and ultimately has a change of heart and returns the trimmings of the Christmas holiday to the people of Whoville. 

That’s not the Grinch I’m talking about this holiday season. I’m talking about a Grinch who will take Christmas, Thanksgiving, New Years and anything else that you value as we enter the holiday season.  There are lots of those Grinch’s out there, lurking in the shadows, just waiting to have a chance to swipe everything you need to pull off a memorable holiday season with your family.

The inflation Grinch

Gas is up over $1.00 a gallon. Beef is up an average of about 35%. Real wages have declined 1.9% since January and the consumer price index is up 5.4% this year.  In real terms, inflation is costing the average American family about $2,100 extra this year alone. This doesn’t account for the fact that we haven’t even gotten to the cold part of the year when heating bills (natural gas is up 180% year over year) are expected to soar

In other words, times are tough right now.  Families all over the country are having a hard time making ends meet. Inflation makes the dollars you do earn worth less.  The pound of beef you bought last month for $3.25 is now $3.99.  It’s costing you an extra $20 to fill up your tank every week. It’ll probably cost you double this winter to heat your home. In other words, your wallet is being stretched thinner and thinner every day. 

The garnishment Grinch

Creditors have been extremely aggressive. Garnishments in Georgia are among the highest they’ve been since the great recession.  Remember, in Georgia, a creditor can garnish 25% of your pre tax income EACH TIME YOU GET PAID.  That means if you make $2,000 a month, EACH creditor with a garnishment order can take $500 a month from your check, before you pay taxes, insurance or anything else.  

With inflation being what it is, losing 25% of your paycheck can be the difference between keeping a roof over your head and food in your belly or not.  If you’ve been served with suit papers, the time to act is now. The garnishment WILL happen sooner or later, and it’s much easier to stop before they actually take money from your check. 

The repo Grinch

Do you have a car payment? If you’re like me you do…and it’s a big expense every month.  With inflation taking a chunk out of every paycheck and the potential for a garnishment taking 25% more, you can easily catch yourself missing a car payment.  In days past, missing one payment wasn’t a big deal so long as you caught it up quickly.  Now, that’s a different story.  

Along with inflation hitting literally everything else, used car prices are up 32% over this time last year.  Guess what…your finance company knows this and they’re in a hurry to cash in.  We’ve seen cars be repossessed for being just 1 payment behind.  Why? Because finance companies see an opportunity to pick up a vehicle that has a lot of equity in it right now, selling it quick and pocketing the cash.  Leaving you with little to nothing to show for all those years of car payments. 

The foreclosure Grinch

Do you own your house? Fantastic! You’re creating generational wealth to pass on to your kids and grandkids.  The problem… you took a COVID forbearance and now your bank wants those payments caught up now or in the very near future.  Chances are, you took that forbearance to survive during COVID.  Your job was cut or at least your hours were reduced.  Now, you’ve got to come up with an extra $5,000-$10,000 to catch up the mortgage.  You know what else is a problem…the bank knows how much equity you have too. Home prices are up an average of 15% since 2020.  Just like the repo Grinch, they see an opportunity to foreclose on your house, sell it, and make a tidy profit. 

Stopping the Grinch

Now that you’ve read this far, let me give you the good news.  We can stop the repo, foreclosure and garnishment Grinch dead in their tracks. The inflation Grinch, not so much, but when everything else is going your way…you can probably manage. Bankruptcy is the law, not a suggestion like debt consolidation.  When you file bankruptcy, it puts the full force of the United States Federal Court system squarely behind you.  That means the repo man better not mess with your car and the foreclosure sale of your home is stopped dead in its tracks.  Oh, and that lawsuit seeking to garnish your wages…it’s toast. If you’re finding yourself in a tough situation, now’s the time to act.  File today and you could be debt free by Christmas.  

In the story, the Grinch’s heart grew three sizes that day and he realized the error of his ways.  Your creditors won’t be so altruistic. 

When you’re ready to stop that Grinch BEFORE he can load your stuff on that sleigh, give me a call. 

Credit will Heal

heal

I try really hard to give good news on this blog.  Bankruptcy isn’t nearly as scary as people make it out to be.  Unfortunately, everything can’t be rainbows and unicorns.

Bankruptcy will most likely hurt your credit. It’s a fact.  In the days immediately following your bankruptcy, your credit score will take a hit. 

So…knowing that, does that mean I shouldn’t file bankruptcy?

ABSOLUTELY NOT

I frequently meet with clients who are literally drowning in debt but are worried about their credit report.  They put a miserable little report ahead of their own financial and likely personal health

They have a misguided belief that once they have damaged their credit, it will never heal or be the same again.  

That’s simply not true. 

A credit report is a snapshot of a period in time.  

It WILL recover, probably quickly. 

A credit hit is like a scratch, it will heal

No matter your choice, whether it be debt settlement, debt management or bankruptcy, your credit report will get dinged in the short term. 

Instead of worrying that it will be a death knell, think of it more as a scratch. 

It bleeds, you clean it and bandage it (think of bankruptcy as this part), it scabs over and eventually heals . 

Once it heals, there may be a scar…but that fades over time, just like the damage to your credit report.  

Debt is like a disease

When you can’t actually pay your debts off, it’s like a chronic disease.  

There are symptoms that just don’t go away, sometimes getting worse and worse. 

Debt causes stress, which causes a whole array of problems that the medical community still doesn’t quite fully understand.  

But know this, debt will drain your energy, consume your thoughts, limit your opportunities and make you mentally unhealthy. 

Additionally, if you’re already in this much debt, chances are, your credit report already tells a much different story than you like to think. 

In fact, it may not be doing you any good at all. 

The balance sheet matters most

Like I said before, your credit report is a snapshot of a period in your life.  It is, by its very nature, limited. 

As time goes by, things fall off, never to be heard from again. 

If you use the bankruptcy code, you will change the balance in your favor. The balance sheet that is. 

Bankruptcy has the ability to wipe out your debts, on the spot. 

It stops collections, eliminates unsecured debts and clears your balance sheet in one fell swoop. Immediately.

Yes, the bankruptcy filing will show on your credit report, but the further down the road you get, the less it matters to lenders. Also, with your old debts gone for good, you’ll look like a much more creditworthy individual. 

When you take the steps to get financially, emotionally and physically healthy, the credit health will come and your credit report will heal.  

When you’re ready to take that step, call me

 

Ruining your FICO score

fico

We’ve covered credit (FICO) scores in depth.  It’s one of the most talked about things in bankruptcy and on my blog.  

People worry about their FICO score and almost every person I meet with believes that bankruptcy will ruin their FICO score.  

They think that once they file bankruptcy they’ll have a scarlet “B” tattooed on their forehead for all time, like they’re some kind of criminal…or worse.  

“I’ll never be able to function again” is a line I often hear.  

Because of this fear, people stagger on, scratching and clawing, burdened with debt and the fear of getting out of it. 

Many people who actually take the time to get to know debtors and what actually drives their financial situation often come to the realization that they aren’t a bunch of deadbeats who are trying to game the system.

They’re normal people who struggle and endure trying times and difficult financial situations.  

That said, I want to shout this from the rooftop:

RUIN YOUR FICO SCORE, DON’T RUIN YOUR LIFE

The financial talking heads constantly beat the drum that your life and your self worth are wrapped up in a miserable little score, which is very odd considering that we don’t even understand what that score really is

That score is something that even I as a bankruptcy lawyer of more than a decade don’t even quite understand. I’ve written about it and I have a good grasp on what it does but there are nuances of the scoring system that even I don’t know. 

All the while, we are told life will end, the world will stop rotating, the sky will fall if our credit score (which is derived from notoriously inaccurate information) declines.  

That’s horse squeeze. 

It’s that fear that keeps consumers in America struggling to get out of debt.  They keep trying to repay debts that they’d never get paid off in this life or the next, just to preserve a “score” that ultimately doesn’t mean much. 

Credit scores are dynamic.  In fact, the CFPB states that your credit score starts increasing the day you file bankruptcy

The biggest thing you can do is focus on your overall financial heath. You do this through getting rid of dischargeable debts, saving for retirement, living beneath your means and having an emergency fund. 

That fear keeps American consumers struggling to pay debt that they can never repay, in this life or the next.  In order  to preserve their credit score, they appear resigned to a lifetime of minimum payments rather than a fresh start in bankruptcy

Don’t spend your life just struggling to stay afloat. 

When you’re ready to take a step in the right direction, call me