Tag: Chapter 13

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

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

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

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.

Keep your Bankruptcy Papers

Life is full of papers we don’t need but have laying around the house anyways – junk mail, old receipts for things we won’t return, old school work, even decades old pay stubs. As a society that’s working towards becoming paperless, we’ve got a long way to go. But what about bankruptcy papers, especially your discharge paperwork? How long should you keep those? Honestly, outside of your will, no document should be treated with more reverence than that discharge paperwork.

Storing Important Papers

When it comes to your tax returns, keeping your return along with any supporting documents for seven years after filing is a good practice. If you’re late paying the tax, keep the return seven years from the date you paid or ten years from when you actually filed your taxes (whichever is later).

 Like your taxes, receipts are also important, especially if there’s a warranty In the event that a warranty exists, keep the receipt until the warranty runs out. If there is no warranty, keep the receipt for anything you might need to take back, until the return period is up. If you are able to deduct the item as a tax expense follow whatever rules have been laid out by your accountant.

Even though your documents and discharge order seem like financial documents that could be treated the same as your tax returns, they are NOT. They are vastly more important and should be kept for the rest of your life.

Why Keep Bankruptcy Papers Forever?

The long and short of it is that creditors might re-emerge even decades later and try to collect on a debt that was part of your bankruptcy. Being able to show the debt was discharged as part of your bankruptcy can put the breaks on collection actions for debts you don’t legally owe.

Additionally, creditors often sell off bad debt in large chunks of hundreds, thousands and even hundreds of thousands of accounts. Bad debt buyers often pay pennies on the dollar but are looking to make a quick buck.  They are usually aggressive and quite often unscrupulous. By having your bankruptcy documents on-hand, you can quickly shut them down and keep old items that you took care of years ago from popping back up on your credit report.

In some states, especially when applying for a professional licenses such as a doctor, lawyer, nurse or teacher, you may have to prove that your bankruptcy was discharged in order to actually receive your license. Having copies of your paperwork can prevent a delay in your licensure.

Which Bankruptcy Documents Should You Keep?

The short answer? Everything you have. Getting copies of your bankruptcy documents from your lawyer is often a time consuming process, especially if your case was discharged more than 7 years ago or the copies have been moved to off site archives. Obtaining your bankruptcy documents from federal court officials can be costly and even more time consuming than getting them from your lawyer.

As with all important documents, it is best to have your own archive readily accessible.  That way you don’t have to scramble to get copies if something crops up that requires these papers. These are the documents you need to keep ideally:

  • Bankruptcy petition, supporting schedules, and exhibits
  • Statements, disclosures, and declarations
  • Mailing list of creditors
  • Proof of income and social security proof filed with petition
  • Notices from the bankruptcy court, your attorney or the Trustee.

This is the document  you absolutely must keep at all costs

  • Final bankruptcy discharge

This can usually be pages and pages of information. A bankruptcy petition will average between 40 and 80 pages once you account for the schedules and supporting documents. Keep every page you get. Get a box, large envelope, a notebook or a safe deposit box and put them inside. It’s better to have too much than too little.

Put them in a safe place. Treat it like you would your will, the deed to your home, the title on your car or other important documents. Then just leave them there. Ideally, you never need them. If you do, you know where to find them so you can nip any problems in the bud, immediately. 

Call the experts

The attorneys at Harmon and Gorove are experts at helping people navigate the ins and outs of Bankruptcy.  Contact our office today for a free consultation with a qualified attorney to see how we can help you eliminate problem debts and get your life back. 

What is a Bankruptcy Risk Score?

There is a little known piece of information out there floating around in the world of credit data that most people have never heard of.  In fact, I didn’t even know it existed until I became a bankruptcy attorney. Most everyone has heard of a credit score and I get tons of questions about what the credit score is, how its used and how you can improve it.  In fact, the discussion about credit scores is part of nearly every consultation we do at Harmon and Gorove. The piece of information that isn’t often discussed is a person’s bankruptcy risk score. A bankruptcy risk score is a number that indicates the likelihood of an individual filing for bankruptcy.  

According to bankrate.com, “According to financial experts, this score is used secondarily to the credit score when financial institutions scrutinize a consumer’s credit history. Kept tucked away from consumers for nearly 20 years, this number differs from the credit risk score, because it’s a little more specific. It measures how likely a person is to file for bankruptcy.”  The banking industry uses the number for a myriad of reasons including lending decisions and compliance. In other words, if your bankruptcy score is too high, they likely won’t lend to you and additionally, if banks know that they have a number of loans on the books that have a high risk of filing bankruptcy, they will know how much they need to keep in reserve to cover these potentially bad loans.  

Consumers also get a raw deal when it comes to figuring out what these scores actually mean.  Each bureau has their own ratings score. Whereas the credit bureaus generally use a scale from 300 to 850 with 850 being the highest, the bankruptcy risk score doesn’t have a standard index of measurement like credit scores. This means consumers are only able to get general information about their bankruptcy risk. This means that unlike credit scores, there’s no surefire way to know if your score is high or low compared to other numbers. 

The absolute last thing any creditor wants is for you to seek bankruptcy protection, particularly Chapter 7. Once that case is filed, they have to quit calling and leave you alone.  What that means for them is that they will get no money out of you, ever. The only debts that generally aren’t wiped out in bankruptcy are student loans and income taxes (and even those can be reduced or eliminated depending on your circumstances). If your bankruptcy risk score rises, even as you are in the worst financial shape you’ve ever been in and have the least ability to pay, collection efforts may grow extremely aggressive as creditors and their slimy collection agents often view this as their last chance to get anything from you before you are protected by the law. 

If you find yourself struggling financially and you’re tired of trying to keep your head above water, give the attorneys at Harmon and Gorove a call to see how we can help you get out of debt for good.  Our attorneys have over 30 years of experience helping good people out of tough situations.  Our attorneys work every day to help people just like you, get out of debt and get a fresh start on life.  Let us put our experience to work for you.

Never Trust Your Mortgage Servicer

If you’re one of the millions of Americans who have a mortgage I’m going to say something pointed and perhaps, upsetting. Don’t trust the loan servicer on your mortgage for one second. The mortgage industry has, for lack of a better term, created a swamp around your home.  The lender’s representative (or snake as I call them) lives in that swamp.

Don’t ever turn your back on a snake.

By stating this, I don’t mean to foster distrust between people and their mortgage lender, but in all honesty, that’s the best legal advice I can give.  Ronald Reagan once use the term, “Trust but verify.” I just advise you to verify, verify, keep records and don’t believe a word they say unless you have it in writing. 

Never ever, ever rely on anything your loan servicer tells you on the phone.  Nothing.

You may use the information you gather on the phone as clues, but don’t ever draw conclusions from what you’re told by the person on the other end of the line because chances are, they don’t know anymore about your mortgage than you do.

Why these agents just can’t be trusted….

Loan servicing in this country is a huge industry with narrow profit margins. The difference between your mortgage lender and your mortgage servicer can be found here.   One of the biggest expenses for loan servicers is customer service. Good customer service is expensive. As I stated, the companies who are contracted to collect the payments on your home loan operate on very tight margins in an extremely competitive business. The cheaper the better (at least in their eyes).

People:  The most obvious place any business can reduce costs and make more money is to hire the least expensive employees you can find.  Cut their training to the bare minimum, and give them absolutely zero flexibility in how they do their jobs. In short, the person on the other end of the line probably just isn’t up for the job and chances are, it isn’t even their fault.

Procedures:  When you get a copy of how your payments are posted to your loan balance, you often see a payment posted, then reversed, then reapplied differently. A friend of mine received a loan history where the servicer made more than sixty entries on the loan ledger in a single day. I don’t know about you, but sixty entries in a single day is a bit excessive.

Selloffs:  It’s extremely rare that a servicer handles a loan for the life of that loan.  Instead, the right to service the loan is handed off or sold. One servicer to another, presumably to a company who will charge the owner of the loan even less to do the job. Usually, what the new servicer doesn’t even get a reasonable history of the loan, just a bunch of numbers that are supposed to add up to something, but what that something is, who knows.

Phone calls are not evidence so don’t even try…

The root problem with relying on what your loan service agent says on the phone is this:  How do you prove it?  You may have taken meticulous notes but unless you recorded the call (which could be illegal) you don’t have anything.

Words are fleeting and it is extremely easy to misunderstand what someone said, especially if there is a language barrier.  If there’s trouble, and there usually will be, there’s no paper record. An oral agreement isn’t worth the paper it’s written on.

You won’t work it out…

A client recently was dealing with “customer service” trying to determine how much money was required to bring the loan current before the foreclosure sale which was ten days away. Four days from the actual date of foreclosure, the servicer admitted that the loan has been sold and they had no authority to do anything, but it gets worse. The new servicer said the loan isn’t in our system yet, so we can’t tell you.  Truly, this client was almost out of options because they waited until the last minute.

When you’re in default on your loan…

Number 1, don’t wait until the last second to try to stop your foreclosure.  Foreclosure is very serious and deserves your full attention the minute you see the problem.  You will only make a bad situation worse. You should always utilize the tools you have under federal law to get the accounting and answers you are entitled to. Also, I know I’ve said it before but I can’t state it enough, don’t trust anything you’re told on the phone.  If it’s important (and if you’re behind, everything’s important), GET IT IN WRITING.

Finally, If you’re out of options and need legal protection, start interviewing bankruptcy attorneys before you get a foreclosure notice.  If you show up at the last second and many lawyers assume you’ll be a rotten client.