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Testifying at a Meeting of Creditors

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.

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. 

 

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.

Can I Convert From Chapter 13 to Chapter 7

A very common problem for a lot of people who have filed a Chapter 13 bankruptcy  is the repayment plan that must take place during the case. So much can happen in your financial life during the 36 to 60 months that it takes to complete a Chapter 13 and receive a discharge. You could have a medical emergency, lose a job or experience the loss of a loved one. Life has a way of throwing us little curves that could complicate the repayment plan under a Chapter 13 bankruptcy and make it almost impossible to complete. The question is: Can you convert from a Chapter 13 to a Chapter 7 in this situation?

Fortunately, you are generally allowed to convert from a Chapter 13 to a Chapter 7 at any time. It is probably the most common conversion in bankruptcy. In reality, only about 33% of people filing for Chapter 13 bankruptcy are able to complete the entire three to five years required for a repayment plan in its original format. Usually this is due to some unforeseen circumstances like the ones mentioned above. If your back is up against a financial wall, a conversion may be one of your only options.  

Remember, if you have filed a Chapter 13 bankruptcy, you are allowed to dismiss your case at any time. However, it’s important to remember that once your case is dismissed, the automatic stay is lifted. That means your creditors are once again free to start collection activity or begin foreclosure proceedings.

What Do You Need in order to convert?

Once you’ve decided you want to convert from Chapter 13 to Chapter 7, there are some technical requirements that you must meet. First, you will need to file a Notice of Conversion form with the bankruptcy court. It will also require a $25 fee. Once filed, the conversion usually takes place in just a few days. When all goes smoothly, you won’t lose the protection of your automatic stay.

The one issue that you may run into is the means test that must be passed for the conversion to become final. You may have originally chosen Chapter 13 bankruptcy because your income was too high to qualify for a Chapter 7.Remember,  the income limitations will still remain in effect for a Chapter 7 conversion.

The means test was implemented as a part of the bankruptcy reform act of 2005 as a way to make sure that debtors with high enough incomes ultimately repaid at least some of the money owed to their creditors. If your job or income has changed or you have gotten a divorce or lost a spouse that brought income into the household that pushed your into a Chapter 13 bankruptcy, you will likely be able to pass the means test now. However, if you still make too much money to qualify for a Chapter 7, your conversion will be denied.

What Happens After the Conversion?

Once your petition to convert from Chapter 13 to Chapter 7 is approved by the court, any money you have paid the trustee that has not been divvied out to  your creditors will be returned to you. Your Chapter 13, at this point, is concluded. You will now receive a new Chapter 7 trustee and you will have another 341 hearing with that trustee. Harmon and Gorove will then assist with filing a new statement listing all your assets, liabilities, income and expenses. Going forward, your case will act just like a normal Chapter 7 bankruptcy.

Pros of Converting From a 13 to a 7

  1. You’re done with the Chapter 13 repayment plan.
  2. A normal Chapter 7 is usually completed within 4-6 MONTHS of filing, not 3-5 years.
  3. All unsecured debts are discharged under a Chapter 7.

 

Cons of Converting to a 7 from a 13

  1. Depending on what kind of debt you have, a Chapter 7 may not help if your troubles are from certain types of secured debts.
  2. A Chapter 7 can be on your credit report for up to ten years.
  3. The Chapter 7 trustee may sell certain assets you possess to pay creditors in Chapter 7.

If your Chapter 13 repayment plan is creating an unbearable burden on you, a Chapter 7 bankruptcy may be a better fit for your financial situation. In order to understand the process and your rights under Georgia bankruptcy laws, you’ll need to speak with an experienced Georgia bankruptcy attorney. Remember; you have options!