Los Angeles Bankruptcy Law Monitor

Los Angeles Bankruptcy Law Monitor

Protecting your rights when you need it most.

Are Inherited IRAs Protected From Bankruptcy Creditors?

Posted in Estate Planning & Bankruptcy, Uncategorized

The Supreme Court unanimously held in Clark v. Rameker, 573 U.S. ___ (2014),  that retirement funds inherited by a beneficiary from the original plan participant are not considered ‘retirement funds’ within the meaning of the federal bankruptcy exemptions found at 11 U.S.C. 522(b)(3)(c).  As a result, the bankruptcy trustee may consider the inherited IRA to be an available asset of the bankrupt estate to satisfy creditor claims. The financial and estate planning communities are scrambling to provide critical warnings to their clients, “safeguard your IRAs!.” My colleague and estate planning lawyer, Anna Serrambana, Esq. suggests IRA owners may want to reconsider their beneficiary designations. Despite the added cost and complexity, leaving your IRA to a trust can be a safe move.

Three reasons were given for denying that beneficiaries hold protected retirement funds.

First, an IRA beneficiary who inherits can’t make additional contributions to that account. Qualified individuals can put money into retirement accounts such as traditional IRAs and Roth IRAs. Tax breaks encourage such outlays. But inherited IRAs are only for withdrawals.

Second, beneficiaries must take minimum distributions and pay any resulting tax, regardless of age. “Even a 5-year-old IRA beneficiary, who certainly isn’t retired, must withdraw something,” Slott said.

Third, the 10% early withdrawal penalty doesn’t apply to inherited IRAs. Unless certain exceptions are met, withdrawals from traditional and Roth IRAs before age 59-1/2 will lead to fines.

“Nothing about the inherited IRA’s legal characteristics would prevent (or even discourage) the individual from using the entire balance of the account on a vacation home or sports car immediately after her bankruptcy proceedings are complete,” the Supreme Court noted in its opinion.

Read more: http://www.nasdaq.com/article/in-bankruptcy-inherited-iras-are-up-for-grabs-cm363771#ixzz381bWoLHX

From a bankruptcy standpoint, I advocate to protect my client’s assets while eliminating debt, to the fullest extent to the Bankruptcy Code.  Timing and planning are our most powerful tools when it comes to eliminating debt for clients.  With these changes, my advice includes filing bankruptcy long before there is even a remote chance to inherit any significant amount of money, greater than the current ‘wildcard’ exemption here in California, which is $22,500.00. In addition to timing and planning, it remains more critical to consult with an experienced bankruptcy lawyer who understands the subtle nuances of the Bankruptcy Code.  An inheritance can also be disclaimed, but this too, requires accurate timing.

How To Buy a Car Before or After Bankruptcy

Posted in Chapter 13, Chapter 7, Fair Credit Reporting, Uncategorized

Whether you’re buying a new or used car, the advice of Jerry Hirsch (@LaTimesJerry) in his article, The Keys to Car Buying Success, provides a step by step guide to getting the best deal.  From a pre-bankruptcy planning step or even after bankruptcy, a little planning can save you thousands. I recently bought a newer car (#protip I never buy NEW cars) and I intuitively followed Jerry’s guide because I’m always on the lookout for the best deal.

Research and time are the foundational keys to getting the best deal. I’ll add that I found a website that told be Car Buyingwhether I was getting a bargain, CarGurus. Use this site to search out the car you’re looking for and you’ll see the best deals.  Another tip is to expand your search because you never know whether your best deal is in your town or not too far away that you can’t just take a drive.  I found my car in Escondido and saved thousands taking a short drive. Your research knowledge must include the cost of maintenance, repairs, insurance and registration costs for the car because you have to include these into your budget so that you know exactly what you can afford. Check with your insurance company for a few insurance quotes before you buy that car so you’re not shocked about this mandatory expense.

If you need financing, get approved before you start shopping.  You can also shop for the best interest rates too.  Usually, a credit union will give you the best interest rate whether you have great credit or not.  Don’t worry if you just completed a bankruptcy case, there will be offers in the mail to finance a car, but don’t accept them.  Instead, research and then selectively apply where lowest interest rates are found.

What Do Minivans have in Common with Bankruptcy?

Posted in Bankruptcy Law Overview, Chapter 13, Chapter 7, Debt Collections

Sophisticated women hate minivans, but it’s a car, not a lifestyle statement. A minivan is transportation; a vehicle just like an SUV, but maybe with better gas mileage.  It doesn’t matter though that the minivan is durable, cost effective or fuel efficient.  A minivan tells the story to the world that you’re a #madmominaminivan or that you’re a #taxidriver hauling around #soccorkids all day. Think of all the stories told about minivans and then consider the practicality of the car and the reality of what it really is; transportation.

Bankruptcy, like the minivan also tells a story.  The story bankruptcy may tell is that you are broke, don’t manage money very well; or, that you’re a deadbeat for not paying your bills. It’s an emotionally charged word that delivers a powerful punch of shame and guilt with the scarlet letter pinned to your financial statements and your credit score. Instead of looking at bankruptcy as if it were transportation that gets you from point A to point B in a practical way, most folks will run from it because of the lifestyle statements made by others and the story told. But did you know?

Law Office of Christine A. Wilton proudly uses Dave Ramsey's Debtor Education Course For Her Clients.

Law Office of Christine A. Wilton proudly uses Dave Ramsey’s Debtor Education Course For Her Clients.

Dave Ramsey (@daveramsey) filed for bankruptcy before he became famous for helping people get out of debt without filing for bankruptcy. Celebrities like Walt Disney, MC Hammer, Mike Tyson, Anna Nicole Smith, and Abraham Lincoln? Many who have survived bankruptcy went on to become wildly successful. The reason for their success may very well be that they freed up their cash flow by eliminating their debt quickly and moved on with their ideas.

Getting out of debt quickly is the power behind the bankruptcy vehicle. You can be debt free in as little as six (6) months to five (5) years and take your future earnings and put them to work to build a better future for yourself, your family and your community.  A practical and economical approach to debt elimination requires a look at bankruptcy from another perspective, setting aside the stories lies being told.

Bankruptcy Solves Long Term Debt Struggles

Posted in Chapter 13, Chapter 7, Estate Planning & Bankruptcy

Lately, I’ve gotten into reading Liz Weston’s (@lizweston) column in the Los Angeles Times Sunday papers I get delivered and it seems like a love/hate relationship at times.  For the most part, I feel it’s important to keep an eye on these personal finance advice givers and share my perspective.  In her column entitled, Consider Bankruptcy in Long Debt Struggles, I start with her statement that “A bankruptcy filing would devastate your credit scores . . .,” which is one of those myths I come up against in practice on a daily basis.  I disagree with @lizweston that a bankruptcy filing would devastate credit scores.  Contrary, eliminating the debt from one’s credit report often offsets the impact of a bankruptcy filing and actually improves a credit score.  In the case of the 33-year-old mother, her filing bk while current on her debt repayment will have significantly lower impact to her credit score because it’s the ‘late payments’ and ‘collections’ activity that has a greater impact that filing bankruptcy.

Bankruptcy eliminates debts; boost retirement

Bankruptcy eliminates debts; boost retirement

Liz, I know you write nationally, which makes it important the readers understand this.  In California, it is unlawful for an insurer to use credit scores to determine insurance premiums.  Another important point to note is that anyone with preexisting utility accounts, wireless services and the like will see no impact on their service when they keep  those accounts in good standing after filing bankruptcy.  Also, we have the ability to provide planning and counseling to our clients and can eliminate past due accounts; and exit contracts where appropriate to do so with new agreements in place BEFORE they file, so this does not become an issue.

I do agree and have said it before that if you’re struggling to repay debts and your debt repayment plan is longer than five (5) years; or, if you find yourself tapped out of savings and/or drooling at your retirement accounts to save you, then you owe it to yourself to consider bankruptcy.  At this point, I believe that our financial obligation to have enough money saved in retirement far outweighs our obligations to service and repay our debts.

Short Sale Limbo Creates Risk Of Tax Bill

Posted in Uncategorized

The Mortgage Debt Relief Act expired Jan. 1 and remains in limbo due to Congressional inaction to renew it. This may well be the main reason for the sharp decline in short sales this year for homeowners looking to sell their home for less than what they owe. Californian’s can rest on their purchase money, generally known as a non-recourse loan because of an IRS interpretation of state law, according to this article by Kenneth R. Harney.

Their may be issues of a second mortgage seeking a deficiency payment from borrowers after the close of a short sale on loans taken on a refinance, making a good case for bankruptcy to eliminate both the debt owed and any income taxes that may loom. Another case for bankruptcy would be if there are other debts that homeowners are dealing and their goal is to become DEBT FREE. If Congress does not extend the Mortgage Debt Relief Act, then bankruptcy may be the first stop before a short sale because of the benefits that bankruptcy affords; such as the fact that all debts discharged in bankruptcy incur no income tax consequences.  No debt and no taxes are just two good reasons to consider bankruptcy on the path to financial freedom from debt.

Those who short sold their homes and completed their bankruptcies more than two years ago are now well-positioned to re-enter the housing ownership market, but now face an inventory shortage of homes for sale. It seems the economy still needs time to heal in the wake of devastation left behind from the housing crisis.  My tenured colleagues have seen many business cycles and I agree that this down cycle won’t be over for another two years.  There’s still time to quickly eliminate your debt through bankruptcy, dump that toxic mortgage and undervalued property and save to catch the next housing wave and bull market coming after 2016.

House of Debt: SoCal Version

Posted in Automatic Stay, Bankruptcy & Civil Litigation, Chapter 13, Chapter 7, Foreclosure, Modifications, Short Sales

On Sunday mornings, I enjoy my coffee with the newspaper and June 8th was the usual.  I like to keep current on the housing market and all things debt, so it’s no surprise that the article entitled, Feuer targets big banks for L.A. by Michael Hiltzik (@hiltzikm) caught my attention. I am delighted to learn L.A. city attorney Mike Feuer (@Mike_Feuer) is on the offensive and taking action to recoup lost revenue by employing litigation as a regulatory device.  The usual big bank suspects are on his target list including J.P. Morgan Chase, Bank of American, Wells Fargo, Ally (aka GMAC), and Citigroup being the Big five that all recently settled with 49 states for pennies on the dollar compared to the wake of destruction left behind through their shoddy business policies, fraud, lies and “robo-signing” practices.

#SoCal House of Debt

#SoCal House of Debt

I commend attorney Mike Feuer for taking aggressive action through his city attorney office.  Southern California (#SoCal) encompasses San Luis Obispo across to the eastern line and south to the Mexican boarder. This region was among the top in the nation for damage caused during the housing crisis of 2008, with rippling effects still felt today.    I have clients in cities like Compton, Long Beach and Norwalk who are African American and Latino, who have been targets of predatory lending.  Remember In re Vargas (2:08-bk-17036-SB) a 2008 Chapter 7 bankruptcy case I took a close look at this case and the loan documents for Mr. Vargas, a senior citizen who had taken out a reverse mortgage on his home some years before he filed bankruptcy and the terms of the loan are shocking.  Signatures were forged and the notary was not witnessed.  After filing bankruptcy, the lender filed a Motion for Relief from Stay with the court so they could continue foreclosing on his home. The bank lost its motion in this case, but unfortunately cases that have followed have not faired well in bankruptcy courts in our district.

There is a definite lack of faith with the big banks and our courts where the army of consumer lawyers in SoCal have nearly given up because the banks continue to use fabricated documents to support their contentions and judges assert comments like, “You borrowed the money, and owe someone. . . .bank X is here . . . .so pay them.” The fact that California is mostly a non-judicial foreclosure state, so it’s that much easier for a bank to take back a home when the borrower doesn’t pay. It’s refreshing to see continued action to recoup losses on behalf of our local community as we continue putting the financial pieces of our lives back together.

Monday Morning Mandatory Mortgage Meltdown Message

Posted in Chapter 13, Foreclosure, Modifications, Short Sales
M is for Mortgage

M is for Mortgage

This blog post is brought to you by the letter “M.” I read a post earlier this month that got me thinking about how homeowners are going to manage their changing budgets when their mortgages adjust.  This article, by Bill McBride (@calculatedrisk) explained that nearly 2 million mortgages that were modified are due to face interest rate resets.  As I have had the pleasure of seeking loan modifications on behalf of my Chapter 13 clients, I generally see the modification agreements setting up a “step” system of interest rate and payment adjustments over the remaining loan’s terms. I wonder though, if these folks have planned in their budgets for these changes.

If you’ve already forgotten about the mortgage meltdown, here’s a book review provided by Adam Levitin (@creditslips) that provides a great synopsis of the history of mortgage deregulation and the financial crisis of 2008. It’s nice to see housing prices rising to save some underwater borrowers, as mentioned by Evan Nemeroff (@NatMortgageNews) in this article. Evans’ article points out that approximately 6.3 million home or 12.7% of all residential households owe more than their homes are worth.

Managing a personal mortgage meltdown when the household budget does not include the increased mortgage payment, may include a court ordered debt repayment plan through Chapter 13 of the Bankruptcy Code. There are options and speaking with a professional about debt relief options, including a bankruptcy lawyer can make all the difference to your financial future.

 

Making Your Ends Meet

Posted in Bankruptcy Law Overview, Chapter 13, Chapter 7, Debt Collections, Uncategorized

How do you make your ends meet? Do you rob Peter to pay Paul? That is, to use one credit card to make the minimum Budget words, American banknotes and calculatorpayment on another? Do you rotate which debts get paid one month to the next? Katie Porter (@MsKatiePorter) recently reported on a few studies and how lower income families manage debt as compared to middle income folks. Her article entitled, Robbing Peter is a review of several studies she read, which makes it a good read. So, how do you make ends meet? I call it a budget and getting off the cycle of debt.

Let’s look at this from a bankruptcy perspective.  Not that you’re going to file bankruptcy, but to see debt as I and the bankruptcy courts do. This viewpoint will give just another perspective on how you can prioritize your own household finances. We use the following hierarchy:

  1. Secured:  Debts with liens such as a mortgages (1st, 2nd, Home equity lines of credit) or car loans
  2. Unsecured Priority:  Income taxes, family support, child support obligations, student loans
  3. Unsecured Non-Priority:  credit cards, medical bills, payday loans, signature loans

We know that among the middle class for example, mortgage debt remains king of the heap, as it should be, if you want to keep your home.  However, the conversation should include discussing whether the home is an asset or liability; is the mortgage payment (principle, interest, taxes, insurance and maintenance) cheaper than rent; whether the house should be sold. Keeping your priorities in order of importance when creating and maintaining the household budget places a focus on the important things in life like food, clothing and shelter first; debt after. Making the decision to get out of debt is the first step.  From there, a budget is required.  After that, having a strategy that fits with your financial goals and within the time frame of those goals will help you decide what’s best for you.

You Don’t Have to Be Insolvent To Be Bankrupt

Posted in Chapter 13, Chapter 7, Exemptions
You Don't Have To Be Broke To File For Bankruptcy Protection

You Don’t Have To Be Broke To File For Bankruptcy Protection

Many mistakenly believe they must be completely broke to file bankruptcy and that simply is not true.  Do you remember the story of Vicky Lynn Marshall?  [aka: Anna Nicole Smith] Pierce Marshall, son of J. Howard Marshall [Anna's husband before he passed], was a claimant to his father’s oil fortune.  He not only prevailed against his stepmother [Anna Nicole Smith] before the Supreme Court in Stern v. Marshall, but obtained a sizable state-court fraud judgment against his brother, J. Howard III. The judgment led Howard to file for bankruptcy.  Pierce argued before the bankruptcy court that his brother was not insolvent because he had money to pay his debts, including the judgment. The Court carefully reviewed the history of bankruptcy law, and in an opinion that was ultimately adopted in the Ninth Circuit, found that nothing in the Constitution required that a debtor be insolvent in order to file for bankruptcy protection from his creditors. See, Marshall v. Marshall (In re Marshall), 721 F.3d 1032 (9th Cir. 2013)

Essentially, the purpose of bankruptcy is the balance and restructure debtor-creditor relationships by assuring the maximum available property is surrendered to creditors, or the maximum amount of disposable income is paid to creditors through a court ordered repayment plan. The goal is to provide the honest, but unfortunate debtor a way to rehabilitate and restructure their finances and free themselves from debt. Howard’s bankruptcy was permissible despite his solvency. What are you waiting for?

You have choices when making the financial decision to get out of debt.  The decision to file for bankruptcy protection can be a difficult one, but keep in mind that debts eliminated through bankruptcy are not taxable income like debt settlement.  You could save time, money and your credit score through a bankruptcy program that is right for you. As always, discuss your financial matters with your trusted professionals, like your tax preparer, financial advisor, bankruptcy lawyer and weigh your options.  The more information you have, the more well informed your decision will be.

Article credit:  Receivership News, a publication of the California Receivers Forum

Buy A Home After Bankruptcy: Yes You Can!

Posted in Avoid Liens, Bankruptcy Law Overview, Chapter 13, Chapter 7, Fair Credit Reporting, Foreclosure, Short Sales

I network with a lot of business professionals from around the financial sector because rules and information changes so frequently that I can’t keep up with all of it.  Over a cup of coffee a few weeks ago, I was talking with experienced mortgage broker, Brigitte Archer of Oxford Capital in Lake Forrest, California and here’s what she had to say about qualifying and buying a home after bankruptcy.

HUD announced that borrowers can qualify to purchase a home One Year after a bankruptcy discharge, if the borrower can show that the bankruptcy was caused by extenuating circumstances beyond his or her control and has since exhibited a documented ability to manage his or her financial affairs in a responsible manner. Brigitte agrees, “Program Requirements are for Purchase Transactions Only; Housing counseling must be completed 30 days prior to the loan application.  The bankruptcy, foreclosure of short sale MUST be related to the loss of job or     20% income reduction for at least 6 months; and credit must have been satisfactory for a minimum of 12 months after the event.”

This is great news for anyone faced with the difficult decision to file bankruptcy due to unmanageable debt that cannot be eliminated within 5 years.  The 5 year term is used because a court ordered repayment bankruptcy under Chapter 13 of the Bankruptcy Code can allow repayment of all or part of a consumer’s debt within 5 years.