Pros and Cons of Bankruptcy as Debt Relief

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No one wants to file for bankruptcy.  I know it and so do you.  I read the scathing comments about good people who struggle with debt and their perceived “moral” obligation to repay their debts.  I also enjoy watching Jimmy Fallon (@jimmyfallon) and his humorous Pros and Cons segement each week.  So, here are my Pros and Cons of filing for bankruptcy.

Pros of filing for bankruptcy

  • You get out of debt quickly (4-6 months for Chapter 7; up to 5 years for Chapter 13), saving valuable TIME;
  • Stop wage garnishment; stop foreclosure; stop lawsuits; and all harassing debt collectors;
  • Save money by paying less toward your debts and more toward your financial future (retirement, home ownership, college)

Cons of filing for bankruptcy

  • Your credit will be ruined; check out this article
  • You will lose your car, house, or boat; read this
  • You’re looking for the secret trick to get out of debt
  • Your family/friends have told you not to do it
  • You haven’t cashed out your life insurance; or retirement plans yet!

What ever your motivation for getting out of debt, the process you choose to get you to your goal will cost you time and money.  What if you could eliminate your debt today and start saving for your future immediately?  What would you do then?

Help For Bankruptcy Adversary Proceedings

Bankruptcy CourtIf you are served a Summons and Complaint during your bankruptcy case you MUST take action to protect your rights.  You cannot ignore court papers and should seek the advice of an attorney immediately, or you may lose your rights and be left on the hook for a debt that may be discharged in your bankruptcy. Conversely, you may want to sue a creditor to discharge a debt like your student loans and need a student loan lawyer that understands bankruptcy to help you.

Here in the Central District of California we have so many bankruptcy lawyers that limit the scope of their client’s representation and do not handle bankruptcy litigation cases known as adversary proceedings.  Here are some important tools for consumers to find competent representation to help them through this complex process.

  1. Ask your current lawyer for a referral to a bankruptcy litigation attorney;
  2. Use the links below to find a reputable attorney to handle your case;
  3. Consult with at least 2-3 lawyers to find one that has knowledge, skills and the ability to help you.

If your attorney refuses to represent you your first step should be to consult with several local attorneys to determine who you would like to work with, but even more importantly, to listen to these experienced practitioners tell you their strategy for helping you and estimate fees and costs for their work on your behalf.  We have a great group of local attorneys here at the CDCBAA and for those in other parts of the state and nation can visit the NACBA website for an attorney. We also have public counsel for referrals to pro bono lawyers that may be able to serve.

Help For Identity Theft Victims

You Can Have an Excellent Credit ScoreIf you’re a victim of identity theft, where do you begin to clear your good credit and your name? With the increased internet hacking cases, it’s more important than ever to protect your identity.  No matter how proactive you are, identity theft can strike anyone at any time.  When it does, you need a plan to immediately take action to repair the damage that has been done. The Fair Trade Commission provides helpful resources cope with identity theft losses. Here’s a more in-depth article that provides some simple steps you can take immediately to protect your rights. It’s important to take action immediately to stop the thief from

If, after you have (1) filed a police report, (2) Contacted each of the creditors about the accounts opened by the thief, and (3) Notified all three major credit bureaus in writing and the problems is not resolved, then a consultation with a consumer protection lawyer is your next step. The National Association of Consumer Advocates (NACA)  is a great referral resource for consumer lawyers in your area. What’s great is that consulting with a lawyer about your rights is FREE.

The Fair Credit Reporting Act is a powerful set of laws that will expedite the deletion of the credit problems created from the identity thief and help get your financial life back quickly.  In addition to the corrections required on your credit report, you may be entitled to compensation, if the creditors and credit reporting agencies fail to take swift action to correct the problems.

Ask Your Bankruptcy Lawyer: Why?

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.

Today I am going to answer the question:  Why?  Why did I choose to practice bankruptcy law as a lawyer.  The answer is what motivates and drives my practice to help my clients grow financially.  This is the question you should ask of your lawyer too.

I became a lawyer because I wanted a graduate degree that had some teeth to it.  That, and I was tired of being ignorant of my rights.  Life wasn’t fair for me and I was determined to do something about it.  After passing the bar in 2008, at the same time as the economy was tanking, I found myself in a cubicle job with the state that seemed rather coveted at the time because there were thousands of good lawyers, with experience, being laid off from their jobs.  When that happens, many seek shelter in the government sector.

I spent some time thinking about my career choices and the many practice areas available.  I had nearly 14 years experience in the insurance industry, but chose to practice in bankruptcy instead.  I chose bankruptcy because the practice needed more lawyers at the time because of the economy.  It also had the potential for litigation and I was very interested in how bankruptcy could help people stay in their homes.  I was also selfishly motivated because I too, had a litany of debt that followed from my education.

I understand what it’s like to be in debt over my head.  I know the feeling of nervous anxiety from the first time I chose to stop paying my debts after making my decision to get out of debt through bankruptcy.  I did not make these decisions lightly.  I started my journey with the folks at Dave Ramsey’s team with the book, Total Money Makeover.  During the two years prior to bankruptcy, I paid down nearly $40,000.00 in debt from cashing in life insurance; getting rent from a roommate; and collecting back child support. The problem was that I could not keep up that pace and it was going to take me a lifetime to pay off all my debts.

Why do I practice bankruptcy?  Because I enjoy lifting the burdens off my clients.  I love partnering with them to make well informed financial decisions for themselves.  I love making a difference in the lives of those I work with.  That’s my why.  What’s yours?

Book Review: The Big Short by Michael Lewis

It was recently announced that the book, The Big Short: Inside the Doomsday Machine, written by Micheal Lewis will soon be made into a movie starring Brad Pitt. The book is essentially a Wall Street perspective about the housing and credit bubble of the 2,000s. It depicts the long bull market where a nation loses its financial mind. What started as a government campaign to help Americans into home ownership, became a great idea on Wall Street, to take the consumer out of high interest credit card debt and put them into lower interest mortgage debt.

I remember the Countrywide commercials like it was yesterday.  They talked about your home being a “bank” that you could just tap into.  Countrywide bragged about helping those that had previously been turned down for loans because they had no down payment, no proof of income, or even a growing family with alot of debt.

The doomsday machine was built on easy credit and Wall Street greed.  Young Wall Street had no business making huge bets with other people’s money, selling complex securitized mortgage bonds from loans that Americans could not afford and had no idea how they worked.  The financial gluttony of investors led to and caused the financial crisis of 2008.  America is left with a bad taste for Wall Street and our government’s “brilliant” ideas to help Americans.  At what price do we take a hard look at America’s budget?  At what point does any individual declare their own freedom from debilitating debt? How do we even stop ourselves from getting into financial trouble in the future?

Filing bankruptcy helps with creditors

There are many ways that filing for bankruptcy protection can help with creditors whether you file under Chapter 7 or Chapter 13 of the Bankrutpcy Code. After you have prepared and filed your bankruptcy paperwork, the court clerk will notify all of your creditors of your bankruptcy filing and inform them that they may no longer contact you. The clerk’s notice will also include information about your meeting of creditors. If your creditors continue to pursue you after receiving notice of your bankruptcy, they are subject to sanctions by the bankruptcy court. Not only does the bankruptcy filing stop the creditors from calling or contacting you, it stops them from suing you or continuing with any pending lawsuit; wage garnishment; or even bank levies are stopped.

When dealing with unsecured creditors and when efforts to pay off high interest rate credit card debt fails, bankruptcy stops any interest from accruing on this type of debt.  This means that under Chapter 13 of the Bankruptcy Code where debtors make a court ordered payment on the debts owed, this repayment plan has zero interest.  This brings financial stability to the household budget with an end in sight for freedom from debt.

Bankruptcy can also protect against paying debts not owed or zombie debts that have lingered long past their expiration dates.  Bankruptcy also helps clean up identity theft more quickly than just about any other method.  I know that identity theft is not the borrower’s fault, but clearing up the bad debt off the credit report and then filing an explanation to the credit bureaus may help that credit score rebound faster than a rebound relationship would last.

My favorite bankruptcy benefit?  All debts discharged in bankruptcy incur NO TAXES. That’s right.  No income taxes will be owed on debts discharged in bankruptcy.  This makes bankruptcy more favorable than debt repayment plans, or debt settlements outside bankruptcy.  As always, I recommend a consultation with your tax professional, and bankruptcy attorney to be sure bankruptcy is right for you.

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Attorney Fees in Chapter 7 Bankruptcy May Increase

Here in the Central District of California we have a huge Pro Se Debtor population; which are filers without a lawyer.  Then, there is another group who pay a paralegal or petition preparer no more than $200.00 to assist them in preparing their bankruptcy papers. Others might higher a lawyer to do the same work and pay them to answer questions. Some lawyers may “unbundle” their services to lower their rates in a race to the bottom for some bankruptcy lawyers. Unbundled legal services is like ordering a fast food meal, one item at a time rather than a meal as a bundle. Unfortunately, it’s difficult to know what legal services are needed by consumers, unlike ordering at a fast food restaurant. This creates confusion in advertising. Remember that you get what you pay for and a cheap lawyer provides less services.

This brings me to my point.  Since many lawyers have cut services, many a client are left without a lawyer at their 341a Meeting of Creditors; Motions; and adversary proceedings. What about a U.S. Trustee case audit?  Where is your attorney when something out of the ordinary happens in your Chapter 7 Bankruptcy case? While there is a small chance that additional legal services will be required in your bankruptcy case, our bankruptcy judges are currently reviewing our Limited Scope of Appearance Form pursuant to LBR 2090.

For Bankruptcy Lawyers:  The Limited Scope of Representation Committee has created a survey to solicit comments on changes they are considering to the limited scope of appearance. Please take a moment out of your day to fill out the survey http://goo.gl/forms/mX7Gv8cK4x.

For consumers, this could mean even more bankruptcy filings without lawyers due to increased attorney fees to represent clients in situations that may never happen during their case.  The many would be paying for the few.  If that happens, our courts could be further bogged down by debtors without lawyers, asking judges and trustees their questions and pressing the patience of the bench.

What is a 341(a) Meeting of Creditors?

Anthony Foxx, Oath of officeAfter your bankruptcy case is filed, your case is assigned to a judge and a trustee.  You’ll soon receive an important notice from the bankruptcy court, giving you a date, time and place of your Meeting of Creditors, but what is it and how do you prepare?

What is a 341(a) meeting of creditors?

The meeting of creditors is a hearing all debtors must attend in any bankruptcy proceeding. It is held outside of the presence of the judge and usually occurs between 20 and 40 days after the filing of the petition. In chapter 7, 12, and 13 cases, the trustee assigned to the case conducts the meeting. In a chapter 11 case, a representative of the United States Trustee’s Office conducts the meeting.

The meeting permits the trustee or the representative of the U.S. Trustee to review the debtor’s petition and schedules with the debtor. The debtor is required to answer questions under penalty of perjury (swearing or affirming to tell the truth) about the debtor’s conduct, property, liabilities, financial condition, and any other matter that may affect the administration of the case or the debtor’s right to discharge. In addition, the trustee or U.S. Trustee’s representative will ask questions to ensure that the debtor understands the bankruptcy process.

The meeting is referred to as a meeting of creditors because creditors are notified that they may attend and ask the debtor questions pertaining to assets or any other matter pertinent to the administration of the case. It is also referred to as a 341 meeting because it is mandated by Section 341 of the Bankruptcy Code. Creditors are not required to attend these meetings and do not waive any rights if they do not attend. The meeting usually lasts only about ten to fifteen minutes and may be continued if the trustee or U.S. Trustee’s representative is not satisfied with the information presented.

If the debtor fails to appear and provide the information requested, the trustee or U.S. Trustee’s representative may request that the case be dismissed, or may seek other relief against the debtor for failure to cooperate. If the case involves spouses filing jointly, both spouses must appear at the meeting of creditors.

How to prepare for your 341(a) meeting of creditors

  1. WHAT TO BRING:  Valid government issued Identification; Social Security Card; and last filed tax returns.
  2. BE ON TIME. Better yet, arrive early.  In the back of the room, on the wall there is usually a calendar posted where you can find your name.  This information will tell you how many people will be heard before you.
  3. Next, grab a GREEN SHEET (pamphlet) in your preferred language and READ IT.
  4. If you don’t have an attorney, you may be required to fill out an additional form.  Look for it on one of the tables.
  5. Have a seat and wait for further instructions from your Trustee.

Remember that the trustee’s job in Chapter 7 is to look for assets (what you own) that they can take to pay your creditors.  This hearing is your sworn testimony that what you said in your bankruptcy papers is true, correct and accurate because those papers were signed under penalty of perjury. If you have a lawyer and have questions about this important part of the process, you should direct them to your lawyer.  Attorney fees should include representation at your hearing.

The Secret Trick To Getting Out of Debt

Are you caught up in a vicious debt cycle that feels like it will never end?  Have you considered payday loans or already have one? Are you overwhelmed by all the so-called “help” on the internet about getting out of debt? The real secret to getting and staying out of debt requires a permanent change to how you make and spend money.  I know it’s not what you wanted to hear, but a shift in perspectives about money is all it takes to succeed and anyone can do it.

In fact, I’ve written a book, 5 Steps to Freedom From Debt, that simplifies all the options people have for getting out of debt.  Whether it’s Dave Ramsey’s approach using the Debt Snowball, or filing for Bankruptcy protection; we all have feelings and emotions that affect our financial decisions. When most people think about bankruptcy, they feel shame and embarrassment. In order to avoid shame and embarrassment and still get out of debt, requires repaying ALL the debt at the contracted interest rates for each account.  Let’s look at this from a numbers perspective:

  • $30,000.00 in unsecured debt at 18% interest with $500.00/mo. payments will take 13 years to pay off; paying a total amount of $78,000.00!
  • $30,000.00 can be FULLY paid in FIVE (5) years under a court ordered repayment plan in Chapter 13 Bankruptcy with a $500.00/mo. payments at 0% interest.
  • That same $30,000.00 can be discharged in Chapter 7 Bankruptcy with NO Payments. (Bankruptcy costs and Attorney fees vary)

Let’s just focus on the difference between repaying all the debt using the “snowball” method and a bankruptcy repayment plan.  The real difference here is the Eight (8) years of payments of $500.00/mo., which totals $48,000.00!  So, the secret trick of facing shame and embarrassment will save both time and money.

Imagine if you took the $48,000.00 savings and invested it in a mutual fund that earned 6% interest.  After Eight (8) years, that amount would grow to be $63,744.82! The person that filed bankruptcy and fully repaid their debt in Five (5) years, who then took the $500.00 monthly payment, invested in a mutual fund that earned a 6% interest over the next eight years, not only paid off all their debt, but also made $15,744.82.  Who does that?  Those that take a different perspective to eliminating their debts; that’s who!

Does Having a Disability Erase Student Loans?

This was a great question asked of Liz Weston (@lizweston) recently. Her answer is here. I like the fact that her answer encompasses several Human brain function represented by red and blue gearsoptions for the reader, but let’s look at the costs of some of these choices.

Under the Total and Permanent Disability discharge of student loans (A federal program), a borrower MUST be totally and permanently disabled.  I do not wish this for anyone and it’s a hard line to tow.  I’ve had clients in limbo and on appeal for these decisions for years. So, in addition to being totally and permanently disabled, this program ONLY applies to federal student loans.  There is no relief afforded to private student loans.  For more information on this and other federal programs, go here.

Income-Sensitive Repayment: Again, this is ONLY available to federal student loans.  See the link above.  If the borrower has both federal and private loans, they’ll need to consider the following options.

File a Civil Law Suit:  Another option is to sue the lenders and the school to void the student loan contracts on the premise that the borrower was unable to enter into such an agreement due to the mental disability.  While the lawsuit may have a high likelihood of success with proper medical experts, the cost of litigation can mean tens of thousands of dollars for this option.  Although, the prevailing party, the party that wins, may be entitled to reimbursement of attorney fees and costs.  The downside is, the borrower may still end up in bankruptcy if they do not succeed. Unfortunately, most don’t have the money up front to pay an attorney.

Bankruptcy Option:  When the cost is a consideration to resolve any financial problem, bankruptcy becomes a more viable solution.  First, bankruptcy will tackle all debts at once; thus killing many birds with one stone.  File one bankruptcy case and it stops ALL collections. Second, in bankruptcy, the debtor can file suit against the lenders on more than one legal ground.  This means that the debtor can sue to discharge their student loans on a Undue Hardship Standard, and plead in the alternative on a state court cause of action for their inability to contract.  Again, two birds with one stone. Sometimes the cost of bankruptcy far outweighs other options because it’s actual cheaper, better and faster to get to the goal.

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