A Bankruptcy Expedites Financial Success

I’m so tired of hearing that “bankruptcy is failure.”  It’s simply not true, and yes, I am biased.  However, I have seen bankruptcy success stories, like Dave Ramsey, Walt Disney, J.C. Penny, darn near every football player ever, and more are listed in this article. If bankruptcy works for successful business folks, then why are you still sitting there believing that you should do everything you can to avoid it?

Bankruptcy can lay the foundation for future financial success, according to my friend and Milwakee bankruptcy lawyer Jamie Miller.  I too, have seen success stories in my practice that range from changing habits to changing lives.  Here’s what bankruptcy really does; it gets the debt out of the way so you can immediately move on with your financial life and save for what’s really important, like a home, car and RETIREMENT.  I’m actually quite nervous about how little Americans save for retirement and I suspect you’re all struggling to repay your debts and losing time and compound interest.

Time is a precious commodity.  Spending too much time eliminating debt, takes time away from building a nest egg for your future.  Bankruptcy is success, not failure.

A Simple Formula For Kick-Ass Car Buying

The next time you’re looking for a new or newer car, remember to consider the landed costs, which include the taxes, annual registration, maintenance costs, insurance, gas consumption costs, and the like.  For more information on landed costs, check out this recent article. But wait, there’s more.  I’m now even more fired up about car buying from a recent article entitled, “No, You Don’t Have To Be A Millionaire And Pay Cash To Buy A New Car.” You can read the full article, here.

The article, written by a Tom McParland (@TomMcParland), makes a good point about news cars and their depreciation.  He even points out several vehicles that are pretty good at holding their value over time.  This makes his article a good read.  However, I think he completely missed the point when discussing Dave Ramsey’s (@Daveramsey) recent advice to a 61 year old millionaire. Check out this article, here.

Dave rightly points out that leasing is more expensive and I agree. I disagree that Dave gave the woman “permission” to pay cash for a car when she’s a millionaire.  Remember that people call him for advice, not the other way around.  Apparently, she was a follower of his program and wanted to know whether she should pay cash, lease, or finance a new car.  I see nothing wrong with people seeking input before making major financial decisions because I’m a bankruptcy lawyer and a firm believer in exploring options and gathering the facts BEFORE making any major financial decision.

Now, since I’m an equal opportunity offender, I will point out the fact that Dave Ramsey filed for personal bankruptcy before he became the nation’s “guru” for financial advice.  I know he also advises his listeners to buy used cars, but then he himself buys a new Corvette and gets to pick it up directly from the factory, but then again, he doesn’t have to follow his own advice anymore because he’s rich from selling his advice to his listeners.  Again, I emphasize my philosophy of knowing your own numbers, getting all the facts, seeking the input from professionals, then make your financial decision, what ever it is.

Transportation Costs For That Car: Landed Costs

little financial advisorIt’s amusing when a friend tells me how much money they’re saving in gas with their brand new hybrid vehicle that they just proudly purchased. I’m sure it’s a much more fuel efficient car, but the question I have, is this: Was total cost important to them? If I bought a used $3k vehicle which got 30 MPG, instead of a $28k hybrid that got 50 MPG, at what point would the hybrid be really saving me in overall costs? Sure, an older car possibly has a higher maintenance cost, and there are a lot of other considerations, but full calculations (with car loan interest also factored in) would yield the break point somewhere years in the future.

In the manufacturing business, it’s called, “Landed Cost”. It describes the total cost (which includes the manufacturing, surcharges, freight, document fees, etc) for a product to be on someone’s dock or doorstep. In your personal finance and budgeting, it comes down to your total cost. However, to figure total cost, it requires the “big picture”.

It seems that we all need our cars here in California, but at what cost?  The next time you’re looking to buy a car, consider these important truths:

  • buying saves money over leasing;
  • buying a used car will save you thousands over new;
  • cut down on transportation costs and live closer to work; or take public transportation

The same can be said with the Bankruptcy option. The “B” word has a negative connotation, but if you do the math, how would you emerge financially with the aid of bankruptcy versus trying to pay a life time of debt off? Have you really considered the “landed cost” 20 or 30 years down the road? Have you created your excel sheet to account for, and analyze those costs and found where the break point is?

50 Cent in One Hand and Half a Dollar . . .

4551670622_970685382c_z . . . in the other.  I’m a bankruptcy lawyer.  There, I said it.  My product is a service that helps my clients save assets and eliminate debt.  The problem with my business model is that it sparks a never ending conversation about morals and character because the stigma is that folks who file for bankruptcy lived a lavish lifestyle and simply spent more than they made.  Now, I can see how that happened during the bull market that led up to the financial crisis that seems so long ago (2008).  I can be a bit biased in my opinion, but I’ll be the first to admit when someone should not file for bankruptcy protection.

It seems perfectly understandable when a celebrity like 50 Cent files for bankruptcy protection.  Our first inclination is that lavish lifestyle excuse.  Over at Fox Rothchild, they left that question open in their recent, article. We have since learned that he’s leveraging a bankruptcy case to stop a lawsuit.  So, once the curtain is pulled back, we see that bankruptcy protection as a tool to use to leverage your financial position. It got me thinking, what life events might be ripe for bankruptcy?

Here are some major life events that my clients have gone through, where bankruptcy has helped:

  • Medical illness/accident
  • Job loss or reduction in pay
  • Law Suit
  • Wage Garnishment
  • Divorce
  • Foreclosure
  • Refusal for a Loan Modification
  • Student Loans
  • Taxes
  • Contracts

This list is not meant to be all inclusive, but rather to give a sense of how life can be expensive and that bankruptcy is not just right for the rich and famous, but the broke and beautiful people too.

Photo credit:  Spare Change

The Real Threat to Retirement in America

It seems pretty harmless at first.  The first several years, even decades go by as you begin to build a retirement savings.  You feel proud that you are on your way to retirement.  What an accomplishment that would be; to have enough money to retire one day.  Then, life happens and the kids need to go off to college; parents are aging and need support; an accident happened to your husband.  Now what?

Debt begins to pile up slowly at first, just like the retirement nest egg.  It takes years, even decades for it to creep up on you.  We don’t even notice the debt at first.  We just fit it into the budget and make a payment plan. Then, one day it suddenly becomes unmanageable.  Here comes the question:

Should I use retirement accounts to pay off my debts? 

The real threat to your retirement accounts is YOU. Your retirement accounts are safe from creditors.  This means that if you filed for bankruptcy, you could eliminate your debt and keep your retirement account(s).  All of it.  Also, under California laws, your retirement accounts are protected from a levy or lien too.  And remember, no one else has the power to pull money from your account.

When you make early withdrawals from your retirement account and you don’t pay that money back, you will incur early withdrawal penalties and taxes.  These costs can cut your net check nearly in half!  Even if you borrowed money from your 401k, then you’re losing out on the precious time value of money.  Don’t know what the time value of money is?  Click here.

So, the next time you’re facing unmanageable debts and you think that pulling money from your retirement account is a good idea, it’s time to consult with your local bankruptcy attorney to see if you might have another option.  For more information on the saving vs. eliminating debt conversation, click here. Thanks to Cathy Moran for her article on this subject, here.

Private Student Loan Taken For Son’s Drug Treatment Discharged in Bankruptcy

flickrjjenniferelyseIn a recent decision by Hon. Richard M. Neiter, United States Bankruptcy Judge in the Los Angeles Division of the Central District of California presiding, it was determined that loans taken for the treatment of a minor child for a drug addiction were dischargeable in bankruptcy. The decision came down on July 7, 2015 in adversary case no. 2:14-ap-01722-RN.

In this case, Plaintiff, Tamara L. Schwartz, executed a Credit Agreement to obtain loans for her son to be placed in a lockdown rehabilitation facility, Youthcare/Pine Ridge Academy, in Draper, Utah to cover her portion of the treatment expenses for her son’s drug addiction. The loan executed was a “Non-Negotiable Credit Agreement—This is a Consumer Credit Transaction” through Bank of America, N.A. as (“Lender”). The type of loan taken pursuant to the Credit Agreement was a “TERI K-12 loan.” This was a private student loan!

Ms. Schwartz sought to have the bankruptcy court determine that this student loan debt was dischargeable pursuant to 11 U.S.C. §523(a)(8)(B).  There is a two-tiered analysis to determine dischargeability under this theory: first, whether a debt is an educational “ loan ” and, if it is, then whether it meets the Internal Revenue Code definition of “qualified education loan,” In re Oliver, 499 B.R. 617 (Bankr. S.D. Ind., 2013); see also, Inst. of Imaginal Studies v. Christoff (In re Christoff) (Bankr. N.D. Cal., 2014). The Court’s tentative ruling can be found here.

Back in 2012, we obtained a student loan discharge on Undue Hardship standards, which represents another way to eliminate student loans in bankruptcy.  See, Schaffer v. ECMC, here.  We continue to add tools to our tool boxes to help consumers eliminate their debts, including student loans.

Photo credit:  Jennifer Elyse, Flckr

Student Loan Forgiveness Taxes Better than Debt

I’ve read a couple articles recently that warn about taxes when student loans are forgiven under the Income Driven Repayment program for federal student loans.  The articles are, Beware Taxes When Your Student Loan Debt is Forgiven by Lifehacker (@lifehacker); and There’s a huge catch if the federal government forgives your student debt by Business Insider (@businessinsider).  The Lifehacker article assumes a small loan of less than $40,000.00 that grows interest over 25 years as its example and provides forgiveness of nearly the same amount with a 25% tax bill!  I have no idea how they calculated the interest rate and their assumption of a 25% tax bill in 25 years potentially creates a false sense of fear of an imaginary reality!

We don’t even know whether a tax bill would be issued in these cases, after 25 years of an Income Sensitive Repayment plan.  We don’t know whether the borrower will even survive that long, be in retirement, or disabled.  What I do know is that the majority of folks I work with to obtain these income-based type program provides immediate relief now and control over the next 25 years.  If their income significantly increases, then the borrower would eventually repay their student loans completely.  However, if their financial situation worsens and the debt is forgiven after 25 years, the MIGHT receive a tax bill for the cancelled student loans.

All this fuss and these warnings about income taxes on cancelled student loan debt that is forgiven 25 years in the future are at least bringing awareness to student loan borrowers struggling to repay their federal student loans.  My opinion is that taxes are cheaper than the actual debt paid!  Keep in mind that this program is only available to federal student loans and does not apply to private loans, which make up about 10% of the more than $1.2 TRILLION dollars in student loan debt.

What I do as a Bankruptcy Lawyer

iStock_000015318996XSmallI believe the world view of even the thought of filing bankruptcy is financial suicide for many people.  They believe their financial lives, credit scores, reputations and even careers are over.  It’s like the “Scarlet Letter” “B” is written, stitched, into the fabric of the rest of their lives.  When networking, I’ve even said that I’m the last stop on the train to financial freedom, or that I am the “Grim Reeper” of the financial world.  While many agree, I’m just making light of the very powerful force that I am to those dealing with unmanageable debts.

The very first thing I do as a bankruptcy lawyer is to analyze a client’s financial situation.  I look at everything they own [cars, boats, timeshares, homes, retirement, etc.] and then look at not only how much they owe, but what types of debts like taxes, student loans, credit cards, mortgages and how many. I also talk a lot about budgets, which is income and expenses and if there is any money left after expenses are paid.  This is all usually provided to prospective clients BEFORE they even hire me.  Did you know that you could get FREE financial analysis from a bankruptcy lawyer?  With that information, I can explore options that range from full repayment to a Chapter 7 liquidation bankruptcy case.

Where most people see financial ruin, I see an opportunity to show people the time value of money, explaining that the sooner they end their cycle of debt, the sooner they can save and plan for their future. If it will take you longer than five (5) years to get out of debt (besides your mortgage) then bankruptcy can save you time and money.  Don’t believe me, then check out this article.

Are You Stressed About Student Loan Debt?

female college graduate with parentsEarlier this month the Consumer Financial Protection Bureau (@CFPB) launched a public inquiry into student loan servicing practices.  Read their full press release here. It’s time your voice was heard.  From my experience, the main barriers to repayment continue to be a lack of information made available to students from the time they take out loans to go to college through the repayment process and the importance of keeping their loans in good standing.

Industry Practices That Create Repayment Challenges

  • I know that when a student loan goes into default, the charges added for collections can be up to 18% of the amount borrowed.  These default charges can spiral out of control quickly for stressed out borrowers who already cannot afford their student loans.
  • Many borrowers are not even aware of deferment, forbearance, or better yet, an income sensitive repayment options.  For more information on repaying your federal loans visit the Student Loan Borrower Assistance website here.
  • Bankruptcy may be an important option to consider when facing overwhelming student debt and dealing with private loans too.  We can control payments and buy time under a controlled repayment plan, or perhaps there is an undue hardship that would totally discharge student loans in bankruptcy.

Don’t wait until loans go into repayment.  Take immediate control and keep those student loans in good standing from the start to prevent balances owed from spiraling out of control.  That’s my best advice to our newest graduating class of 2015.


Citimortgage Agrees to 90% Settlement of Junior Mortgage After Bankruptcy

iStock_000015201389SmallA former debtor in a Chapter 7 bankruptcy case recently hired my firm to get rid of the lien that survived the bankruptcy.  This, in spite of the recent Supreme Court Decision handing banks yet another victory.  Read the New York Times (@NYTimes) Article, here. The Supreme Court ruling will now prevent underwater homeowners from easily discharging home equity loans and other types of second mortgages in Chapter 7 bankruptcies, according to the New York Times. Keep in mind that junior mortgages remain eligible to be “stripped” down or avoided and removed under Chapter 13 of the Bankruptcy Code. Certain restrictions apply.

Back to the Chapter 7 client.  When a debtor discharges his debts in a Chapter 7 bankruptcy, even the mortgage debt has been eliminated.  HOWEVER, mortgage lenders continue to enjoy the benefit of a lien against the real property of the debtor’s home. So, while the mortgage company can never come after the debtor to collect on the mortgage debt itself, unless that they negotiate to release or remove that junior mortgage (also known and home equity lines of credit), the lien will simply remain attached to the home. That’s where a debt settlement lawyer can help.

If the Supreme Court won’t help consumers who need it most, then certainly a debt relief lawyer can and one debtor just obtained a settlement and release of a junior mortgage lien that was previously discharged in his Chapter 7 Bankruptcy.  He will pay only 10% of the original balance owed on the junior lien and when he is finished paying 36 monthly payments, the lien will be released.  In just three (3) years, he will only have one mortgage!  Now that’s a win for consumers.