Los Angeles Bankruptcy Law Monitor : Los Angeles Bankruptcy Lawyer & Attorney : Christine Wilton Law Firm : Southern California Chapter 13 & Chapter 7 Bankruptcy, Foreclosure

Apparently most Americans are still feeling the pressure to avoid bankruptcy so much so that they are continuing to turn to any open source of credit they can find. According to the Federal Reserve, credit card debt was up $3.3 billion to $793.1 billion in May and June shows an even greater jump up by $7.7 billion to billion totaling $798.3 billion.  Overall consumer credit is up to $2.4 trillion in May.

Here is what's happening. After consumers have filed for bankruptcy, all of their debts are discharged. Creditors know that consumer debtors are only eligible for a bankruptcy discharge after 8 years. Creditors also know that many who have filed bankruptcy have a taste for credit and will go to many lengths to rebuild their precious FICO score. So, at least for 8 years the creditors can get YOU to pay them high interest rates on your credit card balances until you qualify to file bankruptcy again. They want to keep YOU addicted to CREDIT.

Subprime consumers with poor credit or fresh out of bankruptcy are receiving more credit card offers according to this article. So, don't tell me you can't get credit after bankruptcy. In fact, the creditors encourage this irresponsible behavior and welcome you into high interest credit cards by telling you that this will rebuild your good credit. NO IT WON'T!!!!

Stop being a victim of circumstances and transform your financial life once and for all. You're better off following the principles of our Depression Era elders by keeping your emergency fund in CASH, at least $1000.00 in reserves as our friends at Dave Ramsey suggest. If you've filed bankruptcy and want to rebuild your credit, work with our friends over at FortressCreditPro and tell them Christine sent you.

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Bob Lawless over at Credit Slips posted this blog article recently, Cultures, Attitudes, and Debt. What's great is that he focused more on asking questions of his readers, rather than providing his answers.  You'll have to check out the comments for yourself on this one as they're fantastic.

We each bring to the table of society, our judgments, opinions and circumstances about how others should live their lives and condemn those that live out of control. Addictions and debt uncontrolled will ruin families, communities and even countries as we are seeing.  Debt can be a good thing to help society progress, but when the lenders get greedy and set consumers up for failure, then what? Well, you have an economic crisis heard throughout the world with unstable markets and high unemployment.

I believe that we each do the best we can with what we have been dealt in life. We also have the ability to transform our circumstances with education. I also believe in sharing information to those who don't know and help them to make right choices for their lives financially.

What I don't get is that why do so many Americans believe in increasing the government's debt ceiling and allowing our country to fall further in debt? Even after this poor decision we still had our credit downgraded. How are average Americans supposed to live within their means and stay out of debt when the leaders of our free world think it's a good idea? What hypocrisy.

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It’s not unusual these days that debt collectors take extreme tactics to get you to pay up on your debts. Meet the vehicle disabling device.

Wall Street Journal posted this article entitled, "Late on Car Loan? Meet the Disabler," by Jonathan Welsh, which introduced us to the vehicle disabling device. Imagine that you’re driving along the freeway on your way home just a couple days after missing your auto loan payment and your car suddenly stops. Hopefully you’ve made it to the side of the road when you realize you’ve missed your car payment and the creditor has initiated this disabling device in your car to force you to either surrender it or make your car payment so you can continue to drive it. Sound like extortion to you? Well it certainly a form of extortion not to mention this creates huge risk exposure for the wary debt collector who happens to initiate a vehicle shut down causing damage to the consumer.

I’m not seeing any of these devices here in California yet, but it seems to be a sign of things to come. Protect yourself by asking the dealership if one of these devices has been installed in your vehicle when you purchase a car from a dealership. Also, if you’re in bankruptcy and have one of these devices, ask your attorney to request the dealer disable the device as it could constitute a violation of the automatic stay injunction that legally stops all attempts to collect debts against you.

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On July 15, 2011 Governor Jerry Brown signed SB 458 into law with an urgency declaration making it effective immediately.  This new law prevents deficiency judgments after a short sale and means those naughty lenders cannot come after you once your short sale is complete.

A recent Short Sale blog article on this subject explains the deficiency problems with short sales. The comments are asking if this is retroactive and the answer is NO.  Those who have already gone through short sales are not protected by this new law and should seek bankruptcy protection and discharge for those deficiency judgments. Remember that all debts discharged through bankruptcy have no income tax liability. 

Local Realtors are excited about this new law and the California Association of Realtors posted a news release on the recent passing of this bill here. What this bill means is that the mortgage holders can no longer come after the seller for any deficiencies after the close of the short sale.  However, Seller beware of the Tax Man!

The IRS and Franchise Tax Board are currently waiving income taxes on canceled debts where a mortgage is involved.  I understand that this ends in 2012 and we have no information on whether this will continue.  You can read more about The Mortgage Forgiveness Debt Relief Act and Debt Cancellation from the IRS directly. You MUST consult with your tax professional before you decide to short sell your home as the laws are constantly changing.

If you're facing a deficiency judgment from a previous short sale, or if you're concerned about income tax consequences potentially looming from a short sale, then I suggest you talk to your professionals.  Call your tax professional and consult with a bankruptcy lawyer to be sure you're liability obligation to pay on that debt is eliminated.  You may not need to file bankruptcy if you hire a tax professional who has knowledge of this area of the tax laws.  Don't delay or you may be on the hook for this debt after your short sale.

Photo from Rich Vintage Photography

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Loan modifications. Everyone wants one and no one really knows the secret to getting one, until now. We’ve seen many trial modifications that are rejected before the trial period ends and sometimes consumers are left on that trial mod program indefinitely without reason. The reason really lies in all the fees the servicer continues to rack up and charge you while your account remains in limbo under this program. It’s complicated how the loan servicers actually get paid and they don’t want you to know that they’ll try their hardest to get all they can from you while they seek reimbursement from the investors that actually own your loan. We call that "Double Dipping."

A great way to force the loan servicer to provide you with a permanent loan modification is to call your bankruptcy attorney the moment you’re approved for a trial modification with a payment you can sustain. What happens is that your bankruptcy case provides protections to you that prevent the lender from later denying that trial modification because you first get the automatic stay injunction that prevents any foreclosure attempt on your property. Next, once your Chapter 13 Plan is confirmed, it’s binding on all parties. This boxes the lender into making your loan modification permanent. I give Max Gardner the credit for coming up with the strategy and the name for this program I learned at his Bankruptcy Litigation Bootcamp.

A modification is a great way to start your road to reorganization of your debts under Chapter 13 of the Bankruptcy Code. If you work with a bankruptcy attorney that focuses their practice on mortgage issues, you can be certain that they’ll attack the loan servicer, lender on every front from whether they have the right to enforce your Note, and scrutinize their accounting methods.
 

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