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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Now, I'm no math expert; that's why I went to law school.  The other day, I heard someone mention that they were tired of the medical bills they were receiving and they were just going to pay those medical bills with credit cards.  Unbelievable.  You're of above level intelligence if you're reading this post because you can turn on your computer, log onto the internet and search for information about relevant subjects that interest you; right?  Then, what makes you think that using your credit card, with an interest rate of about 10% or more, to pay off a debt with 0% interest is a good idea?  Am I missing something here?

Too often people are led to the wrong conclusions about money and can't figure out how they got  themselves into the messes they created.  Stop and think about it.  It "feels" good to pay off a debt.  What's missing is that more debt is being created to "feel" good momentarily.  Don't let your emotions get the best of you when making financial decisions.

Another financial mistake would be to pay those medical bills with your retirement accounts; 401k, 403b, IRA, or Roth IRA account.  I don't care how you're saving for retirement, that money is not for medical bills now; it's for your future.  Never, and I emphasize NEVER, touch your retirement accounts until you retire.

Medical bills and credit card debts are always dischargeable in bankruptcy and your retirement accounts are safe from being taken by the trustee to pay those debts.  So, if the Courts can't touch your money to pay your bills, why should you?  

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I've had several clients come to me after working with debt settlement companies that have provided no service at all, except to take my client's money.  These debt settlement contracts usually provide that the debt settlement company will set up a trust account with your name on it and take their fees and payments first.  Then, when there's enough money in the account, they will begin to negotiate with your creditors.  When you agree to the settlement of the debt, the debt settlement company gets even more money.  To say that they nickel and dime you into further debt is being nice.  I would like to think of it as unconscionable; that's the legal term.

Bruce Weiner, a New York bankruptcy lawyer, points out the pitfalls of working with debt settlement companies in his recent blog, "1099-C and Forgiveness of Debt:  Another Reason to Be Wary of Debt Settlement Companies," and "Wall Street Journal Says, 'Beware of Debt Relief Offers,'"  that these companies make false promises and don't deliver.  Their marketing campaigns invade every inch of the media and they serve to disseminate bad information on a viral level that only confuses the general public and causes many to go further into to debt than needed to avoid the stigma of bankruptcy.

1. Debt Settlement Companies can be scams; and
2. Debt Settlement Companies can cause you to have to pay income taxes on settled debts.

Debt Settlement companies are, generally, not lawyers and cannot give legal advice about your debts, including advising you not to pay your debts.  They cannot stop lawsuits or wage garnishments; or foreclosure on your home.  The automatic stay, is an injunctive statute that stops all attempts to collect a debt from you the moment you file for bankruptcy.  DON'T GET SCAMMED!

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The only reason you should negotiate directly with your creditors, is to avoid bankruptcy.  Remember that working with debt settlement companies is both costly and detrimental to your finances and will likely land you in my office filing for bankruptcy.  If you want to avoid bankruptcy, work directly with your creditors for an agreement on what your debt is worth.  If they even think you're about to file for bankruptcy, they will most likely make some kind of offer.  However, settling debts to avoid bankruptcy comes with a price;  Income Taxes!

Beware that if you settle, or negotiate a debt to avoid bankruptcy, you could end up getting a tax bill.  while the IRS is forgiving settled debt where mortgages are concerned; the California Franchise Tax Board is not because their program has expired.  So, in California, you'll wind up owing state income taxes, if the debt you settled relates to a secured mortgage in a short sale.

But what about your credit cards?  Unsecured debt negotiations and settlements will be taxed by both the state and federal agencies.  So, unless you're prepared to pay taxes on the amount that will be written off by your creditor, then, like Cathy Moran said in her blog, Should I Settle Some Debts Before Bankruptcy, your money could be put to better use, like saving for retirement.

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