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Bankruptcy – Latest Bankruptcy News – Bankruptcy

Research Department — Tue, 17 Apr 2012 14:56:43 +0000

The Latest Bankruptcy News

Here is a listing of the latest bankruptcy news from around the United States. These links will give you information about the latest breaking news.

Wall Street Journal Bankruptcy News

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The Philadelphia Orchestra Association Files Its Plan of Reorganization and Disclosure Statement to Exit Chapter 11 Bankruptcy Protection
Investments...">First Uranium Responds to Olma Investments: Asset Sales in Best Interest of Stakeholders
ShengdaTech Submits Chapter 11 Plan of Reorganization
General Maritime Successfully Completes Financial Restructuring and Emerges From Chapter 11
Pinnacle Airlines Debtor-In-Possession Financing Approved
Gaia Real Estate and Starwood Capital Acquire 9,500 Unit Multifamily Portfolio via Chapter 11 Bankruptcy Auction
Ally Financial Announces Key Strategic Actions to Strengthen Company and Accelerate Ability to Repay U.S. Treasury
Vulture Funds Ordered to Pay Vitro Legal Fees and Expenses as a Result of the Dismissal of the Involuntary Bankruptcy Lawsuits Filed Against Vitro and its Subsidiaries in Mexico
Betsey Johnson Going-Out-of-Business Sale Starts Tomorrow
USW Objects to Pinnacle Airline's Bankruptcy Financing, Citing Unfair Conditions Set by Delta Airlines

Raleigh Native Indicted In Connection With Fraud And Extortion

Amanda Miller — Wed, 25 Jan 2012 20:12:10 +0000

From How to Get Out of Debt

The former President of Encap Golf Holdings LLC (“Encap”), William Gauger III, was indicted this week for his participation in a scheme to extort approximately $100,000 from a financial consultant and a fraudulent invoicing scheme relating to his work for a New Jersey-based management firm.

Gauger allegedly hired his brother-inlaw Craig Groce, who was originally charged along with Gauger by Complaint in July 2011, and the financial consultant, to provide services on various redevelopment projects in New Jersey.

According to the Indictment:

In August 2006, the financial consultant received “success fees” of approximately $881,500 for his services in arranging two loans of $69.4 million and $26.3 million for a redevelopment project in New Jersey. Gauger allegedly demanded that the financial consultant pay a portion of those fees – $100,000 – to his brother-in-law, threatening him with the future loss of business if he did not comply. The financial consultant made the payment to Groce in September 2006, even though he had not provided any services to the financial consultant.

Although Gauger allegedly told the financial consultant that the $100,000 payment was for his brother-in-law, Gauger was actually the beneficiary. Gauger had Groce make payments for Gauger’s benefit using the money allegedly extorted from the financial consultant. The payments included: $5,506 for a personal computer and high-definition, liquid crystal display television; $6,250 for season hockey tickets; $6,000 for a donation to a private school attended by one of Gauger’s children; a $10,000 donation to a soccer club in which
Gauger’s children were members; a $10,000 payment to Gauger’s father; and a $2,232 payment for a laptop computer.

The Indictment further charges Gauger with submitting and approving fraudulent invoices and expense reports in connection with his management of redevelopment projects in New Jersey that were undertaken by a private equity investment firm located in right here in Raleigh, North Carolina, (the “Raleigh Firm”). Coincidently, Gauger hails from one of Raleigh’s neighboring city’s, Morrisville, North Carolina.

Gauger, his brother-in-law, who also performed consulting services, and the financial consultant allegedly submitted false and fraudulent invoices and expense reports for reimbursement to the Raleigh Firm and its project specific limited liability companies, including Encap. Their alleged fraudulent vacation expenses, political donations, dinners with their spouses, and other non-business expenses were ultimately paid by Encap and the other companies.

Encap won a contract in 2000 from the New Jersey Meadowlands Commission to cap and close four landfills in the Meadowlands and to sell the land for residential, commercial and recreational development, including golf courses. In December 2005, Encap received more than $300 million in publicly sponsored bond financing, including more than $200 million in loans from the New Jersey Department of Environmental Protection and New Jersey Environmental Infrastructure Trust. Encap’s project in the Meadowlands was the subject of a report by the New Jersey Office of Inspector General in February 2008. Encap filed for bankruptcy protection later in 2008 and did not complete the project.

Gauger is charged with three counts of mail fraud, five counts of wire fraud, two counts of conspiracy to commit mail and wire fraud, and one count of extortion obstructing commerce – Source.

If you have been scammed and would like to file a scam report, please click here.

Six Hundred Out Of $74 Million In Ponzi Scheme

Amanda Miller — Wed, 04 Jan 2012 19:58:07 +0000

From How to Get Out of Debt

Douglas Vaughan faces 10 to 12 years in prison after pleading guilty to wire and mail fraud charges that involved his operation of a “Ponzi” scheme where he defrauded around 600 investors of more than $74 million.

Vaughan promised extraordinary returns which he obviously did not follow through with. In February of 2011, in an indictment alleging that, between 2005 and 2010, Vaughan operated a promissory note investment program, which he marketed as a means of generating revenue to grow his real estate business, Vaughan Company Realtors (VCR).

Vaughan entered guilty pleas to Count 1 and 4 of a 30-count indictment charging him with wire fraud and mail fraud, respectively. Under the terms of his plea agreement, Vaughan will be sentenced to a term of imprisonment between 10 and 12 years. Vaughan also faces up to five years of supervised release following imprisonment, a fine of up to $250,000, or twice the gross gain or gross loss resulting from his offenses, whichever is greater, as well as any restitution ordered by the Court.

The plea agreement also requires that Vaughan immediately forfeit to the United States previously-seized funds in the amount of $38,298.24 and real property located in Spring Valley, Nevada, and that Vaughan agree to the imposition of a money judgment against him in the amount of $74,745,723.93, which represents
a portion of the gross proceeds that he derived from the offenses charged in the indictment.

The plea agreement also requires that Vaughan resolve two other pending cases: a civil case filed against Vaughan by the Securities and Exchange Commission (SEC) in federal court, and a bankruptcy case initiated by Vaughan in federal bankruptcy court. In the SEC case, Vaughan will consent to the entry of a judgment that permanently enjoins him from violating the federal securities laws. Vaughan also is required to consent to an order by the SEC in an administrative proceeding that bars him from associating with any broker, dealer or investment advisor, and from participating in any stock offerings. In the bankruptcy case, Vaughan is required to enter into a stipulated judgment that denies him a discharge from bankruptcy.

Under the terms of the plea agreement, the U.S. Attorney’s Office will move to dismiss the remaining 28 counts of the indictment after sentence has been imposed on Vaughan. Vaughan remains on conditions of release under pretrial supervision pending his sentencing hearing, which has yet to be scheduled – Source.

If you have been scammed and would like to file a scam report, please click here.

Attorney Sentenced In $50 Million Bank Fraud

Amanda Miller — Fri, 30 Dec 2011 22:47:18 +0000

From How to Get Out of Debt

Kevin Harold Lewis was sentenced to 121 months incarceration to be followed by three years of supervised release for bank fraud. Lewis was also ordered to pay $33,826,326 in restitution. An additional amount of restitution will be considered after briefs are filed regarding the loss to Centennial Bank of Cabot, Arkansas. Lewis was ordered to report to the Bureau of Prisons on February 7, 2012.

“This large scale fraud scheme was not the work of a man who made a little mistake. Kevin Lewis, through calculated efforts, defrauded nine financial institutions out of nearly $50 million, and those institutions still have outstanding losses of over $39 million,” stated Thyer. “A large prison sentence was necessary, due not only to the nature and circumstances of the offense, but also to show that white collar crime is a serious offense with serious consequences.”

Until around October 2010, Kevin Harold Lewis, a licensed attorney in the state of Arkansas, operated several businesses throughout the state in addition to running his law practice. Lewis primarily concentrated on developing property owners improvement districts and issuing special assessment bonds to fund these districts. These assessment bonds are also known as special improvement district bonds.

At the plea hearing held before United States District Judge James M. Moody, Lewis admitted that between December 31, 2008, and September 29, 2010, First Southern Bank, a federally insured financial institution located in Batesville, Arkansas purchased special improvement district bonds, totaling approximately $23 million from Kevin Lewis. Prior to the purchase of each bond, Lewis would provide the bank with offering documents describing the details of bonds. At the plea hearing, Lewis acknowledged that these bonds were fraudulent. On or around August, 2009, Lewis, through PA Alliance Trust, a trust he formed in February 2009, purchased a controlling interest, approximately 53%, in First Southern Bank. To facilitate this purchase, Lewis borrowed approximately $4.6 million from First State Bank in Lonoke. Lewis pledged the First Southern Stock as collateral for this loan. In or around September 2010, Lewis, through his PA Alliance Trust, purchased an additional $5.5 million in First Southern stock, which increased his ownership in the bank to 64.9%. To facilitate this purchase, Lewis, in part, used funds from the sale of two fraudulent bonds to First Southern Bank.

In addition to the fraudulent bonds provided to First Southern Bank, a bank that was forced into FDIC receivership upon learning of the status of the bonds, the following financial institutions provided loans to Kevin Lewis which were collateralized, in whole or in part, by fraudulent bonds: Centennial Bank, Citizens, Liberty Bank, First Community, Allied, Simmons, and Regions Bank. The following banks currently hold fraudulent bonds which were originally sold by Kevin Lewis: Centennial Bank and Bank of Augusta – Source.

If you have been scammed and would like to file a scam report, please click here.

I Went Into Debt as a Single Mom. – Theresa

Michael Bovee — Mon, 19 Dec 2011 20:35:11 +0000

From How to Get Out of Debt

“Dear Michael,

I went into large amounts of credit card debt as a single mom. I divorced when my house was worth $50,000 more than it is now. I insisted with my ex to keep the house so my kids can graduate in the same house. Once the youngest graduated, I lost a lot of equity and couldn’t sell the house. I put money into selling it, fixing it up, etc. only to go further into debt. I then consolidated about 75% of it with Bank America. They promised if I paid 14% interest, I would pay it off in 7 years. Somehow, they say now it wasn’t 7, even though I have made all my payments and it never goes away. I have about $45,000 in “credit card” debt. i have never missed a payment and have good credit. I rent my house to break even on the mortgage and equity (minimum interest) payment with variable interest rates. (Thank goodness it has been low.) I have fairly good credit but it gets me no where as far as refinancing etc since “to o much debt”. I pay down the credit cards and they lower the ceiling. I feel sooo stuck. I have talked to a bankruptcy lawyer and he thinks that I could do a chapter 13 because I make too much. Went to Credit counseling or tried…doors were locked, no one answered the phone and I left…

The lawyer said to quit paying my cards as it is a waste if I am going to do something. My good credit gets me nothing. What should I do? Where to start?

Thank you so much.

Theresa”

The Answer:

Hi Theresa,

What is the estimated value of the home now? What do you still owe on the loans?

If all or the majority of the carrying costs on the home are being covered by the rent you receive, you may want to focus on the unsecured debts first.

Who are the credit card debts with?

What are the balances and interest rates on each card?

A chapter 13 plan last 3 or 5 years. The vast majority are 5 year plans. You may be able to knock out the unsecured debt in that same time frame, or less, without having to file the 13.

If you can answer my credit card debt questions in the comment section, you will get some tips and feedback to assist you in formulating a plan.

Michael Bovee has worked with financially challenged consumers for the past 17 years and is a recognized expert in his field. Michael founded Consumer Recovery Network (CRN) in 2006. CRN offers debt settlement services and educational resources nationwide. He has served as its president since 2006.

If you have a debt related question you’d like to ask, just use the online form.

Heartless Criminal Activity In Foreclosure-Related Scam

Amanda Miller — Thu, 15 Dec 2011 12:00:22 +0000

From How to Get Out of Debt

Last week a man whom operated a foreclosure-rescue scam agreed to plead guilty after collecting $1.6 million from 1,100 distressed homeowners. The man, Frederic Alan Gladle, of Austin, Texas, ran his scam in Los Angeles and elsewhere where he falsely promised the owners of more than a thousand distressed properties that they could indefinitely postpone foreclosure sales.

Gladle was charged with one count of bankruptcy fraud and one count of aggravated identity theft. He stated in court that he intends to plead guilty to the charges, as part of a plea agreement. The defendant used five aliases to avoid detection in the scheme, including stealing the identity of at least one person and setting up a cell phone account in that victim’s name. As a result of the four-year scheme, which continued through Gladle’s arrest in October of 2011, Gladle and his associates collected more than $1.6 million in fees from distressed homeowners.

According to the charges, Gladle was involved in a scheme that recruited homeowners whose properties were in danger of imminent foreclosure and falsely promised to delay the foreclosures for homeowners for up to six months. Once a homeowner paid a fee of around $750 per month, Gladle, either directly or through salespersons, had the homeowner sign a deed granting a 1/100th interest in the house to a debtor in a bankruptcy whose name Gladle had found by searching bankruptcy records. The debtors had no idea that their names and bankruptcy cases were being used by Gladle in his scheme.

Gladle would print out the unsuspecting debtor’s bankruptcy petition, attach the petition to the 1/100th deed in the debtor’s name, and fax the two documents to a homeowner’s lender to stop foreclosure proceedings. Because the filing of a bankruptcy gives rise to an “automatic stay” that protects a debtor’s property, the receipt of the bankruptcy petitions and 1/100th deeds in the debtor’s name forced lenders to cancel foreclosure sales.

The lenders – which included banks who received government funds under the Troubled Asset Relief Program (TARP) – could not move forward to collect money that was owed to them until getting permission from the bankruptcy court, thereby repeatedly delaying the lenders’ recovery of their money. When homeowners wanted to void the 1/100th deeds to the unsuspecting debtors, Gladle would forge the debtors’ signatures on papers voiding the 1/100th deeds.

“American taxpayers became investors in hundreds of banks through TARP,” said Christy Romero, Deputy Special Inspector General for SIGTARP. “Gladle defrauded TARP recipient banks including Bank of America, U.S. Bank, and Wells Fargo, thereby defrauding taxpayers. SIGTARP will protect taxpayers’ TARP investments and hold accountable those who put TARP investments at risk.”

“Foreclosure-rescue schemes have reached epidemic levels in Southern California, where both homeowners and lenders have been victims of a wide variety of frauds,” said United States Attorney André Birotte Jr. “Persons facing foreclosure need to exercise extreme caution when seeking assistance with their financial problems and the public needs to know that the Department of Justice will actively pursue those who seek to manipulate and victimize either homeowners or lenders.”

“This is the latest example of heartless criminal activity by an individual who sought to capitalize on the misfortune of those affected by hard economic times,” said Steven Martinez, Assistant Director in Charge of the FBI’s Los Angeles Field Office. “Mr. Gladle defrauded victims trying to save their homes, further exploited those in debt by stealing their identities, and wreaked havoc on both banks and the Bankruptcy Courts by manipulating the system. The FBI will continue to investigate criminal activity associated with the housing market and to encourage homeowners to beware of fraudulent offers” – Source.

If you have been scammed and would like to file a scam report, please click here.

Owner Of Three Precious Metal Firms Sentenced In $29.5 Million Investment Scheme

Amanda Miller — Wed, 30 Nov 2011 17:00:28 +0000

From How to Get Out of Debt

Earlier this month Jamie Campany, owner of three invesment firms specializing in alleged metal purchases, was sentenced to 151 months in prison on multiple counts of mail and wire fraud.

According to the Information filed in the case and statements made in court during the plea and sentencing, Campany was the owner of three investment firms specializing in purported gold, silver, platinum, and palladium bullion purchases on behalf of individual clients. Among his companies were Global Bullion Exchange, LLC (“Global”) and various affiliated licensee businesses throughout Palm Beach, Broward and Miami-Dade counties in Florida and other locations outside of Florida. In addition to Global, Campany owned and operated two predecessor firms, Barclay Trading Group, Inc. (“Barclay”) and The Bullion Group, Inc., both with offices in West Palm Beach.

Campany’s three businesses conducted a sophisticated telemarketing operation to solicit investors to purchase precious metal bullion using purported “leverage” financing. These same investors were led to believe that they would need only to provide a fraction of the total cost of the purchased metals, with the remainder of the purchase price to be covered by margin-type financing, which would purportedly be extended to the investor by a purported “clearing firm.”

As further detailed in court records, the purported “clearing firm” with which Barclay had initially associated, began delaying and ultimately ignoring requests by Barclay’s customers to sell their precious metals investments. As a result, the unsatisfied clients began to complain and threatened Barclay with litigation. In addition, the clearing firm’s failure to sell the clients’ holdings left Barclay insolvent.

In an attempt to prevent further complaints, litigation, and possible governmental enforcement action, Barclay began to satisfy its clients’ requests for liquidation of their investments by making payments to these clients using funds it had received from newer investors.

After Global succeeded Barclay, Global continued this same Ponzi strategy. Global used Diversified Investment Group, Inc. (“Diversified”), a shell company, as its “clearing firm.” In fact, however, no bullion was purchased, even though clients paid substantial commissions and fees totaling approximately 18% of the total purported value of the metal allegedly purchased.

Campany also misrepresented to the inventors that their holdings had been financed through so-called “margin” credit. Thus, the investors were charged substantial interest on these non-existent “loans” and were subjected to periodic false “margin calls” during market declines. Moreover, investors who could not comply with such “margin calls” were informed that their investment positions had been forcibly liquidated and taken by Diversified as a secured creditor.

In a recent litigation filed in Miami-Dade Circuit Court by a court-appointed assignee, it is estimated that more than 1,400 investors were defrauded by Campany’s scheme out of more than $29.5 million – Source.

If you have been scammed and would like to file a scam report, please click here.

Former Owner And President Of Allied Health Care Sentenced For $135 Million Phony Lease Scheme

Amanda Miller — Wed, 30 Nov 2011 12:23:20 +0000

From How to Get Out of Debt

Former owner and president of Allied Heath Care Services, Charles Schwartz, was sentenced last week to 195 months in prison (16.25 years) for organizing and executing a $135 million phony lease scheme that losses of more than $80 million and victimized over 50 financial institutions.

In April Schwartz pleaded guilty to one count of mail fraud but has been in federal custody since September of 2010.

From at least 2002 through July 2010, Schwartz, through Allied Health Care Services, Inc. (“Allied”), convinced financial institutions to pay more than $135 million by telling them that the money would be used to lease valuable medical equipment. In reality, the purported medical equipment supplier did not provide Schwartz and Allied with any equipment during that time. Instead, the “supplier” created phony invoices which appeared to reflect legitimate transactions.

As part of the scheme, Schwartz approached various financial institutions and informed them that Allied needed to lease particular medical equipment. Using the phony invoices from the “supplier,” Schwartz convinced the financial institutions to enter into leasing arrangements. Pursuant to these arrangements, the financial institutions purchased the medical equipment – which they immediately leased to Schwartz and Allied – and sent payment for the medical equipment to the purported supplier. The “supplier” then sent the money received from the financial institutions (minus his 3 to 5 percent payment) to an entity created by Schwartz to facilitate the fraud.

In addition to spending millions of dollars on properties in New Jersey and New York, including a horse farm, Schwartz used the money in Ponzi-scheme fashion to repay earlier bank loans that were a part of the scheme. By August 2010, several financial institutions from which Schwartz had obtained loans filed lawsuits against Schwartz and Allied, claiming he owed them at least $20 million. Allied and Schwartz were forced into involuntary bankruptcy in August 2010 and September 2010, respectively. Losses from the scheme now total at least $80 million. Schwartz admitted that more than 50 victim financial institutions lost a total of between $50 and $100 million as a result of the scheme.

Schwartz and the medical equipment “supplier” undertook efforts throughout the scheme to deceive bank examiners who wanted to inspect the non-existent medical equipment, which had been purchased by the financial institutions.

Schwartz admitted that in advance of expected inspections by financial institutions, he directed others to alter serial numbers or create fraudulent serial numbers on existing ventilators to match fraudulent invoices he had supplied to the various financial institutions. At times, when financial institutions sought to review documentation regarding Allied’s leasing of the ventilators to its customers, Schwartz falsely told the financial institutions that the information was protected by Health Insurance Portability and Accountability Act regulations. At one point during an August 2010 conversation between Schwartz and the “supplier,” Schwartz commented that the financial institutions had fallen “hook, line and sinker” for the false explanation given to bank examiners who asked why the purported supplier used his home address on certain invoices.

In conjunction with his jail time Schwartz also faces three years of supervised release and owes $80 million in restitution – Source.

If you have been scammed and would like to file a scam report, please click here.

Mother Sentenced To Almost 6 Years Jail Time In Family Fraud Affair

Amanda Miller — Tue, 29 Nov 2011 14:13:36 +0000

From How to Get Out of Debt

Earlier this year Janice Edwina Demmitt was convicted of the federal felony offenses charged in a 27-count indictment against her and her son, Timothy Fry. At trial, Demmitt was convicted on on one count of conspiracy to commit money laundering, eight counts of wire fraud and 11 counts of money laundering. Her son, Fry, whom plead guilty to one count of money laundering is now serving an 87 month prison sentence. Both were ordered to pay, jointly and severally, nearly $600,000 in restitution. Demmitt will now face 70 months in prison, herself.

Between 2006 and 2009, Demmitt and her son ran an insurance agency in Amarillo, Texas, and as part of their business, as registered agents of Allianz Life Insurance Company of North America, they sold annuities to investors. The majority of their clients were elderly investors.

Fry and Demmitt represented to their clients that Allianz would match each investment they made, up to $100,000, and encouraged their investors to either cash-in or borrow against their existing Allianz annuities and use those proceeds to reinvest to take advantage of the “matching” funds.

However, instead of reinvesting their funds as they told their clients they would do, Fry and Demmitt deposited the funds into their personal accounts.

In fact, evidence presented showed that they tricked their investors with the promise of the matching investment money so that the clients would liquidate their legitimate investment accounts. Approximately $600,000 in client funds was transferred into Fry’s and Demmitt’s personal accounts.

“Ms. Demmitt’s greed robbed her clients, most of them in their golden years, of their hard-earned security,” said U.S. Attorney Saldaña. “In fact, she not only robbed these vulnerable clients of their savings, she robbed them of their dignity. This office will continue to make it a priority to protect those in need of our help.”

“The IRS Criminal Investigation Division is committed to lending its financial expertise to investigations of professionals who target vulnerable individuals’ money for the purpose of lining their personal piggy banks,” said Andrea D. Whelan, IRS Special Agent in Charge of the Dallas Field Office – Source.

If you have been scammed and would like to file a scam report, please click here.

Can I Include My Debt Settlement Company in My Bankruptcy? – Ken

Steve Rhode — Wed, 09 Nov 2011 22:49:22 +0000

From How to Get Out of Debt

“Dear Steve,

i have 65000 in credit and installment debt we lost one third of our income in last year signed with debt settlement law firm in april initial fee 2895 they have settled 2 accts. which they receive 20% of money saved we have pd 7195 in 7 months . for one acct. they paid the settlement even though there was not funds sufficient in our acct. I can longer fund the plan they want 30 days notice for cancellation i have decided the only way is bankruptcy i have an appt with b.a. on 11-21 .

if i am neg in my plan account can i put the acct in bankruptcy when i file

Ken”

The Answer:

Dear Ken,

I would think it would be just another unsecured creditor in your pool of debt if you owe them money. Your bankruptcy attorney will look at your specific situation and give you specific advice but I think it will be fine.

Please post your responses and follow-up messages to me on this in the comments section below.

Big Hug!

@GetOutOfDebtGuy

If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

Father And Son Sentenced For $930 Million Ponzi Scheme

Amanda Miller — Mon, 10 Oct 2011 12:05:12 +0000

From How to Get Out of Debt

Sometimes the apple doesn’t fall far from the tree. When children are growing up many look up to their parents and imitate them on a daily basis. “When I grow up, I’m going to be just like daddy!” But what happens when your parent is a fraudster?

Father, Roberto Torres, former chief financial officer, and son, Alejandro Torres, former accountant with Capitol Investments have been sentenced to prison for assisting Nevin Shapiro in the operation of a $930 million Ponzi scheme linked to a fake wholesale grocery distribution business.

Roberto has been sentenced to 48 months and his son Alejandro faces 46 months in prison.

Roberto Torres, the CFO of Capitol Investments USA, Inc. (Capitol), and Alejandro Torres, an accountant at Capitol, used the company to assist Shapiro in fraudulently obtaining approximately $930 million between January 2005 and November 2009. The Torreses admitted that Capitol had virtually no income-generating business during that time and that they assisted Shapiro in operating the Ponzi scheme by using new investor funds to make principal and interest payments to existing investors and to fund Shapiro’s lavish lifestyle.

The defendants admitted to creating, or directing others to create, fraudulent documents which falsely touted the profitability of Capitol’s fictitious grocery diversion business. The Torreses admitted that those documents included: profit and loss figures fraudulently representing that Capitol’s wholesale grocery business was generating tens of millions of dollars in annual sales; personal and business tax returns for Shapiro and Capitol also fraudulently reflecting those sales; and numerous invoices fraudulently reflecting transactions between Capitol and other companies in the wholesale grocery business.

More than 50 victim investors lost between $50 and $100 million due to this scheme. In January of 2009 payments were not being made that were required principal and interest payments to investors and Shapiro and Capitol were forced into bankruptcy in November of the same year. At that time more than $100 million was owed to victims.

Nevin Shapiro was found guilty and sentenced to only 20 years in prison earlier this year on one count of money laundering.

Each of the Torres men will also be required to have three years of supervised release and ordered to pay $82 million jointly and severally with Shapiro – Source.

I suppose it’s all in the family.

If you have been scammed and would like to file a scam report, please click here.

It’s Been A Year Since The TSR – What’s Changed With Debt Settlement?

Amanda Miller — Tue, 04 Oct 2011 11:00:44 +0000

From How to Get Out of Debt

A year ago this month the Federal Trade Commission (FTC) barred debt settlement companies that used telemarketing from accepting up-front fees. Although it’s been an entire year since this change we are still see companies trying sneak in those up-front fees with businesses trying to exploit loopholes.

The whole purpose of the Telemarketing Sales Ruling was to help consumers from having to pay up front fees for services to reduce debt that were never delivered. However, legal retainers are not affected by the law so many debt settlement firms are partnering with lawyers to charge their up-front fees.

However, when consumers sign up with these attorney-based firms the probability of them actually speaking to or seeking the help of an attorney is slim. In fact, Illinois attorney general, Lisa Madigan, filed a civil complaint against Legal Helpers Debt Resolution LLC for their failure to have consumers speak with an attorney and for deceptive practices implying that their services were offered by a United State government program.

Apparently Legal Helpers also charged 15 percent of a client’s debt over the first 18 months to cover costs of their settlement plan along with a $900 “legal flat fee” over the first six to nine months to cover attorney representation if they’re sued by creditors. It’s been reported the “firm has about 12,000 clients and represents about $500 million in debt. That’s an average debt of almost $42,000 per client…and would equate to up-front fees of $7,150″ – Source.

It’s been reported that within the past year the Better Business Bureau (BBB) has received almost 2,500 complaints about debt relief firms.

The FTC has made no specific exemption for attorneys, said Joel Winston, associate director of the division of financial practices for the Washington-based agency.

“To the extent that there are firms who think that somehow the claim ‘I’m providing legal services’ exempts them from the rule, they’re mistaken,” he said. Winston declined to say whether all so-called “attorney-model” firms are violating the fee ban. He said the FTC had not brought any enforcement actions against firms for violating the up-front fee ban – Source.

As of right now there is no federal licensing requirements for debt settlement companies and many companies have made the switch to an attorney-based company relatively easily since the telemarketing rule came into effect. Some are even meeting face to face with consumers because of the “no telemarketing” rule. This however, does not always mean a company has the consumers’ best interests in minds because they meet with you face to face and hide, I mean operate, behind an attorney.

Some of these companies are so desperate to hook new clients and consumers that they’re even advertising on Craigslist for attorneys in specific jurisdictions. A complaint was filled last year by West Virginia’s attorney general this past May against Morgan Drexen after saying they “would pay one lawyer in West Virginia a monthly fee of $500 for the first 300 West Virginia clients she served and $2 for every additional client, according to a copy of the attorney’s contract with Morgan Drexen” – Source.

Some firms began shifting to an attorney model before the FTC rule took effect because of loopholes for lawyers in state laws, said Scott Johnson, chief executive officer of USDR Inc., a settlement firm. Morgan Drexen has operated under its current business model since the company’s inception in 2007, according to the company’s assistant general counsel Erich Schiefelbine – Source.

Since the telemarketing rule came into effect the United States Organizations for Bankruptcy Alternatives (USOBA) has declined from more than 200 firms to around 30 while the American Fair Credit Council (formally the Association of Settlement Companies) has fallen to around 35 firms from their once 220 firms.

“They haven’t left the industry, they’ve left the trade associations because they don’t want to abide by a performance- based service fee,” said USDR’s Johnson.

However, on the plus side, according to Federal Reserve data, U.S. consumers held around $792 billion in outstanding revolving debt in July of 2011 which is significantly less then the $970 billion from 2008. According to CreditCards.com it breaks down to almost $16,000 in debt on average for households that carry a balance – Source.

If you have been scammed and would like to file a scam report, please click here.

All My Credit Card Debt Has Gone to Collections and My Sister-In-Law is Suggesting Bankruptcy. – Alyce

Lewis Roberts — Mon, 03 Oct 2011 19:25:35 +0000

From How to Get Out of Debt

“Hi Mr. Roberts,

Thank you in advance for your help. Presently I have about $16,000.00 of credit card debt. All have gone to collections and the largest has acquired an attorney. I have recieved a notice of civil action from them. I have spoken to them and they are willing to take payments if I can come up with a chunk of money down which I can not do.

My sister in law is telling me to file for bankrupcy, but I’m just not sure this is the right action to take.

I should also inform you that I am a stay at home mom and he is self employed, a small landscape company. In this economy sometimes it is hard just to keep food on the table.

Any advice you can give would be helpful.

Alyce”

The Answer:

Dear Alyce,

Whether one should file for bankruptcy may not always be an easy answer. $16,000 in credit card debt to one person might not be a big deal, and settlement is a better idea. But the same amount of debt can be crushing and a never ending battle to someone else.

Bankruptcy can stay on your credit report for up to 10 years. But if you have late payments, charge offs, and are being sued, you have already greatly damaged your credit rating.

By eliminating the debt in bankruptcy, you immediately start to improve your credit rating going forward.

Please speak to a bankruptcy attorney in your area to confirm your eligibility for chapter 7 and to make sure there are no assets that might be at risk.

Most bankruptcy attorneys offer free consultations.

Good luck!

My name is Lewis Roberts and I’m an attorney licensed in Florida and Georgia. My practice focus is consumer bankruptcy, real estate issues/closings, and mortgages. I also have Florida real estate broker and mortgage broker licenses. I am a proud member of the National Association of Consumer Bankruptcy Attorneys (NACBA), National Association of Consumer Attorneys (NACA), and a graduate of Max Gardner’s Bankruptcy Boot Camp. I enjoy helping people with decisions that impact their financial well-being.

Legal Disclaimer: This is for educational purposes only. It is not to be relied upon as legal advice. It also does not create an attorney-client relationship. No such relationship is formed with attorney without a written agreement.

If you have a bankruptcy question you’d like to ask just use the online form.

I Can’t Afford My Debt Settlement Program Anymore and Want to File Bankruptcy. – Tony

Lewis Roberts — Sun, 02 Oct 2011 15:59:52 +0000

From How to Get Out of Debt

“Dear Lewis,

I am currently enrolled in a debt settlement plan but i am unable to make the payments due to losing one third of my income in the last 10 months. I went with a law firm and they wanted 2875 up front took 3 months to pay that they just settled my ist account for half but i haven’t received the paperwork yet. I have been scraping by but unable to complete my 30 month plan they also take 20% of whatever they can save me. I have 70000 in credit card debt excluding my house with little or no equity and half ownership in inherited farmland.i also asked for an accounting of my account and am able to only see information i already know no info on disbursements.

I live in oh and want to file a chp. 13 it would be a joint filing with present income of 70000 i wanted to know two things what documentation will i need to get started and will i need to complete cccs training before i can file?

Thank you

Tony”

The Answer:

Dear Tony,

You should speak to a bankruptcy attorney in your area. You may qualify for chapter 7, although the attorney would need more information about the inherited property.

The credit counseling requirement before filing a bankruptcy is a minor distraction. It only takes up to an hour to complete, but indeed must be done prior to filing the case.

As to documents required, every area is different. But the basics will be 6 months paystubs, 2 years tax returns, 6 months bank statements, information on all yur assets, car titles, registrations, and insurance, information on any IRAs or 401ks, etc.

Even in chapter 13, your plan payment should be much more affordable than the debt settlement program you are currently on.

Good luck!

My name is Lewis Roberts and I’m an attorney licensed in Florida and Georgia. My practice focus is consumer bankruptcy, real estate issues/closings, and mortgages. I also have Florida real estate broker and mortgage broker licenses. I am a proud member of the National Association of Consumer Bankruptcy Attorneys (NACBA), National Association of Consumer Attorneys (NACA), and a graduate of Max Gardner’s Bankruptcy Boot Camp. I enjoy helping people with decisions that impact their financial well-being.

If you have a bankruptcy question you’d like to ask just use the online form.

Root Canals and Appendectomy Were Expensive and Landed Me in Bankruptcy. – Ray

Lewis Roberts — Sun, 02 Oct 2011 15:55:29 +0000

From How to Get Out of Debt

“Dear Lewis,

Made many not so smart mistakes which put me into serious credit card debt over the past 8 years or so. Followed by some dental work (multiple root canals) that had to be paid with credit card. Last year, had an emergency appendectomy that ended up in an medical insurance mess up. Ended up with 15K bill on that. By this time, I was far behind on credit card payments, with all accounts in the red. Collection calls from many, and a filed law suit by one creditor. Was forced to file bankruptcy. Initially tried for 7, but I make well above median income (firefighter/paramedic with two jobs), and only could qualify for 13. Total debt was around 44k, however only 36K was claimed by creditors. My attorney submitted my plan to the trustee, however she requested much much higher payments based on my income. At this point Im waiting for my attorney to submit the amended plan and hopefully get confirmed.

I have a few questions ! First of all, how high can the trustee raise my payments if I am on a 100% plan ? Do they routinely request pay stubs, or tax info each year ? If I do have an increase in income, how much of an increase would cause her to raise the payments anymore ? The reason im asking is this; I planned on taking another part time job….to comfortably afford to make the payments, as well as saving some money. In 5 years when this is behind me, Id like to have something in the bank so I can start to rebuild my life. Im not talking a huge increase in pay, but enough that I can make payments, pay my bills, still have plenty left over for unseen emergencies, and to build my savings. I did already ask the trustee if saving was allowed during a chapter 13, and she said that yes it was legal in this district.

Ray”

The Answer:

Dear Ray,

Unfortunately, each bankruptcy district is different in its nuances. Even within bankruptcy divisions it can be different. And sometimes there may be two chapter 13 trustees in the same division (heavily populated areas), and each trustee could be different.

Each year the chapter 13 trustee is going to require you to send a copy of your tax return. They generally do not ask for paystubs after the case is confirmed.

But if you are paying 100% of your creditors back, then usually the trustees do not care how much money you make or whether your income goes up.

The questions would be how your trustee wants you to pay back the 100%. Since you have only $36,000 in claims, in my district, you could choose to pay $1,000 for 36 months, $2,000 for 18 months, $600 for 60 months, or any combination that pays it in full.

But in some other districts, you are required to pay all of your disposable income each month until it is paid in full.

Without knowing your exact income and allowed expenses, I don’t know your disposable income. But lets say it is $3,000. Then in this scenario, you would pay $3,000/month for 12 months and get a discharge.

Good luck!

My name is Lewis Roberts and I’m an attorney licensed in Florida and Georgia. My practice focus is consumer bankruptcy, real estate issues/closings, and mortgages. I also have Florida real estate broker and mortgage broker licenses. I am a proud member of the National Association of Consumer Bankruptcy Attorneys (NACBA), National Association of Consumer Attorneys (NACA), and a graduate of Max Gardner’s Bankruptcy Boot Camp. I enjoy helping people with decisions that impact their financial well-being.

If you have a bankruptcy question you’d like to ask just use the online form.

Should I Sign With Fast Track Debt Relief? – Mary

Damon Day — Sun, 02 Oct 2011 15:34:09 +0000

From How to Get Out of Debt

“Dear Damon,

I am ready to meet with a person on Monday to sign a paper for Fasttrackdebtrelief program. I was researching it..I am scared now.I don’t trust it. I saw your name in reviews about Fast Track.I need advise~~It is Saturday

I am overwhelmed with a large amount of debt..I am struggling to pay them.and getting no where.

Can you offer me any advise? I really am looking for a program that will allow me to consolidate all of these bills and give me one monthly payment.This I could handle…..

Mary”

The Answer:

Hello Mary,

I don’t know enough about your situation to tell you whether or not a debt settlement approach is a smart financial move on your part. However I know enough to tell you 100% to not sign that contract on Monday.

The reason I can say that with 100% certainty is because it is clear you are unsure about what you should do to resolve your debt. Anyone pressuring you into signing a debt settlement contract before you are ready is looking out for their commission and not for you.

Here is what you need to do. Cancel the appointment and take some time to research all of the options available first. There is no emergency, you can always sign a contract with Fast Track next week if you determine it makes the most sense.

When you tell the sales rep that you want to do more research, pay attention to their reaction. Are they reacting in a way that is helpful to you or does it seem like they are annoyed that they are not locking down a sale?

If you are dealing with a lot of debt my best advise would be to call me for a consultation before making any decisions. Now some would say that is just bias advice, and that is certainly true but that doesn’t make it bad advice. First we will look at all of your options to determine whether or not settlement even makes sense. If it is the best option for you I can give you the names of several great debt settlement companies that you can compare to the program Fast Track is selling you and I can get you a substantial discount of the settlement fees. Having choices is always better.

At minimum, please send me the contract that Fast Track is asking you to sign as well as an overview of your financial situation and I will review it for you for free and let you know what I think about the program.

Either way, Please do not sign that contract on Monday. You are not ready, there is no need to rush to sign into any program, and I will definitely save you 100′s if not 1000′s of dollars if you take the time to explore all your options first.

Damon is a talented independent debt coach that provides in-depth assistance and consultations for people struggling with debt. If you want a personal debt coach to help you through a difficult situation or want assistance to find secret discounts offered by debt settlement companies I think Damon Day is an excellent person to contact for advice and assistance. He can be reached directly at DamonDay.com

If you have a debt related question you’d like to ask, just use the online form.

I’m a Nurse and Just Barely Making Ends Meet But My Husband Won’t Help Financially. – Kaye

Steve Rhode — Fri, 30 Sep 2011 22:23:43 +0000

From How to Get Out of Debt

“Dear Steve,

I am married and work as a nurse, making a good salary. I currently have around $32,000 in debt. This includes a debt consolidation account, car, bank loan, student loan medical bills, and back taxes.

I am able to pay my monthly payments but have not been able to cover the taxes and medical bills. My husband was recently layed off and is not working. He received a very large severence package and I planned to pay off the debt but he was not so inclined.

He paid off all of the other accounts that were in both of our names only, which was about $7000. I have been trying to compromise with him but he will not budge, even asked if he would give me an interest free loan..no luck.

I just tell myself to be patient as I am on track to be debtfree but it’s not happening fast enough for me. I get very frustrated because if I do come up short I have to literally beg him to help. So I am not really sure what my question is..just seemed to help reading some of the testimonials and knowing that I am not the only one experiencing these problems. I have even considered divorce in order to get 1/2 of “his money” but know that is not the answer. I guess I could go on forever about how I got to this point.I know I could work overtime to help pay things faster but emotionally I refuse because I believe he should help. Anyway maybe just some words of encouragement…Thanks.

Kaye”

The Answer:

Dear Kaye,

Since you have no more joint credit card debt why not just file bankruptcy for the debt in your name? If he does not want to act as if you are in a marital relationship I guess you need to do what is best for you and protect yourself moving forward.

If he is not going to help, what is your plan if he up and left tomorrow. You are maxed out and probably can’t make it on your own. How many warning signs do you need to see trouble ahead?

If you can easily make ends meet and want a plan to get out of debt with assistance, visit ReadyForZero.com. Their free service can give you an orderly and methodical way out of debt by optimizing your payments.

In no way am I saying he is preparing to leave, but I have seen situations like this before in which the other spouse has made preparations to leave and those situations look similar.

Don’t leap to any conclusions but at the very least, click here to find a local bankruptcy attorney and talk to them for free.

If your husband is not going to help you, you are going to have to help yourself.

Please post your responses and follow-up messages to me on this in the comments section below.

Big Hug!

@GetOutOfDebtGuy

If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

All About Bankruptcy – Chapter 7 Bankruptcy – Chapter 13 Bankruptcy

Steve Rhode — Thu, 25 Aug 2011 18:26:22 +0000

From How to Get Out of Debt

Article I, Section 8, of the United States Constitution authorizes Congress to enact “uniform Laws on the subject of Bankruptcies.” Under this grant of authority, Congress enacted the “Bankruptcy Code” in 1978. The Bankruptcy Code, which is codified as title 11 of the United States Code, has been amended several times since its enactment. It is the uniform federal law that governs all bankruptcy cases.

The procedural aspects of the bankruptcy process are governed by the Federal Rules of Bankruptcy Procedure (often called the “Bankruptcy Rules”) and local rules of each bankruptcy court. The Bankruptcy Rules contain a set of official forms for use in bankruptcy cases. The Bankruptcy Code and Bankruptcy Rules (and local rules) set forth the formal legal procedures for dealing with the debt problems of individuals and businesses.

There is a bankruptcy court for each judicial district in the country. Each state has one or more districts. There are 90 bankruptcy districts across the country. The bankruptcy courts generally have their own clerk’s offices.

The court official with decision-making power over federal bankruptcy cases is the United States bankruptcy judge, a judicial officer of the United States district court. The bankruptcy judge may decide any matter connected with a bankruptcy case, such as eligibility to file or whether a debtor should receive a discharge of debts. Much of the bankruptcy process is administrative, however, and is conducted away from the courthouse. In cases under chapters 7, 12, or 13, and sometimes in chapter 11 cases, this administrative process is carried out by a trustee who is appointed to oversee the case.

A debtor’s involvement with the bankruptcy judge is usually very limited. A typical chapter 7 debtor will not appear in court and will not see the bankruptcy judge unless an objection is raised in the case. A chapter 13 debtor may only have to appear before the bankruptcy judge at a plan confirmation hearing. Usually, the only formal proceeding at which a debtor must appear is the meeting of creditors, which is usually held at the offices of the U.S. trustee. This meeting is informally called a “341 meeting” because section 341 of the Bankruptcy Code requires that the debtor attend this meeting so that creditors can question the debtor about debts and property.

A fundamental goal of the federal bankruptcy laws enacted by Congress is to give debtors a financial “fresh start” from burdensome debts. The Supreme Court made this point about the purpose of the bankruptcy law in a 1934 decision:

[I]t gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.

Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). This goal is accomplished through the bankruptcy discharge, which releases debtors from personal liability from specific debts and prohibits creditors from ever taking any action against the debtor to collect those debts. This publication describes the bankruptcy discharge in a question and answer format, discussing the timing of the discharge, the scope of the discharge (what debts are discharged and what debts are not discharged), objections to discharge, and revocation of the discharge. It also describes what a debtor can do if a creditor attempts to collect a discharged debt after the bankruptcy case is concluded.

You may be interested in reading How to Find a Good Bankruptcy Lawyer or Bankruptcy Attorneys

Chapter 7, entitled Liquidation, contemplates an orderly, court-supervised procedure by which a trustee takes over the assets of the debtor’s estate, reduces them to cash, and makes distributions to creditors, subject to the debtor’s right to retain certain exempt property and the rights of secured creditors. Because there is usually little or no nonexempt property in most chapter 7 cases, there may not be an actual liquidation of the debtor’s assets. These cases are called “no-asset cases.” A creditor holding an unsecured claim will get a distribution from the bankruptcy estate only if the case is an asset case and the creditor files a proof of claim with the bankruptcy court. In most chapter 7 cases, if the debtor is an individual, he or she receives a discharge that releases him or her from personal liability for certain dischargeable debts. The debtor normally receives a discharge just a few months after the petition is filed. Amendments to the Bankruptcy Code enacted in to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 require the application of a “means test” to determine whether individual consumer debtors qualify for relief under chapter 7. If such a debtor’s income is in excess of certain thresholds, the debtor may not be eligible for chapter 7 relief.

Chapter 13, entitled Adjustment of Debts of an Individual With Regular Income, is designed for an individual debtor who has a regular source of income. Chapter 13 is often preferable to chapter 7 because it enables the debtor to keep a valuable asset, such as a house, and because it allows the debtor to propose a “plan” to repay creditors over time – usually three to five years. Chapter 13 is also used by consumer debtors who do not qualify for chapter 7 relief under the means test. At a confirmation hearing, the court either approves or disapproves the debtor’s repayment plan, depending on whether it meets the Bankruptcy Code’s requirements for confirmation. Chapter 13 is very different from chapter 7 since the chapter 13 debtor usually remains in possession of the property of the estate and makes payments to creditors, through the trustee, based on the debtor’s anticipated income over the life of the plan. Unlike chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received. The debtor is protected from lawsuits, garnishments, and other creditor actions while the plan is in effect. The discharge is also somewhat broader (i.e., more debts are eliminated) under chapter 13 than the discharge under chapter 7.

All About Chapter 7 Bankruptcy

Alternatives to Chapter 7

Debtors should be aware that there are several alternatives to chapter 7 relief. For example, debtors who are engaged in business, including corporations, partnerships, and sole proprietorships, may prefer to remain in business and avoid liquidation. Such debtors should consider filing a petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment, or may seek a more comprehensive reorganization. Sole proprietorships may also be eligible for relief under chapter 13 of the Bankruptcy Code.

In addition, individual debtors who have regular income may seek an adjustment of debts under chapter 13 of the Bankruptcy Code. A particular advantage of chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure by allowing them to “catch up” past due payments through a payment plan. Moreover, the court may dismiss a chapter 7 case filed by an individual whose debts are primarily consumer rather than business debts if the court finds that the granting of relief would be an abuse of chapter 7. 11 U.S.C. § 707(b).

If the debtor’s “current monthly income”(1) is more than the state median, the Bankruptcy Code requires application of a “means test” to determine whether the chapter 7 filing is presumptively abusive. Abuse is presumed if the debtor’s aggregate current monthly income over 5 years, net of certain statutorily allowed expenses, is more than (i) $10,950, or (ii) 25% of the debtor’s nonpriority unsecured debt, as long as that amount is at least $6,575. (2) The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income. Unless the debtor overcomes the presumption of abuse, the case will generally be converted to chapter 13 (with the debtor’s consent) or will be dismissed. 11 U.S.C. § 707(b)(1).

Debtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing.

Background

A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Part of the debtor’s property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain “exempt” property; but a trustee will liquidate the debtor’s remaining assets. Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result in the loss of property.

Chapter 7 Eligibility

To qualify for relief under chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, or a corporation or other business entity. 11 U.S.C. §§ 101(41), 109(b). Subject to the means test described above for individual debtors, relief is available under chapter 7 irrespective of the amount of the debtor’s debts or whether the debtor is solvent or insolvent. An individual cannot file under chapter 7 or any other chapter, however, if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court, or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e). In addition, no individual may be a debtor under chapter 7 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. 11 U.S.C. §§ 109, 111. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.

One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a “fresh start.” The debtor has no liability for discharged debts. In a chapter 7 case, however, a discharge is only available to individual debtors, not to partnerships or corporations. 11 U.S.C. § 727(a)(1). Although an individual chapter 7 case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property.

How Chapter 7 Works

A chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives or where the business debtor is organized or has its principal place of business or principal assets. (3) In addition to the petition, the debtor must also file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a statement of financial affairs; and (4) a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007(b). Debtors must also provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case began). 11 U.S.C. § 521. Individual debtors with primarily consumer debts have additional document filing requirements. They must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts. Id. A husband and wife may file a joint petition or individual petitions. 11 U.S.C. § 302(a). Even if filing jointly, a husband and wife are subject to all the document filing requirements of individual debtors. (The Official Forms may be purchased at legal stationery stores or downloaded from the internet at www.uscourts.gov/bkforms/index.html. They are not available from the court.)

The courts must charge a $245 case filing fee, a $39 miscellaneous administrative fee, and a $15 trustee surcharge. Normally, the fees must be paid to the clerk of the court upon filing. With the court’s permission, however, individual debtors may pay in installments. 28 U.S.C. § 1930(a); Fed. R. Bankr. P. 1006(b); Bankruptcy Court Miscellaneous Fee Schedule, Item 8. The number of installments is limited to four, and the debtor must make the final installment no later than 120 days after filing the petition. Fed. R. Bankr. P. 1006. For cause shown, the court may extend the time of any installment, provided that the last installment is paid not later than 180 days after filing the petition. Id. The debtor may also pay the $39 administrative fee and the $15 trustee surcharge in installments. If a joint petition is filed, only one filing fee, one administrative fee, and one trustee surcharge are charged. Debtors should be aware that failure to pay these fees may result in dismissal of the case. 11 U.S.C. § 707(a).

If the debtor’s income is less than 150% of the poverty level (as defined in the Bankruptcy Code), and the debtor is unable to pay the chapter 7 fees even in installments, the court may waive the requirement that the fees be paid. 28 U.S.C. § 1930(f).

In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must provide the following information:

1. A list of all creditors and the amount and nature of their claims;
2. The source, amount, and frequency of the debtor’s income;
3. A list of all of the debtor’s property; and
4. A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse is required so that the court, the trustee and creditors can evaluate the household’s financial position.

Among the schedules that an individual debtor will file is a schedule of “exempt” property. The Bankruptcy Code allows an individual debtor (4) to protect some property from the claims of creditors because it is exempt under federal bankruptcy law or under the laws of the debtor’s home state. 11 U.S.C. § 522(b). Many states have taken advantage of a provision in the Bankruptcy Code that permits each state to adopt its own exemption law in place of the federal exemptions. In other jurisdictions, the individual debtor has the option of choosing between a federal package of exemptions or the exemptions available under state law. Thus, whether certain property is exempt and may be kept by the debtor is often a question of state law. The debtor should consult an attorney to determine the exemptions available in the state where the debtor lives.

Filing a petition under chapter 7 “automatically stays” (stops) most collection actions against the debtor or the debtor’s property. 11 U.S.C. § 362. But filing the petition does not stay certain types of actions listed under 11 U.S.C. § 362(b), and the stay may be effective only for a short time in some situations. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor.

Between 21 and 40 days after the petition is filed, the case trustee (described below) will hold a meeting of creditors. If the U.S. trustee or bankruptcy administrator (5) schedules the meeting at a place that does not have regular U.S. trustee or bankruptcy administrator staffing, the meeting may be held no more than 60 days after the order for relief. Fed. R. Bankr. P. 2003(a). During this meeting, the trustee puts the debtor under oath, and both the trustee and creditors may ask questions. The debtor must attend the meeting and answer questions regarding the debtor’s financial affairs and property. 11 U.S.C. § 343. If a husband and wife have filed a joint petition, they both must attend the creditors’ meeting and answer questions. Within 14 days of the creditors’ meeting, the U.S. trustee will report to the court whether the case should be presumed to be an abuse under the means test described in 11 U.S.C. § 704(b).

It is important for the debtor to cooperate with the trustee and to provide any financial records or documents that the trustee requests. The Bankruptcy Code requires the trustee to ask the debtor questions at the meeting of creditors to ensure that the debtor is aware of the potential consequences of seeking a discharge in bankruptcy such as the effect on credit history, the ability to file a petition under a different chapter, the effect of receiving a discharge, and the effect of reaffirming a debt. Some trustees provide written information on these topics at or before the meeting to ensure that the debtor is aware of this information. In order to preserve their independent judgment, bankruptcy judges are prohibited from attending the meeting of creditors. 11 U.S.C. § 341(c).

In order to accord the debtor complete relief, the Bankruptcy Code allows the debtor to convert a chapter 7 case to case under chapter 11, 12 or 13 (6) as long as the debtor is eligible to be a debtor under the new chapter. However, a condition of the debtor’s voluntary conversion is that the case has not previously been converted to chapter 7 from another chapter. 11 U.S.C. § 706(a). Thus, the debtor will not be permitted to convert the case repeatedly from one chapter to another.

Role of the Case Trustee

When a chapter 7 petition is filed, the U.S. trustee (or the bankruptcy court in Alabama and North Carolina) appoints an impartial case trustee to administer the case and liquidate the debtor’s nonexempt assets. 11 U.S.C. §§ 701, 704. If all the debtor’s assets are exempt or subject to valid liens, the trustee will normally file a “no asset” report with the court, and there will be no distribution to unsecured creditors. Most chapter 7 cases involving individual debtors are no asset cases. But if the case appears to be an “asset” case at the outset, unsecured creditors (7) must file their claims with the court within 90 days after the first date set for the meeting of creditors. Fed. R. Bankr. P. 3002(c). A governmental unit, however, has 180 days from the date the case is filed to file a claim. 11 U.S.C. § 502(b)(9). In the typical no asset chapter 7 case, there is no need for creditors to file proofs of claim because there will be no distribution. If the trustee later recovers assets for distribution to unsecured creditors, the Bankruptcy Court will provide notice to creditors and will allow additional time to file proofs of claim. Although a secured creditor does not need to file a proof of claim in a chapter 7 case to preserve its security interest or lien, there may be other reasons to file a claim. A creditor in a chapter 7 case who has a lien on the debtor’s property should consult an attorney for advice.

Commencement of a bankruptcy case creates an “estate.” The estate technically becomes the temporary legal owner of all the debtor’s property. It consists of all legal or equitable interests of the debtor in property as of the commencement of the case, including property owned or held by another person if the debtor has an interest in the property. Generally speaking, the debtor’s creditors are paid from nonexempt property of the estate.

The primary role of a chapter 7 trustee in an asset case is to liquidate the debtor’s nonexempt assets in a manner that maximizes the return to the debtor’s unsecured creditors. The trustee accomplishes this by selling the debtor’s property if it is free and clear of liens (as long as the property is not exempt) or if it is worth more than any security interest or lien attached to the property and any exemption that the debtor holds in the property. The trustee may also attempt to recover money or property under the trustee’s “avoiding powers.” The trustee’s avoiding powers include the power to: set aside preferential transfers made to creditors within 90 days before the petition; undo security interests and other prepetition transfers of property that were not properly perfected under nonbankruptcy law at the time of the petition; and pursue nonbankruptcy claims such as fraudulent conveyance and bulk transfer remedies available under state law. In addition, if the debtor is a business, the bankruptcy court may authorize the trustee to operate the business for a limited period of time, if such operation will benefit creditors and enhance the liquidation of the estate. 11 U.S.C. § 721.

Section 726 of the Bankruptcy Code governs the distribution of the property of the estate. Under § 726, there are six classes of claims; and each class must be paid in full before the next lower class is paid anything. The debtor is only paid if all other classes of claims have been paid in full. Accordingly, the debtor is not particularly interested in the trustee’s disposition of the estate assets, except with respect to the payment of those debts which for some reason are not dischargeable in the bankruptcy case. The individual debtor’s primary concerns in a chapter 7 case are to retain exempt property and to receive a discharge that covers as many debts as possible.

The Chapter 7 Discharge

A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. Because a chapter 7 discharge is subject to many exceptions, though, debtors should consult competent legal counsel before filing to discuss the scope of the discharge. Generally, excluding cases that are dismissed or converted, individual debtors receive a discharge in more than 99 percent of chapter 7 cases. In most cases, unless a party in interest files a complaint objecting to the discharge or a motion to extend the time to object, the bankruptcy court will issue a discharge order relatively early in the case – generally, 60 to 90 days after the date first set for the meeting of creditors. Fed. R. Bankr. P. 4004(c).

The grounds for denying an individual debtor a discharge in a chapter 7 case are narrow and are construed against the moving party. Among other reasons, the court may deny the debtor a discharge if it finds that the debtor: failed to keep or produce adequate books or financial records; failed to explain satisfactorily any loss of assets; committed a bankruptcy crime such as perjury; failed to obey a lawful order of the bankruptcy court; fraudulently transferred, concealed, or destroyed property that would have become property of the estate; or failed to complete an approved instructional course concerning financial management. 11 U.S.C. § 727; Fed. R. Bankr. P. 4005.

Secured creditors may retain some rights to seize property securing an underlying debt even after a discharge is granted. Depending on individual circumstances, if a debtor wishes to keep certain secured property (such as an automobile), he or she may decide to “reaffirm” the debt. A reaffirmation is an agreement between the debtor and the creditor that the debtor will remain liable and will pay all or a portion of the money owed, even though the debt would otherwise be discharged in the bankruptcy. In return, the creditor promises that it will not repossess or take back the automobile or other property so long as the debtor continues to pay the debt.

If the debtor decides to reaffirm a debt, he or she must do so before the discharge is entered. The debtor must sign a written reaffirmation agreement and file it with the court. 11 U.S.C. § 524(c). The Bankruptcy Code requires that reaffirmation agreements contain an extensive set of disclosures described in 11 U.S.C. § 524(k). Among other things, the disclosures must advise the debtor of the amount of the debt being reaffirmed and how it is calculated and that reaffirmation means that the debtor’s personal liability for that debt will not be discharged in the bankruptcy. The disclosures also require the debtor to sign and file a statement of his or her current income and expenses which shows that the balance of income paying expenses is sufficient to pay the reaffirmed debt. If the balance is not enough to pay the debt to be reaffirmed, there is a presumption of undue hardship, and the court may decide not to approve the reaffirmation agreement. Unless the debtor is represented by an attorney, the bankruptcy judge must approve the reaffirmation agreement.

If the debtor was represented by an attorney in connection with the reaffirmation agreement, the attorney must certify in writing that he or she advised the debtor of the legal effect and consequences of the agreement, including a default under the agreement. The attorney must also certify that the debtor was fully informed and voluntarily made the agreement and that reaffirmation of the debt will not create an undue hardship for the debtor or the debtor’s dependants. 11 U.S.C. § 524(k). The Bankruptcy Code requires a reaffirmation hearing if the debtor has not been represented by an attorney during the negotiating of the agreement, or if the court disapproves the reaffirmation agreement.11 U.S.C. § 524(d) and (m). The debtor may repay any debt voluntarily, however, whether or not a reaffirmation agreement exists. 11 U.S.C. § 524(f).

An individual receives a discharge for most of his or her debts in a chapter 7 bankruptcy case. A creditor may no longer initiate or continue any legal or other action against the debtor to collect a discharged debt. But not all of an individual’s debts are discharged in chapter 7. Debts not discharged include debts for alimony and child support, certain taxes, debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit, debts for willful and malicious injury by the debtor to another entity or to the property of another entity, debts for death or personal injury caused by the debtor’s operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances, and debts for certain criminal restitution orders.11 U.S.C. § 523(a). The debtor will continue to be liable for these types of debts to the extent that they are not paid in the chapter 7 case. Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for willful and malicious injury by the debtor to another entity or to the property of another entity will be discharged unless a creditor timely files and prevails in an action to have such debts declared nondischargeable. 11 U.S.C. § 523(c); Fed. R. Bankr. P. 4007(c).

The court may revoke a chapter 7 discharge on the request of the trustee, a creditor, or the U.S. trustee if the discharge was obtained through fraud by the debtor, if the debtor acquired property that is property of the estate and knowingly and fraudulently failed to report the acquisition of such property or to surrender the property to the trustee, or if the debtor (without a satisfactory explanation) makes a material misstatement or fails to provide documents or other information in connection with an audit of the debtor’s case. 11 U.S.C. § 727(d).

Footnotes

The “current monthly income” received by the debtor is a defined term in the Bankruptcy Code and means the average monthly income received over the six calendar months before commencement of the bankruptcy case, including regular contributions to household expenses from nondebtors and including income from the debtor’s spouse if the petition is a joint petition, but not including social security income or certain payments made because the debtor is the victim of certain crimes. 11 U.S.C. § 101(10A).
To determine whether a presumption of abuse arises, all individual debtors with primarily consumer debts who file a chapter 7 case must complete Official Bankruptcy Form B22A, entitled “Statement of Current Monthly Income and Means Test Calculation – For Use in Chapter 7.” (The Official Forms may be purchased at legal stationery stores or downloaded from the internet at www.uscourts.gov/bkforms/index.html. They are not available from the court.)
An involuntary chapter 7 case may be commenced under certain circumstances by a petition filed by creditors holding claims against the debtor. 11 U.S.C. § 303.
Each debtor in a joint case (both husband and wife) can claim exemptions under the federal bankruptcy laws. 11 U.S.C. § 522(m).
In North Carolina and Alabama, bankruptcy administrators perform similar functions that U.S. trustees perform in the remaining 48 states. These duties include establishing a panel of private trustees to serve as trustees in chapter 7 cases and supervising the administration of cases and trustees in cases under chapters 7, 11, 12, and 13 of the Bankruptcy Code. The bankruptcy administrator program is administered by the Administrative Office of the United States Courts, while the U.S. trustee program is administered by the Department of Justice. For purposes of this publication, references to U.S. trustees are also applicable to bankruptcy administrators.
A fee is charged for converting, on request of the debtor, a case under chapter 7 to a case under chapter 11. The fee charged is the difference between the filing fee for a chapter 7 and the filing fee for a chapter 11. 28 U.S.C. § 1930(a). Currently, the difference is $755. Id. There is no fee for converting from chapter 7 to chapter 13.
Unsecured debts generally may be defined as those for which the extension of credit was based purely upon an evaluation by the creditor of the debtor’s ability to pay, as opposed to secured debts, for which the extension of credit was based upon the creditor’s right to seize collateral on default, in addition to the debtor’s ability to pay.

You may be interested in reading How to Find a Good Bankruptcy Lawyer or Bankruptcy Attorneys

All About Chapter 13 Bankruptcy

Background

A chapter 13 bankruptcy is also called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” (1) If the debtor’s current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. 11 U.S.C. §1322(d). During this time the law forbids creditors from starting or continuing collection efforts.

This chapter discusses six aspects of a chapter 13 proceeding: the advantages of choosing chapter 13, the chapter 13 eligibility requirements, how a chapter 13 proceeding works, what may be included in chapter 13 repayment plan and how it is confirmed, making the plan work, and the special chapter 13 discharge.

Advantages of Chapter 13

Chapter 13 offers individuals a number of advantages over liquidation under chapter 7. Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Nevertheless, they must still make all mortgage payments that come due during the chapter 13 plan on time. Another advantage of chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the chapter 13 plan. Doing this may lower the payments. Chapter 13 also has a special provision that protects third parties who are liable with the debtor on “consumer debts.” This provision may protect co-signers. Finally, chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under chapter 13 protection.

Chapter 13 Eligibility

Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual’s unsecured debts are less than $336,900 and secured debts are less than $1,010,650. 11 U.S.C. § 109(e). These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation or partnership may not be a chapter 13 debtor. Id.

An individual cannot file under chapter 13 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e). In addition, no individual may be a debtor under chapter 13 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. 11 U.S.C. §§ 109, 111. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.

How Chapter 13 Works

A chapter 13 case begins by filing a petition with the bankruptcy court serving the area where the debtor has a domicile or residence. Unless the court orders otherwise, the debtor must also file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a schedule of executory contracts and unexpired leases; and (4) a statement of financial affairs. Fed. R. Bankr. P. 1007(b). The debtor must also file a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts. 11 U.S.C. § 521. The debtor must provide the chapter 13 case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case began). Id. A husband and wife may file a joint petition or individual petitions. 11 U.S.C. § 302(a). (The Official Forms may be purchased at legal stationery stores or downloaded from the Internet at www.uscourts.gov/bkforms/index.html. They are not available from the court.)

The courts must charge a $235 case filing fee and a $39 miscellaneous administrative fee. Normally the fees must be paid to the clerk of the court upon filing. With the court’s permission, however, they may be paid in installments. 28 U.S.C. § 1930(a); Fed. R. Bankr. P. 1006(b); Bankruptcy Court Miscellaneous Fee Schedule, Item 8. The number of installments is limited to four, and the debtor must make the final installment no later than 120 days after filing the petition. Fed. R. Bankr. P. 1006(b). For cause shown, the court may extend the time of any installment, as long as the last installment is paid no later than 180 days after filing the petition. Id. The debtor may also pay the $39 administrative fee in installments. If a joint petition is filed, only one filing fee and one administrative fee are charged. Debtors should be aware that failure to pay these fees may result in dismissal of the case. 11 U.S.C. § 1307(c)(2).

In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must compile the following information:

1. A list of all creditors and the amounts and nature of their claims;
2. The source, amount, and frequency of the debtor’s income;
3. A list of all of the debtor’s property; and
4. A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

When an individual files a chapter 13 petition, an impartial trustee is appointed to administer the case. 11 U.S.C. § 1302. In some districts, the U.S. trustee or bankruptcy administrator (2) appoints a standing trustee to serve in all chapter 13 cases. 28 U.S.C. § 586(b). The chapter 13 trustee both evaluates the case and serves as a disbursing agent, collecting payments from the debtor and making distributions to creditors. 11 U.S.C. § 1302(b).

Filing the petition under chapter 13 “automatically stays” (stops) most collection actions against the debtor or the debtor’s property. 11 U.S.C. § 362. Filing the petition does not, however, stay certain types of actions listed under 11 U.S.C. § 362(b), and the stay may be effective only for a short time in some situations. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even make telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor.

Chapter 13 also contains a special automatic stay provision that protects co-debtors. Unless the bankruptcy court authorizes otherwise, a creditor may not seek to collect a “consumer debt” from any individual who is liable along with the debtor. 11 U.S.C. § 1301(a). Consumer debts are those incurred by an individual primarily for a personal, family, or household purpose. 11 U.S.C. § 101(8).

Individuals may use a chapter 13 proceeding to save their home from foreclosure. The automatic stay stops the foreclosure proceeding as soon as the individual files the chapter 13 petition. The individual may then bring the past-due payments current over a reasonable period of time. Nevertheless, the debtor may still lose the home if the mortgage company completes the foreclosure sale under state law before the debtor files the petition.11 U.S.C. § 1322(c). The debtor may also lose the home if he or she fails to make the regular mortgage payments that come due after the chapter 13 filing.

Between 21 and 50 days after the debtor files the chapter 13 petition, the chapter 13 trustee will hold a meeting of creditors. If the U.S. trustee or bankruptcy administrator schedules the meeting at a place that does not have regular U.S. trustee or bankruptcy administrator staffing, the meeting may be held no more than 60 days after the debtor files. Fed. R. Bankr. P. 2003(a). During this meeting, the trustee places the debtor under oath, and both the trustee and creditors may ask questions. The debtor must attend the meeting and answer questions regarding his or her financial affairs and the proposed terms of the plan.11 U.S.C. § 343. If a husband and wife file a joint petition, they both must attend the creditors’ meeting and answer questions. In order to preserve their independent judgment, bankruptcy judges are prohibited from attending the creditors’ meeting. 11 U.S.C. § 341(c). The parties typically resolve problems with the plan either during or shortly after the creditors’ meeting. Generally, the debtor can avoid problems by making sure that the petition and plan are complete and accurate, and by consulting with the trustee prior to the meeting.

In a chapter 13 case, to participate in distributions from the bankruptcy estate, unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. Fed. R. Bankr. P. 3002(c). A governmental unit, however, has 180 days from the date the case is filed file a proof of claim.11 U.S.C. § 502(b)(9).

After the meeting of creditors, the debtor, the chapter 13 trustee, and those creditors who wish to attend will come to court for a hearing on the debtor’s chapter 13 repayment plan.

The Chapter 13 Plan and Confirmation Hearing

Unless the court grants an extension, the debtor must file a repayment plan with the petition or within 14 days after the petition is filed. Fed. R. Bankr. P. 3015. A plan must be submitted for court approval and must provide for payments of fixed amounts to the trustee on a regular basis, typically biweekly or monthly. The trustee then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims.

There are three types of claims: priority, secured, and unsecured. Priority claims are those granted special status by the bankruptcy law, such as most taxes and the costs of bankruptcy proceeding. (3) Secured claims are those for which the creditor has the right take back certain property (i.e., the collateral) if the debtor does not pay the underlying debt. In contrast to secured claims, unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by the debtor.

The plan must pay priority claims in full unless a particular priority creditor agrees to different treatment of the claim or, in the case of a domestic support obligation, unless the debtor contributes all “disposable income” – discussed below – to a five-year plan.11 U.S.C. § 1322(a).

If the debtor wants to keep the collateral securing a particular claim, the plan must provide that the holder of the secured claim receive at least the value of the collateral. If the obligation underlying the secured claim was used to buy the collateral (e.g., a car loan), and the debt was incurred within certain time frames before the bankruptcy filing, the plan must provide for full payment of the debt, not just the value of the collateral (which may be less due to depreciation). Payments to certain secured creditors (i.e., the home mortgage lender), may be made over the original loan repayment schedule (which may be longer than the plan) so long as any arrearage is made up during the plan. The debtor should consult an attorney to determine the proper treatment of secured claims in the plan.

The plan need not pay unsecured claims in full as long it provides that the debtor will pay all projected “disposable income” over an “applicable commitment period,” and as long as unsecured creditors receive at least as much under the plan as they would receive if the debtor’s assets were liquidated under chapter 7. 11 U.S.C. § 1325. In chapter 13, “disposable income” is income (other than child support payments received by the debtor) less amounts reasonably necessary for the maintenance or support of the debtor or dependents and less charitable contributions up to 15% of the debtor’s gross income. If the debtor operates a business, the definition of disposable income excludes those amounts which are necessary for ordinary operating expenses. 11 U.S.C. § 1325(b)(2)(A) and (B). The “applicable commitment period” depends on the debtor’s current monthly income. The applicable commitment period must be three years if current monthly income is less than the state median for a family of the same size – and five years if the current monthly income is greater than a family of the same size. 11 U.S.C. § 1325(d). The plan may be less than the applicable commitment period (three or five years) only if unsecured debt is paid in full over a shorter period.

Within 30 days after filing the bankruptcy case, even if the plan has not yet been approved by the court, the debtor must start making plan payments to the trustee. 11 U.S.C. § 1326(a)(1). If any secured loan payments or lease payments come due before the debtor’s plan is confirmed (typically home and automobile payments), the debtor must make adequate protection payments directly to the secured lender or lessor – deducting the amount paid from the amount that would otherwise be paid to the trustee. Id.

No later than 45 days after the meeting of creditors, the bankruptcy judge must hold a confirmation hearing and decide whether the plan is feasible and meets the standards for confirmation set forth in the Bankruptcy Code. 11 U.S.C. §§ 1324, 1325. Creditors will receive 28 days’ notice of the hearing and may object to confirmation. Fed. R. Bankr. P. 2002(b). While a variety of objections may be made, the most frequent ones are that payments offered under the plan are less than creditors would receive if the debtor’s assets were liquidated or that the debtor’s plan does not commit all of the debtor’s projected disposable income for the three or five year applicable commitment period.

If the court confirms the plan, the chapter 13 trustee will distribute funds received under the plan “as soon as is practicable.” 11 U.S.C. § 1326(a)(2). If the court declines to confirm the plan, the debtor may file a modified plan. 11 U.S.C. § 1323. The debtor may also convert the case to a liquidation case under chapter 7. (4) 11 U.S.C. § 1307(a). If the court declines to confirm the plan or the modified plan and instead dismisses the case, the court may authorize the trustee to keep some funds for costs, but the trustee must return all remaining funds to the debtor (other than funds already disbursed or due to creditors). 11 U.S.C. § 1326(a)(2).

Occasionally, a change in circumstances may compromise the debtor’s ability to make plan payments. For example, a creditor may object or threaten to object to a plan, or the debtor may inadvertently have failed to list all creditors. In such instances, the plan may be modified either before or after confirmation. 11 U.S.C. §§ 1323, 1329. Modification after confirmation is not limited to an initiative by the debtor, but may be at the request of the trustee or an unsecured creditor. 11 U.S.C. § 1329(a).

Making the Plan Work

The provisions of a confirmed plan bind the debtor and each creditor. 11 U.S.C. § 1327. Once the court confirms the plan, the debtor must make the plan succeed. The debtor must make regular payments to the trustee either directly or through payroll deduction, which will require adjustment to living on a fixed budget for a prolonged period. Furthermore, while confirmation of the plan entitles the debtor to retain property as long as payments are made, the debtor may not incur new debt without consulting the trustee, because additional debt may compromise the debtor’s ability to complete the plan. 11 U.S.C. §§ 1305(c), 1322(a)(1), 1327.

A debtor may make plan payments through payroll deductions. This practice increases the likelihood that payments will be made on time and that the debtor will complete the plan. In any event, if the debtor fails to make the payments due under the confirmed plan, the court may dismiss the case or convert it to a liquidation case under chapter 7 of the Bankruptcy Code. 11 U.S.C. § 1307(c). The court may also dismiss or convert the debtor’s case if the debtor fails to pay any post-filing domestic support obligations (i.e., child support, alimony), or fails to make required tax filings during the case. 11 U.S.C. §§ 1307(c) and (e), 1308, 521.

The Chapter 13 Discharge

The bankruptcy law regarding the scope of the chapter 13 discharge is complex and has recently undergone major changes. Therefore, debtors should consult competent legal counsel prior to filing regarding the scope of the chapter 13 discharge.

A chapter 13 debtor is entitled to a discharge upon completion of all payments under the chapter 13 plan so long as the debtor: (1) certifies (if applicable) that all domestic support obligations that came due prior to making such certification have been paid; (2) has not received a discharge in a prior case filed within a certain time frame (two years for prior chapter 13 cases and four years for prior chapter 7, 11 and 12 cases); and (3) has completed an approved course in financial management (if the U.S. trustee or bankruptcy administrator for the debtor’s district has determined that such courses are available to the debtor). 11 U.S.C. § 1328. The court will not enter the discharge, however, until it determines, after notice and a hearing, that there is no reason to believe there is any pending proceeding that might give rise to a limitation on the debtor’s homestead exemption. 11 U.S.C. § 1328(h).

The discharge releases the debtor from all debts provided for by the plan or disallowed (under section 502), with limited exceptions. Creditors provided for in full or in part under the chapter 13 plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations.

As a general rule, the discharge releases the debtor from all debts provided for by the plan or disallowed, with the exception of certain debts referenced in 11 U.S.C. § 1328. Debts not discharged in chapter 13 include certain long term obligations (such as a home mortgage), debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor’s conviction of a crime. To the extent that they are not fully paid under the chapter 13 plan, the debtor will still be responsible for these debts after the bankruptcy case has concluded. Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for restitution or damages awarded in a civil case for willful or malicious actions by the debtor that cause personal injury or death to a person will be discharged unless a creditor timely files and prevails in an action to have such debts declared nondischargeable. 11 U.S.C. §§ 1328, 523(c); Fed. R. Bankr. P. 4007(c).

The discharge in a chapter 13 case is somewhat broader than in a chapter 7 case. Debts dischargeable in a chapter 13, but not in chapter 7, include debts for willful and malicious injury to property (as opposed to a person), debts incurred to pay nondischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings. 11 U.S.C. § 1328(a).

The Chapter 13 Hardship Discharge

After confirmation of a plan, circumstances may arise that prevent the debtor from completing the plan. In such situations, the debtor may ask the court to grant a “hardship discharge.” 11 U.S.C. § 1328(b). Generally, such a discharge is available only if: (1) the debtor’s failure to complete plan payments is due to circumstances beyond the debtor’s control and through no fault of the debtor; (2) creditors have received at least as much as they would have received in a chapter 7 liquidation case; and (3) modification of the plan is not possible. Injury or illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge. The hardship discharge is more limited than the discharge described above and does not apply to any debts that are nondischargeable in a chapter 7 case. 11 U.S.C. § 523.

Footnotes

The “current monthly income” received by the debtor is a defined term in the Bankruptcy Code and means the average monthly income received over the six calendar months before commencement of the bankruptcy case, including regular contributions to household expenses from nondebtors and including income from the debtor’s spouse if the petition is a joint petition, but not including social security income or certain payments made because the debtor is the victim of certain crimes. 11 U.S.C. § 101(10A).
In North Carolina and Alabama, bankruptcy administrators perform similar functions that U.S. trustees perform in the remaining forty-eight states. The bankruptcy administrator program is administered by the Administrative Office of the United States Courts, while the U.S. trustee program is administered by the Department of Justice. For purposes of this publication, references to U.S. trustees are also applicable to bankruptcy administrators.
Section 507 sets forth 10 categories of unsecured claims which Congress has, for public policy reasons, given priority of distribution over other unsecured claims.
A fee of $25 is charged for converting a case under chapter 13 to a case under chapter 7.

You may be interested in reading How to Find a Good Bankruptcy Lawyer or Bankruptcy Attorneys

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Should I Draw On My Retirement Before or After I File Bankruptcy? – Ryan

Lewis Roberts — Tue, 23 Aug 2011 21:41:26 +0000

From How to Get Out of Debt

“Dear Lewis,

Recently divorced, left financially and emotionally wiped out, decided to resign and take a year off for travel and healing. Currently have 40K in unsecured debt and about 7K in savings. Was planning on drawing on my retirement (about 50k) of it, to finance the upcoming year.

Question is, can I file for chapter 7 bankruptcy, and still draw on the retirement without having it taken by creditors?

After a year is up, finding new work at abut 125-150K will not be a problem, restocking retirement will not take more than a year or two.

With $7000 in savings, no assets of significant value, and 40K in unsecured debt, can I file for chapter 7 bankruptcy, and then collect about 50K of my retirement funds early?

Ryan”

The Answer:

Dear Ryan,

The best course of action is to file chapter 7 now and discharge the debt. Then what you do with your exempt retirement after the filing the case is your business and cannot be touched by your creditors.

But I want to be clear on your timeline. It is best to file the chapter 7 first, then draw on retirement. I would not draw on retirement, then file chapter 7 later. That could create potential problems in qualifying for chapter 7 under the means test.

The best piece of advice I can give you: since you are planning your bankruptcy filing, see a bankruptcy attorney now in the planning stage. Then you can make sure you are fully protected.

Good luck!

My name is Lewis Roberts and I’m an attorney licensed in Florida and Georgia. My practice focus is consumer bankruptcy, real estate issues/closings, and mortgages. I also have Florida real estate broker and mortgage broker licenses. I am a proud member of the National Association of Consumer Bankruptcy Attorneys (NACBA), National Association of Consumer Attorneys (NACA), and a graduate of Max Gardner’s Bankruptcy Boot Camp. I enjoy helping people with decisions that impact their financial well-being.

If you have a bankruptcy question you’d like to ask just use the online form.

The Finance Company Never Picked Up the Motorcycles After My Bankruptcy. – Richard

Lewis Roberts — Mon, 15 Aug 2011 16:50:24 +0000

From How to Get Out of Debt

“Dear Lewis,

I filed bankruptcy late last year and the chapter 7 I filed is over with and I received the final paper where it is discharged. I live in Ky. And I had three motorcycles that I filed on among other stuff. One finance company came and got their motorcycle at the beginning of bankrupty but the other two haven’t done anything, no response at all period. I wrote the other two finance companies but they haven’t responded in anyway at all. I asked them to release the liens or do something as they weren’t worth a lot to me or them either way in the shape they are in. They are 2007 Yamahas but in poor shape. I have the taxes coming up on them soon and if they don’t come and get them I will be responsible for the taxes. Which I am still stressed financially.

My question is what should I do with the motorcycles and the taxes coming up? If they remain in my posession can I charge storage on them?

Richard”

The Answer:

Dear Richard,

I doubt you can charge storage for the “surrendered” motorcycles.

Who is the bank? Is there a local branch for the bank that loaned the money on the motorcycles? If so, drive them to the bank, park them in the parking lot, walk inside, and hand the keys to the branch manager. Get a receipt and take pictures of the condition of the motorcycle as it sits in the parking lot.

Obviously do not drive them unless they are tagged and insured. But if the tag renewal is coming up, I would consider turning in the tags to you don’t have to pay the cost of renewal.

Good luck!

My name is Lewis Roberts and I’m an attorney licensed in Florida and Georgia. My practice focus is consumer bankruptcy, real estate issues/closings, and mortgages. I also have Florida real estate broker and mortgage broker licenses. I am a proud member of the National Association of Consumer Bankruptcy Attorneys (NACBA), National Association of Consumer Attorneys (NACA), and a graduate of Max Gardner’s Bankruptcy Boot Camp. I enjoy helping people with decisions that impact their financial well-being.

If you have a bankruptcy question you’d like to ask just use the online form.

If Bankruptcy is Good Enough for the Los Angeles Dodgers, It’s Good Enough For You

Steve Rhode — Mon, 27 Jun 2011 16:43:13 +0000

From How to Get Out of Debt

This morning the Los Angeles filed for bankruptcy in an effort to reorganize their debt. This is yet another example of how business uses bankruptcy to deal with their unmanageable debt but consumers feel shame and stigma when they need to call upon legal financial reorganization for help.

According to reports, the Los Angeles Dodgers fell short of income needs when allegedly Major League Baseball would not approve the Fox Sports television deal worth $3 billion.

The lack of approval left the team without needed cash and facing a huge payroll this week. Failure to meet the payroll would put the Los Angeles Dodgers at risk of having the team repoed by MLB.

The Dodgers blame declining attendance for part of their problems, and then there are the massive salaries they have to pay.

According to TicketNews.com, “the Dodgers are responsible for the largest attendance decline in the sport.”

And if anyone wants a clue why people are struggling paying for professional sports, look at the LA Dodger ticket prices. A seat near the field costs $60 to $120 and a seat for $12 is way up in the nose bleed section. Here is the view from the $12 seat.

And those prices don’t even include parking or buying a soda and a snack.

Hey for $10 I can get a front row seat at my local minor league team. Now that’s value for money.

@GetOutOfDebtGuy

Debt Relief industry Trends, June, 2011 – Credit Counseling, Debt Settlement, Bankruptcy

Steve Rhode — Sun, 26 Jun 2011 19:47:33 +0000

From How to Get Out of Debt

In what has turned into a regular report from this site, here is the next installment in my forecast for the debt relief industry.

The extension of consumer credit remains weak. Delinquencies and defaults are dropping and sometimes, as Discover announced recently, to historic lows.

Credit Counseling Demand

Sources inside credit counseling are reporting continued declines in new debt management clients and an erosion of the current client base. Without new debt management clients to replace the old enrollments the total number of active clients will decrease through graduation of dropout.

Search volumes appear to continue to drop faster for debt settlement but credit counseling searches, an indication of consumer interest, is flat as well.

Still, the most disturbing observation for me was the relatively low uptick following the start of the new year.

The graphic below show the volatility in credit counseling search traffic in the December-January timeframe. The higher the demand after Christmas, the more activity credit counseling groups should expect. This classic heartbeat in credit counseling demand has been a regular occurrence.

And not only was the demand peak much, much smaller at the start of 2011 but overall the demand has dropped from that point. We are just entering a time when demand may increase slightly as we near the end of the summer.

As you can see from the trend below, the overall search demand for credit counseling has continued a downhill slide.

The chart above may even indicate a bump in search demand during the period of time that debt settlement was heavily advertising their niche. in the 2009 time range.

A closer look over the last 12 months can be seen below.

Debt Settlement Demand

The demand for debt settlement services continues to show a faster decline when you compare the scale of the search traffic measured. The debt settlement chart shows a greater volatility.

The search traffic indicates to a lesser organized degree the same end of year demand jumps with the largest appearing at the end of 2009.

As you can see in the graph below, the demand for debt settlement searches peaked in mid-2009 and has declined ever since. (Red Line)

If we look at the brown line as an indicator of demand from first measurements to present and we did with the credit counseling traffic charts you can see how search traffic might even be slightly lower than when it first was high enough to measure.

Here is a look at search demand for debt settlement for the past twelve months.

When we compare the search traffic demands by overlaying the charts for debt settlement search traffic and credit counseling you can more easily see the 2009 demand spike for both debt settlement and credit counseling. If anything, it is entirely possible that the influx of massive debt settlement advertising helped to boost up credit counseling demand through 2009 but the search demands for both solution fell off at a similar slope from that point.

For me this is an excellent indication that debt settlement did not kill credit counseling. If it had then the search interest in credit counseling would have fallen at the same time that debt settlement was increasing but the data shows both falling at the same time.

Chapter 7 Demand

I’m using Chapter 7 search results as an indicator of bankruptcy demand since 70%+ of all consumer bankruptcies are Chapter 7.

The demand for Chapter search in search traffic has been inconsistent for the past year or so. It has not maintained a steady trend.

If we compare the search demand over the life of the measurements it shows the decrease in demand following 2005 bankruptcy reform but the increase in demand once we hit the end of 2008. This may have resulted in more attorneys getting into bankruptcy which may have created a glut in providers.

If I lay bankruptcy search traffic on top of that for credit counseling and debt settlement you can see how the interest in search traffic for bankruptcy began later but did mirror in the first half of 2010. But, if anything, it appears that current declines in both credit counseling and debt settlement search traffic is not mirrored by search demand for bankruptcy. That traffic has increased as the others have declined.

It appears that search traffic for bankruptcy is stronger of that for both debt settlement and credit counseling. This may be due to the fact consumers feel they do not have enough income to enter any debt repayment strategy and instead are looking for greater relief.

This is chapter 7 traffic for the last twelve months. While there are some peaks and valleys it certainly appears in more of a plateau.

Other Factors

Unemployment has been a large factor in the demand for debt relief services. As you can see the growth in debt relief services in 2009 began as unemployment rates were increasing and as they were sustained at high levels the consumers ability to continue debt repayment programs has dropped while bankruptcy demand has more closely followed the unemployment trend.

If we look at the amount of revolving consumer credit outstanding it becomes clear there is a correlation between the amount of outstanding unsecured consumer debt and demand for credit counseling and debt settlement.

This leads me to postulate that until the levels of unsecured consumer credit begin to rise the demand for credit counseling and debt settlement will continue to be flat. As long as unemployment continues to be high then bankruptcy levels should be expected to remain high until consumers have dealt with their lingering debt in the face of weak employment.

Conclusion and Recommendations

Both credit counseling and debt settlement companies should cut staff back to bare minimums to hope to ride out this decline in demand. Until sufficient numbers of debt relief companies close, the cost of client acquisition should remain high as the remaining companies compete for a smaller customer pool.

The current effort by credit counseling to continue to attack and erode debt settlement providers and solutions is tremendously shortsighted. At a time when credit counseling could be working to expand their solutions and client base with new opportunities they are instead focused on closing down the debt settlement industry in hopes it will increase demand for credit counseling. I believe it will have the exact opposite impact and as longer as the debt management plans provided by credit counseling do not provide serious relief for struggling consumers, choking off debt settlement will only help bankruptcy attorneys.

@GetOutOfDebtGuy

I can always use your help. If you have a tip or information you want to share, you can get it to me confidentially if you click here.

Can I Get Rid of Back Taxes in My Chapter 7 Bankruptcy? – Jacquelyn

Jim Buttonnow — Wed, 15 Jun 2011 16:22:08 +0000

From How to Get Out of Debt

“Dear Jim,

I am converting from chapter 13 to a chapter 7 and I have owed federal taxes in it they will work with me on it won’t they?

Will they work with me to pay back my taxes?

Jacquelyn”

The Answer:

Dear Jacquelyn,

Thanks for the question. Although bankruptcy is filed in federal US Bankruptcy Court, state laws still apply (means testing, exempt property, etc.). Hence, you should always consult a reputable local bankruptcy attorney who has experience with the IRS as a creditor in bankruptcy.

In Chapter 7, the status of a claim for taxes depends on several factors:

whether a notice of lien has been filed before bankruptcy (if the IRS has filed a priority lien, they may have priority interest in assets – see #5 below also)
how long before bankruptcy payment of the taxes was due (see my explanation in #1 and #2 below)
whether the claim is for tax, penalty, or interest; and (penalties are dischargeable unless the event that gave rise to the penalty occurred in the last 3 years and the penalty arises from taxes that are discharged in bankruptcy)
the type of tax (i.e., income, employment, or excise tax)- an example of taxes that are not dischargeable are withholding taxes (trust fund taxes)

Let me give you the general rules as it applies to INCOME TAX debt and bankruptcy. If your tax is from income tax (Form 1040) and is more than 3 years old, it may be dissolved in Chapter 7.

However, there are some things you may want to know:

You must have all of your returns filed. Debt on unfiled returns will not be dischargeable (late filed returns have their own rules and generally there is problems with old years that have been filed within 240 days of the bankruptcy petition. There are also other technical rules for recently filed back returns that you will need to consider, if applicable.)
The last three tax years generally are not discharged in bankruptcy
Bankruptcy filing puts an automatic “stay on collections” from the IRS collecting on past due taxes
Bankruptcy filing extends the time for the IRS to collect on your taxes for the duration of the bankruptcy proceedings, plus 6 months thereafter
A tax lien may survive bankruptcy, especially when it relates to collecting on assets that were exempt from bankruptcy liquidation

You should gather all of your information related to your tax assessments (date of assessment, type of tax, tax return filing history, any unfiled returns) before you see your attorney so that you can speak specifically about the ability to discharge your taxes in bankruptcy. You can get this information by ordering all of your IRS account transcripts from the IRS directly. This will contain the information you need. Call the IRS at 1-800-829-1040 to get these documents. Again, I must stress the importance of a good bankruptcy attorney – you will not regret it.

Jacquelyn- please let us know how this goes and if I can be of further assistance.

Thanks

Jim

Jim Buttonow is one of the resident debt experts here at GetOutOfDebt.org that helps people for free. Jim is a licensed CPA who spent 19 years with the IRS coordinating large compliance teams of IRS agents and specialized personnel. In the last 5 years, Jim has invented consumer and practitioner software and treatises on how to address many different tax issues. He has also represented many people before the IRS examination, collection, filing, and appeals functions. He currently assists taxpayers on an active pro bono tax practice aimed at serving people in need. He can be reached at IRSMind.com.

If you have a tax question you’d like to ask just use the online form. I’m happy to help you totally for free.

I Discharged My Mortgage in Bankruptcy. Can I Really Sell The House Now? – Romy

Lewis Roberts — Mon, 06 Jun 2011 15:58:17 +0000

From How to Get Out of Debt

“Dear Lewis,

I filed chp 13 bankruptcy and had agree to let go of my house. No repayment. All debts were discharged. however, the bank is allowing me to stay in the house because i have continued to pay the mortgage/taxes/etc. However I’ve noticed that none of my payments are being report to the credit bureaus.

My questions: do I still own the house? Can I sell it? Also, if I stop paying the mortgage and let it go into foreclosure will THAT adversely effect me? If so, how?

Romy”

The Answer:

Dear Romy,

Be very careful here. Did you definitely file a chapter 13 or a chapter 7?

In chapter 13, you have to affirmatively “surrender” your home or the debt passes through and is not discharged in chapter 13.

In chapter 7, as long as you did not reaffirm the debt, the mortgage debt is wiped away and the lender cannot chase you other than to foreclose.

Regardless, if the lender has not finished a foreclosure, you are still the legal owner of the home. You can sell it, but you would need to pay off the mortgage.

But back to the original question: can it affect you adversely if you let the house go?

Maybe… I do not have enough information to give you an exact answer. If you used an attorney, you need to ask him or her exactly whether you are liable for the mortgage debt if you decide to stop paying the mortgage.

My name is Lewis Roberts and I’m an attorney licensed in Florida and Georgia. My practice focus is consumer bankruptcy, real estate issues/closings, and mortgages. I also have Florida real estate broker and mortgage broker licenses. I am a proud member of the National Association of Consumer Bankruptcy Attorneys (NACBA), National Association of Consumer Attorneys (NACA), and a graduate of Max Gardner’s Bankruptcy Boot Camp. I enjoy helping people with decisions that impact their financial well-being.

If you have a bankruptcy question you’d like to ask just use the online form.

I’ve Got Three Kids, Falling Behind, Unemployed and Have a Lot of Debt. – Kevin

Lewis Roberts — Fri, 03 Jun 2011 18:57:41 +0000

From How to Get Out of Debt

“Dear Lewis,

Here’s my situation. My name is Kevin, I am married with 3 kids. My story began when my wife and I tried to restructure our finances by applying for Obama’s mortgage modification program.

The irony is we didn’t need to, but we were told that we qualified and figured, if we could save some money lets do it. They put us on a reduced payment and blah blah blah, next thing you know, we were denied a mod, forced to pay a huge fee, took a credit hit and ended up with a payment about $1,500 more than before we started this nightmare.

Really a sad joke.

Anyhow, I have since depleted a $25k home eq loan and am carrying about $35k in credit card debt making min payments. The only positive is that i have a lawsuit that should bring me a six digit settlement in the next six months. I have depleted my kids educational funds and am currently unemployed, but I think that will change soon. I honestly could care less about morals etc. I have 3 kids to think about. My lawyer told me he could keep me in my house for two years and then what? Foreclosure and bad credit. Not good in todays market. I have no family and my friends are in the same boat.

i know my options are either bankruptcy or foreclosure. I don’t want to find myself laying out all this cash from the settlement and have nothing left for my kids college fund. Will bankruptcy court take my settlement money? I am sixty grand in the hole and don’t really know the next move.

Thanks

Kevin”

The Answer:

Dear Kevin,

I think the answer is rather simple. Yes, the bankruptcy would take the settlement in one form or another.

I am assuming it was a personal injury, or something similar.

It is an asset of the bankruptcy estate. So if you file chapter 7, the trustee will take control of the “asset” and settle it for the benefit of your unsecured creditors – the credit cards. So you may still get any surplus, but you have lost control over the “asset”.

In chapter 13, it would be very similar. Since you expect to recover more than the amount of your unsecured debts, you either have to pay a lump sum to the trustee, or propose to pay 100% of your unsecured creditors over time to keep the asset. But with no work, how can you make a monthly payment to the trustee?

What I am afraid of is the following…

You get $100,000 settlement, so you pay off your credit cards. You then pay off your equity line. Now you are down to $40,000.

I have no idea what your monthly expenses are, including the remaining first mortgage. But I know just about all families eat up $40,000 a lot quicker than they think.

So you use the $40,000 to live off of (paying the first mortgage), and if your employment situation doesn’t change, then you are out of money.

At that point, you might have wished that you didn’t pay off the equity line and continue paying the first mortgage.

I am not saying this is exactly how you would handle it, but what I commonly see from clients who come to see me.

Depending on where you live, and exactly what your settlement is for (the type of injury), there may be other ways to shield it from bankruptcy.

But if it is normal personal injury claim, the likelihood of exempting the settlement is generally not good.

My name is Lewis Roberts and I’m an attorney licensed in Florida and Georgia. My practice focus is consumer bankruptcy, real estate issues/closings, and mortgages. I also have Florida real estate broker and mortgage broker licenses. I am a proud member of the National Association of Consumer Bankruptcy Attorneys (NACBA), National Association of Consumer Attorneys (NACA), and a graduate of Max Gardner’s Bankruptcy Boot Camp. I enjoy helping people with decisions that impact their financial well-being.

If you have a bankruptcy question you’d like to ask just use the online form.

How Do I Deal With Sallie Mae When Bankruptcy is Not an Option? – Debbie

Steve Rhode — Tue, 31 May 2011 21:24:12 +0000

From How to Get Out of Debt

I have $125,000.00 in debt with Sallie Mae Servicing Center, I have been with them for years, but with their high interest rates and principles, I will never pay this off unless I win the lottery.

I tried to get loan forgiveness they denied that saying my loan was before 1998. I did not get my teaching degree until 2005 and was teaching for the KCMO School District and MCC Penn Valley Junior College in an urban core and still no help.

I feel stressed and overwhelmed because it is a bill I will never get help for unless a miracle happens, can you help and give me some information that may get them off my back. I have emailed President Obama to help people due to the economy who have over 50,000 in debt pay off half and we pay the rest or if we have paid over ten years to remove this debt and give us a break of relief.

Something has to give, I heard even Suze Osman friend of Oprah was working on this issue too.

Please email me what you know and thanks in advance for your help.

Do you have any information to help someone who has a loan with Sallie Mae and wants relief because bankruptcy is not an option?

Debbie

I’m currently backed-up on answering questions so I’m posting some of the questions here for you to help answer.

This is your chance to be a hero and help out this person by providing your feedback and answer to the question in the comments section below.

@GetOutOfDebtGuy

My Husband Sexually Assaulted Our Daughter While I Worked a Second Job to Afford Bankruptcy Payments. – Patty

Lewis Roberts — Thu, 26 May 2011 18:55:19 +0000

From How to Get Out of Debt

“Dear Lewis,

My husband and I filed bankruptcy in Feb 2010- because he lost his job after the bankruptcy was filed and he had a child support obligation they take the payment from me every 2 weeks. 286.00 dollars. At this point all the payments are made by garnishment of my wages. i cannot live off of 230.00 every 2 weeks so i obtained a second job. During the time that i was at my second job my husband decided to sexually assault my daughter in my absence. she did not tell me til months later. at that point i pressed criminal charges which are still pending at this point and moved out of the house.

My husband soon to be x husband ( i hope) refuses to convert to a chapter 7 bankruptcy. At the time that we filed a joint bankruptcy both his jobs and my one job were taken as income- when he lost his primary job-the bankruptcy had already started and there was no way to ammend the plan at that time- at least from what i was told. Now that we are not together the bankruptcy payments are absolutely making me struggle – i barely am able to spend time with my daughter and i barely have enough to buy the necesaties such as clothing and food. the bankruptcy lawyer said that my only option was to convert to a 7 to do that by myself i would have to hire another attorney – i cant do that because everything that i make goes to basic living and gas and food – absolutely no exstras. He said that if i could not convert with Martin that he will withdraw as the attorney. and i would have no other choice then to find legal representation.

So here is my question – how do i get the court or whoever the trustee to understand that the incomes are completely separate and that i cannot afford to make these payments but cannot afford to hire an attorney because i am making the payments and do not qualify for legal because of the gross income? i have paid these payments for the last 18 months – on my own. My x-husband told me that he would give me money for his portion of the payments but has yet to pay anything at all. so i am paying the vehicles one his one mine – the house payment that he refused to pay and all the medical bills that he had – 85% of the debt was his when we file. Any advise would be of great help.

Patty”

The Answer:

Dear Patty,

I won’t even address some of the personal struggles because of how awful they are. But I am afraid my bankruptcy advice is not good news either.

Your attorney basically has it right. He cannot represent you separately from your husband. It would be an ethical issue with almost any state bar. I cannot agree to represent a married couple, then agree to represent 1 of the two spouses when they don’t agree.

So you are either stuck with dismissing your chapter 13, and filing a chapter 7, either on your own, or with an attorney; or, you could try something else.

But the something else, I have never even done myself as an attorney, let alone someone who has no representation. You could file a motion in court, and ask for a hearing with the judge. You would ask to sever yourself from the chapter 13 and ask for a conversion to chapter 7.

Even if this was all allowed by the judge, you would now have to update some of the bankruptcy forms, submit paperwork to a chapter 7 trustee, and attend another 341/creditor’s meeting.

Are you comfortable in doing all of this with no legal representation? I repeat this almost daily: I never recommend someone file a bankruptcy without an attorney, there are too many pitfalls. And without knowing your complete financial and asset scenario, I could not advise you as to whether you could fall into a pitfall.

I strongly suggest you find a chapter 7 attorney willing to help you.

Unfortunately, your current attorney cannot help because of a “conflict”, and the chapter 13 trustee is not allowed to give you advice since you are currently represented. So you must seek out an independent opinion.

Good luck!

My name is Lewis Roberts and I’m an attorney licensed in Florida and Georgia. My practice focus is consumer bankruptcy, real estate issues/closings, and mortgages. I also have Florida real estate broker and mortgage broker licenses. I am a proud member of the National Association of Consumer Bankruptcy Attorneys (NACBA), National Association of Consumer Attorneys (NACA), and a graduate of Max Gardner’s Bankruptcy Boot Camp. I enjoy helping people with decisions that impact their financial well-being.

If you have a bankruptcy question you’d like to ask just use the online form.

I Was Told Not to File Bankruptcy Due to Severance I Might Receive. – Diane

Lewis Roberts — Wed, 25 May 2011 19:59:23 +0000

From How to Get Out of Debt

“Dear Lewis,

In May 2009, I was laid off. I had an appointment with a bankrupcty lawyer the day after I was escorted out (I had fairly high security clearance). She told me to hold off on the bankruptcy due to whatever severance I might receive.

I held off and held off…and had a really rotten relationship in the meantime. I regained employment at about $20K less than my other job and in the meantime spent my IRA — which resulted in my owing the IRS $12,777.

I wanted to put my IRA towards my outstanding bills, but my lawyer advised against it. Where did it end up going? See above bad relationship comment.

So now I can’t file bankruptcy; the lawyer informed me that due to the IRA disbursement, I’d be on a 100% repayment plan — equating to about $1800 a month, PLUS my $800/month mortgage…which would leave me with about $200/month to live on. (I’ve already paid the lawyer $3000 to retain her.)

I have two credit card companies who have tried to put liens against a part-time job I had in lieu of a “real” job which fell through when I quit the part-time job; a lien against my house, and most of my creditors have passed to collection agencies. I have a few other judgements against me which I haven’t heard more from yet.

Most of my debt is unsecured (credit card), I have quite a bit in payday loans also. I had two cars repossessed but of course they weren’t worth what I owed on them.

My main question is, I guess, what can I do? Can a debt counseling/management company help me?

I’ll be honest, what prompted my asking was the question posted by the gentleman who is so depressed he’s considered suicide.

Believe me, if it weren’t for helping out my elderly father, that would be a viable option for me anymore.

Thanks for your time!

Diane”

The Answer:

Dear Diane,

If you could answer two questions, then I can get back to you with some guidance. When did you take the IRA withdrawal and for how much?

Please post your answers in the comments section below.

My name is Lewis Roberts and I’m an attorney licensed in Florida and Georgia. My practice focus is consumer bankruptcy, real estate issues/closings, and mortgages. I also have Florida real estate broker and mortgage broker licenses. I am a proud member of the National Association of Consumer Bankruptcy Attorneys (NACBA), National Association of Consumer Attorneys (NACA), and a graduate of Max Gardner’s Bankruptcy Boot Camp. I enjoy helping people with decisions that impact their financial well-being.

If you have a bankruptcy question you’d like to ask just use the online form.

I’m an E5 in the Army. Should I Go With Wites & Kapten Instead of Bankruptcy? – Vic

Steve Rhode — Tue, 24 May 2011 21:24:18 +0000

From How to Get Out of Debt

“Dear Steve,

Well i’m about 40k in debt. I’m and E5 in the army. I have a security clearance.

I got a letter from wites and kapetan. Its sounds decent. Has anyone heard of them. should i go with them. I can not file bankrupcy because of my clearance. if i did that, my clearance would be gone.

Vic”

The Answer:

Dear Vic,

The first thing you need to do is get the facts and not assume your security clearance will be damaged by a bankruptcy. In fact the Army says that in the face of overwhelming debt a bankruptcy is a positive step since it is a legal process.

You should read “Bankruptcy and Your Military Security Clearance.” The Wites & Kapetan approach is a typical debt settlement strategy where you will have to fall behind on your debts and collectors will be calling, you may be sued as well.

When you fall behind on your debts the collectors may contact your chain of command and this will create a potentially bigger problem for you as well.

The smarter move here is for you to go talk to your security officer and explain the situation.

A reader recently posted this comment on the site that might be helpful.

I’ll put my $0.02 in here. As long as your chain of command (both your direct as well as your Security Officer/SSO team), there shouldn’t be a problem. I am currently in the process of filing BK, and after reporting impending judgment cases against me, DSS came back requested a resubmission of my SF86. I filled out the pertinent information (by using the latest info in my credit reports), and the adjudication came back as fine, with the direction to report my filing and discharge as they occur.

With a clearance, honesty is always the best policy. ALWAYS report something that may be an issue, especially finances. In this day and age, DSS/DISCO are willing to let people slide if they’re up front about their issues. The stigmas associated with debts are slowly going by the wayside as we go deeper into this housing mess, and they’d rather know that the people currently in the system are taking care of their business rather than taking a chance on someone that they don’t know, yet. – Source

Please post your responses and follow-up messages to me on this in the comments section below.

Big Hug!

@GetOutOfDebtGuy

If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

Do I Have to Pay My Second Mortgage Home Equity Loan After My Bankruptcy? – Julie

Lewis Roberts — Fri, 13 May 2011 15:41:08 +0000

From How to Get Out of Debt

“Dear Lewis,

I filed Ch. 7 bankruptcy last year. I did not file on my 1st home mortgage or my 2nd mortgage – home equity loan and chose to continue paying them. I never signed any reaffirmation statements after the bankruptcy. Recently my loan officer pulled my credit and saw that my reports show I have zero balances on both my mortgage loans mentioned above. She thought it strange and said she’d never seen that before since I have still been paying on both loans. I checked my discharge papers and found that the 2nd mortgage-home equity loan was discharged under the unsecured debt section. I called my bankruptcy attorney who was no help in answering if I have to continue paying the home equity loan so I called a real estate attorney and he told me to call my bankruptcy attorney and check with the county records to see who are lien holders on the property. Both the first mortgage lender and MERS are listed. I found that MERS was handling the mortgage for the bank that I have the loan for the home equity loan. I still want to keep the home and pay the first mortgage but am trying to find out if I have to continue paying for the home equity loan without going into foreclosure.

How do I find out if I have to continue to pay a home equity loan that shows was discharged as an unsecured debt in my Ch. 7 bankruptcy discharge papers, without going into foreclosure?

Julie”

The Answer:

Dear Julie,

This is a common scenario after a chapter 7 bankruptcy.

It is quite common to not reaffirm mortgage debt. Many attorneys think it is malpractice to allow someone to reaffirm mortgages unless there was a very good modification involved.

So what happened is that you are in a retain and pay scenario. As long as you pay and stay current, the lender will not foreclose.

But at the same time, they do not have to report your payments on your credit. The proper reporting is $0 balance, discharged in bankruptcy.

There are still two valid liens, just no personal obligation to pay.

In the future, you can ask the lender for a payment history, or show canceled checks to a new lender.

I’m sorry that your bankruptcy attorney did not just tell you this information. You shouldn’t have been ignored just because your case is finished.

My name is Lewis Roberts and I’m an attorney licensed in Florida and Georgia. My practice focus is consumer bankruptcy, real estate issues/closings, and mortgages. I also have Florida real estate broker and mortgage broker licenses. I am a proud member of the National Association of Consumer Bankruptcy Attorneys (NACBA), National Association of Consumer Attorneys (NACA), and a graduate of Max Gardner’s Bankruptcy Boot Camp. I enjoy helping people with decisions that impact their financial well-being.

If you have a bankruptcy question you’d like to ask just use the online form.

Debt Settlement: Top Ten Most Misunderstood Facts

Steve Rhode — Mon, 02 May 2011 12:25:58 +0000

From How to Get Out of Debt

Over the past few years debt settlement has been in the news, not always in a good way. Many consumers have complained about the services they’ve received while some have been very happy. Much of the disparity in the perception of the service is due to misconceptions about the process itself.

So here are the top ten misconceptions I see out here on the front lines.

1. “We’ll Stop All the Collection Calls.” – While some debt settlement companies say they can stop collection calls by sending a letter. What they are referring to is sending the company a cease & desist communication letter to stop the entity collecting from calling. But that letter only applies to third-party collection companies and has no power to stop the creditor that you owe the debt to from calling. In fact, sending the letter and cutting off communications can lead to you getting sued faster since the only route of communications left will be through the court. The original creditor, who the cease & desist letter has no power over may just send your account to legal anyway when they get the letter because they don’t want to hassle with the debt settlement.

2. We Will Take Over and Work With Your Creditors. You Won’t Have to Do a Thing.” – When you took out the loan or credit you signed an agreement with the creditor. The debt settlement company is not a party to that agreement and has no authority to intervene between the lender and borrower. The debt settlement company is providing a service on your behalf and while you may give them permission to talk to the creditor, if the creditor does not want to deal with them, they don’t have to. Your creditor may have a policy of not working with any debt settlement company. There is nothing that requires them to.

3. “We Will Make Your Creditor Accept Less Than You Owe.” – A creditor does not accept a settlement because it makes the most sense, but if their policies and procedures allow the department you are communicating with to accept it. Some creditors are more receptive to settling for less and others are not. Without the assistance of a debt settlement company that knows what the current policies are of that creditor, you don’t not know if they would be getting a good deal.

4. “Don’t Worry. Debt Settlement Will Not Hurt Your Credit.” – Creditors don’t entertain offers from people who are current on their bills. It’s just a function of the creditor policies and procedures that it is typically not until someone gets 90 days or more past due that they can offer a reduced pay off amount to satisfy the debt. During that time, payments are typically made to the debt settlement company assigned escrow account and not the creditor. This means you are electing to not pay the creditor and that makes them agitated. By not paying your creditor you will be in default of your agreement and the creditor will begin to add late fees, higher interest and penalties to your balance owed. Your balance will grow larger. Your account will be moved into the collection queue, will be reported to the credit bureaus for the lack of payments, and the creditor may sue you and go for a wage garnishment. Debt settlement is not a process without risks and penalties.

5. “Once You Pay the Settlement You Never have to Worry About The Debt Again.” – Not so fast. Unless you get the agreement in writing from your creditor they will accept less than the full balance as payment in full and you keep a record of them receiving your settlement payments, it can come back to haunt you. It is not unusual for a creditor to claim years later that they never agreed to accept less than the full balance to satisfy the debt. The only thing that is going to get you out of that is proof of the offer and proof they received the payment. Be sure you make that settlement payment by some traceable means, like a draft from your bank or by check. Keep copies of bank statement or cashed checks with the settlement offer in a safe place with your other important papers.

6. “Settling Your Debt Will improve Your Credit and Debt to income Ratio.” – Some debt settlement companies say debt settlement will help your credit report since it will lower your outstanding debt to income ratio. But that’s not the whole story. When you fall behind on your bills to settle your debt, that will be reported on your credit report for seven years from the time you became delinquent. Any lawsuits to attempt to collect the debt will appear as well. The balance of the debt that was settled and not paid will appear as a bad debt for seven years as well. At the end of the process you may no longer owe your creditors but your credit report will be hurt and need some serious attention to bring your credit score back up.

7. “You Can’t Trust Any Debt Settlement Company.” – That’s not true. Some debt settlement companies, and especially those that are a member of the AACC are open and transparent about their actual performance in settling debt, only charges you a fee as a percentage of savings when they do settle, and will maintain any payments you make in a bank account monitored by a third-party escrow company. You want to look for a company that will share their actual performance statistics with you in writing to show you their track record. Working with a good debt settlement company can be beneficial if debt settlement is right for you. They will have the experience to know if the deals being offered are good based on the current policies of the creditor.

8. “You Have to Hire Us to Settle Your Debt.” – There are some companies out there that will teach you how to settle your own debt for a fraction of the cost of paying a settlement company to do it for you. They can guide you through the process and coach you when you have questions or concerns as you go. Two of the companies that offer this coach supported process are Consumer Recovery Network and ZipDebt.

9. “Hiring an Attorney to Settle Your Debt is the Best Way to Go.” – It is not necessary to pay a lot of money to hire an attorney based company to settle your debt. Settling debt is not a function of legal pressure but of knowing the current policies and procedures of the major creditors. If you have a local attorney that is going to perform all the work locally and you have a trusted relationship with that attorney, then maybe you’ll want to work with them. However, if you are being pitched debt settlement services by a salesperson for debt settlement services provided by a legal network then you may want to get a second opinion before you agree to enroll. I find these legal networks to be pricy and charge all their fees on the front-end of the program, before the debt is settled, even if they never settle your debt. And while these legal networks may promise to represent you if you are sued, the devil is in the details. You can read my review of one of these attorney network model contracts here. I think you’ll be surprised what it didn’t cover and how it really cost about twice as much as other debt settlement companies offering performance based fees.

10. “Debt Settlement is the Best Way to Get Out of Debt.” – Debt settlement is not for everybody. It is one arrow in the quiver to pull when dealing with debt problems. Other common solutions include credit counseling, bankruptcy, making income or budget adjustments, debt consolidation loan, and working with the creditors directly. Debt settlement is most appropriate if you have cash on hand to pay 50% of the balance owed without raiding retirement accounts. While debt settlement may help you to avoid bankruptcy and is sold as a way to avoid bankruptcy, bankruptcy is not a process to be feared. In fact it is the only solution that gives you any legal rights and power over the creditors regarding debt problems.

For the right person in the right situation debt settlement can be the right solution. When it comes to getting out of debt the real skill comes in matching the appropriate solution to the situation and the goals of the individual. If you need some free help and advice on how to get out of debt just stop by GetOutOfDebt.org and my expert friends and I will be happy to lend a hand.

@GetOutOfDebtGuy

Trapped in a Debt Settlement Contract. What to Do? – Dean

Michael Bovee — Thu, 28 Apr 2011 20:44:00 +0000

From How to Get Out of Debt

“I contracted a debt settlement company now that it changed. I signed with them back in May of 2010, this was before the new law changed for settlement companies not to be able to charge up front for settlements.

The contract is crazy, and I was stupid to sign it. I was totally delusional from stress and depression when I did sign it. It was nothing like the verbal sales pitch I got.

Even when the company makes a settlement for me they don’t see it through in a timly manner. Four have been made and so far none have been paid even though there is mopney to pay them.

They come up with numerous excuses to put off even paying the ones that are settled out of my global account set up by myself and the company. again the money is avaliable to pay the accounts.

The only reason in my opinion to delay is to keep getting monthly draws from me to make sure I stay I the program. I am afraid to do the ” How to get out of the debt relief program and get a big refund,” Because I have over $13,000.00 invested in the deal already.

At the risk of feeling totally stupid, I will tell you that the contract says that they can terminate at any time withut recourse and so can I. the problem is i will loose everything in put in. Now that is stupid on my part. I feel trapped because I am settling the accounts myself, and sending them the paper work to do the draft, and they tell me not to do that because it messes up the flow. What flow? The account is settled so just pay it!!!! The money is there?

So again be careful of the way these settelments contracts work. Read them good and have somebody who is sane to read them with you. Document everything. Most of them so far as I can see are set up to keep you in the program and drain you for all the money they can get, and not give service to match. I don’t know what to do. I actually hate this company now when at first I believed they would help me.

Is there any recourse. Am I basically trapped, or can I get a rtefund or get a re-write of the contract to be funded by progression of payments and settlements being made? Can I even get a copy of the new contract that them MIGHT have to use now after the change came in october of 2010.

Dean”

The Answer:

Hi Dean,

Who is the company that you signed on with for debt settlement?

You refer to the 13k you have already invested into the process. Is that 13k total inclusive of advance fees you have been paying as well as what remains in your escrow account? Who is you escrow account set up through?

If you are sending letters of settlement to the debt settlement company and they are not being funded with available escrow funds, I believe you have legitimate concerns. A vague excuse like “upsetting the flow” does not hold water. The opposite is that by not accepting and funding fair offers your program “flows” to being sued for the unpaid debts.

You requesting a refund may/may not fall on deaf ears. It is certainly something you should explore, but I would encourage you to answer my questions in the comment section below before doing so. Your answers may provide details that would suggest a different course.

Additional questions:

Who are the creditors you could have settled with that you refer to?

What were the offered savings?

What amount do you currently have available in escrow?

Just post your answers in the comments below. I look forward to commenting more once I have more detail.

Michael

Michael Bovee is an experienced debt expert who helps answer questions on the GetOutOfDebt.org site. He specializes in helping people with debt settlement through education and assistance. He can be reached at the Consumer Recovery Network.

We Can’t Afford Both of Our Mortgages, What Should We Do? – AR

Steve Rhode — Thu, 07 Apr 2011 21:51:48 +0000

From How to Get Out of Debt

“Dear Steve,

We have a 1st & 2nd on our home. The 1st is for 124K with Citimortgage, the 2nd is a home equity line of credit with Bof A for 250k due in 2015. Our home is now worth approx 220k. My husband has was unemployed for the last 2 years. Recently back to work. We have business that took a big hit with the recession & may have to close the doors if things don’t turn around in the next few months. Both mortgages say they cannot do modifications, We have not been late on our mortgage payments & we are not behind. We did not qualify for a mod with either of the loans. At this point what would you suggest we do? We will not be able to refinance as the house is not worth what we owe. We are in our early 50′s & are concerned with bad credit & not being able to purchase another home.

What should we do? Stop paying mortgae payments & let them forclose?

Do you think B of A would forgive part of the line of credit so we can stay?

AR”

The Answer:

Dear AR,

I think the first stop should be for you to go talk to a local bankruptcy attorney. Through bankruptcy it may be possible to strip away the second mortgage above the value of the house and that might give you the break you need. You’d be able to stay in the house.

Don’t waste any time in talking to the attorney. You don’t have a lot of spare time to play with.

You can click here to find a local bankruptcy attorney, contact them, and then come back and post an update on what you learned in the comments below.

Big Hug!

@GetOutOfDebtGuy

If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

Authorized User on a Credit Card – Chris

Steve Rhode — Mon, 25 Oct 2010 03:55:14 +0000

From How to Get Out of Debt

My sister added me as an “authorized user” on her credit card. I used the credit card to purchase a used vehicle and have been paying the monthly payments on her card for the past year or so. Now she has filed bankruptcy. Her bankruptcy attorney told her that even though I am an “authorized user” on the card, I am still liable for those charges and that the credit card company will come after me for the outstanding balance.

I’m not a co-signer on her credit card but rather an “authorized user”. Am I legally responsible for the debt? And how does this affect my credit?

Chris

Click here to help people to get out of debt.

This reader question was submitted for site members to answer.

This is your chance to be a hero and help out this person by providing your feedback and answer to the question. Post your response in the comments section below.

If you have a credit or debt question you’d like to ask just use the online form.

@GetOutOfDebtGuy

I Am Filing Bankruptcy But My Attorney is Waiting For Stuff From Me. – Brent

Steve Rhode — Fri, 22 Oct 2010 18:34:30 +0000

From How to Get Out of Debt

Brent

“Dear Steve,

I consulted an attorney 2 months ago about bankruptcy and retained them to proceed with the process. I have only 2 more item to give the attorny before they proceed. I have fallen behind on my car payment and they repoed it yesterday.

I am wanting and needing the car back very bad, as I am fixing to move from my address and start college in the fall. I fell on bad times about 2 years ago when I lost my job and I am now having to go back to school to get another degree. How can I negotiate to get my car back? And shouldn’t my bankruptcy attorney help me in this matter?

How to get my Car back from repossesion?

Brent”

The Answer:

Dear Brent,

You sound as if your bankruptcy attorney has a duty to fix this mess for you about the car, they don’t. This could have been avoided if you had filed two months ago before the car was repossessed and then the bankruptcy attorney would have assisted you to keep the car as long as you were making the regular payments.

You’ve got two choices today, you can either come to an agreement with the car lender to get your car back, and when you hand your attorney the last two items they need, tell them about the car issue.

Once you make the decision that bankruptcy is the right solution, don’t drag your feet. If you do, stuff like this will happen.

Big Hug!

@GetOutOfDebtGuy

Scott Writes Me and Asks For Help – “We Are Behind And Overwhelmed”

Steve Rhode — Mon, 18 Oct 2010 20:31:27 +0000

From How to Get Out of Debt

Scott wrote to me at GetOutOfDebt.org and asked me the following question. If you have a question you can visit GetOutOfDebt.org and ask for my free help also.

“Dear Steve,

We have too many bills and not enough money. We owe $30,000 in debt besides my mortgage. We are behind about 1-2 months are most bills and are overwhelmed. We have only owned our house for 4 months and cannot do a second mortgage.

Please suggest a solution.”

Scott,

First off, I completely understand and remember what it was like living through those days. There is nothing fun about it. The motto I adopted at that time was “At least I’m not on fire.” The situation might look bad but trust me, it can always be worse.

I remember the day I had two telephone appointments to help people. The first person was 8 months pregnant, living in her car and getting beaten by her boyfriend. She worked at a top 500 company as well. I hung up the phone with her and the next appointment just a few minutes later was from a woman that wanted to beat her husband because he was unable to provide for her and buy Martha Stewart paint to redo the house. It is all relative.

Too many bills and not enough money is a guaranteed recipe for something to change in your life. It is an unfortunate lesson that just because someone will lend to you does in no way mean that you can actually afford it. Take a look at the bank lending mess that is demolishing Wall Street. It’s all because of stupid lending.

People are getting in over their heads every single day because they feel that the bank or lender would not give them credit if it wasn’t manageable for them to afford it.

What saddens me most about your question is that you’ve only been in the new house for four months and you are already running into tough times. Most commonly I see people in situations like you who just qualify, move in and then a lot of expenses land on the credit cards. Once those bills go up, they can be the tipping point into nothing good.

Since you are already behind on your bills, your credit report and credit score are already damaged. That’s a fact so let’s put that aside for now. You credit can be repaired latter once this situation is properly resolved.

You have three possible course of action. I’m listing these in no particular order.

Debt Management – You could go into a debt management program and see if your credit card monthly payments could be reduced enough to give you some breathing room. But you need to know that a debt management program is not binding and your creditors could change or eliminate and concessions they might give you at any point moving forward. A debt management program might be a good short term solution if you want to try that first.
Bankruptcy – Your debts are overwhelming and the good news is that you probably have little equity in your home. If legally eliminating your credit card debt would be enough to make a difference in your financial life and allow you to better make it from month to month then I urge you to speak to a bankruptcy attorney and have a free bankruptcy review about your situation. Before you decide if bankruptcy is right fo you, talk to the bankruptcy lawyer and get all the facts.
Adjust Lifestyle and Budget – As ironic as this might sound, the easiest thing to do is often the most difficult for people to execute, futzing with the budget. If we just look at your situation from a mathematical point of view, it can be repaired by reducing expenses, increasing income or a combination of both. Every dollar you do not spend remains in your pocket and can be used for debt reduction and paying bills. If you want to some help to adjust your budget, take a look at the Mvelopes website.

Scott, the bottom line is that none of these are perfect solutions, but they are possible paths to follow to get your financial life under control so you can live within your income again.

Please let us all know how things turn out for you. We care and want to know.

Big Hug!

@GetOutOfDebtGuy

Collectors Called Constantly Scared of Foreclosure, What Can I Do? – Roy

Mike Killian — Tue, 28 Sep 2010 17:06:47 +0000

From How to Get Out of Debt

“Dear Steve,

I have recently taken over management of finances and bill paying from my wife. I always knew we had some lingering credit card debt that had been following us since college, but I had no idea what the real situation was.

At this point we are $51,000 in credit card debt. We have a mortgage, a HELOC, and a car payment, and have been keeping up with the payments on those. We also owe $9900 to Discover Card. We negotiated with them and they are no longer charging interest as long as we continue to pay it off at $450 a month.

I received a letter from the county court today notifying me that I am being sued by CITI bank for one of the cards that has a balance of $17k. My credit score is already totally shot, so I am not really worried about that at this point, but I am worried that this is going to explode in my face and I’ll end up losing everything.

I have 2 kids, and losing the house would devestate them. I am worried that I could end up getting forclosed because the credit card companies will get access to take money out of my bank account or paycheck, and then I won’t be able to pay the mortgage. The collections people call constantly, but want all the monry now, and don’t want to talk about payment plans.

What can I possibly do to get out of this disaster?

Roy”

I asked my friend Mike Killian to answer your question for you. I wanted to make sure you got an answer as quickly as possible as I’m a bit backed up at the moment. I’ll be watching the comments on this question and be around to help if you need me.

Big Hug!

@GetOutOfDebtGuy

Dear Roy,

I don’t think there is a lot of question here. You and your wife need to make an appointment with a bankruptcy attorney immediately and at least explore options. You might preface this action by contacting a Debt Management company and seeing if a Debt Management Program (DMP) is workable but it is possible it may be too late for that option. But trying is clearly worth an attempt

But I am more inclined to think Chapter 13 may be the wisest choice although that is a call for you and your bankruptcy attorney to make. In many ways a Chapter 13 is sort of a court order debt management program where a repayment plan is worked out. You usually maintain your home and car and agree to pay every one back. It is possible some of the debts are forgiven but the point is, it is all court ordered and you are offered a fresh start and some clean breathing air.

You might want to take a look at Steve Rhode’s article, Is Bankruptcy Right For Me?

Sincerely,

Mike

If you have a credit or debt question you’d like to ask just use the online form. We are happy to help you totally for free.

We Handed Our House Back in Bankruptcy But The Chase Bank Refused to Accept It. – Ron

Steve Rhode — Mon, 20 Sep 2010 22:31:32 +0000

From How to Get Out of Debt

“Dear Steve,

Wife lost her job 2 years ago – since then we liquidated savings, sold a cabin, got rid of both vehicles, searched high and low for a job for my wife. 18 months ago we applied for a loan modification as our monthly loan amount increased due to escrow increases.

Then 6 months after trying to get the modification, My employment closed the local office and told me I can stay, but need to relocate 4 states away.

Notified Chase (mortgage holder), who still was dragging their heals on the loan modification. They said we had to do a short sale – we spent about $3000 (credit cards) fixing the house up – driveway, new paint inside & out, fixing everything, and had the Realtor push it hard knowing our situation – 2 months went by, nothing, meanwhile my company was putting me up in a hotel to work out of the new location but giving me pressure to relocate.

I notified the bank, and they said they understood, I told them it would be impossible to make payments on the house and an apartment as well, they understood and said since we have the house up for a short sale, not to worry.

Well – they hit our credit report up for ‘seriously delinquent’ payments, when we finally got a buyer – Chase refused them, increasing the amount the buyer would have to pay, the buyer countered – increasing his offer by $20K. From what I understand, the negotiator told the Realtor they were going to foreclose instead.

By this time (April of 2010) we were so deep in financial trouble – because of the credit report – our credit cards were dropping us or reducing the credit limit and increasing the monthly amount owed, …. We were boxed into a corner and sought help – every lawyer we turned to said you need to file for Chapter 7 – you have no alternative.

We did – and surrendered the house, Chase filed for a release from Stay, the bankruptcy was discharged in August (1st week). Now we are getting escrow bills, tax bills, sewage bills, water bills, and we have not even seen the property or have keys to it since January of this year – the keys were turned over to the Realtor and Chase ‘fired’ our Realtor, so we don’t even know who has the keys – we are literally 12 hours away and cannot get up there, neighbors complain about the grass and condition, insurance company would only insure it for 90 days while vacant, so it now has no insurance.

Now as of July, Chase has sold our bankruptcy discharged loan to a debt collector that is telling us they understand it is discharged, but we have to maintain insurance and pay these escrowed amounts, taxes, and keep utilities on. One month prior to selling our loan, Chase changed from foreclosing and was working with us on a DIL (we had asked for that back in November of last yearwhen we knew we had to relocate). The new company says they are willing to entertain a DIL but we need to fill out reams of paperwork, give a hardship letter, etc.

Our budget is very tight and my time very limited, it will take me weeks to fill everything out.

Is there anyway to speed up a foreclosure or DIL, so we can get on with our life? Why, when the house was surrendered in bankruptcy are we responsible for all the supporting financial issues (which we could not afford prior to bankruptcy, let alone now)? What should we do now?

Ron”

The Answer:

Dear Ron,

Did Chase get the stay lifted after they applied for it?

You really should discuss this matter with the bankruptcy attorney that handled your situation. They will have more information about your specific situation and can advise you better. After you find out more from them, come back and post an update in the comments.

Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.

Big Hug!

@GetOutOfDebtGuy

If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

44 Lessons in Life for Debtors

Steve Rhode — Mon, 20 Sep 2010 14:00:49 +0000

From How to Get Out of Debt

Here is an excellent video that was sent to me by a friend which contains 44 perfect life lessons for debtors.

The video helps to put what really matter into perspective and to refocus us to realize that while debt is painful and immediate there are still joys and opportunities around for us to still find peace and happiness in. We just need to see them.

The tip that really struck me was “Your children get only one childhood.” It’s just so true that as parents we get so wrapped up in the immediate pain of debt that we overlook the impact that our tunnel vision is having on the kids. We can’t let our issues with out debt rob our kids of the childhood they deserve to have. That doesn’t mean a childhood filled with things, just a childhood filled with us.

I’m not sure who made the original video but I added a new soundtrack for you to enjoy.

@GetOutOfDebtGuy

I Can’t Figure Out My Chapter 13 Bankruptcy Payments – Helpless

Steve Rhode — Thu, 09 Sep 2010 22:12:37 +0000

From How to Get Out of Debt

Helpless

“Dear Steve,

Brought 3 cars in 2 weeks in 2007. married truck driver. Job closed 1 year 2 months ago. New job less than half the income. 5 kids. parents took over 1 of the cars and the payment. bad credit.

My wife and I went to a lawyer to file chapter 13. Altogether we pay about $1300 in car payments a month. In the plan we will pay $1100 a month. The interest rate will go down to 4.7 % for 5 years.

I only have about 2 or 3 years left on my auto loans. How could this be right that is the only secured debt i owe? It seams to be more money than my high interest loans. Do you have any help to offer me please I don’t know what to do!

Helpless”

The Answer:

Dear Helpless,

Honestly, I don’t know. Let’s see if we can’t get some bankruptcy attorneys to comment on this situation. A good place to start is to not be shy about asking your bankruptcy attorney for an explanation.

@GetOutOfDebtGuy

Clinton Wants to Know “Am I Doing The Right Thing By Repaying My Debt?”

Steve Rhode — Wed, 08 Sep 2010 22:31:05 +0000

From How to Get Out of Debt

Clinton

“Dear Steve,

I am receiving social security disability insurance (SSDI) and got abandoned with a mortgage back in 2007 that went into foreclosure. I know I can’t get the foreclosure removed but I have been diligently trying to pay off all of my outstanding debt, charge-offs and the ones that report a zero balance but the collection agencies keep contacting me about them by mail. I am scheduled to be done paying all of my debt off in November 2010.

Is it true that my credit score will suffer even more by me paying back all of my debt? Will this prevent me from obtaining another mortgage in the future? How do you still get punished for doing the right thing?

Am I doing the right thing by paying back all of my debts?

Clinton”

The Answer:

Dear Clinton,

Your question is a great example of the confusing crossroads that many people find themselves at when they have financial problems. Your situation is a mixture of a moral dilemma and a practical approach.

From a moral point of view, many would agree that you are doing the absolute right thing by honoring your debts. However, if you pursue this path you should do it because it fulfills an emotional or spiritual need and not one where you hope to be praised or rewarded by your creditors.

It is absolutely true that this course of action can result in negative information being reported about you for longer on your credit report, especially as accounts are passed around from collection agency to collection agency. I urge you to get a copy of this consolidated credit report to see what is being reported about you on all three credit reports. This special consolidated report will show you how to boost your credit score by taking specific actions.

While your delinquent accounts should not be reported for longer than 7 years on your credit report the clock gets a bit screwed up when a collection agency takes on a debt and then reports it again on your credit report. It can look like a new debt and start the clock all over again.

It concerns me that you mention you are getting collection activity on accounts that you thought were a zero balance. I’m hearing from more people these days that they are being chased for debts they either paid off or no longer owe. The sad reality is that usually these debts are so small that it is cheaper to pay the collection company the small balance than it is to try to fight them. That does not make the practice right or just, it just happens.

I’m also concerned by the old mortgage lingering over your head. If you were a joint account holder on that mortgage than you could be in for an awfully big default bill from the mortgage company, even after you finished repaying your small debts in 2010.

I’m not sure how long you can or will be able to skim money from your SSDI income to devote towards debt repayment. A key question to ask yourself is what kind of situation are you left in a day to day basis by using some of your disability income to repay your debt with.

If you are unable to save money, you are living in an unsafe area, you are not able to pay for adequate utilities or you are not eating properly because you can’t afford it, then I think we need to take a good hard look at the path you are on.

While you have a burning desire to repay your debt, you also have a responsibility to be able to properly and safely care for yourself on the income that you have. That means, that even though you may want to repay your debts and do what you perceive to be the ‘right thing’, it may actually not be the best thing for you to do to do the ‘right thing’ for your future.

It is very possible that you can get these small debts paid off by 2010 only to be faced with the larger mortgage deficiency debt. If that’s the case then all the hard work you put in to repaying your smaller debts may have been for nothing since the mortgage debt may be larger than you’ll ever be able to repay on your disability income.

If your goal is to be able to get another mortgage in the future, you could be better off by filing bankruptcy now, discharging all of the debt, saving any extra money each month towards a down payment on a home in a couple of years and starting over.

It is more likely that you will be able to get a new mortgage as long as you don’t have an active, delinquent, and old foreclosure debt still after you.

So you asked if you are doing the right thing, the answer is ‘yes’ if what you want to do is morally honor your debts but probably ‘no’ if what you want to do is be able to get a new mortgage in the foreseeable future or start working to improve your credit report and credit score as soon as possible.

Big Hug!

@GetOutOfDebtGuy

The Answer:

I Am Too Trusting and I Help People Out With Money But Don’t Get it Back and Then I End Up Missing Payments – Natasha

Amanda Miller — Mon, 06 Sep 2010 19:11:01 +0000

From How to Get Out of Debt

“Dear Steve,

I am 28 and i live with my parents, i have had problems with debts for a few years. I am too trusting and i help people out with money but dont get it back and then i end up missing payments.

How can i get out of debt, i have tried everything but nothing works, i sell stuff on ebay to help, ive stop socializing with my mates as i cant afford to go out. I cant afford the payments i promised to make Please help getting very desperate?

Natasha”

The Answer:

Dear Natasha,

Amanda Miller here today.

It certainly sounds like you’re going through a difficult time and find yourself stuck between helping others and helping yourself. You are not alone. It is a great trait to want to help others and you should never let go of a kind heart. Although, you do need to find a common ground to where you can still help and emotionally support others and yourself as well.

Do you find yourself helping others and when you are stuck in a rut you find yourself resenting those very people you helped? If so, you may be co-dependent and have such a strong urge to help others you put your needs as a last priority.

It’s time to make that last priority your first now and to start looking out for number one; that’s you.

Ralph Waldo Emerson once said “we must be our own before we can be another’s“. Remember this when wanting to offer help when you cannot afford to. Financially and emotionally speaking, you need to help yourself before you can help another.

In regards to the debt if you just can’t seem to make ends meet and are missing payments then looking at bankruptcy may be a strong option for you. A fresh start, if you will.

From the looks of your e-mail address it appears you’re in the UK. I recommend contacting Jon at bankruptcy.org.uk for a deeper look into your situation.

Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.

I wish you the best of luck!

Amanda

If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

Am I Able to Settle My Debts With My Credit Card Companies Even Though I’m Current? – Kaye

Steve Rhode — Fri, 27 Aug 2010 18:07:02 +0000

From How to Get Out of Debt

Kaye

“Dear Steve,

I have $25,000 in credit card debt (that I am current on and make the minimum payments each month). Should I file bankruptcy? Am I able to “settle” with any of these creditors to pay off a lump sum amount that is less than what I owe (if I am current on all accounts)?

I am current on all of my accounts and still have “ok” credit right now. Is it best to try to pay these off in full to protect my credit, or go ahead with bankruptcy? I would like to be able to buy a home in the next few years as well as go to graduate school, in which I may need to have credit available to take out additional student loans. Please help! Thanks!

Kaye”

The Answer:

Dear Kaye,

The reality is that many debt settlement companies are criticized for telling consumers that they need to fall behind on their debts in order to get better settlements. And doing that will hurt your credit score, credit report and wind you up in collections.

But the reality is that creditors don’t care to even give you the time of day as long as you are current on your debts. As you fall further and further past due you will be offered better settlement deals. I assume it is that once you are past due you have demonstrated the risk involved in your debt and that it might be better for the creditor to consider something rather than nothing.

If you do decide to go down the debt settlement route and you have more than one creditor, please make sure that you get the settlement offers from all creditors in hand before you pay any of them. It does no good to settle with two if the third won’t play nice and decides to sue you.

I would guesstimate that you are going to need $13,000-$17,000 cash on hand to settle these debts yourself. If you use an outside debt settlement company you will wind up paying up to 15% of the total debt or a flat fee of up to $5,000.

If protecting your credit is your number one goal than paying the debts off in full will give you the best credit result.

Big Hug!

@GetOutOfDebtGuy

How Do You Value Your Quality of Life? Debt Solutions to Fix The Future

Amanda Miller — Mon, 02 Aug 2010 17:18:24 +0000

From How to Get Out of Debt

Photo Credit: Cayusa

Debt doesn’t just affect the people actually in debt, it often affects the ones around them, near and dear to them. I know this from first hand experience as someone who has loved and lived with someone so deep in debt they could not see a way out. Not only is the emotional toll hard on the debtor but also on those close to them, those trying to help and support the debtor through their hard time as best they know how. But the hardest thing is when the debtor doesn’t have the motivation to take a hold of the situation themselves and they just let it carry on as is. It’s hard to try and help and support when you feel like your efforts are being wasted.

The biggest mistake I ever made when trying to help someone in debt was helping them with payments when money got tight. I thought that if I could just help them get through that things would turn around for them and everything would be alright. Until I reached the point where I was not only trying to help emotionally but financially as well. I was an enabler. All I wanted to do was help but the way I was “helping” was actually causing more damage than good because the debtor never fully understood the severity of their situation with me forking over money. I eventually had to step back and let them conquer their debt on their own.

This is for everyone who has ever loved and supported a person in debt and for those who are in debt that are not taking action or don’t know what action to take.

The first step when you feel like things are getting out of control is to take control of the situation yourself, don’t let it spiral out of hand, and seek help. You’re already looking and seeking for help if you’ve found this website, GetOutOfDebt.org, a great place for information and resources to get out of debt. You can even submit a question with your personal situation through this website. If you don’t ask for help you cannot expect to receive it.

It is important to remember that those in debt often experience the typical emotional stages of debt, similar to grief, being: denial, anger, bargaining, depression, and acceptance.

Let me tell you about my friend, Michael. Michael is a near and dear friend to me but is in over his head in debt and can’t seem to find a way out. I full heartedly believe that the restriction of the quality of life that Michael feels from his debt has sent him into a depression and he is stuck in a situation he’s not quite sure how to get out of. Debt can do that to people. It’s important to remember that it’s a normal emotion during stressful times and to seek help both financially and emotionally.

Michael’s mother had him start building his credit the moment he turned 18 but unfortunately Michael was never properly taught just how to use credit which has lead him into this tight spot he is faced with now.

As a rule of thumb, when using credit you should try to never go over 1/3 of the credit limit. Once this amount is crossed it may begin to hurt your credit report. Unfortunately for Michael, the majority of his credit cards are close to their limit if not maxed out already.

Michael’s total debt that he currently owes is $25,000. Breaking that down, the majority of his debt is secured debt of roughly $17,000 and unsecured debt of around $8,000.

Michael works retail which means he works his fingers to the bone, never has a certain schedule and doesn’t get paid much. After taxes Michael brings home on average $1,000 a month.

His secured debt is his car originally purchased for $24,540 which is a joint account with his mother. The interest rate is somewhere around 11.5% and he has agreed to a 74 month term, ending in 2013, with payments of $465 a month.

His unsecured debts are around $8,000, not a relatively high amount of unsecured debt in the debt world but he has minimum payments due each month just a few dollars shy of $300.

All of this being said, with the $1,000 Michael brings home each month he is liable for $765 in payments towards his total debt, leaving just $235 at the end of each month for other expenses (car insurance, gas, food, living expenses, etc). Needless to say, Michael is in a tight spot and does not have enough money to pay his debts and still make necessary payments towards living expenses.

Other people, like I myself once did, are helping to support Michael financially and he is not paying all of his debt himself. This puts others in a tight spot who are tight with their budgets and may not have the extra money to put forth towards his debts themselves but are people that care for him and don’t want to see him suffer. This is only hurting Michael because without him facing his entire amount of debt he will not have the motivation to fix it.

Earlier I mentioned the five stages of debt.

The first being denial. That’s right, it’s not just a river in Egypt. Michael used to have the mentality that everything was fine and that adding on another credit card wouldn’t hurt him; after all with a monthly minimum payment only being an extra $15 to $20 a month for a $400 credit limit it was easy to tack on cards. It was like there was nothing wrong and adding more credit was alright as long as he could afford the minimum payments each month. Or when he would make a monthly payment on a card and bring the total down from the credit limit by $20 or so he would then think it was alright to use the card since there was now $20 on it; this was often used on groceries or household items. This is actually quite common for people unable to support themselves without credit. If you cannot survive each month’s bare necessities without the use of credit you should seek help immediately.

Not too long ago I saw the first sign of anger in Michael. After I had stopped contributing to his finances and he was shorted on his paycheck he started to panic. He got real angry that he didn’t have the money to live on or to pay all of his debts.

Recently, Michael has entered into the stage of bargaining. He’s trying to find the easiest solution for his debt, but doesn’t want to take it as far as bankruptcy. He’s started to look into solutions that he is not entirely educated on and wanting to jump on board. He had mentioned borrowing from his 401(k), which I will discuss more in detail further down, but given that he only has $1,500 in his account he would only be able to borrow $750 to put towards his debts. He was ready to jump on board without knowing or understanding the risks at hand to pay off just 9% of his total debt.

I strongly believe that Michael has always experienced depression with his debt but lately it has gotten worse. I can hear it and feel it in Michael’s voice when we talk. He wants to pay back his debt but just can’t afford to do so. He is still young and has many hopes and dreams for his life but feels restricted by his debt. He has had to move back home with his parents for the time being because the debt is so high he cannot afford to be on his own. He wants a way out but is not sure which way to turn.

Acceptance is the last and final stage I am waiting for Michael to reach. I hope that once he understands the full extent of his debt and all of his options he will be able to choose a path and embark on a route to becoming debt free. For anyone who is trying to support a person in debt emotionally it is only when they reach this stage that they will truly make a commitment to change their way of life, to realize the mess they’re in and to start to change it.

Being that 68% of Michael’s debt is secured it will be tricky for him to find options that will help with “only” $8,000 unsecured debt. I put only in quotations because in the debt world this is seen as a relatively low amount of debt, but for Michael, it is a real burden on his shoulders.

There are a lot of people out there with under $10,000 in debt that may feel like their drowning and not sure which route to take because a lot of companies have a $10,000 minimum before they help you. It doesn’t matter if you have $100,000 or $4,000 worth of debt, the stress of debt can take it’s toll and leave you with feelings of despair and loneliness.

Michael like many other debtors is optimistic. Michael thinks if his luck could just turn everything will be alright. He is convinced that if he could just get a raise at work, receive generous holiday cash gifts from friends and family or use his tax return money each year to pay back the debt that everything would be alright. Unfortunately none of those things are certainties and Michael is banking on hope and as anyone in debt knows, hope does not pay the bills.

Michael, like others is not looking at reality – debt happens – often when you least expect it. If something medically happens, a car accident or the loss of a job, Michael would be in a very tight spot given that he has nothing to pay towards anything with his current situation. He is one illness away from being delinquent on accounts and not being able to catch up.

For those, like Michael that may not have over $10,000 in unsecured debt, do not own a house or have equity and just cannot not seem to make ends meet. Here are some options at hand….

1. Nothing

I learned in the very early days of working in finance that doing nothing with your debt is always an option. You can choose to ignore and hide from your debt however this option will usually end in more stress and heartache. Hiding from your debt does not make it disappear and usually over time it will catch up with you. This is not recommended, but it is a choice you’d have to make.

2. Current Route of Minimum Payments

With the example of Michael, if he continues at his current rate of living, paying $765 in payments each month and somehow finding a way to live off of $235 a month without the use of credit it will take him roughly 15 years to pay off his unsecured debt. With an average interest rate of 20% and only paying about 3.7% of the debt each month he will end up paying a total of $14,365 towards the original $8,000 debt borrowed. Yep, $6,400 will be paid strictly in interest.

For Get Out of Debt Calculators click here.

As for the car, he still has 3 years left on his term, after then “only” leaving 12 more years until he’s free of his entire debt based on only making minimum payments.

The biggest problem with this is that Michael does not have the money to meet all of his expenses as it is, living this way for the next 15 years will not be easy and will most likely lead to worsened depression.

3. 401(k) Loan

There are a lot of risks when taking a 401(k) loan. It may sound fantastic at first, being that you owe yourself and not a financial institution, there are usually no taxes and best of all for those with bad credit, no credit check! What a lot of people do not think about though are to cons to this route. Usually you can only borrow up to half of the amount in your 401(k) plan. If this amount is less than your total debt you are really only engaging in a short term solution to lower minimum monthly payments than actually fixing your debt. You should also know that while in a 401(k) loan you have to continue to work for the company you are currently with when you take out the loan. Should you be fired or decide to leave the entire amount of the loan will be due immediately. Most people think that they do not plan on leaving the company and do not foresee anything happening to result in them being fired so they enter into a loan like this. But life happens and the future is uncertain. It is not advised to enter into a plan where there are such uncertainties that you have no control over.

If a catastrophic event occurs, like an unforeseen accident or injury on the job, and you cannot work or make payments the loan is treated by the IRS as a withdrawal and appropriate taxes and penalties will be due. If you are offered a bigger and better opportunity outside of your company and you want to quit, you will have to turn down the opportunity or owe the entire amount of the loan immediately.

While 401(k)s can transfer between jobs, the loans you take out on them CAN NOT.

You should only take out a loan on your 401(k) if you are certain that you will not leave or be fired from your job (something you cannot entirely be certain about), you live in a bubble and have no risk of being injured in life or if you have the amount to pay back the debt in full readily available, in which case you wouldn’t need the loan.

4. Unsecured Debt Consolidation Loan

The number one thing to realize with a consolidation loan is that they are for people in good credit standing and you have to have a good to excellent credit score to qualify. Anything under a score of 660 and you will most likely not qualify. Even with a score of 660 it will still be difficult to find companies to help you. In Michael’s case his credit score is 642; the chances of him qualifying with any company are slim to none.

For argument’s sake, if he could qualify for one of these loans, based on a scenario of 11% interest on the loan and a term of 60 months (5 years) he would only be paying $174 a month towards the unsecured debts. Which sounds great in comparison with the $300 he’s paying now but based on his salary he would still only have $361 at the end of the month after all of his payments, still not an amount for someone to live on.

If you feel you can qualify for a consolidation loan and are interested in this route a great company and website to visit is LendingClub.com.

5. Debt Management Plan

A company that offers a Debt Management Plan (DMP) typically likes for the amount of unsecured debt to be above $10,000. I’m not saying that there are not companies out there that won’t take a plan for a debt under $10,000 but you would need to do some research and make sure it’s a reputable company, like this credit counseling group. The one thing that a lot of people don’t know about DMPs are that most of them are run based on the creditors terms and conditions. In a lot of instances the companies offering the plans are paid by the creditors. Being that DMP companies usually work on behalf of the creditors you will most likely see a drop in your interest rate but you will still need to make monthly minimum payments at around the same amount you are paying now, if not a little higher.

While it is enticing for a lower interest rate it is important to remember that if you have an insufficient income to cover your monthly payments already it will not be easier in a DMP. Also, all of your credit cards would need to be closed and with no new credit being shown on your credit report you score will likely suffer because of this, leaving you with a lower credit score and the need to rebuild your credit in the future.

6. Debt Settlement

Don’t get me started on debt settlement. It’s such a bad idea. You HAVE to go deliquent in your accounts with this route, and you either have to offer a lot of money up front or still make those monthly payments you can’t afford to live and pay on, you will most likely go to collections and there is a strong possibility you will be sued.

I took the liberty of composing a little video about the truths of debt settlement that many companies will not tell you up front.

7. Bankruptcy

Bankruptcy is always an option but is not something to be taken lightly. Bankruptcy is serious. However, bankruptcy should also be considered when you’re in over your head and cannot afford the payments on your debt as well as money to be able to live on.

Bankruptcy is seen as a fresh start because it will eliminate secured and unsecured debt, wiping the slate clean and giving you a new, fresh start.

Granted, your credit will be hit with bankruptcy and like any other negative mark, like deliquent accounts, and it will take 7 – 10 years to fall off depending on which chapter of bankruptcy you file. With cases like Michael and his income bracket he can file for Chapter 7 bankruptcy and start rebuilding his credit usually after 3 months of filing and the mark will fall off of his credit in 10 years. For those filing for Chapter 13 the bankruptcy will fall off after 7 years.

Just like anyone without credit it will not be easy to just apply for unsecured credit and receive a credit card once out of bankruptcy, you will most likely need to start with a secured credit card and show that you can make purchases and pay off the balances appropriately.

For those that file or have filed for bankruptcy, if in the future you are asked at any point (even after the 7 – 10 year fall off point on your credit report) if you have filed for bankruptcy in your life when applying for a loan, mortgage, credit card, etc you will have to declare that you have. However, after getting first hand knowledge from someone that has filed for bankruptcy it is not a huge problem if you have to declare it as long as you rebuild your credit into good standing at the time of application.

With bankruptcy it is the quickest and easiest way you can start living life without debt constraints and not have a good portion of your life lost to paying debt you cannot afford.

In Michael’s case, the car is his biggest concern. Since it is joint with his mother if he files for bankruptcy she will still be liable for the payments on the car. Unfortunately this is a risk that people take when they co-sign for a vehicle and something they should keep in mind when doing so. You should never co-sign for anything unless you are prepared to make the payments if the other co-signer cannot. Given that the car is in both his mother’s and his name he can include the car in the bankruptcy to relinquish his ownership and obligations to the car. He has the option to either hand the keys back and voluntarily repossess the car or let his mother take over the payments and keep the car. If he hands the keys back to the finance company and they auction the car off his mother will still be liable for the large remaining balance still owed on the loan after the car is sold at an auction. Looking back to three years ago when his mother transferred the car to him and co-signed on his car loan he should not have agreed to take the car with payments that high based on his income. However, hindsight is always 20/20.

Once you commit to the decision of bankruptcy you can stop making your payments towards your debts and start saving for bankruptcy. Granted, you face the risk of repossession of your car if you have one and plan to include it in your bankruptcy but that is a risk you might have to take in order to start to fix your future. If you can save what you’ve been paying each month towards your debt for a couple of months you can probably save up enough to buy a little beater car to get you to and from places. It may not be the flashiest car but flashiness if usually not affordable at this time. Also, it is important to remember that you will need a bankruptcy attorney and bankruptcy attorney’s have fees that are usually around $1,500 for Chapter 7 and $2,500 for Chapter 13. You can either save up for this amount before filing when you stop paying your creditors or some attorneys have the option to set up a monthly payment schedule to pay them back for their services. Granted, these months may not be easy and you will most likely be contacted by creditors looking for payments but it is important to remember that this pain is only temporary. Compared to the pain of debt still owed that you cannot afford to pay or have a life with for years to come if you choose to do nothing is far less than the agony felt in this short period of time. When you can start fresh with your life in a relatively short amount of time I think the pain might start to wear off once you can get back on track.

Usually you can schedule an appointment for a free consultation with a bankruptcy attorney to discuss your options.

It’s important to remember that time in life is precious. We are not given an infinite amount of time in this life and I truly believe that more people would enjoy their lives living the way they want to than being constrained by their debt. If you’ve made a mistake of getting in over your head with debt it’s important to remember that this happens, you are not alone, you can fix this and learn from your mistake. As always, there’s no use wasting a perfectly good mistake.

While the numbers are an important factor, a lot of people forget about the emotional stress and strain brought on by many years of owing debt and the restraint on life.

I do not believe that bankruptcy is an easy out or should be taken lightly. But I do believe that when a person is strapped to make ends meet, like Michael, and does not have anything more than $235 a month to live on, something needs to be done and quick. The emotional toll I’ve seen this take on Michael breaks my heart. I feel that he is so concerned with fixing the past that he’s forgetting about fixing his future. Right now he cannot afford to live on his own without his parent’s help, he cannot afford a vacation and often cannot afford to go out with friends without the financial help of other people. If Michael ever wanted to start a family, he would not be able to – he could not support one with this debt still around. It is not the life he imagined and I can say for certain it is not the life he desires.

Michael, like so many others out there, has his head in the sand and needs to face his debt head on to start to make a better and brighter future by finding an option that works for him to become debt free.

Many write bankruptcy off because they are worried about hurting their credit. But you have to remember, if you’re already in over your head in debt and cannot afford your payments not to mention if most of your cards are almost to their limit, your credit is most likely already not good and you cannot start to rebuild it until you tackle the debt at hand.

If you feel your situation is similar to the likes of Michael, seek help. For yourself and for those around you trying to help and support you as best they can. As I’ve learned, for those desperate to help a loved one in debt it is important to not enable their debt habit by financing their payments for them, this only demoralizes how the debtor views the debt if someone is taking care of it for them. The one thing I learned and the one piece of advice I can pass on from first hand experience is to not be an enabler, like I was. It is difficult because a loved one’s debt will not only cause them stress but you stress as well since no one likes to see a loved one in pain. It is important to remember that the best support you can give is emotional support; realize you cannot control the situation or fix it yourself, only the debtor can do this and the best thing to do is to be there for them if they need to talk. That being said, the best thing a debtor can do is to get educated about their options and take control of the situation.

Ask yourself this, how much stress, lost ooprptunities and lessened quality of life are you will to endure with debt still lurking around? Is it really worth it to live this way for years to come and give up your time, quality of life and opportunities? Is it more important to you to fix your past or fix your future?

You are in control of your own destiny. You should always choose whichever option and route in life you are comfortable with and that you desire.

And as always to those in debt: Stay educated. Stay strong. Seek help.

Trudy is Worried About Getting Married Before Her Bankruptcy is Completed

Steve Rhode — Mon, 19 Jul 2010 16:34:28 +0000

From How to Get Out of Debt

Trudy

“Dear Steve,

I filed for bankruptcy in November. My court date with bankruptcy court is in January of 2009. My fiance and I wanted to get married in December but I am afraid to marry him before the court date. I don’t want to take the stand and state my new last name with fear this will affect his income in some way.

Trudy”

The Answer:

Dear Trudy,

Just to make double sure I asked a bankruptcy lawyer friend of mine. Here is what they said.

“You did not say if you had filed a chapter 7 or chapter 13 bankruptcy. I’m guessing that you filed chapter 7, and if so, then have no fear! Your bankruptcy filing will never impact your husband’s credit report or score, it will only affect your own credit report and score. The only exception would be if the two of you had any joint debts, which I’m guessing you did not.

As to what name you announce, you take your husband’s name by useage, not by law. Simply because you are married does not mean you cannot answer to your maiden name or continue to use your maiden name, that is your choice.

If you filed a chapter 13 case, then the answer becomes more complicated. Your new husband’s credit still will not be affected, but his income and financial support of the household may become pertinent. If this is the case, you should talk to your lawyer about your situation and any possible ramifications. Otherwise, don’t worry, enjoy your wedding and best wishes for a fresh start and a bright financial future!”

I hope that helps to eliminate your fear and go ahead with your wedding. Congratulations of the upcoming nuptials.

Big Hug!

@GetOutOfDebtGuy

The Answer:

What Do You Do When Your Creditors and Credit Counselors Say There Isn’t Anything They Can Do to Help? – Elle

Steve Rhode — Wed, 14 Jul 2010 17:29:24 +0000

From How to Get Out of Debt

Elle

“Dear Steve,

What do you do when the credit card company and the credit counselors say they can’t do anything to help? I have a solid income, good credit score and have racked up $37,000 worth of unsecured debt. I called Bank of America to ask for a lower interest rate, I’m paying 18.99%, 21.99% on two cards. Credit counselors flat out told me there was nothing they could do because I haven’t been late or missed any payments. My last resort is to file for bankruptcy but what will the courts do?

Is there any other option?

Elle”

The Answer:

Dear Elle,

First off, I would get a second opinion with a debt management company about being put into a debt management program because you are on the edge of falling behind. I’m surprised you’ve been turned away by credit counselors. It is a common situation and a no-brainer just to plop you on a DMP. Click here for debt management information.

Your other option before considering bankruptcy would be to actually skip a couple of payments. I know that sounds ridiculous and it will hurt your credit but it is a fact that creditors offer more lenient repayment options when people have proven they can’t pay the bills.

Before you go bankrupt, fall behind and see what’s offered.

Big Hug!

@GetOutOfDebtGuy

Abusive Debt Collector Accused of Bankruptcy Fraud : When The Collector Becomes the Collected

Amanda Miller — Mon, 12 Jul 2010 21:44:22 +0000

From How to Get Out of Debt

Over the years Jack H. Boyajian, a seasoned debt collector, has faced accusations from authorities across the U.S. for “illegal methods to squeeze debtors”. This year a new accusation arose against Boyajian after he filed for bankruptcy in August of 2009, that he has defrauded creditors by concealing assets from the court.

The Federal Government says he owes around $670,000 in back taxes; neither he (nor his wife) have allegedly filed taxes since 2005.

The government is now demanding this debt collector pay up on his own debt. When he could not make the payment he filed for bankruptcy in August of 2009, including more than 100 creditors he owed and debts of $3.8 million in the case. However, it has come to light that Boyajian may have been hiding a multimillion-dollar home from the bankruptcy when he only claimed he had $50,000 in assets.

“Boyajian also concealed his interest in his Saddle River home by putting his mother and sister on the title, the trustee alleged. Federal authorities have made a similar claim in a pending suit filed in U.S. District Court in Newark, alleging that Boyajian hid his ownership of the house to protect it from efforts to collect $660,000 owed for back taxes.”

This is not the first time he has skipped out on taxes. It appears that from 1989 to 1992 a company he owned, Far Hills Community Management, neglected to pay any taxes during this time. The government got a little snippy when in 2004 instead of paying off the debt he transferred $1 million to family member Araxie Boyadjian, who purchased the house in question for $4.25 million.

Apparently the federal government got so snippy in fact that they filed this suit against Boyajian accusing him of fraudulently transferring the $1 million. The suit states that even though the property is not listed in his name that since he resides in the property he is the “de facto, equitable owner”.

In April of 2010 he was discharged from the bankruptcy. However, two weeks later the court put his discharge on hold when trustee, Charles Stanziale, argued that Boyajian should not be “allowed to walk away from his debts, because of his “knowing and intentional concealment” of assets.”

In January of 2010 Stanziale filed a formal complaint and listed seven violations to the United States Bankruptcy Code as to why Boyajian’s discharge should be rejected. The entire complaint can be found here.

“‘Bankruptcy is for honest debtors,’ said Stanziale…’This guy, I allege, is not the average honest debtor who needs a fresh start. This guy committed fraud, and he is not entitled to have his debts released.’”

Boyajian is accused of using over 20 corporate “entities” and family trusts and has admitted to 22 of them, however he claims that he “does not have a bank account” even after one of the entities proceeded to habitually pay his personal expenses which included purchasing a $50,000 car for his wife. Boyajian’s attorney dismisses Stanziale’s claims.

While a resident of New Jersey he was never licensed to practice in the state, which lead him to create offices in California which he visited once or twice a month. Boyajian’s legal problems go as far back as 1995 to one of his debt collection business in California. A report submitted to the California Courts 2008 showed that in just five years, “Boyajian and his companies had faced more than 1,000 consumer complaints, 129 consumer lawsuits, and 10 enforcement actions by attorneys general and other state agencies.”

After attempting to collect a debt on bad checks that were outside of the statute of limitations the state of Colorado banned him and two other attorneys from collecting debt in the state for five years. The mentioned companies included JBC & Associates P.C. and JBC Legal Group P.C. and Boyajian Law Offices P.C., all part of Boyajian Firms; companies that had been formed by Boyajian himself and in which he controlled at all times. Source.

At least 30 states, which he was not admitted to legally practice law, have raised concerns about Boyajian and his companies for “fraudulent, deceptive and illegal practices” over the years. States reported include, California, New Jersey, New York, Minnesota, Montana, Pennsylvania, Colorado, North Carolina, Kentucky, Alabama, Georgia, Florida, Connecticut, Michigan, West Virginia and Arkansas to name 60% of our 50 states. Source. In fact, after the attorney general of Arkansas sued Boyajian in 2007 the state is “still trying to prevent Boyajian from using the bankruptcy to avoid any penalties”.

“The states’ accusations against Boyajian and his companies included claims that he added improper fees to debts, falsely represented the amount owed and harassed debtors by calling late at night or at work, sometimes using abusive language.”

The results of the case are still pending. All I can say is that every dog has its day — and this day is not Jack H. Boyajian’s.

Original Articles:
Feds Go After Bergen County Debt Collector
Saddle River Debt Collector Accused of Concealing Assets, Fraud, by Bankruptcy Trustee

Finances of Florida Charter Boat Captain, Sinking – Roberta

Steve Rhode — Fri, 02 Jul 2010 20:55:31 +0000

From How to Get Out of Debt

Roberta

“Dear Steve,

My significant other has experienced 3 years of slow business and has accumulated credit card debt to pay bills in the amount of $260,000.00. He was hoping that business would improve, however the economy has caused him to go further in debt.

He lives in Florida so his home is protected, however if he files for bankruptcy they will take his only means to make a living and then he can’t keep up his mortgage payments. We don’t know what to do and the stress is beginning to consume him. I want to help, but don’t know what to do. If he files for bankruptcy is there a way to protect his charter boat, which is his only means of support?

How do you protect a charter boat from being lost in bankruptcy if it is your only means of support?

Roberta”

The Answer:

Dear Roberta,

If he has not talked to a bankruptcy attorney in Florida, he should. Planning is going to be a critical step in his case.

So business has not improved and if he goes bankrupt is will wipe out the quarter million dollars of credit card debt he had taken on to keep his charter fishing business afloat. But I’m left wondering if his cards and debt are gone and business is still slow, how will he be able to make ends meet still?

That’s probably the most important issue to address first. If the business can’t survive on his current level of income and he can’t get by without credit to make ends meet, it may just be that business will no longer support him being a charter boat captain any more.

Big Hug!

@GetOutOfDebtGuy

I Have to Leave the Country for a Family Emergency.

Steve Rhode — Mon, 21 Jun 2010 19:01:54 +0000

From How to Get Out of Debt

I got the following question through the GetOutOfDebt.org site and the reader asked the following question. If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

I asked my friend, Gerri Detweiler, to also answer this question so you could get two independent points of view. You can learn more about Gerri and contact her by visiting her blog.

“Hi, Steve – Due to the structure of my divorce settlement, I walked away w/ all of the marriage debt ($20K). Lucky me! I currently have a good job that has allowed me to whittle away at that debt, but now I’m faced w/ an unexpected problem: a family emergency requires me to leave the country at the end of June 2009 to tend to that business, and it could take anywhere from 6 months to a couple of years to resolve.

I’ve been looking for jobs overseas, but due to the exchange rate, none of them pay enough to cover basic living expenses plus the minimum due on the card (approx $300/mo). I *might* be able to make a payment of $100 per month, but that would be the maximum, and I tapped all of my savings during my divorce process. I’ve worked really hard to keep my good credit rating and want to be able to keep it. At the very least, when I return (whenever that will be), I will need good credit to rent an apartment.

Should I talk to my credit card company about lowering my payment, and if they’re willing to do that, will it be reflected negatively in my credit rating? Or should I just file for bankruptcy?”

The Answer:

Gerri’s Response

I recommend you consider all your options with an open mind, and decide what makes sense for you financially in the long run. I would recommend you talk with a credit counseling agency that has been approved by the US Trustees office to offer pre-bankruptcy credit counseling. My educated guess is that there won’t be enough relief there for you to pay back your debts under a DMP, but it’s worth a try.

I also recommend you talk with a bankruptcy attorney to find out whether you can file, and if so, whether you can discharge most or all of your debt. It is important that you do that right away, before you leave the country. You need to understand the laws of the state where you currently live. It may be that, because you have had a good job, you cannot file yet. But only an attorney can give you those specifics.

I understand that you’ve worked hard for your credit rating, and even thinking about filing for bankruptcy feels like a failure. But it also sounds like your a hard worker, and you are doing the best you can under difficult circumstances. Give yourself credit for that.

I also want you to consider the cost of keeping your good credit. Even if you were able to drop your payments to just $100 a month, you’d likely end up returning to the US with an even larger amount of debt, and you would be returning to an uncertain job market. It may not be possible for you to dig out from under without some relief.

Gerri

Steve’s Response

I think the situation is what it is. There is no benefit in paying the possible $100 a month in hopes that will retard anything or make the situation better. Unless you can make at least the agreed upon payment your smaller payment will dump you in the same collection hopper.

In addition, by your own admission, it is very uncertain that you will be able to earn sufficient income abroad, and in fact you might not even be able to work abroad without a work permit in that country.

I think the most logical path here is to strongly consider bankruptcy. Bankruptcy will allow you to close the door on these debts you clearly can’t pay because you’ve been called out of the country. It will be an easier process for you to file before you leave the country but you can file bankruptcy in the U.S. from abroad within 180 days of you leaving. It’s just more cumbersome and potentially more expensive that way.

I agree with Gerri, you need to go and meet with a local bankruptcy attorney now.

When you come back to the U.S. you will be able to rent but based on your credit it might require a larger deposit or require you to rent from a private landlord. But consider this, unless you go bankrupt, and if you are unable to work while abroad, how would you even be able to save for a deposit for any apartment, with good or bad credit?

@GetOutOfDebtGuy

We are Using Your “Eliminate Your Debt Like a Pro” Book and Have Some Questions. – Joanne

Steve Rhode — Sat, 12 Jun 2010 01:26:13 +0000

From How to Get Out of Debt

Joanne

“Dear Steve,

We are using your “Eliminate Your Debt Like a Pro”, We have Credit Card Debt and Loans from Business’s that were sold in 2006, We moved to Asia so my husband could take a very good paying job. The contract that he signed states that there could be no bankruptcy in our past. I am assuming that we would not be allowed to declare bankruptcy now either or he would lose his job.

So bankruptcy is not an option. I am starting to send the letters to the credit card companies now. We have reconfigured our spending and expenses and are tweaking them once a month to see if we can save more for debt and savings. We are trying to save some money at present for emergencies and just in case my husband loses this job. So we are not making much progess on the debt payments right now, just maintaining them. So of course we are accruing interest at 18% on average. The job at present is helping us maintain our debt, but it is difficult to be so far away from our families.

We do feel frozen that we have to stay here just to keep floating our debt. We want to be FREE and do as we wish. Like Everyone Else!!!

First off the savings and debt payoff are a difficult decision to make. How much should we save? How much should we put towards debt? What if he did lose his job and we declared bankruptcy, would that really be any different than doing what we are right now?

We still have to pay off our debt no matter what. Right? What is the reason people declare BK when it goes on your credit history. It is not a quick fix like people think. Is there any help out there with this new administration?

Joanne”

The Answer:

Dear Joanne,

I’m glad my book “Eliminate Your Debt Like a Pro” is helping you. I think a lot of people don’t realize that I give the book away for free on my site. Anyone can download a copy of the book right now.

Your question is an interesting one. Thanks for asking it.

One issue that struck me was your statements about bankruptcy. That is a really big deal that I want you to not assume about. If the company your husband is working for has an human resource department he can speak with confidentially to inquire about what the current company position is about bankruptcy, he should. I would hate to rule bankruptcy out as a viable option if we don’t have to.

I’ve seen bankruptcy pose an issue for people who work in some banking and investment jobs and those people with security clearances but I have also witnessed many people in those positions able to get permission to go bankrupt on a case by case basis.

Let’s just say that bankruptcy is hypothetically out of the question. This might be a good time to consider settling the debts as an option.

I’ve been very outspoken about my unhappiness with most companies that sell debt settlement services. There are a few good companies out there who are open and honest about the drawbacks of monthly payment debt settlements. These good companies inform people of their fee structure, the dangers of being sued by your creditors, the tax implications of settling, and how much money you will get back if you cancel their services.

Personally I have witnessed amazing results when offering lump-sum debt settlements to creditors to close the debt claim for 40%-60% of the balance owed. While good results are possible, there are negative credit report consequences and tax implications.

This is why I’d like for you to be 100% clear on the current company position about bankruptcy. I’d hate to see you try debt settlement to avoid bankruptcy, only to have your credit report trashed by debt settlement, and have that cause you the grief with the job that you wanted to avoid.

Bankruptcy is not a quick fix, while the technical parts of bankruptcy might occur rather rapidly, it is something that your credit report must recover from. But then again, any debt solution has the same issues even if you went into a credit counseling program or did debt settlement.

The damage or marks to a credit report are really not that important. Sure, in the short run your credit score will be lowered and your credit report won’t be stellar but all that can be improved and fixed by getting back into the credit game and start getting good credit report reported after the streak of bad credit. A secured credit card is a really great way to do this. Also key is making sure that you have closed the door on the old debt in some way, with bankruptcy, debt settlement or paid it off in full.

People really freak out about their credit report. And yes I do agree that having a good credit score is a good thing, but you can’t lose sight of the fact that the credit score is designed for the benefit of your creditors, not for you. It is supposed to be a numerical indication about your level of risk to a lender so they can make an automated split-second decision if they want to lend you money. It has nothing to do with you being prudent or practical about managing your finances.

Stepping in front of the pain of a bad credit report or bankruptcy is a bit like a patient from my old ophthalmology days. This teenage girl had gone to Asia and managed to pickup a parasite. The parasite made its way through her bloodstream and into her eye and it became a tiny worm floating around in the vitreous, the clear gel inside your eye. This girl never asked for the parasite to infiltrate her and ask you can imagine, she was not all that thrilled with have surgery to suck the little worm out.

These economic times are a bit like the parasite story. Through no intentional fault of our own, we often find ourselves awake in a new day and struggling with decreased income and increasing expenses. And as much as we would prefer to not have parasitic debt dragging us down, it naturally can infect us. And if the financial surgery is bankruptcy, as much as we might not want to face it or consider it, that does not mean that it isn’t the right surgical intervention for the illness at hand.

Now, to your savings. I will acknowledge in advance that some may disagree with me on this but hear me out. Having just spent two years living outside the U.S. I realize that being outside of the country carries some unusual challenges and expenses. Needing to come home for an emergency or a visit is not like a long car ride, it is an expensive international flight. And if you decide that you are moving back to the U.S., then that is a huge expense in itself. I’m personally still a bit bitter about the $1,100 charge I had to pay to have our shipping container stored while waiting to be x-rayed by Homeland Security. A completely unexpected expense.

In your present situation, I would urger you to make only the minimum payments on your debts until you have at least $7,000 in savings. Once you hit that target, then make the minimum payments but out of the extra dollars you have each month, use half for debt reduction and half to save till you hit $10,000. Then you can cut your saving back to 25% of extra dollars each month.

This approach will help you to build your mandatory safety net as fast as possible to protect you since you are far from home and may need to come home unexpectedly if the job situation changes.

Does that all make sense?

Big Hug!

@GetOutOfDebtGuy

How to Get Out of Debt With the Get Out of Debt Guy » bankruptcy

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