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Thursday, July 22, 2010

Debt settlement vs Bankruptcy

I must have some spare time on my hands....been reading a few articles in various newspapers. A timely issue is that of debt settlement companies and are they really providing a bonafide benefit/service for a reasonable fee. Frankly....not so much. Let's face it...the economy is in the tank...people are in financial turmoil/stress...perfect environment for the vultures to come out to take advantage.

The debt settlement industry has gotten HUGE....everywhere you turn in print, TV, internet, radio....you name it...someone is hawking a debt settlement or debt "management" program. I actually had a guy connect with me a couple of months ago...personal referral from a lawyer I've done business with. He sent me an email saying that I could make "Tens of thousands of dollars a month for only an hour a day of my time"----I sent him an email back saying it sounded a hell of a lot like a late night television infomercial for flipping houses with a real estate scheme used to before the housing market blew up. He apparently was insulted....cried foul to the guy that referred him to me and that lawyer says he won't refer me bankruptcy cases anymore. Tell you what...if the price of doing business with that guy is acting in concert with his "buddy" to defraud and victimize people like my clients I don't want anything to do with him anyway. My sense was he was going to get a piece of whatever potential business was generated by the referral and he didn't like the fact that I turned his pal down.

Back the the article. Says the the Better Business Bureau of Minnesota and North Dakota is warning people about misleading debt settlement companies that claim to have a program that can easily either eliminate or reduce credit card debt. Since the recession started...which would be what...late 07' I guess...over 3,500 hundred complaints. 3,500...that's a big number and that is just in 2 states. Plus quite a number of state's attorney generals offices (including Minnesota's) have gone after numerous places like Credit Solutions, Debt Rx USA, Financial Freedom of America, Debt Settlement America, Clear Your Debt and Swift Rock Financial Solutions (never heard of that last one).

Most complaints to the Better Business Bureau allege that instead of having the debt settled as promised the debtors were often sued by their creditors and driven deeper in debt all the while thinking that whatever company they had hired where going to be "fixing" everything for them. Some of them ended up having their wages garnished.... WHILE they were in a program of debt settlement.

First off....it is never an easy or a quick process that comes without any pain. Don't care how they advertise it...it just ain't so. Plus...there is the significant impact on the debtor's credit score. The creditors don't always stop reporting late payments/missed payments to the credit bureaus...hardly...I think they usually do...debt management program or not. Plus, one thing that I've notice in my practice. They never tell people that if they settle a debt for less than what was owed that the debtor will be issued a 1099 at the end of the year. So guess what? It is an income earning event as far as the IRS is concerned and you have to pay taxes on that "income" at your regular tax rate. Why do they rarely tell people about this? Because 99% of the people looking into it would decide there is a small benefit to be had if they also have to pay taxes on any forgiven debt. Conveniently not part of the conversation I guess.

Frankly....I'm a bankruptcy attorney. If you've been reading my posts you know this already. Do I have any faith in debt management/settlement programs. Not much really. I read an article a number of years ago. The IRS had investigated something over 40 of these companies and decided to revoke the non-profit status of a number of them. How many? If you guessed ALL OF THEM---you'd be correct. Interesting eh? I think that sums it up right there. Considering the hit you take on your credit, the exposure to lawsuits, wage garnishments and bank account levy's (levys they can do w/o warning by the way...nothing like getting a notice from your bank telling you that a creditor cleaned out your account and now your checks are bouncing all over town) I'd suggest that bankruptcy....once you've gotten to that point makes a hell of a lot more sense. It's faster. It's cheaper. It protects you from lawsuits, levys and garnishments and discharges the debt giving you the relief you need to get a "fresh start" envisioned by the bankruptcy code and lets you move on with your life and start rebuilding your credit not weighted down by all that old debt. Honestly...by the time people come to me it is one of two things. Either their credit is bad...or it's real good but it's going to be really bad real soon. So---the things that have an adverse effect on your credit have already been set in motion long ago. I mention all of this because people often ask me how badly a bankruptcy filing is going to "hurt" their credit. Honestly it generally helps a heck of a lot more than it hurts. It's not the black kiss of death and it doesn't mean you'll never get credit again. It is scored as another event of your credit report and given a certain "weight"....just like a missed payment or something would be treated similarly. The real "penalty" for filing is that the cost of money goes up...probably for a year or two. Which means you'll pay higher interest for awhile. Most people...or a lot of them anyway are in that boat when they come to see me regardless. The difference is that the bankruptcy filing is a watershed event. Once it is filed you're no longer taking steps backward...you're actually going forward. Lots of variables work into a credit score. Longevity and stability of employment, income levels, current debt loads, regular payments, etc. Over the course of time the credit score generally goes up and as more time passes the bankruptcy filing itself isn't such a significant item....creditors you are wooing to give you a loan are more interested in how you are doing now, what kind of debt load you're carrying relative to your income and whether or not you've got some disposable income available to service new debt.

If you've got questions about bankruptcy we've got answers. Give me a call at 9952) 432-4388 or visit us at http://www.kingsburylawoffice.com/.

Dave Kingsbury
Bankruptcy Lawyer/Attorney

Wednesday, July 21, 2010

Credit card debt--the true cost of paying the minimum

I was reading an article in the Dallas Morning News last week while there on a seminar for Chapter 13 Bankruptcy Trustees. It was sobering. Many personal stories of people trapped in a cycle of debt they are having a hard time escaping. One of the many points of the story was regarding how long it really takes you to get out of debt by just paying the minimum balance. Hypothetical situation was $10,000 in debt presuming a 14% interest rate (national average...many of my client's cards are much higher). Payment was set at interest due plus 1% of the balance to determine the minimum payment which apparently is standard as well. At that rate it takes 27 YEARS AND 9 MONTHS to pay off the $10K balance. That is phenomenal. The total payout is $21,166.00 which is more than 2x's the initial balance. Friends....obviously this is a good deal only for the bank. Do what you can to lower your interest rates and pay off your cards pronto!

If you've done what you can and still can't make it work consider bankruptcy as a viable option. A chapter 7 bankruptcy case can discharge or wipe out unsecured debt like this and if not available to you due to high income, too many non exempt assets, etc., a chapter 13 bankruptcy case will pay off all or part of the debt over a maximum 60 month period. A plan can often provide for payment of just pennies on the dollar for this kind of debt. Even if it was a full repayment plan due to the income available the interest stops dead as of the date of filing for credit card and other unsecured debt. There is hope and a way to manage all of this.

If you've got questions about bankruptcy we've got answers. Call us at 9952) 432-4388 or visit us on the web at http://www.kingsburylawoffice.com/.

Dave Kingsbury
Bankruptcy Attorney

A penny saved may cost you a bundle! Bargain basement bankruptcy attorneys means poor results.

I was in court earlier this week. Witnessed a hearing where an inexperienced attorney was representing a chapter 7 client. First the trustee admonished the attorney for using the property tax id number instead of the legal description of the property as the documents call for. Had not the trustee brought this to his attention (he didn't have to) the net result of that would have been an issue clearing title to the property in a subsequent refinance or sale. Some lawyer would have had to bring a motion to re-open the bankruptcy case in order to properly amend the schedules to reflect the correct legal description so the Schedule C could then be filed against the property records. That cost of the motion and the subsequent amendment alone would have cost probably $1,500.00.

Besides that it appeared that the client was a realtor. New attorney didn't know enough to ask him about potential commissions from listings the client may have had at the time his chapter 7 case was filed. Sounds like he cost his client $5,000.00 for the value of the commission that could have been avoided had he known enough to ask about it and some pre-bankruptcy planning been implemented.

Long story short....maybe the client saved a few hundred bucks hiring this kid. Turned out it cost him thousands and could have cost him even more had not the trustee been gracious enough to clue him in on the legal description problems. Do you REALLY want to hire an attorney with little or no experience....even if they say they are highly rated (easy to get your friends and relatives with a computer to do ratings for you). Think about it. What you pay for an experienced attorney who charges reasonable fees commensurate with their experience is an investment in your bankruptcy case and your future. Look for the bargain basement attorneys and as the Chinese say....."be careful what you wish for"...........you'll get bargain basement results.

For help from experienced counsel in all manner of chapter 7 and chapter 13 bankruptcy issues please call my office at (952) 432-4388 and/or visit our website at www.kingburylawoffice.com.

Monday, July 12, 2010

Possible relief for Student Loan debts

Back in 2005 when the Bankruptcy Code was amended it more broadly defined what was considered a non-dischargeable student loan debt. Going back even further....I can remember when student loans of all kinds were dischargeable in bankruptcy albeit they had to be of a certain age. That changed with a rider to the Higher Education bill of 1998 if my memory serves me correctly. (Note that there has always been an "undue hardship" exception and student loans could and can still always be discharged under that provision...but unfortunately proving that a debtor meets that high standard for that is nearly impossible to prove without some sort of severe disability factoring into the picture).

At any rate.....memory lane may be a tad bit interesting to those who track bankruptcy legislation but not much use for those who are wondering what is going on in the here and the now. Under the proposed legislation borrowers would still be stuck with the traditional federal loans which would be Perkins and Stafford loans but possibly could get some relief for private lender loans. Even Sallie Mae has indicated a willingness for lightening up on the standards for discharging student loan debt provided there has been a good faith effort to repay over a 5 - 7 year period. Under the old standard it was simply the ticking of the clock...7 years from the date they were first due in repayment or the date they were consolidated into a new loan and they were subject to discharge. Exactly what kind of good faith effort Sallie Mae is talking about here I'm not sure...that would get fleshed out if the legislation that Senator Durbin and Congressman Cohen if it gains a foothold and moves through the legislative process if indeed it would become part of the bill at all.

So....perhaps there is a little ray of hope. Quite a few of my clients have student loan debt issues and the relief I can offer them is small at this point. We can plug them into a chapter 13 repayment plan to keep their creditors off their backs for up to 5 years and hope that there are rosier financial days ahead where they can then manage them...or maybe we'll get lucky and some new legislation will render those kinds of debts dischargeable.

If we can help with any questions regarding chapter 7 or chapter 13 bankruptcy cases please feel free to visit our web site at www.kingsburylawoffice.com.

Thursday, July 1, 2010

Minnesota Bankruptcy Exemptions

New exemption limits have come into effect in the state of Minnesota effective July 1, 2010. These will apply in bankruptcy cases where the debtor elects to use the state exemptions rather than the ones found in the Federal Bankruptcy Code (which were also raised this past April 1, 21010). Which exemption scheme to use will be determined by your attorney as that which gives you the most benefit depending on your individual circumstances. Usually we will chose the state exemptions over the Federal ones where there is a great deal of homestead equity as the Federal exemption is only $21,625 or $43,250 in a joint case. However considering the state of the real estate market these days it is a problem we don't see too much any longer. Other issues might be a potential personal injury claim which can be protected under the state exemptions to a much larger degree, etc.

Homestead is now $360,000.00 (unless primarily used for agricultural purposes then it is $900K.)

Motor vehicles are exempt in value up to $4,400.00
Wedding Rings are exempt to the tune of $2,695.00---before last year they weren't exempt at all!
Personal goods (home furnishings, clothing, etc.) is now at $9,900.00 per person.

There have been raises in others as well but these are the ones of most common concern.

For more information on how bankruptcy either chapter 7 or chapter 13 can impact your property please visit our website which is located at http://www.kingsburylawoffice.com/ or feel free to call our office at (952) 432-4388.