Mon, 07 May 2012 14:48:48 -0800WeeblyMon, 07 May 2012 09:53:13 -0800http://www.eastbaybk.com/1/post/2012/05/bankruptcy-for-baby-boomers-and-the-elderly-the-not-so-golden-years-and-a-silver-lining.html Remember the sitcom The Golden Girls?  It was about four women living the last decades of their lives in sunny Florida.  From what I remember, the consistent challenges faced by the characters on the show were relationships and romance; money never seemed to be a problem.  Back then, money may not have been a problem for many older Americans.  After retirement, they had hefty pensions or had saved enough to live the rest of their years in tranquility.  

Today, though, it’s a different story.   Many of today’s retirees, the Baby Boomers, must keep working just to live.  In a 2011 Associated Press and LifeGoesStrong.com survey, 42% of Baby Boomers said they were delaying retirement.  The reason:  their average debt hovers around $101,951.   According to the Wall Street Journal, many Boomers’ 401Ks are barely at 25% of where they should be to sustain their standards of living after retirement. 

I have seen a spate of cases recently where adult children have contacted me for bankruptcy help for their Boomer, or older, parents.  The common thread is that the children don’t find out about their parents’ need for help until the situation is quite dire.  The parent’s financial situation is revealed when, for instance, one parent passes away leaving the other spouse with mountains of unpaid bills, or when a lawsuit by a parents’ creditor is initiated and the adult children learn that mom and/or dad may be losing the home or facing a hefty legal judgment. 

I highly recommend that retirees take an assessment of where their finances really are – and then talk about their situation with their adult children.  I know it is a somewhat taboo and uncomfortable thing to discuss, but unless a retiree is truly financially independent, it is imperative that your children at least know about your financial situation.  The expectation doesn’t have to be they are going to bail you out; you’re simply doing them a favor by telling them now, instead of being surprised later.

The second step, after taking a hard look at the numbers, is to have a discussion as to what can be done right now to make things more manageable.  By working together, families can often come up with ideas and/or financial resources to help a parent tackle debt without filing bankruptcy. 

Sometimes, though, bankruptcy may be the most financially sound decision that can be made.  Bankruptcy can eliminate all unsecured credit card debt provided a person’s income is below specific thresholds.   There are also some “presents” in the Bankruptcy Code offered to older filers: the Code allows debtors to have larger expenses (i.e. medical expenses), and also allows a higher homestead exemption if needed.

If you are a Boomer who is having financial challenges, or you are the son/daughter of parent who is having financial difficulties, I’d be glad to connect with you about bankruptcy and whether it is an option that might afford a silver lining.

]]>Thu, 23 Feb 2012 20:57:43 -0800http://www.eastbaybk.com/1/post/2012/02/before-you-file-your-bankruptcy-dont-forget-about-your-taxes.html I posted this originally a couple of years ago but this information applies as much today as it did then….

***

Are you getting a tax refund and are wondering if you’ll keep this amount if you declare bankruptcy?

Here’s a question I get this time of year when tax season is upon us. Let’s say you are contemplating filing a Chapter 7 and have calculated that you’ll be receiving a $2,500 tax refund if you were to file now. What to do? Should you file your taxes now? File your petition first? Not say anything? My answer is the same each time. If its tax season than most likely the trustee considers the tax refund as property of your bankruptcy estate regardless of whether or not you’ve filed your taxes or want to wait until after you file your petition. Don’t ever try to hide it. This would be grounds for a dismissal of your bankruptcy petition. You may face formal charges and its simply just not good karma. Even if you try to file a bankruptcy petition first and want to wait on filing your taxes a trustee can always come back and delay your Creditors 341 Hearing until he or she knows how much of a refund you’ll be getting.

Now for the good news: Depending on the circumstances there’s a good chance that your refund may be covered by exemption laws. These are the laws that allow you to keep some assets. There’s a myth out there that if you declare bankruptcy you are left with nothing but the clothes on your back. Biggest myth ever. And so what this means is that there’s a possibility your refund may be exempt. It will all depend on your other assets really (cars, savings, stocks, equity in home, etc.).  

Also, if you already have the refund in hand don’t (I repeat don’t) use your tax refund to repay a debt. If you repay more than $600 to say a relative the trustee will count that as a “preference” and can take money back. If you have the money in hand and have living expenses (i.e. food, gas, car repairs, etc.) than spend your money accordingly and wisely.

As always, facts make a world of difference and so always talk with an attorney to make sure you do what’s right in your specific situation ]]>Mon, 16 Jan 2012 19:29:37 -0800http://www.eastbaybk.com/1/post/2012/01/the-biggest-financial-mistake-you-might-make.html_ Imagine that your best friend finds $100 on the sidewalk right outside your home.  It’s not your money, because you haven’t had that much money for awhile but your friend, feeling a little generous, decides to offer you a few bucks because it was near your property.  Let’s say he offers you $5 out of the hundred.  Would you take it?

The funny thing is that studies have indicated that most people would reject any amount below 50%.  Setting emotion aside, this seems completely irrational, because a minute ago, you didn’t have anything, and now, you could be $5 richer.  The reality is that many of us make decisions without separating our emotions from what might make financial sense. 

In my bankruptcy practice, I often see people wanting desperately to hang onto a home that is so completely upside down it would have to appreciate three times for them just to break even.  Emotionally my heart goes out to them and I understand they might have invested a huge down payment; it might be the first home they owned or the home where their kids grew up, etc.   From a financial standpoint though, it doesn’t make sense to keep hanging on when the financial numbers indicate otherwise.

As an attorney, my job is not to force you into a decision that you don’t want to make.  But, I do see my responsibility as one that includes giving my clients an impartial third party reality check.  By managing the emotions you feel towards a house, you might come to the recognition that the best option for you would be to let it go, because doing so will allow you to move forward without a debt burden, and to make a new financial life again. Making that decision is tough  but here are some questions that might help you decide whether you should let go of your home:

1)      What’s the value of the home based on comps in the neighborhood or what does Zillow estimate? How much do you owe?

2)      How much (percentage wise) does the home need to appreciate before you could even sell the home to break even? At the rate the market is appreciating how long do you estimate it will take to break even?

3)      If you were renting approximately this same home in your neighborhood how much would you be paying? If you could be paying less by renting what could you be doing with that money instead?

4)      Do you have an adjustable rate mortgage? How much more do you estimate you’ll pay once the rate adjusts? Do you have a plan in place as to how you are going to meet the difference between what you are paying now and what you’ll be paying in the future?

5)      Do you have a second on this property?  

6)      If you kept the home how much do the liens total up to?

7)      Do you owe any HOA dues?

8)      Are you currently behind 3 or more months?

9)      What’s the main benefit the home provides to you (i.e. mortgage deduction, shelter, investment, etc.)?

10)  How long do you estimate it would take before you were able to come up with another down payment on a home if you did let it go?

11)  How much of your monthly income is going towards paying the mortgage (percentage wise/ratio wise)?

Giving up (or even keeping) a home is not easy. But generally, one makes more sense the other depending on your specific situation. I’d be glad to connect with you about your specific situation and help you explore. And also, if you are thinking of filing bankruptcy don’t let the house be foreclosed on first (or short-sell the home) and then file bankruptcy because you may lose out on some advantages bankruptcy offers by filing bankruptcy before you are off title.

 

 

]]>Fri, 19 Aug 2011 11:47:38 -0800http://www.eastbaybk.com/1/post/2011/08/why-the-new-california-law-about-short-sales-and-seconds-is-not-necessarily-a-great-thing.html There’s a new law that people are buzzing about here in California because the belief is that it’s a victory for homeowners who owe more on their homes than the property is worth. The new law, signed by Governor Brown in July 2011, basically prevents first and second lien holders from suing and going after home sellers for money owed after a short sale closes. Sounds great doesn’t it?

The reality will be much, much different (just like those horror movies where the good guys win but the last screen shot is of the monster popping out of the ground ready for a sequel).  Unfortunately, if you read the law closely, you’ll notice that both the first and second lien holders have to agree to the short sale in order for them to be barred from suing. What this ultimately means though is that there’s not much of an incentive for a second lien holder to agree to the sale and here’s an example showing why:

Let’s say you have a home worth $250,000.  You owe $350,000 on your primary mortgage (your “first”), and you owe $100,000 to a second lender (your “second).”  This means that you owe $200,000 more than the home is worth.  The bank tells you that if you short sell the home it is better than foreclosure and that the impact on your credit will be better if you short-sell. The challenge will be that under the new law, to sell the home, the lien holders (the first and the second) must now all agree and approve the sale. Now let’s say a buyer bids $240,000 for your house.  The first, to cut its losses, may be interested.  But let’s say that the second will only get $5,000 out of this transaction. Because the new law prevents both the first and second from suing the homeowner if they both sign off on this transaction, the likelihood of the second signing off is very low. Why would the second settle at a loss of $95,000 and only take $5,000? The chances of the second getting huge amounts out of the short sale are very slim because the first has a superior lien and is not going to want to give up too much (if any) of what they are getting out of the short sale. 

Most likely the second would prefer to let the home go into foreclosure and eventually sue the homeowner and get a judgment. With judgment in hand, it can eventually garnish the homeowner’s wages, attach a bank levy, etc. and get much more than they would have via the short sale.  

As you can see, this new law does not protect homeowners as much as some people would want you to believe. If anything my bet is that it will discourage seconds from signing off on a short sale and they’ll take their chances in collecting something post-foreclosure. For the estimated 33% of homeowners that are underwater in California they won’t find protection in this new law. Fortunately, sanctuary still lies in the Bankruptcy Code where the moment you file you are under the protection of the bankruptcy laws and can get your second discharged. 

]]>Tue, 02 Aug 2011 10:40:52 -0800http://www.eastbaybk.com/1/post/2011/08/qualifying-for-a-chapter-7.html Every day I talk with people that have so much debt that they need to file bankruptcy.  For individuals, the two main options are Chapter 13 and Chapter 7.  Some people think they can just choose one over the other.  The reality is that there are rules, outlined by the Bankruptcy Code, that tell you what Chapter you are permitted to file for.

Most people I talk with want to file Chapter 7.  They think because they have an unbearable amount of debt, that they automatically qualify.  For a Chapter 7 though, the Bankruptcy Code doesn’t care how much you owe.  Instead, it focuses on your ability to repay creditors. In other words, it's looking to see whether you have “disposable income”. 

In order to qualify for a Chapter 7, you must average out your previous six months gross income, and then multiply that average by 12.  When making this calculation, do not include the current month's income; e.g. if it's July, only include January through June.  The biggest mistake people make when doing this calculation is using their net income instead of gross.  The reality is that ALL your income must be included – not just your take home pay, but your total salary prior to taxes.  You must also include unemployment, family contributions, contract work, bonuses, severances, even income received for items sold on Ebay. 

Once you multiply that six month average by 12, the total number you come up with needs to be compared to the state median income for the size of your household.  For example, as of April 2011, for a household of 1, the state of California median income is $48,009.  As long as your current annual gross income (calculated as described above) is below that, you qualify for a Chapter 7. Click here to see the state median income for other household sizes.

If your income is above that threshold, then a closer analysis needs to be made of your taxes, deductions and expenses.  If you make more than the state median income, the presumption is that you should have enough disposable income to pay your bills.  Yes, I know this doesn’t make too much sense when at the end of the month there’s more month than money, but unfortunately that is how the law is written.  But don’t despair! If you have sufficient taxes, deduction and eligible expenses (like utilities, mortgage, car payments), you may still qualify.  Give my office a call and I’d be glad to review your situation and help you determine if a Chapter 7 is a viable option for you.
]]>Wed, 15 Jun 2011 23:12:09 -0800http://www.eastbaybk.com/1/post/2011/06/how-to-pay-your-bankruptcy-attorney.htmlHere’s a scenario I see consistently.  A potential client calls me.  They qualify for a Chapter 7 bankruptcy.  They have no assets and want to file so they can start fresh.  The challenge is that they don't have the money to cover the legal and filing fees.  Though my fees are some of the lowest in town, the reality is that the client must come up with the money in order to file.  Sadly, many people decide not to file thinking they cannot afford it.

You can’t afford not to.  About a year ago, I talked with a potential client.  Because money was so tight, they decided to postpone filing.  A couple months back, they called me and told me they had been sued, gotten a default judgment against them, their wages had been garnished to the tune of $800 a month.  This is a classic scenario of what happens when you delay.  Realizing another few hundred more were about to be garnished, you can bet this client found a way to cover their bankruptcy fees.  Here, they relied on family for help.  Though they felt embarrassed to ask, their family was more than happy to help.  Their family told them had they asked sooner, they would have given them the money then too.  In this case, the client would have been $800 richer.

If you don’t have family to rely on, here are some other options:

• set aside money on a monthly basis;
• set up an installment plan with your attorney;
• sell an asset or assets;
• tap into your 401K or IRA,
• use your tax refund;
• borrow from your whole life insurance policy;
• temporarily decrease the amount of taxes that are taken out of your paycheck so you have extra pay;
• stop paying on your credit cards and set that money aside to cover the bankruptcy fees. 

All of these have upsides and downsides (e.g. tax implications as in the example of using retirement funds), so before you take any action, do brainstorm with your attorney.  I would be happy to discuss your options with you myself.  But remember this: where there’s a will, there’s a way.
]]>Tue, 07 Dec 2010 22:30:05 -0800http://www.eastbaybk.com/1/post/2010/12/one-big-misconception-about-chapter-7.htmlI will lose everything. Wrong.  I believe that people think they’ll lose their home, car, cash - everything - in a bankruptcy simply because they are required by the law to list all their assets on their bankruptcy paperwork.  This assumption, however, is wrong. 

The reality is that most of the items that Chapter 7 filers have (household goods, clothes, furniture, small amounts of cash) are “exempt,” a fancy word meaning the item is protected, up to a specific value, from being seized by the bankruptcy Trustee. These exemptions exist because the government doesn’t want to have to support you, so they don’t want to take everything you have away.* 

In California, under one list of exemptions (there are two; check with your attorney to find out which list is best for you), there’s a wonderful little exemption called the “wildcard.”  The wildcard allows you to protect close to $22,000 of equity in your home.  If you don’t have equity (and in this market very few people do) or have only a little, then you can use the unused portion towards ANY item you have.  So say you have a car (paid off) worth $13,000.  You can tap into the wildcard pot to protect that vehicle. Same with cash, stocks or any asset AS LONG as you stay at or below that wildcard limit.  There are many other exemptions besides the wildcard as well that will protect things like jewelry (up to a certain amount), business tools, retirement accounts, and household goods and clothing.

Most Chapter 7 filers don’t have much beyond a paid off vehicle that’s a few years old (not much of an asset there), maybe a few hundred in the bank, maybe a timeshare they can’t even sell (they’ve tried) - and as such, their assets are completely exempt.   This makes you what’s called a “no-asset” case. If you don’t have assets, then the Trustee is not going to take much interest in your case.

Due to the many exemptions, including the wildcard, the typical Chapter 7 bankruptcy case is a no-asset case.  And so, contrary to the rumors, you’ll most likely be able to keep what you have.

* Being the government, it will take away that which is not “exempt.”  If you have $40,000 in stocks, for example, not all of it will be protected.  But then, if you have that much stashed away, then maybe a Chapter 7 may not be right for you.  As always, talk with an attorney to get advice on the specifics of your case.
]]>Wed, 21 Jul 2010 21:57:17 -0800http://www.eastbaybk.com/1/post/2010/07/do-not-file-chapter-7-until-youve-read-this.htmlThere is nothing more frustrating than filing a Chapter 7 Petition and then learning that you’ve messed up in a major way because of something that could have easily been prevented.

As a bankruptcy attorney here in the San Francisco Bay Area, I have a checklist I go through with my clients to make sure that we identify any “red” or “yellow” flags.  These flags are items that the Bankruptcy Trustee may question you about at your Meeting of Creditors, and if not handled properly, could even cause dismissal of your case.  My experience is that if you identify, disclose, and prepare for the items listed below, you’ll greatly increase your chances of your case going through smoothly.

1)      Paying Debts Back to Family or Friends.  Paying debts back to family or friends can pose a huge problem for both you and your family member or friend.  The Bankruptcy Code requires that any payments over $600, made to family or friends within the past year, be disclosed on the bankruptcy paperwork.  Depending on your situation, the Trustee may demand that the money you re-paid your family/friend be turned over to the Trustee.  Imagine your loved one getting a letter from a Bankruptcy Trustee asking that they return the money you paid them.  This could cause embarrassment, as well as a financial mess for your loved one who would have to come up with the money.  If you’re considering bankruptcy and owe money to a loved one, the best thing is not to pay them back now.  If you’ve already made such a payment, talk with your attorney about disclosing this properly and how to handle it.

2)      Taking Cash Advances or Using Credit Cards Immediately Before Filing.   A huge red flag, especially with creditors, is using your credit cards fairly close to the date you file for bankruptcy.  If you are a debtor and have a bit of credit available on your credit cards, DO NOT decide to max it out and/or take a cash advance thinking you will be able to discharge it as part of your Petition.  Why? Because your creditors, and the Trustee, will likely see your actions as fraudulent.  This would then mean that your Petition could be dismissed and/or you may even face serious consequences such as criminal prosecution. Once you decide that bankruptcy is the path for you, stop using credit cards completely!

3)      Transferring, Giving Away or Hiding Assets.  Don’t transfer your assets to anyone else and definitely don’t hide anything (i.e. that second or third car, that timeshare in Cabo, that joint account with your girlfriend, etc.) because non-disclosure of assets is a HUGE no-no.  Failure to disclose all your assets could greatly, and negatively, affect your case.  For example, at a recent Meeting of Creditors, I witnessed the Trustee demanding that a debtor (not my client!) send the Trustee a check for $9,000 because the debtor could not explain why their reported bank balance did not match the bank statement.  In extreme cases, failure to report and/or hiding assets can cause the Trustee to dismiss your case.

4)      Your Income Is Greater Than Your Expenses.   When filing for bankruptcy, you’ll need to calculate your income and compare it with your expenses.  Your expenses must be reasonable, and what the law considers reasonable is sometimes surprising.  Clearly, expenses for your dog Mr. Muffins would not be legitimate expenses for you to take into account.  But even things like paying for your child’s college tuition might not be able to be included.  If from the get-go, your income is greater than your reasonable expenses, you clearly will have a problem.  The Trustee will wonder why you are not able to pay your bills, and could move to dismiss your case or have it converted to a Chapter 13 (the type of bankruptcy where you pay your debts back to creditors over time.)  So before you file, make sure that you do your calculations, and make sure you don’t have any expendable income.

5)      Banking With Your Creditors.  If you’re considering bankruptcy, and have a bank account with a company to whom you owe money, you need to take action fast.  Immediately close that account (make sure you have a paper trail) and open an account someplace else where you don’t owe money.  Why? Because the bank to whom you owe money can easily freeze your account and/or pay themselves what you owe from your account.  Yes, it seems unfair, but unfortunately, it frequently happens.  I recently had a client that banked with their mortgage holder, and who made the mistake of not closing their bank account (even though I urged them to do so).  Since the clients were behind on their mortgage, you can guess what happened to the $500 in their bank account.  That’s $500 they could have used to keep food in the fridge.

6)      Making Major Financial Decisions.  When you’re in financial distress, it often feels like you have to do something, anything, to regain control of your finances. And sometimes, unfortunately, people react without getting all the information about what a specific transaction may mean to them.  Example: Trying to avoid bankruptcy, Jane contacts a credit counseling service in order to deal with her $50,000 in credit card debt.  One of her creditors settles the account and forgives $15,000 worth of debt.  Without intending to or realizing it, Jane may be taking on a tax liability; any amount creditors have “forgiven” may be taxable.  Thus, Jane still owes $35,000 to other creditors, and may owe taxes down the line on a portion of the $15,000 that was forgiven.

Other major decisions that should be avoided if contemplating bankruptcy are short-sales, debt consolidation, tapping into retirement accounts, and selling a vehicle or home. The intent behind bankruptcy is to give people a clean slate as possible; in order to get that clean slate, avoid making any major financial decisions prior to consulting a bankruptcy attorney.

7)      Hiding Any Information That You Think Should Be Disclosed.  Please – when filing for bankruptcy, don’t lie, and don’t hide anything - because the Trustees have a pretty good knack for knowing when someone is not being truthful.  

A typical trustee sees about 10 cases per hour for about 6 hours a day, 2-3 times a week. That’s about 180 cases a week, 720 cases a month, 2160 cases a year! With those numbers, you can get the picture that the Trustees have seen it all, heard it all, and are really good at reading people.  When it comes to bankruptcy, not disclosing something is often worse than having it disclosed it the first place.  As a bankruptcy attorney, I always tell my clients – if in doubt about whether to disclose something, trust me – and tell me about it.  I can help you prepare for when it does come up.  To do otherwise is a huge risk, and frankly, not something I would consciously allow a client to do.  I work with people that need help, but I will not represent someone that is looking to lie, deceive, or abuse the system.

If you need a bankruptcy attorney in the San Francisco Bay Area, I would be honored to help you.  Please contact me at 925-415-6101. 

]]>Tue, 04 May 2010 09:37:13 -0800http://www.eastbaybk.com/1/post/2010/05/why-simply-walking-away-from-your-property-may-not-be-good-enough-in-california.html Some people decide to walk away from their properties because they are too far underwater on their mortgage payments.  They believe that since the lender now has the house, they are now off the hook for the money owed, and the lender can’t come after them. 

Is this true? Well - as with all things legal – it depends.

If you only have a first mortgage on the property, this strategy may work.  In California, a first mortgage is generally a non-recourse loan, which means a lender cannot get a deficiency judgment against a person in a non-judicial foreclosure (which most foreclosures are).   However, you may still be liable for income tax on the difference between the amount you owed, and the amount the lender sells the property for.  The reason for this? The IRS treats as income the amount you didn’t have to pay back.  If you’re thinking that’s pretty nutty, I agree. 
Check out this post for more information on the tax consequences of a foreclosure or short-shale versus a bankruptcy.   

Now, if you have a refinanced mortgage, an equity line of credit, or a second mortgage, those loans are most likely recourse loans.  This means that you are still personally liable for the amount you owe.  The lender can sue you – and eventually garnish your wages -   for something you thought you had walked away from. I’m seeing more and more people each day that are being hounded by collection companies coming after them for those recourse loans. 

 So, what are your options? They are: 1) pay the outstanding amount owed (good luck trying to negotiate with the bank); or 2) look into whether a Chapter 7 bankruptcy filing will wipe out the debt.  If you do not have significant assets, and don’t have disposable income each month, it likely will.


If you're in the San Francisco Bay Area and need a Chapter 7 bankruptcy attorney, the Law Office of Mauricio Ramos is always happy to help.



]]>Sun, 25 Apr 2010 12:41:27 -0800http://www.eastbaybk.com/1/post/2010/04/myth-buster-of-the-month-a-charge-off-means-i-no-longer-owe-the-debt-myth-or-fact.htmlMyth.  Many people see on their credit report that a debt has been “charged off” and believe they no longer owe the debt.  That belief is incorrect, and can cost you money.  A bank can still send a “charged off” debt to collections, sell the debt to another company, or even sue you for the amount owed.
 
Why is this? Because banks use the “accrual method” of accounting, which allows them to count income when it is earned and not received.  For example, credit card banks are allowed to count as income the interest that is due from a consumer, even if not yet paid.  When you stop paying on a debt, and enough time has gone by that it’s clear you are in default, the bank then “charges off” and stops counting as income the interest which it earned but did not receive.
 
A debt being “charged off” has nothing to do with you being off the hook for the debt.  You still owe the debt, and unless the Statue of Limitations (which determines whether a debtor can collect on  a debt) has passed, it is highly likely that the bank will do whatever it can to recoup what you owe.  If you file a Chapter 7 Bankruptcy Petition, make sure you list all debts that appear on your credit report, including ones that say “charged off,” because you are still responsible for those debts.

If you're in the San Francisco Bay Area and need a bankruptcy attorney, the Law Office of Mauricio Ramos is always happy to help.
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