Do I Have Enough Debt to File Bankruptcy

How much debt do you need to file bankruptcy?  I am asked this question quite often.  The answer: “It depends on your situation.”  Everyone’s income and expense situation is different and so is the amount of debt they have.  A single elderly woman with a low fixed income from social security is in a completely different situation than a married couple with 2 or 3 kids and both spouses working.

Bankruptcy is a personal matter.  First of all you need to be comfortable filing for bankruptcy protection so you can receive a fresh start.  Secondly, it needs to make sense financially.

If you are an elderly woman (or man) receiving $1300.00 per month from social security, how much money do you have left over at the end of the month after you pay for the items you need to survive, such as food, shelter, transportation, and medical?  Do you have $50.00 left over at the end of the month?  How about $100.00?  Can you afford to continue making monthly payments on your credit card debt?  The answer is probably no.  You may only have $5000.00 in unsecured debt but you can’t live and make the minimum monthly payments.  Bankruptcy can help you.

Please note, in Ohio your social security benefits are generally protected from your creditors.  Your creditors will continue to call and harass you and they may even file a lawsuit against you in court.  Your social security benefits are still protected, but you have to take steps to ensure they don’t get snatch up in a bank garnishment.  I explain this issue to many clients and most of the time they decide to file for bankruptcy protection for peace of mind.

What if you’re a single parent with a couple kids.  You have a job and your making $60,0000 a year.  Your gross monthly income is $5000 per month.  Your monthly income is significantly more than the elderly woman.  But so aren’t your monthly living expenses.  Children are expensive.  In terms of the amount of unsecured debt that pushes you over the edge, well it may only be five to ten thousand dollars.  After you take care of living expenses can you make the minimum monthly payments on your credit card debt?  If the answer is no, then bankruptcy can help you.

Let’s not forget the married couple.  You and your spouse have two kids, maybe three.  Your gross income is $80,000 per year or $6700 per month, maybe more.  Your living expenses may not seem like they are that much more than the single parent, but you probably have a larger mortgage or rent payment and an additional car.  You possibly have less than $1500 in the bank.  It seems like you never have any extra money.  Here, like the examples above, it really does not take much unsecured debt to make your financial life miserable.  Can you dig out of the debt without filing bankruptcy?  Maybe, but you have to stop using credit cards, go to a cash system, and have enough money left over at the end of the month to pay more than the minimum monthly payments to your credit card debt.

Sometimes it only takes one creditor to file a lawsuit and ruin your finances.  When a creditor wins the lawsuit it can then take legal action to collect on the debt.  That creditor can now garnish your wages and/or garnish your bank account.  Both of these situations will make your life miserable.  In that instance, filing for bankruptcy protection generally makes a whole lot of sense.

So how much debt do you need to file for bankruptcy protection depends on your personal circumstances.  If you live in Central Ohio and are struggling to make end meet, feel free to give me a call.  We will discuss your situation and find out if you have enough debt to file bankruptcy.

JUSTICE DEPARTMENT TURNS UP HEAT ON PAYDAY LENDERS – WALL STREET JOURNAL

Payday advances signThe Wall Street Journal posted today that the “Justice Department is targeting banks that service a broad range of what it considers questionable financial ventures, including on-line payday lenders” WSJ.

Payday loans are short term loans at high interest rates. These types of loans are legal in Ohio. In Delaware Ohio they are very noticeable. All you have to do is drive down South Sandusky Street in the City of Delaware and you will find 2 or 3 locations within about a half a mile.

According to the article, a spokesman for the Online Lenders Alliance said that the Justice Department’s actions “would cut off an important credit choice for millions of underserved consumers”. I personally have a problem with that statement. These “underserved consumers” do have few credit choices, and when they chose to borrow from a payday lender or cash advance company, they become trapped in a viscous cycle that they cannot escape.

Payday Loans are Legal in Ohio

As an Ohio Bankruptcy Attorney, where payday loans are permitted, I see many clients who have borrowed from these institutions. The stories are not pretty. Every pay period they have a couple of options: 1) pay the loan plus fees in full; 2) pay the fees and borrow again, causing the balance to grow larger; 3) don’t pay and risk the payday lender trying to cash their check, causing overdraft fees and further financial damage.

Payday Loan Collections

Collections start when a payday loan prisoner does not make good on the loan. Granted, we have become a little more civilized in the last 50 years and you should not have to worry about some goon breaking your kneecaps, but the collection tactics are still deceptive and unsavory. The collectors for these companies try their best to intimidate the borrower into paying the money. Many times they announce themselves as Investigator Smith or Investigator Hughes or Investigator (fill in the blank). They call friends and family about the debt. They call you and threaten to have you arrested the next day if you don’t pay, and you may be arrested at work. They truly scare many people. They are ruthless. They have a job to do and that is collect money, period. They don’t care about you.

Payday Loan Collection Protection

The good news is that these collection practices are illegal. If you have payday loans and have been called by an Investigator or someone else trying to scare you into paying the money, seek legal help. You have rights and you have protections. Filing a complaint against the collector for unfair and deceptive collection practices might be an option. Just hiring an attorney to make a few calls might be all you need. You still owe the debt but you don’t have to be abused. Filing bankruptcy can make the debt disappear for good.

Payday Loan Industry Growing

Online payday lending grew 10% in 2012 and accounts for nearly 40% of all payday lending, according to the WSJ article. Our economy has not fully recovered and people are still getting further into debt. Payday loans are not helping consumers, they are trapping more and more in a downward debt spiral.

photo by: HelenCobain

SHOULD I HIRE A BANKRUPTCY ATTORNEY OR BANKRUPTCY PETITION PREPARER

As a general rule of thumb, if you are planning to file for bankruptcy protection you should hire an experienced bankruptcy attorney. You can hire a bankruptcy petition preparer or do it yourself, but these two options generally may not save you money in the long run and the experience may not be pleasant.

Filing a Chapter 7 Bankruptcy is not an easy task. My Chapter 7 case filings average about 50 pages in length. They contain a tremendous amount of information. But filing alone is not the end of the process. Provided that all of the required documents are filed, you still have to send copies of certain information to the Chapter 7 Trustee by a specific date. You are required to appear at the Bankruptcy Court for your Section 341 Meeting of Creditors, which is where the Chapter 7 Trustee will question you about the information filed. Even if all goes well, you still may need to file additional documents before you receive your discharge.

WHAT COULD GO WRONG

Whether you proceed on your own or hire a bankruptcy petition preparer, chances are that something will go wrong.
I witnessed “something going wrong” today during a Section 341 Meeting of Creditors at the Bankruptcy Court for the Southern District of Ohio. The debtor had hired a bankruptcy petition preparer. They paid the BPP $650.00. What the debtor got was the three page Petition and the two page Exhibit D. That’s about 1/10 of the required documents for $650.00. The debtor had to take her papers to the Bankruptcy Court and file them herself. When she got to the Section 341 Meeting, she had no-one there to help her when the trustee started asking questions. (I do commend the trustee in this case who was extremely courteous). Although the Chapter 7 trustee and the Assistant U.S. Trustee were trying to get this lady back on track, it is hard to say what will happen. The meeting of creditors will probably be rescheduled, causing her to come back to court again. It is also possible that her case will be dismissed.

And, the she still owes the Bankruptcy Court $306.00 for the filing fee.

YOU COULD LOSE YOUR PROPERTY

Keep in mind that the Chapter 7 Trustee works for your creditors. Her job is to find assets of yours that can be liquidated and paid to your creditors. Fortunately for Ohio debtors, you get to keep most if not all of your stuff. There are limits however, and I have had many clients with exposed assets. Because they hired an attorney they were aware of the risks before the case was filed.
So, the very minute you file for protection under Chapter 7, the trustee is theoretically in control of all of your assets. The Chapter 7 Trustee has a lot of power, and remember she works for your creditors. Her job is to find assets for your creditors. She is not interested in protecting you.

If you have assets that cannot be protected or you fail to assert your protection, and you file Chapter 7, the trustee is going to take your stuff. Well, maybe not everything, but things of value like cars, cash, and your home.

YOU MAY NOT GET A CHAPTER 7 DISCHARGE

As I mentioned earlier, if you don’t file all of the required documents and/or fulfill your duties, your case could be dismissed. You don’t get a discharge of your debts if your case is dismissed.

THE BOTTOM LINE

Hire an experienced bankruptcy attorney. One that will explain the bankruptcy process and answer your questions. Hire an attorney you can trust, someone that will be with you when you meet the Chapter 7 Trustee at the meeting of creditors. If you want to reduce the headaches and frustrations and get a fresh start, you should hire a bankruptcy attorney.

ATTORNEY OUTLINES LEGAL OPTIONS FOR FINANCIAL CHALLENGES

Do you need legal guidance regarding your financial challenges? Would you like to know more about bankruptcy and other options? New Directions Career Center, a non-profit organization serving Central Ohio for more than 30 years, invites you to hear Attorney James Jeffery Jackson, a legal expert who specializes in assisting clients address debt issues. This one hour workshop entitled, Bankruptcy: Putting Your Financial World Back Together Again, is designed to educate participants on legal options regarding financial difficulties – and how to recover from bankruptcy. It will be held on Wednesday, June 26th, from 3:15pm – 4:45pm. Made possible by our generous sponsors, the workshop will be held at 199 E. Rich Street. A suggested $10.00 registration fee is payable at the door; however, the Center assists individuals regardless of their ability to pay. For more information, call 849-0028, extension “100”.

Image Credit: Ken Teegardin www.SeniorLiving.Org

 

 

Buying a House After Filing Bankrutpcy

How soon can I buy a house after filing bankruptcy is a question that many people often ask.  There is no clear answer to this question.  It depends upon a number of things like how well your credit score improves following bankruptcy, what your income situation is, and what other debt you have incurred after your bankruptcy discharge.  Other considerations are whether you still are the owners of a house that is still in foreclosure.

What is the Hurry to Jump Back Into Debt?

Generally speaking, the largest debt people have is owning a home.  Not only is there the mortgage payment, but you also have homeowner’s insurance, real estate taxes, and home maintenance which can add 30% more to the actual mortgage payment.  There may also be homeowner association fees.  So why are we in such a rush to take on huge debt?

Our society has placed a premium on home ownership.  Be it good or bad, we have this notion that we have to be homeowners.  In fact, our real goal should be saving money for emergencies, future necessary purchases, education, and retirement.  If you can rent comfortable accommodations for $200 per month less than it would cost you to purchase a home, you could save $2400 per month (easy math).  Likewise you don’t have a 15 to 30 year debt obligation that may be very difficult to get out from under depending upon the real estate market.

I am not against home ownership, but I am definitely in favor of making smart financial decisions and saving for the future.  Real estate can be a good investment, but how many people actually make money when it is time to sell?

Improved Credit Score

As I stated earlier, one consideration in the equation will be your credit score if you are going to borrow money.  How quickly your credit score rebounds after filing bankruptcy all depends upon what you do.  If you want to improve your credit score, you must obtain credit sparingly and use it wisely.  You have to pay your credit accounts on time and keep your running balances low.  In other words, borrow a little and pay it off every month.  Use cash more frequently than you swipe a credit card.  There is no magical formula, but you have to live below your means.

Your Income Situation

Again, when you apply for a mortgage, assuming you are going to borrow money to purchase a house, your income needs to be more than adequate.  Following the mortgage crisis of the early 2000’s, lenders are now requiring that your mortgage payment cannot exceed about 30% of your income.  That is a huge change compared to the loose lending practices before the crisis.  So, if your household brings in approximately $40,000 a year, your mortgage payment needs to be less than $1100 a month.

Other Debt Incurred Post Bankruptcy

Another consideration lenders consider when deciding to lend money is your debt to income ratio.  As stated above, your income will be a major consideration.  Also included is the amount of debt you have.  Following bankruptcy your debt position should have improved, but over a couple of years it may be creeping up again.  You may have needed to replace a car or two.  Or you could have suffered some major medical expenses after your bankruptcy that affect your debt position.  Regardless, it is important to minimize the amount of debt you are carrying if you plan on buying a home.

New Time Limits

One of the biggest factors out there affecting how soon you can purchase a home after bankruptcy is the lenders requirements.  I have been told by many of my previous clients as well as associates in the mortgage industry that most, if not all government secured loans now require a four year waiting period after bankruptcy before they will approve a loan to purchase a house.  Obviously there are non-government backed loans that will play, but who knows what the terms will be.  And, remember the saving money talk earlier, you may have the willpower to save the money outright and purchase on a cash basis.  Wouldn’t that be great.  You can also explore rent to own options.

The Bottom Line

There is no sure answer to the question “How Soon Can I Buy A House After Filing Bankruptcy?”  Regulators are going to impose certain barriers, but most of the answer will be found in how well you manage your financial affairs after filing bankruptcy.

Received A Notice of Federal Tax Lien

Federal Tax Liens Attached to Your House and All Your Property

The Internal Revenue System (IRS) issues tax liens against your property when your income taxes are delinquent. The IRS does not have to file a complaint in court and obtain a judgment before the lien attaches. They just file the lien and it is done. That is efficient and actually pretty cruel.

I Don’t Own Real Estate in the State the Lien was Filed

Many people believe the lien is against their real estate because it is normally filed in the land records office. So they mistakenly believe that it only attaches to their real estate in that county. Wrong. It attaches to ALL of your real estate WHEREVER located within the United States. And it attaches to the real estate you acquire after the lien is filed.

I Don’t Own Any Real Estate for the Lien to Attach To

So you don’t own any real estate. No need to worry, right?  Wrong.  Even if you don’t own any real estate the federal tax lien attaches to all your property. That’s right, all of you property, including property you obtain a year from now. Included are your earnings, cars, savings accounts, and even household items. The federal tax lien pretty much places a net over everything you own and are going to own.

What About My Due Process Rights?

Although there is no requirement for a court proceeding, your due process rights have not been violated. The IRS does follow specific procedures to collect the tax debt before resorting to the Federal Tax Lien. You will likely receive many notices from the IRS notifying you of their intent to collect a tax debt. You will even receive a notice of their intention to levy (put a lien on your property) that gives you one last opportunity to work with them prior to issuing the lien. In most cases your due process rights have been protected.

How Do I Deal With Collections of Federal Taxes?

Like most matters, you can always try on your own. The process is complicated and requires that you properly prepare and file many complicated documents. Errors on these documents could be costly.

You could consider filing bankruptcy. Contrary to popular belief, certain taxes in certain circumstances can be discharged. If you have other pressing debt, bankruptcy might be a very good option.

You can retain a competent professional who understands the complex nature of the forms and the proper classification of income, assets, liabilities, and necessary expenses. A tax profession can negotiate with the Internal Revenue Service and seek a number of remedies, such as affordable installment agreements, offers in compromise, and obtaining non-collectible status.

If you have back taxes owing to the IRS, call a competent professional to find out what options are available to remove or prevent a Federal Tax Lien.

Alone with Debt – Finding Hope

I was at a point in life I didn’t know what to do. For one year I tried to pay all my bills. There was never anything left for food or medications. I did without medications for about 3 months. Very little food – just enough to get by. I found I was losing weight and didn’t feel good.

I called my attorney. She referred me to Jeff Jackson. I talked to Jeff and told him my problem. First time I met him he gave me Hope of a way out. He suggested I file a Chapter 7 because there wasn’t another good option. [I work part time and receive Social Security. It wasn’t enough.] It was hopeless.

Jeff said I had to go through credit counseling. First course of Access Hope on the internet. My daughter helped me. It was the best 2-1/2 hrs I ever spent.

Then Jeff filed my case in April.

I took the required second course [Dave Ramsey’s Debtor Education] on the internet. A friend helped me with it. This course was so easy to understand. It was about how to handle your money and get on a budget. I told Jeff I wish I had taken this course 50 years ago. I wouldn’t be in the bad mess that I’m in.

One thing, Jeff was very understanding. I would recommend Jeff to anyone. He was very helpful to me. If I didn’t understand he would explain.

The program was Great! I learned:
• About the myths of Consolidation Loans;
• You can’t borrow yourself out of debt;
• Reverse Mortgages are not good;
• Credit Cards are bad; and
• Payday Loans are bad.

I learned a lot [from this process.] I believe I did everything wrong in the last 50 years.

There is hope to get out of debt.

Creditors Will Put A Lien On Your Property

Many creditors will put a lien on your property.  They are trying to ensure they get paid for the debt you owe.  There are judgment liens when you lose the lawsuit.  And there are tax liens when you don’t pay your income taxes.  A lien against your property creates many problems for you.

A lien can be placed on just about anything you own.  Usually liens are placed on your home and/or cars.  They make it hard for you to sell the property.  They also give the creditor the right to take your property and sell it.

A lien on your house gives the creditor the right to foreclose on your house.  Even if the creditor does not foreclose the lien causes other problems.  If you try and sell your house the creditor gets paid.  If you try to refinance your mortgage the creditor gets paid.

Liens are very costly.  Some creditors obtain the lien and wait.  They sit back until you to try to sell or refinance.  The whole time the debt is getting bigger with interest.  That $5000.00 credit card debt is now $7000.00 five years later.

Chapter 7 Bankruptcy will prevent liens from attaching to your property.  However, once attached liens are not discharged in Bankruptcy.  A lien may be able to be removed during the bankruptcy process.  This generally requires additional procedures.  Creditors will put a lien on your property, it’s a cheap way for them to get paid.

What is Forgiven Debt

Forgiven Debt, or debt forgiveness, is when your creditor gives up.  They charge off the debt and take the loss.  They report the loss on their tax returns.  Their loss becomes income to you.  The IRS will tax you on forgiven debt.

When you settle a debt for less than you owe debt is forgiven.  You will owe taxes on the amount of forgiven debt.