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The Perils Of Car Shopping Add Up

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Getting fleeced at the car dealership is all too common.

The ways to get taken, bamboozled, oversold, and generally ripped off are too numerous to count.

But the good folks at NCLC have studied the car-buying extras and add-ons that pad the price of the car.  The mark up on add-ons can be huge.

Add-ons, like GAP insurance, service contracts and window etching make up a large share of the dealer’s profit.

It’s the same in the restaurant business, according to one of my clients:  restaurant breaks even on the entree, and rakes it in on drinks, salads, sides and desserts.

But in a restaurant, the price of the sides is disclosed and is the same for everyone.

In the car business, the price of the add-ons varies from buyer to buyer , and offers the dealership ways to discriminate against people of color.

According to the NCLC study,  Hispanics are almost always charged more for the same product sold to others.

And there is no way for the buyer to know that she’s paying more than others do for the same product.

Tips for buyers

Here are strategies to protect your pocketbook through the car buying process:

  1.   Avoid buying add-ons in the first place  – often they are unnecessary and overpriced.
  2.   Get GAP insurance, if you think it necessary, through your credit union or your insurance agent.
  3.   Arrange financing before you visit the dealership  –  that allows you to negotiate with the dealer only over the price of the vehicle.

NCLC’s tip sheet, and links to consumer-friendly advice on service contracts, is available here.

Knowledgeable consumers will do better.

Ending rip offs

Policy changes could level the playing  field.  First of all, post the price of add-ons on the car just as the price is posted.  Second, require collection of race and national origin information in non-mortgage credit transactions.  Finally, encourage enforcement of anti-discrimination laws at the state and federal level.

More

Cutting the car loan down to size

Get a deal on your car after bankruptcy

Image courtesy of Peter Shanks & Flickr.

4 Rules For Testifying At Your Bankruptcy Hearing

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BusinesswomanGoing to court for your first meeting of creditors?

What are they going to ask me?, you wonder.

My bankruptcy clients imagine a quiz on the contents of their bankruptcy papers.

Or worse, an inquisition on why they needed to file bankruptcy.

That’s not likely.  The first meeting of creditors is much more likely to be a snooze.

Jay Fleischman set out a very comprehensive list of questions a Chapter 7 trustee might ask at your bankruptcy hearing.

Let me add my rules for answering those questions.

1.  Listen to the question

Just because you’ve read Jay’s list and think you know what’s coming, listen to the trustee’s question, all the way to the end.

First of all, it’s only polite.  Second, you want to make sure that you know what the trustee wants to know.

Your answer is being recorded.  You want to make sure you are answering the question that the trustee asked.

2.  Answer truthfully

Honest disclosure is the price of getting a bankruptcy discharge.  This is not the time to be cute or tell anything less than the truth.

You are answering under oath.  You are subject to the penalties of perjury if you are intentionally are less than honest.

3.  Be brief

Answer the question that the trustee has asked, truthfully, in as few words as possible.

Don’t explain, don’t justify, don’t ramble.

Just answer the question.

If the trustee needs to know more, he can ask a follow up question.

Usually, the trustee is just trying to make a record that he has done his job.

He has a list of cases he has complete.  Don’t make his day any longer by volunteering more than he wants to know.

4.  Don’t guess

If you don’t know the answer to a question, say so.  If the answer is honest, it’s perfectly OK.

Perhaps your counsel can help.  Maybe there are documents that provide the information.

Don’t pretend to a level of certainty if you don’t really know.

All’s well

If you’ve been diligent about getting your attorney all the requested information, chances are the first meeting of creditors will be the last, and you’ll be on your way to a fresh start.

Image:  © Innovated Captures – Fotolia.com

How Their Telephone Can Ruin Elders

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red-telephone-mimooh-01_optThe elderly couple was suddenly in financial trouble.

The two mortgages on their home were a couple of months delinquent.

Their bank account had just been levied by the state taxing authority.

They hadn’t filed tax returns since 2009.

From the outside, it didn’t seem like anything had changed.  Yet their financial world was imploding.

What had happened?

Their phone is to blame

Turns out, they had entered into a debt repayment plan over the phone.

The caller got their attention while they were comfortable at home, over the phone.  They signed up, over the phone.

They couldn’t tell me even who the caller represented, But, the voice on the other end of the phone promised to keep creditors from calling them anymore.

With the clients’ permission, this creditor was automatically taking money out of their account monthly.

And when the tax levy hit, there wasn’t enough money to keep a roof over their heads.

These elders were victims of their telephone and their good intentions.

Only the powerless call

It’s a nearly universal truth that the only creditors who call you about your debts are the least important creditors among those you owe.

Credit card companies can’t force you to pay their debt without suing you, getting a judge to agree you owe the money and giving you a chance to defend.  It’s cheaper and more effective to frighten or shame you into paying.

And even better if they can get you to give them regular access to your bank account.  What could be better?

What seemed to have happened here was a debt collector called up and offered a solution, one that would stop harassing phone calls and pay the credit card debt automatically.

But, the “solution” would only pay the credit card debt.

That is, the only debt that would be paid is the debt that could be discharged in bankruptcy.  The mortgage debt that kept a roof over their head became second to the debt management program.  No attention was paid to the back income taxes.

Who to pay when money is tight

It was exactly the wrong order of payment.  The least had become the first among creditors.

Elders more vulnerable

The tactics of debt collectors aren’t confined to the elderly, but they sure work better if the person who owes the money is frail, alone, or unsophisticated.  That described the couple in my office.

The good news for my couple was that their children had somehow gotten wind of the trouble and came with their parents to see if bankruptcy could help.  And bankruptcy will help.

In the bigger picture,  adult children need to be sensitive to how well elderly parents are managing their money.

The telephone is the instrument by which legitimate but self interested creditors can get to the elderly and convince them to warp their financial priorities.

Whether the pitch uses annoyance, fear or shame, the result is the same:  the elder pays the wrong creditor.

If these could be your parents, screw up your courage and find out what is happening, on the phone and at the bank.

It can be a difficult conversation for elders clinging to independence.  But you have to  have that conversation if you’re to help them, before their roof falls in.

Image courtesy of notKlaatu and openclipart.

 

Your Right To Know What’s Going On With Your Mortgage

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house check stockmonkeys dot com_optYou’ve got a lot to keep an eye on.

You  probably regularly check the performance of your stocks.

Your blood pressure.

Your credit report.

Your bank balance.

Your team’s standings.

Yet chances are, your home is your biggest investment and perhaps even the cornerstone of your retirement plan.

But you have no idea what lurks in the file of your mortgage lender or its servicer.

Where is the lender applying your payments?  To principal and interest?  To fees? Or is the money held in suspense?

Does the monthly mortgage statement you see match the records on the servicer’s computer?  You would assume so, but assume at your peril.

Got a mortgage modification?  Who knows what the lender’s records look like.  A client recently asked for a loan payoff and the response was off by $127,000! [Read more…]

Is It Safe To File Corporate Bankruptcy? 5 Questions To Ask

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risk of business bankruptcy

When your incorporated business fails,  you may be more at risk than you think.

I know you incorporated to separate yourself as the owner from the risks of the business.  The corporation is a separate legal person, distinct from the individuals who own the stock in the corporation.

But when the business has to shut down, the actual degree of separation is tested.

You’ve got to know if the business can safely file bankruptcy.

Or, will using bankruptcy to shut down the business drag the owners down as well?

Can this corporation safely file bankruptcy?

Businesses looking to go out of business typically file Chapter 7.  The business closes, a trustee is appointed, and any valuable assets are sold for the benefit of creditors.

The trustee then controls the corporate checkbook and the timeline on which creditors get paid through the courts. [Read more…]

California’s Good Deed: Passing Real Property At Death

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property upon death

The horror stories about do-it-yourself estate planning are both plentiful and tragic.

Between the fear of probate and the fear of legal fees, inventive people invent inexpensive strategies for passing property to the next generation.

Adding someone to the deed is the most common one I see.

It works like this: in order to see that her house passes to her kids at her death, Mom puts the “kids” on the deed to her house today.

She thinks that will assure that, at her passing, real property law will automatically make the kids the owners.  No probate, no fuss, no delay.

What Mom doesn’t fully understand is that her deed to the kids gives them an interest in the house, TODAY.

So, if there is a economic melt-down the the kids’ financial lives, the kid’s creditors can lien and levy their interest in Mom’s house.

If one of the kids files bankruptcy, the kid’s share of the house passes to the bankruptcy trustee, TODAY.

Far from creating stability and simplicity, the add-them-to-the-deed trick can create chaos.  And land Mom in bankruptcy court, fighting a bankruptcy trustee.

California, bless its heart, has enacted a solution:  a deed effective only on death.

Transfer on Death Deed

Created by Probate Code 5642, a Transfer on Death deed gives the “kids”, in my example, an interest in the house effective only at Mom’s death.

The deed is revocable as long as Mom is competent.  It can be used only for a home or a multi-family unit of 4 units or less.

It doesn’t protect the kids’ interest in the house from Mom’s debts, but a recent amendment protects the transfer from Medi-Cal Recovery claims.

The deed must be recorded within 60 days of execution.  Unlike other deeds, it doesn’t need to be delivered to the beneficiaries to be effective.

Why Deed on Death works

What’s magic about the Deed On Death is that the next generation has no interest in the property until Mom’s death.

There is nothing for the kid’s creditors until Mom’s passing.

So, if the kids end up in bankruptcy, they don’t drag Mom along and find the trustee selling Mom’s share of the house.

Stay out of bankruptcy and we may never meet.

There’s a form for that

The statute provides a form which must be used and has a FAQ page.

You can get more information online from the Sacramento Public  Library (yeah, libraries!) or from CANHR.

Let’s keep DIY estate planning disasters out of California bankruptcy courts.

More

The huge cost of avoiding probate

Joint bank accounts in bankruptcy

The problem your bankruptcy lawyer can’t fix

 

 

 

Are You Liable For Your Spouse’s Debts In California?

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wedding-154985_1280“Everyone knows” that spouses are liable for each other’s debts in a community property state like California.

Only, “everyone” is wrong.

Or, more accurately, they’re only half right.

Community property is liable for everything

In California, the community property is liable for the debts of either spouse.

In fact, the community property is liable for the debts that either spouse brings to the marriage as well as the debts incurred during marriage.

But while the community property may be liable for your spouse’s debts, you personally aren’t liable if you didn’t incur the debt.

So, your spouse’s creditor can’t reach your separate property, or property you acquire after the marriage ends.  But that creditor can reach your community property wages. [Read more…]

3 Things That Prevent You From Getting Out Of Debt

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emoticons-150528_1280_opt

It’s not a bad economy, poor budgeting skills, or credit card interest that keep you from getting out of debt.

It’s emotions, not reasons, keep people from filing bankruptcy and starting fresh.

Even if Reason says that you’ll never pay your debts off in the usual way.

Reason also says that paying old debt steals from essential current and future needs.

But emotions stand between you and a rational decision that repayment isn’t possible and that bankruptcy is the solution.

It’s not as sexy as the seven deadly sins, but the Emotions Trio keep my clients mired in debt long after logic says “start over”.

Meet Fear, Stubbornness, and Pride.   They stand between you and freedom from old debt. [Read more…]

Get Tax Credit For Mortgage Interest Paid In Bankruptcy

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MORTAGE INTEREST DEDUCTION

Is your Chapter 13 plan  paying back mortgage payments that were delinquent when you filed bankruptcy?

If so, a tax deduction lurks, unclaimed, in the trustee’s records.

Track down that tax deduction and you reduce your federal income tax burden.

But it’s difficult because, for reasons I have not been able to figure out, the lenders don’t send IRS form 1098’s to either you or the trustee for mortgage interest paid through the plan.

So you don’t have proof that mortgage interest was paid, and neither does the IRS.

But, we can fix that.  I recently had occasion to walk a client through the process of figuring out the mortgage interest paid by the trustee.

I’ll retrace my steps and you can see how I figured out that he’d paid some $50,000 in mortgage interest  over the years of his plan that he hadn’t yet claimed on his taxes.

1.  Find the interest element in the lender’s proof of claim.

To be paid through a Chapter 13 plan, the lender must file a proof of claim on official form B410.  The mortgage attachment to that form, B410A has a line in Part 2 for “interest due”.

That line shows us what part of the missed payments, as of the filing of the bankruptcy case, was made up of mortgage interest.

2.  Calculate what percentage of the arrears is mortgage interest.

Part 3 of the mortgage attachment form breaks out the elements in the lender’s claim in the bankruptcy.  We need to know what fraction of the total claim the trustee will be paying is interest.

Take the “interest due” amount you located in Step 1 and divide it by the total at the foot of Part 3.

That’s the percentage of the total claim of the lender that’s interest.

3.  Access the Chapter 13 trustee’s site for payments to mortgage creditor

Chapter 13 trustees use different software to account for their operations.  You should have received information at the beginning of your case on accessing information about your payments and the trustee’s disbursements.

If you need help with the trustee’s web site, call the trustee’s office for help.

On the trustee’s site for your case, find the claim filed by the mortgage lender.  There should be a list of the date and amount of each payment made to the creditor on account of your mortgage arrears.

Total the payments for the last calendar year and multiple that total by the percentage of the claim that is interest, from Step 2 above.

Bingo! you have the number that represents what the trustee paid your creditor in mortgage interest for that calendar year.

Tax accounting rough and dirty

Your figure for mortgage interest paid in a year is an approximation.  By the end of the plan, the amount of interest paid will equal the amounts you’ve calculated this way.

The creditor may have applied it to your account differently.  Mortgage loan servicing is so erratic and inaccurate these days that it’s hard to tell.

If this calculation is off, it probably underestimates the amount of interest in the early payments from the trustee.  Most mortgages require the lender to apply payments first to interest, then to principal, then to expenses.  My experience is that they seldom follow the rules.

If anyone objects to your calculation, make them propose a better one.  Or make the recipient of the mortgage interest account for it in the usual way.

Save your work

Outside of bankruptcy, the lender would send you and the IRS a copy of their report on Form 1098 for mortgage interest you paid during the tax year.

We’ve done this sleuthing because they didn’t tell either the IRS or you what you paid in mortgage interest.

So, you may have to show the IRS how you got to a deduction that doesn’t appear in their records.

Print or save to pdf each of the documents you used to make your calculation.  You want to be able to support the deduction if challenged.

Another path to tax deduction

Alternatively, you could use the Request for Information process found in RESPA to ask the servicer of your loan how much interest you paid in a calendar year.

Servicers are required to provide answers about loan servicing within 30 business days of your request.  Requests must be in writing and contain identifying information.  More on how to make a Request for Information.

Now’s a good time to amend returns when tax professionals aren’t busy.

Amend earlier returns

Federal tax law allows you to amend tax returns for three years from filing.  There’s an IRS publication for amending returns.

You can calculate what you paid through the Chapter 13 plan for prior tax years and amend those returns to claim this deduction.

Gather your calculator and get on the trail of these illusive, but valuable, mortgage interest deductions.

After Bankruptcy You Are Entitled To Credit Reporting On Your Mortgage

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credit report after bankruptcy

You’ve finished your Chapter 13 and emerged from bankruptcy with your home loan current.

But your credit report is a blank page on your mortgage.

The mortgage servicer isn’t reporting your payments to the credit reporting agencies.  

Nothing. Nada.  Crickets.

So, even though you’re making regular payments, you’re not visibly rebuilding your credit.

Ask the servicer and they’ll tell you that they can’t report your payments “because of your bankruptcy discharge“.

But they are wrong:  a little-discussed provision of Chapter 13 says that long-term mortgage debt is not discharged in 13.

Yup.  The mortgage loan is not discharged as a personal obligation.

And therefore, there is no bar to the servicer reporting your payments, and every danger should they not report.

Servicer’s obligation to report

Put simply, if a creditor reported to credit reporting agencies before the bankruptcy was filed, then there is an obligation to report after the bankruptcy.  The “furnisher”, the creditor who supplies information to the credit reporting agency, has an obligation to make the information on file fully accurate.

In contrast to an unsecured debt like a credit card, which should be reported as having a zero balance after the discharge, the mortgage loan after Chapter 13 has a balance.

Presumably, it is also current.  Both facts which should appear on your credit report.

Mortgages excluded from Chapter 13 discharge

I’m certain you will have to cite to bankruptcy law when you challenge the improper reporting on a mortgage loan after Chapter 13.

Here’s the part of the Bankruptcy Code that excludes long term debt like your mortgage.

Section 1328 says,

(a)… the court shall grant the debtor a discharge of all debts provided for by the plan …, except any debt—

(1)provided for under section 1322(b)(5); 

The section that 1328 incorporates, Section 1322(b), says

(b)Subject to subsections (a) and (c) of this section, the plan may—

(5) … provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due;

Get mortgage payments reported

If you find that your post discharge payments on your home loan aren’t being reported, challenge the accuracy of what is on your report about that loan with the credit reporting agency.

It is the CRA’s responsibility to see that information in your credit file is accurate.  The CRA is supposed to ask the furnisher to reinvestigate the challenged tradeline.

The Consumer Financial Protection Bureau has a how-to, with a template letter, on how to dispute inaccurate information on your credit report.

Get the good information reported.

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Suite 140
Mountain View, CA 94043
Phone: (650) 694-4700

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