Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

Should You Pay Your Creditors Rather Than File Bankruptcy?

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bankruptcy alternative

Is there an alternative to bankruptcy, my clients often ask. Can I realistically avoid filing bankruptcy?

A fellow bankruptcy lawyer outlined what it takes to get out of debt without bankruptcy.

  • make more money;
  • spend less on today’s expenses; and
  • use all your savings to pay off debt.

If you could do all three,  for long enough, and, your debt isn’t too large, it probably works.

I want to pose the question: even if that’s possible, is it smart?

Cost of bankruptcy alternatives

So, you want to pay off your debt without help from the legal system.

What do you forgo in that scenario?

If it’s travel; lattes; and premium cable that go, I’m OK with that.

But, what if the things you do without are emergency reserves; health insurance; and retirement savings?  I think that continuing to live on the financial edge is a poor choice.

One small glitch, car trouble, ill health, or fewer hours at work, and your fine and honorable plan to pay your creditors comes unraveled.

Make good decisions about your future

Whether your financial difficulty was caused by bad luck or bad choices, don’t make a bad decision, driven by pride, to compound the trouble by living without a safety net.

Studies prove being in debt makes you stupid

Too many of my clients arrive in my office with the conviction that they incurred this debt and, by damn, they want to repay it.

At some level, I applaud that desire. But what are the likely consequences of repaying that debt if it means making no provision for financial stability now and in the future?

Have you just traded one sort of bad situation for another?

Part of reforming your financial situation involves looking beyond this month’s bills to the needs of the next decade and beyond.

Lots of folks got into credit card debt focusing on their ability to make the monthly minimums, rather than on their ultimate ability to pay the debt off.  They forget that minimum payments on most credit cards are set to keep you in debt for several decades.

Particularly in times of profound economic uncertainty, consider the merits of a fresh start and a make a plan for financial self sufficiency.

More

Secret alternative to bankruptcy

How to evaluate your choices about debt

Leave a legacy not a pile of debt

What you keep despite bankruptcy

When Is The Time Right To File Bankruptcy

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time to file bankruptcy

Just like stand up comedy and batting in baseball, filing bankruptcy is all about timing.

File bankruptcy too early, or too late, and you risk losing assets or advantages that better timing could have assured.

Admittedly, you don’t always have the luxury of filing bankruptcy on your own schedule. But for those who can plan ahead, better bankruptcy outcomes are available.

When law tells time

The bankruptcy code measures lots of rights with reference to events occurring before filing. Some of these rights involve you, the debtor. Other rights belong to the bankruptcy trustee, or your creditors.

These time periods affect

  • Exemptions  
  • Discharging taxes  
  • Tax refunds  
  • Clawbacks of money transfers  
  • Eligibility to file bankruptcy  
  • The amount of your Chapter 13 payment  

File bankruptcy before

The most common and avoidable mistake in bankruptcy is waiting too long to file. Filing sooner can avoid

  • Spending money you could keep if you filed bankruptcy  
  • Enduring stress caused by debt  
  • Foreclosure  
  • Creditors get liens you can’t avoid  

File bankruptcy after

Some events you want behind you before you file. Usually, you want to know that the worse of the debt is behind you. File bankruptcy when

  • Finances are improving
  • Tax year is closed
  • Receipt of one time income event
  • Payments to insiders have aged

Juggling timing

It doesn’t take much to realize that each of these timing issues are complicated. And each issue interacts with other timing issues.

bankruptcy factors

Sometimes you have to weigh some circumstances that suggest an immediate filing against others suggest waiting.

Weighing those competing factors is what a good bankruptcy attorney does for you.

Nationally recognized financial writer Liz Weston had thoughts about considering bankruptcy. Her thoughts boil down to plan ahead. Get advice early, so you can pick the time that’s right.

Any attorney can fill out the forms for you. Skilled attorneys understand what the information in those forms means for the outcome of your case.

Just as importantly, skilled attorneys help you understand the pro’s and con’s of filing at any particular time.

More

What you have to do to file bankruptcy

How to interview a bankruptcy lawyer

When Is The Right Time To File Bankruptcy

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when to file bankruptcy

It can be hard to know when it’s the right time to file bankruptcy. But I was blown away by the man who called my law office.

Should I wait until all of my savings are gone to file bankruptcy?, the caller asked.

And he didn’t mean, until my net worth is greatly reduced; he meant, until my bank balance is zero.

One has to admire the resolve of those who propose to pay on debts that they can never repay up to the point where they literally have nothing.

My advice, of course, is “no“. There is no point in making further payments when you can see you’re heading for bankruptcy.

Bankruptcy exemptions allow you to keep a collection of assets necessary for a fresh start.  In California, we have exemptions that will even shelter meaningful cash in the bank.

In Chapter 13, you can keep everything you own.

There is not even a requirement  that you be destitute or even insolvent to file bankruptcy.  You simply need to be willing to play by the rules of the bankruptcy chapter you choose.

Those rules are centered on making full financial disclosure.

When to consider bankruptcy

The short answer is probably now.  

If you are reading this, you probably wonder if bankruptcy could help you out of a hole.  Instead of wondering, see a bankruptcy lawyer. (I’ll tell you a secret:  bankruptcy lawyers don’t bite.)

So often I wish clients had come to me earlier:

  • before they borrowed against their retirement to pay credit cards;
  • before they took bad home loans that imperil their home;
  • before they borrowed from one credit card to pay on another.

Don’t take big financial steps til you see a lawyer

The right time to consider bankruptcy is when you suspect that you can’t really repay your debts in full in 3-5 years, on your own.

Or, when the stress of being in debt interferes with your health or your relationships.  Or, when you have no reserves should things get worse. 

Stress kills

Seeing a bankruptcy lawyer doesn’t commit you to filing.  It just arms you with information about what your options are.

Most people who see a good bankruptcy lawyer are surprised that bankruptcy relief is relatively simply and very effective for almost everyone.

Information is power….become more powerful. Figure out if now is the right time to file bankruptcy.

Read on

Picking a bankruptcy lawyer

Alternatives to bankruptcy

What you keep through bankruptcy

Is It Too Late For Bankruptcy?

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file bankruptcy`You’ve put off considering bankruptcy, hoping to tough it out, or hoping for a miracle.

But at some point, time runs out:  you’ve been served with a lawsuit;  judgment has been entered against you; or even, a garnishment appears on your paycheck.

Is it too late? Have you’ve waited too long for bankruptcy to help?

While I don’t recommend procrastination,  at almost every stage of debt collection, bankruptcy can save your bacon, or at least what’s left of your bacon.

Served with a lawsuit

When a summons and complaint lands on your doorstep, the clock starts ticking on the time you have to file a written answer to the complaint.

Skip filing an answer and the outfit suing you wins whatever the complaint prays for.

Filing bankruptcy at this point stops the lawsuit in its tracks.  The automatic stay that comes, automatically(!), with the bankruptcy case forbids further action in that suit without express court permission.

Assuming the debt doesn’t involve dishonesty or family support, any liability you have on the debt is discharged at the end of your bankruptcy case.  End of story.

It’s not to late to file.

You lose a lawsuit

Once a judgment is entered against you, bankruptcy can still help. Just because a court has determined that you owe the money and the creditor is entitled to all the legal remedies to get its money, the debt may still be discharged in bankruptcy.

The kinds of debts that can’t be discharged are based on the nature of the debt, not where the debt is in the collection process.  Bankruptcy law says that you can’t escape your obligation to support your family or pay your recent taxes, or escape debts created by fraud or other serious dishonesty.  But garden variety credit cards, loans and medical bills can be discharged, even after there is a judgment entered for the debt.

Wait until judgment is entered and there are some consequences that might limit relief in bankruptcy.

Chapter 13 has limits on the amount of debt you can owe and qualify for Chapter 13.  Once a judgment is entered, the amount of the debt is fixed and it might put you over the debt limits.

Another limiting consequence of waiting til judgment is entered is that a finding by a court that you committed fraud or misrepresentation may require a bankruptcy court to make the same finding.  The debt may then be excluded from the discharge.

With those exceptions, it’s not too late to file bankruptcy if a judgment has been entered against you.

Creditor gets a judgment lien

Bankruptcy can change the balance of power even if you’ve waited til the creditor with a judgment has perfected a judgment lien against your assets.  How much change is possible depends on the exemptions available when you file bankruptcy.

One of the basic principles of bankruptcy is that the bankruptcy discharge eliminates your personal liability, but liens survive the bankruptcy attached to the assets you had when your filed.

But there’s hope:  you are permitted to avoid judgment liens that interfere with any exemptions you could claim in an asset.  It doesn’t matter how fresh, or how old, the lien is.  If it prevents you from getting the benefit of an exemption, you can avoid it.

Avoiding a lien requires filing a motion in your bankruptcy case.  It doesn’t happen automatically.  And if you forget to do it in your bankruptcy, you can reopen the bankruptcy case in the future to file the motion.

It’s not too late to discharge your personal liability for a judgment and eliminate the judgment lien as well in bankruptcy.

Your wages are garnished

By the time your wages are threatened with garnishment, your creditor has a judgment.  That judgment brings with it the power allowed by state law to collect that judgment.

But just like each scenario we’ve discussed here, a garnishment can be stopped by filing bankruptcy and getting the automatic stay in place.

Your creditor may be entitled to what ever wages you have earned between the time the garnishment was served on your employer and the day you file bankruptcy.  But gong forward, your wages are yours.

Garnishment survival guide

Bankruptcy law also lets you recover amounts your creditor got in the 90 days before you filed bankruptcy.  Wait longer than 90 days, and you lose the right to reclaim the garnished funds.

Bankruptcy stops garnishments.

Timing is up to you

At almost every point in a collection suit, filing bankruptcy can stop the bleeding and allow you to eliminate your debt.  The discharge makes that debt forever uncollectible from you and your assets.

There is some damage to your finances that bankruptcy can’t undo.  Borrow against your home or invade your retirement assets to pay bills that you ultimately discharge in bankruptcy, and you have no legal ways to get that money back.

If you’re facing debts you can’t pay, make a plan.  Early is better than late.

More

The advice you need before making changes

Spending money before you file bankruptcy

When it’s smart to wait to file

 

Image courtesy of Flickr and openDemocracy

The Worst Reason To Choose Debt Settlement Over Bankruptcy

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settle or file bankruptcyThe guy with an old debt asked if bankruptcy or debt settlement would cause greater damage to his “credit”.

The money advice columnist gave the right answer to the wrong question.

She got it backwards.

She advised that bankruptcy was more damaging given that the nagging debts were already three years old and would drop off his credit report in four years, whereas bankruptcy would show for seven to ten years from the bankruptcy filing.

Right, assuming that your credit history is the important issue.

But your credit record is a sideshow in life.

Dealing with old debt

I would first challenge the question.

When you look at the alternatives to debts you can’t pay, I think the first concern should be for your balance sheet.

Which of the alternatives makes you better off NOW, not when you want to incur more debt in the future.

For the man writing in about settling a $13,000 debt for $5,000, I would have a series of questions that didn’t center on his ability to get new credit.

  • How old are you?
  • Do you support others?
  • Do you have any emergency savings?
  • How are you doing on retirement savings?
  • Got health insurance?

If he is young, single, and employed with a bit of money in the bank, perhaps paying $5,000 to make eliminate a $13,000 debt is a good deal.

If he’s middle aged, supporting children or aged parents, and living paycheck to paycheck, I would be inclined to suggest there are better uses for $5000.  At the most basic level, put it in an IRA, and your creditors can’t take it.

If he’s approaching retirement and looking at a future of reduced income and with  little need for future credit, chances are that there are crying needs for that $5000 other than dealing with an old debt.

It’s not about the credit score

As you can see,settlement versus  bankruptcy is not just a matter of which impacts your credit record more negatively.

The decision needs to take weigh spending money on old debts when faced with current and future demands on your assets.

It’s all backwards to think that protecting your credit record is the central issue..

More

Credit heals

Better to keep paying or file bankruptcy

Shore up your defenses against debt collectors

Image courtesy of Flickr and Luke Montague. 

 

 

 

Living With Debt: Better Than Bankruptcy?

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living in debt

Locked up in debt?

Should you file bankruptcy?

Or, is it better to live with your debt and keep making minimum payments?

Does life get better or worse if you file bankruptcy?

That question sums up most people’s fears about shedding their debt through bankruptcy.

What will life be like, after bankruptcy?

Good questions.  And I applaud people who realize that debt and debt relief each have future consequences.  I’ve talked about it before.

People fear the “bankruptcy unknown”, closing their eyes to the precariousness of their current situation as though doing nothing is a worthy choice.

But let’s turn the question around:  what will life be like if you continue on as you’re doing now?

Life in debt

Servicing debt from the past cuts down your future options.  Your paycheck is already committed before it hits the bank.

Whether it’s payday loans or credit cards for this month’s necessities, you’re locked in.

A slight bump in the road, and you’re really in the soup.  Most Americans say they couldn’t handle a $500 emergency without borrowing.

But absolutely most compelling for me, you’re probably making no provisions for your old age.

Lots of folk tell me they don’t think they’ll ever retire. Some say it because they enjoy work;  most say it because they can’t make ends meet without a job.

But they will get old, working or not.  The job choices will contract, and their ability to be productive will diminish.  I see it personally with the elders I’m caring for now;  they can’t handle the mental or the physical sides of a job.

Of course, the stress of being in debt may shorten your life.  Stress impairs your decision making.  That’s a terrible way to meet the challenges of funding your old age.

After bankruptcy

So, what if you broke out of debt by filing bankruptcy.  What happens in the real world?

Let’s list the negatives of filing for bankruptcy.

  • Credit in the immediate future is more expensive
  • Bankruptcy shows up on your credit report
  • If you are a renter, some landlords are uncomfortable
  • Some new employers are put off

These negatives fade in importance over time.

They need to be weighed against the equally real consequences of not solving a debt problem.

For most considering bankruptcy, their credit record is already blotched; a bankruptcy filing is not going to be the first adverse entry on their credit report.

Your credit heals over time

But credit scores, the predictive formula, rather than the history that’s a credit report, may improve instantly:  your debt to income ratio gets better.

Bankruptcy benefits

Bankruptcy might be the first step to improved financial health.  You can start with more financial alternatives and the chance to do things differently.

Bankruptcy may even be a step in better physical health. Stress is a killer.

Bankruptcy enables saving.  You’ve proved you can live on what’s left after minimum payments.

Use that same discipline to set money aside for the unexpected, and for the inevitable old age.

Live long and prosper.

More

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What you need to ask a bankruptcy lawyer

What should bankruptcy cost

Bankruptcy terms, simplified

Is There Life After Bankruptcy?

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multiple questions-grisel d'an flicker_opt

Is bankruptcy worth it?

If you see filing bankruptcy to get a fresh start as painful or less than honorable, you might wonder what life is like, on the other side of bankruptcy.

What’s the return on taking the big step?

I got a report from the other side this week from a Chapter 7 client from 3 years ago.  It knocked me off my chair.

When she filed bankruptcy

Single, well past middle age, a renter, and dead broke when she’d filed, she’d retired, moved, and bought a house!

Her email was entitled:  “A Happy Ending”.

I had been confident that bankruptcy was right for her, but she had found the decision fraught and painful. So it was nice to hear it from the woman who was living the life that it worked out.

I just didn’t image how well it had worked out.

Home ownership?  that soon, on her own, starting with nothing?

I didn’t see that coming.

Bankruptcy makes it possible

The downside of bankruptcy always seems to be at the forefront of the thinking of those struggling with the decision.

Debtors are bombarded with fear inducing visions of life after bankruptcy: no assets, no credit, no self respect.

Debtors image that lenders may ask about bankruptcy filings;  others might find out.  What if something catastrophic happens?

It’s easy to overlook the upside:

  • no holdovers from your current financial life;
  • no stress about promises to pay that you can’t keep;
  • no financial barriers to life improving.

Our laws make a fresh start possible.  Our economy wants us back as consumers.

The barriers to a fresh start are internal.

Usually, all we have to fear are the voices in our head.

This week’s voice from the past said there is a happy ending.

More about deciding to file bankruptcy

What the Motley Fool got wrong about filing bankruptcy

   Filing bankruptcy is all about a better future

   Tax trap in out of court debt settlement

   It’s not about the credit score

Image courtesy of Grisel D’An and Flickr.

File Bankruptcy And Leave A Legacy

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Elders in California enjoy enhanced state exemptions that protect them from debt collectors.

Those protections often make it unnecessary for a debt-laden senior to file bankruptcy.

But no one talks about one consequence of relying on exemption law to fend off creditors.

California exemption laws that  fully protect the assets of seniors provide no protection to the heirs.

The elder who elects to rely on state law exemptions during his lifetime may be leaving his estate , in effect, to his creditors.

Probate pays creditors

Probate is a proceeding to assure that the property of the decedent (the person who has passed away) goes to the correct parties.

Payment of the decedent’s debts comes before payment to heirs.

In probate, creditors have a short period to file their claims.

Once the allowed claims are paid, the heirs have no liability to the decedent’s creditors, even those who didn’t file a claim.

Exemptions in probate

Probate law provides for a homestead exemption, giving the surviving spouse and any minor children a place to live.  Cal. Probate C. 6520 and following.

The protection of the probate homestead lasts only as long as the probate administration and the property remains liable for the debts of the debtor.  Probate C. 6526.

The probate court can likewise set aside other assets for payment of a family allowance for a surviving spouse, minor children and adult children who are incapacitated and dependent on the decedent.

The family allowance also ends with the final order in the probate.

Revocable trusts expose heirs

The revocable trust, or living trust, is a popular way around the expense and delay of probate.  But it comes with a little discussed exposure to creditors.

When the trustor (the person who creates the trust) dies, the assets of the trust are distributed by the successor trustee as the document provides.  No probate is required for trust assets.

But, unless the successor trustee opens a court proceeding to administer the trust estate and gives notice to creditors, any gift to heirs from the trust comes with personal liability for the debts of the decedent.  Probate C. 19400.  That liability is capped by the amount of the gift.

Creditors have one year from the death of the trustor to file suit against the heirs to collect the debt.  Cal. C. Civ. Pro. 366.2.

Ouch!

Bankruptcy eliminates the debts

If the senior elects during his lifetime to file a bankruptcy case,  he can use the generous bankruptcy exemptions available to Californians to protect the assets he has, including up to $175,000 in equity in his residence.

Most unsecured debts are wiped out for all time.  Any accumulations after bankruptcy are free from the claims of the pre bankruptcy creditors.

And, at the senior’s passing, discharged creditors  have no claim against the estate or the trust heirs.  Whatever assets the senior has flow to those of his choosing, rather than the creditors eliminated in bankruptcy.

That point, alone, might tip the scales in favor of a bankruptcy filing even for the collection-proof senior.

More

Exemptions at work

More about homesteads

Going to court in your bankruptcy case.

 

Debt Can Kill You

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Money is the single largest source of stress in the US.

Other potent sources of stress include work, the economy, family and relationships.  As a bankrutptcy lawyer, I can’t offer a remedy for these stressors.

But I do have a cure for debt troubles.

On National Stress Awareness Day, the connection between money, stress and bankruptcy merits  some thought.

The debt plan that scares me

Of all the chilling things my clients say to me, the pronouncement that they will just continue to juggle their money worries rather than file bankruptcy is the worst.

Scared of taking steps to get rid of debt, they consign themselves to worry, sleepless nights, and constant tension over their money problems.

What they don’t understand is that serious debt is not just a financial problem, it’s a health problem.

Stress kills

Stress_2-wikimediaStress is debilitating, at best, and lethal, at worst.

When stress doesn’t kill outright, it increases the risk of heart attack, high blood pressure, depression, infertility, and premature aging.

It interferes with family life.

Stress makes you stupid.  Really!

Stress isn’t just an emotion that you can endure with fortitude and strength of character.  It has physical consequences.

To choose to enduring constant money stress is to make a potentially disastrous health choice.

Yet I encounter far too many people who underrate the physical cost of remaining in debt.

Whether they fear the future, damage to their self image, or anxiety about public exposure, they shoulder the continuing stress rather than consider bankruptcy.

Emotional barriers to a fresh start

Bankruptcy is a remedy

Available without a prescription, bankruptcy provides relief from the stress of overwhelming debt.   It doesn’t require diet, exercise, or pills.

And yet it works quickly and reliably.

It’s sanctioned in the Bible and in the US Constitution.

It’s invoked by big corporations, big cities, and big name celebrities.

It works for individuals and families.

Eliminate debt as source of stress

Make the right health choice:  consider whether bankruptcy would take avoidable stress out of your life.

What’s so scary about bankruptcy

How bankruptcy works

How to interview a bankruptcy lawyer

Images courtesy of Marsmett Tallahassee and Wikimedia: Gdudycha

 

 

What’s So Scary About Bankruptcy?

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killer-scary-public domain_opt (1)

It’s Halloween and we indulge in make-believe scary moments and call it fun.

In real life,  fear isn’t so fun.

People up to their eyeballs in debt are scared witless by the thought of filing bankruptcy.

It frightens them more than haunted houses, ghouls, and blood-soaked bodies.

So really:  what’s so scary about filing bankruptcy?

Three unspoken fears about bankruptcy

I have a theory formed after thirty nine years of talking with people who’d rather be anywhere other than meeting a bankruptcy lawyer.

I think they fear

  • loss of control over financial affairs
  • the future with bankruptcy on their record
  • public exposure as a financial failure
Let’s look at each one, in broad daylight, and see if there is anything worthy of fright.

Loss of control

Filing bankruptcy passes nominal ownership of everything you have, outside of some kinds of retirement assets, to the Chapter 7 trustee for the benefit of your creditors.  Not really reassuring on its face.

But in the real world, nearly 98% of Chapter 7 cases are no asset cases.  That means that the debtor loses nothing to the bankruptcy trustee on behalf of creditors.

The trustee never inserts himself in their financial affairs at all.

Either their possessions have little net value or an exemption protects the asset for the debtor’s benefit.

In some situations, it may be hard to tell what assets are worth or whether they are saleable.  The uncertainty makes it unpredicable to pass control to a trustee.

More about how Chapter 13 works

In such cases, a Chapter 13  is the answer.   In Chapter 13, the debtor keeps everything he wants to keep, and pays some fraction of their value to creditors, in cash, over time.

Stay in control of your assets in Chapter 13

The debtor proposes the plan, the debtor suggests the values, and the debtor can get out of bankruptcy if the case should take an unexpected and unwanted turn.

Debtor in control:  nothing to fear.

Future credit in doubt

The commercials that try to sell you some for-profit solution to your debt problem peddle fear.  They want you to think that you’ll never get credit again if you wipe out your debts in bankruptcy.

Or, they tell you, it will be 10 years before you can get credit.

Nonsense.

Credit scores improve immediately after bankruptcy

Bankruptcy makes you almost instantly a better credit risk than you were before you filed.  Huh?

It’s because there are fewer demands on your income.

Bankruptcy impacts the cost of credit.  Close in time to your filing, credit is more expensive.  All other things being equal, the cost of borrowing goes down as you get farther from the bankruptcy.

Credit heals with time

The availability of credit and its cost depends on many factors and no one can predict all of them for some unknown point in the future.

What is almost universally true is that, loaded with debt, you probably couldn’t get more credit now even if you didn’t file for bankruptcy.

Public exposure

Bankruptcy can seem like the modern day equivalent of the public stocks, where those who misbehaved were exposed to public ridicule.  That view of bankruptcy is mostly in your imagination.

Bankruptcy cases are in the public record, and anyone who wants to find out, can find out.

But tell me, how much time do you spend figuring out which of your neighbors and coworkers have filed bankruptcy?

You would also be surprised at how many people, famous and anonymous, have filed bankruptcy.  They still have friends, homes, cars, jobs, and community respect.

Studies show that job loss, divorce, and illness account for a large percentage of debts leading to bankruptcy.

You won’t find yourself alone if you take the step to do something about your debt problem.

What's so scary about bankruptcy?Not so scary

So, savor the frightful and the scary on Halloween.

Just don’t carry that false fear over into your financial life.

Bankruptcy is nothing to be afraid of.

Instead, be afraid of not fixing a problem that has a solution.

More

How to interview a bankruptcy lawyer

Which chapter of bankruptcy is best

Can you spot the myths about bankruptcy?

Image courtesy of insidethemagic.

643 Bair Island Road
Suite 403
Redwood City, CA 94063
Phone: (650) 694-4700

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