Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

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Debt Collector Disarmed

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debt collector

 

The weapons of a debt collector are fear, shame, and annoyance.

The weapon delivery system is communication.

Those weapons don’t have to be any more threatening than a plastic toy pistol, if you understand what’s going on.

To use those emotional weapons, the collector needs to get to you, either by phone or in writing.

They need to stir those negative emotions in the hope of getting you to pay them instead of some other pressing need.

Disarming the debt collector

 

Turns out, you have a weapon of your own.

It’s paper, but it works.

Invoke your legal right to be left alone and you disarm them.

Afraid to answer the phone

The woman on my phone was petrified about the balance on her husband’s credit card.

A mid life stroke and he was in a nursing facility; she was supporting the family singlehandedly.  The credit card issuer wrote that she had only 10 days to pay or they’d refer the matter to their attorneys.

Paying the credit card was not a priority at the moment, but they had convinced her the world would end if she didn’t pay now.

I proposed a letter of her own:  claim the right to cease communicating.

Getting collectors to stop

The Fair Debt Collection Practices Act has a hidden gem:  the right to be left alone.

FDCPA applies to outside collectors for the original creditor.  It doesn’t apply to the original creditor using in-house collectors to get you to pay.

California doubles down and makes the same right apply not just to a third party collector but to the original creditor as well.  The law is known as the Rosenthal Act.

Cutting off communication doesn’t make the debt go away.  It doesn’t keep the creditor from suing on the debt, if they really want to do so.

It does keep them from ratcheting up those emotions, fear, shame and annoyance, that may lead you to pay the wrong bills first.

Who to pay when the money doesn’t go around

Debt collectors make the most money if they can get you to write them a check to go away.  It’s much cheaper and faster than suing you.

Much less likely to send you scurrying for bankruptcy.

How to do it

To mute the collector, you must put your demand in writing and send it to the collector.

There are two magic phrases: either “stop communicating with me” or  “I refuse to pay“.

Either one, in writing, cuts off the collector’s right to harass you.  See 15 USC 1692c(c) and Cal. Civil Code 1788.17

There are a couple of exceptions, things the collector can legally communicate after you send that letter.

  1. They can tell you their efforts are being terminated.
  2. They can tell you what kinds of remedies remain available to them.

That’s it.

Remedies if they break the law

There’s no meaningful right if there is no remedy.  so the law arms you to enforce your rights.

FDCPA creates small but powerful remedies;  the Rosenthal Act adopts them.

A debt collector who violates the law is liable to the victim for

  • Actual damages
  • Statutory damages up to $1000
  • Attorneys fees and the costs of suit

A successful enforcement action requires that you assemble evidence:  a copy of the letter you wrote; a log of collection actions after that letter that violate your rights; and an account of the damages that those violations caused you.

A consumer rights lawyer can help you vindicate your right to be left alone.

What to do when it’s quiet

Once your adrenaline goes down, and you can think about your debts without fear, you can look at the big picture.

  • Is your debt problem bigger than this one creditor?
  • Is your cash situation likely to change significantly in the near term?
  • Are you crippling your budget to pay creditors at the expense of essentials?
  • Do you have a financial reserve if there’s an emergency?

If the problem is bigger than the creditor on the phone, see a reputable, non profit credit counselor or an experienced bankruptcy lawyer to explore your option.

More

Are there alternatives to bankruptcy

Considering bankruptcy

If you get sued

Image courtesy of David Cosand and Flickr

Stop Making Quarterly Tax Deposits

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tax+forms+and+billsWe never make tax deposits for our small business because we don’t know what we’ll owe.

We just wait til the return is prepared and try to pay then, he explained.

But, again this year, he couldn’t write a  tax check for a year’s worth of income.

So the client sitting across the table from me had an $8,000 tax bill for last year, and in mid October, had made no deposits toward this year’s taxes.

Waiting for certainty about what he’d owe, he racked up penalties for not making advance deposits, penalties for not paying when the return was filed, and interest on the unpaid tax.

And he was positioned to do it again this year.

Ouch!

Quarterly tax deposit trap

I’m sure the provision that the self employed make quarterly deposits, rather than more frequently, for the current year taxes was thought to be a convenience for small business.

Instead, in my opinion, it is a trap.

It calls on entrepreneurs to estimate what they’ll owe, set money aside as it comes in, and, every three months, have enough money on hand to cover the check for the taxes.

That’s often a tall order for the self employed, who wear lots of hats and juggle lots of responsibilities in their business.

And it’s costly and uncomfortable when you don’t manage to do it.

Replace the quarterly tax deposit

Discard the quarterly tax deposit.  Instead, make a monthly tax deposit.

Treat income taxes as one more regular, monthly expense of being in business.

Deal with current year taxes each month so you don’t have to save up the money to cover the tax bill.

How much to pay

Start with your tax liability for last year.  Deposit 1/12 of that amount each month toward your current year taxes.

Write on the check your tax ID number, and a notation that the check represents estimated [current year] tax liability.

As the year goes on, you can estimate how this year’s income compares to last year and adjust that monthly check up or down as the facts suggest.

Breaking the tax delinquency cycle

For the man in my office, I had this suggestion:  rather than  paying $1000 for last year, when you’ve paid in nothing for this year, split up the money available for taxes.

Make a smaller payment toward the already delinquent taxes, say $250;  pay $750 toward the current years taxes.

It’s already October, so he probably can’t pay in enough to avoid all penalties for being underwithheld for this year, but it’s a start on changing his ways and paying less in tax penalties in the future.

More on taxes

When taxes are dischargeable in bankruptcy

Tax question round up

If you haven’t filed returns

Image courtesy of Flickr and 401(k) 2013  

The Flat Wrong 1099

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credit-squeeze-transparentWhen her soon-to-be-ex filed bankruptcy, my client got a 1099-C for the joint credit card.

The form claimed that the debt was cancelled.

Therefore, she had additional income equal to the card balance.

Only, none of the statements on the 1099 were true.

The debt wasn’t discharged as to the non filing spouse.  One spouse’s discharge does not discharge the personal liability of anyone else.

Further, the liability of the soon-to-be-ex wasn’t even discharged yet since it was the beginning of a 3 year Chapter 13.

The discharge doesn’t come until all the plan payments are made.

What to do?

Cancelled debt and taxes

Tax law requires the holder of a debt that is forgiven to report the forgiveness to the IRS.

The forgiveness can be voluntary, as in, we compromised the debt and now you owe less.

Or, it can be by operation of law:  you filed bankruptcy and discharged the debt.

Either way, the tax man sees the amount of money that you no longer owe as if it were cash income.

And, if it’s income, then you owe tax on the income.

No tax in bankruptcy

If my client was the spouse who had filed bankruptcy, she would properly have gotten a 1099-C, at the end of the case.  When the debt was truly gone.

But she wouldn’t have owed tax on the discharged debt, because bankruptcy is an exception to the rule.

Debt forgiven in any chapter of bankruptcy does not trigger cancellation of debt income.  Therefore, no tax.

Tax treatment of cancelled debt is one of the sterling features of bankruptcy that make it superior to debt settlement.

Attacking the erroneous 1099

Strike first, is my thought, when the 1099 is wrong.

The credit card company issued the defective 1099. Write the issuer and request an amended 1099.

The deadline for sending out 1099’s is about six weeks earlier than the deadline for submitting the 1099’s to the IRS.

Jump on the problem right away and attempt to correct the situation before it gets to the IRS.

When the IRS gets bad information

If you couldn’t head off a submission to the IRS that was wrong, tackle the problem in your tax return.

You can’t just file the return as if the IRS didn’t think you had this  extra “income”.  You have to address the error and overcome it.

The IRS has a form for claiming an exception to the cancellation of debt income rule:  Form 982.

Attach your explanation of why the 1099 is wrong to the 982.  There isn’t a box, or an “other” category on the form where you can provide further information, so you’ll have to attach your explanation to the form.

If not resolved at the issuer level, my client will have to point out that she hasn’t been relieved of the debt, since she hasn’t filed the bankruptcy AND that her spouse hasn’t yet been relieved of the debt yet either, as there is no discharge.

Wash, rinse and repeat

I’ve spoken as though the IRS was the sole taxing authority involved.

If you live in a state with an income tax, you must repeat the drill described for the IRS with your state tax agency.

Personal liability required

Probably the most common error in issuing 1099’s is the matter of personal liability.  If the debt cancelled was non-recourse, the borrower had no personal liability in the first place.

Cancellation of a non recourse debt doesn’t alter the borrower’s balance sheet.  The borrower wasn’t personally liable before cancellation, so there’s no cancellation of debt income to address.  More on the fictional 1099.

As I said, see above and wash, rinse and repeat.

More on tax

Discharging taxes in bankruptcy

Tax liens after bankruptcy

When tax debt is a life sentence

 

What Goldilocks Knew About Tax Season

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goldilocks-flickr_optIt’s so easy to get a tax filing extension and put off the unpleasant work til fall.

Procrastination is easy, and even sanctioned by the simplicity of an extension.

But doing it now is important to your financial wellbeing

From a purely selfish point of view, you need to know where you and Uncle Sam stand.

Really it’s all about next year.  What did Goldilocks know about taxes?

Getting withholding just right

Your withholding for next year’s tax bill needs to be just right, not too large, not too small, but right close to what you’ll owe.

Just like Goldilocks and her porridge.

And a good estimate of what you’ll owe for this year is what you owe for last year, the return we’re preparing this spring.

Unless your finances are wildly variable, last year may not be a surefire template for this year, but it’s usually close.

But you don’t know what you owed for last year til you do the math.  (I know, math, but it can’t be helped).

Scared to know?

Fear keeps many from figuring out what they owe on their taxes.  Fear that it’s a number bigger than they can pay.  Fear of drawing attention to themselves.

So, let’s look at the downside of putting it off til October.

For starters, it costs you to be underwithheld.  There’s a penalty for not prepaying enough of this years taxes during the year. [Read more…]

Stay At Home Doesn’t Mean Get Left Behind At Retirement

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couple-sunset_opt

Just because you don’t work outside the home doesn’t mean you can live on nothing in your old age.

If you are married and your spouse has qualifying income, you can contribute to a spousal IRA.

And you should.

The IRA rules for a nonworking spouse are essentially like the rules for an employed person:

  • have a spouse with earned income
  • contributions capped at $5500 or  $6500 if you are over 50
  • age less than 70 1/2
  • choose between traditional IRA and Roth IRA

The Motley Fool has a fuller yet readable treatment of rules and options for spousal IRA’s.

So, even if paycheck comes with your spouse’s name on it, you can save for retirement in your own name.

Or plan to die young

I know that’s harsh, but it gets attention.

The alternative to taking responsibility for your retirement is, of course, to plan to die young. [Read more…]

Your Business Partnership Needs A Prenup

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Wedding_2Financial partnerships are at least as challenging as marriages.  And business deals don’t have love to smooth the rough spots in the relationship.

The traditional marriage service ends with the charge that what God has joined together,  let no man put asunder.

That’s great with love, but not so great with money.

Something will likely asunder the business venture.

Yet people pool their money in business, real estate, and investments without a thought to how the partnership will end.

Chances are, it will end, and that end can be very messy and miserably expensive.

My charge to those pairing up for an investment is this:

At the start of any venture involving pooling money, lay out some rules for how you part in the end.

Think of your business wind-up rules as a prenuptial agreement for your business. [Read more…]

Don’t Get Fleeced At The Car Dealership: Tips On Buying A Car

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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.

10 Top Tricks Of The Lending Industry

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consumer credit

 

The tricks of the lending trade are limited only by the imagination of the lender. And they’re all conceived with one end in mind — big profits, not helping you.

And, unlike Pinocchio’s ever-growing nose,  the consumer doesn’t see any tell tale signs that warn of deception at work when credit’s being peddled.

Here are 10 widely used tricks to  get you to make a bad deal for credit.

1. YOUR CREDIT’S BAD.

So you have to take this lousy deal.

A blemished credit record is no reason to accept credit at 25%, 50%, or even several hundred percent annual interest. Or “low-interest” credit scams that tack on big fees for pre-payment, late payment, documents or credit reports.

Even folks with tarnished credit can get loans and credit cards that don’t charge an arm and a leg to borrow. Shop around!

2. YOUR CREDIT’S GOOD.

So we’re offering you all these ‘pre-approved’ credit cards.

Sometimes the same debt pushers who tell you one day that your credit’s no good will stuff your mailbox the next day with “pre-approved” credit cards, home equity loans and other high-cost money.

Debt pushers throw loans and credit cards at unemployed college students, people fresh out of bankruptcy and others who can’t afford them.

So don’t be flattered when someone offers you credit. Credit is the business of making money off your debt – off you. Make sure it’s both necessary and fair before accepting any loan.

3. LOW MONTHLY PAYMENTS!

Forever.

Paying $100 a month for 24 months costs a lot more than paying $150 a month for 12 months. And minimum monthly payments on credit card bills and such can have you paying interest on a take-out pizza for decades!

So don’t base your borrowing decisions on low-monthly-payments alone. Low monthly payments are great – for the debt pushers. They’re practically pure interest and they can stretch your payments out endlessly.

4. ACTUAL COSTS MAY VARY.

By hundreds or thousands of dollars.

If it looks too good to be true, it probably is.

  • 0% interest to start.
  • Bounced check “protection.”
  • Buy now – pay later!
  • Low initial costs and extra “protection” are often just smoke screens.

The question to ask is: “What will this cost me overall?” Because fees and penalties are among the sneakiest credit-pusher games.

Some “low interest” credit cards permanently rocket up to 30 or 40 percent after a single late payment. Or if you spend just $1 over your credit limit. Or if you missed or paid late on another bill from another lender!

Credit-pusher traps are horrific and, worse, they’re often perfectly legal.

5. THESE ARE THE RULES.

For now. We can change them whenever we want.

Standard contract law just doesn’t apply. Loans and credit cards can simply send you a notice with the monthly statement that they’re changing the rate, the due date, the fees and penalties, or the amount of time you have to pay off the loan. Simple as that.

Missing this small single notice locks borrowers into terms they never agreed to.

6. WE NEED THESE PAPERS BACK TODAY.

Sorry. No time to take them to your lawyer.

A rush job is a sure sign of trouble.

If you can’t take a loan contract home or to an attorney, walk away. There’s something there they don’t want you to see.

7. YOU’RE ONE OF US.

We’re just like you. Trust us.

  • Seniors to seniors.
  • Military to military.
  • African-American to African-American.
  • Christian to Christian.

Credit pushers are as conniving in their recruitment as they are in their sales. It’s called affinity marketing.

But just because the salesperson looks like you doesn’t mean they have your interests in mind. Affinity marketers are another way to distract borrowers from the price and terms of a bad deal.

8. THE FINE PRINT SAYS IT ALL.

We win. You lose.

The fine print in almost every consumer agreement – from phone and internet to college loans and employment contracts — says that if you get into a dispute with the vendor or lender you have to settle it their way, through binding mandatory arbitration.

But the arbitration game is rigged. The other side often picks who does the arbitrating – and it may cost you lots of money to even get the case heard.

There are so many arbitration clauses out there that it’s hard to avoid them. But if you see one you should take your business elsewhere.

9. GET YOUR CASH NOW!

And don’t pay attention to what it costs.

Fast-cash places like “payday lenders” and automobile “title pawn” shops give fast loans – so fast that the borrower never sees what are often the worst deals that even credit pushers have to offer.

Even a hundred-dollar loan from these vultures can put a person on a treadmill that can ruin a family’s finances for years.

And watch out at income tax time for “Rapid Refunds” or “Refund Anticipation Loans”- that’s just borrowing your own tax-refund money at ridiculously high rates!

10. LIVE LIFE THE WAY YOU WANT.

And spend years paying for it.

Take that vacation! Buy those fancy wheels! If someone’s willing to lend you the money then surely you can afford it, yes?

Well, maybe not… Don’t let those who will profit from your payments talk you into deals by making it look like you’ve got the power.

To tell the truth

This list  comes from material put out ten years ago by Americans for Fairness in Lending.  Their copyright notice asked that it be shared.

They are no longer around, dissolved, I suspect, when the Dodd Frank bill passed Congress.  Our work here is done.

Dodd Frank created the Consumer Financial Protection Bureau, Elizabeth Warren’s idea to create a governmental counter-weight and watch dog on those who sell to consumers.

Just recently the CFPB instituted a rule concerning mandatory arbitration clauses.  See Trick 8 above.

The rule prohibits covered businesses selling to consumers from including fine print in their contracts that bar the consumer from joining a class action suits.

Class actions are usually the only way that consumers ripped off in small amounts can effectively get redress for their financial injuries.  Which of course, big businesses want to be free to inflict, without worrying about pesky consumer lawyers.

But that’s my cynicism, or is it experience, showing.

CFPB or no, these lender tricks work, and will continue to work to snare the unsuspecting or the desperate.

So, be a smart consumer.  Hone your spidey senses for these credit pitches and proceed with caution.

Image courtesy of Tristan Schmurr

Pay Down Debt Or Save? Which Should Come First

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debate

Pay off debt first or start saving now?

It’s a debate almost as convoluted as which came first, the chicken or the egg?

Experts heatedly take opposite sides.

You get rid of debt faster if you put all available cash into paying off balances.

BUT

You have no reserves for the unexpected if you spend everything that comes in.

After much thought, and triggered by new research, I’ve got my answer.

Start saving now.

I am convinced habits are more powerful than arithmetic. [Read more…]

5 Small Business Mistakes To Avoid If You Want Success

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small businessEveryone tells you what to do to succeed in business;  you also need to know what not to do if you don’t want to fail.

Running your own business is the classic American dream.  It’s romantic and heroic.

The romance of self determination, market recognition, and profit obscures the fact that the overwhelming percentage of small businesses fail within 5 years.

I love entrepreneurs.  They are creative, determined, skillful, and incredibly  hard working.  And still they fail.

Those failures represent not only dashed dreams, but financial pain.  That financial pain is personal pain as well.

No isolating business debt from personal assets

In thirty seven years as a bankruptcy lawyer, I’ve found themes in why they failed.  Here is my list of five behaviors tied to business failures. [Read more…]

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