Northern California Bankruptcy Lawyer

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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.

Pay debts first is cheaper

In a world where your savings earn 1 or 2% annual interest, while credit cards cost 15-25%, it’s clear your net worth benefits from paying debt first.

The biggest bang for your buck, dollars and sense wise, comes from paying off debt.

Unless, of course, you have an unexpected expense and find yourself without funds to pay.  Then, short term borrowing is usually on even worse terms than credit cards.

But, hang arithmetic, I say.

Your balance sheet isn’t everything.

Habits drive the bus

Get the savings habit.  Even when you’re in debt.

Put a bit of your income aside every paycheck.

Dictionary.com says a habit is an acquired behavior pattern regularly followed until it has become almost involuntary:

Habits control as much as 40% of our daily activities.

Most of us have a bad habit on the subject of savings:  we label saving as something we can put off til later.

Later

  • When there are fewer demands on our money.
  • When our income has increased.
  • When the kids are grown
  • When the house paid off.

Whatever it it, we’ve created a habit of thinking that savings can wait til later.  That saving will be easy at some future time, whereas it’s hard now.

Only for most of us, no matter what life benchmark we’ve passed, savings never looks easy.  Or immediately rewarding.

So, it’s not easy.  It’s just essential.

Essential for a stable financial life.

Start small building savings habit

You don’t have to jump head first into the gold standard “set-aside of 10-20% of your income.”

If you’ve got debts from your past, it’s probably not really feasible.

Start small.  Save $30 bucks a month this month.

Save $35 next month. And so on.

Pay down your debts, but cultivate that saving habit.

Don’t allow yourself to think that saving is discretionary.  That’s a nasty habit.

Yes, saving while you’re paying interest on old debts slows your climb out of debt.

But the savings habit gets stronger.

As your debt shrinks, your rate of savings can increase.

Along with your peace of mind.

That’s where I come down on which comes first: paying off debt or savings.

It’s not one or the other.

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Plan Perfect Holidays And Better New Year

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12 days of christmas-wikimedia

The desire to turn over a new financial leaf usually blossoms when the bills from Christmas arrive in January.

What was a seed of an idea about getting out of debt, sprouts and grows after the holidays.

After the New Year, I see a surge of people who have explored bankruptcy with me months before.  They show up in the New Year, actually reappear to file a bankruptcy case after the holidays.

And I end up saying, not now.

Why, when it was obvious to me from our initial meeting that bankruptcy was necessary and appropriate?

Because their holiday buying on credit may be tagged as fraudulent as to the card issuers.

Fraud not dischargeable in bankruptcy

It’s a principle of bankruptcy law that you cannot incur debt, knowing that you don’t intend to repay it.  That’s fraud, or it looks like fraud.

Debts incurred by fraud can’t be discharged in bankruptcy.

The creditor  has to file a timely complaint and prove its case, that’s true. Sometimes, the creditor doesn’t bother.

But, many of them do.  Lose that trial and the debt survives the bankruptcy.

It doesn’t look good if you saw a bankruptcy lawyer in September, say, treated your family to a lovely Christmas in December by using your credit cards, then filed bankruptcy in February. Those facts make it look like you planned all along to shed the December spending in bankruptcy in the New Year.

In effect, the burden of proof in a bankruptcy trial shifts to you to prove that it wasn’t fraudulent. Not a good way to start your new financial life.

So my advice to someone with recent credit card use is usually, wait a couple of months.  Make some payments on that holiday debt.  Don’t invite a fight about your honesty in your holiday spending.

Start new now

Whether your financial fresh start next year  involves bankruptcy or just serious belt tightening, make it easier on yourself.

Start planning now how you can scale back some of the excesses of the holidays.  Don’t dig the hole deeper.

  • Apply time and thought to holiday making, rather than money.
  • Leave your credit cards at home.
  • Give gifts of your time and or skill.
  • Give one gift rather than several.
  • Engage your children in making gifts rather than buying them.
  • Entertain at home rather than at a restaurant.  Cut out the hard liquor.
  • Recycle or borrow decorations.

In short, focus on people rather than things.  That’s where the joy in the holidays is found, anyway.

More

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Getting ready for bankruptcy

Look at the big financial picture

Image courtesy of Wikipedia and Xavier Romero-Frias

Why Keep Bankruptcy Off Your Credit Record

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We’ll help you do your own bankruptcy, promises the ad.

And for a few dollars more, we’ll sell you the secret to keep your bankruptcy off your credit record.

That pitch plays neatly into the obsession that we have about our credit reports.  Even when your financial world is upside down.

But this pitch has it all backward.

Why would you want to omit your bankruptcy discharge from your credit and leave all the debt that necessitated the BR filing showing as if enforceable?

Yes, bankruptcy is a black mark on your credit record.  But so is old, delinquent debt that  you can’t pay.  Seeing old debt on your report makes it look like you could still be sued on that debt.

What business wants to make a loan to someone who appears to owe money they aren’t paying?

What consumer wants to look like a dead-beat?

Credit reporting after bankruptcy

What should your credit report look like after a bankruptcy discharge?

When a bankruptcy discharge wipes out a debt, the creditor must report the debt as having a zero balance.

They can report the backstory, but your credit record must show that you no longer owe the money.

That goes a long way to improving your debt-to-income ratio, a central element in credit scoring.

Bad debt appears for 7 years

Delinquent debt can stay on your credit report for 7 years, dragging down your apparent credit worthiness.  The seven years doesn’t start running until the debt is sent to collections or is charged off by the creditor.

So, what’s the logic in saying that you’ll take the benefits of the bankruptcy discharge, but, shushhh, don’t tell anyone that I’m really debt free?

Games with your credit report

Bankruptcy is a public record.  The docket of the bankruptcy court can be accessed online, if you want to see who’s filed bankruptcy.

So how likely is it that the credit reporting agencies won’t pick up a bankruptcy filing?

More importantly, if a public record can be hidden from the credit reporting agencies and those who supply information to them, just how accurate is a credit report anyway?

Studies show that at least 20% of all consumer credit reports contain at least one material error.

So, get your head out from under the water and look around with clear eyes about what is important.

Danger in representing yourself

I’ve picked up and run here with  just one of the misleading or dangerous claims this “service” purports to provide to people filing bankruptcy without a lawyer.

Admittedly, I’m not disinterested in seeing that people who need bankruptcy relief get a lawyer’s help to get all the relief available.  Attorneys fees, after all, are how I make a living.

But I practice this kind of law because it’s a powerful tool for people in financial trouble.

And I’ve sat in too many courtrooms watching debtors without lawyers lose assets to the bankruptcy trustee, or make timing or disclosure errors that cost them big time.

But the cautionary tale about do-it-yourself bankruptcy is told elsewhere on Bankruptcy Soapbox.

More

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Credit reports after bankruptcy

How to interview a bankruptcy lawyer

The Trouble With Your Social Security

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Social Security call

The caller says your Social Security file is incomplete and without more information, your assets, as well as your benefits, will be frozen.

Pretty terrifying if you depend on Social Security checks.

Only, it’s not true.

The caller isn’t from Social Security.

Social Security can’t freeze your assets.

Social Security doesn’t do business by phone.

But scammers love the phone and they love trusting folks and vulnerable elders.

The caller is a thief

The guy, or the automated voice, on the phone really wants you to hand him your information so he can steal money.

It may be your money he wants to steal, if he gets your banking information.  Or, he wants to steal someone else’s money by pretending to be you.

Scammers also use the IRS cover because the IRS is feared;  just another way to get your attention.

The scammers use the Social Security cover story because Social Security impacts almost every American adult.  And, Social Security is trusted.

Through the magic of hacking, they even display the real Social Security phone number.  But it’s only real on your phone’s caller ID.

The other real thing is the threat to your financial wellbeing.

Only scammers make calls

The “fact” that your first contact about a supposedly dire situation comes by phone is a giveaway that the caller is a scammer.

Real government employees write letters.

They write, and write, and write.

They explain the problem.  They suggest what needs to happen next.  And none of their fixes involve providing critical identifying information over the phone.

They make a record that way that they’ve played by the rules.

When scammers call

Your strategy is simple:

clam up,then

hang up.

Tell them nothing.

But do tell the feds.  You can report the crooks online at   https://oig.ssa.gov/report .

If you continue to be worried about your Social Security account, call the real Social Security at 1-800-772-1213 or online at the SSA’s website.

Keep your personal information personal and private.

More

When the IRS is coming to arrest you

Debt collectors exploit elders via phone

Weapons of a debt collector

 

 

 

Bankruptcy Changes Your Life, Only Not The Way You Think

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How will filing bankruptcy change my life?

My clients ask all the time.  They imagine the remainder of their life after bankruptcy with neither credit cards nor credit.  Outcasts in our economy.  Shunned by all.  Crippled by bankruptcy.

They can see a scarlet “B” tattooed on their foreheads to mark them forever as Bankrupts.

My short, irreverent answer to that question is that they will sleep better at night.

Other side effects of bankruptcy include a drop off in telephone calls from collectors and shrinkage of the amount of mail they get.

They get smarter; debt makes you dumb.

All true, but probably not the answer they expected from a bankruptcy lawyer.

You drive change

The more serious answer has to reflect what brought them to me to file bankruptcy in the first place.

When the driving force was gambling or some other irresponsible behavior, I tell them that I can dig them out of this hole with bankruptcy relief, but positive change for the future requires that they change their behavior.

When the current crisis is  created by events beyond their control, like job loss, divorce or illness, bankruptcy is likely to put their financial lives back on track.

For those in business,  failure is one of the risks that we take when we sign up to be entrepreneurs.  Bankruptcy clears the financial decks so we can go forward with life.

Life after bankruptcy

At the superficial level, life continues only slightly changed after bankruptcy.

Your credit score probably goes up a bit, in the short run.  Credit is more expensive shortly after bankruptcy, becoming more available and more affordable as time goes on.  With time and a down payment, you can buy a house.

Credit heals

Your ability to borrow too much on student loans endures.

Most important, in my view, is that eliminating debt means that you can take responsibility for providing for your old age.  A frightening slice of Americans have nothing more than Social Security to support themselves as they age.  And age they will, even if they believe they will never “retire”.

An equal number of people couldn’t handle a $400 emergency without borrowing money.

Life after bankruptcy can be what you make it.  Bankruptcy makes it possible;  you fill in the details.

More

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Bankruptcy myths

Who Owns Your Business When You File Bankruptcy?

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business bankruptcy

The bankruptcy trustee’s question was straightforward (if inartful) yet the business owner nearly blew the answer.

The trustee asked:  are you the sole owner of your business?

When my client hesitated, she followed up:  are you a sole proprietor?

Focusing on the fact that he was the only person with an interest in the business, he said yes.

Wait a minute, was my response. That’s not so.

It took several minutes of sworn testimony at the first meeting of creditors to sort the matter out.

Who owns the corporate business

We were once again experiencing the phenomenon of the shape-shifting business owner.  The businessman had, in his mind, morphed into a sole proprietor rather than a stockholder.

The debtor was the sole owner of the corporation that owned and operated the failed business.

He was correct that no one else had an interest.  He skipped over the part that it was another legal entity, his corporation, that actually owned the assets and owed the debts of the business.

He owned the corporation that owned the business.

Why it matters

A sole proprietor owns a business as a personal asset.  In law, he owns the assets of the business and is liable for its debts.

A sole proprietorship has no legal existence separate from the owner.  The proprietorship may adopt a fictitious business name, but behind that dba is the individual who owns and operates the business.

So, if my client were a sole proprietor, the inventory of the business would have been an asset of the bankruptcy estate created when he filed bankruptcy.  The business bank accounts would fall to the control of the trustee.

When a corporation is created, it becomes a legal entity distinct from the individuals who own the shares in the corporation.  The corporation can have its own debts and its own funds that don’t belong directly to the shareholders.

That’s why business people incorporate:  to create a legal “person” that can take risks without exposing the shareholder’s other assets to that risk.

When my client filed his Chapter 7 case, his stock in the corporation was an asset of the bankruptcy estate, but not the business itself.  The business was owned and operated by the corporation.

Since the corporation had tons of debts, the stock that the bankruptcy trustee could administer had no net value.  That’s because, equity holders get money when a corporation liquidates only after creditors of the corporation have been paid off.

The takeaway

The first meeting of creditors in a bankruptcy case is the trustee’s opportunity to gather more information about what the debtor owns and owes.

Once you focus on what the trustee needs to get from the meeting, it’s easier to answer correctly and avoid the confusion that happened in my case.

When confusion ensues, it’s important to sort it out on the spot.

And that’s how I earned my keep in this case.

More

Rules for testifying at a bankruptcy hearing

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When a business needs to wind down

We’re Now In Redwood City

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Moran Law GroupMoran Law Group has packed up and moved to Redwood City!

Effective October 1, 2018, Cathy and Renee are holding forth at 643 Bair Island Road, Suite 403, Redwood City.  Our phone number and email addresses are the same.

We’re sharing our office with two good friends and marvelous bankruptcy lawyers, Jeff Curl and Wayne Silver.  Rubbing shoulders with these guys sharpens our legal thinking and just generally enlivens our days.

We will continue to counsel consumers and small businesses about their financial challenges and provide candid advice on whether bankruptcy is appropriate.

We are focused on insisting that creditors honor the fresh start that a bankruptcy discharge should bring with it.  That means we are ready to go to court if necessary to make creditors obey the law and make you whole for the cost of the exercise.  We can help you enforce your rights even if we didn’t represent you in your bankruptcy case.

We also tackle mortgage servicing issues that arise after a Chapter 13.  All too often, it seems that lenders can’t keep track of the money they’ve collected, nor can they follow the law on being transparent about what they do.

 

Take The Long View : Money For A Lifetime

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financial literacy building blocksThe financially literate manage their money for the long haul.

In a world of biweekly paychecks and monthly billing cycles, it’s easy to let your perspective shrink to 30 day increments.

  • Mortgages are paid monthly
  • Utilities bill every 30 days
  • Credit cards come due 12 times a year

The monthly bank statement tells you how you did that month.

But that view is incredibly short-sighted.

Your working life isn’t everything

Most of us don’t work for our entire lifetimes. Your financially productive years  may be only half of your lifespan.

There’s growing up and getting an education;  there’s a working life; then there’s old age.

And the money we manage in that middle slice of life usually determines how well we live at the end of our lives.

If you expect to inherit a fortune from short-lived relatives, you can stop reading here.

For the rest of us, let’s keep thinking. [Read more…]

Planning For Bankruptcy: Eliminate The Tax Refund

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Getting a check from the government isn’t always a great thing.

Not when it’s the government returning YOUR money as a tax refund.  You’ve struggled without the money for a year while Uncle Sam used it without interest.

But it’s even worse when you’ve filed bankruptcy during the tax year, and come April, the bankruptcy trustee demands the turnover of a portion of the refund as having accrued before you filed bankruptcy.

Ouch!  You lose twice.

Cut your creditors out of your tax refund

Part of your pre bankruptcy planning should include a look at your current year withholding.

If you usually get a substantial refund, or if something in your tax life suggests you’ll get a big refund for the year you file bankruptcy, do something! [Read more…]

How Does Your Household Budget Measure Up?

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stretching money

The expenses your paycheck has to cover go on and on.

Each dollar is stretched;  each expense clamors for attention.

Too often, the expenses go on long after the available money is gone.

What seem like immediate needs squeeze out those necessities that only come round occasionally but in big numbers:  car repair, medical incidents, college.

And when the “occasionals”  do come round, you’re caught short.

I generally see families to talk about bankruptcy when things have gotten so out of balance that better budgeting won’t fix the problem.

So, let’s take a tour of the cost of living so you can stay in balance, and we’ll never meet face to face in my law office.

What daily living costs

Consumer Credit Counselors  proposes a model allocation of your income among all of those categories on your household expense list.

The headings in blue are the big wedges of the pie;  below are all of the expenses to be paid from that percentage of your income.

 

MONTHLY EXPENSES

MONTHLY AMOUNT

HOUSING

 35%
Rent
First Mortgage
Second Mortgage
Association Dues
Property Taxes
Renters/Homeowners
Lot Rent
Home Maintenance
Electric/Gas/Oil/Propane
Water/Sewer/Garbage

TRANSPORTATION

 15%
Gasoline
Auto insurance
Maintenance – Oil/Lube/Tires
Auto Tags/Inspection
Bus Fares/Ride Shares/Parking

INSTALLMENT DEBT

 15%
Car Payment #1
Car Payment #2
 Student Loans
Tax installments

EVERYTHING ELSE

 25%

FOOD
Groceries
Meals Out
School Lunches
Food/Snacks at Work
Telephone/Cell Phone/Beeper
Cable TV/Internet

CLOTHING

INSURANCE
Medical
Life

HEALTHCARE
Drugs/Medication
Office Visits/Deductible
Dental
Optical

CHILDCARE
Daycare/Babysitter
Allowances/Kid’s Stuff
Diapers/Formula/Baby Supplies
Child Support
School – Tuition/Supplies
Church/Charities
Lawn/Pool Maintenance/Home Security
Personal Care – Shampoo/Toothpaste/Haircuts
Bank Service Charges/Postage
Work Tools/Clothes/Occupational Dues
Dry Cleaning/Laundry
Home Cleaning Supplies
Cigarettes/Tobacco
Hobbies/Clubs
Lottery/Casinos/Bingo
Gifts/Parties/Holidays/Cards
Vacations/Travel
Alcohol
Books/Newspapers/Magazines
Lawn/Pool Maintenance/Home Security
Movies/Sporting Events/Entertainment
Pet Care/Vet/Food/Medications

Savings/Reserve

 10%
Emergency reserves
Retirement
College

TOTAL

 

So, how do your monthly expenditures line up against this model allocation?

I was struck by how many of my standard expenditures are slated to come out of just 25% of my income.  That’s a long list.

Reshuffle the cards

Another way to look at your allocation of money comes from now-senator Elizabeth Warren’s book, All Your Worth:

  • 20% to savings;
  • 50% to must-haves; and
  • 30% allocated among your “wants”.

How does it work in your household?

 

 

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

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