Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

Credit Reporting Agency Is All Wrong About Bankruptcy

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credit report mistake

Found a mistake in your credit report after bankruptcy?

Happens all too frequently.

But a major credit reporting agency is flat wrong on its advice on how to debts discharged in bankruptcy reported properly.

The cynical side of me is not surprised.

They get so little else right, why do I expect them to write truthfully about bankruptcy and credit reporting?

Credit report after bankruptcy

The “Experian Team”  answered a question from a reader asking how to get a bankruptcy discharge shown in a credit report.

The “team”  correctly said that a credit report should show that a debt was discharged in bankruptcy.  They were correct to say the consumer needed to challenge the incomplete information and provide the correct information.

But, their solution to a credit reporting problem was laughably off base.

Here’s what they said about getting a credit report to show that debts are discharged:

Your bankruptcy records should include a schedule “A” that lists all of the debts included in the bankruptcy filing. Simply send to the address on your report a copy of the schedule “A” and a copy of documentation that the bankruptcy has been discharged, along with a statement explaining that the bankruptcy information should be updated. If necessary, the court also will be contacted and asked to verify the information in your dispute.

Two things are glaringly wrong with this advice.

One, Schedule A is not a list of all the debts included in the bankruptcy.  It’s a schedule of real property assets, not liabilities.

Second, not every debt listed in the bankruptcy case is discharged.

We can pretend that Experian is really going to attempt to verify the challenged information.  (Studies say they don’t).

But a bankruptcy court is highly unlikely to verify the disputed information.  The bankruptcy documents are found online on PACER. No court clerk is going to tell a CRA what debts were discharged.

So, let’s hope the Experian Team gets some higher round draft picks next time around.  These team members are woefully inadequate.

Where to find discharge information

The answer about debts “included in bankruptcy” is found in two places in the bankruptcy schedules.  One place is schedules D, E, and F , which list secured debts, priority debts, and general unsecured debts like credit cards.

The second source of creditors affected by the bankruptcy is the mailing matrix or master address list.  It’s online on the court’s electronic docket as well.

The tricky thing about all of this is that not all debts listed in the bankruptcy case are necessarily discharged.

Some debts, like child support, recent taxes, and student loans, simply aren’t dischargeable.

But for most folks, trying to get their credit report to be accurate, it’s the general unsecured debts that are reported by the CRA, and often reported incorrectly.

So, don’t send schedule A with your credit report dispute.  Send schedules D, E, and F along with a copy of your discharge.

Stay on top of it until the credit report is right.

More

What was discharged in my case

Does bankruptcy fatally damage my credit?

Life after bankruptcy

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  

Bankruptcy Without A Discharge: Why Chapter 20 Works

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13 without discharge

What does a Chapter 13 bankruptcy get you if it doesn’t get you a discharge?

Lots, actually.

It’s complicated.  Powerful, but complicated.

Let’s see how all the parts interact when your Chapter 13 is filed before you’re eligible for a discharge.

Law limits discharge

The bankruptcy code doesn’t limit when you can file bankruptcy;  it limits when you can get a discharge in bankruptcy.  It imposes various interval between discharges in bankruptcy, depending on what kind of a case you filed first.

The nifty, marvelous, no discharge Chapter 7

The discharge is the court order at the end of the case that wipes out debts as a personal liability.  Bankruptcy “reform” in 2005 lengthened the intervals between discharges.

But nothing keeps you from filing a bankruptcy case, even when a prior discharge prevents a discharge in the new case.

More on Chapter 20.

And because not every debt nor every lien is wiped out in Chapter 7, there is often a need for a follow-on Chapter 13 to deal with the debts not discharged.

Automatic stay to the rescue

The debtor’s right to a stay of collection action exists, regardless of whether there will be a discharge at the end of the case.

So even a creditor who holds a debt not discharged in a previous Chapter 7 must cease collection when a new bankruptcy case is filed.

Different rules on automatic stay if the previous case was dismissed short of discharge

Important creditors paid first

Chapter 13 imposes a payment plan on creditors, willing or not.  The plan and the underlying law dictate which creditors get paid first through the plan.

The debts most likely to survive a Chapter 7 are recent taxes, family support and home loan delinquencies.

Bankruptcy law dictates the order in which creditors are paid by the Chapter 13 trustee.  Generally, secured creditors like mortgage lenders and taxing authorities with surviving liens are paid first by the Chapter 13 trustee.

That benefits the debtor who is often trying to hang on to a house or other assets that a secured creditor could otherwise foreclose or auction off.  It keeps the creditor with a non dischargeable debt that is low on the priority list, like a student loan or a restitution order, from garnishing wages or levying bank accounts.

Liens cut down to size

Liens of all kinds are unaffected by the discharge in Chapter 7, with a limited exception.  Avoiding judgment liens.

Chapter 13 lets you eliminate tax liens and judgment liens on any of your assets included in the bankruptcy without depending on your eligibility for a discharge.

Mortgage liens on your home get special protection under bankruptcy law; but a mortgage lien behind a senior lien that exceeds the value of the house can be stripped in 13 and nowhere else in the law.

Judges available for nasty fights

Bankruptcy judges stand by to consider and resolve disputes between creditors and the debtor.  In my world, that’s most often a fight between a mortgage servicer and the homeowner over what’s really owed on a home loan.

Resolution of that dispute doesn’t require a discharge, since the claim is likely secured by collateral.  The issues is how much is owed and can the servicer prove it.

That’s what judges are for.

And at the end of a 13 that cures mortgage default, the homeowner gets a determination about the true state of the debt via Rule 3002.1.

Value beyond discharge

There’s more to Chapter 13 than the discharge and it’s available without reference to prior bankruptcies.

 

 

 

Life After Bankruptcy: What’s It Really Like?

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life after bankruptcyWhat’s life really like after bankruptcy?

Everyone suffering through financial difficulties wants to know whether filing bankruptcy just trades one form of pain for another.

Will you be shut out of the American dream forever?  Unable to function in a world centered on electronic payments?

Here’s a collection of our best stories and advice on the world of your fresh start.

Your credit heals

Damaged credit improves over time, just like wounds heal. A credit report is not like a wine glass that once it’s broken, it’s gone forever.

 

after bankruptcy8 Tasks after bankruptcy

You’ve still got work to do after your bankruptcy to enjoy your fresh start.  Figure out where you are, money wise, and apply the lessons of the debtor education class you took to get the discharge.

 

after bankruptcyRenter to homeowner
Even with generous California exemptions, this aging client had nothing coming out of bankruptcy because she had nothing going in. Three years later, she’s a homeowner.

 

debts after bankruptcyDealing with debts that survive bankruptcy

A few unsecured debts can’t be discharged in bankruptcy; it’s a short list.  Some liens are your assets remain a charge on the collateral for that lien, but not on your new acquisitions.

 

car loan after bankruptcyGetting new wheels
How do you hold on to your ride, or replace your aging car after bankruptcy? Understand the impact of a shedding debts through bankruptcy.

 

bankruptcy discharge has teethDefending your discharge

The bankruptcy discharge is a federal court order;  it has teeth.  If creditors ignore your right to be free of collection efforts, you may have to bite back.

 

life after bankruptcyBankruptcy can be a life-changing event, for the positive

Life after bankruptcy can be what you make it.  You get a chance to make some new choices and to strip some sources of stress from your life.  How will you color it in?

More

Is it better to just keep making minimum payments?

Secret alternative to bankruptcy

How debt makes you dumb

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.

More

Smoke, mirrors, and budgets

Update your money software

The most powerful debt management tool: not what you think

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

Bankruptcy isn’t the last resort

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 was still 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 really 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

Credit reports heal

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

3 things that keep you from getting out of debt

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

How corporate officers can avoid personal liability

When a business needs to wind down

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

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