Northern California Bankruptcy Lawyer

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The Soap Box

When $400 Emergency Pushes You Over The Edge

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The Federal Reserve reported that 40% of Americans couldn’t meet a $400 emergency without borrowing.  A significant slice of them couldn’t pay it at all.

So, a Bloomberg economist devoted his column to deconstructing how the press and political figures, in his opinion, misused that finding.

My God.

The guy was too caught up in quibbling about how the numbers were summarized to grapple with the human story beneath the numbers.

He took comfort in the fact that only 12% couldn’t borrow $400.

Emergency borrowing

What about those who could pay $400 by borrowing?

  • Where are they if another $400 emergency comes along?
  • If they didn’t have $400, what has to give in their budgets to pay back the $400 that they borrowed?

Payday lenders charge an average of 400% interest for a two week loan.  While touted as a vital service to low income communities without access to bank loans, payday lending is too often nothing more than financial quicksand. 

Access to high-cost credit: Federal Reserve study on its effect

Borrowing from family and friends has its own social perils. And it assumes that family and friends are better off than the borrower.

From where I sit in Silicon Valley, a huge swathe of America is living on the financial edge.

The shear cost of day to day living consumes their income and their energy.  Too often expected to individually fund health care, college and retirement, they find even multiple jobs, or the gig economy doesn’t allow a financial cushion.

What a waste of economic expertise to focus on the use or misuse of numbers and not address why so many are financially vulnerable.

 

Don’t Brag About What You Saved Unless It’s True

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saving spending

It’s a mark of our consumer economy that we use the word save in connection with our spending.

I saved $15 on this blouse.

That’s well and good for today.  You bought something you wanted, or maybe even needed.

But unless you put the savings aside for later, you did nothing more than spend somewhat less today, without thought for tomorrow.

Your savings on today’s purchases won’t be available to buy necessities in your old age.  The money you “saved” is gone, spent today on something else.

Our language doesn’t help

We are aided and abetted in our savings mind-game by English usage. Saving is a virtue we applaud.

But “save” has two, almost opposite, meanings.

According to Merriam Webster, save means both

a: to put aside as a store or reserve : accumulate

  • saving money for emergencies

b : to spend less by 

  • save 25 percent

Don’t confuse the two.

The more meaningful savings are when money gets set aside for use later,

-to pay for an emergency

-to fund a big purchase

-to support a comfortable old age

We suck at savings

Actually, lots of us are good at “saving” in the Definition B sense.  We comparison shop, we follow the sales, we use coupons and garner reward points.

It’s the savings as creating a reserve that we flunk. 

Average monthly social security check is $1400.

 Too many Americans couldn’t handle a $400 emergency.  Half of Americans have less than $1000 in savings.  Half of Americans have no retirement savings.

What will we tell ourselves in our old age about our prowess at saving?  Will we have a slick word-game that puts food on the table or gas in the car?

How about making Definition A our go-to plan for savings.

More

The second-best reason to contribute to a retirement plan

But my home is my retirement plan

How to open an IRA account

Is Your Choice Of Bankruptcy Chapters Really Dictated By Your Stuff?

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Through my Twitter feed came a link to the pro’s and con’s of filing bankruptcy from the business section of the Chicago Tribune.

Good chance to see how non lawyers see my world, I thought.

Bankruptcy was all about protecting “stuff”, said the writer, and the choice of chapters is driven by the kind of “stuff” you had.

Chapter 13 is for people who have equity in their property;  Chapter 7 is for people who have little and can’t meet their basic expenses, the article went on.

I could quibble about the dichotomy that’s set up that Chapter 7 filers have nothing and Chapter 13 filers have more. (Often, it’s the other way around).

I  further contest  the implied suggestion that the Chapter 7 discharge is broader than Chapter 13.  (It’s not.  In fact, the Chapter 7 discharge is a bit narrower.  It’s just quicker.)

But my real beef is the characterization that bankruptcy is about your stuff and how to keep it.

Not so, in my view.

Bankruptcy is about people, not possessions

Bankruptcy is all about protecting lives.  Sometimes it’s about giving up “stuff” and getting back your life.

Your old age is strongest reason to file bankruptcy

It’s about not paying forever for bad luck or bad choices.  It’s about freeing up money to provide for your future.  It’s  about freeing up mental energy to do something beyond juggle too-little money, subject to too many creditor claims.

Considering bankruptcy is a chance to evaluate what’s really important and what’s possible.

Sometimes, stepping back tells you the house is worth struggling for.  Sometimes, in the big picture, the house is really a dead weight on the important parts of your life.

Bankruptcy is about starting over, or reorganizing.  It’s about recognizing reality and doing something about it.  It’s about being an activist to take back your financial life.

Stuff be damned.

More

Hold or fold?  is bankruptcy the right choice?

Life after bankruptcy

 

@cathymoran

Image courtesy of mojmir_ch.

Give More Than Thanks

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share at Thanksgiving

Ever feel the disconnect between buying your groceries for the Thanksgiving meal, then dropping some loose change into the kettle for the needy?

Lots for my family, but leftovers for those who are hungry

That seems to be the message.

Those of us who are prospering are doing well, but lots of neighbors and elders struggle mightily.  Food insecurity is everywhere.

One in six Americans goes hungry.   The average Social Security check is less than $1300 a month, for instance. Families with children struggle even more than elders.

So, I write a check to my local food bank equal to my spending on my family’s Thanksgiving dinner.

I challenge you to do the same.

It’s one day and one check.  But for that day,  there can be parity between what we give ourselves and what we give others.

It is inexcusable and callous that there are hungry kids around us. Your loose change isn’t going to make much of a dent.

Take up the challenge and give more than thanks at Thanksgiving. Give dollar for dollar.

Then let’s devote ourselves to implementing solutions to pervasive hunger in a country so rich.

We Live In An Economic House Of Cards

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I’ve long said to bankruptcy clients that bankruptcy can’t fix an income problem, it can just ameliorate an outgo problem.

In the last round of frantic bankruptcy filings a decade ago, one symptom seemed to be that too many families in the Silicon Valley  couldn’t really afford to live a middle class life here.

They filled the gap between economic realities and their expectations with credit cards until the house of cards came tumbling down.  I could provide the tourniquet that staunched the credit card outflow.

But it seems the problem of struggling families isn’t just an outgo problem: it’s income based and it’s everywhere, not just California.

A United Way study,  released last week, shows 43% of American households can’t afford a bare bones budget.  That’s 51 million households that can’t afford the basics of food, rent, child care, transportation, health care and a cell phone.

Even with reportedly low unemployment, the income generated falls short for a huge swath of our populace.  The people the United Way set out to study were those they dubbed ALICE:  Asset Limited, Income Constrained, Employed.

What they found calls out for national attention and a reordering that keeps all of our families self sufficient.

My skill-set in bankruptcy is no match for people on the edge of destitution.

 

 

I’m Done Talking About Importance of Retirement Savings

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retirement planning

Shedding debt so you can save for retirement is the most compelling reason to file bankruptcy in my book.

Get rid of the debt that’s dischargeable so you can fund your retirement, I exhort.

Between the crippling cost of housing in the Bay Area and parent loans for college, there is so little margin for discretionary spending that I begrudge every dollar my clients spend on credit card debt.

I cringe when I see families paying American Express instead of their IRA.  I acknowledge the reality of the obligation to the credit card folks.  But the consequences of not paying are vastly different for an individual than they are for credit card issuers.

American Express, and every other consumer lender, built into its pricing model the fact that not everyone who borrowed money on their plastic card would repay.  They still make money whether you pay off your card or not.

American Express doesn’t have to retire, and you do.

With few exceptions, every client I meet without an employer funded or sponsored retirement program has only pennies set aside for retirement.

All that said, when I ask about what the client has saved for retirement, I’m met with one of two retorts:

My house is my retirement is one, superficially convincing in the land of runaway home values.  (Houses don’t make good retirement plans, however.)

But the second is:  I don’t plan to ever retire.

Sometimes the “I won’t retire” is an acknowledgment that they can’t support themselves without a job.  Other times, they are indulging in magical thinking that they will always be capable and valuable to an employer.

The facts of aging, of course, are different.  We’re living longer, markedly longer.  Dementia is on the rise.  The average Social Security check is around $1300.

No more pretty talk

old ageSo, I’ve had it with serving up polite talk about “retirement.”  In this era of blunt speaking, let’s take off the gloves:

My question to clients henceforth is “how are you going to pay for old age?’

We can dance around whether we’re ever going to “retire”; but presumably, we’d all like a long stretch before we die.

And that long stretch requires funds if old age is going to be comfortable.

So, my mantra going forward is discussion of funding old age.

The ugly truth is that savings for old age requires discipline and some degree of self denial.  And many of my clients demonstrate enormous amounts of discipline in making minimum payments and keeping all the financial balls in the air.

Yet none of that discipline is exerted to provide for their old age.

The images of impoverished elders are not pretty.  Don’t find yourself supplying another heartbreaking picture of failure to plan for old age.

 

 

 

 

 

Google & Me

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Birthday_cake-wikimedia FIR009

Google and BankruptcyInBrief share a birthday, I’ve learned.

I’m sure you saw the similarities in a flash.

The Mercury News reports that Google was founded in 1998, the same year I bought a book and set out to make a web site about bankruptcy.

I knew nothing about programming, and less about web design.  But I knew that there was a crying need for sound information about bankruptcy, the options and the opportunities.  And it wasn’t there when I started writing.

Bankruptcy in Brief grew exponentially, just like the Google empire <g>.  Starting with four pages, I kept writing til it was 150 pages.

This site, Bankruptcy Soapbox,  is the loudmouthed cousin to Bankruptcy In Brief, where I can be opinionated, topical, and colloquial about what’s happening in the world of bankruptcy, debt, and  our economy.

It’s all been fun.

But I sure missed the Stanford class that Larry and Sergei took that resulted in Google.

Image courtesy of Wikimedia and Fir0002.

 

Bankruptcy Statistics Are Always Singular

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Bankruptcy trends meaninglessWho cares whether bankruptcy filings are up or down?

Bankruptcy professionals, certainly.

Economists, probably.

But if it’s you and your checkbook, you take little comfort that lots of others are filing.  Nor when everyone else seems to be making it OK  while you flounder are you reassured.

My friend Wendell Sherk is right about bankruptcy following economic expansion.  Some expansion always falls flat.  Bankruptcy is the remedy.

And for the society, bankruptcy is a powerful remedy.  It allows risk taking without live altering consequences.  It allows those who’ve made bad decisions or simply had bad luck to start over.

Bankruptcy evens the odds in  the eternal tension between borrowers and lenders, debtors and creditors.

Bankruptcy keeps people in the above ground economy, allowing a legal and effective protection for future earnings.

Look backward or forward

But bankruptcy statistics are the sum of individual decisions.

Parents who have to decide whether being bound to past commitments is the best choice for their family.  Whether putting off providing for retirement, or even a cash reserve for emergencies is wise.  Elders who are saddled with credit cards they can never repay.  The underemployed balancing old debts and new needs.

It takes some courage to admit to yourself, and then to others, that you can’t do what you’d rather do:  pay everyone what you promised.

But, in the real world,  you are your harshest critic.

Few others sit in judgment of those who file bankruptcy.  If they notice at all, it’s with a sense of “there but for the grace of God...”

Better off with bankruptcy

A university study several decades ago concluded that one in seven American families would be better off if they filed bankruptcy.  It tried to explain why far fewer than that were doing what was in their best interest,  but instead struggled on with their debts.

The number who would be better off if they filed bankruptcy cannot be lower now.

In the end, it’s about what makes you more self sufficient going forward.

Image courtesy of Pixabay.

 

Staying Out Of Bankruptcy Trustee’s Crosshairs

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Benefit Concept

Benefit Concept

Clients who want the benefits of bankruptcy without any change in the way they want to live life have been the theme of my practice lately.

This seems to come out when we do a Schedule J budget in a Chapter 13:  they want $300/month in recreation, $1400 in food, and $300 in clothing.

While nothing meaningful goes to creditors.

Those are figures that stand out in a bad way to a trustee.

How bankruptcy works

A basic premise of Chapter 13 is that you must have money in excess of your on-going living expenses to qualify.

Usually, these days, clients are in Chapter 13 because there’s something they must pay: mortgage arrears, priority taxes, or a car or two.

Since those “must pays” have built up to the point that bankruptcy is necessary, the existing budget won’t do it.  Something has to change.

Yet these same debtors don’t see that a reasonable price to pay for time (to pay),  peace (from collectors), and discharge (of all the other debt) is a scaled down style of living.

Change is necessary

While I try to explain that change is required, I hear the Victor Herbert song “I Want What I Want When I Want It” playing in my head. [Read more…]

Vince Lombardi Is To Blame

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Ever feel like you’re battling your mortgage lender for your life?  Or the life of your home?

The unfairness and irrationality of mortgage servicing makes it easy to see the fight as one for your self worth.  Who is comfortable being a victim of incompetent and indifferent institutions toying with your life?

I’m equally indignant.

But let’s stand down, long enough to see if the fight is worth the effort.

When the fight is everything

Three clients in as many months have found themselves unable to walk away from a fight with their legal opponent.  Each one has acknowledged, out loud, that they would be better off settling.  Or even walking away.

But each one found themselves returning to the fray.

I think they’d watched too much sports on TV about the “agony of defeat.”

They bought into Vince Lombardi’s world view:

Winning isn’t everything, it’s the only thing.

That may work for sports. It’s not so simple in the law.

In law, what do you get if you win?  My clients seemed to be battling for their view of themselves as winners, not for the stated subject of the fight.

And legal fights seldom result in that kind of vindication.

The house that consumes you

The most recent example is the couple whose loan servicer has undoubtedly botched its job of collecting their payments and applying them correctly.

The fight was several years old when I met them.  They admitted that they hadn’t made payments for many years.

The arrears were in the hundreds of thousands of dollars.  The house was worth well less than the undisputed arrears.

Even the contractual payments, not to mention the arrears, were well more than they should be paying for housing.

Face to face in my office, they decided to stop the fight about how their payments had been applied, and about how the arrearage was calculated.  They’d live in the house for free, while waiting for foreclosure.

That rational decision didn’t seem to last as long as it took to drive home, when the urge to fight about the wrongs of the servicer returned.

Suppose they won?  Suppose that all of the accounting errors are resolved in their favor?

They still have a house they can’t afford on today’s income.

Should you keep the house

When you strip out the emotions that come with the word “home”, a house is about housing.  A roof over your head.  A place to shelter your family.

And housing competes, in a competent personal budget, with lots of other immediate needs, and the great and distant need for money for old age.

Most financial experts say that the cost of housing should be between 31 and 37% of your income.  That includes not only payments on the house, but associated insurance, maintenance, and taxes.

Here in Silicon Valley, almost no home prices are consistent with that target.  And even long ago purchases with lower acquisition prices have been drained of their appreciation by the lender’s campaign to sell you a home equity loan.

And no amount of emotion about “home” or difficulty in finding other housing strips overspending on a house of its serious, long term consequences.

Winning is only thing

The attitude I’m encountering of seeing winning and losing as the central question isn’t confined to disputes with mortgage lenders.

It permeates other legal disputes, too.

In fact, it’s easier to see the impact of winning versus losing thinking when the stakes don’t involve a home.

There, it’s clearer that what drives the players is self image and the need to come out on top, regardless of the game.

An alternative guru

In matters legal, perhaps we bench Vince Lombardi and the “winning is the only thing” world view.

Let’s look at the cost of the fight, and the utility of winning.  What’s lost if you “lose” or walk away.

Sportswriter Grantland Rice saw things differently:

“It’s not whether you win or lose, it’s how you play the game.”

Though law isn’t a game, I want my clients to be willing and able to walk away from the “game”, having played smart, even if they didn’t “win”.

A strategic retreat sometimes works best.

More

Getting the truth from mortgage servicers

Draft a Chapter 13 plan that succeeds

 

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Phone: (650) 694-4700

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