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Oakland Bankruptcy Law Blog

Avoid Ripoffs by Filing Bankruptcy

If you are over your head in unsecured debts like credit cards, you may be tempted to pay a "debt consolidation" company to discount and get rid of your debts. Beware! I see many people who have paid these companies and have gotten no help. Some of these people have gotten sued by their creditors even while they are paying their debt consolidators. Then they come to me and file bankruptcy, which actually does get rid of their debts, but they've already wasted thousands of dollars paying debt consolidators.

Unfortunately, there are many dishonest debt consolidation companies. In my experience, most of these companies do not provide any benefit to debtors, but I haven't studied this and cannot say for sure what percentage of these companies are ripoffs and what percentage are honest. I think, however, it's fair to say that there are a large number of dishonest debt consolidators, even if most of them are honest.

Even honest debt consolidators collect money from debtors for many months but don't pay anything to creditors until they've accumulated a big pile of money from the debtors' monthly payments. They negotiate the debt with the creditors, reducing it by whatever amount the creditors will allow. Once they have the full amount owed agreed upon, they pay the creditor. The problem for the debtor is that the debt consolidator has not paid the creditor while collecting money from the debtor, and the creditor continues with its collection efforts, including harassing phone calls and letters, many times ending in a lawsuit against the debtor. And, of course, the debtor is also paying the debt consolidator a fee for this, so that the monthly payments to the consolidator do not all go toward paying off the debts.

Chapter 13 bankruptcy is a much better way to consolidate and get rid of your debts. This type of "debt consolidation" is run by the government, through the bankruptcy courts and trustees, so the chances of getting ripped off are practically zero. So long as you make your monthly payments to the chapter 13 trustee for the life of your plan, your dischargeable debts will be eliminated ("discharged"). Furthermore, filing a bankruptcy stops all collection actions against you by law, and you don't have to negotiate with your creditors. Of course you would still pay a fee to your bankruptcy attorney, but at least you would get something valuable in return.

For unsecured debts like credit cards, a chapter 7 bankruptcy would be even better for you. In this type of bankruptcy, you pay nothing to your unsecured creditors and all of your eligible debts are discharged. If your disposable income is low enough to qualify you for a chapter 7 bankruptcy, this is definitely your best choice unless you would not get another benefit by filing a chapter 13.

If you are considering paying a debt consolidator, contact a bankruptcy attorney for a free consultation instead. It will probably save you a lot of money and keep you from getting ripped off! 

Pay A Little To Save A Lot

Because of the severely bad economic times we're in, many people are choosing to file chapter 7 bankruptcies themselves, without an attorney. For those who own virtually nothing and have little or no income, this might not be a bad idea if you take the time to research how to do this, such as reading the Nolo Press book, and if you are good at this sort of thing. Even in that case you might end up in trouble, though your chances of that are far less than someone with decent income and/or property.

Many people have the misconception that filing bankruptcy merely requires filling out some forms. While it is true that you have to fill out many forms, there's much more to a proper bankruptcy filing than that. Without having a good grasp of the bankruptcy laws, you risk losing a lot of money by doing the wrong thing. For example, a failure to exempt property properly could cost you that property. This is only one example of a really simple mistake; there are far too many possible mistakes to list here, and most of them are more complicated.

If you have very little or no income and cannot afford to pay a bankruptcy attorney but still feel that you must file bankruptcy, you have no choice but to file yourself. However, if this is your situation, you should check out whether you are "judgment proof" and, if so, ask yourself if you still want to file bankruptcy. If you have nothing a creditor could take, your income could not be garnished, and you own no real property and probably never will, you probably do not need to file bankruptcy.

If you have either decent income or some assets, you will be taking a big risk if you file bankruptcy on your own. Even if it's a financial strain, paying a competent attorney to file your bankruptcy could save you much more than you pay.

Improve Your Credit by Filing Bankruptcy

That sounds weird doesn't it? Most people think that filing bankruptcy will totally ruin your credit. In reality, the truth is just the opposite for most people.

When you are seeking help getting out of your financial problems, chances are that your credit is already bad. You're behind on your credit cards and other bills, your house is about to be foreclosed, perhaps your car is about to be repossessed. If any of this describes your situation, your credit score is already low, and filing bankruptcy will not make it worse.

On the other hand, if your credit score is low when you file bankruptcy and you take steps to rebuild your credit as soon as you file, your credit score should be about average a year after you file. Apply for a secured credit card, use it for necessities like groceries, and pay it off every month. You'll soon get offers for regular, unsecured cards. Do the same with them.

The main factor in your credit score is paying your bills on time. There are other factors, such as debt-to-equity and debt-to-credit ratios, but these are not as important as whether you pay those bills when they are due. If you follow this advice, your credit score should be about 650 within a year.

Do not hesitate to file bankruptcy because you are afraid of ruining your credit. As you can see, for most people filling bankruptcy will actually improve your credit eventually. Perhaps even more important, if you are drowning in debt that you cannot pay, your credit is probably the least of your concerns. Failing to take action or even waiting too long can cause far worse problems than lowering your credit score.

If you are unable to pay your bills and/or facing foreclosure or repossession, contact a bankruptcy attorney now for a free consultation. It could be the best financial move you make, and will probably improve your credit!

Get Out Of Debt Guilt-Free

You may have read or heard in the news recently about JPMorgan's loss of $3 billion, which is likely to climb even higher. This is what you probably don't know:

JPMorgan Chase & Co. (JPM) had $15 billion in probably uncollectable European debt. It claims that it hedged this debt - that is, it invested in something that would increase in value if the European debt decreased in value - in order to offset those losses. However, what it actually did was to buy a credit default swap. A credit default swap is the same type of investment that caused AIG to have to be bailed out by our taxes, and it is basically the same thing JPM was supposed to be offsetting, so the losses were increased instead of being offset. JPM claims that they weren't really looking at the "hedge," and they took a $2 billion loss before they knew what was going on.

JPM could have sold the European debt if they really wanted to hedge the losses from it instead of putting even more money into the same investment. They also could have bought credit default swap protection. This would have offset the loss, because the protection would have increased in value as the European debt lost more money. Instead, JPM engaged in double speculation and lost even more money than if it had not bought the supposed hedge. According to William Black, associate professor of economics and law at the University of Missouri-Kansas City and former senior U.S. financial regulator, the only reason JPM called the second investment a "hedge" is that it is illegal to speculate in the manner that they did.

How does this affect you? If you have a retirement account or mutual funds that were invested in JPM, you will lose money due to this behavior. And if JPM needs another bailout from the government, that's your money (and mine) they'll be getting.

The point of this post is not to bash JPM, though they certainly deserve it for this behavior. The point is that many people feel that it is immoral to file bankruptcy and not pay one's debts. For one thing, companies like JPM are the companies debtors owe their debts to. If JPM acts like this, why should you feel bad about filing bankruptcy when you can't pay your bills and need your income just to live? For another, if the richest people in the world act this way, why should you feel bad about getting out of debt to them?

If you cannot pay your bills, are in danger of foreclosure or repossession, or are doing things like draining your retirement in order to pay credit card debt, contact a bankruptcy lawyer today.  It might be the smartest financial move you can make, and you don't have to feel guilty about doing it!

Avoid Loan Modification Ripoffs

Because of the home mortgage crisis, many new businesses have popped up offering to do loan modifications. If you cannot afford your first mortgage, a loan modification is probably the only way to save your home or other property, but beware! Many, if not most, of these outfits are dishonest.

Some of these companies will charge you money up front. Before October 11, 2009, only attorneys and certain realtors could charge up front for loan modifications. Since that date, it has been illegal for anyone in California to charge money up front for loan modifications. Even if someone gets you a good loan mod, they are legally required to wait until the entire process is finished before charging you any money. If someone asks you for money up front, walk away; they are breaking the law at your expense.

But charging up front is the least harm that some of these outfits do. The reason that the exceptions for attorneys and certain realtors was removed was because some attorneys, all in southern California to my knowledge, charged people up front for loan modifications, then did little or nothing for them. This not only ripped these people off by taking their money, but probably worse, it caused them to lose their houses in foreclosure.

Because of the change in the law that prohibits charging up front for loan modifications, almost all honest attorneys have gotten out of that line of work. I used to do loan modifications with another law firm before the law change, and we had a very high success rate. But once we could not charge up front, we quickly began to lose money and had to leave that area of practice.

So be very careful about who you hire to do a loan modification. NACA, a national non-profit, does not charge any money for its services. However, it merely teaches you how to do your own loan modifications; it does not do them for you.

If you cannot save your house with a loan modification, contact a competent bankruptcy attorney for a free consultation.  They can ensure that you will at least not owe any money for the house after foreclosure, plus get you out of other debts as well.

Get Rid of Charged-Off Debt

Why would you need to get rid of charged-off debt?  If you asked that question when you read the title of this blog, it's because you think that "charged-off" means "forgiven."  Many people who come to our office are under this impression.  Don't be confused, these are two totally different things.

When creditors say a debt has been charged off, it means that they have determined that it's uncollectable and entered it in their books as a loss.  It does not mean, as many people believe, that you no longer owe them the money.  You still owe the money for these debts, and a creditor can use all of the legal tools available in order to collect on them.  On the other hand, a forgiven debt is one that the creditor agreed is no longer owed.

So don't be caught owing money for debts that you thought were forgiven.  In order to avoid being hounded by creditors and collection agencies, having wages garnished, or having money taken from your bank account for charged-off debts, consult with a reputable professional, such as a bankruptcy attorney.

Save Your Money by Filing Bankruptcy Instead of Fighting Foreclosure

Many people have read or heard that if a lender does not "produce the note," it cannot foreclose.  Unfortunately this is absolutely false in California, and has caused many people to waste a lot of money, time, and effort by trying to prevent a foreclosure.  Don't be fooled!

Because of the massive foreclosure crisis, a lot of attorneys have flocked to foreclosure defense.  Many are honest and sincere and truly wish to help people.  Some are just out for a buck.  But in either case, these attorneys charge people to file lawsuits to stop foreclosures of their homes or other properties, only to have their cases quickly fail.

California state courts have said, unanimously to my knowledge, that it does not matter who owns the lien for your house; if you do not pay your mortgage, a creditor may foreclose, even if they can't prove that they own your loan.  There may be other legal reasons to stop a foreclosure, but forcing the foreclosing creditor to prove that it owns your loan is not one of them in California.

However, a viable Chapter 13 bankruptcy will stop a foreclosure, by law, and may eliminate or greatly reduce your credit card, doctor, and medical debts.  You do not have to prove anything to the court, so long as you can afford to make your proposed plan payments that will pay for the arrearage you owe for not paying your mortgage.  See the Foreclosure Page on my website for more information on Chapter 13.

No one solution for foreclosure problems is right for everyone.  But before you spend thousands of dollars trying to stop a foreclosure by claiming that the foreclosing creditor cannot prove that it owns your loan, consider filing Chapter 13 bankruptcy instead.  You will have a much higher chance of saving your home or other property.

Save Money by Spending a Little Extra

The title sounds like a self-contradiction, doesn't it?  But in bankruptcy law, it's not.  You generally get what you pay for, and a bankruptcy lawyer is no exception.  If you want good representation, you have to pay for it.

It is not uncommon for people to call our office and ask how much we charge for our services.  (I instruct my staff not to try to answer this question over the phone for several reasons, but that is not the issue I'm writing about here.)  These callers are price-shopping for an attorney, which is probably the worst way to choose one.  Would you choose your doctor that way?

Because of the bad economy, many lawyers who lost their jobs began practicing bankruptcy law.  Like any other area of practice, there is a lot to learn and mistakes will be made along the way.  There are also bankruptcy "mills" that process as many clients as they can, but provide poor service and usually do not even have an attorney talk to the client.  A cheap attorney is almost always one who is new and not yet sure of what they're doing, or a mill that will not provide good service and will probably not let you talk to an attorney.

A mistake by your bankruptcy attorney can cost you far more than it saves you.  For example, let's say that you save $500 by choosing the cheapest attorney you called.  An inexperienced attorney or bankruptcy mill might not know that you needed to exempt your expected income tax refund of $2,000.  The trustee then takes your tax refund, since it was not exempted, and your net loss was $1,500.  Say goodbye to the $500 you thought you saved!

Choose your bankruptcy attorney by whether you think they are competent and whether you feel comfortable with them.  The money they save you could greatly exceed the amount you might save by hiring a cheaper lawyer.

Bankruptcy and the Holiday Season

It's Christmas, Chanukah, Kwanza , Solstice, and other holidays.  Whatever your holiday, a major part of it is probably buying gifts.  You've come to this website because you are in financial trouble, but you want to buy holiday gifts before dealing with your problems.  Beware!

It is considered fraud to borrow money, such as using a credit card, then file bankruptcy without paying the lenders.  If you put off filing bankruptcy in order to buy holiday gifts with your credit cards, you will have to wait at least 90 days before filing.  And even that may not fix the problem.

The 90-day waiting period merely means that you are not presumed to have committed fraud.  Your creditors may still claim that you never intended to pay for the things you bought.  If the court agrees, your bankruptcy case could be dismissed or those debts might not be discharged.

If you are in financial trouble and thinking of filing bankruptcy, it is not a good idea to use credit cards to buy holiday gifts.  Buy only the gifts you can afford to pay for and deal with your financial problems now, before they get even worse.  And cut up your credit cards, throw them away, and make an appointment for a free consultation.

Avoid Wasting Money Paying Debts You Can't Afford

Have you been borrowing money from your retirement to pay bills?  Are you paying your credit card bills instead of your mortgage?  If you are, STOP now and consult a bankruptcy attorney.

"Bankruptcy" has a terrible connotation.  For most people, it means "failure."  But bankruptcy is federal law that allows you to get a "fresh start" when you get to the point that you can't pay your bills.  Waiting before consulting a bankruptcy attorney can cost you a lot of money.

Certain assets, like formal retirement accounts up to $1 million, are "exempt" in bankruptcy.  That means that they cannot be taken from you and your dischargeable debts will be eliminated anyway.  Many of my clients wasted significant amounts of their retirement before they came to see me.  Don't be one of them!

Another waste of money is paying credit cards instead of making your mortgage payments.  Even in bankruptcy, you will lose your home if you don't pay your mortgage.  All you lose if you don't pay your credit card bills is a piece of plastic.

Don't wait until you are drowning in debt before seeing an attorney.  Waiting could cost you a lot of money.

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Jeff D. Hoffman

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