Should I settle my debts with my creditors or file for bankruptcy?

(See my update on whether to use a debt settlement company or a bankruptcy attorney)

I have blogged about this issue in the past but I am often asked by my clients about the value of debt settlements.  It is a big decision you face when your debts have gotten out of hand so I decided to write about it again.

Settling debts is when you pay a percentage of your total debt owed to each creditor.  These settlements can run from 20% of the balance (if you are real lucky) all the way up to 80%.

You may have heard the ads where the debt settlement companies will say simple things like “don’t file for bankruptcy” or “don’t ruin your credit by filing bankruptcy”  But remember that there are often good reasons for filing bankruptcy if you are eligible to do so.  I believe that there are three main reasons why bankruptcy is better than debt settlement:

1) Credit score– The debt settlement companies emphasize the effect bankruptcy will have on your credit score.  They like to say not to “ruin” your credit.  It is true that your score will decline after you file for bankruptcy.  After your discharge your debts will be reported as “discharged in bankruptcy”.

What the debt settlement companies don’t tell you is that credit scores can be rebuilt.  I have written about this in another blog.  You will get credit card solicitations after you file.  You can use one or two of these to re-build your score.  In fact if you finance anything after the bankruptcy with monthly payments (and you make your payments on time) your credit score will improve.  The same applies if you reaffirm a debt in bankruptcy.

If you do any or all of these things your credit score will then begin to rise and you can re-build your score in two to three years. Your credit is not ruined forever after a bankruptcy.  Telling you that your credit will be ruined forever is just their way of selling you a debt settlement program.

2) You save money– With bankruptcy you don’t have to pay the debts back.  You can discharge these debts in bankruptcy which means that you won’t legally owe them anymore after the bankruptcy is over.  This will amount to a huge savings for you.  It is not unusual for my clients to have $20,000 or $30,000 in debt and some have more than $60,000.  Debtor’s with a business can have $200,000 or more in debt that they can discharge in their bankruptcy.

With a settlement company you will have to pay back a portion of your debt.  In my experience it is possible to get a settlement as low as 20% of the balance.  More often though creditors want 50% to 80% of the balance.  In other words you only get a 20% to 50% discount.  This is a tremendous amount of money to pay to creditors when you could fully get rid of these entire balances if you filed bankruptcy.

Debt settlement companies usually charge more for their services than do bankruptcy attorneys.  This is in addition to your debts.  Then they often charge a percentage of what they save you.  Needless to say this can all be very expensive for you.  A client of mine recently paid a debt settlement company almost $9000 and the debt settlement people did very little for them and they still have to file bankruptcy.

Had they seen a bankruptcy attorney first they could have saved all of this money.

3) You have legal protection– No creditor can attempt to collect a debt discharged in bankruptcy or they will be in violation of federal bankruptcy laws and they will face legal sanctions.  This is not so when a debt settlement company settles your debts.

In a debt settlement situation creditors can and will still sue you.  I have had several clients be sued when they were in the midst of a debt settlement.   The reason why this happens is because of the way they settle debts.  You pay them a set amount every month.  They allow this money to accumulate and then when the amount grows large enough they begin to settle debts one at a time.

But of you have 4 or 5 (or more) creditors then there are a few left for last.  These creditors are receiving no payments or settlements during this period and they get anxious.  Sometimes these restless creditors go ahead and sue.  When they do sue you and you call the settlement companies they will do nothing to help you.  This is my experience in talking with clients who went through this.

Therefore your credit will be better, you will save a lot of money, and you will be legally protected from creditor harassment and lawsuits if you file bankruptcy.

I am a bankruptcy attorney practicing in San Diego.  If you need further help please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for a free credit report and analysis!

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

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Don’t put you head in the sand- your creditors will not stop hounding you until you pay them or file bankruptcy!

Many of my clients have debts that are very old.  Collection agents have long since been brought in and my clients are being called on the phone sometimes 20 times a day to pay these debts.  It’s especially vexing if you have a number of these collectors each trying to call you numerous times a day.  Most people in this position have long since stopped answering the phone.

Creditor harassment can really affect your life.  It makes you constantly uptight, nervous and upset.   You know in the back of your mind that something must be done about these debts.  Many people can get seriously depressed about their debt.  This can lead to all sorts of bad consequences.  If this is you or someone you know then read this.

The point of all this is why live this way when it is totally unnecessary?  There is an alternative to this and it is filing bankruptcy.  By the time these collectors are calling you this often on this many debts its clear that you cannot pay them.  Its time to get your head out of the sand and admit the reality that is staring you in the face.

These collectors will not stop pursuing you and they will call, fax, e-mail, and send you letters continuously until something is done about the debt.  If they can’t get ahold of you for an extended period then they will usually file a lawsuit against you in state court.  This filing goes on your credit report and should be avoided if possible.

Once these creditors get a judgment against you in state court they will use all available attempts to collect on that judgment like garnishing your wages, seizing you bank accounts, putting a lien on your real estate, or getting you into court for a debtor’s exam.  If you miss the debtor’s exam they can issue a warrant for your arrest.

I know this because one of my clients got one of these debtor’s exam notices recently.  In his case we were able to file his bankruptcy the night before he was due in court and that stopped the whole collection process.   The point is though that all of these things are bad for you and they can only cause you trouble or loss of money, probably both.

The good news is that filing bankruptcy stops all of this whether you have been sued or not.  Please stop trying to avoid the reality of the debts.  Don’t be the ostrich!  Bankruptcy, debt relief, happiness and freedom are only a phone call away!

I am a bankruptcy attorney practicing in San Diego.  For further help please visit my website at www.farquharlaw.com.

Don’t spend down any of your retirement before you file your bankruptcy.

I should add, unless it’s over $1 million.  That’s right.  You can save up to $1 million in a government approved retirement fund like a 401k  or IRA and it will be exempt in the bankruptcy.  That means you can get rid of your debts and keep the retirement fund to spend as you wish.

The government did this in the 2005 changes to the bankruptcy laws because they wanted people to be able to keep their retirements so they would not become destitute after a bankruptcy and then become wards of the state.  It is a great rule for debtors because this is obviously a lot of money that creditors can’t touch in a bankruptcy and its money that you can keep.

Yes, you can file bankruptcy, discharge your debts, and keep your retirement money intact.  It’s a pretty good deal and one of the few good things that came out 2005 revision of the bankruptcy laws.  That law was written by the credit card companies themselves through their lobbyists and it was designed by these companies to reduce the amount of money they were losing in the bankruptcies of their customers.

We are lucky therefore that they didn’t just change the law to allow them to get access to these accounts.  They did not though so for now you can keep your retirement funds in a bankruptcy.

File bankruptcy soon (if you need to) before they send their lobbyists in the alligator shoes to stroll the halls of Congress again to take back your right to keep your retirement in bankruptcy!

I am a bankruptcy lawyer practicing in San Diego.  For further help please visit my website at www.farquharlaw.com.

Shadow inventory of foreclosed homes- could it mean we have shadow depression?

(See my currnet blog for an updateon foreclosures: http://bit.ly/JGU1dZ ).

There appears to be a definite “shadow market” of foreclosed homes that the banks are holding off the market.  They sometimes call this the “shadow inventory”

The banks are holding these homes off the market presumably to prevent a real estate crisis.  As I wrote before about this issue there is this huge reservoir of homes that the banks have foreclosed on and taken full possession of.  These homes are “shadow inventory” because the banks have kept them in the shadows and they have not listed these homes on the MLS for realtors to sell.

The Wall Street Journal recently did a story on this shadow inventory.  In that story they cite a study done by real estate consulting firm in Irvine California.  They estimate that there are 4.7 million homes in this unreported market which amounts to a 10 month supply of homes but the number could rise to as many as 5.6 million homes.  Some of the worst cities have a 20 month shadow supply of unlisted and unsold homes.

Analysts at Standard & Poor’s report that the largest backlog of shadow inventory exists in New York city followed by Miami.  Standard & Poor’s estimates that the time it will take to clear this inventory is up 18% over the first 6 months of 2010.

There is certainly a lot of homes in the “shadows” and this is a serious problem.  This is why some realtors are predicting that this foreclosure/housing crisis will be with us for 5 to 10 years.   The Irvine report also estimates that this shadow inventory will stay at elevated levels until 2016!

The report says that sales of distressed homes will rise to 40% of all home sales through 2012 and that real estate prices will continue to fall by 8% to 11% through 2012!  They also predict that if the economy worsens or if interest rates rise then housing prices will decline further and for longer.  According to the report distressed home sales will peak at 2.3 million homes next year.  So we haven’t reached the peak yet and it will get worse.

Worse than that a friend of mine was at a real estate conference recently attended by a president of a big bank.  The bank president denied the existence of a shadow inventory.  If the banks don’t want to admit that there is a shadow inventory and it is well-known enough for consulting firms and the Wall Street Journal to write about then what are they trying to hide and why?

Can we not take the truth?  It seems to me as I have written about many times that we are currently in a depression.  I don’t expect that anyone in government or the banks (who are now very closely tied to the government) will admit it.  They obviously have no problem lying about the shadow inventory of homes so it seems unlikely that we would ge the truth about how deep this economic crisis is.

I’m sure they will tell us when it’s all over.

I am a bankruptcy attorney in San Diego.  For further help please visit my website at www.farquharlaw.com.

Does my spouse have to file bankruptcy if I file?

No!  your spouse does not have to file bankruptcy along with you if he or she does not want to.  You can file alone if you wish without your spouse becoming part of the bankruptcy at all.

If the non-filing spouse has significant personal debts and they want to file with you they can but they are not forced to.  If your spouse does not file then their credit score should not be affected by the bankruptcy.

There are some things you should know about filing individually and filing jointly:

Community debts– You will get a discharge for them even if you file individually.  The non-filing spouse will still be responsible for their separate debts after the filing.  All of the debts that are considered community debts will be discharged though the bankruptcy.

Credit score–  The non-filing spouse should not have their credit score affected by the bankruptcy of their spouse.  Their credit score will remain the same after the bankruptcy is completed.

Household income– The non-filing spouse’s income will be included in the income calculations whether they file or not.  In a bankruptcy a spouse’s income is considered to be contributed to the household.   The non-filing spouse’s income is included in schedule i of the filing spouse’s bankruptcy but they certainly do get a deduction for all of the non-filing spouse’s expenses.

Community property- If you have been married to your spouse for a while in California you are considered to have a community property interest in the assets of your spouse even if they are titled in your spouse’s name.  Thus this interest must be included and exempted in the bankruptcy even if you do not file but your spouse does.

Getting credit in the future– The non-filing spouse can get credit right after their spouse files bankruptcy because the non-filing spouse’s credit score will not be affected by the bankruptcy of their spouse.  If either of you need to buy something on credit then the non-filing spouse can be the one to do it.

The filing spouse will get credit card solicitations after the bankruptcy discharge.  These cards can then be used to re-build the filing spouse’s credit score.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for a free credit report and analysis!

For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

Will my landlord be notified when I file for bankruptcy?

(For an updated blog on landlord notification and bankruptcy see here: http://bit.ly/IAaaQc ).

No!  If you are  on a month to month rental agreement then the landlord does not have to know that you filed.  The landlord will not be notified if you file bankruptcy and your landlord will probably never know that you filed.  Your filing is a public record but it is unlikely that your landlord will read a list of bankruptcy filings in a legal newspaper.

Also your landlord will probably have no reason to check your credit report once you move into your home or apartment.  The filing will appear on you credit report but it is unlikely that your landlord will view it once you have moved in.

If you have a lease with the landlord then that will have to be listed in the bankruptcy.  The landlord cannot evict you for filing bankruptcy and in most cases your lease obligation in the bankruptcy will be wiped out and your tenancy will be converted to a month to month tenancy.  A landlord may ask for a new lease but you don’t have to sign one.

The reality is that if you are a good tenant and pay rent on time then the landlord will do nothing even if you have a lease.   You will be able to stay and keep paying rent on a month to month basis after the bankruptcy.

Your landlord cannot evict you or otherwise discriminate against you if they become aware of your filing.  This kind of discrimination because of bankruptcy is illegal.  They cannot anymore evict you because of a bankruptcy filing than they can fire you from your job because you filed.

So file for bankruptcy and rest assured that your living situation is safe and that on a month to month rental agreement the landlord will probably never even know you filed bankruptcy.

I am a bankruptcy attorney practicing in San Diego.  For more help please visit my website at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for free credit report and analysis!

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

What if I forget to list something in my bankruptcy?

No problem.  You can amend your schedules and add or change just about anything in your bankruptcy.  You are certainly not stuck with what you originally file and you can change your bankruptcy schedules at any time up until the case closes which is 90 days after you file.

In fact it is a common occurrence that attorneys file a “bare bones” bankruptcy petition.  This is when a bankruptcy is filed in an emergency situation.  Sometimes there is a foreclosure, lawsuit, garnishment or something else that forces a bankruptcy to be filed by a certain date.  If there is not enough time to gather all of the information to fill in the bankruptcy schedules then a bare bones petition will include just the name, address, and the creditors list.

The rest of the information as to real estate, personal property, income, expenses, statement of financial affairs is added later by amendment.  In this case you only have 14 days to add this stuff but in a normal amendment situation you usually have the full 90 days.

You may have a creditor that shows up after the filing.  No problem.  You just have your attorney amend and add the creditor.  There is a small fee but the creditor can certainly be added to the case as long as it is not closed

So you see you can add or change anything in a bankruptcy so don’t worry if you forget something initially.  You can change most things without too much trouble and add what you forgot.

I am a bankruptcy attorney practicing bankruptcy law in San Diego.  Please visit my websites at www.farquharlaw.com or www.fresdhstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for free credit report and analysis! 

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

Commodity prices are going up, the dollar is dropping in value! It might be a good time to file bankruptcy.

(See my update on price rises and its affect on the economy: http://bit.ly/HUNMNJ.)

There has been a lot of talk about possible deflation or a spiraling price drop in the market.  This does not seem to be happening as commodity prices are going up across the board.

It started with gold but oil is up as are wheat and corn and milk and meat and just about everything else too.  There is an article in today’s LA Times talking about how prices for all commodities are going up, not just oil and gold.  Coffee, wheat, sugar, rice, cotton, soybeans, paper, cheese.  It’s all going up.

Inflation worries are returning.  Bad weather resulting in poor harvests are to blame but so is increasing demand from India and China.

US retailers and sellers of these goods like Wal-Mart and Kraft and General Mills have all announced that they will raise prices soon.  Some by as much as 40%.  This current situation appears to be highly inflationary and it doesn’t appear to be temporary.  I don’t think demand from China and India is going to lessen.  In fact it should increase over time driving prices even higher.  You should notice this at the grocery store soon.  All of your food, gas, an everything you need to buy is getting more expensive.  It looks like inflation will take over and not deflation.

The other important thing happening here is that the dollar is dropping.  It has dropped more than 12% since June against the other major currencies.  According to the LA Times this is because our government wants it to!  It appears to be the policy of our government currently.  They seem to think that our products will get cheaper so other countries will buy more.  But what about the US consumer?  How will he or she pay for these higher prices?

This drop in the dollar has caused investors to look for a way to buy something that will hold its value.  Investors often look to commodities when faced with this currency devaluation.  Investors buy up all of these commodities to preserve their wealth and in doing so they drive up the prices of the everything we consumers need.

This results in huge price increases for the consumer and thus I would argue that this is a foolish policy by the US government that is hurting the american people.  Americans are not getting a raise to pay for these increasing prices and in fact many people are unemployed with no prospect of finding a job.

It could also be government policy to encourage inflation as a way to pay back the huge debts with cheaper dollars.  Apparently the government is printing more dollars which is inherently inflationary.  It could be that the policy is to inflate our way out of these huge debts.  This was tried many times most notably under the German Weimar in the 1920s where hyperinflation did not save but actually destroyed the economy.  At the end of that mess Hitler came to power.

The reality for you and me in the stores now is that commodities are getting more expensive because it takes more dollars to buy them because of a faulty government policy of currency devaluation.

I would argue therefore it is a good time to file bankruptcy if you have old debts you cannot pay.  You may need your money just to buy groceries, supplies, and the other things you need to ride out this recession.  Don’t give your money to some creditor for some old debt that went to pay for something you forgot about if you need what little money you have just to survive today and into the future.

I am a bankruptcy attorney practicing bankruptcy law in San Diego CA.

For further help please visit my websites at: www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.

When squatters attack! Once they occupy your house you have to evict them (but you pay for them in the mean time).

(Check out my update on squatters here- http://bit.ly/Iyo3g4 ).

(For how to get squatters out of your property see here: http://bit.ly/JMX8kG ).

I am fascinated, perplexed and appalled by this ongoing problem of squatters.  It seems to point to bad things coming to this country (like a depression).

I thought I would blog about a squatters report that I saw on the news.  I wrote about this topic previously and the problem of squatters occupying foreclosed homes is certainly not going away.  In fact in some ways things may be getting worse out there with squatters.

Buyers of foreclosed homes are finding themselves paying insurance, taxes, and payments while the squatters occupy their house.  As I previously reported the squatters are probably not the previous owners of the home.  Those people have probably already gone.  The squatters are often people who move in after the foreclosure.  They find the vacant house, move in, occupy, and dare you to kick them out.

According to Fox News a family in Connecticut had squatters in their home after the family purchased the home in a foreclosure sale.  They went to move in and they found the squatters on the premises.  At that point they realized that they had become landlords and the squatters were their tenants except that these tenants paid no rent.  All they did was occupy and refuse to get out.

Before I did bankruptcy law I was doing landlord/tenant cases.  In California self-help is not allowed. You cannot kick squatters out without a court order and they become your tenants once they occupy the house.  They may even produce a phony rental agreement or they may say they had a verbal agreement with the previous owner.  Either way they stay until you evict them legally.

The police don’t want to get in the middle of what they consider to be a dispute between you and them.  If your lucky the squatters will take cash to leave and if you are not then you must got through the eviction system.  To evict them legally you need to serve a 3 day notice on them and then file an unlawful detainer action and then wait for a court date.  You need to win in court and then file a writ of possession and get a sheriff to kick them out.  All of this takes time.

In the Fox story the buyers could not move into their house after they bought it.  The bank had promised that they would evict these squatters yet they had not.  The family who bought the home had to wait for the sheriff to remove them.  When they interviewed the sheriff he told of how in the early morning the squatter was drunk, had a vicious dog that had to corralled, and he had a gun.

The sheriff did get them out but the evicted squatters left a horrible mess in the house.  The mom who bought the house said that she did not even want to move in at that point.

Be careful if you buy a foreclosed home.  Go to the home regularly before you close the deal to see who is occupying the house.  If you see signs of squatters make sure they are moved out before you close on the home and you become the owner. If you do not then you could become a landlord to some squatter who you would have to evict yourself.  This could take months and in the mean time you could be stuck paying taxes, insurance, and the house payment while the squatters live for free in your house.

These people know how to manipulate the system so don’t become the victim of this latest scam.

I am a San Diego bankruptcy attorney.  For more help please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for free credit report and analysis!

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

How much does a bankruptcy cost? Can I make payments?

Most bankruptcy cases can be handled for less than $2000 and some for far less than that.  There are some factors that increase the cost of the bankruptcy.  There is a base charge but if you have multiple cars or a lot of other personal property then the bankruptcy can cost more.

Houses are extra and some people have several.  Houses require valuations, payoff balances and insurance and we have to make sure any equity is protected.  All of these documents have to be sent to the trustee.  This takes extra time so it increases the cost.

Businesses are extra too.  With a business we have to look at your business inventory to list in the bankruptcy and we have to get profit/loss statements to show what income is received from the business.  This takes extra time and effort and thus it costs a little more if you have a business.

If you are filing with your spouse (and you don’t have to) then there is a small charge for the extra person because their income and assets must be included in the bankruptcy along with their debts.  An extra credit report must be pulled for the spouse too.

If you are filing a simple individual case with little of no assets and you have a job or are unemployed with no house then the case can be done very cheaply.

Yes!  You can make payments until the full balance is paid.  The case cannot be filed until its paid for but in the mean time we can stop the creditors from calling you.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.   For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.