Housing prices are on the rise. File bankruptcy before you get too much equity in your home.

Housing prices are on the rise nationally.  Some markets and some states still have depressed prices but they are on the rise in most areas.  Here in San Diego housing prices are rising rapidly especially in certain neighborhoods.  In San Diego some of that increase is due the economy getting better but that is not the only factor that is causing housing prices to rise here.

It is also a supply and demand problem.  There is a shortage in this city of supply of homes on the market.  I have been told by realtors that the shortage exists because homeowners are expecting housing prices to rise further so they are holding homes off the market.

It does not matter what the reason is for the housing price rise.  It is important that prices are indeed rising.  Soon many more people will gain equity in their homes which is normally a good thing.  But if you have credit card or other debts and you cannot pay them then you might be considering bankruptcy.

If it is true that you are looking to file a bankruptcy eventually then it might be the time now to move forward with it.  If your home continues to rise in price you will eventually have equity in your home again.  But this equity in your home could create problems for your bankruptcy filing.

If the equity rises past your ability to protect it with the allowable bankruptcy exemptions then your home may be in jeopardy if you file bankruptcy.  This is because the trustee could take it and sell it for the equity in it.  If you move quickly before this happens then you can usually protect your equity.

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 or for any other advice about bankruptcy or debt at (619) 702-5015. Call now for 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.

Advertisements

I just got sued for a debt. What should I do?

lawsuit 2If a creditor files a lawsuit against you for a debt you do owe them then you can fight the case and try to win in court.  Chances are though that the creditor can prove that you owe them so you will have a tough time winning.  It is possible that the creditor cannot prove that you owe the debt but these creditors are usually not stupid.  (I wrote about this before in a previous blog here).

They will most likely produce in court some sort of proof that you indeed owe this particular debt.  They will have copies of your original contract you signed for a credit card for instance and some sort of monthly tabulation for the charges.  If that is the case then it is hard to argue that you do not owe the debts.

You can try to stall the case for a certain amount of time and ask for a trial date which will stall it further.  The creditor though will then often file a motion for summary judgment based upon their evidence.  They will use this motion try to get a quick judgment so they can begin collecting the debt from you.

If you have evidence that warrants a trial then you can get one possibly but if they have sufficient proof of your owing them then you are likely to lose at trial.  If you win then you are off the hook but if you lose then the creditor will begin to collect the debt from you.

At some point before the trial you will want to consider making payments to them or take the other way out which is bankruptcy.  Bankruptcy will stop this lawsuit and wipe out not only this debt but bankruptcy sign 2also all of your other debts.  Bankruptcy is an excellent lawsuit destroyer.  Bankruptcy will usually cost less than hiring an attorney to fight the suit and if you fight it yourself and lose then you will still probably owe the creditor for the debt and their attorney fees and costs.

I recommend consulting a bankruptcy attorney before you start the process to see if you qualify for bankruptcy and to see if bankruptcy makes sense for you.  It is possible that you have too much income or too many assets to file or you may have too few debts to justify a bankruptcy.

_

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 or for any other advice about bankruptcy or debt at (619) 702-5015. Call now for 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.

Lawsuit photo courtesy of thinboyfatter.  Bankruptcy sign courtesy of wes gaddy.

Bankruptcy filings are down but they will rise after October 2013 when people realize that they can file again

bankruptcy 5Bankruptcy filings are down significantly across America.  I wrote about this in a previous blog.  Some areas have seen a drop-off of as much as 50% in the numbers of filings.  There Courthouse 2are many reasons for this.  One reason is that most homes that were in foreclosure after the recession began have now been dealt with one way or another.  Household debt is also down and household debt has always been an indicator of how many bankruptcies will be filed.

Some economists believe that there will be another wave of foreclosures that the banks have been holding off foreclosing until there are signs of an economic recovery.  But there is another factor out there that will hit this October.  In October 2005 millions of Americans filed for bankruptcy in order to get their filing done prior to the 2005 bankruptcy law change.

Bankruptcy underwent a major change in 2005 designed to make it harder for debtors to file a chapter 7.  As it turned out most people could still file even with the new “means test” that was added in the new law.  But the 2005 bankruptcy law change scared people into thinking that bankruptcy was not going to be an option so they had better file now.

So millions did and many of them probably should not have.  But after 2005 the country went through a major recession.  Jobs were lost, foreclosures were up, and debts could not be paid.  But one aspect of the new law was to increase the time between bankruptcy filings from seven years to eight years.

We are now about to reach the eight year mark in October 2013.  This means that if you filed bankruptcy before the law change in 2005 (and maybe didn’t need to) you can file again in October of this year (2013).  It is now okay for you to file again so if you need to contact an attorney about filing a second time.  Don’t worry about having to do it it’s okay.  No one could foresee the terrible recession of 2008 and it probably has left you will a lot of debt that you have not been able to pay.  Bankruptcy will again take care of this debt once and for all giving you a fresh start.

I am a San Diego bankruptcy attorney.  For further questions please visit my website at www.farquharlaw.com.  Or call my office for a free consultation or for any other advice about bankruptcy or debt at (619) 702-5015. Call now for 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.

Bankruptcy photo courtesy of Stockmonkeys.com.  Courthouse photo courtesy of Robert Linder.

Ashamed to file bankruptcy? Afraid of doing something wrong or worse, stealing? Forget that, get your fresh start!

ashamed 2 I have had many clients who are ashamed to even talk about the possibility of being bankrupt and are therefore extremely reluctant to file for ashamed 3bankruptcy even if they desperately need to.  These clients may have a huge debt load that they cannot pay where they are having trouble even paying the interest on the debt.  They may have had credit cards they charged up and maxed out, or automobiles that were repossessed with huge deficiency balances owing, or they may have medical debts that are high.

In addition these debts may have been sold to collection agencies.  This means that the collection “experts” have purchased these debts and they are now motivated to collect them.  The collection agents are experts because they are mean and angry and demanding and even threatening.  Like the terminator machine in the movies they have one goal in life.  This is to get as much money out of you as quickly as they can.

The collection agents believe nothing you say because they assume you are lying and even if they did believe you they do not care about anything you say.  They want your money now and they will pull out all the stops to get it.  The only way to stop them is to pay them or through filing a bankruptcy.

Many of  my clients are unemployed because they were laid of or they may be underemployed because they are now working part-time.  These people may have a job currently that pays far less than the one that they had when they incurred the debt in the first place.  In addition they may have had medical procedures that they had no insurance for at the time that is costing them far more than they can possibly afford.

All of this can be occurring in my clients’ lives yet some of them are still holding back on filing a bankruptcy.  They still think that some miracle will occur that will help them pay and they do everything they can to resist a filing.

I believe people avoid bankruptcy because of the stigma that bankruptcy carries and has carried for some time.  In the 1929 stock market crash people jumped out of windows to avoid what they believed to be the shame of bankruptcy.  People still believe that bankruptcy carries shame and signifies failure of some kind and as Americans we hate failure and we wrongly believe that it is always bad.

But things have changed considerably.  Bankruptcy is not bad as many think now or ever.  Corporations file bankruptcy regularly and reorganize and then continue to function.  Even towns and cities do this and they can continue to carry on.  There is nothing dishonest or immoral about this whatsoever for them or for you.

You also can file bankruptcy, discharge your debts, and reorganize like a business or municipality.  There is no shame and no disgrace to this.  In fact it is usually the moral and legal and best thing to do when you cannot pay your debts.  It frees you and the creditor from the charade that someday you will pay the debt.  You can move on and the creditor can now write off the debt as uncollectable and take a deduction on his taxes.

In fact part of bankruptcy law is the concept of you the debtor getting a “fresh start”.  Bankruptcy laws themselves that have been with us for hundreds of years contain the fresh start language.  This is because bankruptcy was not created to cause humiliation or to put a sense of defeat into people.  It was created to liberate people and businesses, and later municipalities from the crushing effect of debt which cannot be paid by anyone.

Once freed from the debt an individual or entity can utilize the fresh start by starting anew and carrying on without the previous debt burden.  The psychological boost one can receive from a bankruptcy discharge is tremendous.  I know because my clients regularly tell me so.

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 or for any other advice about bankruptcy or debt at (619) 702-5015. Call now for 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.

 

Couple photo courtesy of Justin maier.    Polar bear photo courtesy of thelearnr.

The bankruptcy warning signs for America are the same as for individuals or small businesses

Ever see ‘Flight of the Phoenix”?  I mean the original version of the movie with Jimmy Stewart.  It was a great movie about a plane load of people who crash-land during a sandstorm in an Sahara desert.  Most of the passengers survive the crash and they realize quickly that they will not be rescued and thus they must rely on themselves to stay alive and to find a way out of the desert without outside help.

A German engineer comes up with an ingenious plan.  He says that they can build a new aircraft with one of the engines from the old aircraft but this would require to attach parts of the wings from the old aircraft to this engine.  This would require a significant amount of work and re-design but the German engineer (played by Hardy Kruger) informs the others that he builds aircraft and that it indeed can be done.  After an intense debate session the survivors decide that they have few other choices so they go ahead with the project.

They work diligently, mostly at night to avoid the heat, and they fight a great deal throughout the process.  Most of the movie is about their struggles during this aircraft conversion process.  Hardy creates more dissention as he takes extra rations of water for himself during the airplane conversion and several of the group die during this time.  When the aircraft is finally complete and ready to fly someone finally decides to ask Hardy Kruger what kind of airplanes he designed.

Hardy tells him proudly that he designs small model aircraft and that the largest one was may 3 feet wide.  The others are shocked but Hardy assures them that the mechanics are the same no matter how large or small the aircraft is.  He is proven right after the re-designed full-sized aircraft does indeed fly the crew to safety.

I would argue that we bankruptcy attorneys who deal with bankrupt individuals, couples, and small businesses every day can spot bankruptcy warning signs even if it is for something as large as the federal government.  We attorneys are just like the character Hardy Kruger played in Flight of the Phoenix.  We work on smaller bankruptcies everyday but the warning signsUSA are the same for our clients as they are for the feds.

They federal government has been borrowing and spending money to finance a lifestyle they cannot afford for some time now.  We have 16 trillion in debt and we will have 20 trillion in four years.  We keep spending and borrowing and we fail to cut our spending to equal what we get in revenue.  The interest on this debt is growing every day and if the interest rates rise then the interest alone will be beyond our ability to pay.

This is really the sign of bankruptcy for individuals, businesses, or municipalities.  And the signs are the same for the small entities and the large ones.  We attorneys deal with small entities but just like Hardy Kruger we realize that the dynamics are the same big or small.  Hardy’s plane flew and our government is bankrupt.

This is what Peter Schiff concludes in his new book, “The Real Crash: America’s coming Bankruptcy”.  He argues that the crash is coming due to the government’s continual lowering of interest rates that creates all of these bubbles; the dot-com, the housing, and now the government spending bubble.  The government will eventually have to raise interest rates to attract investment and when they do the interest we pay on our national debt could consume all of our revenue.  We would then be unable to function as a country.

Another book about the coming bankruptcy for America is “America’s Ticking Bankruptcy Bomb” by Peter Ferrara which appears to say virtually the same thing about our massive debt problem and what it will lead to.  Also there is the book by Senator Tom Coburn “The Debt Bomb: A Bold Plan To Stop Washington From Bankrupting America”.

Though these books so far are written primarily by conservatives I believe that everyone will agree that the debt belongs to all of us regardless of who got us there.  America must own the problem now and something must be done to avert the potential problems that the debt will create.

Forget for a moment that America as a sovereign cannot declare bankruptcy.  There is no higher governing authority than the nation-state at this point to oversee a bankruptcy of a country.  We must print money to inflate our way out of debt which could lead to something like the Weimar Republic with hyper-inflation or we must default.  If we default and just refuse to pay the debt then we will have extreme trouble in getting anyone to lend us money again without exorbitant interest rates.

But I am seeing a greater and greater number of authors, commentators, and others using the word bankruptcy in relation to America without knowing the warning signs as well as we bankruptcy attorneys do.  I agree with these people about the bankruptcy danger in America.  America seems to be headed in the direction of bankruptcy even though the federal government cannot actually file for bankruptcy.

We are spending and borrowing, spending and borrowing without a pause.  We are time and again failing to match our spending with our “revenue” and even if we do we have to somehow pay back all of the money we borrowed previously.  In the meantime we have to service the debt.  Our interest rates are low but our interest payments increase each year because we borrow more and we will have an impossible time paying back the debt we already owe, just like my clients.

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 or for any other advice about bankruptcy or debt at (619) 702-5015.  Call now for 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.

USA photo courtesy of Kevin Hutchinson.

Are gambling debts a problem in bankruptcy?

gambling 3The short answer is that they can be.  In general the bankruptcy trustees who oversee your case seem have the opinion that gambling 4gambling debts are somehow frivolous, shady, or just not respectable and thus possibly not eligible for a bankruptcy discharge.  The same trustees don’t blink an eye at credit card debts as long as they are aged (more than one year old) but they do seem to have something against gambling debts.

I believe that it is a belief that somehow gambling is not the type of debt that the bankruptcy system was designed to discharge.  You are somehow acting irresponsibly in the eyes of a bankruptcy trustee if you engage in gambling and you borrow money to do so.

But wait a minute that is not the end of the story!  The judges don’t always agree with them.  Bankruptcy was designed to give debtors a fresh start and a relief from debts the cannot pay.  Those debts come in many types and gambling is just another type of debt.  They too should be dischargeable in bankruptcy.

I had a case years ago where a client had gambling debts and the trustees raised an objection to their discharge so I looked up what the judges at that time had ruled.  To my surprise they seemed far more understanding than the trustees.  The judges pointed out in a series of cases that gambling is a legal activity.  Not just in Las Vegas but in casinos around the country.  Here in San Diego we have many Native American casinos that are fully legal.  Millions go each year to these casinos and legally gamble.  There simply is no illegality about it.

If a debtor engages in an entirely legal undertaking then we can’t deny a debtor’s right to engage in it as well as borrow money to finance it like he would a car or clothes that he was buying.  So if the debtor accumulates debt related to the gambling then that really is no different from him running up his credit cards for some other item.  This is what I understood from reading a number of cases on gambling a few years ago.

There were a few caveats though.  The debtor with gambling debts could not have run up his credit cards in anticipation of filing bankruptcy.  One judge referred to this as a credit card “bust out” scheme.  If this was the case then that could be seen as credit card fraud.

Credit card fraud occurs when a person borrows (charges) on a credit card with no intention to repay.  That is why if you run up credit cards and then immediately file bankruptcy you probably will have a credit card fraud problem.

When you sign your card you signed that you will borrow money on the card but you have an intention to pay it back.  That intention can change later though and you can find yourself in a position where you cannot pay.  At that point you stop paying and possibly file bankruptcy.

The gambler then is just like the guy who charges consumer goods on his card except he gambles.  As long as he believes he will eventually win and then pay the car back then there is no fraud because fraud is subjective.  We may look form the outside and say that he will never win at gambling.  His chances are great that he will lose.  But if the gambler believes honestly (but unreasonably) that he will win then there is no subjective fraud.

So it is best to wait for some time after a debtor borrows money on a credit card to gamble.  It will then look less like the debtor had any fraudulent intent.  Any questions about gambling debts and bankruptcy should be directed to a knowledgable attorney.

Don’t forget that there is the gambling addiction problem too.  It is possible that a debtor has an addiction to gambling.  If the debtor is in treatment for this addiction and has ceased all gambling there is a possible argument there to counter any fraud charges.  A good bankruptcy attorney can help you with these arguments.

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 or for any other advice about bankruptcy or debt at (619) 702-5015.  Call now for 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.

 

Risk Free photo courtesy of Sean MacEntee.  Roulette wheel photo courtesy of Zdenko Zivkovic.

What is a chapter 20 bankruptcy?

twentyIt is really just one bankruptcy followed by another.  It is a chapter 7 followed by a chapter 13 which added together equals 20 so it is called a “chapter 20”.  Most people have heard of bankruptcy chapters 7, 11, and 13 but a chapter 20 is really just a combination of a 7 and a 13 and there is no official chapter 20 that you can file.

In a chapter 20 bankruptcy someone will first file a chapter 7 and get a discharge.  They then decide some time later to file a chapter 13 bankruptcy.  A chapter 20 is sometimes referred to as a “no discharge chapter 20” because the debtor is not entitled to a discharge in the chapter 13 if he filed it within 4 years of his chapter 7 according to section 1328(f) of the bankruptcy code.

One reason why people file a chapter 20 is because of the debt limits of a chapter 13.  Some want to file a chapter 7 to discharge the unsecured debt they owe to bring that debt within the limits of chapter 13.  Chapter 13s have specific debt limits and if you exceed them you could be forced into a chapter 11 which is far more complicated.  One strategy to avoid a chapter 11 is to file a chapter 7 to lessen the debt through the chapter 7 discharge and then do a chapter 13.  This would be an example of a “good faith” reason to file a chapter 20.

Another common reason why they would want to file a chapter 20 is because of the chapter 13 lien strip capability not offered in a chapter 7.  In a chapter 13 homeowners can strip (eliminate) second mortgages if they are completely unsecured.  Second mortgages are completely unsecured if you owe more on your first mortgage than the entire home is worth.  This leaves nothing (no equity in the home) to secure the second mortgage so it is in effect an unsecured debt.

But of course it is a lien that exists and will continue to exist on your house if you do nothing or even if you file a chapter 7 bankruptcy.  The lien will remain on you home virtually forever and the only way to get rid of an unsecured second mortgage it is to strip it off in a chapter 13 bankruptcy.

So some people try to get rid of their credit cards in a chapter 7 bankruptcy and then file a chapter 13 to strip the second mortgage.  If they just filed a chapter 13 without the prior chapter 7 they would have to pay some of the credit cards back in the chapter 13.  So it seems that filing a chapter 7 followed by filing an immediate 13 makes sense right?  After all you save all of those credit card payments you would have to make for 5 years in a chapter 13 right?

Wrong!  You cannot be seen to be manipulating the system just to get rid of your credit cards and then strip a mortgage.  This would be an example of a “bad faith” bankruptcy filing and this would be challenged by the bankruptcy trustees in an adversary proceeding.  If you file one chapter and then another to create a benefit for yourself that would not exist in either chapter then that could be considered bad faith.  So you must not attempt to merely get a credit card discharge and then apply for a lien strip.

This tactic would be considered bad faith because if you filed a chapter 7 you would not be allowed the lien strip.  If you filed just a chapter 13 you would have to make payments to the credit cards for the length of the chapter 13 plan.  The courts will want you to pick one or the other but no both chapter in succession merely to seek maximum benefits.

One way to avoid a possible bad faith challenge to your chapter 20 is to show that there has been a subsequent change in your situation since the filing of the chapter 7.  If for instance you intended to surrender your house at the time of filing the chapter 7 but your situation substantially changes after your chapter 7 discharge then you may have a valid new reason to keep your home.  You could get a divorce or suffer a lessening of income for instance.  Then you could possibly do a chapter 13 to strip the second mortgage and this could prevent a bad faith challenge.  Courts examine chapter 20s carefully though so you should be aware of this increased scrutiny over your case when you attempt one.

It is also possible that housing values change and your second mortgage might become unsecured sometime after your chapter 7 discharges.  If you are in a period where housing values are declining then the value of your house may drop below the value of your first mortgage sometime after your chapter 7 is complete.  Now you can strip the lien in a chapter 13 whereas before you filed the chapter 7 you could not.  This would be a valid circumstance that could defeat a bad faith claim.   There are many other possible good faith circumstances in addition to these mentioned above.

Chapter 20s used to be more common.  Doing a chapter 20 became a problem after the 2005 bankruptcy law was passed.  This law can be interpreted to not allow a chapter 13 discharge unless 4 years have passed since the filing of a chapter 7.  (A second chapter 7 cannot be filed until 8 years have passed since a first chapter 7).  This prohibition is contained in section 1328(f) of the bankruptcy code which relates to discharge.

With this code section in mind the question then becomes how can you receive a discharge from your second mortgage after the chapter 13 plan is completed if section 1328 disallows such a discharge?  This can create problems for you as you proceed with the chapter 20 bankruptcy.

Most courts have maneuvered around this by turning to other sections of the code and they have allowed you to do a chapter 20 anyway.  Remember though that the possibility is still there that you will get a challenge if you attempt to do a chapter 20.  It appears that at this time the law is not completely settled and the courts are not in complete agreement on this issue of allowing a chapter 13 within four years of filing a chapter 7.

It also appears to help if new debt exists.  If some sort of new debt has been acquired post chapter 7 judges apparently like that.  It seems as if there needs to be something to make payments on in the chapter 13 and not just a lien to strip.

Bt I still believe that the safest thing to do though is to not run afoul of section 1328(f) at all.  Just wait the required 4 years after your chapter 7 to file a chapter 13 and strip your lien.  You then won’t be in violation of 1328 and there should be no argument to stop you from filing.  Nobody wants to buy a court challenge or court case when filing bankruptcy.

The additional advantage of waiting the full four years to comply with section 1328 is that it is a longer period in which to argue changed circumstances.  It is harder for anyone to argue bad faith if you waited a full four years after your chapter 7 to file a chapter 13.  This is because people don’t generally plan that long in advance and circumstances do naturally do change considerably in four years.

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 or for any other advice about bankruptcy or debt at (619) 702-5015.  Call now for 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.

 

Twenty photo courtesy of takomabibelot.

What is a bankruptcy reaffirmation agreement? Do I need one?

contractA reaffirmation agreement is simply an agreement that reaffirms or recreates a contract that has been broken by your chaper 7 bankruptcy.  After you file for bankruptcy all of your previous contractual obligations for things like credit cards, auto loans, jewelry and furniture loans, mortgage loans, and leases for personal or real property go away.  You no longer have those contractual obligations once you pull the trigger and file your case.  If your case goes all the way to discharge then these obligations go away forever.

This is what makes bankruptcy such a powerful tool for people.  Any contract that is difficult, onerous, or they just can’t afford is cancelled by bankruptcy.  This is what gives you a fresh start when it is all over as you can go on in life free from these big contractual balls and chains.

The problem is that some of these creditors have a secured interest in some property you bought from them.  This is not true of credit cards which are unsecured but it is true of cars, boats, jewelry, and furniture as well other types of property you could finance.  Whenever you buy something and make regular payments for it the seller probably took a security interest in the property you bought from them.

Though the contractual obligations owed by you are cancelled in a bankruptcy this security interest gives finance companies certain rights in the property that you purchased.  They can move against the property to repossess it after the bankruptcy case closes (or if they file a motion for relief from stay).

It used to be before the 2005 bankruptcy law change that you could buy a car, go bankrupt, and then continue to pay for and keep the car.  This was called the “ride through”.  You had that right before 2005 and people regularly did this in bankruptcy.  The creditors hated this because you could turn the car in at any time thereafter and be done with it.  Creditors could not then come after you for the “deficiency balance” because the contract was cancelled in bankruptcy.  They would be stuck with only the car of limited value.

So the creditors eliminated this option in the 2005 law.  A case called “Dumont” in the 9th circuit confirmed this and that was that.  Now the ride though option is gone and you must either reaffirm, pay off the balance, or surrender the car.

Even having said this though there is a loophole out there.  Most creditors will allow you to keep the car and pay though they are not obligated to do so because they don’t want people to return cars.  Many bankruptcy filers will not reaffirm and if the car company wants the car back then they will return it.  We call this “let them eat steel” because the finance companies then sell this car at a great loss when the could have had some payments.

Many car companies recognize this fact and they have allowed the “ride through”.  They therefore don’t exercise their legal right to repossession and they allow you to keep the car as long as your payments are current.

But there are those others like Ford and in San Diego the San Diego County Credit Union.  These lenders tend to demand that debtors sign and file reaffirmation agreements with the court or they will pick up their cars.  It appears that they may just want to make a point or scare people into signing reaffirmations.

It gets complicated here but you must at least attempt to get a reaffirmation agreement in the court or the creditors can and some will pick up cars.  Losing the car can be extremely inconvenient for those who want and need the car or for those who recently put down a large down payment.  It is also true that financing a new car can be difficult and costly right after a bankruptcy so sometimes reaffirmations make sense.  (Have your bankruptcy attorney discuss these issues with you when you are considering signing one).

If you go into court and attempt to get a reaffirmation and it is denied for some reason by the judge who does not think it in your best interest then there is still an out.  Many judges will insert special language into the judicial order that denies the reaff. that will prevent any pick up of the car by the finance company.  Consult your bankruptcy attorney in your area as he or she should know which judges do this and he will be sure to request such language into the judicial order.

This is especially necessary if you have one of those lenders who tend to be more demanding like Ford or in San Diego, the San Diego County Credit Union.

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 or for any other advice about bankruptcy or debt at (619) 702-5015.  Call now for 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.

Contract photo courtesy of Steve Snodgrass.

After filing will bankruptcy be a “skeleton” in your closet?

I just read an article that really set me off.  According to an article posted online by the Washington Guardian 13 people running for the US Senate have bankruptcies or criminal records.  One candidate, Scott D’amboise, filed for chapter 7 bankruptcy protection in 2003 where he listed more than $100,00 in credit card debt, doctors bills, and a mortgage.

In the article they state that D’Amboise’s son had a medical crisis that caused him to undergo seven operations and at the time his medical coverage was insufficient to pay for these expenses.  His $100,000 in credit card debt was also probably related to that medical bill too.  This is very common as many of my clients run up their credit cards in an attempt to pay medical bills before they throw in the towel and file for bankruptcy.

Though this type of bankruptcy scenario seems common to me the article takes on a disapproving tone about these bankruptcies.  They describe these people as “candidates with past troubles” and they include bankruptcies and criminal records in the same article which mixes the two up as if they are the same thing.

Bankruptcy is a legal, moral, and federally approved and legitimate way of dealing with debts that one cannot pay.  There is certainly nothing immoral, unethical, or criminal about it.  To include criminal issues and bankruptcy in th same article is extremely unfair.  D’Amboise in under a legal, moral, and ethical duty to provide medical care to his son.  If he does not have the money to pay for it then he has to borrow just like all my other clients and just like any of us without the resources to pay the medical bills.

The monthly payment on a $100,000 credit card debt would be astronomical depending on the interest rate and probably beyond the ability of the vast majority of Americans to pay.  If D’Amboise did not file for bankruptcy he would be hounded by creditors who mostly have no mercy and will call his home endlessly.  He would then be subject to lawsuits and collection efforts which would tap his bank accounts and garnish his wages leaving hin even less money to live on and pay his bills which would undoubtably get him into further trouble.

Another candidate, Hector Balderas, apparently filed for bankruptcy back in 1995 when he was a college student working on an assembly line.  How many college students do you know that also work on assembly lines?  Instead of congratulating him for his hard work there seems to be a strong note of disapproval for his filing bankruptcy when he was only 21 years old.

The article then goes on to talk about the crimes of other candidates as well as alleged bankruptcy fraud of another candidate.  To compare bankruptcy with crime and fraud is a very bad and unfair thing to do in my opinion.  Bankruptcy is certainly legal and often he only good option for people in serious debt.  There are other options to bankruptcy when one has a high degree of debt except they are all worse than bankruptcy for the debtor.

Bankruptcy settles debt by discharging it legally.  If debtors have any surplus assets (above the allowable exemption amounts) those assets are sold to pay their creditors.  The whole system is monitored by a series of bankruptcy trustees and a bankruptcy judge as well as federal law enforcement to prevent fraud and crimes.

How is it then that we still get these articles that seem to connect bankruptcy with fraud and crime as if they are all the same sort of skeletons in closets?  This is ludicrous and wrong. Bankruptcy is not doing something wrong, it is doing something right.  If you have debts you cannot possibly pay and the wolves are at your door to take your bank accounts, your assets, and your income what are you to do?

You can’t escape the debts and you can’t pay them but you have to live.  Many hide or go underground to avoid this situation and that is wrong.  Some check out altogether and that is tragic.  The right thing to do is to admit you cannot pay and file a bankruptcy.  If your kid needs operations then what choice do you have?   He must have the operations which can run into the hundreds of thousands of dollars.  Who in America can pay for this?  Very few.

Again there is often only one good and right and moral and legal answer to this debt situation and that is bankruptcy.  But let’s not mix that up with criminality because it is legal and has been so for hundreds of years.  It is also moral and sanctioned in Deuteronomy in the Old Testament of the Bible.  Bankruptcy has been around a long time and its time we stop trying to put a scarlet letter on any one who does the right thing and files one.

It is time for bankruptcy to come out of the closet and shed its skeletal image.  I say file one and be proud that you took the moral, legal, ethical, and right path to debt freedom and not another road that leads to bad things. The good news is that after a few of these people get elected and the public sees that they are still good people then they will pave the way for others to run for political office proudly after having done the right thing and filed bankruptcy.

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 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.