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Most people shudder at the thought of filing bankruptcy. An emotional response is natural, yet it also may cause unnecessary delay. Over a short time, procrastination limits options, wastes payments, and causes asset loss. You could easily prevent these poor results by reviewing your options early using a common sense approach.

The best plans exploit the advantages of numerous financial tactics before filing and may avoid filing bankruptcy altogether. If filing later becomes necessary, a well thought out plan also maintains all Chapter 7 and Chapter 13 rights and maximizes benefits. Timing is the key to success.

As a general rule, courts look back two years to review all transactions. Trustees search for hidden assets, transfers of money to family and friends, and a wide range of prohibited transactions. They may look back for up to 10 years in some situations, most notably involving trust transactions. Nevertheless, all people who file may conduct their affairs as they see fit, including many transfers that protect and preserve assets.

The term bankruptcy planning is relative. From the perspective of debtors, a well thought out plan treads a fine line between permissible and prohibited transfers. Creditors frequently disagree. They allege violations and seek asset seizures. In most cases, the timing of a transfer determines if it complies with the law. The way transfers are completed also determine if they are allowed. The best strategies begin more than a year in advance. Exemptions are used creatively, and priority debts are minimized or paid completely. General unsecured debts are compromised, settled or ignored. Net worth improves dramatically.

Qualifying for a Chapter 7 discharge is harder today than during any time in the history of our nation. The most difficult hurdle is contained in the means test. The means test became law in 2005 at the insistence of major financial institutions. Oddly, this new law became effective just as the reckless and abusive lending practices of financial institutions created the worst economic downturn in 80 years. Many people do not believe in coincidence. In this case, when the real estate bubble broke and homeowners suffered, Chapter 7 was no longer available for many people.

The means test is calculated over the last six full months before filing bankruptcy. It measures the difference in income and specifically allowed expenses. In simple terms, if you earned too much, you cannot file Chapter 7. You also have a wide range of options to influence test results. With six months to plan, most people who file Chapter 13 could qualify for Chapter 7, if only making a few small lifestyle changes.

The election of Chapter 13 increases options available when filing bankruptcy. In exchange for at least partial payment on all debts, the added benefits in Chapter 13 frequently make it the best choice. You may include back taxes, past due mortgage payments and a wide variety of priority debts in the plan. The partial payment required may be minimal. In many cases, the percentage payment on unsecured debts is less than 5%. For a minimal payment, you may avoid tax seizures and home foreclosure.

Each person who is experiencing financial difficulty presents a unique set of challenges. Income, goals and necessities vary in each situation. Nevertheless, a solution exists for all financial problems. You may avoid filing bankruptcy if acting early. You may settle unsecured debts easily for less than 50 cents on the dollar without filing. You may need to file at some point in the future to gain the protection of the automatic stay. Keep your options open.

All people must pay income tax in all situations. The IRS receives a super-priority. These important debts may lead to the seizure of assets, including exempt property, if taxes remain unpaid. Chapter 13 is unique in that past due taxes are considered current when included in the plan. All tax seizures and levies must stop and the IRS must accept the plan payment. You may spread payment over five years.

Additionally, each person has a right to convert a Chapter 13 case to Chapter 7 if qualifying under the means test. This option becomes quite valuable if taxes are repaid and only unsecured debts remain in Chapter 13. In addition, during the time a Chapter 13 cases is pending, each debtor has power within their grasp to make small changes in their lifestyle. These changes may influence the means test result and later qualify any debtor to convert to Chapter 7.

You have an amazing variety of options and alternatives provided by law. The secret for using them wisely is to become familiar with each option. When you compare the real cost and actual benefits of each option, in a side by side comparison, you may be shocked by your potential results. Misinformation regarding debt relief options is common. The only way to know, with certainty, the value of your options is to compare them over an equal time period. You must use actual costs and realistic assessment of available benefits. Not all people qualify for all options.

This comparison is far easier than most people realize. You do not need an account or financial analyst to help you. You do not need an attorney to calculate the means test if you use a well prepared custom form. You could perform these calculations within the comfort of you home with the next few days.

Foreclosures are regulated by state law in every county and parish within the U.S. The process is always similar. Each mortgage holder must receive notice of the intent to foreclose and has a right to bring payments current. The typical notice period is 30 days, and notices are published as a public record. In the past, mortgage companies typically filed notices automatically once a homeowner slipped three months past due. You may have less time today.

Dealing with a foreclosure notice strikes fear in the hearts of homeowners. Your future is uncertain, you must find a place to live, or alternatively find a way to make past due payments. In most cases, payments would not slip past due if homeowners have funds available. For many people, this unfortunate situation is best resolved through filing bankruptcy. Filing will save your home.

The U.S. Bankruptcy Code, in 11 U.S.C. Section 362, contains a powerful provision creating an automatic stay of proceedings. A stay is similar to a federal injunction that prohibits all creditors, in all bankruptcy chapters, to collect debts. The stay also specifically applies to foreclosure sales. Once a case is filed, your mortgage company cannot proceed with foreclosure once receiving notice that you file. Written notice of filing provided by certified mail is sufficient and indisputable, even though a call providing oral notice is also acceptable.

The automatic stay is not a permanent injunction. In Chapter 7 cases, a mortgage holder must bring payments current or the court will entertain motions to lift the stay. The motion will be granted and foreclosure resume if you do not make all payments that are due. In Chapter 13 cases, past due payments are included in a proposed plan. Once included in a plan, payments are assumed current and the stay will remain in place. When filing a Chapter 13 case, you must make a proposed plan payment to the assigned trustee within 30 days. If this payment is not made, the stay may lift and the case is subject to dismissal.

The best time to plan a bankruptcy case is before receiving a notice of repossession, foreclosure or eviction. By allowing more time to plan, the benefits of filing multiply exponentially. You may optimize the means test result with only a few extra months. This test determines if you qualify to file Chapter 7 and the amount of your trustee payment if selecting Chapter 13.

Planning bankruptcy does not require that you retain an attorney. Most attorneys provide only one free initial consultation. Your means test however changes each month. You may compute the means test yourself, each month, and save $400 per test. To do this, you must use a customized form to maximize your results. The official form is cryptic at best and provides little meaningful guidance for individuals who want to file Chapter 7.

When falling behind on mortgage payments, foreclosure is not inevitable. Since the real estate market collapsed, more than 5% of all homes loans are in default. Today, workout situations are common. Lenders try to avoid repossessing homes, which in turn, bloats their balance sheet with non-performing assets. You may have time to workout an arrangement with your lender. Perhaps a loan extension is available. You may consider a different lender to refinance, focusing on high risk specialists. You may consider a deed in lieu of foreclosure if you cannot make mortgage payments.

In every situation, borrowers have unlimited options that include working cooperatively with creditors, settling debts, litigating disputes, and confronting creditors in the U.S. Bankruptcy Court system.

Bankruptcy automatically stops all foreclosure proceedings. The mechanism is known as the automatic stay. Each time a case is filed, under any chapter, the automatic stay prevents creditors from collecting debts. The stay provides broader protection by prohibiting repossession of assets, home foreclosure, and the continuation of lawsuits seeking judgments on debts.

The stay is not permanent. Borrowers who file bankruptcy have two options to bring payments current. In Chapter 7, actual payment is required to prevent the court from lifting the automatic stay. In Chapter 13, the court indulges legal fiction. The inclusion of payments in the plan creates an assumption that payments are current. To maintain a Chapter 13 case in good standing, monthly payments to a trustee are required.

Future mortgage payments must be made to avoid foreclosure in all bankruptcy cases. If you home has negative equity, homeowners in bankruptcy should carefully consider the long-term impact of keeping their home. You may surrender your home and treat the deficiency balance as an unsecured debt. All remaining unsecured debts are discharged when a case is closed. Chapter 7 typically lasts about four months unless creditors file objections. Chapter 13 cases last from three to five years before receiving a discharge.

Timing a bankruptcy case properly is critical for your success. You may file too quickly or too late to receive the maximum benefit available. If you file too early, you may not qualify for Chapter 7 because of the means test. If you file too late, you may unnecessarily waste exempt assets and potentially incur imputed income. Imputed income creates tax liability when lenders charge off debts. The best bankruptcy strategies begin well in advance of the filing date. In this way, you will gain the maximum allowed benefit and prevent the accrual of non-dischargeable tax liability. If you consider a few advanced strategies, you may adjust debts in a plan and receive a quick discharge by using your options at the proper time and in the proper sequence.

How Federal Laws Can Be Helpful to You? (ii)

Real Estate Settlement Procedures Act (RESPA)

RESPA was designed to give home buyers and sellers better disclosure of settlement costs; and to elimination of kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services.

Prohibition Against Kickbacks and Referral Fees

12 U.S.C. §2607(a); 24 C.F.R. § 3500.14(b). RESPA prohibits the giving or receiving of any fee, kickback or other thing of value for the referral of a “settlement service” (defined at 12 U.S.C. § 2602(3) and 24 C.F.R. § 3500.2).

One court has stated that, in order to state a claim alleging a violation of this section, one must demonstrate:
1) an agreement between the parties to refer settlement service business,
2) the transfer of a thing of value, and
3) the referral of settlement service business. “An agreement or understanding for the referral of business incident to or part of a settlement service need not be written or verbalized but may be established by a practice, pattern or course of conduct.” 24 C.F.R. § 3500.14(e).

Yield-spread premiums: A yield spread premium is a fee paid by a mortgage lender to a mortgage broker for arranging a loan with an interest rate at a higher amount than the par rate. Payment of a yield spread premium is not a per se violation of this section, but may be illegal under RESPA based on a factual inquiry into the circumstances surrounding the payment.

HUD (the agency charged with interpretative, investigative and enforcement powers under RESPA) recommends a two-step inquiry to determine whether a yield spread premium is illegal. First, one determines whether the payment of the yield spread premium was for services actually performed; if it is not, then the payment is an illegal kickback. If the payment was for services actually performed, then one looks at whether the total compensation paid to the broker reasonably related to the value of the services; if the compensation does not reasonably relate to the value of the services, the payment is a violation of this section.

Recently, some Courts have fashioned a five-part pleading standard for alleging a YSP-based violation of RESPA, three-part test and on HUD statements:

“(1) the existence of an agreement between the lender and broker whereby the broker promises to refer settlement service business to the lender;

(2) the transfer of a thing of value between the lender and broker based upon that agreement;

(3) the referral of settlement service business by the broker to the lender and either that

(4) the broker received a YSP without providing any goods or services of the kind typically associated with a mortgage transaction or (5) if the broker did provide such goods or services, the total compensation paid to the broker was not reasonably related to the total value of the goods or services actually provided.. As part of pleading (4) or

(5), a borrower must plead what services were offered, the reasonable value of those services, and the fact that total broker compensation exceeded that value. Also, a borrower alleging a YSP-based violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, or a YSP-based breach of fiduciary duty, can only do so by (also) meeting the RESPA pleading standard.

Prohibition Against Unearned Fees and Fee Splitting 12 U.S.C. §2607(b); 24 C.F.R. §3500.14(c). RESPA prohibits the giving or receiving of “any portion, split or percentage of any charge made or received for the rendering of a settlement services in connection with a transaction involving a federally related mortgage loan other than for services performed.” The regulations further state that, “A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section.”
Remedies

There is a private right of action for violation of § 2607 (Illegal referral fee or kickback and fee splitting). Statutory damages: person charged for the settlement service can recover an amount equal to “three times the amount of any charge paid for such settlement service,” plus attorney’s fees and costs. 12 U.S.C. § 2607(d).

Practice Tip:

The bottom line is that any payment by the lender to the broker is illegal if it is not for the reasonable value of services actually performed. So if you see a high up-front broker’s fee plus a yield-spread premium or other broker fee paid by the lender, there’s a good chance the lender-paid is fee is “unearned gravy” and constitutes a violation.

There is a private right of action for violation of § 2605 (Servicing requirements and administration of escrow accounts). Actual damages for each failure to comply, additional damages for a pattern and practice of noncompliance, plus attorney’s fees and costs. 12 U.S.C. § 2605(f).

Statute of Limitations

• 1 year for affirmative (kickback and fee-splitting) claims. 12 U.S.C. § 2614;
• Unlimited as a defense to foreclosure in the nature of a recoupment or setoff.

There are a lot of advertisements that are on the television both for debt consolidation and bankruptcy, so which one is better?

Bankruptcy is something that can either wipe out your debt or it can require you to make payments on your debt over a period of time, depending on what kind of bankruptcy you are filing.  But the bad thing about it is that it goes on your credit report and stays there for approximately seven years.

When choosing debt consolidation, people are able to put all their debt into one bill and pay a certain amount each month. This can be done through a debt consolidation agency, which is going to put the person on a budget that they have to stick to and some rules that they have to follow. It can also be done through a debt consolidation loan. You borrow enough money to pay off your debts and then make payments on the loan each month.

Most people have found that debt consolidation is better than bankruptcy. Instead of putting a black mark on a credit report, it sometimes helps the person’s credit if they keep  to their payment schedule and pay it faithfully.  But if you are going to try debt consolidation, however, make sure that you are choosing a company that has a good reputation. You want to know exactly what they are going to do for you and what the end results are going to be.

All in all, if you choose the right debt consolidation firm or agency, it really will turn out to be a better idea than filing for California bankruptcy and negatively affecting your credit.

Bankruptcy is something that a lot of people have gone through, but no matter how bad your situation is, there are ways that bankruptcy can be avoided. Here are some of the ways that you can avoid filing for bankruptcy.

Debt settlement

If you have trouble keeping up with the minimum payments for the debts that you have, you might want to consider debt settlement.  If you get into a program, you may be able to settle your debts for anywhere up to 40% of what the original debt was.

Debt consolidation

The second thing that you can do is get into a debt consolidation program.  This will let you make monthly payments that have a lower interest rate. 

Debt management

The third option that you can use to keep from filing bankruptcy is to do debt management. This is done through an agency that deals in credit counseling and that helps consumers to stay current on their bills and avoid bankruptcy.  The purpose of this is to reduce your interest rates and reduce or get interest charges waived which are because of any payments that are late.

When you are considering filing for bankruptcy, think of the three options listed above and see if any of them could help you out.  Talk to someone who is specialized in debt problems and see what they suggest that you do. Bankruptcy is something that should be avoided if possible because it ruins your credit, so if you have have any other ideas of what you can do to  help your credit, you should look into them first.

When things get bad for you financially, as they have gotten for many other people recently, think about the other options that are available for helping with debt. Chances are that there is something else that you can do.

When someone is considering filing for bankruptcy, chances are that they aren’t thinking of all the repercussions that they are going to have after it’s over.  Here are negative affects of filing for bankruptcy.

Feelings of embarrassment and defeat, since everyone knows that you have filed for bankruptcy in California. 

No say in how much you will have to repay to your creditors, since the decision isn’t in your hands any more.

Loss of assets or treasured items, such as your house or car, or even your business if you are business owner.

Payments to repay creditors can be garnished from wages for as many as five years.

Consumer debtors have to attend credit counseling within the first six months after they file for bankruptcy.

Debtors have to finish an education in personal financial management before they are able to get a discharge.

If it’s a chapter 13 bankruptcy, it will be your personal credit report for 7 years, if it’s a chapter 7 it stays on for 10 years.

When someone is considering filing for bankruptcy, they need to think about the negative affects of what they are doing and ask themselves if there isn’t a better way to help themselves out of a financial mess. Chances are that there is, they just have to do some research and ask for some advice from other people.  Credit counseling is a good place to start. Bankruptcy is not the only option that they have to go on.

It pays to get multiple opinions before you end up filing. Bankruptcy stays on your record for 10 years, so you need to go into this knowing everything in advance.

The range of exemptions is different in each Chapter and varies from state to state. What are some of the most significant and basic discharge for Chapter 7 and Chapter 13 Bankruptcy?

Chapter 7 Bankruptcy Exemptions

Chapter 7 bankruptcy also known as ‘straight’ or ‘liquidation’ bankruptcy is the means to help individual debtors clear up their debts. Most of individual debtors’ unsecured debts are dischargeable, such as utility bills and wage garnishments, personal loans, medical bills, older tax debts, judgement stemmed from car accidents; credit card, payable loans, and deficiencies on reclaimed vehicles. However, Chapter 7 bankruptcy do not discharge individual debtors on student loans, debts sustained by fraud or deliberate illegal behaviour, recent taxes, debts to partner resulting from divorce, criminal fines or reimbursements, family support and drunk driving verdicts.

In most cases, Chapter 7 bankruptcy exemptions protect all of debtor’s property. Exemptions normally take account of debtor’s tools, certain items of personal property, work equipment, residence, vehicle, and several other properties. If exemptions do not protect all of your property as required by law, the individual debtor’s court-assigned bankruptcy trustee has the power to clear up the debtor’s non-exempt debts to pay off the creditors.

Individual debtors are to consult their bankruptcy lawyer about their state’s exemptions.

Chapter 13 Bankruptcy Exemptions

In Chapter 13 bankruptcy, debts that are not dischargeable encompass old taxes, for which no return was filed, family support, student loans, drunk driving verdicts, and reimbursements. Exemptions in Chapter 13 are similar to that of Chapter 7 with few advantages as well. For instant, the individual debtor can enforce a ‘debt management’ plan on creditors. This plan, which halts the running of interest on credit card debt, is irreversible and must be accepted by creditors. Chapter 13 allows time for the individual debtor to pay off his or her liabilities, which is not permissible in either chapter, such as eliminating a portion of lien, curing defaults on home mortgages, and eliminating recent taxes. Chapter 13 can be regarded as a court enforced debt management plan as the discharge in this chapter covers many debts, comparing to Chapter 7.

Another important thing that you should understand when filing for bankruptcy: There is no way one can file for bankruptcy online. You can make research online to better understand how to file for bankruptcy, get an inner understanding of bankruptcy laws, or download a bankruptcy form, but you cannot apply for bankruptcy online. No bankruptcy court acknowledges Chapter 7 bankruptcy application online. If you thought you could then, you are mistaken, be prepared to take on this legal process as a physical challenge as the virtual mode is not made available yet. There are multiple sites, which will give you tips on how to file bankruptcy, or connect you with a bankruptcy lawyer.

As a bankruptcy attorney, I often counsel people in significant financial distress. Most have debt collectors calling every day. Once a person files bankruptcy, federal law requires that all attempts to collect debts cease immediately. But for some, bankruptcy may be unwise or simply too expensive. This article intends to inform people in such a situation about methods debt collectors are prohibited from using to collect debts and what a person can do to stop them.

Under the federal Fair Debt Collection Practices Act (”The Act”) debtors are protected from overzealous or unscrupulous debt collectors. Note that The Act does not generally apply to the person or entity that is owed the debt. It only applies to debt collection agencies. A debt collection agency may have violated The Act if its agent has done any of the following:

(1) Pretended to be a government employee, representative of the government, or a law enforcement officer;
(2) Disclosed without justification, to a person other than the debtor, information that negatively affects the debtor’s reputation;
(3) Contacted a debtor at work without permission by the debtor to do so;
(4) Threatened a debtor with a lawsuit that the collection agency knew could not be carried out;
(5) Used or threatened force or violence;
(6) spoke in such a manner as to give the debtor the impression that the debt collector was associated with an attorney;
(7) Refused to adequately identify himself or herself or his or her employer when debtor requested such information; or
(8) Communicated with the debtor between the hours 9 p.m. and 8 a.m. without the debtor’s permission.

These are just a few of the more common methods unethical collection agencies may use. Violations of The Act will support claims (lawsuits) for actual and statutory damages. In theory the amount of actual damages is unlimted, but most cases see awards in the $5,000 amount. In addition to compensation to the debtor for his or her actual and statutory damages, the debtor can also recoup any attorneys fees incurred in the lawsuit.

Cease and Desist Letter

In addition to filing suit against unscrupulous collection agencies by way of The Act, debtors can also compel agencies to stop most attempts to collect by filing what is called a “cease and desist” or “no contact” letter. If the debtor does not already have the collection agency’s address, he or she should request it from the debt collector when they call. Collection agencies are required by The Act to provide this information. The cease and desist letter should be sent by certified mail with return receipt. The letter that follows is a sample of a cease and desist letter.

RE: Your Account Number Here

To Whom It May Concern:

You are hereby notified, pursuant to the Fair Debt Collection Practices Act, 15 U.S.C. Sec. 1692 and Florida Statutes Sec. 559.72 that I require you to cease contacting me at home, work or any other place regarding the above referenced account. You do not have my permission to contact any other person in your collection efforts to determine where I live or work.

This letter will serve to advise you that any further contacts will be construed as harassment and in violation of the law. Also be advised that any violation of federal or state law will be reported to the appropriate authorities, including the Federal Trade Commission and the Attorney General for the State of Florida.

(INCLUDE IF APPLICABLE) I dispute the debt that you are attempting to collect from me and request at this time verification of the debt you claim is outstanding.

Sincerely,

Your Signature Here

Even if Florida debtors find themselves unable or prohibited from filing for bankruptcy, they can still realize some relief from collection agencies that violate state and federal fair debt collection laws. Debtors with low incomes should contact their local community legal services organization for free legal consultations.