What Not to do Before You Meet with a Bankruptcy Attorney

You are eager to do something about your uncomfortable debt situation. You have been trying a variety of options and, while at times were making progress, you no longer feel that way and you want to look at other options, including bankruptcy. You are impatient, and thinking about what you can do before your meeting with an attorney to make things a little better for you. You read, you think, and you want to take some action to show that you know what you are doing. You want to protect your assets.

You want to do something. Don’t.

Here are some of the actions that some of our clients have contemplated and, thank goodness, have generally not done:

 

1. Transferring property, such as a house, car, or other major asset to a family member or friend.

Transferring any items of value to anyone shortly before you file for bankruptcy is considered fraudulent unless you have received the money equivalent for that asset. If you transfer your Ford Mustang GT to your son, he better have paid you the market value for that asset, or else when you file for bankruptcy, the Court will get the Mustang from your son, sell it, and use the money to pay off your creditors.

 

2. Hiding money or assets.

If you file for bankruptcy, you must disclose all of your assets and all of your debts. Hiding the money under your mattress doesn’t mean you don’t have it. It just means it is under your mattress, and you have to disclose this in the bankruptcy paperwork.

 

3. Using your charge cards or borrowing power for things you don’t need right before you file the bankruptcy papers.

I have had clients say they have been advised to head to the stores  or shop online to “max out” their cards shortly before they file their bankruptcy. It is highly unethical to do this and it is against the bankruptcy law. Your entire bankruptcy can be jeopardized, and you could still have to pay for the items anyway, so why take the risk?

 

4. Buy a new car or other major item just before filing the bankruptcy papers, unless your bankruptcy attorney has approved it.

There are several reasons why you should not do this without the attorney’s permission. One is that people sometimes trade a vehicle that’s worth less than they owe for a new one and then they are strapped with not only the new car payment, but an amount that includes the balance on their old vehicle. That’s not a good thing to do.

Also if you purchase a major item without seeing the attorney first, you may be doing something that is the opposite of what the attorney has in mind for her or his strategy. So be patient and talk to the attorney first. There are circumstances when this is appropriate, such as when your car is dying and you need reliable transportation to get to work. or if the attorney says to give up the luxury vehicle with the high payment and get one with a much lower payment.

The bottom line is, speak to your attorney first before you make a move that you might regret. Give us a call at 800-360-9392.

Bankruptcy Isn’t Just For Credit Card Debt

credit card debt, bankruptcy, debt, steidl & Steinberg

 

In fairness, bankruptcy has never just dealt with credit card debt, but that seems to be a common misconception. My clients are often pleasantly surprised at the types of debt that bankruptcy can assist with. Here are some of the debts that you might not realize can be eliminated or affordably repaid in bankruptcy:

Delinquent utility bills

High winter gas bills or high summer electric bills can be overwhelming. Some people find themselves in danger of being shut off.  Bankruptcy can stop a shut off and either eliminate or help you repay your high balance. If your service has already been terminated, we can help you get turned back on.

Payday loans

Payday lenders seem to be some of the least scrupulous and most likely to lie to you about what they can do to collect.  Yes, payday loans can be included in a bankruptcy and no, there’s nothing they can do about it.

Real estate taxes

If your real estate taxes aren’t paid as part of your mortgage loan, it can be very easy to fall behind considering the tax bills often need to be paid in one lump sum. Bankruptcy can help you repay your real estate taxes over up to a five year period and can prevent a tax sale of your property.

Delinquent mortgage payments

If you’ve fallen behind in your mortgage payments and reached out to your lender for help, you know how difficult it can be to work on a resolution with the mortgage company. Bankruptcy allows you get caught up on your missed payments over up to a five year period and/or we can explore whether we can get you more favorable loan terms in order to help you get caught up.

Income taxes

Depending on the circumstances, you can repay the taxes without the penalties continuing to rack up or they might be eligible for elimination.

Bankruptcy can help you get a multitude of different kinds of debts under control. Not sure if bankruptcy can help with your type of debt?  Give us a call at Steidl & Steinberg. We can meet with you for a free consultation.

Sometimes Our Best Clients Are Those We Can’t Help

bankruptcy, debt settlement, attorney

 

I received an e-mail recently from a potential client concerned about his debt problems. He had approximately $12,000 in unsecured debt, $114,000 in student loans and a personal loan for $5,000. I had some ideas as to what I might suggest, so I told him to come in for a free consultation and we would talk about his situation.

We were able to determine that he brought home about $2,400 per month in salary and had about $2,100 in living expenses before considering the debt, which required payments of nearly $1,500 a month.

But there were some other factors. He was going back to get his doctorate degree, so the student loans would be deferred. The $12,000 in unsecured debt was very old and no one had been coming after him for collection. The personal loan wasn’t that far from being paid off and there was also a co-signer. After some calculations, we figured out that the payments on all of that debt would end up being about $300 per month, which would have been exactly what I would have recommended if we had filed a Chapter 13 bankruptcy.

We consider each client’s debt situation carefully

I couldn’t do any better for him than he could do for himself, but our new almost but not-quite client was impressed because, rather looking for ways to make money for Steidl and Steinberg, I was looking out for him. That is what we do.

We look at your situation and develop alternatives. If we think we can save you money, we will show you how, but if we can’t, we will tell you.

The man took a bunch of my cards. He said that he knows several people with serious debt problems, and now he knows that, at Steidl and Steinberg, we will look out for their interests.

Charging Necessities? Time to Consider Bankruptcy

charging necessities to credit card

It can be hard to recognize when your financial situation has gotten bad enough that you need professional help. If you find yourself paying for necessities, like groceries, gas or prescriptions with credit cards, it is almost certainly time for you to consider talking with Steidl & Steinberg about filing for bankruptcy.

So many of our clients are in this position when I initially meet with them.  They pay the monthly minimum on their credit cards faithfully, but so much of their income is eaten up by the credit card payments that they have to turn right back around and use the little available balance freed up by the payment to pay for basic living expenses.

Despite the fact that some people may think they have their debt under control as long as they are able to make their minimum payments, nothing could be further from the truth.  With the high interest rates on credit cards these days, it would take 15-20 years to pay off a large balance on a credit card by only making the minimum payment.  Also, if creditors suspect you aren’t a good credit risk, they will lower your available limit down to your balance, ending your ability to continue the pay and charge routine.

How Can Bankruptcy Help?

This is an endless destructive cycle that will likely only be broken if you have a sizable improvement in your income or you file for bankruptcy. As much as we’d all like to think that next big raise or promotion is right around the corner, it’s just not in the cards for most of us.

Depending on what type of bankruptcy you qualify for, you can eliminate your credit card debt or get help restructuring it in a way that will allow you to be able to afford your living expenses.  You can meet with an attorney at Steidl & Steinberg for free to learn about your options.

Let’s do away with thinking that paying the minimum payments on your credit cards is winning.  Do you want to still be paying for that lunch at McDonald’s 20 years from now? I don’t think so.

Bankruptcy vs. Debt Settlement – Part 2

bankruptcy, debt settlement, credit card debt, steidl and steinberg

 

If you missed Bankruptcy vs. Debt Settlement Part 1, please check out that blog entry first. Our last installment described a likely scenario in which “John” would offer $4,000 to ABC Bank to settle a credit card debt of $10,000. This seems like a great deal, right? Maybe, but there are a lot of hidden issues that one needs to be aware of when settling debt in this manner.

Problems with Debt Settlement

The first issue is that the banks will generally not take payments on the offer they have made or accepted. They want their money now! So, John will probably have to have the $4,000 paid to the bank within a day or two of this agreement.

Second, and this is extremely important, the $6,000 that John will be “saving” is now taxable as income to him by the IRS. Yes, ABC Bank is going to send a “1099 Debt Forgiveness” form to the IRS for $6,000 and at the end of the year John is going to be hit with a tax bill from the IRS as having $6,000 in income that he never paid taxes on. This can get really ugly, especially if you are settling large amounts of debt!

Finally, many individuals will get these lump sums to settle the debt from their retirement accounts such as a 401k or an IRA. Again, there can be some pretty major tax consequences to taking money from a 401K or an IRA especially if you are below the requisite retirement age.

By the Numbers

So, with that in mind, let’s take John’s situation and put some estimated numbers on this settlement proposal and see what it looks like. John has offered to settle his $10,000 credit card debt with Bank ABC for $4,000. After consideration, ABC Bank has accepted his offer but they it in a lump sum want the cash within one week. John doesn’t have $4,000 on hand and must withdraw it from his IRA.

John is only 45 years old, so he has to pay a 10% penalty for an early withdrawal. He also is in the 15% tax bracket for tax purposes to he has to account for that when he withdraws the money. What this means is that in order to get his hands on $4,000 to use for payment to ABC Bank, he actually needs to take about $5,300 and send $1,300 of that to the IRS for the 10% penalty and 15% income tax. So, now John has his $4,000 (which he spent an additional $1,300 to get) and he pays it to ABC Bank.

Unfortunately, at the beginning of the next year, he receives a 1099 Debt Forgiveness form from the IRS in the amount of $6,000. Now, when John does his taxes, he must pay income taxes on that $6,000. Remember that John pays income taxes to the IRS at a rate of 15%, so he must pay in an additional $900 to the IRS than he otherwise would have had to pay.

Credit Score Impact

All in all, John paid $6,200 in lump sums to settle the $10,000 debt that he had with ABC Bank. Still not a bad deal, but wait… it doesn’t end there. The next time John checks his credit report he is going to see an entry by ABC Bank that says something along the lines of “debt settled for less than what was owed.”

This is going to drive down John’s credit score significantly and will stay on his report for seven years. According to lenders that I have spoken with, having a settled debt on a credit report is almost as bad as having a bankruptcy reported to the credit bureaus and in some instances it is even worse.

As you can see, a lump sum settlement isn’t always as cut and dry a solution to an outstanding debt as it may seem. If you find yourself in a situation similar to John’s, give us a call and see how we can help. Bankruptcy could be the answer. Steidl & Steinberg has over 30 years of experience in helping people solve their debt problems.