*rings boxing bell*
Ladies and gentlemen… here we go… the main event! Jeena and Jeff battle it out in the ongoing debate of bankruptcy attorneys: Is there a difference between someone being Judgement Proof v. Collection Proof. Each have a different view. Who will win the battle of words????
If you aren’t an attorney, this still DOES matter to you. Do YOU know the difference?
Take a listen!
By Jeena Cho, San Francisco Bankruptcy Attorney
Recently, I was talking to a family law attorney who commented that most of her clients were fighting over allocation of debt instead of division of assets. One specific example she gave was a couple who had about $80,000 in credit card debt. Husband earned $120,000 per year and wife earned $50,000. They were considering selling their home so that each spouse can assume their share of the credit card debt and not have to worry about servicing the mortgage.
I asked her, “have they considered bankruptcy?” She looked at me and said, “no, because they make too much money.”
This is a common misconception among many professionals about bankruptcy - if a person earns above the “median income” or “too much income” he or she does not qualify for bankruptcy. In my example above, if the couple chose to file for bankruptcy before the divorce, they would most likely qualify for Chapter 7 bankruptcy because they can use the mortgage payments to offset their income.
If they chose to file, either jointly or separately before the divorce, they can discharge all of the credit card debt. This would obviously give them more options in terms of keeping or selling the home. It also eliminates disputes concerning how the debt will be divided.
Another example is when the couple is considering selling their home with equity to repay unsecured debt. Again, bankruptcy may make sense in this situation as well. A family unit can protect up to $100,000 in equity ($175,000 in some circumstances) through Chapter 7 bankruptcy in California. So, using my example above, if there is less than $100,000 of equity, the couple can file for Chapter 7, protect all of the equity and discharge their debt.
In the event that the couple can’t qualify for Chapter 7 bankruptcy due to too much income or too much equity, Chapter 13 may be a viable option. Chapter 13 is a partial repayment plan, which is determined by their “disposable monthly income” or “liquidation analysis.”
Chapter 13 can also be useful in dealing with missed mortgage or car payments and taxes by offering up to 5 years to “catch-up” on the payments.
Bankruptcy can be a strategy to deal with overwhelming debt, either before or after the divorce.
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“Judgment debtor” is a term of art referring a party against whom a creditor obtained a judgment. I frequently get questions about lawsuits and judgments. Common questions includes:
Here is my general short answer.
The longer you wait, the more difficult it will be to fix your problems and the fewer your options will be.
First, let’s start with a basic scenario.
You owe Discover $15,000. You fall behind and at some point, Discover (or a debt collector) brings a lawsuit against you. A lawsuit is initiated by filing a summons and complaint with the county court. You must also be served with the summons and complaint. (In case you are wondering, in general, a “process server” will come to your home or work and hand you the summons and complaint.)
After you’ve been served, you have 30 days to respond to the complaint by filing an answer or attacking the complaint for defects. Let’s suppose you decide to ignore the lawsuit, and pretend that you didn’t see it. After the 30 days are up, Discover can move for a default judgment. The court will then enter or “order” a judgment against you.
Once Discover has the order in its hands, it can exercise several rights to satisfy its judgment. Most common methods include:
Wage garnishment - this is the most common. By law, your employer is required to withhold and remit up to 25% of your income.
The short answer is that wage garnishments may be fixed in or outside of bankruptcy. A lawyer may be able to set aside the default judgment in State court and stop the wage garnishment. A judgment debtor can also request the wage garnishment amount be adjusted. But, ALL of this will cost you additional attorney fees and court costs.
If you do decide bankruptcy (either Chapter 7 or Chapter 13) is the way to go, we can also “avoid” a judicial lien. It may also be possible to get some of the garnished or levied funds returned in bankruptcy. But only for funds were taken within 90 days prior to filing your bankruptcy. Bankruptcy also had the added advantage of the Automatic Stay (we have a link to something for this?), which stops all collection activities including wage garnishment the moment you file for bankruptcy.
So, if you are facing a lawsuit or a judgment, it is time to get off the internet and get a good lawyer. I mean run, do not walk and get some help!
Image credit: Leo Reynolds
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There is one comment I hear on a regular basis from clients that has always baffled me. It’s when a client says something like “Oh, but I don’t want to file Chapter 7 bankruptcy on Chase because it has been so GOOD to me.” It’s usually followed by “I get money back, I get points, gave me free checking, I know the teller, the branch manager”, etc.
I don’t think I’m breaking any news story here but just for the record, Chase doesn’t care about you. Neither does AMEX (even if you have a Platinum card), or Discover, or Bank of America or… you get the idea. They DO care about taking your money. No doubt. However, they don’t care about you.
As eloquently put by Seth Godin on Caring:
“No organization cares about you. Organizations aren’t capable of this. Your bank, certainly, doesn’t care. Neither does your HMO or even your car dealer. It’s amazing to me that people are surprised to discover this fact.”
They don’t care that you’ve lost your job or that you’ve gone through medical issues. They don’t care that you can’t repay credit card debt with 32% interest or come up with $500,000 in one lump sum to repay a balloon payment on your home.
If they cared about you, they wouldn’t charge you 33% interest rate or triple your monthly mortgage payment. They wouldn’t hire Linda Green to robosign fake mortgage documents. They wouldn’t charge outrageous late fees, bounced check fees, ATM fees, annual fees, and other junk fees.
They bribe you with bonus points, miles, cash back bonuses, and platinum status. If I had a dollar for every time a client told me “well, {evil bank} has really been good to me” or “I feel guilty about filing bankruptcy against {bank}” or “I’ve had that account for __ years” I’d be a rich woman.
So, please stop telling me how Chase really cares. Banks are in the business of making money. They are pretty good at faking it and pretending they care but they really just want your money.
Garnishment
Garnishment
Garnishment
General Unsecured Creditor
Gifts
Goals
Good Manners
Guaranty
Guilt
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Do you cut your own hair? Or fix your own brakes? How about self-diagnose and treat an illness? I only tried cutting my own hair once when I was 13. As you might imagine, it was a complete disaster. I cut my bangs to about 1 inch, and let’s face it - no amount of professional intervention can cure that. Now, I know. When it’s important, get professional help before endeavoring in self-help.
One of the biggest mistakes a person makes when s/he starts going into deep debt is attempting to hide assets by transferring or selling it for less than fair market value to friends or family. Transfer of assets with the intent to hinder, delay, or defraud is known as a “fraudulent transfer.” An example might be selling your car for $1 to your mom so that the creditors can’t take it or quitclaiming title to your home to someone you trust. Oftentimes, such a strategy is misguided, unnecessary and causes more problems than solving it. Remember, filing for bankruptcy does not mean you’ll lose all of your assets!
In bankruptcy, we are required to disclose transfers made within certain “look back” periods. So, in our example above, the sale for $1 will have to be disclosed. The trustee in the bankruptcy case can unwind or “undo” the transfer and get the car back then sell it for the benefit of repaying the creditors. Worse yet, fraudulent transfers can be the basis of denying discharge. What this means is that not only will you lose the car, but you can be still stuck with all of your debts!
I see clients making serious mistakes by exercising “self-help” which can be very costly to fix and like a bad haircut, no amount of professional intervention may be able to fix the screw-up. So, remember to ask your lawyer first before transferring property.
Failure
Family Farmer/Fisherman
Financial Fatigue
First
Foreclosure
Foreclosure
Forgiveness of Debt
Forms
Fraud
Fraudulent Transfer
Future Flow Agreement
Image Credit: Leo Reynolds
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