Several times over the last few years I have spoken with well-meaning people who have large tax bills from withdrawing retirement money early. Why the large tax bill? They withdrew their retirement plan money before retirement age to pay down their debts. In some cases, these people used their hard-earned retirement funds to pay down credit card debts through so-called "debt settlement" programs. Others used the retirement withdrawals to make payments on severely underwater mortgages (including wholly out-of-the-money equity lines) on "investment" properties that were actually generating major negative cash flow. One couple used the retirement funds to pay their full mortgage payment longer they could afford to pay it, when they could have likely obtained a mortgage modification.
These individuals all had occasion to discuss these matters with a bankruptcy attorney after the fact. Most of them ended up filing bankruptcy. All of them would have fared much better if they had met with a bankruptcy attorney first. How much better? They would still have the retirement funds growing in their retirement plan. In addition, they wouldn't owe the IRS early-withdrawal penalties or income tax on the previously tax-deferred withdrawals. Why was this such a bad move? First, these people were using funds that would be exempt in bankruptcy: funds they could have kept despite filing a Chapter 7 bankruptcy, or wouldn't have to account for in a Chapter 13 bankruptcy. Second, they threw money away: they used the money to pay unsecured, dis-chargeable debts, or secured, non-recourse debts that would have been scheduled in their bankruptcies. Third, they incurred tax liability for the early withdrawals, and the tax liability in these instances was not dischargeable when they later had to file bankruptcy anyway. Some of them also received 1099 forms for "cancellation of debt" income from the debt-settlement schemes and thought they owed tax on that too. What a mess. It is always disheartening to have to explain how much better things could have been - had we only met sooner. But just remember that using retirement funds to pay debts when you are in severe financial distress is almost always a really, really bad move. Doing it without getting some bankruptcy advice first is reckless. The debt collectors and debt settlement schemers on the end of the phone get paid to try to pressure you into using the last of what you have. Be careful.
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Lately this office has received several calls or visits from potential clients who have a colleague, family member, or friend who led them to believe that Chapter 13 is a sort of no-win provision for people that "make too much money" to file a Chapter 7 bankruptcy. This familiar discussion is frustrating, because the implications of the false hope of being "fortunate enough" to file for Chapter 7 bankruptcy protection distort the nature of Chapter 13 bankruptcy proceedings (if not the nature of life itself in America, where we do pursue to have things). This nonsense-wisdom we hear repeated so often makes bankruptcy relief seem unappealing to people when it is actually a powerful remedy that can help get them back on their feet.
For starters, keep in mind that the ideal candidate for Chapter 7 is usually someone with no assets to lose in bankruptcy. Most of us has been there before (where everything we had, if anything, would have been exempt in a bankruptcy proceeding), and a lot of hardworking Americans really are in this position now - but it is not something we should hope for. We have to keep it simple and remember that having nothing to lose isn't really such a good thing - even when you owe money to lots of people. And you can keep your non-exempt things, even if you file for bankruptcy, by redeeming them or proposing a bankruptcy plan. In the real world, even assets with no value to the client are something to lose that you might want to keep. Example: an asset with loans against it that are more valuable than the asset; like a house with an upside-down mortgage. The Chapter 13 process would allow the debtor with an upside down house - maybe one with an artificially low interest rate that is cheaper than a comparable rental property - a chance to reorganize their finances and keep the house longer than they would be able to keep it in a Chapter 7 "straight" bankruptcy. This can yield true savings and might avert a family crisis: losing the house on someone else's schedule. In fact, the Chapter 13 client might be able to keep it free of the second mortgage, and so it might not be so upside down anymore after she completes her bankruptcy plan. Conventional wisdom is not always too wise, but hopefully we can all show some restraint and not waste our free time feeling jealous that we have nothing to lose like Aunt Anne in Stockton. If Aunt Anne did have something to lose and filed Chapter 7 bankruptcy, she should ask her bankruptcy attorney how many Chapter 13 cases he had confirmed last year. Odd as it may seem, there are some "bankruptcy attorneys" who "don't do Chapter 13." Your bankruptcy attorney should file and be comfortable with both types of consumer bankruptcies, or you should look elsewhere. This office files a mix of bankruptcies, and would decide whether a Chapter 13 or Chapter 7 is the best approach only after an extensive discussion with the client and the client's goals. A lawyer with no interest in learning how to do a Chapter 13 bankruptcy is, perhaps, a perfect match for the client who wants to have nothing to lose. You should discuss your case with an attorney who aspires to know everything they can about consumer bankruptcy. It's Not How Much You Owe, it's How Much the Calculator Says You Can Pay... Chapter 13 Plans10/6/2011 A lot of people assume that with Chapter 13 bankruptcy they have to repay a lot of their debts, and that the more debt they have, the more they will necessarily have to "pay back" in Chapter 13. This is a case of the consumer over-complicating the process; and the consumer loses out from their misunderstanding. In short, a Chapter 13 bankruptcy payment is not based on how much you owe, but how much the government's calculator - with all of its curious equations - says you can afford to pay back. A person with 100,000.00 of credit card debt would likely not have to pay back any more than a person with $25,000 of credit card debt, if all other factors were the same - because the payment is based on how much you can presumably *afford* to pay.
And most people we see can't afford to pay much of anything back - so they really shoot themselves in the foot when they wait too late to get legal advice. Don't let the amount you owe be a deterrent to investigating your bankruptcy options. In fact, one of the problems we see the most is actually people waiting until they owe less - they let their house go into foreclosure or do a short sale, and come see us after someone sues. We'd estimate that 95% of the time, the government's calculator would indicate these individuals who waited too late can now **afford to pay more back** all of a sudden! As they say, no good deed goes unpunished. Don't try to let someone else fix your debts through foreclosure or short sale before you inevitably need to fix them yourself by filing bankruptcy, or you could end up spending a lot of money. Our clients need their money for their cars and future medical expenses more than credit card companies need it. This is a case of the bankruptcy process giving you just the opposite of what you hoped to get in exchange for giving in to your creditors sooner. You reduce your debts, and as a consequence, might very well have to pay a lot more back when you file bankruptcy. The easiest solution? Get some bankruptcy advice even if you think you may not eventually need to file. Just as with anything else in life, an ounce of prevention can be far, far less expensive than a pound of cure. An individual with an above-average income is likely to end up having to pay back a substantial portion of his or her debts if their property is let go to foreclosure. Why? Because if you don't have a mortgage payment, the government figures you have some extra money around to pay back some more towards your Visa or Mastercard, or that nasty creditor who got a default judgement against you. Don't procrastinate when your debt situation becomes unmanageable. -honakerlegal Consumer bankruptcies fell 17 percent to 108,517 in September from 130,329 a year earlier and are down 10 percent for the first nine months of the year, according to American Bankruptcy Institute's recent report, which is based on data from the National Bankruptcy Research Center. This should be welcome news, but it ignores an inconvenient truth. After several years of protracted recession and unemployment, bankruptcies are likely to slow down because many who need to file bankruptcy already have.
In real life, the fact that bankruptcies are slowing does not help much. Indeed, the housing market and the foreclosure situation are probably getting worse. California had a 55 percent month-over-month increase in default notices from July to August, giving the state the second highest foreclosure rate in the United States, behind Nevada and slightly higher than Arizona, according to RealtyTrac's U.S. Foreclosure Market Report, released last month. Moreover, the ongoing scandal of "robo-signed" foreclosure documents - and the government and regulatory investigation of lender practices - have probably led to an outsize backlog of shadow-inventory foreclosure properties which will eventually have to be marketed, further depressing housing prices. From our own experience, we know that many homeowners will file bankruptcy once they find out what their lender is going to do - i.e., when the loan modification is approved or denied - or the lender reneges on the "trial" modification. If the mortgage modification process is ever streamlined to the point that it resembles a sensible business practice, we expect a large number of bankruptcies will follow from people who have been standing on the sidelines waiting to see whether they needed to file bankruptcy to discharge their other debts. -honakerlegal This office receives a lot of calls from people who are going back and forth with their lenders, getting their foreclosure "stopped" for a week or month at a time. They want to retain a bankruptcy attorney to file a bankruptcy petition once these attempts at "stopping" foreclosure fail - or, even worse - in case one fails soon. Usually we know these cases right away - the first thing these individuals want to know is "how late we are open" - and whether we are open on weekends. In other words, they want to be able to depend on a dependable attorney in case the undependable people they are depending on act the way they expect them too!
A good bankruptcy attorney will advise you not to pay the lender's game of pleading for - and counting on - oral representations from telephone customer representatives to "save" the house for a week or month at a time. A good bankruptcy attorney can explain to you that those individuals can make oral representations that they will stop or postpone the foreclosure, but that if they foreclose anyway you are not going to be able to afford to argue that it was not fair. We have seen it happen plenty of times. An attorney can also probably explain to you that they have seen lots of situations where people caught up in this dangerous game allowed other debts to slip out of their control. Just when they thought the mortgage problem was postponed for another 30 days - (after making tens of hours of phone calls and letting their career and family obligations slide) - the IRS garnishes their paycheck or they get served with a collections lawsuit. Don't play the lender's dangerous game - if you are facing a potential foreclosure you should discuss the matter with a competent bankruptcy attorney and look for a real solution. Don't waste all of your emotional energy depending on part-time help at a lender's call center to look out for you. Those individuals cannot be trusted when your home is on the line. A good bankruptcy attorney will not wait around to see a client lose their house because they believed the things they were told on the phone were true. A good attorney will not want first-rate legal advice to be a mere backup plan for when lender phone games go unexpectedly. Usually people with forelcosure problems have other debts too. If you want to save your house, and deal with your other debts, bankruptcy may address all of your financial problems. The person on the other end of the phone at your mortgage company is not going to help you prioritize your debts - their goal is to get as much money as they can for their employer. Your priority in finding an attorney should be one who you are comfortable with and will do what is in your best interest. It is never in your best interest to play the lender's dangerous game. Many clients or prospective clients ask whether ARAG legal coverage includes bankruptcy work. While it depends on the individual's policy, ARAG plans often cover the fees for a basic consumer Chapter 7 case, or the attorney fees associated with preparing a Chapter 13 bankruptcy petition through the filing. In addition, ARAG often covers the fees for the attorney to do a full review of the client's documentation. In general, with the ARAG plans, the client will have the ability to hire an attorney and get a case filed without paying legal fees out-of-pocket. You should check with ARAG to see if there are restrictions on your bankruptcy coverage, if you have bankruptcy coverage. For ARAG customers who do not have bankruptcy coverage, courtesy discounts are still available at our office. Contact us for a free consultation. - honakerlegal
This is a follow up to the post of earlier today about the cost of filing bankruptcy in San Francisco. Overall, fees for filing in San Jose and Oakland are similar. Because of minor variations in rules, depending on the circumstances, attorneys may want to have a larger retainer in different court divisions. This will depend on the circumstances of your case. The best thing to do is see an attorney once you believe there may be a problem, because the more time your attorney has to consider your situation, the more flexible the attorney can be at setting the retainer. For a straightforward case where it is clear the client can succeed at completing a Chapter 13 plan, filing in Oakland and San Jose would be the same price as filing in San Francisco. Chapter 7 case fees would not vary much between the Bay Area court divisions. Regardless of where you file, you will be responsible for the $274.00 filing fee for Chapter 13, or $299.00 for Chapter 7.
Many potential clients call and ask how much it costs to file Chapter 13 Bankruptcy in San Francisco. If you use an attorney, you will have to pay a bankruptcy filing fees of $274.00, plus other expenses like a credit counseling certificate.
In addition to expenses, you will need to pay your attorney a retainer fee. Depending on the attorney, they will require some percentage of an anticipated total legal fee paid before the case is filed; this is the retainer fee. Most experienced attorneys in the San Francisco Bay Area will require a relatively low retainer to get started. Unlike other areas of law, in bankruptcy, good legal help is available to almost everyone, thanks to the nature of the Chapter 13 process. In our experience, clients with a basic case who have all of their documentation ready, and do not wait until the last minute to file, can file with an attorney fee retainer of $500.00-$900.00. Clients who do not have their documentation ready, or have waited until the last minute usually have to pay more so that their case can be expedited. For the attorney to take the risk of offering a low retainer, they need to know if the client is likely to complete their bankruptcy plan, because the attorney gets compensated through the plan. If someone comes at the last minute, the attorney cannot know how likely the client is to complete the plan. The best thing to do is talk to an attorney once you know there is a problem. Then you have the time to get to know the attorney, and figure out the most reasonable and cost-effective solution. If you are a responsible and well-meaning client, you can find an attorney to work with you to make the Chapter 13 process available to you if you meet the legal eligibility criteria. Most experienced attorneys would probably agree that they would rather have a responsible client who needs time to pay their fees than a bad client who can pay a bigger retainer. Remember the retainer is the amount to be paid before the case is filed. At our office, if time allows, we will start working on a case for $200.00. The retainer can be broken up into installments. If you have additional questions about our fees, contact our office by phone or by using the online form on this website - and we may schedule a free consultation. - honakerlegal Many clients or potential clients ask how Chapter 13 bankruptcy can help foreclosure, and whether Chapter 7 bankruptcy would help with foreclosure. Any bankruptcy petition will generally delay a foreclosure, because the filing of a bankruptcy petition automatically stop all collections activity, including foreclosures. There are exceptions when someone has filed multiple bankruptcies within a certain period, but for any first-time bankruptcy filer, filing bankruptcy automatically stops a foreclosure, even if it is immediately before the foreclosure.
Chapter 13 bankruptcy can help stop and solve a foreclosure problem altogether, because the filer can use their Chapter 13 plan to catch up on their mortgage payments and bring the loan current. In addition, the filer may be able to eliminate second mortgage or equity lines altogether if the value of the house is less than the balance of the first mortgage. In short, Chapter 13 bankruptcy offers an immediate stop to foreclosure, and possibilities for completely fixing the forelcosure problem with a simple, low cost solution. At the same time, it can be used to wipe out dis-chargeable debts by paying pennies on the dollar, or to catch up on overdue taxes. If you are at risk of foreclosure, you should discuss the matter with a bankruptcy attorney so you know your options. - honakerlegal Welcome to our new website. We made numerous improvements to provide more educational materials - and a better experience for our clients overall. Existing clients may contact the office for a login to obtain access to forms and other information. - honakerlegal
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September 2018
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