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Bay Area Bankruptcy Lawyer Blog

Dos and Don’ts Before Filing Bankruptcy in San Jose

Preparing for filing bankruptcyConsidering Filing Bankruptcy? These Dos and Don’ts Will Go a Long Way Toward Ensuring Your Bankruptcy Case Goes Smoothly

First, let’s start with the things you should do now if you are considering filing a personal Chapter 7 or Chapter 13 bankruptcy:

Start Gathering Your Paystubs Now. Your bankruptcy attorney will need to average out your monthly income for the six month period leading up to filing your bankruptcy petition. Even if you get paid by direct deposit, your employer’s payroll office can get you PDFs or hardcopies of past payment advices.

File All Tax Returns. Even if you cannot afford to pay your taxes now, go ahead and file any returns that you have not filed. In some instances, income taxes owed to the IRS may be treated as “non-priority” and/or dischargeable depending on whether you file a Chapter 7 or a Chapter 13 bankruptcy, but certain time periods must run from when the taxes were originally due—and importantly—from when you actually filed the return.

Gather Your Most Recent Statements. Your bankruptcy attorney will need the most recent statement for your checking and savings accounts, other financial accounts such as IRAs, 401(k)s, whole life insurance policies, etc. Same thing with your credit accounts: get your mortgage loan statement, your car loan statement, your personal loans and credit card statements all together.

If You Owe Back Taxes. Contact the IRS and the California Franchise Tax Board and request Tax Account Transcripts for each year that you owe. These will be very important for your bankruptcy attorney to be able to determine how your bankruptcy case will treat your tax debts.

Prepare Profit-and-Loss Statements if You Are Self-Employed. If you run your own small business and you don’t use accounting software to manage your business, now is the time to start! The bankruptcy trustee assigned to your case will require monthly “P&Ls” to show your business income and expenses.

Obtain an Appraisal or Broker’s Price Opinion if You Own Real Estate. Whether you file a Chapter 13 or a Chapter 7 bankruptcy, you’ll need to prove the value of your home. An assessed value from the county for property tax purposes will not be accepted. Generally, this information must be current and not older than six months before you file your bankruptcy case.

Get a Title Report for Your Property. If you own real estate and have ever been sued (whether you know it or not), there may be judgment liens (called “Abstracts of Judgment”) attached to your property. These do not come off in bankruptcy without a separate motion.

Next, let’s look at some things you should definitely NOT do prior to filing bankruptcy:

Don’t Hide Assets! You must disclose everything you own—no matter where it is. Intentionally hiding or failing to honestly disclose everything you own can result in denial of your discharge. This even includes your right to sue someone.

Don’t Transfer or Give Away Assets! If you for transfer anything of value to anyone for less than “reasonably equivalent value” within two years before you file bankruptcy, a Chapter 7 trustee can recover or “claw back” the asset from the third party. In a Chapter 13 bankruptcy, you may have to pay more into your plan based upon that asset coming back “into the estate.” And if you transfer an asset with the intention of hiding it from your creditors, the “look back period” can go back up to seven years in California, and your bankruptcy discharge can be denied altogether! Note: “fraudulent transfers” can be reversed in California. Read about it here.

Don’t Pay Back Family! Never repay a debt that you owe to a family member or business associate within one year before you file bankruptcy. This is called a “Preferential Payments to an ‘Insider.’” If within one year before filing bankruptcy, you pay back a loan made to you by a family member, then a Chapter 7 bankruptcy trustee can demand that your family member give the money back to the trustee. In a Chapter 13 bankruptcy, while your family member won’t be contacted, you may have to pay more into your plan based upon that money coming back “into the estate.” Note that an “insider” in the consumer bankruptcy context is most often a family member of the debtor, but can also be a business associate.

Don’t Run Up New Debts! If you are unable to make your monthly credit card or other loan payments, and think you may need to file bankruptcy, then by all means don’t go shopping with your credit card. Doing so, especially if you purchase “luxury goods or services” or make charges outside your ordinary spending pattern can give your creditors ammunition to block the discharge of such debts.

Don’t Withdraw from Retirement Accounts! Funds from held in a 401(k) or IRA are some of the most protected assets in bankruptcy. This is especially important if you need to file a Chapter 7 bankruptcy, in which some of a debtor’s assets may be liquidated by a trustee. As long as the funds remain in these exempt accounts, they’re protected, but once you take them out and place them in a regular checking or savings account, they may fair game for taking by a Chapter 7 trustee. In Chapter 13 bankruptcy, even though no assets are liquidated by a trustee, the more non-exempt assets a debtor has, the more he or she will have to pay to creditors. Bottom line: don’t withdraw from retirement accounts prior to filing bankruptcy if you can possibly avoid it!

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Credit and Debt Are Two Different Things! How Bankruptcy Helps Each

Bankruptcy and your credit reportBankruptcy, Debt and Your Credit Report

I am contacted nearly every day about whether I can “clean up” someone’s credit report.  It usually goes like this: the person has just been denied from renting an apartment because of a past eviction, or denied a car loan because of four or five or six defaulted credit card or loan balances on their credit report.

Can I remove these derogatory facts from the person’s credit report so he or she can get that apartment or car loan or credit card? Well, no. In fact, no one can. No one can force the three credit reporting agencies to remove accurate information about you from your credit report.

After a few questions, I learn that this person has a judgment for unpaid rent in that eviction, plus a couple of other judgments for old credit card debts and is not even sure how many other debts he has for unpaid cell phone bills, medical bills, and personal loans.

But the primary worry this person has called me about has to do with being approved for new credit—whether that’s in the form of signing a lease or getting a new loan.

The problem is that this person has it all backwards. The first problem is the old debt he or she already owes.  If he or she has moved around much or changed jobs, or just not enough time has gone by, then perhaps the old creditors haven’t begun to aggressively collect on those existing debts. But that doesn’t mean the debts have gone away.

Those creditors that have already obtained court judgments against the debtor have a number of ways to collect on their judgment debt.  They can garnish wages.  They can take money from the debtor’s bank accounts.  They can attach a lien to the debtor’s property. Collections by a judgment creditor hurt—especially when they start garnishing 25% of your paycheck in California.

So I find that frequently I need to help prospective clients understand that their credit is the least of their problems.  It’s the defaulted debt—and especially judgment debt—that will hurt them for years to come.

Credit and credit scores reflect one’s ability to obtain new debt in the future.  To take new loans or get new credit cards, or qualify for a mortgage.  That’s all fine and good.  But you have to deal with the debt that you already have before you worry about getting new debt in the future.

Dealing with the debt that you already have is what bankruptcy does.  Those old judgments, evictions, car repossessions, and defaulted loans can all be discharged in whole or in part through Chapter 7 or Chapter 13 bankruptcy.  As a positive consequence, often times peoples’ credit does improve after bankruptcy, most likely because the credit reporting agencies believe that now that you have discharged the old debt you’re a better credit risk for new debt going forward.

One should never confuse debt that exists and is collectible with credit, or the ability to take on new debt in the future.
“Credit Repair” companies are … to the extent they promise to remove negative, but true, blemishes from your credit report … are simply frauds. Plain and simple. If it sounds too good to be true, it is. Duh.

We’re here to help consumer debtors deal with their existing debts in Chapter 13 and Chapter 7 bankruptcy.  Call our bankruptcy attorneys in San Jose today for a free consultation.

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Why Car Title Loans Are Always a Bad Idea

Car Title Loan

You paid off your car or truck loan.  Congratulations!  It likely took up to five years to do that, and you justifiably feel proud of that fact.  But unfortunately due to an unforeseen circumstance, you now need money quickly to pay a medical bill, a credit card balance, or to pay off an extremely high interest payday loan.  But you have to fork over you car’s title—in other words, hock it like to a pawn shop—in order to get a new loan.  They’ve got you over the proverbial “barrel.”

Vehicle title loans used to be rare.  Then the payday loan and auto-title loan  industry started to grow exponentially beginning in the 1990s.  Now such lenders dominate strip malls across the country and market their predatory loans in TV and radio commercials.  Then the otherwise reputable credit unions even got into the act.  But make no mistake, a title loan against your paid-for vehicle is not much different than going to a pawn shop with your grandmother’s jewelry as collateral.  Because of extremely high interest, there is a strong likelihood that you will lose the collateral (your car) to the lender.  In fact, as National Public Radio reported in June 2016, approximately 20% of all borrowers who take a title loan against their car or truck end up losing the vehicle because they can’t afford to pay back these high interest loans.  And if you do keep the car, you will have ended up paying more than the value of that vehicle not once, but twice.

In Chapter 13 Bankruptcy, You Can “Cram Down” a Title Loan!

Bankruptcy can help!  Chapter 13 bankruptcy can lower interest rates to the
“Till rate” (around 4.8%) if you pay the car loan through your Chapter 13 bankruptcy plan. Car title loans can even be “crammed down” in Chapter 13.  That means that if the balance owed on the vehicle is more than the fair market value of the vehicle, we can cram down the loan balance to the current value of the vehicle based on its age, mileage, and condition. A well-crafted Chapter 13 bankruptcy plan can  shave thousands of dollars off your title loan. Even purchase money auto loans can be crammed down in Chapter 13, if the loan is more than 910 days old (2.5 years).  And, of course, in any bankruptcy you can always surrender the vehicle and potentially pay nothing more even if you owe more than the car is worth.

Car title loans are a very costly and dangerous way to get quick cash. If your goal is to pay off a high interest loan such as a pay day loan, a credit card, or a medical bill for instance, then you would do yourself a huge favor by taking advantage of a free consultation with an experienced bankruptcy attorney first. You may be able to either discharge your unsecured debt entirely through a Chapter 7 bankruptcy or pay only a small percentage of your debts through a Chapter 13 bankruptcy all while potentially keeping your car or truck so you can get to work. Stop working for your debts and start working for you!

Our bankruptcy attorneys fight for ordinary hardworking people just like you in San Jose and the greater Bay Area. Our bankruptcy clients come from all backgrounds, and we are proud to be a multilingual bankruptcy law firm in San Jose that fights for regular consumers and small businesses.

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