Things to Avoid when Struggling Financially or Considering Bankruptcy

A lot of people find themselves struggling to pay their bills everyday.  Even if you are not immediately considering bankruptcy, if you are struggling to make these payments, it is important to understand that bankruptcy may be the best option for you either immediately or in the future.  Doing something wrong before you file bankruptcy could jeopardize your bankruptcy and could even cause you much more serious issues.

• Overtime Should be Used with Caution

When someone is considering bankruptcy protection, be very cautious with overtime.  The bankruptcy court will assess your income over the last 6 months to determine your ability to pay your debts.  Some people work overtime for a short period of time in order to try to pay their debt or save up money to pay for their bankruptcy attorney's fees.  Working a lot of overtime may make you ineligible for certain types of bankruptcy protection if it pushes your income up too far.  Instead of working to pay outrageous attorneys fees, it might be better to find a lower cost solution, such as a bankruptcy petition preparer to help you with your bankruptcy filing.

• Don't Borrow Money from Friends and Family

The court considers these people creditors, no different than Capital One.  You can't tell the court, "I want to pay my mom because I love her, but I don't care about my credit card company."  These debts will be treated like any other debt and it might cause a rift in the family.

• Don't Pay Back Friends and Family

Payments to friends and family are considered preference transfers.  If you made a payment to a creditor (including friends and family) in the year before your bankruptcy filing, the trustee may sue that creditor to recover the money.  The rationale is simple, everyone must be treated the same.  If you paid me $5,000 and didn't pay anyone else anything else, it simply is not fair to those that you didn't pay anything to.

• Don't Transfer Property Out of Your Name

Some people lose property in a bankruptcy.  To avoid this, often people will transfer their assets out of their name and into someone else's name.  There are 3 problems with this, first it is a preferential transfer and the other person will be sued by the trustee to get the property or monetary equivalent back.  Second, once the trustee has recovered the money or property, you cannot exempt it.  This means that if you had kept it in your name, you may have been eligible for an exemption that you are no longer entitled to after the transfer.  Finally, the Court may move to dismiss your case, or in limited particularly egregious cases, charge you with bankruptcy fraud, a felony.

• Don't Raid Your 401(k)

401(k) and retirement accounts generally are almost universally protected from the Bankruptcy code. This means that the assets in the account are yours and no creditor or bankruptcy court can generally access them.  Unfortunately, many people raid these accounts when they are in financial trouble trying to stay afloat.  Most still end up in bankruptcy, but without their retirement account.  Does it really make financial since to throw away your retirement to pay credit card bills?  

Also, don't forget about the tax consequences of taking this money.  If you are under 65 years of age, withdrawals are taxed as income PLUS you get a 10% penalty.  I have seen people who normally get $5,000 back at tax time suddenly owe thousands of dollars in taxes because they took money from their retirement account.  So in addition to losing your retirement, you lose your tax refund, and now you have to file bankruptcy and figure out how to pay Uncle Sam.

• Don't Change Your Tax Withholdings 

Another action that a lot of people take when they are trying to get more money is changing their tax withholdings on their paycheck to stop or substantially reduce the amount of money being taken from their paycheck.  This can cause a couple of problems.  The first problem is obvious:  at tax time, you will owe Uncle Sam money that you still can't afford to repay.  Eventually, your paycheck will be garnished by the IRS and you will be left without a paycheck.  I once helped a Nurse that made about $100k per year after the IRS garnished her check and left her with just $80 for a two week period.  Don't let that happen to you.

The change of your tax withholdings may also prevent you from filing bankruptcy in the future.  The Court reviews your income and necessary expenses (including tax withholdings) for the last 6 months to determine whether you can afford to pay your debts.  Without this major expense, you may eliminate some of your bankruptcy options.

• Avoid Credit Cards and New Debts

Creditors who have recently extended you credit may claim that you obtained the credit with the intent of filing bankruptcy.  When you obtain credit, you must have a reasonable expectation that you will be able to pay it back.  If you use a credit card then file for bankruptcy protection, the creditor may claim that you fraudulently obtained the credit and had no intention of paying it back.  The longer the period between the last use on your credit cards and the filing of your bankruptcy petition, the better.

• Don't Pawn the Title to Your Car

This is plain painful to see.  If you are paying unsecured credit cards at 10-30% interest with a secured title pawn with an interest rate of 100-200% interest, you are hurting yourself.  In addition, title pawn companies can take your car if you do not renew or pay off your title pawn within 30 days. Forget trying to hide your car, they won't look too hard for it, they simply charge you with theft (a felony).  If you file for bankruptcy protection, you will either need to keep the loan sharks loan or surrender the car.

Simplified Document Solutions is a congressionally designated debt relief agency.  We help people obtain debt relief under the U.S. Bankruptcy Code.  Simplified Document Solutions is BBB Accredited and has an "A" rating with the Better Business Bureau.  We have offices in Conyers, Georgia and College Park, Georgia where we give good people who have run into hard times a fresh financial start for a low fee of only $249.  Please contact us at 678-490-5841 to schedule your free consultation.

What is the best type of bankruptcy to file?

When someone is struggling financially, bankruptcy may be the best option for them to get out of debt and get their lives and their credit back on track.  Bankruptcy generally eliminates or reorganizes your debts to give you a fresh financial start.

Bankruptcy professionals, such as paralegals, attorneys, petition preparers, lawyers and others are often asked "What is the best type of bankruptcy?"  There are 5 types, or chapters, of bankruptcy.  Each is designed to do something different for different situations.  While there isn't necessarily a "best" chapter of bankruptcy overall, there may be a best chapter of bankruptcy for your particular situation.  In order to understand the best type of bankruptcy for you, you first must understand the different types of bankruptcies.

Chapter 7 bankruptcy is the most common form of bankruptcy.  Chapter 7 is often referred to as a "fresh start bankruptcy," a "total bankruptcy," or a "complete bankruptcy."  Many individuals find this type of bankruptcy to fit their situation the best, and it is generally the most simple and successful form of bankruptcy.  Chapter 7 bankruptcy may be filed by either an individual or a business (although businesses that file Chapter 7 must go out of business).  For individuals, Chapter 7 bankruptcy provides you with a quick resolution to a fresh start.  Chapter 7 bankruptcy relies on the theory that the Debtor provides the Court all of their assets (except for exempt assets) in exchange for a discharge (release) from their debts.  It is important to know that very few people lose anything in a Chapter 7 bankruptcy.

Chapter 7 bankruptcy generally only lasts 3-4 months and has almost a 100% success rate.  Generally, all a debtor has to do is file the appropriate paperwork (professionally prepared by Simplified Document Solutions or a competitor), go to a quick hearing to verify the identity of the person and verify the paperwork, and wait for the discharge.

Chapter 7 does have some limitations.  For instance, you must qualify for chapter 7 bankruptcy protection based on your income and expenses.  This keeps some people who have incomes in excess of the median income for their state from filing for Chapter 7 bankruptcy protection.  Georgia has pretty generous exemptions, but some people with valuable property may decide that bankruptcy is not the best option for them because they risk losing this property.  Some debts may also not be discharged.  For instance, student loans are not discharged without filing a lawsuit against the government and/or student loan lender, child support, alimony, and property settlements are not dischargeable, and some taxes are not discharged.  Also, the Supreme Court recently stopped bankruptcy judges from "stripping" second mortgages and homeowner's association liens from your home.

Chapter 9 bankruptcy is designed for municipalities.  It is a reorganization to allow cities, counties, and municipal corporations to shed some of their debt and keep operating.  The most notorious example of this was when the City of Detroit filed bankruptcy a few years ago.  It eliminated some of their unsecured debt and pensions to permit the city to begin the rebuilding process.  Less publicized Chapter 9 filings are school boards and municipal hospitals.

Chapter 11 bankruptcy is a reorganization for businesses and individuals with extremely high debts. This is the third most common form of bankruptcy and it is primarily used for businesses (LLC or Inc.).  Individuals who file for Chapter 11 bankruptcy often do so because their debts are in excess of the debt limits for Chapter 13, as such you often hear of celebrities filing for Chapter 11 protection.  Chapter 11 bankruptcy is incredibly complex and should not be attempted without the assistance of a very experienced Chapter 11 attorney (not just any bankruptcy attorney will be competent to handle this).

Chapter 12 bankruptcy is for family farmers and fishermen.  It is similar to a Chapter 11, although less common.  Because people in these occupations often have irregular income and lots of assets, it is more flexible than other forms of bankruptcy for these individuals.  In order to qualify for this type of bankruptcy, most of your income must come from farming or commercial fishing.  Again, I would not attempt this without a very experienced Chapter 12 attorney.

Chapter 13 bankruptcy is a reorganization for an individual (or married couple).  This is often called a "wage earner plan" because it requires regular monthly payments.  A chapter 13 bankruptcy is a repayment plan that lasts 3-5 years.  Nearly all of your debt is rolled into a Chapter 13 plan and the Debtor is expected to make a payment every month to pay some or all of it off.  At the end of the case, most of your debts are discharged.

Chapter 13 bankruptcy does have some major benefits.  For instance, homeowner's filing Chapter 13 are still permitted to strip off their second mortgage or homeowner's association liens.  If you owe money on a car, it may be possible to reduce the interest rate and stretch out the payments to 5 years. If someone has mortgage arrears, child support arrears, behind on car payments, or owes taxes, a Chapter 13 may permit you to catch up on those payments through the plan. High income individuals are also not excluded from filing Chapter 13, although their income is used in determining the monthly payment and the length of the plan.

Chapter 13 has some downfalls as well.  You are expected to pay all of your income in excess of what is reasonably required for the support of yourself and your family for the entire length of the plan, this often means major sacrifices that people are not ready to make.  Also, you are not allowed to re-establish your credit until the case is completed.  The plan can be especially hard if you lose your job during the case or get ill.  Because of this, more chapter 13 cases get dismissed (thrown out) than discharged.  Making things even more difficult is the requirement in most cases that a debtor turn over their tax refund in every year of the case.  People who get large tax refunds hate this requirement.

Because of the complexity of chapter 13 cases, Simplified Document Solutions often encourages people to seek the assistance of an experienced attorney before doing this.  CAUTION:  Bankruptcy attorneys make a lot more money on Chapter 13 bankruptcy than they do on Chapter 7; giving them a perverse incentive to suggest them to individuals who do not really need them.  You should ask your attorney, "Why are you suggesting a chapter 13?"  Ask yourself "Will I be okay with losing my tax refund?"  Is it reasonable to believe that I might change jobs or become ill in the next 5 years?"  Am I ready to give up eating-out for a full 5 years?" Is this house or this car worth struggling for 5 years?" "Will this car even run in 5 years?" Will I be okay without any new debt for 5 years, why haven't I been okay without incurring debt over the last 5 years, what's changed?"  If you are trying to stop repossession or foreclosure of a home or car, it might make since to buy some time with the property by filing chapter 7 and give it up at the end of the Chapter 7. Be aware that your attorney is ultimately in business to make more money and may not have your best interests at heart.  It is ultimately you that must protect yourself, nobody else will.

Things You Should Know Before Filing Bankruptcy in the Winter

Bankruptcy is a very powerful tool that helps millions of Americans get relief from crushing debt every year.  The ultimate goal of a bankruptcy is the bankruptcy discharge, basically an order prohibiting the affected creditors from ever collecting on a discharged debt.  December is typically a slow month for bankruptcy filings, but the subsequent months might be even worse, depending on your situation.

If you used your credit cards for Christmas, they may be nondischargeable. - 11 U.S.C.§ 523(a)(2)(C)(i)(I) states that consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable.

Likewise, if you got cash advances for Christmas, the debt may be nondischargeable. - 11 U.S.C.§ 523(a)(2)(C)(i)(I) states that cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable.

If neither one of those fit your situation, creditors will sometimes ask that a debt be declared nondischargeable due to fraud.  They will essentially say that you made misrepresentations about your financial condition when using your credit cards and you knew that you would be unable to make the payments.  They generally use  11 U.S.C.§ 523(a)(2)(A) to argue this, which states that a discharge does not apply to any debt for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.

If you are considering filing bankruptcy, the longer that you wait between credit card usage and filing your bankruptcy the better.  If you used any credit card for more than $500, it is best to wait at least 90 days before filing your bankruptcy.

If you receive large tax refunds, it might make since to wait until after you have received it and spent most of it.  Chapter 7 bankruptcy is a liquidation bankruptcy.  You turn over all of your unexempt assets over to the trustee.  The trustee may liquidate any unexempt asset that you have the right to receive within 6 months after the filing of the bankruptcy petition.  If you are filing bankruptcy during the winter months, one of the assets may be your tax refund.  The amount of what is exempt depends on state law.  For instance, people in Georgia may be able to protect up to $5,600 pursuant to O.C.G.A. §44-13-100(a)(6), however Louisiana residents can only protect the portion of their refund attributable to the earned income credit, and Florida residents who own a home can only exempt $1,000 in personal property (this includes furniture, clothing, cash, and tax refunds).  Many jurisdictions require Chapter 13 debtors turn over all or most of their tax refund to the trustee every year that their case is pending.

If you generally get large tax refunds, it might make sense to wait to file your taxes until after you have received and spent most or all of the tax refund.  That does not mean that you should go spend the refund as fast as possible for the purposes of filing bankruptcy.  The trustee may ask you to show where you spent the money and can seek judgement against friends and family that have been paid with the refund or even ask that your case be dismissed for fraud.  You can use the money to pay utility bills, catch up rent payments or car payments, make minor home and car repairs, etc.

If you are considering filing bankruptcy, Simplified Document Solutions can help you get a bankruptcy discharge for a low flat $249 fee.  To get more information, please call Charles at (678) 490-5841 or visit our website at www.249bankruptcy.com.


Visit & Like us on Facebook to stay up to date on new changes to the bankruptcy code, as well as special offers by Simplified Document Solutions.


This is intended as general information, not legal advice.  Your situation may have complexities that are unknown to the author and have not been considered in this blog.  If you have specific questions about your situation, you may wish to obtain information from competent counsel.

5 Things That You Need To Do Now to Reduce Your Tax Liability

           With only a few days left in 2014, it may seem like there is nothing that can be done with such short notice to reduce your tax liability.  This is simply not true.  While you can’t change how much income you made over the course of the year or increase your tax withholdings that were set too low over the course of the year, there are some small things that you can do to reduce your tax liability and/or increase your tax refund before the end of the year.

           All of these things may not be a good idea for everyone.  Whether these things are best for your situation depends on your past tax years, your current tax situation and income, and your expected tax situation next year.  If you are unsure if something is a good idea, it might make since for you to contact an experienced tax professional before making any moves.

• Pay Your Student Loan Interest:

            This is one of my favorite moves since it is pretty easy and you don’t hear about it very often.  Student loan interest is deductible up to $2,500 per year, even if you don’t itemize your deductions (subject to income requirements).  I generally pay the accrued interest on my student loans on December 30 to reduce my income for that calendar year.

• Pay Your January Mortgage Payment:

            If you do itemize your deductions, one of the biggest deductions is your mortgage interest.  Pay your January mortgage (that you have to pay anyway) in December to increase the amount of interest you pay in this calendar year.

            NOTE REGARDING MORTGAGES:  During the 2012 & 2013 tax seasons, a problem started showing up.  People who had always itemized their deductions suddenly realized that it no longer made financial sense to do so.  This was due to mortgage modifications that drastically reduced their interest rates.  To those that got mortgage modifications early in the year or late last year, you might find that it doesn’t make sense to itemize anymore due to the drastic decrease in mortgage interest paid.  It’s not all bad, if you are one of these people, you are probably saving a lot of money on a monthly basis, even if it means Uncle Sam gets a little more at the end of the year!

• Donate to Charity:

            Have you noticed that charities are pushing for money this time of year?  Not only are people in a more giving mood around the holidays, they are also looking to decrease their tax liability.  Since you can donate to most charities and churches through their website, you can really do this up until the clock strikes midnight on New Years.

            If you don’t have money to give, you can go through your closet to see if there is something that can be given to Goodwill or Salvation Army to be sold in one of their thrift stores.  They will give you a 2014 receipt as long as you can get it to them before they close on December 31.  This might give you a chance to reduce those overflowing closets after Santa gave the kids all of those new toys.

• Invest in an IRA:

            IRAs are a great investment tool to plan for your retirement in the future and reduce your current tax liability.  Most people can deduct a contribution up to $5,500 per year to an IRA and you don’t have to itemize your taxes to do it.  For certain low-income taxpayers, you may also be eligible for a credit of a portion of the contribution.  So you get to take it twice!  An added benefit of this contribution is that you have until April 15 to contribute and you can even use your tax refund to contribute.  Please contact an experienced tax professional to get more information on how to maximize your contribution.

•     Time your invoices:

           

            If you are self-employed, time your invoice to reduce your tax liability.  For those who have had an unusually good year, you might want to send out your last invoice to your clients after January 1.  If you have had a bad year financially and you expect to do better next year, get your invoices out now so you make more income this year.

Simplified Document Solutions provides professional individual tax preparation by an experienced and IRS Certified tax preparer for a fraction of the cost of the competition.  You can reach Simplified Document Solutions by telephone at (678) 490-5841 or you can schedule an appointment online by going to www.simplifieddocumentsolutions.net or www.249bankruptcy.com.

                                                                                                          

Simplified Document Solutions

100 Hartsfield Center Pkwy.

Suite 500

Atlanta, GA 30354

Ten Things that your bankruptcy attorney won’t tell you.

Ten Things that your bankruptcy attorney won’t tell you.

After working for 2 bankruptcy law firms as a paralegal, I couldn’t continue to take advantage of people that came to me seeking help when in need.  The lies were getting to me and I could not sleep.  I quit my stable job and started Simplified Document Solutions to help those who were actually in need obtain the bankruptcy relief that they sought for a reasonable fee of $249.00.

It is amazing how many of these attorneys are self-serving and lie to their clients to maximize their profits.  Based on my experience, I have put together a list of things that your bankruptcy attorney won’t tell you.  If you want honest answers, you can contact me at (678) 490-5841 or visit me online at www.249bankruptcy.com.

11.       “You don’t need to hire an attorney to file bankruptcy.”

11 U.S.C. §527(b) requires that an attorney advise you of your bankruptcy options, but most attorneys don’t want you to know so they either glaze over it or simply “forget” to discuss it with you.  The bankruptcy code says that you have 3 options for filing bankruptcy; hire an attorney, proceed by yourself; or hire a non-attorney bankruptcy petition preparer.

If you choose to do everything yourself, the Bankruptcy Court Clerk has packets of all of the forms that you will need and will give them to you free of charge.  If you want someone to help you with the forms, 11 U.S.C. §110 permits a non-attorney to assist you in completing the forms for a nominal charge.  Generally, petition preparers are happy to help you for $300 or less, and may even meet with you in your home.

22.      “A bankruptcy attorney may not know anything about the bankruptcy code.”

When you hire an attorney to help you with your bankruptcy petition, you probably think that he or she is an expert in the bankruptcy code.  While the most experienced attorneys probably are experts, many attorneys are simply not. 

Here is the truth, bankruptcy is a unique area of law.  However, in many law schools a bankruptcy course is not offered and in those where it is offered, it is an elective.  When an attorney takes the bar exam, it is not tested.  Often, bankruptcy firms offer recent law school graduates because they are cheap and rely on support staff and a couple of senior attorneys for most issues.  Others open a “general practice” firm and are forced to take bankruptcy cases to pay the bills.  If you are lucky, they will have a paralegal that knows what is going on, otherwise they will just struggle through it.

33.      “Chapter 13 is probably a bad option for you, but that isn’t going to stop me from recommending it.”

Unlike Chapter 7, Chapter 13 requires that you make payments to the court for a period of 3-5 years.  Most Chapter 13 Cases are either thrown out of court or converted to Chapter 7.  The reason is simple, if you come to me and say “I can’t afford my debt” and my response is “let’s give you another payment,” you probably can’t afford that either. 

Chapter 13 does have some benefits.  If you are behind on your car or home, it will allow you to catch up on the payments (but in most cases, you would be better to file Chapter 7, give up the collateral, and get another house or car with a lower payment and/or lower interest rate).  Some people may not be eligible for a Chapter 7 due to a previous filing, high income, or equity in property, but far too many attorneys steer poor people into Chapter 13s that don’t have any of those situations.

Why would an attorney recommend Chapter 13 to someone who doesn’t really need one?  The simple answer is money.  Attorneys typically charge 3-4 times more for Chapter 13 as they do for a Chapter 7.  After the Chapter 13 gets dismissed, they hope that you re-file and pay them again.  Did I mention that attorney’s get paid before most of the Creditors in a Chapter 13 plan?

I can actually milk nearly $10,000 from someone making $25,000 per year using this technique.  I will charge $4,000-$4,500 for a Chapter 13, when that gets dismissed, I’ll do it again, and finally I’ll charge $1,000-$1,500 to convert the case to a Chapter 7.

44.      “You might be hiring me but that does not mean you will see me in Court.”

So you met with my paralegal to start your bankruptcy, so it must mean that I will be working with you in Court, right?   Wrong.  It is generally cheaper for me to use a contract attorney to introduce you to the trustee than to drive there, park, and take me away from my business.  This person won’t know you or your situation, but it’s okay because any idiot can say “John Smith for the Debtor.”  It does lead one to ask, what does the attorney I hired do?

55.      “Many Bankruptcy Petition Preparers are more familiar with the code than the attorneys.”

We already discussed how attorneys can start practicing bankruptcy law without knowing anything about bankruptcy.  While bankruptcy petition preparers could theoretically do the same thing, it is generally uncommon.  Most bankruptcy petition preparers are current or former bankruptcy paralegals.  Because of the scrutiny that petition preparers are subject to, someone that doesn’t know what they are doing will quickly be shut down.

66.      “I was not at or near the top of my class in law school.”

The top law school graduates are recruited by Ivy League law firms with huge salaries.  These firms generally cater to businesses or celebrities with lots of money.  The top graduates start out making $150,000+, while a first year associate at one of the big bankruptcy firms start out at about a third of that.

77.      “If anything goes wrong, I am going to drop your case like a hot potato.”

In bankruptcy, most things that can go wrong involve an adversary proceeding, a lawsuit within the bankruptcy.  Most attorneys put that their representation does not include adversary proceedings.  If one gets filed, I will either demand additional payment or file a request to withdraw from your case with the Court.  I will also withdraw if you file anything with the Court yourself, you call me too often, or file a grievance with the state bar.

88.      “The price that I advertise is NOT what my actual charge is.”

I always advertise just a down payment, which is generally only the court filing fee or a portion thereof.  My attorney’s fees are never disclosed and will run into the thousands of dollars.  In Chapter 13, I will collect them through the Chapter 13 plan, and I may be willing to take Chapter 7 fees in installments; whether I file your case before I get all my fees depends on how much I trust you and where you live.

99.      “You may be eligible to get your court filing fee waived.”

28 U.S.C.§1930(f) permits a judge to waive the Chapter 7 filing fee if you are living at or below 150% and cannot afford the filing fee.  Many attorney’s don’t give you that as an option, because how can they tell a judge you can’t afford $335 in filing fees after you have spent well over a thousand dollars in attorney’s fees?

110.  “I am going to spend a lot of time and money trying to keep you from finding out this information.  If I need additional resources to protect my income, I can make the taxpayers pay to protect it.”

           

My behavior is bad, but if the public finds out how bad, I will lose my livelihood.  I need an uninformed customer base to keep filing these cases and taking advantage of those in need.  I will put out untrue information about petition preparers in hopes that I can convince someone to use an attorney rather than a petition preparer.

If I’m not successful at this, I will get judges and U.S. Trustee’s to use taxpayer money to slander my competition and put unreasonable restrictions on petition preparers.  For example, in the Eastern District of Wisconsin caps petition preparer fees at an unreasonably low $75 per case, meanwhile attorneys will charge $1,200+ to do a Chapter 7.

If you want honest answers from a qualified Bankruptcy Petition Preparer, contact Charles at Simplified Document Solutions.  You can reach him at (678) 490-5841 or online at www.249bankruptcy.com.