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14

May 2022

Bankruptcy and Depression

Posted by / in Weekly Posts /

Bankruptcy and Depression: No, I’m Not a Doctor

This post is about bankruptcy and depression. No, I’m not a doctor. (Actually my law school degree says I’m a JD– a juris doctor). But I see depressed people a lot. And because I see it a lot, I’ve read up on it.

The VA says that depression can be caused by trauma. As a bankruptcy lawyer, I see a lot of people who’ve been knocked down by physical or emotional trauma.

Next, according to this NIH article, many physical illnesses also cause depression. Academic research–the first and most famous by Professor, now Senator, Elizabeth Warren–shows that most bankruptcies follow medical problems.

Finally, this blog from the Harvard Medical School says depression can be a side effect of many medications.

I talked to someone this week–I’ll call her Farah–who had all three of those factors. And she was obviously, seriously depressed.

We Talk Openly About Depression

If one of my clients looks depressed, I bring it up. When I talk openly about depression, most people who look depressed tell me that they already know they are. Most of those, like Farah, have already sought treatment. If they haven’t, I encourage them to get help, saying something like this: “Depression is tied to chemical changes in your brain.  You can’t just pull up your socks and get over those chemical changes.”

Bringing up depression directly is what the Cleveland Clinic calls “assertive communication.” The Cleveland Clinic says one way people can help their depressed friends is to talk openly about what we see.

depression

I see depressed people a lot. If one of my clients looks depressed, I bring it up.

After I bring it up, I try to coax people to taking a look at their depressed self; and encourage them to remember their “real self.” So, I don’t tell people to shake off the depression. (Telling depressed people to get over it is NOT recommended.) Instead, I tell them to recognize how seriously it is affecting them. I try to show what the Cleveland Clinic article calls “empathy.”

Depression is often combined with guilt. When that feeling of guilt to comes up, I bring up Donald Trump. Look, I tell people. Donald Trump used “the chapter laws” (he meant Chapter 11 but didn’t say that) because he lost money in the casino business.

A few years ago I calculated that in his fourth Chapter 11, Donald Trump discharged more debt than all fifteen thousand people I’ve helped put together.

If Trump, who claims to be worth ten billion dollars, can take advantage of the “chapter laws,” you can too.

The Purpose of Bankruptcy is to Help You

Ninety years ago, the Supreme Court, in the famous case of Local Loan v Hunt, said that giving people in bankruptcy a fresh start in life is a “public…interest.” In other words, the country is better off when people are able to get back on their feet, financially.

That’s the point of the bankruptcy laws. The country is better off when people like you can get back on your feet.  (The credit card companies will do fine either way.)

Bankruptcy and Depression

I love being a bankruptcy lawyer because I can help almost everyone I talk to.  Of life’s problems–and people with depression are usually battling many of life’s problems–too much debt is usually the easiest one to fix.

PS For More Information on Depression

Here’s an article I think is helpful from Psychology Today.

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04

May 2022

Solving Your Debt Problems By Doing Nothing.

Posted by / in Weekly Posts /

For some people on Social Security, Doing Nothing About Debt Problems Works Fine

I tell a couple people a month there’s no reason to file bankruptcy. Most often older people who have no income except for social security. For them, there’s often no reason to file bankruptcy.

Here’s why.

People File Bankruptcy for Three Reasons

People file bankruptcy for three reasons. So the creditors can’t call you. So you don’t get garnished. And to get back to good credit. (After bankruptcy, people also sleep better and handle their problems better.)

Many people living on social security won’t ever need good credit.  This is a hard one for some people to take in.  Does your car have more miles ahead of it than you have on you? Then you will probably never need to buy another car. And your social security income is likely not enough to afford a house. So, you don’t need to worry about your credit score or your “good credit.”

They Can’t Garnish Your Social Security

If all you have is social security, they can’t garnish you. They can’t garnish it from the social security administration and they can’t garnish it from your bank.

To stop debt collector harassment, tell them “I refuse to pay.”

That leaves the collection calls. When you get collection letters, write them back.  Just write on it.  “Allll I have is social security. I can’t pay and I refuse to pay.”  The words “I refuse to pay” can give you additional legal rights. Tell them the same thing on the phone. Nearly all the debt collectors will give up after being told once or twice.

That’s it.

Careful

Now do NOT follow this plan if you have other money somewhere.  Or real estate. Or there’s a chance you could end up inheriting something. But for many people who just have social security, this plan of “doing nothing” works fine.

 

 

 

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01

May 2022

Colorado Bankruptcy Homestead Just Increased to $250,000

Posted by / in Virginia Bankruptcy, Weekly Posts /

In Bankruptcy, Can I Protect the Equity in My House?

Bankruptcy is set up by the Federal government, but each state sets its own rules on how much equity you can protect if you file Chapter 7 bankruptcy.  That protection is called your homestead exemption.  In April 2022, Colorado raised their homestead exemption from $75,000 to $250,000.

Colorado is one of five states that has increased their homestead since 2020. Let’s see how they compare.

California increased to $300,000

Colorado to $250,000

Connecticut to $250,000

Washington state to $125,000

Virginia to $30,000

July 2020 was when Virginia increased their homestead exemption from $5,000 to $30,000.  At the time that seemed like a big boost. And that did move us out of last place in the entire country.  But it’s still one of the lowest anywhere. 

Now the good news for most married people is that the Virginia’s homestead exemption is mainly needed by singles.

Homestead exemption

Virginia has one of the smallest homestead exemptions in the country.

Virginia Does Have a Better Rule for Married Couples       

Virginia recognizes tenancy by the entirety, which gives great protection to real estate owned by married couples.  Under tenancy by entirety, real estate owned by a married couple is safe from the creditors of only one.  Some married people, for cultural reasons or bad advice, put the house in only one name. And entirety doesn’t protect you for loans you co-signed for each other. 

Widows, divorced people, singles need the protection of a bankruptcy homestead exemption or Chapter 13

Widows, divorced people, singles and poorly advice married people need the protection of a homestead exemption. Virginia’s is near the bottom.  Now, having too much equity does NOT mean you automatically lose your house when you can’t pay your credit cards.  The bankruptcy court can help you with a Chapter 13. Chapter 13 is a payment plan through the bankruptcy court. That payment can be quite painful. Because the Virginia homestead exemption is one of the smallest in the country, people who could file Chapter 7 bankruptcy in most places end up in a Chapter 13 payment plan here.   

Want to know more about Virginia exemption law?    

I’ve written more about Virginia exemption law here.                

  

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30

Apr 2022

Penalties for Bankruptcy Fraud

Posted by / in General Information About Bankruptcy Law, Weekly Posts /

April 2022 saw courts dish out two big penalties for Bankruptcy Fraud.

In April 2022, over in the UK, former tennis great Boris Becker was sentenced to two-and-a-half years in prison for bankruptcy fraud: hiding $3 million in assets during his case. Becker had landed bankruptcy in the UK back in 2017, because of a $5 million bank loan he couldn’t pay. It came to light later that he hid assets from the bankruptcy court.

Prison sentence of bankruptcy fraud

Boris Becker , former tennis great, gets over two years in prison for bankruptcy fraud

Also in April, closer to home, William Henry Romm, III, of Glen Allen Virginia, pled guilty to concealing $400,000 from the bankruptcy court in his Chapter 13 bankruptcy case.  He faces a possible 20 years in prison when he’s sentenced in August.  (Usually people who plead guilty don’t get the max.)

They Look for This Bankruptcy Fraud Stuff

There’s a government agency–the Office of the United States Trustee–that’s in charge of looking for this stuff.  (Sometimes it seems like they are just “neat paperwork” police, but their job is to catch bankruptcy fraud.)  In 2020, they recommended 2489 people for criminal law prosecution.                      

Tell the Truth to Your Bankruptcy Lawyer

For most people–usually–there are both legal and illegal ways to protect yourself and your property in bankruptcy.  Your lawyer can point you to the legal ways: as long as you tell your lawyer the truth. Also, now and then I have to warn some people they should never set foot in the bankruptcy court.

 

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30

Jan 2022

After Paying for Ten Years, Nina Got Public Service Student Loan Debt Forgiveness

Posted by / in Weekly Posts /

After Paying for Ten Years, Nina Got Public Service Student Loan Debt Forgiveness

There’s very little bankruptcy law can do to help people with student loans. But as a bankruptcy lawyer, I can at least give people good advice.
 
Since 2017, I started steering people who seemed eligible to Public Service Student Loan Debt Forgiveness. Back then, hardly anyone I talked to had heard of it. The last year or so, most people I mentioned it to knew about it and were in.
 
Just Wednesday, Nina told me, her student loans had been forgiven. For me, that’s a first.
 
To get approved, you first have to be in public service. (That’s mainly government or a hospital, but it’s estimated that 25% of jobs in the US can count as public services jobs.) Next you have to make your payments for ten years. (Doesn’t have to be ten years in a row. Just a total of 120 payments.) The program was signed into law by President George Bush in 2007. So in theory, eligible people who signed up right away could have been approved starting in 2017–four years ago.
 
In that first year, 28,000 people applied for forgiveness, thinking they had completed the program Exactly 96 out of the 28,000 got approved.
 
For the first four years, more than 98% of the people who applied got rejected. (This is 98% rejection of the people who knew about the program and thought they had completed it!).
 

Joe Biden to the Rescue

Last October, the Department of Education changed the regulations on public service student loan debt forgiveness. They said that 550,000 people who had been turned down would now be eligible. I’m guessing Nina is one of these.
 

Student Loan Bankruptcy Reform Is Still Needed

It’s nice to have this program that targets people who work in government, or hospitals or other public service. We want good people to take those jobs.
Electrician is not eligible for public service student loan debt forgiveness

Running telephone wires is an important job. But people who run telephone wires, stock grocery shelves, or care for the elderly in nursing homes aren’t eligible for the public service student loan debt forgiveness that people working for government can get.

Still there are lots of jobs that are important to the country that don’t count as public service for that program. Running telephone wires. Repairing cars. Caring for the elderly in nursing homes. Stocking grocery shelves. Face it, many people who completed college and held a government job for at least ten years are pretty well off. (Even with her student loans cancelled, Nina is still in a tough sport. Mainly because her husband disappeared, leaving her with two kids.)

 
Every week I talk to people who will die in debt to their student loans. No way to pay; and no way to clear them. The 2020 Democratic Party Platform proposed to treat student loans like any other debt. Eligible for bankruptcy if you can’t pay. In this closely divided Congress, any reform needs Republican support. Very few Republicans are willing to get on board. The most visible Republican supporter of student loan bankruptcy reform, Rep John Katko, (R-NY), has announced he’s leaving Congress as the end of the year.
 
I’m excited for Nina. And for the half million people President Biden has helped be eligible for student loan forgiveness. But there are millions of Americans far worse off than Nina, whose financial lives are crippled–for a lifetime–because they cannot use bankruptcy, or something, to get out from under their student loans.
 
 

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10

Jan 2022

Alternatives to Bankruptcy: Credit Counselling Debt Management

Posted by / in Weekly Posts /

Alternatives to Bankruptcy: Money Management Credit Counselling

For high income people who can’t quite handle their debt, “credit counselling” can be an alternative to bankruptcy. Credit counselling services–the kind I’m talking about anyway–have agreements with the major credit cards on what payments they will accept through their program. 

Professional and ethical standards for credit counselling non-profit companies are set by the National Foundation for Credit Counselling. The financial industry set up National Foundation for Credit Counselling in 1951. They wanted to give people an alternative to talking to bankruptcy lawyers like me.

Credit Counseling is an alternative to bankruptcy

National Foundation for Credit Counseling was set up by the financial industry to keep you from talking to me.

Outfits affiliated with the NFCC will recommend a “debt management plan” that they expect the credit card companies will accept according to their pre-arrangements. They can usually get each payment down a little off the regular minimum monthly in a plan that still pays everybody off in five years.  Debt management plans have to be licensed in most states, including Virginia.

One of the biggest credit counselling companies is Money Management International. I started sending people to them when they had an actual office with a live counselor in Manassas.  That’s been gone since about 2006. (Actually that was a local outfit that was swallowed up by MMI.)

Martha Likes Her Debt Management Plan

I sent Martha to MMI last month.  Here’s what she told me.  “I took your advice and called the Money Management group and loved their program.  I start with them on the 18th with the first payment and then they will contact my creditors and we have a 5 year plan to get everything paid off with minimal damage to my credit score.”

Based on what people have told me, these legit credit counselors work with you on your budget. If you really can’t afford their debt management plan, they tell you. That’s a big reason I can recommend them.

(Do NOT confuse these credit counsellors with debt settlement companies.  I have comments about them, here. I do NOT recommend them.)

If credit counselling gives you all the help you need, it’s a good solution.

 

 

 

 

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09

Jan 2022

Stress and Your Heart

Posted by / in Weekly Posts /

Stress May Be Your Heart’s Worst Enemy

That’s a headline in today’s New York Times.  

I pass that on because as a bankruptcy lawyer I see people defeated by the stress of debt’s they can’t pay.  Good people go for years dragging around bad debts they can’t pay, before they finally take advantage of the fresh start the law offers.  

“According to the American Psychological Association (APA), money is the top cause of stress in the United States.” verywellmind.com   If your money stress is debt stress, that’s one of life’s problems that’s easiest to fix.  Don’t let the stress of impossible debt destroy your heart health.

Here’s the link to the New York Times article.

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13

Dec 2021

Debt Settlement or Chapter 13 Bankruptcy Which is Better?

Posted by / in Chapter 13, Weekly Posts /

Debt Settlement or Chapter 13 Bankruptcy: Which is Better?

My friend Roberta knew she was in financial trouble, but she wanted to try pay her debts. Rather than file Chapter 13 bankruptcy, she signed up for a debt settlement company, who promised her a “customized reduction plan.”  Over 18 months she paid $23,673.00.  And the debt settlement company settled two of her credit cards:  A Chase card for $10,496; and another Chase card for $9719.  With their fees and overhead, Roberta’s payments to debt settlement totaled $3458 more than the total of the debts they settled.

It cost Roberta $23,673 to settle two credit cards totaling $20,215. Her “savings” was negative $3438.

That debt settlement company promises “you will settle your debts for less than you owe.” Settling for less than you owe doesn’t necessarily save you money.  It depends on how much less they settle for.  That’s because most debt settlement companies charge you a 25% fee.  (Plus a monthly account fee, usually $10.00) That fee isn’t 25% of what they save you–it’s 25% of the whole debt.  So if the creditor is only willing to settle for 75% of what’s due, you have no savings at all.  

Spending that extra $3458 wasn’t the worst of it.  

While she was settling the two Chase cards, her other creditors weren’t getting paid. Two Bank of America cards, two Citibank cards, and a Target card were all reporting her to the credit bureaus every month as late.  She had nineteen months of being reported as late–and of those 13 months were reported as “charged off.”  

Finally, after being ignored for 19 months, Bank of America sued.  (I say finally because Roberta was lucky–or unlucky–that she didn’t have Discover or Capital One. Both of those companies are much quicker to sue than Bank of America.)  That’s when she realized debt settlement was not working for her.

I See Debt Settlement a Lot

Since I’m a bankruptcy lawyer, I see a lot of people who get sued while they are paying their debts through debt settlement. The two debt settlement outfits I see most often are the biggest, Freedom Debt Relief and National Debt Relief.   (Freedom Debt Relief calls what they do “debt resolution.” National Debt Relief says they do “debt relief.”) 

Roberta’s experience is typical of what I see.  She kept really good records, so I could understand exactly how it worked out for her.

The big debt settlement companies have thousands of happy customers. Maybe you’ll be one of them.  To help you decide, I put the advantages of debt settlement compared to Chapter 13 for you to read and think about.  (I’ve written on this twice before, but not in much detail.) 

Debt Settlement vs Chapter 13: What are the Advantages?

Settlement Fees

Debt Settlement: 25% of the total debt (NOT just 25% of what you save.) On $45,000 in credit cards, that’s $11,250. Plus $9.95 a month, another $597.00.  That comes to $11,847.

Chapter 13: 10% of each payment, plus $5485 in legal fees.  Total $9,985. 

Advantage Chapter 13.

 

Tax Consequences

Debt Settlement:  You get a debt forgiveness 1099 when the credit card company settles for less than the entire amount.  If the Debt Settlement Company reduces your debt by $22,500, you get a 1099-C for that and you likely owe $6,243.60 in federal and Virginia income taxes.

Chapter 13.  There are no taxes on debt discharged in Chapter 13 or Chapter 7 bankruptcy.

Advantage Chapter 13.

 

Total You Have to Pay

Debt Settlement companies try to get creditors to settle for 50 cents on the dollar.  But while you are paying off your first few settlements, the other creditors continue to add interest (often at 29%) and late fees.  (Usually, after six months, the credit card companies stop adding interest.)  

Chapter 13 freezes the balances on your credit cards and unsecured loans.  In Chapter 13 you have to pay “all you can afford” according to a formula written in the law and applied by the bankruptcy court, but never more than the total of the debt, sometimes far less.

Advantage: It depends. Debt Settlement is definitely better if the creditors all settle quickly and if the bankruptcy court would decide you can “afford” to pay your debts in full.  Otherwise Chapter 13 can be better.

 

Do All Credit Card Companies Participate?

Debt Settlement:  Some major credit cards refuse to participate in debt settlement programs.  Participation is voluntary.

Chapter 13:  Chapter 13 is a federal law. Creditors can apply to the bankruptcy court to get paid. Or if they don’t apply, the debt is discharged (cleared) even though they get nothing.

Advantage:  Chapter 13

 

Court Cases

Debt Settlement: National Debt Relief posts this warning in bold.  “If you don’t repay or settle the debt, the debt collector can sue you.” Unless you have enough money to settle with all your debts quickly (and pay the settlement fees) the creditors NOT getting paid are likely to sue.

Chapter 13: Chapter 13 is a court order for the creditors to leave you alone. They can’t garnish, they can’t sue, and all pending court cases are stopped.

Advantage:  Chapter 13

 

Is Debt Settlement Legal?

Debt Settlement: While still operating legally in Virginia, Freedom Debt Relief has been shut down in Connecticut, Georgia, Hawaii, Illinois, Kansas, Maine, Mississippi, New Hampshire, New Jersey, North Dakota, Oregon, Rhode Island, South Carolina, Vermont, Washington, West Virginia and Wyoming.  The Consumer Finance Protection Bureau sued them in 2017 and in 2019 Freedom Debt Relief agreed to pay a fine of $25 million.

Chapter 13 is established by law. When you file Chapter 13 you have a law on your side.

Advantage: Chapter 13

 

Credit Reporting

Debt Settlement:  When you stop paying your credit card in a debt settlement program, the credit cards show on your credit report as late. When they are 180 days late, they show on your credit report as “charged off.”  As you settle some accounts, those are updated to show “Paid in settlement” (Code AU). Meanwhile, the accounts not settled keep reporting 180 days past due and “charged off” every month.

Chapter 13: In Chapter 13, your accounts are noted as Chapter 13. (Code D). When the Chapter 13 is completed, they are notes as Discharged through Chapter 13. (Code H)

Advantage: Chapter 13.

 

Security Clearance

Debt Settlement tells you to stop paying all your bills–and some admit they do NOT start to negotiate until you’ve been making monthly payments to them for six to twelve months.  That’s six months or more when none of your creditors are getting paid anything. And after that, the debts are settled usually one at a time, while other continue to go later. Just not paying your debts looks irresponsible.  

Chapter 13 proposes a payment plan to a judge. That shows your security clearance officer that you have taken responsibility for your problem and are working out a solution.

Advantage: Chapter 13.  

 

Conclusion Debt Settlement or Chapter 13

When they work, Debt Settlement programs can save you about 25%–which after taxes would be more like 15%–of the total you owe and they spread your payments out over three years or so. That savings can be substantial.  But, if some of the credit cards get tired of waiting while you settle with others, then you have a year or two of terrible damage to your credit, followed by the sheriff bringing court papers to your door. You end up where you didn’t want to be, talking to a bankruptcy lawyer about Chapter 13. Or maybe Chapter 7.

PS On Roberta.

I told you at the top that Roberta paid $23,673.00 on her debt settlement plan. Where did she get that money?

Through most of the last 19 months, Roberta was able to get a COVID forbearance on her mortgage payment.  She was able to pay the debt settlement company by NOT paying her mortgage, and putting the missed payment on the end.  Of course that means she really could NOT afford debt settlement at all. It also means that she would have been able to propose a very low payment in Chapter 13, because in Chapter 13 the court allows you to budget the money you need to pay your mortgage.  That $23,673.00 was money down the drain.

 

 

 

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11

Nov 2021

Sports Gambling Comes to Virginia

Posted by / in Weekly Posts /

Sports Gambling Comes to Virginia

Like most people, I’ve noticed that ads for sports gambling have taken over the TV (at least on basketball and college football, which is about all the TV I watch.) Sports gambling was legalized in Virginia April last year and began in January 2021.

sports gambling

Legalized sports gambling is good for bankruptcy lawyers. But bad for American families.

Now in October and November, I’ve met two people who each lost more than $40,000 betting on sports in the last six months.  (Neither had a gambling problem before.)

Maybe a couple times a year I talk with people who are considering bankruptcy because of casino gambling at National Harbor.  From where I set, sports gambling is fast becoming a far bigger problem.  

I’m wondering if it takes about a year for sports gambling to suck people in.  A few bets here and there, a little more, and suddenly it’s a destructive, life-wrecking addiction.

That’s good news for bankruptcy lawyers.  But very bad for American families.

 

 

 

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NORTHERN VIRGINIA BANKRUPTCY LAW OFFICES