A blog about debt, credit and bankruptcy

October 29, 2020 By Leo Spanos Leave a Comment

When Should I Consult an Attorney about my Debts?

Living on credit is a day-to-day reality for millions of Americans.

Consumer debt in the United States totals $14.1 trillion — that’s $14,100,000, 000,000 – with the average person owing over $90,000 (according to Experian’s 2019 Consumer Debt Study). This includes credit cards, consumer loans, secured loans on personal property (electronics, furniture, jewelry, etc.), car loans, mortgages, and student loans. Given that many people are living paycheck-to-paycheck and the job insecurity caused by the global pandemic, it may be reasonable to consult an attorney about financial stress and debt management options. This may be the case even if you have a six figure income and have never missed a payment; it is better to consult an attorney early (and know your options) than to wait until your back is against the wall.

But when is that point? Factors to consider, regardless of income, are –

Are you making minimum monthly payments?
Are most of your debts credits cards with high interest rates?
How much do you owe in relation to your monthly income?
Are you behind on your mortgage or rent?
Do you have debts in collection?
Do you have money left over to save for retirement?
Are you on installment plans for medical bills or tax debt?

You might improve your situation through stricter budgeting, debt consolidation, or negotiating settlements with your creditors. This is not always feasible depending on the size of the debts, the interest rates, and income. If you are making the minimum monthly payments on high interest credit cards with large balances and are not saving for retirement, bankruptcy might be your best option. For non-business debts, there are two types of bankruptcy, Chapter 7 liquidation and Chapter 13 reorganization. The main difference is whether you are trying to protect assets (e.g., house, car, etc.) from creditor repossession/foreclosure or you just want to get rid of your debts and get a “fresh start.” Your credit score is likely to increase after a bankruptcy because you are less of a risk to potential lenders. You can also qualify for a mortgage within 12 months of a bankruptcy. An experienced attorney can evaluate your situation and tailor a strategy to meet your needs.

This is just a basic overview and is not legal advice specific to your situation. If you have questions about your rights when it comes to debt and credit, you should speak with an attorney in your area for legal advice. If you live in California or North Dakota and would like to speak with Jen Lee Law regarding your situation, please schedule an appointment.

September 22, 2020 By Leo Spanos Leave a Comment

New Homestead Exemption Will Have Significant Impact On Bankruptcy Practice In California

With the stroke of a pen, California’s homestead exemption — the amount of equity in one’s primary residence that can be protected from creditors — increased from $75,000, $100,000, or $175,000 (depending on the circumstances) to the greater of $300,000 or “the countywide median sale price of a single family home in the calendar year prior to the calendar year in which the judgment debtor claims the exemption,” up to $600,000. Put simply, the exemption increases from up to $175,000 to $600,000, depending on the county. This represents a sea change and will help thousands of homeowners in need of bankruptcy relief avoid having their homes sold by a trustee and used to pay creditors. Governor Gavin Newsom signed Assembly Bill 1885 into law on September 15, 2020.

Countywide statistics on sales can be found on www.zillow.com. Counties with median sale prices over $600,000 include Los Angeles County, San Diego County, San Francisco County, Orange County, Contra Costa County, and Alameda County.

In a Chapter 7 liquidation, a trustee will be appointed and sell any assets with equity exceeding statewide exemptions. Most peoples’ main asset is their house. Prior to the law, if you had debts totaling $100,000 but equity of $500,000 the trustee would sell your house and pay your creditors. This would leave you $400,000 (minus bankruptcy fees and costs) to find new housing. Given California’s real estate market, this would be a tough task. (Why would you file for bankruptcy in this situation? Maybe your wages were being garnished or you were being sued or facing foreclosure.) If you want to keep your home, a better option would be a Chapter 13 reorganization. You would be required, however, to commit to a 3-5 year plan under the supervision of a Chapter 13 trustee and the Bankruptcy Court. About half of Chapter 13 plans are not successfully completed.

Using the above example, the new law allows you to discharge, i.e., cancel, the $100,000 in debt and still keep your house in a Chapter 7 bankruptcy. Since your equity was below $600,000, it can’t be touched by a trustee. If you do not qualify for a Chapter 7 or a Chapter 13 better suits your needs (e.g., behind on your mortgage and facing foreclosure or recent tax debts), you could still likely discharge the majority of your debts – subject to other limitations — under a plan of reorganization because your equity would be protected from creditors.

Given that many Californians are in financial distress despite having significant equity, the new law – which takes effect January 1, 2021– offers much needed relief. If you have questions regarding this or other legal matters, you should consult an experienced attorney who can evaluate your particular situation and provide individualized guidance.

September 8, 2020 By Leo Spanos Leave a Comment

No, The Tenth Circuit Court of Appeals Did Not Say You Can Discharge All Your Student Loans in Bankruptcy

You may have read headlines recently such as “Court Allows Bankruptcy Discharge of $200,000 in Student Loans” and thought now is the time to file bankruptcy and get rid of your student loans. Unfortunately, headlines can be deceiving. In McDaniel v. Navient Solutions, LLC, the Tenth Circuit Court of Appeals affirmed the bankruptcy court’s ruling denying Navient’s motion to dismiss the borrower’s complaint to discharge $200,000 in private loans. The default rule in bankruptcy is that debtors with student loans must show “undue hardship” to discharge student loans; otherwise the borrowers remain liable, even after a bankruptcy discharge that eliminates other debts including credit cards, consumer loans, and medical bills. Showing “undue hardship” entails filing an adversary proceeding in the bankruptcy case; it is a difficult and expensive undertaking and many attorneys won’t even try.

The ruling in McDaniel is significant because it says that private student loan borrowers are not required to show “undue hardship” because private loans are not covered under the applicable Bankruptcy Code Section. The decision, however, should be understood with the following caveats –

The ruling related to a lender’s motion to dismiss the borrower’s complaint; it did not affirm a decision discharging the student loans; the Appellate Court denied the lender’s motion and sent the case back to the bankruptcy court for further litigation; the amount, if any, of the loans actually discharged may be significantly less;
The ruling related to private student loans as opposed to public student loans;
Some of the loans in question do not appear to have been used for tuition (“cost of attendance”); and
The ruling is limited to jurisdictions under the Tenth Circuit Court of Appeals (Oklahoma, Kansas, New Mexico, Colorado, Wyoming, Utah, and parts of Montana and Idaho);

Borrowers seeking to discharge federal student loans – or loans insured or guaranteed by the government — are not affected by this decision and must still show “undue hardship.” That some of the loans in question were not used to pay tuition could also be significant. Had the loans been used exclusively for the cost of attendance, the result may have been different. It also remains to be seen whether other Appellate Courts will adopt the reasoning used by the Tenth Circuit or if Navient will appeal to the United States Supreme Court. If you have questions regarding students loans, you should consult an experienced attorney who can evaluate your particular situation and provide individualized guidance.

June 15, 2020 By Jen Lee Leave a Comment

I Didn’t Know You Help With That!

I always say that one of the most frequent sayings I hear is, “I didn’t know…” and it happened again on Friday.

I was reminded this week that people may not realize how we help individuals and business owners with debt and credit strategy (or maybe what that means). A networking partner reached out to me to ask when I would get involved with a business that has not been able to operate due to COVID-19 and had some debt they were worried about how to pay.

Here was my response:

Thanks for your email! I’ve been doing a lot of strategy sessions to look at various options for businesses. We generally are looking at potential personal liability on the debts, what happens if revenue doesn’t come in, and the possibility of settling debts when needed. Also, if there’s a personal guarantee on the lease, that’s something that would need to be planned around.

The session on my website is offered as a COVID-19 Financial Stress Strategy Session (link in my signature).

The networking partner responded that she had no idea that I did these 1-hour sessions and that is a very valuable resource for those needing advice.

This really gets to the heart of getting advice at the time it is needed instead of waiting until it’s too late or trying to book free consultations with various attorneys to piece together advice. Many of our clients do not need expensive legal solutions or a bankruptcy. They just need to make sure they are on the right track and not making more mistakes that will lead to expensive legal solutions or bankruptcy in the future. That’s what our strategy sessions offer. Clients leave with a plan, an outline of options, and a discussion of pros/cons of those options.

So, yes, I help with that!

April 21, 2020 By jenleelaw Leave a Comment

Round 2 of PPP: Tips to Make or Break Your Approval Odds

The CARES Act, passed on March 27, 2020, kicked off a chaotic and unorganized process of applying for a new program called the Paycheck Protection Program. On the surface, this looked like a great program for struggling businesses. A loan that can be forgiven if used to pay employees, rent, and other approved business expenses. This idea was far better than saddling small businesses with more debt than they already have.

The initial problem was that lawmakers passed a bill that had absolutely no procedures or processes in place. Banks scrambled to obtain guidance with bankers working around the clock to get an approved SBA application…and then the application changed just hours before the launch of the program. Then, the money ran out two weeks into the program. As we gear up for round 2 of funding, here’s what you need to do immediately to obtain funds:

Get a copy of the application (https://www.sba.gov/sites/default/files/2020-04/PPP%20Borrower%20Application%20Form.pdf) now.
Fill it out completely. Do not leave a single field blank. If you do not know the answer or how to calculate your monthly payroll, call your accountant, your payroll specialist, or a professional who can explain it to you. The funds for this program are going to people who can follow instructions.
There are specific documents required to move your application along to the next stage. They generally include your 2019 940 and 941 tax documents, bank statements to show proof of payroll, payroll reports to verify monthly payroll costs, and benefit invoices/statements. Your application does not move at all if you do not provide every single document that is requested.
If your bank requests something specific to complete your application, stop what you are doing and immediately find that document and submit it electronically and in a readable format. Do not wait until tomorrow or next week. Your application will be pushed to the side.
Finally, not specific to PPP, but it became apparent that the majority of really small businesses who got funds in the initial round banked with smaller, local, or private banks. I highly suggest you find a bank where you have a personal relationship with a banker. I always hear from people that they have banked at xxx big bank for years and it’s too hard to switch or things are fine. When things go sideways, you want the bank where you have the cell phone number of your banker and she answers your call every time.

If you are looking to obtain funds under Round 2. Start now. Get your documents together. Respond to requests for documents. Understand how the program works. We wish you the best of luck in the coming weeks!

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