A blog about debt, credit and bankruptcy

April 26, 2019 By Jen Lee Leave a Comment

Wouldn’t It Be a Great Idea if I Added My Son/Daughter/Dog to the Title of My House??

There are a couple variations of this question, but if often comes up when we are talking to clients. We’ll run through a few ways this comes up and why adding people to deeds is probably not a good idea.

First example: A client comes in and has assets that she wants to protect from creditors, for example, her house. The house has a lot of equity and she does not want liens against the house. She asks, “Can’t I just transfer the title of my house to my son?”

There are a few problems with this idea. From an estate planning and tax standpoint (and I’m not an estate planning attorney, so consult an expert regarding your own situation), but there are potentially significant tax consequences to transferring property this way. From a creditor standpoint, it may be considered fraud if you transfer assets knowing that there are claims against you. That can be a complicated analysis, and depending on which statute is being used, can go back as far as 6 or 7 years to see if you transferred property to avoid creditors being able to collect.

Second example: Same situation as above with a house that the client is trying to protect from creditors, but now asks, “Can I SELL the house to my son for $1?”

Lots of issues here, especially with selling property for less than fair market value and selling to a family member. From a creditor standpoint, it is still a transfer and may be considered fraud if a creditor is able to show that it was done to hinder collections by creditors.

Third example: A client comes in and does not really have any assets, mostly unsecured credit card debt, and looks like a Chapter 7 bankruptcy would be the best option for a fresh start. Towards the end of the conversation, he says, “Oh, by the way, my parents added me to the deed of their house a few years ago for estate planning. The house is worth $1.5 million and they own it free and clear. That won’t be a problem, right?”

Wrong. In a Chapter 7, the trustee’s job is to find assets that are available to sell to pay your creditors. You now have an interest in a $1.5 million house that the trustee would be interested in selling, or at least making a deal to get your creditors paid through some sort of settlement with you and/or your parents. The case has gone from a simple Chapter 7 to a complicated analysis and some risk if you decide to move forward.

The best practice for all of these situations is to do proper estate planning, don’t transfer deeds to family members without getting advice on the consequences of that transfer, and don’t transfer assets to try to get away from creditors. Do proper planning before you need it, as that will be the most efficient (and least expensive!) option.

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.

April 19, 2019 By Jen Lee Leave a Comment

I didn’t know! I didn’t know you could help me!

I wish I had a dollar for every time this phrase was uttered in my office (or at a speaking engagement). I keep talking, speaking, writing, and creating videos because I hear over and over from my clients that they wish they had known that someone could help them a long time ago. After a very busy week, here are some of the things people didn’t know:

Student loan consolidation can help get a student loan out of default and back on track with income-based repayment (referring to federal student loans).
You can get a mortgage while in Chapter 13 bankruptcy.
Filing bankruptcy may make your credit score go up.
Taxes are often effectively dealt with in bankruptcy.
You would get sued when you signed up with a debt settlement company.
Your credit score would drop with just one missed payment.
Your wages could be garnished for your spouse’s debts from prior to marriage if you don’t do something to protect yourself.
Chapter 7 is not a good option if you have assets you want to keep, unless you have a plan.
Adding an authorized user to your credit card may make their score go down.

The reason I list all of these things out and talk about pretty similar things every week is because so many people don’t know that there are often solutions available for their situations. We almost always hear from people in our office that they felt they were the only ones with these types of problems and didn’t know that a majority of Americans have a debt or credit problem of some sort that they really could use help with solving.

Google is an awesome tool, but I find that so many people find bad information or don’t know to keep digging for more details on their individual situation. Very rarely do I recommend the exact same thing for each of our clients. Every case has a different detail that makes certain options better than others.

So, you may not know everything right now, but there are options for you if you ask!

March 29, 2019 By Jen Lee 1 Comment

Don’t I Have to Wait 10 Years to Get a Mortgage After Bankruptcy?

As many of you know, I often write blog posts based on things that have happened during the week, questions I get while I am speaking to various groups, or bad information I read online. This week, mortgages came up several times, so I figured that was my sign to talk about mortgages and bankruptcy.

The common misconception out there is that you have to wait 10 years after bankruptcy before getting a mortgage. I’ve also heard you have to wait 10 years after bankruptcy to really qualify for any type of credit. Both of these are way off base.

Let’s talk about mortgages. I’ve included a handy chart that Maureen Torretto at LoanDepot provided to me last year. I verified with her that this chart is still up-to-date. Some important points that I continuously make with clients who are worried that they will never be able to buy a house:

After a Chapter 7 bankruptcy discharge, the wait period is 1 year for FHA and VA loans with extenuating circumstances.
You can buy a house DURING a Chapter 13 bankruptcy. If you make 12 monthly payments on-time to the Chapter 13 trustee, you are eligible for FHA, VA, and USDA loans.
Without “extenuating circumstances” in a Chapter 7, the wait period is 2 years for FHA and VA. Again, nowhere close to 10 years.

My main point is that bankruptcy is often the quickest way to qualify for a mortgage, which is exactly the opposite of what most people think. That fear prevents people from finding out what their rights and options are for their individual situation. Not that I’m advocating for everyone to go out and file for bankruptcy, but serious financial decisions require correct information. I find that the misinformation out there has caused a lot of people to make poor financial decisions. Knowledge really is key in these types of situation.

March 14, 2019 By Jen Lee Leave a Comment

“I Have to Take Out Student Loans to Help My Child! Or, Maybe I Should Bribe Someone!”

In light of the recent cheating scandal for college admissions that’s been widely reported in the last couple of days, I want to twist it a bit to something I hear all the time and be a bit controversial in the process. When we are talking about bankruptcy or other financial disaster planning, people are always worried about their credit and if they will still qualify for student loans for their kids. So, they are in the middle of financial disaster and trying to figure out how to qualify for…more loans.

Honestly, not qualifying for student loans for someone else’s education is a total blessing in disguise. I am a huge proponent of not taking Parent Plus loans and not co-signing student loans. I cannot tell you how many clients I have in their 50s, 60s, 70s, and even 80s who are trying to deal with student loan issues, including having their Social Security garnished at 15% for federal loans that are in default.

What will happen if your child (adult child) can’t afford to go to a $60,000/year university on their own? Well, first of all, $60,000/year universities will have to adapt to people choosing less expensive avenues. The huge inflation in college education costs comes from easy money (that can’t be discharged in bankruptcy, how convenient) and from everyone thinking that they have to go to the highest-ranked college to get a decent job.

One of the celebrities caught up in the cheating scandal has a daughter who has publicly announced that she doesn’t want to be in college at all and is more interested in YouTube. Do you know how much money can be made if you have something that other people are interested in? There is an 7 year old kid making more than $20 million a year doing toy reviews on YouTube. Not that I am encouraging everyone to go out and be a YouTube sensation, but parents put so much pressure on the traditional college path that they totally miss out on the creativity and innovative ideas that kids and young adults have. And part of that pressure is trying to pay for really expensive college educations that are mostly unnecessary.

As an employer, I don’t actually care if someone has a degree. I care about their abilities, their drive, their experience, and what they bring to the table. There are a lot of big companies out there that are missing out on the next generation of innovators because they won’t hire someone who doesn’t have the “right” degree. Ask me how I know. I did my bachelor’s and master’s degrees online (back before online was a thing – it was really correspondence school). I’m pretty much blacklisted from some companies as soon as I list those degrees on my resume. Their loss.

Please do not take out student loans for your kids. Please encourage them to find what they are good at, even if it’s something you don’t understand. Oh, and please don’t bribe people so that your kids get higher test scores (I kind of feel that I shouldn’t have to say that, but apparently, it’s a thing).

March 7, 2019 By Jen Lee Leave a Comment

Couldn’t Resist – More Bad Information About Bankruptcy

Last week’s post talked about two recent articles that were really wrong about how bankruptcy works. Because there were so many things wrong with the first one, I didn’t even get a chance to write about the things wrong in the second one. So, I am taking the opportunity this week to go through the second article because I think bad information on the internet leads so many people to make decisions that are detrimental to their long-term financial future.

Here we go.

First of all, the title of this article is Chapter 11 vs. Chapter 7 Bankruptcy: What to Know. But, the article then discusses Chapter 11, Chapter 7, and Chapter 13. The biggest issue with the whole thing is that these chapters are used for very different situations. It’s not like you walk into an attorney’s office and you just pick a chapter to file. Your financial goals and situation generally determine which route you need to go down.

Let’s get to down to the dirty details:

“Chapter 11 bankruptcy is a form of bankruptcy that exists to allow businesses and corporations to follow a plan to rehabilitate or reorganize their debts so that they can remain in operation while repaying their debt.”
Partly true. Business and corporations are eligible to file for Chapter 11, but you don’t have to be a business or corporation to file for Chapter 11. Individuals can file Chapter 11.
“Shouldn’t affect your personal credit score. If you file for Chapter 11 bankruptcy as a corporation or business, it shouldn’t affect your personal credit score.”
Be very careful with this – a lot of banks and lenders require the business owner to personally guarantee credit cards, loans, lines of credits, and leases, so filing bankruptcy for a corporation can actually affect your personal credit score.
“Stays on credit report for 10 years: This can be especially discouraging if you file as an individual since your score may be hit pretty hard.”
Oh, for the love of Pete. Yes, bankruptcy stays on your credit report as a public record for 10 years. It does not affect your credit score for 10 years and many people with low credit scores actually experience their credit score going up immediately upon filing bankruptcy. With proper rebuilding strategies, you can have a 700 credit score a year after bankruptcy.
“People who file for Chapter 7 bankruptcy typically earn lower incomes and can’t repay their debts. To qualify for Chapter 7 bankruptcy, you must be earning less than your state’s median income for a family or household of your size.”
This is just wrong. One way to qualify for Chapter 7 is to be below the median income for your household size. However, I can’t remember the last time I had a client who was below median income. You can still qualify for Chapter 7, but it’s important to have a professional run the Means Test to determine eligibility. Also, there are certain categories of debts that make the Means Test not even apply. For example, if 51% of your debts are non-consumer debts (taxes, business loans, etc.), the Means Test doesn’t even apply to your situation.
“Income status requirements: Chapter 7 bankruptcy is limited to those with low income and minimal assets.”
See #4? There are often ways to qualify for Chapter 7 without being low income. And, assets have nothing to do with your eligibility requirements for Chapter 7.
“Stays on credit report for up to 10 years: Because of this, filing for Chapter 7 bankruptcy may make it difficult for you to get credit or insurance, and may even make it challenging to be hired for a new job or get approved to rent a new apartment.”
Talk to a professional in your state. In California, your credit score isn’t used in insurance unless it’s to make your premium lower (credit score can only be used to decrease, not increase or deny, insurance premiums). Also, in California, credit scores and bankruptcy can only be used in very specific situations for hiring. I have lots and lots of clients who get new apartments or houses during and after bankruptcy. It sometimes takes a bit more searching and explanation, but any smart landlord prefers someone who filed bankruptcy than someone with 20 collection accounts on their credit report.
“Chapter 13…In many cases, you’ll pay off most of your debt with monthly payments over the course of three to five years, after which time the rest of your debt is discharged.”
This is one of the biggest myths about Chapter 13 – you don’t pay off most of your debt necessarily. You do make payments for three to five years, but often we are paying back mortgage arrears, taxes, and child support for the three to five years while the credit cards and collection accounts get very little and are discharged at the end.
“Most individuals or business qualify for Chapter 13.”
Businesses that are corporations do not qualify for Chapter 13. There are two requirements for Chapter 13. You have to be an individual and you have to have regular income. You can be a sole proprietor of a business and be in Chapter 13, but if you are the owner of a corporation, the corporation cannot file Chapter 13. Quite often, the business owner took on a bunch of personal debt for the corporation and we file a Chapter 13 to reorganize those debts, but the bankruptcy is filed for the individual.
“If you’ve been discharged from Chapter 13 or another type of bankruptcy within the last two to four years, you may not qualify to file.”
Oh, where do I start. The waiting times between bankruptcies are from filing date to filing date. Your discharge date has nothing to do with the waiting times. The longest wait is 8 years and the shortest is 2 years. Please have a professional tell you what your eligibility is based on your individual situation.

Overall, please know your rights and options. Please have a professional look at your situation and please do not assume that something you read on the internet was correct, especially because a lot of these issues depend on the state you live in.

Here’s the article:
https://www.lendingtree.com/bankruptcy/chapter-11-vs-chapter-7-bankruptcy/

Wouldn’t It Be a Great Idea if I Added My Son/Daughter/Dog to the Title of My House??

I didn’t know! I didn’t know you could help me!

Don’t I Have to Wait 10 Years to Get a Mortgage After Bankruptcy?

“I Have to Take Out Student Loans to Help My Child! Or, Maybe I Should Bribe Someone!”

Couldn’t Resist – More Bad Information About Bankruptcy

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