A blog about debt, credit and bankruptcy

June 9, 2019 By Jen Lee Leave a Comment

Do You Read Your Paystubs?? You Should!

I hear this all the time from people who are not even clients or in a position where they may need to talk to a debt and credit attorney, but it is also prevalent among those needing help. Over and over again, people tell me that they don’t even look at their paystubs and that it is direct deposit to their bank accounts.

Or, even worse, they don’t know how to get copies of their paystubs because the money just goes into their account each week (or 2 weeks, monthly, however often they get paid).

There are several reasons you should look at your paystub and know how to get them:

Deductions for benefits, ancillary benefits (like supplemental life insurance), or other company programs are often wrong. Miscalculations happen all the time and you should really be paying attention at the beginning of the year, or whenever your new benefits go into effect, to how much is being deducted from your check. I also often ask what a deduction is for and people have no idea why their employer is deducting for certain things.
Severe under-withholding or over-withholding on taxes, so that you get to the end of the year and you either have a huge balance due or a huge refund. There are easy tools out there to figure out how much you should be withholding from your pay to make sure that you are on track. In fact, the IRS has a great withholding calculator that will tell you what your exemptions need to be set at to not owe taxes. Please note that you have to use your paystubs to use the calculator!
Gross income is important to know. Gross income is what you get paid before any deductions are taken out. Almost everyone can tell me how much money is deposited into their account on payday, but very few know how much they make from a total income standpoint. If we are looking at a potential bankruptcy strategy, gross income is used to begin the calculations.
Finally, looking at your paystubs is one of the first steps to getting finances organized. We have a tendency to not look at things that stress us out (like a list of our debt, our credit score if it is low, and…our paystubs). It’s hard to create a full financial plan and budget if you don’t know what those numbers look like.

If you don’t know how to read your paystub or see deductions that you don’t understand, which can be common because each company often uses different abbreviations for things, talk to your human resources department about what is being deducted and how to change your withholdings, if necessary.

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.

May 31, 2019 By Jen Lee Leave a Comment

Bankruptcy and Divorce: What Else Can Go Wrong?

I did a presentation a few months ago to a great group of Certified Divorce Financial Analysts and it was called “Bankruptcy and Divorce: What Else Can Go Wrong?” I’m bringing the topic over to our blog because a number of recent cases have involved ex-spouses, soon-to-be ex-spouses, and spouses behaving badly when it comes to finances.

General statistics show that financial stress and money are leading causes of divorce and relationship issues. In California, the community property rules also can cause a lot of problems because not only are your assets shared, but so are your debts. This can really complicate things when trying to figure out how to separate and keep your own credit intact.

For ex-spouses, problems sometimes come up with who was supposed to pay the debt, who actually did pay it, and who is trying to possibly file for bankruptcy. Also, depending on how your marriage settlement agreement, some debts your ex-spouse owes you may be discharged in bankruptcy. It’s very important that you have an experienced family law attorney help you with negotiating and drafting the settlement agreement.

With soon-to-be ex-spouses, there is sometimes cooperation regarding how the debt is resolved. Couples working together to file bankruptcy to clear the debt can often avoid problems down the road when they eventually become ex-spouses still worrying about if the other one is going to pay on that credit card or not.

Finally, spouses behaving badly when it comes to finances can sometimes be somewhat intentional, but it can also be how that spouse has always handled money issues and now it’s becoming the breaking point. I cannot emphasize enough knowing the full financial picture for the family so you can make the best decisions going forward, whether that’s with your spouse or on a different path.

All of the situations we run across when talking about bankruptcy and divorce are different. Each client has a different goal, different assets, different debts, so it’s really important to find out what your rights and options are early in the process. Even better, find out before you even get married.

May 10, 2019 By Jen Lee Leave a Comment

Freezing Accounts

Why Does It Matter Where I Bank?

Often, clients come in for a Debt Strategy Session and we are looking at different options when the question comes up about what bank their bank accounts are at (checking and/or savings accounts). This is a really important question because if bankruptcy is one of the options we are talking about, Wells Fargo accounts can cause a big problem.

Why?

Wells Fargo will freeze your account balance when you file for Chapter 7. There is some debate about whether the total balances have to be over $5,000 or not for them to freeze, but I would rather not take a chance with my client’s rent money.

This is also an important question if you are a signer on someone else’s account. You may not have much money in your accounts, but if you are the signer on your mom’s account with $50,000 in it, mom is not going to be thrilled when her account is frozen and/or the funds are transferred to the Chapter 7 trustee. There is also the issue of proving that the funds are not yours, which put all of the funds at risk in the bankruptcy.

What Can I Do?

There are a couple of strategies that we use when we find out a client has a Wells Fargo bank account and we are looking at bankruptcy options.

First, change banks. Go find a nice bank that doesn’t have a habit of freezing its customers accounts.

Second, if you really want to keep that Wells Fargo account, it is an option to take the funds out of the account before filing, disclose that you have the funds either in cash or a cashier’s check, and then deposit them again after the filing of the bankruptcy. This is a rather convoluted option, but we have had clients who insist that they keep the Wells Fargo account. The important part of this is disclosing exactly what we did so that it is all clear that nothing is being hidden.

Third, you can take the risk that they won’t freeze your account if the combined balances are less than $5,000. But, be sure that your balances are really less than $5,000. This choice bit a debtor one time because he forgot that he was on his aunt’s account and she had a lot of money with Wells Fargo. Accounts were frozen and it was a mess.

In conclusion, choose your friends and your banks wisely. Make sure you get good advice on what you can expect for all of the various options you are considering.

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.

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!

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