Bankruptcy Process

February 28, 2019 By Jen Lee

Once Again – The Internet Gets It Wrong About Chapter 13

Two new articles this week, one on The Street called What is Chapter 13 Bankruptcy and Is It Worth It? and the other on Lending Tree titled, Chapter 11 vs. Chapter 7 Bankruptcy: What to Know. I reluctantly read both, hoping they would get it right…and lots of eye-rolling took place instead.

Here’s where the first one went wrong – I don’t even have enough room in this blog to outline where the second one went wrong (but I will try to for next week):

“Chapter 13 bankruptcy is one of the types geared toward individuals and families as opposed to businesses.”
Wrong. Only individuals qualify for Chapter 13. If you are a sole proprietor, you are an individual. I file many, many bankruptcies for business owners because they are sole proprietors. Chapter 13 is very powerful for business owners.
“The Chapter 13 method of restructuring debts and creating monthly payments over a set period of time is similar to Chapter 11 bankruptcy, with the crucial difference being that Chapter 11 is for businesses.”
Wrong. Individuals can file both Chapter 13 and Chapter 11. There are different reasons and situations where these options can be appropriate.
“The most important difference between the two is that Chapter 7 bankruptcy allows for the possibility of liquidating assets to help pay off debts. Chapter 13 does not liquidate assets.”
Wrong. Chapter 7 bankruptcy REQUIRES the liquidation of non-exempt assets. That’s the trustee’s job in a Chapter 7. Chapter 13 can liquidate assets, if you choose to. The most important difference between the two is who has the ability to liquidate the assets and the purpose for filing .
“Once you’ve taken credit counseling classes you can submit a petition to file for bankruptcy. If that petition is successful, your case is given to a trustee who will oversee a case.”
Ok, you don’t “submit a petition to file for bankruptcy.” You file your bankruptcy petition and an online credit counseling course is required before you actually file the petition. There is nothing in the bankruptcy code about your petition being successful and then being “given to a trustee” who will oversee a case. In both Chapter 7 and Chapter 13, you file a petition and a trustee is assigned from the very beginning. Success has nothing to do with it.
“They will also set up a meeting in which you will have to testify under oath about your debt.”
There is a meeting of creditors where the trustee asks you questions about your petition, including whether you listed all of your assets and all of your liabilities. There is NOT a meeting where you get interrogated about the types of debts you have and why you had to file bankruptcy. This is one of the biggest fears and misconceptions out there.
“Throughout the duration of your plan, you are also not allowed to incur any further debts.”
Wrong. In fact, I have several clients who bought new houses with mortgages while in a Chapter 13. You are required to get court or trustee approval for taking on new debt, but it’s totally possible to buy a new car (or reliable used car) or a house while in Chapter 13.
“One particularly prominent detriment to Chapter 13 (any bankruptcy, really) is that it demolishes your credit score for a while, even if you make all your payments on time.”
Ok, this is the most ridiculous point in the whole article. Most of my clients that actually start rebuilding their credit during their payment plan have 650 (or higher – one came in recently with a 756) credit scores. If you make all of your payments on time for 12 months in a Chapter 13, you qualify for an FHA mortgage. By the time someone gets to bankruptcy, your credit score often goes UP when you file bankruptcy because finances have been stressed for quite some time before you get to that point.
“Chapter 13 may not be the most last resort bankruptcy option, but it’s close.”
Chapter 13 is one of the most powerful debt tools available. I’ve saved houses, marriages, families, and businesses over the past 10 years using this powerful tool. I’m sitting in a meeting right now with a client who says that Chapter 13 was the best thing she ever did for her family and business.

Please find out your rights and options before making a decision. Relying on Google searches may lead you down a path where you are making decisions on bad information.

Here are links to the two articles I read:

https://www.thestreet.com/personal-finance/debt-management/what-is-chapter-13-bankruptcy-14867012

https://www.lendingtree.com/bankruptcy/chapter-11-vs-chapter-7-bankruptcy/

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.

February 8, 2019 By Jen Lee

So Misunderstood…Chapter 7 and Chapter 13 Options

This past week, I had a number of different people ask me questions about Chapter 7 and Chapter 13 that revealed just how misunderstood these two options are. Here are a few of those misunderstandings:

A senior who owns a house with no mortgage can file Chapter 7 and get rid of credit card debt.

This came about in a conversation where we were discussing seniors and financial stress. We are seeing an increasing number of seniors who have overwhelming debt and do not have the monthly income to support the debt payments. However, if there is a house with equity, a Chapter 7 becomes much more complicated and less likely. In a Chapter 7, a trustee is appointed to review assets and sell any that are not exempt.

In California, a senior can exempt up to a maximum of $175,000 (and this varies some, depending on age and circumstances, but this is the maximum). If there is more than $175,000 in equity, the first thing a Chapter 7 trustee is going to do is list the house for sale. While Chapter 7 may not be the best option in this particular situation, there are often other options such as downsizing, reverse mortgage, settlement, or possibly Chapter 13.

Chapter 13 requires all debts to be repaid.

The next misunderstanding of the week happened when I was talking with a client about options for reorganizing a lot of debt that included business debt, unsecured debt like credit cards, car loans, a mortgage in the early stages of foreclosure, and a decent amount of tax debt. When I brought up Chapter 13 to deal with all of these things at once, she was confused because she thought it meant that she had to pay back all debts over five years and there was no way the business could support that kind of monthly payment.

On the contrary, Chapter 13 is very powerful because it allows you to pay back debts secured by items you want to keep (like a house, car, etc.), along with priority debt, like income taxes over five years. However, the unsecured debt often does not have to be repaid in full and sometimes none of the unsecured debt has to be repaid and it is discharged at the end of the five years.

You can’t have any assets and file for Chapter 7 (or you’ll lose everything).

This is a variation of the misunderstanding above about the house and Chapter 7. Yes, you can have assets and file for Chapter 7, but it’s important to correctly value and exempt your assets. In California, there are two different ways to exempt assets, depending on if you own a home or not. Most people who file for Chapter 7 keep all of their assets and nothing is sold. That is why it is very important to make sure you know what your rights are and how to protect the assets you do have.

All of these misunderstandings go to show that people really need to find out what their rights and options are before making life-changing decisions. Also, it’s very important to understand the different options and what your future looks like after each one.

January 3, 2019 By Jen Lee

Lies You Find on The Internet

Nothing makes me more frustrated than finding out someone read something on the internet that was wrong and then it influenced that person’s decision.

Last week, I had a colleague reach out to me regarding a company that his client hired to help him with some debt issues. The client thought he had done debt consolidation, but the company’s information on their website says that they only do debt settlement or debt negotiation. So, the first issue was the client likely did not fully understand what he had signed up for in the first place.

Then, I started looking at the company’s website. It gave wrong information about the benefits of their program and also very wrong information about the difference between debt settlement and bankruptcy. Here is the paragraph from their site that I am going to pick apart:

“Bankruptcy is an option that is generally treated as a last resort and if you need to protect appreciating assets. It will remain on your credit report for as long as 10 years & you can be denied employment, state licenses, insurance, as well as tenancy of an apartment. Most importantly, you can be denied virtually any type of credit with a bankruptcy on your report for several years. In addition, since the bankruptcy laws have changed recently, it is even more difficult to qualify for Chapter 7, the method of liquidating assets to eliminate your debt. You will not be allowed to discharge alimony, child support, taxes, student loans, judgments, or any loan on the bankruptcy petition. Under Chapter 13 bankruptcy, your debt payments are simply restructured meaning you will still have to pay a percentage of your debts while you suffer the consequences of bankruptcy. Debt negotiation is an alternative to bankruptcy.”

How is this wrong? Let me count the ways.

There are very specific situations where a bankruptcy can be used against you in employment and they are very few. I did an interview on this topic with Kira Feick of Ignite HR because it’s such a misconception.
For insurance, your credit score cannot be used to raise your rate or deny you insurance in California. If you consent to using your credit score, the only thing the insurance company can do with it is lower your rate.
You can be denied credit for anything at any time, whether you have a bankruptcy or not. However, you qualify for a mortgage a year after bankruptcy and a car loan immediately after bankruptcy. You will receive credit card offers BEFORE your bankruptcy is completed. If you are in a debt settlement program, you will not get credit because all of your accounts are in collections.
The bankruptcy laws have not recently changed. The last time there was a significant change in qualifying for bankruptcy was 2005 (14 years ago…). There are also a number of ways to qualify for Chapter 7 (and sometimes Chapter 13 is a better route – see last week’s post).
The list of things they say you cannot discharge is pretty much wrong. You can discharge taxes in many circumstances, judgments, and all personal loans.
Finally, they try to scare you by saying that in Chapter 13, you still have to pay your debts back. Shocking. You have to pay more back with “debt negotiation” than with Chapter 13 in most cases. Again, see my recent post on what’s so great about Chapter 13, because people generally recover much more quickly from filing Chapter 13 than trying a multi-year debt settlement program.

Researching online can be a good thing, but make sure that you make your final decision based on knowing all of your rights and options, not just the one they are trying to sell you.

December 20, 2018 By Jen Lee

What’s So Special About Chapter 13?

Whenever I mention Chapter 13, I get looks of horror from clients and people listening to talks I give about financial stress. Chapter 13 is a repayment plan of 3-5 years and many seem to think that it is the end of the world, so I decided to do a blog post about how powerful Chapter 13 really can be in the right situation.

Why declare bankruptcy if I have to pay it back??

The first thing that is totally misunderstood or misrepresented about Chapter 13 is that you have to pay back everything you owe. While that may be true if you have a lot of equity in your house or other assets, Chapter 13 often results in a very low payment to unsecured debts like credit cards. In fact, many cases pay back 0% to credit cards. However, Chapter 13’s power comes in being able to pay back other debts (like taxes or mortgage arrears), relieving the pressure of minimum payments, and restructuring what you have so that you come out of the payment plan with a fresh start.

Isn’t debt settlement a better option?

Yes, debt settlement is a better option…for debt settlement companies. I always explain to clients that Chapter 13 IS debt settlement, but with a court order. There is little to no negotiation and the court reviews everything to make sure that creditors are getting what they are legally entitled to under the bankruptcy law. Again, that often means that your credit card companies get a small percentage of what they would under a debt settlement agreement.

But, my credit is ruined for 10 years and I can’t buy a house for 10 years!

Wrong. You can actually buy a house while in Chapter 13. If someone offered you a deal that you could be out of debt in 5 years, buy a new house, and have a 700 credit score (or higher) if you agree to make a monthly payment on time each month, would you say no or that it is a horrible idea? Not that Chapter 13 is all fun and games, but it’s a viable tool for getting a fresh start, clearing debt, and restructuring.

Aren’t the only people filing for Chapter 13 bad with finances?

Nope. One of the analogies I often use is that business owners and successful individuals do not have a problem using the laws as needed to get the best deal, whether it is tax planning, estate planning, or yes, even bankruptcy. There seems to be this idea in more middle-class populations that using laws to our advantage is somehow taboo and even unethical. Whether you are bad at finances or not, understanding the rights and options available to you is a smart move. Please note that I’m not encouraging people to run out and file bankruptcy for the fun of it. My point is that sometimes the smartest move is to get back on track and avoid the possibility of being homeless before the financial stress of the situation causes bigger problems.

So, this post was written a little tongue-in-cheek. I find that there is so much misinformation about what Chapter 13 is, what it can do, and why it’s often a good thing, that I tend to get a bit sarcastic. However, while Chapter 13 isn’t always a fun idea, it can often be life-saving, marriage-saving, and the fresh start that people need to move forward.

September 1, 2018 By jenleelaw

Rule #1 – You are the Driver of Your Bus!

I recently read a book called “The Energy Bus” and it really reminded me of why I love what I do. I found myself wanting to be the character Joy. Sometimes gently, sometimes not-so-gently guiding people in the right direction. First, I highly recommend reading the book. It’s a quick, easy read, but life-changing.

It also reminded me of the number 1 rule that I strive to impress upon my clients, but I didn’t realize this was a “rule” before I read the book. That’s possibly because I’m not a big fan of rules in general, but that’s another article by itself.

You are the driver of your bus. So many people come to our office to talk about their debt and credit issues feeling dejected, hopeless, and out of options. My goal for every single person that comes in like that is to leave energized, hopeful, and full of options. But, it starts with you being able to see the light at the end of the tunnel. That’s our job. To give you a path to find the light and then energize you to keep working towards it.

Now, I can’t say it just like that. When was the last time your attorney said, “Come on in to our office, we’re going to talk about positive mindset to get everyone on board your energy bus!”? I’d get locked up in a looney bin. But, I can practice what I preach and significantly impact the lives of my clients, just like Joy did.

Being the driver of your bus means taking control and steering your life the way you want it to go. That’s easier said than done, but it also can start with one small change. Don’t be afraid to find out what your options are. We talk to so many people who put off taking control so long that it’s negatively impacted their health, their relationships, their work, etc. What if you knew that taking control and finding out that there are options would result in better health, relationships, work, etc.? Would you be less fearful? You are the driver of your bus!

Here is a list of the rest of the rules. Some I like more than others. I definitely agree with getting rid of energy vampires in your life. Life is too short to hang around people who literally suck the life out of you! If you come into our San Ramon office, this will likely be hanging on the wall.

The full book title is The Energy Bus: 10 Rules to Fuel Your Life, Work, and Team with Positive Energy by Jon Gordon. It’s available on Amazon: https://amzn.to/2CcSfmy

On a final note, there is also a children’s version. Your kids are watching how you react to challenges and difficulties all the time and they will copy you. The best gift you can give your children is to teach them that they are the driver of their own bus. https://amzn.to/2PponFv

Once Again – The Internet Gets It Wrong About Chapter 13

So Misunderstood…Chapter 7 and Chapter 13 Options

Lies You Find on The Internet

What’s So Special About Chapter 13?

Rule #1 – You are the Driver of Your Bus!

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