The following scenario happens regularly during my consultations:

- Potential Client: “I know bankruptcy would really make my life easier, but I want to avoid it at all costs, because I really want to protect my credit.”
- Me: “Oh, how is your credit right now?”
- Potential Client: “It’s not …great, but I heard that after bankruptcy…that’s it, you can’t buy a car, you can’t buy a house, you can’t get a credit card. Your credit is ruined for the next ten years. That just won’t work for me.”
- Me: “It is clearly a very common misconception, and therefore I am not surprised you believe it, but after helping people file for bankruptcy for over 6 years, I can tell you with certainty, it is completely false. Here is why and how I know…”

I wish I could record the following portion and just play it for all my clients so that I don’t have to repeat it as often as I do.

Here it goes…

Most people who are considering filing for bankruptcy already have bad credit or credit that is tittering on the brink of being bad and one more opened credit card with outstanding balance will make this credit score crash. The truth is that mostly filled up credit cards, missed payments, lots of inquiries for new credit look very suspicious to creditors and at the very least obtaining new credit will be very hard for the simple reason that given your income and the outstanding balances on your current cards, it doesn’t appear that you can handle any more debt. In fact, when obtaining an FHA mortgage loan, they will take a look at your current obligations and take those into account when they determine your eligibility. On the other hand, 2 years after bankruptcy you will be able to apply for the FHA loan, but because your other debts will be discharged, it will be easy to qualify for these loans that are optimal for low/middle income home buyers.

If your credit is already bad, bankruptcy will likely improve it.

What? Was that a typo? Did I mean to say that bankruptcy will improve your credit score. Yes. Yes, I did. I have seen it over and over. People come in and their credit is in the high 500s or low 600s and within a year of their bankruptcy filing, credit score goes up by 85-120 points.

How is that possible? Well, let’s think about this. When you have $40,000 in outstanding debt, and you want to buy a new car, do you think you are a great risk? Risk is basically what determines your credit score. The lower of a risk you are as a borrower, the higher your credit score will be and the lower interest you can generally obtain. If you are a highly risky borrower, the credit score will be low and the cost of borrowing will be higher. So someone with outstanding debt will have to use that same sum of money to repay the car loan and other creditors. Whereas a client who filed for bankruptcy and had all his debts discharged, is a less risky borrower, for 2 reasons. A bankruptcy client is a less risky borrower because they can’t file for Chapter 7 bankruptcy for another 8 years, whereas a person with lots of outstanding debt and no bankruptcy might very well file and discharge this obligation as well. A bankruptcy client is also a less risky borrower because they don’t have other creditors and therefore can use all the remaining money to repay the new creditor, rather than having to split the same available pie into more pieces.

I repeatedly hear stories from my clients who were able to refinance for a better interest rate, who got a 0% interest loan on their vehicle, as well as clients who got new credit cards with better interest rates than before. I have clients who purchased a house and obtained a favorable loan only a few years after bankruptcy. That’s how I know that what I am discussing here is not just what I hope the truth is, but is a fact. When I just started practicing bankruptcy law, I was a lot more hesitant to answer the question about credit, because I didn’t have actual facts from my own clients who filed. I heard from other attorneys, but just didn’t know if it was hype or truth. Now I do and I have no problem making these statements, because I know them to be true.

It’s not all great news. The reality is that if your credit is great before you file for bankruptcy, it will certainly go down for a period. Also, finding an apartment to rent may be harder after you file for bankruptcy and for those people that need to move, I usually recommend that they complete the move before we file. At the same time, it may be impossible to predict the future. There are so many people who are going through foreclosures, short-sales, and bankruptcies these days that I don’t think landlords have the option of being as picky as they once were, but I want my clients to be aware that their ability to obtain a rental may be hindered by the bankruptcy filing without obtaining a co-signor, etc.

If you have questions about your credit, I am able to pull up your credit report that will give us your current credit score as well as estimate what your credit will be a year after bankruptcy.

Feel free to call my office for a free initial consultation at (310) 481-5098.

When a Client is considering a Chapter 13 bankruptcy, the main thing they want to know is what their Plan payment will be. It is a very valid question, since they can’t make a decision without having that knowledge of whether Chapter 13 is even a realistic option for them.

A. How big will my Plan payment be?

The Plan payment must at least cover the necessary debts.

“Necessary Debts”

Mortgage arrearages, car payment arrearages, Trustee fees, remaining attorney fees, priority taxes. These need to be paid in entirety through your proposed plan. As such, the plan payments have to be large enough to at least cover those payments. Let’s say that your proposed Plan payment equals X for 36-60 months. This X payment times 36 or 60 months of payments, should cover all the “necessary” debts – the smallest pot.

Example: if you propose a 60 months plan and your mortgage arrearage on your first mortgage is $36,000, Trustee fees are $4,000, Attorney fees are $2,000 and Priority taxes are $12,000. The minimum your X times 60 months should be is $54,000. Therefore the minimum Plan payment you can propose to allow for a feasible plan is $900/month for the next 60 months. While there could be some step up proposals if you adhere to certain rules, pay attention to the size of the pot and make sure that the plan you propose covers the “necessary debts.”

Therefore, from this example you have to be able to make a plan payment of $900 every month in order to have a successful chapter 13 plan. Keep that in mind when reading the following section.

Note, in the Central District of California, regular monthly mortgage payments as well as car payments that become due after the case is filed are paid directly to the lender. As such, they do not go into the small pot calculations, just the arrearages for the same.

B. How little can my Plan payment be?

The rule is that if you propose to pay less than 100% to your creditors, your plan has to commit your “entire disposable income” to the payments. You have to make best efforts to repay all your creditors.

Length of Plan

The length of you plan will usually depend on whether you are over the median or under the median on Form 22C. If you are over, then the plan will definitely be 60 months. If under, then plan duration will be 36-60 months.

Form 22C may also dictate in part what the plan payment will be. At times, it will give a figure of disposable income that will have to be balanced with the figure you receive from reviewing your current income and expense schedules (Schedule I and Schedule J). However, most of the time Form 22C will have a negative or small figure if filled out correctly in a Chapter 13 and Schedule I minus Schedule J will govern the Plan payment amount.

Schedule I is the Schedule of your income and for most people that receive a paycheck that figure will be fixed and you won’t be able to manipulate it by much. However, Schedule J, is a schedule of your expenses. While some expenses are a must and are fixed, certain things like cable and socializing as well as a third car can be reviewed and adjusted. Further, the expenses must be reasonable and an experienced bankruptcy attorney will be able to easily spot expenses the Trustee or Judge will take issue with and adjust Schedule J accordingly to prevent future issues.

Note, because of that minimum payment discussed in Part A, your Schedule I minus Schedule J, have to leave at least that amount allowing you to propose a successful plan. In the above example, your regular monthly income minus your expenses should still leave $900 for you to propose a feasible plan.

If Schedule I minus Schedule J figure is less, your situation is not hopeless if you can do the following:

- Increase income by getting a tenant.
- Have your family contribute money to assist you in proposing a feasible plan.
- Obtain an additional job.
- Reduce your expenses, by removing a car payment, cable expenses, etc.

Be honest with yourself – can you really make that Plan payment?

I fully understand that by the time people consider bankruptcy, they have already reduced their expenses to the max. As such, when I review a case for a potential Chapter 13, I want to make sure that the client can propose a plan they can live with. If the payment is beyond what you can realistically pay, in most situations, proposing a Chapter 13 Plan is a waste of time and money and other options should be considered. Having said that, sometimes people file a Chapter 13 to buy some time, but in that situation the Client should weigh the benefits of added time with the money they will spend on attorney and court fees.

This is complicated and is provided on the blog mainly to illustrate that the question requires a set of complicated calculations as well as knowledge of various rules. As such, it is important to contact a bankruptcy attorney thoroughly familiar with the workings of Chapter 13 bankruptcies. I would say that under most circumstances it is virtually impossible to have a successful Chapter 13 without the help of an experienced bankruptcy attorney. I have worked with several clients trying to help them after their case has been dismissed or messed up by a petition preparer. They wasted time, money and incurred unnecessary stress. Please don’t try to save a little and risk losing a lot.

Feel free to contact my office for a free consultation so that we may discuss your options at (310)481-5098.

What if they filed a lawsuit against me, can I still file for bankruptcy and get rid of this debt? I hear this question a lot. The answer is yes, but I understand how having a lawsuit filed against you can be both stressful and confusing.

Lawsuit filed against you

Usually the original creditor (like American Express Centurion Bank) or a debt collector will file a lawsuit. You will know that a lawsuit was filed against you when you get a pretty hefty set of documents. The first page is likely to say “Summons” and the second page will be the beginning of the “Complaint.”

The Complaint will have allegations of your “wrong-doings.” When you don’t deal with these types of documents every day, they can be daunting. My guess is that you don’t see these often in the same way that I don’t see medical x-rays very often. As such, the Complaint may seem very intimidating. It is likely that the Complaint from your creditor will allege the following “wrong-doings”:

- Breach of contract,
- book account,
- quantum meruit-reasonable value.

This is all a roundabout way of saying, “hey, you borrowed money from us and didn’t pay back as agreed.” If that’s all your Complaint alleges then you are in the clear and can file for bankruptcy to discharge the debt. 99% of the time that will be the case.

Complications may arise when there is an allegation of fraud, but that is rarely the case and we won’t address that issue here. However, you should contact an experienced attorney in your area immediately to help you file an Answer if there is an allegation of fraud.

Filing for bankruptcy after a lawsuit

When you decide to file for bankruptcy, the lawsuit against you will stop and will be dismissed upon conclusion of your bankruptcy. Your bankruptcy attorney will handle this additional wrinkle in your bankruptcy case by taking the following additional steps:

1. List your lawsuit on Statement of Financial Affairs.
2. List the attorneys that filed the lawsuit as a party to receive additional notice on Schedule F.
3. File a Notice of Automatic Stay with the Superior Court where the Complaint was filed against you.

An experienced bankruptcy attorney will be able to help you quickly resolve the collection lawsuit in bankruptcy.

Feel free to contact us at (310)481-5098 to help you deal with your lawsuit.

For several years, fraudsters from India targeted people that used payday lender services and collected millions of dollars from victims. Payday lender services are usually used by people as a last resort way to borrow money when they have no other option. The reason it is and should be a last resort way to borrow money, is because interest rates on such “loans” are nothing less of outrageous. As such, people using payday loans are usually ones facing extreme financial hardships. These fraudsters, based out of India, somehow were able to access information about the borrowers and posed as debt collectors for the payday loans. They used numerous tricks to defraud people already in trouble, including threatening to put them in jail and contacting their employer. As you can imagine, those threats would be scary enough when you are not having financial difficulties, but compounded with the financial pressure these individuals were under, these threats proved to be very lucrative for the fraudsters and extremely hurtful to the victims. Click here for the full story. While it is great that in this case the Federal Trade Commission stepped in to help out any future victims, oftentimes, consumers are left to fend for themselves. As is often the case, fraudsters target people that are in trouble.
What you can do to protect yourself from debt collector harassment? Below are some tips on how to deal with a fraudulent debt collector and signs that it may be a scam.
1. Ask for written proof of your debt, before you discuss anything. Tell them to not contact you until they provide sufficient proof of the debt. Ask them for the address of their company so that you can make the request in writing. If the response is threats and unintelligible contact information, it is likely a scam.
2. Get proof that they have the right to collect said debt. Example: if they claim they are collecting the debt on behalf of Wells Fargo Bank, NA. Have them provide proof from Wells Fargo that they are authorized by Wells Fargo.
3. Don’t provide any additional personal information. They called you, so they should have it. If they don’t have it or claim they are trying to verify your information, tell them to cease contacting you and provide the information request in writing on company’s letterhead.
4. If they are speaking quickly and unintelligibly and are not clearly providing the name, address, phone/fax information of the company they are claiming to be calling from, it is likely a scam. Beware and don’t make a payment.
5. If they threaten to call your employer, tell them they are forbidden by law to contact your employer. If they argue, it is likely a scam. If they appear to have your employer’s contact information, you may want to inform your employer that you are a victim of fraud and they should not discuss your personal information. When the debt is valid, creditors will be able to obtain a judgment and then wage garnishments orders. Employers are familiar with valid ways creditors can contact them and should be on guard re. any suspicious contact by creditors.
6. Feel free to inform the caller that you will be recording the conversation and actually record the conversation. Tell them you will be forwarding a copy to the FBI.
7. Remember, that owing a debt does not allow the collector to put you in jail. Any threats re. jail are fraudulent and illegal. Debt collectors know that, but are hoping that you don’t. If they continue to threaten you with jail after you show them that you know the law, it is likely a scam.
8. Finally, remember that engaging with professional debt collectors or worse yet fraudsters and trying to explain your situation is futile and will just lead them to call you more. Request to conduct any and all exchanges in writing.
Don’t ever make a payment over the phone, until you have proof of debt. Even after that, I would recommend sending a check or a money order if/when you have the funds and proper contact information. Taking the time to make sure you are sending money to a valid creditor is important. Trying to resolve things when you are stressed out and scared and feeling under threat will lead to mistakes. Don’t be a victim. Empower yourself with knowledge.
Our office can help you deal with your debt problems and protect you from creditors. Feel free to call for your free, initial consultation at (310)481-5098.

It’s that time of year when you are thinking about taxes. If you are like many, many people, I am sure a smile is not crossing your lips right now. You are not looking out into the distance picturing flowers and unicorns. Instead, you are probably thinking, @#$%%%@. I don’t have a perfect solution to your hate of taxes, but for those that think there is no out from their tax debt, bankruptcy is certainly an option.
Here, I discussed the requirements to make taxes dischargeable in bankruptcy.
If you notice, one of the requirements is that the return should be filed more than 2 years prior to the bankruptcy. As such, filing a tax return is important. So my advice for you, is absent a very good reason (suggested by your CPA), file your tax return on time. File your return even if you can’t make the payment right now. Seriously! This way you start the clock running and will not be staring at your attorney two years from now, wishing you filed your return earlier.