Long ago when I was a young undergraduate student in the sunny University of California San Diego, I was trying to find a major I would both enjoy and could pass off as “useful” to my parents. After a short stint as a pre-med student, an engineering major, I finally decided that “Management Science” was the one major that fit that description in my case. Of course, in numerous interviews after UCSD, I found out that no one actually knew what this magical major entailed. I finally got tired of trying to explain the stuff about Econometrics and optimized output and just said it was a fancy way to describe an Economics major. It was more than that, but no one cared, and frankly I quickly stopped as well I. However, while I never got a chance to built fancy statistical models predicting the behavior of the market in the real world, I did get a very good overlook of the economy on a smaller and larger scale.

Here is what I know:

- When you are so far in debt, that you can no longer make the payments required, but at the same time have no credit/income to shop for anything other than the essentials, your contribution to the economy shrinks. You are stuck. You are not buying very much. You are not repaying very much. The credit card companies cannot write off the debt as bad for a while, wasting valuable time. You create a small, non-spending, unproductive circle. You are not helping the market, when you are not participating in it.

- When you make the decision to file for bankruptcy and your debt is discharged, the credit card company can take a loss and set off that loss against its income as a result. Don’t you worry about their “loss.” That interest you have been paying since you obtained your first card is there to protect credit cards from that specific type of risk. The credit cards are not borrowing money from government at 11% nor are they paying the people who have money in the savings account at their bank 11% interest. You in turn are not paralyzed by the old debt and can again use your income to participate in the economy. You can spend the portion you can afford to purchase a new car, thereby providing jobs to all the people involved in the automotive production/selling process. You can fly to visit your elderly mother in another state, contributing to the airline industry’s health. On and on it goes. All this contribution could not be possible if you were still paralyzed by your debt.

So to sum up, aside from the negative impact your debts may be causing on your personal relationships (more on this later), your paralyzed financial state is also making you an unproductive member of the financial market. Maybe you don’t care that much, but the truth is if you are not filing bankruptcy, because you think that only “bad” or “lazy” people file for bankruptcy, you are missing the point. Filing for bankruptcy may be one of the most effectively selfless things you can do when you are stuck in too much debt to repay.

Photo by Josef.Stuefer via Flickr

Yes, you can buy a house after bankruptcy. See tips below for things to do to maximize your chances. Bankruptcy is a big decision that should not be taken lightly. I would never advise anyone to approach the potential bankruptcy filing as anything but a big step. However, some people think that bankruptcy is the END. They will never be able to have a credit card again and they can certainly forget about ever buying a house.

Guess what?

That’s VERY wrong!

You certainly CAN BUY A HOUSE after bankruptcy.

Can I guaranty that you will be able to buy a house? No, I can’t because ultimately it depends on WHAT YOU DO AFTER bankruptcy. What I can tell you is that bankruptcy alone will not be the reason why you can’t buy a house a few years after bankruptcy, just like it won’t be the reason why your credit score won’t go up. Just like with the actual FICO score, bankruptcy is not the problem, it is the payment history, the potential to pay back new/existing debt that hasn’t yet been discharged in bankruptcy, and your current employment that matters when you try to apply for a mortgage loan.

Assuming you don’t have a bag of cash sitting around (large enough to buy a house), your concern is not with being able to find a seller willing to sell a house to you, but rather finding a bank willing to finance your home purchase.

Here, is what the FHA Loan website says about it being able to pre-qualify for a home loan from them:

Prequalify for an FHA Loan
FHA home loans were designed to help Americans fulfill their dream of homeownership and are therefore the easiest type of real estate mortgage loan to qualify for. Among the home loan options available that require a minimal down payment, FHA loans are the most popular. In fact, the FHA loan is the most flexible type of home mortgage loan to qualify for.

The Essentials

• Steady employment history, at least two years with the same employer.
• Consistent or increasing income over the past two years.
• Credit report should be in good standing with less than two thirty day late payments in the past two years.
• Any bankruptcy on record must be at least two years old with good credit for the two consecutive years.
• Any foreclosure must be at least three years old with good credit for the past three years.
• Mortgage payment qualified for must be approximately 30 percent of your total monthly gross income.
• If you can answer YES to these statements you should have no problem qualifying for an FHA home mortgage loan.

While prequalifying for a loan doesn’t necessarily guarantee that you will be able to purchase the home of your dreams, it does help you and potential lenders know your borrowing power and what you can afford in terms of a monthly mortgage payment. Prequalifying for a loan simply means that you have taken an inventory of your income and assets and submitted them to your potential lender. Based on that information you should be able to qualify for a home mortgage loan.
Don’t believe me? See it for yourself: www.fha.com/prequalify.cfm

To conclude, it is not bankruptcy that will make it hard to qualify for a home loan, but rather avoiding your problems, not paying your bills, having a foreclosure on your record, not having steady employment, and not correcting mistakes on your credit report.

You CAN obtain a home loan after you discharge your debts in bankruptcy by:

1. obtaining steady employment or showing a history of regular business income (via tax returns);
2. making sure your credit report is accurate;
3. not missing payments after the bankruptcy on your utility bills, car payments, credit cards; and
4. waiting 2 years after bankruptcy to apply for an FHA home loan.

Life does not have to stop just because you are broke. Even if you wanted to, it probably still would not. Life doesn’t have to stop just because you are broke. Even if you wanted to, it probably still wouldn’t. Guess what, your friends will still invite you out to dinner, birthdays and holidays will still come around, so will dates and nights out.

1. Cook in, instead of dinner out - Instead of going out to dinner, which in LA will cost at least $20/person (without a drink) when you include tax and tip, consider having nights in when you either have a pot luck or have your friends over for dinner and you all help out. Vegetarian recipes tend to cost less. You can make vegetarian risotto for 4 people for less than $10. Add 2 reasonably priced bottles of wine on sale and you still end up spending less. Consider trading weeks. I would refrain from being too rigid with the schedules, since the point is to have fun, not reenact your college dorm years with the revolving calendar of chores.

2. Shop smart – I am not going to tell you not to shop, because let’s be honest, you won’t listen. However, there is a way to spend less and not feel deprived. Consider spending more on things that will be an “investment” like jeans and shoes, and less on things you will wear a few times, like club/dance clothing or a really trendy piece of jewelry (think statement necklace). I would regularly look in stores like H&M and Forever21 for bargains on trendy things. In fact, if you have a good eye, you may find things no one will think you bought for less. Yes, we all need clothes, but if you find that you are constantly throwing out or donating unworn things, maybe it’s time to sit down and figure out what you can change about your shopping habits.

3. Exercise – Those yoga classes at $14/class can get expensive. Consider hiking with a friend instead of doing cardio at the gym or buying a video and going to class only when the funds are there. We have some by donation classes in LA you can take. Also, maybe try out new studios that offer a discount for new customers. Consider volunteering at the studio to reduce the costs.

4. Learn to cook – Yes, your mother probably told you, but all that stuff about it being healthier and cheaper is true. I would challenge you to find a healthy meal you can prepare at home that will cost more than what you would pay at a restaurant (after the initial investment into the basics). Get recipes on line and get cooking.

5. Think where you can cut without noticing – I am not going to tell you to stop buying your favorite shampoo or moisturizer especially if those areas need extra attention, but think about things that are not a priority for you. Never have dry skin? Maybe you can settle for the pharmacy brand moisturizer instead of paying $40 at Sephora. Have awesome hair that’s easy to manage? Maybe you can stick to Clairol instead of the salon brand. Review your cable bill and cell phone bill to see if you can cut the extras you are not using. Do you need the expensive car gasoline? They have numerous studies showing that using the brand beyond what the car manual recommends is basically a waste.

6. Spend time with friends, not money – I am not saying stop going out or be the Debbie Downer that is sucking on water when everyone is having drinks, but consider going to happy hour instead of a pricey hotel bar for cocktails. Consider doing lunch instead of dinner, if you must go out to eat. Go through each other’s closets and trade things you are sick of, but that your friend may find exciting.

Look no one wants to hear about your money problems all the time, but you should share with close friends that you are trying to stick to a budget. You may be surprised that your friend is also, but was too embarrassed to admit it. Consider holding each other accountable and encouraging good spending instead of over-spending. Times are tough, but you don’t have to deprive yourself. Being on a budget really doesn’t have to be boring or lonely. Go on , have fun and save!!!

Yes, it will likely be discharged like any other unsecured debt, absent a showing of fraud. Therefore, if it was a clerical error on the part of California EDD,

However, one thing to be careful about is the equitable right of recoupment.

What is RECOUPMENT and how does it apply to employment overpayment?

In English – it means that if Ann has to repay Betty $200, Betty then breaks Ann’s bike costing $50, Ann can repay $50 less to Betty, or $150, based on the concept of Recoupment. It doesn’t make sense for Ann to have to pay $200 to Betty and then for Betty to repay Ann $50.

Similarly, there is a concern that while this overpayment owed to California is discharged in bankruptcy, if the unemployment benefits are still being paid to the debtor, California EDD can argue that this is not collection, but is rather Recoupment, which unlike other “collections” doesn’t violate the Discharge Order or Automatic Stay, because the bankruptcy estate is subject to these equitable recoupment rights.

The law is clear that if the Debtor is receiving the unemployment payments reduced due to the overpayment, such reduction can continue through the bankruptcy if the overpayment debt and the claim for unemployment is a result of one transaction.

What about if the Debtor has to reapply for unemployment after bankruptcy? For example, the Debtor is employed and has overpayment debt, he files for bankruptcy, the debt is discharged and then he loses employment and has to reapply. Will his unemployment be reduced to recoup the overpayment, despite the bankruptcy?
Will the filing of the bankruptcy not only get rid of this unemployment overpayment debt, but also prevent the California EDD from reducing future unemployment benefits if they become necessary in the future due to a different loss of employment? It is unclear.

On the one hand, I will propose that in the 9th Circuit (California), there is a strong likelihood that the Court will likely find that this will be a separate event that would not entitle the unemployment insurance to equitable recoupment of the previously discharged debt. In fact, any attempt would be deemed a violation of the Discharge based on Bankruptcy Rule 524. While there is no case directly on point regarding unemployment overpayment in the bankruptcy context, there is a similar case out of California dealing with long-term disability overpayment case. In In re. Madigan, 270 B.R. 749 (Bankr. 9th Cir. 2001), the court considered the issue whether Aetna can recoup money that it overpaid Mr. Madigan prior to the bankruptcy, from his post-bankruptcy long-term disability claim. In re. Madigan, 270 B.R. 749 (Bankr. 9th Cir. 2001). The facts are complicated. Mr. Madigan was overpaid disability benefits. He then obtained employment and Aetna tried to collect the overpayment. Mr. Madigan then filed for bankruptcy. He included the overpayment debt in his bankruptcy petition. After the bankruptcy Mr. Madigan had to apply for disability benefits through Aetna. Aetna tried to withhold benefits and reduce his future benefits to recover the money it initially overpaid Mr. Madigan. Both the Bankruptcy Court and the Appellate Panel held that it was a separate disability claim, therefore recoupment would not apply and it would violate the discharge injunction. Id.

On the other hand, the Court in In re. Madigan distinguished the facts of overpayment of long-term benefits by a private company, like Aetna, from overpayment of VA Benifits, by a government agency. The court in dicta states that “[o]ur case does not concern a federal government creditor whose public policy concerns compete with the Bankruptcy Code’s fresh start policy.” In re. Madigan, 270 B.R. 749, 761, referring to United States v. Keisler (In re Keisler), 176 B. R. 605, 607 (holding that VA had the right to recoup).

Exception to discharge of overpayment of unemployment benefits – Fraud

If the overpayment of the unemployment benefit was a result of fraudulent misrepresentation by the debtor then it will be non-dischargeable like any other debt obtained through fraud. See Section 523(a)(2) of the Bankruptcy Code.

In summary:

Employment benefit overpayment by California EDD will likely be dischargeable as long as not a result of debtor’s fraud. Therefore, if bankruptcy is filed when your wages are being garnished for overpayment of unemployment debt, the garnishments will have to stop. However, it may be recouped if future unemployment payments are to be paid out or if the debtor is still receiving unemployment.

Why going to the “99 Cent” store type attorney may not be your best option. You are not looking for a bankruptcy attorney when you have a ton of money at your disposal to spend on legal fees to do a bankruptcy you are not sure you need. You are looking for an attorney, because you don’t have the money and need legal advice. You know better than to try to do your bankruptcy and frankly you wouldn’t know where to begin.

I like a bargain as much as the next girl. Trust me. This weekend I was exited about the 5cent sale at BevMo (no this is not a story about the girl who likes wine…) and dragged my boyfriend (mainly for muscle) to go with me. However, on the way to BevMo we passed a Payless Shoe Store with a “Sale” sign. My boyfriend looked over at me and I knew what he was thinking. “Are you excited about this sale as well?” because I spent the morning praising my love for sales. I responded, “not at all!” I like a good deal, but if it comes at the cost of quality, it ceases to be a good deal.

I am a firm believer that good deals are possible, but if quality is at issue and you sacrifice on quality, you will end up spending more at the end.

This morning, I receive a call from a woman looking for a bankruptcy attorney. I discussed her situation with her and then she requested a price quote. Knowing the basics of her situation, I gave her an estimate. This estimate is based on her assets, her debts, the bankruptcy Chapter we would likely file, and her situation in general. She then revealed, “to be honest I am just shopping around. This guy gave me a lower price than yours, but he is far away…I am just looking for a good attorney.” I didn’t want to state the obvious.

I suggested that the woman take her time and meet with a few attorneys she spoke with to see what she will get for her money and to simply see if there is an attorney that stands out from the crowd. I explained that I understand that price is critical. It is for all of us (not related to Bill Gates). However, a “cheap” attorney, is like a cheap pair of shoes or a cheap used car – the money you “save” may be less than the money you have to spend to fix the problem or find a replacement.

I would like to suggest that you focus on the following when picking an attorney:

1. Does the attorney take the time to personally meet with you and listen to your situation?
2. Does the attorney answer your questions?
3. Does the attorney guide you through what you may expect when you file for bankruptcy and what documents you need?
4. Is the attorney open for follow-up questions and appointments?
5. Is the attorney available to you when questions/concerns come up?
6. Is the attorney’s practice focused on bankruptcy or is this an area of law they are getting into because business is slow?
7. Who will review your documents and prepare your bankruptcy documents? The attorney (you are paying for this) or his paralegal/secretary?
8. Will the attorney be there with you at the meeting of creditors or will he send an attorney who doesn’t know you and your case?

I sincerely hope that you find the right attorney for YOU. Take the time to not only find an attorney you can afford, but also an attorney who will take care of you and your case to get you the best possible resolution. Taking the time may make the difference between looking back at your bankruptcy filing as a stepping-stone to a better future or an experience that leaves you feeling cheated and angry.