California Bankruptcy Attorney Blog

Consumer bankruptcy attorneys around the United States and all of their clients scored a partial victory this week at the U.S. Supreme Court. Our San Bernardino bankruptcy lawyers wrote in December about Milavetz, Gallop & Milavetz v. United States, No. 08-1119, in which a Minnesota law firm challenged the 2005 changes to bankruptcy law. The Milavetz firm argued that a provision restricting bankruptcy attorneys from advising clients to take on more debt violates the First Amendment right to free speech. On March 8, the court ruled unanimously that it did not, but specified that advice to take on debt for a valid purpose is not a violation of the law. The National Law Journal reported March 8 that the court also said a requirement that bankruptcy law firms advertise as "debt relief agencies" was not unconstitutional compelled speech.

The 2005 bankruptcy law prohibits attorneys from advising clients to take on more debt "in contemplation" of filing for bankruptcy. This was intended to stop lawyers from telling clients to rack up debts that they can then get discharged in bankruptcy. However, the Milavetz firm was concerned that it would also stop attorneys from advising clients to take on debt for legal and positive reasons, such as to continue expensive medical treatments. The Supreme Court agreed that this advice would be legal. Interpreting the law narrowly, Justice Sonia Sotomayor said the law "is best understood to provide an additional safeguard against the practice of loading up on debt prior to filing." However, she and her colleagues stopped short of declaring this an unconstitutional restriction on lawyers' free speech. They also said the requirement to advertise as "debt relief agencies" was accurate about the lawyers' legal status and not unduly burdensome.

As Gardena individual bankruptcy attorneys, we are always pleased to have the law clarified for us by the highest court in the land. But we are disappointed that the ruling didn't go farther. The advice to take on debt "in contemplation" of bankruptcy is already illegal under state ethics laws and can get the bankruptcy petition denied. That means this is an unnecessary law, even if it doesn't rise to the level of a First Amendment violation. As for the "debt relief agency" requirement, it's clear that the law defines attorneys as "debt relief agencies," but we find this unnecessarily confusing to the consumer. Most people think of "debt relief" organizations as non-legal organizations, including some that are for profit. We are proud to be a law firm and will continue to advertise as such, along with the legally required notice that we are a "debt relief agency."

Continue reading "U.S. Supreme Court Clarifies Portion of Bankruptcy Law Affecting Advice to Clients" »

In this bad economy, it was something of a surprise to a 10% drop in individual bankruptcy filings in January. So our Costa Mesa consumer bankruptcy attorneys weren't surprised to see that bankruptcies resumed their climb in February. According to a March 3 USA Today article, there were 111,693 bankruptcies last month. That's up 9% from January, 14% from February of 2009 and an alarming 47% from February of 2008. The numbers come from the American Bankruptcy Institute, a nonpartisan organization of bankruptcy attorneys, judges, bankers, scholars and others.

Samuel Gerdano, the executive director of the ABI, said consumer debt from better years is putting more strain on households these days, thanks to high unemployment. Another expert suggested that bankruptcies have become more popular because of the housing crash, which limits or destroys homeowners' ability to use home equity lines of credit to pay down other debts. Interestingly, the increase was largely in filings for Chapter 7 bankruptcy, which is the shorter "liquidation" bankruptcy. In the other major type of consumer bankruptcy, Chapter 13, filers repay debts over time and the remainder is forgiven. Chapter 13 filings were down 3% in February. This is particularly noteworthy because, as the article noted, Chapter 13 is the type of bankruptcy recommended for homeowners who want to save their homes.

As Covina personal bankruptcy lawyers, we'd also like to note that the 2005 changes to bankruptcy law were specifically intended to push more households toward Chapter 13. In brief, the changes allowed fewer people to qualify for Chapter 7 filing by lowering the amount of income and assets that would disqualify them. This makes the movement away from Chapter 13 even more remarkable, because it shows that fewer Americans have enough income and assets to disqualify them from Chapter 7. This is a bad sign for the economy. The lower number of Chapter 13 filings is also a bad sign because it shows that not many people are finding bankruptcy useful for saving their homes. This may mean they don't have enough home equity to protect them. Finally, the spike in Chapter 7 filings suggests that one stated goal of the 2005 bankruptcy law isn't working -- there's no drop in unpaid debt, despite increased obstacles to filing for bankruptcy.

Continue reading "February Bankruptcy Filings Show Personal Bankruptcies Continue to Rise" »

As Costa Mesa debt settlement attorneys, we have been guardedly optimistic about the CARD Act for some time. This credit-card reform bill was passed last year and some of its provisions took effect in August, but the remainder became active Feb. 22. According to an article by McClatchy Newspapers, the law may help consumers avoid some of the most costly deceptive practices by credit card companies. However, other abusive practices remain unchecked, and credit card companies have already raised their rates to compensate for anticipated losses.

As of last August, credit card companies could not raise interest rates without 45 days' notice, and had to send bills at least 21 days before the payments were due. This week's new provisions add to those protections considerably. Companies may no longer raise customers' interest rates on existing balances until a bill is at least 60 days overdue. If a cardholder pays on time for six months after this happens, the credit card company must drop the interest rate back to its original size. Among other things, this will stop the practice of "universal default," in which a credit card company raises rates on all cards because of a late payment on one card. The article estimated that this alone will save U.S. cardholders $10 billion a year. Other provisions include:

• A requirement to get permission before allowing cardholders to spend over their credit limits.
• A prohibition on a practice called "double-cycle billing," in which the credit card company charges interest on the average daily balance over the past two months to determine the interest charge, rather than using the current month's balance.
• A requirement to put any payment over the minimum payment toward the balance with the highest interest rate. This applies only when there's more than one balance, of course.
• For cards with a high annual fee, a limit on that fee in the first year to no more than 25% of the total credit limit.

When the Act was passed, our Fontana debt settlement attorneys were disappointed that it didn't go further. Nonetheless, we believe this will help many credit-card holders avoid becoming financially entrapped by provisions that they didn't expect and had little way to learn about. Double-cycle billing, for example, was perfectly legal before the CARD Act, but not at all intuitive and arguably deceptive. By reducing that kind of deception in credit card lending, the law will give people fuller information with which to make good decisions about their money. It will also reduce the amount of money companies can charge their customers, which will slow the growth of debts. In the long run, this may actually benefit credit card companies, because it may keep their customers from getting so deep into debt that they're forced to file for personal bankruptcy.

Continue reading "CARD Act Protecting Buyers From Unfair Policies Finally Takes Effect " »

A year after President Obama announced his Making Home Affordable plan to slow foreclosures, the plan has been heavily criticized. From the left, and from Ontario loan modification attorneys like us, the criticism has focused on the plan's lack of teeth -- nothing compels lenders to participate, or complete their side of the deal in a timely manner. A Feb. 14 article in the New York Post makes the same criticism, but of a similar program in New York state. The Bankruptcy Loss Mitigation Program, a project of bankruptcy judges in the Southern District of New York, has produced fewer than 10 permanent loan modifications out of 808 applicants, the newspaper said. And according to many personal bankruptcy attorneys, the problem, as with HAMP, is that the plan doesn't motivate lenders to actually complete the deals.

Under the Bankruptcy Loss Mitigation Program, lenders and borrowers are supposed to meet face to face to negotiate a loan workout whenever the circumstances make one possible. That part of the program is working, says Judge Cecelia G. Morris of Poughkeepsie bankruptcy court. But consumer bankruptcy attorneys say the rate of loans actually modified is miserable. One attorney said he hasn't had a single case in which the lender got the paperwork right the first time. This is also a common complaint from borrowers and attorneys trying to participate in HAMP, who say they've been strung along for months by lenders who repeatedly lose paperwork, ignore it for months or give contradictory instructions. Another attorney suggested that banks would have a stronger incentive to finish loan modifications if bankruptcy judges were allowed to reduce principal on primary homes, as they are currently allowed to do with second homes and vehicles.

That attorney was referring to "cramdowns," a proposal that unfortunately died in Congress last year due to strong lobbying from the financial industry. Our Chino loan modification attorneys agree that cramdowns would incentivize lenders to get the deal done. If lenders know they may lose money by forcing a borrower into bankruptcy, they are much more likely to complete a loan modification deal in which they lose far less money and can better control the terms. As things stand, lenders lose nothing if they force borrowers into bankruptcy by refusing to make a good-faith effort to modify loans. This is the real problem behind the "failure" of HAMP, and we do not believe it will be fixed unless authorities find some way to show lenders that making the modifications is in their best interests.

Continue reading "New York State Loan Modification Program Called Ineffective Because It's Voluntary" »

As San Bernardino County loan modification attorneys, we have been reluctant to write about media coverage of the trend toward homeowners "walking away" from their mortgages. We find that despite the wealth of coverage of this emotionally charged issue, the vast majority of our clients have personal and financial reasons to look for other solutions first. However, a Feb. 16 article from CBS News provides a good overview of the pros and cons of this decision. CBS MoneyWatch.com editor at large Jill Schlesinger said the decision may be right for some people, but it's not one to make lightly.

Walking away from a mortgage means moving out and stopping payments because it makes more financial sense to leave than to stay -- not because you can't afford the mortgage. These "strategic defaults" are done because the borrowers are deep underwater and the numbers show that their finances will recover sooner this way. Not surprisingly, Schlesinger warned readers that any default, including a strategic default, will destroy their credit for seven years. She advised borrowers to weigh this against the prospect of being locked into a mortgage payment two to three times the price of rent. You may want to consider a strategic default if you're more than 20% underwater, she said, but you should always do the math. Interestingly, Schlesinger added that most borrowers are reluctant to consider walking away until they see the numbers convincing them that it's a better long-term financial move.

Our Pomona loan modification lawyers know firsthand that borrowers don't make this decision casually. We have represented candidates for a loan modification from the beginning of the housing crisis. In most cases, our clients have strong emotional reasons for wanting to hold on to their homes, along with practical reasons like wanting to keep the down payment or keep their children in good schools. However, when the math shows that a default or a personal bankruptcy makes more sense than fighting for the home, we don't hesitate to explain that to our clients. As Schlesinger points out, large real estate developers have walked away from soured investments for the exact same reasons, without creating the outcry aimed at individual homeowners making what is ultimately a business decision.

Continue reading "CBS News Financial Expert Discusses Pros and Cons of 'Walking Away'" »

Part of our job as Riverside personal bankruptcy attorneys is to explain the ripple effects that our services can provide. At this time of year in particular, that means explaining the tax implications of a bankruptcy, loan modification or other major financial move. As a New York Times blog post set forth Jan. 29, taxes may look substantially different this year for people who underwent major financial changes in 2009. For many of our clients, this includes cashing out investments, having debt forgiven or losing a job.

People who settled debt without bankruptcy, were foreclosed on or had principal forgiven on a loan may be surprised to learn that the forgiven debt is taxable. That's because the IRS counts it as "income," even though a lack of income is likely what led to the debt forgiveness in the first place. There are several exceptions to this rule. Debts discharged in bankruptcy don't count as income. Thanks to a 2007 law, the federal government will also ignore forgiven debt that comes from a foreclosure or forgiven mortgage on your primary home, as long as it doesn't exceed $1 million for individuals and $2 million for married couples. However, this only applies in specific circumstances, so you should talk to a tax professional before making decisions. Finally, you can avoid paying taxes on forgiven debt if you can convince the IRS that you're insolvent, which means your debts exceed your assets.

Unfortunately, many of our clients who get into financial trouble make financial moves that will also complicate their taxes. Cashing out retirement savings, for example, will mean paying income tax on what you took out as well as a 10% penalty. Selling investments can qualify you for a capital gains tax. And unemployment insurance payments are taxable after the first $2,400. The plus side is that if you lost income in 2009, you will drop into a lower tax bracket. And very high medical expenses, which bring too many of our clients into our office, are tax-deductible under certain circumstances.

Our Lakewood consumer bankruptcy attorneys can't overemphasize the importance of understanding these rules before you file your taxes. Innocent mistakes may not be harshly punished, but by failing to take the steps needed to show you're insolvent, for example, you could be locked into higher taxes than you need to pay. Worse, you could end up in a tax debt situation that you'll need professional help to change. To make matters worse, recent debt to the IRS cannot be discharged in bankruptcy. When working with clients, we provide individual counseling about tax implications of bankruptcy and other financial moves. We also counsel clients on related matters, like discharging difficult debts like student loans or unpaid child support.

Continue reading "Financially Distressed and Bankrupt People Should Plan Carefully for Taxes" »

As Upland consumer bankruptcy lawyers, we were pleased to see a recent article on the importance of timing a bankruptcy. The Kalamazoo Gazette reported Jan. 16 that experts, including individual bankruptcy attorneys like us, suggest that people headed for bankruptcy consider filing early, before their financial problems are overwhelming. This is how most people handle it, the article said, because most people do everything they can to avoid a bankruptcy in the first place. But if the bankruptcy seems inevitable, personal bankruptcy lawyers say it's better to protect your assets by taking action early.

According to the article, most people drain their savings, cash out their 401ks and IRAs and sell possessions to pay debts after they get into financial trouble. This is understandable, because bankruptcy is a major financial upheaval that stays on the filer's credit report for ten years. During that time, it will be harder for the filer to rent an apartment, get a loan or perform many other basic acts involving credit. Many people try to avoid bankruptcy because they believe it will leave them "nude," one attorney said, meaning without assets. But in reality, experts said bankruptcy can often preserve financial assets while providing a chance to start over. For that reason, attorneys said they wished bankruptcy filers would come to them months earlier, closer to when their financial troubles started.

Our Garden Grove personal bankruptcy attorneys strongly agree. The article doesn't make this explicit, but in many cases, consumers lose their assets needlessly while trying to avoid a bankruptcy. It's better to avoid bankruptcy if possible, of course, but some filers have debts so high that there's no other realistic way to handle the situation. When this is the case, we encourage potential clients not to sell off their assets or liquidate their savings before they speak to us. In a bankruptcy, many of the assets that people typically liquidate are protected, which means they will not be sold to creditors. These include retirement savings, a certain amount of home equity, personal possessions without much value and heirloom jewelry. By declaring bankruptcy early, filers can start over with these assets in place, providing a cushion they'll need as they begin to rebuild their finances.

Continue reading "Experts Say Declaring a Bankruptcy Earlier May Help Debtors Rebound Later" »

Because we are Corona consumer bankruptcy lawyers, we spend a lot of time talking to our clients about the effects of bankruptcy and other major financial decisions on their credit scores. Many of our clients have misconceptions about bankruptcy and credit that can keep them from addressing their financial problems until after a lot of expense and emotional turmoil. That's why we were pleased to spot a Jan. 28 blog post on WalletPop.com interviewing the co-author of a book on living with bad credit. Geoff Williams, who authored Living Well With Bad Credit along with Chris Balish, told his own story about declaring bankruptcy and addressed some of the ways that people end up with bad credit in the first place.

For some people, Williams said, bad credit or a bankruptcy is truly out of their control because it's triggered by a major financial disaster like a serious disease or a job loss. But for many others, he said, one mistake snowballs into several more mistakes made to deal with the first one. For example, he said, buying a car that's too expensive for your budget could lead to higher credit card debt or suspending contributions to a savings account. Signs that your credit is slipping can be difficult to spot, he said, and emotionally difficult to acknowledge. Williams said that while credit matters, bad credit isn't the ruinous, financially crippling situation many people fear. In fact, he said, filing for bankruptcy "was one of the smartest financial decisions I've ever made." Even though it hurt his credit, it helped him get control of his finances and resume saving for things like retirement and his daughters' college tuition.

As San Bernardino individual bankruptcy attorneys, we believe this is true for many individuals who are backed into a financial corner. Some people regard bankruptcy as a failure or a sign that they can't handle their own finances. But in the right situation, bankruptcy can be a smart choice that gives you back the power to control your own future. When you literally cannot pay back all that you owe and that isn't likely to change, trying to pay it off just delays the inevitable. Draining retirement accounts or selling off assets to pay debts are common strategies, but they frequently aren't necessary to declare a bankruptcy, don't solve the problem and leave people in worse financial positions than before. A bankruptcy isn't anyone's first choice, but it can be the first step toward rebuilding savings, credit and a healthy financial life.

Continue reading "Author Discusses Myths About Bankruptcy and Its Effect on Credit" »

As Riverside unfair debt collection attorneys, we were interested to read about the fallout from the bankruptcy of one of the largest debt collection law firms in the United States. As the Baltimore Sun reported Jan. 16, Maryland-based Mann Bracken was ordered by state regulators to cease operations earlier that week. The order was not entirely necessary; the law firm was already in financial trouble because an affiliated company that handles debt collection, Axiant, had filed for bankruptcy in November. The arrangement tied Mann Bracken's fortunes to an arbitration company called the National Arbitration Forum. That company was sued for consumer fraud by Minnesota's attorney general in 2009.

In fact, the Sun reported that the law firm's financial trouble may have started with the Minnesota lawsuit. The National Arbitration Forum was accused of conflicts of interest that biased its judgments in favor of the credit card companies that paid it. As part of the settlement, it agreed to stop handling consumer arbitrations. Axiant filed for bankruptcy four months later, and Mann Bracken blamed its financial troubles on that move. The firm was facing separate lawsuits and regulatory action accusing it of violating the Fair Debt Collection Practices Act and similar state laws. The firm's closure may dismiss those lawsuits, but it will also end tends of thousands of lawsuits filed by Mann Bracken against consumers. Experts told the newspaper that this was a victory for consumers, who may otherwise have ended up with legal judgments against them before they realized they had been sued.

Our Costa Mesa unfair debt collection lawyers don't exactly enjoy seeing another law firm fail -- but in this case, it may benefit consumers. As the Sun noted, Mann Bracken was under investigation, the target of multiple lawsuits and had a Better Business Bureau rating of F because of numerous accusations of unfair business practices. Closing the business will give valuable time to people who were being sued by the company. In any lawsuit, the person suing must notify the defendant. But shady debt collectors frequently fail to give notice, or find ways to ensure that notice isn't served quickly, because they will win automatically if the consumer doesn't appear and fight the case. This creates a default judgment that the unscrupulous debt collector may use to garnish wages or take property. Many victims don't realize this happened until it's too late to fight back.

Continue reading "Thousands of Debt Collection Lawsuits Dismissed by Collection Agency Bankruptcy" »

As Chino bankruptcy attorneys, we already knew that foreclosure and bankruptcy tend to go together -- one tends to cause the other. The Wall Street Journal illustrated that correlation neatly in a Jan. 7 article juxtaposing personal bankruptcies in the "sun belt" with high foreclosures in those states. The national average increase in bankruptcies last year was 32%, the article said -- but above 50% in the Western states of Arizona, Nevada, California. Not surprisingly, these were also the states with some of the highest rates of foreclosure. Consumer bankruptcy lawyers told the newspaper that mortgage debt helped push some people into bankruptcy by cutting off home equity loans as a source of credit.

The highest bankruptcy rates don't correlate exactly with the highest foreclosure rates. For example, two of the most bankrupt states identified by the Journal were Utah (57% growth in individual bankruptcies) and Wyoming (58.3% growth), neither of which is consistently in the list of most-foreclosed states. And Florida, a heavily foreclosed state, saw its bankruptcies grow by 44.8%, compared to 79.6% in the national record-holder, Arizona. But in the West, states with the most personal bankruptcies tended to be the states that saw housing prices rise and fall to the greatest extremes -- Arizona, Nevada and California. One consumer bankruptcy attorney told the newspaper that his clients were almost always renters a few years ago. But now that prices and equity are falling, he said, more homeowners are forced to consider bankruptcy.

We're sorry to say that our Redlands bankruptcy lawyers see this trend ourselves. As the article notes, the housing crisis can cause bankruptcies by taking away financial tools like refinancing, selling the home or a home equity line of credit. Some homeowners may also file for bankruptcy as a last-ditch attempt to keep their homes out of foreclosure, after exhausting all of their other financial resources. But the reverse is also true: Financial problems that lead to bankruptcy can cause foreclosure even if those problems have nothing to do with the mortgage loan. This might be the case for homeowners who lose a job and can't find another quickly, or those who rack up high medical bills and exhaust their financial resources to pay them.

Continue reading "Western States With Highest Foreclosure Rates Also Had High Bankruptcy Rates" »

As Rancho Cucamonga loan modification lawyers, we have long supported laws that would allow bankruptcy judges to "cram down," or lower, principal owed on a primary home during a bankruptcy. In a Jan. 5 editorial, the New York Times reiterated its agreement. The editorial said the housing market may be weakening again, after some signs of recovery. It also repeated predictions from many housing experts who see the market worsening or staying flat thanks to predicted interest rate increases, high unemployment and the end of the homebuyer tax credit. Under these circumstances, the editorial said the Obama administration should put new emphasis on mortgage cramdowns, which it said was the best way to modify an underwater loan.

In a cramdown, the principal owed on the loan is simply reduced. This means an immediate loss for the lender, but it also reduces defaults and foreclosures by restoring equity and lowering mortgage payments. Last year, Congress considered allowing bankruptcy judges to cram down principal on a primary home loan as part of a Chapter 13 bankruptcy. Despite the fact that judges may already cram down principal on any other loan, the measure died because of fierce opposition from the financial industry. The Times did not call for more efforts to pass this bill, but suggested that the White House could simply change its policies to encourage voluntary cramdowns through the Home Affordable Modification Program.

Our Whittier loan modification attorneys don't believe this would be enough to make a difference on its own. As the article itself notes, HAMP has been largely unsuccessful, with borrowers complaining about bureaucratic delays, seeming incompetence from lenders and mistake that threaten their homes. We believe this is partly because the program is entirely voluntary, with public shaming the only tool available for the Treasury Department to compel compliance. Lenders who believe they will make more money by foreclosing have no real incentive to grant loan modifications, although they do have an incentive to look like they will. More toothless policies from the federal government, however well-intentioned, are unlikely to change the behavior of lenders who fought hard against bankruptcy cramdown legislation.

Continue reading "New York Times Again Calls for Mortgage Cramdowns in Consumer Bankruptcies" »

Thanks to personal experience and industry reports, our San Bernardino personal bankruptcy lawyers knew that 2009 was likely to offer a flood of new bankruptcies. According to a Jan. 6 article from the Wall Street Journal, individual bankruptcies increased by 32% last year over 2008, which means 1.41 million bankruptcies. This is the highest rate since 2005, when bankruptcies spiked just before changes to the law. The article attributed the rise to the continuing recession, high unemployment rates and the housing crisis, all of which are putting a squeeze on consumers. In fact, the article said, bankruptcy attorneys are seeing an increase in filings from people with six-figure salaries and high levels of education, many of whom were doing well financially just a few years ago.

The increase in individual bankruptcies is particularly noteworthy because it includes a large proportion of Chapter 7, or liquidation, bankruptcies. That's despite the 2005 bankruptcy reform law, which was specifically intended to cut down on Chapter 7 filings by forcing more filers into Chapter 13 reorganization bankruptcies. In Chapter 7, filers pay off some debts and the rest are forgiven, but in Chapter 13, filers must make a repayment plan and repay most or all of their debts. The reform laws included a "means test" provision intended to determine whether the filer could repay the debt -- so the rise in Chapter 7 bankruptcies means more filers are failing that test. A Columbia University law professor quoted in the article said the numbers suggest that the law is ineffective and likely was not well written.

As Orange consumer bankruptcy attorneys, we agree, although we don't enjoy being right about this. The rise in Chapter 7 bankruptcies means more and more people are dealing with debt that's disproportionate to their incomes. In this economy, we suspect that unemployment and failures of small businesses are major factors. Just as the article says, we have seen many bankruptcy clients from middle-class or upper-class backgrounds, who never believed they would end up in our office. The vast majority of these people did not spend too much money or make unwise investments. But like many Americans, their income has dramatically changed over the past 24 months or so, and they sometimes turned to credit cards, home-equity loans or other forms of debt to make it up.

Continue reading "Consumer Bankruptcy Filings Reach Post-Reform Record High in 2009" »

As Fontana debt settlement lawyers, we know that the new year typically brings in a few people who have resolved to get their financial lives under control. Fortunately for those with credit card debt, a Dec. 30 article in the Chicago Tribune suggests that this may be an excellent time to settle that debt. As the economy goes downhill and unemployment rises, many people are having a hard time making their credit card payments. That means credit card companies are seeing more and more defaults -- in fact, the article says defaults are tracking the unemployment rate. And that, in turn, means credit card companies are hurting and eager to negotiate settlements with people who can no longer handle their debt -- even if that means the company gets less than the full amount.

The article suggests several ways to approach settling your credit card debt. The most direct way is simply to call the credit card company, explain your situation and request a reduction in your debt in exchange for paying it off quickly. However, negotiation is not for everyone, and the stress of debt can make some people shy. That's why the article also suggests a nonprofit credit counseling agency. These agencies may charge a fee, but they also do the negotiation for you, help you set up a payment plan and provide education on how to avoid overwhelming debt in the future. A third alternative is a debt settlement company, which the article recommended with reservations because they are for-profit companies that may be dishonest and will likely harm your credit. A debt settlement company uses missed payments as leverage to negotiate a settlement for a reduced amount.

We offer a fourth option: representation from a licensed Orange County debt settlement attorney. Like credit counselors, our law firm negotiates directly with creditors to settle debts, generally for less than the full amount owed. We can do this because credit card companies know that they could get nothing at all if the client is forced to declare individual bankruptcy -- and when bankruptcy lawyers are on the job, they get nervous. Once the debt is settled, we have partners who help follow up to ensure that official records reflect the settlement and that old debt won't come back to haunt you. And unlike some debt settlement firms, we believe it's part of our job to explain the financial implications of the actions we take on clients' behalf, such as taxes owed on forgiven debt.

Continue reading "Bad Economy Means Settling Credit Card Debt May Be Easier Than Ever" »

As Corona bankruptcy attorneys, we see clients every day whose financial problems are caused or exacerbated by problems making mortgage payments on time. The two issues are closely intertwined, as this Dec. 16 article from business publication Finance & Commerce shows. The article says bankruptcy lawyers like us have become frustrated by the federal Home Affordable Modification Program, but not just because mortgage servicers and lenders have dragged their feet on helping our clients. Attorneys in the article were also disappointed in HAMP because its rules allow bankruptcies to complicate loan modifications, and vice versa, causing painful delays for clients.

Under HAMP, mortgage lenders may not deny modifications to borrowers who have already completed a bankruptcy. However, it says nothing about how lenders may treat borrowers who are already in bankruptcy, or file for one during the loan modification process. That means some lenders are asking borrowers to sign a waiver of their right to file for bankruptcy, the article says, as a condition of requesting a loan modification. This can create sticky situations for borrowers, bankruptcy attorneys said. If a borrower has aggressive creditors other than the mortgage lender, it's impractical to wait. Yet mortgage lenders routinely ask borrowers to wait months and months for an answer or a permanent loan workout, lawyers complained. As a result, the two actions must be timed carefully. Some attorneys are also asking bankruptcy judges to make loan modifications as part of Chapter 13 bankruptcy plans.

Our La Habra bankruptcy lawyers like this strategy -- but it depends on the agreement of not only the judge, but also the mortgage lender. And as our loan modification clients' experience shows, lenders have little incentive to agree to a modification right now. People considering both a modification and a bankruptcy filing should absolutely talk with an attorney before taking any action. Those who qualify for Chapter 7 bankruptcies may be able to complete them in a few months and then pursue a modification, but this is a minority of bankruptcy filers. The majority may simply have to fight their lenders for a reasonably quick loan modification decision. In some cases, we have been able to force the lender's hand by filing a lawsuit -- or simply by joining the case, which puts the lender on notice that a lawsuit could follow.

Continue reading "Attorneys Say Loan Modification Rules and Bankruptcy Complicate One Another" »

Our San Bernardino bankruptcy attorneys were delighted when the U.S. Supreme Court took up a case seeking to end restrictions on certain advice bankruptcy lawyers may give to their clients. Now, the New York Times reported Dec. 2, the court has heard oral arguments in the case. Milavetz, Gallop & Milavetz v. United States, No. 08-1119, pits a Minnesota law firm against multiple provisions of the federal bankruptcy reform laws of 2005. Chief among the firm's complaints was the new prohibition for lawyers against advising clients to take on more debt just before filing for bankruptcy. This is a violation of the First Amendment's free-speech guarantee, the Milavetz firm argued, and can contradict state laws requiring lawyers to give the best advice possible. The firm also objected to a provision requiring bankruptcy law firms to advertise with a statement that "we are a debt relief agency."

However, the focus of the article was clearly on the restriction on lawyers' advice. Justice Antonin Scalia said that it was a "stupid law," but said the Constitution does not prohibit stupid laws. By contrast, several other justices seemed open to the law firm's argument that the provision violated bankruptcy lawyers' free speech rights. The government's attorney, Assistant Solicitor General William M. Jay, argued that the prohibition applied only to situations where a lawyer advises a client to abuse the bankruptcy system or defraud creditors, both of which are of course illegal. Chief Justice John Roberts told Jay that the language of the law left this ambiguous, forcing attorneys to stop and consider whether they could be prosecuted even for legal, ethical and correct advice. Justice Ruth Bader Ginsberg suggested that the restriction would stop an attorney from suggesting more debt even when it makes sense, such as when the client has just been diagnosed with an expensive-to-treat medical problem like cancer.

This hypothetical by Ginsberg is just one reason why our Fullerton personal bankruptcy lawyers would like the court to overturn this provision. In addition to impermissibly interfering with the attorney-client relationship, the law actually restricts us from giving clients the best possible advice. For a client like the one Ginsberg suggested, it makes much more sense to delay bankruptcy filing until after treatment, because individuals and married couples may file for bankruptcy only once every seven years. We may also advise our clients to take on more debt for practical reasons, such as to refinance a mortgage for a better interest rate, or borrow to pay for required credit counseling. All of this advice is perfectly legal under state law, ethical and sensible -- but under the bankruptcy reform law, it is illegal. And because state ethics laws already forbid attorneys from advising clients to break the law, we believe the reform law, as interpreted by the government, is not even necessary.

Continue reading "High Court Hears Challenge to Restrictions on Bankruptcy Lawyers' Advice to Clients" »