Sunday, August 16, 2020

Credit Unions - not your friend in bankruptcy

Many people love working with their credit union. Credit Unions generally offer better interest rates and can have an easier lending process. Their service is more personable too. These are valid reasons to use a credit union. 
Image courtesy of David Castillo Dominici
at FreeDigitalPhotos.net

What many people don't think about is credit unions are membership based. The rules and their practices are a little different from a bank. Most have policies that if a member causes the credit union to lose money (i.e. discharge a debt/credit card in bankruptcy), the customer can no longer be a member. The credit union will terminate the customer's checking and savings accounts as well as no longer provide loans. 

Another issue is Cross Collateralization. Most credit unions set up their loans to be cross-collateral loans. Let's say a customer goes into a credit union to apply for a car loan and, to so, opens a shares account for checking and savings. After financing a car for $25,000, the same customer applies and receives a credit card with a limit of $10,000. As time passes, the car loan is reduced to 15,000 but the customer max's out the card increasing his/her credit card debt to $10,000. Unknowingly, the agreement the customer signed when opening the accounts and applying for the credit, he/she agreed to secure all the credit to any collateral on any loan. As a result, the loan amount against the car is still $25,000. 

This can be disheartening when a person is trying to dig out of a financial hole and need their car to do so. There may be other options (like redemption - a topic for another blog) but it complicates the case. 

If you want assistance, legal representation, or just want to know more about me, Mark M. Medvesky, or Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.

We are working with clients via telephone, internet and video conferencing during this time. We are starting to accept office appointments as well.

Other Blog entries: 

Sunday, July 5, 2020

Hidden Income - Bankruptcy - Chapter 13

Image courtesy of
Vichaya  Kiatying-Angsulee 
at FreeDigitalPhotos.net
Many people set their federal tax withholding amount well above the amount they need to pay their federal tax obligation. When they file their federal tax return, the receive a large refund. They feel like it is a bonus. I have some clients that regularly receive refunds of $3K to $5K. This is not a bonus. 

This is the same as if you sent Amazon $500 for the purchase of a product that costs only $250 and receive a refund of $250. The extra money is already yours and always was yours. That is the way the bankruptcy law views it. It the Eastern District of Pennsylvania, the Trustee's office includes the refunds as part of the debtors' income. 

In my experience, the Trustee wants the refund divided into 12 payments and added to the monthly plan payment going forward. For instance, after completing an extensive budget, the debtors (a couple) may show they have $500/month of disposable income to be paid into a chapter 13 plan. But the same couple has received over $4000 every year for the last 3 - 4 years in their federal tax refund. 

The Trustee expects the debtors to adjust their monthly tax withholding figure to bring that refund back into the monthly income and paid into the plan. If you divide $4000 by 12 months, the debtors have $333/month to add to their disposal income of $500/month. As a result, the Trustee is expecting a proposed plan with a monthly payment of $833/month. This is hard for many people to understand because they do not see their refund as income. They are resistant to changing their withholdings. But without paying the additional amount, the Trustee will attempt to block the plan.   

If a person is exploring a chapter 13 filing and usually have a large tax refund, the person needs to discuss this issue with their attorney. 

NOTE: I assume other jurisdictions handle this issue differently. Also, I expect some attorneys work a plan with an annual lump sum payment of the refund every year. I think adding an annual lump sum payment could complicate a plan. I could and would propose such a plan if a client wanted such a plan but my recommendation is to adjust withholdings and add the amount across the plan.

If you want assistance, legal representation, or just want to know more about me, Mark M. Medvesky, or Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.

We are working with clients via telephone, internet and video conferencing during this time. We are starting to accept office appointments as well.

Other Blog entries: 


 

 

  

Sunday, June 21, 2020

"Charged Off" - don't get so excited - Bankruptcy

mage courtesy of Stuart Miles at FreeDigitalPhotos.net
As we exit this Covid-19 crisis and start back to work, many people are going to find they are further behind on their debts than they realize. They will try to work it out but, in the end, will not be able to make it. As a result, they will be forced to stop paying the monthly credit card and loan payments.

After a period of non-payment, many debtors will receive notices their debt has been "charged off."  The bank or credit card company is telling the IRS the debt is uncollectible. This is for the benefit of the bank or creditor. It allows the creditors to write the bad debt off as a business expense. This doesn't mean you are released from the debt. This is a common misconception I have found during my conversations with clients. The debt remains due and most likely will be transferred or sold to debt collection agency or debt buyer. 

It usually takes months of non-payment before a creditor charges off a debt. But keep in mind, many people are in months of forbearance already. My guess, just my personal opinion, is the creditors will carry the debt through through 2020 because they have enough losses already for this year. 

So, if you are one of those people who find a notice like this in your mailbox that states your debt has been charged off, know that the notice does not end your responsibility to pay the debt. It is probably just the beginning of a new chapter to the life of your debt.

If you want assistance, legal representation, or just want to know more about me, Mark M. Medvesky, or Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.

We are working with clients via telephone, internet and video conferencing during this time. We are starting to accept office appointments as well. 

Other links:


#bankruptcy #Chapter_7 #Chapter_13 #Montgomery_County #law_firm #Bucks_County #Pennsylvania

Saturday, June 20, 2020

Moving Forward after the Covid-19 crisis passes

Image courtesy of David Castillo Dominici
at FreeDigitalPhotos.net
This is a post I am copying over from our Face Book page.

Many people are facing tough financial times during this pandemic. 

According to:
Here’s How Badly The Coronavirus Has Impacted Americans’ Personal Finances            by: SARAH HANSEN, Forbes Staff, Forbes.com

"106 million
That’s the number of consumer loan accounts in forbearance, deferred payment, or natural disaster status as of May 31. At the end of April, just a month earlier, that number was 35 million...

 16%
That’s the portion of consumers who said they are refinancing their debt... 

$985.20
That’s the average budget shortfall American households are facing..."

As we emerge from this crisis, we will have many tough decisions to make on how to move forward. I am sure many people are already planning how to start their recovery. 

Some people will think about taking money out of their IRA's or 401K's. I want to take a moment to remind people they do not necessarily need to spend down their retirement savings to make ends meet now. Under most circumstances, retirement accounts are protected in a bankruptcy case.  

Also, as you set up a plan to move forward, consider how long the plan will take to complete. Many debt settlement plans, debt management plans, or  consolidation loans are based on a multi-year plan. Paying minimum balances on credit cards can take decades.

What if after a year, the plan fails? Or a family takes another economic hit for another reason or a person miscalculates their ability to catch up? All the money the family put into the plan is gone and they find themselves where they started the year before. I find this common in my practice and that can be avoided.

Bankruptcy may be the best option. To file and complete a Chapter 7 Bankruptcy Case usually take months. A Chapter 13 Bankruptcy Case, which allows a debtor to pay what they can afford (as shown on paper), can usually take as little as 3 years and go on for as long as 5 years. The CARES act allows payments for up to 7 years. The key difference with a Chapter 13 payment plan is the Court and Trustee oversee the process and not the creditors. This helps to protect the debtor.   

People should consider all the options as they plan their personal recovery from this crisis. 

If you want assistance, legal representation, or just want to know more about me, Mark M. Medvesky, or Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.

We are working with clients via telephone, internet and video conferencing during this time. We are starting to accept office appointments as well. 

#bankruptcy #Chapter_7 #Chapter_13 #Montgomery_County #law_firm #Bucks_County #Pennsylvania

Saturday, May 9, 2020

Look who needed bankruptcy help once too

No one is immune from financial troubles and everyone needs help sometime in their lives. The analysts predict many people will find themselves on the financial ropes as we emerge from this crisis. If you find you are one of those who is struggling as the world opens up, don't think of bankruptcy as defeat. Look at it for what it is; a tool or opportunity to reset your financial life. 

I found this article, "9 Famous People That Went Bankrupt Before They Were Rich" on Forbes

Look who used bankruptcy protections to restart their financial lives:

Abraham Lincoln: "1833, a young Lincoln declared bankruptcy after a business he owned went under. His penalty for doing so was severe - Lincoln spent 17 long years repaying his creditors before he regained his financial footing and embarked on his journey to the U.S. presidency and the history books." (TheStreet)

Dave Ramsey: "Dave came out of the starting gate like a championship horse. By the age of 26, he built a portfolio of rental real estate worth over $4 million through his brokerage firm, Ramsey Investments, Inc. He had become a superstar in the real estate market of his home state of Tennessee at a very tender age.
But success didn’t last. His real estate holdings were heavily leveraged, and creditors began calling in his debts. This forced him to file for bankruptcy."
Walt Disney: "...from humble beginnings, Walt Disney showed entrepreneurial drive at an early age. But he also filed for bankruptcy, while still barely more than a teenager. And it almost happened a few years later, just before one of his greatest successes."
George Foreman: "He retired from boxing, moved back to his hometown, and became an ordained Christian minister. He started a youth center for troubled children, where they could participate in sports. But the declining income led him to file for bankruptcy in 1983."
Elton John: "... enjoyed a lavish lifestyle. In 2002, he declared bankruptcy after incurring huge debts on properties he owned all over the world. Wikipedia also confirms he went on a two-year spending spree – around 2000 – in which he spent about 1.5 million British pounds per month (well over $2 million per month)."
Anyone can fall on hard times no matter what is going on in the economy. Some of the most successful people we know of used bankruptcy to start over. Using the bankruptcy laws appropriately can help prevent prolonged financial suffering created or worsened during this crisis.   
If you want assistance, legal representation, or just want to know more about me, Mark M. Medvesky, or Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.

During the "stay at home" orders, we are working with clients via telephone, internet and limited video conferencing.