Detroit Bankruptcy Lawyer Kurt O'Keefeblog | MIchigan Bankruptcy Blog

After Debt – Can We Get There?

Kurt O'Keefe — Thu, 27 Oct 2011 06:11:56 +0000

(Wimpy key chain available at The government debt ceiling crisis has been averted, for the time being.

“While government debt sits at 94 percent of national revenue, U.S. household debt sits at a whopping 107 percent of personal income.” writes Steve Beck at U. S. News.

The question for us is, do we follow our leaders off the cliff, or get a hold of our personal finances?

Mr. Beck recalls the glory days of spending, when even credit card interest was tax deductible.

Buy now, pay later.

In inflationary times, when the government is running the printing presses overtime, it pays to be a borrower rather than a lender.

As a general rule.

It only applies if your income increases at least as much as inflation.

That is why all those cost of living guaranteed increases in compensation came into contracts and government benefits, people realized that inflation was robbing them of the nominal value of their money, so they had to get more of them just to stay in the same place.

As the saying goes, denial is not a river in Egypt.

Before we get to retirement planning, before we get to charitable giving, and livable family budgets, we have to get out of having more than 100% of our income committed to repaying debt we already have.

I have to tell myself how horrible it is to keep paying hundreds of dollars per month in interest on old credit card debt, and how pleasurable it will be to pay it off.

I have to realize the pleasure of getting out of debt will be so much better than the pain of being there.

Now, with #2 daughter graduating from college in 3 years (God bless her!) family finances will take an upward turn.

But, with a household of two self-employed people, it is a struggle.

A struggle that must be won.

Forgiveness Of Debt Income, What Everyone Ought To Know

Kurt O'Keefe — Thu, 15 Sep 2011 05:24:38 +0000

DISCLAIMER: NOTHING IN THIS POST IS MEANT AS TAX ADVICE, CONSULT A PROFESSIONAL

Some of my clients were about to pay income tax because of 1099-C forms received on rental properties they had abandoned.

I was stunned.

These people were bankruptcy clients, who had already filed Chapter 7 and received discharges.

So they no longer had personal liability on their old debts, but it is NOT income to them.

This had not stopped certain creditors from sending a 1099-C form, stating there was income by virtue of forgiven debt, resulting in income tax liability to my client.

I AM NOT A TAX ADVISER.

But I am certain there is no income from discharge of a debt in bankruptcy.

That is the box to check on IRS form 982 (available at www.IRS.gov):

“1 a Discharge of indebtedness in a title 11 case”

Title 11 is the Bankruptcy Code.

If you filed bankruptcy, and discharged the debt, and you got or get one of these 1099 forms, file the 982 form so the IRS knows that your debt was discharged in bankruptcy.

For reasons that escape me, a notice of every bankruptcy filing is sent to the IRS, so somewhere in there, they know you filed bankruptcy.

The IRS gets a notice whether you list them as a creditor, or not.

What if you did get a 1099-C for forgiveness of debt income, and did NOT file bankruptcy?

Form 982 1 e is for “qualified principal residence indebtedness.”

With the explosion of the real estate bubble, lots of homes are worth less than the mortgages owed on them.

Under President Bush, Congress passed this exception, if your home is foreclosed for $150,000, but you owed $300,000 on it, you do not have $150,000 of debt forgiveness income.

IF you qualify.

This exception is designed to apply to money used to buy or improve your primary residence.

You will not qualify if you took out a second mortgage to put money into your business or pay credit cards.

Also, if you are insolvent, but have not obtained a bankruptcy discharge, Form 982 (1) b applies.

CONSULT YOUR TAX ADVISER

DISCLAIMER: NOTHING IN THIS POST IS MEANT AS TAX ADVICE, CONSULT A PROFESSIONAL

Forgiveness Of Debt Income, What Everyone Ought To Know

Mortgage Balance Not Reaffirmed?

Kurt O'Keefe — Tue, 23 Aug 2011 06:00:53 +0000

Had a different question last week, from someone who did not reaffirm her mortgage in her Chapter 7 case, kept current on the payments, but wanted to pay off the balance for less than what was owed on the mortgage balance.

REAFFIRMATION

Just to review, reaffirmation is the process for you to obligate yourself once again to pay a debt, after you file bankruptcy. It is an agreement between you and the creditor, filed with the court, BEFORE you get your Chapter 7 discharge.

So, you cannot force the creditor to sign, and the creditor cannot force you to sign.

Even after you sign, you have 60 days to just change your mind and back out. This is an absolute right; you do not need a reason.

As I keep saying, reaffirming on a mortgage is a mistake.

The benefit is all to the creditor, who can sue you if it later forecloses on the defaulted loan, and the Michigan foreclosure sale amount is LESS than that balance.

You can keep your Michigan house after Chapter 7 if you just keep making the payments, on the loan and the taxes and insurance. Of course, if you cannot, and default, the bank can foreclose, whether you reaffirmed or not.

Back to the question: potential client wants to take retirement funds and get the mortgage cleared for $30,000 less than what she owes.

She stayed current on the payments; of course, the house is underwater, so her thinking is that the mortgage company is better off taking her lump sum and writing off the rest, which has alrady been discharged in her bankruptcy.

True enough, but, this loan is not in default. It is a performing loan on their books, not one fo the tens of thousands of problem loans it has.

So, she is thinking of walking away from this house, taking out the retirement money and bjust paying cash for a different house.

I counsel against taking out retirement money unless there is a very good reason, which I do not think this is.

What do you think?

What Is A Chapter 7 No Asset Report?

Kurt O'Keefe — Tue, 16 Aug 2011 06:28:17 +0000

No, it does not mean you have no property, that you lost everything by filing Chapter 7.

Actually, it means that the trustee found no assets to be liquidated for the benefit of creditors.

Which is a good thing, you keep everything you had before you filed. Subject to paying any liens on the property, like the mortgage on your house or a car payment.

Exemptions are available for you to take in your property, to exempt it from creditors and the trustee.

In Michigan, we can choose between the Federal and state exemptions; usually the federal exemptions are better.

So, the legal fiction is, that the bankruptcy estate is created when the case is filed, and title to all of your property passes to the trustee appointed by the Court.

Nothing is moved physically, everything looks just the same.

And you exempt the property back from the trustee.

The exemptions you claim are filed as part of your bankruptcy schedules.

The 341 hearing, or creditors’ meeting, is scheduled, by the bankruptcy court for about 35 days after you file. The trustee presides over this hearing.

And has 30 days from the hearing to object to your exemptions.

If you have a house worth $100,000, but owe $100,000 on it (or, more likely these days, more than $100,000) there is no equity there, no asset, nothing to exempt.

A bankruptcy trustee basically has no greater rights in property than you have, so, if the mortgage was duly perfected under state law, it is effective against the trustee, who would have to pay it if he took over the house.

Now, trustees get a percentage of what they bring into a bankruptcy estate, so their incentive is to find property or claims that can be reduced to cash for the benefit of the creditors. That is the trustee’s job.

And, each case has to stand by itself. They cannot get paid for work they do on your case from money they made on another case.

So, they do not want to waste time chasing nothing.

They are not going to go after property unless they are sure there is money in it for the creditors.

So, what if your house is worth $100,000, and you only owe $80,000 on it?

So you have $20,000 equity, 100 minus 80.

That amount can be claimed exempt, you get to keep it.

Claiming exemptions is not something you should do on your own, rely on an expert.

Image credit: Dreamstime

Studen Loan Collection

Kurt O'Keefe — Wed, 08 Jun 2011 17:18:14 +0000

A Stockton California man was awakened at 6:00 a.m. by a SWAT team breaking into his house to execute a search warrant relating to:

An unpaid student loan.

Yup, that is what it was about.

Although, with typical government efficiency, he never owed any student loan; his estranged wife did.

The video link on the Channel 10 website no longer works, (?), but try the Raw Story site for the government victim‘s account.

They did not show him the search warrant, far as I can tell, though this happened today, so more information may become available.

He had no idea it was for a student loan in his wife’s name.

Not from our Department of Education (?), which says they can say nothing until the case is closed.

Well, lots of student loans out there are NEVER going to be paid, so who knows how long that will take.

Who knows what they were looking for, debt collectors do not get to search people’s houses.

They destroyed the man’s door, though he would have opened it for him.

They shoved him to the ground and handcuffed him, then put him in a police car for over 6 hours.

Oh, I think they at least threw his 3 kids in with him, ages 3, 7 and 11.

So they have family values.

They were in the one Stockton police car, it is not clear which Federal agents did the dirty work.

It was apparently unclear to the victim as well, as he called the mayor to protest, and that is when he was told it was a federal case.

This could be one of those intimidation things our government does, like the IRS seizures and levies every March and April, to intimidate the citizenry into rendering unto Caesar what is Caesar’s.

So maybe this big deficit is inspiring the politicians to put student loans up there with unpaid taxes.

I want to hear from any law enforcement officers, this is not how they used to execute search warrants.

What say you?

Update, government says not for collecting student loan, was Dept. of Education, and the video interview of the victim has still disappeared from the internet.

And video on student loan raid back.

Does not change my opinion.

image credit: Georgia National Guard Photostream

Tornados And Charity

Kurt O'Keefe — Fri, 27 May 2011 12:07:39 +0000

For this holiday weekend, just linking to a post I did on another site on the above topic.

Click here.

Happy holiday to all.

No related posts.

The Truth About The Foreclosure Crisis

Kurt O'Keefe — Wed, 13 Apr 2011 19:39:20 +0000

An essential part of the real estate bubble was mortgage securitization, the process by which mortgage loans were sold into investment trusts from which bonds were sold.

It was mortgage fraud from A to Z, from the selling of mortgage backed securities trusts, before the trusts were full of mortgages.

From the ratings agencies, assuming in their ratings that home prices would NEVER go down, that the historical default rate of 30 year fixed rate mortgages that were 80% loan-to-value was applicable to the new market of 125% loan to value, interest only, ARMs, 80-20 mortgages, and so on.

That was the big picture.

The micro was, mortgage companies evolved to only warehouse money.

They outsourced the vetting of home buyers to mortgage brokers, who got paid at closing, whether the loan was ever paid or instantly defaulted.

More often than not, they sold the mortgage within a month.

The brokers managed to find appraisers who always appraised the house at the value needed for the mortgage, or mortgages, to go through.

Investment advisers told people, you need to borrow more money, and buy more house, you are missing the boat, you can’t lose!

Lending standards disappeared with “no-doc” loans.

I have clients who sent in tax returns and pay stubs, but the broker ran it through the mortgage company as a no-doc loan, because he knew they would NOT qualify for a conventional mortgage.

People were encouraged to buy with nothing down, an artificially low teaser rate on an ARM (adjustable rate mortgage).

Then, the two things happened that all the assumptions presumed would not: interest rates crept up, and home prices went down.

The government played an essential role, with Fannie and Freddie, buying or guaranteeing most mortgages in the USA.

When the government makes anything cheaper, demand goes up.

(see student loans)

The artificial demand bid housing prices up.

Then, when ARMs adjusted up, as the teaser rates expired, couples could no longer re-finance into another teaser rate ARM, and could not sell their house for enough to cover the mortgage balances.

The Truth About The Foreclosure Crisis

The Real Truth About Debt Settlement Companies

Kurt O'Keefe — Thu, 10 Mar 2011 18:43:28 +0000

(image from Dr. Mark Goulston web site)

They are scams!

Almost every debt settlement company is out to take advantage of people desperate to avoid bankruptcy.

They make verbal promises that are NOT backed up in their written contracts, which always refuse to guarantee results.

They take money out of your bank account every month, but do not even talk to creditors until they have a large sum in the bank.

I have many clients taken in by these con men.

They pay every month, and get sued and garnished anyway.

Oh, and do they mention the 1099 IRS form you get for forgiveness of debt income?

Don’t get me wrong; credit card companies will settle, but, they almost always want lump sums.

The normal wording in the fine print in the debt settlement company contract is that they will not even contact the creditors until they have X amount of dollars on hand.

And, they take their fees up front.

Though, charging debt settlement fees up front was made illegal by the FTC last fall.

That does not mean it is not happening any more, as the FTC rules do not apply to in-person or internet sales.

What are they doing for you that you could not do for yourself?

Nothing!

I am not a Suzie Orman fan, but she has a video on how to settle your own debts.

Where do you find debt settlement companies?

Usually, online.

Out of state hard to chase or sue for refunds.

Oftentimes, as with the first linked story on this post, you are dealing with out of state law firms.

Who tell you all the great things they will do, but, are not licensed in your state, so cannot appear in court on our behalf.

The Real Truth About Debt Settlement Companies

The Truth About Debt Buyers

Kurt O'Keefe — Tue, 01 Mar 2011 20:10:37 +0000

(image from Wall Street Journal)

Jessica Silver-Greenberg wrote about debt buyers at the end of last year, but the information is still timely.

Companies like Portfolio Recovery Associates, which used many affidavits, like the one pictured, from a person who died before the date on the affidavit.

Bad debts are sold in bundles of thousands or tens of thousands, sometimes in auctions.

Encore Capital Group and Asset Acceptance are other big players in this market.

It is a paperless world.

Usually, all they buy is a computer screen of an account number and a balance and someone who supposedly owes the debt.

Not a contract, signed by that person, not an accounting, a history of the use of, and payments on, the credit card or loan.

In lieu of actual records, affidavits are used in the lawsuits filed to collect the bad debts.

The affidavit verifies, under oath, that the amount in the lawsuit is the actual amount owed by the borrower.

One Denver attorney, David Larson, filed 47 suits against Portfolio Recovery Associates last year alone.

According to the Denver Post story on the debt buyer, PRA paid $1.6 billion for the $52.9 billion of debt it owns.

So they do not need to collect on too many lawsuits to make big bucks.

Nevertheless, corner cutting is still too tempting for many of these companies.

They have an overwhelming advantage in court.

They have lawyers, which most consumers cannot afford.

You cannot get a court appointed lawyer to defend you in a collection case.

And the debt buyer company lawyer virtually always works on a contingency fee, getting a percentage of what is recovered.

So, no out of pocket attorney fee cost to the zombie debt buyer.

Over 90% of these lawsuits result in default judgments, meaning the consumer never files an answer or otherwise contests the case in court.

Then, in states like Michigan which allow wage garnishments, watch out!

Sometimes, that is the first time the consumer realizes she has been sued.

And she will have to pay money up front to get a lawyer to handle her case.

The Truth About Debt Buyers

The Real Truth About Mortgages (Part Two)

Kurt O'Keefe — Fri, 25 Feb 2011 12:41:34 +0000

The Real Truth About Mortgages (Part Two)