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Living from paycheck to paycheck? Had a major expense recently but not enough funds to cover it? Are you frequently overdrawn at the bank? Being desperate for cash can turn you into a victim. Here are three things to do to avoid letting desperation keep you broke.
EVEN IF YOU ARE DESPERATE DON’T GET PAYDAY LOANS
Deferred presentment agreements, or as we all know them, payday loans, have become the modern day loan sharks. Typically, the agreement requires you to write a check to the business to hold and, in exchange, the company loans you amount of the check for a short time then they deposit the check to pay themselves back for the loan. The problem is, if you have to renew the loans, the company will charge you an astronomical interest rate just for holding your check. Recently, I saw a contract from a local Montgomery, Alabama payday lender that charged the customer 425.83% interest! The customer signed the contract because he was desperate for the money to pay his power bill. Remember, desperation is never a good reason to sign a contract.
SIT ON THE FLOOR TO AVOID RENT-TO-OWN CONTRACTS
Ok, let’s say you need a sofa but you don’t have the $600 to buy one from the quality furniture store. Then let’s say someone told you they had a couch that was not made well but they will let you rent it for a year for $200 a month. If we do a little simple math, we can see that in three months’ time, you have paid enough for the low quality sofa to have purchased the new sofa outright.
That’s not the worst part, however. You are still stuck with the sofa you are renting for another year. Would you rather pay $2400 for a low quality sofa or $600 for a high quality sofa? Save the money you would pay the rent-to-own company and sit on the floor until you have the money to purchase a good sofa for cash.
MAKE SMALL CHOICES TO SAVE BIG MONEY
The number one way to avoid predatory lenders is to not be desperate for money in the first place. Desperation is expensive. When you don’t have savings to fall back on, your desperation can cause you to enter into some really abusive contracts. Don’t let it happen. If you have even a small nest egg, you can avoid being a victim of your desperation. Start now to cut back on those things you don’t really need and put the money you save in a savings account. Here is an example.
Recently, my husband and I made the decision to cancel cable and keep the internet. We invested in a $30 Leaf HD antenna for our local Montgomery news and weather (in HD, no less!) and use Netflix for movies. In a year’s time we will be saving $840. If you had that much in savings, chances are you would never have to go to a predatory lender.
Living from paycheck to paycheck? Had a major expense recently but not enough funds to cover it? Are you frequently overdrawn at the bank? Being desperate for cash can turn you into a victim. Here are three things to do to avoid letting desperation keep you broke.
EVEN IF YOU ARE DESPERATE DON’T GET PAYDAY LOANS
Deferred presentment agreements, or as we all know them, payday loans, have become the modern day loan sharks. Typically, the agreement requires you to write a check to the business to hold and, in exchange, the company loans you amount of the check for a short time then they deposit the check to pay themselves back for the loan. The problem is, if you have to renew the loans, the company will charge you an astronomical interest rate just for holding your check. Recently, I saw a contract from a local Montgomery, Alabama payday lender that charged the customer 425.83% interest! The customer signed the contract because he was desperate for the money to pay his power bill. Remember, desperation is never a good reason to sign a contract.
SIT ON THE FLOOR TO AVOID RENT-TO-OWN CONTRACTS
Ok, let’s say you need a sofa but you don’t have the $600 to buy one from the quality furniture store. Then let’s say someone told you they had a couch that was not made well but they will let you rent it for a year for $200 a month. If we do a little simple math, we can see that in three months’ time, you have paid enough for the low quality sofa to have purchased the new sofa outright.
That’s not the worst part, however. You are still stuck with the sofa you are renting for another year. Would you rather pay $2400 for a low quality sofa or $600 for a high quality sofa? Save the money you would pay the rent-to-own company and sit on the floor until you have the money to purchase a good sofa for cash.
MAKE SMALL CHOICES TO SAVE BIG MONEY
The number one way to avoid predatory lenders is to not be desperate for money in the first place. Desperation is expensive. When you don’t have savings to fall back on, your desperation can cause you to enter into some really abusive contracts. Don’t let it happen. If you have even a small nest egg, you can avoid being a victim of your desperation. Start now to cut back on those things you don’t really need and put the money you save in a savings account. Here is an example.
Recently, my husband and I made the decision to cancel cable and keep the internet. We invested in a $30 Leaf HD antenna for our local Montgomery news and weather (in HD, no less!) and use Netflix for movies. In a year’s time we will be saving $840. If you had that much in savings, chances are you would never have to go to a predatory lender.
What Happens in a Chapter 7?
Clients often ask me what happens if they get a big raise or a start a business that does really well after filing a Chapter 7 in Atlanta. Chapter 7 bankruptcy is literally a snap-shot in time of your finances at the time of the filing of your petition. The purpose of bankruptcy is to give you a new lease on life – a fresh start on your finances free from bill problems in the future. The Supreme Court has stated this as recently as 2007: “The principal purpose of the Bankruptcy Code is to grant a ‘fresh start’ to the ‘honest but unfortunate debtor.”
What this essentially means is that whatever money or property you obtain after bankruptcy belongs to you. When you file, a bankruptcy estate is created, and all property of the Debtor on the date of filing becomes property of the estate to be administered by the Chapter 7 trustee. Most cases are called “no-asset” cases, meaning that the debtor is able to exempt under Georgia law all property of any value from the reach of the Chapter 7 trustee. This means that any weddings rings, musical instruments, household goods, clothes, etc. will be safe from liquidation.
What Happens in a Chapter 13?
A Chapter 13 bankruptcy is often called a wage-earners’ bankruptcy. This is because you will propose a payment plan to be approved by the court in which an amount equal to your disposable income will be deducted from your pay check each month. While the confirmation of a plan is binding on all parties (debtor and creditors included), if you receive a large raise, win the lottery, or receive some other windfall, such as a large inheritance, the Chapter 13 trustee could request that your payments be increased to match your new disposable income. Unfortunately, this is why is does not necessarily pay to work hard during a Chapter 13 plan. You may not get to enjoy the fruits of your labor, though often times the Chapter 13 trustee will not move the court to increase plan payments unless the change in income is substantial.
You need an attorney and you have scheduled initial consultations with multiple attorneys. What questions should you ask him/her to find out which attorney to choose? I recommend the following:
- What do your clients like most about you?
- This question allows the attorney to highlight his strengths. By asking what his clients think of him rather than what he thinks of himself, he is more likely to answer candidly.
- Do you prefer email or phone calls?
- Often this is a generational matter. But, too many clients who won't do email are frustrated when their attorney won't quickly return calls, and vice a versa. It is important to know how you like to communicate, and make sure your attorney is a match.
- How fast should I expect responses from you?
- The number one bar complaint for attorneys is the failure to respond to clients' requests for information. Sometimes the complaints are valid, and sometimes the clients have unreasonable expectations. Find out before hiring an attorney what you can expect in terms of communication, and whether you are okay with his/her approach.
- Will I be able to find someone else who can do it cheaper?
- I like this question because it can elicit a number of different responses. Some attorneys will bristle, and I think that is a telling response. Other attorneys will say "you get what you pay for," which is kind of a cop-out. Look for honest answers since you want an attorney who will be honest with you and tell it like it is. And if the honest answer is that the attorney firmly believes you can't find it cheaper anywhere else, then you probably found a cheap attorney in more sense than one.
Adam Brown is a bankruptcy attorney for Dexter & Dexter, a debt relief agency helping people file for bankruptcy.
This is a little bit more advanced than the usual topic, but I had a client come in who put her personal residence in a qualified personal residence trust. Unfortunately, she got behind on her second mortgage, and the house had a moderate amount of equity in it; therefore, the second mortgage holder had no problem filing a foreclosure action against her.
She paid me a visit in hopes of filing a Chapter 13 because she’s heard it can halt the foreclosure process. This is true: for property of the Debtor. When she transferred her residence years ago into a qualified personal residence trust in an attempt to shield herself from personal liability, she also took away the biggest weapon she had against a home foreclosure. You see, when you file bankruptcy, a statutory beast called the automatic stay creates a literal “stay” against all creditor collection activity against property owned by the Debtor or the bankruptcy estate. In this situation, the woman did not own the property; the QPRT did! As a result, even if she filed bankruptcy, the automatic stay would not have prevented the second mortgage lender from foreclosing on her residence since she did not technically own the residence. And for those of you who think a possessory interest (having mere possession of the property) is enough, it probably is not.
Her only recourse was to try to work something out with the second mortgage lender outside of bankruptcy. While there are some very valid reasons to put your home into a QPRT, the benefits for most individuals with moderate net worths outweigh the con of no being able to protect the house in the event of a foreclosure.
Before some people actually make an appointment for a free consultation their lives are
so stressful. Finances - especially large amounts of debt often force people to make decisions that they know instinctively are wrong, but they make them because of fear and desperation. Most people juggle their finances robbing Peter to pay Paul for as long as they can. At some point you face the inevitable, your financial life is in chaos and has become totally unmanageable.
Now you've defaulted on your credit cards one by one. Sometimes it's because of having to make tough choices; food on the table to feed your family or putting gas in the car so you can get to work or making a credit card payment. Too many tough decisions and then that awful day comes when a lawsuit arrives on your front doorstep. Panic, dread, anxiety sets in and you don’t really know what to do. Many people tend to stay in denial and ignore the lawsuit. Doing nothing allows creditors to take a judgment which could later allow them to garnish your wages. One way to stop this is, is by filing a Chapter 7 Bankruptcy. This is an exact situation where Chapter 7 would be a really good option. Chapter 7, if you qualify, is a legal and logical way to handle a large amount of unsecured debt (i.e. credit cards, payday loans, medical bills). Many people fear this solution or even refuse to consider it because they are afraid of the damage it may cause to their credit. The reality of it is if you have a high amount of credit card debt that you have defaulted on then, your credit score is more than likely already effected. Chapter 7 bankruptcy, in some cases, will actually cause your credit score to increase anywhere from 50 to 100 points within the first year. Most clients are able to buy vehicles and even homes two years after filing if their income is sufficient. Chapter 7 bankruptcy can really give you the fresh start you dared to dream was possible.
Some creditors just don’t get it. They just keep calling and harassing you with demand letters even after you have filed bankruptcy. Sure, the Automatic Stay contained in Bankruptcy Code section 362 is supposed to prevent creditors from continuing with all such collection efforts, but whether due to reckless disregard for bankruptcy law, pure sloppiness, or stubborn willfulness, some creditors just keep right on calling. But that’s a violation of a federal court order, you say, indignantly!
Yes, it is. But the Bankruptcy Court has no idea this is going on unless your bankruptcy attorney is willing and able to do something about it. Sadly, not all self-styled bankruptcy lawyers these days have much experience in what to do to defend and enforce the Automatic Stay for their clients. So, before hiring a bankruptcy attorney, you should ask him or her bluntly: What will you do if one of my creditors keeps up their collection efforts against me after we file bankruptcy?
The bankruptcy attorney should have in place systems to deal with such violations of the Automatic Stay. Of course, he or she won’t know such violations are happening unless you inform your attorney about the calls, letters, or other creditor harassment. It’s critical that you help your bankruptcy lawyer to ensure that all of your creditors are listed in your bankruptcy petition as well so that they get notice from the court that you have filed. While we primarily rely on our clients’ credit reports to obtain the names, addresses, and account numbers of our clients’ creditors, the client must likewise supplement this information with any additional known creditors—such as third party collection agencies who may have only recently purchased a debt—by carefully reviewing the credit report that we pull for the client, and giving us such other statements, bills, and lawsuits that the client may possess before we file the bankruptcy petition.
If he or she is to protect you from further creditor harassment in your bankruptcy, your attorney will also need you to keep logs of phone calls, including dates, times, and the phone numbers of those calling after you file bankruptcy. Any bill, statement, or demand letter you receive should also be promptly given to your attorney.
Now, assuming that you help your bankruptcy attorney by ensuring a complete list of creditors appears in your petition, and by informing him of all violations of the Automatic Stay, your attorney should be ready to aggressively defend the Court’s order that such collections stop. She should be ready to review the known addresses of the creditor, immediately send out cease and desist letters to that creditor, inform the United States Trustee of such violations, and, if necessary, sue that creditor in Bankruptcy Court.
The U.S. Trustee’s Office in San Jose does take action against creditors for egregious violations of the Automatic Stay, but here again, the US Trustee’s Office only knows about such violations to the extent that bankruptcy debtors and their attorneys inform them about them. After ensuring that the creditor has been warned not to continue with its harassment, we will always file an adversary proceeding against the creditor seeking injunctive relief against the creditor, monetary damages, attorneys’ fees, and sanctions for their contempt of the bankruptcy stay. Unless he or she is willing to follow through and enforce the Automatic Stay in this way, then you should find another bankruptcy attorney to file your case. Creditor violations of the stay are becoming more common, unfortunately, with some third party collection firms showing real contempt for the law and the Bankruptcy Court. Our San Jose bankruptcy attorneys take violations of the stay very seriously, and we have a long track record of recovering damages and settlements for our clients against big banks and credit card companies.
Under New York bankruptcy law (In re Boodrow) a debtor does not have to sign a Reaffirmation Agreement for a mortgage on real estate. This is a good thing (especially when dealing with second or third mortgages), since a signed Reaffirmation Agreement causes you to remain personally liable for the mortgage debt after bankruptcy, and... Read More »
Under New York bankruptcy law (In re Boodrow) a debtor does not have to sign a Reaffirmation Agreement for a mortgage on real estate. This is a good thing (especially when dealing with second or third mortgages), since a signed Reaffirmation Agreement causes you to remain personally liable for the mortgage debt after bankruptcy, and for any resulting deficiency judgment determined to be due after a foreclosure of the “reaffirmed” mortgage.
Is there any downside to not signing a Reaffirmation Agreement on your mortgage? Depending upon the policy of your mortgage holder (ie., how much do they want to “bust your chops”), the answer sometimes can be “Yes”. Some mortgage lenders take the position that since bankruptcy discharges your personal liability for debts, they no longer have to report your post-bankruptcy mortgage payments to the Credit Reporting Agencies (CRA’s) because the underlying debt is discharged. This can cause a problem if someone is examining your Credit Report for certain purposes, including future mortgage refinance efforts. If your post-bankruptcy mortgage payment history does not appear on the Credit Report it can certainly prejudice, and probably doom, your refinance efforts.
Fortunately there is a solution to this quandary, although it involves a two-step process:
Step 1: Pursuant to § 2605(e) of the Real Estate Settlement Procedures Act (“RESPA”), make a Qualified Written Request to your mortgage servicer that they provide to you an accounting of all mortgage payments that you have made. This accounting should establish that you have been making timely mortgage payments post-bankruptcy.
Step 2: File a dispute with the CRA complaining that the reported mortgage payment information is inaccurate, attaching thereto the accounting received pursuant to the Qualified Written Request. Assuming that you are in fact current on your mortgage payments, this should result in the Credit Report entries being corrected, pursuant to the procedures established in The Fair Credit Reporting Act ( 15 USC § 1681i ).
There is another way to correct inaccurate Credit Report entries concerning your mortgage payment history, but it is very labor intensive and involves much photocopying and record keeping (which is not always a bad idea). As soon as you file bankruptcy begin (1) making copies of every check or bank draft that you use to pay your mortgage, and (2) keeping copies of your bank statements showing that said mortgage payments were received and cashed by your mortgage lender or servicer. You then file your dispute with the CRA complaining that the reported mortgage payment history is inaccurate, and attach thereto all check photocopies and bank statements evidencing that the required payments were made by you and received by the lender. This should result in the Credit Report entries being corrected.
Wouldn’t it just be easier to sign a Reaffirmation Agreement concerning your mortgage, as this would result in your post-bankruptcy payments being correctly reported to the CRA? It might be easier, but the downside to signing one is so onerous, as above noted, that you would be crazy to do so. In addition, it is highly unlikely that a Bankruptcy Judge would ever approve such a Reaffirmation Agreement unless it resulted in the debtor was receiving a substantial, favorable modification of the mortgage terms, which rarely happens in the context of Reaffirmation Agreements.
We often have initial consultations with people who have already filed a previous Chapter 13 case. These folks are normally in a panic because they're afraid of losing their home again; the threat of foreclosure and repossession of their vehicle(s) is very real. If you filed Chapter 13 and there was a reasonable explanation as to why you were unable to fulfill your obligation of making your plan payment you do have the option of refiling your case.
Refiling does involve an extra Court Hearing (Motion to Continue the Stay) where you go along with your attorney to appear in front of the Judge. The objective of the bankruptcy attorney is to give the Judge an explanation as to why your previous case was dismissed and why this new Chapter 13 case will be different. The Judge will ask you a few simple questions and if all goes well you will be on your way to a successful second case. You will still be required to attend another First Meeting of Creditors.
When considering a second filing it is important that you really think hard as to why the first case didn't work out, why you couldn't keep up your plan payments. Remember filing for bankruptcy is supposed to alleviate your financial stress which you've been under. If making your plan payment is too hard then maybe it's time to seriously consider surrendering your home or your vehicle. Unfortunately, sometimes these gut wrenching decisions have to be made. If you should fail to succeed in a second filing a third case is exetremely difficult to get.
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