What You Need to Know Before Filing Bankruptcy · them more affordable. Declaring bankruptcy is often voluntary, although in some cases, creditors can force you or your company into

Consumer Guide:

What You Need to Know Before Filing Bankruptcy

Ray BulaonAttorney

Consumer Guide:What You Need to Know

Before Filing Bankruptcy

Copyright © 2013 by Ray BulaonAll rights reserved. No part of this book may be used or reproduced in any manner whatsoever without written permission of the author. Published 2013.

Printed in the United States of America.isbn: 978-1-59571-863-1Designed and published by

Word Association Publishers205 Fifth AvenueTarentum, Pennsylvania 15084

www.wordassociation.com1.800.827.7903

Consumer Guide:What You Need to Know

Before Filing Bankruptcy

Ray Bulaon, Attorney

W O R D A S S O C I A T I O N P U B L I S H E R Swww.wordassociation.com

1.800.827.7903

Table of Contents

Preface WhyIWrotethisBook

Foreword MyPersonalStory

Chapter1 “Help,I’mDrowninginDebt!” Chapter2 BankruptcyBasics

Chapter3 IfYouAreFacingForeclosure

Chapter4 4BigLiesYouMayHaveHeard aboutBankruptcy

Chapter5 DoesFilingBankruptcyMakeSensefor YourSituation?

Chapter6 CommonBankruptcyMistakestoAvoid Chapter7 AreThereAlternativestoBankruptcy? Chapter8 CreditAfterBankruptcy

Chapter9 HowtoHiretheRight BankruptcyLawyer

Chapter10 NothingHappensUntilYouTakeAction

Afterword WhyWeAreDifferent

AbouttheAuthor

RayBulaonLawOffices,Inc.701N.BrandBlvd.,Suite270

Glendale,CA91203

www.bulaonlaw.com

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WHAT YOU NEED TO KNOW BEFORE F IL ING BANKRUPTCY

Why I Wrote this Book

Iwrotethisbookbecause,ifyouarelikemostpeople,this may be the first time in your life that youarefacingafinancialcrisis.Maybeyoujustbecameunemployed,justhadabusinessthatfailed,orjustrealizedthatyou’vemaxedoutyourcreditcardswithnorealisticwayofpayingbackwhatyou’veborrowed.Maybeyou’reconfusedaboutwhattodonext,butonething is for sure: you need to find away to regainfinancialstabilityassoonaspossible.

Howyougottowhereyouaredoesn’tevenmatter–what’simportantnowisfindingthebestsolution.Youneedanswers toyourquestionsabouthowyoucangetoutofdebt.Thereare somanyquestionsgoingthroughyourmind: “Whatabout thewelfareofmyfamily?”“HowwillIgetmylifebackontrack?”“Isbankruptcymyonlysolution?”

Perhaps just hearing the word “bankruptcy” sendschills up your spine. I realize that there is still astigma associated with filing bankruptcy, althoughtherealityisthatmorethanamillionpeopleinthiscountry file bankruptcy every year. Understandinghow the legalprocessworksmighthelpyoudecide

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whetherbankruptcyisreallyforyou.AsIdiscussinthisbook,sometimesotheralternativesthatcanhelpyouavoidfilingbankruptcymaybeavailable.

Remaining calm can be difficult when things arechaotic,sotheusualknee-jerkresponseistopanic.Butasabankruptcyattorney,letmeencourageyoubysayingthateventheworstproblemsrarelymeantheendoftheworld.Whatmaysometimesseemlikeadeadendmayactuallyturnouttobeanewpathforabetterlife.

Thereishopeforyou.ThatiswhyIwrotethisbook.

Disclaimer

Noneof the information in thisbook is tobe takenas legal advice. Although I am a lawyer, I am notyour lawyer. Laws are complicated and althoughsomepeoplesometimesresorttoself-helptohandletheir legalaffairs, itmaynotbeadvisable foryoursituationtotakemattersinyourownhands–unlessyouknowexactlywhatisatstakeandyouarewillingtoaccepttheconsequencesofyouractions.Thisbookonlyprovidesgeneralinformationaboutbankruptcyand the legal process.Each case is different and ifyouareunsureaboutanyofthelegalaspectsofyoursituation,youshouldseektheadviceofacompetentbankruptcyattorney.

Fairenough?

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Foreword:My Personal Story

Ifyouarecurrentlyindebtandneedtofindawayout, I understand how you feel. About 20 yearsago,mywife and I found ourselves unemployed atthesametime.Iwasafirst-yearlawstudentatthetime, and I was trying to juggle school, work, andfamily responsibilities.Mywifewas pregnantwithourfirstchild,andwiththerealizationofincreasedresponsibilities, thepressurewasbuilding.Withnopaycheckandmeagerunemploymentbenefitstoliveon,therewasn’tenoughmoneytopayrent,putfoodonthetable,andkeepthelightson–letalonepayourcredit cardbills. I sawmywife in tearsevery timeshehadtopaythebills.Forthefirsttimeinmylife,Ifeltthepainandutterhelplessnessofbeingtrappedindebt.Iwasemotionallydevastated,feelinglikeatotalloser.

Icametotherealizationthatifyouweresimplylivingpaycheck to paycheck (asmost people are)withnosavingswhatsoever,youwereliterallyonepaycheckawayfrombankruptcy!Wehadzerosavingsinthebankandbarelystayedafloatwhenwewereworking.And nowwith both of us unemployed at the same

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time,wehadanimmediatefinancialemergencythefirstmonthwedidn’tgetourpaychecks.Longstoryshort,wedecided thatwehadno choice but tofileChapter7bankruptcy.Lookingback,Irealizethatwedidn’treallyoweverymuchatthattime.Wehadlessthan$20,000increditcarddebt.Butatatimewhenwehadnoincomebutourunemploymentchecks,itwas a choice between survival and paying the billcollectors.Itwasoneofthemoststressfultimesweeverexperienced.

Letmeaskyou thisquestion: Whatwouldyoudoifyoudidn’tgetapaycheckthismonth? Howlongwill you be able to survive on your savings alone?Financial planners tell us thatwe need to have atleast 3-6months’ worth of savings set aside as anemergencyfund.Thesadrealityisthatmostpeoplearealreadystrugglingjusttomakeendsmeeteverymonth;theycan’tputawayevenafewdollarseverymonth for the rainy days. And letme tell you onethingabouttherainydays:whetheryoulikeitornot,raincouldcomeatanytime!It’snotamatterof“if”:it’ssimplyamatterofwhen.It’s importanttohavea financial emergency plan in place so you are notcaughtunprepared.

I became a bankruptcy attorney in 1997 and sincethen, I have helped thousands of individuals andsmallbusinessownersgetoutofdebt.Today,whenworried prospective clients come to my office foradviceregardingtheirdebtproblems,Icanlookthemintheeyeandhonestlysay:“Iunderstand.I’vebeentheremyself.You’llgetthroughthisone.”

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“Help, I’m Drowning in Debt!”

Debt has become a big problem in this country.With the economic downturn, consumers who

have suffered from reduced income as a result ofunemploymenthavecontinuedtoborrowjustsotheycancovertheirbasiclivingexpenses.

Wearedrowninginalltypesofdebt–mortgageloans,creditcards,andautomobileloans,tonameafew.Atthetimeofthiswriting,thereisamajorconcernthatthestaggeringamountofstudent loans($1trillion)could be the next financial crisis. I read about arecentstudythatrevealedthatoneoffivefamiliesinthiscountrynowowesmoreoncreditcardsandotherunsecureddebtthantheyhaveinsavingsandotherliquidassets.Thisstatisticisalarming.

According to the Federal Reserve, credit card debtranks as the third largest source of householdindebtedness,next tomortgagesandstudent loans.As of July2012, total credit carddebthas reached$850.7billion.Thetypicalhouseholdhasasubstantialamount of credit card debt: Out of the estimated46.7%ofhouseholdsthathavecreditcarddebt,theaverageamountowedis$15,325.

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Whendebtproblemsbecomeunmanageable,alotofpeopleareconfusedaboutwhattodo,andtheyareoftenunawareoftheiravailableoptions.Forthevastmajorityofpeople,debtproblemsstemfromaseriesof events.Life isuncertainand thereareevents inlife overwhichwehaveno control: unemployment,sickness,disability,deathordivorce.Thesecanoftenleadtoseriousdebtproblems.Inothercases,peoplesimply make bad financial decisions. Sometimesthey’ve simply lost track of how much moneythey’ve borrowed and before they know it, they’veaccumulatedmoredebtthantheycanaffordtopaybackintheirlifetime.

Imaginebeinglockedupinprisonfornotpayingyourdebts. Today, thiswould be considered outrageous,of course. But did you know that as late as 1816,people were still being thrown in prison for notpaying their bills? The prison environment washorribleandpitiful. Inmatesweren’t evenprovidedenoughfoodandbasiclivingneeds.Creditorssimplyseizedeverythingthattheseprisonershadandsaleproceedswereusedtopaywhatwasowed.In1833,thepracticewascondemnedasillegalandinhumane.Additionally,howcouldtheprisonersworktopayofftheirdebtsiftheywerelockedup?

Ofcourse,today,wenolongerhavedebtor’sprison.Butdidyourealizethatalotofpeoplearestillhopelesslytrappedindebt,withnowayout?ThisiswhatIseeeveryday inmyworkasabankruptcyattorney.Alotofpeoplehavebuiltartificialprisonwallsaroundthem.Justliketheimprisoneddebtorsinthe1800s,thesepeoplehavelostthefreedomtolivetheirlivesthewaytheywantto.Theyhavebeenrobbedofthejoy

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oflivingbecauseofthestressandanguishcausedbytheirdebtproblems.Debtproblemscanbecontagiousandoftenspilloverintootherareasofyourlife.Theycanaffectyourmarriage,yourfamily,yourbusiness,andyoursociallife.Theycanalsotakeatollonyourhealthandyouremotionalwell-being.

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Bankruptcy Basics

Bankruptcyisnothingmorethanalegalremedyto give you a fresh financial start. If you are

doingyourbesttomeetyourfinancialobligationstocreditorsbutsimplycan’t,thelawprovidesreliefbywayofdischargingdebtsthatyoucannolongerpayorbyallowingyoutoreorganizeyourdebtstomakethemmoreaffordable.Declaringbankruptcyisoftenvoluntary,althoughinsomecases,creditorscanforceyouoryourcompanyintobankruptcy.

Immediately upon the filing of a bankruptcy case,an “automatic stay” goes into effect, which forcescreditorstostopallcollectioneffortsagainstyouandyour property. Under the law, this is the debtor’sgreatestandmostpowerfulweaponagainstcreditors.Formostpeoplestrugglingwithdebtproblems,thisgives themmuch needed “breathing room” so theycanstartsleepingalittlebitbetteratnightwhileallcreditoractionsareputonhold.Acreditorcanonlycontinuecollectionactionifitobtainscourtpermissionallowingtheautomaticstaytobelifted.Thecreditorfilesamotion(formalrequest),whichthejudgeneedstoreview.Thejudgewillhearbothsidesanddecidewhethertheautomaticstayshouldstayinplaceorbelifted.

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Therearedifferenttypesofbankruptcy.Inthisbook,Iwilladdressonlythetwotypesofbankruptcythatindividuals and small business owners commonlyfile:Chapter7andChapter13.Other“chapters”areavailable under theBankruptcyCode but they arebeyondthescopeofthisbook.

a) Chapter 7 (Dept Wipe Out)

Thisisknownas“straightbankruptcy.”ThetypicalChapter 7 case involves a debtor with few or noassets.Mostdebtsarewipedout inChapter7.ThemostcommondebtswipedoutinChapter7arecreditcarddebts,unsecuredpersonal loans,medicalbills,auto repo deficiencies, foreclosure deficiencies, andotherformsofunsecureddebt.

Upon filing, a trustee is appointed by court whosejob is to sell non-exempt assets. Contrary to whatsome people think, however,most Chapter 7 casesare“noasset”cases.Thismeansthatwhatfewassetsthe debtor has are either protected by law or tooinsignificantinvalueforthetrusteetobeinterestedin selling. For example, the law allows a certainexemption amount for equity in your home, yourvehicle,bankaccounts,personalproperty,etc.Mostretirementplansarealsoprotected.Inmybankruptcypractice,almost100%ofourclientslosenothingandkeepeverything.

Ina typicalcase,most (ifnotall)ofyourdebtsarewipedoutinChapter7.Thismeansthatyouarenolongerliabletopaythem.Somedebts,however,arenot dischargeable in Chapter 7 and you still needto pay them after your case is over. Generally but

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withsomeexceptions,thefollowingdebtscannotbeeliminatedinChapter7:studentloans,backchildorspousalsupport,governmentfinesandpenalties,andmosttaxes.

Thereisa“meanstest”inChapter7thatdeterminesyoureligibilityforreliefifyouareanindividualwithprimarily consumer debts. Before filing your case,yourlawyerwillexamineyourincomeandexpensestodetermine ifyoucanaffordtorepayaportionofyourdebts.Ifyoucan,youmayneedtofileChapter13instead.

b) Chapter 13 (Debt Reorganization)

Chapter13helpsyoureorganizeyourdebtsunderacourt-supervisedplanfor3-5years.InChapter13,youdon’tneedtoworryaboutlosingyourpropertybecausethe role of the trustee in this type of bankruptcyisNOTtosellnon-exemptassetsas inChapter7.Rather,Chapter13 is aboutpayingyour creditorsusingyourmonthlydisposableincomeasyourbasisforamonthlypaymenttoyourcreditors.YouproposeaChapter13repaymentplantothecourt,andonceitisapproved,themonthlypaymentsaremadetoaChapter13trustee,whointurndisbursespaymentstoyourcreditors.Creditorshavetofilea“proofofclaim”toshowthatthedebtisvalid.Iftherearegroundstoobjecttothedebtinquestion,youmayfileanobjectionandthejudgewillhearthematteranddecideonwhethertheclaimistobepaidbythetrustee.

All types of debts are combined into one monthlypaymentandcreditorsmaybefullyorpartiallypaid.

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You can include credit card debt, personal loans,medical bills, student loans, taxes, back child orspousalsupport–younameit.Ifyouarebehindonyourmortgagepaymentsandarefacingforeclosure,you can also include back mortgage payments inyour plan. As amatter of fact, this is one of themost common reasons for filing a Chapter 13insteadofaChapter7.Byincludingthedelinquentmortgage payments in your bankruptcy, this curesthedelinquencyasyoumakeyourtrusteepaymentseverymonth. InChapter 13, certain creditors takepriorityoverotherswhenitcomestogettingpaid,sotheyarefirst in lineand thusarepaidfirstby thetrustee.Backmortgagepaymentsareoftenpaidfirst,along with taxes owed to the government, if suchdebtsarealsoowed.

InordertobeeligibleforChapter13,youwillneedregular incomewithdisposable income.Disposableincomeiswhatyouhaveleftoverafteryoupayforyour basic living expenses such as rent, food, andutilities. As of this writing, you can’t owe morethan $1,081,400 in secured debt and $360,475 inunsecured debt in order to file under Chapter 13.These amounts are often changed to conform toConsumerPriceIndexadjustments.

“Regularincome”couldbeincomefromyourjob,pension,Social Security, or sometimes even unemploymentbenefitsorcontributionsfromfamilymembers.

IfyourincomeorexpenseschangewhileyouareinChapter13,youmaybeabletoaskthecourttomodifyyourplan.Forexample,ifyouincuradditionallivingexpensesthatarereasonableandnecessary,itmay

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bepossibletoaddthesetoyourmonthlybudgetandthereby reduce the disposable income. This meansthatthereisnowlessmoneyavailabletomakeyourChapter13paymentandyoucanpetitionthecourttoloweryourpaymentaccordingly.Insomecases,unlessthere are other reasons to stay inChapter 13, youmayevenbeabletoconvertthecasetoChapter7anddischarge the remaining debt (assuming the debtsarethetypethatcanbedischargedinbankruptcy,ofcourse).

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If You Are Facing Foreclosure

Nothingisassacredasourfamilies,ourbeliefs,andourhomes.To thousandsofhomeowners

in danger of losing their homes, the nightmareof foreclosure has become the dark side of theAmericandream.

Onlyafewyearsago,alotofthesehomeownerswhofeltthattheyhadbeenshutoutofhomeownershipforalongtimefinallyhadthechancetofulfilltheso-called“Americandream”bypurchasingtheirfirsthome.Alotofhomeswerepurchasedwith“zeroorlittledown”withstatedincomeandnoassetverification.Alotofpeoplealsosignedupforadjustableratemortgages(ARMs)withtemporary,low“negativeamortization”or “interest-only” payments for a few years. Theirloanbrokerstoldthemnottoworrybecauseinafewyears, their homes would appreciate in value, andthey would be able to refinance before the higherpaymentskickedin.Ofcourse,therestishistory.TherealestatemarketcrashedandwewereallshockedtowitnessarecessionthatalmostlookedliketheGreatDepressionofthe1930s.

AsIstatedabove,oneofthemostcommonreasonsforfilingaChapter13istostopforeclosure.Ifyouare

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behindonyourmortgagepayments, thearrearagescanbe included in theChapter13plan in order tocatchup.The foreclosurestopsonthedaythat thebankruptcycaseisfiledandyoucansimplyresumemakingyourregularmortgagepaymentsafterfiling.Alotofpeoplewhoareinforeclosurearealsobehindontheirproperty taxandHOAfeespayments,andthesecanbeincludedintheChapter13aswell.

If you have a “wholly unsecured” secondmortgage(i.e.,thesecondmortgageisnotsupportedwithequityin theproperty), youmaybe eligible for somethingcalled “lien stripping.” This means removing thesecondmortgage from your property and paying itasanunsecureddebtthroughyourChapter13plan.Inmostcases,generalunsecuredcreditorsgetpaideithernothingoronlyaverysmallpercentageofthedebtowedinChapter13.Soifthesecondmortgageis “stripped off,” this means that you can eithereliminateorsignificantlyreducetheunderlyingdebt.OnceyoucompleteyourChapter13plan,thesecondmortgageholderreleasesthe lienonyourproperty.Lienstrippingworksbestforpeoplewhosehomesare“underwater,”whichisprettycommoninthecurrentrealestatemarket.Thishelpsstrugglinghomeownersbymakingtheirmortgagepaymentsmoreaffordable.

InChapter7,anypendingforeclosureisalsohaltedduetothe“automaticstay”inbankruptcy,althoughthismaybeonlytemporary.Ifyouaredelinquentonyourmortgage,thecreditormayseekautomaticstayreliefandstillcontinuewiththeforeclosureprocessonceitobtainscourtpermissiontodoso.Ifthereissubstantial equity in the property, the judge maysometimes deny the creditor’s request to foreclose

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while the bankruptcy case is pending. Thatmeansthe lender will not be able to continue foreclosureuntilafteryourcaseisdischarged.Ifyouhaveequityinyourpropertybutowebackmortgagepaymentsatthetimeoffilingyourbankruptcy,youshouldconsultwith a bankruptcy attorney who can explain thisprocesstoyouinmoredetail.

Sometimes,non-bankruptcyoptionsmaybeavailableeither to save the property or surrender it to thelenderwithnofurtherliability.Youhavetokeepinmindthatforeclosingonyourpropertycouldbeveryexpensiveforthelender.Inordertomitigatelosses,yourlendermaybeamenabletothefollowing:

• Repayment Plan:Thisisawrittenagree-ment between you and the lender to helpyou make up missed payments. Generally,theagreementwillrequirehigherpaymentsthan your regular mortgage amount for ashort period of time until your account isbroughtcurrent.

• Forbearance Agreement: The lendermayallowyouaperiod of timeduringwhichyoumakeeither lowerpaymentsornopaymentsatall.Unlesstheloantermisextended,laterpayments will generally be higher than theregular mortgage amount until the loan isbroughtto“current”statusagain.

• Refinance: Unless you are seriously delin-quentonthecurrentmortgage,thismaystillbeanoptionifyouhaveequityinyourproperty.Havingnoequitymaynotbean issue ifyou

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aredoingarefinanceunderoneofthecurrentgovernmentprograms(seebelow).

• Deed in Lieu of Foreclosure: With thelender’scooperation,thisallowsyoutosimplydeedyourpropertybacktothelenderandavoidhavingaforeclosureonyourcreditreport.

• Short Sale:Wherethecurrentmarketvalueof your home is less than the loan balance,the lender may agree to take less than thefull amount as full satisfaction of your loanobligation if you can find a buyer for yourproperty. Since the bank is forgiving part ofthe loan, note that this may result in “debtcancellation income” which is consideredtaxable income by the IRS. Some exceptionsmayapplyunderrecentlawsthatwerepassedsince the mortgage crisis began. For yourprotection,justbeawarethatthisisanissuethatoftencomesupwhenacreditorcancelsadebt,soIsuggestthatyouconsultwithataxprofessional who can give you proper adviceregardingthepotentialtaxconsequencesofashortsale.

• Loan Modification:Thishasbecomeaverypopular option in the last several years andchancesarethatyouknowsomeonewhomayhave been successful in getting a mortgagemodified by a lender. A loan modificationinvolves changingoneormore termsofyourexistingmortgage. For example, the interestrate may be reduced. Your loan may bechanged from an adjustable rate to a fixed

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rate.Themortgagetermmaybeextended.Insome cases, the principal amountmay evenbereduced. It isnotarefinancebecausethelender isnotgivingyouanew loan.Rather,it isthesameloanbutthetermsaresimplybeingmodifiedeithertogetyoucurrentand/or to make the payments more affordable.This means that if you are delinquent, thearrearages will be added to your mortgagebalance. To be granted a loan modification,youmustbeabletoproveastrong,justifiablereasonand/orfinancialhardship.

Making Home Affordable Program (MHA):

TheObamaadministrationdeveloped thisprograminordertohelphomeownerswhoarehavingdifficultymaking their mortgage payments due to financialhardship.ForloansownedorguaranteedbyFannieMaeorFreddieMac,servicerparticipationisrequired.For all others, participation is only voluntary onthepartoftheservicer.Callyourlendertofindoutif you qualify for relief under any of the programsavailable. There are options for the unemployed.Refinancing may be possible even without equityinyourproperty.Thereareoptionsforthosewhosehomesareworthlessthanwhattheyowe.Formoreinformation,youcangototheMHAwebsiteatwww.makinghomeaffordable.gov to explore availableoptions. The loan modification option under theMHAiscalledHAMP(HomeAffordableModificationProgram). If your lender tells you that theydonotparticipateinthisprogram,theymaystillofferyoutheir own “in-house loan modification,” which is aHAMP“look-alike”althoughthetermsmaynotbeas

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goodaswhatyoucanobtainunderHAMP.ThegeneraleligibilityrulesunderHAMPareasfollows:(a)Thepropertyinquestionmustbeyourprimaryresidence,(b)Theexistingmortgageamountmustbeequaltoorlessthan$729,750,(c)Youmusthaveaqualifyingfinancialhardship,(d)ThemortgagemusthavebeentakenoutbeforeJanuary1,2009.BecauseofthefactthatHAMPonlycoveredpropertiesusedasaprimaryresidence,thisautomaticallydisqualifiedpeoplewithrentalpropertieswhowerealsostrugglingwiththeirmortgage payments.As of thiswriting,HAMPhasbeenexpandedbythegovernmenttoincluderentalpropertiesaswell.Someoftheeligibilityruleshavealsobeenchangedtohelppropertyownerspreviouslyexcluded.Again,youcangototheMHAwebsiteabovetogetmoreinformation,asfeaturesandrulesoftheprogramareconstantlychanging.

Liability After Foreclosure

If your property is lost in foreclosure, whether ornot you have further legal liability to the lender(or lenders, if you have more than one mortgage)willdependonthelawsofyourstate.Forexample,if yourproperty isworth less than theoutstandingmortgageormortgagesatthetimeofthesale,theremaybea“deficiency”ifthenoteisnotpaidinfull.Insomestates,ahomeownermaybelegallyliableforadeficiencybalanceevenafterthehouseisgone.Lawsvaryineachstateandtheycanbecomplex,soitisinyourbest interest to consultwithanattorney tofindoutwhereyoustandafterforeclosure.Thepointisthis:don’tassumethatyouhavenoliabilityafterforeclosurebecausethatisnotalwaysthecase.

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When Foreclosure Is Inevitable

OK, let’s say that you’ve lookedat all your optionsand you’ve done everything you can to save yourhome–but in theendyou’ve come to the conclusionthat you simply can’t afford to keep it anymore. Ifeelyourpain.Iknowthatthismaybethefirsttimeyou’veeverhadtogothroughsomethinglikethisinyourlife,butletmesharewithyoumythoughtsonthissituation.

Atthistime,youmaybefeelingdepressed,frustrated,orevenangry.Listentome. It’snot theendof theworld.Believeitornot,thereislifeafterforeclosure,andthingsmaynotbeasbadasyouthink.Youmaynotseethisnow,buttrustme–likemostproblemsinlife,thistoowillsoonpass.

Thefact isthatmost foreclosurevictimseventuallybecomehomeownersagain.Youneedtohaveasolidplanforthefuture,andnowisagoodtimetostart.Theamount of effort youput ingoing forwardwilldeterminehowlongitwilltakeforyoutorebuildyourfinances,yourcredit,andyourlife.

Ifyouhavenotfoundanewplacetolive,obviouslythatisthefirstthingyouneedtodo.Inlookingfora house or apartment, do not be embarrassed totellthelandlordthatyourecentlylostyourhousetoforeclosureandthatyouarenowstartingover.Thesedays,therearealotofhousesforrentandIamseeingthatlandlordshavebecomesomewhatmoreflexiblewhenscreeningprospectivetenants.If you have good personal references, stableemployment,andthemoneyforthefirstmonth’s

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rentandtherequiredsecuritydeposit,youshouldhavenoproblemfindingtherightplace.Ofcourse,not all landlords have the same criteria– so youshouldlookaroundandseewhat’soutthereforyou.

If your household expenses have gone downsignificantlyafterforeclosureduetoyourreducedhousingexpenses, for thefirst timeyoumaynowbe in a position to save money and plan for thefuture.Thisisthetimetostartanemergencyfund.Make sure you have at least 3 months’ worth ofliving expenses put aside. Start putting togethera financial plan for your retirement, perhaps acollegeplan foryour children ifyouare raisingafamily.Makesureyouhaveadequatelifeinsurancetoprotectyourlovedones.Openasavingsaccountandstartputtingasideatleast10%ofyourincomeeverymonth. Ifyoudo this consistently, ina fewyears,youcanhaveenoughmoneytouseforadownpaymentonyournexthome.

I don’t know the circumstances that led toyour foreclosure, but whatever they may havebeen, remember that they are no longer of anyconsequence–unlessyouallowthemtobe.Sopickyourself up and quit blaming yourself or othersforwhathashappened.Thepastisanundeniableand an unchangeable fact. But your future stillholdsunlimitedopportunities.Donotallowyourawarenessofpastfailuresordifficultiestoadverselyaffectyourcurrentandfuturepossibilities.

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4 Big Lies You May Have Heard about Bankruptcy

If you are in serious financial trouble, you needstraightanswersaboutbankruptcy.Sadly,alotofpeoplewhoneeddebtreliefarenotgettingthekindofhelpthattheyneedfromour legalsystem.Lawsarepassedtohelp,nottohurtpeople.Ifyouareinasituationwhereit’ssimplyimpossibleforyoutocopewithyourdebtproblems,thelawoffersaremedy.Sowhy suffer needlessly? If youwere physically sickandtreatmentwasavailable,youwouldn’trefuseitwouldyou?

FACT:Amajorityofpeopleinseriousfinancialtroubledon’tseektheadviceofanattorneyuntilthingshavegottenreallybad.Ithinkthereasonforthisisthatpeopleareoftengivenallkindsofmisinformationbycreditors, other so-called “financial professionals,”or sometimes, even friends, co-workers, and familymembers who have no clue about how the legalprocessworks.Creditorsdon’twantyoutoknowyourlegalrights–becausetheyknowthatonceyoudo,theymaynotgetanymoreofyourmoney.

A lot of people are scared even to find out what

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bankruptcyreliefcandoforthem.Theyhaveheardhorror stories of losing everything they’ve workedhard for and never being able to get credit again.Perhapsyou’veheardsomeofthesestoriesyourself.Letme tell you,however, thata lot ofwhatyou’veheardaboutbankruptcyisplainnonsense!

Letme clearup some of the common lies youmayhaveheardaboutbankruptcy:

Lie No. 1:“I will lose everything I own if I file bankruptcy.”Truth: Thepurposeoffilingbankruptcyistogiveyoua freshfinancial start free fromtheburdenofdebtaswellastoprotectwhatyouhave.AsIpreviouslystated in thisbook,mostpropertyandotherassetscan be protected under the exemptions laws, so inmostcases,youlosenothingbutyourdebts.

Lie No. 2: “My life will never become ‘normal’ again after filing for bankruptcy.”Truth:Howdoyoudefine“normal”?Ifyouconsiderhaving to live with creditor harassment, sleeplessnights, and constant worrying about your financesmore“normal”thanfilingbankruptcytogetoutofdebt,I can seeyourpoint.Otherwise, your concernaboutnot having a “normal” life after bankruptcy doesn’tmakesense.Everyyear,morethan1millionpeopleintheUnitedStatesfileforbankruptcytogetoutoftheshacklesofcripplingdebtandstartanewlife.

Lie No. 3:“I will never be able to buy a house or car again if I file for bankruptcy.”Truth:Hogwash.Askanymortgagebrokerandheorshewilltellyouthetruth.Therealityisthatifyour

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bankruptcy isat least2yearsold,mostbankswillstillgiveyoualoantopurchaseahomeifyoumeetallothercreditrequirements(i.e.,goodemployment,salary, sufficient down payment, etc.) If buying aneworusedcar,havingabankruptcyonyourrecordis not a problem provided that your case has beendischarged.Whileitistruethatyoumayhavetopayhigh interest rates in the beginning, over timeyouwill be able to rebuild your credit as you establishcreditworthiness. Over time, credit card companieswill also start sendingyou credit offersagain. It isyour responsibility to take care of your credit afterbankruptcyandmakesurethatyoudon’tmakethesame mistakes that you may have made the firsttimeyoufiledforbankruptcy.Iwilltalkmoreaboutrebuildingcreditafterbankruptcyinalaterchapter.

Lie No. 4:“Filing for bankruptcy is embarras-sing because everyone will know that I filed.”Truth: Wrong. Your creditors are notified bythe court when you file. While bankruptcies are amatterofpublicrecord,noonewillknowaboutyourbankruptcyunlessheorsheisdeliberatelytryingtofind informationonyoubysearchingcourt records.Co-signorsarelistedonthepetitionandarenotifiedbythecourt justsotheyaregivennoticetoprotecttheirrightsbutotherthanthesepeople,nooneelsebutyourcreditorswillreceiveanotice.Youremployerisnotnotifiedunlessyouremployerisalsoacreditororisholdingassetsonyourbehalf.These are only a few of mistaken notions aboutbankruptcythatmaystoppeoplefromtakingactiontoturntheirsituationsaroundandtoprotectwhattheyhave.Ifyouarenotsureaboutanyofthepracticaland/orlegalaspectsofyourcase,youshouldconsult

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with an experienced and knowledgeable lawyerwho canaddress all your concerns and explain theadvantagesanddisadvantagesofbankruptcyfiling.Inalotofcases,yourerroneousbeliefsmaydepriveyouofthesolutionthatyoudesperatelyneed.

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Does Filing Bankruptcy Make Sense for Your Situation?

SomeofthequestionsIamoftenaskedare:Whendoesfilingbankruptcymakesense? Howmuch

shouldIoweinordertofilebankruptcy?Myanswertothesequestionsisalwaysthesame:Whetherornotitisadvisableorpracticalforyoutofilewilldependon the unique facts of your situation, the types ofdebtsyouhave,andyourintendedobjectiveinfiling.Peoplecometoourofficefordifferentreasonswhenexploring the bankruptcy alternative. Below arethreeofthemostcommon:

a) Credit Card Debts Are Out of Control and Bankruptcy Is the Only Way Out.Lotsoftimes,for whatever reason, credit card debts have gottenout of hand and the person sitting acrossmy deskis severely distressed and confused, not knowingwhat to do. Credit cards can be handy, especiallyin emergencies.However, they can also be terriblymisused.Forexample,somepeopleusetheircreditcardsas if theywerespending theirownmoney. Ifyouhavetoborrowit,itisnotyours.Butcreditcardscreate the illusion of havingmoney and it’s easierto say, “just charge it” insteadofgoing to thebanktowithdrawcash.It’sthesamereasonwhytheyuse

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casinochipsinVegasinsteadofrealmoney–becausebettingwithchipsismucheasierthanplunkingdownrealmoneyon the tables. On the otherhand, somepeopleresorttousingcreditcardsoutofneedbecauseincomeisalwaysshortandtheyaresimplytryingtomakeendsmeet.Sinceover90%ofthepopulationlivespaychecktopaycheck,anyshortageinincomecanforcemostpeopletoborrowjusttomakeupfortheshortfall.When appropriate, filing bankruptcy can provideimmediaterelieffromtheviciouscycleofborrowingsothatyoucangetyourfinancesbackinorder.

b) To Stop Creditors from Taking or Attaching Assets.Whenacreditorfilesalawsuitandobtainsajudgmentagainstyou, thenextstep inthecollectionprocessistheenforcementofthejudgment.Ifyouareemployed,thecreditorcanobtainawagegarnishmentorderandhavepartofyourwagesturnedovertothelevying officeruntil thedebt is fully satisfied. If youhaveabankaccount,youraccountmaybefrozenandthemoneyturnedovertothecreditor.Ifyouarebehindonyourcarormortgagepayments, thecreditormayrepossessorinitiateforeclosureproceedings.Iamoftenperplexedastowhyalotofpeoplewaituntilthelastminutetofindoutwhattheycandotolegallyprotectthemselves from all of the above. They know theyhavenotbeenpayingtheirbills.Theyareawarethatcreditorsareactivelytryingtopursuecollection.Theyknowthattheirassets,property,andwagesareatrisk.Forwhateverreason,alotofpeoplesimplyburytheirheadsinthesand,pretendingthattheirdebtproblemsdon’t exist and that somehow, creditors will simplygiveup.Thenoneday,theyareservedasummonsorawagegarnishmentorderatworkandthat’swhentheystarttopanic.

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Ifyouarefacingforeclosureofyourhome,rememberthattimeisoftheessenceandifyouwaituntilthelastminutetotakeaction,youmayfindthatyouhaveverylimitedoptions.Ifkeepingyourhomeisimportanttoyou,consultwithanattorneyrightawaysothatyouknowexactlywhereyouareintheforeclosuretimelineif your lenderhasalready started formal foreclosureproceedings. If you are not that far behind on yourpayments and foreclosure has not begun, it may bepossible to simply work out a repayment plan withyourlenderinordertocatchup.

c) Other Debts (Besides Credit Cards) Cannot Be Paid.Ofcourse,creditcarddebtisnottheonlytypeofdebtthatpeoplehave.SomepeopleoweIRSandstatetaxes, medical bills, back child or spousal support,studentloans,etc.Othershavehadacarrepossessedorahouseforeclosedonandthelender(sometimesa2ndmortgageholderonaforeclosedhome)istryingtocollecta“deficiencybalance.”

Not all debts can be eliminated in bankruptcy.With a few exceptions, generally, the following arethe common debts that cannot be wiped out in abankruptcyproceeding: student loans,backchildorspousalsupport,governmentfinesandpenalties,andmosttaxes.

“Danger Signs” that You May Be Headed towards Financial Trouble

A lot of people don’t realize how serious their debtproblems are until things have gotten so bad thattheycannolongerignoretherealityoftheirfinancialsituation.Ifyousensethatyoumaybeonthepath

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leadingtodebttrouble,herearesomeofthe“dangersigns” that youmaywant to pay close attention tobeforeit’stoolate.Youcanignorethesesignsatyourownrisk.Earlydetectioncanhelpyoupreventyourfinancial problems from escalating. How many ofthesestatementsaretrueforyoursituation?

1.Youarebehindinpayingyourcreditcardsandotherbillseverymonth.

2.Youcanonlyaffordtopaytheminimumonyourcreditcardseverymonth.

3.Youareusingcreditcardtransfersorcashadvancestopayothercreditcards.

4.Afteryoupayyourcreditcardbill,youincreaseyourbalancebythesameamountormorethefollowingmonth.

5.Yourcreditcardsareallmaxedout.

6.Yourchecksarestartingtobounce.

7.Youarestartingtousecreditcardsforbasiclivingexpensesthatyoucan’taffordtopaycashfor.

8.Youhavebeensuedbyoneormorecreditors.

9.Billcollectorsarecallingyouathomeand/oratwork.

10.Youhaveverylittleornosavings.

11.You’vecompletelylosttrackofhowmuchyouowe.

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Common Bankruptcy Mistakes to Avoid

Inmyfourteenyearsofpracticingbankruptcylaw,I have seen several mistakes that people makewhenfilingbankruptcy.Alotofthesemistakesareavoidable if you seek the advice of a bankruptcyattorneyearly.ThislistisnotexhaustivebutcontainsthemostcommonmistakesthatI’veseen.Herearesomeofthecommonpitfallstoavoid:

• Over-Analyzing. Icanunderstandwhypeopleusuallyputoffthedecisiontofilebankruptcy.After all, it is often a big decision.However,overtheyears,I’vealsoseenalotofpeoplewhohaveconsultedwithdifferentattorneysabouttheirsituation.Theircasehasbeenevaluatedcountless times with the same advice givenbytheattorneyeachtime.Buttheystillcan’tmake up their mind about going forward.Theygetintothe“paralysisofanalysis”withathousand“whatif”questionsontheirminds.Every time you address their questions andconcerns,theywillalwayscomeupwithmore,andyoujustgettothepointwhereitisnever-ending and nothing ever gets done. In the

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meantime, theirfinancialsituation isgettingworseandworsebythedayandtheymaybeatapointwhereimportantlegalrightsmaybelost.Pleasedon’tgetmewronghere.Iamnottryingtodiminishthefactthatthedecisiontofilebankruptcyisnottobetakenlightlyinanyway. I am simply saying that once youhaveall the facts that you need and have had achancetocarefullyweightheprosandconsoffiling,perhapstheonlythingyouhavelefttodoistotakeactionsothatyoucanchangeyourfinancialsituationforthebetter.Therecanbenoprogresswithoutaction.

• Failure to Understand that Timing May Be Critical.Waitingtoolongtofilemaygiveyourcreditorsopportunitytoseizeyourassets,forecloseonyourhome,orgarnishyourwages.Forexample,itisamazingtomewhyalotofpeople wait to see an attorney until the daybeforetheirhomeistobesoldataforeclosuresale!Ifyouarefacingforeclosure,theclockistickingandifyouwaittoolonguntilyouareclosetothesaledate,youmayregrettofindoutthatit’stoolatetosaveyourproperty.Also,keepinmindthatwhenyouseeabankruptcyattorney,youmaybetoldthatyouareeligible fordebtrelief basedonyourfinancial situationat thetimeoftheconsultation.Ifyourcircumstanceschange(example:incomegoesup,expensesgodown,orboth),youmaynolongerbeeligible.Ifyouforeseechangesinyoursituation,findouthowthese impactyourcase.Filingacase tooearlyortoolatemaycauseproblemsthatyoudidn’tanticipate.

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• Acquiring More Debts Prior to Filing. Significant cash advances, balance transfers,and large purchases on credit prior to filingbankruptcy must be discussed with yourattorney.Onceyoumake thedecision tofile,you should stop using your credit cards. Ifyoudon’t,yourfilingcanbeviewedasa“badfaith” filing by the court, which could resultinadismissal.Creditorscanalsoobjecttothedischargeofthedebtbasedonfraud.

• Borrowing or Withdrawing from Your Retirement Account to Pay Creditors.I have seen people use money in theirretirementplansuchasanIRAor401Ktopayoffunsecureddebtspriortofilingbankruptcy.Firstofall,Ithinkpeopledothisbecausetheyoftenerroneouslybelievethatitmakessensetodeplete their retirementplan topaydebtsratherthanloseitshouldtheyfilebankruptcy.In bankruptcy, however, most retirementplansareexempt,sotheremaybenoriskatallinlosingyourretirementmoney.Secondly,I personally believe that there is no need tosacrifice retirementmoney to pay debts thatyoucaneliminateinbankruptcyifbankruptcyseems inevitable anyway. Early retirementplanwithdrawalscanalsoresultinheftytaxpenalties and liabilities, so this might justmakeyourfinancialsituationworse.

• Transferring Assets to Others Before Filing.Ifyoutransferassetsoutofyournameinanticipationoffilingbankruptcy,youneedto be aware that this may be considered a

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“fraudulent conveyance” by the bankruptcytrustee.Givingawaymoney,property,orotherassets to family members will NOT protectwhateveritisthatyou’retransferring.Infact,thebankruptcytrusteemayevenbringacourtaction against the transferee to reverse thetransfer. A “fraudulent conveyance” may beviewedasanattempttodeceiveyourcreditorsand the court, and thismay jeopardize yourbankruptcydischarge.

• Failure to List All Debts.Ifyouforgettolista creditor on your bankruptcy petition, thiscreditormaycomeback laterafteryourcaseisoverandclaimthatbecausetheywerenotproperlynotified,thenyoustillowethedebt.Makesuretolistalldebtsinyourbankruptcy,evenifit’sadebtthatyouintendtopaybackorevenifyouhaveaco-debtororco-signor.

• Paying “Insider” Creditors. “Insider”creditors are often family, friends, businesspartners,andothercreditorswhohaveacloserelationshipwith you, the debtor.Under thebankruptcy laws,creditorsaretoreceive fairtreatment during the bankruptcy process sothatany“insider”paymentsmaybeconsidereda“preference.”Ifyoupayan“insider”withinoneyearpriortofilingyourbankruptcycase,thelawsaysthatthebankruptcytrusteecansue the payee to recover the payment youmade.Insomestates,trusteesmaylookbackevenfurther.

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• Failing to Disclose Everything to Your Lawyer. You sign your bankruptcy papersunderpenaltyofperjury.Somepeopleconcealinformationfromtheirlawyers,thinkingthatif they justkept theirmouths shutaboutanassetoranaccount,noonewilleverfindoutanyway.Warning:lyingtocourtisaseriousoffenseandyoucouldbechargedwithperjuryandfraud.Ifyoulie,youcanlosetheassetthatyou’retryingtohide,haveyourcasedismissed,and– depending on the seriousness of theoffense– even face criminal charges. Don’tmake your problemsworse than they are. Ifyou are not honest with your attorney, yourattorneymaywithdrawfromthecase.Discloseeverythingtoyourattorneyatalltimessothathe or she can protect your rightswithin theboundsofthelaw.

• Ignoring Pending Lawsuits or Judgments.By the time a person sees a bankruptcyattorney,lawsuitsmayhavealreadybeenfiledorjudgmentsobtained.Ifacreditorobtainsajudgment against you, that creditormay filea judgment lien against your home or otherpropertyyoumayownatthetime.Rememberthatonlyfilingbankruptcycanstopapendinglawsuit or a judgment from being enforced.Butifacreditorhasalreadyfiledajudgmentlienagainstyourhomeorotherrealpropertybefore your bankruptcy case is filed, filing abankruptcy will NOT automatically removethelienalthoughtheunderlyingdebtmaybedischarged.Theremaybeawaytoremovethelienafteryourbankruptcycaseisfiled,butyou

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need to inform your attorney about it. Don’tassume that your bankruptcy lawyer willcheckforfiledjudgmentliens.Youmayneedtoobtainareportfromatitlecompanyorcheckwiththerecorder’sofficetocheckforjudgmentliensfiledagainstyourproperty.

• Hiring the Wrong Attorney for Your Case.AsIdiscusslaterinthisbook,hiringtherightattorney can mean the difference betweenfailure and success in your bankruptcy case.Communication between yourself and yourattorney is important. Your attorney shouldalso understand your goals and share yourobjectives.MoreonthistopicinChapter9ofthisbook.

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Are There Alternatives to Bankruptcy?

Thisbookwouldn’tbecompletewithoutmentioningthatinsomecases,theremaybealternativesto

filing bankruptcy. Since bankruptcy is often a lastresort,youneedtofindoutifthefollowingareviableoptionsforyoutogetoutofthefinancialmessthatyou’rein.

a. Debt Payment Work Out:Ifyoudon’towealottoyourcreditors,itmaybepossibletoavoidbankruptcybynegotiatinganaffordablepaymentplanwiththem.Somecreditorsmaybewillingtotemporarilyreduceyourmonthlypaymentsandwaivelatecharges.Othercreditorsmayoffertojustclosetheaccountandhaveyoupaythebalanceininstallmentsat0%interest.

b. Using Savings or Selling Assets to Pay Off Debts:Sometimes,itmaybepossibletosellassetsyou no longer need to raise cash needed to pay offyourdebts.Theassetmaybeasecondvehicle thatyouhardlydrive,atimeshare,vacantland,ormaybesomepersonal jewelry. Somepeople choose to cashouttheirretirementplan,suchasanIRAora401Kplan.Becarefulwhendoingthis,however,sincethis

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mayresultinataxliabilitythatyoucan’tafford.Besuretoconsultwithataxprofessionalwhocanadviseyou regarding the tax ramifications of liquidatinga retirement plan. Once you know what those taxliabilitieswouldbe,thenyoucanweighthemagainstthebenefitsofpayingoffyourdebts.

c. Debt Settlement: Of course, creditors wouldpreferreceivingsomepaymentthannopaymentatall.Theolderthedebtis,themoreopenacreditorwillbetotheideaofareducedsettlement.Ifacreditortellsyouthattheydon’tsettleatall,don’tbelieveit!Fromexperience,I’veseenthatalmost100%ofallcreditorsI’vedealtwithovertheyearswouldsettleforareducedamountdependingonthecollectionpotentialofthedebtinquestion.Youhavetorememberthatineverystate, there is a “statute of limitations,”which is afixedperiodoftimeinwhichacreditormustbringacourtactiontocollectorotherwiselosetherighttodoso.Ifcollectionofthedebtisdoneaftertheperiodhaspassed,youcanraisethisfactasadefenseincourt.

Inourpractice,weoftensettledebtsforaslowas10-60%oftheoutstandingbalance.Ofcourse,percentagesvarywitheachcreditorandtherearenoguaranteesastowhatamountwillbeaccepted.Iamtalkingaboutunsecured debts like credit cards, personal loans,medical bills, auto repo deficiencies, etc. For creditcards, this kind of settlement is often possible oncethedebthasbeen“chargedoff,”whichisusually180days or longer after the debt has gone unpaid. Theterm“chargeoff”isoftenmisunderstood.Manypeopleerroneouslybelievethatonceadebtis“chargedoff,”itautomaticallymeansthatthedebthasbeencancelled.This is not true. What this actually means is that

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thecreditorhasdeclaredthedebtasaloss,inwhichcaseitcouldeitherjustwriteitoffasabaddebt(anddiscontinuecollection)orselltheaccounttoacollectionagency. The latter is what often happens. So nowinsteadoftheoriginalcreditorcallingyoutocollectthedebt,youaredealingwithaprofessionaldebtcollector.Whilethismaynotseemlikeanadvantagetoyou,itmayactuallybetoyourbenefit.Why?Becausemostofthetime,theseuncollectibleaccountsarepurchasedfrom the creditor for pennies on the dollar and thecollection agency still stands to make a good profitevenifthey justsettlewithyouforafractionoftheactualamountowed.

Consumer Alert: Ifyoudecidetosettleyourdebts instead of filing bankruptcy, youmustbe aware of “debt settlement schemes” thatarerampanttoday.Iamtalkingaboutalotofthedebtsettlementcompaniesthatadvertiseeverywhere–on the internet, on TV, on theradio–youseethemeverywhere.Thefederalgovernment has uncovered a significantnumber of abusive practices by some debtsettlement companies. While there may besomelegitimatecompaniesoutthere,youneedto proceedwith caution before hiring a debtsettlement company. Here are some of thethingsthatyoushouldwatchoutfor:

• The debt settlement company cannot help you if you get sued.Alotofthesecompaniestell you that once you hire them, they willdeal with your creditors on your behalf and

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thatallyouneedtodoistoreferallcreditorcallstothem.Ifyoudon’treadthefineprintintheagreement,youwillmissthepartthatsaysthattheyarenotattorneysandthereforecannot give you legal advice or provide legalrepresentation if you were to be sued by acreditor.Inotherwords,onceacreditorfilesalawsuitagainstyou,youareonyourown.Somecompaniesmisleadpeoplebytellingthemthatthere’sonlyasmalllikelihoodofyoubeingsuedif you stopped paying your creditors. Othersimply that theyare staffed or affiliatedwithattorneyswhocandefendyouinalawsuit.Ifyou get sued by a creditor, chances are thatyouwill endupfilingbankruptcyanyway inordertostopthelawsuitunlessyoucanaffordtopaythedebtinfull,pluspossiblycollectionfeesandcosts.

• Hiring a debt settlement company may come with a high price.Beforesigninganagreement with a debt settlement company,makesurethatyouunderstandhowmuchtheyarechargingyouinfeesandhowthefeesarebeingpaid.Ihaveseennumerouscaseswherethedebtsettlementcompanyhasalreadybeenpaid in full but not a single debt has beensettled. By the time the consumer cancelstheservicesforwhateverreason(andalotofpeopledocancelafterseveralmonthsoryearsof paying), hefty fees have been paid for noservicesrendered.Theywillthentellyoutolookattheagreementthatyousigned,whichstatesthat fees are considered “non-refundable.”Also,beawarethatdebtcancellationincomeis

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consideredtaxablebytheIRS.Soifacreditorforgives part of what you owe, the amountof savings canbe considered taxable income.Thereisan“insolvencyexception”underIRSrulesthatmayhelpyouavoidthetax.Consultwithyourtaxadvisorregardingpotentialtaxconsequences of debt settlement. I am notsaying that thepotential tax liabilityalwaysnegates the potential savings and benefitsachieved by debt settlement, but this isdefinitelyanissuetoconsiderwhenweighingyourdebtreliefoptions.

• Penalties and interest continue to accumulate while your debts remain unpaid. Once you default on your debtpayments,penaltiesandinterestchargeswillcontinuetopileupuntilyourdebtsaresettled.If you are unsuccessful in negotiating withcreditors,youwillcertainlybeworseoffthanwhenyoustartedbecauseobviously,yourdebtamountswillbesignificantlyhigher.

• Most debt settlement programs fail.According to the government, only about10% of consumers who sign up with debtsettlement companies are successful. Whysuch a low success rate? I think that thereare several reasons.First of all, I think thatamajorityofpeoplewhohiredebtsettlementcompaniesarenotinapositiontoafforddebtsettlement to beginwith. So they commit topayacertainamounteverymonth,butifyoulook at their monthly budgets, they clearlydonothave thedisposable incomeneeded to

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makethepayments.Inotherwords,perhapsthesepeoplewouldhavebeenbetterofffilingbankruptcytogetridoftheirdebts.Secondly,a lotof thesedebtsettlementcompanieswillputyouonalengthy3-5yearprogram(tolureyouintosigningwithlowmonthlypayments),whichmakesyouvulnerabletolawsuitsfiledby creditors who have not been paid duringthattimeperiod.AndasIstatedabove,onceyougetsuedbyacreditor,there’sagoodchanceyouwillfilebankruptcyandgetoutofthedebtsettlementprogram.

Pleasedon’tgetmewrong.Ihavenothingagainstdebtsettlementandasamatteroffact,wehavesettleddebtsforalotofourclientswheneverbankruptcywasnotagoodoptionforthem.Forexample,theclientcouldhaveassetsthatmaybeatriskifhefiledbankruptcy–ortheclientsimplywantstoavoidbankruptcyandnegotiatewithhisorhercreditorsinstead.Ithinkthatinthesecases,weareabletodoamuchbetterjobthanadebtsettlementcompanywould,becauseasattorneys,weare able tomonitor the client’s situation during thenegotiation process and properly advise him or herof legal optionswhennecessary.Wealsomakesurethat the client fully understands the potential risksinvolvedindebtsettlementsothatheorshecantakethoseintoconsiderationwhenweighingtheprosandconsofsuchanalternative.

Stay away from debt settlement companies thatpromiseyouthatyoucanpayyourdebtsfor“penniesonthedollar.”Indebtsettlement,mostcreditorsdosettle,butasIstatedabove,therearenoguaranteesastohowmuchtheywillaccept.

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Credit After Bankruptcy

Contrarytowhatyoumayhaveheard,rebuildingcreditafterbankruptcyiseasierthanyoumight

think.Billcollectorswouldoftenscareyoubytellingyouthatfilingbankruptcyistheworstmistakethatyoucouldevermakeandthatyouwillhavebadcreditforever. But think about this for a minute. If youarealreadybehindonyourbills, facing foreclosure,havea judgmentfiledagainstyou, etc., your credithasalreadybeentarnished.Allnegativeinformationstaysonyourcreditreportfor7yearsfromthedatelastreported,includingChapter13(Chapter7staysonyourcreditreport for10years).Also, Iseea lotofpeoplewithhighcreditscoresbutnoonewantstogivethemanymorecredit.Why?Becausetheyareoverextendedondebtandtheirdebt-incomeratioistoohigh.Alsokeepinmindthataslongasyourdebtsremainunpaid,creditorswillcontinuetoreportyoueverymonthtothecreditbureaus.Filingbankruptcystops the reporting of negative information. Thebankruptcy filing then supersedes all informationpreviouslyreported.

Thetruthisthatalotofpeoplewhofilebankruptcycanrebuildcreditinaslittleas2-4years.Buyinga

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car isnotaproblemas longasyour casehasbeendischarged, although you can expect to pay highinterest rates in the beginning. When it comes tobuying a home,mortgage lenderswill look at yourdateofdischargewhenconsideringyourapplication.Before themortgage crisis starteda fewyearsago,therewere lenders thatwould give you a loan onedayoutofbankruptcyaslongasyouwerewillingtopayahigher interestrateanddownpayment.Thissituation,ofcourse,haschanged.Asofthiswriting,banksarenolongerfinancingeveryoneliketheyusedtojustafewyearsago.Butyoucanstillgetahomeloanfrom certain lenders once your bankruptcy reachesthe 2-year mark. Four years after discharge, youshouldbeabletoqualifyforconventionalfinancing.Ofcourse,youneedtoshowthatyou’vesomewhatre-establishedyourcreditbypayingyourbillsontime.

Ifyouwere leftwithno credit cardsafteryoufiledbankruptcy,onegoodwaytostartrebuildingcreditistoapplyforasecuredVisaorMasterCard.Thisisthetypeofcreditcardthatis“secured”withadeposit,whichthebankholdsinasavingsaccount.Thebankissuesyouacreditlineequaltotheamountofyourdeposit.Ioftentellmyclientstoobtaintwoorthreeofthesecardsafterbankruptcyandtostartpayingontime.Don’tgoover30%oftheallowablecreditlimiteverymonth.Ifyoudothisconsistentlyfortwoyears,youwillstartreplacing“badcredit”with“goodcredit”and you will see your credit score improve. Onceyour credit score reaches 700 and your bankruptcydischargeisatleasttwoyearsold,youshouldbeabletoapplyforaregularunsecuredcreditcard.Mypointisthis:ifyou’vecometotheconclusionthatyouhavenootheroptiontogetoutofdebtbesidesfiling

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bankruptcy,youhavetokeepthingsinperspective.Iknowthatyoumaybeworriedabouttheeffectofbankruptcy on your credit, but youneed to look atthe bigger picture. If your credit has already beennegatively impacted by collection actions and latepayments,filingbankruptcy canonly improveyourcreditinthelongrun.Bankruptcyisabeginning,nottheendoftheworld.

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How to Hire the Right Bankruptcy Lawyer

While itmaybe tempting tofile bankruptcy onyour own toavoidhaving topayanattorney,

youneedtobecarefulbeforemakingthatdecision,especially if you have property or assets thatmaybeatrisk.Thiswouldalsobetrueiftherearelegalissuesinyourcasethatmaybeproblematiconcethecaseisfiled.Keepinmindthatbankruptcylawsarecomplexandnothingcanbemorefrustratingthannothavingtherightanswerstoallyourquestionswhenyouneedthem.Lastly,shouldyoudecidetobeyourownattorney,rememberthatthecourtwillholdyoutothesamestandardasitwouldholdanattorney.Inotherwords,ignoranceofthelaworlegalproceduresisnotanexcuseifyoumakemistakes.

Thechoiceofalawyercanbecriticaltothesuccessofyourcase.Don’tbeafraidtoaskquestions.Afterall,thisisyourownlifethatmaybeatstake!Makesurethatyourlawyerwillpersonallyevaluateyourcase and not simply leave this responsibility to anassistant.Youneedalawyerwhowillspendthetimenecessarytoevaluateyourcaseandgiveyouanhonest

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opinion–goodorbad.Yourlawyershouldbefriendlytoyou,toughwithcreditors,and100%ethical.

When hiring a bankruptcy lawyer, remember thatnotalllawyersarethesame,becausetheyallbringdifferentlevelsofknowledgeandexperiencetotheirclients. When your financial future hangs in thebalance, you need the right attorney to help youmaketherightdecisionsataverycriticaltime.Buyerbeware!Sincetheeconomicdownturn,thebankruptcymarkethasbeenfloodedwithnewattorneysofferingtheirservices.Don’thireaninexperiencedbankruptcyattorney who doesn’t have the proper knowledgetohandleyourcase.Itseemstomethatthepublicoftencan’ttellthedifferencebetweenanexperiencedbankruptcyattorneyandonewho’sonlyhandledoneortwocases.Trustme,youcertainlydon’twanttobea“practice”client!

Also,don’tjustsettleforthecheapestoption,buttakesometimetoseewhatkindoflawyermightbebestforyoursituation.Youmaywanttothinktwicebeforehiringa lawyerwhochargeshalfofwhattheotherlawyers are charging. Think about it. An attorneyhasnothingtosellbuthisorherexpertise,time,andservices.Therealityisthatjustlikeanybusiness,alawofficeneedstoreceiveenoughcompensationfortheservicesitprovidesinordertostayinbusiness.Sowhenyouseeanadthatadvertises$499toacceptanybankruptcycasethatwalksinthedoor,don’tassumethatyou’regettingabargain.Asasmartconsumer,thefirstquestionsyoushouldbeaskingyourselfare:What’s the possible catch here? What is and isn’tincludedinthatfee?Unfortunately,therearesomelawyerswhorunmisleadingadsstatingalowprice

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fortheirservices.Theseadsarenothingmorethaninvitationstocall,comein,orboth.Onceyoudocallorcomein,theymaytellyouthatthispricedoesn’tapply to your situation because that price is onlyforXnumberofcreditors–butsinceyouhavemorethanthat,theywillchargeyouXamountofdollarspercreditor.It’ssortof likethose“baitandswitch”cardealeradswherethey’readvertisingthevehiclethatyoulikeforwaylessthanregularprice.Whenyoucomein,theywilleithertellyouthatthecarhasbeensoldor thatyour credit isnotgoodenough topurchasethatvehicle.Butsinceyou’realreadythere,chancesareyou’llcheckouttheothervehiclesonthelot and this increases the chances of them sellingyouacar.Justlikeeverythingelseinlife,youoftengetwhatyoupayfor.Ithinkyoualreadyknowthat.HerearesomequestionsthatIsuggestyouaskwheninterviewingabankruptcylawyer:

• Howmanybankruptcieshaveyouhandled?• Howmanyofthosebankruptcycasesare

consumer/personalvs.businessfilings?• Howaccessiblewillyou(oranattorneyat

yourfirm)betoanswerlegalquestionsduringmybankruptcyfiling?

• WhoelseatyourfirmwillIbeworkingwithwhilemycaseispending?

• Howmuchofyourpracticeisdevotedtobankruptcylaw?

• Whydoyouthinkbankruptcyis(orisn’t)agoodoptionformysituation?

• Howmuchisyourlegalfeeandwhatisorisn’tincludedinthatfee?

• Whowillbemymaincontactforupdatesorquestionsregardingmycase?

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• Inreviewingmycase,doyouseeanypotentialproblemissuesthatmightcomeupaftermycaseisfiled?

• Whatarethepossiblenegativeconsequencesoffilingbankruptcyinmysituation?

• Whatisourtimeframeforgettingmy casefiled?

Thesearesomeof thecriticalquestionsyoushouldask. If any of these questions are not answered toyoursatisfaction,perhapsyoushouldlookelsewhere.Sinceweallhavedifferentpersonalities,itisalsoagoodideatohireanattorneythatyoupersonallyfeelcomfortablewith.Whatwereyourfirst impressionsabout theattorneyat the initial consultation? Didtheattorneytakethetimetopatientlylisten,answeryourquestions,andaddressallotherconcernsyouhadaboutyoursituation?Didyoufeelthattheattorneywaseasytotalkto,sympathetic,andunderstandingofyoursituation–notjudgmentalorcondescending?Remember that once you hire this attorney, yourcase could be pending for several months or years(dependingonwhattypeofbankruptcyyouarefiling),soyoucouldbedealingwiththispersonforquitesometime.Ifatthefirstconsultationyousensethatitmaynotbeagoodfit,trustyourinstinctsbeforesigningaretaineragreement.

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Nothing Happens Until You Take Action

Ihope you found this book beneficial in helpingyouunderstandthebankruptcyprocessandotherdebt relief options that may be available. If youare overwhelmed with debt problems, I know howyou feel. Perhaps you’re embarrassed, frustrated,paranoid, defensive, or even angry. You know youneedtodosomethingaboutyoursituationbutsimplydon’tknowwheretostartandwhototrust.

Onethingaboutdebtproblemsisthattheydon’tsolvethemselvesorgoaway.It’suptoyoutotakeactionandfindasolution.Filingbankruptcycanstopthecreditorsbeatingonyourdoor…protectwhatyou’veworked hard for… give you time to breathe andthink…reorganizeyourfinancestomakeyourdebtpayments more manageable…put more money inyourpocketsothatyoudon’tfeellikeyou’reworkinghard fornothing.Myhope is that the informationcontained in this book will move you to action intaking the first step towards regaining control ofyour life, your confidence, and most importantly,yourpeaceofmind.Howaboutagoodnight’ssleepforachange?

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There is a way to get your life back on track andfind the freedom that you need– freedom from billcollectorshoundingyoudayandnight,freedomfromworry over having your home foreclosed, your carrepossessed,andworryoverlawsuits,judgmentsandwagegarnishments.Butwhathappensfromhereonoutisalluptoyou.

Saveyourfinanciallifeandgetoutofthedebttrap!

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Why We Are Different

Iamproudtosaythatwearedifferentfromotherlawfirms.Wedon’tjusttakeeverycasethatwalksinthedoor.Wealsodon’tclaimtohandleeverytypeofcaseinanendlesslistofdifferentpracticeareas.Wedon’tneedto,andwedon’twantto.

Wedon’tfocusonhighvolumeslikeother“bankruptcymills”whosemaingoalistosignyouupasaclientas quickly as they can.At thosefirms, youbecomenothingbutanumber.Youseealotoftheselawyersonhugebillboardsandbusstopbenchesadvertising$499forANYbankruptcycasetheycanget–butthenyouonlygettospeakwithaparalegal(ifyou’relucky),NEVERwithanattorneyaboutyourcase.Althoughparalegalsareanimportantpartofour legalteam,wehavearealattorneyassignedtohandleyourcasetomakesurethateverythingisdonerightandthatyourquestionsandconcernsareaddressedwheneveryouhavethem.

Since 2001, Ray Bulaon Law Offices, Inc. hasrepresented thousands of clients throughout thecounties of Los Angeles, Orange, San Bernardino,andRiverside inCalifornia.Ourmany competitors

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can’tmatchthequalityofourserviceandour12-yeartrack record of delivering results.We rely a lot onreferralsfromsatisfiedclientsandotherattorneys.Ifwecannotacceptyourcase,wewillgladlyreferyoutosomeoneweknowwhomaybetherightattorneyforyoursituation.Andonceyoubecomeaclient,weconsideryoutobeaclientevenwayafterourserviceshavebeencompleted.

Sometimes, thebestadvicewecangiveyou is thatbankruptcy may not be right for your situation,becausethereareotherpossiblesolutionstoyourdebtproblems.Butifnootheroptionsexistandbankruptcyseemstobethemosteffectivewayforyoutogetoutofdebt,wewillmakesurethatweguideyoueverystepoftheway.Wewillkeepyouuptodateontheprogressofyourcaseandpromisetogiveyouhonestanswersandarealisticassessmentofyoursituationatalltimes.Wewillexplainallfeesandcoststoyoubeforewe startworking on your case.Together, asateam,wewilldecideonthebeststrategyforyourfinancialrecovery.

IfyouliveanywhereinthecountiesofLosAngeles,Orange,SanBernardino, orRiverside inCaliforniaandwould like toknowwhether bankruptcy is thebestsolutionforyoursituation,wewouldliketohelpyou explore all your options and understand yourlegalrights.Youcancallourofficeat(818)243-7745foradditionalinformation.

RayBulaonGlendale,CA

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RAY BULAON

About the Author

RayBulaonhasbeenhelpingindividualsandsmallbusiness owners in obtaining debt relief since

1997.AfterworkingforoneofSouthernCalifornia’slargest consumer bankruptcy law firm, he startedhisownlawpracticein2001.Helimitshispracticeto consumer bankruptcy law, debt settlement,tax resolution, and credit restoration. He has alsoundergonetrainingasafinancialrecoverycounselorwiththegoalofhelpingpeoplemanagetheirfinances.

RayBulaon• hashelpedthousandsofclientsgetoutofdebt

since1997• isatrainedFinancialRecoveryCounselor

(FinancialRecoveryInstitute)• isaCertifiedCreditConsultant(byEdward

Jamison,nation’sforemostcreditattorney)• isaCertifiedTaxResolutionSpecialist(ASTPS-

AmericanSocietyofTaxProblemSolvers)• haspublishednumerousarticlesfor

consumersaboutbankruptcy,debtrelief,andcreditrestoration.

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Raylikestravelingandspendingtimewithhiswifeof23yearsandtheir3children.Heandhisfamilyareallactivemembersoftheirchurchandenjoyhelpingintheministry.

From What You Need to Know Before Filing Bankruptcy:

“How you got to where you are doesn’t even matter–what’s important now is finding the best solution. You need answers to your questions about how you can get out of debt… As a bankruptcy attorney, let me encourage you by saying that even the worst problems rarely

mean the end of the world. What may sometimes seem like a dead end may actually turn out to be a new path for a better life.” –Attorney Ray Bulaon

Ray Bulaon’s compact and clearly organized book, designed to help Californians understand the ramifications of bankruptcy, guides readers through decisions such as whether to consult a lawyer, where to begin when they feel like they are drowning in debt, and how to approach issues of re-establishing credit.

Written in clear language, this book covers the emotional, financial, and legal aspects of bankruptcy, and answers questions like, “What is the difference between Chapter 7 and Chapter 13 bankruptcy?” and “How will bankruptcy affect me in the future?”

Since 2001, Ray Bulaon Law Offices, Inc. has represented thousands of clients throughout the counties of Los Angeles, Orange, San Bernardino, and Riverside in California.

W O R D A S S O C I A T I O N P U B L I S H E R Swww.wordassociation.com1.800.827.7903

7186317815959

ISBN 978-1-59571-863-151695 >

LAW/$16.95

Documents

What You Need to Know Before Filing Bankruptcy · them more affordable. Declaring bankruptcy is often voluntary, although in some cases, creditors can force you or your company into