When Buying a Used Car, Watch Out for Worthless Service Contracts

Buy a new or used car these days and you can expect the salesperson to pressure you to buy a service contract or "extended warranty." For a fee, which is usually rolled into the financing, these products provide repairs or maintenance for a certain period of time, say 2 years or 24,000 miles. But they rarely provide much benefit to the buyer and often only serve to pad the dealer's bottom line.

Here's an example of what I mean. In a recent case, our client bought a used vehicle with over 100,000 miles on it. The client also bought a service contract for an additional $2,500 or so. The service contract lasted for 5 years or an additional 100,000 miles. Our client rolled the cost of the service contract into his loan for about $50 a month. At this point, you might be thinking this sounds like a pretty good deal.

However, the fine print of the service contract provided for a maximum reimbursement of only $3,000, less a $100 deductible. So the maximum reimbursement was actually $2,900. Further, a great deal of possible mechanical problems were excluded from coverage.

 So, our client paid $2,500 for the right to be reimbursed $2,900. In other words, he paid $2,500 to potentially receive an additional $400, but only if: (a) a problem occurred; (b) the problem occurred during the term of the service contact and (c) the problem wasn't excluded from coverage. He would have been better of declining the service contract and putting the $50 a month into a savings account. The savings account could have been used for any repair at any time. And if no repairs are necessary, he could have used the money for something else.

Before agreeing to buy any service contract, make sure you understand the total cost (not just the monthly cost), the total amount of coverage, and what is covered and what's not. Don't rely on the salesperson to tell you these things, read the terms for yourself. And if you don't understand the terms, it probably doesn't make sense to buy it.

Bankruptcy trustees are "clawing back" tuition paid for debtors' kids

According to an article in the Wall Street Journal, Bankruptcy Trustees are using a legal argument called "fraudulent transfer" to take back tuition payments clients have made to their children's colleges. This can be a shock to people, but trustees do things like this all the time. Here's how it works:

Under bankruptcy law, all the property you have at the time of your bankruptcy filing is part of the bankruptcy estate. If you have property above certain exemption amounts, the trustee can demand turnover of that property. This would seem to incentivize people to get rid of assets before filing bankruptcy. You can understand the temptation for someone to sell their boat to their brother for $1.00.

Bankruptcy law has a way of dealing with this problem, called fraudulent transfer law. A fraudulent transfer in Minnesota can occur when someone gives away property for less than "equivalent value." This allows the trustee to "claw back" the property and distribute it equitably to all the creditors.

But is college tuition a fraudulent transfer? The trustee's theory is that if you were paying for college tuition for yourself, it wouldn't be a fraudulent transfer because you received equivalent value for the transfer. But when you pay tuition for your adult children, (which you're not legally obligated to do) you don't receive anything in return (other than children who are less likely to need your support in the future). In that way, it's like a gift, and can be pursued as a fraudulent transfer.

So if the trustee claws back the tuition, kids have a problem. The school will want its tuition, and may hold back transcripts or diplomas, or prevent registration for the next semester, until they're paid up. So this is a scenario bankruptcy filers really want to avoid.

There might be some defenses. For example, if the property would have been exempt anyway, it might not be a fraudulent transfer. But this issue hasn't been directly addressed by binding caselaw in Minnesota, and so it's no sure thing. To brainstorm other solutions to this problem, get in touch.

5 Tips for Streamlining Your Bankruptcy

The number one thing that slows down a bankruptcy case is the speed with which clients can assemble the necessary documents. By following these five tips, you can ensure that your bankruptcy moves quickly, and that you're prepared for any issues that could arise during the process.

Go Paperless

It’s time to get rid of that mountain of paperwork and bills. Sign up to receive digital statements from your bank and financial accounts, and request to receive your pays stubs digitally. It also pays to switch your utilities, mortgage, car payments and regular payments to e-bills. This allows you to stay up to date on your assets and liabilities, and makes submitting your documents to your attorney as easy as sending an email.

Track your spending

Whether or not you are planning on filing bankruptcy, it’s good practice to keep track of where your money goes each month. How much do you spend on groceries? Entertainment? How about your pets? Often, its more than our clients realize. We recommend apps like ‘Mint’ or ‘You Need a Budget’ to keep track of your expenses. This info can go straight into your bankruptcy petition and will ensure a high level of accuracy.

Separate your business and personal accounts

Many of our clients are business owners. Whether you manage your own company or sell crafts on weekends, you need to track your company’s profit and loss. It’s not only bad business to conflate your personal and professional expenses and funds – it can also get lead to you getting audited by the court after you file your bankruptcy.

Organize Your Important Documents …

Designate one spot for your important documents. It can be anything from a drawer to a folder to a safe. Whatever it is, only put important documents in it. Car titles, your social security card, birth certificates, your insurance policies and court documents are all great things to keep together. Keep things like bills, statements, and mail separate from this.

…and Shred the Unimportant Ones.

People are often afraid to throw away anything that looks ‘official’. People end up with piles of bills, collection letters, and spam mail, along with a whole lot of anxiety. Shred anything that is outdated, useless, or irrelevant. There is no reason to hold on to more than one copy of the same bill. Only keep the most recently dated one. By getting rid of excess, a seemingly enormous pile can be quickly whittled down to only the necessary things. Also, if you have already switched to paperless statements, your past statements will be readily accessible, so there is doubly a reason to hold onto them.

Divorce debts in Chapter 13 bankruptcy

In another post, we wrote about how to deal with divorce debts in Chapter 7 Bankruptcy. Chapter 13 has different rules and different ways to deal with family court debts.

Some Family Court debts can be wiped out in Chapter 13

Chapter 13 can't discharge “domestic support obligations”. Domestic support obligations (child support/maintenance) can't be wiped out in any form of bankruptcy, Chapter 7 or 13. In Chapter 13, to get a discharge the debtor must pay all child support/maintenance arrears, as well as all payments due during the three to five years of the Chapter 13 plan.

But Chapter 13 can wipe out other debts created by a divorce decree. Debts created by a divorce decree that don't count as domestic support obligations (e.g. property settlements, equalizers, or promises to pay joint marital debts) can be wiped out in Chapter 13 bankruptcy. These debts aren't always wiped out in a Chapter 7, so for people with large debts like this, Chapter 13 can be a much better choice.

Spreading family court debt out over time

Child support and maintenance arrears can be spread out over five years in Chapter 13. If you're behind on child support and maintenance, Chapter 13 gives you the ability to put those arrears into a Chapter 13 payment plan. This wouldn't relieve you from your obligation to pay child support or maintenance payments that come due after the bankruptcy is filed, but if you're facing garnishment or other collection, it can buy you breathing room to pay arrears over time. This may also reduce the amount you're required to pay your other, unsecured creditors.

As discussed above, Chapter 13 has many advantages over Chapter 7 when it comes to dealing with divorce debts. If you have questions about how to deal with your family law debts in bankruptcy, get in touch.

Divorce debts in Chapter 7 bankruptcy

Divorce is one of the leading causes of bankruptcy. People often have questions about how to deal with debts from their divorce. Depending on how a debt is categorized in the divorce decree, you might be able to wipe it out in bankruptcy, or it might stick around.

1. Child support and maintenance cannot be discharged in Chapter 7 bankruptcy. Certain debts in bankruptcy are called "domestic support obligations," including child support and spousal maintenance/alimony. These debts can never be discharged in bankruptcy, and are also "priority" debts, meaning that if the trustee gets any money from you, those debts are paid off first.

2. Debts incurred in a divorce cannot be discharged in Chapter 7 bankruptcy (although they can be in Chapter 13). Any other debt created by a divorce cannot be discharged in Chapter 7. This includes property settlements or "equalizers." Also, certain obligations by one spouse to pay marital debts can be considered non-dischargeable. To figure this out, you'll want to look for "hold harmless" language in your decree, which describes what obligations won't be discharged.

3. Some divorce lawyer fees are dischargeable in Chapter 7, some are not. If you owe fees to your divorce lawyer when you file bankruptcy, that debt is wiped out in bankruptcy. You may be ordered to pay your ex-spouse's attorney's fees by the court, and that debt might be non-dischargeable in bankruptcy because you're paying attorney's fees to "support" the ex-spouse.

4. Family lawyers should pay attention to the wording they use in divorce decrees. As described above, words matter in a divorce decree. Depending on how a debt is described, it might be dischargeable or non-dischargeable in bankruptcy. Make sure your lawyer is thinking about these issues when going through a divorce with a significant amount of debt.

I forgot to add a creditor to my bankruptcy

As hard as we try to find all of your creditors before a bankruptcy, every once in a while one slips through the cracks. What happens when a creditor gets left out?

1. First of all, don't get any ideas. All creditors are "included" in bankruptcy. You can't leave one out, purposely or accidentally. So there's no point in "forgetting" to list a creditor, for example, in hopes that you can keep a credit card open. And remember, you sign your bankruptcy under penalty of perjury, so it's illegal to leave any information out of your bankruptcy papers. And as your attorney, I know better and won't let it happen. So don't try.

2. In a no-asset Chapter 7 case, all debts are discharged whether listed or not. If a debt is dischargeable, then it's wiped out in a typical Chapter 7 bankruptcy whether it's listed or not (as long as it wasn't left out intentionally.) Typically when a creditor has come out of the woodwork after a Chapter 7, we just send them a letter notifying the of the bankruptcy, and that's enough to protect you. After that, any attempts to collect the debt would be illegal.

3. In a Chapter 7 cases with assets, debts may not be discharged unless listed. Unlike a no-asset case, in which a creditor generally has nothing to gain from being listed in the bankruptcy, in a case where assets are going to be distributed to creditors, it does harm the creditor to be unlisted. Section 523(a)(3) of the Bankruptcy Code makes a debt like this non-dischargeable if it wasn't listed in the bankruptcy.

4. In a Chapter 13 case, a creditor must at least be added before the case is finished. In a Chapter 13 case, a creditor must have been listed in the plan to be discharged.  So if you've forgotten to add a creditor, and you're already in your Chapter 13 plan, it's probably wise to go back and add the creditor. This is probably fixable, since Section 523(a)(3) doesn't apply to Chapter 13.

Same-sex married couples can file bankruptcy together

We wrote about the evolving status of same-sex couples in bankruptcy here and here. Now that the Supreme Court has struck down the Defense of Marriage Act, the federal government must recognize same-sex marriages valid in the state in which they were performed. Although this specific issue hasn't come to bankruptcy court, it's clear that the bankruptcy system will have to follow the Supreme Court's ruling and allow same-sex married couples to file joint bankruptcy cases.

1. Anyone legally married in Minnesota can file bankruptcy together in Minnesota. Any married couple can file a joint bankruptcy case if their bankruptcy was legally performed in Minnesota. This includes same-sex couples whose weddings were performed on or after August 1, 2013.

2. Anyone legally married in another state can file bankruptcy together in Minnesota. Any couple married in Iowa, New York, or any of the other 11 states allowing same-sex marriage can file a joint bankruptcy. It's not clear how a Canadian marriage, for example, would shake out in U.S. bankruptcy court, but I'm sure this is something we'll learn soon.

3. Anyone who's legally married in any of these states can file bankruptcy together anywhere in the U.S. The full faith and credit clause of the Constitution basically says that a public act (such as marriage) valid in one state is also valid in any other state. This means that any same-sex couple married in any of the 13 states allowing same-sex marriage can file a joint bankruptcy anywhere in the U.S.

4. Filing a joint bankruptcy has benefits. Most attorneys will price a joint case lower than two individual cases. Instead of paying two attorney's fees, a same-sex married couple can now pay one. The same thing goes with for the court's filing fee. Plus it's much easier to provide an attorney one set of information, rather than having to handle each case separately. This is a BIG deal.

Watch out for fraudulent transfers in bankruptcy

A fraudulent transfer is a transfer of property before filing bankruptcy that may get you in trouble. If you've given away or sold any property in the six years before filing a bankruptcy case. you might be on the hook after your bankruptcy.

1. When you're actively trying to screw your creditors. An actual fraudulent transfer is where the bankruptcy debtor transfers property actually intending to evade his creditors. So for example, a bankruptcy filer gives away a car to her nephew three months before filing bankruptcy because she doesn't want her creditors to be able to seize it. That may be a fraudulent transfer. And the bankruptcy trustee can go after the bankruptcy filer and her nephew to get back the car (or the cash value of it.) An actual fraudulent transfer can also result in the bankruptcy discharge being taken away.

2. When you're not trying to screw your creditors, but do it anyway. A constructive fraudulent transfer is where the bankruptcy debtor gives away property and doesn't get fair value for it. So the bankruptcy filer isn't trying to evade creditors, but sells her car to her nephew for $1,000 when it's really worth $10,000. The bankruptcy trustee may have a claim against the filer and her nephew for the remaining $9,000 value of the car. Because this kind of transfer isn't made with bad intent, it won't be a basis for taking away the bankruptcy discharge. The trustee must show that the bankruptcy filer (1) was insolvent; and (2) didn't get fair value back for the transfer.

3. The person who received the transfer may also be on the hook. The bankruptcy debtor isn't the only one who can be chased by the trustee for a fraudulent transfer. The person who received the goods can also be sued. The best defenses the recipient may have are (1) that the property wasn't actually worth anything in the first place; and (2) the transferee accepted the property in good faith and gave back fair value for the property.

4. The trustee can look back six years to find fraudulent transfers. The bankruptcy forms require a filer to disclose any transfer made within the two years before filing. However, the trustee can go after any fraudulent transfer made up to six years back. So people who have a fraudulent transfer in their past often wait until the time limit is passed before filing a bankruptcy.

We deal with fraudulent transfer issues all the time. If you have questions about a fraudulent transfer you made before your bankruptcy, or if you're being sued by a trustee, get in touch.

The bankruptcy process in Minnesota

In this post we describe the bankruptcy process in Chapter 7 and Chapter 13 so you know what to expect when you come see us.

1. You get in touch. Give us a call at 612-564-4025. We can often get you in the same or next day. Your first meeting will be about an hour long. As soon as you decide to hire us, we spring into action, organizing your paperwork and preparing your case. At this point, you can send your debt collectors directly to us—no more endless phone calls.

2. We prepare your case. It generally takes us three weeks to file your bankruptcy petition—a collection of relevant documents and an asset inventory. Once we file your case, collection activity—such as letters, calls, lawsuits and foreclosures—stops immediately. As we prepare your case, we help you choose the best type of bankruptcy for your unique situation—Chapter 7 or Chapter 13.

3. We help you choose what type of bankruptcy is best for you. 

• You might choose Chapter 7 if: 1) Your expenses are way higher than your income, leaving nothing extra to pay your debt; 2) You don’t own a home, or if you do, you’re up to date on your mortgage payments; 3) You don’t own many valuables.

• You might choose Chapter 13 if: 1) You can afford to repay some of your debt, but not all of it; 2) You’re behind on your mortgage or you’re underwater with a second mortgage; 3) You have valuable assets, such as home equity, that you want to hold onto.

4. Will I have to go to court? In bankruptcy, you generally don’t have to go to court. Instead, you meet with a bankruptcy trustee a month after your filing date. The trustee evaluates your financial situation. We make sure you’re well prepared, and we’ll be by your side to make sure it all goes smoothly.

5. Finishing your case in Chapter 7. Chapter 7 usually lasts three to four months. Your bankruptcy is typically completed 60 days after meeting with the bankruptcy trustee. Once your case is finalized, your debts are wiped out forever.

6. Your Chapter 13 payment plan.  In Chapter 13, you’ll make monthly payments for three to five years to pay off your debt. We’ll be your lawyers the whole time, in case you need help or your financial situation changes. Once you make your last Chapter 13 payment, your remaining debts are wiped out.

7. Rebuild credit. People who put in some effort to rebuild their credit after bankruptcy can usually make their score rise a lot faster than people who just wait for their credit to fix itself. We meet with all our clients free of charge after the bankruptcy is over to see how we can help clean up your credit report and give you tips for building new credit.

What does Chapter 13 bankruptcy cost?

In an earlier post, we wrote about how we price our Chapter 7 cases. One of the first things a potential client wants to know during a consultation is how much bankruptcy costs. Obviously, every case is different, but here’s a rough version of how we price cases in Chapter 13.

Flat fee

In Chapter 13, you pay a flat fee out-of-pocket. When you're in financial trouble, you want predictability. You don't want your lawyer to run up the bill on you. That' why we quote you a flat fee at the beginning of the process, and that's what you pay. No fine print, no hidden fees. We agree on it at the start so you can plan for the expense.

Payments over time

You don't need to pay your whole fee upfront in Chapter 13. Unlike Chapter 7, in a Chapter 13 case we don't need the whole bankruptcy fee up front. In fact, in many cases Chapter 13 costs less upfront than Chapter 7--some people even opt for Chapter 13 because of our flexible pricing. We generally require a minimum of $1,000 before filing in a Chapter 13, but this can depend on your case.

We get the rest of our fee out of your creditors' pockets. In Chapter 13, we can apply to the court for our remaining fee. Because this comes out of the Chapter 13 payments you're already paying, in most cases it doesn't cost you an extra dime. In fact, if you're looking for an extra way to stick it to your creditors, here it is. The money we receive from the Chapter 13 payments would have lined their pockets if we hadn't applied for it. Our total fee comes out to $2,500 for below-median income cases, $3,000 in above-median cases, or greater if we can prove to the court that it was necessary to charge more.

Filing fees and costs

In a Chapter 13 case, there is a court filing fee of $310 and mandatory credit counseling fees (for our clients, credit counseling runs around $60 for a single filer or $80 for joint filers). You pay those fees to us and we forward them as needed.

And remember--you may not want to bargain-hunt on bankruptcy. The best lawyers will quote you a fair price, but the worst ones will probably discount their fees to try to take business from the good ones. You want a lawyer who’s experienced enough to understand a lot of the tricks and traps of bankruptcy. You also want someone who’ll be available to answer your questions, and won’t blow you off because they’re too busy with all their other cases. And you want someone who’s willing to use the bankruptcy law creatively to help you improve your situation.

What to expect at the bankruptcy meeting of creditors

This post describes what you can expect at your bankruptcy meeting of creditors in Minnesota.

1. What's a bankruptcy meeting of creditors? A meeting of creditors, sometimes called the "341 meeting," is a requirement of bankruptcy. In most bankruptcy cases, you do not have to appear in court. You go to a meeting of creditors instead. In most cases, the meeting is just a formality, but it's important to prepare either way.

2. When is the meeting? Usually three to five weeks after you file your bankruptcy case.

3. Who shows up at the meeting? The bankruptcy meeting of creditors happens in public, so other bankruptcy filers and attorneys will be there. There is also the bankruptcy trustee, who conducts the meeting. The judge is never at the meeting of creditors.

4. But it's called the meeting of creditors. Won't my creditors be there? Creditors show up VERY rarely to these meetings. In the last 100 cases we've been involved in, a creditor has shown up only once, and we totally expected it and prepared for it. Credit card companies, car lenders and mortgage companies almost never show up.

5. What do I need to bring? This is important. The meeting will be canceled and rescheduled if you don't bring proof of ID and social security number. You'll also need your most recent paystub and all bank statements covering the date of filing. We'll ask you for all this stuff way before your meeting so we have backup copies in case you forget.

6. How long does the meeting take? The trustee usually schedules five cases every half hour. So your meeting should take more than a few minutes, unless we've told you that your case is complicated. But if that's the case we'll make sure you're well prepared.

7. What should I wear? Just dress like you would to a meeting at our office. There's no need to dress up, just dress neat (and don't overdo it on the bling--if you come in looking like a zillionaire, people will wonder why you're filing bankruptcy.)

8. What will the trustee ask me? Here are a few questions the trustee is likely to ask:

• Is this your signature on the petition and schedules? Did you read the petition and schedules before you signed them? Is the information true and complete?

• Have you listed all of your assets on the schedules? Are you a co-owner of any property with anyone else? (e.g. family cabins)

• Do you expect to come into any money, such as an inheritance?

• Does anyone owe you money?

• Have you paid any creditors in the last 90 days, other than minimum payments?

• Are you a party to any lawsuits you haven’t identified in your schedules?

• Are you owed any domestic support? Do you owe domestic support?

• Have you transferred any property to anyone in the last year? Is anyone holding property for you?

• Have you previously filed bankruptcy?

9. How should I answer? Just tell the truth. Don't feel like you need to tell a whole story--keep your answers short and sweet--but answer truthfully and completely. If you don't know the answer to a question, ask for clarification--it's better not to answer right away than to answer incorrectly.

10. Where is the meeting? 

• Minneapolis Chapter 7 cases: Federal Courthouse, 300 South Fourth Street, 10th Floor

• St. Paul Chapter 7 cases: Federal Courthouse, 316 North Robert Street, 4th Floor

• Minneapolis/St. Paul Chapter 13 cases: Federal Courthouse, 300 South Fourth Street, 10th Floor

Do I need to file business bankruptcy?

This post explains business bankruptcy and helps you figure out if it's a good idea for your business.

1. I have business debt. Do I need to file bankruptcy?

I am a sole-proprietorship. If you are a sole proprietor, you are the business. This means that the business assets are your assets, and the business debts are your debts. If you file personal bankruptcy (under Chapters 7, 13 or an individual Chapter 11 case) your business debt will be wiped out and your business creditors can't collect from you.

I am an LLC or corporation. If you own a separate legal entity, then filing personal bankruptcy won't wipe out your business debts. To take care of business debts, you can do a few things:

• - Negotiate with the lender to settle the debt;

• - Close your business and turn over any leftover assets to your creditors; or

• - File a business bankruptcy to reorganize your debt.

2. How do I close my business without filing a business bankruptcy?

You can close a business by filing a "dissolution" with the Minnesota Secretary of State’s office. Dissolution gives notice to your creditors that you are closing up shop, and gives creditors a chance to try to collect assets before the business is wrapped up. You may be able to dissolve a business on your own, but you’ll probably want to consult an attorney first, to see if there will be any issues to watch out for.

3.   Do I need to file business bankruptcy?

Generally not. If your business has lots of real estate, secured debts, or large assets, you may want to look into business bankruptcy to reorganize your debt. But most people don’t need business bankruptcy. If you have a business that’s insolvent, the dissolution process described above should be enough.

4.   Are my business debts wiped out in my personal bankruptcy?

If you close a business and you have personally guaranteed the debts, the business creditors may try to collect from you after the business is closed.

Your personal liability on your business debts is erased. This means that if you default on your business debt, your creditor cannot come after you personally for that debt. On the other hand, this doesn’t prevent the creditor from collecting the business’s assets.

One other important point—if you have business debts, and a business bank account with the same creditor, your creditor probably has the right to take money directly out of your business account if you don’t pay the business debt, even after a personal bankruptcy. If you are keeping your money with a bank that is a creditor, the smart play is to move it as soon as you can.

My Chapter 13 was confirmed. What now?

This post describes what happens after a Chapter 13 bankruptcy is confirmed. Confirmation is the biggest hurdle in Chapter 13, but it's not the end. Congratulations, your Chapter 13 plan has been confirmed! (If our congratulations are early, don't worry--your turn will come too). Since you'll be in Chapter 13 for three to five years, you probably have a bunch of questions about what to expect. We'll tackle a few of these below. If you have other questions, please leave them in the comments below.

1. When do I make my first payment to the trustee? Your first Chapter 13 plan payment is due within 30 days of filing your case. The payment must be by money order to the P.O. Box specified on your welcome letter form the trustee's office. Future payments can be made by automatic debit from your bank account, if we arrange that ahead of time with the trustee's office.

2. Which of my bills should I pay while I'm in Chapter 13? You'll need to pay your new, ongoing bills on time. This always includes utilities, generally includes your mortgage, and sometimes includes your car loan and student loans. Every once in a while, it'll include a credit card if you have a cosigner. But your bankruptcy lawyer should have the final word on what bills to pay. If you're not sure, ask.

3. I'm still getting calls from creditors. What do I do? Your creditors are breaking the law if they contact you after you file Chapter 13. On the first call, you can tell the creditor you filed bankruptcy and give them your case number. If you keep getting calls, you should let your bankruptcy lawyer know right away.

4. I need to buy a new car. Can I take out a loan while I'm in Chapter 13? You'll need permission from the court to take out any new loan while you're in Chapter 13. If you absolutely need financing, call us first so we can take you through the steps of the process.

5. What do I do if I'm going to miss a payment? If you're in danger of missing a Chapter 13 payment, or if you already missed one, call your bankruptcy lawyer. In some cases, we can work with the Chapter 13 trustee's office to help you get caught up on your payments. Otherwise, we might be able to modify your plan. If you don't get in touch before missing a payment, the trustee can move to dismiss your case. The most important thing is that you let us know in advance so we can prevent this from happening.

You're probably starting to pick up on a trend here. If you have a question, call your bankruptcy lawyer. Most of the problems that come up with confirmed Chapter 13 plans can be avoided as long as we know about them in advance. But let us know in the comments below if you have other questions.

How to prepare for your free consultation

1. What to expect. We offer free 30-minute phone consultations (for your convenience), or meetings in our office if you’d rather see a friendly face in-person. And just so you know, your free consultation isn't like a visit to the doctor, where you spend most of your time with a nurse or intern until the doc breezes through at the very end. When you consult, you will always talk to an attorney.

2. How to get ready. We don’t love paperwork (who does?!). Before your consultation, we’ll ask you to fill out a five-minute online form that helps us understand the issues you're facing. If you end up filing bankruptcy, we’ll need a lot more, but we’ve got an easy-to-use online system for getting those docs to us after the consultation.

3. Brush up on bankruptcy. We're happy to explain the ins and outs of bankruptcy to you. We do this stuff all day, and we like to share what we know with you. But if you study up a little bit and understand the basics, we might be able to delve into deeper issues on the first meeting, meaning we can get more accomplished in the free consultation. If you're the type who likes to do your own research, our blog is a good first resource. We also recommend the Bankruptcy Law Network's posts, but remember that they're focused nationally, and because the law is different from state to state, not all the information will apply to you.

4. After the free consultation. Many times we can sort out all your issues in your free consultation and decide on a course of action. Other times we need to do more digging before we can fully understand your options. Throughout this process, feel free to ask any questions that come to mind.

Still have other questions before your first appointment? Let us know.

Is a short sale better than foreclosure?

The short sale industry has been a huge windfall for real estate agents. Some of them scare people into short sales on their home, even though a short sale usually has no advantages over letting your house go into foreclosure. Why do they do this? Simple, it's the fees. Realtors stand to make up to 6 percent from the short sale of your home. On a $200,000 house, that's a tidy $12,000 for the realtors ($6,000 for the seller's agent, $6,000 for the buyer's agent) . Turns out, that's just about enough incentive to pressure you into a short sale, even when there's no benefit to you. 1. Most short sales are no better for your credit score than foreclosure. Both short sales and foreclosures are major credit events that can have a big impact on your score. But there's no support for the myth that a short sale is easier on your credit than a foreclosure. In fact, FICO, the leading credit-scoring company, says the opposite. If you compare a borrower who goes into foreclosure with a borrower who does a short sale where there is a deficiency balance, the credit impact is the same. If the second mortgage company will agree to wipe out your balance, then yes, the credit hit from a short sale may be softer. But this isn't what usually happens.

2. Your realtor probably can't wipe out your second mortgage, despite what he/she tells you. For people who have second mortgages, short sales can be tricky. Remember, in Minnesota, a second mortgage company can sue you after foreclosure for any remaining balance left on their loan. A lot of times, the second lender will release their lien if they can get a few thousand bucks from the closing of the sale, but won't release your liability on the loan. This benefits the buyer, because they can buy the house without the lien, but it doesn't do anything for you, since the second mortgage company can still ask you for the remaining balance. So there's no benefit for you--you're on the hook for practically the same amount of money as if you had gone into foreclosure.

3. Foreclosure may suck, but it has its advantages, too. Short sale has a big disadvantage over foreclosure that your realtor will probably forget to tell you. If you sell your house, you'll probably have to leave within a month or two. If you just let your house go into foreclosure, you may have between six months and a year to live in your house mortgage-free and rent-free, while the foreclosure runs its course. That's a lot of time to save up some money for whatever comes next--such as a security deposit and moving expenses. If you short sell your home, you'll be giving up this right.

4. Don't get caught by the details. I know, I know. Most realtors are honest. But when it comes to short sales, there are a lot of sleazy operators out there who'll tell you anything to get you to sell. We've heard lots of cases of realtors telling the client one thing, and when they get to closing, the deal is totally different than they were led to believe. If you're thinking of a short sale, you probably need an advocate who's working for you, not for the commission. We represent homeowners in trouble with their mortgages. We also review short sale documents to make sure you're getting the deal you think you are. Give us a call to talk about your situation.

The foreclosure process in Minnesota

The foreclosure process is a mystery to a lot of homeowners. So here's a timeline that explains how foreclosure by advertisement works (as opposed to foreclosure by lawsuit, which is rare, and has a completely different timeline). Keep in mind that your timeline may vary, sometimes by a lot.

Month 0: You miss a payment. The whole process kicks into motion when you can't make payments on your mortgage anymore, or decide not to make payments. At first the mortgage lender might start calling you or writing you letters. The lender might also reach out to see if you need assistance or if you're eligible for a loan modification. At some point you'll receive a default, or "intent to foreclose" letter. But remember that from this point, you still have a lot of time before the foreclosure actually happens.

Month 3: Your case is sent to an attorney. It's usually about three months of missed payments before your file is sent to a foreclosing attorney. It could be less, it could be more. The attorney might take a couple of tries to get you to start making payments again, usually by calling you or writing threatening letters.

Month 4: Service and publication. In foreclosure by advertisement, the lender must serve you with foreclosure papers. The papers will tell you the date of the sheriff sale, which must be at least six weeks in the future. Then the lender has to publish a foreclosure notice in the newspaper for six consecutive weeks. If the lender skips any of these steps, or doesn't complete them correctly, the foreclosure may later be attacked in court.

Month 6: The sheriff's sale. The sheriff's sale is a really important date, for two reasons. First, it is the last date you can bring your mortgage current in order to stop the foreclosure. After the sale, it might not be enough just to pay the lender the amount you're behind.

Second, after the sheriff sale is completed, we can no longer use bankruptcy to help you catch up on your mortgage. If your sheriff's sale is scheduled for 10 a.m. on Monday, and we file your bankruptcy at 9:59, the sale is void. If it's filed at 10:01, we've missed our chance.

Under Minnesota law, a homeowner can also delay a sheriff sale one time for five months, in exchange for a shortened redemption period to five weeks (see below). This must be done between the date the sale is first published and 15 days prior to the sale. The process isn't all that easy, so don't wait until the last minute if you want to postpone your sale.

Month 12: The end of the redemption period. The redemption period is a six month period starting from the date of the sheriff's sale. During the redemption period, you can continue living in your home. By this time, it's too late to get the mortgage current by paying past-due payments, but you can "redeem" the property by paying the entire sheriff's sale amount plus interest and fees anytime before the redemption period expires.

Month 13: Eviction. Eviction is the final step in a foreclosure. After the redemption period has ended, if the lender wants get you out of the house, it must file for an eviction in court. This usually takes about a month to complete. People don't usually like to be evicted, so most people move out of the house on their own sometime after the redemption period ends.

No matter where you are in this process, we can help you determine your options, including litigation and bankruptcy. If you want to talk more about how to prevent foreclosure, call us at (612) 564-4025 or email us.

Building credit after bankruptcy

In an earlier post, we told you about the effect bankruptcy can have on your credit score. People who put in some effort to rebuild their credit after bankruptcy can usually make their score rise a lot faster than people who just wait for their credit to fix itself. here we give you some tips for boosting your credit score after bankruptcy.

Check-up on your credit report

After filing bankruptcy, it's important to make sure that your creditors have wiped your debts clean, or at least noted that the debt was discharged in your case. If old pre-bankruptcy debts come back to haunt you, they can drag down your score. That's why for our clients, we offer a free check-up appointment after a bankruptcy case is finished. We'll look over your credit report to make sure everything that was supposed to be wiped out was wiped out. If any accounts are still showing as active or in collection, we may use the Fair Credit Reporting Act to fix your report.

Secured credit cards

After bankruptcy, you might not be eligible to get a new credit card, or the cards you can get might not be the ones you want (watch out for sky-high rates, and predatory contract terms from the credit cards that solicit recent bankruptcy filers). Secured credit cards work like this: you give the credit card company some money for collateral (say, $500) and they give you a credit limit equal to the amount of collateral. But you use it like a credit card--your charges don't draw down the collateral--the money you deposited just stays on file in case you default on the debt. And unlike a debit card, your on-time payments will help boost your score.

You can get a secured card by comparing cards on bankrate.com. But it might be an even better idea to approach a local bank or credit union that you have a strong relationship with--they might offer low-cost products that are meant to help you without all the tricks and traps.

Eventually, get an unsecured credit card

Often, after a year or so of on-time payments, the secured credit card company will return the collateral money and convert the account into a full-fledged credit card. A few months of on-time payments may also qualify you for more credit. Gas and store credit cards will probably be easiest to get, although they don't have quite the same score-boosting effect as major bank credit cards do. But remember what got you into trouble in the first place--pay off your balances in full every month, and watch out for sleazy credit card practices that might get you back in trouble.

Stay away from credit repair scams

There are services out there that claim they can fix your credit for a fee. But these services aren't worth the hassle. First of all, some of them will commit fraud to by trying to remove negative, but true information from your credit report, which may get you into more trouble in the long run. Also, you can probably do anything they'd do for you on your own without spending the money. In particular, stay away from any service that want money upfront for fixing your credit--this is prohibited by the Credit Repair Organizations Act, a federal law that governs credit-fixing agencies.

If you've filed bankruptcy and want help rebuilding your credit, or just considering bankruptcy and want to know what the impact on your credit will be, give us a call.

Can I be sued for my spouse's debt after divorce?

People going through divorce often wonder what's going to happen to their and their ex's debt. If they haven't resolved it before the divorce, people going through divorce will need to deal with their debt after divorce. In many divorce decrees, debt can be allocated--for example, the husband agrees to take responsibility for the Capital One card, while the wife agrees pay the B of A Visa. Life is good. But here's something that people often forget to tell you. If you were jointly liable on the Capital One card before the divorce, the divorce decree doesn't get you off the hook. Even though a judge ruled that you don't have to pay Capital One, the divorce decree doesn't change your legal obligation to CapOne. If your ex stops paying his monthly payments, the credit card company can still sue you. In addition, they can come after the full amount of the debt, not just half the balance, or just the purchases you made.

This doesn't mean you can't enforce your divorce decree and go after your ex for the money, but if your ex had the money to pay the card, wouldn't he have paid it to Capital One?

If you were wondering why divorce is one of the three biggest causes of bankruptcy (the other two are medical emergency and job loss) this might be a clue. If you're dealing with debt after divorce, going through divorce, or you're being sued for an ex-spouse's debt, give us a call.

Things a debt collector won't tell you

Reader's Digest posted an article last week titled 13 Things a Debt Collector Won't Tell You. It's a fascinating peek inside the world of debt collection and it gives some insight into how debt collectors are trained. Here are some of the most revealing, along with my comments:

• Debt collectors are trained that all consumers are compulsive liars. Let's face it, collecting debt is an unpleasant job, especially if you have a conscience. It's much easier to aggressively push for payment when your training demonizes all consumers as irresponsible liars.

• Debt collectors don't care about why you can't pay because they've heard every hard-luck story there is. There's nothing to be gained from explaining to the collector why you fell behind on paying your bills. Collectors with a conscience don't last long, so chances are that the collector you're dealing with doesn't have one.

• Collectors are trained to get as much personal information as possible. Never tell a collector where you work or where you bank. If you're unable to settle the account, the collector will use this information to garnish your bank account and wages.

• The more money the collector brings in, the bigger his bonus. Most collectors are paid a very small salary, plus a commission on the money that they collect. Collectors know that their ability to make ends meet is largely contingent upon how much money they can squeeze out of you. And collectors that consistently fail to meet their monthly collection goals routinely get fired. It's no surprise, then, that this immense pressure causes collectors resort to ruthless and illegal collection tactics.

Car loans in Chapter 13

Clients often want to know what we can do to help them with their car payments in Chapter 13. Often we can make it a whole lot easier for clients to pay their car loans. Here are some of the ways we can help.

1. Pay off the car in Chapter 13. Your car loan must be paid in full during a Chapter 13 Plan, as long as the last car payment falls within the term of the Plan. So if you have 49 months remaining on your loan and your Plan is 60 months long, your Plan must pay off the full balance. If you have 61 months remaining on your car loan, you can opt to continue making your normal car payments directly throughout your case and avoid the Trustee's commission.

2. With older cars, "cram down" the loan to the value of the car. If you bought your car on credit more than 910 days (2.5 years) ago, we look to see if the value of your car is less than the amount of the loan. If your car is underwater, we can reduce the amount of the loan to match the value of the car. This is called cramdown, and it's one of the most powerful remedies you have in bankruptcy..

3. Reduce the interest rate to the Till rate. Regardless of whether you bought your car more than 2.5 years ago, we can generally reduce your interest rate on your car loan to the Till rate (named after a Supreme Court case). The Till rate is generally the prime rate, plus some risk factor. So, the prime rate as of the date of this post is 3.25 percent. Assuming we add a risk factor of one percent, the Till rate is 4.25 percent. Very few borrowers already have interest rates lower than 4.25 percent (and many have them up to the mid-to-high teens), so this is a benefit for almost everyone.

4. Surrender the car. The last option, surrendering the car and wiping out the debt, is attractive if your car is a real beater. If the car isn't worth the remaining loan balance, you can always give it up in Chapter 13 bankruptcy just like you can in a Chapter 7 case.

If you're struggling to make payments on your car loan, give us a call. There may be lots we can do to make your car payment more affordable by filing a Chapter 13 case.