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Bankruptcy Problems You Can Avoid: Undisclosed Assets

Gini — Wed, 21 Jul 2010 00:33:47 +0000

The United States Bankruptcy Code obligates you to make a full disclosure of your financial affairs when you file bankruptcy. You must list all of your debts, reveal detailed information about your income and expenses, and you must reveal information about your assets.

In my 24 years of practice I have found that undisclosed asset issues arise far more often than unlisted debt problems or budget issues. I suspect that it is easier to collect information about your debts – you can get a credit report, save collection letters and track the phone calls. Hidden assets, however, can sometimes slip your mind, and can create huge problems. Stated simply, any property that you own, or that you may have a right to own should be disclosed–at least to your lawyer for an opinion.

Here are some examples of assets that have created problems for my clients over the years:

Unexpected inheritance–the Bankruptcy Code provides that any inheritance received within 6 months of discharge is property of your bankruptcy estate. Therefore, if you are thinking about filing for bankruptcy, think about the possibility that you could inherit money from a relative, especially if that relative is older or in poor health. If a lot of money is at stake, you and/or your relative may wish to consult with an estate planning lawyer who can discuss estate planning tools that might protect your relative’s funds. I recently had a case in which my client’s father created a “spend-thrift” trust that provided for distributions to my client at the discretion of a trustee but protected the corpus of the trust – which was several hundred thousand dollars – from seizure by a bankruptcy trustee.

Contingent claims–if you have been in an accident or otherwise have a claim for damages against another person, that claim is an asset and must be listed. If you do not list the asset, then proceed through bankruptcy to discharge, and later attempt to pursue your claim, your failure to list the asset can serve as bar to recovery. This will depend on your state’s law, but in general, let your bankruptcy attorney know if you have or may have any type of claim against any person.

Paper title–several years ago, I represented a debtor in Chapter 7 who discovered after he filed that his mother had added his name to the title of her paid-for home. My client had filed his case “pro se” and came to me after the trustee made a demand for turnover of half of the equity. In this case the trustee had checked the deed records at the local county courthouse and discovered the transfer. My client’s mother had to take out a mortgage on the house to raise the funds to buy the trustee out of his interest – this problem could have been avoided if my client had thought to ask his elderly mother if she had made this transfer.

Accounts receivable–over the years I have represented a number of small business owners who have come to me to file bankruptcy because of cash flow problems. Often this type of client’s personal and business lives are intermingled and a personal bankruptcy also serves to bankrupt the business as well. In these cases I always ask about accounts receiveable. Receiveables are assets and must be listed. If the business is incorporated, the shares of the business may have a value equal to the receivables. Often it can be hard to keep a business going when the owner files a personal bankruptcy – here is where you need good legal advice to help you decide if and when to file.

Often, issues that will become significant problems in bankruptcy can be resolved if your attorney knows about the potential problem before you file. Sometimes, holding off a few months or engaging in attorney supervised pre-bankruptcy planning can make a big difference. I hope that this blog post will help by making you think about situations in your own case that could, but need not, turn into a bankruptcy problem.

Special thanks to Atlanta Bankruptcy Lawyer Jonathan Ginsberg for this guest post. Jonathan’s also member of Bankruptcy Law Network. If you’re in Atlanta and need a bankruptcy lawyer, I’d highly recommend Jonathan.

When Foreclosure Threatens: Can You Afford to Keep Your Home? Part 4b — NMBankruptcyBlog.com

Gini — Mon, 22 Mar 2010 13:00:08 +0000

Foreclosure rates are as alarming as unemployment rates. Deciding what to do if your home is threatened in this way is a severe test of maturity. We don’t want to lose what is usually both our biggest financial investment and, truly, our safety and refuge.

One of my favorite legal self-help publishers has an article I’m running in a series on, Monday 2/15, 2/22, 3/1, 3/8, 3/15, 3/22,/ 3/29, 4/5, 4/12, 4/19, 4/26, and 5/3.

Use the Standard Ratios

As a general rule, the housing industry considers a loan affordable if your overall monthly mortgage payments do not exceed somewhere between 29% and 33% of your gross monthly income. This is frequently called your income to mortgage debt ratio. For example, if your annual gross income is $75,000, then your mortgage payments should not exceed $2,062 if you use the 33% figure. They should not exceed $1,562 if you use a more modest 25% income-to-mortgage debt ratio.

You should tailor these numbers to your particular situation. If you have a child with special needs or two kids in college, for example, your mortgage payment might not be affordable even if it’s below the recommended 29-33% income to mortgage debt ratio. On the flip side, if you have few other expenses (perhaps you live simply, don’t own a car, or grow some of your own food), you might be able to afford a mortgage payment that exceeds the 29-33% figure.

When Foreclosure Threaten: Can You Afford to Keep Your Home? Part 4a — NMBankruptcyBlog.com

Gini — Mon, 15 Mar 2010 13:00:00 +0000

One of my favorite legal self-help publishers has an article I’m running in a series on, Monday 2/15, 2/22, 3/1, 3/8, 3/15, 3/22,/ 3/29, 4/5, 4/12, 4/19, 4/26, and 5/3.

Are Your Monthly Payments Too High?

Many folks face foreclosure because their income has substantially decreased since first buying their home. Some were counting on the house’s value to increase, allowing them to replace an unfavorable mortgage with a more affordable one. Regardless of the reason for your troubles, before you decide to try to keep the home or move, you must determine if you can truly afford your current loan, or a refinanced loan. If you can’t, it may be time to let your home go.

There are several good ways to make this determination. Choose the one that works best for your situation, or use a few methods.

When Foreclosure Threatens: Can You Afford to Keep Your Home? Part 2 — NMBankruptcyBlog.com

Gini — Mon, 01 Mar 2010 13:00:24 +0000

One of my favorite legal self-help publishers has an article I’m running in a series on, Monday 2/15, 2/22, 3/1, 3/8, 3/15, 3/22,/ 3/29, 4/5, 4/12, 4/19, 4/26, and 5/3.

Deciding Whether to Try to Stay or Go

If you have some equity in your house, it’s probably worth it to try to hang on to your house, if you think you can afford future monthly mortgage payments (see “Are Your Monthly Payments Too High?,” below, for more on this). If you can’t afford the payments, see if you can reduce your debt load so that you can make them (see “Can You Reduce Your Debt Load?,” below, for ideas on how to free up more of your income or change the payments themselves).

If you find yourself significantly upside down (negative) when it comes to equity, and you are behind on your mortgage payments, there’s not much point, from an economic perspective, in trying to keep the house. What is significantly upside down? It probably makes sense to give up your house if its current value is 25% less than what you paid for it. That’s because your house’s value would have to appreciate by as much as it dropped for you to come out even, and that will likely take several years.

However, if you are upside down on your home and still want to keep it, you might be able to reduce your mortgage payments by working something out with your lender or taking advantage of a favorable refinanced loan under the HOPE for Homeowners Act of 2008. (See, “Can You Reduce Your Debt Load?” below, for more on this.)

When Foreclosure Threatens: Can You Afford to Keep Your Home? Part 1 — NMBankruptcyBlog.com

Gini — Mon, 22 Feb 2010 13:00:41 +0000

One of my favorite legal self-help publishers has an article I’m running in a series on, Monday 2/15, 2/22, 3/1, 3/8, 3/15, 3/22,/ 3/29, 4/5, 4/12, 4/19, 4/26, and 5/3.

Do You Have Equity in Your Home?

To a large degree, your options depend on whether you have equity in your house. Generally, your equity will be the difference between what you owe on the house and what you can sell it for. Unfortunately, many homeowners have negative equity — that is, selling your home would get you less money than what you own on your mortgage and other home loans.

What Is Your House Worth?

These days it’s not so easy to know what your house is worth. Estimates of real estate values are traditionally based on the amounts that similar houses in the neighborhood have recently sold for. To find out that information, check out websites such as www.Zillow.com or www.housevalue.com. Local real estate brokers and agents can also give you an estimate by looking at similar sales in your neighborhood.

Unfortunately, as property values continue to decrease, it becomes next to impossible to determine the value of your property, especially if no houses in your neighborhood are selling. Or, if there are many foreclosures going on in your community, a house similar to yours may sell for far less than if you sold it outside of foreclosure. The only real way to find out your house’s market value is put it up for sale and see what happens.

When Foreclosure Threatens: Can You Afford to Keep Your Home? — NMBankruptcyBlog.com

Gini — Mon, 15 Feb 2010 13:00:03 +0000

One of my favorite legal self-help publishers has an article I’m running in a series beginning today and continuing on Monday 2/22, 3/1, 3/8, 3/15, 3/22,/ 3/29, 4/5, 4/12, 4/19, 4/26, and 5/3.

This is the introduction to the body of the article:

If you face foreclosure, realistically assess whether you should keep your home.

If foreclosure looms because you’ve missed some payments, or you think you will soon, it’s time to face what’s probably the toughest question of the whole process: Can you afford to keep your house?

Apart from the emotional considerations that surface whenever a foreclosure is threatened, there are economic factors you just can’t ignore. Before you can decide whether or not to try to keep your house, you need to take stock of your financial situation — which has no doubt changed since you bought your house.

Here are the basic steps:

determine if you have equity in your home

decide if you can afford your monthly mortgage payments, and

reduce your debt load.

Losing a Job: Ten Things You Can Do to Make It Less Painful, Part 3 — NMBankruptcyBlog.com

Gini — Tue, 09 Feb 2010 13:00:26 +0000

Unemployment rates continue to frighten most anyone who is watching. People are losing jobs, and it can be horribly difficult to find a new one, especially one that approaches the salary and benefits of an earlier one. Times are different and they are difficult.

One of my favorite legal self-help publishers has an article I’m running in a series, on Tuesday 1/19, 1/26, 2/2, and 2/9.

Ways to keep a job loss from becoming a financial disaster, Part 3.

4. Continue your health insurance. If you had health insurance through your employer, complete any necessary paperwork to keep those benefits in place. Under the Consolidated Omnibus Budget Reconciliation Act (commonly known as COBRA), you can keep employer-based group insurance coverage for yourself and dependents for up to 18 months (sometimes longer). You will have to pay the full premium for coverage unless you are eligible for a partial subsidy: Those whose employment is terminated involuntarily from September 1, 2008, through the end of 2009 may qualify for a subsidy that pays 65% of the cost of COBRA for up to nine months. (For more information, see New COBRA Rules: Stimulus Package Subsidizes Continued Health Insurance.) Paying the full premium can be a real financial strain, but it should cost significantly less than buying your own individual policy. Your health plan should send you an “election notice” within 45 days of your job loss, and you have 60 days to decide whether to elect COBRA continuation coverage. If you do elect to continue your coverage, you’ll have 45 days after your election to pay the initial premium. If you don’t choose the continuation coverage and your coverage lapses, you may have difficulty getting new insurance. (For more information, see Your Rights When You Leave a Job.)

5. Cut your expenses. List your monthly expenses and determine which you can cut, or at least reduce, immediately. Good candidates for cutbacks include restaurant meals, premium cable subscriptions, clothing purchases, house cleaners, gardeners, and any other nonessential purchases. Remember that you can resume your normal spending habits once you’re working again.

6. Prioritize your debts. If your cash reserves are short and you are unable to pay certain bills, make sure to pay the essential ones first. Don’t risk losing your house, being cut off from medical care, or getting in trouble with the IRS when you could have let less crucial bills — such as your cable TV bill or your magazine subscriptions — slide. Also consider contacting your creditors to ask for a short-term hold or reduction on your payments. When discussing alternative payment arrangements with creditors, be sure to ask if the new arrangement will negatively affect your credit rating. (For more information, see Which Debts Must You Repay?)

Losing a Job: Ten Things You Can Do to Make It Less Painful, Part 2 — NMBankruptcyBlog.com

Gini — Tue, 02 Feb 2010 13:00:12 +0000

One of my favorite legal self-help publishers has an article I’m running in a series, on Tuesday 1/19, 1/26, 2/2, and 2/9.

Ways to keep a job loss from becoming a financial disaster, Part 2.

7. Consider getting a roommate. If you have the space, a short-term roommate can help mitigate the cost of your mortgage or rent. You might also consider a part-time roommate, someone who commutes from afar and needs a bed only a few nights a week.

8. Take on odd or part-time jobs while you search. House-sit, walk dogs, or be a companion for an older person. These and other part-time, low-commitment jobs can offer immediate income while allowing you time to conduct your search for a new job in your field.

9. Don’t use credit cards (unless you absolutely have to). One major risk of unemployment is spiraling debt. Credit card debt is notoriously difficult to get out of and should be avoided. Do everything you can to avoid getting into, or deeper into, any kind of debt.

10. Don’t lose heart. Remember, millions of others have faced a job loss and lived to tell about it. Many successful people have lost their jobs, only to go on to better things. And losing an income is not a reflection on your worth as a person, or even on the quality of your work. With the right attitude, you can use this opportunity to take a step back and consider new directions that may well prove to be more rewarding both personally and financially.

Whether you choose to do all or just some of the above, you’ll be taking important and useful steps to manage your finances during this difficult time.

Losing a Job: Ten Things You Can Do to Make it Less Painful, Part 1 — NMBankruptcyBlog.com

Gini — Tue, 26 Jan 2010 13:00:25 +0000

One of my favorite legal self-help publishers has an article I’m running in a series, on Tuesday 1/19, 1/26, 2/2, and 2/9.

Ways to keep a job loss from becoming a financial disaster, Part 1.

1.Tie up loose ends and collect all compensation due from your job. Before you sever ties with your former employer, make sure to turn in all of your expense reports and to receive a paycheck for all your work, through your very last day. (For information on how soon you can expect your check, see Chart: Final Paychecks for Departing Employees.) If your state’s law or employer’s policies give you the right to be paid for unused vacation time, make sure that’s included in your final paycheck. A few employers pay out unused sick or personal leave, too.

2. Explore freelance or part-time work options before you leave. If you and your employer parted ways on good terms, ask your supervisor (or anyone you know at the organization) whether you might be hired to do freelance or part-time work. Sometimes a downsizing company might rehire you in another capacity, or a sympathetic supervisor (or manager of another department) may be helpful in providing you with leads.

3. Apply for unemployment benefits as soon as possible. State rules for unemployment compensation vary, but in general, if you are not at fault for losing your job, you are probably eligible for unemployment benefits. Laid-off workers are typically eligible for benefits, while fired employees will be eligible unless they were fired for misconduct. (For more information, see When You Are Entitled to Unemployment Compensation.)

Losing a Job: Ten Things You Can Do to Make It Less Painful — NMBankruptcyBlog.com

Gini — Tue, 19 Jan 2010 13:00:50 +0000

One of my favorite legal self-help publishers has an article I’m running in a series starting today, and continuing on Tuesday 1/26, 2/2, and 2/9.

This is the introduction to the body of the article:

Ways to keep a job loss from becoming a financial disaster.

Losing a job is never easy. Even if you receive severance pay, you face an imminent loss of income, not to mention health insurance and other benefits. And because job searches often take several months, you may go through a period of unemployment.

Keep in mind that losing your job does not equal financial disaster. Below, you’ll find a list of immediate actions you can take to make your transition easier. Some involve conserving your resources; others involve developing new sources of income. All will help you maintain your financial health through this difficult time.