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Out of control circumstances can lead to bankruptcy

2012-05-18T19:48:59Z

As more and more people turn to bankruptcy as a means of resolving financial burdens and other stresses brought on by the recent economic recession, plenty of misinformation is floating around regarding personal bankruptcy. California residents need to have a clear understanding of bankruptcy so they can make the best choice for their financial future.

The first thing to keep in mind is that while out-of-control credit card debt is one reason why people end up filing for bankruptcy, quite often people end up in tough financial situations due to divorce, medical bills or unemployment. Along these same lines, filing for bankruptcy does not mean that a person is financially irresponsible, but rather it can mean that he or she ran into circumstances that were beyond their control.

]]> For example, according to the Bureau of Labor Statistics, there are 5.2 million Americans who have been out of work for at least six months, or even longer. This combined with the fact that a Centers for Disease Control and Prevention survey found that 20 percent of families struggle with medical bills, points to the fact that there are a number of reasons outside of credit card debt that lead to bankruptcy.

Additionally, many people incorrectly assume that all debts are discharged with a bankruptcy, but this is not necessarily true. For private students loans to be discharged the person needs to prove undue hardship, which can be difficult. Then, when it comes to things like child support and alimony debts, those cannot be discharged with a bankruptcy.

Lastly, there's a myth that filing for bankruptcy ruins a person's credit score forever, and this is simply not true. Often times, those who file for bankruptcy are even shocked when a month after debts are discharged credit card offers start coming in the mail. The advice for this is to go ahead and get a secured credit card, make payments on time and then about six months to a year later go ahead and apply for a regular credit card.

In the end, it's important to keep in mind that there is a lot of misinformation regarding bankruptcy,which is why it's actually best to talk with an attorney who focuses on bankruptcy in order to learn the truth about filing.

Source: U.S. News and World Report, "5 Bankruptcy Myths Debunked," Susan Johnston, May 14, 2012

Update: Judge denies "Octomom's" Chapter 7 bankruptcy

2012-05-16T16:50:11Z

It was only the beginning of this month that we posted on the fact that "Octomom" Nadya Suleman had filed for bankruptcy. And while in that Chapter 7 bankruptcy filing she claimed to owe as much as $1 million to more than 20 different creditors, a judge recently threw out her bankruptcy claim due to the fact that she failed to provide necessary financial documents to prove she was unable to actually pay back what she owed.

Going forward, without the pending bankruptcy, this means that the foreclosure action against the California home she lives in with her 14 children can move forward. Creditors can also attempt to collect from her what is owed.

]]> In terms of who she owes money to, her father and a Christian school are among the more than 20 creditors that were listed in her bankruptcy filing.

When looking at what she failed to file, sources claim she left out a dozen necessary financial documents and statements that would have proved her financial hardships. However, without those documents the bankruptcy could not proceed.

Looking to the future, there is a chance that the 36-year-old will attempt to re-file, only this time including all necessary paperwork.

If this happens, there is also the chance that she could continue to move forward with her original plan, which would be to file for Chapter 7 in order to have her assets liquidated to pay back creditors. After those assets are liquidated, most of her other debts would then be discharged.

Source: The Associated Press, "'Octomom' bankruptcy case thrown out of court," May 16, 2012

Medical bills lead many in California to file for bankruptcy

2012-05-11T16:33:26Z

When it comes to standard medical procedures, the costs incurred are anything but consistent across the board. In fact, a new study conducted by California doctors revealed that the charges for similar procedures at different hospitals can vary by tens of thousands of dollars.

In some cases, the extreme costs incurred by patients can push them to dire financial straits, prompting some to turn to bankruptcy as a means of resolving their outstanding and -- in some cases -- unfair medical debt.

]]> The study highlighted the varying cost of getting a routine appendectomy at a hospital. The medical bills for this procedure ranged from $1,500 all the way up to $180,000. Researchers noted that some of the variances in cost can be attributed to differing medical needs, such as intensive care. But, roughly one-third of the difference in cost could not be accounted for.

However the discrepancies did not just stop with cost, and rather it was found that hospitals also often overcharge those patients who have no health insurance. With more than 50 million not having health insurance, this is certainly concerning information to many.

Even in recent years there have been lawsuits settled where California hospitals were accused of price-jacking the uninsured.

In general, while these lawsuits have raised awareness of unfair hospital practices, the threat of fair hospital bills that dig California patients in a deep financial hole still looms. To handle the mounting bills, collections calls and pressure to resolve their debt, many uninsured patients end up bringing their debt to bankruptcy court.

Source: KPRC, "Hospital Overcharges Hit The Uninsured Where It Hurts," May 9, 2012

Developer who owes $506 million files for Chapter 7 bankruptcy

2012-05-09T15:10:52Z

When it came to the recession, many developers and business owners in California, and all around the country, found themselves in tough financial situations. Quite often, aside from a project not taking off due to the stalled economy, many found themselves in even more hot water as they had tied up their own money guaranteeing loans for those business ventures.

One developer, who filed for Chapter 7 bankruptcy and recently started to detail his finances, claims that much of his debt relates to the fact that he acted as a guarantor to loans for a number of development projects. One of those was even a $2 billion project that failed during the recession. The project filed for bankruptcy in 2008.

]]> According to the Chapter 7 bankruptcy filing, the developer owes $506.5 million. His assets are valued at only $4,738.

In addition to there being a staggering difference between his liabilities and assets, according to the filing, he is involved in a number of lawsuits, with most of these stemming from him defaulting on loans.

When looking at this developer's financial situation, it's important for California residents to know that there is no need to wait until they owe millions of dollars and have hardly any assets. Rather, it's best to talk with an attorney who has experience in bankruptcy as soon as it's realized that a financial situation is getting out of control. This attorney can then explain the different options and help figure out what would be the best course of action given a person's financial circumstances.

Source: Chicago Tribune, "Las Vegas developer lists over $500 million in debt in bankruptcy filing," Steve Green, May 8, 2012

'Good' debt versus 'bad' debt

2012-05-03T20:36:40Z

With the unemployment rate still rather high, and many still struggling to keep up with bills, we tend to spend a lot of time thinking and talking about debt. Within these conversations it is also quite common to hear talks regarding "good" debt and "bad" debt, which can lead some to wonder just what the difference is.

The most basic way to break this down is that good debt is the kind that adds value to you, and bad debt is one that goes to non-durable goods that do not add value to a person's life. Quite often, excessive credit card debt is put into the "bad" debt category.

]]> An example of the differences of these types of debt would be a business loan versus credit card debt. With the business loan, if the business ends up becoming quite profitable in the end, then that purchase of the loan appreciated in value. However, with credit card debt, when unnecessary items are purchased and the not paid off over the next few payment cycles, the debt is then not adding to a person's life.

Then there are also the types of loans that are hard to fit into either the "good" or "bad" debt categories, as it is very dependent on the person. For example, with student loan debt now reaching an average of $25,250 per student and unemployment still rather high, it can be argued that student debt is not necessarily adding value to a person's life as degree does not guarantee a job. However, that being said, some jobs require a degree. And, in those cases where a person goes to school and then starts working, the student loan can be looked at as "good" debt.

Of course when looking at the two different kinds of debt, it's also important to note that what may be considering "good" debt for one person, may not necessarily be for another. Along those same lines, while some "bad" debt is created due to making unnecessary purchases, others may be in financial situations where they do not have a choice and need to rely on credit cards for every day purchases.

In the end, the take home message is that if you are someone with debt and are worried about how to pay it all back, it is a good idea to talk with an attorney to see what debt relief options may be available.

Source: San Francisco Chronicle, "Sizing Up Debt," Martha V. Shelton, May 3, 2012

Nadya Suleman files for personal bankruptcy in California

2012-05-01T21:06:45Z

Having 14 children is obviously a lot of mouths to feed. And while 36-year-old Nadya Suleman, dubbed "Octomom" by the media, received some backlash when it was learned the single mother went through fertility treatments when she already had six children, it appears the mother has now run into some real financial difficulties.

Suleman, who lives in La Habra, California, filed for bankruptcy on Monday. She claims to have less than $50,000 in assets, yet owes somewhere between $500,000 and $1 million.

]]> Looking to the future, considering the fact that Suleman already has had to deal with some negative media attention, there is no doubt that this recent filing will also bring about more media attention. However, when it comes to just the simple fact that she filed, it does bring to light how a personal bankruptcy tends to work.

How does bankruptcy work?

Depending on the type of filing, a personal bankruptcy is a tool California residents can use to work toward financial freedom and to stop the continuous calls from debt collectors.

Typically, filing for bankruptcy is a viable option for those who are unable to pay their bills, have overwhelming debts and/or are about to see their home go into foreclosure.

Through bankruptcy, with a Chapter 7 -- like Suleman filed for -- assets are normally sold off in order to pay back creditors. In some cases, remaining debts are also discharged through this type of bankruptcy.

With a Chapter 13, financial freedom is still obtained, only this is through a debt restructuring plan where a person typically follows a three to five year plan to pay back what is owed.

Source: Reuters, "'Octomom' files for bankruptcy in California," Alex Dobuzinskis, April 30, 2012

California federal judge files for personal bankruptcy

2012-04-28T16:05:00Z

Anyone can end up in a tough financial bind. Unexpected medical bills, a divorce or a business that starts to go downhill, are all common reasons why a person may end up having to file for a personal bankruptcy.

Most recently a California judge even found himself in the situation of needing to file for Chapter 7 bankruptcy.

]]> According to the bankruptcy filing, the judge and his wife owe almost $900,000. Most of this can be attributed to owing money on his home and a car, but it appears that the couple may have also been relying too heavily on credit cards as the couple lists having $70,000 in credit card debt. Even just one of the credit cards listed in the filing has more than $12,500 worth of charges on it.

When it comes to finances, the couple also reported a rather large decrease in their earnings from 2010 to 2011. In fact, their combined income decreased by $100,000. This is reportedly partly due to his wife's business where she works as a self-employed social worker running into some financial hardships.

The hope is that the couple's home will sell in order to payback some of the money that is owed to creditors. The home is listed for sale at $1.2 million

Looking to the future, with a Chapter 7 bankruptcy, assets are typically sold off in order for a debtor to pay creditors. However, in many cases the assets are just not as much as the liabilities, and some of the debt ends up being discharged.

Source: The Wall Street Journal, "Federal Judge, 'Like So Many Others,' Files for Bankruptcy," Joe Palazzolo, April 25, 2012

Tips for California residents to pay down credit card debt

2012-04-26T13:09:53Z

Credit cards are a convenient solution for many cash-strapped California residents. But, in many cases, this short-term fix can lead to long-term problems. Credit card debt can pile up quickly, and the interest accumulated can make it even tougher to pay off your bills.

Many consumers want to develop a strategy for paying off their debt and reducing their monthly credit card woes, but some approaches are better than others. The best method is a multi-step process that curbs spending, identifies the costs of your various debts, and structures a plan for paying them off.

]]> To start, minimize -- or end entirely -- your reliance on credit card spending. Use only the funds you have and cut down on your spending to free up more cash. Increasing the amount of credit card debt you are carrying will only push you further in the wrong direction and result in more interest to pay off, costing you even more money.

The best way to ensure reduced spending is to establish a budget of how much you will spend. Then force yourself to stick to that budget.

Once your budget is in place, identify which credit cards have the highest interest rate. You will want to pay these off first since higher interest rates will cost you more in the long run. When you start paying off your debt, pay more every month than the minimum payment. The idea is that the more you pay now, the less you will owe in the end.

Finally, make sure you have money available in case of an emergency. While paying off debt is great, you want to make sure that you can handle unexpected expenses as they arise. Doing so will give you greater comfort as you trim down your credit card debt.

Of course, if you are reading this and realize that you are someone who is either relying on credit cards for every day purchases, or know that you have simply owe too much between credit cards and other debts, also realize that there are often other debt relief solutions that may be available to you.

Source: ABC, "How to pay down your credit card debt," April 23, 2012

California homeowner files for bankruptcy to stall foreclosure

2012-04-21T16:05:00Z

For most it's the quintessential American dream to own a home. However, with the current economic climate, and the fact that many lenders had once given out bad loans, many are now living in fear of losing their home to foreclosure.

One California resident recently shared his story. He claims that after much frustration trying to deal with his lender, he finally just filed for bankruptcy with the hopes of not losing his home to foreclosure.

]]> When looking at his story, it all started in 2009 when a rotator cuff injury put him out of work and on disability. Struggling to make mortgage payments, he applied for a loan modification through the Home Affordable Modification Program.

However, working with his bank turned out not to be as easy as he thought, as his lender started claiming he owed late fees that he really did not owe, there were numerous delays in processing his modification request and a number of payments were lost.

Eventually, he was informed by his bank that he did qualify for a loan modification, but he still ended up having to file for bankruptcy just days before his family's home was scheduled to go to auction.

Now, advocates for homeowner's rights claim that this man's story is a perfect example of how the HAMP program continues to fail those who truly need assistance.

However, in this case, the California homeowner did something many others have also done: filed for bankruptcy in order to stall or postpone the sale of his home.

In general, often times this gives homeowners the time needed to deal with other debt problems. But, it should be noted that filing for bankruptcy can still be a confusing process and one that an attorney should be involved with.

Source: San Jose Mercury News, "Loan modification attempt turns into nightmare for Antioch family," Paul Burgarino, April 14, 2012

Bankrupt realtor's California mansion going to auction

2012-04-19T21:32:26Z

Last year, the man who was once the No. 1 sales agent for Coldwell Banker in 2004 and 2005 filed for personal bankruptcy. Now, in response to that Chapter 7 bankruptcy filing, at the request of those debtors owed money from the former sales agent, his unfinished Southern California villa is going up on the market.

At the time of the Chapter 7 bankruptcy filing, the former real estate agent claimed to have between $10 million and $50 million in liabilities and between $1 million and $10 million in assets. He filed for bankruptcy the same year that he also left working for Coldwell Banker.

]]> The villa itself sits on 12.5 acres, and according to Auction.com, has a man-made lake, 17-car garage and views of the Santa Anna Mountains and the Pacific Ocean. However, while the mansion was once estimated to be valued at $87 million, now at least one broker said he'll be surprised if the home gets $15 million.

When looking at why, it's important to first realize that home values in the area have fallen by 41 percent. This, on top of the fact that the villa is unfinished and a buyer will need to put in an estimated $5 million to finish the main house, makes it even harder to sell.

However, there is a minimum undisclosed sale price as the total amount must cover closing costs, property taxes, a secured claim and a 5 percent auction fee.

Overall, while having to sell a 12.5 acre home is not something that is normally included in most California resident's bankruptcy proceedings, this auction does go to show that hard times hit many people in the state and that bankruptcy is a solution that many end up turning to.

Source: San Francisco Chronicle, "Bankrupt Realtor's $87 Million Villa Goes on Auction Block," John Gittelsohn, April 15, 2012

Banks expected to speed up foreclosure process

2012-04-15T16:03:00Z

When news broke that banks were involved in robo-signing, which was basically employees just signing off on foreclosure paperwork with little proof that it was legitimate, many of the mortgage lenders put a number of foreclosures on halt. However, now with a $26 billion settlement approved and agreed to by the nation's top five largest lenders, the thought is that foreclosures will once again kick into high gear.

With this settlement, banks now have stricter guidelines to follow, which takes out many of the lender's fears tied to scrutiny stemming from the days of the robo-signing scandal. However, for the homeowner, this means that the foreclosure process will move much more quickly, which really puts the pressure on to react to financial difficulties right away.

]]> Right now, on average it takes 370 days from the first day of a missed mortgage payment to when the bank takes final repossession of a home. This has meant that many times people have more time to figure out next steps, or even attempt to avoid foreclosure. But now, with stricter rules, the thought is that the foreclosure rate will increase as lenders more quickly take homes back.

Of course, the bright side to this is that as the foreclosure rates increase, home values will continue to fall, but most likely bottom out by 2013. Once home prices bottom out, it's believed that home prices will start to once again stabilize as more start to buy homes, which would certainly be good for the housing market.

However, the fact that these foreclosures may happen at a more rapid pace, means that it's even more important that struggling homeowners seek out information on financial solutions in order to keep their homes right away, instead of waiting until the last minute.

Source: CNN Money, "Many Foreclosures Have Been In Limbo Since Fall 2010," Les Christie, April 13, 2012

Average California resident still has thousands in debt

2012-04-13T17:01:01Z

It turns out that when it comes to consumer debt, on average, residents in California rank higher than the national average when it comes to mortgage debt, credit card debt and student loans. And while the average amount of credit card debt has declined, as the economy continues to get better some wonder if consumer spending habits will return to what they once were.

According to CreditKarma.com, nationally the average American has $5,871 in credit card debt. However, in California, the average resident has $5,900 in credit card debt. And while this may not seem like much of a difference, keep in mind that California residents also have a higher average in terms of mortgage and student loan debts.

]]> When looking at just mortgages you can really see the difference. Nationally, the average American has $168,727 in mortgage debt. But, in California, the average is $309,579. Auto loans are also slightly higher with the national average at $15,390. In California auto loans are set at $15,470.

However, it should be noted that in terms of credit card debt and mortgage debt, in California, these most recent figures do represent a decrease.

What exactly this means for the future is still unknown. While one could argue that at least the overall amount of debt in terms of credit card and mortgages are decreasing, many people are still struggling in the state to make minimum monthly payments and many others are facing foreclosure.

The hope is that going forward -- instead of waiting until the debts have really piled up -- California residents who are financially struggling will start to look into what debt relief options are available now.

Source: Sacramento Business Journal, "California consumer credit scores drop slightly," Melissa Wiese, April 11, 2012

Former Oakland Raiders player files for Chapter 7

2012-04-11T15:52:34Z

Filing for bankruptcy does not necessarily mean that a person is out of work or completely out of money. Rather, it is a debt relief tool that is frequently used in situations where a person's debts are unmanageably more than their assets. And while this is something that can happen to any California resident, the truth is that many wealthy people even find themselves in these types of financial situations.

A perfect example of this is the fact that Warren Sapp, the former defensive tackle for the California-based Oakland Raiders, recently filed for Chapter 7 bankruptcy. In this filing he claims to owe a total of $6.7 million to not only creditors, but to also be behind on child support and alimony payments.

]]> However, when it comes to his earnings, according to the bankruptcy filing, Sapp claims to have $6.45 million in assets and a monthly income of $115,881.

A breakdown of Sapp's assets includes 240 pairs of Jordon shoes, which are worth approximately $6,500, and a lion skin rug worth $1,200. When it comes to his income, in his filing, Sapp listed $45,000 from a final contract with Showtime and another $48,000 for an appearance with CAA sports. He also received almost $20,000 for an advance on a book deal.

Looking to the future, while with a Chapter 7 bankruptcy assets are normally sold off in order to pay back debts, it should be noted that when it comes to what debts can be discharged, child support and alimony are not included. However, while these debts are not discharged, the fact is that others debts are, which in turn can free up money in order to help pay back child and spousal support that is owed.

Source: The Associated Press, "Warren Sapp files for bankruptcy in Florida," April 7, 2012

Have credit card debt? You also have rights against harassment

2012-04-06T19:04:07Z

With bill collectors making harassing phone calls and collection agencies mailings flooding your mailbox, it can be easy to forget that you have rights as a consumer. However, if you have credit card debt or are struggling to keep up with mounting bills, understanding your rights is very important in order to not get taken advantage of.

Over the years, debt collection has become more lucrative, but also more complicated. Debt collectors know this, and some of them are going as far as to push legal boundaries in their attempts to recover debts.

]]> In fact, last year the Federal Trade Commission reported that it received more than 140,000 complaints from consumers regarding unfair or perceived to be illegal debt collection practices.

That being said, many might be wondering just what rights they have?

The first thing is to remember that if a debt collector contacts you, there is nothing wrong with asking to see how much you owe in writing. In fact, if you ask for this in writing, a debt collector must provide it.

Additionally, if you are behind on payments and a debt collector is calling your home, you have the right to not be harassed by phone calls day and night. For example, if you tell the collector not to call you while you're at work, the debt collector must listen. Even if you tell the collector to not contact you at all via telephone, the collector must adhere.

Aside from rules regarding how and when a collector can contact someone, debt collectors also cannot threaten or make false claims in order scare a person into paying back what is owed.

Outside of knowing your rights when it comes to fair debt collection practices, it's also important for a person with outstanding debts to know what different debt relief options may be available to put an end to debt collection issues.

Source: KJRH, "Knowing your rights is key to dealing with debt collectors," Michelle Lowry, April 4, 2012

Update: Student loan debt surpasses credit card debt

2012-04-04T20:17:03Z

Just last week we posted about the fact that there is a growing fear that crippling student loan debt may further slow housing recovery in California and the rest of the country. And while we mentioned that a preliminary finding by the Consumer Financial Protection Bureau found that student loan debt is now more than $1 trillion in the U.S., this may have some wondering, in the grand scheme of things, just how much debt is this?

According to sources, student loan debt is currently higher than auto loan debt and credit card debt. On average, students end up with around $25,000 worth of student loan debt, which is 25 percent more than it was just 10 years ago.

]]> This high amount of debt, combined with a still struggling job market, makes it rather difficult for many recent graduates to be able to find work and pay back their student loans.

What's more, the interest rate on certain student loans -- like federal subsidized loans -- is expected to rise from 3.4 percent to 6.8 percent. This could end up equating to another $5,000 being owed back over a 10 year repayment period.

This rate change is expected to take place on July 1, which is why many students are rallying in support of legislation that would put a halt to this interest rate increase.

In general, owing thousands in student loans is surely frustrating for any college graduate, especially in the current economic climate where having a degree does not necessarily always equate to finding a good paying job. And while the hope for many is that legislation will prevent the July interest rate increase, the truth is that for some -- even if there is no increase -- paying back student loans may still seem impossible.

In those situations, instead of worrying night and day over what to do, it's best to talk with an attorney who focuses on debt relief in order to learn about different financial strategies that may be available.

Source: WPRI, "Student loan debts tops $1 trillion," April 3, 2012