My clients and I sit down and do a thorough review of their financial situation and make a determination as to what is the best approach for dealing with their debts. When the best option is bankruptcy, it is not uncommon for me to advise the client to delay filing, sometimes for weeks or even months. Possible reasons are that the debtor expects to incur more debt soon, such as for a medical procedure, or to enable the debtor to pass the means test, or to allow the debtor time to receive a tax refund and spend it down prior to filing. Whatever the reason for delay, the question arises: What about using my credit card if I know I will be filing for bankruptcy?
It is not a good idea to go on a spending spree with the idea that all the accumulated debt will get discharged anyway. There are moral and fairness reasons I will not get into here but the point for now is that there is a legal reason. I refer you to Title 11 United States Code, Section 523: Exceptions to Discharge. Paragraphs (a), (a)(2) and (a)(2)(A) state in relevant part that “A discharge under [chapters 7 or 13] . . . of this title does not discharge an individual debtor from any debt . . . for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition. . . .” The statute further explains the exception to discharge rule by stating in paragraph (a)(2) (C) that “. . . consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be non-dischargeable; and cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be non-dischargeable; and . . . the term “luxury goods or services” does not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.”
So, if you go out and buy things or services considered a luxury, or more appropriately, not considered necessary, within 90 days of fling and that total more than $500 owing to a single creditor, then you run the risk of losing the discharge as to these purchases. Even within the 90 day period, the law allows you to splurge up to $500, which could allow you to get that Gucci bag or assault rifle you’ve been wanting. But, if you are going to wait more than 90 days to file, the law does not specifically prohibit any amount of expenditures. In that case, the creditor would need to raise an objection to the discharge and persuade the trustee and/or court that you abused the bankruptcy process and that it would be unfair to grant you the discharge. Not likely to happen.
On the other hand, if you are buying necessary items like food, reasonable clothing, gasoline, utilities, eating out, necessary car repairs and maintenance, kids school expenses, etc., then the sky is the limit. There is no statutory limit on what you can spend (charge).
Just be warned, the bankruptcy process is all about transparency and relative fairness. So, don’t get greedy thinking you can whoop it up in Cabo San Lucas on one last fling just before filing and then stick Chase Bank with the bill. You might be unpleasantly surprised.
If you have been over paid by a state for unemployment insurance, it is highly probable that the state will want you to repay it. This debt is classified as an unsecured debt. The question is: Can you discharge this debt in bankruptcy? The question arises because bankruptcy law exempts from discharge certain types of debt owed to a governmental unit. So, is this debt a debt that is exempt?
Title 11, United States Code, Section 523(a)(7) states in part:
A discharge under [chapters 7 and 13] … of this title does not discharge an individual debtor from any debt … to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit.
First of all, what is a governmental unit? According to the United States Code, the term "governmental unit" means “United States; State; Commonwealth; District; Territory; municipality; foreign state; department, agency, or instrumentality of the United States (but not a United States trustee while serving as a trustee in a case under this title), a State, a Commonwealth, a District, a Territory, a municipality, or a foreign state; or other foreign or domestic government.” (11 USCS § 101). Thus, a state is a government unit and this statute may apply because your debt is payable to the state.
But is your debt for overpayment of unemployment insurance a “fine, penalty, or forfeiture,” as required in the statute? The money you owe the state is not a fine and is not a penalty, but is it a forfeiture? Forfeiture would apply to future benefits. For example, if you were still receiving unemployment, the state could reduce future payments by some fraction in order to recoup the overpayment. Bankruptcy would not prevent this from happening. You would be forfeiting future payments and forfeiture for a debt to a governmental unit is exempt under the above referenced statute. However, if you are no longer receiving unemployment benefits, then there would be no ongoing forfeiture and the statute would be of no effect.
Therefore, a bankruptcy filing under either chapter 7 or 13 would allow you to stop the state from taking action to collect and this debt would qualify for discharge.
Have you ever purchased a shirt or shoes or other consumer item at one store and later found the same item at another store for a much lower price? Have you ever purchased a car and drove home in your new vehicle wondering whether you got snookered on the price? Have you ever noticed an item identical to a non-branded item cost more because of the brand name placed on? Pricing is a game in many ways and in many circumstances. And believe it or not, pricing is a game in the legal world just like anywhere else.
For example, I typically charge $1000 to $1200 for an individual chapter 7 bankruptcy and have many times charged less depending on the debtor's circumstances. In fact, it is fairly common to find that bankruptcy attorneys charge a flat fee for the service, although the rates I hear quoted are higher, especially for those who practice downtown, in the big city. So, the fact that rates vary should clue you in to the idea that it might be wise to shop around. After all, most chapter 7 bankruptcy filings are not rocket science.
The opposite of shopping around to find a competitive price is to pay shockingly high fees. I've been counseled by more experienced attorneys that the more you charge the more the client will think he/she is getting a great lawyer. More is better, right? Well, wouldn't you know just the other day, while working on a collateral matter for a client, I had cause to look into the bankruptcy filing of the opposing party. While perusing the petition, I could not help but notice that the debtor paid his attorney on an hourly basis and ended up with a bill of very close to $5000! Shocking! It is patently unconscionable to charge such exorbitant fees for legal services that are not, at least in this case, complex. It doesn't matter that bankruptcy may wipe out tens of thousands of dollars of debt. That is a function of the bankruptcy process and not due to the lawyer's skill.
The moral of the story is, if you are looking for a bankruptcy attorney, shop around. You can find competent attorneys who won't take the shirt off your back and who may even have compassion on you for the difficult position you find yourself in. For competent advise in deciding whether bankruptcy is the right solution for your financial problems, give me a call at 503-686-0981, I'll make sure you keep the shirt on your back.
Perhaps you heard the front runner for the 2012 Republican nomination for president remark that the Ryan budget proposal was, in a word, "Marvelous." I can imagine that "Marvelous" would come to mind to describe the aforementioned budget proposal, that is, if you are earning millions of dollars and hoping to lower your 14.9% overall income tax burden even further. But I'd like to suggest that for those whose incomes are considerably less than the good, former governor (or is it the formerly good governor?), the word marvelous is more aptly applied to Chapter 7 bankruptcy.
You see, Chapter 7 is for folks who have somehow gotten themselves in very deep financial trouble. There are many pathways and many circumstances whereby folks come to this point but, regardless, it happens. And when it does happen, Chapter 7 can, for some, be an escape hatch leading to a bright new world. Now isn't that Marvelous? That new world is one in which you, the debtor, no longer live in fear of wage garnishment, no longer live in fear of judgment liens, no longer fear to answer the phone, no longer fear to go to the mail box, and have money in your pocket to pay for the absolutely necessary living expenses. Now isn't that marvelous?
Call me, David C. Clarke, if you think your debts have overwhelmed you and are interested to know if a Chapter 7 bankruptcy would indeed be "Marvelous" for you, too: 503-686-0981
As adults, and especially as parents, people are responsible for many, many things. But most of us have never thought much about taking responsibility for our own death. So, what does it mean to take responsibility for our own death?
Many of us will not die quickly, needing little health care. Most of us will likely need some kind of end of life care and will need to make important decisions about treatment. Taking responsibility for our own death means, among other things, planning and preparing for that eventuality. In actuality, few have taken steps to plan ahead in this regard. According to polling data from 2006, only 33% of Americans had what is called an 'advanced health care directive' and even fewer had taken the more legally enforceable measure of appointing a health care representative to act on their behalf if and when they cannot act for themselves.
An advanced health care directive allows you to tell those treating you what measures you want employed to keep you alive: anything from no extraordinary means to whatever it takes to keep you alive, whether there is any hope of recovery or not. It also allows you to designate and authorize someone to make health care decisions for you if you are unable to do so yourself.
The need for planning for death is driven by both the high financial cost of keeping someone alive who has little hope of recovery and the high emotional cost to families who melt down over life and death decisions for their loved one.
Taking responsibility for your death in this fashion can prevent excessive yet unfruitful health care spending at life's end as well as mercifully lift the burden of decision making from the shoulders of those who survive you.
For more, read Taking Responsibility for Death, by Susan Jacoby, in the March 30, 2012 NY Times' editorial page.
See also, http://www.easylaworegon.com/estate
Pre-paid legal agreements are essentially insurance contracts in which you, the consumer-client, agrees to pay a monthly insurance premium for a certain amount of legal representation in the future. Pre-paid legal agreements can be offered directly to the consumer by the pre-paid insurer or indirectly through an employer as a so-called benefit option. Such an insurance policy may sound good: get legal advice when you need it without going broke paying for it. But like all insurance (think health insurance), the profitability of these policies is based on a lot of people not ever using anything near what they are paying for so that some people can get legal advice without paying the actual cost. Thus, you are statistically more likely to be one of those people who pays and pays and never claims. But what if you are one of those few who end up needing legal advice, even a lot of it? Isn't it a good deal then?
The essential problem is that, unlike health care insurance, you will not be able to choose your law firm or your attorney. Typically, pre paid legal services contract with a local Big Firm to provide the legal services. Big Firm will likely assign your issue to one of many junior attorneys and not always the same one if and when you return for additional services. Thus, you will not have an attorney who knows you and your situation, nor one who feels any particular loyalty to you.
A further problem is that Big Firm depends on a high volume of low fee referrals from the pre-paid insurer to make it economically profitable. This fact creates a classic moral hazzard which may result in a watering down of your representation such that more hours are utilized, and subsequently charged to you, than might be necessary to effectively handle your legal matter . A further motivation to dilute the efficiency of your representation is that Big Firm profits handsomely from those referrals who run out of their limited number of pre-paid hours before their case is completed. Legal services can easily exceed the number of hours allowed for by the pre-paid policy, especially when hours are used ineffectively. Once a client runs out of those hours, you are then constrained to pay Big Firm's big hourly rate. You, the client are left in a situation where Pre-Paid is no longer involved and you are stuck with a firm which is probably not the firm you would have chosen and probably not the best firm for your particular needs.
My advice is that you shun pre-paid legal and stick to choosing an attorney who will truly be your loyal and trusted advocate. You can get some attorney hiring tips from my blog "Learning From Goldman Sachs."
On Thursday, March 15, 2012, the NY Times published an editorial by Greg Smith entitled "Why I Am Leaving Goldman Sachs". Mr. Smith, who was executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa, explained why he was leaving GS after twelve years. He alleged that "the interests of the client continue to be sidelined in the way the firm operates and thinks about making money". Given the latest economic debacle from which the nation and the world are still recovering and in which Wall Street was complicit, if not the prime mover, the editorial generated significant response from all sides. Some were shocked that there was institutional greed in organizations handling great sums of public and private money; others were shocked that some were shocked at this revelation and dismissed the charges as old news of no consequence to sophisticated investors. But, no matter, Wall Street is not the focus of this blog posting. The saga of moral decay is only relevant here to the extent it applies to the legal profession.
Would you be surprised if I alleged that the interests of the client continue to be sidelined in the way many law firms operate and think about making money? I recently had a client come to me because she received a summons to appear and answer to a law suit: her former attorney was suing her for non-payment of fees. There was a long story to it but the short of it is that she was given a bill for $14,000 at the end of a relatively simple case that was settled without need for a trial. This large bill came as quite a shock since she had received no monthly billing statements, had no written fee agreement, and had anticipated a much lower bill based on the lawyer's verbal projections. Subsequently, she fell on hard times, lost her job, had her home foreclosed, etc. The summons came before she was in a position to start making payments.
Another client came to me with questions about how to deal with legal fees of over $20,000 for a divorce in which he got hammered with three categories of spousal support, an equalization judgment, as well as bills for psychiatric counseling, and two attorneys appointed for two of his four children. If he was paying the lawyer for results, the lawyer would get nothing, but that is not how the system works.
Whether it is a sign of moral decay or not, my observations have revealed that too often the client is viewed primarily as a source of revenue. To be fair, this attitude infects all manner of professional and non-professional service companies but can be especially abusive in the legal profession. The moral of the story is that you need to interview attorneys before you hire them and make an attempt to gage their attitude toward you, the client, in addition to issues of competency, etc. And by all means make sure you get both a representation agreement that spells out the scope of work and the objective for which you are employing them and a fee agreement that spells out the fee schedule, fixed fee or hourly. In the case of hourly billing agreements, you also need to ask for a total cost estimate, periodically ask for a projection of the future costs, request cost projections based on alternative approaches to solving your problem as they arise, and insist on monthly billing statements. This advice applies whether you pay a retainer up front or not.
Bottom line is that you owe it to yourself to take charge of what you are spending on legal services and make wise decisions accordingly. Only you can hold your lawyer accountable for the work they do and what they charge for their services. Don't you let St. Peter be fooled:
A lawyer died and arrived at the pearly gates. To his dismay, there were thousands of people ahead of him in line to see St. Peter. But, to his surprise, St. Peter left his desk at the gate and came down the long line to where the lawyer was standing. St. Peter greeted him enthusiastically and guided him up to the front of the line into a comfortable chair by his desk.
The lawyer said, "I don't mind all this attention, but what makes me so special?"
St. Peter replied, "Well, I've added up all the hours for which you billed your clients, and by my calculation you must have lived to be over 193 years old!"
According to the federal bankruptcy code governing chapter 7 petitions, your assets, including money owed to you, become part of the bankruptcy estate, less certain qualified exemptions. Therefore, if the state or federal government is collecting taxes each pay check, as they usually do, it is possible that some portion of that money will be returned to you in the form of a tax refund and that money may end up as part of your bankruptcy estate. This is important to you because whatever assets are included in your bankruptcy estate will likely be used to satisfy creditors and will be lost to you.
The amount owed to you by the taxing authorities when you file for bankruptcy protection depends in part on when in the calendar year you file. If you file bankruptcy early in the year, little may be owed to you by the taxing authorities, however, if you file later in the year, much may be owed. If it appears from your annual wages to date and your prior years' tax returns that you may have accumulated a significant tax return, the trustee will want it. But he/she won't be able to get at it until you file your return and receive your refund.
If the trustee estimates that your tax refund, which has accumulated up until the time of filing bankruptcy, is worth the effort, he will inform you of this at your 341(a) hearing. He will also ask you to notify him of the amount of refund(s) you claim when you next file your returns. Then he will calculate his due based on the appropriate pro-ration, less any wildcard or other exemption you may be entitled to. You will be required to pay that calculated amount into your bankruptcy estate when you actually receive your refund.
Note that if you are contemplating filing for bankruptcy protection early in the calendar year, you will want to consider whether to delay filing until you have received your tax refund and have opportunity to spend it on living expenses, the cost of filing for bankruptcy (attorney fees, filing fees, education fees), and any other allowable expenditure.
The question of spousal support often arises when couples are divorcing. In Oregon, there are several categories of support available, each with their own set of qualifying factors. The categories are 1) transitional, 2) compensatory, and 3) maintenance.
The purpose of transitional support is to assist the recipient in getting educated or trained before re-entering the job market. This is particularly useful to women who have stayed out of school and/or the job market in order to stay at home and raise children.
The purpose of compensatory support is to compensate or pay back a spouse when that spouse has made a significant financial or other contribution to the education, training, vocational skills, career or earning capacity of the other spouse. This is applicable where one spouse has helped pay for a the other's education, especially where there is an expectation of high earnings.
Finally, the reason for spousal maintenance is simply because it seems just and equitable to the court. It may be appropriate when the spouse has been a stay at home mother and housewife and now is advanced in years and unlikely to be successful in the job market or where it seems just to provide for the maintenance of a certain lifestyle which the spouse has become accustomed to. Any one or any combination of these categories can be ordered.
As mentioned above, each category has its own factors which the court considers when making an award. One common factor for all three categories is the length or duration of the marriage. It is important to note that Oregon law does not require any minimum duration but as a practical matter shorter marriages (for example, less than 7 years) are unlikely to merit spousal support absent other important factors. The list of factors is provided below:
|The duration of the marriage||The duration of the marriage||The duration of the marriage|
|A party’s training
and employment skills
|The amount, duration and nature
of the contribution
|The age of the parties|
|A party’s work experience||The relative earning capacity of the parties||The health of the parties, including their physical, mental and emotional condition|
|The financial needs and resources of each party||The extent to which the marital estate has already benefited from the contribution||The standard of living established during the marriage|
|The tax consequences to each party||The tax consequences to each party||The relative income and earning capacity of the parties, recognizing that the wage earner’s continuing income may be a basis for support distinct from the income that the supported spouse may receive from the distribution of marital property|
|A party’s custodial and child support responsibilities||Any other factors the court deems just and equitable||A party’s work experience|
|The age of the parties|
|The financial needs and resources of each party|
|The tax consequences to each party|
|A party’s custodial and child support responsibilities|
|Any other factors the court deems just and equitable|
Foreclosure filings continue at a depressive pace. Multnomah, Washington, and Clackamas counties continued to lead the way with September, 2011, filings totaling 489, 404, and 360, respectively. Statewide, there was one filing for every 559 housing units in September, according to data provider RealyTrac. This statistic was slightly worse than the national average of one in every 605 housing units nationwide for the same time period.
In Oregon, there are two common types of foreclosure processes - judicial and non-judicial. Normally, the non-judicial process is used, where the document securing the loan is a deed of trust. The parties involved are the financial institution you owe the money to, or beneficiary; the trustee, which is the neutral party to whom you conveyed or transferred temporarily the title of your house to be held in trust until your loan is paid off; and you as a borrower or trustor/grantor.
Deficiency in Oregon
If your house is sold at auction or is transferred to the lender and the amount for which it was sold or transferred is not enough to cover the balance of your loan and the lender reports to the IRS that the debt has been canceled, the lender or an assignee of the lender may not bring an action or otherwise seek payment for the residual debt or deficiency (Oregon 2011 Laws, Chapter 480). The institution will typically file the applicable IRS forms with the amount owed and other relevant information. You will receive a copy of the applicable 1099 form(s) in reference to the amount "forgiven."
The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief. This act applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately).
But what if you don’t live in Oregon or one of the other states listed below? Simply put, you could be on the hook for the deficiency or difference between what you owed and what the home was sold for.
With qualification, Alaska, Arizona, California, Connecticut, Minnesota, North Carolina, North Dakota, Oregon, Texas, Washington generally do not allow deficiency judgments.
A recent article, House Is Gone but Debt Lives On, published October 1, 2011, in the Wall Street Journal, noted that 64% of the 4.5 million foreclosure sales since the beginning of 2007 have taken place in states that allow deficiency judgments. Also, that the average deficiency amounted to a ‘cool’ $100,000. That’s a lot of money to simply kiss good bye, and many banks are taking notice. Hence, the uptick in post-foreclosure suits against former home owners aimed at recovering some of that write down. The article quotes market observers as predicting a veritable tsunami of deficiency cases, especially as banks move to sell the debt to “investors.” It is interesting to note that one estimate is that banks are willing to sell this debt for 2 cents on the dollar. In other words, they are willing to perpetuate the nightmare that is the home foreclosure experience for very little return. Thank you very much. But, this is America.
So, although foreclosure is a traumatic life experience, the bright side is that, in Oregon, you won’t need to be looking back over your shoulder fearing a legal action on the deficiency.
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David C. Clarke