SHOULD I SETTLE MY DEBT OR FILE BANKRUPTCY?

When we meet with clients to discuss their debts, they are often surprised when we recommend debt settlement rather than bankruptcy. They assume that as bankruptcy attorneys, we always recommend bankruptcy. Our goal is to develop a specific and unique plan of action for each client. Sometimes bankruptcy is not the best choice.

There are many reasons why you should choose debt settlement over bankruptcy. Some of these are:

The total debt is relatively low. The costs and fees to settle the debt may be less or equal to the costs and fees of filing bankruptcy;

There may be only one or two accounts that need attention. If all other debts are under control or in good standing, it makes more sense to attempt to settle the delinquent accounts;

Your income is too high or your property too valuable to file Chapter 7, and you do not want to be in Chapter 13 bankruptcy for up to five years.

You have a high security clearance or a position at work where filing bankruptcy may cause problems;

You are about to make a major purchase, such as a home or car, where filing bankruptcy may affect your financing.

You have an excellent credit score. Although we have a credit rebuilding program that can get your score back up, there is a bigger initial drop when bankruptcy is filed vs. debt settlement for people with high credit scores.

Of course, debt settlement has its own problems. Creditors may not agree to settle on favorable terms, you may have to pay a large lump sum payment or monthly payments for years, your credit score may not improve as quickly, and you may have to pay taxes on the money you saved in the settlement.

Each case is different. That is why we review every case and weigh the pros and cons of bankruptcy vs. debt settlement for every client that walks through our door.

DON’T IGNORE YOUR STUDENT LOANS WHILE YOU ARE IN CHAPTER 7 BANKRUPTCY

If you have a Federal student loan and file Chapter 7 bankruptcy, the status of your loan changes. Your loan is in forbearance until you receive your discharge. No payments are due and all collection efforts must stop. Although that gives you immediate relief, it also gives you a great opportunity to review your loans and develop a plan to get them under control once you come out of bankruptcy.

A Chapter 7 bankruptcy can last 4 months or more. During that time, you can determine the status of the loans, prepare documents to get out of default, consolidate or rehabilitate your loans, and determine the best repayment option. Once you receive your discharge, you can immediately file the documents and bring your account current and get your loans under control.

If your wages were being garnished, or if your loans were in default before you filed bankruptcy, the worst thing you can do is nothing. I have had clients fail to take care of their loans while they were in bankruptcy, only to find themselves in another financial mess after the bankruptcy because the Department of Education and their collectors immediately garnished their paycheck when they finished their bankruptcy.

If you have a Private Student Loan, you can use the time in bankruptcy to negotiate and implement a repayment plan. This is especially useful if you have co-signers on the loan.

You could use any deferments or forbearances remaining on your loan after the bankruptcy is complete. However, that may not stop interest from accruing, and you would be unnecessarily wasting valuable deferments and forbearances.

If you have student loans and are considering filing, or are already in bankruptcy, feel free to contact us if you have questions.

WHAT IS A FICO CREDIT SCORE, AND WHY IS IT SO IMPORTANT?

You might not know this, but you have tons of credit scores … for a variety of reasons. For one thing, anyone with information about your credit history can create a formula to determine your creditworthiness. For instance, the three credit-scoring bureaus—Equifax, TransUnion, and Experian—all collect information about your activity on credit cards, mortgages, installment accounts, car loans, student loans, and the like. And they have all different proprietary formula that they apply to this information to generate a credit score.

Equifax offers something called an Equifax Credit Score. Experian offers both the PLUS score and the VantageScore. And TransUnion has its own credit score, too!

If all these names are confusing, here’s the important part: When deciding whether to extend a loan to you, your potential creditors want to know how risky you are. Currently, the formula they trust the most to determine your creditworthiness—and therefore your credit score—is called FICO. In fact, FICO is the score that is almost exclusively used by creditors, banks, and the like.

Created by an engineer and a mathematician, Bill Fair and Earl Isaac, FICO is the best-known and most widely used credit score model in the United States. So you can (and should) ignore all those other scores. They do not reflect the same score that your lender will see when pulling your credit report and credit score. So don’t spend your money on buying a score that isn’t a FICO score. The only thing these scores will do is paint an unrealistic picture of the loan terms you can expect.

In other words, FICO is the only credit score that matters.

But … it’s a little more confusing.

Though all three of the bureaus have created their own formulas, they also apply FICO to the information they have on file about you. So you have three different FICO scores: One from Equifax, one from TransUnion, and one from Experian. Each of these three FICO scores is based on information the respective credit bureau keeps on file about you.

As a result, your three FICO credit scores might be different, depending on what information the credit bureaus have about you. For instance, if you have a credit card that doesn’t report to all of the three credit bureaus, your FICO score will be different among the three bureaus. On the other hand, if your information is identical at all three credit bureaus, each FICO score will be identical because the same formula is being applied to the same information.

So what do lenders do with these three FICO credit scores?

They ignore the highest score and the lowest score, and they base your loan terms on the middle score. If your Equifax score is 732, your Experian score is 693, and your TransUnion score is 692, they will toss out the high score (732) and the low score (692) and consider your loan terms based on your 693 Experian score.

So if you want to qualify for a loan, or if you want to qualify for better terms on your existing loans/credit cards, you must follow the FICO model and demonstrate the behaviors that will boost your FICO score.

(Special thanks for 720creditscore.com for this article)

SHOULD I FILE CHAPTER 7 BANKRUPTCY ON MY CLOSING BUSINESS?

Small business owners have had a difficult time making their business profitable in an uncertain economy these last few years. Many have had no choice but to shut down their business. They are then left with debts in the name of their business, Limited Liability Company (LLC), or corporation. Most of these debts usually have a personal guarantee, which means creditors can sue them personally for the business debts. Clients will then file a personal bankruptcy to eliminate any personal liability for the business debts, and will assume the problem is solved since a creditor will not bother to sue a closed company. That is not always the case.

Even though the corporation or LLC is closed, many creditors will still file a collection lawsuit against the business. As an officer or member of the company, you are not relived of your responsibilities to the business. You cannot be held personal responsible for the debts if you filed personal bankruptcy, but you have to spend the time and expense of responding to the lawsuit or a subsequent judgment. This may include spending time gathering and producing documents, answering questions, depositions, as well as the costs and attorney fees to comply. If you don’t cooperate, you may be held in contempt of court.

That is why considering the time and money you will have to spend on one or more collection lawsuits, it may make more sense to file a chapter 7 bankruptcy for the corporation or LLC, in addition to a personal bankruptcy.

Each case is unique. That is why we recommend talking to an experienced bankruptcy attorney to decide whether filing a chapter 7 bankruptcy for the business is appropriate. We handle these cases on a regular basis. If you have questions regarding debts on a dissolved, or a business you are considering closing, please feel free to contact us anytime.

WHAT IS A 4 POINT INSURANCE INSPECTION

Homeowners who have older homes often have a difficult time obtaining, changing or renewing homeowner’s insurance coverage without an updated home inspection. Typically, they are looking for a 4 point insurance inspection.

A 4-Point Inspection is often a requirement when obtaining a new homeowners insurance policy or renewing an existing policy. A 4 point insurance inspection only concentrates on key items in which the insurance companies are interested in.

• HVAC (Heating, Ventilation and Air Conditioning)
• Electrical wiring and panels
• Plumbing connections and fixtures
• Roof

The intent of the inspection is to determine the components, general condition, and age of these systems.

These inspections are needed because insurance companies have become increasingly hesitant to issue Homeowner Insurance Policies on older homes (usually between 20 – 25 years old or more).Their statistics have shown that homes over 25 years of age have more claims than newer homes. The claims are usually due to deteriorated condition of the older home. The four areas are Roof, HVAC, Plumbing and Roof.

If these elements are in poor condition, in need of being updated or replaced or were improperly installed, they may fail and cause fire or water damage to a home. Newer homes are assumed (by the insurance companies) to not have these problems as frequently as older homes. Therefore, you are required to get a 4 point insurance inspection to obtain homeowners insurance for older homes.

The insurance company will typically require that the inspections be performed by a suitably licensed and qualified person. All 4-Point inspections should be performed by a Florida State licensed Home Inspector. This type of insurance inspection should not be confused with a “standard home inspection” which is and detail broader in scope.

Special thanks to John C. Hall, President and Inspector, Enterprise Home Inspection Inc. for providing this article. If you or someone you know is interested in home inspections for their property, or have any questions on the process, feel free to contact us, or John directly at enterprisehomeinspection@gmail.com, (904) 378-1227

DO I HAVE TO PAY MY FEDERAL STUDENT LOAN IF I AM DISABLED?

If you accumulated Federal Student Loans, and then become totally and permanently disabled (TPD), you may be able to discharge or wipe away your loan. A TPD discharge relieves you from having to repay the majority of all Federal Student Loans, but there are certain requirements you must prove before your loan is discharged. There are generally three ways you can prove you are permanently and totally disabled.

1. If you are a veteran, you can submit documentation from the U.S. Department of Veterans Affairs (VA) showing that the VA has determined that you are unemployable due to a service-connected disability.

2. If you are receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits, you can submit a Social Security Administration (SSA) notice of award for SSDI or SSI benefits stating that your next scheduled disability review will be within five to seven years from the date of your most recent SSA disability determination.

3. You can submit certification from a physician that you are totally and permanently disabled. Your physician must certify that you are unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that

• Can be expected to result in death,
• Has lasted for a continuous period of not less than 60 months, or
• Can be expected to last for a continuous period of not less than 60 months.

You must provide documentation to the Department of Education and submit the proper petitions for discharging your loan. This can be a cumbersome process, especially when you are dealing with the effects of your disability. Our office can prepare and submit these documents for you or anyone you know who needs to get relief from their Federal Student Loan because of disability.

WHAT ARE HIGH-PRIORITY ERRORS ON YOUR CREDIT REPORTS AND WHY THEY NEED TO BE CORRECTED RIGHT AWAY?

When our clients file bankruptcy, we pull their credit reports to include all creditors listed in their credit file. We often discover that there are numerous errors in these reports. Some studies say that approximately 80 percent of people have errors on their credit report. This means that a lot of people are seriously harmed by errors on their credit reports.

Some errors are simple, such as having a wrong address or misspelled name listed on your account. These are low-priority errors and have very little impact on your credit score. But some errors can have a significant impact on your score, and should be fixed immediately. These are high-priority errors. By removing these errors, your credit score could jump 20, 50, or even 100 points.

High-priority errors you need to correct right away include:

Important information- such as names, social security numbers, or accounts that do not belong to you;

Delinquent account information- such as collection notices that are listed more than once;

Credit limits that are incorrectly reported or not reported at all;

Incorrect delinquent information, especially if the information is less than 2 years old.

If you find any of these errors, make sure you dispute legitimate errors only. There are some questionable credit repair companies that recommend you dispute everything on your report. If you do that, credit bureaus will likely consider your requests to be frivolous, and may ignore all of your requests for correction.

All of our bankruptcy clients have access to a credit-rebuilding program, which addresses all of these issues. If you do not need to file bankruptcy but need to bolster or rebuild your credit score, let us know.

WILL EVERYONE KNOW THAT I FILED BANKRUPTCY?

A few weeks ago, I met with a client who was considering bankruptcy. After going over all her options, she decided that bankruptcy was her best option. I got a strong feeling that she was still worried about something. After talking further, she revealed that she was concerned that all her friends, family, neighbors and employer will find out she filed bankruptcy, which will be embarrassing.

She felt much better after I told her this was a common concern and that it is unlikely they will know you filed unless you tell them. Years ago, notices of bankruptcy filings were published in daily newspapers. Today, even though bankruptcy filings are public records, there are very few places where they are published, and it takes some effort to find them. There are, however, certain circumstances where your bankruptcy will be revealed to people you know.

Family Members or Friends -If a family member or friend is a joint account holder or a co-signer on a debt, if they lent you money, or if you recently paid them money or gave them a gift, they must be listed in your paperwork and they will be notified.

Former Spouse -If you pay child support, alimony, or court ordered marital debt to a former spouse, they must be listed and they will receive notice.

Landlord- if you have an unexpired lease for an apartment or home, you have to list it in your paperwork.

Employer- Your employer will generally not be notified and will not know about your case, unless the Bankruptcy Court orders a wage deduction order for a Chapter 13 Plan. This is usually not done unless you fall behind on your Chapter 13 Plan payments. There are also laws that prevent an employer from terminating you or demoting you solely on the fact that you filed bankruptcy.

Partners or Shareholders in Businesses- You must list all businesses you had an interest in prior to filing bankruptcy, including any other partners and shareholders.

These are the more common ways outsiders can discover that you filed bankruptcy. Keep in mind, it is nearly impossible to keep your bankruptcy completely secrete. A client told me that a friend of his Mother saw him at a bankruptcy hearing, and word spread to his family. That should not stop you from filing if you need to. The vast majority of our client’s cases go through with very few, if any, people knowing about it. Our office can assist you in developing a strategy to discuss your case with family, friends, employers or anyone else that needs to know. Our clients are often pleasantly surprised to discover that the support they receive from their family and others who they confide in far outweighs any embarrassment they thought they would endure.

IS MARITAL PROPERTY PROTECTED IF ONE SPOUSE FILES BANKRUPTCY?

We often help married couples where only one spouse files bankruptcy. When this happens, clients usually ask if jointly held marital property becomes part of the bankruptcy case. Property held by spouses can be considered exempt from creditors and the bankruptcy court in Florida if it meets certain conditions. The legal term for this type of ownership is tenants by the entireties.

Property owned as tenants by the entireties is considered exempt because it is not held or titled in the name of an individual, it is held or owned by the marriage. If one spouse owes an individual debt, property owned as tenants by the entireties cannot be taken to satisfy the debt of that individual spouse. Determining if the property is held as tenants by the entireties is not always easy.

Real or personal property held as tenants by the entireties have 6 characteristics:

1. Unity of possession (joint ownership and control);
2. Unity of interest (the interests must be identical);
3. Unity of title (the interests must have originated in the same instrument);
4. Unity of time (the interests must begin at the same time)
5. Survivorship (if one spouse dies, the surviving spouse automatically has ownership of the deceased spouse’s interest);
6. Unity of marriage (the parties must be married at the time the property became titled in their joint names)

Even if all these elements apply, and a particular piece of property is considered held as tenants by the entireties, it does not mean it is always fully protected. For example, if a couple has joint debt, and only one spouse files Chapter 7 bankruptcy, the Trustee can administer entireties property up to the amount of the joint debt, with the rest protected.

It is often difficult to prove property is entireties property, especially personal property. If you are considering filing bankruptcy without your spouse, feel free to contact us to help you figure it out.

WHEN SHOULD YOU START PAYING YOUR STUDENT LOAN AFTER GRADUATING

After working hard for 4 or more years, graduation day finally arrives and you are rewarded with a college degree. For many, that degree would not have been possible without student loans. Now you have to decide when and how you are going to start paying it back.

There is a waiting period before you have to start paying back your loan after graduation known as a Grace Period. The decision you have to make is should you use the Grace Period, and if so, what actions should you take during the Grace Period.

The length of the Grace Period often depends on the type of student loan you have, whether you are entitled to extensions, and if you previously used a Grace Period on the loan.

For Federal Loans, Stafford Loans usually have a 6-month grace period after graduation. Older Stafford Loans may be longer, and you may or may not accrue interest during the grace period, depending on the type of Stafford Loan. Grace periods are not available for PLUS Loans, and payments typically begin 60 days after the final disbursement. Even though there is no Grace Period, a Graduate Student or Parent may request a 6-month in school deferment, with interest accruing. Perkins Loans normally have a 9-month Grace Period after graduation, without accruing interest.

Private Loans are not as predictable as Federal Loans. There are no Grace Periods, but most do have “Interim Periods” before payments begin. You must read your loan agreement carefully, since each Private Loan have different terms and conditions for payment.

Some other facts you need to know about Grace Periods:

a. Grace Periods can be extended if you are active duty military after graduation.
b. You can only use your Grace Period once per loan.
c. Consolidating your loans usually eliminates any remaining Grace Period for the loans consolidated.

If you opt for the Grace Period, you should use the time to adjust for life outside of school, find or get settled into your new job, but most importantly, use the time to evaluate the best repayment option for paying back your loan.

Our goal is to make sure you choose the right repayment option to meet your current needs. The worst thing you can do is delay. If you have a Federal Loan, and you do nothing, the Department of Education will choose your payment option.