The trend for families to combine incomes and live under a single roof is rising in certain areas of the country and the financial realities for some people require that they move ‘back home.’ The latest change in the bankruptcy law requires a ‘means test’ to be performed for all consumer debtors seeking relief under the bankruptcy code. The general purpose of the means test is to limit the number of debtors who can file a Chapter 7 bankruptcy, which requires that your income be lower than a certain value determined by the household median income of the county where you reside.

The question we receive is: how do I calculate the means test if I live at home with my parents?

The answer: your parents income will be considered in the “means test” to the extent that they contribute to your living expenses.

The official language is that your current monthly income “includes any amount paid by any entity other than a debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents.” 11 U.S.C. 101 Section 101(10A)(B).

Your current monthly income “includes any amount paid by any entity other than a debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents.”

What the trustee really wants to know is if you have any disposable income. If you are living at home, expense free, and pull a paycheck for $1,000.00 month, the argument will be that you have $1,000.00 per month that can be paid towards creditors. The expenses regularly paid by your parents would be added to your current monthly income for the purpose of the means test.

The answer applies to all living arrangements outside of marriage, as defined by the U.S. Bankruptcy laws.

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Stock answer: no, and I do not advise that you reaffirm a credit card after filing bankruptcy. You’ll get an offer for new credit cards anyway.

What people are usually wondering when asking this question: should I keep a credit card for emergencies and to pay certain bills after a bankruptcy so that I can “keep good credit” with that particular credit card?

You must list all credit cards that you carry a balance with. Failure to do so can be constituted as perjury, which in turn may lead to a denial of your bankruptcy discharge, or federal criminal charges.

You are not required to report ‘zero balance’ creditors on your bankruptcy. However, if you’ve recently made payments to get it down to zero, you can you expect a challenge from the trustee and potentially land in some hot soup. Many credit cards may find out about your bankruptcy and cancel the card anyway, even if your balance is zero.

Most credit card companies will allow you to keep your credit card after bankruptcy if you agree to enter into a new agreement, signed after the bankruptcy filing (called a “reaffirmation agreement.”)

Rebuild your credit without credit cards

It’s actually tougher to rebuild your credit using credit cards, especially ones you reaffirm after filing bankruptcy.

Let’s say that after you file bankruptcy, the credit card approaches you to reaffirm the debt, which is $3,000.00, on the promise that you’ll ‘rebuild’ your credit more quickly. Let’s also say that you will be offered a card with a low-level balance within months of your bankruptcy discharge (very likely.) Why would you pay $3,000.00 for the benefit of having revolving credit when you’ll be offered the same opportunity to ‘rebuild credit’ anyway? In other words, that $3,000.00 is essentially an annual fee for keeping the card.

Keeping your credit card debt actually hurts your credit because it reduces the positive effects that a bankruptcy has on your debt to income ratio: the more debt you keep, the worse your ‘fresh start’ looks via the credit score.

I do not advise using credit cards past bankruptcy. You can rebuild your FICO score using a good financial plan, and by carrying short term loans through a bank that you know you can quickly repay.

Credit Cards No-no’s Prior to Filing Bankruptcy

Never run up lots of credit card debt in the month or two prior to filing for bankruptcy.

Never open up a new credit card.

Never try to pay your ‘favorite’ card off in hopes to keep it.

Never use money from friends or family to pay off your ‘favorite’ card to keep it.

Never sign a reaffirmation agreement for your credit cards.

Think twice before believing that you can ’save your credit’ after a bankruptcy through reaffirmation.

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How many of you are living the formula: ostrich + sand, when facing your personal debt?

How many of you check the caller ID every time the phone rings, and let in continue to ring if it is a 1-800 number, or “unavailable”?

How many of you dread opening up your mailbox?

If these rituals sound familiar to you, we’re here to help. Doing nothing about overwhelming debt is not advised and only makes your financial problems worse. Follow these three rules if you find yourself struggling with debt until you gain the advice of a bankruptcy professional:

Rule 1- Don’t throw away your mail: Approaching the mailbox with dread, only to see a stack of mail from creditors, is not a wonderful thing. Your greatest ally in your personal war against debt, is time. The only way you can buy more time is to prioritize which bills need be addressed before you find yourself answering the door to a process server. Notice that I used the word “address” instead of “pay.”

Rule 2- Don’t pay bills according to who calls you the most: As a general rule, bills should be paid in the following order: 1) Food, 2) shelter, 3) utilities, 4) loans secured by vehicles, 5) child support/taxes, 6) loans secured by other property, 7) unsecured debt, including credit card debt and medical bills. There are times when child support and taxes take on a greater priority. The people who call you most are probably #7 on that list. They are calling you for a very good reason – to move themselves further up that list in your mind! The timing of paying student loans varies from case to case.

Rule 3 – Answer all lawsuits, and show up in court: Failing to answer lawsuits, or showing up in court, only shortens the amount of time you have in addressing the debt. You may have valid defenses which could eliminate the debt entirely. There are scores of companies that attempt to collect ‘zombie’ debt, that is, debt that has expired according to the statute of limitations. Don’t give them a free pass, especially if they intend to garnish your wages.

You need to know your options before you open your checkbook to pay the bills. Contact my Wausau bankruptcy office to set up a free consultation concerning your debts. We’ve helped many “ostriches” pull their head out of the sand, and breathe easier.

Bankruptcy is not for everyone, but it could work for you. The federal bankruptcy code is designed to afford honest debtors a chance at a fresh start in their finances.

Personal bankruptcy is the opposite of “doing nothing” about your bills. The faster you can regain financial balance, the better!

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The Fourth of July weekend was slow enough to allow my reflection on how to tie in our nation’s anniversary with this bankruptcy blog.

The first thing I wondered: if the US walked into my Wausau office (figuratively, of course) seeking bankruptcy advice, what would its debt history look like? I found a website called Treasury Direct that tracks such data and a quick review of the figures confirm the whisperings I heard that our nation has always carried debt.

The healthiest our nation’s outstanding debt was during the Andrew Jackson presidency, when he made true on his threat: “The Bank is trying to kill me but I will kill it.” President Jackson even explained why he killed it, convinced that he had done his duty to the American people in protecting the bank from foreign investors by closing it down.

According to Treasury Direct, our lowest outstanding budget was in 1835, when it fell to a whopping $33,733.05 as a consequence of President Jackson’s bankicide. A recession soon followed, complicating his already controversial legacy, and our nation’s outstanding debt has ballooned many times over since.

I’ll skip a discourse on how the budget grew and the history behind the existing Bankruptcy Code and instead retell how the Supreme Court defines the role of bankruptcy:

“It gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” — Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934).

Bankruptcy offers a way to rebound from past mistakes, and provides a limited safety net for those who seek to the growing risk of private enterprise.

Bankruptcy is about forgiveness. This last Fourth of July incorporates an element of forgiveness for some of us. I choose to love our country despite all its past mistakes and current earmarks of corruption.

Bankruptcy can be a reset the button that restarts our American Dream, whatever that may entail.

One irony in my contemplation was that our nation doesn’t have the same power that individuals do under the Bankruptcy Code to get a fresh start, short of inviting another Andrew Jackson into the government to shut the whole thing down.

The second irony is the contingent in Washington that looks down upon the Bankruptcy Code and implies that debtors who seek its relief are somehow dishonest or immoral for seeking a fresh start. “Shame on you for discharging debt,” say the people creating it for our country at breakneck speeds.

God bless America – and the hypocrites who run it.

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Crumbs have finally landed from the TARP handouts for the consumer-taxpayer, and a cap on credit card rates was soundly defeated using lobby dollars of the credit card industry.

My assessment after reading the entirety of H.R. 627: a step in the right direction to placate the growing ranks of consumers who desperately need relief from the outrageous usury practices of the credit card industry, but nowhere near as effective as advertised.

The term “Little People” is a term of art, and used affectionately. I have no idea how tall credit card users are these days, but I count anybody outside the immediate payouts of TARP funds to be ‘little’ in comparison. They’re my people: the people I work for, and grew up with.

The Good

1. Increased disclosures to consumers concerning credit card terms
2. Elimination of double-cycle billing
3. Measures to counter over-the-limit fees
4. Credit card bills would be paid on the same day each month
5. Restrictions on increasing charges and rates for newly issued cards
6. Requiring AnnualCreditReport.com to be advertised through credit report providers*
7. Restrictions on ‘ninja fees’ for gift cards
8. FTC will oversee efficiency of how credit cards are closed for estates

The Eh

1. Companies can lower interest rates for consumers using review process established by credit card companies

Concern: Effective 15 months from Obama’s signature, and we haven’t seen details of review process that will be established by credit card companies and approved by Board

2. Those under 21 need a cosigner or must assert eligibility through application

Concern: no measures proposed to double check accuracy of application

3. Colleges should restrict access to credit cards on campuses

Concern: no teeth. They should get rid of the bowl system, too.

4. Studies authorized to assess PIN security, cross-marketing of credit cards and security for small business accounts

Concern: Fluff. So glad we need Congress to pass laws to look into things.

5. Congress will look into shifting credit card fees at point of sale (interchange fees)

Concern: Congress effectively tabled the issue. Learn about it here.

6. The ability of the consumer to afford a credit card will be considered

Concern: This could mean less cards issued – and more depsperate measures taken by consumers to qualify for them.

The Ugly

1. Penalties for credit card companies aren’t severe enough if they violate the Act ($500-$5,000 per violation in some cases)
2. Effective date of Bill on most measures won’t occur for another 9 months
3. The practice of usury at the high interest rates consumers suffer from for rates and penalties, will continue

And The Interesting

1. Stored Values of credit cards and purchasing information will be regulated, in part to help us fight terrorism (allegedly)
2. I can conceal a loaded weapon in national parks like GW said I could when he left office

*I like this one. I’ll ask my clients if they know where to get a free credit report and a good percentage respond “FreeCreditReport.com” (which isn’t free.)

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President Obama spoke about credit card reform while at a town hall meeting in New Mexico yesterday, urging Congress to pass a bill by Memorial Day. Consumer groups are mustering as much support as they can to combat the influence of the credit card lobby to water down the current legislation. I went ahead and submitted my support to my local Senators in support of S. 414 and urge you to do the same.

The Consumerist has put together some bullet points highlighting the key provisions of the proposed legislation.

Creditcardreform.org has invested in a toll free number where you can call your senator to urge the passing of the bill.

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The FTC Reveals Secrets that the Debt Negotiation Programs Don’t Want You to Know About

We’ve all seen or heard the TV and radio ads from debt negotiating programs that claim they have “secrets that the credit card companies don’t want you to know about.”

What follows is an excerpt from the FTC’s informational:

Enjoy, BL

~~~~~~

Debt Negotiation Programs

Debt negotiation differs greatly from credit counseling and DMPs. It can be very risky, and have a long term negative impact on your credit report and, in turn, your ability to get credit. That’s why many states have laws regulating debt negotiation companies and the services they offer. Contact your state Attorney General for more information.

The Claims

Debt negotiation firms may claim they’re nonprofit. They also may claim that they can arrange for your unsecured debt — typically credit card debt — to be paid off for anywhere from 10 to 50 percent of the balance owed. For example, if you owe $10,000 on a credit card, a debt negotiation firm may claim it can arrange for you to pay it off with a lesser amount, say $4,000.

The firms often pitch their services as an alternative to bankruptcy. They may claim that using their services will have little or no negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you complete their debt negotiation program. The firms usually tell you to stop making payments to your creditors, and instead, send payments to the debt negotiation company. The firm may promise to hold your funds in a special account and pay your creditors on your behalf.

What’s more, most debt negotiation companies charge consumers substantial fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee of a percentage of the money you’ve supposedly saved.

The Truth

Just because a debt negotiation company describes itself as a “nonprofit” organization, there’s no guarantee that the services they offer are legitimate. There also is no guarantee that a creditor will accept partial payment of a legitimate debt. In fact, if you stop making payments on a credit card, late fees and interest usually are added to the debt each month. If you exceed your credit limit, additional fees and charges also can be added. This can cause your original debt to double or triple. What’s more, most debt negotiation companies charge consumers substantial fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee of a percentage of the money you’ve supposedly saved.

While creditors have no obligation to agree to negotiate the amount a consumer owes, they have a legal obligation to provide accurate information to the credit reporting agencies, including your failure to make monthly payments. That can result in a negative entry on your credit report. And in certain situations, creditors may have the right to sue you to recover the money you owe. In some instances, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home. Finally, the Internal Revenue Service may consider any amount of forgiven debt to be taxable income.

Damage Control

Turning to a business that offers help in solving debt problems may seem like a reasonable solution when your bills become unmanageable. But before you do business with any company, check it out with your state Attorney General, local consumer protection agency, and the Better Business Bureau. They can tell you if any consumer complaints are on file about the firm you’re considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.

Some businesses that offer to help you with your debt problems may charge high fees and fail to follow through on the services they sell. Others may misrepresent the terms of a debt consolidation loan, failing to explain certain costs or mention that you’re signing over your home as collateral. Businesses advertising voluntary debt reorganization plans may not explain that the plan is a bankruptcy filing, tell you everything that’s involved, or help you through what can be a long and complex process.

If you’re thinking about getting help to stabilize your financial situation, do some homework first. Find out what services a business provides and what it costs, and don’t rely on verbal promises. Get everything in writing, and read your contracts carefully.

In addition, some companies guarantee you a loan if you pay a fee in advance. The fee may range from $100 to several hundred dollars. Resist the temptation to follow up on these advance-fee loan guarantees. They may be illegal. It is true that many legitimate creditors offer extensions of credit through telemarketing and require an application or appraisal fee in advance. But legitimate creditors never guarantee that the consumer will get the loan — or even represent that a loan is likely. Under the federal Telemarketing Sales Rule, a seller or tele-marketer who guarantees or represents a high likelihood of your getting a loan or some other extension of credit may not ask for or accept payment until you’ve received the loan.

You should be cautious of claims from so-called credit repair clinics. Many companies appeal to consumers with poor credit histories, promising to clean up credit reports for a fee. But you already have the right to have any inaccurate information in your file corrected. And a credit repair clinic cannot have accurate information removed from your credit report, despite their promises. You also should know that federal and some state laws prohibit these companies from charging you for their services until the services are fully performed. Only time and a conscientious effort to repay your debts will improve your credit report.

If you’re thinking about getting help to stabilize your financial situation, do some homework first. Find out what services a business provides and what it costs, and don’t rely on verbal promises. Get everything in writing, and read your contracts carefully.

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Happy Birthday Integrated Circuit, Lawbylund.com

Fifty years ago from the date of this post, the integrated circuit was born. Despite the absence of Napa valley wine, or celebrations among gaggles of nerds and engineers, the Law by Lund blog launched and was celebrated with our viewing of the new Star Trek movie amongst a dozen late night movie goers at the Cedar Creek movie theater in Mosinee, Wisconsin (wife’s choice, actually, but I won’t disavow my Treekiedom.)

Blogging takes a commitment of time, which I’m always short of, and energy, which I tend to generate out of sheer necessity at times. However, I hope to provide a resource for the Internet community that will supplement their own queries about such things as bankruptcy, estate planning and divorce. I don’t think a single attorney can become an expert in all three areas of the law simultaneously, and in an age that pressures us to specialize, I am convinced that there is room for the Focused Generalist.

Control freaks are doomed

Transition is the common thread that weaves bankruptcy, estate planning and family law into a tight knot at times. The one certainty is that life changes, and the one uncertainty is how things will settle. Human psychology has created an untenable position for the control freak: no matter how many times you sweep a floor, dirt remains. I’m personally fascinated by the interplay of stability and chaos, and have taken great pains to explore those issues in an academic setting. However, the real joy is watching how people overcome great challenges and obstacles in their environment to improve their lives, press forward to support their families, and take risks to build new dreams.

I’ve designed the site to make it easy for readers interested in these areas of law to find me. I hope to provide guidance and am excited to use the Internet as a tool to improve legal service to my clients.

Prepare to be Integrated

A step-by-step bankruptcy filing process is in the final stages of completion. Online forms will soon be available that will provide clear, simple directions to those who use our office to file bankruptcy. Our goal is to maximize our chances of a successful plan or discharge, while easing the burden on our copy machines, pencils, and in turn, our trees. I’ve studied the most promising vendors in the market to find a form system that is secure and easy to use. I also plan to provide calendar services that will integrate with most PDAs and implement informational videos to explain the basics of bankruptcy filing.

I hope to provide integration: using the same circuits that share this blog’s anniversary to make the bankruptcy process easy to understand and more approachable.

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