Effect of filing bankruptcy

Contrary to popular belief, filing for bankruptcy is not credit suicide. The fact that many people who file for bankruptcy already have less than perfect credit generally leads to an increase in their credit score after they file for bankruptcy. For years, creditors and collection agencies, who abhor bankruptcy, spread the idea that bankruptcy is the end all of your credit life. Working in the industry, I've seen people's lives improve drastically after bankruptcy.

For people with unmanageable amount of debt, there are several reasons why filing for bankruptcy is a good thing.

First, it provides a definite time line for relief. Credit card companies make money on the minimum payments and late charges that people can only afford to pay; we all know that by paying only the minimum payments, it could take 30+ years to pay off a small debt. You basically enslave yourself with debt for 30+ years. Bankruptcy can break this ball and chain and allow you to actually work toward a better future.

Second, you can only benefit from a Chapter 7 bankruptcy once every 8 years. This means that after you've filed, you are considered lower risk customer to creditors. In fact, people report receiving a crazy amount of credit card offers within months of filing for bankruptcy. Although getting back into debt is an easy way to build up credit, it's also a debt trap. In 2005, Congress reformed the Bankruptcy Code. One of the many changes include mandatory credit counseling and financial management classes before someone can file for bankruptcy. It was designed to curb the number habitually filers. It's too early to see if credit counseling is working since people who filed after 2005 aren't eligible to file again until after 2013 (since one can only file a Chapter 7 once every 8 years).

Third, credit reporting bureaus generally suppress reportings after a bankruptcy case is filed. This means that your credit score can only go up after a bankruptcy--so long as you act responsible with future credit. From experience, credit scores are usually around the mid-600s one year after filing. The ideal score would be around 700 and higher. 800 or higher is considered supreme, but even those with "perfect credit" don't have scores in the 800s. *Note: Nobody starts at 800, you have to earn it over a long period of time and credit.* Bankruptcy is only a one time hit on your credit report. Everything you do after that can substantially improve your credit.

Fourth, the Fair Credit Report Act requires credit bureaus to remove a "bankruptcy" mark after 10 years. This means that after 10 years, the only way anybody would know that you have filed for bankruptcy is if you tell them or they search bankruptcy court records. Even so, after 10 years, if someone can't obtain credit, it's probably not because of the bankruptcy.

People fear bankruptcy for the wrong reason. It is not a credit suicide. It is, at worst, a temporary obstacle to getting back into debt, and at best, fresh start at life with a clean slate and no stress.

Happy new year everyone!

How does it all just go away?

A client asked me this the other day. It didn't occur to me until the client kept repeating the question that bankruptcy is something both scary and almost unbelieavable. Why would anyone EVER let someone borrow money if there is a possibility that the debt may NEVER be paid back under the law? The answer is simple--Capitalism is all about risk. The government encourages banks to lend money and allow them to make a profit by betting on their customer's future. It also encourages people to take risk, big risks, to better our society. And when one fails, the government provides a mean to hit the 'reset' button and start over. Indeed, we almost lost GM if it wasn't for this policy.

When it seems like life is impossible to go on and debt is keeping life from progressing, bankruptcy may be the relief valve that one needs. Bankruptcy law allows a judge to order a discharge of any debt. A discharge is an injunction, or restraining order, against creditors. It is an order to cease ALL collection action against the debtor and it last forever. Some debts are not dischargeable, such as child support, certain tax debt, and government fines, but a majority of all debts are indeed dischargeable. And just like that, debts simply just go away.

Merry Christmas!

Reasons why people get into debt

With the holiday coming around, we all have a lot to be thankful for. It's a season where shopping, eating, and family are celebrated among love ones. Not surprisingly, my office usually slows down around this time of year because people are trying to stay positive and cheerful.

Reading some of the comments from my previous posts, there might have been some misunderstanding because I feel like I might have inadvertently misled some readers into thinking that debt issues/problems only occur to people who are irresponsible with their money or overspend. While there is some truth to that belief, the number one reason why people file bankruptcy in the United States is for medical reasons. This shouldn't come as a surprise since the U.S. still has a long way to go on health care policies.

Unless employed with a financially-sound company that subsidizes health insurance, health insurance is prohibitively expensive to many people who have to buy their own. Those with health insurance through their employer typically pay $40 per pay check toward health insurance; the employer pays the other $300-400. This causes a problem to those who are either unemployed or work for a company that can't afford health insurance for its employees. These folks can't afford to pay for health insurance. One bad health incident can lead to a life-time worth of debt.

The number two cause of debt issues is change in circumstances. Divorce, unemployment, market changes, etc. can transform someone who was making six-figure income into someone who depends on public assistance to pay rent in a matter of months. It is natural for humans to be financially optimistic about ones future. People borrow money to survive until the worse is over... unfortunately, creditors can't wait.

As you can see, the top two reasons that people go into debt have nothing to do with being irresponsible with money or living beyond one's means. Life is full of surprises, some will leave you debt!

Happy holiday everyone!

What happens when you don't pay your bills...

Every day in the office, I get calls from frantic people who wonder why their pay checks are being garnished. A wage garnishment is an order from the court (called a 'writ') that orders the employer to withhold a portion of the employee's paycheck. The employer is then ordered to send that withholding to the creditor. In Washington state and many other states, creditors are allowed to garnish up to 25% of the debtor's net pay (after taxes). To someone who makes $45,000/year (gross pay), it could mean $800/month is garnished.

How does this happen?

The collection process is pretty standard. When you stop making payments toward your debt:

1. You'll get calls and letters from the bank telling you that you're delinquent.
2. After 2-3 months without success, the debt is sold to a collection agency (aka "third-party creditor").
3. Depending on how aggressive the collection agency is, the debt can either be sold to another collection agency or simply assigned to a local attorney to enforce the contract.
4. If the attorney takes the case, he/she will file a lawsuit against the debtor.
5. In most cases, the debtor has no legal grounds to fight the lawsuit. If so, the court will grant a judgment against the debtor.
6. The creditor then takes the judgment and ask the court for a 'writ of garnishment'. The writ is served to the employer and garnishment begins.
7. The creditor may also ask the court for a 'writ to levy' (or 'writ of attachment'), these terms varies depending on the state. This writ essentially allows the creditor to seize assets to satisfy the debt. To a certain extent, creditors can levy automobiles, jewelry, cash, gold, etc. In Washington, creditors can clean out a debtor's bank account, as long as the creditor leaves the debtor with at least $200.
• One law firm  in Bellevue, WA experienced a backlash from a debtor it had to garnish: http://www.q13fox.com/news/kcpq-061510-axevandal,0,4567701.story

How do you stop a garnishment?

This is a tough question to answer. A writ of garnishment/levy/attachment are all considered valid court orders. They are issued by a state court, and therefore, can only be defeated by a federal court order. A Bankruptcy filing automatically triggers a federal court order to stop collecting debt. 11 USC § 362(a). People cringe when I tell them that their only option is a bankruptcy, but this is the only means to force a stop to garnishment (without fighting the creditor). I do understand that it has to do with self-pride and despair. Because of that, I approach each case with delicately and with compassion. I do understand that nobody wants to file bankruptcy, even if it means a brighter future. I'm not excited when I tell people that bankruptcy is their only option. But I do remind them that I understand their situation and that it's a personal choice; I'm there to help.

Arrow Law Group, PLLC | 1904 3rd Ave, Suite 930, Seattle, WA 98101 | www.ArrowLawGroup.com

Your right to walk way...

*edit*

Something that isn't taught in American schools, surprisingly, is your American right to exercise fundamental rights without government interference. My favorite is the 4th Amendment right against unreasonable search and seizure without a warrant and probable cause. This is a right that puts citizens on equal playing field with the government. As such, the government rarely institute the teaching of this right, no matter how fundamental it is.

I spent 3 weeks in law school and one summer internship to master the 4th Amendment. I'll do my best to briefly summarize it in this post.

The 4th Amendment states in part that, "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause..." This Amendment says that the government cannot unreasonably seize or search a person, their home, papers, and effects (which means communication including mail and telephone) without a warrant and probable cause.

When and what is a seizure?

Even though many of you might not know it, you have probably been seized before. A person is seized when he/she does not feel free to walk away. The police can seized someone either by a show of force or physical restraint. By this definition, every traffic stop is a seizure! Certainly nobody feels free to walk away (or leave) when lights and sirens are coming from behind.

What is required for a seizure?

The Constitution says that no unreasonable search without a warrant and probable cause. This has been interpreted by the Supreme Court to mean that reasonable searches are okay. So what is a reasonable search?

In the famous case of Terry v. Ohio, the Supreme Court ruled that if the police has a reasonable suspicion that a crime is afoot or a reasonable suspicion that the suspect is armed and dangerous, the police can conduct a reasonable search. In that case, a police officer spotted some guys walking around and looking into store windows. The officer approached the suspects, flipped them around, and frisked them for weapons. When he discovered a gun, he arrested them. When it came time for trial, the defendants questioned whether the cop had a right to stop and search them without a warrant or probable cause. The Supreme Court ultimately allowed this search, deciding that the government's interest outweighed the defendant's individual privacy interest.

The Court was careful in applying this search. This search is limited to the pat down of the suspects outer clothing and can only last so long. This has been known as the Terry Search or the "Pat Down." This is the only known search allowed where the police does not have probable cause that a crime has been committed and no warrant is present.

Later, the Court applied the Terry Search to cars in Michigan v. Long and to homes in Maryland v. Buie.  Over the years, the Supreme Court has expanded its interpretation of the 4th Amendment to say that an unreasonable search without a warrant can be allowed in limited circumstances. I won't elaborate on every exception (such as exigent circumstances, to preserve evidence, incident to an arrest, etc.), but I will talk about one exception called "consent."

Consent

The police can always search a person upon consent. Consent must be knowing, intelligent, and voluntary ("KIV"). Even though refusing consent cannot give rise to any probable cause, this is the number one reason why people consent to searches. For example, a police officer pulls you over for speeding, and you have a kilo of cocaine in the trunk (that you took from your drug-addict brother in an intervention). The officer says, "do you mind if I look in your trunk?" What do you say?


Most people feel that if you say no to the popo (pissed off police officer) that he'll think that you're hiding something, so they voluntarily give the police permission to search the trunk! Next time you watch COPS, pay attention to the people who voluntarily give consent to a search. The Court is clear that refusing to give consent, alone, is not enough for the police to get a warrant to search. So next time you have cocaine in your trunk, don't let the popo search it!

There are other exceptions such as the "plain-view" doctrine which says that if the police can see something in plain view (like through your car window), that it is okay for the police to use it as evidence.

What happens if the search is improper?

If the police violates your 4th Amendment right to obtain evidence, then that evidence cannot be used against you in the court of law. Criminal defense attorneys heavily rely on this defense to exclude harmful evidence. When I was in Michigan, East Lansing Police used to walk up and down sidewalks and ask people to take breathalyzers. Based on the results, people could get charged with a "Minor in Possession" of alcohol. Anyone who refuses to take the breathalyzer was charged a $100 fine. The Court eventually held that it was an unconstitutional search because (1) simply walking on a sidewalk cannot be enough reason to seize someone and (2) consent was not voluntary. As a result, the breathalyzer results couldn't be used to charge anyone with an MIP. No evidence, no crime.

*Please remember that refusing a breathalyzer if you are driving a car could result in your license being suspended. This is because you consented to this search when you got your license.*

I'm not sure what the lesson here is, except that you should never consent to a search of your trunk if you are hiding cocaine in there.

www.ArrowLawGroup.com | Attorneys at Law | Seattle, WA

How Bankruptcy Can Stop Foreclosure

Bill and Jill are happily married. They both work, make decent money, and pay their bills on time. They own a home together and have never been late on a payment. Financially, it appears that Bill and Jill are going to do quite well. Unfortunately, neither Bill nor Jill was immune the economic storm that swept the globe.

Bill received a letter from his boss that his job position might be eliminated and Jill's hours are being reduced because budget cuts. Like many Americans, Bill and Jill have financially planned by saving up money. Months go by, and Bill is worried that their planning didn't cover this long of a "recovery". Bill's job is becoming less secured and Jill's hours are now reduced to half of what it used to be. They've exhausted a majority of their savings, 401k, and IRA to keep up with monthly bills, including their mortgage. Inevitably, B & J run out of cash and start to fall behind on their mortgage. Several months go by, and B & J now have a foreclosure notice.

Later on, B was offered a new job with a different company. This one pays only a little more money, but it was enough that B & J can make their monthly mortgage payments. However, the bank won't stop the foreclosure process unless B & J catch up on all of their late payments. There was simply no way that Bill can pay several month of late mortgage payments to cancel the foreclosure. The bank refuses to work with Bill and told him that it will auction the house off in 90 days. What can Bill do to save his home?

Sadly, it's not a very well known fact that a Chapter 13 Bankruptcy can stop a foreclosure. A Chapter 13 Bankruptcy is the type of bankruptcy where the debtor sets up a plan to repay a portion of his/her debts. If the Plan meets all the requirements for court approval, a bankruptcy judge signs the plan into an order. The order prevents the bank from foreclosing on the debtor's property while he/she is making payments.

In a home-saving situation, the Chapter 13 plan will include a provision that requires total payments of all late mortgage payments. The debtor has up to 5 years to pay up the late mortgages. While he/she is making the payments, the bank is not allowed to foreclose on the property based on these late payments alone.

For example, if Bill's monthly mortgage payment is $1,000 and Bill is 5 months behind, his mortgage arrears is $5,000 ($1,000 x 5 months). In order to prevent the bank from foreclosing, Bill can either (1) pay the bank $5,000 to get caught up or (2) file a Chapter 13 and pay off the $5,000 over 5 years ($83.33/month). As long as Bill is paying his ongoing monthly mortgage payment on time plus the extra $83.33 (paid through Court), the bank can't foreclose. This is likely how Bill will save his home.

All of this can be confusing because a Chapter 13 Plan requires a great deal of legal engineering before the Court will approve it. If you know anyone who is losing their home and they want to save it, you should point them to a bankruptcy attorney before it's too late.

Arrow Law Group, PLLC | Bankruptcy Attorneys

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Friendly Reminder from the Arrow Law Group Bankruptcy Law Firm

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I accidentally messed up our website so I spent the last few hours trying to recode it. New website!

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Freedom of Speech and Freedom of Silence

Do you ever get blogger-haters?

I get emails from friends (and my younger brother) asking me if there is anything that he/she can do because someone posted something mean or untrue on Facebook or a blog entry. The question comes down to "Is there something you can do?" Hm... let me find my legal magic wand...

The Bill of Rights guarantees the rights of Americans by limiting the powers of the federal government. The 14th Amendment applied the Bill of Rights to state government. Rather than going into details about the Supreme Law of the Land, I'll focus on one area that affects everyone, even non-Americans. That's the FREEDOM OF SPEECH. It is adopted in the United Nations Universal Declaration of Human Rights and the European Convention on Human Rights in almost mirror image.

The First Amendment states in part, "Congress shall make no law . . . abridging the freedom of speech. . ." What does this really mean? Well first off, it means that the law only prevents Congress from abridging the freedom of speech. Of course, today, it also applies to state government. While it looks like the law says the government can't make any law that limits the freedom of speech, we know today that it's not true. Over time, the Supreme Court has carved out exceptions on top of exceptions to the freedom of speech. Speech are either  "protected", "unprotected" or "semi-protected". A speech that defames someone is not protected by the freedom of speech. The government can regulate or prohibit it.

Defamation is actionable (in court) when someone tells a lie about you to another person, and that lie caused harm to your reputation. This is a matter of state law, and each state has its own variation of this rule. To win, you have to prove to the court (or jury) that the "lie" is really a lie. That means that opinions (something that is unprovable) cannot be defamatory (even if its insulting). You ultimately have the burden of proving that something is not true. So let's say someone accuses you of stealing pencils from work. How do you prove that you didn't steal something that was never taken? It's almost impossible to prove a negative, so it's an uphill battle. You certainly do have a case if your former boss tells your prospective employer something untrue and that causes you to lose the job--but to prevail you have to prove that it was a lie (and not an opinion) to begin with.

There is an exception to the above rule. I remember it because my law professor called it the CLUB factors. If someone tells a lie that accuses you of committing a Crime, having a Loathsome disease, being Unchaste, or committing a Business wrongdoing, that person has the burden of proving that it's true. For example, if someone tells your boss that you have AIDS (assuming that you don't have it), and you sue that person for defaming you (and ruining your game), the burden is on that person to prove that it's true. If that person can't prove that it's true, you win. All you have to do is file the lawsuit alleging defamation. Again, some states have changed the default common law rule.

I won't go into details regarding the media because they have much more leeway. That is, they can be wrong when they report the news so long as it was an innocent mistake.

Although I'm discussing your rights here in an adversarial manner, I know that not everything calls for lawyers to resolve. As Judge Cardozo once said, even a dog can tell the difference between getting kicked and being tripped over. But certainly, see an attorney if you think you have something worth going into war over.

Craigslist ad of the day: http://seattle.craigslist.org/see/lgs/2031353381.html









www.ArrowLawGroup.com
Free Bankruptcy Evaluation (206) 467-1785

Chapter 7, 13, and what?

On a typical day, I get at least one client walking into my office asking to file a Chapter 7 bankruptcy. This client had read about Chapter 7 bankruptcy on the internet and had decided that it's the way to go. I do love the internet, because its an unlimited library of knowledge and experience--shared by people across the United States who are facing the same exact situation (they're broke). Unforuntately, the law isn't the same across the United States. Accept what you read on the internet with an open mind.

The bankruptcy code is Title 11 of the United States Code (11 U.S.C). Title 11, like other titles, is broken up into chapters. It's organized by categories, for example, Chapter 1 contains all the definitions. Chapter 3 contains information on starting a case. Chapter 5 contains information on debtor's duties and rights and so on. Chapter 7, 9, 11, 12, 13 defines the types of relief available. For the sake of killing everyone, I will only and quickly talk about Chapter 7 and 13.

Chapter 7 bankruptcy is the type that wipes clear all debts (except for special debts like students loans, child support, tax, etc.) This type of relief is available to businesses and people who make less than the state's median income. The U.S. Department of Justice publishes a list of median income for all 50 states, and you have to make less than the median income to file a Chapter 7. There are still ways to get around this test, but I won't go into details here. The link is found here: http://www.justice.gov/ust/eo/bapcpa/20101101/bci_data/median_income_table.htm .

As you can see from this list, half of Washington residents with a household of one make less than $49,124/year. The other half make more than that. If you live in Washington, and you live by yourself, you have to make less than $49,124/year to qualify for a Chapter 7. The income calculation is convoluted and I won't go into details here. In this economy, most people I meet do qualify.

Chapter 13 is the type of bankruptcy where the debtor proposes a payment plan to the court. It requires debtors to pay back a portion of their debts. The amount of debt that someone has to pay back depends on their income. In some case, it might be all or it might be none. Chapter 13 is for those who either make more than the median income, have excess properties that can't be protected in a Chapter 7, or are trying to avoid foreclosure. Chapter 13 is complicated and I wouldn't recommend anyone taking it on themselves. (See my post on hiring a lawyer).

I had an extremely upset person come into my office demanding to file a Chapter 7. He was so upset at me when I told him he didn't qualify that he threatened to report me to the state bar. I told him that if bankruptcy law was easy, he wouldn't have came to me.

Sorry for the seriousness of this post. There's just no fun way to explain bankruptcy...



Do I need to hire a lawyer?

This is a common question that we get at consultation. My answer is, "of course not!" Our legal system was not designed so that a lawyer is absolutely necessary for anything. However, it's highly discouraged in some area.

The law is usually written after series of compromises from all sides. The end result is a piece of legislation that attempts to be as "one-size-fits-all" as possible. Unfortunately, no matter how general a law is written, no one law can actually cover every single possible dilemma that comes up. Lawyers are trained to spot issues and defuse them before they become bigger issues. This requires us to dissect your case into a million pieces and piece it back together. This is why people tell me that lawyers make things more complicated. I just smile.

When people file bankruptcy, they put all of their worldly possession before a bankruptcy court. The law allows people to keep a substantial amount of property (e.g., clothes, furniture, some cash, DSK Jewelry), but it also requires people to surrender property that is more than what is considered necessary to live. For this reason, hiring a lawyer to file bankruptcy is a smart idea. Only a bankruptcy lawyer can spot potential issues with property. Once a bankruptcy petition is filed, it is difficult to get it dismissed. That means that you can't change your mind simply because you can't keep your brand new Corvette or that Bubbi Necklace. It's gone!

In summary, you don't need to hire a lawyer to file bankruptcy. It's extremely encouraged by the bankruptcy lawyers and also the court that you do. This is especially true if you own anything of value.

On another note, the video on the bottom relates to my practice. I file lawsuits against creditors who violate the Fair Debt Collection Practices Act by using abusive collection tactics. (See below). Call Arrow Law Group if you are being harassed! (by a collection agency).

Link: Debt collection abuse

REAL ID Act -- a fake "cure"

An old friend of mine complained on his facebook status that an uninsured "illegal immigrant" hit his car, and because he didn't have uninsured motorist coverage on his auto insurance, his bank account is now short a few thousand dollars (to fix his car). As I was thinking about his status update, I wasn't upset so much by the politcally incorrect usage of the term "illegal immigrant" as I was by what politicians and Congress have done to fix our immigration problem--by creatively distracting the American public into thinking that the government and politicans are not the source of the problem. Yet, politicians on both red and blue teams, around election time, try to pass blame to opposing parties until the issue itself is forgotten.

In 2005, President G.W. Bush signed a bill called the Real ID Act. The Real ID Act attempted to add slight reform in immigration laws, which is still considered ineffective at achieving its goals. Congress knew that reforming immigration laws would require a great deal of debate; a debate so heated that it could cost some polticians his/her career. Thus, it came up with a crazy idea... the Real ID Act.

One of the major changes in the law was that undocumented aliens (those without permenant resident status  or "green card" or citizenship status) were prohibited from receiving a state issued ID or driver's license. It also encouraged states to change security features on driver's license to prevent fraud. The end result was that states began to take away driver's license from undocumented aliens and foreign citizens without green cards.

Congress actually believed that these undocument aliens, who unlawfully entered the U.S. without visas, will actually stop driving if their driver's licenses were taken away. The end result is that we now have more unlicensed drivers on the road, and we have more unlicensed and uninsured drivers on the road.

Americans are rightfully enraged! We now have people who are here unlawfully plus they are breaking more laws by driving without a license and driving without insurance!? My friend was justified for being upset. I'm upset for him, but I'm upset at Congress.

Although the Real ID Act is being praised as being one step closer to securing our borders, common sense tells me that (1) it' not working and (2) it's hurting than it's helping.

What is bankruptcy?

Before the days of America, during the reign of the English King, debtors who couldn't pay their bills were sent to prison and their belongings seized. This was known as the debtors prison. Creditors got what they could from the debtor's estate, which usually amounts to nothing. Debtors then pay their debts by remaining incarcerated.

Overtime, the English law evolved into what we now call "bankruptcy law". Through over a hundred years of legal evolution, bankruptcy today does not involve going to prison--with some exceptions, such as bankruptcy fraud. Instead, today, the law leans toward consumer protection and less on creditors retribution. U.S. bankruptcy law requires bankruptcy debtors to "surrender" a certain amount of assets and prohibits creditors from trying to go after the debtor's paycheck, bank accounts, and other assets after a bankruptcy petition has been filed.  Modern bankruptcy protects consumers from losing everything, while allowing creditors to recoup as much of their loss as possible. It also forces creditors to back off to allow debtors space to breath, regroup, and rebuild.

Don't waste your money paying creditors if you can't afford to...

The common myth that people will lose their home (or everything) when filing for bankruptcy is something cooked up by creditors to prevent people from filing. Further, the common myth that it will destroy one's credit was also designed to scare desperate debtors into using every penny of their life savings, retirement, and even children's college funds to try to pay back debts that they simply cannot afford to pay. As a result, many people who come to me for advice on bankruptcy have exhausted everything they own and is left with nothing but the clothes on their back and maybe their home. Before you drain your retirement account, talk to me first (or another lawyer that handles consumer debt defense)--educate yourself to save yourself.