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6 Things to Know about ‘Luxury Goods and Services’ in Las Vegas Bankruptcy

Wednesday, May 2nd, 2012

One of the changes the 2005 bankruptcy law made was to lower the minimum amount of debt a debtor could take on within 90 days of filing bankruptcy for spending on “luxury goods and services.” If the amount of debt is greater than this minimum threshold, then the debt is presumed to be fraudulent and therefore nondischargeable. Thus, there are several reasons for those considering filing Las Vegas bankruptcy to know about luxury goods and services.

(1)  The new law reduced the amount of debt spent on luxury goods from $1,225 to merely $500 within 90 days of filing. This sum is not indexed to inflation.

(2)  That $500 limit applies only to debt taken from a single creditor for luxury goods and services. It does not apply to all spending on luxuries. This means, in theory, that a debtor could take on more than $500 so long as it was owed to different creditors and no one creditor is owed more than $500.

(3)  On the other hand, the $500 amount is an aggregate limit, meaning that multiple purchases owed to a single creditor tally towards the $500 total.

(4)  If the debt obtained for luxury goods and services was somehow secured, i.e. it was not consumer debt, then it’s dischargeable at any amount. This is exceedingly rare, if it occurs at all.

(5)  Importantly, the bankruptcy code [http://www.law.cornell.edu/uscode/text/11/523] defines luxury goods and services by what they are not. The term does not include, “goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.”

(6)  If a creditor believes the petitioner fraudulently purchased luxuries, then it will almost initiate an adversary proceeding against the petitioner to make the debt nondischargeable. This means that whether a purchase is a luxury good is largely up to the bankruptcy judge’s discretion.

The bankruptcy code is very vague as to what is or is not a luxury good or service. It is, however, fairly generous to petitioners. The purpose is to prevent debtors from going on spending sprees and then discharging the debt in bankruptcy. Given that the time limit is only 90 days, and that the debtor will have other requirements to fulfill before filing, e.g. mandatory credit counseling, most debtors don’t encounter the problem of determining whether a purchase is a luxury. Even if one goes over the $500 limit, for instance to buy a new refrigerator, so long as it’s not a high-end model with needless features, it will probably still slip by. That said, luxury goods and services are just one of the many pitfalls in the bankruptcy code that a creditor can use against you, which is why an experienced Las Vegas bankruptcy attorney is necessary for handling your case effectively.

For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 702-880-5554 to set up your free consultation.

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Are You Judgment Proof? Consider Bankruptcy!

Wednesday, April 18th, 2012

When you are faced with a debt that you cannot pay, you have three options: (1) do nothing; (2) negotiate with the creditor; or (3) file bankruptcy. In cases of unemployment or a fixed income, option two, negotiate, is no option at all. There is simply no extra money to pay the debt and nothing to sell. When there is no income that is legally collectible and all assets are legally exempt from collection, the debtor is commonly called “judgment proof.” If you or your attorney think you are “judgment proof,” be sure that you fully understand what that term means before “doing nothing.”

In collection law the term “judgment proof” is actually a misnomer. The term refers to the difficulty a creditor has in collecting on a judgment, not in obtaining the judgment. If you are “judgment proof,” you can still be sued for a debt and a court can still issue a judgment against you.

It is important to protect your rights any time you are involved in a lawsuit. The court may order you to appear in court, and you must comply or risk being held in contempt for violating the court’s order. The creditor may also attempt to seize personal assets or money from your bank account – usually without any notice. You must inform the creditor and the court that you are asserting your legal exemption rights to protect your property. The creditor may challenge these exemptions in court, in which case you must litigate the matter or risk losing your protections.

A judgment is good for many years, and can be renewed. The creditor can attempt to collect from you at any time, especially if your financial circumstances change. If the debt is truly uncollectible, the creditor may “charge off” the debt and report it to the IRS. The cancelled debt is now taxed as your income and you must inform the IRS of your insolvency.

Most “judgment proof” debtors have no idea of the inconvenience that a lawsuit can cause, not to mention the harassment before and after a lawsuit.  A Chapter 7 bankruptcy can discharge your debts. The bankruptcy automatic stay immediately stops all collection action, including lawsuits and telephone harassment. Once discharged, the debt is not considered income by the IRS, and it is permanently uncollectible. The creditor can never sue you or contact you regarding the debt.

If you have debts that you cannot pay, speak with an experienced bankruptcy attorney and find out how the federal law can protect you and your property. Bankruptcy can provide permanent peace of mind, and a chance at a fresh financial start free from creditor harassment.

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Bankruptcy Can Help Distressed Homeowners

Monday, April 9th, 2012

Reuters.com recently published a story predicting an increase in home foreclosures in 2012. Banks slowed their foreclosure processes in 2011 due to the “robo-signing” scandal, but this past February five major banks settled a major lawsuit with 49 U.S. states. Now there are signs that foreclosures are ramping up again. One mortgage servicing provider recently reported “foreclosure starts” had increased 28 percent in January.

The Reuters article quoted RealtyTrac CEO Brandon Moore as saying that the “numbers point to a gradually rising foreclosure tide as some of the barriers that have been holding back foreclosures are removed.” This new wave of foreclosures targets middle class homeowners hit hard by tough economic times. “The subprime stuff is long gone,” said Michael Redman of 4closurefraud.org. “Now the folks being affected are hardworking, everyday Americans struggling because of the economy.”

Current data estimates around 13 million Americans are unemployed and millions more are under-employed making it difficult to pay a monthly mortgage. To make matters worse, many homeowners are struggling with homes that are “underwater” – the market value of the home is worth less than the amount owed.

The federal bankruptcy process can help a homeowner manage a distressed home situation. First, the Bankruptcy Code allows the debtor to strip away junior mortgages that are entirely unsecure. For instance, if your home is worth $200,000, and you owe $200,000 or more on your first mortgage, any junior mortgage or judicial lien can be stripped off during a Chapter 13 bankruptcy. This process is especially useful to homeowners struggling with HELOC loans.

Second, a Chapter 13 bankruptcy can provide the homeowner with time to catch up past-due mortgage payments or property taxes. During a Chapter 13 bankruptcy the debtor is allowed up to five years to pay off mortgage arrears while the bank is prohibited from foreclosing.  Finally, if you are unable to keep your home, a Chapter 7 bankruptcy will allow you time to surrender your home back to the lender on your terms.

Bankruptcy is a legal shield that can protect you during tough financial times. If you are facing foreclosure, speak with an experienced Haines and Kreiger Las Vegas bankruptcy attorney and discuss how the federal bankruptcy laws can help you. Call us at 702-880-5554 today!

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Debtors With Primarily Business Debts Not Subject To Bankruptcy Means Test

Monday, April 2nd, 2012

The bankruptcy means test is a financial test to ensure that the debtor is not “abusing” the bankruptcy system. Instead of allowing the debtor to choose whether to file a Chapter 7 liquidation bankruptcy or a Chapter 13 repayment bankruptcy, Congress created the means test to disqualify certain people from Chapter 7.

In a nutshell, if the debtor has income sufficient to repay a substantial portion of his or her debts over three to five years, the debtor “fails” the means test and is ineligible to file a Chapter 7 bankruptcy.  However, Congress has created a business exception to the means test. If the individual debts are “primarily” business debts, the debtor can avoid taking the means test, and can avoid being presumptively disqualified from filing a Chapter 7 bankruptcy.

Most courts have stated that “primarily” means that more than half of the individual debts are business debts. But what is a consumer debt and what is a business debt?

A consumer debt is defined in the Bankruptcy Code as “debt incurred by an individual primarily for a personal, family, or household purpose.” Other the other hand, a business debt has been recognized by the bankruptcy courts as having a “profit motive.” The question boils down to whether the debt created during the process of trying to make a profit.

A person’s home mortgage is typically a consumer debt. Investment rental property is a business debt. A personal credit card is a consumer debt. A credit card used exclusively for business purposes is a business debt.

Perhaps not surprisingly bankruptcy courts do not always agree on classifying a debt as a consumer or business debt. For example, the Second Circuit has held that student loans are not consumer debts. Some courts have found that the tax liability on a personal income tax debt is not a consumer debt.

Bypassing the bankruptcy means test does not automatically qualify you to file a Chapter 7 case. The Bankruptcy Code also imposes a good faith requirement on Chapter 7 debtors. If you can reasonably adjust your budget to pay your creditors, the bankruptcy court will disqualify you from Chapter 7.

If you have significant business related debts and need personal bankruptcy relief, speak with an experienced Haines & Krieger Las Vegas bankruptcy attorney by calling 702-880-5554  and discuss whether you can avoid the bankruptcy means test. Your attorney can examine your finances, explain the benefits of Chapter 7 and Chapter 13, and advise you on the best course of action.

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Tax Refunds Fuel Bankruptcy Filings

Wednesday, March 28th, 2012

A recent study  conducted by economists at Columbia University, the University of Chicago, and Washington University in St. Louis found that bankruptcy filings increase after tax refunds are received. According to this study, the total number of bankruptcy cases increased seven percent in 2008 after debtors received their tax refunds.

This research confirms what consumer bankruptcy attorneys have known for years. However, the economists concluded that many Americans could not afford to pay the bankruptcy fees without the tax refund money. Granted, in some cases the bankruptcy client is unable to pay bankruptcy fees and needs tax money for this purpose. However, in many cases the debtor’s attorney will recommend delaying the bankruptcy filing until after the tax refund money has been received and spent.

When you file a bankruptcy case, all of your assets become part of a bankruptcy estate overseen by a bankruptcy trustee. If you are owed an income tax refund, the refund belongs to the bankruptcy estate. In many cases you are allowed to keep all or a portion of your anticipated tax refund by applying legal exemptions. However, if your tax refund amount exceeds your entitled exemptions, you may lose the excess amount. In these cases your attorney may advise you to delay filing until after your refund is received and spent.

The way your tax refund is spent can sometimes cause you headaches. For instance, paying off a loan to a family member just before filing is considered a “preference” payment. The bankruptcy trustee can “avoid the payment and ask for the money. Similarly, paying off a secured loan (like a car loan) may create an equity issue and you may lose the collateral. It is important to discuss the specifics of your bankruptcy case with your attorney before your receive and spend your tax refund check.

Tax refunds can be a big help if you are struggling with debt, and can provide options to help restructure your finances. Whether the money is used to help pay your bankruptcy fees, or used to catch up on rent or utilities, it is important to discuss your financial situation with your attorney.

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Discharge Your Debts and Keep Your 401(k)

Monday, March 26th, 2012

Have you ever heard the phrase “throwing good money after bad?” It means spending money on something that has little chance of success. When you get into financial trouble, the sensible thing is to fight to work your way out of trouble. Unfortunately, many people fail to recognize that point when it no longer makes good sense to continue throwing money at a problem. Some will eat through savings and retirement accounts hoping to delay the problem long enough for something good to happen. In the end the savings and retirement accounts are gone, and the debt is still there.

Bankruptcy is a legal process than can reorganize your finances and eliminate your overwhelming debt. In bankruptcy most retirement funds are protected, so if you’re facing a debt that you cannot pay, consider filing bankruptcy instead of draining your retirement accounts.

Whether a retirement account is protected first depends on if the account is “property of the bankruptcy estate.”. The U.S. Supreme Court in the case Paterson v. Shumate, 504 US 753 (1992), stated that retirement plans that contain an “anti-alienation clause” are not property of the bankruptcy estate pursuant to 11 USC § 541(c)(2). An “anti-alienation clause” prevents creditors (and the bankruptcy trustee) from seizing your retirement funds.  Nearly all ERISA retirement plans and 401(k) accounts have an “anti-alienation clause.”

If your account does not have an “anti-alienation clause,” it may be exempt from creditor collection. Examples of retirement accounts that are exempt during bankruptcy include Roth IRAs, up to $1,171,650.00; and qualifying plans under sections 401, 403, 408, 414, 457, and 507(a) of the Internal Revenue Code. Other plans not listed above can be exempt during bankruptcy. In some cases the law on exempting retirement accounts is complicated and is changing rapidly. Consult your attorney for specific advice on your retirement account.

If you are overwhelmed by a debt problem that will not go away, speak with an experienced bankruptcy attorney before cashing out your retirement accounts. In many cases your debt can be discharged or paid over three to five years, and you can keep your retirement accounts. So consider bankruptcy to throw out the bad debt and keep your good money!

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Cheating On Your Income Taxes

Thursday, March 22nd, 2012

Millions of Americans prepare their own income tax returns and are always on the lookout for clever ways to reduce their tax liabilities and increase their refunds. Your tax refund can be especially important when you are struggling financially or preparing to file bankruptcy.  Here is the best legal advice to keep in mind when preparing your income tax return: DON’T CHEAT!

First off, tax fraud is a federal crime. Is the little money you save really worth a U.S. Attorney on your back? Additionally, there are financial penalties for tax cheats (20% for negligence, but 75% for tax fraud cases). Finally, while bankruptcy can reduce or even discharge some tax debts, you are stuck with a fraudulent tax debt forever. The benefit is just not worth the risk.

While claiming a blind spouse when you are single is not advised, there are some legitimate tax deductions that may save you money:

Telephone Expense

You can’t deduct the cost of your home telephone line, even you use that phone for your business. However, you can deduct the cost of a second phone or cell phone that is used exclusively for your business. You can also deduct the long distance charge for a business call.

Attorney Fees

You cannot deduct attorney fees if your legal dispute is “personal” in nature. This includes family law cases, personal injury, and even bankruptcy. However, attorney fees for your business are deductible. You can also claim a deduction for personal legal fees related to contesting, paying, or claiming a refund on your taxes.

Charitable Service

Goods and cash donated to a charity are common deductions, but the IRS will not allow you to claim the cost of your time or services to the charity. However, you can deduct the actual costs you paid when performing charity work.

Commuting Expense

You cannot deduct commuting costs to work, period. However, work-related travel expenses are deductible, including the costs to visit customers or vendors, attending a business meeting away from where you work, and traveling back and forth during the workday.

Health Club Fees

You cannot deduct health club fees if the activity is merely beneficial to your health. However, if your doctor specifically prescribes a gym or health club membership for a diagnosed medical condition, the expense qualifies as a medical deduction.

Using the federal tax code for your advantage is always a good idea, and having a tax professional prepare your return often pays for itself. The tax code is full of opportunities to reduce your tax burden. Just remember to not increase your burden by trying to scam the federal government.

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8 Facts for Homeowners to Know about the Government’s Mortgage Deal with the Banks

Saturday, March 10th, 2012

Since the housing bust, the biggest problem facing Nevada homeowners is what to do about their negative equity in their underwater houses. One option is to consult with a Las Vegas bankruptcy lawyer at Haines & Krieger to see if bankruptcy will work. In the good news department, the federal government along with 49 state attorneys general struck a deal with lenders to aid homeowners with obtaining mortgage principal reductions. The New York Times provides some facts worth knowing about the agreement.

(1)  The settlement is $26 billion from the banks earmarked to aid homeowners in some way or another. That number might rise to $32 billion if other large lenders join the deal.

(2)  $17 billion will go to restructure existing mortgages, $3 billion to refinancing, $1.5 billion will compensate victims of wrongful foreclosures, $2.8 billion to state governments and $1.8 billion to the federal government.

(3)  Victims of wrongful foreclosures will receive $1,800 to $2,000 on average.

(4)  The agreement only applies to loans currently owned by banks, such as Bank of America, Wells Fargo, JPMorgan Chase, Citigroup, and Ally. Bank of America.

(5)  Most of the settlement funds will go to Florida and California because that’s where most of the country’s underwater homes are. It’s unclear how much will go to Nevada.

(6)  Importantly, if the banks committed fraud in the process of originating the loans, they government may still pursue them, so this is not complete amnesty.

(7)  The settlement will be executed over the course of three years, and with $699 billion in negative equity nationwide, it can’t possibly help all homeowners substantially.

(8)   The plan does more to help those who are still in their homes than it does those who have already suffered a foreclosure.

This plan does some good things for homeowners, but it’s long overdue. Anyone who already used the legal system to remedy their underwater homes faced the full consequences while those who remained in their homes might not. Moreover, the plan cannot possibly result in everyone’s homes returning to positive equity. Consequently, even if you are eligible for relief via the agreement, it’s likely worthwhile to consult with an experienced Las Vegas bankruptcy attorney to consider all your options.

For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 702-880-5554 to set up your free consultation.

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4 Things Debt Collectors Don’t Tell You about Their Operations

Tuesday, February 28th, 2012

In October 2011, the Reader’s Digest [http://www.rd.com/slideshows/13-things-a-debt-collector-wont-tell-you/#slideshow=slide9] ran a slideshow titled, “13 Things a Debt Collector Won’t Tell You.” For those who are familiar with debt collectors, there’s little new. Debt collection agents cannot use profanity, call between 9:00 P.M. and 8:00 A.M., call you at work against your permission, and threaten to have you arrested. The article does tell readers a few things they might not know.

  • Debt collection agents receive bonuses based on how much they collect. This makes sense given that debt collectors want to extract the most they possibly can from their debtors, especially given that they paid so little for the debts (pennies on the dollar).
  • In keeping with the astonishingly low prices they paid for the debts, debt collector’s agents are often authorized to settle for as low as 15 percent of the debt’s total value. If the debt is still valid, this sounds like an excellent deal for debtors. Just remember, the debt collector is making a massive markup on your debt, so start by bidding low. Don’t be afraid to open in the single digits and insist on it.
  • Don’t give debt collectors more contact information when settling debt. They’re not collecting this to complete a form; they’re doing it as a backup plan in case the settlement falls through. By giving them this information, they can argue you gave them permission to contact those individuals. This is probably something you don’t want.
  • Debt collectors use good/cop bad cop tactics. This isn’t surprising, but remember that unless you exercise your rights, the collector is in a position of strength at all times. Similarly, managers won’t help you, so don’t ask to speak to them.

Many debt collectors may run legitimate businesses, but even the “good guys” often still cut corners and try to dupe people into paying debts they don’t owe or use dishonorable or illegal tactics. If you don’t have the situation firmly under your control, or you think the debt collector has broken the law, then it’s in your interest to hire an experienced Las Vegas bankruptcy lawyer to handle your case. It will give you some needed negotiating power, and filing a Chapter 7 bankruptcy can eliminate the debt entirely.

For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 702-880-5554 to set up your free consultation.

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8 Suggestions for Improving Your Credit Score

Saturday, February 25th, 2012

Credit scores have rapidly become the metric for determining how much of a spendthrift people are. Their uses have grown from what kinds of loans banks will extend you to whether someone will give you a job and even if you’re worthy of obtaining a professional license. While the score is created by for-profit companies for commercial purposes, improving your credit score won’t hurt. There are many suggestions for maintaining and improving one’s credit score. Here are some good ones:

(1)  Obtain your credit report. By federal law, you’re allowed to do this three times per twelve month period. Unless you plan on moving or going on a sustained job hunt anytime soon, now would be a good time to obtain one. Just note that many commercial Web sites, like freecreditreport.com, aren’t always as free as you might think they are. Your credit report should list all your debts and the amounts you owe your creditors. If it lists some that you didn’t take on, you can report the error.

(2)  Deal with collection agencies promptly. This might require contacting a bankruptcy attorney.

(3)  Weigh your credit card debts. If you have multiple credit cards with different balances, chances are the interest rates on them differ too. If this is the case, then using lower rate cards is better in the long run than using others.

(4)  Play the interest rates. You may even wish to consider moving some of your higher-interest debt to your lower-interest credit cards. This might involve applying for a new card, but it can be worth it. Contacting the creditor and asking for a lower interest rate can work, as can asking for a waiver of the annual fee. Before doing this, though, make sure that the “balance transfer” fees incurred are still worth the benefits of the lower interest rates.

(5)  Otherwise, pay off the high interest debt first. This is common sense: less high-interest debt today means more savings tomorrow.

(6)  Don’t buy any large ticket items that offer you “no money down!” and other promotions. You’ll probably end up paying higher interest later.

(7)  Pay bills on time. This is another common sense suggestion, but much of a credit score is just many timely payments over a long period of time. Tracking when these payments are due will help you with…

(8)  …Keeping a budget. It’s not too hard for people to cut out extraneous discretionary spending, like dining out frequently. It’s not necessarily fun, but it is easy. On the other hand, budgeting groceries takes more effort, but the savings can also be substantial. Research purchases online before committing.

Credit scores might be numbers for companies to use to their advantages, but controlling your own debt is worthwhile for its own sake. If you’re having debt problems though, consulting with an experienced Las Vegas bankruptcy lawyer can help immensely.

For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 702-880-5554 to set up your free consultation.

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