Here’s a hilarious video clip from The Office (one of my favorite television comedies), demonstrating the wrong way to declare bankruptcy:

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Here’s a valuable tip that I offer to my clients during our bankruptcy consultations:

Close your checking and savings accounts if you also have outstanding loans at the same bank.

Now, you may be thinking, “But I love my bank!  I’ve been with them for years and they’re so friendly.  They gave me a free toaster when I opened my checking account, all the bank tellers know my name, and they give my kids lollipops whenever we stop in.”

That’s all fine and dandy when you are in good financial shape and making your monthly car, mortgage, or other personal loan payments on time.  But what if you suddenly find yourself unable to make your loan payments due to unemployment, a costly medical procedure, death of a spouse, divorce, or a multitude of other events beyond your control?   And what if you decide to file for bankruptcy to discharge that loan and other debts you can no longer handle?

I’ll tell you what.  Your bank will exercise its “right of setoff” (sometimes called a right of offset or banker’s lien) against your bank accounts.  This means that your “friendly” bank will withdraw money from your checking and savings accounts, CDs, and money market accounts without your permission and without warning to pay off its past-due loans.

But what if those unexpected withdrawals causes you to bounce checks all over town?  Your “friendly” bank won’t care.  And, to pour salt in your wounds, it will charge you overdraft fees on those bounced checks.

Ask yourself if you’ll still love your bank when you can’t pay your rent and utility bills, buy groceries for your family, or fill up your gas tank because your bank accounts were suddenly and unexpectedly emptied.

So do yourself and your family a favor.  First, withdraw your money and close your checking, savings, and other deposit accounts.  Next, open new accounts at a bank where you don’t have any outstanding loans.  Then, if appropriate after consultation with a bankruptcy lawyer, file for bankruptcy.  I’ll bet your new bank gives out free lollipops too.

Image credit: Some rights reserved by peapodsquadmom

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I love documentaries.  It’s easier (and more entertaining) for me to learn something new by watching a video than by reading a book.

So if you’re a visual learner like me and you’re interested in learning more about bankruptcy, check out my new video page.  On the page you can view a series of nine short but informative videos produced by the Administrative Office of the United States Courts covering the basics of bankruptcy.  Total viewing time is approximately 30 minutes.

So relax, pop some popcorn, dim the lights, and roll film!

Photo credit:  Awaiting an Audience Some rights reserved by  TinyTall (Andrea Parrish – Geyer)

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Here’s a great bankruptcy question sent to me on Facebook.  My reply was too long to post directly to my Facebook page, so I made it a blog post instead:

Q:  Is there a debt ratio used when filing bankruptcy… meaning can I make too much money to file a Chapter 7?

A:  Most people file for bankruptcy relief under Chapter 7 because it wipes out their debts immediately, they usually can keep all of their assets, and they don’t have to pay anything on their credit cards, payday loans, hospital and medical bills, and most other unsecured debts.  But the credit card companies lobbied Congress to make it harder to file and now you must pass a “means test” to determine if your income is too high to qualify for Chapter 7.

The means test is divided into two sections.  Section 1 compares your income to the median income in your state for your household size.  The state median income amounts are updated regularly and are available at the following link: http://www.justice.gov/ust/eo/bapcpa/20110315/bci_data/median_income_table.htm.

Add up your monthly income over the past six months and multiply by two.  If the result is below the median annual income for your state and household size, you can breathe a sigh of relief because you “pass” the means test and you don’t have to complete Section 2.  However, you may still qualify for Chapter 7 even if you “flunk” Section 1 of the means test because your income exceeds your state’s median income.  In this case, you must take Section 2 of the means test.

In means test Section 2, you calculate your monthly “disposable income” by reducing your average monthly income by certain allowable expenses.  You will pass the means test if: (1) Your monthly disposable income is below $117.08; or (2) Your disposable income is between $117.08 and $195.41 AND your nonpriority unsecured debts (such as credit cards and medical bills) total more than $46,898.40.  Otherwise, you will “flunk” the means test, unless your attorney can demonstrate special circumstances that justify deducting additional expenses.

If you fail the means test, you may be forced to file for chapter 13, which provides you with debt relief, but requires that you commit all of your disposable income to paying down your debts over 3 to 5 years.  Properly completing the means test to qualify for Chapter 7 is a complex exercise.  This is one example of how a trusted bankruptcy attorney is essential to successfully navigating the complexities of a bankruptcy filing.

If you are considering filing for bankruptcy, call me at (773) 429-0400 or book an appointment online at www.alvinforeman.com to arrange a FREE, no-obligation consultation.  I will evaluate your situation and determine whether bankruptcy is right for you and whether you qualify for Chapter 7 relief.

To ask your own question and for more FREE information about bankruptcy, click Like on my Facebook page and visit my website.

Photo credit: Money! Some rights reserved by yomanimus (David Beyer)

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Here’s an MSN Money article by personal finance columnist and author Liz Pulliam Weston that is well worth a read.  The article isn’t new, but its report on the risks of hiring a low cost “Bankruptcy Mill” to handle your bankruptcy case is still relevant today.

According to Ms. Weston, there are 2 types of Bankruptcy Mills:

• High-volume law firms run by attorneys who may never actually meet their clients before appearing in court.

• Non-lawyer bankruptcy-petition preparers who advertise extremely cheap services.

The article reports that both types of Bankruptcy Mills can be a disaster for their clients, through a combination of unethical behavior and incompetence.

Of course, you should always seek the best value for your hard-earned dollars, including reasonable attorney fees.  But in the case of bankruptcy advice and representation, cut-rate pricing  may be a danger sign that you should look elsewhere.

Click here for the article.  It’s a short read and it highlights the importance of hiring a trustworthy bankruptcy attorney who will competently and ethically represent your best interests in helping you obtain a fresh start.

If you are facing a personal financial crisis, contact me today to schedule your FREE no-obligation initial consultation.  I will evaluate your financial situation and, if bankruptcy is an appropriate solution for you, I will quote you a reasonable flat legal fee.

Image credit: Sue Richards

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Q: When I die, will the beneficiaries of my life insurance policies become responsible for my debts ?

A:  The short answer in Illinois is probably not.

Here’s the long answer:

[You know that lawyers can never give a simple answer to anything, right?]

As I mentioned in an earlier post, life insurance can be a powerful estate planning tool to provide for those you care about after your death.  But what if you have racked up a bunch of unpaid bills at the time of your death?  Do your life insurance beneficiaries have to pay off your credit cards bills, hospital bills, utility bills, etc.?

Take a look at the beneficiary designations on your life insurance policy.  Check to see if you have named individuals as primary and contingent beneficiaries.  If so, your beneficiaries are in luck.  The Illinois Insurance Code and case law interpreting its provisions state that a named beneficiary who is living when you die will receive the policy proceeds without no reductions for payment of your debts.

However, if you did not name a beneficiary, or if the named beneficiary is not alive when you die, the insurance proceeds will be paid to your estate.  In that case, your creditors may be able to file claims against your estate in probate court to get their hands on the policy proceeds.

Moral: Designate primary and contingent beneficiaries, review your designations periodically, and make changes as needed (e.g., if a named beneficiary dies).

Even if you designated beneficiaries for your policies and they are alive at your death, it is still possible that they will not receive the entire policy proceeds.  This problem can arise if your estate is subject to estate tax.  Estate taxes are federal and state taxes paid on the privilege of transferring property at death (more on estate taxes in a later blog post).

2010 is a strange year for estate taxes because they have been temporarily eliminated, only to return in 2011 when they will apply to estates worth over $1 million.  If your estate is subject to estate tax upon your death, your life insurance beneficiaries may be liable for a portion of the estate tax liability.

There are planning techniques to avoid estate tax liability on life insurance proceeds — by either transferring the policies into an Irrevocable Life Insurance Trust (ILIT) or having the ILIT trustee purchase the policies.  But that is a topic for another day.

Image credit to Svilen Milev.

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Q:  If you’re single with no dependents, do you need a will?

A:  It depends.  [Don't you love those kinds of answers?]

If you have loved ones who depend on you for their support, the answer is simple: The responsible thing to do is to make a will (and perhaps take other estate planning steps) to provide for their continued care after your death.

However, if you have no dependents, you have no moral obligation to make a will.  But you also have greater flexibility to decide what type of financial legacy you want to leave behind.  That is, you can feel free to make gifts upon your death to friends, lovers, relatives, or your favorite charities.

Before making a decision either way, you should first understand what will happen to your estate (i.e., your assets) if you die without a will. If you die without a will, your estate will be distributed to the family members described in your state’s intestacy law.  In Illinois, if you are unmarried with no children and you die without a will, your estate will be distributed to your next of kin in a prescribed order and in prescribed percentages [More on the particulars of the distribution order and percentages in a later blog post].  If you have no next of kin, your estate will pass to your county of residence or to the State of Illinois.  There is no provision in the intestacy law for gifts to friends, lovers, or charities.  Similarly, there is no intestacy provision to skip over your wealthy sister and give more or all of your estate to a financially struggling cousin.

However, with a will, you can leave your estate to whomever you please in whatever amounts or percentages you desire.  If you add trust provisions to your will, you can even attach “strings” to your gifts.  For example, you could state that a gift in trust to your college-bound niece is to be used solely for her education expenses until she reaches age 25.  Some animal lovers even leave gifts in wills and trusts for their pets to ensure that they are provided for after their death.

In addition to carrying out your wishes, a will can help prevent family disputes.  In my experience, more estate squabbles occur not over divvying up a bank account, but over who gets the one-of-a-kind items, like family heirlooms.  If you make it clear in your will who is to receive the sapphire ring that you inherited from Aunt Suzie, you will reduce the likelihood of  family discord after your death.

In addition to stating who will receive what from your estate, a will also names the executor, i.e., the person or entity who will handle your estate matters upon your death.  This can be important if you want to ensure that an untrustworthy or incompetent relative does not take charge of your estate.

Wills also can provide certain administrative cost savings if your estate is settled in probate court [More on probate and the particulars of those cost savings in a later blog post].  Depending upon the size of your estate and the types of assets you own, the cost savings can be significant.  Dollars saved on lower costs can mean more dollars available for the executor to distribute to your beneficiaries.

Ultimately, only you can decide if making a will is the right choice, based on your personal feelings about the individuals and charitable institutions in your life that you will leave behind.

So, like I said above, “It depends.”

Image credit to Anoushka Matus.

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• New Illinois Bank Account Law: Now Isn’t That Con-VEEN-ient!

“Now isn’t that con-VEEN-ient!”

Effective January 1, 2010, Illinois enacted the “Banking Convenience Account for Depositors Act.”   This law authorizes banks to offer their customers a new form of bank account called a “convenience account.”  Bank customers with convenience accounts can name individuals to act as “convenience depositors,” with the power to deposit and withdraw money, but with no ownership rights over the account.

This should be welcome news for Illinois banking customers concerned with their estate planning.  To explain why, here’s a fictional example with characters borrowed from a popular 80′s sitcom:

Philip was an elderly widower with three adult children whom he dearly loved: Willis, Arnold, and Kimberly.  Philip was becoming forgetful in his old age and he wanted his oldest son Willis to manage his financial affairs.  To accomplish this, Philip added Willis to his substantial bank account as a joint account holder.  Joint account holders have the right to deposit and withdraw funds to and from a joint account as they please.  Willis immediately took control of the account and began paying Philip’s bills.

Unfortunately, Philip’s health rapidly deteriorated and he died soon thereafter.  Philip had a will which stated that his three children were to  inherit all of his assets in equal shares.  However, as the named joint account holder, Willis became the sole owner of the bank account upon Philip’s death.  This is because joint account holders have a “right of survivorship” upon the death of the account owner, which generally trumps the language of a will.  At the funeral, Willis informed his siblings that he did not intend to share one nickle of “his” bank account.  To which Arnold and Kimberly replied, “What you talking ’bout Willis?!!!?”

To avoid this estate planning disaster under the new banking law, Philip could have instead added Willis to his account as a “convenience depositor.”  During Philip’s lifetime, Willis could use the account solely for the convenience of Philip (e.g., to pay Philip’s bills).  But upon Philip’s death, the account would then pass to the executor named in Philip’s will for distribution to Philip’s children in equal shares.  This is because a convenience depositor does not have a right of survivorship and all funds in the convenience account, no matter who deposited them, are legally deemed to belong to the account owner.

Now isn’t that con-VEEEN-ient!

Image courtesy of Dana Carvey.

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To read the article, click on the link above.

This is a good article from the Los Angeles Times, although its title is somewhat misleading.  The current tax law creates urgency, but not to make a new will.  The article explains why it is important for those who already have estate plans to take a second look at them in 2010.

Of course, it is always important to have an estate plan in place, regardless of the current state of the tax law.  The article also discusses the basics of estate planning in general.

Image courtesy of Allen J. Schaben / Los Angeles Times.

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That is because the most important estate planning tool for most people does not require a lawyer. And no, I’m not talking about Wills, or Living Trusts, or Powers of Attorney.  I’m talking about  life insurance.

Blame it on the economy.  We are now in the midst of a full-blown recession with almost 10% unemployment.  Across the country, retirement accounts have been decimated.  Between 1/4 to 1/3 of all homeowners are underwater on their mortgage debt.  Many Americans have empty savings accounts and lots of credit card debt.

The point is, having a well-drafted Will or Trust  is meaningless if you die with  lots of debts but little assets to pass to your loved ones.  So, for many families, the most important estate planning tool in this economy is life insurance, with a death benefit large enough to replace the lost income of the family breadwinner. If you have loved ones who are counting on your income for their well being, you owe it to them to ensure that you have adequate life insurance coverage. No lawyer required.

Image credit: Crescent “No Lawyers” Bar and Grill.

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