Mitchell & Culp

Debt Consolidation/Relief Part 2 of 2

Heather Culp — Mon, 08 Mar 2010 12:23:05 +0000

In the first part of this series, we covered the misleading things that businesses advertise on television, radio and elsewhere for “debt consolidation” or “debt settlement” services.

If you decide to enter into an agreement with a creditor, or want to fix a bad credit score keep these five things in mind.

How to proceed with the agreement

Get the settlement terms, in writing, from the creditor prior to making any payments.
Do not give the creditor a check by phone, a bank draft authorization, or other unfettered access to your bank account. The safest way to make settlement payments is through bank checks (cashier’s checks, etc.) sent through the mail.

You’ll owe the IRS

A credit card company that has settled for less than full value is legally obligated to issue an IRS form 1099 to you, reflecting the amount of the balance that was written off or “forgiven.” This gives rise to debt forgiveness income, which has tax consequences. For example, if you settle a $20,000.00 credit card balance for $10,000.00, then the credit card company will send you and the IRS a form 1099 showing $10,000.00 in debt forgiveness income, and you may be taxed on this forgiven $10,000.00 as if it were ordinary income. You should discuss with a tax professional what the tax implications of any debt settlement would be, and factor that in; these taxes are not immediately dischargeable in a bankruptcy and must be dealt with. In contrast to debt that is settled, debt that is discharged in a bankruptcy is not forgiven — it is instead discharged or cancelled — and there is no resulting debt forgiveness income or other tax consequence as a result of the discharge.

Your credit score

Once a credit card company has received the total settlement amount, it should report to the credit bureaus that “the debt was settled for less than full value” or some similar language that may vary from creditor to creditor. This information negatively affects your ability to obtain credit, but is generally less damaging to your credit rating than unresolved defaults, judgments, or a bankruptcy.
Beware of any offer of “credit repair.” The only information that can be removed from your credit report is inaccurate information. If there is accurate but negative information on your credit report, then the only repair is the passage of time. Negative information stays on a credit report for a maximum of seven to ten years before dropping off. Money paid to eliminate accurate but negative information is always a waste of money.

If you have any questions about whether, in your particular circumstances, debt consolidation makes sense, contact qualified legal counsel or one of the services recommended in Part 1 of this series.

Debt Consolidation/Relief Part 1 of 2

Heather Culp — Fri, 05 Mar 2010 12:01:34 +0000

Hardly a day goes by without seeing on television, or hearing on the radio, a commercial for “debt consolidation” or “debt settlement” services. Often, the ad includes a statement to the effect that if you owe more than $10,000.00 in credit card debt, you have the “legal right” to settle for less. Further, we frequently see clients who have paid hundreds or even thousands of dollars to a debt consolidation or debt settlement service, in exchange for absolutely no debt relief.

If you wish to explore the possibility of settling your debts for less than what’s owed, here are five essential things to consider, based on our experience as bankruptcy attorneys and attorneys working in other areas of debtor/creditor relations:

No minimums required

Anyone, at any time, regardless of the amount owed, has the right to try to settle a debt for less than what’s owed. Advertisers referencing some sort of minimum amount of debt (such as $10,000.00 in credit card debt, as previously mentioned) are simply trying to attract the more indebted because they are likely to be more desperate and more willing to pay a higher fee to the advertiser.
You can negotiate and settle your debts yourself, without legal representation and without the help of some sort of agency or company.
If you decide to hire someone to help you settle, consolidate or otherwise manage your debts, then be very wary of companies that are advertising. Most of them draft various fees from your checking account and provide absolutely no services, and most of them are actually owned and operated by credit card companies! At a minimum, consult an agency that is non-profit, and in good standing with the Better Business Bureau, and a member of the National Foundation for Credit Counseling. We suggest Consumer Credit Counseling Services which meets each of these criteria.

Timing is everything

Most (if not all) credit card companies will have no interest in negotiating a settlement of the balance owed for less than full value until the borrower is at least 30 to 60 days past due. You may be able to negotiate a lower monthly payment, or a lower interest rate, on either a trial or permanent basis without being in default, but the credit card industry generally has no incentive to forgive any of the balance owed so long as the borrower is current, or relatively current. If you make the conscious decision to go into default on a credit card with the goal of negotiating settlement of the total debt for less than full value, then understand that the default will negatively impact your credit score and likely result in the imposition of the default rate of interest (we’ve seen as much as 30% APR) and various default fees.
There is never any guarantee that a credit card company will agree to settle for less than the full balance; however, many — if not most — eventually do. In our experience, the creditor requires such settlement payments in no more than four monthly installments; in other words, the negotiated total credit card settlement cannot stretch beyond four months. Ideas of settling for less than full value in several monthly installments are simply unrealistic.

Stay tuned for Part 2 of this series

Rick Mitchell: Included in 2010 Super Lawyers

Richard Mitchell — Thu, 04 Mar 2010 12:30:37 +0000

Each year Super Lawyers magazine names attorneys in each state in 70 practice areas who have attained a high degree of peer recognition and professional achievement. Nevertheless, they included me in their listing for the third year running.

I probably would have named it something besides Super Lawyers, but since the selection process has been blessed by courts and bar associations, I’ll just humbly accept the honor and not grouse about the details.

How Super Lawyers decides

After a three-step nomination and screening process, Super Lawyers magazine chooses honorees on an annual, state-by-state basis. The research team undertakes a rigorous multi-phase selection process that includes a statewide survey of lawyers, independent evaluation of candidates by the attorney-led research staff, a peer review of candidates by practice area, and a good-standing and disciplinary check. Only five percent of the total lawyers in the state are included in Super Lawyers.

What’s it mean that I’m on the list?

Super Lawyers is intended to be a resource to help in the selection of legal counsel. As such, it limits the list to attorneys who can be hired and retained by the public, i.e., lawyers in private practice and Legal Aid attorneys. The magazine makes a comprehensive, good-faith and detailed attempt to produce a list of lawyers that have attained high peer recognition, meet ethical standards, and have demonstrated some degree of achievement in their field. The Super Lawyers site is searchable by state and practice area.

All that being said, if you need to hire an attorney, do your own homework

Chapter 13 Bankruptcy: Individuals

Heather Culp — Mon, 01 Mar 2010 13:00:50 +0000

Chapter 13 is a repayment bankruptcy. It is utilized by individuals, and owners of sole proprietorships or other “mom and pop” businesses, not only to obtain a fresh start, but also to retain their assets and reorganize their financial affairs.

For most individuals with debt problems, the major decision is whether to file for protection under Chapter 7 or Chapter 13 of the Bankruptcy Code.

Chapter 7 does not require repayment of unsecured debt; the debts are simply wiped away. However, Chapter 7 is not available to all debtors.

Chapter 13 for individuals

Chapter 13 is an option for individuals who either have too much disposable income to qualify for a Chapter 7 bankruptcy, or who wish to retain real or personal property with equity that creditors could otherwise reach. We can advise you as to which type of bankruptcy case is the best fit for you.

Chapter 13 repayment plans last a minimum of three years and a maximum of five years, and, generally require that unsecured creditors — such as credit card companies, medical service providers, etc. – be paid a fraction of what they are owed.

IMPORTANT: mortgage payments missed before the filing of a Chapter 13 bankruptcy can be repaid during the Chapter 13 bankruptcy, allowing homeowners to stay in their houses as long as they keep current on their monthly payments as they are due during the bankruptcy.

Chapter 13 debtors send one monthly bankruptcy payment to the bankruptcy trustee’s office; the trustee uses those payments to repay debts that are included in the bankruptcy. New local rules require that Chapter 13 debtors also send their current monthly mortgage payments to the trustee, who distributes them to the mortgage company. This helps avoid any confusion as to whether payments to mortgage companies are in repayment of arrearages that accrued prior to the bankruptcy, or are for current obligations.

“This information is general and thus incomplete, and the reader should seek legal counsel for specific legal problems or questions.”

Chapter 11 Bankruptcy: Businesses and Individuals

Heather Culp — Wed, 24 Feb 2010 13:00:43 +0000

Chapter 11 bankruptcy is a reorganization. More businesses than individuals file for Chapter 11; it is an orderly process that allows the debtor time and space to reorganize its financial affairs and repay its creditors some or all of the debt owed.

It is a vehicle through which debtors can reject or cancel certain leases, contracts, and other debt obligations, and get breathing room to obtain new financing, sell property, or otherwise arrange to repay creditors.

Chapter 11 for businesses

Our typical Chapter 11 client is a small, closely held business with cash flow problems. The source of the problems varies; common problems include the decline of the housing market, growth and expansion at a fast pace, embezzelment by an employee, a change in ownership or leadership, or a balloon payment due to a bank that is unwilling to refinance.

Whatever the reason, the first step is working with you to determine whether a reorganization of the business would enable it to thrive, and whether the business can afford a Chapter 11 case. If the answer to both of these questions is “yes,” then we will prepare the Chapter 11 petition and schedules, and file it in the bankruptcy court.

Compared to Chapter 7 cases, Chapter 11 cases are longer in duration, and more complex in terms of legal work. The ultimate goal is to formulate and present a written plan for our Chapter 11 debtors to reorganize their affairs and repay their creditors according to the priorities of the Bankruptcy Code.

Chapter 11 for individuals

Chapter 11 is the last resort for those individuals who are not eligible for relief under either Chapter 7, Chapter 12, or Chapter 13. Typically, Chapter 7 is ruled out because the debtor exceeds income limits or wishes to prevent a bankruptcy trustee from liquidating non-exempt assets; Chapter 12, because it applies only to family farmers or family fishermen with regular annual income; and Chapter 13, typically because, on the date of the filing of the petition, the debtor and spouse (except a stockbroker or commodity broker) have noncontingent, liquidated, unsecured debts that equal or exceed $336,900 and noncontingent, liquidated, secured debts that equal or exceed $1,010,650. This IRS page might help those considering Chapter 11.

The internet is a great way to begin researching your options, but can in no way replace the need to speak with a qualified bankruptcy attorney.

“This information is general and thus incomplete, and the reader should seek legal counsel for specific legal problems or questions.”

Chapter 7 Bankruptcy: Businesses & Individuals

Heather Culp — Mon, 22 Feb 2010 12:57:46 +0000

The word”bankruptcy” is heard everywhere, from coffee shops to church bazaars and the evening news. It’s clear to me that, despite this general knowledge of bankruptcy, few people understand what it means to file for protection under Chapter 7, Chapter 11 or Chapter 13.

Chapter 7 is a liquidating bankruptcy. It is normally utilized to obtain a “fresh start” for an individual debtor, and, far less often, to wind down the affairs of a business debtor.

Chapter 7 for individuals

In many cases, a Chapter 7 bankruptcy allows an individual debtor to wipe away all of his or her debts without losing any assets. We can advise you as to whether you, as an individual, would qualify for a Chapter 7 bankruptcy; and if so, what debts of yours would go away in a Chapter 7 bankruptcy; and whether you would have to give up any property as part of the bankruptcy.

Chapter 7 for businesses

We can also help a troubled business determine whether a Chapter 7 bankruptcy would be appropriate for the business. We usually find that small businesses — those owned by an individual or partners — must be evaluated for bankruptcy protection along with their owners. Why? Owners so often personally guarantee loans for their companies — by taking out second mortgages or pledging collateral — that what the courts view as “business” debt versus “personal” debt differs from the owners’ understanding. Often it is the business owner that needs bankruptcy protection.

The best place to start evaluating bankruptcy is in what’s called a “bankruptcy counseling” session. Many attorneys will see potential clients free of charge for such an evaluation, and only bill for that time if hired.

“This information is general and thus incomplete, and the reader should seek legal counsel for specific legal problems or questions.”

Credit Report Disputes

Heather Culp — Fri, 19 Feb 2010 12:16:59 +0000

People often call our offices for help cleaning up their credit reports. We suggest they use this letter, provided courtesy of the Consumer Credit Counseling Service of Orange County.

We advise sending the letter to all three bureaus (Equifax, TransUnion, and Experian), by certified mail, return receipt requested, and including their SSN and full legal name in the re: line.

Sample Credit Report Dispute Letter

Today’s Date

Name of Credit Bureau
Mailing Address of Credit Bureau
City, State, Zip

Attention: Consumer Relations

I recently obtained a copy of my credit report from your service and have found the
following items to be in error.

EXAMPLES

Item #1: I dispute ABC National Bank account #12345. I have never been late on
this account.

Item #2: I dispute ABC Financial Services account #4545. This account was not a
charge-off, please delete.

According to Section 611 of the Fair Credit Reporting Act, I am requesting that you
re-investigate those items indicated, and promptly delete any unverifiable, inaccurate,
or outdated information from my credit report.

In addition, I am requesting a description of how the investigation was conducted
along with the name, address, and telephone number of anyone contacted for
information. Furthermore, if there is a change in my credit history resulting
from your investigation, I am requesting that an updated report be sent to those
who received my report, within the last two years for employment purposes, or
within the last one year for any other purpose.

My full name is:_______________________________________________________

My Social Security # is:_________________________________________________

My date of birth is:_____________________________________________________

My home phone number is:______________________________________________

My address is:__________________________ (Ave., St., etc.) APT:____________

City: ______________________________ State:_______ Zip Code:_____________

Please send me an updated copy of my report, and notification that items have been
deleted. I will consider 30 days a reasonable time for your re-verification of
these items.

Thank you for your prompt attention in this matter.

Sincerely,
Signature: ______________________________

This information is general and thus incomplete, and the reader should seek legal counsel for specific legal problems or questions.

Epicentre Contractors Turn to Bankruptcy

Heather Culp — Wed, 17 Feb 2010 11:58:15 +0000

Contracting has always been a tough business. Subcontractors often make payroll and provide supplies and labor to a project months before they are paid by the general contractor or owner.

In the case of Charlotte’s Epicentre, a stop work order strangled cash flow for both the developer and the contractors. We’re still seeing clients whose financial difficulties began there and snowballed.

What’s a sub to do?

Before you let the lack of cash flow drive you to close your business, consult with an attorney about your options. If filing a mechanic’s lien makes sense in your situation, the lien will attach to the property and structures and prevent the property owner from obtaining a clear title.

What we see in 2010

I was recently asked what’s different about the things contractors are telling me this year versus last? I replied that the only difference this year is numbers; the builders developers, subcontractors and materialmen we’re seeing tend to be higher end, who have been able to hold out longer (due to cash reserves, some cash flow, remodeling work, etc.). The assets are bigger and the liabilities are too. Same basic problem, though: the housing industry has tanked, with no real hope for improvement anytime soon, and what wealth these clients had is tied up in real estate that is often not worth what they paid for it.

We have some clients with decent remodeling income and some who are finding work with national or large regional builders, but many are seeking bankruptcy counseling and filing for bankruptcy protection. They don’t want to do it, but they have no choice.

Because so many contractors co-mingle business and personal finances, untangling the business from its owners can be messy. Consulting with a firm that has both bankruptcy and construction expertise is an important first step toward resolution.

Foreclosure Prevention Resources

Heather Culp — Thu, 11 Feb 2010 13:24:30 +0000

Some offers for help are as worthless as a wooden nickle. BEWARE

To supplement our series for Distressed Homeowners, I found some resources to help preserve home ownership, avoid foreclosure, and protect against foreclosure and debt elimination scams.

Before you work with a firm that claims it can help you “rescue” you from foreclosure be sure to familiarize yourself with:

FYI, these resources are courtesy of The Office of the Comptroller of the Currency (OCC), which charters, regulates, and supervises all national banks. It also supervises the federal branches and agencies of foreign banks.

These resources are a good starting point, but cannot begin to cover all situations and circumstances. Call a qualified counselor to understand the options that are best suited to your case.

The Office of the Comptroller of the Currency (OCC) charters, regulates, and supervises all national banks. It also supervises the federal branches and agencies of foreign banks.

What’s it Cost to File for Bankruptcy?

Heather Culp — Fri, 05 Feb 2010 14:25:32 +0000

This requires a two-part answer. First, filing fees must be considered. Filing fees are charged by the bankruptcy court and are due upon filing; these fees help fund the bankruptcy court system. The filing fee for a Chapter 7 bankruptcy is $299.00; for Chapter 13, $274.00; and for Chapter 11, $1039.00. Second, if you wish to hire an attorney to file and handle your bankruptcy case, then you must consider attorney’s fees.

Chapter 7 attorney’s fees vary from office to office, are usually a flat fee, and are based on a variety of factors, including the complexity of the case, the experience level of the attorney, whether there is one debtor or co-debtors (typically, a husband and wife who both need to file), whether the debtor is self-employed, and whether the debtor owns significant property or is involved in multiple lawsuits. Our office generally charges an attorney fee of no less than $1500.00 for a simple Chapter 7 bankruptcy, and usually charges between $2000.00 and $3000.00 for more complex Chapter 7 bankruptcies. Our office requires that both the filing fee and the entire attorney’s fee be paid prior to the filing of the petition. Rarely, we will agree to handle a Chapter 7 bankruptcy filing only on an hourly basis. This usually winds up being more expensive to the client than a flat fee.

Chapter 13 attorney’s fees are set by the bankruptcy court, and are a flat fee of $3250.00 for base fee services – a defined set of usual work done in Chapter 13 cases. Unusual work, known as “non-base fee” work, is usually charged at a separate hourly rate agreed to by the client and the attorney prior to the bankruptcy filing. Most attorneys require that a portion of the $3250.00 base fee be paid prior to the bankruptcy filing, with the remaining fee included in the monthly plan payments made by the debtor to the trustee.

Chapter 11 attorney’s fees vary from attorney to attorney, and are generally provided at an hourly rate (not a flat fee rate).

As you see, many costs are set by the courts, so the question to ask when trying to find a practitioner or firm you is whether they have the expertise for your situation. After that, consider the “people skills” of the team — financial problems are stressful.