Mitchell & Culp

Discharge Income Taxes in Bankruptcy?

Heather Culp — Mon, 30 Aug 2010 13:55:27 +0000

In the American Bar Association Journal last week, I read about a California attorney who has been accused by the state attorney general of operating a “heartless scheme” that takes retainers from thousands of clients while doing little or nothing to help them.

Yes, even lawyers can act like debt settlement companies, many of which take fees and settle no debts

I have no opinion on this particular firm or the law suit, since it has just been filed. However, the state attorney general makes a charge that is familiar for operators of debt settlement companies: “She places clients in an endless loop of requests for duplicate documents,” it says, “that increases her fees and, due to further delays in payments to the IRS, increases clients’ IRS fines and penalties.”

Here’s one of the ads for the firm named in the suit.

Beware claims about tax debt

While we’re talking about debt settlement, beware the national and local companies who boast that they can reduce or even eliminate your tax debt. Often, these companies do more harm that good; under certain circumstances, income taxes are dischargeable in a bankruptcy. You probably won’t hear that from these outfits.

If you have unpaid income taxes as well as other debts you cannot pay, seek bankruptcy counseling from a qualified advisor.

Charlotte’s in Deep Recession, What’s Your Financial Risk?

Heather Culp — Mon, 30 Aug 2010 12:25:35 +0000

Earlier this summer Standard and Poors published an article that included data on Charlotte North Carolina home prices, reporting that home prices slipped 2.8% from last year (May 09 to May 10).

The big picture: foreclosures, home prices, personal finance

Foreclosures tend to drag down home prices, complicating the housing market’s struggle to recover. The housing rebound that economists once expected in the last half of this year will most likely not come so soon.

The nation’s stubbornly high unemployment rate and lenders’ increased willingness to sell more foreclosed properties to the public will most likely increase the number of foreclosures hitting the market.

If you’re waiting for the value of your home to improve so that you can the home equity to borrow your way out of a rocky financial situation, consider this:

You’ll be competing for buyers who expect to name their (low) price for your property
You most probably will not get the price you hoped for
You’ll most likely have to wait over 100 days to get a “ratified” contract

What to do if you feel this economic recession is a personal depression?

We’ve said for some time now that Charlotte was just about the last to feel the recession, and will probably be one of the last to get out of it. Current conditions suggest that the Charlotte real property market may not begin to recover until late 2013, if not later. We discussed this point in a July post quoting RealtyTrac and National Public Radio.

You might be considering a debt consolidation program, and if so here are some caveats.

If real property that you own causes you financial concerns, now is a good time to consult a knowledgeable and experienced bankruptcy attorney. Timing is everything in this aspect of the law; the more time you have to plan and react, the better.

Plenty of Reasons NOT to Modify Your Mortgage

Heather Culp — Thu, 26 Aug 2010 11:45:52 +0000

More news on mortgage modification trends.

The WSJ reports that borrowers who receive a permanent mortgage modification still have lots of other debt. The median ratio of total debt payments to pretax income stands at 63.5%. This means 20% of borrowers (or more) with permanent modifications are likely to re-default, primarily because of those high debt levels.

If you have significant debt in addition to an un-affordable mortgage, you need a strategic plan; mortgage modification is tactical.

When bankruptcy counseling makes sense

Before going through an exhaustive application process for a mortgage modification, we’d like to recommend a bankruptcy counseling session with a qualified attorney. Yes, even if you want to avoid bankruptcy at all costs.

A bankruptcy counseling session with a straight-talking attorney can result in:

Asset planning and protection strategies
An analysis of whether you are at risk of re-defaulting after a mortgage modification
A referral to agencies that may be able to help you with your financial difficulties

Many people we see in our offices want us to handle negotiations with credit card companies or provide them with credit card counseling. Most often these individuals need bankruptcy protection, not creditor negotiation or credit card counseling. You may be the exception, so contact our office for an initial consultation.

Bankruptcy checklist (not legal advice)

Here’s a checklist to consider before calling our office. If several of these apply in your situation, bankruptcy is a viable consideration:

Your wages have been garnished or your bank account has been attached
Most of your debts are unsecured debts like credit card bills, hospital or doctor’s bills, etc.
Your total debt, not including your car or house loan, is more than you could pay, even over five or more years
Collection agencies are calling you at home and/or at work
Your payments are more than 30 days behind on more than one bill
There are lawsuits pending against you
You have high medical bills not covered by insurance
You owe income taxes that you are currently unable to pay
You have few assets
You have little or no savings
You have had property repossessed (such as a vehicle)

Visit our Bankruptcy Resource Center before calling a qualified attorney (Mitchell & Culp or another firm) for a bankruptcy counseling session.

What to Look for in a Bankruptcy Attorney: Experience

Heather Culp — Wed, 25 Aug 2010 14:28:55 +0000

Unfortunately, in this recession, bankruptcy and debtor/creditor relations is a growth industry, and as such there are some Johnny Come Latelys. The fact is, experience counts, and the cheapest bankruptcy attorneys in town are not the most experienced. When it comes to handling your financial concerns, you want experience.

When we meet with new clients, we sometimes find out that they’ve received incorrect advice from other attorneys about how to deal with their debt or credit issues.

We even had one client recently tell us that he’d spoken a few times with an attorney who seemed to be looking up the answers to very basic bankruptcy questions while they talked on the telephone, and how glad he was to speak to someone who actually has some experience.

What experience does Mitchell & Culp, PLLC bring to the table?

Rick Mitchell was the first Chapter 7 bankruptcy trustee appointed to the Western District of North Carolina bankruptcy trustees’ panel in the 1970s, and has served continuously in that capacity since his appointment. His 30+ years as a bankruptcy trustee, and as an attorney representing creditors, trustees, and debtors in consumer and business bankruptcy cases, gives Mitchell & Culp, PLLC clients a wealth of practical and legal knowledge to draw upon. In addition, the North Carolina State Bar has certified Rick as a specialist in consumer and business bankruptcy.

Helping You Find a Way through Complex Legal Issues

I’ve handled a variety of complex business and commercial litigation in state court since I began practicing law in 1997, and since 2002 have worked with Rick in representing Chapter 7 and Chapter 11 bankruptcy trustees, as well as debtors and creditors in bankruptcy and credit matters large and small. Knowing first hand how expensive and unpredictable litigation can be benefits Mitchell & Culp clients; the firm consistently strives to find the fastest, least painful way out of difficult financial and business problems. I’m very active in the local and state bar associations, having planned the Mecklenburg County Bar’s annual bankruptcy seminar for the legal community since 2007, and having recently started a three-year appointment to the North Carolina Bar Association’s Bankruptcy Section Council, which advises the Bar on legislative, judicial, ethical and professional matters relating to bankruptcy practice. Rick and I are members of several local, state and national professional organizations related to bankruptcy practice, and attend national seminars for bankruptcy trustees and their professionals.

Welcome new counsel to our Charlotte office

Rick and I are pleased to welcome attorney Chris Culp, now of counsel to the firm. Chris’s vast appellate and jury trial experience complement the firm’s services and add a new dimension to the practice. Mitchell & Culp, PLLC is proud to employ and rely upon only North Carolina state bar certified paralegals, one of whom has worked with Rick Mitchell for over thirty years.

For more information about the firm’s attorneys, read our biographies.

Experience counts; please contact us if you have legal concerns about debts or credit.

“I Want Out of My Mortgage. What Can I Do?”

Heather Culp — Thu, 19 Aug 2010 11:46:14 +0000

We hear this question more and more these days, which is a bit like asking your doctor, “My back hurts. What can I do?” Much, much more information is needed in order to put the problem into context.

A problem spanning all income brackets

We have seen people in all walks of life in our offices asking for advice, including:

Well-heeled married couples with household incomes in excess of $250,000 who can no longer afford to service the debt on $500,000.00+ mortgages on their primary residences plus a few hundred thousand dollars in mortgages on rental or other investment property
Single homeowners who have lost their jobs and cannot afford their $1200 monthly mortgage payments on unemployment income

Little help from the feds

A New York Times article noted that while 3-4 million borrowers were supposed to receive assistance with their unaffordable mortages through the federal program designed to keep homeowners in their homes, only 390,000 homeowners have seen their mortgage terms permanently modified.

A Harvard law school professor and a consumer bankruptcy expert, Elizabeth Warren, quoted in the same article, said, “Fifteen months into this program, for every one family that appears to have made it to a permanent modification that’s likely to stabilize that family in that home, 10 more have been moved out through foreclosure,” she said. “This is a program that’s just — it’s behind the curve.”

Indeed, very few of our clients received mortgage modifications. Some have gone on to file for bankruptcy, which bought them time to save money to relaunch their lives, while others have fought foreclosure proceedings and still others have moved in with relatives to move on with their lives.

There is no “one size fits all” approach to these situations. A telephone conference with a knowledgeable, experienced bankruptcy attorney is the first step in getting some peace of mind about this kind of problem.

Let’s Not Over-use “Strategic Default”

Heather Culp — Wed, 18 Aug 2010 12:14:34 +0000

We’ve had a few new potential clients who’ve contacted us recently, wanting to talk about “strategic default.”

Strategic default is the term used to describe a property owner’s decision to stop making mortgage payments and otherwise default on his or her obligations to the lender, despite having the ability to afford it.

In our law practice, it is rare to meet and work with clients who have strategically defaulted, or intend to strategically default. Instead, the vast majority of people we see have no means to pay their mortgage. They are in default, despite all of their best efforts to continue to meet their obligations; they simply cannot pay.

For the rare person who intends to strategically default, it must be clear that there are consequences to this decision. Simply put, a borrower can choose to walk away from a mortgage obligation, but for most North Carolina residents, the mortgage company can and will follow the borrower to recoup any deficiency. (North Carolina is a non-recourse state, but the exceptions swallow up the rule such that we rarely see a true non-recourse loan.) Borrowers considering defaulting on a mortgage should understand that the mortgage company will almost always foreclose on a property, leaving a deficiency that they can legally ask the borrower to pay.

Contact a qualified, experienced bankruptcy attorney to discuss how these laws apply may to you, and then weigh your options carefully.

Student Loan Payments Follow Past the Grave

Heather Culp — Mon, 16 Aug 2010 12:22:30 +0000

With the college season upon families, some students still are applying for private student loans.

If you find yourself considering private student loans, beware that in cases where the student dies, the co-signers often are obliged to pay off the balance of the loan themselves—a requirement typically not found in federal loans, according to a recent Wall Street Journal article.

Sallie Mae, Citibank and Wells Fargo may require co-signers to continue paying private student loans after the primary borrower has died, though the lenders say they will look at cases individually.

I’ve written about student loans and bankruptcy before. Basically, they are not dischargeable in bankruptcy.

Chapter 11 Bankruptcy for a Healthy Turnaround

Richard Mitchell — Fri, 13 Aug 2010 11:44:33 +0000

Yesterday General Motors announced second-quarter profits that exceeded expectations and came as G.M. was putting the finishing touches on an initial public stock offering. This is good news from a company forced into Chapter 11 bankruptcy a little more than a year ago.

According to Dow Jones Daily Bankruptcy Review, “After recent years of financial distress and bankruptcy filings, U.S.-based automotive suppliers are not only doing better, but they are profitable, their stocks are surging, they are hiring and they are putting the finishing touches on restructurings.”

As my law partner, Heather Culp, wrote in her blog last month, Chapter 11 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. You need not be a giant international corporation to file a Chapter 11 bankruptcy petition.

As someone with over 30 years of dealing with financially troubled businesses , I believe G.M.’s experience brings lessons to other businesses struggling to make a profit.

Chapter 11 lessons learned

First, to stay out or get out of financial trouble, you must have a PLAN. If you’re running your business by taking every day as it comes instead of following a strategic path that includes financial goals, you’re headed for hard times. General Motors was forced into its plan, but executed it well.

Second, for whatever the reason a business stumbles, the first step to a turnaround is working with professionals who can help you determine whether a reorganization would enable the business it to thrive, and whether the business can afford a Chapter 11 case. This is a time for candor and clear thinking, not wishful thinking.

Third, sometimes, as with G.M., the management team that brought the company to the brink of failure must be replaced or the reorganization plan will fail. If a company is owned and managed by people who are kicking and screaming to keep doing business as usual, it’s a doomed enterprise. Chapter 11 is designed to buy time to do things differently.

We have significant experience in representing debtors and creditors in Chapter 11 cases and I have been appointed a Chapter 11 trustee in numerous bankruptcy cases, both large and small.

Fast-Track Arbitration Helps Debtors & Creditors

Richard Mitchell — Fri, 13 Aug 2010 01:14:11 +0000

My long experience in determining claims of creditors for distribution in liquidation cases has led to a new experience. I’ve been appointed by the Superior Court of Cabarrus County as the arbitrator to determine the distribution of approximately $500,000 to between more than 150 potential claimants.

The process has been carefully crafted to avoid long, drawn-out, and expensive litigation. It will resolve entitlement to the funds in slightly over three months.

To the best of my knowledge, this is the first time that an arbitration of this nature has occurred in the region. This “fast-track” arbitration offers both debtors and their creditors a quicker and more cost-effective resolution to the claims process than may otherwise be available through a receivership or bankruptcy.

No related posts.

Reference Materials for Home Affordable Modification Program (HAMP)

Heather Culp — Thu, 29 Jul 2010 11:52:24 +0000

Although the Home Affordable Modification Program (HAMP) has been widely reported as under-serving those in need, and hat has been our clients’ experience here, if you are considering filing for bankruptcy protection or have already done so, and you have also applied for HAMP, this guide explains policies and procedures related to borrower outreach and communication.

Chapter 13 bankruptcy must be considered for HAMP upon request

According to the American Bankruptcy Institute, “These guidelines, originally proposed in March, greatly increase the attractiveness of chapter 13 as a platform to obtain a mortgage modification under HAMP. Under the new provisions, homeowners in chapter 13 are required to be considered for HAMP upon request. The chapter 13 plan may provide for modified payments at 31 percent of gross income, thus allowing chapter 13 debtors a means to reduce their mortgage to an affordable level.”

We’ve written at great length about mortgage modifications. Mortgage companies and other creditors have legal counsel and you should also.

If you are experiencing financial difficulty, consult a qualified legal professional before taking any action.