Were you aware that FICO offers lenders a proprietary score called the FICO Bankruptcy Score? According to FICO, the Bankruptcy Score will help lenders: “Identify more future bankruptcy, including likely surprise quiebras; Take action based on advanced warning of bankruptcy likelihood; and protect profits by reducing loss exposure while maintaining revenue streams.” In essence, the score is designed to identify high risk borrowers based on changes that occur in the consumer’s behavior. En 2006, Brigitte Yuille at Bankrate.com discussed these secret scores in this article.
Most consumers are familiar with the standard FICO credit score, but many are not aware that FICO (and other agencies) offer numerous types of scores for various circumstances such as mortgage lending, car buying, etc. According to Ms. Yuille’s article, a bankruptcy predictor has been around since the early 1990’s; and the scoring models have become quite sophisticated with the ability to send alerts to subscribers if the consumer’s behavior changes suddenly indicating an increased loss risk.
Regardless of how long you have been a customer, from the banks perspective, you are a number or SCORE. Why do you think it is so difficult to negotiate with the banks; they have billions (probably trillions) of data points gathered over 30+ years that predict how consumers will react in a given situation. The bank then creates systems and scripts for front-line customer service to use. Those scripts mostly contain the word “no” for anything you ask. También, this data is why the threat of bankruptcy has little leverage.
The irony is that often your credit card companies know you will file bankruptcy before you do. When you see your available balance on a credit card reduced to the current balance owed, a significant increase in your interest rate, or a significant increase in your minimum payment; that is the bank telling you that you have become a risky borrower. That is the bank “taking action to protect profits and reduce loss exposure.” Unfortunately, the banks accept that you will file bankruptcy; banks are not generally interested in helping you avoid it because the accumulated data seem to show, on average, that any steps the bank could take to help will not help you avoid bankruptcy. That is some weird irony; although you may feel like the bank is “pushing you” to bankruptcy (I hear that comment a lot at consultations), the reality is the bank is telling you that you are already bankrupt, the bank has accepted it, so why don’t you?
Por: Matt Berkus
I am often asked to explain attorney’s fees and the costs associated with bankruptcy; one way to view bankruptcy is as an investment and look at the Return on Investment (ROI). Por ejemplo, for an investment of $2,700 in attorney fees in bankruptcy to discharge $50,000 in debt, the ROI is 1,852% in as little as four months time. No kidding, even I was amazed by the numbers when you really think about bankruptcy in an ROI context (note, for this blog piece, I am only looking at ROI, the model can get fairly sophisticated, and hence more difficult to explain when factoring extrinsic risk that some debts simply won’t settle).
Bankruptcy sets you up for success. It is the first step on the path to financial recovery; thus, bankruptcy is the critical step and must succeed. As the first step, it also has the largest Return on Investment. Assuming $2,700 in attorney fees, your return on investment in different scenarios is this:
Discharging $30,000 of debt: ROI = 1,011%
Discharging $70,000 of debt: ROI = 2,493%
Discharging $120,000 of debt: ROI = 4,344%
Short of being an Angel Investor or Venture Capitalist, there exist no investments you can make and expect such a return on investment. Assuming bankruptcy is an option for you in the first place, it is always the best option.
By contrast, let’s look at a comparable debt settlement program. To settle all debts and prevent hold outs (creditors who won’t settle for a really low amount), you should budget about 40% of the balance owed (most T.V. ads promise only 50%). También, let’s assume an upfront fee of $1,200 y un 15% contingency on the amount saved (the industry average for private debt settlement companies). We won’t even factor in the potential income tax consequences of settling.
Settling $30,000 of debt: ROI = 89%
Settling $70,000 of debt: ROI = 97%
Settling $120,000 of debt: ROI = 100%
Thus, when viewed objectively, in a business-like manner using the same tools as corporations, bankruptcy makes the most financial sense and paying an attorney to do so (assuming you hire the right attorney) yields a huge Return on Investment. Don’t lose sleep over the decision to file bankruptcy, it is nearly always the must prudent option to solve debt.
Por: Matt Berkus
Capítulo 13 bankruptcy is a payment plan that allows client’s to force their creditors to accept payments that the client can actually afford to make, not what the creditors want. Thus, a chapter 13 bankruptcy client can pay all living expenses and only pay creditors the amount actually left over at the end of the month (as opposed to robbing Peter to pay Paul). Normalmente, a chapter 13 monthly payment is based on a family’s income, minus deductions, minus all living expenses; the amount left over, disposable monthly income, is paid to the chapter 13 trustee each month for 36 a 60 mes.
Sin embargo, there is another rule that must be satisfied for the court to approve a chapter 13 plan, liquidation value. Liquidation value is the amount of money a client’s creditors would receive if the client filed chapter 7 quiebra. Thus, if a client’s liquidation value is $30,000, then the total of chapter 13 plan payments must be at least $30,000 over the life of the plan. When does liquidation value come into play?
The asset rich, cash-flow poor, families are the ones that run into liquidation value problems. Some families have assets with too much equity; we call this scenario having non-exempt assets. Por ejemplo, a Colorado family with 200,000 equity in its home but owes $300,000 in credit card debt would have a liquidation value of $140,000 (the homestead exemption in Colorado is $60,000). Meaning, that over the chapter 13 plans’s 60 mes, the couple would need to pay $140,000; ouch!. La mayor parte del tiempo, if the family is contemplating bankruptcy, that payment is not be feasible.
If the family cannot afford to pay the liquidation value with monthly income, the available debt solutions are limited. The couple may either file chapter 7 bankruptcy and lose the home (actually liquidate it), or try to settle with creditors. Sin embargo, settling requires immediate cash on hand to the tune of 30-50% of the balance owed. Tan, in this scenario, the couple would probably need to sell the house to raise money to settle. I typically recommend an attorney managed debt settlement program in these circumstances since we can usually maximize the amount of money the client can retain as the result of selling assets and manage collection activity.
Bankruptcy attorneys often advise small businesses not to file chapter 7 quiebra; and for the most part, that advice is sound. Sin embargo, so far, year to date, Colorado has seen 675 business bankruptcies only 93 were chapter 11 quiebras. Tan, reasons exist to file a business chapter 7 quiebra.
If a business files chapter 7 quiebra, it is liquidated and closed. For very small businesses that process can be handled by the business owner with the advice of an attorney. Sin embargo, often times it is preferable and advisable to put the business into chapter 7 bankruptcy and make closing the business the headache of the chapter 7 síndico de quiebra.
- Oft times, the business owner doesn’t want the hassle and headache of closing the business; doesn’t want to deal with the incessant phone calls from creditors, vendors, and taxing authorities; the debtor simply wants peace and someone else to deal with it. A bankruptcy makes closing the business the problem of the chapter 7 fideicomisario.
- The business has some assets; so the bankruptcy liquidation will pay certain important debts e.g. payroll tax for which the owner would be personally liable; and therefore, bankruptcy creates a streamlined forum to resolve certain debts.
- The business operation may have created high litigation risk; as such, a bankruptcy forces claimants out of the woodwork to deal with their claims or lose their rights. En esencia, the bankruptcy packages all the claims and deals with it.
- Frequently a business will try chapter 11, but for various reasons the chapter 11 fails, so case is converted to chapter 7 quiebra.
I must note that a business bankruptcy is almost always followed by the owner’s personal bankruptcy. Lenders and vendors nearly always require small business owners to personally guarantee debt. The benefit of the business bankruptcy plus personal bankruptcy is the certainty it brings to the status of the debts and claims. The business is closed properly and the business owner receives a bankruptcy discharge leaving creditors now where to go. The owner wont need to put up with phone calls from various junk debt buyers that can occur many years after the business closes.
Por: Matt Berkus
A business can file bankruptcy, but the result of a business bankruptcy is not the same as an individual bankruptcy. Businesses either file chapter 11 o el capítulo 7 quiebra. En Colorado, as of the end of September, 2012, 675 businesses filed bankruptcy, of those cases, only 93 were chapter 11.
Un capítulo 11 bankruptcy is a debt reorganization. A business in chapter 11 bankruptcy continues to operate and the chapter 11 allows the business to make more affordable payments to creditors. Although small businesses and individuals can file chapter 11 that type of bankruptcy is more suited to established, larger corporations (e.g. airlines). Sin embargo, a business chapter 7 bankruptcy simply shuts down and liquidates the business. If a business files chapter 7 quiebra, the business is done. Unlike individuals who receive a bankruptcy discharge and fresh start, business do not. A business that files chapter 7 bankruptcy is closed.
Tan, a business can file a business bankruptcy, but there are other strategies for dealing with business debt. At this point, it is helpful to distinguish the business entity from the business operation. The business entity is the legal form of the business, e.g. Corporation. Limited Liability Company, Limited Partnership, etc.. The business operation is what the business does; e.g. manufacture and sell machine parts to diesel engine builders, sell real estate, manage properties, etc. The business entity incurred the debt (and often the owner(s) will have guaranteed the debt).
The business owner is usually interested in keeping the business operation. En la quiebra, the only option for that goal is chapter 11. Sin embargo, we can often perform a private reorganization of the business entity which keeps the business out of chapter 7 quiebra, may eliminate most business debt, and allows the business operation to continue. Tener en mente, a private reorganization cannot save a business that cannot pay its basic bills; the business operation must be viable. A business with good cash flow but too much debt can usually benefit from a private reorganization of chapter 11 bankruptcy if the goal is to keep the business operation intact.
Por Matt Berkus
Whether a bankruptcy debtor can keep rental property will depend on the specifics of the case, but in general, there are two issues created by rental properties in bankruptcy: (1) the value of the property as an asset, y (2) the income and expense related to the property.
If the rental property has equity; que es, the property’s value is more than what is owed against the property, then the rental property would likely be seized and sold in chapter 7 quiebra. En el capítulo 13 bankruptcy it is possible to keep rental property in bankruptcy so long as the monthly payment in the chapter 13 payment plan can reconcile the value of that equity. Por ejemplo, if the rental property has $20,000 equity, el capítulo 13 plan must minimally pay $20,000 to the debtor’s unsecured creditors over the life of the plan (that is what we call reconciling the value of non-exempt equity). If there is no equity in the rental property, then this issue is moot.
The main challenge with rental properties in bankruptcy is related to the income and expense the property creates. The court looks at the cash flow position of the rental property; is it positive cash flow (profitable), break-even, or negative cash flow. En el capítulo 7 bankruptcy the rental income is income for the Means Test, so that income counts toward qualifying (and disqualifying) the debtor for chapter 7 quiebra. En la mayoría de los casos, the rental property has a corresponding mortgage expense so the income is offset and usually moot. Sin embargo, if the property is significantly cash flow positive, in theory, a chapter 7 trustee may still seize the property and attempt to sell it as a going concern. Por ejemplo, if the property is consistently $1,000 per month cash flow positive, someone may be willing to buy that income stream at a future dollar discounted value. Sin embargo, if there were any risk of that last eventuality, the debtor would be filing chapter 13 o el capítulo 11 quiebra.
The cash flow position is particularly important in chapter 13 quiebra. If the rental property is significantly cash flow negative, el capítulo 13 trustee will always object to the debtor supporting that property. Por ejemplo, if the property rents for $1,200, but the combined mortgage, HOA, and other expenses are $1,600, the trustee will argue that the debtor should pay that $400 to unsecured creditors. The reason being that the debtor’s unsecured creditors are being unfairly prejudiced if the debtor is allowed to maintain the rental property which is not necessary for the debt reorganization. That doesn’t mean the court forces the sale, but the court may not allow you the budget to make-up the monthly short fall.
En breve, sí, it is possible to keep rental properties in bankruptcy, but whether it is practical to do so is a discussion for you and your attorney.
Por: Matt Berkus
Many debtors and even many bankruptcy attorneys are surprised to find out that the IRS kept a tax refund to pay the debtor’s tax debt after the debtor filed chapter 13 quiebra. This situation typically arises for chapter 13 bankruptcies filed between February and May; razón de ser, most debtors have just filed, or are about to file, their prior year tax return; but if the debtor is going to receive a refund for that year and owes back-taxes, the filing of bankruptcy does not stop the IRS from keeping that particular refund.
Hay 2 reasons why the IRS gets to keep the tax refund?
(un) Internal Revenue Code 6321 provides the IRS with an automatic, statutory lien when a taxpayer owes a tax debt, the IRS has demanded payment, and the taxpayer has not paid. This tax lien is known as the silent or shadow tax lien. The IRS, in essence, has a security interest in the tax refund by virtue of its shadow lien.
(b) Bankruptcy Code section 362(b)(26) expressly allows the IRS to keep the tax refund if the debtor’s bankruptcy case was filed after the end of the applicable tax period for which the refund (for individual income tax, the tax period ends December 31) and the refund is being used to pay prior year(s) los impuestos. This concept is known as the right of set off. The IRS’s claim to the refund matures on December 31, but the claim doesn’t get paid until the debtor files her tax return. This bankruptcy code section is saying that the Automatic Stay (which prevents most collection activities against the debtor) does not apply to the IRS’s ability to take a refund to pay taxes owed for prior years. The bankruptcy Automatic Stay does not quash the IRS’s right of set off.
Por ejemplo, Don Debtor owes $35,000 in back income tax for 2006, 2007, y 2008. Don files chapter 13 bankruptcy in February, 2011. Because of changes in his circumstances, Don will receive a $5,000 tax refund for 2010. En el capítulo 13 bankruptcy was filed after the end of the 2010 tax year. The combination of IRC 6321 and Bankruptcy Code 362(b)(26) allows the IRS to keep that $5.000 refund and apply it toward Don’s back-taxes. That is the case even though the tax debt for 2006 y 2007 would be dischargeable in Don’s bankruptcy.
Tan, IRC 6321 creates the IRS’s right to set off, and Bankruptcy Code section 362(b)(26) allows the IRS to maintain that right notwithstanding that the taxpayer filed bankruptcy. Sino, usted, as the taxpayer, are no worse off; if Don had not filed bankruptcy, the IRS would have kept the refund anyway.
Por: Matt Berkus
Para todas las cosas bancarrota, el valor dado a los bienes de los deudores es el valor de mercado actual del elemento. El verdadero arte de la quiebra está en cómo se determina que "el valor actual de mercado", y lo presentará al síndico de la quiebra y el tribunal. No se puede aprender este arte de un libro o un seminario; sólo se aprende por ensayo y error y pulsando el problema de obtener el mejor resultado para el cliente.
Para los bienes inmuebles, el punto de partida es un análisis de mercado actual / Comparable ("CMA"). Estos análisis se puede hacer por los agentes de bienes raíces y en la mayoría de los casos es todo lo que necesita; un CMA le da una buena estimación de lo que el precio probablemente vendería su casa. Pero incluso un CMA se puede dar masajes a satisfacer las necesidades de un deudor. Si la CMA no recibe un número necesario o está cerca, a continuación, una evaluación puede ser necesaria.
En cuanto a cómo esto funciona, asumiendo que estamos hablando de una residencia principal por la que se aplica la exención, concede la exención a la casa (o propiedad). Actualmente en Colorado la exención es $60,000 (y para personas mayores o con discapacidad, $90,000). Propiedad conjunta suele ser un tema no, el "hogar" recibe la exención de vivienda; el hogar podría tener 5 propietarios, pero la exención de vivienda sigue siendo $60,000. Así que si la casa vale $250,000, y las hipotecas totales $200,000, la equidad estarían exentos, ya que está a menos de $60,000. Sin embargo, si la casa vale $300,000 y las hipotecas son sólo $210,000, la casa tendría $30,000 no exenta de equidad.
Inicio valoración es especialmente importante para el capítulo 13 tiras de quiebra de gravamen. Otra vez, se comienza con un CMA; si la casa es horriblemente al revés, un CMA suele ser suficiente, ya que nadie va a cuestionar el valor. Si el valor de la propiedad está al borde de, mayoría de los jueces va a querer ver una evaluación en toda regla. Sino, Los agentes de bienes raíces han declarado los expertos contra tasador del banco y ganado, por lo que el valor que usted necesita realmente depende de las particularidades del caso.
Autor: Matt Berkus
A menudo me piden que describa la quiebra peor de los casos. Debo admitir, Estoy muy reacios a escribir este post aún, ya que puede proporcionar una razón para que alguien prolongar innecesariamente el sufrimiento financiera no declaración de quiebra. Tan, Debo subrayar, la quiebra peor de los casos es poco frecuente, raro, raro, y completamente en control del deudor. El peor de los casos sólo se produce cuando el cliente no llega o intencionalmente oculta información. Si toda la información está en la mesa, siempre hay una manera de planificar, dirección, y hacer frente a cualquier desafío que las circunstancias de un cliente crear y ponerlos en una mejor situación.
Aparte de la acción penal por quiebra fraudulenta (otra vez, super rara), la peor de los casos de quiebra es la negación de la descarga.
La negación de descarga es diferente a tener su caso despedido. El resultado de la negación de la descarga es que todo lo que estaba tratando de ocultar va a ser tomadas y vendidas, y ninguna de las deudas que hayan figurado en su bancarrota será dado de alta. Se le pegó con toda aquella deuda, para siempre. Un despido por lo menos te da la opción de volver a evaluar sus opciones y volver a presentar su caso si es necesario.
Por ejemplo, si dejar de mencionar que usted es dueño de libre y claro una casa de vacaciones en Canadá, el síndico de la quiebra embargar y vender la casa, y usted tendrá su alta negado. En la quiebra, debe revelar todos los activos, no importa donde encuentra.
Véase el caso de la pobre Sidney Peters en el pie. Valor, Texas.
Personalmente, Creo que la denegación del alta fue un poco duro por la transgresión de ese deudor, pero ilustra el punto de que no se debe tratar de "esconder" las cosas en bancarrota. En lugar, contratar a un abogado de bancarrota calificado que esté dispuesto a ayudar con la planificación de activos previo a la quiebra y está dispuesta a establecer las expectativas correctas (es decir, decirle lo que usted necesita saber, no lo que quiere oír).
Autor: Matt Berkus
(1) La bancarrota no es una 10 años la pena de muerte a su crédito. MÁS PUNTOS DE CREDITO SERAN LOS PUEBLOS EN LA BAJA DE 700 EN 18-36 MESES DESPUÉS DE LA BANCARROTA.
(2) La mayoría de la gente pierde nada en un capítulo 7 quiebra (excepto la deuda, por supuesto).
Reconstruir su crédito después de la quiebra se produce con bastante rapidez y tendrás acceso al crédito (si usted lo desea) inmediatamente después de la declaración de quiebra. Usted se sorprenderá por la rapidez con que recibir ofertas de tarjetas de crédito y se ofrece a financiar un coche inmediatamente después de su capítulo 7 descargas. Durante esa fase de reconstrucción, si se utiliza crédito, usted tendrá que pagar una tasa de interés más alta, pero una vez que llegue a la 18-24 mes marca, debe ser capaz de recibir mercado, principales tasas de interés de créditos para la mayoría de préstamo / crédito tipos.
Todos los estados, en una forma u otra, le permite proteger sus activos que se tengan en bancarrota. La bancarrota no se trata de dejar que la miseria en beneficio de sus acreedores. Si se quedan sin recursos, que se convertiría en una carga para la sociedad y los contribuyentes. En lugar, quiebra se trata de reconstruir su vida financiera para que prospere y pueda tener éxito. En más 90% del capítulo 7 quiebras, el deudor pierde nada (fuente).
Detener agonizando sobre su decisión de declararse en quiebra; si su deuda no garantizada total es 40% o más de su ingreso bruto anual, es el momento de considerar la quiebra. Su deuda es un obstáculo para que el pago de sus gastos de subsistencia necesarios, vivir una vida más feliz, y la planificación de su futuro financiero.
Autor: Matt Berkus