My Brother is Bankrupt: Can his Creditors Seize our Family Trust?

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Unfortunately, many families go to battle over inheritance money every day, which only underlines the importance of having a solid Estate Plan in place. Your Estate Plan can help your surviving family members remain united instead of divided and can eliminate a lot of stress for all who are involved in dividing up your assets.

What happens, though, when one sibling (or beneficiary) declares personal bankruptcy (Chapter 7) if there is a family trust involved? Can this sibling’s creditors seize part (or all) of the funds and property that is named in the family trust?

One of the main reasons trusts are set up are specifically to avoid the creditors or a bankruptcy of a child or beneficiary. However, the trust in question must have been set up correctly, utilizing the correct language in order for it to be completely safe if a bankruptcy occurs.

A spendthrift trust, under New Jersey law, is often set up specifically so that bankruptcy trustees cannot access any of the trust’s funds or assets. A spendthrift trust is a type of trust that is established to help keep the trust’s money safe from a beneficiary with either a lot of creditors or a spending problem. This type of trust is typically initiated by someone who wishes to include someone in their will, but also wants to ensure that the beneficiary in question won’t spend it all at once or have it all taken by creditors due to a bankruptcy.

Rather than giving this beneficiary direct access to the trust funds, a spendthrift trust prevents him from spending all of the money or promising it to someone else (in this case his creditors). In order for the sibling in question to receive any monies from the trust, he will typically be paid in installment payments or in the form of goods and services that are property of the trust.

Reasons for setting up a spendthrift trust are usually one (or more) of the following:

  • A beneficiary who has a history of making poor financial choices;
  • A beneficiary who suffers from an addiction of any kind, as addictions require high amounts of money to maintain.
  • A beneficiary who is easily tricked or may have mental problems that prohibit him from making sound money decisions;
  • A fear that the beneficiary in question may file for bankruptcy (if  he hasn’t already) at some point in the near future

Naturally, you’ll want to confer with an experienced bankruptcy attorney who also does estate planning work in order to decide if a spendthrift trust is the right decision for your family.

The only way creditors would have access to any portion of a family’s trust funds would be if the grantor (likely one of the parents in the scenario set out here) passes away less than 180 days after one of the siblings (beneficiaries) files for bankruptcy. In this case, only that sibling’s funds would be touched, and he would lose half of his interest in the trust in order to help repay his priority and unsecured debts. The rest of the trust funds would not be affected.

 

Image credit: Renee

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Missed One Mortgage Payment: Is Foreclosure a Possibility?

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You probably already know that making your mortgage payments on time every month is of the utmost importance. Failure to do so can ultimately end up costing you your home and ruining your credit score. Your mortgage agreement is binding, and if you aren’t able to hold up your end of the deal, your bank or lender is lawfully able to take your house from you and sell it to get the money that they loaned to you.

What about late payments? If you’ve never been late before, making one mortgage payment a few days late won’t send you into foreclosure, but make sure you communicate with your lender to let them know the payment will be late, and why. They may ask you a few questions to determine if you are at risk for missing payments in the future, but for the most part, being late by a few days, one time, is not likely to cause you a problem.

Let’s look at another potential situation. There may be a time during which you miss an entire month’s payment. This may be due to many factors, but for now let’s assume that you only miss one month’s mortgage payment, and you are able to make the subsequent months’ payments on time.

This, essentially, causes you to be chronically one month behind on your mortgage. Until you are able to make two payments in one month, your mortgage will technically be in arrears. Yes, you “only” missed one payment, but to your lender, every payment is important.

Can your lender begin foreclosure proceedings if you miss one payment but then continue to make all subsequent payments on time? Yes. While we cannot officially speak to the probability of this becoming an actuality, it’s not likely, at least in our experience. However, it is important that you are in regular contact with your lender to ensure that foreclosure is not in your future.

If your money trouble really was a one-time-only event that is extremely unlikely to recur in the future, you may be able to negotiate a way for you to pay back the missed payment in increments. Your lender may also allow you to tack that missed payment onto the end of your loan.

Whether your financial difficulty was short-lived or if it looks like you may have some continual struggle in the future, it is important to consult with a foreclosure experienced attorney. S/he will be able to negotiate with your mortgage lender so that you don’t have to.

Additionally, if your financial distress is ongoing, your attorney can help you apply for a permanent loan modification that will ensure that you can afford your payment every month. If your lender has already started foreclosure proceedings, a Chapter 13 reorganization of your debts can stop the foreclosure and allow you to save your home.

 

Image credit: Keirsten Marie

Planning to File for Bankruptcy: Can I Still Take a (Pre-Paid) Vacation?

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There are several behaviors you should not engage in if you are in the midst of, or are imminently planning to file for a bankruptcy discharge. For example, in the 90 days prior to the date that your bankruptcy petition is filed, you should avoid paying back any personal monies that have been loaned to you.

To do so will cause those payments to be scrutinized by your bankruptcy trustee, and likely s/he will dub them “preference payments,’ which means you favored paying back some of your creditors over others. That is considered foul play in bankruptcy court, and any money that you paid back in the 90 days preceding your filing can be recovered so that it can be split evenly between everyone you owe money to.

You also should not go crazy using your credit cards with the thought that “the debt will be erased anyway, so why not?” This kind of action is called bankruptcy fraud and when it is discovered, your case will be dismissed without discharge of your debts.

Also, when possible, try to avoid getting married in the weeks and months leading up to your bankruptcy filing date. Plan your wedding around your bankruptcy discharge, especially if your future husband or wife makes a decent wage. To marry him or her before filing for bankruptcy means the court will then consider your joint income when deciding whether or not you can pay back your debts.

Probably the most important thing to avoid when getting ready to file for bankruptcy is lying to your bankruptcy lawyer. For that matter, if the case is underway, don’t lie to the trustee either. Making false claims regarding a bankruptcy filing will immediately result in your case being dropped, and may mean that you can never again file bankruptcy on the debts that you currently hold.

An interesting question that has been raised recently is whether or not a potential bankruptcy debtor can (or should) still take a vacation in the 90 days before filing, and/or during the actual case timeline. While it may seem that the easy answer here is “Don’t do it;” it’s actually ok as long as you can easily prove that you already paid for the vacation, and at the time of payment, you had no financial difficulties.

A pre-paid vacation is often non-refundable, and is usually booked far in advance, which for many people means that it was paid for when their financial outlook was much brighter. Anyone’s money situation can change on a dime! Previously, you may have been current on your bills, regularly slipping some money into savings, and you were still able to purchase a luxury vacation. With the quick snap of two fingers, you have now found yourself in a much different set of circumstances.

You can take a vacation that was pre-paid (as long as it was NOT paid for in the 90 days preceding your case filing and you can assuredly prove that your finances were stable when you paid for it). Take the trip, but don’t use your credit card to pay for a bunch of extras while you’re there, because those expenses will definitely be called into question during your bankruptcy court case.

 

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I’m too Embarrassed to File for Bankruptcy!

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The over-use of credit cards has become very commonplace in today’s society. Don’t have enough money? Just swipe this card through, or type in a simple series of numbers online. No problem; worry about it later.

The problem results when ‘later’ finally rolls around. Even charging small amounts can add up FAST. Virtually anyone can suddenly find themselves up to their eyeballs in credit card debt, being unable to make even the minimum payments. On top of that, missing only a few months of payments will tack hefty late fees onto an already mind-blowing amount of debt.

Most people who find themselves with mounds of credit card debt did not intend to end up in dire financial straits. In fact, the majority of credit card users start out determined to pay off their credit card balance on time, every single month. “As soon as the bill arrives, I’ll mail out a check. I’m just waiting for my __________(paycheck, tax return, raise, new job to start, etc).” For some people, the timing is right and as soon as they get paid, they knock out any credit card payments that were due. For others, however, the self talk turns to something like:

“I can’t believe I racked up so much credit card debt! I’m so embarrassed!”

The fact of the matter is that everyone makes mistakes sometimes. Good people occasionally make bad judgement calls that can at times snowball out of control.

Even if you had the most honorable plan when you began charging things to your credit card, if even one of your life circumstances takes a wrong turn, you can find yourself falling short.

Many factors can alter your course, and unfortunately sometimes your course can start going steadily downhill. Perhaps you’ve encountered one or more of the following unexpected hurdles:

  • A growing family
  • Work demotion
  • Job loss
  • Injury or chronic illness
  • Divorce
  • Lay-offs
  • Special needs children
  • Death of a spouse
  • Elderly parents in need of care
  • Moved to a location with higher cost of living
  • Gambling addiction
  • Medical bills
  • Drug addiction
  • Poor communication about money

Any of these factors can lead you to make bad choices regarding your finances, either willingly or because you were left with what felt like no other choice. When dealing with difficult life events, charging groceries to your credit card may feel like no big deal. After all, your family has to eat, right? And, even if you’re out of work, you still need to put gas in your car to go to job interviews. With no disposable income, you might find yourself using your credit card for almost everything very quickly.

It’s natural to feel embarrassed when you can’t pay your bills. Human nature tells us that as responsible adults, we should be able to keep our finances in order. However, don’t let your embarrassment stop you from taking steps to get back on track.

Even deep in debt – you have choices! You can continue to let your debt roll over until you lose all of your possessions, OR, you can be proactive and file for bankruptcy NOW.

By filing for Chapter 7 bankruptcy, you’ll be able to wipe out ALL of your credit card  (and most) medical debt. You’ll be able to keep your home and car as long as you can afford the payments. Your credit score will suffer, and the bankruptcy will remain on your credit report for a decade, but that’s actually much better than your current situation.

A fresh start free from the burden of your credit card debt will allow you to get current on your mortgage, car payments, and utility bills. Staying current each month will slowly but surely bring your credit score back up to a respectable level, and avoiding credit cards in the future will keep it there.

Image credit: Justin Maier

My Ex Owes Me Money: Will I Ever Get it Back?

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Often times, when a married couple decides to split up – the dissolution of the marriage takes a significant amount of time. This lag period can be extremely difficult for people who are ready to move on (and away) from each other. In fact, many divorcing couples actually end up living together for much longer than either party would like – due to entangled finances, lack of substantial income, shared debts and convenience.

It’s a rare couple who can make it through a time period like this without at the very least getting into some heated arguments. Knowing that you’re no longer a romantic couple but having no other option but to continue living under the same roof can create an amazing amount of psychological strain. This can lead to increased fighting or deafening, never-ending silence.

On the other hand, there are couples who mutually acknowledge their need to “uncouple.” While recognizing that they are no longer working well as a pair, they still manage to remain civil and often even remain friends. Obviously, this type of split is preferable to the former, more contentious model, but it does invite problems of its own.

As romantic love fizzles out and a more business-like relationship takes hold, discussions shift from sharing your inner thoughts to who’s going to pay which monthly bills before the divorce is final and the Property Settlement Agreement is in place. It is during this delicate time period that clear communication is needed more than ever before, especially regarding finances.

I lent my ex money during our separation: will I ever be able to get it back?

Sharing finances is extremely common in the months/year (or so) after a couple has made the decision to divorce. Entangled bank accounts and bills are sometimes the last things to separate during a split, especially if one spouse makes significantly more money than the other.

During this very sensitive time, it’s quite common for the spouse with the higher-paying job to help out the other spouse until s/he can get back on track. What may have been normal financial practices during the length of the marriage may now take on terms like “loan,” “borrowing” and “I’ll pay you back.”

It’s fantastic if a divorcing couple can manage to put their differences aside in order to see each other to the finish line with both parties in good financial standing. Something important to know, however, is that it’s kind of impossible to “loan” your legal spouse money. As long as you were still legally married, there is no such thing as “loaning money” from one party to the other. All money within the marriage belongs equally to both spouses until such time as the Final Judgment of Divorce is received.

If you’ve lent money to your “ex” when s/he is technically still your spouse, chances are high that you’ll never see that money again. Count yourself lucky if your “ex” is a good-hearted person and at some point in the near future has the ability and the desire to settle up any ‘oral agreement’ loans that were negotiated during your separation.

 

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Can My Bankruptcy Trustee Visit My Home to ‘Take Inventory’?

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A common concern for anyone filing for bankruptcy is exactly how much “power” the bankruptcy trustee holds, and whether s/he is working for the debtor or for the creditors. In order to discuss this in depth, we first need to review some trustee basics.

In a Chapter 7 bankruptcy proceeding, a trustee is assigned to each case. The trustee’s main purpose is to oversee all of the assets that the debtor owns. An asset is defined as “property owned by a person or company that has monetary value and is available to meet debts owed.”

A trustee is appointed to a bankruptcy case as an impartial administrator of sorts. S/he has no personal interest in the case and can therefore oversee all of the financial information without prejudice. You cannot hire your own trustee, and your bankruptcy attorney cannot take on the role of trustee due to the conflict of interest. The bankruptcy court will typically select a local attorney with extensive bankruptcy experience to act as trustee.

Any and all documents containing information about your debts, assets, income, and the general state of your financial affairs will be reviewed by your trustee in order to verify all of the claims you made on your bankruptcy petition. Once s/he has a good handle on the details of your case, the trustee’s main job is to determine if you have any nonexempt assets.

Chapter 7 debtors are permitted to keep certain protected assets/property. These are known as exempt assets, and they cannot be sold or liquidated to repay your creditors. Nonexempt assets, on the other hand, are assets whose value exceeds the amount you are allowed to keep. It’s the trustee’s job to ascertain whether or not you have any nonexempt assets. If you do have some nonexempt assets, the trustee must establish the monetary value of said assets so that they can be sold (liquidated). The money that is made from liquidating your nonexempt assets will be used by the trustee to pay all of your creditors equally. For example, if it happens that you have $20,000 worth of nonexempt assets (jewelry, collectibles, etc) and five creditors, the trustee will sell the items and distribute $4,000 to each of your creditors.

While this may only make a small dent in the total amount of money owed to your creditors, the liquidation of nonexempt assets is in place so that your creditors can at least receive some repayment of the money you borrowed.

In order to determine the value of any nonexempt assets, the trustee does have permission to visit you at your home, and this knowledge can be stressful. However, in reality, trustees rarely ever visit a debtor’s home in order to “take inventory” of your nonexempt assets. If your trustee does come to your home, it will typically be at an agreed upon time to collect any nonexempt assets listed in your bankruptcy petition so that they can be sold. It is extremely rare for a trustee to ask to come inside your home to “have a look around.”

If your trustee does happen to show up at your door one day without warning, you can let him or her know that you weren’t expecting the visit, and you’d like to speak to your attorney before granting the trustee access to your property. If the trustee insists on inventorying your assets, reschedule the visit and make sure that your attorney will be present at the rescheduled appointment.

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Can Bankruptcy Erase Personal Debts?

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Have you found yourself falling further and further behind on payments that you owe your creditors? Creditors can range from banks and credit card companies to hospitals, schools, physicians, stores and friends. Anyone who has loaned you money is considered to be one of your ‘creditors.’ This simply means that you owe them money.

Most people know that filing for bankruptcy can alleviate a large portion of money owed to creditors (lenders). It’s also a pretty well-known fact that college loans are almost impossible to find relief from at the moment. Medical, credit card and real estate debt can be eliminated or significantly reduced by filing for bankruptcy.

What some people don’t realize is that bankruptcy can help erase personal debts along with those debts owed to a large corporation or credit collection agency. For example, if you borrowed a large amount of money from your grandmother, or other family member or friend, filing for Chapter 7 bankruptcy will most likely eliminate your requirement to repay her. Your grandmother (or other personal lender) must be listed as a creditor in your bankruptcy paperwork in order for this to happen, though.

If you properly list any personal loans in your bankruptcy documentation, those specific debts will usually be discharged along with all of your other outstanding debts. However, this does not mean that you aren’t allowed to pay the person back. Most people, in an effort to maintain happy families and relationships, actually want to be able to repay any of their friends or family members who have loaned them money over the years.

After your bankruptcy proceeding is complete and most, if not all, of your larger debts have been discharged, you will be in a much better place to repay any personal loans that you may owe. Often, lifting all of your major debts will leave you with enough money to pay your bills and get your life back on track. At that time, you will be able to address those personal debts that may still be lingering.

A question was recently raised regarding the use of a family member’s credit cards and whether or not that type of debt could be included on a bankruptcy petition. The answer to that is two-fold. If you simply list that you borrowed money from this person, your responsibility to pay back the debt can be lifted. However, if, for example, your grandmother allowed you to use her credit card – she will still owe the full amount that you charged. You cannot include someone else’s credit card debt on your bankruptcy petition.

Again, after your bankruptcy discharge, you can then turn your attention to repaying any personal debts that may interfere with your personal life. You might want to explain to anyone who loaned you money that you will be able to start paying them back as soon as your bankruptcy case is settled. It is important that you do not repay any personal debts in the 90 days immediately prior to the date of your bankruptcy petition. These payments will be considered ‘preference payments’ by your bankruptcy trustee, and s/he will likely be able to take back (recover) that money in order to distribute payments equally among all of your creditors.

 

Image credit: Jessica Spengler

Force-Placed Insurance: Who Pays?

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Also known as lender-placed, creditor-placed or collateral protection insurance, force-placed insurance is a topic that not many people know much about. Even so, it’s an important concept to understand, because if you end up with force-placed insurance, you’re going to feel it where it really hurts: your wallet.

When a homeowner lets their property hazard insurance coverage lapse, for whatever reason, the mortgager has the right to obtain insurance coverage in order to protect their interests in the property. Lenders can also obtain a force-placed insurance policy if the amount of coverage held by the homeowner doesn’t meet their requirements.

Some struggling property owners let their homeowner’s insurance policies lapse due to inadequate funds. They figure that it is more important to stay current on their mortgage bill and utility bills, for example. They may even believe that homeowner’s insurance is “optional.” Believe it or not, this line of thinking is pretty common. Very few people realize that by choosing to stop paying for property insurance, they’re making a very unwise and surprisingly costly decision.

Force-placed insurance is quite expensive, and your lender will most assuredly obtain coverage at your expense. The cost will either be tacked onto your monthly mortgage payment or you’ll be billed separately.

What can I do if I’m in this situation?

Getting insurance coverage on your own is a WHOLE LOT cheaper than having force-placed insurance. Even if it seems like you simply cannot afford insurance coverage on top of all of your other monthly bills and expenses, you’ll be much worse off if you’re stuck paying for an insurance policy that is picked blindly by your lender. You have the power to negotiate with insurance companies in order to secure the coverage that you need and want for a price that you can afford. You can also comparison shop your options before selecting the best insurance company for your budget. Your lender will not waste time looking around for the lowest price, and insurance companies know that they won’t, which is precisely why force-placed insurance policies are so expensive.

As soon as your lender has acquired a policy for your property, you’ll start receiving bills for the insurance payments, or the amount will simply be added to your loan payment each month. To add insult to injury, not only will you be paying more, but the coverage provided by force-placed insurance is typically less than the average homeowner’s policy. As the force-placed insurance is there to protect the lender and their interests in your property, none of your personal items will be protected, and you likely will not have liability coverage (for any instances wherein you or someone else sustain(s) injury or death inside the home or property).

Luckily, the Consumer Protection Act requires lenders to send two official written notices, at least 30 days apart, to you before any of this happens. Your lender can “force place” homeowner’s insurance coverage of their choosing if you don’t provide them with proof of property insurance with 15 days of receiving the second notice.  As soon as you can obtain an insurance policy of your own, your force-placed coverage plan will cease. You (or your attorney) need only call your lender and fax them a copy of your new policy for the force-placed policy to become null and void.

At times, the high cost of force-placed insurance can push already strapped homeowners into foreclosure. If this is the case for you, there are things you can do to stop the foreclosure, get back on track with your own homeowner’s insurance policy and keep your home. By working with an experienced foreclosure defense attorney, you won’t have to lose your home, and you’ll have homeowner’s insurance that you can afford!

 

Image credit: David Hilowitz

I Need Help Dealing With a Difficult Creditor!

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You’ve done the right thing by requesting a copy of your credit report – so, congratulations on making a wise choice! Unfortunately, upon reading through the report, you may have discovered that a company feels that you still owe them money, and it has left a mark on your credit score. As most people would, you’ve reached out to the collection agency in an attempt to satisfy the debt so that it can be removed from your credit report.

What happens if the collection agency in question fails to work cooperatively with you on the matter, and essentially returns the past due account back to the original creditor? Although confusing, this type of thing does happen from time to time. The debt may be so old that the collection agency no longer has any record of it.

Should this happen to you, your next step would be to make contact with the creditor to whom you originally owed money. Sometimes, however, even the original creditor can’t summon up enough information on older files in order to allow you to settle the debt. What then?

Other than leaving you incredibly frustrated, your actions to reconcile an old debt thus far have been thwarted. Wanting to remove negative information from your credit report, naturally you need to know what your next step should be if neither the collection agency nor the original creditor will help you set up a payment plan.

At this point in the game, there simply isn’t much else that you can do without the help of credit repair attorney in your area who is well-versed in debt resolution. Sometimes, all it takes is a letter from your attorney directed to the collections agency and the original creditor demanding that they either prove the debt and work with you on repaying it, or write off the debt and clear your record.

Staying on top of what is listed on your credit report is so important – precisely because of things like this that happen every day. You may be thinking that you don’t need to look at your report because you’ve paid all of your bills and debts on time. Everything should be A-OK with your credit score, right? Because of clerical and billing errors, mistaken identities, and false reporting – it’s always better to see it for yourself.

If you find any surprises that you weren’t expecting on your credit report, or if your credit score has dropped recently and you aren’t sure why – call on Veitengruber Law to help you sort it out. Our fee is often only a fraction of the money we end up saving our clients by negotiating their debts down or gone altogether. Consultation is free whether by phone or in the office.

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