Client Sells Former Residence And Pays Down Mortgage On Current Homestead: Fraudulent Conversion?

Five years ago one of my clients bought a new home pre-construction while he lived in his then current Florida homestead. The builder told him the new home would take 18 months to build. The builder finished early, in 12 months, and wrote my client a letter saying the home was soon complete and that under the construction contract he must purchase the new home in 30 days. The client had not yet put the existing home on the market (in the old days, it took only a month or two to sell a house). So, the client closed on the new home, then put the old home on the market. Three months after moving he sold the old home. He used all the sales proceeds to reduce the principal balance of the new mortgage on the new house. Now, he wants to file Chapter 7 bankruptcy and asks whether transferring the sales proceeds to the new house is a fraudulent transfer.

When the debtor moved to the new home he moved his homestead. The hold home ceased to be an exempt homestead property when the debtor moved in to the newer home as his principal residence. The use of sales proceeds to pay down the homestead mortgage was a conversion of non-exempt money to an exempt asset. The transfer cannot be attacked under Florida fraudulent transfer statutes because it occurred five years ago, beyond the statute of limitations. However, conversion of money to a homestead property within 10 years of filing bankruptcy may be avoided under bankruptcy law if the debtor intended to pay down his mortgage to avoid creditor claims.

Even though this occurred within the 10 year bankruptcy window, I do not think what this debtor did with his old house could reasonably be undone as a fraudulent conversion. The conversion of money into a homestead is reversible only if the debtor had actual intent to defraud creditors. This transaction does not appear to be a plan to defraud creditors or a bankruptcy trustee. This transaction looks like a normal person moving into a new home in a normal manner. Obviously, this debtor intended to sell his old home and use the money to buy a new home. Only because the home was ready unexpectedly early did the debtor have to move first and sell second.

Credit Score – 10 avoidable to keep your eyes on!

There are many ways where you can make credit mistakes which can harm your credit score at times mildly and at times severely. It is important that you are aware of the common mistakes frequently committed and which can be avoided so that you can escape from the frustration, tension and save huge amount of money. The more you are aware of the mistakes and have enough information about the credit scores, the better you will be able to handle your finances and credit scores. Some of the common mistakes that can harm your credit score drastically are:

1. Discontinuation of credit card by closing it is one the most common mistakes. It can drastically affect your credit score. This is because the main factor in analysing your credit scores is to identify the duration of the credit history. Even if you have stopped using your credit card, it is better to retain it. One of the reasons for this is that they will be removed from your credit report and under federal law, if it not used for over seven years then it will be removed from the report. It is better to use these cards once in few months for small purchases and clear the payment at the earliest. It is also helpful to keep cards active as the credit score is dependent upon the extent of utilization. Thus even if it is a credit card which is not used much, it can actually help you in your credit score to it is important that you do not close credit cards.
2. The next most frequent credit mistake is that of missing payments. This can affect your credit score substantially as the credit bureaus keep a record of your credit history and more often you miss the payment, the more damage it can cause to your credit history. The damage in the credit score can last up to about seven years. The credit score is dependent on frequency of missed payments as well as the severity of late payment which is over 90 days late or more.
3. Settling on past-due or collection accounts is another credit mistake. This is common when a smaller amount is paid on a credit card amount which is severely overdue in order to close the account. This is usually reported by the lender company to the credit bureaus and this is going to affect the credit score drastically.
4. Another common credit mistake is having high credit card balances. It is considered to be good credit score if the credit card balances are between 25% and 40% of the credit limit. If you get closer to the available limit, then your credit scores will definitely be affected. So, it is advisable to keep the balance on the lower side of the credit limit.
5. Inquiries can also result in bad credit score as every time you make an inquiry about your credit, then it indicates that the credit bureaus have asked for a copy of your credit report. A few inquiries is fine, however, many inquires can damage the credit scores as they are in the opinion that you have greater credit risks. Thus it is better to have lesser inquiries by opting for credit only when there is a need for it.
6. Don’t assume that all credit scores are the same. There are many credit bureaus and also different types of credit scores too. It is important for you to understand that the common credit score is the deciding factor on how much is the risk factor. The higher the score, the higher is the risk.
7. It is also a common mistake to be under the belief that all credit scores give same kind of information.
8. Most often a mistake is committed when you are not aware of your credit rights. You need to see the assistance of the Federal Fair Credit Reporting Act, or FCRA which are implemented to protect your rights.
9. Most people are ignorant of the fact that there are three credit bureaus Equifax, Experian and TransUnion which are individual businesses who operate for profit. You need to be aware that each one holds information on you which might not be same always.
10. Though credit scores cause lot of problem, not having any credit or a credit score is also a mistake. Credit scores help in analyzing your credit history so it important to have it. It helps in developing your credit worthiness if you are able to manage your credits effectively.

Stuck with ex-husband’s business debt

Question: I have been divorced for 5 years now and my ex-husband declared bankruptcy in June. He has a business and let the credit line go to $30,000.00. Since he declared bankruptcy they are now coming after me since I had signed a personal guarantee, he also did. I was taken off the business and bank account but not the personal guarantee. Is there anything that I can do other than declare bankruptcy? My divorce lawyer has done nothing other than suggest bankruptcy and another lawyer suggested we sue him.

Answer: Since your ex-husband is bankrupt, there is no point in suing him; any amounts he owes to the banks would be included in his bankruptcy.  You have three options:

First, you could attempt to work out a settlement with the bank.  If you tell them you are considering bankruptcy and they will get nothing, they may be willing to settle for less than the full amount owing.

Second, if you have income and assets and don’t want to go bankrupt, you could file a consumer proposal.   A consumer proposal deals with all of your debts (not just the one you guaranteed for your ex husband), and if successful you end up with one monthly payment.

Third, if that’s not possible, then yes, bankruptcy is an option.  You should arrange a no charge initial consultation with an Ontario bankruptcy trustee to determine which option is right for you.

Number Of Tax Dependents Does Not Determine Household For Bankruptcy Means Test

Here’s a question from a bankruptcy attorney in South Florida which touches upon an important and very basic concept for the bankruptcy means test. The attorney states that he represents a Chapter 7 client who has been in a domestic partnership for a long time. He and his partner have two children. The client claims himself and  one of the children as a dependant for income tax purposes. The attorney asks if the debtor includes only his income and the expenses of the child he claims as tax dependent, or household income.

The answer is household income. For bankruptcy purposes, the debtor’s household includes all the people living in the home as a primary residence regardless of whom is claimed as a dependent for tax purposes. This debtor’s means test should include everyone’s income and everyone’s household and living expenses.

Using Credit Cards or Retirement to Pay Medical Bills is a Bad Idea

Now, I’m no math expert; that’s why I went to law school.  The other day, I heard someone mention that they were tired of the medical bills they were receiving and they were just going to pay those medical bills with credit cards.  Unbelievable.  You’re of above level intelligence if you’re reading this post because you can turn on your computer, log onto the internet and search for information about relevant subjects that interest you; right?  Then, what makes you think that using your credit card, with an interest rate of about 10% or more, to pay off a debt with 0% interest is a good idea?  Am I missing something here?

Too often people are led to the wrong conclusions about money and can’t figure out how they got  themselves into the messes they created.  Stop and think about it.  It “feels” good to pay off a debt.  What’s missing is that more debt is being created to “feel” good momentarily.  Don’t let your emotions get the best of you when making financial decisions.

Another financial mistake would be to pay those medical bills with your retirement accounts; 401k, 403b, IRA, or Roth IRA account.  I don’t care how you’re saving for retirement, that money is not for medical bills now; it’s for your future.  Never, and I emphasize NEVER, touch your retirement accounts until you retire.

Medical bills and credit card debts are always dischargeable in bankruptcy and your retirement accounts are safe from being taken by the trustee to pay those debts.  So, if the Courts can’t touch your money to pay your bills, why should you?  

 

Deceptive Payday Lender Hit with Serious Fine

The Federal Trade Commission recently settled a case involving an online payday lending service that apparently tricked consumers into spending much more than they wanted to – and into giving the company permission to take payments directly from their bank accounts.

Here’s a look at how the scam worked and what will happen to the scammer.

Online Payday Lender & Debit Cards

According to the FTC’s website, the scam went like this:

• The company Swish Marketing, Inc. had web sites that provided “payday loan matching services.” In other words, the company claimed to connect cash-strapped consumers with a payday lender.
• When customers filled out online loan applications, they were directed to online offers for products not affiliated with (or related to) the loans they wanted. These offers came with pre-checked “yes” and “no” boxes.
• One of the products, a debit card, had its “yes” box pre-checked. Most consumers, it seems, did not notice this (because of type size) and so essentially signed up for a debit card they neither needed nor wanted, and for which they had to pay.
• In the fine print of the debit card’s agreement, there was a clause that gave the scammers permission to debit the customer’s bank account for missed payments on the payday loan.
• By clicking the final button that took them to their payday loan match, consumers agreed to open the debit card, which added as much as $54.95 to their purchase!

The result of all this devious Internet trickery was that many customers ended up paying far more than they intended to for payday loans, which themselves are often a money source of last resort for people in or headed for serious financial trouble.

FTC Gets Settlement from Both Companies

The good news here is the FTC settled with both companies for hefty fines ($52,000 for the debit card company and $850,000 for the payday loan company).

Generally speaking, most financial gurus advise people against taking out payday loans if at all possible, because of the enormous interest rates often attached to them and the unpleasant and burdensome debt cycle they can lead to. If you’re in need of cash, before you turn to a payday lender, consider:

• Asking friends or family for a loan;
• Asking your employer for an advance on wages;
• Asking a creditor for an extension on your payment deadline;
• Selling your blood or plasma; or
• Bartering.

Though legislators and consumer advocacy groups like the FTC have been cracking down on payday lenders in recent years, payday loans are still often too expensive to be useful, and may land you in a debt pattern difficult to break with filing for bankruptcy.

Meet Top 10 Bankrupt Celebrities

We are constantly being reminded that celebrities, who make millions, also have tough time paying their bills. Apparently these celebrities are no different than you and me when it comes to balancing their checkbooks.

1. MC Hammer

Mc Hammer blew his fortunes with extravagant spending. This Hip-Hop Artist, filed for Chapter 11 bankruptcy in 1996 because he did not have the income to support his lavish lifestyle in addition to defending all the lawsuits that were filed against him.

2. Lorraine Bracco

Her situation was a bit different than Mc Hammer. Lorrain Bracco found herself in an unexpected and unavoidable legal situation where a long custody battle with now ex-husband Harvey Keitel, has left the star bankrupt in 1999.

3. Mike Tyson

After retiring from boxing and going through a nasty divorce, the former Heavyweight champ literally found his finances in disarray. Leading to his 2003 bankruptcy, Tyson blamed lavish spending on cars, mansions, poor financial advice plus management embezzlement of his fortune.

4. Donald Trump

Even Donald Trump found himself in financial difficulty in 2004 and again in 2009. Trump’s Atlantic City hotel and Resort Company filed Chapter 11 bankruptcy twice in order to reorganize debts related to construction.

5. Toni Braxton

Braxton known for her sultry sexy voice filed a lawsuit against LaFace Records, attempting to gain release from a contract she felt was no longer fair. LaFace countersued and this led to Braxton filing for bankruptcy. Braxton spent most of 1998 in legal limbo.

6. Larry King

According to the Guinness Book of World Records, radio talk show host Larry King has interviewed over 30,000 people. He spent outrageous amounts of money which left in a $352,000 debt for which he had to file bankruptcy.

7. Randy Quaid

Famous for his role as Cousin Eddie in the National Lampoon’s Vacation movies, had a rough decade. He ran into money problems and filed bankruptcy in 2000, ironically over a film called “The Debtors.”

8. Lorenzo Lamas

In 2004, this former Renegade and soap opera star filed bankruptcy for debts that included $200,000 for a private jet. He also owed on a Harley-Davidson motorcycle, a H2 Hummer, and alimony for his four ex-wives.

9. Stephen Baldwin

Stephen Baldwin was the youngest brother of the famous acting family. However, his salary was not enough for the actor to keep up on his mortgage and other debts. In 2009, Baldwin and his wife filed bankruptcy.

10. Kim Basinger

Kim Basinger filed for bankruptcy in 1993 when a judge ordered her to pay Main Line Pictures $8.1 million because she had backed out of a verbal agreement to star in Boxing Helena.

It’s clear that financial problems doesn’t discriminate among people no matter what the income bracket or line of work is and can affect any of us at any time in our lives. Stay tuned because the future will bring more tales of once rich and famous celebrities filing for bankruptcy.

Discharge Of Student Loan In Chapter 13: One Debtor Got Away With It

Generally speaking it is difficult, almost impossible, to discharge a student loan in bankruptcy. The debtor has to show “undue hardship”, and if you are physically able to go to work you will have difficulty showing undue hardship. Except that a few years ago one Arizona debtor was able to discharge part of his student loans in a Chapter 13 case.

Here’s what happened. The debtor put his student loan in a five year Chapter 13 plan. The student loan lender received notice of the plan in the normal course of the bankruptcy. The student loan lender did not object to the plan. After the debtor completed his Chapter 13 and the court issued a discharge order the student loan lender went after the debtor’s income tax refunds to collect the student loan. The creditor claimed that the debtor could not discharge any part of the student loan unless he filed a separate adversary complaint within the bankruptcy proceeding alleging undue hardship.

The bankruptcy court said the balance of the debtor’s student loan was discharged even though the debtor neither claimed nor proved undue hardship in the bankruptcy case. The court said that the lender cannot collect the student loan after the Chapter 13 discharge because the lender had proper notice and never objected to the debtor’s plan.

Although you cannot assume your student loan lender will similarly fail to scrutinize your own Chapter 13 plan, this case suggests that it may make sense to include student loans in a Chapter 13 plan. The same result will not apply to Chapter 7 where creditors with non-dischargeable loans do not have to intervene in order to protect their rights after the Chapter 7 discharge. See, 553 F 3d 1193