5 Essential Questions Consumers Want to Know About Bankruptcy

About BankruptcyIf you are trying to learn about bankruptcy and figure out how to handle your debt obligations, you are most likely looking into several options in order to lift the stress and burden that overwhelming debt can bring.  During your research perhaps a friend or family member advised that bankruptcy may be an option for you, but you just don’t understand how it works.

Financial lawyers who practice primarily in the area of bankruptcy law, such as Symmes Law Group, PLLC, understand your experiences and want to help.  Filing bankruptcy may allow you to get a hold of your financial situation, wipe away debt, and not have to live in fear every time the phone rings thinking there may be a debt collector on the other line looking to get paid or a process server out to serve you legal papers to start the collection process in court.  With that said, most consumers have questions about bankruptcy as they don’t know how it works or whether they qualify.

So, here are 5 essential questions consumers want to know about bankruptcy.

Do I Qualify for a Chapter 7 Bankruptcy?

Many consumers can qualify for chapter 7 bankruptcy, but they also have to consider whether it is a good idea to do so.  In order to qualify for chapter 7 bankruptcy you must either have 50% or more  of your debt being related to business activity, have your median income for your family size be below your states median income for your family size, or pass something called the means test if you are above median but have outside of the ordinary expenses such as medical or child support which make it so you don’t have any disposable income left every month.  Your debts, unless they are a type that is non dischargeable in bankruptcy or will be ongoing obligations post filing, are not considered on the means test.

Next you will want to make sure if you file chapter 7 bankruptcy, that you will not lose any of your assets to a bankruptcy trustee who is assigned to your case to liquidate assets that are valued at more than the amount your are allowed to keep.  Everybody who files bankruptcy is allowed to protect assets using what are called exemptions.  In Washington State we can use state or federal exemptions but you cannot combine them together.  For instance, the Washington state exemptions allow for debtors to protect $125,000 in a home but offer less protections for other assets.  The federal exemptions on the other hand offer more protections for other assets, but not as much protection for a home.  Common exemptions include auto, household goods and a wildcard.  You would want to talk to your bankruptcy attorney to determine which set of exemptions make the most sense.

If I don’t Qualify for Chapter 7 Bankruptcy, Does Chapter 13 Bankruptcy Make Sense?

If you don’t qualify for chapter 7 bankruptcy due to your household income or you may be at risk of losing an asset, you may want to consider filing chapter 13 bankruptcy which allows for a repayment plan over 3-5 years. If you are a below median income debtor you may qualify for a 3-year plan, vs. if you are an above median debtor you will be on a 5-year plan.  The amount you will have to pay will be based on your means test result/income and the value of any non-exempt assets in addition to a trustee fee of 9% for having the chapter 13 trustee manage your payments to creditors.

Chapter 13 makes sense for those looking for a repayment plan to avoid creditor calls and garnishments, have an ability to pay something to creditors, don’t have a lump sum to offer as a settlement to creditors and are not looking to incur more debt while in the bankruptcy plan.   Chapter 13 bankruptcy is also a great option for those looking to make up arrears over 3-5 years on a primary residence in which any potential foreclosure sales would be immediately stopped due to the bankruptcy automatic stay upon the case being filed.

Finally, chapter 13 bankruptcy is only open to consumers and not businesses and does have debt limits of up to $419,275 for unsecured debts and up to $1,257,850 in secured debt.

What Other Alternatives Are there to Bankruptcy?

If you are don’t qualify for chapter 7 or chapter 13 then you may want to look into settling your debts if you are able to offer your creditors a lump sum.  Many creditors will accept payments of 50% of the balance owed on average if you are at least 180 delinquents.  Debts most likely to settle are those who have gone to 3rd party debt collectors.

If you are looking to get a loan modification on your home or delay a foreclosure sale, then the foreclosure fairness mediation may be an option for you if your mortgage loan is with a major lender and it is regarding your primary residence in Washington State.

What Happens After I file Bankruptcy?

If you have decided that you want to file for bankruptcy then you will need to get your attorney the required information which includes a questionnaire, last 6 months of paystubs, last 2 years of tax returns and complete a credit counseling class.  You will then need to review and sign your documents prior to filing and will then receive a court date.

Your court date will be in about 30-45 days after your case is filed and is called the meeting of creditors.  Typically, creditors do not show up to this meeting, but it is a chance for your bankruptcy trustee and any creditors to ask you any questions about your financial affairs while under oath.  A typical meeting lasts for about 5 minutes, although there are usually about 10 other debtors at the meeting at the same time as you so you should plan for being at court for about an hour.  During the Covid 19 pandemic, court meetings are being held telephonically.

After the court meeting you will need to complete a second credit counseling class and in chapter 7 bankruptcy you should receive your bankruptcy discharge in about 90 days after your case was filed. The case can stay open longer if a chapter 7 trustee is investigating any assets you may have.  In a chapter 13 case your first plan payment will be due 30 days after your case is filed and your payment will come out of your paycheck or you can pay online.  Your confirmation hearing, where the judge approves your plan will be in about 45 days after your initial court date, but you don’t need to attend this meeting.  In the meantime, creditors will file claims in your case and you may need to make amendments to your plan until you have a plan the chapter 13 trustee will approve.  If you make your payments on time for the duration of your plan, you will receive a discharge order at the end of the plan and then your case will close.

For most people, after they receive their bankruptcy discharge their credit scores will improve and negative items will be wiped out, although the actual bankruptcy public record can remain on your credit for up to 10 years.

Where Can I Find a Great Bankruptcy Attorney?

If you have decided that exploring filing bankruptcy is an option for you, then you can look no further than Symmes Law Group, PLLC to help you with your debt relief needs.  With that said the best place to look for a bankruptcy attorney is to ask family and friends while also checking out online reviews of attorneys to find the attorney that you would want to work with.  Not all attorneys are equal, response and knowledgeable in the bankruptcy arena so you will want to ask relevant questions such as how long have you been practicing bankruptcy? will you are a paralegal handle my case? And what is the turnaround time on getting my case filed?

If you live in Washington State and are looking for options with how to go about filing for bankruptcy, give Symmes Law Group a call at 206-682-7975 or contact us to get the counsel you need.

The 10 Commandments of Filing Bankruptcy

The Ten Commandments of Filing BankruptcyIf you are considering filing bankruptcy, you should consider following my own personal 10 commandments of filing bankruptcy.  These are things that you should and should not do in preparation for your case filing. Bankruptcy is not something that that should be rushed into as your actions prior to filing can have consequences on you or possibly others that you care about. I had the chance to discuss the 10 commandments of filing bankruptcy on 1150am KKNW and you can listen to that discussion here:

1. Thou Shall Tell Your Attorney About any and all Assets no Matter The Location

Disclose, disclose, disclose is something you should be telling yourself.  As part of a bankruptcy filing you must disclose all of your possible assets. Those considering filing for bankruptcy often ask if they need to disclose assets that are out of the country and the answer Is a resounding yes.  A bankruptcy trustee can seek to recover assets no matter their location and you need to make sure you have enough exemptions to protect these assets if you hope to hang on to them. If you do not complete your bankruptcy questionnaire in full or tell your attorney, they will not know they need to exempt the asset or warn you it could be lost.

2.  Thou Shall Not Transfer Assets out of Your Name to hide assets Prior to Filing Bankruptcy

If you transfer assets out of your name prior to filing, they may be clawed back by a bankruptcy trustee for liquidation.  If you do sell an asset within 2 years of filing you will need to disclose who the asset was sold to, how much was received and what you did with the funds from the sale.  If you simply gave your asset away to friends or family a bankruptcy may seek to recover the asset to pay your creditors as you did not get fair market value for it.

Additionally failure to disclose such assets or transfers may result in you not getting a bankruptcy discharge forgiving your debts or being accusing of acting in bad faith and subject to criminal prosecution which you definitely don’t want to deal with.

3.  Thou Shall Not pay Friends and Family Members Back for Debts Owed Within 1 Year of Filing

If you pay friends or family back for debt you owed to them within 1 year of a bankruptcy filing, a bankruptcy trustee can claw these funds back or you can make the payment for them.  This is called a payment to an insider and must be disclosed in your bankruptcy.  Failure to disclose could lead to you not receiving a discharge or criminal prosecution, although the latter part is unlikely.

Therefore it may be advisable to wait a year from when any such repayments were made for best results in your case.

4.  Thou Shall Follow the Counsel of Your Bankruptcy Attorney and Provide all Information Requested

If your bankruptcy attorney asks you for information or clarification, it’s likely for your benefit to keep you out of trouble or lessen your risk of losing any assets.  This information requested usually consists of completing a bankruptcy questionnaire, providing last 6 months of income information, last 2 years of tax returns, and answering follow up questions regarding the information you provided.

5.  Thou Shall Not Incur Large amounts of Debt Right Before Filing for Bankruptcy

If a person charges up their credit cards right before filing, this could be considered fraud and a creditor may object to those charges, which means you would have to pay the debts back. Charges made on luxury items or travel within 90 days of case filing may automatically be non-dischargeable if a creditor were to object.  To be safe I would recommend waiting a year between making such charges, depending on the amount that was charged and what was purchased.

A creditor may object at anytime if they suspect there was fraud was involved and you intended not to pay the debt back when the debt was incurred.  The more time that goes by, the less of a chance you have of a creditor filing an objection.

6.  Thou Shall Not Purchase a Car Right Before Filing Bankruptcy

If you are contemplating purchasing a vehicle right before filing bankruptcy, you had better consult with your bankruptcy attorney.  For best results you would want to wait 90 days from the date you purchased the vehicle to allow your auto lender to secure their lien on your car as you don’t want a bankruptcy trustee trying to take away your vehicle and claim it was not properly secured by your bank.

Additionally you should know that there are many lenders out there that will give you a car loan after your case is filed which may be advisable as you would not have to go through the hassle to reaffirm your loan and it would report payments on your credit report post filing.

7.  Thou Shall Not Leave Money in a Credit Union Bank Account Post Filing if you Owe Them Money

In Washington state credit unions can offset any funds owed to them from funds you have in bank accounts with them, even post-bankruptcy filing.  Also as a general rule you may want to move your funds out of any bank accounts where you owe the same bank money as some banks such as Wells Fargo have been known to freeze accounts, even when they are not supposed to which could cause you issues with your finances post-bankruptcy filing.

8.  Thou Shall Not Withdraw Funds From Your Retirement Account in Large Amounts Prior to Filing Bankruptcy

When you file for bankruptcy, you are allowed to protect your retirement accounts funded from your employment.  This exemption does not cover inherited retirement accounts.  Therefore it would not be in your best interest to liquidate a retirement account to pay creditors prior to filing bankruptcy.

The other consider to keep in mind about liquidating a retirement account prior to filing bankruptcy is that the withdrawals count as income on the means test. If you withdraw the funds within 6 months of filing your case it would be used in the calculation to determine if your income is below the Washington State median income to qualify to file chapter 7 bankruptcy or used to determine your disposable income in chapter 13 bankruptcy.

Finally, you may not be able to exempt the retirement funds if they are not in a retirement account. For example, if the funds are sitting Im your regular checking account, we may not be able to protect all the funds and a bankruptcy trustee may seek to have the funds turned over to pay creditors.

9.  Thou Shall Not Rush into a Bankruptcy Filing

As I mentioned previously, bankruptcy is not something that should be rushed into as it may require a lot of planning between you and your attorney to make sure things go smoothly and without complications.  Sometimes in makes sense to wait to file if significant debt has been incurred recently or your income has recently dropped to the point where you need to wait a few months to qualify for chapter 7 or make lower payments in chapter 13 as your annual income for bankruptcy purposes is based on your prior 6 months of income.

10.  Thou Shall not Wait too Long to File Bankruptcy Either

While it’s never a good idea to rush into a bankruptcy filing, its also not a good idea to procrastinate too long thinking about it.  The sooner a case is filed, the sooner you can start rebuilding your credit, stop creditor phone calls, wage garnishments and collections.  Another major consideration about waiting to file a bankruptcy case is whether your income will fluctuate to the point where you no longer qualify for chapter 7 bankruptcy or your plan payments would be higher in chapter 13 if you waited.

As you can see, there are many things to think about when considering filing bankruptcy, but if you plan for the filing and get the counsel you need, you can avoid mistakes that may be costly and make sure your case goes smoothly.

If you live in Washington State and are looking for options with how to go about filing for bankruptcy, give Symmes Law Group a call at 206-682-7975 or contact us to get the counsel you need.

What is a Trust and Do I Need One?

What is a TrustYou may have heard it is a good idea to create a trust for you and your family but you may first need to learn about what is a trust and whether you actually need one.  The answer on whether you really need a trust will depend on what your goals are, the dynamics of your family and the value of your estate.

What Do Most Estate Plans Consist of?

Most estate plans consist of a will, medical power of attorney, health directive, and general power of attorney.  Whether somebody wants a trust included as part of their estate plan is usually determined on a case by case basis.

A Will names somebody to act as personal representative of your estate, and allow the personal representative to transfer any assets into a trust, pay creditors, liquidate assets and provide distributions to beneficiaries. A will may also include the disposition Instructions that state what somebody would like to happen to their remains after they pass away.

A Power of Attorney is to name somebody to manage your finances if they are ever incapacitated.

A Power of Attorney for Health Care nominates a person to manage your health care if they are unable to do so yourself.

An Advance Health Care Directive includes what types of health care you would like if you are ever incapacitated or in a terminal condition. For example should there be a do no resuscitate provision (“DNR”).

What is a Trust?

There are several types of trusts, but the most common are a living trust, created during a persons lifetime which is commonly referred to as a revocable trust and irrevocable trusts, in which assets may not be removed from the trust after it is created.

A trust allows for an individual’s property to avoid probate, and directs their assets in the trust to go where they would like them to go upon passing away. It also appoints a trustee to oversee management and distribution of these assets as well as names any beneficiaries.

Upon trust creation, individuals may name themselves as both the trustee (revocable trust only) and beneficiary and then name successor a trustee and beneficiaries upon passing away.

Why Create a Trust?

In Washington, any individual who passes away owning more than $100,000 worth of assets, including real estate, must go through the probate process through the superior court.  This is a legal process in which creditors of a person’s estate will be paid, and distribution of assets will be handled by a personal representative named in a persons will or an administrator appointed by the court.

If property is placed in a trust prior to a person passing away, that asset does not have to go through the probate process and may pass to any beneficiaries per the terms of the trust immediately.

A trust is also a private document and does not have to be filed with the court like a will.  Therefore, if a family wishes to keep their affairs private, they can direct any assets go into a trust upon passing and have the trust direct how to dispose of the assets at the direction of a named trustee per the terms of the trust.

What is the Difference Between a Revocable and Non-Revocable Trust?

A revocable trust may be revoked at any time if a person changes their mind on how they want their estate to be handled, for instance changing beneficiaries, trustee’s or removing assets from a trust.  In comparison, a non-revocable trust may not be modified after it is created.

A revocable trust for most people provides the flexibility, privacy and probate avoidance that is sought, but it does not protect against creditors of a person while alive as the trust assets may be revoked from the trust at any time and assets of an irrevocable trust may still be subject to both state and federal estate taxes.

Compare this to an irrevocable trust in which the terms and assets named in the trust are set in stone the minute the agreement is signed. Irrevocable trusts remove the assets from the benefactor’s taxable estate, meaning they are not subject to estate tax upon death, and they also relieve the benefactor of tax responsibility for any income generated by the assets.  In order to create an irrevocable trust a third-party trustee would need to be named to manage the trust on behalf of the beneficiaries.

What is a Testamentary Trust?

A testamentary trust is created by a will, which begins its existence upon the death of the person making the will, when property is transferred from the decedent’s estate. A testamentary trust is irrevocable by definition, as it comes into being at the death of the grantor.

These types of trusts are good if you have minor children and want to makes sure a trust is created for their benefit if something were to happen to you.

What do I Need to do With My Assets if I create a Trust? 

If a trust is created, then you will need to transfer assets into the trust in order for the trust to be affective.  For example, if you own real estate, you will need to transfer the real estate from an individual’s personal or business name into the trust name and record the document with the county recorders office where the real estate is located.

It is typical in real estate transactions that a Quit Claim Deed be drafted which transfers the clients’ interest in their real property to their trust, so it will avoid going through probate. Excise affidavits must also be filed with the county assessor’s office so that no tax will be assessed on the transaction if there is no money involved and the property is not being sold.

What if I Only Have Real Estate that I don’t want to go through Probate?

If an individual only has real estate that they want to keep out of probate upon their passing away, they may want to consider drafting a transfer on death deed and recording it with the county.  This document may be revoked at any time and would keep the real estate out of probate upon passing away and avoids the cost and hassle of setting up a trust.

Designating a beneficiary is not an immediate transfer, so no federal gift tax is owed. The beneficiary acquires ownership on the current owner’s date of death. If the beneficiary later sells the property, any capital gain will be based upon the value of the property at the original owner’s date of death, not the value when the original owner acquired the property.

Does My Trust Need to File a Tax Return?

Trusts must file a Form 1041, U.S. Income Tax Return for Estates and Trusts, for each taxable year where the trust has $600 in income or the trust has a non-resident alien as a beneficiary. However, if the trust is classified as a grantor trust, it is not required to file a Form 1041, provided that the individual grantor reports all items of income and allowable expenses on his own Form 1040 or 1040-SR, U.S. Individual Income Tax Return. Thus, the grantor/individual would pay the total tax liability upon the filing of his return for that taxable year.

Although all revocable living trusts are considered grantor trusts during the lifetime of the grantor, most irrevocable trusts are not. In most cases, the grantor of an irrevocable trust does not report the trust’s income on their own tax return because they have irrevocably given up ownership and control of the assets funded into the trust. They no longer own them—the trust does.  Grantors of irrevocable trusts cannot act as trustees of their own trusts. They must hand over the reins of operation to someone else.

What is the Current Estate Tax Rate?

In Washington State if a person passes away in 2020 with less than $2,193,000 in assets, the estate would not be subject to an estate tax.  If a person’s assets exceed that number the estate can be taxed between 10-20% by the state.  The current federal estate tax rates for 2020 start out at $11.58M or $23.16M for a married couple.

The $23.16 million number per couple isn’t automatic. An unlimited marital deduction allows you to leave all or part of your assets to your surviving spouse free of federal estate tax. But to use your late spouse’s unused exemption—a move called “portability”—you must elect it on the estate tax return of the first spouse to die, even when no tax is due. The problem is if you don’t know what portability is and how to elect it, you could be hit with a surprise federal estate tax bill

If you live in Washington State and are looking to determine if a trust is right for you, give Symmes Law Group a call at 206-682-7975 or contact us to get the counsel you need.

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How Do I Get Coronavirus Financial Relief?

Coronavirus Financial ReliefIf you are liking many Americans, you are looking to get coronavirus financial relief, likely due to a job loss, or loss of income that has resulted due to forced business closures across the United States due to the Coronavirus. It’s hard to comprehend as just a few weeks ago the U.S. unemployment rate was very low and our financial markets were at all time highs. With that said, it was inevitable that the bull market would come to an end at some point, but few could have predicted that the Coronavirus would have been the cause. Just a few months ago we talked about how to prepare for the next recession and now we are here. Below are a few resources, options and tips available to Americans to help get coronavirus financial relief and stabilize your financial situation. I also discussed how to get coronavirus financial relief on the New Urban Unlimited Radio show on 1150am KKNW and you can listen to the segment about how to get financial relief here:

I Can’t Pay My Mortgage Due to the Coronavirus, What Can I Do?

While laws are quickly developing to assist those who cannot pay their mortgage payments due to the Coronavirus, some announcements have been made to help homeowners. Federal regulators, through Fannie Mae and Freddie Mac, are ordering lenders to offer homeowners flexibility and the entire mortgage industry may soon follow suite. Under the plan, people who have suffered a loss of income can qualify to make reduced payments or be granted complete pause in payments up to 12 months.

This mortgage relief is not automatic and borrowers should contact their mortgage servicers to request assistance. Homeowners should keep in mind that this is not a forgiveness program or free money, but will likely work like a loan modification extending the terms of the loan. Another option for homeowners if your lender does not offer such programs is filing a chapter 13 bankruptcy to make up arrears over 5 years once your income stabilizes. There is also the Washington state foreclosure fairness mediation program which can help homeowners obtain a loan modification while delaying pending foreclosure sales.

If you are a renter, many states and cities have halted evictions as the nation recovers from this crisis.

How Can I get Income Now Due to Coronavirus Job Loss?

I own a Small Business and Need Financial Relief, How Do I get Assistance?

The United States governments answer to this so far has been to have small business owners apply for the economic injury disaster loan program, where the federal government is offering low interest loans to business owners so that they can keep their businesses afloat during the coronavirus lockdown. Also once business are again able to operate as usual, businesses may choose to restructure their debts through a chapter 11 bankruptcy, however this may only make sense once the business is generating income again to make payments to creditors.

Some business owners may simply choose to close their doors and not wish to continue operating their business. In this case a business can simply notify landlords and creditors and walk away, however the key will be whether the business owner has personally guaranteed debts associated with the business. While a business may file for chapter 7 bankruptcy, it cannot receive a discharge of its debts, although the business may be able to save owners from certain Washington State tax liabilities if the business files chapter 7 bankruptcy through state law.

If the business owner is personally liable for debts, they may want to consider filing a personal chapter 7 or chapter 13 bankruptcy in order to gain relief from these debts, while also closing down the business.

Do I Need to Pay My Student Loans Due to a Coronavirus Job Loss?

The United States government has announced that they will be suspending student loan payments and waiving interest during the Coronavirus national emergency. All borrowers with federally held student loans will automatically have their interest rates set to 0% for a period of at least 60 days and borrowers have the option to suspend payments for an additional two months. Borrowers should contact their lender to learn about all options available to them as other options could be income-based repayment options moving forward.

What if I Have an Extended Loss of Income?

If you have or will incur significant unsecured debt such as credit cards or personal loans as a result of the Coronavirus and you don’t know how you are going to pay the debt back you should keep in mind that bankruptcy options may be available to you to eliminate crushing unsecured debts. While the laws appear to be changing at a rapid pace, under the current laws you can protect qualified retirement accounts when you file for bankruptcy.

Therefore, if you would otherwise qualify for bankruptcy and are not at risk of losing assets such as a home as part of your bankruptcy filing, then it is not advisable to dip into retirement savings prior to filing bankruptcy. Many individuals and families end up liquidating retirement accounts and then find themselves needing to file bankruptcy anyways. Therefore, it is a good idea to learn about your options and plan out your financial recovery strategy prior to dipping into savings.

If you live in Washington State and are looking for guidance regarding coronavirus financial relief, give Symmes Law Group a call at 206-682-7975 or contact us to get the counsel you need.

What is the Washington State Distressed Property Law RCW 61.34?

Washington State Disressed Property LawThe Washington State distressed property law RCW 61.34 is designed to make sure that homeowners who are struggling to pay on a mortgage are not being taken advantage of by investors or wholesalers who engage in a pattern of conduct which defraud innocent homeowners of their equity interest or other value in residential dwellings under the guise of a purchase of the owners residence in a practice called equity skimming.

It is important to note that this law does not apply to licensed attorneys or real estate brokers who do not meet the definition of a distressed home consultant as defined by RCW 61.34 as discussed below, but rather the likely targeted demographic are investors or wholesalers looking to purchase properties for profit at the expense of a distressed homeowner. Most of these investors, many of which may be new arrivals from other states other than Washington, are not aware of this law putting them at risk of criminal penalties as discussed below.

A typical fact pattern involves a distressed homeowner who cannot stay current on a mortgage and shows up on a notice of default list, whereupon a wholesaler/investor will offer to save the home from the auction block by having the property conveyed away, leased back by the seller (former owner) and finally taken back by the buyer for a profit. Leaving the seller will little to show for the transaction and without a home.

What is the purpose of the Washington State Distressed Property Law RCW 61.34?

In the last economic crash of 2008 that hit the real estate market hard, foreclosure rates soared and led to a growing problem with unscrupulous people trying to take unfair advantage of those facing foreclosure. In 2008, a new Distressed Property Law (“Law”) came into effect in Washington State (RCW 61.34) aimed at protecting homeowners at risk of foreclosure from scam artists (Equity Skimmers) who might wrongly try to take an owner’s equity. The Law was revised in 2009 and has potential implications for anyone purchasing a home in foreclosure or likely to go into foreclosure.

How Does the Washington State Distressed Property Law RCW 61.34 Affect Buyers?

Based on the Law, buyers who do not intend to do so should avoid acting in a way that would cause them to be considered “Distressed Home Consultants” and should avoid entering transactions that would be considered “Distressed Home Conveyances.”

A “Distressed Homeowner” means the owner of a principal residence that is either in foreclosure or in danger of foreclosure. A home is considered in danger of foreclosure if the mortgage payment is more than 30 days late, if the home is at risk of loss or foreclosure for failure to pay property taxes, or if the homeowner thinks he or she is likely to default on their mortgage within the upcoming four months due to a lack of funds.  See Jametsky v. Olsen (179 Wash 2d 878).

A “Distressed Home Consultant” is a person who contacts a Distressed Homeowner and makes promises in one way or another and represents they will help prevent, delay or avoid a foreclosure or the adverse impacts of a foreclosure where the owner/seller will eventually share in some right to regain possession or receive some financial benefit upon resale of the home. Alternatively, it should be noted, that a person simply offering to purchase the home, without providing consulting services and remedies to save the home from foreclosure, as discussed in RCW 61.34.020, would not be considered a distressed home consultant unless the purchase is occurring within 20 days of a foreclosure sale and the seller is not represented by an attorney or licensed real estate broker.

Per RCW 61.34 a “Distressed Home Consultant” does not include: A financial institution; a nonprofit credit counseling service; a licensed attorney, or a person subject to chapter 19.148 RCW; a licensed mortgage broker who, pursuant to lawful activities under chapter 19.146 RCW, procures a nonpurchase mortgage loan for the distressed homeowner from a financial institution; or a person licensed as a real estate broker or salesperson under chapter 18.85 RCW, when rendering real estate brokerage services under chapter 18.86 RCW, regardless of whether the person renders additional services that would otherwise constitute the services of a distressed home consultant, and if the person is not engaged in activities designed to, or represented to, result in a distressed home conveyance.

A “Distressed Home Conveyance” means a sale transaction involved a Distressed Home in which the Distressed Homeowner is allowed to continue to occupy the Distressed Home after closing and the buyer provides some promise or representation that the Distressed Homeowner will have the right or option to reacquire the Distressed Home, or will receive some interest in or portion of proceeds from any resale of the Distressed Home.

If the Law applies to a buyer, specific heightened duties apply that are significantly different than obligations that would otherwise apply. These include

(i) Comprehensive duties to act in the interest of and be loyal to a Distressed Homeowner (seller). The Law refers to those duties as “fiduciary duties” will require a Distressed Home Consultant to put the interest of the Distressed Home Seller first in all of the parties’ dealings.

(ii)   The contract documents in a Distressed Home Conveyance transaction need to all be drafted in at least 12-point type. The documents must be printed in the seller’s primary language and must include numerous disclosures and warnings to a seller. Further, the contract must provide the seller with a three day right to cancel the sale agreement. Finally, the buyer must use care to assure that the property is purchased at a price fairly close to market value and that the seller will have the reasonable financial ability receive the benefit of the promised right to reacquire the property or receive the expected profit.

The purpose for explaining the above is not to advise buyers that they can never act as Distressed Home Consultants or enter a Distressed Home Conveyance transaction. Rather, it is to advise buyers that they need to avoid these transactions unless they are prepared to comply with the specific requirements of the Law and to obtain the assistance of independent legal counsel qualified to educate them on their duties and draft the necessary documents (since those duties will not be met by using standardized real estate forms licensees are authorized to complete).

How to Avoid Violating the Washington State Distressed Property Act RCW 61.34

Assuming a buyer wants to avoid being considered a Distressed Home Consultant or becoming involved in a Distresses Home Conveyance transaction, there are guidelines to follow:

(i) Never try to give assurances to a Distressed Homeowner that you are acting to help them avoid a foreclosure or the impact of a foreclosure. After all, most buyers are really interested in simply purchasing a home for their own benefit.

(ii) Avoid any agreement that would cause you to agree to close the purchase of a Distressed Home within 20 days of the date set for foreclosure of a loan unless the Seller is represented by either an attorney or a real estate broker.

(iii) Avoid any agreement that would permit a Distressed Seller to retain possession of their Distressed Home unless the after-closing possession is for no more than 20 days, is for the purpose of allowing the seller to arrange for and relocate to a new residence, and the Distressed Seller is represented in the transaction by an attorney or a real estate broker.

(iv) Don’t agree to let the Distressed Seller retain possession of the Distressed Home after closing and offer some type of offer that would allow the seller a right or option to repurchase the home or share in some profit or financial benefit from the property or its equity upon the happening of some future action like the sale or refinance of the Home.

(v) Don’t act as an investor that systematically searches for Distressed Homes to purchase unless you are prepared to be considered a Distressed Home Consultant and to assume the applicable duties then owed to a Distressed Homeowner.

(vi) Have a real estate attorneys and licensed brokers on your referral list in order to make sure you are not the person giving legal advice and making sure distressed sellers are properly represented so they are not taken advantage of.

What is the Criminal Penalty for not complying with the Washington State Distressed Property Law RCW 61.34.030?

Per RCW 61.34.030 any person who willfully engages in a pattern of equity skimming is guilty of a class B felony. Each act of equity skimming found is considered a separate current offense for the purpose of determining the sentence range for each current offense pursuant to RCW 9.94A.589(1)(A)

If you live in Washington State and are looking for guidance regarding the Washington state distressed property law, give Symmes Law Group a call at 206-682-7975 or contact us to get the counsel you need.

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Is My Personal Injury Claim Protected If I File Bankruptcy?

Is My Personal Injury Claim Protected if I File for Bankruptcy?A Personal injury claim may or may not be protected if you file for bankruptcy and will depend on several factors discussed below. Often times consumers thinking about filing bankruptcy have suffered some sort of personal injury or have been involved in an accident which may result in them having to file for bankruptcy. This could be due to a loss of wages or various medical debts as part of the accident which have added up.

In general, if a consumer suffers a personal injury prior to the filing of a bankruptcy case and think they may have a personal injury claim against somebody for payment, it would be part of what is called the bankruptcy estate which includes all of a debtors assets.  The personal injury claim must be listed in the bankruptcy documents and disclosed to a bankruptcy trustee as part of the bankruptcy process.

Does the type of Bankruptcy Affect How Much of My Personal Injury Settlement I Can Protect?

There are 2 main types of personal bankruptcy that consumers file. These are chapter 7 bankruptcy, a liquidation case in which no payments are made to creditors and you are allowed to keep a limited amount of assets subject to rules called exemptions (discussed below), and chapter 13 bankruptcy which is a personal reorganization plan in which debts are paid based on a debtors ability to pay, family size and the value of assets subject to the various exemptions.

If the value of the personal injury claim is not exempt (protected), then a trustee in a chapter 7 case can step into the shoes of the debtor and settle a claim for the debtor and use funds above those exempted to pay a debtor’s creditors. In a chapter 13 case, no assets are liquidated or sold, but the non-exempt value of the claim must be paid back to creditors as part of a payment plan that lasts 3-5 years. Therefore the type of bankruptcy will not affect how much of your personal injury claim you can protect, but it can allow you to spread out the payment of what you might owe over 3-5 years in a chapter 13 bankruptcy.

Does It Make Sense to Settle a Personal Injury Claim Prior to Filing Bankruptcy?

My advice to most consumers who have suffered a personal injury and believe they have a claim that will entitle them to damages is to get through the Personal Injury claim process first and then consider filing for bankruptcy to resolve any other lingering debts.  With that said, at the time of filing bankruptcy a debtor can’t have a large amount of funds sitting in their bank accounts (subject to exemptions below) so they may need to postpone filing a bankruptcy or file a chapter 13 bankruptcy instead if the funds will not be protected to allow for payments over 3-5 years.

Receiving personal injury funds within 6 months of filing for bankruptcy could also count as income on the bankruptcy means test and determine if a consumer will qualify for chapter 7 bankruptcy or could increase the amount that needs to be paid to unsecured creditors in a chapter 13 bankruptcy.  Therefore it may make sense to wait 6 months from the date of receiving any funds to file for bankruptcy.

If a bankruptcy case is filed after the personal injury accident occurred, then a bankruptcy trustee in chapter 7 now owns the claim and makes decisions on how to handle the claim.  Any personal injury attorney working on personal injury claim would need to communicate with the consumers bankruptcy trustee and attorney and hold out paying settlement money prior trustee and court approval.

Furthermore, all attorneys hired by the client post-bankruptcy filing require court approval to work on the case.  In a chapter 7 case, the bankruptcy trustee typically seeks employment for the bankruptcy estate, while in chapter 13 bankruptcy, the consumer through their bankruptcy attorney would need to seek to employ their personal injury attorney through the bankruptcy court.

How Much of My Personal Injury Settlement will I Be Able to Keep if I file Bankruptcy?  

If the personal injury claim is a low dollar amount claim, a consumer may be able to keep the proceeds of the claim.  In bankruptcy, rules called exemptions are used to protect a debtors assets up to a specific amount.  In Washington State we can use Federal or State Exemptions but can’t combine them. If a consumer owns a home with equity, they are likely going to be using the state exemptions to protect up to $125,000 in equity in the home.

Federal bankruptcy exemptions allow for $13,900 (multiplied by 2 for a couple) in wildcard protection (used on whatever a debtor wants including personal injury claim or bank accounts).  Additionally, there is a Personal injury exemption of $25,150 but this is limited to future care costs and does not cover pain and suffering or pecuniary loss. Here is the full list of federal bankruptcy exemptions.

Washington State bankruptcy exemptions say a person can protect up to $20,000 with the same restrictions as the federal bankruptcy exemptions which say the exemption is only for use with future care. Also, Washington State exemptions says future payments must be reasonably necessary for the debtors care.  The state wildcard exemption is also very low at $3,000. Here is the full list of Washington State bankruptcy exemptions.

Therefore, whether somebody can protect personal injury proceeds depends on the amount they can expect in a settlement and the value of a person’s assets in general which will determine how much they can exempt. It also should be noted there are other bankruptcy exemptions other than the wildcard or personal injury exemptions to protect other assets.  Consumers should review the list of exemptions above.

As a general rule of thumb when settling a personal injury claim, knowing a consumer may file bankruptcy, it is advisable to have the insurance company clearly breakdown what the payments are for as part of any personal injury settlement.  For bankruptcy purposes it would help if the damages were labeled as payment for the future care of the person rather than pain and suffering or pecuniary loss.  Trustee’s in a chapter 7 bankruptcy have a sworn duty to recover assets for unsecured creditors and will try to recover any non exempt assets if the settlement is not specific or covered by the allowed exemptions as it is their job to recover funds on behalf of creditors.  They are also incentivized to recover funds as they get a percentage of any recovery.

What if I Suffer a Personal Injury After My Bankruptcy Case is Filed?

If a consumer suffers a personal injury claim after their bankruptcy case is filed the result, will depend on what type of bankruptcy was filed. In a chapter 7 bankruptcy case, the claim would be outside the bankruptcy estate and not subject to the bankruptcy trustee’s reach or liquidation. On the other hand, if a debtor has filed chapter 13 bankruptcy, any new value would have to be reported to the chapter 13 trustee and the non-exempt funds committed to paying back a debtor’s creditors.

What if I Was involved in a Personal Injury Accident But Don’t Have Any Claims. Can I Be Liable for the Debt Incurred in the Accident?

If you were involved in an accident and did not have insurance for instance, you may be sued by an insurance company in an effort to recovery damages for the insured driver.  If a judgment is obtained, a creditor can garnish up to 25% of a paycheck and your license can be suspended. A judgment can last for up to 10 years and then can be renewed for another 10 years. The good news is that you may be able to discharge the debt in bankruptcy if you qualify for chapter 7 or chapter 13 bankruptcy.  With that said, if the injury was incurred due to DUI (criminal acts) or was a voluntary action, it may not be dischargeable in bankruptcy.  

As you can see from reading this article, whether a consumer can protect a personal injury claim as part of a bankruptcy case depends on several factors and will require the cooperation of your personal injury attorney, bankruptcy attorney and a trustee appointed to your bankruptcy case if you have already filed your case. If you do have a personal injury claim, live in Washington State and are thinking about filing for bankruptcy, feel free to contact a bankruptcy attorney with Symmes Law Group at 206-682-7975 or contact us to get the counsel you need.

Should You Settle Debts or File Bankruptcy?

settle debts or file bankruptcyAsking whether you should settle debts or file bankruptcy is a common question consumers have when struggling to keep up with monthly debt obligations. The answer to whether you should settle debts or file bankruptcy depends on several factors and therefore you should take the time to learn about all of your options before taking action to tackle your debt.

Are Promises Made in TV Commercials For Debt Settlement Companies Legit?

The answer is almost always no. Most debt settlement companies including the nationwide debt settlement companies that advertise on TV or radio appeal to consumers who genuinely want to repay their debts but are looking for a magic answer to all their problems that will help them avoid filing for bankruptcy.

While many debt settlement company options sound great by offering a plan and a solution to consolidate your debts into one monthly payment, they often times fail to clearly explain to the consumer how this plan will be carried out and how it will affect you moving forward which is very important when determining whether you should settle debts or file bankruptcy.

What Should I know about Debt Settlement?

(1) In order to settle debts in many cases, you must be delinquent on your payments.

This is because it does not make good business for a credit card company to offer a settlement to somebody who pays their minimum payments every month while the balance continues to rise. Once you stop paying on the debt, usually for at least 6 months, the debt may be charged off and sent or sold to a collection company or law firm or a collection department of the credit card company designed to recoup what they can from you and make offers for less than the full balance.

(2) If You stop making payments and do not have funds available to settle with the creditors, you may have a civil lawsuit filed against you.

If a judgment is entered against you and you did not respond to the lawsuit or were unaware of it for whatever reason, your wages can be garnished and it will report as a judgment on your credit report. Once a judgment is entered against you, it becomes much harder to negotiate a settlement for less than the full balance.

(3) If you stop paying on your debts, often times the late payments or charge offs will report on your credit report and stay there for up to 7 years, even if you settle with the creditor at a later date. The account should eventually be reported as settled for less than the full balance once it is settled.

(4) If you have more than $600 forgiven by a creditor, then you may have to pay taxes on any debts that are forgiven.

(5) If you have 2 or more creditors file a lawsuit at the same time and you don’t have funds on hand to settle with them, what are you going to do? You may end up having to file bankruptcy anyways at this point.

(6) National debt settlement companies typically charge 15% of the total balance that you enroll in their program. When you factor in this fee in addition to having to pay taxes and damaging your credit, is it really worth hiring a national debt settlement company? With that said there are some legitimate company’s who may charge a low flat fee to negotiate your interest rates down which may be a better option compared to actually trying to settle your debts.

In Washington State there is a debt adjusting law on the books under RCW 18.28 in which a debt adjuster or debt adjusting company can retain no more than 15 percent of the total amount of any payment made by a debtor. The statute also requires that debt adjusters pay at least 85 percent of each payment received by a debtor to their creditors. If a debt adjuster contracts for, receives, or makes any charges beyond the maximums permitted by law, the debt adjuster’s contract with the debtor may be void. The debt adjuster is then required to return all money it received from the debtor and not distributed to creditors. Finally, any payments received by debtors must be placed in a trust account by the debt adjuster and their services billed against the trust account. Failure to follow any of these requirements could result in an action by the Washington state attorney general if reported. It should be noted that lawyers or law firms practicing in Washington may be exempt from this law if the representation is in association with legal services.

(7) Some creditors will not negotiate a settlement for less than the full balance. Credit Unions and medical debt can often be quite stingy in their negotiations as well as any creditor who already has a judgment obtained against a defendant.

(8) Many national debt settlement companies are not law firms or lawyers and cannot represent you in court should a lawsuit be filed against you. They may say they can refer you to a local attorney or they partner with one should a lawsuit come up, but that may cost you more out of pocket expense and you may be on borrowed time if you get several lawsuits filed against you if the accounts are not settled in a timely fashion as you may not have enough funds built up.

If you are already delinquent on your debts and now have a lump sum to settle your debts with, debt settlement may make a lot of sense, but I still would not advise hiring a national debt settlement company as they may be in violation of the Washington State debt adjusting law and you may end up paying more than you would have paid through local debt attorney or alternative options. Most lawyers who deal in bankruptcy or debt issues can help you negotiate settlements for a flat fee, rather than giving a percentage of your overall debt to a national debt settlement company.

Should You File Bankruptcy instead of Settling Your Debts?

Bankruptcy can sound complicated and scary, and it does in fact have a lot of complex laws that a qualified local bankruptcy attorney can help you navigate, but the truth of the matter is, chapter 7 or chapter 13 bankruptcy may make the most sense for most consumers who are struggling to answer the question of whether to settle debts or file bankruptcy.

A bankruptcy can eliminate most types of debts and can allow for no payments in chapter 7 or a payment plan in chapter 13 bankruptcy, often times for less than the full balance of your debts. Whether you can qualify for chapter 7 bankruptcy will depend on your household income, asset value and family size among other factors. These same factors would also help determine what you might have to pay back to your creditors in a chapter 13 plan.

In many cases consumers will save significant money over the long term vs. debt settlement or at a minimum and chapter 13 bankruptcy can allow for a repayment plan over 3 to 5 years while being protected from any creditors who may want to collect against you. This is because of the automatic stay in bankruptcy in which creditors are forbidden from collecting on a debt once the bankruptcy case is filed. It should be noted that if you are in a chapter 13 repayment plan, you cannot incur new debt while in the bankruptcy plan and you must include all of your debt in the plan. Furthermore, a bankruptcy in can report on your credit report as a public record for up to 10 years. This can sometimes steer consumers away from bankruptcy, but be assured that you will qualify for new credit as soon as you are finished with your bankruptcy case and can even qualify for a home loan in 2 years after filing chapter 7 bankruptcy and immediately after finishing a chapter 13 plan.

In most cases bankruptcy allows consumers to get on with their lives, without having to worry about creditors who may show up at of nowhere to file a lawsuit or collect a debt. While there are many cases in which debt settlement may make sense, such as a consumer may lose property in a Ch. 7 case, only has a small amount of debt, or cannot afford payments in a chapter 13 plan because they own assets of significant value, in many situations bankruptcy is the better option.

If you live in Washington State and are looking for options with regards to how to best manage your debt, give Symmes Law Group a call at 206-682-7975 or contact us to get the counsel you need.

What is the New Small Business Chapter 11 Bankruptcy?

New Chapter 11 Small Business BankruptcyOn Friday August 23, 2019, President Trump signed the Small Business Reorganization Act of 2019 into law, which includes a new small business chapter 11 bankruptcy.  This law will go into effect in February of 2020 and could benefit many small business debtors who are considering filing a chapter 11 bankruptcy next year.  I discussed this topic on the New Urban Unlimited Radio show on 1150am KKNW and you can listen to the segment about the new small business chapter 11 bankruptcy here:

How Does the New Small Business Reorganization Act of 2019 Help Small Business Owners?

If you are a struggling small business owner, this new law may have no affect on your debt relief options. For many struggling small business owners, the best option may be to close the business and then file a personal chapter 7 or chapter 13 bankruptcy or consider debt settlement options.

In chapter 7 bankruptcy a debtor allows for a debtor to receive a discharge of most debts, and they are allowed to keep a limited amount of exempt (protected) assets. Non exempt assets may be subject to an appointed trustee liquidating the assets on behalf of creditors. A debtor in chapter 7 may also be subjected to income limits and you can’t have disposable income remaining to pay creditors and still file a chapter 7.

In a chapter 13 bankruptcy no assets are liquidated and sold, but you do have to pay back the value of any non exempt assets in addition to any disposable income you may have. The catch here is there are debt limits in chapter 13 which are currently $1,257,850 in secured debt (tied to property) and $419,725 in unsecured debt (credit cards, personal loans, medical bills etc). You will not be eligible for chapter 13 if you exceed these debt limits.

There is also the standard chapter 11 bankruptcy in which there is no debt limit and debtors can propose a repayment plan, however standard chapter 11 bankruptcies can be very expensive and time consuming requiring monthly reports, creditor committees, trustee’s are usually not appointed to manage payments which means you are in charge, and cram downs are not likely available (cramming the debt owed on an asset down to the actual value of the asset).

The new streamlined small business chapter 11 bankruptcy will allow for a trustee to be appointed to the case to manage payments, there will be no creditor committees, no monthly reports and cram downs may be available. In general, the new streamlined chapter 11 bankruptcy will be treated much like a chapter 13 bankruptcy in which a debtor will only have to pay whatever disposable income they have available to creditors that is fair and equitable.

Who Can Qualify for the New Small Business Chapter 11 Bankruptcy?

The new chapter 11 small business bankruptcy will be available to:

(1) Small businesses or debtors who have a total debt of less than $2,725,625. This number may be inflation adjusted every three years.

(2) The debtor must be engaged in commercial or business activities other than a single asset-real estate debtor.

(3) At least 50 Percent of the liabilities arose from commercial or business activities.

(4) The debtor is not a member of an affiliated group of debtors (Corporate organization) who’s debts together exceed the statutory threshold.

How Does the New Small Business Chapter 11 Bankruptcy Work?

When a small business bankruptcy is filed under chapter 11, a trustee will be appointed to the case much like in chapter 7 or chapter 13 bankruptcy. The role of the trustee will be to collect payments on behalf of creditors and distribute the funds much like in a chapter 13 case. The small business chapter 11 trustee will also monitor the debtor’s plan of reorganization and could object to a plan if it is not fair and equitable to creditors as proposed.

The debtor in a small business chapter 11 bankruptcy will be required to have a status conference within 60 days of filing the chapter 11 petition, file a report no later than 14 days before the first status conference, and file a plan within 90 days that is fair and equitable in which all projected disposable income of the debtor will be paid to a chapter 11 trustee.

A small business chapter 11 plan can last 3-5 years and at the completion of the plan and a discharge should be given to the debtor, forgiving all remaining unsecured debts per the court order.

Why Should a Small Business or High Net Worth Debtor Consider Chapter 11 Bankruptcy?

The new law makes small business chapter 11 bankruptcies faster and less expensive by creating a new subchapter of Chapter 11 of the bankruptcy code specific to small businesses. In the past chapter 11 bankruptcy did not make sense for most small business debtors because of the expense and requirements of a normal chapter 11 bankruptcy case.

The new small business chapter 11 bankruptcy makes the most sense for debtors who have debts above the allowed chapter 13 debt limits, do not qualify for chapter 7 bankruptcy, or may lose an asset that they want to retain if they were to file a chapter 7 bankruptcy. This new plan may be the perfect solution to those who want to file chapter 13 but are over the debt limits due to various business ventures.

As an added benefit to the small business chapter 11 bankruptcy, a small business debtor may cramdown and/or modify a mortgage claim if in course of operating a business the debtor obtained a secured mortgage loan on their primary residence. The mortgage loan must not have been used to primarily to purchase the debtor’s residence, and the loan funds were used in connection with the debtor’s small business. This is a useful tool to change the terms of home equity loans and second mortgages obtained by the debtor for business purposes.

If you are a small business owner struggling to figure out your next move and you live in Washington State, give Symmes Law Group a call at 206-682-7975 or contact us to speak to a bankruptcy attorney and learn about your options.

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How Should Consumers Prepare for the Next Recession?

Prepare for the next recessionIf you want to prepare for the next recession, you will need to take steps now to ensure that you are ready to protect what you already have and build a nest egg for the future. As of the time of this writing in September of 2019 the financial and real estate markets have seen a record run up since the last recession in 2008.  Financial markets go in cycles and typically after a bull run up, the markets retrace into a recession for a period of time before trending back up again. Since the market has been on an up trend for over a decade it is likely that a recession is coming soon with many experts predicting that a market recession or crash could come to fruition in the year 2020.

While this upcoming recession may not be an immediate crash, it could be a long drawn out downtrend as we are starting to see signs of the start of a recession in 2019.  You should prepare for the next market crash by utilizing offensive and defensive strategies to set yourself up for success and financial security in the future.  I discussed the topic of how to prepare for the next recession on 1150AM KKNW radio and you can listen to the audio here:

What are Defensive Strategies to Prepare for the Next Recession?

Defensive financial strategies to prepare the the next recession are tactics you can use to make sure you can maintain your status quo in a recessionary period.  These defensive strategies include (1) paying or eliminating high interest debts, (2) Having a 3-6 month emergency fund and (3) not panic selling the market.

(1) Pay off or Eliminate High interest Debts

If you have the funds to do so, now is the time to pay debts down as low as you can to set yourself up for success when the next recession hits. In generally paying your debt limits below 25% of your available credit limits will put you in a position to get the best interest rates for borrowing credit.  If you don’t have funds available to pay down your debts, that is ok as there are other options available to you.

Bankruptcy can eliminate  your debts and allow for you to prepare for the next recession.  A chapter 7 bankruptcy discharges most types of debts if you can qualify, while allowing most people to maintain all of their assets. If you own a home with more than 125,000 in equity or own other major assets or are a high income earner, chapter 7 bankruptcy may not make sense.  That is ok as you could still consider chapter 13 bankruptcy, which allows for payments on debts over 3-5 years to become debt free while maintaining all assets in most cases.  Some consumers in chapter 13 have to pay back all of their debts, while others only have to pay back some of their debts.  This depends on a household income, assets, family size and types of debts among other factors.

If bankruptcy is not an option for one reason or another a consumer can consider their debt settlement options where they may be able to pay less than the full balance of their debts.  This usually works best if a person is already delinquent on the debts, but now has the ability to pay off the debts in a settlement amount for a lump sum.  Rarely does it make sense to go on a payment plan with the numerous debt settlement companies as these companies charge a significant fee, cause accounts to go delinquent if they are not already delinquent and can do significant damage to a consumers credit report.  There are also tax implications in which a consumer may have to pay taxes on any debt forgiven over $600.  This is not the case in bankruptcy.

(2) Have 3-6 months in Savings for an Emergency Fund

If you get laid off in a recession or you are self employed and you don’t have disposable income to pay expenses, you will want to be sure to have an emergency fund available so live on. You should consult with an attorney if thinking about bankruptcy as they can advise how much funds you can have on hand for retirement or savings.  Failure to have an emergency fund available with no source of income coming in is not going to help you.  You should know that funds in a retirement account are likely exempt (protected) in a bankruptcy filing, so before draining your retirement funds to settle debts, you should consult with a bankruptcy attorney.

(3) Don’t Panic Sell The Market

If you are invested in retirement accounts already such as an IRA or 401K, it likely will not make sense to panic sell when the market starts to crash. If you are holding securities for retirement in the long term, it is likely you will miss out on gains if you sell at the bottom of the market and don’t get back in to the market to realize the gains from a recovering market.  It is very hard to time the market so often times it makes sense to just hold and wait for the recovery or you could miss out on possible gains after the market start to recover.

Also if you were to sell off parts of your retirement accounts, you will need to consider that you may have tax consequences and penalties for doing so. Therefore selling off parts of your retirement accounts premature is not advisable in most cases and you should just hold the accounts, collect your dividends and wait until the market recovers.

What are Offensive Strategies to Prepare for the Next Recession?

(1) Build a War Chest and Save Cash

Once the market is in a recession it will allow great opportunities for investing in the market to buy at the bottom and realize gains in the long term. You should be saving for when this time comes so you can realize the gains at a greater rate when the market recovers. This is the best time to purchase real estate as well as a primary home or investment property as interest rates and purchase prices will likely be at a low point until the market recovers.  Once the market recovers you will be in a prime position to profit on the gains.

In the meantime while building your war chest, you should keep money in a high interest online savings account. At the moment some of these accounts allow for 2% returns or higher on your money, making these accounts insulated from a market crash and allowing for a modest return in the meantime while you wait to make your next move in investing when the time is right to invest the funds. If you put your excess funds in a CD or other investments they may have lockup periods, making your cash unavailable for a period of time.

(2) Systematically Invest in the Market

When the market starts to decline, it is advisable to dollar cost average your investing on the way down. This is because nobody knows how low a market will go from its current level and if you buy the market at regular intervals all the way down until it levels then your buy in is averaged out and you don’t miss out on a possible recovery of gains. Its extremely difficult to predict the bottom on the market, so as long as your average buy in is lower than where the market started, you will be primed to benefit from gains in the market.

(3) Update Your Resume or Prepare Your Business to Prepare for the Next Recession

If there is a market recession it likely means that big companies will have to lay workers off as they will not be able to afford their salaries any longer. This means that you may be out of work and you will want to have your resume ready in case you need to start applying for jobs right away. While things are going well is the best time to update your resume and be prepared.

If you are self-employed, you may be insulated from having to apply for work, however its possible your business will suffer in the next recession. While it’s a good idea to have an updated resume handy, you will want to start thinking about how you can adapt to a new market if you would anticipate a drop in revenue as part of the recession.

Remember its not a matter of if, but when the next recession will happen so if you live in Washington State and are looking for options for eliminating your debt to prepare for the next recession, give Symmes Law Group a call at 206-682-7975 to speak to a debt relief attorney and learn about your options.

What is Financial Self Defense?

Financial self defenceFinancial self defense is a term used to describe your overall financial well being and planning for the future and unknown.  I had the chance to discuss this topic on 1150 AM KKNW radio with Dr. James Gore the host of the New Urban unlimited radio show and JR Gillespie of All Star Financial Insurance. You can listen to our full discussion on financial self defense here:

Should Financial Self Defense Include Creating a Household Budget?

Financial self defense starts with implementing the correct budgeting based on your household income and making sure you are not living outside of your means.  By sticking with your budget you can keep an eye on overspending and make sure you are saving something for your future.  These days 78% of Americans are living paycheck to paycheck so it’s important to get a financial plan in place so you can put funds away for savings and  rainy day.

Should Financial Self Defense Include Obtaining the proper insurance?

Insurance can come in many forms and amounts.  Some of the most popular types of insurance include medical insurance, life insurance and disability insurance.  Having the proper insurance can insure that your family is taken care of if you are not around or unable to work in the future.  For instance if you are a business owner and have an accident which makes you unable to work, having the proper insurance can make sure you still get a paycheck every month even though you are unable to work.  Insurance will help you stay on track and stick to your budget so you don’t have to be one of the 78% living paycheck to paycheck.

Should Financial Self Defense Include Business Planning?

If you are a business owner or real estate investor, having your businesses set up as an entity such as an LLC can make sure you will not be liable for business debts should you run your business properly.  For example if you are facing collections for a business debt that you are not personally liable on or somebody slips and falls at a property you own and the property is owned by a business, your personal assets would be protected. Proper business planning can save you from having to personally deal with such an emergency and makes sure you can stick to your budget and continue to save for your future.

Should Financial Self Defense Include Estate Planning?

Estate planning is something that everybody should be thinking about.  A typical estate plan consists of a will, power of attorney, medical power of attorney and a health directive.  Having a will in place will make sure your assets will go where you want them to for the protection of your family when you pass away.  A will can also set up a testamentary trust for your children and name guardians so there is no question as to you wishes.  A power of attorney makes sure that your finances can be controlled by another should you become incapacitated and medical related documents make sure the right person is making your medical decisions should you not be able to. Having things documents in place avoids confusion by your family should something happen to you and makes sure there are safeguards in place for your estate and is part of the financial self defense strategy.

What Can I Do If I Did Not Utilize a Financial Self Defense Strategy or I Had An Emergency?

It is never too let to start thinking about your financial self defense plan moving forward.  You can start be talking to professionals who can set you up on a plan to make sure you are protected moving forward.  If you are already in financial distress then there are also options such as chapter 7 bankruptcy, chapter 13 bankruptcy and debt settlement that can get you back on track and in control of your financial future.  Once you have a plan for your finances you can start rebuilding your credit and be protected should there be a financial emergency in the future.

If you live in Washington State and are looking for options for how to implement a financial self defense strategy, give Symmes Law Group a call at 206-682-7975 to speak to a financial planning attorney and learn about your options.

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