Tuesday, July 31, 2007

Is a Short Sale Better Than Filing Bankruptcy?

Question: The payments on my adjustable rate mortgage are going through the roof. I owe more than my property is worth, so I cannot refinance to a fixed rate mortgage and I just can't afford my payments any more. My real estate agent tells me that a short sale is better than letting the property go in a foreclosure or a bankruptcy. What should I do?

Answer:
I've seen real estate agents try to push short sales as a cure all to avoid bankruptcy. Quite frankly, the answer just isn't that simple. A short sale should only be considered after weighing all of your options, including bankruptcy and foreclosure.

A short sale is where the the lender takes less money than is actually owed because it may be a better alternative for the lender than a foreclosure sale in a down market. Before allowing a short sale a lender will want to see how such a deal can be structured. Perhaps the borrower has other assets, or perhaps the short-fall can be made up with a note to the lender.

If the lender forgives a portion of the debt, debt forgiveness over $600 must be reported to the IRS as income to the borrower -- money not actually received by the borrower, but money that is taxable. On the other hand, debt forgiveness received in bankruptcy is not taxable.

A successful short sale gives the homeowner some control over their destiny. The homeowner may be able to avoid bankruptcy and a foreclosure on their credit rating with a successful sale. However, short sales are often time consuming and difficult to negotiate.

One factor that real estate agents often do not consider is the total debt picture of the homeowner. While a short sale may resolve the issue of escalating mortgage payments, the homeowner may have other debts that need to be dealt with in a bankruptcy. Preventing a short sale won't do much good to protect a consumer's credit rating if a bankruptcy becomes necessary at a later date.

Every situation is different, but I see many clients who who cannot afford their mortgage payments and they usually have other debt problems. Sometimes paralyzed with fear, the do not know which way to turn. In many cases, their best option is to file for Chapter 7 to get out from under all of their debt problems and avoid the potential tax problems with a short sale and letting the bank take the property back in a foreclosure.

The only way to determine what is best for your situation is to seek the advice of a competent attorney and a tax professional. Short sales are not a magic solution that some proponents make them out to be and you must look at your global decision before deciding which course of action to take.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Monday, July 16, 2007

Credit Card Statements and Preparing for Bankruptcy

Question: Why do you request 3 months worth of credit card statements prior to filing my bankruptcy case?

Answer: We have two primary reasons for requesting this many credit card statements. Both have legal and practical implications.

First, your credit card statement is the best evidence of the proper address to notify creditors when you file bankruptcy. The bankruptcy court does not independently verify the addresses that debtors provide when it mails out notices related to the bankruptcy. Using the addresses provided on the credit card statements also saves our staff the time in might take to research the creditor's address online. It enables us to file your case sooner.

Second, we like to review a client's credit card purchases to identify any potential problems with receiving a discharge. I strongly recommend that my clients stop using their credit cards once they have decided to file bankruptcy. Incurring debt that you knew would not be repaid could be considered fraudulent, thus resulting a denial of a discharge.

Creditors can file an action called an adversary proceeding to object you receiving a discharge. Purchases for luxury goods or services totaling more than $500 on a single credit made within 90 days before the bankruptcy filing date are presumed to be fraudulent if the creditor files an adversary proceeding. Cash advances totaling $750 or more during the 70 day period prior to the bankruptcy filing date have the same presumption of fraud.

We do our best to make sure that all of your creditors are notified of your bankruptcy case and to insure that you receive a discharge of all of your debts.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Friday, July 06, 2007

Enforcing Foreign Court Judgments in California

From time to time, a judgment creditor who obtained a judgment in another country will seek to enforce it in the United States. California has adopted a law called the Uniform Foreign Money-Judgments Recognition Act to register foregn court judgments.

The process of domesticating a foreign judgment is more complicated than registering a judgment from another state. Registering a judgment from another country requires filing a new California lawsuit. It would be necessary to confirm the location of the debtor and serve the debtor with the lawsuit. The debtor would have 30 days to respond to the lawsuit just like any other civil action in California.

If the debtor decided to fight the lawsuit, it could take several months to resolve the case. The California court would primarily be concerned with due process rights. If the foreign court judgment was obtained by default, the California court would require proof that the debtor had notice of the lawsuit (i.e. proper service) and an opportunity to be heard. If the debtor fought the lawsuit, due process requirements are satisfied and a certified copy of the judgment would be sufficient along with an authenticated translation in order to obtain a California judgment.

A judgment is only as good as the amount of assets available to enforce it. Before investing additional money, the judgment creditor should consider obtaining an extensive background and asset investigation to determine if the debt is collectible. Click here to read any article on some of the methods available to collect California judgments.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.