Another $600 Billion Bailout?

A day after announcing a $20 billion bailout for Citigroup, the Treasury Department and the Federal Reserve announced a plan to purchase $600 billion in bad loans. San Diego business and bankruptcy attorney Carl Starrett was asked to appear on KUSI's Good Morning San Diego to talk about what this bailout means to the general public:

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.

Citigroup Gets an Additional $20 Billion Bailout

Another banking giant is being rescued by the government. This time it's Citigroup, who'll get a $20 billion bailout. San Diego business and bankruptcy attorney Carl Starrett was asked to appear on KUSI's Good Morning San Diego to talk about what this bailout means to the general public:

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.

Can Bankruptcy Improve Your Credit Score?

Question: Can bankruptcy improve my credit score? I am thinking about filing for Chapter 7, but I keep hearing different information about how it will impact my credit score.

Answer: The quick answer to your question is that people who already have bad credit (FICO score of 330 to 619) will usually see a dramatic increase in their credit rating within 12-18 months after filing for Chapter 7 bankruptcy protection. People with low to average credit (FICO score of 620 to 659) should see a modest increase in their credit score. Most others should see moderate to severe decreases in their credit score.

A consumer’s FICO score is a snapshot of their credit worthiness. Your payment history accounts for 35 percent of the total score, so paying your bills on time is very important and the best way to remove most of the bad credit from your credit report. The rest of your credit report is based on how much you owe, the length of your credit history, the types of credit and debt that you have and other factors. Even with a perfect payment history, two-thirds of your credit score based on less objective criteria than your payment history.

As an example of how bankruptcy can improve your credit score, I have a client that filed for Chapter 7 bankruptcy in June 2008 that should see their credit score increase over 100 points. The debtor had credit card debt of almost $55,000 and a credit score of less than 570. The court granted my client's discharge in September 2008. By following a few easy steps, the client’s credit score should reach 670 by June 2009.

A Chapter 7 bankruptcy discharge will accomplish several things to help a debtor improve their credit. First, your creditors can no longer report a delinquent payment history moving forward from the date that your bankruptcy case is filed. Second, your unsecured debt will be listed as zero. Finally, a Chapter 7 bankruptcy allows you to get a fresh start.

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.

Timeshare Dragging You Down? Consider Donating It!

In my bankruptcy practice, I often see debtors who own timeshares that they no longer want for a variety of reasons. In many cases, the debtors owe more than the unit is worth and can no longer afford yearly maintenance fees. With timeshares selling for as little as $1 on eBay, debtors are often stuck between the proverbial rock and a hard place.

One option that debtors might consider is an organization called Donate for a Cause. Donate for a Cause is a non-for-profit organization based in Washington D.C. that accepts timeshare donations and sells the unit to raise money for local charities. According to its website, Donate for a Cause supports a wide range of charities such as the American Cancer Society and the American Red Cross.

Donate for a Cause will provide you with a receipt for your donation. You should consult with an accountant or other tax professional for advice on how to claim the deduction when you file your income tax return.

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.

Self-Employed Debtors: The Bankruptcy Means Test Dilemma

When Congress amended the Bankruptcy Code in 2005, one of the biggest changes was the addition the "means test" to create objective standards for determining which individuals are "abusing" the privilege of filing for relief in a Chapter 7 bankruptcy. The test only applies to individuals with primarily consumer debts (as opposed to business debts) and begins with a review of the debtor's average income for the past six months to determine the debtor's approximate income.

If the debtor's income is below the median income for households of the same size where the debtor lives ($77,014 for a household of 4 in California), then the debtor "passes" the means test and is eligible for Chapter 7 bankruptcy. Debtors who earn above the median must go a through an analysis to calculate the debtor's ability to fund a Chapter 13 repayment plan.

For most debtors, the income documentation comes from their paychecks stubs. The income and mandatory deducts for items like taxes and FICA are easy to identify and analyze. But what about self employed debtors?

For debtors who are self employed/sole proprietor, as a general rule, the bankruptcy trustee is interested in the net income of the business, which consists of gross income of the debtor's business minus necessary business expenses. This usually requires completion of a Profit and Loss Statement showing gross income and gross expenses for the six (6) months prior to case filing, with enough specificity to allow the Trustee to fully analyze the business. Surprisingly, many business owners do not know how to produce a Profit and Loss Statement.

Small business owners should use an accounting program such as QuickBooks or Microsoft Money. The business owner should track their expenses with the same level of detail that might be used when applying for a mortgage or completing a tax return. The more legitimate business expenses that that the business owner can document, the easier it is to pass the means test.

Some business owners resist this requirement due to the time required or the potential cost if they require assistance from a bookkeeper or an accountant. However, the fiscal discipline necessary to produce proper financial statements is often required for a small business owner to succeed. Most Chapter 7 debtors really have no idea where their money goes, which is often the source of their financial difficulties. Being able to properly track income and expenses is the first step to helping a struggling business owner take control and get the full benefit the fresh start from a discharge in bankruptcy.

If you are located in Southern California and have additional questions about bankruptcy or need further assistance, please contact us.

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.

Consumer Tip: Avoid Purchasing Electronics From Staples

On October 7, 2008, I purchased a Compaq Presario CQ50-130US Notebook PC for my 11-year-old daughter from Staples. The laptop is now defective and Staples refuses to take the merchandise back and exchange it for something that works properly.

The laptop worked fine for the first 2 weeks. Things started to go bad when my daughter returned from sixth grade camp this past weekend. Both network cards have failed (i.e. no Internet access) and the sound card is defective as well. It makes a loud popping sound, much like a Geiger counter that you might see in a bad sci-fi movie from the 1950s. After spending most of Sunday either on hold or chatting with Hewlett-Packard tech support, HP finally decided the laptop needed to be "repaired".

Staples apparently has a 14-day return policy on "technology items" that was not made known to me until after the purchase. While I wait for HP to send me a shipping box (arriving in 5-7 days) to return the laptop for repair a laptop that is less then 30 days old, Staples will not stand by the products it sells. Their offer of a $20 coupon to be sent via email in about 2 weeks shows how out of touch they are with quality customer service.

Consumers shopping early for Christmas who make electronics purchases at Staples run a huge risk if the merchandise is found to be defective on Christmas day because it is not Staples' problem according to their policy. They will attempt to direct you to the manufacturer for enforcement of your warranty.

If you are considering an electronics purchase in the near future, you might be better off selecting vendors with better customer service and return policies such as Walmart or Costco.

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.