California Adopts Moratorium on Many Foreclosures

On February 25th, Governor Arnold Schwarzenegger signed a bill into law that establishes a 90-day moratorium on many home foreclosures on in California. The bill protects owner-occupied homes from foreclosure where the first loan was recorded between Jan. 1, 2003 and Jan. 1, 2008.

Under existing California law, a lender can initiate a foreclosure by recording a notice of default. After the expiration of 90 days, the lender can record a notice of sale. For first mortgages recorded between January 1, 2003 and January 1, 2008, the lender must now wait 180 days before giving notice of a sale date unless the lender or loan servicer has an approved loan modification program in place. The new legislation expires on January 1, 2011.

In January 2009, lenders commenced more than 2800 foreclosures in San Diego County. Like many other legislative proposals, the intent of this legislation is to force lenders and loan servicers to be more reasonable in offering loan modifications to troubled homeowners. However, it is unclear how many of those 2800 foreclosures will be prevented by this legislation.

With the vast array of options available for struggling homeowners, the most important advice is to seek the assistance of a qualified attorney. For some, the best option might be a Chapter 13 bankruptcy to strip an unsecured second mortgage from their home. For others, the best option might be an experienced attorney who specializes in loan modification services. For now, the California legislature has offered homeowners additional time to negotiate and incentives to lenders to cooperate with reasonable modification requests. Whatever you decide to do, hire a professional and don’t go it alone.

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.

Why Republicans Should Support Judicial Loan Modification

This is an open letter to all of the Republicans that serve in the United States Senate and the House of Representatives:

I am a Republican and a conservative, so it is a bit unusual for me to be asking you to support a piece of legislation introduced by the Democrats. I am specifically asking you to support House Resolution 200, the Helping Families Save Their Homes in Bankruptcy Act of 2009 ("H.R. 200").

Over the last year, I have watched as our government has flailed around from one failed measure to another in a vain attempt to save the economy. Big lenders such as Citibank have received hundreds of billions of dollars of taxpayer money under the theory that the bailout would free up the credit market, but I have yet to see any benefit to the consumers. It is time to stop bailing out Wall Street and pass legislation to help the "little guy".

As a member of the National Association of Consumer Bankruptcy Attorneys, I am in the trenches every day in an attempt to help my clients save their homes. The biggest obstacles that my clients encounter are adjustable rate mortgages and intransigent lenders who refuse to consider even the most reasonable loan modification requests.

H.R. 200 would give bankruptcy judges the authority to modify mortgages while still giving the note holders a reasonable return on their investments. The mortgage industry has already received help from the bailout money. The credit card industry received help when Congress passing the bankruptcy reforms in 2005. Isn’t it about time to help out the people who actually need it?

The lawful ability of a consumer to force a mortgage modification will provide the necessary impetus for many of the loan servicers to voluntarily modify the loans without the need for a bankruptcy filing. Without this legal leverage, there will be no bargaining power for the average consumer.

Credit Suisse estimates that passage of this legislation could reduce home foreclosures by as much as 20%. If you want to save the economy, then keeping people in their homes is a good way to start. This legislation would help homeowners get relief under the Bankruptcy Code and help people get back on their feet again.

The enactment of this law will not dramatically increase the number of new bankruptcy cases. The primary benefit of the law will be to give consumers who are already in bankruptcy the equal opportunity to modify their residential loans. The Congressional Budget Office in a study for Senator Durbin has estimated that the law will only result in approximately 2,000 new bankruptcy filings per year. It is time to help level the playing field and help your constituents in this time of need.

Thank you for your consideration.

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.

Debt Warriors Retracts Story

In a recent article, I posted a blog entry criticizing a website called Debt Warriors for publishing an article entitled "7 Facts That The Average Bankruptcy Lawyer Will Not Tell Debtors". Author J. Carlton Ford also owns the Debt Warriors website, which sells "coaching" videos for nearly $50 that purport to teach consumers how to negotiate settlements with creditors.

I engaged Mr. Ford in direct conversation via his website, where he initially defended his position and proceeded to attack my own motives. However, he has since removed his article without further comment. He never did explain the basis for some of his false claims such as how he arrived at the erroneous conclusion that Congress had eliminated Chapter 11 from the Bankruptcy Code.

When confronted with the facts, Debt Warriors chose to turn and run from the battlefield. Mr. Ford's actions speak loudly regarding the value of his "coaching" services.

If you are experiencing debt problems, don't pay someone to teach you debt settlement techniques that you can learn for free with a simple Google search. If you are in over your head, consult a member of the National Association of Consumer Bankruptcy Attorneys for assistance. If you live in Southern California, please contact us for a free consultation.

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.

Tax Evasion the Latest Trend?

President Obama has seen two of his cabinet appointees withdraw their names in light of their recent tax problems. Is tax evasion a new trend in these tough economic times? Business and attorney Carl Starrett was asked to appear on KUSI's Good Morning San Diego to talk about this latest issue:

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.

Debt Warriors—Wrong Soldiers Fighting the Wrong War

As the economy continues to worsen, businesses offering credit counseling, debt management and other "quick fix" plans continue springing up to offer debt relief services to consumers. A colleague forwarded me a blog article from an organization called Debt Warriors entitled "7 Facts That The Average Bankruptcy Lawyer Will Not Tell Debtors". Author J. Carlton Ford describes himself as a "former Legal Assistant in a Bankruptcy Prevention Law Firm". He is also a sales associate for Pre-Paid Legal Services, Inc. It is not clear whether or not Mr. Carlton is in fact a licensed attorney. However, it appears he is not.

Debt Warriors purports to offer to teach consumers how to stop creditor harassment and eliminate their debts without filing for bankruptcy. Based on misinformation contained in the article about "average" bankruptcy attorneys, I would seriously question the value as well as the credibility of the services offered by Debt Warriors. As the old saying goes, "if it sounds to go to be true then in most cases it is simply not true."

Mr. Ford is unclear on what he believes is an "average" bankruptcy attorney. Of course, if Ford is not an attorney himself, so it would be difficult for him to evaluate licensed members of the bar. I have been in practice for more than 15 years, representing both creditors and debtors. I have limited myself to representing consumer debtors since 2005 and I am a member of the National Association of Consumer Bankruptcy Attorneys ("NACBA"). So far this year, I have helped my clients discharge more than $3.7 million of debt in Chapter 7 bankruptcy cases. I have no idea if Mr. Ford would consider me to be an "average" or "typical" bankruptcy attorney, but I offer the following responses to the "facts" about bankruptcy that "average" attorneys allegedly hide from their clients:

1. Ford Claims that Bankruptcy is Not Easy to File. Bankruptcy has never been "easy" to file. It is complex and difficult in many cases, which is exactly why every consumer needs an experienced bankruptcy attorney. Ford then goes on to make the nonsensical statement that Congress eliminated Chapter 11 from the Bankruptcy Code with the 2005 Amendments. Besides being a completely untrue statement, Chapter 11 is meant for large businesses to restructure their debts. It is very rare that a consumer debtor would even file a Chapter 11 case. However, some individuals must file for Chapter 11 relief because of the amount of the debt they owe. Chapter 13 is available for the "average American wage-earner" so the debt limits for Chapter 13 relief do not apply to high-income wage earners and individuals with substantial and significant secured and unsecured debts.

2. Ford Asserts that Consumers seeking Bankruptcy Protection have to take a 'Means Test'. The 2005 Reform Act does include a financial means test for consumers who seek to discharge their debts under Chapter 7 or repay their debts under Chapter 13. Of course a bankruptcy attorney would discuss the means test with a potential client. It is the most highly publicized change from the 2005 Reform Laws and the most burdensome change to debtors. However, it is not a "test" like a true-false exam in high school. It is a historical analysis for the consumer’s average monthly income for the 6 months before the bankruptcy case is filed, not including the month in which the case is filed. It is somewhat like filing out a tax return. The bankruptcy attorney is the one who completes the form based in the payroll and tax records provided by the consumer and income from other sources. A consumer debtor cannot file for bankruptcy without completing the means test analysis form. But, it is a form, and not a test.

3. Form Claims there is a Presumption of Bankruptcy Abuse By The Debtor. The author seems to be discussing the financial criteria of the means test: "Did you know that if a Consumer has income of over $100 per month (after deductions) and they seek Bankruptcy Protection, that Consumer may be ‘Presumed’ guilty of Bankruptcy Abuse? The average Bankruptcy Lawyer will not inform you of this fact."

This statement by the author is utter nonsense. Mr. Ford to be referring to the financial criteria of the means test. If a consumer debtor "fails" the means test, then it might be a presumption of abuse for them to file for Chapter 7 bankruptcy. In such cases, the debtor might need to file for a Chapter 13 repayment plan and pay back a small portion of those debts. Or, the debtor may be able to claim "special circumstances" that would negate the presumption of abuse and proceed with the Chapter 7 case. The bottom line is that a bankruptcy attorney cannot "hide" the means test from a debtor and in fact completes the form for the debtor.

4. Ford Claims that Consumers Seeking Bankruptcy Protection Must Wait 180 Days (6 Months) Before Filing. This statement is simply false. Prior to filing for bankruptcy, a consumer debtor must take an approved class in credit counseling and file their certificate of completion with the court when filing their bankruptcy petition. The class must be taken within 180 days before the filing date of the debtor's bankruptcy petition. There is no requirement to delay filing for bankruptcy. The only limitation on the credit counseling is that you cannot take the course and then file for bankruptcy the same day you complete the course. But, the 180 Rule as stated by Ford is simply false.

5. Ford then Claims that Bankruptcy Filers Must Seek Accredited Credit Counseling Before Filing. Of course an attorney would mention this to a potential bankruptcy client. If a consumer debtor does not take the class, the court will dismiss their case. Not only do I mention this class to my clients, I arrange for them to take it! The filing of a certification from the counselor and a sworn statement from the debtor is an essential part of the bankruptcy court filing and as noted the case will be dismissed without these mandatory documents. The class is not an embarrassing or burdensome task. In most cases, debtors may take the class in the privacy of their own home via the Internet or over the phone. The classes generally take up to 90 minutes to complete.

6. Ford Claims Bankruptcy Is Now More Difficult and More Costly To File. Yes, bankruptcy is more difficult and expensive to file than before the changes made by the 2005 Reform Law. That fact is certainly no secret to the public. Before I accept money from a client, we discuss the fees and I provide them with a signed fee agreement that contains all of the disclosures required by the Bankruptcy Code.

7. Ford Claims that Pre-Paid Legal Attorneys Are Way Above Average. Maybe Pre-Paid Legal attorneys are above average. I have nothing neither good nor bad to say about them. I do know that customers of Pre-Paid Legal only have one provider law firm to choose from in the entire state of California. You have very few options if you are unhappy with the provider law firms.

In the final analysis, Mr. Ford's article is nothing more than a biased and inaccurate attempt to promote his Pre-Paid Legal Services Plan and his questionable debt negotiation services while perpetuating blatant and outright false myths about the benefits of bankruptcy. If you are a debtor in need of guidance regarding debt problems, consider using the attorney search function on NACBA's website to find a qualified local bankruptcy attorney. Members of NACBA are far more qualified to advise debtors regarding then debt relief options than a former paralegal promoting service of dubious value. The NACBA website is http://www.nacba.org/. The American Bankruptcy Institute (http://www.abi.org/) also includes a substantial amount of material on consumer bankruptcy law under their "Consumer Bankruptcy Center" link. Finally, the National Association of Chapter 13 Trustees has a website for consumers seeking Chapter 13 information (http://www.nacttacademy.com/).

Update: After engaging Mr. Ford is direct conversation about the problems with his article, he deleted it from his website without further comment.

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.

Bankruptcy and Tax Refunds

Question: I filed for bankruptcy in 2008 and it was also discharged in 2008. Is this going to change my tax refund?

Answer: A tax refund is essentially an interest free loan that taxpayers make to the government by having too much money withheld from their paychecks. The potential for a tax refund is an asset that debtors must list in their bankruptcy petition. In many cases, the debtors can claim the tax refund as "exempt", which allows them to keep the refund.

Although bankruptcy is a federal law, it is usually state law that determines whether a debtor's property is exempt and beyond the reach of the bankruptcy trustee. Most debtors in California are able to take advantage of California's flexible "wild card" exemption to keep any anticipated tax refund.

The amount of the potential tax refund can impact the timing of a debtor's bankruptcy case. If a refund might exceed the debtor's available "wild card" exemption, it might be wise to delay filing of the bankruptcy to allow the debtor to receive the refund and spend it on necessary living expenses.

In other cases, the size of the refund might not warrant a delay in filing. To help properly plan a bankruptcy filing we recommend that debtors file their tax return as soon as possible, avoiding the temptation to file for an extension.

Exemption laws vary by state, so it is important to consult an experienced bankruptcy attorney to determine what impact a bankruptcy will have on your tax refund. Debtors in Southern California are encouraged to contact us for a free consultation.

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.

Does Credit Repair Really Work?

In a recent article, I discussed the impact that bankruptcy might have on a debtor's credit score. However, even the slightest bit of negative information can lower your FICO score significantly. In one case, my client saw their credit score drop by more than 100 points to due a $100 small claims judgment that she had already paid.

Regardless of whether you retain the services of and attorney, credit repair organization or do it yourself, you have the right to dispute inaccurate information in your credit report. However, you will not be able to remove any information that is accurate, current and verifiable.

Most negative information must be removed after 7 years and bankruptcy information can remain on your credit report for up to 10 years. You can obtain a free copy of your credit report at http://www.annualcreditreport.com/. Although creditors must use reasonable procedures to maintain an accurate credit report, mistakes are very common. Once the credit bureau has been notified of a dispute, it must reinvestigate and modify or remove inaccurate or incomplete information. The credit bureau may not charge a fee for this service.

Any pertinent information and copies of all documents you have concerning an error should be given to the credit bureau. If the credit bureau's reinvestigation does not resolve the dispute to your satisfaction, you may send a brief statement to the credit bureau to be kept in your file, explaining why you think the record is inaccurate. The credit bureau must include a summary of your statement about disputed information with any report it issues about you, although some commentators have suggested that this may actually do more harm to your credit.

Companies that offer to help you improve your credit score are governed by The Credit Repair Organizations Act. A credit repair organization cannot remove bankruptcies, judgments, liens, and bad loans from your credit file nor can they legally create a new identity or credit profile for you.

If you have had problems with inaccurate information your credit report, please contact us further assistance.

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.