Insolvency Is Not Bankruptcy

In a recent blog entry, I discussed the misleading concept that some debtors think of themselves as "judgment proof".  However a recent question from a client about insolvency as an "alternative" to bankruptcy indicated that another article on the topic might be warranted.

There are two types of insolvency:  (1) cash flow insolvency, where you cannot pay your debts as they come due; and (2) balance sheet insolvency, where the debts exceed the value of your assets.  Insolvency might make a bill collector's job more difficult, it is NOT as a legal defense to the nonpayment of debts and cannot protect you from a lawsuit for unpaid bills.

You cannot be "declared" insolvent nor can you "claim" insolvency except perhaps when dealing with debt forgiveness income on your tax return.  If a debtor settles a creditor card debt for less than the full amount owed, they will send out a 1099 to the debtor and the IRS.  If the debtor meets the definition in the Internal Revenue Code for insolvency, the debt forgiveness might not be counted as taxable income.  However, the creditor is free to file a lawsuit and get a judgment to garnish the debtor's wages.

Insolvency by itself is not an alternative to bankruptcy.  It is a bit like trying to hide assets or doing nothing in the hope that creditors won't find anything.  It is also like running and hiding from a bully.  Sometimes  you need to confront the bully.

If you are in Southern California and are tired of running from your creditors and the harassing phone calls, please call me today and (619) 448-2129 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, the San Diego County Bar Association and the National Association of Consumer Bankruptcy Attorneys. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Don't Lie to the Bankruptcy Court

Fans of the show "Real Housewives of New Jersey", may know that Teresa Giudice and her husband filed for Chapter 7 bankruptcy.  What they may not know is that the trustee assigned to the case has filed a lawsuit asking the bankruptcy court to prohibit them from getting a discharge.  The lawsuit, called an adversary proceeding, accuses them of hiding assets from the court and the trustee.   The hidden assets are said to include a pizza parlor, laundromat, Teresa’s TG Fabulicious clothing line and the “Skinny Italian” cookbook.

The original bankruptcy petition filed by the Giudices did not even list bank accounts.  Even with at least 2 subsequent amendments, many of the Giudices assets seen on the show were apparently left out.  The trustee seems to have taken notice of these omissions.

Section 727 of the Bankruptcy Code allows the court to deny a discharge if debtors lie under oath or try to conceal assets.  Committing perjury in a bankruptcy case is a federal crime that could bring fines of up to $250,000 and/or a jail sentence up to 5 years.  To add further insult to injury, the debtors will still lose their assets.  The Giudices will soon be losing many of their home furnishings, tools and a boat.

An attorney can only provide proper advice with full disclosure from the client.  Lying to the trustee and the court simply is not worth the risk of losing your discharge or going to jail.  If you are in Southern California and need advice about properly protecting your assets in bankruptcy, please me today at (619) 448-2129 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, the San Diego County Bar Association and the National Association of Consumer Bankruptcy Attorneys. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Think You Are Judgment Proof? Think Again.

I sometimes hear from debtors that do not wish to file bankruptcy because they believe that they are “judgment proof”.  Being “judgment proof” generally means that the debtor has no substantial assets that a judgment creditor could use to satisfy a judgment.  However, the lack of ability to pay a judgment is not a legal defense to a lawsuit and a creditor can still sue for any unpaid debts.  This reality makes the term “judgment proof” misleading.

Just because a debtor does not currently have assets does not necessarily mean that getting a judgment is a waste of time.  A creditor could use a wage garnishment to collect as much as 25% of the debtor's take home pay.  The debtor's financial situation could also change in the future.  Judgment creditors will sometimes wait to see if the debtor inherits property, receives a tax refund or even wins the lottery.  Once the judgment is recorded, it will show up automatically on the debtor’s credit report too.
 
Before I decided to focus my practice on representing debtors in bankruptcy, I did a decent amount of commercial debt collection.  There are many ways that a judgment creditor can make a debtor’s life miserable even if they never collect on the judgment: http://blog.chs-law.com/2006/07/collecting-california-judgments.html.

Lawsuits can be scary.  Bankruptcy can stop creditor harassment immediately so you don’t have wonder if the county sheriff will show up at your job to serve your employer with a wage garnishment.  If you are in Southern California and involved in a debt collection lawsuit, call me today at (619) 448-2129 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, the San Diego County Bar Association and the National Association of Consumer Bankruptcy Attorneys. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

No, You Don't Need a Timeshare

One of the hardest things that my potential bankruptcy clients face from an emotional standpoint is losing property they have acquired over the years. In recent months, I have noticed that some of my clients have an odd attachment to their timeshares.

The reality is that timeshares are a lousy investment.  If you don't believe me, just check the prices of timeshares available on eBay.  A few years ago, I attended a timeshare presentation in Las Vegas for a development that was being heavily promoted in the Southern California  market called Tahiti Village.  The unit that the developer offered me for $55,000 is now available on eBay for $297...and there are no bids at that price at the time I wrote this article.  I have als personally purchased 2 timeshares on eBay...for $1 each.

Timeshares can be a decent vacation value if you don't pay an outrageous price to buy one.  If I pay $800 a year for the week that I own in Kuaui, that is about $115 per night at a very nice resort and that seems be hard to beat for a decent hotel in Hawaii.  However, it is only a value because I own the unit free and clear.  I don't have to worry about a monthly payment to a lender for an overpriced unit.

I have seen clients that owe $12,000 or more on a timeshare.  They are usually better off letter the unit go back to the developer or the HOA and buying a much cheaper timeshare after their bankruptcy or even renting a timeshare from a website such as Redweek.com.

If you are in Southern California and would like a free consultation regarding you debt problems or want information on how to get rid of your timeshare, please call me now at (619) 448-2129.

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, the San Diego County Bar Association and the National Association of Consumer Bankruptcy Attorneys. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Three Things I've Learned

My wife challenged me to come up with a list 3 things that I have learned from my profession that everyone should know.  Although bankruptcy is my primary area of practice, I have been fortunate in my career to have had broad exposure to many areas of law.  I have the advantage of learning from my own mistakes as well as the mistakes of others and getting paid to help others fix those mistakes.

But if I had the opportunity to share 3 things with someone about my profession and only those 3 things, here is what I would tell them:

• Estate Planning.  At a bare minimum, everybody should at least have a will, a power of attorney for health care and a financial power of attorney.  Some people need advanced estate planning like a living trust to avoid unnecessary taxes.  But estate planning is more than trusts and wills.  Does your family know your burial wishes?  Who will handle your financial and medical decisions when you cannot?  Who would get custody of your children?  Why would you even burden your family with these decisions when you can decide those issues now? 

• Proper Budgeting and Financial Planning.  In my experience, most of my clients really have no idea how much money they actually spend on even the most basic of necessities such as food and clothing.  If you can become the master of what you spend, then you can plan properly to save for retirement, vacation and unexpected surprises.

• Having the Proper Insurance.  You can rarely go wrong with having more insurance.  You should have life insurance to provide for your family if you are suddenly gone.  You should have health insurance to prevent catastrophic medicals bills.  You should have homeowner’s or renter’s insurance to protect your belongings as well as car insurance that does more than meet the statutory minimum policies set forth in the law.  I once handled a case where a young driver caused an accident which caused the victim to have $250,000 in medical bills and he only had $15,000 in coverage.  That month, I increased my own liability coverage by 500% and added a $1 million umbrella policy.  The total bill for this additional coverage was only an extra $50 per month.

Perhaps the best piece of advice I can give it regarding your legal needs is that you should try not to do it alone.  A piece of software cannot replace personal service or years of experience that a licensed professional offers.  Trying to handle your own legal matters without assistance is a bit like trying to perform surgery on yourself without the help of a doctor.  Things can go very badly if you make a mistake and there usually is not a second chance to correct it.

If you are in Southern California and are experiencing debt problems or need guidance in a legal issue, please call me at (619) 448-2129.

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, the San Diego County Bar Association and the National Association of Consumer Bankruptcy Attorneys. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.