I have had a longstanding grudge with debt relief/debt settlement companies.  I first learned about them through my Pennsylvania bankruptcy law firm.  When meeting with clients, the horror stories are frightening.:

Client X pays a debt settlement firm over $6,000 in 13 months, yet has only reduced her credit card debt by $300.  Client Z is in the hole $10,000 in 2009, signs up for debt relief from one of the companies that advertises on KYW 1060, and in 2010 he has $13,000 in debt (while stopping his use of the credit cards in 2008) and has forked over $2500 to the “relief” company.  Both clients come meet with me and I have eliminated their debts in about 3 months and have stopped all harassing phone calls.  They are angry they ever got suckered into trying “debt relief”.

These companies, as pointed out in today’s New York Times, are  generally worthless.  To start, their fee model is outrageous,

The settlement companies typically harvest fees reaching 15 to 20 percent of the credit card balances carried by their customers, and they tend to collect upfront, regardless of whether a customer’s debt is actually reduced.

Most of these customers, would have been better off filing for bankruptcy.  You see, in bankruptcy, your debts are (actually) discharged and the fees (average Chapter 7 is around $1100-1200) are much more reasonable.  There is an end to bankruptcy and you can get a fresh start.  As the example in the New York Times illustrated (my emphasis added),

In the Kansas City area, Linda Robertson, 58, rues the day she bought the pitch from a debt settlement company advertising on the radio, promising to spare her from bankruptcy and eliminate her debts. She wound up sending nearly $4,000 into a special account established under the company’s guidance before a credit card company sued her, prompting her to drop out of the program.  By then, her account had only $1,470 remaining: The debt settlement company had collected the rest in fees. She is now filing for bankruptcy.

Here’s what the companies don’t tell you:  the credit card companies don’t have to agree to anything the debt relief agencies propose.  So, the companies can send letters and make phone calls (if they even go that far) and propose more favorable payment terms.  But, Visa/Mastercard/etc. will rarely lift a finger.  These same credit card companies do, however, have to abide by the U.S. Bankruptcy Code when a person files for bankruptcy.  Moreover, the relief agencies will pretend like they will preserve your credit when, in reality, your credit is probably already poor.

These companies play on American’s pride to resolve their own debts and take responsibility for their actions.  Yet, it is a ruse 90% of the time.  The widow, the sick, the unemployed father of 4, and the injured have a snowball’s chance of climbing out of debt when the credit card companies are jacking up their rates and preventing them from climbing out.  Bankruptcy and the law behind it gives people a fresh start without the mess and the ultimate disappointment that the relief agencies peddle.

The momentum for switching to credit unions is growing.  I switched my primary business banking to a credit union earlier this year.  For years, I have been a member of a few others that afforded me entry while I was in the military.

Today’s New York Times published an article outlining the move to switch to credit unions.  The “Move Your Money” movement is growing out of the discontent for bank’s high fees, the bailouts they received, their “faceless” bureacracy, and the risky lending practices they used to create economic headaches.  Move Your Money is a website that captures the quasi-populist outrage concerning banks.

So…are credit unions better?  In general, I think they are.  Credit unions have a more democratic organization (they are member-owned), which affords greater transparency and accountability.  They are not-for-profit, which generally means better rates and no hidden fees.

Of course, not all credit unions are equal and it pays to do your research.  To find a Philadelphia-area credit union, you can search this handy map.

Although not related to the law, bankruptcy, business, or personal finance, I was in my local paper this weekend for my previous military work.  The article, “Local attorney worked for man in charge of Gulf cleanup” highlights my personal and professional interactions with Admiral Thad Allen, the on-scene leader/national incident commander for the Gulf oil cleanup.

I have come across some informative articles over the last week.  Here’s a shotgun list:

Collect Now, or Later? Timing Your Social Security Benefits:  The NY Times delivers a helpful article regarding your social security benefits.  I’ve been doing a lot of research on social security and have recently appeared at around eight Bucks County social security hearings as a claimant’s attorney for injured or ill people.

Mortgage foreclosure program on the rocks:  The Bucks County Courier Times highlights a county program that allows people an opportunity to opt in to a program that forces lenders who file foreclosure actions in Bucks County court  to participate in mediation with homeowners.  In my opinion, this program has had limited success and, ultimately, a person’s last resort is a Chapter 13 bankruptcy to save their home and create a payment plan to repay their mortgage arrears.   I plan on writing more about what should be done to provide homeowners a better opportunity at loan modification.

Answers to your credit report and scores:  A helpful Q & A with the Experian director of public education.

I’m slowly writing a book on repairing your credit after a bankruptcy.  As part of my research, I’ve come across the “official” site that allows you to opt-out of credit card and insurance solicitations.  The dirty secret with the credit reporting agencies is that they make your credit score/history available (read:  they sell your information) to insurance and credit card companies to send you unsolicitated offers.

By stopping this credit card junk mail, you can protect yourself from the temptation to open multiple lines of credit, save a few trees by eliminating this wasteful practice, and save time by having less mail to go through.

The Home Improvement Consumer Protection Act is a helpful consumer protection law that became effective in 2009.  The act requires licensure and compliance with a set of laws for any contractor who does more than $5,000 in work a year.

As many people know, unethical contractors can take a deposit and perform no work, provide sub-par work, or refuse to fix a poorly completed job.  This practice has been seen recently in Bucks County.  Now, the new law provides District Attorneys and the Attorney General enforcement authority to investigate and prosecute home improvement fraud.  This fraud can be:

• Failure to provide services or materials after payment
• Damage to property
• False advertising
• Misrepresentation of special order costs
• Intentionally misleading or false information to trick a consumer into signing a contract for the home improvement

If you feel that you have been a victim of contractor fraud on your home improvement, you should contact your local District Attorney.  Moreover, you should also know the following under the law:

• You are allowed to obtain, free of charge, a copy of a complete contract free of charge from the contractor
• The contractor cannot demand or receive any payment for an improvement prior to the signing of the contract
• You have the right to cancel the contract without penalty within three business days of the signing date
• You can verify a contractor’s registration number, call 1-888-520-6680 or go to www.attorneygeneral.gov

Bankruptcy occurs for many reasons.  Frequently, it occurs due to loss of job, death of a spouse, illness or injury.  With illness or injury, many people experience a double threat — loss of wages and skyrocketing medical bills.

One of the biggest culprits in driving up one’s medical bills is “balance billing.”  Eric Novak provides a good description of balance billing in his post “The Great Balance Billing Scandal.”

The New York Times describes the problem,

Instead, through the dark art of balance billing, you may discover — usually only when the bill arrives — that the provider is looking to collect more than the insurance company has agreed to pay. The recent federal overhaul of health insurance laws does not directly address the balance billing issue.

If you are facing an injury or illness, it is best to be vigilant of these charges.  In the Times article about balance billing, they provide a great set of tips for avoiding these charges.  I highly recommend you read the article.  In summary, the Times points out that if you may face a balance billing issue, do the following:

• STAY IN NETWORK
• DOUBLE-CHECK [That you are in-network]
• NEGOTIATE UPFRONT
• NEGOTIATE AFTERWARD, TOO
• FILE AN APPEAL

Not only can this vigilance keep your costs low, but it can also keep you out of a Pennsylvania and New Jersey bankruptcy.  Thus, in this case, it’s important to do your diligence and avoid future problems.

Photo Courtesy of Hoyasmeg

There is a way, in a Chapter 7 bankruptcy, to achieve lower car payments.  The biggest qualifier for this method, called a redemption, is that a car is “upside-down”, meaning that the amount owed on the car is more than the vehicle’s value (which is normally the case due to depreciation).

Here is a hypothetical:  A Mount Holly resident has $20,000 in credit card debt and a 2006 Toyota Sienna minivan.  The Toyota has a retail value, according to Kelly Blue Book, of $15,800.  The owner, however, owes $25,000 on their car loan.  The owner approaches a Burlington County bankruptcy attorney to file for Chapter 7.  The experienced lawyer will see that the debtor is a classic candidate for a redemption, where the  debtor can either seek to pay off the $15,800 to own the car without a lien or work with a redemption company to obtain a loan at $15,800 (which would reduce their monthly payments as the loan amount decreases).  The debtor has thus purchased their car back for a $9,200 discount!

If you can borrow from family members or friends or use exempt bankruptcy funds to re-purchase the car, you should do so.  Otherwise, you should work with your attorney to find a financing company that works with redemptions.  The interest rates may be higher than your current loan, but with a reduced loan value, the payments should be lower.

I am pleased to announce that my law firm, Young, Klein & Associates, is opening its first New Jersey office.  The office address is:

27 Cedar Street
Mount Holly, NJ 08060

As you are aware, the firm includes Bucks County DUI attorneys, Bucks County Social Security lawyers, and focuses on bankruptcy, injury cases, and business law.  We look forward to applying our wealth of knowledge and client-centered focus to New Jersey and Mount Holly.

Many people ask if unpaid taxes can be discharged in a bankruptcy.  Generally, the answer is “no” due to the “3-Year Rule”, but there are exceptions.

The general rule, as Jonathan Alper, Esquire, sums up, is that tax liabilities are not eliminated in a Chapter 7 bankruptcy for:

a. Taxes for which a tax return was due to be filed within three years (plus extensions) prior to the date of filing bankruptcy. For example, the tax return for 2003 income taxes was due to be filed on April 15, 2004 (plus any extensions), and therefore, these income taxes cannot be discharged by filing bankruptcy on or before April 15, 2007 (plus the time of extensions); OR

b. Taxes assessed by the IRS within 240 days before the filing of bankruptcy. Assessment date is the date that tax liability is entered on IRS records; OR

c. Taxes not yet assessed but still assessable; OR

d. Taxes for which a tax return was filed late and filed within two years prior to filing bankruptcy; OR

e. Taxes of a debtor who committed fraud related to a tax return or willfully attempted to evade or defeat taxes sought to be discharged.

As you can see, the Bankruptcy Code allows Uncle Sam many opportunities to collect what is owed, making the discharge of taxes very difficult.  Jonathan stresses this further, by stating,

In the course of its collection efforts, the IRS has the power to file a tax lien to perfect its tax claim against individuals. A tax lien, once filed, becomes a secured lien on all of the taxpayer’s property. If a tax lien is in place prior to your filing bankruptcy, the IRS’s secured tax lien has priority over the bankruptcy filing, and bankruptcy cannot dislodge the lien from the your property. Even property which would otherwise be exempt in a bankruptcy, such as homestead, cannot be sold or transferred without payment of the IRS tax lien. In this instance, bankruptcy provides no tax relief.

If you have a lot of consumer debt, are behind on your mortgage, have old tax debts with the government, you should seek the help of a Mount Holly bankruptcy attorney in order to determine your best strategy for discharging all or most of your debts.

Update:  Cathy Moran, a San Francisco Peninsula bankruptcy attorney, recently posted a great thumbnail explanation of the 3-year rule highlighting how tax extensions affect a bankruptcy.