Beware the Credit Counselor: Top 5 Things You Need to Know
As a bankruptcy attorney, I have seen how debt has serious consequences for my clients in Hamilton County, Indiana. Often, the people who are coming in to meet with me see themselves as at the end of the line. They are stressed out, afraid, embarrassed and are simply over it. They have done everything they can think of and then some to get themselves out of debt. And, in an attempt to avoid bankruptcy many of my clients have turned to debt consolidation companies.
Debt consolidation companies typically tell individuals to stop paying their credit card bills and instead to pay some monthly amount to the debt consolidation company so that they company can negotiate their debts and help them become debt free. Typically the company will set up a plan for an individual telling them that they can settle their debts if that person will pay x dollars per month for x number of months.
Overall, I do not have any objection to a client attempting to avoid bankruptcy through debt consolidation. I typically tell my clients that if they believe they can pay off their debts in 7 to 10 years then they should do so instead of filing bankruptcy. So, making payments to a debt consolidation company on a monthly basis can be a very effective way to get yourself out of debt. However, if you are considering a debt consolidation company, here's what you need to know:
1. FEES. Unlike attorneys, debt consolidators are not subject to ethical rules. Attorneys must charge reasonable fees. When considering debt consolidation read the provision on fees carefully. Some debt consolidation companies charge a percentage of the amount that their clients pay in each month. Others will set up a client on a monthly payment plan and the debt consolidation fee will be the first several months of the repayment program. Yes.....the entire amount that the debt consolidation client pays each month to the company for several months is unavailable to actually settle a debt, because it is going to the company's fee. This is a huge problem, which I will address further in a second But, if you are considering a debt consolidation company, go with one that takes a percentage of each payment so that the company begins acquiring money to settle your debts sooner.
2. WHAT DEBT CONSOLIDATION COMPANIES DO. Debt consolidation companies are taking the money you pay each month (less their fee), and putting it into an account for you which will be used to pay a debt settlement. These companies don't have any magic powers or know about any unknown laws that entitle you to settle your debts for less. They also cannot (nor could anyone else) guarantee that so long as you make all of your payments that your debts will be settled for that exact number. For the most part, they are sending out a letter to your credit card company asking them to accept lower payments or a specific amount to put you on a payment arrangement or to settle your debt. Whether the credit card company will agree with this offer is basically out of the hands of the debt consolidation company. The credit card company will either accept this offer or they will not. If the credit card company decides not to accept and you are no longer making your monthly payment to the credit card company, you will eventually be sued. Which brings us to number 3....
3. LAWSUITS. Most debt consolidation companies don't have any attorneys negotiating on your behalf. Therefore, if you get sued because a credit card company hasn't received money as fast as they want or because they choose not to deal with the debt consolidation company you are on your own. If you show up to court and tell the judge that you couldn't afford the credit card company payment and have signed up for debt consolidation the judge is still going to enter a judgment against you for the amount owed on the credit card. This means that at some point your bank account could be frozen and your wages could be garnished. And the debt consolidation company isn't going to have an attorney represent you in Court. The debt consolidation company is probably out of California or Florida and is not about to hire an attorney to represent your interests in Indiana. Bottom line....if you get sued, you are going it alone.
4. DON'T UNDERESTIMATE YOU. While I do represent clients in debt consolidation I always tell them that this type of work (so long as a lawsuit hasn't been filed) does not require a lot of legal expertise and you can do it yourself. There is no reason that an individual cannot call up his own credit card company and offer a percentage of what is owed on the balance. The worst that can happen is that the person on the other end of the line says no. However, many people fee so stressed out by their financial situation they decide that they would rather pay someone else to do the negotiating for them, which is a personal choice. However, this is certainly something you can do on your own.
5. REAL INDIANA EXPERIENCE. Recently one of my clients told me that he had enrolled with debt consolidation a year ago and had been paying about $800.00 per month to that company for the last year. He expected the debt consolidation company to pay off nine (9) creditors so long as he paid $800.00 per month for two years. I heard this individual's story when he showed up at my office with copies of lawsuits filed by eight (8) of the nine (9) credit card companies. When I reviewed the debt consolidation contract I found that my client had paid the debt consolidation company's fees for about 11 of those 12 months. Therefore, the debt consolidation company had not built up any money to settle my clients' debts. However, they had happily accepted a fee of approximately $7,000.00 (that is not a typo) for their "work." Of course, the debt consolidation company wasn't going to help my client deal with the lawsuits, so he cancelled the debt consolidation program and I helped him settle his lawsuits. While I do not know exactly what my client was charged for me to work on these lawsuits, I do know it was no were near $7,000.00 and probably more in the range of $1,000.00.
To sum it up, debt consolidation can be a useful tool for folks dealing with debt. However, this is not a decision that should be taken lightly and many questions should be asked prior to signing a contract with a debt consolidation company. If you are struggling with debt in Fishers, Noblesville or Carmel, Indiana I can help. I provide a free initial consultation and I will be able to tell you whether debt consolidation or bankruptcy can be tools in your fight to get out of debt. Call 575-8222 to set up an appointment with me at Halcomb Singler, LLP.
Lastly, I'd like to hear about the experiences that any of you have had with debt consolidation companies (good or bad). Without naming the specific company, leave a comment about your experience with debt consolidation.
Halcomb Singler, LLP, is a debt relief agency. It helps people file for bankruptcy under the bankruptcy code. No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so. The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.
Sunday, October 24, 2010
Sunday, October 3, 2010
Statement of Presumed Abuse
Statement of Presumed Abuse.
Sounds pretty bad, doesn't it? This is notice that some Chapter 7 Bankruptcy Debtors will receive in the mail. It means that the United States Trustee's Office, which is the office that is charged with maintaining the integrity of the bankruptcy code, thinks that you really should have filed a Chapter 13 bankruptcy.
Before your blood pressure reads off the charts or your eye starts twitching uncontrollably...Relax. This notice is often scarier than it looks. Many times receiving this notice in the mail does not mean that your Chapter 7 bankruptcy will need to be converted to a Chapter 13....but lets back up and discuss how and when you are likely to receive a Statement of Presumed Abuse in your Chapter 7 bankruptcy.
Each Chapter 7 bankruptcy petition contains a form called a Means Test. The means test takes all of your household's income (not including social security) over the 6 months prior to filing, adds it all up, and divides it by 6 to come to your average over the last 6 months. This amount is called the debtor's current monthly income (CMI). Your CMI is compared to the average yearly income of your household size in Indiana. For example, a married debtor with 2 children would be compared to the income of an average family of 4 in Indiana. In the event your yearly income is higher than the average family of your size, there is a presumption that you should have enough money left over at the end of the month to pay into a Chapter 13 repayment plan.
However, simply because a debtor's income is higher than the average household of his or her size in Indiana, all hope is not lost. The means test works similarly to an income tax return in that you take deductions for living expenses, debt repayment, taxes withheld, etc. However, most of the deductions are not the debtor's current living expenses, they are average living expenses for a household size that is the same as the debtor. Once the debtor reaches the end of the means test, if the number that the means test has determined the debtor SHOULD have left at the end of the month is higher than $167.67, the presumption of abuse has arisen.
Just because the presumption of abuse has arisen does not mean that a person could not file a Chapter 7 bankruptcy and receive a discharge. For example, if a debtor had a very well-paying job and was laid off 3 months prior to the filing of the bankruptcy, the 3 months that the debtor was working could lead to the calculation showing a presumption of abuse. However, in reality, the Court and the trustee's office understand that since the debtor no longer has that job, that even though the means test says the debtor should have money left at the end of the month that the debtor's job loss is a change in circumstances that rebuts the presumption of abuse. In addition, debtors may set forth "special circumstances" in the means test. Special circumstances are exactly as they sound....justifiable additional expenses which make it impossible for a debtor to make a payment into a Chapter 13 repayment plan. Special circumstances may be a student loan payment or the expense of separate households of spouses necessary for employment. What exactly will qualify as a special circumstance varies from jurisdiction to jurisdiction and is often the subject of argument in bankruptcy courts today.
If a debtor is going to receive a Statement of Presumed Abuse, it will be filed within ten (10) days of that debtor's 341 meeting of creditors. Sometimes an attorney from the United States Trustee's ("UST") office will even show up the the 341 meeting of creditors to question the debtor, but not always. The Statement of Presumed Abuse does not state exactly what the UST finds to be problematic about your bankruptcy petition. Typically, after your attorney receives the notice, he or she will discuss your case with a trial attorney from the UST's office to determine what exactly the UST perceives to be problematic with your case being successfully discharged as a Chapter 7.
Sometimes the UST will find what they perceive to be an error in the way that the Debtor's Means Test was completed. Sometimes, the UST's office will have calculated the debtor's income differently than the attorney's office, or sometimes the UST's office will simply have questions about the debtor(s) and their ability to make payments into a Chapter 13. Often, the UST's office will want proof of high expenses, such as medical expenses, day care expenses, etc. In the event that this series of conversations satisfies the UST's inquiry, the UST may withdraw its Notice of Presumed Abuse, and the Chapter 7 debtor will likely move on to receive a discharge.
In the event that the UST is not satisfied, and continues to believe that the debtor should have funds to pay into a Chapter 13, the UST has 30 days from the filing of the Notice of Presumed Abuse to file a Motion to Dismiss or Convert your Chapter 7 bankruptcy petition. My experience has been that most cases can be resolved so that the Debtor continues to receive a Chapter 7 Discharge rather than the UST filing a Motion to Dismiss. I will save the explanation of the Motion to Dismiss process, in the event it is filed, for my next discussion.
In the meantime, feel free to e-mail me or comment on a subject that you would like me to discuss on my blog. As always, if you are a person struggling with debt in central Indiana, I would be happy to meet with you to discuss whether or not bankruptcy or debt negotiation could help with your situation. You can find me at Halcomb Singler, LLP, in Carmel, Indiana. Call me for a free initial consultation on bankruptcy.
Halcomb Singler, LLP, is a debt relief agency. It helps people file for bankruptcy under the bankruptcy code. No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so. The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.
Sounds pretty bad, doesn't it? This is notice that some Chapter 7 Bankruptcy Debtors will receive in the mail. It means that the United States Trustee's Office, which is the office that is charged with maintaining the integrity of the bankruptcy code, thinks that you really should have filed a Chapter 13 bankruptcy.
Before your blood pressure reads off the charts or your eye starts twitching uncontrollably...Relax. This notice is often scarier than it looks. Many times receiving this notice in the mail does not mean that your Chapter 7 bankruptcy will need to be converted to a Chapter 13....but lets back up and discuss how and when you are likely to receive a Statement of Presumed Abuse in your Chapter 7 bankruptcy.
Each Chapter 7 bankruptcy petition contains a form called a Means Test. The means test takes all of your household's income (not including social security) over the 6 months prior to filing, adds it all up, and divides it by 6 to come to your average over the last 6 months. This amount is called the debtor's current monthly income (CMI). Your CMI is compared to the average yearly income of your household size in Indiana. For example, a married debtor with 2 children would be compared to the income of an average family of 4 in Indiana. In the event your yearly income is higher than the average family of your size, there is a presumption that you should have enough money left over at the end of the month to pay into a Chapter 13 repayment plan.
However, simply because a debtor's income is higher than the average household of his or her size in Indiana, all hope is not lost. The means test works similarly to an income tax return in that you take deductions for living expenses, debt repayment, taxes withheld, etc. However, most of the deductions are not the debtor's current living expenses, they are average living expenses for a household size that is the same as the debtor. Once the debtor reaches the end of the means test, if the number that the means test has determined the debtor SHOULD have left at the end of the month is higher than $167.67, the presumption of abuse has arisen.
Just because the presumption of abuse has arisen does not mean that a person could not file a Chapter 7 bankruptcy and receive a discharge. For example, if a debtor had a very well-paying job and was laid off 3 months prior to the filing of the bankruptcy, the 3 months that the debtor was working could lead to the calculation showing a presumption of abuse. However, in reality, the Court and the trustee's office understand that since the debtor no longer has that job, that even though the means test says the debtor should have money left at the end of the month that the debtor's job loss is a change in circumstances that rebuts the presumption of abuse. In addition, debtors may set forth "special circumstances" in the means test. Special circumstances are exactly as they sound....justifiable additional expenses which make it impossible for a debtor to make a payment into a Chapter 13 repayment plan. Special circumstances may be a student loan payment or the expense of separate households of spouses necessary for employment. What exactly will qualify as a special circumstance varies from jurisdiction to jurisdiction and is often the subject of argument in bankruptcy courts today.
If a debtor is going to receive a Statement of Presumed Abuse, it will be filed within ten (10) days of that debtor's 341 meeting of creditors. Sometimes an attorney from the United States Trustee's ("UST") office will even show up the the 341 meeting of creditors to question the debtor, but not always. The Statement of Presumed Abuse does not state exactly what the UST finds to be problematic about your bankruptcy petition. Typically, after your attorney receives the notice, he or she will discuss your case with a trial attorney from the UST's office to determine what exactly the UST perceives to be problematic with your case being successfully discharged as a Chapter 7.
Sometimes the UST will find what they perceive to be an error in the way that the Debtor's Means Test was completed. Sometimes, the UST's office will have calculated the debtor's income differently than the attorney's office, or sometimes the UST's office will simply have questions about the debtor(s) and their ability to make payments into a Chapter 13. Often, the UST's office will want proof of high expenses, such as medical expenses, day care expenses, etc. In the event that this series of conversations satisfies the UST's inquiry, the UST may withdraw its Notice of Presumed Abuse, and the Chapter 7 debtor will likely move on to receive a discharge.
In the event that the UST is not satisfied, and continues to believe that the debtor should have funds to pay into a Chapter 13, the UST has 30 days from the filing of the Notice of Presumed Abuse to file a Motion to Dismiss or Convert your Chapter 7 bankruptcy petition. My experience has been that most cases can be resolved so that the Debtor continues to receive a Chapter 7 Discharge rather than the UST filing a Motion to Dismiss. I will save the explanation of the Motion to Dismiss process, in the event it is filed, for my next discussion.
In the meantime, feel free to e-mail me or comment on a subject that you would like me to discuss on my blog. As always, if you are a person struggling with debt in central Indiana, I would be happy to meet with you to discuss whether or not bankruptcy or debt negotiation could help with your situation. You can find me at Halcomb Singler, LLP, in Carmel, Indiana. Call me for a free initial consultation on bankruptcy.
Halcomb Singler, LLP, is a debt relief agency. It helps people file for bankruptcy under the bankruptcy code. No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so. The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.
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