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Bankruptcy for RI Seniors

Bankruptcy Relief For RI Seniors

“An increasing number of Americans aged 65 and older are declaring bankruptcy,” writes Reuters in a recent report. “Those aged 65 and older represented seven percent of bankruptcy filers in 2007, a mind-boggling jump from 1991. They are easily the ‘fastest-growing age demographic…’”

The sad fact is that many older Americans cannot help living beyond their means. Age discrimination, paired with fewer job openings, makes it almost impossible to increase their income. American seniors are dealing with an unsettled economy, decreasing pensions, increasing medical expenses, and unstable investments. Because members of America’s senior population rely mostly on fixed incomes, they are increasingly forced to rely on credit just to survive.

In the end, the only course of action left for many senior citizens is to file for Chapter 7 bankruptcy relief. Although the idea of filing bankruptcy may initially be hard to accept, it is important to understand the benefits of filing for bankruptcy when there are no other reasonable options for debt repayment.

One of the biggest misconceptions about filing for bankruptcy is that you automatically have to give up certain assets. This is clearly not true. In Rhode Island, for example, those who meet the residency requirements can protect up to $ 300,000 worth of equity in their home. Rhode Island exemption laws also allow protection of up to $ 12,000 worth of equity in motor vehicles (cars, trucks, motorcycles).

There is also generous protection of retirement accounts, household furniture, clothing, jewelry and a Rhode Island “wildcard” that can be used to protect an additional $ 5,000 worth of other property. Bottom line, most who file a Chapter 7 bankruptcy in Rhode Island don’t lose any property at all.

An ideal Chapter 7 debtor should be current on the secured debts for property she intends to keep, like mortgages and car loans. In as little as 100 days after filing her Chapter 7 bankruptcy petition, her case concludes and her dischargeable debt is wiped out.

While the number of seniors filing for bankruptcy relief is increasing, many others still do not understand their rights under the law. They are often bullied by creditors to hand over their social security checks and not have enough money left over to buy food or medicine. It becomes increasingly important to seek the help of a qualified bankruptcy attorney in these situations.

Debt Settlement Plans: Part II

by Mark Buckley

You’ve tried calling each credit card company to work out a debt settlement plan, but they aren’t interested. Interest rates have only skyrocketed in the past year. The bills keep coming and you are drowning in debt.

What if your “minimum payments” on credit cards add up to $ 1,000 a month? Few debtors can honestly afford repaying such a high amount without using other cards for their daily living expenses. It becomes a game of robbing Peter to pay Paul.

It would seem like a miracle for a “credit counseling” company to get your payments down to $750 per month by decreasing your interest rates. Who wouldn’t want to save $ 250 a month? Although saving $250 per month may sound good at first, here is the bigger question. Do you honestly even have the $ 750 available?

If you can only afford $300 a month, a plan that requires you to pay $750 per month will not do you much good. You are still in debt. For this reason, “credit counseling” companies and “debt management” companies focus exclusively on the amount of savings they offer, rather than whether you can actually afford your payments. Many clients who ended up filing bankruptcy in Rhode Island wasted thousands of dollars on unrealistic repayment plans first.

Added to the misleading nature of “debt management” company claims are hidden fees and fraud. Consumer Reports claims that

” Many [“debt management” companies] advise rolling high-interest debt into a second mortgage. But by using your house as collateral for what was unsecured debt, you risk losing your home. Some firms can persuade creditors to cut your debt. But if you miss payments they can later back out of the deal and demand full payment, potentially landing you in bankruptcy court after you’ve already paid a large portion of your debt.” Consumer Reports online report, June 2005.

Filing Chapter 7 bankruptcy offers a straightforward, honest, effective alternative to the misinformation propagated by “debt management” and “credit counseling” companies. Federal bankruptcy laws were created by Congress for the purpose of helping hardworking citizens pay off their debts. Unlike DMPs, bankruptcy actually reduces both interest and debt. In fact, bankruptcy is the only way to completely eliminate a debt.

Bottom line: Before you look into signing up for an unrealistic debt management plan, consider consulting a qualified Rhode Island bankruptcy lawyer.

The Truth About Debt Settlement Plans: Part I

by Mark Buckley

Is debt settlement a realistic option? As a Rhode Island Bankruptcy lawyer, I get calls daily from families who are struggling with excessive credit card debt. If the credit card debt is less than $ 8,000, I rarely suggest bankruptcy as the solution, unless there is additional non-credit card debt that makes debt repayment impossible.

In every debt consultation, however, I ask what other solutions have been attempted to repay debt. Then the stories of debt settlement attempts and debt management plans begin. Many have paid large sums of money to finance a debt settlement plan that failed. Hundreds and thousands of dollars were wasted on unrealistic plans that were doomed from the start. Why does this happen to so many people?

The term “debt settlement plan” is a misleading one. Most of the Rhode Island advertisements I have seen for this kind of debt settlement plan—whether on the internet, on television, or in phone books—are placed by “debt management” companies, also known as “credit counseling” companies. Despite their name, most of these companies only aim to get you to sign up for what they call “debt management plans” (DMPs) and do not give actual advice on credit. What you might not know is that credit card companies sponsor DMPs in order to collect money from you. In essence, then, “credit counseling” companies serve as bill-collectors for credit card companies.

The debt settlement advertisements run by these “credit counseling” companies are misleading as well. For example, when ads claim that DMPs will “reduce your debt by 60%,” they may lead you to believe that they will actually reduce the amount of your debt. However, the most a “credit counseling” company can do is reduce the interest on your credit card—and not by much. In reality, you still must pay your entire debt along with most of the interest. Ultimately, “debt settlement” plans do anything but do away with your debt.

Additionally, when setting you up with a “debt settlement plan,” “credit counseling” companies often fail to take all your expenses into account. This is usually because the plan they offer you is far more expensive than what you can afford to pay. Thus, although they promise to eliminate debt, DMPs do not bring you any closer to making ends meet. In fact, almost 90% of DMPs tank before completion. All said and done, the hope offered by DMPs is nothing but a scam—lowering the interest rates on your credit card by a few points is far from a financial fix.

What’s worse, “debt management” plans actually damage your credit. As part of an arrangement called “fair share,” credit card companies are paid a percentage of the amount that the “debt settlement” company collects from you. Thus, the more you pay a “debt settlement” company to get yourself out of debt, the more of your money goes to pay off the credit card companies. And as long as these companies can continue to milk you, they will—regardless of whether you can afford your plan or not.

One Caveat: For those who only need help with budgeting, and have a modest amount of debt that can be reapaid comfortably in 24 months or less, I am the first to recommend a call to a local office of Money Management International.

RI Bankruptcy Law: Discharge vs Debt Cancellation

by Mark Buckley

RI Bankruptcy law is complex. If you are drowning in bills, make sure you understand the difference between cancellation vs discharge in bankruptcy. If you make the wrong decision, you may end up with a large income tax obligation.

First, what is debt cancellation? Debt cancellation is when a a creditor loses hope of ever getting paid. For business reasons, they decide to stop chasing you. They may decide to sell your account to a collection company for a few pennies on the dollar, but they are essentially “writing you off.”

For the debtor who has been pursued for collection, a creditor’s decision to cancel the obligation may sound like good news. What’s not to like about a quiet telephone and no harassing bill collectors?

Here is the bad news. When a creditor cancels your obligation, they often file a Form 1099-C (Cancellation of Debt) with the IRS. The canceled amount is then treated as regular income. In other words, you are about to get hit with a big tax obligation.

This is the last thing a person struggling with bills ever thinks about when calling a debt settlement company. “You mean to say, I can settle my credit card bills and still end up owing the IRS?” Yes! It reminds me of the famous movie line, “just when I thought I was out, they pull me back in.”

Imagine successfully negotiating the cancelation of $ 50,000 of debt. If you are in the 25% income tax bracket, you could end up owing $ 12,500 in income tax. Not good.

A bankruptcy discharge under RI Bankruptcy Law, however, is much more powerful. According to the United States bankruptcy code, discharged debts are NOT the same as canceled debts. A discharged debt is not treated at taxable income. Very good.

But what happens if a creditor files a Form 1099-C on a debtor who has filed for RI bankruptcy relief? While this should be confirmed with your CPA, the solution is found in IRS Form 982. This form should negate the usual effect of a 1099-C. In other words, Form 982 allows a debtor who has filed for bankruptcy relief, to exclude from gross income the debt discharged in bankruptcy. It will not be treated as taxable income.

As you consider how best to solve your present financial dilemma, be very skeptical of any debt settlement company promising to make your creditors “an offer they can’t refuse.” In many cases, you will be walking yourself into an income tax nightmare. Don’t pay anyone to help settle your debt without first understanding the protections available under RI Bankruptcy law. Bankruptcy law is just more powerful.

(As a footnote, the Mortgage Debt Relief Forgiveness Act of 2007 may absolve a homeowner from paying income tax on canceled mortgage debt if it is on their primary residence. While this law won’t prevent a bank from suing you for default, it will make the canceled mortgage debt a non-taxable event.)

Where is the Rhode Island Bankruptcy Court?

by Mark Buckley

The Rhode Island Bankruptcy Court is located at 380 Westminster Street, Providence, Rhode Island 02903. It is on the sixth floor of the Federal Center which is a red brick building. There is plenty of parking outside the buiding and it should cost about $ 8 for 90 minutes.

Upon entering the Federal Center building, keep to the left. There is a metal detector and security checkpoint to go through. After going through security, you can then take the elevator to the sixth floor. Take a right off the elevator and through a second security checkpoint before gaining entrance to the Rhode Island Bankruptcy Court.

As stated in a prior blog, most clients who file a Chapter 7 Rhode Island bankruptcy don’t have to actually go into the Rhode Island Bankruptcy Courtroom. They are required, however, to attend a 341 meeting of creditors. This meeting of creditors is where the debtor is asked a series of questions by the assigned bankruptcy case trustee. Please note that the 341 meeting of creditors is also held on the sixth floor of the Federal Center, but is not a part of the bankruptcy court offices. Just be sure to take a left when getting off the elevator. The hearings are held in Room 620.

Upon entering room 620, there is a waiting room for clients and bankruptcy lawyers as they wait for their case to be heard. You should plan to arrive 30 minutes before your scheduled hearing to get situated and to ask any final questions of your bankruptcy lawyer. You will be surprised how quickly your case is heard. Five Rhode Island bankruptcy cases are scheduled during a 30 minute block.

For more particular information, feel free to visit the US Bankruptcy Court website for Rhode Island and directions can be found using Google Maps.

Bankruptcy for RI Seniors

Debt Settlement Plans: Part II

The Truth About Debt Settlement Plans: Part I

RI Bankruptcy Law: Discharge vs Debt Cancellation

Where is the Rhode Island Bankruptcy Court?

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