Jeena Cho Jeff Curland

Parents with Too Much DebT

Jeena Cho Jeff CurlSan franCiSCo BankruptCy attorneyS

and

Parents with Too Much DebT

Notice

This book is intended to provide information about debt and bankruptcy.

The information herein should be used only as a general guide and not as legal advice. Any information provided in this document is not intended to create, nor does it create a lawyer-client relationship. While every effort has been made to make this guide as complete and correct as possible, the authors do not warrant its accuracy.

The authors and the publisher shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused or alleged to be caused directly or indirectly by the information covered in this guide.

The authors are licensed to practice law only in california. You are strongly encouraged to consult an attorney for individual advice regarding your own situation.

The authors are bankruptcy lawyers who serve as a Debt Relief Agency and help people file for bankruptcy.

copyright Information: This work is licensed under creative commons Attribution-Noncommercial-NoDerives License. To view a copy of this license, visit creative commons.

The authors give unlimited right to print and to distribute this book provided the book is not altered in any way.

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Jc LAW GRoup pcJeeNA cho AND Jeff cuRL

Jeena cho and Jeff curl are attorneys with Jc Law Group pc. Their prac-tice is dedicated to helping individuals, families and small businesses find solutions to their debt problems. This can include repayment, restructuring, settlement or bankruptcy.

This short guide is designed to give you an overview of common issues we come across when working with parents and families overwhelmed by debt. frequently there are a lot of emotions surrounding the inability to repay debt. There is also a lot of confusion and misinformation. We hope this guide will shed some light on your financial situation and empower you to take action.

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In our practice, we work with a lot of parents that have too much debt. The question of how much is “too much” depends on your income and fixed ex-penses. for example, a couple earning $100,000 with relatively low fixed ex-penses may be able to budget and repay a credit card debt of $20,000 within a reasonable period of time. however, if the couple has high fixed expenses such as mortgage and car payments, school expenses, or ongoing medical expenses, the same $20,000 debt may be virtually impossible to repay.

here are some signs that you may have too much debt:

• carry a balance on your credit card from one month to the next.

• Regularly charge food, groceries and other daily expenses because you don’t have the cash to pay for it.

hoW Much Is “Too Much?” #1

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• borrowing money from peter to pay paul (e.g., borrowing money from family and friends, taking cash advances from one card to pay another card or balance transfers.)

• Tapping into savings, retirement or other funds to repay debt.

• Regularly pay late fees, bounced checks fees, or overdraw on your bank account.

• constantly worry about paying your debt.

• Debt is causing strain on your personal life.

• Getting collection letters or calls from debt collectors.

• struggling to make monthly minimum payments on all of your debts.

• payments on credit card debt take up a significant portion of your income.

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According to cNN Money, 50% of Americans would struggle to come up with $2,000 within 30 days in case of an unanticipated car or home repair, a large medical bill or legal expenses. With little or no savings, many fall back on their credit cards whenever they hit a bump in the road and come up short.

This can have a dire consequences for your family. As parents, there are so many unexpected events that can come up and you need to be financially prepared. It may be difficult to think about savings, especially when you feel broke at the end of each month but it is critical that you build up an emer-gency fund. This may mean you put your family before your credit card debt.

We have found that too many parents live from paycheck to paycheck, not al-lowing any margin for life’s curveballs. If you are at $0 or worse, negative at the end of each month, it is time to take a hard look at your financial situation and come up with a plan of action.

puT YouR fAMILY fIRsT #2

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here is the secret to living debt free. Spend less than you earn. In another words, live within your means. before you roll your eyes and say “Thank you captain obvious,” consider this: often, when we tell parents this, they resist the answer. parents want to provide the best of everything for their family and this attitude can frequently lead to overspending.

Tips for paying off your debt.

• Stop borrowing! This goes without saying but seems to be one of the hardest steps. stop digging yourself deeper by incurring more debt each month. If you are always relying on your credit cards for every purchase, it’s time to take a real hard look at your income and expenses.

LIvING DebT fRee #3

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• Define need vs. want. Question every item you buy. Does your fam-ily really need it? or is it something they want? In order to get out of debt, you must make it a priority. It may mean you buy less expensive clothing, or do away with cable, house cleaners, dog walkers, paying for storage, or other items from your budget.

• Learn to say “no.” paying off your debt necessarily means you will have to do with less. Getting out of debt is like losing weight or stop-ping smoking. It mean you have to learn to say “no” to yourself or your children.

• Be frugal. frugal doesn’t mean cheap. It means not being wasteful. Look for small and big ways to spend less.

• Involve your children. This is a great opportunity to teach your kids lessons on budgeting. have age appropriate discussions about why he or she can’t have the latest and greatest toys.

• Stop keeping up with the Joneses. We all want to provide the best for our children and family. but remember, having more “stuff” won’t bring happiness. buying more stuff is not what our children need. children need their parents’ time and attention.

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Debt problems are like tooth decay. The longer you wait, the worst the de-cay will be and inevitably, it will mean a more costly and painful treatment. frequently, we meet with parents who will wait until lawsuits, wage garnish-ments or foreclosure before seeking help. Don’t let this happen to you!

If you avoid opening your mail, answering your phone or reviewing your banks statements out of fear or denial, it is time to face it. here are some tips to get you started.

• You are not the only one going through debt problems. frequently, money issues will drive a wedge in a relationship. This is the time to put your heads together to come up with possible solutions (rather than blame your spouse for the debt problem).

fAcING YouR fINANcIAL sITuATIoN #4

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• Make a list of all of your debt – credit cards, medical, student loans, car loans, mortgage, etc.

• Gather all of your bills and collection letters. open any that you’ve been avoiding.

• Review your income. We find that many parents don’t have a clear picture of their monthly income. Gather your paystubs and figure out your average income per month. (If you are paid every 2 weeks, divide your net income by 2 and multiply *4.34 to get the monthly income amount.)

• Review your expenses. Many parents have little or no idea where their money is going. Make a list of all of your expenses. Review your bank statements and credit card statements. Don’t forget to in-clude expenses that are paid on an annual or semi-annual basis such as tuition, insurance, eye glasses, etc.

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once you’ve figured out the total debt, it’s time to come up with a plan of action to get out of debt. sometimes, it’s a matter of budgeting your money, reducing spending, and paying down the debt. More often though, the prob-lem is more dire and no amount of budgeting will get you out of debt.

Whether it makes sense to pay off the debt or if you need to consider other alternatives will depend on many factors including:

• your age (as a general rule of thumb, the older you are, the more you need to focus on saving for your retirement instead of paying off the debt).

• the ability to reduce expenses enough to effectively pay down your debts.

coMING up WITh A pLAN of AcTIoN #5

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• your childrens’ age (how close are they to college?)

• your ability to generate more income.

• the amount of debt in comparison to the amount of money you have left over at the end of the month.

A good place to start is to run various scenarios to see if repayment is pos-sible. use a “debt calculator” to help you. We suggest that you start by check-ing to see if you can pay off your credit card debt in full within 2 – 3 years. If you don’t have enough income to repay the debt in 2 –3 years (mortgages and student loans aside), it’s definitely time to get help.

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Many parents have never dealt with the problem of too much debt. It is per-fectly normal to feel overwhelmed, ashamed, embarrassed, alone, or angry. frequently, parents continue on, living in denial, hoping that something will change. sadly, many parents wait too long to get help and end up much worse off than if they had sought help sooner.

here are some tell-tell signs that you need to get help – NoW.

• You are continuing to go deeper into debt each month.

• You are liquidating or borrowing from your retirement accounts.

• You are constantly worried about money or fighting with your spouse about it.

WheN You NeeD To GeT heLp – NoW #6

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• You take out payday loans to get by.

• You regularly charge everyday expenses such as groceries or gas be-cause you don’t have enough cash to pay for it.

• You are receiving collection calls from creditors.

• You frequently bounce checks or overdraw on your account.

• You’ve been sued.

• You’ve received a Notice of Default on your mortgage.

• You’ve received a Notice of foreclosure.

• Your wages are about to be garnished or they are being garnished.

• creditors have filed a lien on your property.

• You owe a lot of back taxes.

There are solutions and help out there. The longer you wait, the fewer op-tions you’ll have available.

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When dealing with our finances, it’s sometimes difficult to be objective. This is why getting a professional evaluation is very useful. Reaching out for help may be difficult because it requires you to open up and confront your finan-cial situation. We often meet with clients who feel intimated or scared by the prospect with meeting with a lawyer. The client will tell us at the conclusion of our first meeting “I feel so much better” or “I wish I had called sooner.”

here are some professionals that may be able to help you.

• financial advisors - many hourly or fee-only financial advisors will review your budget and help figure out a repayment plan. check with napfa.org

GeTTING heLp #7

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• consumer credit counseling service – cccs will review your bud-get and figure out if repayment of credit card debt is possible. https://www.cccssf.org/

• bankruptcy attorney – there are a lot of myths surrounding bank-ruptcy. however, bankruptcy is a perfectly legal and legitimate way to get out of debt. It is also one of the quickest ways to get out of debt. http://www.nacba.org

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bankruptcy is a legal process in which individuals and companies can get rid of overwhelming debt. No one wants to file for bankruptcy but it is a good solution for many families.

There is a lot of misinformation and myths surrounding bankruptcy. here are few of the common myths we frequently come across.

• I earn too much money to file for bankruptcy. If your income is above the state average, you must “pass” the Means Test in order to qualify for chapter 7 bankruptcy. The majority of our clients earn above the state median average and still qualify for chapter 7. If your income is indeed too high for chapter 7, chapter 13 may be a good solution.

WheN bANkRupTcY MAkes seNse #8

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• I have to be broke to file for bankruptcy. bankruptcy is about get-ting rid of debt and protecting assets. one of the most common mis-takes we see is clients waiting too long to get help. bankruptcy is for people who have something to lose. It protects your assets, including income from a creditor’s reach.

• My credit will be destroyed forever. Most people mistakenly be-lieve that they will get a scarlett Letter stamped on their forehead and won’t be able to get credit for 10 years (or some even believe for life). In fact, most of our clients get credit card offers within a few months after filing. bankruptcy stops the bleeding and places you in a position to rebuild your credit worthiness.

• Everyone will find out. There is no publication requirement for per-sonal bankruptcy. Your name will not be published in a newspaper. however, filing bankruptcy is a public record. Also, anyone who has access to your credit report can find out.

• I’ll lose everything. In most cases, you will be able to keep all of your property through bankruptcy using california and federal ex-emption laws. If there are any unprotected assets, chapter 13 is an option.

• I can’t file for bankruptcy on taxes. old taxes (generally more than 3 years) can be discharged in chapter 7 bankruptcy. Newer taxes or those that cannot be discharged can be repaid interest and penalty free in chapter 13.

• I have to repay all of my debt in bankruptcy. In chapter 7, you do not need to repay any of your debt discharged (forgiven). however, we need to carefully review your assets to make sure we can protect it through chapter 7. chapter 13 is a repayment plan, but the amount you repay is determined by your ability to repay or by your unexempt assets. This is a very complicated area and you should seek the ad-vice from a qualified bankruptcy attorney.

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This is a very common concern for many parents. It is important to have a realistic discussion about your home. You may be behind on your mortgage for various reasons including loss of employment, reduction in pay or an increase in mortgage payments due to an adjustable rate mortgage (ARM). It can also happen because you are simply trying to keep up with other bills.

We may be able to help you save your home by filing for chapter 13 bankruptcy.

Let’s assume your home is worth $500,000. There are two mortgages: first $550,000 and second $100,000. You are behind on your first mortgage pay-ment by 5 months ($2,700/mo * 5 = $13,500). You also have $50,000 in credit card debt.

WhAT To Do If You cAN’T AffoRD YouR MoRTGAGe

#9

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• In chapter 13, we can “strip” or remove the second mortgage. hence, at the end of your chapter 13 repayment period, you will own the home with just the first mortgage.

• chapter 13 allows you to “make-up” the missed mortgage payments over a 3 - 5 year period. so, you can repay the $13,500 over 60 months = $225/mo. (plus a small fee for the chapter 13 trustee).

• similarly, if you are behind on car payments, you can make-up those payments as well.

• In general, you will also have to repay some portion of the $50,000 credit card debt. how much you’ll repay depends on your income and expenses. It is important to note that Chapter 13 may not re-quire 100% repayment. In fact, the majority of our clients pay less.

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No one wants to file for bankruptcy - but they do so because it’s necessary. It may be the only realistic option available to living debt free again. It allows you to get rid of your debts so you can focus on your family’s future. before draining your hard earned savings, ask yourself “What is my exit strategy?” Will your action lead to a debt free life? If not, you should consult with a professional first.

bankruptcy is a beginning – not an end. please call us. We are here to help. 415-963-4004.

IT’s IMpoRTANT To hAve AN “exIT sTRATeGY”

#10

JC Law Group PC

580 california Street, Suite 1200

San Francisco, ca 94104

415.963.4004

1900 S Norfolk Street, Suite 350

San mateo, ca 94403

650.241.3313

www.jclawgroup.com