Congress, in its wisdom, requires lawyers to tell potential clients that they (the clients) don't need an attorney to file bankruptcy. That is true; anyone can represent him or herself in any court in the nation. Making that statement, however, doesn't answer the question SHOULD you do it yourself.
Bankruptcy is a very technical area of the law. It's not an area that attorneys dabble in. They either are in it virtually full time or they don't touch it. And these are people who went to law school and have practiced law for years. Knowing that, the question I would ask is, why would anyone try to do it themselves when what they are talking about is their financial future? In the old days (pre-BAPCPA), if a bankruptcy got dismissed, it could be refiled, usually without penalty. So if someone tried a do it yourself bankruptcy and screwed things up, they could find an attorney the next time around. Now there are serious penalties that attach to second and third filings. If you mess up the first one, there might not be a second one.
Friday, June 12, 2009
Wednesday, June 10, 2009
A Trust as an Estate Planning Tool
Many people think that because they are not wealthy, a trust isn't for them. In fact, a trust can be an effective estate planning tool, especially for families with younger children. A testamentary trust (see last week's post) can allow the trustee the flexibility to provide for the needs of the young children should something happen to the parents. Without a trust, any money (such as life insurance proceeds) would pass to the children. However, because they are minors, a guardianship would have to be established. The guardian's role is to preserve the money until the children reach the age of majority. This means a guardian lacks the ability to provide anything more than basic necessities. For example, if a child shows exceptional musical talent, a guardian may not be able to tap into the money to provide for private lessons. A trustee, on the other hand, given appropriate instructions and flexibility by the trustors, could do that very thing.
Don't assume that just because you aren't "wealthy" a trust isn't for you.
Don't assume that just because you aren't "wealthy" a trust isn't for you.
Friday, June 5, 2009
The Bankruptcy Means Test
One of the more devious provisions of the 2005 Bankruptcy Code amendments is the means test. This test acts as a gatekeeper for those filing bankruptcy. Meet the means test and the promised land of Chapter 7 is available. Fail the means test and you are consigned to Chapter 13. Now, don't get me wrong; Chapter 13 has its place, especially if you're about to lose your house. But for millions of people who desperately need a fresh start, Chapter 7 is the goal.
The means test looks at the ability, or means, of an individual to pay back part or all of his debt. If your means allow you to repay, you are forced into Chapter 13. On its face, that isn't so bad because those who can pay, should pay, in the opinion of most people. But the way the means test works doesn't measure ability to pay. Under the means test, the debtor (person who is going to file) averages his income for the past six months and compares that to the state median income. If his average income is below the state median, he passes the means test and can file Chapter 7. If it's above, there are a couple of other tests, but the real key is the state median compared to the last six months' average.
But here's the problem. Suppose the debtor has been out of work (a not uncommon situation right now) for the last 60 days. Right now, he has no income, but for the four months before he lost his job, he had income; maybe a good income. If that four months of income averaged over six months exceeds the state median income, this person does not qualify for Chapter 7, even though he has absolutely no income right now with which to fund a Chapter 13 plan.
Just another of the anomalies forced on us by BAPCPA.
The means test looks at the ability, or means, of an individual to pay back part or all of his debt. If your means allow you to repay, you are forced into Chapter 13. On its face, that isn't so bad because those who can pay, should pay, in the opinion of most people. But the way the means test works doesn't measure ability to pay. Under the means test, the debtor (person who is going to file) averages his income for the past six months and compares that to the state median income. If his average income is below the state median, he passes the means test and can file Chapter 7. If it's above, there are a couple of other tests, but the real key is the state median compared to the last six months' average.
But here's the problem. Suppose the debtor has been out of work (a not uncommon situation right now) for the last 60 days. Right now, he has no income, but for the four months before he lost his job, he had income; maybe a good income. If that four months of income averaged over six months exceeds the state median income, this person does not qualify for Chapter 7, even though he has absolutely no income right now with which to fund a Chapter 13 plan.
Just another of the anomalies forced on us by BAPCPA.
Tuesday, June 2, 2009
What Types of Trusts are There?
As we discussed last week, a trust is just a way of holding and disposing of assets. I like to think of a trust as a basket to put things in. In general, there are four main types of trusts: Revocable, irrevocable, inter vivos, and testamentary. A trust is either revocable or irrevocable, and either inter vivos or testamentary, though it's possible for an inter vivos trust to be either revocable or irrevocable.
A revocable trust is one that can be revoked by the maker, usually called the trustor or settlor, at any time. An irrevocable trust is one that is permanent; it cannot be revoked once made. An inter vivos trust is a trust made during the trustor's life ("inter vivos" means "during life"). A testamentary trust, on the other hand, is one that is created by the trustor's last will and testament, and doesn't arise until after death. Because of this fact, a testamentary trust is of necessity an irrevocable trust.
A trust is a contract between the maker, the trustor, and another person, the trustee, who holds property given to him by the trustor for the benefit of third persons, called the beneficiaries. The trust agreement sets out the powers and duties of the trustee and usually specifies the conditions on which the trustee can use or give the trust property to the beneficiaries.
A revocable trust is one that can be revoked by the maker, usually called the trustor or settlor, at any time. An irrevocable trust is one that is permanent; it cannot be revoked once made. An inter vivos trust is a trust made during the trustor's life ("inter vivos" means "during life"). A testamentary trust, on the other hand, is one that is created by the trustor's last will and testament, and doesn't arise until after death. Because of this fact, a testamentary trust is of necessity an irrevocable trust.
A trust is a contract between the maker, the trustor, and another person, the trustee, who holds property given to him by the trustor for the benefit of third persons, called the beneficiaries. The trust agreement sets out the powers and duties of the trustee and usually specifies the conditions on which the trustee can use or give the trust property to the beneficiaries.
Wednesday, May 27, 2009
Should I File Bankruptcy?
A question lawyers get a lot is, "should I file bankruptcy." That's a question to which there isn't a right or wrong answer, and it's not a legal question, so most lawyers will say it's up to you. Many people feel that it is immoral to file bankruptcy and walk away from thousands of dollars of debt. That is their right to feel that way; it doesn't make filing or not filing right or wrong.
If you're confronted with debt that you find impossible to pay, for whatever reason, bankruptcy is an option to consider. Like any big financial decision, you shouldn't make it blindly. Talk to an attorney. Learn your options. Find out what a bankruptcy could do to your credit rating. Then consider the alternatives. Is there a way to dig out of the hole you are in without sacrificing too much? What about your ongoing obligation to support your family? How will filing bankruptcy (or not) affect that?
One thing you should not do is file bankruptcy for the sole purpose of being able to incur more debt, with the idea that you can always file again in eight years. In my view, such a course of action would be immoral.
If you're confronted with debt that you find impossible to pay, for whatever reason, bankruptcy is an option to consider. Like any big financial decision, you shouldn't make it blindly. Talk to an attorney. Learn your options. Find out what a bankruptcy could do to your credit rating. Then consider the alternatives. Is there a way to dig out of the hole you are in without sacrificing too much? What about your ongoing obligation to support your family? How will filing bankruptcy (or not) affect that?
One thing you should not do is file bankruptcy for the sole purpose of being able to incur more debt, with the idea that you can always file again in eight years. In my view, such a course of action would be immoral.
Tuesday, May 26, 2009
What Is a Trust?
If you talk to anyone about estate planning, you're likely to hear the word "trust." What is a trust and what does it mean in estate planning?
A trust is simply a vehicle to hold assets. The reasons for creating trusts are varied, but usually including wanting to protect assets and avoid probate. Probate is the legal process by which title to assets are transferred upon the owner's death. By putting the assets into a trust during your lifetime, you can avoid probate.
However, merely creating a trust isn't enough. You still have to fund the trust, which means putting title to the assets in the name of the trust. Too often people create a trust but never fund it. In that case, the trust is like an empty basket. It would be more useful if there was something in the basket.
Whether or not a trust is right for you, and, if so, what kind, are questions best asked of a competent estate planning attorney.
A trust is simply a vehicle to hold assets. The reasons for creating trusts are varied, but usually including wanting to protect assets and avoid probate. Probate is the legal process by which title to assets are transferred upon the owner's death. By putting the assets into a trust during your lifetime, you can avoid probate.
However, merely creating a trust isn't enough. You still have to fund the trust, which means putting title to the assets in the name of the trust. Too often people create a trust but never fund it. In that case, the trust is like an empty basket. It would be more useful if there was something in the basket.
Whether or not a trust is right for you, and, if so, what kind, are questions best asked of a competent estate planning attorney.
Friday, May 22, 2009
Bad Lawyer
An Illinois lawyer appealed a trial court's award of $80,000 in legal fees against him for vexatious claims he brought against defendants on behalf of his clients. The lawyer claimed that the court shouldn't award fees because he had no assets and didn't earn very much because he really wasn't a good lawyer and people weren't willing to pay for his services. The Illinois appeals court rejected his claim, saying that if he really couldn't earn a living as a lawyer, maybe it was time to find another profession.
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