Alternatives to Consumer Bankruptcy * Advice to Lawyers is Good Advice to You

Below is an Article from the Institute of Continuing Legal Education that has tips for attorneys. This Article was written by Ken Gross for ICLE.

Alternatives to Consumer Bankruptcy

By Kenneth L. Gross, Thav Gross PC, Bingham Farms

#1

Preserve future income

Your goal is to preserve the client’s future income for his or her family and retirement rather than to satisfy debts of the past. Always refer back to the goal as you are faced with decisions or recommendations as you go forward. The goal will help dictate the proper action to take.

#2

Manage the financial crisis

Outside of bankruptcy, there are several tools available to eliminate or reduce debt. The primary ones are loan modification, foreclosure, and short sale in the housing arena; debt resolution (frequently called debt settlement by many companies) in the credit card and general creditor arena; and tax relief. You and your clients will hear many professed experts saying that they have the solution to resolving debts. You must examine the various alternatives that are available to relieve debt and then pick the best one (or ones) to fit each client’s circumstances. Debt settlement of credit card debt, when appropriate and properly executed, can be a great strategy. When not appropriate, adverse income tax consequences can arise—this can have the effect of converting dischargeable debt into nondischargeable income taxes.

#3

Select components of the plan

You should examine all available options and select the components of a financial management plan. Sometimes the strategies are complex. Some plans even combine with bankruptcy. For example, sometimes it is beneficial to first obtain a loan modification on the first mortgage and, after that is in place, use the benefits of a Chapter 13 or Chapter 7 bankruptcy to either eliminate a second mortgage or to discharge the debt postmodification. Critical to planning is an understanding of which tools of financial crisis management fit together and which work independently. If you act as a single source provider of only one tool (such as a loan modifier), you will not gain the necessary insight to formulate the plan.

#4

Determine the tax consequences

Cancellation of indebtedness gives rise to ordinary income and is taxable unless you meet one of the exceptions. Outside of bankruptcy (which is one of the exceptions), there are two. The first is that cancellation of indebtedness on a mortgage from now until December 31, 2013, is excludable as income if it is for your personal residence, up to $2 million, but only to the extent the debt was needed for the purchase or improvement of the residence. The second is the IRS’s insolvency test. Under this test, in general terms, the cancelled debt is excludable from income to the extent your client is insolvent before the cancellation of indebtedness.

#5

Estimate realistic costs and how your client will cover them

Before you select your plan and begin the process, you must have a solid idea of how much your client must pay to settle the debts and whether he or she has the income or other resources to cover the cost. Simply stated, if there is $100,000 of credit card debt, debt resolution is only a valid strategy if you can project that your client will have close to $2,000 per month of available income over the next 24 months to resolve the debts. If your client does not have the necessary resources, the plan will not work and you must find an alternate course.

#6

Be patient—haste is sure to make waste (i.e., greater cost)

Take your time and investigate all of the options before you embark on the plan. Too often, as a result of a client’s desire to gain relief from stress (which is very understandable), a plan begins before it is properly evaluated. Adverse tax consequences can occur or the plan can fall apart because the client lacks the needed resources to settle the debts.

#7

Don’t stop negotiating (even when the creditor refuses)

Virtually every time I speak with a lender’s representative (a mortgage or credit card company) and inquire about the available programs and options, I’m told that they have outlined every available option and that there are no other alternatives. They are wrong! Sometimes representatives will tell you this because they believe it to be so, and other times they are not being truthful. There are almost always more options. The best strategy is to hang up and try somebody else the next day.

#8

Push the envelope a bit too far

Negotiating is similar to playing cards. Bluffing is always in play. One of the great advantages of negotiation compared to playing cards is that you are never placed in the position where you have to call the other player. In cards, when you call the hand, there is no going back and starting over. Negotiation is different. You can push the other side as far as they will go, and then you can push them farther. Once they say no, you can step back and take the last deal. To me, unless you’ve pushed this far, you haven’t pushed far enough.

#9

Don’t believe everything that others tell you

In the credit card arena, it amazes me to hear the things that the collecting representatives will say. Most of them pretend to be pleasant and act as though they are trying to help your clients find a solution to their unfortunate situation. The key word here is act—some of them deserve Academy Awards for pretending to try to help. When they suggest things like borrowing from a client’s 401(k) account or skipping a mortgage payment to pay the credit card up to date so the client’s credit score will not be damaged, they are not trying to help. They are simply doing their job as dictated by an unscrupulous credit card company.

#10

Don’t walk away without a plan

In Michigan and other states that are recourse states, if the client walks away from the home and allows it to go through the foreclosure process, the lender can bid the market value of the home at the time of the foreclosure sale and then sue for the deficiency, which is the difference between the bid price and the outstanding mortgage balance on the date of sale. The lender has six years from the date of the client’s last payment to sue. There is a dangerous misconception that these lawsuits are not being filed. Deficiency claims are being pursued, and the numbers are increasing. If the mortgage balance your client owes is close to market value, the risk is far less. You should never counsel your client to just walk away, with eyes closed and hoping for the best. The goal is to know where you are taking the client, so the walk-away strategy must be part of the planning process.

#11

Have contingency plans in place

In more complex personal situations (or in business settings), the plan as developed often includes the best available options but does not necessarily have a guaranteed successful outcome. In that situation, you should have contingent options in place, including making sure there are additional emergency cash reserves in case the only realistic choice is to seek bankruptcy relief. The bottom line is that you have to make sure the plan includes a means to ensure your client’s continued financial viability in some form.

#12

Tell clients not to dwell on what might have been

When facing financial hardship, it is easy for the frustration, anxiety, and embarrassment, as well as an unfounded hope that the world will return to what it used to be, to cloud a client’s judgment and interfere with charting a positive course. The bottom line is that you must emphasize to your clients that they need to move forward and not get bogged down thinking about the past.

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Ken Gross founded the concept of Financial Crisis Management at the end of the 2008 when the economy crumbled. The concept is simple. The rules of the game have changed – you can’t just pay your debts and take the hit on your property values, when the banking, mortgage, insurance and auto industries get bailed out at taxpayer expense. Your responsibility is to preserve your future income for you and your family. This means, if there is a way to shed your credit card debt and house under water – you need to do it – so when you retire – you have cash in the bank and not wasted your future by paying exorbitant interest over the next 20 years. To get there, you need a comprehensive analysis as to the smartest and least costly avenue to attain your goals. This means – you must evaluate all the options – loan mod, short sale, debt resolution, foreclosure, bankruptcy and tax consequences – in order to determine the correct path. Ken Gross saw that the marketplace does not offer the comprehensive and necessary approach. This book does precisely that.

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Is Our Nation’s Future in Jeopardy?

Nation’s Future 10.13.11DetroitJewishNews-1 (Column appearing in Jewish News – 10-13-11)

Is Our Nation’s Future In Jeopardy?

Ken Gross

October 13, 2011

Many of us marvel at and are frustrated by the troubling economic problems of the era. Without question, these are serious problems and the prospect of a short-term solution is dim. We have suffered horrific losses to our net worth — by virtue of the real estate freefall and a recession that, for all intents and purposes, is starting its third year. We wonder and debate — what should we do as individuals and as a nation?

In recent weeks, I’ve pondered the future of our nation as I witness a deploable commitment to partisan politics and deadlock among our elected representatives. I say to myself,“As a nation we are only 235 years in existence. The Roman Empire lasted more than 2,000 years before its arrogance claimed its lifeline. What chance do we have?” At first blush — my conclusion — “It’s not looking good.” Last week, I happened to watch the newly released miniseries The Kennedys and gained a different perspective. I was reminded of the turbulent ’60s — the fight against communism, the battle over civil rights, the Bay of Pigs, the Cuban Missile Crisis, Vietnam and our loss of cherished leaders who stood for principle beyond economics — Jack, Bobby and Dr. King. I realized that other than the era beginning post-Vietnam and abruptly ending on Sept. 11, 2011, we have been at war, on its verge or just beyond its conclusion, or in the midst of some form of economic trauma or civil rights controversy for our entire history. Ultimately, we face and overcome these problems, and it is usually because leaders emerge that have the guts to stand for what is right and are able to overcome those who seek to perpetuate the mistakes of the past.

As we age, we gain the benefit of experi-ence, as well as the knowledge that our insight and what we know is limited by our experience — which also applies to our elected representatives and pro-claimed political leaders. So what do these revelations mean and how to they bear upon the financial crisis? Since controversy is part of our American way of life, we should embrace it rather than fear it. We must question those in authority that demonstrate an unwillingness to seek new solutions and simply continue to preach unsupported claims of the past. We need to take such action that we can to improve our situation — and we need to take such action based upon the current times without regard to what others think is the right thing to do. Individually, this means looking at opportunities to recoup the losses sustained as a result of the economic disaster that has ensued, by shedding debt and seizing opportunity. As a country, the time is now for leadership — for someone to emerge that fears not what to say because of political expediency — a leader who can reach to our nation’s soul and carve a path that addresses what is best for our future.

Ken Gross is an attorney with Thav Gross and host of the Financial Crisis Talk Center, a radio program that airs weekly at 10 a.m. Saturdays on WXYT 1270 “Talk Radio.”

Don’t Balance the Budget on My Back – Ken Gross

We all understand we have a massive deficit. The Iraq War was costly – but the rescue of the banking and financial industry from the economic recession along with the Economic Recovery Act and the trillion dollar bailout of Fannie Mae and Freddie Mac are, without question, the major causes why our country is so far in the red.

Having the benefit of over 2 years since the Great Recession tumbled Wall Street and our country in the latter half of 2008, it is commonly accepted that the cause of the debacle rests with the greed and avarice of the banking and financial institutions. Had President Bush and President Obama not rescued the banking industry at the pinnacle of the crisis, most economists agree that the world economy would have totally unraveled. So on this point, let’s give credit where credit is due and compliment our government for having the guts and willingness to take dramatic action in a short term  urgent situation.

That being said, let’s roll the clock forward to today. We just witnessed over the last two weeks Congress bogged down in gridlock on approving the budget so that a shutdown of the federal government could be avoided. In the end, they were fighting over $40 Billion of funding and the biggest event that occurred was Washington D.C’s right to spend its own funds on abortion funding was blocked in a compromise between the Republicans and Democrats to avoid the shutdown. Immediately after, the focus has now shifted to the fight over raising the $14.294 trillion debt ceiling and arriving at an acceptable agreement to resolve the budget deficit, which is currently estimated at $1.5 trillion for 2011.

So far – whether the discussion is about a State’s economic woes or the Federal deficit – every proposal I hear has one common thread. The cost of deficit reduction is to be borne by the U.S. citizen – through higher taxes (assuming the Bush tax cuts are not continued), Medicare, Medicaid, Social Security, Health Care and on and on. Now don’t get me wrong – somewhere and somehow you have to either increase revenue (i.e. taxes or and expanding economy) or cut spending to restore fiscal integrity to the system.

My question is this. If the Great Recession was caused by the greed of the Financial Industry, which was saved from economic death by the Government and the taxpayers and the recession is the cause of the deficit problem we now face, shouldn’t those responsible for the problem be called upon to bear the expense of resolving the problem? After all, as reported in The Wall Street Journal on March 25^th, U.S Finance Profits are soaring and have jumped back to $426.5 billion in the 4^th Quarter – nearing their high levels in 2006. Isn’t that nice? They get bailed out, saved from falling off the face of the earth – and now they are back to where they were before the recession. At the same time, the Administration and the Republican platforms are advocating budget restraints on the backs of the U.S taxpayer. My question is why us – and not them? Whatever happened to the notion of laying blame where blame belongs and making those at fault bear the cost of their actions? It doesn’t seem that difficult to me. The corporate profits of the Financial companies are presently running at an annual rate of $810 Billion. Here lies a simple solution. For the next 10 years, impose a 30% financial sector “Get Well Tax.” Assuming growth rates of 10% annually for the financial sector, the revenue increase would be $3.868 Trillion over 10 years. As a measure of protection so that the financial wizards that rule our great nation cannot weasel out from the tax, Congress needs to assess the tax on financial institution profits before officer compensation in excess of $250,000 per officer.

So what do you think – is it reasonable to make those responsible pay for resolving the problem – or should we just let our representatives continued to be influenced by the greed of Wall Street and saddle the U.S Taxpayer with the cost of resolving the problem created by the financial sector?

Ken Gross is an attorney with THAV GROSS PC (www.thavgross.com) and hosts The Financial Crisis Talk Center (www.fctalkcenter.com), a radio program that airs weekly at 9 AM on Saturday mornings on WDFN “The Fan” 1130 AM.Tweet

Guest Article – The Effect of U.S Debt Crisis Affects theGlobal Economy

The Effect of U.S Debt Crisis Affects the Global Economy

By Kevin Craig

Even after recession, the United States is still considered to be the financial ‘safe heaven’ by investors across the globe. It has become a deeply ingrained myth that America is an exceptional nation having a special motto. So, whatever be its financial state of affairs and its increasing national and public debt, investors always tilt their focus on this country. We know how China and Japan have huge investment in U.S debt market. However, this over-complacency got a jolt as Standard and Poor reviewed its long term credit rating on U.S economy. It suggested on Monday, April 25, 2011, that America may be downgraded from its ‘stabilize’ status to ‘negative’ status. However, this does not in any way indicate that the country is on the brink on debt crisis. If any negative sign erupts in the U.S economy, its immediate shockwave hits the global economy. After Standard and Poor circulated the report, investors immediately retreated from risky asset and rushed to the secured items.

We should not get apprehensive considering the magnitude of U.S debt amount. Japan’s debt is greater than America in respect to its GDP. Until recently, European countries were scrambling for debt aid to bail out of sovereign debt crisis. If Portugal or Spain falls in debt crisis, it may generate a wave of uncertainty among global markets. But this will never prove to be catastrophic. On the contrary, if the U.S economy stumbles, it can shake the very foundation of the global economy.  The role it plays in global economy is so crucial and indispensable that if it crushes, it will suspend the operating system of the global economy.

The U.S dollar is still the dominating currency in most of the transactions of foreign exchanges. When uncertainty stirs investors, most of them prefer to take recourse to the U.S dollar. America may have increased its percentage of national deficit, but until now there has never been any difficulty for America to obtain huge foreign credit at a low interest rate.

However, if this positive perception among global investors starts to alter after the report issued by Standard and Poor, the U.S will no longer be able to retain its prestigious status among nations. Its currency could sink. Its national treasury security would no longer entice the investors. The government will be forced to pay higher rates of interest on its debt and this will create difficulties in stabilizing the budget deficits and mitigating the burden of debt.

Kevin Craig is a financial writer associated with Oak View Law Group. He has been providing advice on debt relief since 2007. With his advice, many people are now living a debt free life.