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    Chapter 7 Bankruptcy

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    What You Need to Know About Bankruptcy & Foreclosure Scams

    Are you in danger of losing your house? “Our consultants can save your home for a low fee!”

    Struggling to keep up with your monthly bills? Is your credit score lower than my self-esteem? “Our credit counseling can teach you the tricks and hacks that help you take control of your finances and resurrect your credit, allowing you to get the same opportunities as all of those rich upper-class people you have been envious of your whole life. Go from gas card to platinum card!”

    Does it sound too good to be true? That’s because it is. Where there is debt, there will be piranhas trying to feast on the flesh of poor victims who are already struggling to keep their heads above water. Not only are shameless debt collectors trying to squeeze every penny out of you that they can, but there are predators pretending to be saviors promising you the world, only to deliver heartache in the end.

    Bankruptcy, foreclosure, and consumer debt are areas rife with scams. If you are struggling with your finances, these are just some of the scams commonly perpetrated that you need to be aware of:

    The False Foreclosure Savior

    Foreclosure filings, especially if they become legal proceedings, are typically a matter of public record in most states. This is how many of these scammers find their victims – they comb over a list of people who are struggling to keep up with their mortgages and then they reach out to those people, promising to save their homes for a low fee. These so-called consultants are not authorized by any government branch, do not have any special education or training, and most of the time they do not actually provide any valuable service to you.

    What do they do? They collect a consultation fee from you to “save your home.” Then, according to a warning published by the US Department of Justice, they file a bankruptcy case without you knowing. With the bankruptcy case, a temporary halt on debt collection and foreclosure activities is automatically put in place. Congratulations! They just saved your home … for a few days or weeks, perhaps. These consultants usually don’t tell you about the bankruptcy filing either, so when you don’t show up to court, your bankruptcy filing is dismissed, the debt collectors are back for blood, and they rush to take a bite out of you.

    End result? You just paid a scammer a big fee to “save your home,” but all he did was buy you a few weeks.

    If you want to save your home, and not just buy a few weeks of time, you need to work with a professional. The difference between these consultants and an attorney is that attorneys are licensed by state bars, many carry malpractice insurance, and they have undergone years of education and training. If bankruptcy is the right answer, they can help you file a petition for bankruptcy, get you to reputable credit counseling (which is required by the bankruptcy courts), and fight off the debt collectors who are waiting for your bankruptcy case to fail.

    The Credit Counseling Scam

    Financial literacy is absolutely vital in today’s economy. To get a house, a car, and sometimes even to get utilities turned on at your home, they are going to pull in your credit report. Bad credit means you will struggle with extra deposits with utility companies, an inability to get a reliable vehicle (which is a must in most places if you want a job) and it may mean that you never own your own home — a dream of many, as it is a core part of the American dream that we all strive for.

    There are some great credit counseling agencies out there. There are great credit education tools as well, such as CreditKarma, which monitors your credit and helps you find ways to address delinquencies, get ahead financially, and even gives you a heads up if refinancing a home or a student loan might save you money.

    If you have started to research bankruptcy, you may have heard about the credit counseling requirement. While this may sound the same as those credit counseling services that have bombarded you with advertisements, there are many predatory companies that will promise to guide you to the path of financial salvation only to deliver nothing of substance. Your best bet for credit counseling as a part of bankruptcy is to check with your bankruptcy attorney for recommendations. 

    And be sure, before you sign up for credit counseling, that if you are looking at bankruptcy, the course you pick is a credit counseling course that qualifies for the bankruptcy education requirement. Any idiot with a keyboard can put a course on the Internet called “credit counseling” but only certain providers are accredited as part of the requirement from the bankruptcy courts.

    Scams By Bankruptcy Filers

    There are many ways to cheat on any filing with the government, whether that be your taxes or bankruptcy filing, but the most common bankruptcy fraud of all is concealing assets. As part of a normal Chapter 7 bankruptcy filing, all of your non-exempt assets are going to be liquidated to pay off some of your debt, before dismissing the rest. This means, if you own multiple cars, you may have to sell all of them but one, as just one example of non-exempt assets.

    Many people, in need of relief from debt, will try to get clever with their finances and assets before filing. They will transfer money to a relative, pay someone for a fake invoice (pay a friend $500 for mowing the lawn, for example), transfer assets to someone else’s name to keep the extra car, and so on. Others will simply not list the assets on their paperwork at all. Bankruptcy courts have seen it all. They will look back at your finances before you filed, and the bankruptcy trustee will look at your finances after you file. They look for concealed assets, suspicious transfers of funds, etc. 

    Before you succumb to temptation and try to get clever with your bankruptcy filing, know that intentional fraud can lead to prosecution under multiple federal statutes for things like perjury, filing a false or incomplete bankruptcy form, failing to disclose assets, or enlisting someone’s help to hide property from the court. If you are lucky, your bankruptcy filing will be discharged and denied, but if your misconduct is bad enough, you can face up to 20 years in prison plus a fine of up to $250,000. 

    One more scam that you will see with individuals, and more so with businesses, is preferential payments to certain creditors. For example, a small business might have borrowed money from the business owner’s relative, and decided to pay that one person back rather than the other creditors, before filing for bankruptcy. If that payment was made within the 90 days leading up to the bankruptcy, the bankruptcy trustee can recall that payment from your favorite creditor – your friend who loaned you the money to start the business, who now has to pay that money back to the court. You see a lot of this in larger companies as well, with payments to executives or other insiders in the company right before a company files for bankruptcy.

    When in Doubt, Talk it Over With Your Lawyer.

    The best way to avoid getting scammed by someone else is to make sure you have reputable help. Advertisements for consultants that promise to have all of the answers to financial success should be treated with a healthy dose of skepticism, at a minimum. The best source of advice when it comes to bankruptcy and turning your financial life around is to start with licensed financial advisors and an attorney that can talk through the option of bankruptcy with you, as well as alternatives to bankruptcy.

    On the other hand, if you are preparing to file for bankruptcy and the temptation of hiding assets or paying off a relative rather than a scummy credit card debt collector is becoming too hard to resist, talk through the right way to do things with an attorney. They will discuss asset exemptions, which might save that property you were attempting to hide. And they will advise you on the penalties for doing anything that might cross a line — saving you from prison time. And, if you will be forfeiting so many assets through a Chapter 7 bankruptcy filing that going ahead with the case is just too painful, they may be able to advise you on alternatives such as a Chapter 13 filing where you repay your debts via a payment plan. Or, they may be able to resolve your issue with simple negotiation with creditors, where you negotiate down your debt, pay back some, and avoid bankruptcy filing altogether. 

    The point is this: there’s no one-size-fits-all solution to financial troubles, and shortcuts or scams are never the answer. Instead, getting experienced help from an expert attorney will get you started on a path to financial freedom … plus there’s no risk of jail time.  

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