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Are You One of Three Americans Delinquent on Debt?

Recently, there was a flurry of headlines noting a disturbing trend in the U.S.—more than 30 percent of Americans have debt in collections, according to a study released by the Urban Institute. “Debt in collections” refers to money that’s owed well past an account’s due date (usually 180 days) and which has been turned over to debt collection agencies. The study looked at debts incurred through credit card bills, car loans, medical bills and child support payments, ranging from just $25 to $125,000 (average amount owed was $5,200).

When one in three Americans are delinquent on debt, you don’t have to be a financial expert to know we’ve got a real problem on our hands.

The sad truth is, as a society, we’re generally irresponsible when it comes to managing our finances. I think the main problem is our insatiable appetite for the American Dream—that is, to acquire more and more stuff. But most of the products and services we purchase on credit come and go …and at the end of the day, what do we have to show for it?

On the other hand, a contributing factor to this problem, I believe, are the predatory practices of creditors, many of whom impose outrageous interest rates on credit cards, loans and other opportunities for credit. Many times, people sign up for loans and credit cards in awe of their ability to have access to such high credit limits, without thoroughly reading the fine print, where these dangerously high interest rates are noted.

What you can do

The way most people get into debt—excluding emergency and medical situations where bills can pile up quickly on the spur of a moment—is through a failure to budget and save money for the future. Therefore, in order to avoid getting buried under a mountain of unmanageable debt without the means to get out, I think it’s necessary for us to get back to these basic but valuable concepts. By budgeting wisely and putting aside some money for a rainy day, we’re better prepared to maintain our credit, obtain much of the stuff we crave, and be able to weather a sudden, unexpected financial hardship.

Of course, some people just aren’t capable of handling their own budgets. I don’t mean this in a negative way; we’re not all equally adept at balancing numbers and making sure payments are made on time. The good news is, there are resources out there to help you get things under control. Even if you are not in financial distress at this time, it may be a good idea to talk to a financial advisor or debt relief professional as a preventative measure.

Three choices

If, however, you’re one of those three unfortunate Americans already seriously delinquent on debt, you will find generally three options to choose from to handle your situation:

Ignore the debt. Under California law, there’s typically a four-year statute of limitations for debts except those made with an oral contract (these have a two-year state of limitations). After this period of time (running from the date you last used the account and/or made a payment, whichever is more recent), creditors generally find themselves barred from trying to collect on your debt.

But ignoring your debt, wishing and hoping that your account will be the one that falls through the cracks long enough for the statute of limitations to run, is not a solution. Once you’ve stopped making payments on your credit card bills or outstanding loans, you will hear from collections agencies on a fairly consistent basis. Also, interest continues to accrue on each debt you have, compounded by late fees and other penalties for non-payment.

In other words, ignoring your debt won’t make it go away. It only gets bigger and bigger and more unmanageable over time.

Negotiate to settle the debt. Creditors are often willing to negotiate a settlement to a debt, on the principle that getting a reduced payment is better than no payment. The problem is, they will generally require a lump sum payment in order to make the rest of the debt go away. If you’re unable to do that, this option won’t work.

File for bankruptcy relief. If creditors consistently hassle you, threatening to attach your wages and/or property, and you don’t have the funds to make payments or settle the debt, the last-ditch option is applying for bankruptcy relief. But be forewarned: You can only attempt to completely wipe out your debts through Chapter 7 bankruptcy once every eight (8) years and it will always have a huge negative impact on your credit standing. Additionally, a person who seeks bankruptcy relief will also find it harder to rent an apartment, open a bank/credit union account or obtain credit in the future (though generally not impossible).

Getting out of debt isn’t easy but with the right strategy and guidance, it can be done. What’s the best way to start? Explore your options through a conversation with a skilled debt relief/ bankruptcy attorney.

Are you in need of legal counseling for bankruptcy or debt issues or have any questions regarding the above? The Law Offices of Ian S. Topf offer free consultation in a variety of issues, ranging from bankruptcy, family law and estate planning to traffic violations and landlord/tenant disputes.

Develop a Game Plan for Separation or Divorce

If you and your spouse face impending separation or divorce, there are important legal and emotional factors to consider. Whether you intend to hire a lawyer to represent you in Family Court or you wish to represent yourself, here are several things to keep in mind:

Put a game plan together. The legal process of divorce or legal separation can be costly and time-consuming, but you can take action to avoid unnecessary expenses and time spent. The key, as I tell all of my clients, is preparation. Before embarking on the process of filing for divorce/legal separation, living through litigation and dealing with the final judgment, you should develop a game plan to see you through.   Create a budget for future expenses of the legal process, develop a timeline for where you want to be in the process at what times, attempt to anticipate potential obstacles (e.g. cooperation or lack thereof of your spouse) that may delay the process and identify possible solutions to avoid/alleviate those obstacles.

Shore up emotional support. Even under the best of circumstances, divorce is an emotional roller-coaster for everyone involved. There will be moments of happiness (knowing you’ve made a decision that hopefully improves your life), but there will be many more feelings of anger, depression, sadness and regret.

It’s easy to see, therefore, how maintaining one’s composure throughout the process is a real challenge. Get prepared by cultivating (or strengthening) an “emotional support system.” This usually consists of trusted family members, friends, a clergyperson, therapist or someone else in whom you can confide and share your feelings.

Prepare your children. Regardless of how amicable the impending process may be, your children will be negatively affected. There’s no way around it.

If possible, talk with your spouse or partner about how best to approach the children and explain what’s going on now and what will happen next. I don’t mean discussing the legal issues, rather, focus on how their lives will probably change during and after the process. Help them find a way to deal with their emotions and the prospect of separation anxiety that will likely occur. It’s far better to address this beforehand, rather than wait for children to act out as a result of the divorce/separation.

Compile your financial information. If you haven’t already done so, compile information and documentation about finances – both yours and your spouse – held individually or jointly – including assets, debts, income and expenses.

Once proceedings get underway, you’ll be glad you put all this together in advance.  Not only does it save time, but after the divorce petition is filed and litigation starts, even the most well-meaning people begin playing games, concealing important details about assets and debts, etc., that can lead to costly discovery efforts and will ultimately affect the final resolution of the key issues of support and property/debt division.

In many marriages, one or the other spouse is often in the dark about household finances. One spouse handles most, if not all, financial matters (paying bills, depositing checks, etc.) and the other person lives in “willful blindness” of the grand scheme of the household finances. That’s all well and good when people are in a happy situation with trust all around, but it’s the worst possible scenario in the event of divorce or separation. At that point, the person who hasn’t been involved is generally clueless about the status of individual and joint assets and what money went where – and definitely at a disadvantage  when it comes time to either negotiate a global settlement or present your case in court.

Set goals for life after divorce or separation. As difficult as it is to imagine, you will have a new life after this painful episode. Try to see yourself after the legal process is over. Where do you want to be after the divorce judgment comes in? What do you want out of the settlement and what are you willing to accept? (These questions apply both to finances and child custody, where appropriate.) The court expects you to be willing to negotiate, so your attorney needs to know ahead of time what is your “ceiling” (i.e. what would be optimal for you) and what is your “floor” (i.e. what you would accept) in the overall settlement of the various pending issues of your matter (e.g. custody, support, assets and responsibility for debts).

Again, preparing for the road ahead in advance of the legal process is the best thing you can for yourself and your loved ones. Otherwise that road will be a very bumpy one (and much more expensive than it has to be).

Are you in need of legal counseling or have any questions about the above topic? The Law Offices of Ian S. Topf offer a free consultation in a variety of issues, ranging from family law/divorce, bankruptcy, and estate planning to criminal/DUI matters and landlord/tenant disputes.

What Happens When You Marry Someone with Support or Debt Obligations?

These days, it’s not uncommon for a person to marry someone who comes with some financial “baggage”—that is, with debts or support obligations of some kind. Here’s a fairly typical scenario:

Jane comes to my office seeking information about getting a pre-nuptial agreement. Her fiancé, Frank, is saddled with several types of obligations. Her fiancé underwent a horrible divorce from his first wife and Jane believes the ex-wife will go to any lengths to get what she can from him—including having her attorney subpoena Frank’s financial institutions for information on his various accounts. Naturally, Jane wants to know, if she proceeds to marry Frank, is she exposed to similar legal actions?  What is her risk with respect to his spousal support, child support and/or any debt Frank has incurred?

Let’s take a look at each type of obligation and see how Jane may or may not be involved:

Spousal Support

 In California, a new spouse’s income or assets generally has no effect on the spousal support obligation of their new partner. In other words, what belongs to Jane in terms of property or income is not connected to Frank’s spousal support situation. The Court doesn’t use this new information to re-calculate or otherwise alter the amount of support Frank is obligated to pay his ex-wife.

There is one notable exception: If, after remarrying, Frank were to quit his job or become a stay-at-home spouse (because his new wife has a well-paying position) and then attempt to either terminate or decrease the amount of spousal support he’s obligated to pay, the Court would likely see this as an intentional attempt to evade his legal responsibilities – and may not change his spousal support obligation.

Child Support

Again, in California, Jane’s assets generally do not come into play in a situation where Frank is paying child support related to his previous relationship(s). But, as noted above, it’s a different story if Frank decides to leave his job or otherwise decrease his income. Under California Family Code Section 4057.5, the income of a new spouse can be used “in an extraordinary case where excluding that income would lead to extreme hardship to any child subject to the child’s support award.”

The court will always be guided by what is deemed to be in the child’s best interests.

Debt

When it comes to debt obligations, Jane’s potential risk is a different matter entirely. With a new marriage in California, what both parties own together is automatically subject to community property law (e.g. anything acquired during the marriage is presumed to be split 50-50 between the spouses). If Jane puts Frank’s name on any of her assets – for example, adding his name to her savings account or on the deed to the house – creditors can now pursue what Jane considers her property for repayment of Frank’s debts. Her assets should remain untouched if her name is the only one connected to those assets. Most creditors won’t go to the trouble of going after assets in the non-debtor spouse’s name.

Of course, where a house or similar large property is concerned and a lender or other entity requires the signing of a Interspousal Transfer Deed in the course of a refinance (placing title solely in Jane’s name), Frank essentially gives up his legal rights to ownership by signing such documentation. Should this second marriage end up in divorce, Frank may have no claim on the house and the property will be awarded to Jane as her sole and separate property.

A pre-nuptial agreement is an effective way to fully clarify both spouses’ debts and support obligations before marriage takes place and provide the parties with clear guidelines on how to handle their property and obligations throughout their marriage. That’s what I recommended to Jane and what I generally tell all of my clients facing this relatively common situation.

Getting married or just have any questions regarding the above topic? The Law Offices of Ian S. Topf offers a free consultation in a variety of issues, ranging from family law, bankruptcy, debt collection defense, estate planning, criminal defense, DUIs, and general civil matters. 

Protect Your Assets by Keeping Records

When two people fall in love and decide to get married, they don’t want to consider the possibility that at some time in the future they may no longer feel the same way about each other – and that the experience of separation and divorce might turn ugly over issues of community assets and debt obligations.

Sadly, as we all know, this scenario happens all too frequently. But while divorce is an unhappy topic to consider before such a happy occasion as marriage, I believe it’s vitally important to do so. A well-considered and expertly crafted pre-nuptial agreement can set out rights and responsibilities, address issues of property characterization, and minimize the potential legal costs involved in a lengthy and contentious divorce.

Division is right down the middle

Here’s a common problem I see in my practice. A client comes in who’s been married a long time (10 years, 12 years, longer) but doesn’t have a pre-nup. This person is very unhappy at the prospect of having to divide practically everything he or she owns 50-50 – as generally is required by California community property law. Why? Because, the client says that they came into the marriage with substantial assets acquired well before anyone said, “I do.”

Since California is a community property state, we start with the assumption that, when it comes to property that has been acquired in the course of a marriage (that is, all the assets as well as debt obligations), the division almost every time will be right down the middle.

A possible exception occurs in cases where domestic violence is involved. If the court determines that one person has been severely injured and is leaving the marriage with substantially diminished capacity to acquire new assets and income, he or she may be entitled to more than a 50-50 division of assets and debts.

The importance of “tracing”

 But what about assets and debts acquired either before the marriage or after separation?  The key to asserting one’s exclusive rights to property acquired before marriage or after separation is through what’s known as “tracing.” If you can trace the timing of the acquisition of an asset to a date either prior to the marriage or after you and your spouse/partner separated, the court will, in most cases, take this as proof of separate property belonging to the person who acquired it. The same principle applies to assignment of debt in the divorce.

But tracing depends on accurate documentation – and that’s where many of us fall short. As in the long-term marriage I mentioned above, it’s easy to lose track of any documents you might have concerning the acquisition of assets 10, 15 or 20 years ago. Unless you can produce such documentation, it will be very difficult to establish that any specific asset should be deemed your separate property.

Things get further complicated when you have to reach out for assistance with documents. Many institutions like banks expunge records after a certain amount of time has passed. So when it comes to obtaining financial and investment information from long ago, unless you’ve kept good records on your own, you may be out of luck.

I can’t stress this strongly enough. Print out your important documents (bank statements, credit card statements, etc.) and keep them locked away. You never know when a particular document will prove useful in court.

How can you attempt to avoid all this drama and turmoil? Look into having a pre-marital agreement, even if it casts a momentary shadow over your upcoming wedding celebrations. It’s by far the best way for both parties in a marriage to identify and protect their separate assets and minimize the possibility of being liable for the other’s pre-marital debt obligations, if things take a turn for the worse somewhere down the road.

Is a pre-nup right for you or just have any questions regarding the above topic?  The Law Offices of Ian S. Topf offer free consultation in a variety of issues, ranging from family law, estate planning, bankruptcy, and DUIs and landlord/tenant disputes.  

Legal Resolutions You Can Make in 2014

There’s no better time than the start of a new year to get your legal and financial house in order. That’s why I advise all of my clients to make sure certain legal documents are in place and to take other precautions so there’s a better chance that 2014 will be a “legally hassle-free year.”

Here are some actions to take in the new year:

Run a credit report. Many people don’t realize that they’re entitled to one free credit report a year. I strongly recommend taking advantage of this. You may think you know everyone you owe money to, but if you run a credit report, the results might surprise you:

You may have forgotten about a debt you owe to a creditor.

  • A creditor may have made a mistake, identifying you as owing a debt when in fact that’s not the case.
  • A creditor may have failed to report that a particular debt has been satisfied.
  • You may be the unwitting victim of identity theft, possibly resulting in numerous debts you didn’t know about.

There are different ways to go about running a free credit report. To get started, check out www.annualcreditreport.com.

Create an estate plan. Thinking about one’s incapacity (e.g. coma) and eventual death is generally not a pleasant experience but, in this day and age, it’s become a necessity.  The overall extent of estate planning will depend on not only what you have but also what you want to do with it.  Without the requisite documents (e.g. living trust, will, power of attorney, health care directive), you and your loved ones may find yourselves in a serious legal situation.

Or update your estate plan. Most experts recommend reviewing your estate plan at least every five to seven years. Why? A lot can happen during that time-frame, including changes in the law and changes in your life – like having children, getting a divorce or inheriting some significant assets.

If you’re a renter, be sure to keep good records. Some recent “Topf of Mind” blog posts have covered tenants’ rights regarding apartment leases and security deposits. The underlying lesson weight loss here is to always keep copies of essential documents. If you don’t already possess a copy of the lease, contact the landlord and get a copy. While you’re at it, ask for copies of any other rules and regulations affecting your status as a tenant as well as other documents relating to your lease. For example, in order to preserve your rights in the event you have to vacate the property, obtain a copy of any inspection report of your residence (e.g. move-in inspection).

Review legal considerations before you get married. With the recent increase in marriages due to the legalization of same-sex marriage in California, we’re seeing again the need for everyone planning to get married to talk to an attorney before taking their vows. (Most couples don’t consult a lawyer until they’re considering a divorce).  Pre-nuptial agreements, for example, are an important consideration to think about prior to marriage.

Get help if you’re facing bankruptcy. This time of year, as people swarm the malls both before and after the holidays, I tend to get a lot of inquiries about bankruptcy. If you face an increasing mountain of debt, it’s definitely time to contact an attorney. And, as I’ve emphasized many times in the past, prior to making that appointment, put together all relevant documents (proof of income, estimates of monthly expenses, an inventory of your personal assets, list of creditors, etc.). Your time spent talking with an attorney will be far more productive if you have the necessary documentation at your fingertips.

This last point applies to all of the resolutions above. Whether the situation involves debt, a tenant’s issue, pre-nuptial or DUI, make contacting an attorney the first thing you do. This will help make 2014 a much better year for you and your family.

Happy New Year!

Are you in need of legal counseling or have any questions about the above topics? The Law Offices of Ian S. Topf offer a free consultation in a variety of issues, ranging from family law/divorce, bankruptcy, and estate planning to criminal/DUI matters and landlord/tenant disputes.

The Double-Whammy of Divorce and Debt

It’s a sad fact of life, but money issues often lead to marital discord, which in turn can lead to the overall breakdown of marriage and eventual divorce.

In this difficult area, many misconceptions persist regarding the responsibility of debts. For example, one client recently came to me with the following situation: she and her husband had been married for 10 years, he had recently lost his job and there was a ton of debt on the credit cards in his name only. My client’s question was—If I file for divorce, will the court see this debt as being strictly my husband’s responsibility and absolve me of any debt obligations?

The answer is, no.

In California, while a debt may be incurred in one party’s name, if the debt is racked up while the parties are married, it is generally deemed “community debt.” Also, credit cards, while issued in one party’s name, still may have his or her spouse listed as a co-signer or “responsible party” (even if this doesn’t show up on the credit card or credit card statements).

Another important point to note here: Because California is a community property state, some creditors feel free to pursue the spouse of an account holder, regardless of whether he or she incurred the debt themselves or is even listed on the account. Additionally, generally speaking, a Family Court order assigning a debt to one spouse has no effect on a third-party creditor. As in the example mentioned above, just because a judge says the husband is responsible for credit card debt won’t stop a bank from going after the other spouse.

Options for resolving the situation

In many cases, a spouse, who in the divorce is going to be deemed to be not responsible for the debt (the “non-responsible spouse”), can request a court order stating that the responsible spouse pay for any out-of-pocket expenses tied to that debt. In these cases if a creditor obtains money from or sues the non-responsible spouse to recover the debt, that spouse can pursue the responsible spouse for appropriate reimbursement, including attorney fees and costs.

The non-responsible source can also attempt to assert that the debt be paid off prior to the close of the divorce, matter through the sale of community assets. Beyond that, all you can do is hope and pray the responsible spouse pays off the debt before the creditor comes after you.

In my opinion, unless the marriage situation is as bad as the warring spouses in the movie, “The War of the Roses,” both parties should do everything possible to set aside their differences and resolve the debt before going through with a divorce. Failing to resolve the situation will only lead to additional problems later on. Once a divorce proceeding gets underway, the adversarial environment may present insurmountable obstacles to seeking proper debt relief.

Whatever the case, always consult a family law attorney before taking any action. You may have more options as a married couple than as a single individual.

The Law Offices of Ian S. Topf offers a free consultation in a variety of issues, ranging from family law, bankruptcy, debt collection defense, estate planning, criminal defense, DUIs, and general civil matters.

If You Move Out During a Divorce, Do You Lose the House?

Many issues arise in the course of a divorce proceeding, but one of the most common (and most commonly misunderstood) relates to a couple’s marital residence. Who will live in the house while the divorce is pending? Can both spouses continue to reside there? Should they? Who’s responsible for maintaining the property (including general maintenance, payment of mortgage, HOA, property taxes, etc.)? If I move out, am I sacrificing all rights to the property?

The answer to the last—and probably most important—question is No. Many clients mistakenly believe that if they leave a house during a divorce proceeding, the other party gets it outright. This is a myth.

By moving out of the house, you don’t give up any interest you have in the property—or any other legal rights connected with owning the property. You still retain the privilege of possession and the ability to profit from the sale or rental of the house. If while a divorce is pending, one party needs to address an issue involving the house, he or she can present the issue through a motion—though a court will not generally order a sale or division of the house as a result of this motion.

In California, community property law dictates that each party is (in most cases) entitled to 50% of all community assets. While a divorce is underway, there’s usually insufficient information to determine a fair distribution of community assets, so the court won’t award the house to one party or another, until it’s clear the other party will be rewarded assets equal to the equity in the house.

When children are involved

Of course there are several factors involved in determining who should remain in the house while a divorce is pending. One of the key concerns is children.

For example, if the couple has lived in the house for the past decade, they may not want their children to undergo the emotional turmoil often involved in relocating elsewhere. In these cases, the best option may be for the mother to continue residing in the house. Then both sides must determine if she should be responsible for maintaining the residence on her own or if the father (or domestic partner) contributes to payments and upkeep.

Even when Mom stays at the property with the children, she doesn’t necessarily get more interest in that property. Any temporary arrangements made to address this issue can always be altered by a later agreement or a court ruling. A temporary order does not mean a decision has been set in stone.

Final disposition

As the divorce proceeding nears the end-point, the issue of final resolution of the marital residence is looked at more closely by both sides. The house can be put up for sale at any time, if both parties agree to this arrangement. Options for final disposition of the residence include:

  • The wife buys out her husband and gets awarded the property to herself
  • Husband buys out his wife
  • They sell the house together and split the proceeds

Another possibility involves what’s called “deferred disposition.” As part of a divorce settlement, both parties may agree that, upon some future contingency, their youngest child (or any child so specified) gets the property in question.

In general, issues related to real estate should be addressed early and often during the course of a divorce. Speak to an experienced attorney to get more information on this issue.