San Diego Law Today

The State of California has decided to add insult to injury to those who have lost their home through foreclosure or have sold it at a short sale.

The tax break preventing the issuance of a 1099 cancellation of debt is no longer available starting tax year 2009. Previously, for tax year 2007 and 2008, mortgage companies who held second mortgages were not allowed to issue 1099s for cancellation of debt on short sales or foreclosed primary residences. Now they can, do, and will in the future.

As a result, the State of California will be assessing an income tax based on the amount of debt forgiven. A huge tax bill may result, depending on the net loss. Further, the holder of that mortgage can pursue collections of the total amount of outstanding balance. The biggest losers will be homeowners who have lost their residences.

The best way to not only avoid the tax liability but to prevent collections of the deficiency balance is to file a bankruptcy.

Tags: Bankruptcy myths, Foreclosure

The newly enacted credit card reform bill was designed to help consumers better manage their credit card debt, with provisions for less volatile interest rates, more communication and fixed payment policies.

In theory, the changes should help San Diego consumers with credit card debt manage their bills better, but it’s not a bed of roses. Sure, credit card companies have to play by more rules now, but they are still going to find ways to make their money.

Here is how the new way of handling credit card debt will affect you.

• Interest Rates:
  Credit card companies can no longer jack up your interest rate on the existing balance, and they must notify you of an increase in the rate on new purchases 45 days before the rate increase. But they will more than make up for this by increasing the interest rate on new purchases and eliminating fixed-rate credit cards. That way they can vary the interest rate on a balance.

• Fees:
  Companies can no longer charge fees when you go over your limit or when you pay your bill over the phone. But rest assured that they’ll probably find new and more costly fees for services that are currently free.

• Statements:
  The new credit card statements are supposed to be more informative, with information on how long it will take you to pay off the balance, etc. This is likely to be more confusing to most consumers, making it harder to understand the cost of credit.

• Due Dates:
  Your statement must arrive 21 days before the due date, and your due date will be the same every month. If the day falls on a weekend or holiday, it is due the next normal business day.

• Minimum Payments:
  Credit Card Companies are now required to apply any amounts over the minimum payment to the balance with the highest interest rate. If you are just making minimum payments, you never reduce the balance by very much.

• What Stays the Same:
  Credit card companies can still lower your available balance and cancel your card for any reason and without notice.
• And the best advice about your credit card doesn’t change either:
  • Never use your credit cards to finance other debt, such as pay taxes or insurance, and, if you do use your credit cards, try to pay them off each month.
  • Do your best not to use your credit cards for normal living expenses, such as food, gas, etc.
  • If you’re starting to get into trouble with your credit card payments, do not hesitate… consult a bankruptcy professional right away before the situation becomes worse. You can put your house, car and other possessions into danger if you find yourself too far behind on payments.

Tags: Bankruptcy myths, credit cards

Just a little information regarding credit reports.

There are 3 major credit reporting agencies out there: Experian, Trans Union, and Equifax, plus dozens of other less-known ones.

What information you need from a credit report may dictate what agency you should go to and how much you should spend to obtain one. Some versions of the credit reports may only give you balances and names of companies you may owe, but no contact information for those creditors and no mailing addresses.

According to Money Magazine, freecreditreport.com is not really free at all. What is being sold is a subscription to credit monitoring for approximately $15.00 per month. Try annualcreditreport.com for a copy of your report.  It should not cost you anything.

Remember that a credit report is nothing but a guide and should not be taken to be 100% accurate. When evaluating a client’s total debt, I like to see the actual bills that are less than 90 days old. That way I am confident that the information I have is as accurate as it can be.