Boston Bankruptcy Lawyer Blog

Many of our Massachusetts bankruptcy clients have loans against their 401k plans. Our clients often ask if 401k loans are reported to credit reporting agencies. Fortunately, 401k loans are not reported because they are not loans from a bank or lending institution. Clients rationalize the loans, saying that they are simply borrowing from themselves, AND the interest goes to them too. Unfortunately, it is not always that simple. On the one hand, they are legitimately borrowing money from their own retirement account, where there are no complex qualification rules, so it is a simple and quick way to get money. And there are no adverse credit consequences.

However, there are numerous downside considerations to 401k loans. First, you are not earning money (interest, dividends, capital appreciation) on the money that you have withdrawn, assets that you have already targeted for retirement. Second, the money you use to pay yourself back has already been taxed, so it costs more to repay yourself $1 than it did to pay yourself $1 when it was deducted from you paycheck, tax deferred. Third, there is no tax deduction on the interest paid. Most importantly for our bankruptcy clients, if you fail to repay the money per the plan rules, it is considered a "taxable event" in which case you will get a 1099 form from the company and have to pay taxes on what will be considered the 401k distribution. Those taxes would include your normal tax rate, plus a 10% penalty for withdrawal if you were under 59 years old, or 55 if you have lost your job. Thus, the tax could be 40%!

Continue reading "401k Loans in Massachusetts Bankruptcy and Credit Reporting" »

Many of our Massachusetts bankruptcy clients are able to protect significant retirement assets in their retirement accounts. As such, we remind our clients of the various options they have before year end. You can get a good chart on what qualifies for retirement deductions in 2010 by clicking here. We work with bankruptcy and post bankruptcy clients to protect their assets legally.

The following are a variety of ideas; however, you must talk to a tax professional before undertaking a specific plan of action. Also, be aware that you cannot generally combine these various plans, and, when you can, there are personal, and family, income limits.

Roth IRA Conversions: In 2010, if your income is under a certain limit, you can convert all or part of y our IRA into a Roth IRA. Be careful, this is a taxable event and you should seek tax advice before doing so. However, it is a good idea to consider this, especially if your account is down, due to the market, and, and this part is especially important, if you have outside monies to pay the tax. All too often we get clients who converted, or withdrew, IRA monies, and failed to pay the tax. That tax is generally not discharged in bankruptcy.

Continue reading "Massachusetts Consumers Year End Retirement Notions; Bankruptcy Protection" »

No, but do they? Massachusetts bankruptcy clients ask us this question all time. In a case filed by the federal credit report will come into sharper focus. Some states have banned using credit reports in hiring. Others have allowed their use on only a limited basis. Nevertheless, surveys show that half of all employers use credit histories sometimes.

The argument against using credit reports for employment are clear: they are often inaccurate, they are not necessarily good indicators of job performance, they fail to tell the whole story of why a payment was late and, with respect to bankruptcy in Massachusetts, they fail to tell the story at all. Furthermore, managers who make higher salaries do not necessarily understand why lower paid employees might have had a credit problem and that that problem would be unrelated to work ability.

Continue reading "Can Massachusetts Employers Discriminate Using Credit Report?" »

A new Massachusetts homestead law, which was supported by Governor Patrick, allows for automatic homestead protection of all homes in Massachusetts. All homes in Massachusetts will have an automatic homestead exemption of up to $125,000. Unfortunately, while the law protects all Massachusetts homeowners, we urge our Massachusetts bankruptcy clients to file a written homestead as well. Why? Because the written homestead, properly filed with the Registry of Deeds, provides $500,000 in protection. The cost of filing a homestead is $35, and the cost of retaining an attorney to assist you should be nominal as well.

The written homestead protects your home from creditors, if and when you file bankruptcy, if it has more than $125,000 in equity. Furthermore, it protects you if you are a defendant in a civil action, including motor vehicle accidents and are uninsured or underinsured.

Continue reading "Automatic Homestead Law Effects Massachusetts Bankruptcies" »

Until the new Consumer Financial Protection Bureau kicks in, the Federal Reserve remains in charge of credit and debit card regulations. In new regulations proposed by the Fed, the swipe fees on debit card transactions have been reduced by 84%. Massachusetts bankruptcy lawyers and consumer lawyers see this as a victory for consumers because merchants will be able to lower fees to customers who use debit cards.

Basically, the Fed reduced the fees from 44 cents down to 7 to 12 cents in swipe fees. The credit and debit card issuers were, of necessity, outraged at the action by the Fed. Their stock prices were down on December 16 by 10% (Mastercard) to 13% (Visa). This will enable to retailers to lower their charges to consumers, goes the theory. The banks, however, say that they will simply charge higher fees elsewhere, which will adversely affect consumers.

Will Consumer Financial Protection Bureau Guru Elizabeth Warren chime in? When?

Bankruptcy news indicates that the number of people filing bankruptcy in Massachusetts dropped in November. In fact, the numbers are down 13.3% from the prior month, according to the American Bankruptcy Institute, nationwide, not just Massachusetts bankruptcy. They are still up from November 2009, however. The total number of bankruptcies filed in 2010 is already significantly higher than 2009, which was about 30% higher for personal bankruptcies than 2008. Massachusetts Bankruptcy Court reports for year end are 2010 will be published next month.

Massachusetts bankruptcies totaled 17,763 filings for 2010 to the end of the quarter, 77% of which were Chapter 7 in 2010. This puts Massachusetts 33rd in state rank based on per capita filings in 2010. By comparison, in all of 2009, for example Massachusetts ranked 35th and 82% were Chapter 7; in 2008, we were 36th and 77% were personal bankruptcies.

Continue reading "Massachusetts Bankruptcies Down in November" »