MP3tunes, which is based in San Diego, was founded 7 years ago. The company had a successful year during 2011 with revenue totaling about $1 million. The service allows customers to store their music online for a monthly fee. About 300,000 customers have used MP3tunes so that they can access their music from any device that can be connected to the Internet.
However, the company's founder said that the small business has been plagued by a copyright lawsuit that was initially filed in 2007 by EMI Music. Because the lawsuit has yet to be settled, the company's legal fees have spiraled out of control and the founder sees no other solution than to file for bankruptcy protection.
]]> According to court documents, the San Diego-based company owes nearly $1.5 million in legal fees. The company has been fighting a copyright infringement lawsuit for more than four years after EMI Music accused the music locker service of failing to remove pirated songs from its customers' online accounts. Although MP3tunes and other similar services are not held accountable for checking whether or not customers are uploading pirated music to their lockers, EMI Music claims that it warned MP3tunes that the company and its customers were sharing songs illegally.In addition to owing legal fees, the company owes more than $500,000 in other expenses. The company's bankruptcy filing stated that its assets total less than $10,000. While the company works out a bankruptcy plan, the copyright infringement lawsuit must be put on hold.
Typically, when a small business files Chapter 7 in California, the company's assets will be sold and any remaining funds will be distributed to the company's creditors.
Source: U-T San Diego, "MP3tunes music locker service filed for bankruptcy," Michael Freeman, May 11, 2012
]]>According to last week's bankruptcy filing, it was reported that Suleman's assets are estimated to be worth $50,000. However, her liabilities total nearly $1 million. While Suleman currently lives in a four-bedroom, three-bathroom home with her 14 children in La Habra, The Orange County Register reported this week that the home is scheduled to be sold at a foreclosure auction on May 21.
Typically, the foreclosure process will come to a halt when individuals file for bankruptcy protection in the state of California. But because Suleman does not own the home she has been living in for the past several years, the foreclosure process can proceed.
]]> According to The Orange County Register, the owner of the home made an agreement with Suleman that she could live in the home with her children as long as she paid rent. However, as we mentioned last week, Suleman owes about $30,000 in past-due rent payments.In addition to stopping the foreclosure process, California bankruptcy laws also require all other creditors to halt the collection of unpaid debts while an individual is in the midst of bankruptcy proceedings. This also means that creditors cannot attempt to repossess any other property that may be securing loans such as vehicles or boats. These laws are meant to protect consumers while they work out a bankruptcy plan that will put them in a much better financial situation once the bankruptcy is finalized.
Source: The Orange County Register, "'Octomom' house sale delayed again," Michael Mello, May 7, 2012
]]>After nearly one year from when the Chapter 11 bankruptcy was first filed by the Major League Baseball team's owner Frank McCourt, it appears that the team has finally exited bankruptcy. Last week, it was reported that the official sale of the team was completed. This was the last step that needed to be taken, according to a reorganization plan that had been approved by a judge last month, before the bankruptcy could be finalized.
Although the team's creditors initially attempted to object to the sale of the Dodgers, which would have further prolonged the bankruptcy process, the bankruptcy judge did approve the final sale amount. The team was sold to Guggenheim Baseball and several other owners for more than $2 billion. After the sale was announced, the team said that they will "move forward with confidence -- in a strong financial position, as a premier Major League Baseball franchise."
]]> The sale of the team may certainly come as a relief after the Chapter 11 bankruptcy was first filed in June 2011. Chapter 11 bankruptcy usually allows a small business in the San Diego area to reorganize its debt so that the business can continue to operate after bankruptcy with a fresh start. The Dodgers chose this option so that the team could resolve its financial problems after a contract allegedly fell through last year while continuing to thrive as an MLB franchise.According to the Los Angeles Times, McCourt and the team's new owners will be responsible for its legal costs pertaining to the bankruptcy as well as the MLB's legal costs. It is estimated that the legal costs may exceed $30 million. Despite these costs, it is believed that it was a better financial decision for McCourt to file bankruptcy instead of allowing the Dodgers to be sold by the MLB.
Source: Bloomberg Businessweek, "Dodgers Complete $2 Billion Sale of Team, Exit Bankruptcy," Steven Church, May 2, 2012
]]>Suleman is a single mother of 14 children. She was dubbed Octomom in January 2009 when she gave birth to eight children who were conceived through in vitro fertilization. Raising 14 children on her own has left little opportunity for full-time employment, but Suleman claims to have sought other business opportunities over the last couple of years to earn some extra cash for her family. Some of those business opportunities included a book, exercise videos and posing for photo shoots for the media. However, the book and video deals never went through and Suleman has been struggling financially to make ends meet for her family.
]]> According to the bankruptcy filing in California, the woman owes nearly $1 million in debt. Some of the creditors listed in the filing include her father, DirecTV, a local learning center and a local Christian school that some of her older children were attending. Suleman's assets allegedly only total about $50,000.Prior to this week's bankruptcy filing, the mother of 14 also faced being evicted from the home she has been renting since 2009, the Los Angeles Times reported. The four-bedroom home was scheduled to be auctioned earlier this week but the auction has been delayed for at least one more week. Suleman is also behind on her rent payments. It was reported that she owes about $30,000 in rent.
After careful consideration, Suleman said that she believes that bankruptcy is the best step to take for her and her family. The single mother said that she has hit "rock bottom," and she sees Chapter 7 bankruptcy as the best way to resolve her financial problems.
Source: CBS News, "'Octomom' files for bankruptcy, owes $30K in rent, up to $1M in debt," May 1, 2012
]]>A simple solution to repair one's credit is to make payments on loans, credit cards, mortgages and other bills on time every single month. Typically, lenders will not report late payments to the three credit bureaus unless the payments are 30 days late. But missed payments can result in late fees and it can also put consumers in the same situation they were in prior to bankruptcy. For those who simply forget about payment due dates, putting reminders on calendars may be helpful to prevent making a late payment or missing a payment entirely.
]]> Once a bankruptcy filing is discharged, it may not be a good idea to try to take out new loans or other debt right away. However, applying for a credit card may be a good idea in order to begin rebuilding credit. Consumers don't need to carry balances on these cards, but having a card open with no late payments will help to boost one's credit score. Using the card to make a small purchase each month and then paying the entire bill off later in the month will show creditors that a consumer is capable of repaying his or her debt.Some consumers might assume that avoiding credit cards and closing other accounts will help to repair one's credit, but sometimes this can cause more damage. When individuals have less credit available to them, or when other loans or credit cards are maxed-out, credit scores will drop.
After a year or two of making payments on time, consumers may then want to think about taking out a small car loan or other type of loan to continue to establish one's credit and to rebuild trust with one's bank or credit union. In order to prevent financial problems, consumers should remember to only take out loans or agree to monthly payments that they know they can afford to repay.
Repairing one's credit after a Chapter 7 or Chapter 13 bankruptcy filing in San Diego may take some time. But with patience and proper guidance, consumers can work toward the fresh start they were hoping for after filing for bankruptcy protection.
Source: MSN Money, "7 credit tips for after bankruptcy," April 12, 2012
]]>Although bankruptcy protection is certainly a step in the right direction to resolve one's financial troubles, consumers must also understand that it may take some time for one's credit to recover after a bankruptcy filing. Bankruptcy filings are reported to all three credit bureaus, which automatically reduces one's credit score. However, there are certain steps consumers can take after bankruptcy to repair credit and to enjoy a fresh start.
]]> The most important thing consumers need to remember in order to successfully repair their credit after bankruptcy is to be patient. A bankruptcy filing may remain on one's credit report for up to 10 years. But during this time, consumers can slowly work toward increasing their credit scores so that they can borrow again in the future if they want or need to.Before consumers start rebuilding their credit, they should review their credit reports in order to determine if there are any mistakes on the reports. If individuals notice errors or are unsure what something might mean, they can always seek the assistance of an attorney to help them determine if there is anything that is problematic with one's credit report. Clearing up any mistakes will make it easier for consumers to rebuild their credit.
We will continue this discussion next week on our San Diego bankruptcy law blog, focusing on some other tips consumers can follow to rebuild their credit after bankruptcy.
Source: MSN Money, "7 credit tips for after bankruptcy," April 12, 2012
]]>A loan modification in San Diego not only frees up a little extra income for any unexpected expenses, but this type of debt negotiation plan can also help individuals find financial stability before needing to explore other options such as Chapter 7 or Chapter 13 bankruptcy protection. However, before San Diego residents make loan modification and debt negotiation agreements with lenders and other companies, consumers may want to consider seeking assistance from an attorney in order to make sure that these agreements are sound and that any new loan or mortgage terms will do more good than financial harm.
Some companies may take advantage of a consumer's need to lower his or her monthly payments through loan modification scams. Just this month, a lawsuit was filed against a San Diego company that had said it would help consumers lower their monthly auto loan payments.
]]> According to the Federal Trade Commission, Auto Debt Counseling offered its loan modification services to dozens of consumers who wanted to lower their monthly car payments. But when customers paid for this service, they claimed that their monthly car payments were never reduced. In some cases, customers paid nearly $800 for this service.Within one year, more than 20 complaints against the San Diego auto loan modification company had been filed with the Better Business Bureau. Many of these customers never had their monthly auto loan payments reduced, and they were never reimbursed the money they had paid to Auto Debt Counseling.
The FTC reported that the company is being sued for its faulty business practices, and the agency is working to prevent similar companies from taking advantage of other consumers who are experiencing tough financial times.
Source: Fox 5 San Diego, "Consumers warned of auto loan modification scam," John Langeler, April 24, 2012
]]>Typically, debt, such as home mortgages, car loans, student loans and medical bills, are cancelled after a borrower's death. Still, officials who handle such cases will look at how certain assets are titled or how certain loans were dispersed in order to determine if someone else should pick up the tab for one's debt.
For instance, if a husband and wife take out a loan together and one spouse passes away, the surviving spouse would be responsible for paying the debt off. The same would apply to joint credit card accounts, even if only one spouse used the credit card and racked up debt. The surviving spouse would still be accountable for paying that debt.
]]> Additionally, family members or friends who co-sign on any loans or credit cards for another individual will also be responsible for paying any remaining debt on the loan or credit card after one's death. Individuals who do not want to be responsible for someone else's debt should understand the risks of co-signing on a loan before they do so.In California in particular, which is known as a community property state, one spouse could be liable for the other spouse's debt even if they did not know about the debt or co-sign for it. This makes it even easier for Californians to inherit overwhelming debt.
If the deceased does not have the assets to pay off his or her debt, the individual's estate will be liquidated and the debts will be paid off as much as possible. For those who die while solvent, their assets will be used to go toward any outstanding debt and the rest will be handed over to beneficiaries.
Keep in mind, even though you may not owe the debts of a deceased loved one, debt collectors might trick you into making payments on one's outstanding debt.
Source: CNBC, "Who Inherits Your Debt?" Shelly Schwartz, March 16, 2012
]]>According to a study conducted by the National Bureau of Economic Research, at least 200,000 U.S. households will be taking their tax refunds to a bankruptcy attorney so that they can file for Chapter 7 or Chapter 13 bankruptcy protection this year.
Many consumers may understand that bankruptcy is the best solution for their situation, but the costs of bankruptcy filings and legal fees may cause some Americans to put off seeking personal bankruptcy protection until they have enough money to proceed with the legal process. With a big tax refund, or after saving some extra cash, San Diego residents may finally have the funds to seek bankruptcy protection.
]]> One law professor noted that after U.S. bankruptcy laws changed in 2005 it has been more difficult for Americans to file for bankruptcy protection. Changes in bankruptcy laws were made to prevent people from abusing their rights to file Chapter 7 or Chapter 13. However, with these changes, consumers are now required to provide more information that must be reviewed before bankruptcy filings can be approved. This also means that filing for bankruptcy is more costly than what it used to be.Surely a big tax refund could be used to get caught up on bills or loans, but for those who currently do not have enough monthly income to pay their monthly expenses this is just a temporary solution. For some San Diego residents, it may be wise to use their tax refunds to file for bankruptcy protection so that they can find a more permanent solution to their financial troubles.
Source: USA Today, "Tax refunds being used to pay for bankruptcy filings," Christine Dugas, April 13, 2012
]]>After earning millions from playing in the National Football League and working on several other projects after his professional football career ended, it was reported over the weekend that Warren Sapp filed for Chapter 7 bankruptcy. According to the bankruptcy filing, the former NFL star does not earn enough to cover his current monthly expenses. As a result, his debt has been building up and is currently estimated at nearly $7 million. The bankruptcy filing listed Sapp's assets at less than $6.5 million.
]]> If you have been reading our bankruptcy law blog for awhile now, you may not be surprised that another professional athlete has had to file bankruptcy as a result of not being able to keep up with expenses after ending their professional careers on the field or on the court. In fact, Sports Illustrated reported that within two years of retiring, 78 percent of NFL players will seek bankruptcy protection and 60 percent of NBA players will file for bankruptcy. However, some noted that Sapp's bankruptcy filing might not have been expected since he has remained quite successful after retiring from playing professional football.Sapp's bankruptcy filing reported that his current monthly income is $115,881. He has appeared on the hit show "Dancing with the Stars" and as an analyst for several NFL shows. However, he also went through a divorce and now owes child support and alimony. According to the bankruptcy filing, his monthly income is not sufficient to continue paying child support and alimony in addition to his other monthly expenses.
Source: The Washington Post, "Warren Sapp: The latest multimillionaire athlete to file for bankruptcy," Matt Brooks, April 9, 2012
]]>When a lender cancels or forgives debt, the lender may be required to report the amount of debt that was canceled to the IRS. The lender will do this by filing a 1099-C form which the debtor must then include as income when filing his or her taxes. If a borrower does receive a 1099-C form, he or she should be aware that the form could have mistakes. Although one may be responsible for paying taxes on forgiven debt, borrowers should make sure that they pay the correct amount to the IRS and that they do not pay taxes twice for the same debt.
]]> With the billions of dollars in unpaid credit card balances that have been forgiven and canceled by credit card companies over the last few years, USA Today reported that the IRS expects to see more lenders filing 1099-C forms during 2012. This means that many borrowers may be required to pay taxes on forgiven credit card debt that they might not have ever expected to have to pay. According to the IRS, more than 6 million taxpayers are expected to be issued a 1099-C form this year that they may need to include as taxable income when preparing their taxes next year.San Diego residents who had their debts discharged in bankruptcy or who were insolvent when their debts were canceled will most likely not be required to pay taxes on the amount of debt that was canceled or forgiven. This is another benefit of filing for bankruptcy protection or declaring insolvency when one's debt becomes unmanageable. Before San Diego residents default on credit card payments or other loans, they may want to consider working with an attorney to find a more permanent solution to fix their financial problems.
Source: USA Today, "Canceled credit card debts come back to haunt taxpayers," Sandra Block, March 4, 2012
]]>Any of these situations could have put you in a position where you needed to rely on your credit card to help pay other bills or purchase necessities each month. But if you, like many other Americans, soon realized that you could not repay your credit card debt, you may have had to default on your credit card payments. Your lender may have even canceled or forgiven your credit card debt. But if this is the case, you should be aware that you could be required to pay taxes on the forgiven or canceled debt.
]]> USA Today recently reported that about $75 billion in unpaid credit card balances were written off by six of the nation's largest credit card companies during 2009 and 2010. Although credit card holders probably felt relieved when some of their balances were canceled, the unpaid debt could come back to haunt them in several ways.First, canceled balances and missed payments can certainly damage one's credit score and make it difficult for an individual to borrow money in the future. Although many consumers already understand that canceled debt and missed payments can damage one's credit, they may not realize that they could also be required to pay taxes on any canceled debt. When credit card debt is canceled, borrowers may have to include the forgiven debt as taxable income since the debtor no longer has an obligation to repay the lender.
We will continue this discussion next week on our San Diego bankruptcy law blog, focusing on how lenders report canceled debt to the IRS and some ways borrowers can avoid having to pay taxes on canceled or forgiven credit card debt.
Source: USA Today, "Canceled credit card debts come back to haunt taxpayers," Sandra Block, March 4, 2012
]]>Earlier this year, it was reported that the total amount students and graduates in the U.S. owed in student loan debt had exceeded $1 trillion. And according to a survey conducted by U.S. News & World Report, a national magazine, law school students in the San Diego area are graduating with some of the highest amounts of student loan debt compared to graduates of other law schools in the U.S.
]]> The magazine analyzed information that was provided by nearly 200 laws schools across the U.S. Two law schools from the San Diego area, Thomas Jefferson School of Law and California Western School of Law, both reported that students were graduating with an average amount of about $153,000 in student loan debt. The magazine reported that on average, law school students who graduated in 2011 were graduating with about $100,000 in student loan debt.According to the national magazine, Thomas Jefferson School of Law and California Western School of Law made the 2011 top 10 list of law schools in the U.S. with some of the highest student debt loads for graduates.
Although many San Diego residents may have the option of filing for Chapter 7 or Chapter 13 bankruptcy protection when their debt becomes unmanageable, recent graduates will most likely not have this option available to them because student loan debt cannot be discharged in bankruptcy. However, students may be able to work with an attorney who is experienced with helping individuals resolve their financial issues so they can continue to work their way out of debt. In some cases, students may be able to discuss debt negotiation plans with some creditors or discharge other debts by filing for bankruptcy protection.
Source: The San Diego Union-Tribune, "Grads' Debt At S.D. Law Schools Near Top," Greg Moran, March 31, 2012
]]>Chapter 13 has many advantages. Once an individual files for bankruptcy, creditors are prohibited from contacting debtors and any foreclosure proceedings must be stopped. Additionally, one may not be forced to liquidate some or all of his or her assets. Instead, the debtor works out a repayment plan that allows the individual to keep his or her assets while making lower monthly payments that are much more manageable.
Under very special circumstances, some individuals choose to file for Chapter 13 bankruptcy instead of Chapter 7 bankruptcy so that their attorney fees can be included in the bankruptcy instead of having to pay the fees out of one's pocket. Many bankruptcy judges may turn down the proposal of a "fee-only" bankruptcy, but a recent court ruling has reminded bankruptcy courts throughout the entire U.S. that banning these types of proposals in Chapter 13 proceedings is unlawful.
]]> The ruling was made after the U.S. Court of Appeals for the First Circuit reviewed a case involving a man who had filed Chapter 13 and requested that his attorney fees be included in the bankruptcy. This would have significantly reduced the amount of money available to repay creditors after the bankruptcy, and a bankruptcy court rejected the proposal. The case went to a federal district court where it was also rejected. However, a federal district court judge also ruled that the "fee-only" plan was banned in bankruptcy filings.Last week, an Appeals Court judge ruled that although "fee-only" proposals are rarely approved, these types of proposals are not banned. The judge clarified that some circumstances may justify a "fee-only" plan. The man's case will now be reviewed again in bankruptcy court. Further proceedings will determine whether or not he can include his attorney fees in his Chapter 13 bankruptcy filing.
Source: The Wall Street Journal, "First Circuit Lifts Ban on 'Attorney Fee-Only' Bankruptcy Plans," Joe Palazzolo, March 23, 2012
]]>For months, California has been questioning whether one of its cities will soon be the largest city in the U.S. to ever file for bankruptcy. Stockton, like many other cities, has seen its share of financial struggles over the past few years. According to Reuters, the city had one of the highest foreclosure rates in the country last year and unemployment rates in the area remained above 15 percent. But while dealing with these issues, the city manager said that Stockton has also had to deal with overwhelming debt as a result of "decades of fiscal mismanagement," and the city now faces a deficit of at least $20 million.
Now, if the city cannot reach debt negotiations with creditors, the city could become the largest city in the country to file for bankruptcy. The city council has already approved a plan to default on some of its debt while it addresses its financial issues.
]]> Before the city can consider bankruptcy, California law requires municipalities to participate in mediation with creditors in order to work out debt negotiation plans in an effort to avoid filing for bankruptcy. Mediation can last up to 90 days and in this case, negotiation talks will be kept confidential as the city attempts to reduce its debt. This week, it was reported that a mediator for Stockton and its creditors has been chosen. The mediator is a former U.S. bankruptcy judge.Although bankruptcy is certainly a viable option for those who are struggling with debt, there are alternatives to bankruptcy for consumers including debt negotiation. Trying to negotiate with creditors on one's own may be challenging, but San Diego residents can seek assistance from an attorney who can help them discuss loan rate reductions or new payment options with creditors. In some cases, individuals may be able to avoid bankruptcy by negotiating new payment options with their creditors.
Source: Reuters, "Former bankruptcy judge tapped as Stockton mediator," Jim Christie, March 27, 2012
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