Legal Tips & Commentary

Should Christians File for Bankruptcy?

2008-07-06T13:18:00.000-07:00

I am often asked what the Bible says about Christians filing for bankruptcy and it a serious spiritual struggle for many. Christians often struggle with feelings of guilt that creditors will not be repaid. Others feel that they have failed God by not being good stewards with their money. Others believe that the Bible condemns bankruptcy. I found answers to many of these questions is an excellent article written Matthew B. Tozer, Esq. and Ben E. Lofstedt, Esq.

The authors begin with the premise the Bible expressly grants permission for Christians to file bankruptcy: "At the end of every seven years you shall grant a release of debts. And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the LORD's release" (Deuteronomy 15:1-2).

They go on discuss a number of Old Testament and New Testament passages that discuss concepts of sin, mercy, forgiveness and equity. The authors ultimately conclude, correctly I believe, that bankruptcy is biblical and spiritually available to Christians. However, the ultimate decision to file for bankruptcy and the type of bankruptcy to file must still be made after prayerful consideration to seek guidance from from God regarding what decision he would have you make.

Although the subject does not always come up with our clients, we are a Christian law firm. We are a bankruptcy and debt relief agency. We help people file for bankruptcy. We are sensitive to the Biblical and spiritual issues implicated by filing for bankruptcy. Please contact us if you need further assistance is making the decision to file bankruptcy.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning, insurance subrogation and debt collection.

More Mistakes to Avoid Prior to Filing Chapter 7

2008-06-13T22:22:00.000-07:00

It recent guest blog article, attorney Jed Berliner gave us a list of 7 mistakes too avoid prior to filing for bankruptcy. My colleagues at the National Association of Consumer Bankruptcy Attorneys have complied the following list of mistakes prior filing for Chapter 7 bankruptcy:

Don't leave out Bank, Checking, Savings, Brokerage, Credit Union accounts.
Don't file if your income is substantially greater than your expenses.
Don’t use your credit cards.
Don’t take Credit Card Cash Advances.
Don’t use convenience checks.
Don’t do balance transfers.
Don’t pay money to Family.
Don’t pay money to Friends.
Don’t tell a creditor that you intend to pay.
Don’t leave assets off of your paperwork.
Don’t file if you are about to receive a tax return or inheritance. Discuss the timing with your attorney.
Don’t fail to tell your attorney about your small business, sole proprietorship, partnership, LLC, LLP, LC, corporation, or hobby.
Don’t purchase a home shortly before filing bankruptcy without consulting your attorney.
Don’t give or gift property to anyone.
Don’t pay more than $600 on any past due bill.
Don’t transfer property to anyone.
Don’t cash out retirement plans or 401k’s.
Don’t take out a second mortgage.
Don’t gamble.
Don’t hide assets or debts.
Don’t take out “payday loans”.
Don’t put your money in your kids’ bank accounts.
Don’t omit or ‘save’ a credit card for after your bankruptcy.
Don’t fail to list debt to family or other “insiders.”
Don't write bad checks.
Don't borrow money.
Don’t forget to tell your attorney about liens you may have on your home or unpaid judgments so they can be avoided.
Don’t make major financial decisions without talking to your attorney.
Don't get married before filing if your spouse has a high income.
Don’t misrepresent facts to your attorney.
Don’t run up your credit cards in advance of filing bankruptcy.
Don’t fail to appear at State court hearings, trial or proceedings; coordinate with your attorney.
Don’t hide from your attorney. Keep them up-to date with your address, phone number and email address.

Bankruptcy is a complex and confusing area of the law. You need legal advice you can count on to guide you through the process. We are experienced in helping you through your financial difficulties. If you have any questions, please call us at (619) 448-2129.

We are a bankruptcy and debt relief agency. We help people file for bankruptcy.

Business Tip: Avoid Advertising With Yellowbook

2008-06-04T11:06:00.000-07:00

As many business owners know, Yellowbook is a very aggressive marketer of Internet and Yellow Pages advertising. My recent experience with Yellowbook has shown that it is an unethical company with sloppy business practices and dishonest employees.

After a very unsuccessful stint with Yellowbook, I notified them of my desire to cancel the advertising contract for future publications. Verbal notification was not enough for them, so I faxed in a notice of cancellation and also hand delivered a written notice to my sales representative on a form prepared by a Yellowbook employee. When I called to dispute the balance on my account, I have been given various excuses that include (1) wrong method of cancellation (false); (2) no record of cancellation (false); (3) the employee who the cancellation no longer works there (false); and (4) I didn't cancel in time (unverified).

I have repeatedly asked for a copy of my contract and proof that my advertisement was included in the 2008 edition of Yellowbook. Despite numerous promises to do this, I have not been provided with either item.

Avoid advertising with Yellowbook at all costs or you will be severely disappointed. In my case, the revenue generated did not even cover the cost of the advertisement.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning, insurance subrogation and debt collection.

Using Bankruptcy to Remove a Judgment Lien

2008-05-24T13:25:00.000-07:00

Question: I lost my job a credit card company sued me. Now that have a judgment lien on my home. Can I get rid of this lien in bankruptcy.

Answer: A discharge in bankruptcy voids the underlying judgment, but the discharge does not automatically remove a judgment lien from your property. If you qualify, your might be able to file a motion to avoid or cancel the line under Section 522(f) of the Bankruptcy Code.

Under Section 522(f), you can remove most types of judgment liens if the lien impairs an exemption that you would be entitled to claim under the law. Although bankruptcy is a federal law, it is largely state law that determines what property you can an cannot keep when a debtor files for bankruptcy.

Under California law, a homeowner can protect anywhere from $50,000 to $150,000 of the equity in a home from judgment creditors or creditors in a bankruptcy. A California judgment creditor can create a lien against the debtor's home by recording a document called an Abstract of Judgment. If the judgment lien impairs the debtor's ability to claim the maximum homestead exemption, the debtor can obtain a court order removing the lien under Section 522(f).

If you have a judgment lien against your home and want to learn more about how to remove it in bankruptcy, please feel free to contact us.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning, insurance subrogation and debt collection.

Bankruptcy Debtor Audits to Resume Monday

2008-05-11T19:34:00.000-07:00

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the United States Trustee Program (USTP) established procedures to audit petitions, schedules, and other information in consumer bankruptcy cases filed on or after October 20, 2006. The USTP contracted with independent accounting firms to perform audits in cases designated by the USTP. Click here to read our original story on this issue.

In January 2008, the USTP temporarily suspended its designation of cases subject to audit for budgetary reasons. Beginning on May 12, 2008, the USTP will resume its designation of cases, although random audits will now be conducted in 1 out of 1,000 cases instead of 1 out of 250 cases.

Do I Have Any More Bankruptcy Hearings?

2008-05-10T13:34:00.000-07:00

Question: I just got back from the Meeting of Creditors in my bankruptcy. Will there be anymore hearings before I get my discharge?

Answers: In most bankruptcy cases filed by individuals (Chapter 7 or 13), the only hearing is the Meeting of Creditors conducted by the appointed trustee. In Chapter 13 cases, the court might conduct a hearing on whether a proposed repayment plan should be confirmed and you would be notified of the hearing date by your attorney.

In vary rare cases, a creditor or trustee might conduct something called a Rule 2004 Examination. A 2004 exam "may relate only to the acts, conduct, or property or to the liabilities and financial condition of the debtor, or to any matter which may affect the administration of the debtor's estate, or to the debtor's right to a discharge." These rarely occur.

There may be hearings on those matters such as a creditor seeking relief from the automatic stay to complete a foreclosure. But with those and other very limited exceptions, your Meeting of Creditors will be the only hearings in your case prior to receiving a discharge.

American Dream, Economic Nightmare

2008-05-09T11:50:00.000-07:00

Many homeowners are at a financial crossroads. A foreclosure epidemic in San Diego and nationwide is causing more and more people to seek credit counseling, foreclosure prevention services and protection in bankruptcy. Attorney Carl Starrett was recently featured two-part series by KUSI News in San Diego discussing some of the options available to homeowners in financial distress. Click here to see the very informative story as KUSI reporter Ed Lenderman examines the crisis.

Property Tax Relief for California Residents

2008-05-03T11:40:00.000-07:00

With housing prices falling all over California, some homeowners are seeking relief to lower their property tax bills. If the current market value of your property (recent comparable sales) falls below the assessed or taxable value as shown on your tax bill, the California law requires Assessor's Office is required to lower the assessment. This type of property tax relief generally applies to recently purchased property. There are two periods during the year in which the taxpayer may appeal their assessed value for a temporary reduction:

(1) Between March through May: During this period, the taxpayer may submit a written request to the Assessor, indicating their opinion of value and providing supporting documentation, such as sales of comparable properties or a recent appraisal. The necessary forms are available from you local Assessor's office. The next deadline to apply for this type of relief is May 30.

(2) Between July 2 and November 30: During this period, the taxpayer must file an application form. Appeal forms can be obtained and must be filed with the Assessment Appeals Board at your local Assessor's office.

If a hearing becomes necessary, the testimony of a real estate professional is recommended. For more information on how to appeal the assessed value of your home and reduce your property tax bill, please contact us for a complimentary consultation.

Personal Bankrutpcy and Business Ownership

2008-04-24T10:07:00.000-07:00

Question: I wonder a small S corporation and I serve as president. Will my personal chapter 7 bankruptcy effect the corporation?

Answer: You must list the shares of stock as an asset on line 13 of Schedule B of your bankruptcy petition. When you file for bankruptcy, a bankruptcy "estate" is created that consists of the property that you own.

There are many state and federal laws that determine what property you can keep and what must be given up in a Chapter 7 bankruptcy. Property that you can keep is called exempt, meaning that it exempt from the rights of the bankruptcy trustee to sell it for the benefit of creditors. The decision to sell nonexempt property is generally made by the trustee based on whether it has enough value to be worth selling.

Small corporations are often not valuable enough for the trustee to sell because of corporate debt and other issues. The trustee may file a Notice of Proposed Abandonment and the shares of stock will revert back to you unless your creditors file a timely objection. If the case closes and the trustee decides not to sell your shares of stock, legal ownership will revert back to you.

Credit applications for corporations often ask if any of the officers, directors or shareholders have filed for bankruptcy. While your personal credit history will not impact the corporation's credit rating, it may influence the decision of someone who has been asked to extend credit to the corporation.

The information provided in this article is general information only and is not intended as legal advice. DO NOT use this information as a substitute for obtaining qualified legal advice or other professional help.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning, insurance subrogation and debt collection.

Seven Mistakes To Avoid Prior to Filing Bankruptcy

2008-04-02T13:43:00.000-07:00

The actions an individual takes leading up to filing bankruptcy can drastically affect his ability to get a "fresh start." By avoiding these seven mistakes, one can travel successfully through the bankruptcy process without losing a pound of flesh.

1. THE CREDIT CARD RUN-UP MISTAKE: Don't use your credit cards once you have made your decision to file bankruptcy. Charges for luxury goods and services owed to a single creditor, totaling to more than $500.00 within 90 days of filing, are presumed nondischargeable and may be found to be due and owing. Cash advances totaling to more than $750.00 for all creditors within 70 days of filing are also presumed nondischargeable and may be found to be due and owing. Don't jeopardize your "fresh start" by running up your credit cards.

2. THE REPAY A FAMILY MEMBER MISTAKE: You cannot treat your family member any better than you would an ordinary creditor with regard to repaying debts. In fact, a bankruptcy trustee can reclaim any amount repaid to a family member within one year of filing bankruptcy, although amounts under $2,000 are generally too small to bother with.

3. THE LIQUIDATE YOUR RETIREMENT ACCOUNT MISTAKE: Retirement accounts are generally protected. You can eliminate your debt and usually keep whatever you have in a retirement account, free and clear. Many individuals drain their retirement accounts in a futile attempt to pay down credit card debt.

4. THE TRANSFER PROPERTY OUT OF YOUR NAME MISTAKE: A bankruptcy trustee can undo a transfer of property that previously belonged to you. This can occur if the transfer was made within four years of the filing of the bankruptcy with the intent to hinder, delay or defraud a creditor, or simply if a fair price was not received.

5. THE LINE OF CREDIT/SECOND MORTGAGE TO PAY DEBT MISTAKE: Don't take a loan against your real estate in an effort to reduce the equity. You can often file bankruptcy and not lose this valuable asset. If you take out a second mortgage to pay credit card debt, you may be putting your house at risk.

6. THE FAILURE TO APPEAR AT COURT PROCEEDINGS MISTAKE: Do not assume that you can avoid a lawsuit simply because you've decided to file bankruptcy. A collection case continues until your bankruptcy case is actually filed, which occurs only after all the fees are paid, you have met with us and provided all the necessary information for preparing the 40 pages of bankruptcy forms, you have reviewed, signed, and returned the forms to us for filing with the Bankruptcy Court, and you have completed the required debt counseling program (by telephone or Internet) which we coordinate for you.

7. THE FAILURE TO TELL YOUR ATTORNEY THE TRUTH, THE WHOLE TRUTH AND NOTHING BUT THE TRUTH MISTAKE: An attorney can only provide advice based upon information provided by the client. Failure to notify your attorney about your assets can lead to the loss of those assets, denial of your bankruptcy case, fines, imprisonment, or all of the above.

About the Author: Jed Berliner has been an attorney since 1976. He began focusing almost exclusively in bankruptcy law in 1982 to make sure his clients could obtain cost-effective bankruptcy advice and services of the highest quality. Mr. Berliner has served as the Chair of the Hampden County Bankruptcy Bench-Bar Committee and studied at Cornell University and the University of Kansas.

Maintaining Your Corporate Status in California - Part 4

2008-03-30T20:38:00.000-07:00

This is Part 4 of an ongoing series designed to provide California corporations general information on how to maintain their corporate standing. In this edition, we will review the roll and function of corporate bylaws.

Next to the Articles of Incorporate, the corporate bylaws are the most important corporate document. They set forth matters affecting the Shareholders' and Directors' rights, as well as corporate Officers' authority. In addition, they establish the basic administrative rules for the day-to-day legal operation of the corporation, including the procedure for altering the number of Board of Directors members; the calling of, conduct of, convening of, and voting of Board of Directors' meetings and Shareholders' meetings; the election, powers and duties of the corporation's Officers; the issuance of certificates representing shares of the corporation's stock; general financial authorizations; and the procedure for amendment of the Bylaws.

While the Bylaws may be viewed as merely the implementation of a number of corporate formalities, they are essential to resolve potential future problems, as well as to evidence the corporation's adherence to its Articles and other legal requirements. As a practical matter, however, they do not impose any significant operational burdens so long as the shareholders continue to be in basic agreement on corporate directions that the Bylaws may be amended by action of the Directors except an amendment to the Bylaws changing the number of Directors which must be made by the Shareholders.

In essence, the Bylaws are the Constitution for the corporation. The Directors should be familiar with the provisions of the Bylaws or consulting an experience corporate attorney for assistance.

The information provided in this article is general information only and is not intended as legal advice. DO NOT use this information as a substitute for obtaining qualified legal advice or other professional help.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning, insurance subrogation and debt collection.

Improved Credit Counseling Options for Bankruptcy Clients

2008-03-27T18:37:00.000-07:00

In an ongoing effort to improve the quality of service to our clients, the Law Offices of Carl H. Starrett II is pleased to announce a new partnership with Money Management International ("MMI") to provide mandatory Pre-Filing Bankruptcy Counseling as well as the Pre-Discharge Debtor Education to our clients. MMI is a nonprofit corporation that has been approved to issue certificates in compliance with the Bankruptcy Code. Since 1958, MMI and its affiliate, Consumer Credit Counseling Services, have counseled and educated over one million people.

Our clients will benefit from faster and more convenient service. Once we have registered our clients for the pre-filing bankruptcy counseling, we will upload their information to MMI. Counseling sessions are provided by telephone and Internet, 24/7. In addition, Web chat sessions are available from 9:00 a.m. to 9:00 p.m. Eastern time. Our clients only have to review the imported information for accuracy and call in to speak with a counselor to complete the course. After the courses have been completed, certificates will be downloaded to our bankruptcy software, provided by EZ Filing, for transmittal to the bankruptcy court.

Upon the filing of a bankruptcy, we will also be able register our clients for the pre-discharge education class. These classes can take two hours to complete and are offered 24/7 via the Internet. MMI emails the certificates to our office upon completion.

The new partnership with MMI allows us to take an more active role in managing the bankruptcy counseling services our San Diego area clients receive and to ensure that they successfully complete all steps necessary to obtain a discharge of debts for our clients.

Maintaining Your Corporate Status in California - Part 3

2008-03-09T11:10:00.000-07:00

This is Part 3 of an ongoing series designed to provide California corporations general information on how to maintain their corporate standing. In this edition, we will review observance of corporate formalities.

Income Tax Returns. The corporation must file federal and California income tax returns for each of its tax years whether or not it has any income. These returns are due no later than the 15th day of the third month following the close of the tax year unless a timely extension is filed.

Employer Tax and Withholding Responsibilities. As an employer, you will be responsible for certain employer taxes. In some cases, you will have to pay the tax directly. In other cases, your employees pay the tax, but you are responsible for withholding the tax payment from their wages and making periodic deposits of these funds in an authorized bank. See IRS Circular E, Employer's Tax Guide and Tax Guide for Small Businesses, both available from the IRS.

Federal Taxes

Wage Withholding. You must withhold federal income tax from the taxable wages paid to your employees. You will need to obtain from each employee a properly executed Employee Withholding Allowance Certificate (IRS Form W-4). Before January 31, following the close of each calendar year, you must provide each employee with an annual Wage and Tax Statement (IRS Form W-2).

Social Security Taxes (FICA). Social security taxes are imposed on both employers and employees. You must withhold FICA taxes from each employee's wages and pay a tax equal to the amount paid by each employee.

Return and Deposit of Taxes. With some exceptions, employers subject to either income tax withholding or social security taxes must file a quarterly return of federal Form 841 and must deposit the income tax withheld and the FICA taxes with an authorized commercial bank depositary or a Federal Reserve Bank or branch. IRS Circular E will explain when the required deposits must be made.

California Taxes

Wage Withholding. As a California employer, the corporation must withhold California income tax from the taxable wages paid to employees and must deposit these funds with the state. The process is similar to that for federal income taxes.

California Unemployment Insurance Tax. A California employer is generally subject to an unemployment insurance tax on the taxable wages paid to its employees. The corporation must register at the California Employment Development Department within 15 days after paying $1000 of taxable wages during a calendar quarter. This tax is imposed on the employer, not on the employees.

California Disability Insurance Tax. Although California employees are subject to this tax, the employer has the responsibility of withholding the tax from the wages paid to such employees. However, the employer has the alternative of establishing a state-approved private disability insurance coverage plan. If this option is chosen, employees may be required to make contributions directly to this plan in lieu of the tax payment.

General Considerations. The corporation's responsibilities to pay employment taxes, to withhold taxes imposed on its employees, to file tax returns, and to make periodic tax deposits are substantial. Penalties for noncompliance can be severe: CORPORATE OFFICIALS CHARGED WITH TAX-WITHHOLDING RESPONSIBILITIES MAY BE PERSONALLY LIABLE FOR 10 PERCENT OF THE UNPAID TAXES AND ALSO FOR ANY TAX PENALTIES IF THEY NEGLECT THEIR RESPONSIBILITIES. If you have not already done so, we suggest that you consult your accountant promptly to develop proper tax accounting procedures so that timely tax payments are made.

California Sales and Use Taxes

Permit Requirement. All parties engaged in the business of selling tangible personal property as retail in California must obtain a seller's permit form the California State Board of Equalization. As a practical matter, a permit is usually required even though the corporation sells such tangible personal property at wholesale. A separate permit must be obtained for each retail business location and must be conspicuously displayed. A substantial security deposit of up to a maximum of $10,000 may be required. A business having a seller's permit can purchase tangible personal property for resale without having to pay sales tax to the seller, provided it gives the seller a signed resale certificate in a form prescribed by the State Board of Equalization.

Tax Payment Requirements. If a corporation sells tangible personal property at retail in California, it will be subject to the California sales tax unless the property sold is specifically exempted. California also imposes a "use tax" on most retail purchases that occur outside of California but are intended for use within California. Any retailer engaged in business in California is required to collect the sales and use taxes and remit them to the state. A retailer is deemed to be "engaged in business" in California if it has any kind of an establishment in the state or if it has representatives operating in any kind of sales activity in the state. This law applies whether the retailer is involved directly or through a subsidiary or agent.

The holder of a seller's permit must file sales and use tax returns and pay or prepay the taxes collected, generally on a quarterly basis. The corporation should promptly consult its accountant regarding the dates on which these returns must be filed.

Personal and Real Property Taxes. The corporation must pay annual property taxes based on the value of the taxable real and personal property it owns or possesses on the immediately preceding March 1 (lien date). Usually, this tax is paid to the county assessor of the county in which the property is located. The county has a priority tax lien on the property as of the lien date, which is removed by the payment of this tax.

If the corporation owns taxable personal property with a cost of at least $30,000, it must file each year, on or before the date designated by the County Assessor (usually between April 1 and the last Friday in May), a written property statement. In cases in which the cities do their own assessing, a separate written property statement should be filed with the city. If the corporation owns taxable personal property costing less than $30,000, it must file a written property statement only on the County Assessor's request. Real property taxes are payable in two installments, the first due before April 10th and the second due before December 10th of each year. Personal property taxes must be paid by the due date specified in the County Assessor's notice.

You should consult your accountant for advice regarding filing property tax statements because there are substantial penalties for late payment and there are numerous special provision (e.g., an exemption for "intangibles"). This area is very complex, and competent accounting advice is essential to ensure full compliance.

Other Taxes. Depending on the nature of your business, there may be special taxes imposed by federal, state, or local governments, such as those on alcohol, tobacco, gross receipts, and real estate transactions. Your accountant should be able to assist you in preparing the proper tax forms and in making the necessary tax payments.

The information provided in this article is general information only and is not intended as legal advice. DO NOT use this information as a substitute for obtaining qualified legal advice or other professional help.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning, insurance subrogation and debt collection.

Tax Issues After Bankruptcy & Foreclosure

2008-03-05T18:10:00.000-08:00

Question: I filed for Chapter 7 bankruptcy and then lost my house to foreclosure because I couldn't make the payments. After the foreclosure sale, the bank sent me a 1099 form because they got less then what I owed at the sale. What should I do?

Answer: Any time a debt is forgiven, it might be considered income under the Internal Revenue Code. Debt forgiveness over $600 must be reported to the IRS as income to the borrower -- money not actually received by the borrower, but money that is taxable. However, debt forgiveness received in bankruptcy is not taxable. You filed bankruptcy before the foreclosure, so the debt forgiveness occurred when you received your discharge and not when the foreclosure sale occurred.

The procedure claim the debt forgiveness as not taxable is relatively simple. You should provide a copy of our discharge order to your tax preparer and then ask them to compete IRS Form 982 and attach it to your tax return. You should not have any further problems with this issue.

The information provided in this article is general information only and is not intended as legal advice. DO NOT use this information as a substitute for obtaining qualified legal advice or other professional help.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning, insurance subrogation and debt collection.

Maintaining Your Corporate Status in California - Part 2

2008-03-02T14:02:00.000-08:00

This is Part 2 of an ongoing series designed to provide California corporations general information on how to maintain their corporate standing. In this edition, we will review observance of corporate formalities.

It is easy to underestimate the importance of maintaining the formal integrity of your corporation. It is a separate and distinct entity. All important transactions in your business should be reflected in the corporate minutes. All contracts, including employment contracts, loans, and leases, should be made in the name and on behalf of the corporation. They should be memorialized by appropriate minutes in the corporate Minute Book. When signed, these documents should be kept in the Minute Book.

Without limiting the significance of the foregoing general caution, it is most important to realize that you are required formally to consider, review and act upon the following:

Salary and Bonus. It will be essential for you to establish and adjust, from time to time, the salaries and any bonuses for yourself and other employees of the corporation. A periodic review should be made.

Issuance of Additional Shares of Stock. Suffice it to say, taking in a new shareholder is a serious matter. Before a commitment is made to issue stock to anyone, we advise that you contact legal counsel and your accountant, and an appropriate agreement can be drafted. The should be thoroughly studied before any commitments are made.

Use of the Corporate Seal. Although there is no legal requirement that a Corporate Seal be used on any documents, many financial institutions require that it be used on corporate resolutions, loan documents, notes, and the like.

Loans to Employees. Loans to employees should be well documented. Promissory notes should be used to evidence the loans. Copies should be given to your attorney and your accountant.

The information provided in this article is general information only and is not intended as legal advice. DO NOT use this information as a substitute for obtaining qualified legal advice or other professional help. If your California corporation requires assistance with any of the topic outlined in this article, please feel free to contact us.

Collections for Small Businesses

2008-02-28T09:05:00.000-08:00

For those of you who are operating a business on a limited budget, managing your receivables is of the utmost importance. Just a few slow paying accounts can have a daunting effect on the success of your business. It takes perseverance to start a business; but it takes even more perseverance to keep it running efficiently.

Maximizing your receivables is essential to the life of your business. You must avoid holding back or becoming lax when it comes to asking for money that is owed to you.

When signing on a new account, be certain to emphasize your payment terms. Your payment terms outline the timeframes in which you expect to be paid. Verbally review your payment terms with your new customer and ask that they sign on the dotted line accepting your terms.

Optimize the payment process with a courtesy call shortly after services or products were provided. Inquire if the order was received and confirm that there were no disputes with your products or services. Document all correspondences that transpire during the duration of all business relationships. Reiterate when payment is due. To help expedite payments received, you may consider offering a nominal discount if the account pays within a specified period of time (generally 10 days).

Invoice immediately. Invoices should be drafted at the time the order is placed; thus, there is no reason to delay invoicing until the end of the month. This sets the stage for more timely payments received. Companies that invoice immediately and include the invoice with delivery experience expedited payments.

Managing your receivables must start with recognizing when an account becomes past due. Your payment terms should dictate when payment is expected and what consequences will occur if payments extend past the due date; a 1.5% late fee is the typical standard. It is important that you add the late fee to the first invoice that requires duplication. When you reissue an invoice in an effort to be paid after the due date has expired, you set a standard that gives you negotiating power. If you need to remind a customer their account is past due, and they have received a duplicate invoice that has incurred a late fee, you can offer to waive the late fee if the account is paid within a specified period of time (no more than 10 days).

Monitor past due accounts and initiate a consistent follow up process. Avoid waiting thirty days between follow up correspondences (verbal or written). If your payment terms are Net 30, follow up on the delinquent account on the 31st day. If your customer suggests cash flow problems are the reason for the delay, offer to arrange a payment schedule to expedite the payment process. Begin by offering to break the payment into two equal amounts, and negotiate the schedule based on your customer’s ability to pay.

About The Author: Donna Vestre is President and Founder of South Coast Revenue; a Professional Risk Management Firm based in Orange County CA. Donna has over 28 years experience in the debt collection and account receivables industry. Donna is the author of the popular digital resource guide, “Account Receivables – Your Guide to Getting Paid!” A B2B Resource Guide designed to empower businesses in achieving their most successful collection results! For more information about South Coast Revenue, please feel free to visit http://southcoastrevenue.com/ and browse the wide variety of resources and services available to you.

Maintaining Your Corporate Status in California - Part 1

2008-02-24T12:48:00.000-08:00

This is Part 1 of an ongoing series designed to provide California corporations general information on how to maintain their corporate standing. In this edition, we will review common issues of corporate governance such as holding director and shareholder meetings and keeping proper corporate minutes.

California law requires that an annual meeting of the Shareholders be held each year for the election of directors for the ensuing year and for other business that may come before the meeting. An annual meeting of the Board of Directors is usually held immediately after the annual meeting of the Shareholders to elect officers of the corporation for the next year, approve and ratify proper acts of officers during the current year, approve the compensation of the key employees for the current year, and to approve the corporation's contributions to its retirement plans, if any, for the current year.

The Board of Directors is charged with the management of the corporation and is held accountable for the ultimate direction of the corporation's business and affairs. Although day-to-day management of the corporation is generally delegated to the officers, the directors are responsible for approving major corporate action, setting goals and policy for the corporation, and monitoring the performance of management in achieving these goals. In performing these functions, the directors are fiduciaries for the benefit of the shareholders. The directors will be held liable to the corporation's shareholders if they fail to exercise "reasonable care", or if they fail to act in the best interests of the corporation ("duty of loyalty").

Directors exercising a duty of care are required to act as prudent persons would act in similar circumstances. In doing so, the directors may rely on the advice of independent experts, but they must make a reasonable inquiry into the facts on which such experts base their advice. The directors' duty of loyalty also includes a prohibition against a director profiting from a transaction at the expense of the corporation and its shareholders. A corporate transaction in which a director has a material financial interest will not be invalid if the transaction is fair to the corporation and the material terms and the director's interest are disclosed to and ratified by the shareholders or by uninterested directors acting in good faith.

To meet the fiduciary requirements of directing the corporation, the Board should convene regularly to discuss the corporation's business and to vote on required actions. Such meetings may be conducted by a conference call if all directors can hear each other simultaneously.

California corporation law also requires that shareholders meet at least annually to elect directors and to conduct other shareholder business. a shareholder's vote is required for a number of significant events, including election of directors, most amendments to the articles of incorporation, the sale of substantially all of the corporation's assets, and certain mergers and reorganizations of the corporation. Shareholder action by written consent process satisfies statutory requirements.

Minutes of both Directors' and Shareholders' meetings should be kept. The minutes must identify the issues before the groups together with copies of the notice of the meetings or waivers thereof, should be placed in the corporation's minute book. A copy of these minutes, certified by the secretary, is prima facie evidence that the meeting took place and that the matters stated in the minutes transpired.

California law requires that the accounting books and records, and the minutes of proceedings of Shareholders and Board of Directors, be open for inspection by any shareholder, director, or holder of a voting trust certificate. Further, corporations are required to send an annual report to shareholders not later than 120 days after the close of the fiscal year. This requirement can be waived in the Bylaws by corporations with fewer than 100 shareholders. The annual report must contain a balance sheet, an income statement, and a statement of changes in financial position for the fiscal year, and also must be accompanied by a report thereon by the company's independent accountants or, if there is no such report, by a declaration by an authorized officer of the corporation that the statements were prepared without audit.

Corporations with 100 or more shareholders that are not subject to federal securities reporting requirements also must comply with additional disclosure requirements. These include describing any significant transactions between the corporation and any director, officer, or 10-percent or greater shareholder.

The information provided in this article is general information only and is not intended as legal advice. DO NOT use this information as a substitute for obtaining qualified legal advice or other professional help. If your California corporation requires assistance with any of the topic outlined in this article, please feel free to contact us.

Getting Customers to Say “Yes” to Pay Your Invoices!

2008-02-13T11:42:00.000-08:00

Most businesses are owed money at some point. Every business owner offers their product and or service in good faith that once delivered payment will be made. As a business owner that sometimes has unpaid invoices do you often think, “What’s it going to take to get this client to pay? Do I turn their account over to a collection agency? Do I take them to small claims court, or do I write it off to bad debt?”

Your customers need to feel your attention is on their needs and upholding your side of the contractual agreement, not just getting paid. Sometimes that is hard to do when the issue has continued for a long period of time and there appears to be no resolution in sight. Businesses usually intend to pay their invoices. Some of the reasons for non-payment include:

• unsatisfactory performance
• perceived breach of contract terms
• cash flow issues

As the owner of a commercial collection agency, two of the most repeated concerns I hear are: how will using a commercial collection agency affect the relationship with the customer? Will my business still get paid for the overdue invoices? A good commercial collection agency should not interfere with your ongoing business relationship. Their objective is to resolve the lack of payments as quickly as possible. It is a small but important fact; don’t forget your manners and always be courteous and respectful toward others. Exhibiting professional and ethical behavior will you get you further in your collection efforts as a business owner and may create opportunities for future work.

Use words that demonstrate concern for the present issue and the desire to correct the mistake so it is not repeated. Try using a “power word or phrase” to connect with your clients. Power words say to your customers “What can I do to fulfill your need?” In asking this question you demonstrate care and concern about the problem and you want to do whatever is necessary to reach an acceptable payment solution. Here are some “power phrases” to use when working to get the client to say yes and pay the bill:

• What else can I do to help resolve the balance due?
• I’ll take care of that for you.
• I’m sorry for the mistake. I’ll correct that ASAP.
• Let’s work together to resolve this.
• What do you think?
• I don’t know the answer but I’ll find out for you.
• Consider it done.
• Thank you.
• We appreciate your business

Finally it is important to stay on top of your receivables while building your business. As your accounts reach 90 days and older, that is the time to reach out for outside collections help. Working with a collection agency instead of pursuing legal action is usually more cost efficient in time and money. Using a collection agency can help you to reduce the number of accounts written off to bad debt. An outside commercial collections agency will help collect the monies owed for past due products and services. Use them as another way to get your clients to say yes to pay your invoices.

About the Author: Dee Bowden is President of Bowden Revenue Collection Services. Ms. Bowden is a member of the Association of Credit and Collections Professionals (ACA International). Dee Bowden can be reached at (617)365-0814, email dbowden@bowdenrevenue.com or visit the website at www.bowdenrevenue.com.

Selecting a Bankruptcy Credit Counseling Agency

2008-02-11T20:45:00.000-08:00

Prior to filing for bankruptcy, individuals must receive a briefing from an approved nonprofit budget and credit counseling agency. After filing bankruptcy and before receiving a discharge, debtors must also complete a course on personal financial management designed to help them avoid debt problems in the future. I am often asked by clients which agency to choose.

Here in the Southern District of California, the U.S. Trustee's Office maintains a list of authorized credit counseling providers. However, there are only approved agencies that stand out with respect to the services that my clients have received: Springboard Nonprofit Consumer Credit Management, Inc. ("Springboard") and the Institute for Financial Literacy ("IFL").

A common complaint I hear is that agencies do not have sufficient staffing to handle emergency requests for counseling. Some agencies delay speaking with for several days for even a week. Both Springboard and IFL offer counseling over the Internet and via telephone. I recent months, clients have reported to me that both Springboard and IFL were able to handle their requests for immediate credit counseling. IFL offers the added advantage of emailing the completion certificates directly to my office.

While clients are free to to choose any approved agency, Springboard and IFL profile competitive service and reasonable prices.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning, insurance subrogation and debt collection.

What is an Automatic Stay in Bankruptcy?

2008-01-31T12:24:00.001-08:00

Question: I lost my job and a creditor is about to get a judgment against me. I've heard that the automatic stay in bankruptcy can help me. What is that?

Answer: The automatic stay is a federal court order that prohibits of any attempts by creditors to contact you or to collect a debt. It goes into effect the moment you bankruptcy petition is filed with the court.

Creditors cannot call you, sue you, garnish your wages, repo your car, foreclose on your house, take money out of your bank account or engage in any other efforts to collect the debt. The automatic stay gives you a little "breathing room" while the court processes your bankruptcy. Some creditors like a home lender might have the right to continue foreclosure on your home if you continue to miss payments, but the lender must file an appropriate motion with the court to get permission before proceeding with the foreclosure.

When your case is over, the automatic stay is lifted. If you receive a discharge, however, that acts as a permanent court order against future efforts to collect a discharged debt.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning, insurance subrogation and debt collection.

Attorney Carl Starrett Obtains $36,000 Judgment

2008-01-20T20:42:00.000-08:00

The Law Offices of Carl H. Starrett II has successfully obtained a stipulated judgment against Valentina L. Atckison of Escondido, owner of Zilla Realty and Rentals-4-U, in an amount in excess of $36,000. The Court entered the judgment on December 27, 2007.

The lawsuit was filed on March 25, 2007 on behalf of Robert L. Tate. The lawsuit alleged that Ms. Atckison failed to repay Mr. Tate for a short term loan of pay. Ms. Tate made partial payment, but a substantial balance remained due on the promissory note.

Rather than face a trial, Ms. Tate stipulated to entry of a judgment of $36,340.14, which included the balance owed plus interest, legal fees and court costs.

Civil judgments in California collect interest at the rate of 10% per year. In this case, interest will accrue at the rate of $3,634.01 per year or $9.96 per day until paid. Efforts to collect the judgment will begin immediately.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning, insurance subrogation and debt collection.

New California Laws for 2008

2007-12-31T16:33:00.000-08:00

During the 2007 legislative year, 964 bills were passed by the California legislature and 750 were signed into law. There are 167 changes just to the California Vehicle Code. Except as otherwise noted below, the following list is a sample of just a few of the laws that go into effect in California tomorrow:

Beginning July 1, 2008, California will prohibit drivers from using wireless telephones without a hands-free device while driving. A separate will law prohibits all drivers under the age of 18 from using a cell phone even with a hands free device. Both laws have exceptions for emergencies.
Bicycle riders must have some sort of illumination devices while riding on a highway, street or sidewalk at night. The law is not clear if riders will be required to have headlights or if reflectors will be enough. Failure to have to have illumination devices could result in a ticket that requires the rider to attend a bicycle safety class.
Smoking will not be allowed in any vehicle if minor children are inside. The prohibition applies regardless of whether the vehicle is in traffic or parked. Police will not be able to stop a car just to check for smoking, but then can cite the driver if they pull them over for another reason. Drivers could face fines of up to $100.
The California minimum wage will increase by 50 cents to $8 per hour. California workers will have one of the highest minimum wages in the country.
A new law will allow consumers to redeem gifts cards with balances of less than $10 for cash.
Cities and counties will now be required to designate areas where homeless shelters can be constructed without the requirement to obtain a conditional use permit. The law is designed to remove zoning ordinances that block construction of homeless shelters.
Courts will now be able to require parents or guardians of gang members to attend parenting classes. The classes are designed to prevent first-time offenders from committing additional crimes.
Cities and counties will not longer be allowed to require landlords to verify the citizenship of their tenants. This law was a direct result of an attempt by a city in Southern California to require landlord to screen the citizenship status of potential tenants.

The information provided in this article is general information only and is not intended as legal advice. DO NOT use this information as a substitute for obtaining qualified legal advice or other professional help.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Do I Really Have to Pay Calfornia's Minimum Corporate Tax?

2007-12-23T12:13:00.000-08:00

Question: Suppose I live in California, and I want an LLC in Nevada or Colorado. Is there a way to set it up so that I don't have to pay the idiotic $800 California fee?

Answer: I often hear radio commercials advertising the purported benefits of incorporating in states like Nevada. Before do that, you should consult with legal counsel and a qualified tax advisor before making any decisions. You mentioned forming and LLC, but many small business owners find that forming an S corporation is better for income tax purposes.

Whether you have to pay the minimum California franchise tax depends upon whether you are doing business in California. Even if you form an LLC or corporation in another state, you still have to register and pay the taxes on your California income if are regularly doing business in California. If you have an address, employee, inventory, bank account or significant business contacts in California, you are probably doing business here as defined in the law.

One advantage to forming a new California is that the corporation does not pay the $800 minimum for its first tax year. While it is called a "minimum franchise tax", it is really a minimum income tax payable in the first quarter of each taxable year (except for the first taxable year. By the time your corporation is in it's second taxable year, you will hopefully be making enough money so that you tax bill is higher than just the $800 minimum anyway. New California LLCs do not receive this benefit.

If you are going to incorporate in California and do business primarily in California anyway, there are few reasons not to form a California corporation.

Attorney Carl Starrett Obtains $96,000 Judgment

2007-12-03T12:29:00.000-08:00

The Law Offices of Carl H. Starrett II has successfully obtained a default judgment against CVT Nationwide, Inc. ("CVT") of Seal Beach in the amount of $96,011.85. The Court entered the judgment on November 29, 2007.

The lawsuit was filed on June 28, 2007 on behalf of Guava Express, Inc. ("Guava Express"). The lawsuit alleged that CVT failed to pay Guava Express for receiving the automobiles and preparing them for overseas shipment. Guava Express received the automobiles, built interior wooden structures for shipping containers and loaded them with the automobiles. CVT would then arrange for the delivery of the containers to the dock for shipping from Hawaii to California.

CVT failed to respond to the lawsuit and the Court entered a judgment for the balance owed of $87,000 plus interest, legal fees and court costs.

Civil judgments in California collect interest at the rate rate of 10% per year. In this case, interest will accrue at the rate of $9601.19 per year or $26.30 per day until paid. Efforts to collect the judgment will begin immediately.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning, insurance subrogation and debt collection.

The Lender Foreclosed, Now What?

2007-12-02T19:23:00.000-08:00

Question: My landlord's bank foreclosed on the house I am renting and he didn't tell me. What happens next?

Answer: According to RealtyTrac, a company that tracks foreclosures across the country, nearly 1.8 million foreclosures have been filed nationwide so far this year. Foreclosures in October 2007 were up 94% over the same period last year. Though no firm statistics are available, renters are increasingly left without a place to live through no fault of their own. In many cases, a financially troubled landlord will pocket the rent and stop making the payments while the bank takes back the property.

Once a foreclosure sale takes places, the tenant has no guarantee of a place to live. You should contact the lender or new owner right away to discuss a possible rental agreement. The new owner might want to begin collecting rent right away, but bank-owned properties often are easier to sell when vacant. If you cannot reach an agreement with the bank, begin looking for a new place to live immediately.

If you do not leave voluntarily, California law allows the bank or new owner can serve you with a 30-day Notice to Quit. If you do not leave voluntarily, the bank can file an eviction lawsuit against you. You have no legal right to remain in the property and even the mere filing of an eviction lawsuit against you can damage your credit rating, so moving out voluntarily is your best option.