Forgery Victim’s Security Checklist
Q: My checkbook was stolen earlier this year, resulting in the forgery of more than 40 checks. I immediately notified my bank and the police of the theft. Now I am wondering if there will be any long-term effects on my credit rating. Is there any way I could be penalized for this? --K.R.W.
A: You handled the situation correctly and will probably face no additional problems beyond those you have already dealt with. By notifying the bank immediately, you allowed it to alert merchants quickly to the stolen checks. Further, your bank should not have penalized you for checks written by the thief; any loss suffered due to a forged check is usually absorbed by the bank, according to Robin Leonard, a San Francisco attorney and authority on consumer credit issues. Finally, your bank should have helped you close the original account and open a new one.
There remains the possibility that checks that had not yet cleared your account at the time of the theft might have bounced because the thief had drawn down your funds. If this did happen, there are a few quick remedies that should clear up any blemish on your credit rating.
First, immediately notify your creditors and explain why the checks bounced. If your accounts with them are otherwise untarnished, you should have no problems.
But be sure that they do not flag your account for extra scrutiny or notify credit rating bureaus that you missed a payment. Also, be sure to have them waive any late-payment fees that might be levied on bounced checks.
Finally, request a credit report on yourself in about three months. If the report contains negative information stemming from the theft, immediately notify the credit bureau and explain that you were the victim of a crime. It wouldn’t hurt to enclose copies of the police report and documents from your bank to support your case.
Bankruptcy Laws Exempt Some Assets
Q: How is it that a person whose liabilities far exceed his assets can continue to maintain a lavish lifestyle after filing for Chapter 7 bankruptcy? --K.R.
A: Clearly, bankruptcy fraud exists. According to one study, about 2% of personal bankruptcy filings involve some sort of fraud. Hiding assets from creditors is a favorite ploy. Bankruptcy Court officials catch many, but not all, of the offenders.
There may be a perfectly legitimate explanation for what you think you are seeing, however. Under federal and state bankruptcy codes, taxpayers seeking protection of the court are permitted to keep certain assets from being liquidated to repay creditors.
These assets vary significantly from state to state.
In California, for instance, single homeowners under age 65 may keep up to $50,000 of equity in their homes; the amount is $75,000 for families and $100,000 for disabled homeowners and those older than 65. (In Florida and Texas, there is no limit on the value of a home that may be kept out of a bankruptcy proceeding.)
California law also permits bankruptcy petitioners to keep household appliances, Social Security benefits, vehicles worth up to $1,200 and up to $2,500 worth of jewelry.
In addition to the exemptions, there may be another reason behind the “lavish” lifestyle you’ve observed.
In many cases, lawyers counsel clients to wait as long as possible to file for bankruptcy--preferably until they can begin to turn their financial lives around. At this point, they have rung up the maximum amount of debt and are in a position to begin taking care of themselves. A bankruptcy filing then affects only the accumulated debts, which are handled according to the dictates of the Bankruptcy Court trustee. Except as debt repayment requires, all future earnings of the “bankrupt” taxpayer belong to him and can be used in any way he wants.
While all this may be perfectly legal, there is no denying that the system can be abused. And the absence of overt fraud doesn’t necessarily mean the situation is fair and equitable.
Taxes Will Reduce Condo Sale Profit
Q: I will be moving in with my fiance soon. I have a condo and am wondering what I should do with it. I do not want to rent it because being a landlord is too much hassle. Is there any way to avoid paying taxes on the $10,000 to $15,000 gain I expect to get from the sale? --N.B.
A: Unless you purchase a replacement principal residence within 24 months of selling your condo, you face a potentially significant tax bite. In California, the maximum tax rate would be about 35%--28% to the federal government and 7% in state taxes.
Figuring Cost Basis in Inherited House
Q: When my wife’s sister learned she had terminal cancer four years ago, she put my wife’s name and mine on the deed to her home as joint tenants because we were her only heirs. She died a year later. We were told the house, for which my sister-in-law had paid $51,000, was worth $75,000. Rather than sell it, though, we rented it out for three years. A month ago, we sold it for $80,000. What is our cost basis in the home? --T.E.K .
A: First, we have to assume that the house was included in your sister-in-law’s estate when the estate tax computation was made. Despite the joint tenancy arrangement, this is the likely case because you and your wife apparently made no contribution to the purchase or upkeep of the home until after your sister-in-law’s death. If this assumption is true, then your tax basis in the property is its market value at the time of her death, which you say was $75,000.
