3/4/25 Tariffs and Turning Points: The Hidden History of Bankruptcy Law with Leonard Welsh

The Moneywise Radio Show and Podcast Tuesday, March 4th BE MONEYWISE. Moneywise Wealth Management I "The Moneywise Guys" podcast call: 661-847-1000 text in anytime: 661-396-1000 website: www. MoneywiseGuys.com facebook: Moneywise_Wealth_Management instagram: MoneywiseWealthManagement Guest: Leonard K. Welsh, Bankruptcy Law with Young Wooldridge, LLP website: www.youngwooldridge.com/ phone: 661-327-9661 email: [email protected]

• 0:00Speaker 00

  From the padded radio room off Stockdale Highway, here is Money Wise. Call or text in at 661-396-1000.

• 0:09Speaker 01

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• 0:30Speaker 02

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• 0:40Speaker 00

  Now, let's start the Money Wise Show.

• 0:44Speaker 03

  Welcome to the Money Wise Show. We are live from the Gero Ellis padded radio room off Stockdale Highway on ESPN Bakersfield, 1230 a.m., 101.1 FM, and always streaming at MoneyWiseGuys.com. You can text into the show 24 hours a day at 661-396-1000. Today, we're your hosts, I'm Sharad Waite and?

• 1:05Speaker 04

  Frank Lee.

• 1:06Speaker 03

  Frank Lee. Hey Frank.

• 1:07Speaker 04

  Hi.

• 1:08Speaker 03

  Good having you here.

• 1:09Speaker 04

  Good to be here.

• 1:09Speaker 03

  It's, you know, let's, let's talk headlines real quick and then we have a listener question that I want to address, but today, we have to talk about the markets. Dow, down 650 points. S&P 500, down, what, one and a quarter percent. This is all on the news of the tariffs which took effect last night. And yesterday was, was also a down day and today it just continues that downward slide.

• 1:36Speaker 04

  Yeah, a lot of activity today in the markets.

• 1:38Speaker 03

  Yeah, real, real high volume.

• 1:40Speaker 04

  Yeah, yeah, I mean, VIX were up, what was it? 320 basis points?

• 1:45Speaker 03

  Cool, wow.

• 1:47Speaker 04

  A lot of, lot of activity of movement going on.

• 1:49Speaker 03

  That's a, that's a big jump on the fear gauge.

• 1:51Speaker 04

  Yeah.

• 1:52Speaker 03

  You know, all major indices are down and essentially, all of the stock, the stock market has retreated back to pre-election time. Basically, all of the gains that happened from the election until now have been whack. And this is on the heels of a fresh 25% tariffs on Canada and Mexico, our two biggest trading partners, and doubling the tariffs on China to 20%. This all took effect at midnight last night. And this is, if it continues to go, will increase the price of the things

• 2:31Speaker 03

  that we import. And the countries did not hesitate to retaliate. Canada hit back right away with a sweeping package of immediate tariffs on US imports. China has retaliated with, not as a harsh response, but still an additional 15% on US farm products like chicken and pork. And they are implementing those on March 10th, so in about six days. So this is what was feared, was a sort of a back and forth retaliation from our, from our moves. And, you know, I, on social media, there's a lot of play right now from the old movie Ferris Bueller's Day Off.

• 3:16Speaker 05

  In 1930, the Republican-controlled House of Representatives, in an effort to alleviate the effects of the, anyone, anyone, the Great Depression, passed the, anyone, anyone, a tariff bill, the Holly Smoot Tariff Act, which, anyone raised or lowered, raised tariffs in an effort to collect more revenue for the federal government. Did it work? Anyone? Anyone know the effects? It did not work, and the United States sank deeper into the Great Depression.

• 3:54Speaker 03

  So there you have it. This is history repeating itself, the Ferris Bueller's Day Off. That was Ben Stein. This is-

• 4:03Speaker 04

  I gotta go re-watch that.

• 4:04Speaker 03

  I know. Such a good movie. But it's, I had forgotten about this, you know, completely, that that's what he was talking about. So it kind of led me to go back and read again about the Smoot-Hawley Act. He calls it the Holly-Smoot Act, but I think it's technically the Smoot-Hawley Act. This is in 1930. This was a tariff act. Going back in the 1920s, American farmers were really struggling because of overproduction and falling crop prices. We saw the stock market crash in 1929, which heightened fears of an economic downturn. And so lawmakers and protectionists were kind of pushed to believe that higher tariffs would protect

• 4:45Speaker 03

  American jobs and industry. So Senator Reed Smoot and Representative Willis Hawley led an effort to raise tariffs to high, high levels. It was high as 60% on some imported goods, over 20,000 imported goods.

• 5:01Speaker 04

  That's a lot.

• 5:02Speaker 03

  Yeah. I mean, you can kind of understand what the, I mean, generally speaking, you think, well, you know, why are we allowing these countries to import their stuff that's so much cheaper than ours? Let's just stop that so that people are forced to buy ours. Well, it had the opposite effect. And essentially, there were retaliations that were triggered by Canada and Europe and other trading partners. They responded with their own tariffs. And then US exports fell by about 60% between 1929 and 1933. That's because, you know, we had these retaliatory, because the countries themselves were imposing tariffs on our stuff.

• 5:44Speaker 03

  So they weren't importing our stuff. So America wasn't exporting. And so not only was the stuff we were importing costing more money because the consumer pays for the tariff, but now the exporters weren't able to get as much out of the country because their countries were charging money for their consumers on those goods that they were importing. So this led to factory closures and layoffs and just accelerated the Great Depression.

• 6:17Speaker 03

  You know, the trade wars prolonged until ultimately, you know, we saw this, these tariffs sort of go away or reduce and things kind of went away. You'd think that we would learn from this and hopefully things don't get too bad, but economists are now downgrading our GDP. And of course, the bleeding edge of where tariffs impact us is in the stock market. Because the stock market is a, is a leading indicator of where investors think the, the economy is going, where they think, how they think things are going to be in the future. And they're trying to be, get ahead of that.

• 7:01Speaker 03

  And so that's, you know, it sort of makes sense why the stock market would be pulling back. I think it's important though Frank, that we remind our listeners that, you know, the S and P 500 and the stock market has a history of having 5% or more pullbacks. In fact, it's pretty regular that the benchmark index would decline more than 5% due to whatever. You know, it could be trade policy, it could be a war, it could be all kinds of different reasons why the stock market could pull back. But history does tell us something, I think that's important for us to realize.

• 7:42Speaker 03

  Now remember, history is no indication of future, of future guarantees, but in the past 40 years, S and P 500 has had these 5% pullbacks. And according to research published just last year by Goldman Sachs, they find that 5% pullbacks historically have been good entry points because the index has gone on to provide a median 6% return over the subsequent three months with a positive return 84% of those times. So meaning 84% of the time, it's been a positive, that the stock market has been positive three months after there's been a 5% pullback. So those, that's, you know.

• 8:25Speaker 04

  Those are some good odds.

• 8:26Speaker 03

  Yeah.

• 8:27Speaker 04

  If you think about it, eighty-four percent of the time, if you're thinking about buying in now is, you know, now is your opportunity to buy in incrementally.

• 8:35Speaker 03

  Yeah, and, and this is a good, this is good reminder for most investors are common folk like you and I who are dollar-cost averaging. So the, your, the money's come out of your 401K or just came out of it that's going right into your 401K would be buying in on this dip.

• 8:53Speaker 04

  Yep.

• 8:53Speaker 03

  So that, that's good. You're buying, there's, there's a lot of stocks that are on sale right now. And i- if it's money that you've depended on, that you need like right now, well, you really shouldn't have had it in the stock market.

• 9:04Speaker 04

  Yeah.

• 9:04Speaker 03

  You should have had something more, more conservative, something that would be more, not as volatile. And so really for long-term investors, my hope is this, this doesn't turn into a, I don't expect to do another Great Depression, but hopefully it doesn't turn into a, a long-term recession or, or a deep recession. It has certainly had an impact though on consumer confidence, which has fallen seven percent in just the month of February, which is the worst month-to-month deterioration more than three years of the Consumer Confidence Index.

• 9:36Speaker 04

  Yeah. I think we were on the show together when we talked about that.

• 9:39Speaker 03

  Oh, yeah.

• 9:39Speaker 04

  The worst, the worst consumer sentiment that came out.

• 9:42Speaker 03

  Man, it's, it's just really, really disappointing.

• 9:46Speaker 04

  Yeah.

• 9:47Speaker 03

  And it's a big gamble. It's a big, big gamble that President Trump is taking on this. And our hope is that cooler heads provide, prevail. I've always, I've always been an advocate, a proponent of the free market, capitalistic market, that that ultimately is what, is what will, you know, is more powerful than any president. And my hope is that this sort of figures its, works its way through quickly. Otherwise, a lot of experts are expecting a twenty, twenty-five percent increase essentially on a, a lot of these products that, like cars, avocados, you know, stuff that we are importing. There's a lot of oil and gas that we import from Canada.

• 10:30Speaker 03

  Most of it stays in the Midwest, so I don't know how much it'll impact us here out in the West, but it's. It's, I don't know.

• 10:38Speaker 04

  Yeah, it'll definitely affect a lot of, a lot of hardworking people. And we, we still have a lot of data to look forward to. I know we have the CPI next week. Fed decisions really to see if, you know, they want to move with the interest rates. So a lot, a lot to play in and just, we have to really be observant and then play our cards right.

• 11:00Speaker 03

  Yeah, and be patient.

• 11:01Speaker 04

  Yeah.

• 11:02Speaker 03

  Keep, you know, have, have your investments allocated and the proper risk profile with your proper time horizon. And this should all just, you know, shouldn't be a big deal. You, you brought up the Fed and interest rates. I don't know if you saw this Frank, but markets now see a 50/50 chance that the Fed is going to lower rates in its May meeting.

• 11:21Speaker 04

  Yeah.

• 11:21Speaker 03

  But just a week ago was a 75% chance.

• 11:24Speaker 04

  Oh, I see.

• 11:25Speaker 03

  That they would, that they would, that would happen. So it's like, oh, man.

• 11:29Speaker 04

  It's, oh, interesting.

• 11:31Speaker 03

  It's becoming less likely that they're going to lower rates.

• 11:34Speaker 04

  Yeah, yeah.

• 11:35Speaker 03

  Whereas the beginning of the year is predicted, there would be about three rate cuts.

• 11:39Speaker 04

  Right, right. I mean, I guess it always, or it depends on job reports too and unemployment. Cause that's coming out this Friday.

• 11:46Speaker 03

  And CPI.

• 11:47Speaker 04

  And CPI.

• 11:47Speaker 03

  That's the big one.

• 11:49Speaker 04

  So job reports are coming out this Friday and then CPI next week. So they're going to be very data dependent on those, obviously. And then weighing on that. So I can see why they've, they've retracted to 50, 50%.

• 12:02Speaker 03

  We got a blister question here, which I'd love, I'd like to answer this before we go on a break. It says, what's the website you guys shared years ago to see if you have missing money? Love the new crew. I think his name is Seth. He had me rolling on Friday. I heard he was dropping some dad jokes.

• 12:19Speaker 04

  Oh, my God. He's the, he's the king of dad jokes.

• 12:21Speaker 03

  Well, him and Dustin.

• 12:22Speaker 04

  Yeah, they need to battle it out.

• 12:24Speaker 03

  Yeah.

• 12:26Speaker 03

  I won't buy that ticket. But this is, this, you and I were just kind of doing some search on this website. And it's easy to get, you can spend a lot of time on it. It's super easy. The California State Controller's Office manages this website. It's sco.ca.gov. Again, it's s-c-o dot c-a.

• 12:46Speaker 03

  gov really simple to navigate you can search for your property you put in your name you can put in your your state or your city that you live in or your address and it I'd recommend not putting in the address put in any cities that you've lived in in the California that way it'll search for anybody that has that name and in that city and you know lo and behold I came up I came up twice and I did this search maybe a year ago so this is all just happened in the last year I have about $4.50 sitting at insurance company for some reason and then there is about $100 sitting at Carvana which I was like whoa we bought

• 13:31Speaker 03

  a car through Carvana oh four maybe three or four years ago so it must have been some rebate or something that they had that that didn't get forwarded on to me

• 13:41Speaker 04

  some of those usually come up when there's like a lawsuit right like a recent case that just went through and it's it was settled or like those cash show up because I was searching too I was going down a rabbit hole I was like okay let me search this person so I noticed that it said lawsuit or like a case or something and there was like $5 in there

• 14:04Speaker 03

  yeah yeah most of the time I think it's a few bucks but every once in a while I've done this either for myself or for clients and it's sometimes it's it's over 100 bucks 150 bucks it's so worth it and your tax dollars are paying for it you mentioned you saw somewhere that how much money are they is the state giving back was it a million dollars a day

• 14:23Speaker 04

  so on their on their homepage it said about they're averaging about a million dollars daily that claims are being settled a lot of the the properties are being claimed

• 14:36Speaker 03

  do you have does it happen to say how much is not ever claimed

• 14:40Speaker 04

  let me check

• 14:42Speaker 03

  because that would be I mean because essentially what happens is a business is if any business does does business here in California and there's money that's yours but they they weren't able to get a hold of you they don't get to keep it companies they're not allowed to keep it so legally they have to send it to the state send it to the controllers state controller and then the state controller is then in charge of distributing that money but that a million dollars a day on average is pretty significant

• 15:13Speaker 04

  yeah it is State fund cash. I'll have to do a little deeper dive and see how much they they're generally holding.

• 15:22Speaker 03

  Well, again, for our listeners, sco.ca.gov, that's the website that the California State Controller's Office manages where you can check unclaimed property. I'd recommend go do it. It's kind of fun. You can put in anybody's name and maybe give your your relative or your friends a nice surprise when you find some money that's theirs. And it's really easy. They make it easy for you to print off what needs to be printed off and mailed. And I've gotten a check, you know, within a few weeks after mailing that in. So it's really nice, real easy. Sometimes it'll be, you know, a couple of dollars, sometimes over a hundred bucks. So, good stuff. Thanks so much for the questions. We are now going to take a quick break. We come back, we're going to bring our guest on. We're Money Wise.

• 16:03Speaker 00

  Are you nearing retirement and currently working with a financial advisor? Are you not sure if you're invested appropriately? Call our offices at 661-847-1000 to sit down with a Money Wise financial advisor for a no obligation assessment.

• 16:22Speaker 03

  Welcome back to Money Wise Show. I'm Sherrod Wade. I'm here with Frank Lee. We're your hosts. We're so lucky right now and fortunate to be joined by our guest, Leonard Welch. He joined Young Wooldridge as of counsel capacity in January of 2024. However, he's been practicing law now for 44 years. He was admitted to the State Bar of California in 1981, certified as a specialist in business and consumer bankruptcy law by the American Board of Certification for 15 years. Welch has more than 40 years of experience as a bankruptcy attorney, and rated by Martindale-Hubbell as the highest designation and has been

• 17:04Speaker 03

  named a super lawyer 14 times by Thomson Reuters. Practice includes insolvency, bankruptcy, business and farm reorganization, and debtor creditor rights. And Mr. Welch has successfully represented more than 150 business and individuals in Chapter 11 and Chapter 12 reorganization cases, the most of any attorney in Kern County. Mr. Welch, welcome to the program. Thank you very much. It's been over 10 years, I think, since we've had you on the show, so much so that even Stephen couldn't remember it. I could remember.

• 17:41Speaker 00

  Well, I'm getting old, so don't throw me in that mix.

• 17:44Speaker 03

  No, but I'd love to just hear from you. What's changed? You mentioned just before the show, a lot has changed in the last 10 years or so in bankruptcy.

• 17:56Speaker 06

  The real major changes in the law that have happened recently started in 2005. In 2005, the bankruptcy law enacted what's called the Bankruptcy Abuse Prevention and Consumer Protection Act. It has an acronym, BAPCEPA. This was an attempt by Congress to make it more difficult to get debt forgiveness in a Chapter 7 bankruptcy. Again, there are two different kinds of bankruptcies, ones that I call the funeral home bankruptcy or the hospital bankruptcy. The funeral home bankruptcy is Chapter 7. It's not the funeral home for the individual that files bankruptcy, but for the debt. It's a debt forgiveness case.

• 18:38Speaker 06

  The hospital case is a reorganization case, a repayment plan case in either Chapter 11, 12, or 13. So in 2005, Congress said it's too easy to get debt forgiveness. So we're going to enact this thing called BAPCEPA. It was a major change in the law and made it much more difficult to get debt forgiveness by an individual. The interesting thing, just from a historical context of what BAPCEPA, how it began. The primary sponsor of BAPCEPA was a senator from Delaware named Joe Biden.

• 19:13Speaker 03

  Oh, I heard of him.

• 19:14Speaker 06

  So, yeah, and sometimes people say, oh, Joe Biden, he's way too liberal. Well, he wasn't that liberal in 2005 when he sponsored this change in the bankruptcy law to make it more difficult to get debt forgiveness. Why did Senator Biden champion this reform of the bankruptcy law? Because he was from Delaware, and Delaware is the home of many of the largest credit card companies in the United States. So there he was. It was signed into law by President Clinton, another person who sometimes critics say, oh, he was far too liberal. No, he wasn't. He was very conservative. A lot of things, he enacted this change to the law.

• 19:54Speaker 03

  So how much, so I imagine that law change, bankruptcies dropped.

• 19:59Speaker 06

  They did, they dropped, but still, I mean, it's still a very important part of the legal process in the United States. In two thousand twenty four, there were still over five hundred thousand bankruptcies filed in the United States, which represented about a fourteen percent increase over two thousand twenty three. The experts, as they're kind of surveying the sites right now, are predicting that there will be another uptick in bankruptcies in two thousand twenty five, both on the business side and on the consumer side.

• 20:30Speaker 03

  I imagine that's more of a, more of a result of the, of the larger economy, right? I mean, if the economy is in a recession, then you tend to have more.

• 20:43Speaker 06

  I think it's a combination of two things. You're exactly right. I mean, the global economy, the national economy has a direct impact on people's ability or businesses' ability to repay debt. But I am a very strong advocate of the fact that credit is too easy. Both consumer debt is too easy and even business debt is too easy. And I recognize that the American economy revolves on borrowed money. It's necessary to borrow money for the economy to go forward. But I, I tell people a lot of times how the world has changed since I was a young man. When I was in college in the middle nineteen seventies, I went to a bank where I had a savings account

• 21:25Speaker 06

  and I applied for a credit card. I applied for a three hundred dollar credit limit with, on, on a Visa card. I was turned down. I was a bad credit risk because I was a college student. I wanted three hundred dollars on my credit limit. I had five hundred dollars in the, in the savings account. I owned a car, free and clear lanes. I was on full scholarship at school. I owed no one anything. But I was a bad credit risk. Today, my children have gone to the same university and at the first week of school, there are these tables out in front of the bookstore with all of these folks trying to get them to come. And sign up for pre-approved credit cards, $1,500, $2,500.

• 22:06Speaker 03

  Get a shirt.

• 22:06Speaker 06

  No, get a shirt.

• 22:08Speaker 03

  Yeah.

• 22:08Speaker 06

  At our school, shared, they won't give coffee cups, but they do something like that. But it's, again, no questions asked credit.

• 22:16Speaker 03

  Yeah.

• 22:16Speaker 06

  I, again, maybe I'm overly cynical, but I say a lot of times the credit card companies get what they deserve.

• 22:22Speaker 03

  Well, that brings my, my, my question to you was, is your experience tell you that most of the bankruptcies that you're dealing with, the personal bankruptcies, people misuse of, of their, of their credit?

• 22:34Speaker 06

  Some, but definitely not most. Statistics show us that the single largest cause for consumer bankruptcy cases being filed is medical debt.

• 22:44Speaker 03

  Well, so my understanding is that now that might be changing a little bit, or at least in, in terms of the credit score now, um, that, that is, is recently changed to where your, um, medical debt can't impact your credit score.

• 23:00Speaker 06

  That's correct. And that's new, though, so we really haven't seen the, the true impact of that. So we'll wait and see.

• 23:05Speaker 03

  Does, did it, it, well, it may not impact your credit score, is it still, it could still be a reason for somebody to declare bankruptcy?

• 23:14Speaker 06

  The fact that they're going to declare bankruptcy may be because they have unpaid medical bills, they have unpaid credit card debt, they have deficiencies on repossessed automobile debt, they may have older tax debt that could be subject to forgiveness in bankruptcy. There are myriad of reasons why, loss of job, underemployment, all sorts of things. Uh, but again, to just give you an illustration of what's going on in our country, there was a recent, uh, publication that said that there is now over 1.2 trillion, with a T, dollars in credit card debt in the United States.

• 23:52Speaker 03

  And I think student loan debt is up there too, over a trillion.

• 23:56Speaker 06

  It is.

• 23:57Speaker 03

  Yeah.

• 23:57Speaker 06

  And it, it was very frustrating to me that when President Biden tried to deal with that in some constructive way by initiating student loan forgiveness programs, he was shot down repeatedly. The courts upheld, uh, the den- denial of those debt forgivenesses. But we just need to recognize what's going on. The debt is so large and it's impossible to pay it back according to the terms of the contracts. There ought to be some form of relief somewhere, and there is. The bankruptcy law is there for that purpose. It recognizes a problem and tries to deal with it.

• 24:31Speaker 03

  Yeah, yeah, you can't, you have to do something about these positions that we find ourselves in. And, you know, healthcare being one of the, one of the major causes seems incredibly unfair because it's, in many cases, you know, not their own fault for whatever health issue that they have that racked up those debts. And yet, I guess, I'm still not clear, if somebody, if, if, if unpaid medical debt doesn't affect somebody's credit, why would there be, still be a reason for somebody to go through bankruptcy just purely because of a medical debt?

• 25:12Speaker 06

  Because the credit, the creditors who are owed that medical debt, if they're not paid, they're going to initiate collection action.

• 25:20Speaker 03

  I see.

• 25:21Speaker 06

  What does that mean? That means they're going to sue you. And when they sue you, they're going to get a judgment. And when they get a judgment, that's when the judge hits his hammer on the table and says, you owe the money. Then the creditor has the right to go to the sheriff and say, seize money out of bank accounts, garnish wages.

• 25:37Speaker 03

  Right.

• 25:38Speaker 06

  Those things start snowballing and the debtor has no choice but to get relief under the bankruptcy law, which has a really nice name called a fresh start.

• 25:48Speaker 03

  Yeah.

• 25:49Speaker 06

  To me, there's so much religious parallel to this. I can commit sins, I can make mistakes, I can yell at my wife, I can be unkind to my children. Those are bad things. But my faith tells me that if I repent and I acknowledge my mistake and try to do better in the future, I can be forgiven. I can look to the future and not be burdened by my mistakes of the past. Bankruptcy has that same underlying philosophy. You can make mistakes in obtaining credit, but you shouldn't be burdened with that forever.

• 26:22Speaker 03

  Yeah, yeah, there has to be some redemption of some way or some forgiveness of some way. Or otherwise, I mean, I'm sure there's examples in history where there wasn't a form of bankruptcy. What, what happened? They would just become slaves?

• 26:37Speaker 06

  Well, in England, they threw people in jail.

• 26:39Speaker 03

  Yeah, yeah.

• 26:41Speaker 06

  That's an interesting point. When the MoneyWise guys asked me to come today, they wanted to talk, wanted me to talk about the history of bankruptcy. And when the founding fathers adopted the Constitution in 1789, they looked at England as a representative of the legal system that they would adopt. Well, in England, again, if you couldn't pay back your debt, you got thrown in jail. The sheriff would come pick you up, put you in jail, and then tell your family or your friends, relatives, and well wishers, you need to bail the person out by paying back the debt. The founding fathers said, eh, that's not a very efficient way of collecting debt. So in the Constitution itself, 1789, the founding fathers have a

• 27:25Speaker 06

  provision that says that there would be a uniform system of bankruptcy laws in the United States. Well, when it first started, this uniform system of bankruptcy laws, it was very creditor friendly. It was not intended for individuals. It was primarily intended for merchants, for business people. And it also wasn't voluntary. You couldn't just go to the bankruptcy court and sign a paper and file the case. You had to be thrown in by your creditors. But it was there. The big change in the law came in 1898, when the bankruptcy law adopted what is in the vernacular known as the Bankruptcy Act. That

• 28:05Speaker 06

  allowed individuals to file. It allowed individual debt forgiveness to occur. And it was a dramatic change in the law. That was the law until 1978. And then in 1978, our current bankruptcy code came in. And that's the, that's the fundamental set of statutes that we have right now, from 1978.

• 28:30Speaker 03

  Wow. Great history there on bankruptcy. Again, we're joined by Leonard Welch. He's a bankruptcy attorney here in town, the premier bankruptcy attorney in town. We have a listener question, maybe you can help us with this. Says, how does bankruptcy affect tax debt or student loans? And then they're also asking if you can share your number as they have family member that's in need. So first of all, how does, how does bankruptcy affect tax debt?

• 29:00Speaker 06

  It's a, I deal with this all the time. It's a simple question with a complicated answer.

• 29:04Speaker 03

  Yeah.

• 29:05Speaker 06

  There are different kinds of taxes. There's income tax, there are employee withholding taxes, there are sales taxes, but let's focus on income tax. That's the one that people deal with most frequently. If an income tax debt is more than three years old and has been, the legal word is assessed on the taxing authority's books for more than 240 days, that tax debt, that income tax debt, can be subject to forgiveness. Now, there's one caveat to that. That assumes that your tax returns were filed on time. If the tax returns were filed late, then there's all sorts of inconsistencies in court cases around the country about whether it should be forgiven. But the general rule, three years

• 29:47Speaker 06

  old, on the books for 240 days, subject to forgiveness.

• 29:51Speaker 03

  Well, and it sounds like advice that we've given before, which is always file your tax return, even if you can't pay it, always file it.

• 29:58Speaker 06

  Absolutely.

• 29:59Speaker 03

  Because you're just getting on time, because you're just going to complicate it more down the road. But a lot of people just get kind of frozen, I think, when they're in these dire financial, you know, situations. They just...

• 30:11Speaker 06

  I'm dealing with a man right now who, he's being frozen. He's frozen. He hasn't filed an income tax return for 10 years. I asked him a couple of weeks ago, "Why haven't you filed your..." I'm afraid to, Mr. Welsh.

• 30:23Speaker 03

  Yeah, yeah.

• 30:24Speaker 06

  So, no, don't be afraid. Take the bull by the horns and solve the problem.

• 30:28Speaker 03

  Yes, yeah.

• 30:29Speaker 06

  So, get it done.

• 30:30Speaker 03

  And how about student loan debt?

• 30:31Speaker 06

  Another easy question, complicated answer.

• 30:34Speaker 03

  Yeah.

• 30:35Speaker 06

  What the student loan, the law on student loans focuses on a balancing between the creditor and the debtor. Is it going to be better for the debtor to get student loan forgiveness? Or does it create what's called an unreasonable hardship, undue hardship is actually the words from the statute. So, student loan may be forgivable, but maybe not. Recent court cases have been much more in favor of the lender than the borrower. So, I've told, I've told clients a number of times, just wait for Congress to deal with it, because your ability to deal with student loan debt in bankruptcy... Isn't real, uh, it wasn't real encouraging.

• 31:14Speaker 03

  Yeah.

• 31:15Speaker 06

  So I, I don't know what's gonna happen now with, with the current administration, with the current Congress, but I highly doubt that student loan forgiveness is high on their agenda. So, we just have to wait and see. But student loan creditors, by and large, are also very workable. So if you don't, we're back to this fear factor, if you're not afraid to, to communicate with the creditor, they will work on repayment plans, they'll work on deferrals. It's a, it's a positive thing.

• 31:44Speaker 03

  Uh, now, the listener's asking for a phone number, but I, I don't know if we can say this on the air, but you, you, you might be change, have a change of, of, of jobs here coming up.

• 31:54Speaker 06

  I am. I'm, I'm old. And I have been told by the most important person in my life, that if I don't retire and move to be closer to my children and grandchildren, I will not have a wife any longer, even though she and I have been, she and I have been married for almost 50 years. Can you imagine that? She put her foot down. That's right. She's just absolutely drawing a line in the sand. So I will be retiring in April of this year.

• 32:23Speaker 03

  Well, uh, a wise choice, by the way, but it, it comes from, I, I'm sure it's, it, it wasn't an easy call because you clearly love what you do.

• 32:33Speaker 06

  I do.

• 32:34Speaker 03

  You enjoy it.

• 32:35Speaker 06

  I do, but I love my grandchildren and children and my wife more.

• 32:39Speaker 03

  So, now that you're, you're, you know, leaving and, and retiring, is, is there somebody that you would recommend or somebody that would take your place? Somebody's looking for bankruptcy?

• 32:50Speaker 06

  That's where I will give my telephone number.

• 32:52Speaker 03

  Okay.

• 32:53Speaker 06

  And I'm willing to talk to people about referrals, because again, brother wait, it's a very easy question with a complicated answer. Yes. There are, there are different, it's like going, it's like saying, well, I need a doctor. Okay, can you give me a doctor's name and telephone number? Depends what your problem is. So there are different kinds of bankruptcy lawyers.

• 33:12Speaker 03

  Yeah.

• 33:13Speaker 06

  There are lawyers who do only business cases, there are lawyers who do only consumer cases. And you don't want to go to an earache doctor. If you have a twisted ankle.

• 33:23Speaker 03

  That's right.

• 33:24Speaker 06

  You need to go to the right professional.

• 33:27Speaker 03

  Well, that's nice that you're willing to help. I've got your number, 661-327-9661.

• 33:32Speaker 06

  That's correct.

• 33:33Speaker 03

  Is that correct?

• 33:33Speaker 06

  That's correct.

• 33:34Speaker 03

  It's youngwooldridge.com. I'm sure your contact information is there as well. 661-327-9661 is Leonard Welch's phone number. Or go to youngwooldridge.com. Leonard Welch, bankruptcy attorney. Doing research for this interview, it looks like only about 8% of those who file for bankruptcy file again for bankruptcy, which means, I guess, 92% of people who file for bankruptcy don't file again for bankruptcy, which is surprisingly low. I think the public perception, my perception would be, well, you file for bankruptcy, you've got something wrong that's going to keep rearing its head. But that doesn't seem to be the case.

• 34:19Speaker 06

  I don't know what the actual statistics are, but I do know that what the, again, with the enactment of BAPCEPA in 2005, one of the changes that came in was making it more time-sensitive as to when you could get a second forgiveness. You can only get forgiveness of debt in Chapter 7, one time every eight years. And this is where, again, you see people able to get credit after bankruptcy because the credit industry understands you can only go through the forgiveness process once every eight years. So, again, there are repeat customers, there definitely are, but I don't see a whole lot of them, but they exist.

• 35:02Speaker 03

  Sure, but it's got to be rare, that chronic, bankruptor, I don't know what you'd call them.

• 35:08Speaker 06

  Bankrupt.

• 35:08Speaker 03

  Bankrupt.

• 35:09Speaker 06

  And that was something that came in in 1978. The law changed the terminology from bankrupt, which had this moral connotation, to debtor. So now you're just a debtor. You're a person who owes money.

• 35:21Speaker 03

  Yeah. Was it an Office episode where?

• 35:24Speaker 04

  Like, as soon as this brought up, I was thinking, Steve Carell.

• 35:28Speaker 06

  Yeah. Steve Carell goes into the parking lot. Dunder Mifflin is having financial difficulties. He just is under so much stress, so how does he solve the problem? He says, I have to declare bankruptcy. Okay, fine. What does he do? Michael, Michael goes out into the parking lot, raises his hands to the sky and says, "I declare bankruptcy," and then realizes the problem hasn't been solved.

• 35:52Speaker 03

  Right. It's a little harder than that. What would you say is the biggest misconception around bankruptcy?

• 36:00Speaker 06

  That it, that it does represent some type of moral failure on the part of the person who filed bankruptcy. That's not true in most cases. I ask people a lot of times, and they think this is a loaded question, was Walt Disney a good man? And people go, oh, they look at me and say, well, gee, I don't know. What are you, what are you asking? And I pound the table and say, absolutely, he was a good man. Think of the joy that Walt Disney brought into the lives of people for all these years. But Walt Disney had to file personal Chapter Seven bankruptcy, or debt forgiveness bankruptcy, twice.

• 36:38Speaker 03

  Yeah.

• 36:38Speaker 06

  Because he had this idea that said, if I can take cartoon pictures and flip them around, I can make a motion picture out of the cartoons. He thought this was going to be a winner. He tried it, and he lived in Kansas City at the time. He tried it, failed, lost everything. His mother believed in him, so she, she gave him some money. Walt said, I want to try again. Tried again, failed, lost everything. Then Walt got smart, and he said, you know, Mom, the future's not in Kansas City, it's in Los Angeles. So if you'll help me one more time, I'm going to move to Los Angeles and start my cartoon business. His mother, the noble soul that she was, gave him $50 and a suitcase full

• 37:23Speaker 06

  of peanut butter and jelly sandwiches, put him on a train, and sent him west. Walt gets to California, he's able to find investors who believed in his vision. The next thing you know, we have Steamboat Willie, and Walt Disney moves forward and produces the joy that he does. What's the point? Walt Disney was not a bad man, but he had to file bankruptcy twice. So the biggest misconception I, I see is that people think there's a moral failure if you... If you have to repent, be forgiven and move forward.

• 37:56Speaker 03

  Yeah, yeah, great advice. Last question before we, before we let you go. It seems counterintuitive to pay an attorney to help you through bankruptcy when you don't have any money already, like you're filing bankruptcy because you can't pay your bills. So how, how does that, explain to our listeners how that, how that works out.

• 38:19Speaker 06

  Two ways that works. Number one, you simply may not have enough money to deal with your debt. So let's just say, and this is, you may think this is a crazy number, you're a very conservative fellow, you're a very honorable fellow, but what if you have a hundred thousand dollars of credit card debt that's accruing interest at 21 to 31% interest? You can't deal with that, but you may be able to stop paying the credit cards for a month or two and be able to save those credit card payments to have enough money to pay the attorney.

• 38:49Speaker 03

  Yes.

• 38:50Speaker 06

  The second thing that I tell people very, very often is you have to go to your friends, relatives and well wishers. So to get the relief that you need, the fresh start, you may have to go to your family, like Walt Disney did. I've had a number of cases over the years where people have gone to their church and you say, well, that sounds kind of silly, but no, they go to their priest, their pastor, their bishop, whoever, and say, bishop or priest or pastor, I've got this problem and it's just causing me so much stress. This lawyer said that he'll represent me to help me get a fresh start, but in the American way, I need to pay him. And so oftentimes the churches have paid. The point is that it's not the fact that there is no money anywhere to, to pay the

• 39:35Speaker 06

  professional, there is, you just have to be creative.

• 39:38Speaker 03

  Yeah.

• 39:39Speaker 06

  And humble, you have to be humble, you have to be willing to ask someone for help.

• 39:44Speaker 03

  Yeah.

• 39:45Speaker 06

  And that's a very important lesson through this whole thing is you need to have humility so you can move forward.

• 39:50Speaker 03

  Yeah, and that, that can be, that humility can drive growth and, and sort of, and, and provide strength to make whatever change needs to make. If, if. What you you got into that position because of overspending or over leveraged debt? Then, you know, you can have an opportunity to change that.

• 40:10Speaker 06

  You know, it's really interesting to me, having lived in Bakersfield since 1981, grew up in Fresno, I understand this is a very conservative area, very faithful area, very religious area. People find it very easy to accept the fact that if they make a mistake and repent, that the Lord will forgive them. They they accept that, that's not a problem. But when they realize they've made mistakes financially, they're much more hesitant to say, okay, I need to repent, I need to get forgiveness so I can move forward. But to me, there's just such a strong, strong parallel to those two realities.

• 40:45Speaker 03

  Absolutely. It it there's a funny thing in our country, and maybe it's just the, you know, the art, the the the Western's way of of being, which is, you you you think that those who have the most money are the smartest, right? Bill Gates is the smartest because he's got the most money. And that's, there's a, there's a disconnect, and it goes the other way, too, that people feel like if you don't make a bunch of money, that you're not intelligent, or you're not successful, because you don't have an overabundance of wealth. Like, and and that's just, I mean, that's not how I define success, but it's it's hard, I think, for that internal.

• 41:21Speaker 06

  I have two heroes in my, in my life that I really, I really honor. One is Saint Francis of Assisi, who was sworn to poverty. He was a great, great man, very close to God. The second one was Atticus Finch in To Kill a Mockingbird. Atticus Finch represented Tom Robinson, the the man who wrongfully accused of committing a crime, for free. Atticus did it because it was right. Those are the great men, not the people who have the fancy cars and the fancy boats, or who ride down an escalator with a gold-plated rail.

• 42:02Speaker 03

  Yeah.

• 42:03Speaker 06

  Those are not the great men. The great people are the ones who love, who have kindness, who really are, are in my mind, doing God's work. Saint Francis and Atticus.

• 42:13Speaker 03

  Well, you will be missed in this community, Mr. Leonard Welch. We really appreciate you taking the time coming on the show and great advice. You get great information.

• 42:22Speaker 06

  Can I come back in 15 years?

• 42:24Speaker 03

  Please, please do. Come back and visit. You're always welcome. Always welcome on this show. We really appreciate it. That's Leonard Welch. You can find information about his services in bankruptcy at youngwooldridge.com or at 661-327-9661. We're going to take a quick break. We'll be right back.

• 42:40Speaker 07

  I declare bankruptcy. Hey, I just wanted you to know that you can't just say the word bankruptcy and expect anything to happen. I didn't say it. I declared it. Still.

• 42:56Speaker 00

  Need to get your financial fix on the go? If so, subscribe to the Money Wise Podcast and catch up on all past shows.

• 43:07Speaker 03

  We're Money Wise. Thanks so much for tuning in. Want to thank Leonard Welch, attorney, bankruptcy attorney. We're going to have him back on. He was just so, so great.

• 43:20Speaker 04

  Yeah, I just had to sit back and really listen and absorb as much as I could. You know, it's really interesting how the bankruptcy laws changed so much and, you know, how he's helped out so many different businesses. So.

• 43:32Speaker 03

  Yeah, and we started talking just before he left about subchapter five, which is a fairly new subchapter bankruptcy that is for small businesses. And he's, he's really got lit up about that because he's the only attorney in town currently that works for, you know, basically small businesses. And so we're going to have him back on just to talk specifically for small business owners. That is really important. He mentioned the, you know, the number, the success rate of a company that goes through subchapter 11 is like 25 or 26%, which means, you know, only one in four businesses make it through

• 44:16Speaker 03

  subchapter 11. So, you know, before subchapter five, he was explaining that.

• 44:23Speaker 03

  Bankruptcy was, you know, had to, businesses had to go through the same bankruptcy that PG&E or, you know, any major company would have to go through and it's like, it's a different thing when...

• 44:33Speaker 04

  They're on a whole nother caliber. So, having to go through that as a small business, it doesn't make sense.

• 44:39Speaker 03

  Right. Yeah, so we'll definitely have him back on.

• 44:43Speaker 04

  Yeah, what was the success rate of the subchapter five?

• 44:46Speaker 03

  I forgot. He didn't mention that. He just says it's way more successful. It would make sense because small business, you know, you get your mom and pop, you know, you think of your normal, you know, average Kern County family-owned business and it's like, they want to succeed. They really want to do everything they can to keep the lights on and it's not just to, you know, satisfy shareholders or, I mean, whatever.

• 45:06Speaker 04

  No.

• 45:07Speaker 03

  We've got a listener question here that, you know, if you get your help, you can help me answer. Says, "What makes an IRS extension invalid? And what do you know how long the extension is? Thanks, MoneyWise." So, this probably came up because we were just talking, maybe it came up because we were talking to Mr. Welsh about the importance of filing your tax return. Because if you, if you don't file your tax return and you have, you owe the IRS money, and it's, and you've got this three-year rule, you're in trouble. It's a little more complicated. Whereas if you filed your tax return on time, then you, you have more, it's a smoother, straight-through process to have debt forgiven for the IRS.

• 45:50Speaker 03

  So, just to give, you know, if you file an extension, that doesn't mean that you still don't file your return. I mean, it doesn't mean that you can't, you don't have to, it's not an extension to pay your taxes. It's an extension to actually file the return. And as long as you file that extension, which can go out six months, so the deadline now is October 15th, but you have to file that extension on time, which is by April 15th. So, you have to file the extension. That gives you till October 15th to file the return, but the money is still due on April 15th. And I think that's the biggest misconception. So, something that could make it invalid would be you didn't file the extension in time. You filed it...

• 46:33Speaker 03

  After April 15th, that makes it late if you didn't file the extension.

• 46:36Speaker 04

  I think there's some other ones like minor incorrect data, put in address, name, tax year, all of that can be invalid for the extension.

• 46:48Speaker 03

  Yeah.

• 46:49Speaker 04

  But as long as you're able to correct the errors and resubmit it before the deadline.

• 46:54Speaker 03

  Yeah, that's the key. So don't wait till the last day of April 15th to file it. Give yourself some time in case there's, you know, you didn't cross a T or dot an I.

• 47:04Speaker 00

  We'll have Duffield on next week, so keep those tax questions coming.

• 47:08Speaker 03

  Perfect. Yeah, we got several questions actually we couldn't get to in time with Mr. Welch, but we'll have him on, you know, so stay tuned for that. Also, you're going to want to catch Frank Lee on First Look with Scott Cox tomorrow morning. Look out, Frank.

• 47:23Speaker 04

  Oh, no.

• 47:24Speaker 03

  You're going to be rocking the baby and talking to Scott Cox tomorrow.

• 47:27Speaker 04

  Yeah, my little baby's going to be doing the interview.

• 47:30Speaker 03

  That's perfect. Teach Scott a lesson. It's Scott Cox Show tomorrow, 7:30 on our sister station, KERN Radio 96.1. And of course, join us back here on ESPN Bakersfield, 12:30 a.m., 101.1 F N tomorrow, live from 2 to 3. We're going to be joined by Erica Ubaroth. She is from Bakersfield Civic Dance Center. I'm really excited to talk to Erica there. This is really the only semi-professional dance company we have in Bakersfield, and they've done some amazing work. It's really, it'll be, and she's a small business owner. So we're excited to have her on tomorrow. I'll be on that show tomorrow with my co-host, Emily Waite. Really excited for that. Of course, if you miss any of these shows, you

• 48:15Speaker 03

  can find us in podcast format. And remember, be smart, be safe, and always be money wise.

• 48:21Speaker 02

  Securities offered through SCF Securities, Inc., member FINRA/SIPC. Investment advisory services offered through SCF Investment Advisors, Inc. SCF Securities, Inc. and Money Wise Wealth Management are independently owned and operated.