Posted by Kevin on September 21, 2009 under Bankruptcy Blog | 
In a mortgage modification, the lender alters the terms of an existing mortgage loan to make it more affordable to the borrower.
In recent years, mortgage modifications have become a topic of much discussion because of the large number of mortgage defaults during the current recession. In April, 2009, the government announced the HAMP program whereby lenders and mortgage servicers were given incentives (meaning $) to modify mortgages. The problem is that, to date, the HAMP program has not worked. Less than 10% of borrowers get permanent modifications
As with other voluntary programs, it is up to the lender to offer you a mortgage modification. There is a ton of paperwork (which seems to get lost an awful lot) and the process drags on for months. Finally, what the lenders are offering is not meaningful relief. The typical modifications have been a lower fixed interest rate for a period of 3-5 years, or “forgiving” arrears by adding them to the principal. So, you get a slightly smaller monthly payment but you owe more than when you closed on the loan. No wonder so many modifications fail.
That being said, I encourage my clients to go through the mortgage mod process. Why? Because unless you file a Chapter 13 bankruptcy, eventually you are going to work out a mortgage modification or go into foreclosure. If you get foreclosed, it is important to show the New Jersey court that you took all reasonable steps to save your home.
At Kevin Hanly, Esq., LLC our goal is to keep you in your house, or put you in a better financial situation if you have walk away from your house. The strategy varies from client to client because no two clients have exactly the same situation. Go to www.FightForeclosureNJ.com for more information, and then contact us to set up a free consultation to analyze your mortgage situation.
Posted by Kevin on under Bankruptcy Blog |
In 1978, the Bankruptcy Code underwent a major overhaul. It gave bankruptcy judges more power. It established the Office of the United States Trustee. It allowed consumers to file for bankruptcy without proving insolvency. Moreover, a debtor could choose whether he or she wanted to file under Chapter 7 or Chapter 13 irrespective of his or her income. Almost from the beginning, creditors complained that the law, especially in consumer bankruptcies, was too pro-debtor.
Over the years, Congress amended the 1978 Code to make it less pro-debtor. But the outcry for a new law continued. Creditor groups argued that too many people were filing. More importantly, they argued that too many people who could afford to pay something to their creditors were filing under Chapter 7, and paid nothing.
Starting in the early 1990’s and continuing until 2005, the credit card and banking industries lobbied Congress for a new bankruptcy law. In October, 2005, Congress enacted BAPCPA. In the area of consumer bankruptcy, one of its main purposes was to make more people file under Chapter 13 so that payments could be made to creditors.
To accomplish this objective, BAPCPA puts restrictions on filing Chapter 7 based on the income of the debtor. To determine whether a prospective debtor qualified for Chapter 7, BAPCPA adopted the so-called means test. The means test was adapted from the test used by the IRS to determine whether a taxpayer could qualify for a payout plan and how much he or she could pay.
The means test is a three part test. The first part appears to be straightforward. The debtor must calculate his or her average income for the 6 months prior to the bankruptcy filing. Note that income does not include social security or unemployment. This average figure is multiplied by 12 to arrive at an annual income. The debtor’s annual income is compared to the median income for your State based on your household size. If the debtor’s income is below the median income, then he or she can qualify for Chapter 7. If not, then the debtor must proceed to the second part of the means test.
The second part of the means test tries to determine what money would be available for creditors after you deduct your expenses from your average income. This portion of the means test focuses on expenses- but not necessarily actual expenses. Remember, the means test is based on the IRS test for how much money should be available to pay back Uncle Sam. The IRS test has both National Standards (food, clothing) and Local Standards (housing, transportation). The means test incorporates the National Standard and Local Standards with some actual expenses. It also allows a debtor to deduct 1/60 of any secured debt (mortgages). If your net income (what’s left over after you subtract your means test expenses from your means test income) multiplied by 60 is less than $6575, you qualify for Chapter 7. If it’s greater than $10.950, then the debtor must file under Chapter 13. If it’s between, then you go to step 3.
In step 3, you compare your net income to your unsecured debt. If your net income is less than 25% of your unsecured debt, you may file under Chapter 7. If the income is above 25% of unsecured debt, then you are relegated to Chapter 13.
Sounds easy, right? Well, there are additional bumps in the road along the way of the means test. First, the Code does not define household size. Second, the line item expenses in the test are not fully explained. This has led to lots of litigation all over the country. If the statute is not clear and the parties cannot agree, then a judge must decide.
Now, for the last bump in the road. Even if you pass the means test and qualify for Chapter 7, the trustee can object to a Chapter 7 filing based on your actual income and expenses. But that’s for another lesson.
If you’d like to receive more information, please click here for a free report.
Posted by Kevin on under Bankruptcy Blog |
Debt consolidation is where you combine a number of debts, usually with high interest rates, into a single debt with a lower interest rate. The result is a lower, single payment. On its face, debt consolidation is a good idea.
But, you have to be aware of what you are getting into. First, if you are dealing with a counseling company, there is usually a fee attached to the service. Make sure that you are dealing with a reputable counseling company (see discussion on credit counselors), that the fee is reasonable, and is not paid, in full, up front.
Most offers from debt consolidation, however, do not come from credit counselors but from banks or other financial institutions. In most of these cases, the bank will offer to wrap your credit card debt into a lower interest, tax deductible second mortgage. Not usually a bad deal, but as said above, know what you are getting into.
Credit card debt is what is referred to as unsecured debt. That means there is no collateral to support the debt. If you do not pay unsecured debt, the creditor can sue you and get a judgment. The creditor can attach a bank account or garnish your wages, but will probably not be in a position to foreclose on your house.
When you consolidate your credit card debt into a second mortgage, you will pay less each month and probably have a tax write off. However, what you have done is turned “unsecured debt” into “secured debt”. Moreover, if the second mortgage is a home equity line of credit, it may very well be at an adjustable rate. So that low interest rate that you signed on for may be good for only a year.
If you default on secured debt, the second mortgage holder has the right to either sue on the Note or foreclose on your mortgage or do both. If your house has substantial equity, then the creditor will probably choose to foreclose and take out the first mortgage. Now, instead of a few nasty telephone calls and a possible wage garnishment, you could lose your home.
Go into any debt consolidation with open eyes. If your job is laying off workers, it may not be a good idea to consolidate. If your employment is stable and your health is good, consolidation may be a good idea.
One last caveat- never consolidate your debt into a second mortgage with the company that has your first mortgage. In many cases, the documents will state that a missed payment on the second constitutes a default on the first mortgage. Then your chances of being foreclosed on are that much better.
For further information, please refer to the following videos
Introduction to Bankruptcy
If you’d like to receive more information, please click here for a free report.
Posted by Kevin on under Bankruptcy Blog |
Credit counseling is an alternative to bankruptcy which can work for some people. A good credit counselor can teach you how to manage your money, help you establish a workable budget, and negotiate debt management plans with your creditors to reduce interest rates and spread out payments on your credit cards.
My experience has been that credit counseling works best for consumers who have relatively few credit cards, who do not have significant debt in relation to their income, and who can pay off the modified debt in 2-3 years. Repayment through a credit counselor is voluntary. So, each creditor has to agree to the proposal. If one or two do not agree, then effectively the consumer does not have a deal ( no reason to pay off 5 or 6 creditors when the other creditors get judgments against you and levy against your bank account or garnish your wages). Balking creditors, lots of creditors, substantial five figure debt- bankruptcy is probably the better option.
Well, how do you get information about credit counseling or find a reputable credit counselor?
- Check FTC website
- Make sure counselor is affiliated with National Foundation for Credit Counseling or accredited with Better Business Bureau
- Ask for a referral from local Legal Aid
- Watch for high up front fees.
Credit counseling will impact on your credit score but less than bankruptcy.
For further information, please refer to the following videos
Introduction to Bankruptcy
If you’d like to receive more information, please click here for a free report.
Posted by Kevin on under Bankruptcy Blog |
Usually during the initial consultation, a Chapter 7 debtor will ask, with some trepidation, if he or she is required to appear in court. The answer is that most Chapter 7 debtors will never see the inside of a court room. However, every Chapter 7 debtor must attend a 341(a) meeting.
Section 341(a) of the Bankruptcy Code states that within a reasonable time after the filing of the bankruptcy petition, the United States Trustee shall convene and preside at a meeting of creditors. In New Jersey, the Office of the United States Trustee has established a panel of trustees to administer Chapter 7 cases. Almost all of the so-called “panel” trustees are attorneys or accountants who are familiar with bankruptcy. The United States Trustee assigns upwards of 70 cases to each panel trustee in a given month. It is the job of the panel trustee to conduct the 341(a) meetings for each debtor.
Prior to the meeting the debtor must provide his tax return to the trustee. At the meeting, the debtor must produce a photo ID (usually a driver’s license) and a social security card. If the debtor does not bring these two items of identification, the 341(a) meeting is usually adjourned, and the debtor’s attorney is required to send a written notice to all creditors of the adjourned date (for which the debtor usually will be charged an additional fee).
The debtor is required to bring his latest pay stub (called a payment advice), and may be required to bring documentation to prove his expenses if requested by the trustee. In addition, the debtor is required to produce his latest bank statement(s) and brokerage statement(s) if any. Although not required, a debtor who owns real estate should provide a copy of a comparative market analysis and a mortgage payout statement. This will allow the trustee to determine whether any equity exists. If the debtor does not speak English well, it is advisable to bring a translator and to notify the trustee in advance.
Although called a meeting of creditors, it is rare for a creditor to attend a meeting, and even more rare for a creditor to question the debtor. In the cases that I have seen a creditor attend and question a debtor, it is usually because an unsophisticated creditor believes that he is required to appear, or a creditor is trying to find out the location of collateral. If the creditor is not represented by an attorney, the exchange between the debtor and creditor can get a bit unpleasant because they tend to know each other. Therefore, the trustee usually limits questioning and advices the creditor to retain counsel.
For the most part, the trustee conducts the questioning of the debtor. In most cases, the questioning lasts for less than 5 minutes. In all cases, the trustee confirms that the debtor signed the petition and other required documents, and reviewed them for accuracy. He asks about assets, income, expenses, possible lawsuits, domestic support obligations, transfers of property, and why the debtor got into financial trouble. More time will be spent if the debtor sold real property within 3 years of the filing, or if the debtor had his own business.
I have been involved in many 341(a) meetings both as a trustee and as debtor’s counsel. No matter what you say to a client, he is going to be nervous about the 341(a) meeting. The debtor is worried that he may freeze, that he may forget something important, that he will make a misstatement, that the trustee will say something that will embarrass him, that he will not get his discharge. Being questioned under oath by a trustee, who certainly is not your friend, is enough to make anyone nervous.
Besides preparing my clients with sample questions, I ask them to show up for the meeting early. As stated above, in today’s economic environment, panel trustees may have upwards of 70 cases per month for which they must conduct 341(a) meetings. Trustees will usually schedule 30-40 meetings for a single day beginning at 9 AM and going until 3 or 4 PM. If the debtor gets to the hearing room early, he can listen to the questions that the trustee is asking the other debtors. They tend to be the same questions. He can also see that the rest of the debtors in the room look like him, sound like him and are in the same boat. This tends to calm down the debtor. Finally, I stress to my clients that I am there to protect them- that’s my job.
Most 341(a) meetings are closed by the trustee at the end of questioning. In some cases, the debtor may be required to provide some additional documentation. It is advisable to meet all reasonable requests of the trustee as soon as possible. The quicker the 341(a) meeting is closed, the quicker the debtor will receive his discharge- and that is the goal.
For further information, please refer to the following video:
Meeting of Creditors in personal bankruptcy cases
If you’d like to receive more information, please click here for a free report.
Posted by Kevin on under Bankruptcy Blog |
A Chapter 13 bankruptcy may be filed by individuals with regular income. This includes a sole proprietor who runs a business but does not include a corporation, an LLC or a partnership. In a Chapter 13, the debtor pays all or a part of her debts over a period of 3-5 years under the supervision of the bankruptcy court.
A Chapter 13 bankruptcy is initiated by the filing of a Chapter 13 petition together with a Chapter 13 plan. The plan must provide for a fixed monthly payment to the Chapter 13 trustee. The debtor must begin making payments pursuant to the plan beginning the month after the filing. For example, if the filing is on April 10, then the first payment is due on May 1. Creditors and/or the Chapter 13 trustee may object to the plan. The debtor can either modify the plan to meet the objections or allow the bankruptcy judge to decide if the plan complies with the law and is, therefore, confirmable.
Read more of this article »
Posted by Kevin on under Bankruptcy Blog |
Chapter 11 bankruptcy basically deals with the reorganization and/or liquidation of businesses. However, an individual may file under Chapter 11. For consumers, Chapter 11 is available when a debtor wants to retain assets, like her home, but does not qualify for Chapter 13. A prospective debtor does not qualify for Chapter 13 if her unsecured debt exceeds $336,900 and/or secured debt exceeds $1,010,000.
For further information, please refer to the following videos
The different types of bankruptcy
If you’d like to receive more information, please click here for a free report.
Posted by Kevin on under Bankruptcy Blog |
Chapter 7 is known as a straight bankruptcy or liquidation. It is the most common consumer bankruptcy. The person who files a Chapter 7 petition is called a debtor. When the petition is filed, the case is assigned to a trustee. The trustee’s job is to collect all of the debtor’s non-exempt assets, turn them into cash, and distribute the proceeds to the debtor’s creditors according to the priority set up in the Bankruptcy Code.
In the vast majority of consumer Chapter 7 cases, however, all of a debtor’s assets are exempt so the debtor keeps them. Moreover, if the debtor complies with the requirements of the Bankruptcy Code, most, if not all, of his debts are discharged. This means that they are wiped out. This is called a no-asset case.
Read more of this article »
Posted by Kevin on under Bankruptcy Blog |
Bankruptcy is a legal process that lets you use the protection of the courts to deal with debts that you cannot pay. The right of Americans to file bankruptcy is found in the Constitution of the United States. I repeat- this is a constitutional right. The first bankruptcy code was enacted by Congress in 1800. The current bankruptcy law is known as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 or BAPCPA.
The Bankruptcy Code is divided into chapters. Consumers file bankruptcy under Chapter 7, Chapter 13, or, in rare cases, under Chapter 11. The Bankruptcy Code is federal law; therefore, bankruptcy cases are handled in federal court and not state court.
Prior to filing bankruptcy, a debtor must take a credit counseling course from a government approved agency. The course can be taken in person or on line, and takes about 90 minutes.
A debtor starts the bankruptcy process by filing a petition. Along with the petition, the debtor files schedules of assets and debts, and income and expenses. Under BAPCPA, the debtor is also required to file a means test to determine under what chapter he or she may file, and a certification indicating that the debtor completed the credit counseling course.
In Chapters 7 and 13, the case is assigned to a trustee who administers the case. In a Chapter 11, the debtor administers his or her own case unless the Court appoints a trustee for cause. There is a filing fee of $299 for a Chapter 7, $274 for a Chapter 13, and $1000 for a Chapter 11 case. In a Chapter 7 case, the filing fee can be waived if your income is below a certain level. In both Chapter 7 and 13, the filing fee can be paid in installments with court approval.
A husband and wife can file together. This is called a joint petition. There is only one filing fee involved in a joint petition. If the debtors are domestic partners or live together but are not married, each person must file a separate petition with a separate filing fee.
Once you file bankruptcy, creditors with some exceptions (just like everything else in life, there are exceptions) must stop all collection efforts. This is called the automatic stay, and is one of the big benefits that you get from filing bankruptcy. The automatic stay also means that if your wages are being garnished, it stops. It’s a big plus to pick up an extra $200-300 per paycheck.
Lot’s of people get nervous about filing bankruptcy because they think that they will have to appear in court before a Judge to explain why they are not paying their bills. Well, that does not happen. But, each debtor must appear before the trustee to answer questions at the first meeting of creditors (also called the 341(a) meeting). That’s the bad news. The good news is that the questions lasts only for a few minutes and you have your lawyer with you to protect your rights.
The primary object of bankruptcy is to wipe out your debts. This is called a discharge. In addition, you should be able to keep most, if not all, of your assets allowing you to get a fresh start following bankruptcy.
Individuals do not need to have an attorney to file bankruptcy (corporations do). Individuals can file on their own or utilize a bankruptcy petition preparer. But then again, you don’t need an electrician to rewire your house. Even for the most simple cases (which really are not that simple), legal counsel is recommended. If you cannot afford an attorney, you should contact your local legal aid office to see if you qualify for help.
Filing bankruptcy stays on your credit report for 10 years and does affect your credit score. Since most people who file bankruptcy were behind on payments, their credit score is already in the tank before the filing. So, the hit that you take may be less than expected. Believe it or not, many people show an increase in credit score within 1 year of discharge. Moreover, if you re-establish credit, and pay your bills on time, your credit rating will be substantially rehabilitated within 3-5 years.
For further information, please refer to the following videos
How do I file for Bankruptcy?
Do I need a Bankruptcy Attorney?
Introduction to Bankruptcy
If you’d like to receive more information, please click here for a free report.
