President Obama recently signed a new law into effect regarding lending practices on the part of credit card companies. This law is designed to offer relief from the nasty practices we have all become too familiar with in the last couple of years. The new law will not take effect until February of 2009. While the law will make significant changes that will provide relief to many debtors (more on the relief below), the concern is that this bill will not help so many people already on the verge of financial disaster.
As an Indiana bankruptcy attorney, I see people everyday who are being pushed over the "edge" by rising interest rates, reductions in available credit, soaring fees and other predatory lending practices. Until the law takes effect in February, I think we will see the credit card companies do everything in their power to make our lives more difficult. We can expect further reductions in available credit as well as increases in interest rates and other fees. These are the very types of things this law is designed to prevent but because the credit card lobby is so strong, the relief so many of us need now won't be available in time to prevent bankruptcy.
The significant benefits provided under this bill are set forth below. For those who are able to hold on until this law takes effect, these changes will help lessen the financial pressure...or at least that is what the Obama administration hopes it will do. Only time will really tell if the desired effect becomes a reality.
1. Interest rate changes can only be made after 45 day advance notice.
2. Interest rate increases will not be allowed on already existing balances.
3. You have to be over 18 to get a credit card and if you are under 25, you must take (and pass) a course designed to test your financial knowledge.
4. Interest will be charged on the current month's balance as opposed to an average of the last two months balance.
5. The font size on credit card statements and agreements will be increased to 12 point to make it easier for people to read (Now we just need to take the time read the agreements and understand them).
6. You can't be charged a processing fee for Internet or phone payments.
Tuesday, June 23, 2009
Friday, May 8, 2009
Streamline FHA Refinancing
I realize this may seem like a strange topic to discuss on a bankruptcy blog but as I tell all of my clients in my Indianapolis area bankruptcy practice, if I can help you avoid bankruptcy I will do so. Furthermore, if I can help you save money even if you still have to file bankruptcy I will do so. Thus, the reason for this topic. One of the things I have been talking to many of my clients about lately is considering an FHA Streamline refinance.
If you currently have an FHA loan, you may be able to qualify for a rate reduction without verifying your income, which means no tax returns or pay stubs and no bank statements. An FHA Streamline does not require a credit report. However, lenders may require one for discount points and other costs associated with the loan. You must be current on your mortgage payments to qualify and a verification of this is required by FHA.
Often times appraisals are not needed. However, an FHA Streamline loan can not be for a higher amount than the original balance on the current FHA loan on the property. If your home has gone up in value and you need to roll closing costs or things of that nature into the loan, an appraisal may become necessary.
Certain rules and limitations will determine if your situation will fit into the FHA streamline guidelines. I have listed some of the basics below:
1. The current loan must already be FHA loan (as stated above) and the property must be your primary residence.
2. The current mortgage should not be delinquent (as stated above).
3. You can only cash out $500.00 from the new loan.
4. The refinance must result in reducing principal and interest payments (duh!).
If you go for an FHA streamline without a new appraisal, the maximum loan amount will be determined by using the lesser of the two calculations set forth below:
1. The original balance of the current FHA mortgage, plus the new up front mortgage insurance premium, which is currently 1.5% of the loan amount.
2. The existing FHA mortgage balance, plus closing costs, prepaid taxes, insurance, interest, as well as the upfront mortgage insurance premium (the refund of the old premium will be factored into this figure).
If you go the new appraisal route for an FHA streamline refinance, the maximum amount of the new loan will be determined by the lesser of the two calculations set forth below:
1. The appraised value multiplied by the maximum loan to value percentage. In Indiana, this is currently 97.75%.
2. The existing FHA mortgage, plus closing costs, prepaid taxes, insurance, interest, as well as the upfront mortgage insurance premium (the refund of the old premium will be factored into this figure).
I know this is a lot of information to digest but this is an option everyone should seriously consider. If you drop your interest rate one full percentage point (depending on the value of the loan), you may see a savings of $100.00 or more per month. That is $1,200.00 extra per year, which can go a long way during difficult financial times.
If you currently have an FHA loan, you may be able to qualify for a rate reduction without verifying your income, which means no tax returns or pay stubs and no bank statements. An FHA Streamline does not require a credit report. However, lenders may require one for discount points and other costs associated with the loan. You must be current on your mortgage payments to qualify and a verification of this is required by FHA.
Often times appraisals are not needed. However, an FHA Streamline loan can not be for a higher amount than the original balance on the current FHA loan on the property. If your home has gone up in value and you need to roll closing costs or things of that nature into the loan, an appraisal may become necessary.
Certain rules and limitations will determine if your situation will fit into the FHA streamline guidelines. I have listed some of the basics below:
1. The current loan must already be FHA loan (as stated above) and the property must be your primary residence.
2. The current mortgage should not be delinquent (as stated above).
3. You can only cash out $500.00 from the new loan.
4. The refinance must result in reducing principal and interest payments (duh!).
If you go for an FHA streamline without a new appraisal, the maximum loan amount will be determined by using the lesser of the two calculations set forth below:
1. The original balance of the current FHA mortgage, plus the new up front mortgage insurance premium, which is currently 1.5% of the loan amount.
2. The existing FHA mortgage balance, plus closing costs, prepaid taxes, insurance, interest, as well as the upfront mortgage insurance premium (the refund of the old premium will be factored into this figure).
If you go the new appraisal route for an FHA streamline refinance, the maximum amount of the new loan will be determined by the lesser of the two calculations set forth below:
1. The appraised value multiplied by the maximum loan to value percentage. In Indiana, this is currently 97.75%.
2. The existing FHA mortgage, plus closing costs, prepaid taxes, insurance, interest, as well as the upfront mortgage insurance premium (the refund of the old premium will be factored into this figure).
I know this is a lot of information to digest but this is an option everyone should seriously consider. If you drop your interest rate one full percentage point (depending on the value of the loan), you may see a savings of $100.00 or more per month. That is $1,200.00 extra per year, which can go a long way during difficult financial times.
Payday Loans and Bankruptcy
In these tough economic times, I am seeing more and more people coming into my office with multiple payday loans. In talking with my clients about the situation, I have realized that many of the people with recent payday loans, took them out after learning they were losing their jobs. I understand the thought process...I am gonna need money and I can't get a loan anywhere else but if I forget to tell them I lost my job I can get a payday loan or two. When the payday loan company then tries to cash the check it will bounce because I won't have any money and they can't do anything about it until I am working again.
Reality then starts to set in. The money is quickly spent covering living expenses and paying other bills and the concerns start to rise as bankruptcy is considered. So the question then comes up about whether the loans can be discharged in bankruptcy. I have been a bankruptcy attorney in the Indianapolis area for over six years and I can almost always discharge payday loans for my clients.
However, if the loans were obtained by providing false information to the lender, then the debts may not go away through the bankruptcy process. If the person taking out the loan knew he had lost his or her job (or provided other false information to the payday loan company) but still took out the loan while they had pay check stubs to "verify" employment the loan would survive the bankruptcy.
The reality is that the lender would have to file an adversary proceeding against the person to stop the debt from being discharged. The face amount of the check may not make it worth the lender's time and money to do this. However, as this economy takes its toll on the payday loan companies we may see them start pursing these types of situations more aggressively.
The bottom line is that you should avoid payday loans (the interest rates are just too high). However, if you have already taken them out and were honest in doing so, you should be able to walk away from them without any problems. The best policy is to be honest in your business dealings and you won't have to worry about these types of situations.
Reality then starts to set in. The money is quickly spent covering living expenses and paying other bills and the concerns start to rise as bankruptcy is considered. So the question then comes up about whether the loans can be discharged in bankruptcy. I have been a bankruptcy attorney in the Indianapolis area for over six years and I can almost always discharge payday loans for my clients.
However, if the loans were obtained by providing false information to the lender, then the debts may not go away through the bankruptcy process. If the person taking out the loan knew he had lost his or her job (or provided other false information to the payday loan company) but still took out the loan while they had pay check stubs to "verify" employment the loan would survive the bankruptcy.
The reality is that the lender would have to file an adversary proceeding against the person to stop the debt from being discharged. The face amount of the check may not make it worth the lender's time and money to do this. However, as this economy takes its toll on the payday loan companies we may see them start pursing these types of situations more aggressively.
The bottom line is that you should avoid payday loans (the interest rates are just too high). However, if you have already taken them out and were honest in doing so, you should be able to walk away from them without any problems. The best policy is to be honest in your business dealings and you won't have to worry about these types of situations.
Tuesday, April 7, 2009
You can get rid of tax obligations in bankruptcy...if certain conditions are met.
With tax day rapidly approaching, I will undoubtedly see an increase in the number of calls to my office with questions about getting rid of tax debts via bankruptcy. The ability to walk away from income tax obligations are contingent on several requirements being satisfied (withholding taxes and other "trust-fund taxes are not eligible for discharge and carry very large penalties and interest -- sometimes up to 50% of the tax owed so don't mess around with sales, withholding, and other similar taxes as the consequences can be serious and very costly).
The first couple of requirements are to be expected...the return must be truthful and the taxpayer must not be guilty of tax evasion. It goes without saying that in order to benefit from the protections included in the bankruptcy code with respect to income tax obligations the taxpayer must have filed an accurate and truthful tax return. You cannot commit tax fraud and then expect to walk away from the debt. The same logic applies to someone guilty of tax evasion. You cannot be found guilty of such a crime and then expect to discharge the debts in a bankruptcy proceeding.
Now for the technical requirements. First, the due date for the returns in question must have been at least three years prior to the date of the bankruptcy filing. For instance, if you file bankruptcy May 1, 2009, the taxes you want to discharge must have been due before May 1, 2006. Thus, any personal income taxes from years 2005 and earlier would be eligible for discharge assuming they meet the other criteria.
Second, the tax returns in questions must have been filed at least two years earlier than the bankruptcy filing date. Using our example above, if you file bankruptcy May 1, 2009 and you want to discharge your 2005 tax liability, which would have first become due on April 15, 2006 (assuming no extensions were filed) but you did not file the actual return itself until May 2, 2007, you would not be able to discharge those taxes. While the due date would have been more than three years before the date of filing, the return would not have been on file for at least two years, This is an excellent example of how important planning can be when it comes to filing bankruptcy. This is also a great reason to be sure you file your tax returns on time every single year. If you don't file the returns, you cannot discharge the debts ever.
The third requirement is that the tax assessment must be at least 240 days old. This requirement can be a technical issue within the taxing authority itself. This is typically not a problem for most people. Instead, failure to timely file the returns is what normally prevents a debtor from being able to discharge their tax obligations. For most people who file their tax returns on time, they will be able to walk away from income tax obligations which fall outside of the three year window. The reason is that if the return was timely filed and the three years have passed, the return, by the very nature of the timely filing, has been on file for more than two years and the assessment has typically occurred long before the 240 day window.
The next logical question is "what happens to the debts that aren't eligible for discharge"? First, the IRS will have to wait to pursue you until your case is discharged. Thus, Uncle Sam will have to cool his heals for about four months. These taxes will be given a priority designation by the Court and will be paid from any non-exempt assets after the payment of secured claims and/or any higher priority claims. If, and this usually does not happen, there are sufficient assets from which to pay the taxes which survive the discharge, they will be paid by the Trustee. Normally, there are not any assets with which the Trustee can pay the priority taxes. This means the debtor will still owe the non-dischargeable taxes after the bankruptcy case is concluded. If necessary, the debtor could wait the necessary time period (four years) and file a Chapter 13. If the debtor can't afford to wait four years because of the pressure from the IRS, the debtor can still file a Chapter 13 so long as he proposes to pay 100% of the tax obligation over the life of the plan.
Please note that the same guidelines are true for state income taxes as well. I refer to the IRS in the above discussion but that is only for simplicity purposes. You can discharge income taxes owed to the Indiana Department of Revenue as well assuming you meet the criteria.
Lastly, while I have tried to simply things for you in this blog post, the tax and bankruptcy codes are very complex. Thus, it is important for me to review each debtor's case in detail to better understand which taxes are eligible for discharge.
The first couple of requirements are to be expected...the return must be truthful and the taxpayer must not be guilty of tax evasion. It goes without saying that in order to benefit from the protections included in the bankruptcy code with respect to income tax obligations the taxpayer must have filed an accurate and truthful tax return. You cannot commit tax fraud and then expect to walk away from the debt. The same logic applies to someone guilty of tax evasion. You cannot be found guilty of such a crime and then expect to discharge the debts in a bankruptcy proceeding.
Now for the technical requirements. First, the due date for the returns in question must have been at least three years prior to the date of the bankruptcy filing. For instance, if you file bankruptcy May 1, 2009, the taxes you want to discharge must have been due before May 1, 2006. Thus, any personal income taxes from years 2005 and earlier would be eligible for discharge assuming they meet the other criteria.
Second, the tax returns in questions must have been filed at least two years earlier than the bankruptcy filing date. Using our example above, if you file bankruptcy May 1, 2009 and you want to discharge your 2005 tax liability, which would have first become due on April 15, 2006 (assuming no extensions were filed) but you did not file the actual return itself until May 2, 2007, you would not be able to discharge those taxes. While the due date would have been more than three years before the date of filing, the return would not have been on file for at least two years, This is an excellent example of how important planning can be when it comes to filing bankruptcy. This is also a great reason to be sure you file your tax returns on time every single year. If you don't file the returns, you cannot discharge the debts ever.
The third requirement is that the tax assessment must be at least 240 days old. This requirement can be a technical issue within the taxing authority itself. This is typically not a problem for most people. Instead, failure to timely file the returns is what normally prevents a debtor from being able to discharge their tax obligations. For most people who file their tax returns on time, they will be able to walk away from income tax obligations which fall outside of the three year window. The reason is that if the return was timely filed and the three years have passed, the return, by the very nature of the timely filing, has been on file for more than two years and the assessment has typically occurred long before the 240 day window.
The next logical question is "what happens to the debts that aren't eligible for discharge"? First, the IRS will have to wait to pursue you until your case is discharged. Thus, Uncle Sam will have to cool his heals for about four months. These taxes will be given a priority designation by the Court and will be paid from any non-exempt assets after the payment of secured claims and/or any higher priority claims. If, and this usually does not happen, there are sufficient assets from which to pay the taxes which survive the discharge, they will be paid by the Trustee. Normally, there are not any assets with which the Trustee can pay the priority taxes. This means the debtor will still owe the non-dischargeable taxes after the bankruptcy case is concluded. If necessary, the debtor could wait the necessary time period (four years) and file a Chapter 13. If the debtor can't afford to wait four years because of the pressure from the IRS, the debtor can still file a Chapter 13 so long as he proposes to pay 100% of the tax obligation over the life of the plan.
Please note that the same guidelines are true for state income taxes as well. I refer to the IRS in the above discussion but that is only for simplicity purposes. You can discharge income taxes owed to the Indiana Department of Revenue as well assuming you meet the criteria.
Lastly, while I have tried to simply things for you in this blog post, the tax and bankruptcy codes are very complex. Thus, it is important for me to review each debtor's case in detail to better understand which taxes are eligible for discharge.
Friday, April 3, 2009
Just a quick note to encourage those of you facing tough economic times to try to checkout the recent Oprah Winfrey show on which Suze Orman appeared (April 2, 2009 show- if you missed it visit www.Oprah.com to see show highlights and read about the show). The show included a great deal of information that may prove useful to those of you facing tough economic times. Suze also talked about the housing refinance and modification programs I recently blogged about. A useful website to help you determine if you qualify for these programs was also discussed on the show.
I strongly encourage you to visit www.makehomeaffordable.gov if you are behind on your mortgage payments or are struggling to keep the payments current.
I strongly encourage you to visit www.makehomeaffordable.gov if you are behind on your mortgage payments or are struggling to keep the payments current.
Monday, March 30, 2009
Can I keep my car...or should I keep my car?
I am constantly asked by clients about whether they should keep their car(s) in a bankruptcy proceeding. This is a serious issue because you need the car to get to work. In determining whether a client should keep his or her car through the bankruptcy process depends on a number of variables.
The biggest concern I have with respect to keeping a car is whether the client is current on the car loan. If not, the lender could repossess the car at any time. If a client is behind in his/her payments, I usually suggest contacting the lender to see if they are willing to negotiate the terms of the loan or give the client an extension of time to bring the loan current. Unfortunately, even in this economy, most lenders will no agree to modify the terms of the loan. This is where bankruptcy can be a benefit.
If my client files a Chapter 7 bankruptcy we have a a few options available. First, the debtor can discharge the debt (give the car back and walk away from the debt...yes you will in most circumstances be able to get another car loan immediately after your bankruptcy case closes). We can also talk with the lender's legal counsel about modifying the loan (I find that while the lender may refuse to modify the loan when I contact them directly their legal counsel can work with me to get the lender on board) or attempt to work out a redemption agreement (I work with third party lenders who can often refinance the vehicle loan and in many instances save my client money by redeeming for the vehicle's fair market value).
If my client files a Chapter 13 bankruptcy, surrendering the vehicle back to the lender is still an option. However, in a 13, most people opt to roll their past due vehicle payments into their plan (payments made over 36 to 60 month period of time to pay back a portion of debt). This option will allow the debtor to keep the car without the fear of repossession. Car payments (past due and current) are usually made through the plan. This can often give us the ability to reduce the balance and interest rate on the loan in a manner similar to redemption. The difference is that in Ch. 13, we do not have to work with a third party lender as a new loan is not required.
Another consideration is the amount of the monthly payment. Since the bankruptcy laws changed in 2005, the Courts have taken a much stronger stance against large car payments. As for what constitutes a large payment, the answer varies case to case taking into consideration the household income and the need (if any) for the vehicle in question (handicapped accessible vehicle or a heavy duty truck needed for work). Obviously, even if your car loan is current, the amount of the payment is still an issue that must be dealt with through the bankruptcy.
Unfortunately, cars lose their value rather quickly. Thus, most of us have little or no equity our vehicles. This is another consideration to look at when deciding whether to keep a vehicle or surrender it. If the vehicle loan is considerably upside down and has not been owned long enough to force the reduction in principal to match the vehicle's value (typically 2.5 years), it may be advantageous to walk away from the vehicle. If you have owned the vehicle more than 2.5 years, you can (as discussed above) redeem the vehicle with a new loan or if you file a Ch. 13 by utilizing the cram down provisions of the code.
At first glance, this situation can seem confusing. However, I can work with you to help you figure out which option best suits your needs.
The biggest concern I have with respect to keeping a car is whether the client is current on the car loan. If not, the lender could repossess the car at any time. If a client is behind in his/her payments, I usually suggest contacting the lender to see if they are willing to negotiate the terms of the loan or give the client an extension of time to bring the loan current. Unfortunately, even in this economy, most lenders will no agree to modify the terms of the loan. This is where bankruptcy can be a benefit.
If my client files a Chapter 7 bankruptcy we have a a few options available. First, the debtor can discharge the debt (give the car back and walk away from the debt...yes you will in most circumstances be able to get another car loan immediately after your bankruptcy case closes). We can also talk with the lender's legal counsel about modifying the loan (I find that while the lender may refuse to modify the loan when I contact them directly their legal counsel can work with me to get the lender on board) or attempt to work out a redemption agreement (I work with third party lenders who can often refinance the vehicle loan and in many instances save my client money by redeeming for the vehicle's fair market value).
If my client files a Chapter 13 bankruptcy, surrendering the vehicle back to the lender is still an option. However, in a 13, most people opt to roll their past due vehicle payments into their plan (payments made over 36 to 60 month period of time to pay back a portion of debt). This option will allow the debtor to keep the car without the fear of repossession. Car payments (past due and current) are usually made through the plan. This can often give us the ability to reduce the balance and interest rate on the loan in a manner similar to redemption. The difference is that in Ch. 13, we do not have to work with a third party lender as a new loan is not required.
Another consideration is the amount of the monthly payment. Since the bankruptcy laws changed in 2005, the Courts have taken a much stronger stance against large car payments. As for what constitutes a large payment, the answer varies case to case taking into consideration the household income and the need (if any) for the vehicle in question (handicapped accessible vehicle or a heavy duty truck needed for work). Obviously, even if your car loan is current, the amount of the payment is still an issue that must be dealt with through the bankruptcy.
Unfortunately, cars lose their value rather quickly. Thus, most of us have little or no equity our vehicles. This is another consideration to look at when deciding whether to keep a vehicle or surrender it. If the vehicle loan is considerably upside down and has not been owned long enough to force the reduction in principal to match the vehicle's value (typically 2.5 years), it may be advantageous to walk away from the vehicle. If you have owned the vehicle more than 2.5 years, you can (as discussed above) redeem the vehicle with a new loan or if you file a Ch. 13 by utilizing the cram down provisions of the code.
At first glance, this situation can seem confusing. However, I can work with you to help you figure out which option best suits your needs.
Monday, March 23, 2009
Housing Crisis Rescue Plan
As I am sure many of you have heard, the Obama administration has recently anounced the details of their housing rescue program. After reading various news stories and watching various new programs on the issue, I thought I would offer a quick and concise take on the available options. There are two main compenents to this plan....the refinance program and the loan modification program. It is estimated that approximately 9,000,000 homeowners will be able to benefit from the $78 billion dollars President Obama has set aside to "fund" this program.
The refinance program is designed to benefit those who are not yet behind on their house payments. However, in order to use this program your loan must be backed by Freedie Mac or Fannie Mae. To find out if your loan is backed by one of these organizations, you should contact your lender. For loans backed by these programs, homeowners are normally able to refinance only if they owe less than 80% of the value of their home. With the dramatic drop in home prices, people who easily owed less than 80% of their home's value a year ago now might owe 125% of their home's value now. Thus, these people are denied from refinancing their homes at a time when interest rates are historically low. Under the Home Affordable Refinance program, these homeowners will now qualify for a new 30 year fixed rate mortgage. Refinance program to the rescue!
The mortgage modification program is designed to help people who are either in danger of falling behind on their mortgage payments and/or are in danger of losing their homes via foreclosure. The program should benefit those impacted by job layoffs and other serious financial hardships. If you qualify for this program, your lender will reduce your monthly payments to no more than 38% of your income. The lender will then further reduce the payment to 31% of your income. They are able to do this by splitting the costs associated with the reduction with the federal government. These "modified" payments will continue for up to five years. As I understand it, the loan repayment term may be extended to up to 40 years under some circumstances. Lenders will be able to reduce the balance owed on the mortgage in addition to reducing the interest and stretching the payment terms to reach the 31% threshold.
While, I think these programs will help many hardworking homeowners, I am afraid it will not do enough to help all who need it. Naturally, there will be high demand for these programs, so please do not hesitate to get in touch with your mortgage company quickly. The phone lines are going to be busy and you may not get to speak with a person for several days but be persistent and patient.
The refinance program is designed to benefit those who are not yet behind on their house payments. However, in order to use this program your loan must be backed by Freedie Mac or Fannie Mae. To find out if your loan is backed by one of these organizations, you should contact your lender. For loans backed by these programs, homeowners are normally able to refinance only if they owe less than 80% of the value of their home. With the dramatic drop in home prices, people who easily owed less than 80% of their home's value a year ago now might owe 125% of their home's value now. Thus, these people are denied from refinancing their homes at a time when interest rates are historically low. Under the Home Affordable Refinance program, these homeowners will now qualify for a new 30 year fixed rate mortgage. Refinance program to the rescue!
The mortgage modification program is designed to help people who are either in danger of falling behind on their mortgage payments and/or are in danger of losing their homes via foreclosure. The program should benefit those impacted by job layoffs and other serious financial hardships. If you qualify for this program, your lender will reduce your monthly payments to no more than 38% of your income. The lender will then further reduce the payment to 31% of your income. They are able to do this by splitting the costs associated with the reduction with the federal government. These "modified" payments will continue for up to five years. As I understand it, the loan repayment term may be extended to up to 40 years under some circumstances. Lenders will be able to reduce the balance owed on the mortgage in addition to reducing the interest and stretching the payment terms to reach the 31% threshold.
While, I think these programs will help many hardworking homeowners, I am afraid it will not do enough to help all who need it. Naturally, there will be high demand for these programs, so please do not hesitate to get in touch with your mortgage company quickly. The phone lines are going to be busy and you may not get to speak with a person for several days but be persistent and patient.
Wednesday, March 11, 2009
House Passes Mortgage Bankruptcy Bill
The House last Thursday passed a bill designed to reduce the burden on homeowners struggling to make their house payments. This bill gives bankruptcy judges the ability to modify mortgages for people who file for bankruptcy protection, including lengthening the payback period, reducing interest rates and principal payments.
The bill is entitled "Helping Families Save Their Home Act," but it is commonly referred to as the "cram down" bill because it enables judges to cram down the size of the mortgage. The bill as it is currently written requires borrowers and lenders to make a good faith effort to modify the mortgage before homeowners can ask the bankruptcy court to do so.
This cram down concept has been associated with bankruptcy for some time. In years past, it was often used to reduce the balance owed on car loans. Since October 17, 2005, when the Bankruptcy Code was last substantially revised, it has become more difficult to apply this concept to car loans. However, under the right circumstances it is still possible to cram down the balance owed on a car. I will blog more about this at a later date.
Using this concept as it relates to home loans will be a new power given to bankruptcy judges. For many homeowners who will not qualify for assistance under President Obama's Homeowner Affordability and Stability Plan, filing bankruptcy and utilizing this new power (assuming the Senate passes it and it is signed into law) may be the only option left to save their homes.
I will continue to monitor this situation. If the bill becomes law, I will post updates with additional information as it becomes available.
The bill is entitled "Helping Families Save Their Home Act," but it is commonly referred to as the "cram down" bill because it enables judges to cram down the size of the mortgage. The bill as it is currently written requires borrowers and lenders to make a good faith effort to modify the mortgage before homeowners can ask the bankruptcy court to do so.
This cram down concept has been associated with bankruptcy for some time. In years past, it was often used to reduce the balance owed on car loans. Since October 17, 2005, when the Bankruptcy Code was last substantially revised, it has become more difficult to apply this concept to car loans. However, under the right circumstances it is still possible to cram down the balance owed on a car. I will blog more about this at a later date.
Using this concept as it relates to home loans will be a new power given to bankruptcy judges. For many homeowners who will not qualify for assistance under President Obama's Homeowner Affordability and Stability Plan, filing bankruptcy and utilizing this new power (assuming the Senate passes it and it is signed into law) may be the only option left to save their homes.
I will continue to monitor this situation. If the bill becomes law, I will post updates with additional information as it becomes available.
Monday, March 9, 2009
Selling off everything to make ends meet
WARNING: Do Not Make This Mistake
I was listening to talk radio this morning and heard a particularly depressing story about a family that has been selling off everything it owns to try to make ends meet. Both of the parents have been unemployed for over a year and both have been aggressively looking for work. To keep up with their bills they have sold virtually all of the furniture in their house. They are sleeping on mattresses on the floor. They have sold off jewelry, antiques, musical instruments, cashed in insurance policies, and retirement accounts etc. all to keep up with their bills. Now there is nothing else to sell. They are scheduled to meet with a bankruptcy attorney this week as they do not know what else to do.
What I find so depressing about this story is that this family has sacrificed so many assets which the Court would have protected. Here in Indiana, this family could have kept $16,000.00 worth of personal property as well as their retirement accounts. Most likely their whole life insurance policies would have been protected as well. While they will still get the benefit of their debts being wiped out, they now do so without the bulk of the things they worked so hard to obtain over the years.
Yes, they are just things and they can be replaced but the reality is that they did not have to do this to themselves. They could have ended up in the exact same place with most of the items they sold still in their possession. I find people are routinely given inaccurate information about bankruptcy by their friends and family or so called experts on the Internet. This can lead them to make costly mistakes just like this family did. Do not do this to yourself. If you find yourself in financial trouble or even think you might be headed in that direction, it is well worth the time and money to sit down with a bankruptcy attorney to review your options. Knowledge is power...and in this day and age we all need whatever power we can hold get our hands.
I was listening to talk radio this morning and heard a particularly depressing story about a family that has been selling off everything it owns to try to make ends meet. Both of the parents have been unemployed for over a year and both have been aggressively looking for work. To keep up with their bills they have sold virtually all of the furniture in their house. They are sleeping on mattresses on the floor. They have sold off jewelry, antiques, musical instruments, cashed in insurance policies, and retirement accounts etc. all to keep up with their bills. Now there is nothing else to sell. They are scheduled to meet with a bankruptcy attorney this week as they do not know what else to do.
What I find so depressing about this story is that this family has sacrificed so many assets which the Court would have protected. Here in Indiana, this family could have kept $16,000.00 worth of personal property as well as their retirement accounts. Most likely their whole life insurance policies would have been protected as well. While they will still get the benefit of their debts being wiped out, they now do so without the bulk of the things they worked so hard to obtain over the years.
Yes, they are just things and they can be replaced but the reality is that they did not have to do this to themselves. They could have ended up in the exact same place with most of the items they sold still in their possession. I find people are routinely given inaccurate information about bankruptcy by their friends and family or so called experts on the Internet. This can lead them to make costly mistakes just like this family did. Do not do this to yourself. If you find yourself in financial trouble or even think you might be headed in that direction, it is well worth the time and money to sit down with a bankruptcy attorney to review your options. Knowledge is power...and in this day and age we all need whatever power we can hold get our hands.
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