WHAT HAPPENS TO YOUR HOME WHEN YOU FILE BANKRUPTCY?

June 18, 2013 at 9:39 AMDennis D'Amato

1.WHAT HAPPENS TO YOUR HOME WHEN YOU FILE BANKRUPTCY?

When you are considering filing bankruptcy, you undoubtedly have many questions. Most people wonder what property, if any, will they be able to keep when they file. Books, furniture, jewelry, tools, musical instruments, vehicles and other items most people think of as essentials of life are subject to being taken by the Trustee in Bankruptcy and sold with the proceeds being used to pay some of your creditors. Depending upon where you live, you have the right to keep certain kinds of property because the law considers it to be exempt, or not subject to seizure by the Trustee. This is known as exempt property and what is or is not exempt varies from State to State.  The idea is that if you lose everything you own in Bankruptcy, starting over will be next to impossible and essentials will be too costly to replace. There is one piece of property, however, that many people feel could never be replaced. The decision to file or not to file often hinges upon understanding what will happen to their home. 

It would be an understatement to say that making this decision is something you must carefully consider and discuss with your attorney. Making the wrong decision could result in the loss of your property, and in some instances a foreclosure and responsibility for repayment of tens of thousands of dollars to the Mortgage company if the property is not properly included in your Bankruptcy and lost in foreclosure. There are many technical issues involved and each case is unique. Obviously, your case is the most important one to you. Be sure to choose wisely and with the advice of counsel. 

Because the issues involved in keeping your home in Bankruptcy are complex, we are going to split this discussion into two blog entries. This week will concentrate on the different kinds of mortgages, some basic definitions and a discussion of factors the Court will consider when determining if you will be able to keep your home. 

2.HOW IS A HOME TREATED IN BANKRUPTCY?

In order to understand what might happen to your home, you have to first understand why it is treated differently than other kinds of property under the Bankruptcy law. Most of the property you own is not subject to a lender’s security interest, or a lien, that gives them the exclusive right to payment of a debt. Car loans and mortgages are the two biggest exceptions. This right, or “security interest,” means that they can be paid to the extent that the property is worth at sale toward the amount of the debt owed. If they are not paid, they have the right to repossess the property, as in the case of a vehicle, or foreclose on a home. In order to retain a home when you file Bankruptcy several factors need to be considered. 

A.How Much Is Your Home Worth?

In order for the Court to determine whether or not you may be able to keep your home, you will need to have a market estimate of what the home is worth. This can be done by comparing the home to other similar homes in the area. 

B.How Much Do You Owe On Your Home?

The second, and probably more important factor to consider is how much you owe on your home. This is the amount you owe on your mortgage, but could be increased by other debts such as property taxes, tax liens, judgments, second mortgages that create additional mortgages or liens on your home. While all of these kinds of liens may have an effect on how the Court treats your home in Bankruptcy, the most important one to consider is your mortgage. 

C.Are You Current On Your Mortgage?

If you are current on your mortgage, you may be able to simply continue to make payments and not put your home at risk in a Bankruptcy. If you are behind, you have some options available to you that may help you to catch up on the amount in arrears over time and still keep your home. If you are current, you may be able to file Bankruptcy without putting your house at risk at all. There are other factors which will determine if this is possible. We will discuss those later. 

D.If You Have Equity, How Much Of It Can You Keep?

As discussed earlier, the amount of equity you have in your home is determined by subtracting the amount of mortgages and liens from the amount you owe. While in many cases there is no equity, often there is a sizeable amount. Since the purpose of Bankruptcy is to give someone a new start, most states allow you to keep a certain amount of that equity in an attempt to either help you to retain your home, or keep some of the proceeds if you sell your home or if it is taken by the Trustee. This is known as an Homestead Exemption. The amount of this exemption varies from a few thousand dollars to an unlimited amount if you meet certain requirements. Some states utilize the rules of the Federal Law, and yet others give you a choice of which one is best for you. This is something you would need to discuss with your attorney. He or she knows what is best for your specific situation. 

3.SOME BASIC BANKRUPTCY INFORMATION

A.Filling The Case

The first step in filing a Bankruptcy is completing a Petition. This is a fairly simple document that tells the Court that you are asking for protection from your creditors and also tells the Court under what chapter of the Bankruptcy law you wish to proceed. Along with the Petition, you must file proof that you took a required Counseling Course and some other procedural documents.  When these are filed with the Court, you are given a case number and a date for you to return to the Court for a meeting with your creditors. 

There are additional documents required to complete a Bankruptcy filing. These are lists of debts, lists of property, financial records, tax records and other information required by the Court. In most cases, all of the documentation is filed with the Petition. If there are documents missing, the Court Clerk will give you a list of what you need to file and will give you a deadline for filing them. If you fail to complete the filing you risk the chance that the Court will dismiss your case. 

When you file your Bankruptcy, a Trustee, a person appointed by the Court, takes over all of your property. It is the Trustee’s job to determine what property you can retain, what can be sold to satisfy creditors, and what payments, if any, you should have to make toward outstanding debt. In theory, the Trustee is an unbiased person who makes these decisions based upon Federal Bankruptcy Law and the rules of the particular Court involved.¬ (These are known as local rules.) 

B.The Automatic Stay If Execution

Once your case is filed, you are protected from any action from creditors, including but not limited to debt collection, repossession, and foreclosure. This protection, known as a “Stay of Execution” remains in place during the time the case is pending, though some of those protections may be removed if the Creditor asks the Court for “relief” from the stay. This is of particular interest to you if you have a mortgage. We will discuss this in detail in next week’s blog. 

C.Chapter 7 and Chapter 13

While there are several other kinds of Bankruptcy, the most commonly utilized are Chapter 7 or Chapter 13 cases. At the end of the case, the debtor is no longer responsible for repayment of debts listed in the Bankruptcy. This is known as a “discharge” of debt. How the debtor gets to the end of each kind of case is much different and you and your attorney will have to discuss which case is the right one for you. It is important to understand that how your home is treated by the Court under the two may be different.

A Chapter 7 is also known as a “no asset” case. In this kind of filing, the debtor is essentially saying that they have no assets, or that their liabilities are greater than their assets, and that they can no longer pay their debts. The Trustee reviews the information given and determines what debts may be discharged and what property, if any, may be taken and sold to satisfy outstanding debt.  In order to qualify for a Chapter 7 Bankruptcy, however, you must meet some minimum requirements with respect to the amount of money you earn. The Court applies a “means test” to determine if you should be required to pay back some or all of your debt over a period of years. If you made too much money over the most recent 6 month period, you will not be able to file this kind of Bankruptcy. The amount is different from state to state. If you make less, you may file a Chapter 7 Bankruptcy and have your debt discharged in a relatively short amount of time. 

If you do not qualify for a Chapter 7, you will have to file a Chapter 13 or “wage -earner’s” case.  In this kind of Bankruptcy, your lawyer will prepare a repayment plan and present it to the Court. Under this plan, you will be required to pay a portion of your income to the Court over a period of 3 to 5 years. When you complete the plan, your remaining debt will be discharged. However, it is important to realize that arrearages on your mortgage will have to be brought current during that time, and you must keep making the regular mortgage payment and keep it current. 

4.CONCLUSION

This week’s blog is just to give you some of the basics of filing a Bankruptcy. Next week, we will discuss how filing a Bankruptcy could affect your home ownership, and some of the strategies you and your attorney can consider when determining whether you should file a Bankruptcy and under which Chapter you should proceed. Specifically we will look at how filing under the different Chapters works and what you can do to retain your home outside of Bankruptcy. Often, keeping your home is as simple as negotiating terms with your lender after you file. Sometimes, you need to take more technical steps to keep it. And sometimes it simply is not possible to hold onto it. Bankruptcy Laws give you several ways to get a fresh start and to keep the property you call home. We will discuss some of them in detail next week. 

DISCLAIMER:  This article is not intended to be legal advice and does not create an attorney/client relationship. There is no substitute for consulting with an attorney to determine if Bankruptcy is right for you, or if some other course of action will be more beneficial. While it is possible for you to file a Bankruptcy without an attorney, it is important to know that the procedure is complex and mistakes can be very costly. Even if you decide to proceed on your own, it is highly recommended that you speak with an attorney before you make that decision. 

 

 

 

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IS IT OK TO FILE A BANKRUPTCY?

May 31, 2013 at 9:04 AMDennis D'Amato

Filing a Bankruptcy is intimidating. There is no question about that. Most people don’t want to file but are in such a desperate financial crisis that they feel that there is no choice. There may or may not be options available to you when you are thinking about filing, and this is something you should discuss with your attorney before you make the decision. But even with the best advice you can get, you will undoubtedly have some questions about Bankruptcy.

1. Do you have the right to file a bankruptcy? 

While most people think the only rights granted in the Constitution are in the Bill of Rights, the fact is that in the “Articles” of the Constitution, there are more rights granted to the people and more powers to the Federal Government than you might realize. One of the powers granted to Congress is to provide a uniform system for people to utilize in filing a Bankruptcy. (Article 1 Section 8 Clause 4)

2. What will my family and friends think?

There really is no way to predict how family and friends will react if you file. Some people might have a negative opinion of people who file Bankruptcy.  In truth, most people will never know you filed unless you tell them or there is some need for them to know. While it is true that some people abuse the Bankruptcy system, the fact is that most who file Bankruptcy are just like you. Their finances spiraled out of control for reasons like losing a job, medical expenses, or loss of income, pensions and home value because of the crash of 2007-2008. For most, filing a Bankruptcy is a necessity, not abuse of “the system.”

3. Will filing hurt the economy?

Not at all. Banks and other lenders realize that Bankruptcy is a necessary part of our economy because the person who files receives a fresh start. People who are buried in debt are not contributing to the economy. In countries that do not allow Bankruptcy, these people become part of an underground economy. They work “under the table.” They do not have bank accounts, mortgages, or credit cards because they realize that they can be sued, have their wages or other assets garnished or levied and lose what little else they have. When someone gets the chance to start over, they become an active member of society and actually help the economy grow. 

4. Is it true I’ll never be able to get credit again?

This is one of the biggest misconceptions people have about Bankruptcy and is what we are going to discuss today. A Bankruptcy can stay on your credit for up to 10 yearss and it is understandable that you would not want to ruin your credit for that long. The fact is, however, that if you are contemplating filing a Bankruptcy, chances are your credit score is very low and unacceptable to most lenders. 

You can wait for negative entries to “fall off” your credit profile, but that can take 7-10 years to happen. During that time, you may be sued, have judgments against you, have your wages garnished and extend the amount of time negative entries will remain on your credit. A judgment can stay as an active debt on your credit for decades in some states. 

Another fact is that filing a Bankruptcy may actually increase your credit score. 

You read that correctly. Filing a Bankruptcy may increase your score and a lot sooner than you may think. And that’s what we are going to discuss in some detail today.

HOW WILL BANKRUPTCY CHANGE MY CREDIT SCORE?

Your credit score is made up of many factors, such as number of accounts, balances, debt ratio, and of course payment history. Each factor is weighed differently when the score is computed. The most important factor and the one that counts the most is your payment history. But other things are almost as important. For instance, a “new” late payment might count more than late payments that are a year old. If your bank lowers your credit limit, your credit score could go down even though you are paying on time every month. Surprisingly, if you pay off your credit card in full every month, you could damage your credit. If you have $25,000 of total limit on your credit card and maintain a high balance but pay on time, your score will be lower than if you have a lower balance and pay on time. In other words, the “system” is convoluted and generally most people can’t keep track of all the factors and how to control them. In short, the way your score is computed remains a mystery, even to the “experts” who work in the field. Now, back to how your Bankruptcy can help your score. 

Several important things can help your credit score when you file. 

1. You are no longer in debt. 

When you file a Bankruptcy, all or most of your debt is wiped out after discharge. At that point, the debt is gone from your credit history. So an account with a $6,000.00 balance now shows a 0 balance. The lower your outstanding balances, the better your score. This kind of improvement can be almost immediate. 

2. Your debt ratio improves.

If you have $10,000.00 in available credit, and you utilizing $9,000.00, you have a high debt ratio that can significantly decrease your score. When you wipe out the debt, your debt ratio may improve. This is a double edged sword in some ways because you also lose the available credit. Overall, the effect is positive. 

3. Negative entries are changed.

The third positive effect is the removal of most of the negative payment history and other information that lowers your score from your credit profile. All of those references to how long it’s been since you made a payment are removed or modified. Most of the history will show a zero balance, included in Bankruptcy. Removing the age of the delinquency and the amount due may improve your score. 

4. You are compared to people like you.

The most surprising factor in determining post Bankruptcy credit scores is the way credit reporting agencies characterize you when you file. It’s a little known fact that in order to more accurately predict someone’s creditworthiness, Fair Isaac (FICO) has developed a “score card” system that puts consumers in 10 different categories. This is so you are not being compared with people who have 780 credit scores. You are being compared to people who are in a similar situation. You will therefore be compared to people who have more in common with your financial situation, including filing a Bankruptcy. 

While the exact criteria for each category are not disclosed, this reclassification almost universally results in an increased credit score. How much it increases depends upon this and more factors which are not usually defined. In many ways it resembles the way someone who handicaps horses determines if the horse they want can win. If the horse is put into a lower racing class, it may perform better in a “weaker” field and have a better chance at winning. That’s the way being put into this category works for most people. 

5. Rebuilding does not take 10 years. 

While it is true that a Bankruptcy can stay on your credit history for 7 to 10 years, the fact is that it will not stop you from borrowing at a competitive rate for that long. Most lenders will extend credit to you after as little as two years have passed since you filed for Bankruptcy.  Lenders are in the business of lending. The sooner they are able to extend credit to you and other people who have filed, the sooner they generate income from lending to you. 

Many people who file qualify for mortgages, car loans and other forms of credit in a very short time. You can take some basic steps to speed up this process and we will discuss some of these strategies in the next blog. 

Remember, filing a Bankruptcy is a life changing event. Your credit score is only one factor to consider and there is no guarantee that your score will improve immediately after filing. For some people, filing is a last resort. For others, it is the only resort. The best way to find out if filing a Bankruptcy is right for you is to discuss your options with an attorney. Most reputable attorneys will provide an initial consultation at no charge. An attorney can evaluate your situation and help you to decide whether or not you should file, and what effect it will have on your future. 

DISCLAIMER:  This article is not intended to be legal advice or to create an attorney/client relationship with readers. 

 

 

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The 10 Steps to Take Prior to Filing Bankruptcy

March 29, 2012 at 11:14 AMAdministrator

Bankruptcy is very often a time-sensitive process and pre-bankruptcy planning can be critical in protecting assets. Chapter 7, in particular, the trustee’s responsibility is to “look back” at the actions the debtor has taken to insure that there hasn’t been a fraudulent conveyance of assets, a non-allowed preference payment to creditors or other actions that might leave assets exposed. It’s critical, if you are considering bankruptcy, to consider taking the following steps to insure a successful filing:

1. Consult with an attorney.

The bankruptcy laws have become so complex that consumers should not attempt to file by themselves. It's a very risky process to try to do on your own. Since 2005, there is a complicated “Means Test” required, government-approved credit counseling, as well as other changes which made the filing of Bankruptcy much more complicated. Even if you eventually file pro-se (representing yourself) consult an attorney and ask questions about whether bankruptcy is the right alternative for you.

You want an attorney that's there to solve your problems and sees bankruptcy as one of the alternatives. This is particularly critical if you have assets (Home, Car, Cash) that have to be considered and your debts are substantial and varied. If the attorney’s recommendation is still to file for bankruptcy, ask what the benefits are and the costs.

2. Get Your Paperwork in Order

When I meet with clients, it is often the case that their paperwork, be it bills, taxes, etc. are not organized in any good manner. This makes it much more difficult and time consuming to evaluate a client’s case. Therefore, it is a very strong suggestion to collect all statements from bill collectors.  Go online and get complete addresses of creditors who may have stopped billing you.  Check the balances at financial institutions where you bank.  Look at your recent tax returns to provide your gross income over the past three years.  Basically, get to know your assets and liabilities and have them written out and organized for your lawyer to prepare your case.

The more complete you can be in providing a list of your creditors, the less problems or headaches you will have from creditors after your bankruptcy case is over.  Once you know that you are going to file, start to save all correspondence that arrives from creditors, collection agencies or others who are trying to collect on a debt.  The disclosure requirements have become more stringent so you want to make sure that your have forwarded all of your creditor information to your attorney.  If you are unsure of exactly who you may owe, you may want to consider acquiring a copy of your most recent credit reports.  Each year you may request a free copy of your credit reports from the three major credit bureaus reporting companies.  Those are TransUnion, Equifax and Experian and they can be obtained by going to www.annualcreditreport.com.  Even if you are unaware of the creditors listed on your reports, provide those to your attorney anyway.  When you seek credit after your filing for a mortgage, auto loan, or personal loan, you want to be able to show that all of the items on your credit report were listed and discharged in your bankruptcy case.  The rule to remember is that everyone who is owed is listed on your bankruptcy petition and schedules.

3. Stop Using Your credit cards or incurring more debt.

Once you have decided to file a bankruptcy you should stop using credit cards or borrowing money immediately.  If you continue to incur new debt prior to filing, it could prompt an objection from the creditor and you may be forced to repay the money.   Any recent purchases or advances can be held still due and owing after you file bankruptcy.  The rational is that you never intended to pay those debts back and is tantamount to fraud.  If you’re seeking a fresh start, do your best to insure that you will in fact receive that fresh start.  The credit card issuers are very aware of attempts to run-up the charges on credit cards.  This also applied to cash advances.  If you take a cash advance s too close to filing bankruptcy, you are likely to see an objection from the credit card issuers.  The objection comes in the form of an adversarial complaint.  If the creditor is successful in their objection, the amount of the recent advance(s) will be held due and owing after your bankruptcy case.

4. File your taxes

You must file your most recent year’s taxes to qualify for Chapter 7 bankruptcy relief.  Although this seems like a simple requirement, you would be amazed at the number of individuals who have not filed their most recent taxes.  A copy of the return will be forwarded to your assigned bankruptcy trustee after your case is filed.  You must also provide your most recent tax return to any creditor who requests it. Please be prepared to produce the last 2 years returns, both state and Federal.

5. Provide your most recent pay advices

You must provide the most recent 60 days worth of paycheck stubs at the time your case is filed.  These will be forwarded to your assigned bankruptcy trustee or may be filed with the clerk of the bankruptcy court.  This measure is in place to make sure that the amount listed on the petition for monthly income is in fact accurate.  If a person receives income from a source other than employment, evidence of that income must be provided just as if a paycheck stub.  Once you are aware that you are likely going to file bankruptcy, keep copies all of your paycheck stubs in an organized manner.

6. Don’t sell, give away or transfer ownership of anything prior to filing your bankruptcy case without first discussing it with your lawyer, including money owed to family members.

Doing so could allow a bankruptcy trustee to go after the property. Money paid to family members and friends within one year prior to your bankruptcy can be recovered by the bankruptcy trustee. If the amount paid is small, the bankruptcy trustee probably will not care, but it is wise to be cautious. Transferring ownership of property to pay a debt owed to someone could allow the bankruptcy trustee to get the property back as a “preference” payment. Remember, a key concept in bankruptcy is that all of your creditors are entitled to your non-exempt assets equally, this applies to money owed to friends or family members as well.

7. Don’t leave assets off your bankruptcy forms, including lawsuits or claims you may have.

The only way to exempt an asset and protect it from the bankruptcy trustee is to list it and exempt in under the applicable New York exemption law, federal exemption law, or other state exemption laws if you have not lived in New York long enough.  Intentionally leaving out an asset is a federal crime.  The much better choice is to candidly talk about all of your property with your lawyer, through proper pre-bankruptcy planning much can be done to protect assets. If this is not possible perhaps a chapter 13 bankruptcy could solve the problem.  Also, if you do not list your claim or lawsuit you may never be able to bring that suit in the future!

8. Don’t take money out of retirement plans, IRA’s or 401K’s

Under almost all circumstances, money in a retirement account is protected from the trustee when you file bankruptcy. However, if you withdraw money from the retirement account, it most likely loses its exempt status and the money may no longer be protected. Talk with your lawyer about this if you really need to withdraw some money. Be particularly careful of taking a loan on a retirement account, as they are almost never dischargeable in bankruptcy.

9. Be careful filing bankruptcy if you are expecting a large tax refund.

An income tax refund is considered “cash” under the Bankruptcy Code and a bankruptcy trustee can take most if not all of your refund, if not careful.  The better choice is to postpone your bankruptcy if you can, receive the refund, then talk with your lawyer about where to spend the money that will not get you in trouble.  This will take some planning and may delay the filing, but pre-filing strategy can be critical.

10. Be Careful putting your name on any Asset.

Don’t put your money into someone else’s bank account or put your name on someone else’s account. A lot of people put their name on their elderly parent’s account “just in case.”  This is usually a bad idea.  If you want to be able to help mom or dad in case of disability or illness, a power of attorney is probably a better choice. Remember: any asset with your name on it is YOURS, even if you never use it (Car title) or contribute to it (bank account).

Make sure to be fully candid with your bankruptcy lawyer.  Your lawyer cannot give you good advice if he or she doesn’t know all the facts.

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The Importance of Getting a Bankruptcy Lawyer

March 2, 2012 at 11:44 AMAdministrator

Do you know someone who’s at the brink of a bankruptcy and don’t know what to do with the situation? Or perhaps, you are in the same ship trying to cope with your situation but don’t know what to do, you don’t even know there’s professional help waiting for you.  Yes! You can file for Bankruptcy by engaging the services of a bankruptcy lawyer. When you know that you cannot pay your loans to the bank anymore you need to consider filing for bankruptcy and they are the people to help you.

·        Do you think that your home or car are at risk of being taken away from you?

·        Is debt affecting you so much personally?

·        Are your debt collectors keep on calling you?

·        Have you been sued by a creditor?

If your answer to any of the above questions is yes, then you may be a good candidate for filing bankruptcy.

Why should you file for bankruptcy? Because bankruptcy is the one legal tool to protect you from your creditors and at the same time, eliminate your debt swiftly. It’s the fastest way you can get back on track financially and have more of your time to spend with your family. In short, filing for bankruptcy can give you and your family a fresh start.

How important is the service of a bankruptcy lawyer? He or she will help you in the process of filing bankruptcy until you legally erase your debts. Why take the risk of a long, expensive process when you can work directly through a bankruptcy attorney? Imagine the headaches, the stress and nightmares of going to court, the long hours of waiting for your name to be called. So once you find yourself in that same situation you need a bankruptcy lawyer.

Some of these specialists are expensive with regards to their services but I assure you that the link below that I’m going to give you can provide good service at a very reasonable and manageable price. In this site, you can receive a top notch attorney at a reasonable price and quickly rid yourself of debt through bankruptcy. What you will receive is the customer support and hand holding that you truly deserve during these very difficult times. They will also never have your questions go unanswered. There is a responsive case management team that is eager to help you every step of the way.

Whether chapter 7 or chapter 13 Bankruptcy fits BK Net Bankruptcy attorneys are experienced to help you. Whether you want to get rid of unsecured debt or save your home, they can help you find an affordable attorney that suits your needs. Click on the button below now to receive a free, no obligation consultation and find out if bankruptcy could be the answer to your problems. The link is http://www.bknetsystems.com/

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