Bankruptcy

When making financial decisions during the process, you should consult your attorney. In particular there are three items worth mentioning.

About Bankruptcy Process

When making financial decisions during the process, you should consult your attorney. In particular there are three items worth mentioning.

• Under bankruptcy law, certain luxury purchases over $1000 within 60 days of the bankruptcy filing are presumed non dischargeable.

• Under bankruptcy law, cash advances aggregating $1000 within 60 days of the bankruptcy filing are presumed non dischargeable.
• Debts involving materially false financial statements are non dischargeable under certain circumstances.

If you file the bankruptcy yourself, you must fill out the forms. There are several forms. There could be between 30 and 60 pages in your petition, schedule and other papers filed at the time of your bankruptcy. You must follow the local and federal bankruptcy court rules in completing the forms. Preparing these forms requires an understanding of both bankruptcy law and local state law in order to enter the information correctly and accurately. The forms have to be typed and a certain number of copies must be included with the filing. Today, most attorneys use a computer system to prepare these forms because of there complexity and voluminous nature.

About 30 to 40 days after you file the bankruptcy you will have to attend a hearing presided over by the bankruptcy trustee. This hearing is called the First Meeting of Creditors. At this hearing the trustee will ask questions under oath regarding the content of your bankruptcy papers, assets, debts and other matters. After the trustee is done, your creditors will be permitted to question you. Do not worry, your attorney will be there to represent you and your attorney will help you prepare for the hearing. Sometimes, after your hearing is over, various creditors will approach you to discuss the status of secured property or the your desire to retain a credit card. Your attorney will negotiate with them, with your knowledge and approval.

After this hearing you will normally not need to return to court. However, if a creditor files a motion or an adversary action, most likely you will have to return to court. This is the exception and only your attorney can determine if this is likely to happen.

Under normal circumstances, the bankruptcy court will automatically issue the discharge 60 to 75 days after the First Meeting of Creditors.

You can reestablish credit though and be back in "A" credit two years after the discharge of Bankruptcy. The bankruptcy is a judgment and will be listed for a period of up to 10 years after the discharge. You must wait 6 years to file again or if your bankruptcy was dismissed you must usually wait for 180 days to refile.

There is just no easy way to get out of debt, you have to face up to the consequences. A bankruptcy is not always the answer, as the effects are long lasting.

Alternatives To Filing Bankruptcy

There is just no easy way to get out of debt, you have to face up to the consequences. A bankruptcy is not always the answer, as the effects are long lasting. There are four ways to handle debts that are out of control, listed in best to worst in regards to the effect it will have on your credit:

• If your credit isn't in terrible shape, can you reduce your other expenses, even if it means making hard choices or just change your lifestyle to fit your income? Some ways to do this:
  
  1. Selling the second car
  2. Pulling equity out of your home
  3. Applying for a non-secured signature loan
  4. Loan from a relative
  5. Selling your home and paying off your debts with the proceeds and then renting
  6. Cashing out your 401K/retirement benefits
  7. Selling family heirlooms/jewelry/guns
     
• If your credit is already gone or one of the above isn't an option, go through Consumer Credit Counseling Services (CCCS). Check your yellow pages for the local number. In this way you're paying off your debts as if you were in a Chapter 13 BK, but you don't file a BK.
  
• If CCCS won't take you, you may want to consider bankruptcy. Doing a Chapter 13 takes longer, but your credit is in a little better standing than if you do a Chapter 7. In the Ch 13 they give you up to 5 years to pay off your debts. The disadvantage is that you're in BK for up to 5 years plus your credit report shows your BK for 7 more years after you have finished paying off your debts.
  
• If you are so far in debt that you can never repay it, then the best solution may be a Chapter 7 BK. A Chapter 7 is the least desirable credit-wise, but you are typically out of BK in 6 months and you don't have to repay any debt. The disadvantage is that this shows on your credit report for 10 years from the date of filing your BK, and creditors are starting to tighten their credit requirements, and you may have a tough time getting future financing.
  

What is Foreclosure?

Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments (usually mortgage payments) and the lender files a public default notice, called a Notice of Default or Lis Pendens. The foreclosure process can end one of four ways:

• The borrower/owner reinstates the loan by paying off the default amount to during a grace period determined by state law. This grace period is also known as pre-foreclosure.
  
• The borrower/owner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.

• A third party buys the property at a public auction at the end of the pre-foreclosure period.
  
• The lender takes ownership of the property, usually with the intent to re-sell it on the open market. The lender can take ownership either through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the public auction. These are also known as bank-owned or REO properties (Real Estate Owned by the lender).

When you miss your mortgage payments, foreclosure may occur. This is the legal means that your mortgage company can use to repossess (take over) your home.

How to Avoid Foreclosure

When you miss your mortgage payments, foreclosure may occur. This is the legal means that your mortgage company can use to repossess (take over) your home. When this happens, you must move out of your house. If your property is worth less than the total amount you owe on your mortgage loan, your mortgage company or HUD could seek a deficiency judgment. If that happens, you not only lose your home, you also would owe your mortgage company or HUD an additional debt. Foreclosure or a deficiency judgment could seriously affect your ability to qualify for credit in the future. So you should avoid it if all possible!

DO NOT IGNORE THE LETTERS FROM YOUR MORTGAGE COMPANY. If you are having problems making your payments, contact your mortgage company immediately. Explain your situation. Be prepared to provide them with financial information, such as your monthly income and expenses. Without this information, they may not be able to help. Stay in your home for now. You may not qualify for assistance if you abandon your property.

Some of your options include the following:

• Special Forbearance. Your mortgage company may be able to arrange a repayment plan based on your financial situation. Your mortgage company may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you have recently lost your job or your source of income or if you had an unexpected increase in living expenses. You must furnish information to your mortgage company to show that you would be able to meet the requirements of the new payment plan.
  
• Mortgage Modification. You may be able to refinance the debt and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem but your net income is less than it was before the default (failure to pay).
  
• Partial Claim. Your mortgage company may be able to work with you to obtain an interest-free loan from HUD to bring your mortgage current. You may qualify if:
  
  • your loan is at least 4 months delinquent but no more than 12 months delinquent;
  • your mortgage is not in foreclosure; and
  • you are able to begin making full mortgage payments.
    
  When your mortgage company files a Partial Claim, HUD will pay your mortgage company the amount necessary to bring your mortgage current. You must execute a Promissory Note, and a Lien will be placed on your property until the Promissory Note is paid in full. The Promissory Note is interest-free and will be due if you sell or leave your property, or when your mortgage matures.
  
• Pre-foreclosure sale. This will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage to your credit rating. You may qualify if:
  
  • the "as is" appraised value is at least 70% of the amount you owe and the sales price is 95% of the appraised value;
  • the loan is at least 2 months delinquent prior to the pre-foreclosure sale closing date; and
  • you are able to sell your house within 3 to 5 months
    
  (depending on what your mortgage company agrees to).
  An additional benefit to this option is the assistance you will receive with the Seller-paid closing costs.
  
• Deed-in-lieu of foreclosure. As a last resort, you may be able to voluntarily "give back" your property to the mortgage company. This won't save your house, but it will help your chances of getting another mortgage loan in the future. You can qualify if:
  
  • you are in default and don't qualify for any of the other options;
  • your attempts at selling the house before foreclosure were unsuccessful; and
  • you don't have another mortgage in default.
    
  A housing counseling agency can help you determine which, if any, of these options may meet your needs. You should also discuss the situation with your mortgage company.
  One last thing, beware of scams! Solutions that sound too simple or too good to be true usually are. If you're selling your home without professional guidance, beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial difficulty. Be especially alert to the following:
  
  • Equity skimming. In this type of scam, a "buyer" approaches you, offering to get you out of financial trouble by promising to pay off your mortgage or give you a sum of money when the property is sold. The "buyer" may suggest that you move out quickly and deed the property to him or her. The "buyer" then collects rent for a time, does not make any mortgage payments, and allows the mortgage company to foreclose. Remember that signing over your deed to someone else does not necessarily relieve you of your obligation on your loan.
    
  • Phony counseling agencies. Some groups calling themselves "counseling agencies" may approach you and offer to perform certain services for a fee. These could well be services you could do for yourself, for free, such as negotiating a new payment plan with your mortgage company, or pursuing a pre-foreclosure sale. If you have any doubt about paying for such services call HUD-approved housing counseling agency. Do this before you pay anyone or sign anything.

Here are several precautions that should help you avoid being "taken" by scam artist:

• Don't sign any papers you don't fully understand.
  
• Make sure you get all "promises" in writing.
  
• Beware of any loan assumption where you are not formally released from liability for your mortgage debt and contracts of sale.
  
• Check with a lawyer or your mortgage company before entering into any deal involving your home.
  
• If you're selling the house yourself to avoid foreclosure, check to see if there are any complaints against the prospective buyer. You can contact your state's Attorney General, the State Real Estate Commission, or the local District Attorney's Consumer Fraud Unit for this type of information.