Do you have a Mobile home or Manufactured Home Loan?

Is the Value of the Mobile home less than Balance on the Loan?

Valuing Liens in Chapter 13

One of the advantages of a Chapter 13 bankruptcy is ability to strip a lien on a mobile home or manufactured home loan down to the current fair market value and pay the fair market value through a Chapter 13 Plan.  Here is a common example:  Your Mobile Home has current fair market value of $30,000 and the balance on the loan is $55,000.  Because the balance is greater than the fair market value, the value of the lien can be reduced or “stripped” in a Chapter 13 with you only paying the fair market value of the mobilehome through the Chapter 13 Plan over 3-5 years instead of the contract term which may be up to 30 years. 

When does a Chapter 13 lien stripping case make sense?  First, you need to make sure the fair market value is below the balance due and owing on the loan.  This can easily be done by talking to a realtor in your area or looking at mobile homes in your park that have recently been sold.  Second, you don’t want to file a Chapter 13 to strip a lien unless you really, really want to stay in this mobile home.  A Chapter 13 is a commitment of between 3-5 years.  Third, the amount to be reduced on the balance of the mobile home loan combined with other debt needs to make a Chapter 13 advantageous i.e. you don’t want to file Chapter 13 to reduce the balance on your mobile home by $5,000.00.   

If a Chapter 13 is sounding like something that might work for you, there are several other things to consider.  First, we must make sure all of the owners of the mobile home and all of the people who signed on the loan are filing bankruptcy.  For example, if the property is owned by both you and your parents, we cannot strip off the lien on the mobile home unless both you and your parents are filing bankruptcy. If the property is owned by you and your spouse, only one of you would need to file bankruptcy to strip the lien because all community property is included in the bankruptcy case.  Second, in order to strip off the lien, we have to prove that your mobile home is not worth more than the payoff balance.    Therefore, it is very important to understand the current value of  your mobile home. The value does not include the location or park where the mobile home is located.  Rather, it is current the current value of the mobile home without any attachments or value added for location.

In conclusion, there has never been a better time for Chapter 13 lien stripping cases on mobile homes.  Mobile home values are still very low in relation to amount paid for most of the mobile home in this area.  This is truly the lemonade out lemons recipe if you meet the requirements for a Chapter 13.  Before you keep paying on a mobile home that may be worth one half of your current loan balance, it may be a good idea to consider a Chapter 13 and see what it can do for you.      I see people for a free 30 minute consultation at my offices in Walnut Creek and Brentwood.

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A SHORT SALE OR FORECLOSURE. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.  GRIMESBKLAW.COM (925) 939-1680

© 2013 Joan Grimes

Make over $100,000 a year and still Drowning in Debt?

Bankruptcy for High Income Earners

One of the most overlooked financial tools available to individuals with high income is Chapter 13 of the Bankruptcy Code.  Unlike a Chapter 7 which can require liquidation of assets and has very strict eligibility requirements, a Chapter 13 has greater flexibility in eligibility and allows individuals to retain their assets while paying back something to their creditors from future income.  Some of the powers of a Chapter 13 Bankruptcy include:

1. Availability of Bankruptcy to High Income Debtors - A Chapter 13 allows individuals who would otherwise not be eligible for Chapter 7 bankruptcy to repay debts to the extent of their ability through a 3-5 year plan.  In most cases, Debtors repay between 5-10% of their unsecured debts.
2. Continuing Business Operation - Unlike a Chapter 7 where a trustee can close down a Debtor’s business, a Chapter 13 Debtor has the right to continue operation of the business and has the exclusive right to sell, lease or otherwise use the business assets, in the normal course of operation.
3. Chapter 13 Plan May Modify Secured Creditor Rights - One of the great advantages of a Chapter 13 bankruptcy at this time is ability to strip a lien on your principal residence that does not attach to any equity.  Here is a common example:  Principal residence has current fair market value of $300,000.  The first mortgage has a balance of $400,000 and the second mortgage has a balance of $100,000.  Because the second mortgage does not attach to any equity in the property, the lien can be avoided or “stripped” in a Chapter 13 thereby removing the balance of $100,000 at the completion of the Chapter 13 case.  In addition, if you have other real property which is not your personal residence, you may reduce the secured claims to the current fair market value if you can pay the fair market value of the real property with the contract rate of interest over the terms of the Chapter 13 Plan which cannot exceed 5 years.  Where this makes most sense is on the small rental property.  On cars, the Debtor can reduce a loan balance to the fair market value except that a reduction is not allowed on cars used by the Debtor for his personal use if it was purchased within 910 days of the bankruptcy filing i.e. you need to have had the car loan for 910 days prior to bankruptcy filing. 
4. Curing a Default -  A Chapter 13 Plan can cure a default on a loan with no interest being paid in most cases.
5. Discharge greater than Chapter 7 - A Chapter 13 discharge can encompass many other types of debts which cannot be discharge in a Chapter 7 including criminal matters and taxes.  However, the most frequently used provision is to eliminate debts to a spouse, former spouse or child incurred by the Debtor in the course of marriage dissolution or separation except to the extent those debts constitute “domestic support obligation.”  What this means is that “hold harmless” provisions on real estate obligations and community property settlements obligations can be discharged.     

The above are just some of the advantages of a Chapter 13 bankruptcy case.   If you are a high income earner, a Chapter 13 may be the answer for you.  While it does have some limitations in the amount debt which may be included, there may be flexibility in classification depending on your particular situation.   If you struggling with debt even though you are making a good income, I urge you to seek legal counsel as soon as possible to fully understand the consequences of the decision and the options available.  I see people for a free 30 minute consultation at my offices located in Walnut Creek and Brentwood.

WE ARE DEBT RELIEF AGENCY AND HELP PEOPLE FILE FOR BANKRUPTCY. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UP IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.  

GRIMESBKLAW.COM  PHONE 925-323-7772   © 2012 Joan Grimes 

A Fresh Start - Chapter 7 Bankruptcy

If you are drowning in debt, can’t sleep because you are so worried about your bills or can’t answer your phone because it is always bill collectors, a Chapter 7 bankruptcy may be the fresh start you need.

Most bankruptcy cases filed in the United States are Chapter 7 cases.  The purpose of a Chapter 7 is to provide the Debtor with a “fresh start” through a discharge of his or her debts and equitable distributing any available assets among credits.  In most cases there are no non exempt assets to be sold and thus most Debtors retain all of their assets and discharge their debts without any payments to creditors.  If you are having problems paying your debts as they become due and owing, here is what you need to know about Chapter 7.

1. Who is Eligible - A Chapter 7 bankruptcy may be filed by any person or entity who resides in or has a place of business or property in the United States, other than a railroad and certain financial institutions and insurance companies. 
2. No Debt Limit - Unlike a Chapter 13 case, there is no debt limits in a Chapter 7.
3. Exemptions - The Bankruptcy Code and California law allows Debtors to retain many assets in a bankruptcy including retirement accounts, personal injury and workers compensation awards and additional assets in the form of “wild card” exemptions.  For most individuals, all of their assets will be protected and none will be able to creditors.
4. Means Test - If the person filing a Chapter 7 is an individual consumer with a majority of his debts being consumer debt i.e. debts incurred by an individual primarily for personal, family or household purposes, the individual must disclose financial information using a “means test.”   The purpose of the test is to determine potential ability to pay creditors.  If the result of the means test demonstrates the debtor has the potential ability to pay a minimal amount, a presumption arises that the debtor’s bankruptcy filing is an “abuse” and the case is subject to dismissal or conversion to Chapter 11 or 13. 
5. Secured Debt - Secured debt payments such as a home loan or car loan can be used on the means test if the Debtors are making the payments.  However, there are recent bankruptcy cases in which the court has held that when a debtor is no longer paying on secured debts, they may not include said payments for purposes of calculating the means test. 

If you do not have sufficient income to pay your bills as they come due and owing, you should seek legal counsel before withdrawing any monies from a retirement account, savings account or defaulting on a home or car loan.  These are difficult times, but do not miss the help and protection provided by the Bankruptcy Code and California law by waiting too long.    

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE BANKRUPTCY.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.    © 2012 Joan Grimes

The Power of Chapter 13

       One of the most overlooked financial tools available to individuals including small business owners today is Chapter 13 of the Bankruptcy Code.  Unlike a Chapter 7 which can require liquidation of assets and has very strict eligibility requirements, a Chapter 13 has greater flexibility in eligibility and allows individuals to retain their assets while paying back something to their creditors from future income.  Some of the powers of a Chapter 13 Bankruptcy include:

1. Availability of Bankruptcy to High Income Debtors - A Chapter 13 allows individuals who would otherwise not be eligible for Chapter 7 bankruptcy to repay debts to the extent of their ability through a 3-5 year plan.  In most cases, Debtors repay between 5-10% of their unsecured debts.
2. Continuing Business Operation- Unlike a Chapter 7 where a trustee can close down a Debtor’s business, a Chapter 13 Debtor has the right to continue operation of the business and has the exclusive right to sell, lease or otherwise use the business assets, in the normal course of operation.
3. Chapter 13 Plan May Modify Secured Creditor Rights -  One of the great advantages of a Chapter 13 bankruptcy at this time is ability to strip a lien on your principal residence that does not attach to any equity.  Here is a common example:  Principal residence has current fair market value of $300,000.  The first mortgage has a balance of $400,000 and the second mortgage has a balance of $100,000.  Because the second mortgage does not attach to any equity in the property, the lien can be avoided or “stripped” in a Chapter 13 thereby removing the balance of $100,000 at the completion of the Chapter 13 case.  In addition, if you have other real property which is not your personal residence, you may reduce the secured claims to the current fair market value if you can pay the fair market value of the real property with the contract rate of interest over the terms of the Chapter 13 Plan which cannot exceed 5 years.  Where this makes most sense is on the small rental property.  On cars, the Debtor can reduce a loan balance to the fair market value except that a reduction is not allowed on cars used by the Debtor for his personal use if it was obtained within 910 days of the bankruptcy filing i.e. you need to have had the car loan for 910 days prior to bankruptcy filing. 
4. Curing a Default -  A Chapter 13 Plan can cure a default on a loan with no interest being paid in most cases.
5. Discharge greater than Chapter 7 -  A Chapter 13 discharge can encompass many other types of debts which cannot be discharge in a Chapter 7 including criminal matters and taxes.  However, the most frequently used provision is to eliminate debts to a spouse, former spouse or child incurred by the Debtor in the course of marriage dissolution or separation except to the extent those debts constitute “domestic support.”  What this means is that “hold harmless” provisions on real estate obligations and community property settlements obligations can be discharged.     

          The above are just some of the advantages of a Chapter 13 bankruptcy case.   While it may not be as quick and easy as a Chapter 7, it may provide the debt relief which cannot be obtained with a debt consolidation or repayment plan.  If you are considering a default on your home or other debts, I urge you to seek legal counsel as soon as possible to fully understand the consequences of the decision and the options available.  I see people for a free 30 minute consultation at  my offices located in Walnut Creek, Antioch and Brentwood.

WE ARE DEBT RELIEF AGENCY AND HELP PEOPLE FILE FOR BANKRUPTCY. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UP IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION. 

GRIMESBKLAW.COM  PHONE 925-323-7772   © 2011 Joan Grimes

Debt Settlement vs. Bankruptcy

Clients come into my office every week saying that they are in a debt settlement plan, BUT are now being sued by a creditor or they have received a 1099c income statement from a creditor that was included in the debt settlement plan.  How can this be?

First, just because you are in a debt settlement plan, it does not mean that a creditor cannot sue you on account.  It happens every day.  In some cases, the lawsuit is because a debt could not be included in the settlement because a creditor would not agree.  In other cases, the reason for the lawsuit was that the creditor was not receiving payments from the debt settlement plan in an amount that would satisfy the creditor.   

Second, just because you are in a debt settlement plan, it does not mean that the creditor will not issue you a 1099c for that portion of the debt which is forgiven.  In fact,  the IRS REQUIRES creditors to issue a 1099c to individuals where more than $600 in debt is forgiven.  Therefore, if you settle with a VISA for $5,000 on a $50,000 bill, you will receive a $45,000 1099c which will be considered income to you and will be taxed at your current tax rate.

Third, just because you are in a debt settlement/consolidation plan, it does not mean that your credit will not affected or that creditors will stop calling you.  Creditors can still contact you for the collection of debts they are owed unless or until you file bankruptcy. Also, a debt settlement program will impact your credit in the future and have long-term side effects because you will have late payments and even when you settle, your credit report will not show that the account was paid in full.

Debt settlement plans are alternatives to bankruptcy.  If you do not qualify for bankruptcy, then you will have no choice but to proceed with the settlement or consolidation plan. However, most people DO qualify for bankruptcy and in fact, most qualify for a Chapter 7 which requires NO payments back to creditors.  Even, if you do not qualify for a Chapter 7, the payments in Chapter 13 will in almost every instance be significantly lower than what you are paying to the debt settlement or consolidation company.  Better yet, there will be no 1099c received after the bankruptcy because Bankruptcy is one of the exceptions to the debt forgiveness rule.

In conclusion, these are very tough times.  You are not alone.  If you are having trouble paying your bills as they come due, I recommend you seek legal counsel before you enter into a debt settlement or consolidation plan.  Know all of your options and then you will be able to make the best decision for you and your family.  I see people for a FREE 30 minute consultation at my offices locate in Walnut Creek, Antioch and Brentwood.

THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN                        MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.   GRIMESBKLAW.COM  (925) 323-7772     © 2011 Joan Grimes

Credit After Foreclosure, Short Sale or Bankruptcy

Are you worried about your credit after a foreclosure, short sale or bankruptcy?  Specifically, do you want to know when you reasonably expect to buy another home?  If this is concern for you, here is an overview of Fannie Mae credit guidelines. 

Foreclosure Sale-  A borrower will be eligible to obtain credit to purchase another principal residence 7 years from the date of the foreclosure sale.  However, if a borrower has “extenuating circumstances” they may be eligible for a loan in 3 years.  Extenuating circumstances are nonrecurring events that are beyond the borrower’s control that resulted in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations such as illness, divorce, job loss or reduction of income.

Short Sale-  A borrower will be eligible to obtain credit to purchase another principal residence 2 years from the date the short sale is completed, but the borrower is limited to a maximum loan to value ratio of 80%.  If the borrower has “extenuating circumstances” as set forth above, the maximum loan to value ratio could be 90%.  If the loan(s) are current at the time of the sale, it may be possible to qualify even sooner depending on your circumstances.  Short sales can be reported various ways by the lenders, but the most common is a “paid in full” with a “settled for less than owed” code from the reporting agencies.  If the loan(s) are delinquent, the loans will also indicate delinquent status i.e. 60, 90, 120 or 150 past due.

Bankruptcy-  A borrower will be eligible to obtain credit to purchase another principal residence 4 years from the discharge or dismissal date of a Chapter 7.  In a Chapter 13 case, it is 2 years from the discharge date or 4 years from the dismissal date.  In a Chapter 13 filing, the borrower is given credit for repaying some or all of their debt.  On the other hand, if the Chapter 13 is dismissed, the time period will be 4 years.   There is an “extenuating circumstances” allowance in Chapter 7 cases, but not in Chapter 13. 

Re-Establishing Credit- It is very important that borrowers re-establish credit after a bankruptcy case and improve credit after a short sale or foreclosure.  To have credit, you need to use credit.  Probably the most important thing to do besides allowing time to pass is to open a few new credit accounts, use the credit and make payments in a timely manner.  To the extent there is a mix of old and new credit accounts, that is preferred.  Credit histories that include older, established accounts generally represent lower credit risk.  However, an older, established credit history that has many new accounts may indicate that the borrower is overextended.  Also to this point, we do not recommend any borrowers to use more than ½ of any credit available on an account. 

In conclusion, the above is an overview of Fannie Mae’s credit guidelines for credit after a Foreclosure, Short Sale and Bankruptcy.  However,  there are lenders who do not sell their loans to Fannie Mae or other governmental agencies.  Therefore, if you have a foreclosure, short sale or bankruptcy, it may be possible to obtain a home loan prior to the time frames set forth above depending on your income, down payment and other extenuating circumstances.  Also, it should be noted that Fannie Mae is having problems of its own.  Therefore, it is important to keep asking if there have been any changes to the guidelines.  Foreclosures, Short Sales and Bankruptcy are very serious matters.  You are in the deep end of the pool.  Before attempting to proceed with a short sale, foreclosure or bankruptcy, I urge you to seek legal counsel about the options available to you.  I see people every day for a FREE 30 minute consultation in Walnut Creek, Antioch and Brentwood.

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.   GRIMESBK.AW.COM  (925) 323-7772     © 2011 Joan Grimes

Buy and Bail 2011

There is no question that it is very, very difficult to see people moving into your neighborhood buying your same house with better upgrades for half the price.  It can make your blood boil.  And then you find out that they bought this new home at half the price while they still owned the first house that was completely underwater and now they are letting the first house go into foreclosure.  This is crazy.  This is Buy and Bail.   

Buy and Bail is really just strategic default planning.  The current home no longer makes financial sense and I need a roof of my head.  And, oh by the way, it looks like a good time to buy.  This is absolutely fine. 

Buy and Bail is a problem if you commit loan fraud in the process.   In 2008, the government tried to crack down on Buy and Bail by banning the use of rental income from an existing home to qualify for a new mortgage loan unless the first property had at least 30 percent equity.  Unfortunately, recently, we are seeing many new instances where rental income is being allowed with no equity in the existing home. 

If you tell the new lender or agent of the new lender i.e. mortgage agent that you are going to rent out the old house, but really don’t intend to rent it out, you have a problem.  If you say that rent on the old place will conveniently be the same as the mortgage payment, but you know that rents in the area are only one half of the mortgage, you have a problem.

Buy and Bail is a problem if you have junior lien(s) on the old house that are recourse loans i.e. they were not the original loan or loans used to purchase your primary residence.  If you have recourse debt and don’t qualify for bankruptcy, you will be stuck with the debt.  If you qualify for bankruptcy, the new home loan payment may be so low that you do not qualify for a Chapter 7 and will be stuck in a Chapter 13 for 3-5 years paying back some or all of your creditors.

Buy and Bail is a problem if the foreclosure or short sale of the old home leaves you with tax liability.  Every transfer of real property is a taxable event.  There is no free lunch with the IRS and State Franchise Board.  If there was cash out or accrued interest on the old home, you will need to know whether you will have any tax liability if the property is later foreclosed or short sold.

Buy and Bail is a problem.  It is very tempting, but it can end up very bad.  Remember, if something sounds too good to be true, it is!  A Buy and Bail may put you in the middle of the ocean without a paddle.  Don’t do it.  If you are considering a Buy and Bail, seek legal counsel prior to proceeding. Buy and Bail has serious consequences which should be analyzed by a bankruptcy or real estate attorney prior to commencing the purchase of a new home.  This is a complicated area of the law, but a bankruptcy or real estate attorney should be able to make an analysis of your particular situation fairly quickly.  I see people for a free 30 minute consultation in my offices located in Walnut Creek, Antioch and Brentwood.

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE BANKRUPTCY.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN   MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.

I Can Handle This On My Own

 Foreclosure Sales and Short Sales

When a person is behind on a home loan, it is very common to think a foreclosure or short sale will allow them to focus on other debts and thereby avoid a bankruptcy filing.   However, all too often, a foreclosure or short sale is still followed by a bankruptcy because there is either another loan on the property which starts collecting on its loan or there are taxes as a result of the foreclosure sale which the borrower was unaware. 

In many cases, a bankruptcy filing prior to the foreclosure or short sale would have discharged the liability on any additional loans on the property, avoided the tax liability completely and allowed the person to stay in the property several additional months.  Additionally, a foreclosure or short sale prior to a bankruptcy filing may cause a person not to qualify for a Chapter 7 bankruptcy leaving a person in a Chapter 13 bankruptcy for 3-5 years.  What should a person consider prior to allowing a property to be sold at a foreclosure sale?

First, prior to allowing a property to be sold through a foreclosure or short sale, (1) determine the affect of the foreclosure or short sale on your credit, (2) is there any personal liability after the foreclosure or short sale which could be discharged in a bankruptcy filing and (3) is there any tax liability which could be discharged through a bankruptcy filing prior to the foreclosure or short sale.

Second, could a Chapter 13 bankruptcy filing avoid a junior lien on your principal residence which would have allowed you to retain the real property?  Under the Bankruptcy law, a junior lien on a person’s principal residence which does not attach to equity in the real property can be avoided through a Chapter 13 Plan.  For example, if the current fair market value of a principal residence is $250,000 and the balance on the first deed of trust is $300,000, then a junior lien could be avoided through the Chapter 13 Plan. A Chapter 13 also allows a person to cure a default on a home loan over time which may be all that is necessary to avoid a foreclosure sale.

Third, are there any other reasons that a bankruptcy filing may be appropriate prior to a foreclosure sale.  The most common reason is that there is significant unsecured debt which can be discharged in the bankruptcy and a bankruptcy filing prior to a foreclosure sale will allow a person to file a Chapter 7 instead of being required to enter into a Chapter 13 repayment plan.  In addition, a bankruptcy filing will allow a person to remain in the property additional time.

In conclusion, a foreclosure or short sale of real property without a bankruptcy filing may be the right decision.  However, a foreclosure or short sale will have serious consequences which should be analyzed by a bankruptcy or real estate attorney prior to the foreclosure sale.  This is a complicated area of the law, but a bankruptcy or real estate attorney should be able to make to an analysis of your particular situation fairly quickly.  I do free 30 minute consultation in my offices located in Walnut Creek, Antioch and Brentwood.  There is no reason to make a wrong decision about a foreclosure or short sale when legal assistance is available. 

THIS OFFICE IS A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE BANKRUPTCY.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.  GRIMESBKLAW.COM              

 © 2011 Joan Grimes

Should You File for Bankruptcy?

A common question people ask me is whether they should file for bankruptcy. They don’t want to file, but they also know that they cannot continue with the status quo. Here is what I ask them:

1. Can you pay your bills as they come due and owing?

2. Can you pay off your credit card bills in full in the next 12 months?

3. If you own a house, do you have a fixed rate mortgage that you can payoff by the time you retire? Is your house worth what you owe against it?

If you have answered “no” to any of these questions, you should be considering whether a fresh start through bankruptcy maybe the right decision for you.

A fresh start has been provided to the Banks, the Investment Companies, and the Insurance Companies and a fresh start is available to consumers. Most home loan made between 2001-2007 could not be paid off on a person income. More than anyone, the banks knew that a person can only pay off in home loan debt of 2-21/2 times their gross household income in this lifetime and save for retirement and raise a child or two.

A fresh start for a consumer is usually a Chapter 7 bankruptcy. A Chapter 7 is a straight bankruptcy also known as a liquidation case. In a Chapter 7 case, all assets and liabilities are included and the Chapter 7 Trustee will have the right to liquidate non-exempt assets for the benefit of creditors. In exchange for including all assets and liabilities, an individual’s promise to pay on most debts are forgiven through a discharge.

In most cases, there are no assets available to creditors because all of the assets are exempt or encumbered by liens to the full extent of their value. Exempt assets that the Chapter 7 Trustee cannot reach include 401k, IRA, Annuity, retirement plan, equity in a car up to $3,525, most household goods and furnishing, life insurance, most personal injury actions, and then $23,250 in other assets such as motorcycles, boats, RV or additional equity in cars or other items.

Most people who are having problems paying their bills qualify for Chapter 7 Bankruptcy either because their income is low or because their mortgage payments and other secured loans such as car loans are too high in relation to their income. However, a person should not delay in seeking legal advice. The loss of a home prior to a bankruptcy filing either through a short sale or foreclosure may make an individual’s income too high for a Chapter 7 and the only option will be Chapter 13 repayment plan which will last between 3-5 years. In addition, there may be personal liability and tax consequences which could have been eliminated in a bankruptcy.

In conclusion, if you are having financial problems, seek legal counsel. You did not make this real estate and credit card meltdown. There are serious personal liability and tax consequence of a short sale and foreclosure. Make sure you understand your legal rights prior to undertaking either a short sale or allowing your property to be foreclosed. Do not lose sleep and your sanity worrying about financial problems. Help is available to you just like it was to the Bank, Investment Companies and the Insurance Companies.

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION. © 2010

Joan M. Grimes. Grimesbklaw.com

Can I Just Walk Away?

Foreclosure Sales and Bankruptcy

When a person is behind on a home loan, it is very common to think a foreclosure sale will solve all their problems with regards to the home.   However, all too often, a foreclosure sale is just the start of the problems.  In some cases, the cause of the problem is a junior lien which starts collecting.  In other cases, it is an unexpected tax bill as a result of the foreclosure sale which the borrower was unaware. 

In many cases, a bankruptcy filing prior to the foreclosure sale would have discharged the liability on any additional loans on the property, avoided the tax liability completely and allowed the person to stay in the property several additional months.  Additionally, a foreclosure sale prior to a bankruptcy filing may cause a person not to qualify for a Chapter 7 bankruptcy leaving a person in a Chapter 13 bankruptcy for 3-5 years.  What should a person consider prior to allowing a property to be sold at a foreclosure sale?

First, prior to allowing a property to be sold through a foreclosure sale, (1) determine the affect of the foreclosure sale on your credit, (2) is there any personal liability on a lien after the foreclosure sale which could be discharged in a bankruptcy filing and (3) is there any tax liability which could be discharged through a bankruptcy filing prior to the foreclosure sale.

Second, could a Chapter 13 bankruptcy filing avoid a junior lien on your principal residence which would have allowed you to retain the real property?  Under the Bankruptcy law, a junior lien on a person’s principal residence which does not attach to equity in the real property, can be avoided through a Chapter 13 Plan.  For example, if the current fair market value of a principal residence is $250,000 and the balance on the first deed of trust is $300,000, then a junior lien could be avoided through the Chapter 13 Plan. A Chapter 13 also allows a person to cure a default on a home loan over time which may be all that is necessary to avoid a foreclosure sale.

Third, are there any other reasons that a bankruptcy filing may be appropriate prior to a foreclosure sale.  The most common reason is that there is significant unsecured debt which can be discharged in the bankruptcy.  In addition, a bankruptcy filing will allow a person to remain in the property additional time.

In conclusion, a foreclosure sale of real property without a bankruptcy filing may be the right decision.  However, a foreclosure sale may have serious personal liability and tax consequences which should be analyzed by a bankruptcy or real estate attorney prior to the foreclosure sale.  This is a complicated area of the law, but a bankruptcy or real estate attorney should be able to make to an analysis of your particular situation fairly quickly.  I see people for a free 30 minute consultation at my offices in Walnut Creek, Antioch and Brentwood. 

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE FOR BANKRUPTCY.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN   MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.               

 © 2010 Joan Grimes

Late on Mortgage Payments? Is a Loan Modification for You?

 In the last column, I discussed the “overall” problems with loan modifications. Specifically, that most of the programs do not give any meaningful modification to the loan and there is no “upfront” approval or denial of the modification prior to entering into the trial modifications payments.

Since the column was published, I have received many calls wanting to know more nuts and bolts information about the current state of loan modification programs. So here is what I know after 2 years.

1. Income- The borrower needs to have documented income.  If the borrower does not receive a regular paycheck, monies need to be going through a bank account to show income.  Loan modifications are much harder for self-employed individuals.

2. Loan Modification Payments include payment of principal.  Therefore, if you have an option arm loan (also known as a pick-a-payment) or an interest only loan, the loan modification payment will in all likelihood be higher than your prior payment amount.  Also, loan modification payments will  include an impound for taxes and insurance which will further increase the monthly payment.     

3.  There are no principal balance reductions.  The best we have seen is where the investor waives the accrued interest on the loan.  If a person tells you they got a principal reduction, it is usually means that a portion of the loan balance is now a  silent second which will need to be paid at the time of sale of the property or as a balloon payment later.

4.  A trial modification does not guarantee a permanent modification.  I have clients who have been in trial modifications for over 1 year with no permanent modification.  The word on the street is that “new” people who are applying for modifications will have their underwriting done prior to starting the trial modification and that the modification is guaranteed.  However, I will believe it when I see it. 

5.  Consider filing bankruptcy to discharge credit card and other unsecured debt before applying for loan modification.  When you apply for a loan modification, the lender will run your credit.  While a low credit score will not prevent a modification, the less unsecured debt you have, the more money you will have available to make the modification payments.  A Chapter 13 may also be available to avoid a junior lien on your home.    

6.  Net Present Value Test.  This is the mystery calculation used by investors to determine whether a loan modification should approved.  What we do know is that the borrower’s long term ability to pay on a modification combined with the present value of the investor’s investment i.e. the collateral weighs heavily in the calculation.  Therefore, if you live in a “low” foreclosure area such as Danville or San Ramon, the likelihood that an investor will want “get out” now, is very high.  On the other hand, if the value of the investment is very low at this time i.e. the value of the home is low, the lender will be more inclined to approve the modification.

In conclusion, most loan modifications make no sense for borrowers.   There will be no principal reduction or long term payment reduction.  However, if you are considering a a default on your home or considering a loan modification, I urge you to seek legal counsel as soon as possible to fully understand the consequences of the decision.    

*WE ARE DEBT RELIEF AGENCY AND HELP PEOPLE FILE FOR BANKRUPTCY. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UP IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.   

© 2010 Joan Grimes



411 on Bankruptcy

When people come in for an initial consultation, they want to know three things. First, is bankruptcy appropriate for their financial problems? Second, what options are available under Bankruptcy Code? And third, how will bankruptcy affect their lives after the bankruptcy is done.

Bankruptcy may be the appropriate remedy if a person is having difficulty paying their bills as they come due and owing, have credit card debt they have been unable to pay off or have long term debt such as home loans which they are having difficulty paying.

The most common form of bankruptcy is a Chapter 7. A Chapter 7 is a straight bankruptcy also known as a liquidation case. In a Chapter 7 case, all assets and liabilities are included and the Chapter 7 Trustee will have the right to liquidate non-exempt assets for the benefit of creditors. In exchange for including all assets and liabilities, an individual’s promise to pay on most debts are forgiven through a discharge.

In most cases, there are no assets available to creditors because all of the assets are exempt or encumbered by liens to the full extent of their value. Exempt assets include IRA or retirement plans, equity in a car up to $3,525, most household goods and furnishing, life insurance and then $23,250 in other assets such as balances in bank accounts or additional equity in cars or other items.

A Chapter 13 is a Consumer Reorganization which is usually used when a borrower needs one of the special “bells and whistles” provided by the Code. The most common bells and whistles are that the Debtor has non-exempt assets that they want to keep or they have a junior lien on a primary residence that does not attach to any equity which could be avoided in a Chapter 13 or maybe they have a car loan which is older than 910 days which they can reduce to the current fair market value.

The Chapter 7 process usually takes approximately 4 months from the date of filing to closing of the case. While a bankruptcy can stay on a person’s credit for a maximum of 10 years, Fannie Mae’s guidelines provide that a person will be eligible to purchase with a FHA loan product in as little as 2 years after the closing of the bankruptcy. New credit is usually granted within 1 year, but at lower limits and higher interest rates. The Chapter 13 process takes between 3-5 years, but provides greater relief in many situations.

Most people who are having problems paying their bills qualify for Chapter 7 Bankruptcy either because their income is low or because their mortgage payments and other secured loans such as car loans are too high in relation to their income. However, a person should not delay in seeking legal advice. The loss of a home prior to a bankruptcy filing either through a short sale or foreclosure may make an individual’s income too high for a Chapter 7 and the only option will be Chapter 13 repayment plan which will last between 3-5 years. In addition, there may be personal liability and tax consequences which could have been eliminated in a bankruptcy.

In conclusion, if you are having financial problems, seek legal counsel. You did not make this real estate and credit card meltdown. Do not lose sleep and your sanity worrying about financial problems.

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING A DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.  

© 2010 Joan Grimes

Do you have a Junior Mortgage on Your House?

Lien Stripping in Chapter 13

One of the great advantages of a Chapter 13 bankruptcy at this time is ability to strip a lien on your principal residence that does not attach to any equity. Here is a common example: Principal residence has current fair market value of $300,000. The first mortgage has a balance of $400,000 and the second mortgage has a balance of $100,000. Because the second mortgage does not attach to any equity in the property, the lien can be avoided or “stripped” in a Chapter 13 thereby removing the balance of $100,000 at the completion of the Chapter 13 case.

When does a Chapter 13 lien stripping case make sense? First, the principal residence must be your principal residence i.e. where you sleep at night. Second, you don’t want to file a Chapter 13 to strip a lien unless you really, really want to stay in this house. Third, the balance on the junior lien needs to be large enough combined with other debt to make a Chapter 13 advantageous i.e. you don’t want to file Chapter 13 to avoid a lien of $10,000. 

If a Chapter 13 is sounding like something that might work for you, there are several other things to consider. First, we must make sure all of the owners of the property and all of the people who signed on the mortgage note at we need to strip are filing bankruptcy. For example, if the property is owned by both you and your spouse, we cannot strip off the mortgage unless both of you are filing bankruptcy. Second, in order to strip off the mortgage, we have to prove that your real property is not worth more than the payoff balances on the other senior mortgages. That is, we need to prove that there is no value, not even one dollar, left in your real property to “secure” the mortgage we are trying to strip in the Chapter 13. Third, you need to have a “real” senior mortgage or at least a reasonable “hope” of you through a modification. The best senior mortgages for lien stripping cases are 30 year fixed that you can really afford or a mortgage that has been modified into a loan you can afford. If the senior mortgage is going to reset into a payment you cannot afford in 1,2,3 or 4 years, there is no reason to spend the money to strip a junior lien and then lose the house to a foreclosure by the senior lender later.

In conclusion, there has never been a better time for Chapter 13 lien stripping cases. Home values are low and the number of junior liens that do not attach to any equity are at an all time high. This is truly the lemonade out lemons recipe if you are intending on staying in your current residence and meet the requirements for a Chapter 13. Prior to simply walking away for your current residence, it may be a good idea to consider a Chapter 13 and see what it can do for you.

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A SHORT SALE OR FORECLOSURE. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.

© 2010 Joan Grimes