Think Declaring Bankruptcy Might Help?
6 factors and a warning to consider before filing for bankruptcy:
I was reading a Legal Journal and found valuable information for anyone considering a bankruptcy as a solution to a tight (or impossible) financial situation…
The following are 6 points that you should know about bankruptcy:
Means Test: The Means Test determines your ability to pay your creditors through a complicated calculation which also accounts for the financial demographics in your area. If you qualify, you can file a Chapter 7 Bankruptcy, which wipes away all of your debts. Otherwise, you are allowed what is called a Chapter 13 Bankruptcy and you will be required to repay many of your debts. Call me if you want to run the numbers.
Credit Counseling: Since 2005, everyone is required to undergo credit counseling before they are eligible to file for bankruptcy. Credit counseling must be provided by an agency approved by the U.S. Trustee’s Office and will determine if you are eligible for bankruptcy or if an informal repayment plan could help avoid filing. This is actually a good option if your financial situation isn’t too far under water.
Affect on Co-Signers: Filing Chapter 7 bankruptcy allows creditors to proceed against any co-signers to your debt. However, filing under Chapter 13 protects co-signers if the debt is from personal purchases, the debt was not incurred in business transactions and if the co-signer doesn’t gain anything from the proceeds of the debt. Again, contact me if you have any questions about bankruptcy in California.
Affect on Your Future: Bankruptcy will likely destroy your credit for at least 7-10 years. This is likely to result in the loss of all credit cards and repossession of non-essential possessions (furniture, TV, etc.) that were purchased on credit. And forget about buying a home during this period.
Some Debts Are Not Forgiven: Student loans, DUI judgments, income taxes less than 3 years past due, fraudulent debts like bad checks, overdue child support, spousal support, or other court ordered debts may not be eliminated in a bankruptcy. If most of your debts are non-dischargeable then filing for bankruptcy won’t reduce your debt burden. In this case you are better off renegotiating payments over a longer period.
Creditor’s Rights: Secured debts holders (debts with collateral, such as a car or house) have the highest priority and will likely reclaim the property if you file for bankruptcy. Unsecured debts, such as credit card debt and most bills are the lowest priority. Such creditors may receive little or no payment in bankruptcy. You don’t get to pick and choose who gets paid, the court decides. So don’t plan on keeping the nice car.
Bankruptcy has a lot of ‘gotchas’ so if you are falling behind in payments, find out now what it’s all about now. Don’t just imagine it as an easy exit that you can glide into when things get really rough.
Loan Modifications: What an Attorney Does and Why Is Representation Important
So recently I had lunch with my friend Banch, and she told me that she wasn’t really clear on exactly what a loan modification was and that she did not know that my firm was handling loan modifications. Oops! I have taken it for granted that everyone “knew” what I meant by loan modification. Now, then, is a good time to explain exactly what this is all about and how we have assisted some of our clients.
As you are certainly aware, many people have lost jobs or had their pay cut. Others have adjustable mortgages that have adjusted up to unmanageable rates, or owe more than their house is worth.
Many in these situations qualify to have their loan terms modified so as to either a) reduce the interest rate or b) extend the loan, or c) get a reduction in the principle. Any of these changes will result in a lower monthly payment, and if that adjusted payment amount is one that the homeowner can afford to make, then seeking a modification rather than being handed a foreclosure certainly makes sense for the homeowner.
Financial institutions are overwhelmed with the number of loans in which payments are coming in late or have stopped altogether. General consensus is that it is an advantage for the bank to keep someone in a home making slightly smaller payments rather than foreclose. But if banks make it TOO easy to revise mortgage terms, then people who could have made their original payments will take advantage of the situation and ask for a modification they don’t really need.
The problem for the banks then, is trying to determine who is REALLY in trouble. A second problem is that some homeowners have had their mortgage modified and then fail to make the adjusted amount and so lose the home anyway.
Banks have discovered that if a homeowner secures the assistance of an attorney to manage the modification process there is a better chance that a successful modification will be done. It is assumed that the attorney will have advised their client if a modification should even be attempted.
Homeowners are discovering that there are many twists and turns in the process of getting a modification and that it takes someone with experience, persistence and persuasion to get the job done. And attorneys are nothing if not experienced, persistent and persuasive – myself included!
And so, since I have found that family law matters often impact home ownership, my office now handles mortgage modifications.
Generally, a client comes to us and says, “Demetria, I am behind two + months on my mortgage payment, my spouse is not working and I’m earning less than I was last year. Or, “Demetria, my spouse left me, I am making these payments alone, I don’t want to uproot the kids, how do I keep the house?” Or, “Demetria, I attempted to work with a loan modification company, time was wasted, nothing was resolved and now I have a foreclosure sale date in less than a month.”
What we do at that point is obtain all the necessary documents and information. The situation is carefully reviewed to ensure that there is a good chance of meeting the bank’s criteria (and hopefully the guidelines for the Making Home Affordable Program). Sometimes a modification isn’t a viable option, and that is good to know early so that other action can be taken.
But once we have determined that we can in fact assist the client, we prepare the necessary documents to be submitted to the bank to assist in “modifying” the current loan obligations. We then contact the bank and inform them that we are representing the client and take over all the work needed to follow up with the bank, keep them moving forward with the process and ensuring that they follow the laws.
The bank may or may not offer a modification, and if they do their first offer may not be much better than the current situation. There again is a good reason to have someone representing you. Banks are often NOT advising people that they qualify for the Making Home Affordable program even when this would be a great savings for the homeowner.
By the way, it is not uncommon for the financial institution’s staff handling foreclosures and modifications to be misinformed about their own process and unaware of the requirements of the law, so we find we are often correcting the bank staff on their errors.
Depending on each client situation, we have been extremely successful in reducing the amount in which clients pay (we have seen an average of $500 to $1000 in reduction of mortgage payments), and pretty decent negotiations for the 2nd Mortgage. Because the bank who is second in line wants to re-coupe something from the homeowner, they are often willing to negotiate and more open to accepting a lump sum instead of nothing at all.
I truly hope this makes more sense (Banch you can let me know) and please do not hesitate to call me with any California Loan Modification questions you may have!
Loan Modification Alert
I read this in USA Today and was floored…
Howard Weiss is 77 and scared and rightfully so.
This year, the semiretired distributor ran into financial problems and stopped making his mortgage payments. He was told his home was scheduled for a foreclosure auction in May.
Weiss scraped together more than $2,000 to save his home from foreclosure. He’s still trying to figure out if he can get a mortgage modification so he can afford his home.
“This is the biggest mess I’ve had in my life,” Weiss says. “I could break down and cry. I was about to lose everything. I’ve been through (the Korean War), through a lot of crises. Now I’ve turned everything over to the Lord. … I’m so stressed this is going to kill me.”
The worst economic crisis since the Great Depression has slashed home values and triggered an unprecedented surge in foreclosures across the nation. It’s also taking an especially harsh toll on an often overlooked demographic: seniors who are retired or nearly so.
Conventional wisdom holds that most seniors have paid off their mortgages or have significant equity in their homes, but in reality hundreds of thousands are suffering in the housing crisis.
This population is being hit on all fronts. More than 600,000 seniors are delinquent or in foreclosure, according to AARP. A separate report by AARP found that 25.5 million seniors ages 50 and older have a mortgage. Unlike younger people, many are on fixed incomes and lack the money or job opportunities to catch up on payments when they fall behind.
Some seniors have been victimized by predatory lenders or made bad financial decisions, taking on adjustable-rate mortgages that reset to payment levels they couldn’t afford. For others, their mortgage problems grew out of other financial pressures, such as staggering medical bills or helping adult children through financial difficulties.
Even those who own their homes free and clear are finding they can’t rely on equity as a retirement nest egg because home values have dropped severely, especially in retirement-rich areas such as California.
Some seniors who had planned to sell their homes and move into retirement communities have had to postpone their plans because they can’t afford to take a loss on the sale of their current homes. Some older homeowners had been so confident that rising home values would provide retirement wealth that they neglected to save.
Now they face their final years with a dearth of financial resources to draw on. Thirty-six percent of workers ages 55 and older say the total value of their household’s savings and investments — excluding the value of their primary home and any defined benefit plans — is less than $25,000, according to the Employee Benefit Research Institute.
Weiss’ case reflects what many seniors are going through.
He was paying about $1,700 a month on his mortgage when he began having problems making payments because he was helping his son, who was unemployed. Because his home had lost so much value — from $290,000 to about $120,000 today — he couldn’t refinance and lock in a lower rate.
Instead, he contacted an organization that he says offered to help him get a loan modification from his lender. Weiss says a counselor there advised him not to make payments on his home loan so he would be in a better position to negotiate a modification with his bank. He says he sent the organization $2,400 upfront to get the modification started.
So far, Weiss hasn’t gotten any modification of his mortgage.
And because he got behind in payments, Weiss’ lender began foreclosure proceedings on his home. Weiss’ bank also tacked the three months of back payments he hadn’t made onto his loan balance. That has left Weiss, who lives on a fixed income, scrambling to come up with money to save his home and pay $2,400 a month to catch up. That includes interest on the payments he didn’t make.
His monthly income is about $4,000, which includes veteran disability checks, money from his wife’s retirement fund, his income and Social Security. His wife, who lives at home with him, has Alzheimer’s disease and is unaware of the situation, leaving Weiss to carry much of the financial worry.
There are few special programs among lenders or government agencies geared to help seniors with mortgage problems.
Mortgage giants Freddie Mac and Fannie Mae have none, and neither do some of the nation’s largest lenders, such as JPMorgan Chase and Bank of America.
This is a growing concern for many trust worthy companies who are attempting to assist seniors with their loan modifications. So many companies are prying on seniors and taking their money before they even know what’s going on, so many believe that their loans have been successfully modified and do not realized that nothing has been completed! So please keep an eye out for the seniors in your life to ensure this does not happen to them!
What Can I Expect in My Loan Modification Process?
Modification of any mortgage is definitely a process and a host of paper work. Initially you will meet with whatever professional you select to assist you with your matter then generally the process goes as follows:
1) Determine what you actually CAN pay on your mortgage. A cold, honest appraisal now will save you even more heartache later.
2) Gather all the necessary documents requested of you by your loan consultant. Don’t delay on this – the faster you submit your information the better.
3) An “Authorization” will be sent to your lender so that the professional will have authority to speak with the lender on your behalf.
4) All submitted documents will be processed and sent to your lender. Depending on the loan modification professional, an accompanying offer letter may also be sent including the amount that you can pay.
5) Within approximately thirty days (depending on the lender) the bank will contact either the borrower or the authorized professional to discuss the borrower’s request. Either the lender will request more information, make a proposal for modification, or deny the request for modification and likely provide a brief explanation as to why the request was denied.
The hardest part of the loan modification process is gathering the requested information and carefully composing the proposal to ensure that the lender will approve the loan modification.
One little piece of advice: Make sure you really CAN make the new mortgage payments that you propose! Failing to make the mortgage payments after a loan modification will put you in a deeper hole than you would have been without the mortgage modification!
Good Luck!
Selecting a Loan Modification Professional – Do’s and Dont’s
Here are 5 key points to consider when selecting a professional to assist with a loan modification.
1) Do you have all your facts straight? Have you pulled out a copy of your mortgage and studied it as best you can? Have you got solid data on the current value of your home? Do you have documentation that proves a financial hardship which didn’t exist a year ago such as decrease in income or increase in expenses, such as unexpected medical expenses? This is just some of the data you will need to determine if you qualify for a mortgage modification.
2) If you want to hire someone to assist you, do your own research on the professional and make sure that they are legit! Are they a licensed attorney or another qualified individual that can assist you?
3) Beware of anyone who guarantees results in a mortgage modification or that wants upfront fees before determining if you even qualify under the loan modification program. This program is new and there ARE no guarantees. The program does NOT require that you release any rights to title of your home or that you grant your consultant any authority to sign papers for you. If anyone asks you for these rights – run!
4) Beware that some ‘professionals’ (including some attorneys) are running “mills,” taking money and doing little, if any, work after making undeliverable promises. Ask for a monthly statement of work done and costs so you are aware of where your money is spent. Also request that you be sent copies of all documents produced on your behalf. Ask what follow up will be done after they send off any documents to your financial institution. Be proactive!
5) DO YOUR RESEARCH!
Loan Modification in California 