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The sooner you know about your options, the better prepared you will be. Take advantage of my free consultation and learn how to position yourself for bankruptcy. Borrowing from equity in your home or from your 401K is unnecessary. We can help you save important assets from creditors and from a bankruptcy trustee. Sending your hard-earned money to a company that claims it can negotiate with your creditors rarely, if ever, works. With due respect to the very few companies that deliver a valuable service consolidating your debt, usually you will pay large fees for nothing, while credit card balances grow and your credit rating sinks.
Bankruptcy will stop the bleeding.
It is truly the last resort, but it works: credit card balances freeze, payments stop, threats, lawsuits, and garnishments stop, and you gain control over your finances again. Please listen to this general discussion of bankruptcy.
Visit my discussion of how to prepare for the possibility of bankruptcy for more information and important links.
Blog - Issues in Consumer Bankruptcy
In this space, from time to time, I will post brief discussions of bankruptcy topics that come to mind.
Oct. 5, 2021 - Home Value - Why Is It So Important?
When a bankruptcy case is filed, all property owned is disclosed and especially the value of property, along with any debts or liens that affect the property. One's home is usually the most valuable property when filing bankruptcy. The home's current fair market value must be disclosed, along with the balance owing on any mortgage or other lien recorded against the home.
In a chapter 7 bankruptcy, the bankruptcy trustee will take and sell property that is not protected by an exemption. Exemptions are laws that protect property from seizure by creditors and bankruptcy trustees. When a creditor sues and gets a judgment, that judgment gives the creditor the right to seize unprotected property, to be sold, to pay the debt. Exemption laws protect the essentials of living, like a home, a car, furniture, clothing, food, etc. But the value protected is not unlimited: for example, the equity in a home in the State of Colorado is protected up to $75,000, for owners up to age 59; for owners age 60 and above, equity in a home is protected up to $105,000.
If a home's value is $360,000 and the balance of the mortgage debt is $150,000, an owner, age 55, will have $75,000 of exempt equity (protected from creditors), but $135,000 of non-exempt equity. If this home owner filed a chapter 7 bankruptcy, the trustee would sell the home, pay the first $75,000 to the homeowner, pay off the $150,000 mortgage, then use the $135,000 of proceeds to pay the closing costs, the Trustee's administrative fees and then pay the owner's creditors. NOT a good idea!
In a chapter 13 bankruptcy, the bankruptcy trustee will not sell the property, but in order to keep the home, the owner would have to agree to a plan to pay to the creditors the same amount as in a chapter 7, but in monthly payments over a 3 to 5 years period. Creditors get paid, but the owner keeps the home.
It all revolves around the fair market value of the home. And, the person filing bankruptcy must prove the value. It is very important, before filing a bankruptcy, that an estimate of value is obtained from someone with knowledge of the market and the expertise to give a reliable opinion. A licensed real estate agent would be the best person to do that. Most real estate agents, hoping to get a listing or to establish a relationship with the owner, will provide a current market analysis (CMA), in written form, that provides detailed information about the home and other homes in the same area that have been sold recently, as well as the agent's opinion of value, the price at which the home will sell at that time. That CMA is usually the best form of evidence of value and the most useful in a bankruptcy.
Sept. 29, 2021 - Reaffirmation of Home Loan? - Absolutely No!!
In a chapter 7 bankruptcy, your home mortgage debt will be discharged. Are you surprised? It's true; the debt is discharged, but the lender's lien is not affected. After the bankruptcy discharge, if you default on your home loan payments, the lender will foreclose and sell your home, but the lender cannot sue you for the remaining balance of the loan; because the debt was discharged. If you want to keep your home in chapter 7 bankruptcy, just keep making the payments.
However, when your credit rating has improved and you go to your home mortgage lender and ask to refinance, they won't do it. And, they might tell you that you need to reaffirm that debt in the bankruptcy. That's true. That lender cannot do anything with your loan, unless you had reaffirmed the loan. When you call me and ask, why didn't we reaffirm the mortgage?; I'll say, because it's a very bad idea for you and malpractice for me to reaffirm a mortgage debt. You don't need to reaffirm either to keep the home, to be able to refinance the loan (with a different lender), or to show a record of your faithful monthly payments. So, there's no good reason to do it.
At the time of your chapter 7 bankruptcy, when your financial circumstances are at the lowest point, it's not a good time to bind yourself to paying back the largest debt that you have. The bankruptcy court would have to find that it's in your best interests to reaffirm; and, it's not likely any judge would agree, especially when you don't have to reaffirm to keep the home.
Sept. 20, 2021 - Chapter 13 Plan is the Best Debt Consolidation Program
To my knowledge, there are three forms of debt consolidation: the worst - you engage with a firm to which you pay a monthly amount and turn over a list of your creditors, then they promise to negotiate with your creditors (We'll call this "The Negotiators"); a better way - you borrow an amount of money sufficient to pay off all your creditors, then you have one monthly payment to make to just one creditor ("The Debt Consolidation Loan"); and the best - you file a chapter 13 bankruptcy ("Chapter 13 Plan").
With the Negotiators, you are paying a monthly amount, a large part of which is a fee for their service and the rest will be accumulated for the purpose, when there's enough accumulated to be effective, of negotiating with one-creditor-at-a-time. Meanwhile, the other creditors continue to charge you interest, then charge you default interest, and then send you threatening letters and lawsuits.
A Debt Consolidation Loan is a great idea, if you can find a lender who will loan you enough to pay off everyone and won't charge you too much for interest and will keep the payment affordable. It's a great idea, if you can do it. Maybe you have a friendly relative who will make a friendly, low-interest loan.
A court-approved Chapter 13 Plan is the best, because when you have filed a bankruptcy, all of your creditors will be notified and they will stop all collection action, the amount of debt freezes, interest stops accruing, the Chapter 13 Plan will state a monthly payment which has been found to be affordable, and once you have made all required payments, the balance of unpaid debt will be discharged. And, one probable bonus - the monthly payment will likely be less than the total of all your minimum monthly payments.
Sept. 18, 2021 - Chapter 7 Discharge of Car Debt Creates Car Replacement Option
A chapter 7 discharge will include a discharge of debt secured by your car. If you want to keep your car, just keep making the payments. But, once the dust settles from the bankruptcy, you will have an opportunity to replace that vehicle. Why? You may have an auto that is collateral for debt that far exceeds value; this may have happened when you traded in a car and its loan for another car with a bigger loan. After bankruptcy, you may be able to borrow for another car, getting rid of that car with the huge monthly payment, replacing it with a better car and an affordable monthly payment. How? Just stop making payments on that car with the big payments; give it back to the lender. That lender will pick up that car and sell it, but won't be able to claim the balance of the loan from you, because that debt was discharged in the bankruptcy. And, you will find it too easy to borrow money to purchase a different car (car lenders love you after chapter 7 bankruptcy). Be sure to shop around for affordable payments; you'll pay higher interest after bankruptcy, so you'll just have to be moderate about the amount you borrow.
Sept. 17, 2021 - Importance of Completing All Plan Payments in Chapter 13
A chapter 13 plan is supported by a court order that says in order to gain the benefit of bankruptcy, preventing creditors from bothering you with collection actions and getting a discharge of all debt not paid by the plan, you must make all payments, to the Trustee, to your home mortgage lender, and to your car loan lender, within the time limit stated in the plan. Under current court interpretations of the law, if you fail to make all required payments within the period of time stated in the chapter 13 plan, you may not get a discharge. Seems harsh! Imagine: you've paid thousands of dollars to the Trustee over 5 years and thousands of dollars on your home mortgage, but at the end of the 5-year period, you are a thousand dollars short (or, maybe just $300). Presently, the courts are denying discharge, because the final payments are late.