New Federal Guidelines Hope to Increase Home Modifications

In response to many criticisms of its Home Affordable Modification Program (HAMP), the Obama Administration recently announced significant changes intended to speed the modification process and clarify eligibility.  Under the new guidelines, mortgage lenders must pursue early intervention to determine borrower eligibility under HAMP, and may not refer any loan to foreclosure until the borrower has been determined ineligible for the program.  New timeframes have also been implemented and homeowners can expect a modification decision within 30 days. 

The new HAMP guidelines require participating lenders to use principal reduction as a primary means of reducing borrowers’ payments where loans are more than 115 percent of the current home value.  Borrowers that are current on their mortgages may qualify for refinancing at a low interest, fixed rate loan insured by the FHA, provided that the lender agrees to reduce the principal for the total combined debt to no more than 115 percent of the home’s value.  This provision is meant to encourage lenders to reduce principle for those property owners with negative home equity. 

Another important change is a clarification that debtors in bankruptcy must be considered for HAMP.  A request for consideration for a modification while in bankruptcy may be made by the debtor, the debtor’s attorney, or by the bankruptcy trustee.  This provides a yet another tool for the bankruptcy attorney to save a home mortgage from foreclosure and negotiate terms that the debtor can afford.  

To qualify for a loan modification under HAMP, the borrower must:

• Be the owner-occupant of a one- to four-unit home;
• Have an unpaid principal balance that is equal to or less than $729,750 for a single-unit home (other limits apply for multi-unit homes);
• Have a first lien mortgage that was originated on or before January 1, 2009;
• Have a monthly mortgage payment (including taxes, insurance, and home owners association dues) greater than 31% of your monthly gross (pre-tax) income; and
• Have a mortgage payment that is not affordable due to a financial hardship that can be documented. 

The combination of a bankruptcy and a HAMP loan modification may help some borrowers save their homes and stabilize their family finances.  If you are in financial trouble, consult with an experienced bankruptcy attorney and discuss your options.  Don’t be a victim of debt!  Take control today.

Chapter 13 Debt Limits Increase April 1, 2010

The amount of debt owed by the debtor in a Chapter 13 case is limited by Bankruptcy Code §109(e).  Individuals with debt exceeding those limits are not eligible to file a Chapter 13. Adjustments to these limits are required by §104(a) of the code, and are scheduled to occur every three years on the first day of April.  An adjustment is due this year.

Debt limits for Chapter 13 will increase on April 1, 2010, from $336,900 to $360,475 of unsecured debt and from $1,010,650 to $1,081,400 of secured debt.  This change represents an increase of about 7% over the prior Chapter 13 debt limits. 

This could be good news for the increasing number of people who have second or third mortgages that are completely “underwater” (when the home is worth less than what is owed on the first mortgage) due to the decline in home values.  When a second or third underwater mortgage is deemed unsecured, it can increase the amount of unsecured debt by so much that a Debtor is no longer eligible for a Chapter 13.  Since the limit on unsecured debt has increased, more individuals will qualify for a Chapter 13 plan that allows them to get rid of a mortgage that holds no equity. 

Loading Up on Debt Prior to Bankruptcy

For most, the decision to file a bankruptcy is a tough choice. It is the final step in a long journey that has included great compromise and sacrifice.  A person usually experiences a sense of relief when deciding to file bankruptcy, and there may be a tendency to “let go” of your debt problem.  Unfortunately, in some cases people will “let go” by recklessly spending money and running up credit card balances. 

It is generally not a good idea to incur any new debt before a bankruptcy filing.  The Bankruptcy Code has several provisions prohibiting the debtor from loading up on debt prior to filing bankruptcy.  One of the most commonly cited is a spending spree prohibition against purchasing “luxury goods or services” totaling more than $550.00 within 90 days prior to filing a bankruptcy case.  Another provision makes credit card cash advances presumptively non-dischargeable if taken within 70 days prior to the bankruptcy filing. 

Recently the United States Supreme Court in Milavetz, Gallop & Milavetz, P. A. v. United States reiterated that incurring new debt before bankruptcy with the intent to discharge the debt is not only prohibited, but may also amount to civil fraud or a criminal act.  The high court said that bankruptcy attorneys cannot instruct or encourage debtors to take on more dischargeable debt before bankruptcy, but attorneys “remain free to talk fully and candidly about the incurrence of debt in contemplation of filing a bankruptcy case.”  

There are many situations where taking on additional debt is beneficial and permissible.  The Supreme Court cited three of those situations in the Milavetz opinion: (1) refinancing a mortgage; (2) purchasing a reliable car; and (3) incurring “additional debt to buy groceries, pay medical bills, or make other purchases ‘reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor[.]’” 

The bankruptcy process can relieve you of many financial worries.  However, your path to financial recovery can be complicated without the sound advice from an experienced bankruptcy attorney.  Don’t make any significant financial decisions prior to filing bankruptcy without consulting your attorney.

Employment Discrimination and Bankruptcy

Most bankruptcy clients worry about how a bankruptcy might disrupt their lives.  While many of these fears are unfounded, it is important for you to know the truth about the bankruptcy process and how it may affect you after your case is filed.  One serious matter is how a bankruptcy may affect an individual’s employment. 

The first concern is how a bankruptcy can affect your current job.  An employer will not receive notice of your bankruptcy except under two circumstances.  First, if you owe a debt to your employer, the bankruptcy court will notify your employer.  Second, if you file a chapter 13 debt repayment bankruptcy, and choose a voluntary wage garnishment to pay creditors, your employer will be notified.  

Additionally, section 525 of the Bankruptcy Code prohibits a government or private employer from terminating or discriminating against an employee who files bankruptcy.  You cannot be fired from your current job because you filed bankruptcy. 

A second concern is how a bankruptcy may affect your ability to get a job.  Government employers are absolutely prohibited from denying employment to a person solely on the basis of a bankruptcy filing.  As for private employers, most courts have found that the bankruptcy code does not prohibit a private employer from denying a person employment because of a bankruptcy filing. 

Refusing to hire a person solely because of a bankruptcy filing seems like a very short-sighted and naïve policy.  Consider that the U.S. Census Bureau estimates there are around 308 million people in the United States.  From 2000 to 2009, there were over 13 million non-business bankruptcy filings (source: American Bankruptcy Institute).  That is over four bankruptcy filings per one hundred people.  That figure rises substantially once you take into account that the census includes many that are not in the “working” population, and that many of the non-business bankruptcy filings were joint husband and wife filings.  Add to the fact that there are many legitimate and blameless reasons for filing bankruptcy, and it is no wonder that most employers do not discriminate based upon a bankruptcy filing. 

If you are experiencing financial difficulty, consult with a bankruptcy attorney and explore your options.  Bankruptcy is a federally guaranteed legal process that helps individuals recover from overwhelming financial hardship.  Get your financial fresh start today.

Debt and the Elderly

Many older Americans struggle each month to pay credit card debt with a modest income. Often paying unsecured debt is a tremendous burden and requires a sacrifice of basic necessities. Sometimes the elderly conserve utilities, or cut back on food, or forego prescription medication to pay credit card companies. 

The subject of bankruptcy is especially difficult for elderly people who may cling to preconceptions that are out-dated or otherwise incorrect. There have been many changes in the laws that protect an elderly person’s ability to meet basic monthly living expenses. Many retirement accounts and social security income are protected from creditor garnishment. Additionally, elder Americans are often judgment proof, meaning all income and assets are protected from creditors. Unfortunately, many older Americans fail to take advantage of these protections because they believe they can honor their obligations by paying minimum payments each month. The sad truth is that it often takes decades to pay off a credit card by making minimum payments. 

The stress and worry over repaying unsecured debt can cause health issues for young and old. A great deal of this stress and worry can be alleviated by choosing a feasible plan to either pay or discharge this unsecured debt. Bankruptcy is one tactic for managing unsecured debt and for reorganizing an elderly person’s finances. An experienced bankruptcy attorney can explain your options and provide solutions for living on a fixed income. Don’t let credit card debt turn “the golden years” to rust.

How to Value Household Property in Bankruptcy

During bankruptcy a debtor is required to reveal all assets and give an estimated value of the property.  When the asset is cash money or an investment, figuring its value is easy.  In other cases nailing down a value can be very elusive.  This is especially true when dealing with a unique or expensive household item.  So how does the bankruptcy trustee expect the debtor to come up with a value for household property? 

To understand how to value household property for bankruptcy purposes, it is important to understand the bankruptcy process.  One of the chief functions of the bankruptcy trustee is to uncover assets for the benefit of creditors.  Federal and state laws allow the debtor to keep certain modest items of household property that are considered “necessary,” like clothing and household items, but only up to a certain dollar amount.  That amount is called an “exemption,” and that property is considered “exempt” and protected from a creditor’s collection remedies.  Any property that is worth more than the allowed exemption amount is subject to be liquidated, usually at auction. 

So the easy answer to how household property should be valued is, “At auction prices.”  Since auction prices can vary, that doesn’t really answer the question at all.  Instead, what most bankruptcy trustees suggest is to set a price like you would at a yard sale.  Additionally, internet resources like eBay can be helpful to determine the quick-sale market value of a unique item.  Using one of these on-line resources can provide good evidence that your new-in-box Barack Obama Chia Pet is only worth $20.00. 

Many used household items, like common dinner dishes or bedding, have little or no value.  On the other hand, a grandfather clock, piano, or gun safe usually has some value. A bankruptcy trustee is not in the used furniture business, and will usually incur significant costs in selling a debtor’s property. Consequently, the trustee will not be interested in your household property unless you own a non-exempt item that can be sold for a substantial profit to the bankruptcy estate.  

As owner of your property, you are entitled to give an opinion regarding its value.  It is important not to under-value or over-value your household property, but instead give a fair and reasonable estimate.  If you own an expensive household, do some research and speak to your bankruptcy attorney.  There are many ways to protect property in bankruptcy and your bankruptcy attorney can help you decide on the best course of action.