The Making Home Affordable program is a $75 billion dollar loan modification program aimed at helping homeowners refinance their mortgages to terms they can afford.  The program is actually two refinance processes: first, a refinance program for homeowners with Fannie Mae and Freddie Mac loans; and second, a modification program for everyone else.  The “everyone else” program is the “Home Affordable Modification Program” (HAMP).  Under HAMP, homeowners who have experienced financial difficultly (e.g. a job loss or high medical bills) and are struggling with their current mortgage payments can reduce their mortgage payment by lowering their interest rate up to two percent and extending the repayment period up to 40 years.  

While the promise of refinance sounds like a blessing, the process can be both slow-moving and full of unexpected surprises.  For instance, to qualify under HAMP the homeowner must, among other requirements, make all mortgage payments on time for a three-month trial period.  In essence, the program requires timely payments that you can’t afford before the loan can be modified to a payment you can afford!  

Homeowners who seek assistance under HAMP are also surprised by an immediate reduction of their credit score during the three month repayment period.  By applying for a home loan modification, you are announcing to the credit industry that you are experiencing financial difficulty.  This can lower your credit score by up to a staggering 150 points, making it difficult to obtain other types of credit including auto loans.  This initial drop can only be rectified over time. 

If you are experiencing financial difficulty, educate yourself to all your legal options.  Only an attorney can advise you regarding your legal options including bankruptcy, debt settlement options, and government assistance programs.  An experienced bankruptcy attorney can help you evaluate your financial position and choose the right option for your family.

An individual can ordinarily file a bankruptcy case at anytime, however there may be restrictions on the relief that is available.  The most common restriction is the eligibility to receive a bankruptcy discharge.  To receive a Chapter 7 discharge, you must file your case eight (8) years after your previous Chapter 7 case was filed, or six (6) years after your Chapter 13 case was filed.  To receive a Chapter 13 discharge, you must file your case four (4) years after your previous Chapter 7 case was filed, or two (2) years after your Chapter 13 case was filed. 

In some cases, receiving a bankruptcy discharge may not be important to the debtor.  For instance, if a debtor has a non-dischargeable debt like child support or taxes that must be paid, bankruptcy can offer an organized process for payment while the debtor retains some control. 

Another less common restriction concerns the automatic stay.  If your bankruptcy case is dismissed within the past year, the bankruptcy court assumes that your second bankruptcy is filed in bad faith.  The automatic stay will only apply for 30 days after your second filing.  A hearing is required to extend the automatic stay and you must convince the court that you have filed in “good faith.”  If you file two or more cases within the past years, you must petition the bankruptcy court for a stay – it is not automatic for any period of time. 

Finally, you are not eligible to file at all if your case was dismissed by the bankruptcy court within 180 days due to a willful failure to obey an order of the bankruptcy court, or if your case was voluntarily dismissed after a creditor sought to lift the automatic stay to enforce a lien against your property. 

Filing a second bankruptcy is not uncommon.  Congress has established a few additional rules to deter abusive serial filers, but bankruptcy protection is available for the honest yet unfortunate debtor.  If you need assistance with filing a second bankruptcy case, contact an experienced bankruptcy attorney and get the relief you need.

A common problem after a divorce is the family court’s order concerning joint debt.  The order will typically direct one party to pay or refinance a joint debt.  Many are surprised to learn that this order does not relieve a parties’ obligation to pay the debt.  The simple explanation is that the family court judge does not have the authority to rewrite a contract between you, your spouse, and a creditor who is not a party to your divorce.  If your spouse does not pay the joint debt, your credit may be harmed.  

On the other hand, by filing a bankruptcy prior to the divorce, most joint debts can be legally and finally terminated either by payment or discharge.  Additionally, by resolving many of your outstanding debts, it is easier to negotiate the remaining obligations between you and your spouse. 

Married couples also enjoy protections in bankruptcy that single debtors do not receive.  For instance, married couples often receive increased legal exemptions that protect property from creditor attachment.  These exemptions may be lessened or no longer available once the divorce is finalized.  In other words, what you could protect in bankruptcy while married may not be protected after a divorce. 

To say that the interplay between the state family laws and the federal bankruptcy laws is complex is a gross understatement.  However, many of these complexities can be avoided by filing a bankruptcy ahead of a divorce.  In some cases, the couple decides to stay together after the financial strain is removed by the bankruptcy. 

If you and your spouse are considering divorce, consult with an experienced bankruptcy attorney and have your finances examined.  If bankruptcy is a possibility, it is generally better to proceed with the bankruptcy case prior to the divorce.

A NSF “payable on demand” check is not dischargeable in bankruptcy and bankruptcy will not exonerate you of a criminal act.  The bankruptcy automatic stay does not apply to stop criminal prosecutions.  Likewise, any debt to the victim of the bad check is now considered criminal restitution, also not dischargeable in bankruptcy.  Any restitution, costs, and fines are not discharged by the bankruptcy. 

While criminal prosecution of a bad check case is not affected by your bankruptcy, private collection is stopped by your bankruptcy.  Any civil legal action concerning a bad check must stop, and any civil garnishment or other collection action must cease. 

The second type of bad check is the post-dated check.  These checks include payday loans and other checks that are essentially promises to pay in the future.  You and the receiver are aware that the check is not presently negotiable.  The bank will not pay the check because you don’t presently have the money in your account.  

With a few narrow exceptions, being unable to pay a post-dated check is not a criminal act.  However, it may be a crime to write a post-dated check that you intend to include in your bankruptcy.  Typically the recipient of the post-dated check would have to file an adversary case with the bankruptcy court and prove that you committed fraud in writing the check with no intention to ever pay it. 

If you have outstanding bad checks and are considering bankruptcy, discuss your situation with an experienced bankruptcy attorney.  Your attorney can advise you on the best way to deal with a bad check during your bankruptcy.

The first concern is safeguarding the property.  Maintaining insurance and basic utility service is important until possession (and in some cases ownership) of the house is transferred.  Should you fail to safeguard the property, you may be liable to the lender for damages. 

Next, once transfer of title is accomplished (usually through a foreclosure proceeding), the bank may sue you for breach of contract and damages.  Sometimes the bank will wait until after it fully realizes all of its damages upon sale of the house, then it will sue for the difference between the amount it recovers and the amount you owed.  This is called a deficiency balance and it is recoverable by the lender in most states. 

The bank may also forgive the debt difference and issue you an IRS Form 1099C.  When this happens the bank is telling the IRS that it has given you a “gift” in the amount of its loss (because you don’t have to pay it back) and you owe income tax on the “gift” amount.  You have two options to avoid paying the tax debt: bankruptcy, or the insolvency exclusion in the tax code.  The insolvency exclusion requires that you prove that your liabilities exceeded the value of your assets.  By filing bankruptcy this type of tax debt will be discharged. 

Congress has granted a reprieve from tax debts stemming from the sale of your primary residence.  The Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648) provides that taxpayers do not owe taxes on mortgage debt that was forgiven by the lender.  The law only applies to deficiencies during the 2007, 2008, and 2009 tax years. 

Finally, walking away from your home will have negative consequences to your credit report.  The possible negative items include 120 day late entries, foreclosure, and debt write-off.  All of these items have a devastating impact on your credit report and, consequently, your credit score. 

If you are contemplating walking away from your home, get the facts!  Investigate your options from a qualified bankruptcy attorney.  Only a bankruptcy attorney will be able to explain your options including those available under the bankruptcy laws.

Well, you can stop worrying about barrel chafing because there are many legal protections that allow you to keep household property during bankruptcy.  These protections are generally limited to “common sense” amounts and typically apply to clothing, household furniture, musical instruments, books, electronics, appliances, etc.  

One stated goal of bankruptcy is to give the debtor a “fresh start,” so Congress and state legislators attempt to balance the requirement of the debtor to have basic necessities against your creditors’ interests in receiving payment for your debts.  The idea is to permit the debtor the things he needs for day-to-day living while prohibiting the debtor from living a lavish lifestyle at the expense of his creditors.  For instance, if you have a Steinway grand piano worth $50,000 in your living room, it will likely be taken and sold to pay creditors.  If you have a family piano worth $2,000, you can likely keep it. 

The truth is that only around four percent of Chapter 7 bankruptcy cases are “asset cases,” meaning the bankruptcy trustee receives money or an asset from the debtor.  In the vast majority of these “asset cases” the debtor loses a car or real estate in which he has too much equity.  It is very rare to see a debtor lose any household item during a Chapter 7 bankruptcy.  Debtors in Chapter 13 keep their property. 

Determining whether a household item is at risk is a simple arithmetic calculation.  First, start with the liquidation value of the item.  Often this value can be determined by looking at yard sales or internet auction sites like Ebay.  Next subtract the applicable state or federal exemption amount for that item.  Any remaining sum is unprotected equity.  Your bankruptcy attorney can discuss your options for protecting and keeping items with unprotected equity. 

It is important to correctly describe, value and apply the proper exemptions to household items in your bankruptcy schedules.  Once you have provided an adequate description and value of your household items, your attorney can apply the proper exemptions and protect your property from turn-over to the bankruptcy trustee.  Discuss any high-dollar household item with your attorney to ensure that you obtain full legal protection for your property.

Even when there is a valid defense, a credit card company will sometimes seek to bury the defendant with the enormity of its size. Take for example the recent Palm Beach County, Florida, case of Capital One Bank USA, NA v Pincus. Capital One sued Steven Pincus for a credit card debt of $803.95. Pincus offered to settle the debt for a few hundred dollars, and Capital One refused. Pincus then hired an attorney to defend. Capital One responded with a barrage of court filings that ran up Pincus’s legal expense tab to over $100,000.

Pincus moved for summary judgment and dismissal claiming the lawsuit was barred by the statute of limitations. Pincus asserted that the Capital One cardholder agreement states that Virginia law shall have control, and, since the contract was not signed by either party, whatever agreement existed between Pincus and Capital One must be an oral contract. Pincus further argued that since the statute of limitations for oral contracts in Virginia is three years and since Capital One’s lawsuit was filed three and a half years after the date of the last transaction, Capital One’s case is time barred. Capital One defended by arguing that Florida law and its five year statute of limitations should control because Florida was the state where the contract was made.

The Palm Beach County Court found that Virginia law controlled and the credit card agreement was an oral contract based on Virginia law. The opinion cited several similar Florida cases finding the choice of law provision in a cardholder agreement applies to a statute of limitations defense. In granting Pincus’s summary judgment motion and dismissing the case, the Florida court opinion said the credit card company is “‘master of its complaint’ and cannot disavow the choice of law provision contained in the document it attaches to its Complaint so it can take advantage of the longer statute of limitations.”

The Pincus case did not end there. Pincus and his attorney filed a Fair Debt Collection Practices Act lawsuit in federal court against Capital One’s attorneys to recover his attorney fees (Capital One, as an original creditor, is exempt from the FDCPA, but collection attorneys are not). The case was settled after contentious litigation for $120,000.

The moral of the story is “Don’t be bullied!” If you are sued for a credit card debt, seek legal advice from an experienced debt defense attorney. Many bankruptcy attorneys are experts in debt defense and can explain your legal options.

There are four different types of tax debts that are automatically excluded from your bankruptcy discharge: 

1. unpaid taxes due within three years of the bankruptcy filing;
2. unpaid taxes for returns filed late, but within two years of the bankruptcy filing;
3. unpaid taxes for tax years when the debtor did not file a return; and
4. unpaid taxes due when the debtor filed a fraudulent return or tried to evade the tax obligation. 

If you have any question whether your tax debt can be discharged during your bankruptcy, consult with your attorney.  Some tax penalties can also be discharged, so be sure to discuss exactly what portion of your tax debt will be discharged, and what portion will survive. 

Tax liens can be stripped off during a Chapter 13 bankruptcy to the extent that the lien is more than the equity in property.  Tax liens cannot be stripped or otherwise avoided in Chapter 7.  However if the tax is dischargeable in a Chapter 7, the bankruptcy court should determine the extent of the tax lien against your property. 

Property taxes are treated differently after bankruptcy.  Your personal obligation to pay property taxes can be discharged if the tax was last payable without penalty more than one year before you file bankruptcy.  However, property taxes are secured with a lien which will generally survive the discharge.  If you keep the property, you must pay the tax debt after the bankruptcy.  If the property is surrendered during the bankruptcy, you will owe nothing. 

The intersection of tax and bankruptcy is a complicated area of the law.  It is important to address any tax issues early in your case and have a clear understanding of how you and your attorney will deal with your tax debt during your bankruptcy.

First, personal bankruptcy cases are generally not reported in the local newspaper.  Unless you are a celebrity or public figure, your bankruptcy is not newsworthy.  More than 1.4 million consumer filings were recorded last year, so many larger newspapers would have to publish thousands of bankruptcies in their papers each month.  It is not cost-effective for a newspaper to search through the bankruptcy court records to find individuals who filed in their distribution area and use valuable print space to report on personal bankruptcy cases. 

Second, the bankruptcy laws require notices of the bankruptcy filing to go out to the following: 

1. Everyone you owe money (called “creditors”);
2. The bankruptcy trustee;
3. Co-signors and co-debtors; and
4. You and your attorney. 

Under special circumstances other notices are sent, for instance if you owe taxes, or if you want to terminate a lease or contract.  Family, neighbors, friends, your employer, your bank, etc. will generally not receive notice of your bankruptcy.  A common exception to this general rule is when the debtor causes a voluntary wage withholding to pay chapter 13 plan payments. 

Third, while bankruptcy court proceedings and trustee meetings are open to the public, it is unusual for the press or members of the public to attend.  Most of these meetings are very brief and can even be a little boring. 

Finally, other than receiving notice of the bankruptcy filing from the bankruptcy court, there are only a few ways to learn of a bankruptcy case.  The most common way is to contact the bankruptcy court directly.  Most bankruptcy courts have an automated telephone system that will provide basic case information to the public. 

Filing a bankruptcy petition is generally a private and confidential process.  While there are no guarantees that your friends and neighbors will not learn about your bankruptcy, chances are they will not unless you decide to tell them.  However, every case is different.  If you have specific questions about the effects of filing bankruptcy, consult with an experienced bankruptcy attorney.

Consequently, many bankruptcy debtors are caught in a student loan trap of being unable to pay on the student loan and the interest continues to accrue.  While discharging the student loan may not be possible, there are options for dealing with a student loan during and after bankruptcy. 

First, the student loan lender or collection agency is strictly forbidden from engaging in any collection action during the bankruptcy.  This protection (known as the “automatic stay”) may last from a few months during a Chapter 7 to several years during a Chapter 13 repayment plan.  Interest may continue to accrue and will be tacked-on at the end of the bankruptcy case. 

Second, if the student loan was not defaulted prior to the bankruptcy filing (meaning no payment for more than 270 days), the account will usually be re-aged and is considered current upon the conclusion of the bankruptcy case.  This is a good time to negotiate with the lender for a payment plan you can afford.  If the student loan was defaulted prior to the bankruptcy, the lender may offer a loan rehabilitation program. 

Finally, your student loan lender has many repayment options after your bankruptcy case ends, including the Income Based Repayment Plan which limits your loan repayment to 15% of your income and offers loan forgiveness after 25 years of repayment (or 10 years for public service employees). 

If you are struggling with student loan debt, speak to an experienced bankruptcy attorney and discuss your options.  Your attorney can explain the many ways for dealing with student loan debt and can help you decide on a course of action that is best for you and your family.