Bankruptcy
Home Affordability Modification Program: The Troubling Reality
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President Obama’s Home Affordability Modification Program (HAMP) was intended with the purpose of keeping homeowners in their houses. Unfortunately, the idea was wonderful and the basic core concepts of the HAMP appear to be generated with good faith in mind but it lacks one key component—success in purpose. In other words, HAMP is failing and the troubling reality of the program is becoming very clear.
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Image Credit: blog.Foreclosure.com |
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The HAMP was designed to get consumers to work directly with their mortgage company to get into a modification of their current mortgage payment. The program was intended to make the modification so the consumer could actually make a payment that they could afford. The amount of the payment is based upon the general economic principle that a mortgage payment should be about a third of the homeowner’s income. The problem with this philosophy is that the principle owed to the mortgage company is too large to minimize to a third of the homeowner’s income or the homeowner’s income and other expenses cannot meet even the third payment. However, there are more problems on the surface of the HAMP. Once a homeowner is initially accepted into the trial period, the homeowner is given the false hope that this is a final agreement. The “trial” period is exactly that—“a trial.” It is not a final agreement. A homeowner can make all the required payments asked of them in this trial period and still not receive a final agreement from the mortgage company. The real issue is that a mortgage company is only required to “consider” the homeowner for the program. (See Home Affordability Modification Act 2009). A mortgage company is not required to do anything at all for the homeowner under the HAMP. The troubling reality of the program is that a homeowner could make three months of payments and still not have a final agreement and still be facing a foreclosure sale. Unfortunately, the most common pattern that we are seeing with this program is that homeowners are making three months of the trial payments and then being denied without cause or for some superficial reason. If this should happen to you, you should immediately seek a bankruptcy attorney to ensure protection of your home from a foreclosure sale. So what was once thought to be the hope of a nation is really a troubling facade. If you have experienced the troubling reality of the HAMP, we want to hear from you. Please email us at http://www.consumerdebtradio.com/contact.asp. |
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Foreclosure or Bankruptcy – Which Is the Lesser of Two Evils?
In the past, “bankruptcy” and “foreclosure” were dirty words. But in today’s economy, they’re realistic solutions to financial black holes brought on by job joss, medical catastrophe, or predatory mortgage lenders and credit card companies. If you’re a homeowner struggling with financial disasters, you probably know that you need to decide whether a foreclosure or a bankruptcy is the lesser of two financial evils.
If you choose bankruptcy, you may be able to eliminate credit card debt, medical bills, court-ordered judgments, and even debts for overdue utilities. With a discharge of these overwhelming debts, you can often keep up with the mortgage, thus saving the family home.
In contrast, choosing foreclosure means you’ll lose the house… but the house may not be worth saving if its value is less than the remaining mortgage. Homeowners who’ve worked with us have chosen to rent, or sometimes they own investment properties that they can move into, such as a multi-family house.
But neither bankruptcy nor foreclosure is an easy, one-size-fits-all, solution. For example, a bankruptcy stays on your credit report for 10 years, while a foreclosure is there for 8 years. Because a foreclosure drops off a credit report 2 years earlier than a bankruptcy, many homeowners believe it’s a “better” solution. But many reputable credit counselors report that a foreclosure has twice the negative impact on a credit score as a bankruptcy. It’s extremely difficult to get a new mortgage after losing a property to foreclosure. And some individuals who’ve gone through foreclosure report that they haven’t qualified for apartments they wanted, even though they’re able to afford the rent after the mortgage is gone.
On the other hand, we’ve seen that individuals who’ve gone through bankruptcies are better candidates for future financing, and often receive it earlier than individuals who’ve gone through foreclosures. The reason is simple: bankruptcy erases debt. After a bankruptcy, you don’t owe anything to anyone. Your income is yours again. And creditors also know that you can’t file for bankruptcy for another 8 years, so you can’t walk away from any new debt that you incur.
In some cases, a homeowner may be so far behind on the mortgage that a foreclosure is inevitable. There are two typical solutions. First, the homeowner could file for bankruptcy right before the foreclosure. If the mortgage lender sells the property for less than the mortgage owed, the difference between the foreclosure price and the mortgage (which the homeowner would ordinarily have repay to the lender) is discharged through the bankruptcy. Second, mortgage lenders know very well that homeowners can discharge this difference in bankruptcy instead of paying it back. So they’ll often wait to foreclose, which gives the homeowner an option to do a short sale (to be discussed in an upcoming blog).
In short, if you’re a homeowner struggling with debt, you have a lot of options. If you’re facing a financial crisis that may end in either foreclosure or bankruptcy, talk to an experienced attorney who can help you determine your best option. The right decision can save you years of financial trouble.
Understanding the new credit card laws
Credit cards, if used properly, can be useful and convenient tool, and can even help build a strong credit score that will assist you with future borrowing. However, owning a credit card makes it easy to spend money you don’t have and when the interest is taken into account, consumers can build massive debt. According to The Nilson Report, April 2009, In the average American owed $10,637 in credit card debt. The U.S. Census Bureau reported that credit card debt is growing and predicted that about 181 million Americans would owe credit card debt by 2010. That figure is up from 163 million Americans in 2008. As a nation we have become a plastic society, using our credit cards instead of actual money in our pockets.
The Credit card companies understand the temptation that has been provided to their clients and in the past have made it extremely easy for consumers to obtain credit cards. Recently, these same credit card companies have significantly increased interest rates, decreased spending limits and targeted young consumers with little experience managing their own finances. In order to combat this practice, the Federal Government has recently passed the Credit Card Accountability, Responsibility and Disclosure Act which will take effect in February 2010.
There are many sweeping changes to the way credit card companies conduct business. the following are some of the key changes including restrictions on raising interest rates permanently on borrowers who are delinquent 60 or more days. If the Consumer pays on time for 6 straight months, the credit card interest rate must be reinstated to the original lower rate.
The new law also requires that the advertised low interest rates must have a minimum 6 month period of time and prohibits increased rates in the first year a cardholder has a new account. This is important because it limits the Consumer’s liability on initial purchases.
The law also addresses late fees and penalties for paying your bill by phone, mail, or online and makes it unlawful to access additional fees to accept payments in this way. In the past, if a consumer wanted to pay at the last minute by phone, they would have to pay an extra fee, which is not lawful any longer.
Finally, the law also includes several measures aimed at protecting young consumers and college students, who until now have been blindsided with offers of easy credit. The law requires that consumers under the age of 21 will now be required to have co-signers, such as parents or other adults over the age of 21, who will take on joint liability for any card debts that are incurred. This will essentially end the marketing campaigns on college campuses. “Young people thrown on college campuses can be extremely vulnerable to these practices,” says Brad Lazarus, principal at Omega Advisors, a Chicago financial planning firm. Some credit card companies offer students nominal gifts, free food or free T-shirts just for applying. But the Credit Card Accountability, Responsibility and Disclosure Act makes this practice unlawful at application sites on or near college campuses. As an additional protection of the most vulnerable consumers under the new law, credit reporting agencies can’t provide the credit reports of under-21 year old consumers to credit card companies unless the consumer specifically requests that they do so.
How to Remove a Judgment Lien from your property
Many homeowners have found themselves in the position of owing money on a debt which they simply can not pay back, or have been sued by someone and failed to respond to the law suit. When this happens, the Plaintiff often will attempt to collect on their judgment by putting a lien on the homeowner’s property. Many of my bankruptcy client’s have come to me with just such a situation. This becomes an issue after a consumer’s unsecured debts have been discharged in bankruptcy. The reason is simple; the homeowner has a lien against their house post bankruptcy and they do not owe any money to the lien holder.
After a Chapter 7 discharge, a debtor may avoid a judicial lien by motion to the Court. To the extent lien impairs an exemption to which the debtor otherwise would have been entitled under the Bankruptcy laws. As a result, the bankruptcy court will grant a Chapter 7 debtor’s motion seeking to avoid a judicial lien if debtor’s equity in the property is less than the amount protected under the Massachusetts Homestead Act, which currently stands at $500,000 in value for the land and building, M.G.L. c. 188 § 1, and when the creditor’s lien fully impaired the debtor’s equity in the property. In re Lyons, 355 B.R. 287 (2006).
So what is the gist of all of this legal speak? When the collateral has no value, the creditor has no claim against it because it will be treated as unsecured, and thus the debtor may discharge that lien.
Ripple Effects of Bankruptcy
In our current economy, there is a lot of talk about how your personal finances can permeate into your personal and professional lives. When you file bankruptcy, it is well known that your credit report will be severely impacted and that negative information will last for years. Although you might hit a roadblock in terms of borrowing in the immediate aftermath of your bankruptcy, your life will not wait.
One of the most fundamental needs a person can have is housing and after bankruptcy or foreclosure is housing. Many companies or landlords from whom you may wish to rent will conduct background checks that will include a criminal and financial check. If you’ve filed for bankruptcy, especially if it was relatively recent in the last 2 or 3 years, you might have difficulty getting someone to rent to you. One way around this is to rent with individual landlords who are more likely to have the latitude to account for your individual story once they meet with your personally. Apartments managed by a company are more likely to impose their set standards and not rent to you or be unwilling to consider your personal circumstances. Lastly, when looking for your first rental post-bankruptcy, air on the side of fiscal conservativeness and look for a very affordable unit to start. Once you build a strong post-bankruptcy rental history, it will likely over time open more options for you with future landlords.
Another area that can be affected by filing bankruptcy are services that many take for granted including insurance, cell phones, and home data information including cable, phone and internet. Many of these service providers require credit checks before they begin to offer services and if your history is unsatisfactory based on their standards, you may find yourself seeking other avenues to secure these services. If you find yourself in this position, you can expect two distinct possibilities, paying larger deposits if you are allowed to contract for these services or having to prepay for the services. Many companies will require you to pay for the services before you receive them via these larger deposits or limits on your service like prepaid cell phone plans.
Employment is a crucial aspect of anyone’s livelihood and is especially important to discuss in terms of seeking post bankruptcy employment. Potential employers will often conduct credit checks especially if the position entails handling money or other valuables. The best solution to this is to just be aware of the possibility and be certain when applying for jobs.
A final major area to expect to be drastically affected after bankruptcy is clearly the ability to be issued credit either as loans, mortgages or credit cards. Anyone who does extend credit to you will likely impose very high interest rates and severe terms. Be cautious when attempting to borrow by borrowing conservatively and being sure to account for the interest rates when you consider repayment. With credit cards, a new product has recently entered the market in the form of prepaid credit cards. Although these prepaid credit cards have “Mastercard” or “Visa” on them, they are not credit cards and are not subject to credit checks or reports to a credit bureau. Furthermore, since they are nothing more than a debit card, if they’re lost or stolen you are subject to actual cash losses and they are harder to dispute. The issuers of prepaid cards also generally impose more strict rules regarding lost or stolen cards including a requirement to report it within 48 hours or you’ll begin to bear the burden of the monetary loss.
In Massachusetts, if you find yourself facing discrimination from an existing relationship (service provider, employer etc.) after you’ve filed bankruptcy you may be able to be protected under M.G.L. Ch. 151B § 4 §§ 4A that prohibits such retaliation. Bankruptcy is a constitutionally protected act and it is illegal to retaliate against such a protected act. In any aspect of your life post-bankruptcy, the best tool you can have is knowledge so that you are not caught off guard and always have multiple options left available to you so that in the end all of your needs can be met to provide for yourself and your family.
The foregoing article was drafted by Justine Medina, for the Law Office of Goldstein and Clegg, LLC
