Bankruptcy Options When You Are Behind On Your Mortgage

Many individuals end up in my office when they fall behind on their mortgage. It is a common problem. The most frequent cause is a temporary lose or reduction in employment. Several months of unemployment can quickly lead to a family facing a foreclosure, which are sometimes filed within 3 months of the first missed payment. Fortunately, the Bankruptcy Code can help, whether you want to save the home you have fallen behind on, or if you simply want to walk away from it.

What if you are behind on your mortgage, and you don't want to stay in the home? Chapter 7 bankruptcy can help. When a debtor falls several or more months behind on a mortgage, a foreclosure proceeding will often commence. A foreclosure allows the lender (usually a bank or mortgage company) after a series of court filings, to seize the home, sell it at auction, and then go after you personally if the sale price does not cover all of the mortgage and expenses. Certain lenders and law firms specialize in doing just this.

Homes often sell for very low prices in these sales, and if the mortgage was large, this could lead to a huge "deficiency judgment" against you. The lender will be able to put liens on your property (or future property) or even freeze your bank account. And these deficiency judgments do not go away. However, Chapter 7 bankruptcy can wipe out these deficiency judgments, no matter how large they become. When there is a large deficiency, bankruptcy may be the only option allowing you to go on with your financial life. The process is very straightforward, and you can even continue to live in the home until it is sold at auction. This is often months down the line. As long as you are willing to ultimately surrender the home, Chapter 7 bankruptcy is the perfect option.

On the other hand, what if you are behind on your mortgage and you want to save your home? You will need to file a Chapter 13 bankruptcy. Chapter 13 bankruptcy is more complicated, but it has many benefits. You can catch up on mortgage arrears by paying them back over 3 to 5 years, without interest or further penalties. Spreading out the amount owed over a period of 60 months can make repaying even large arrears feasible. For instance, if you are one year behind on a $1,000/month mortgage, you can catch up the arrears for $200 over 5 years. While this may not be possible if you have not started working, it is often very workable when full employment returns.

Another important feature of using Chapter 13 bankruptcy when you are behind on your mortgage is that it can stop a sheriff sale up until the very moment the gavel goes down, and it does not require negotiation with the lender. Loan modifications are often endless (and useless) endeavors. However, under Chapter 13 bankruptcy, there is no such negotiations. As long as the lender is paid under the terms of the mortgage, and all arrears are accounted for, they must accept the filing. Chapter 13 bankruptcy can help in all but the most hopeless situations.

Contact us if you have fallen behind on your mortgage and you wish to discuss your options. Whether you want to save your home, or surrender it, bankruptcy has an option for you.

Small Business Debts and Chapter 7 Bankruptcy

The bankruptcy code provides for large business debt relief with Chapter 11 bankruptcy. When Westinghouse, or the Penguins, or Donald Trump, filed for bankruptcy, it was a Chapter 11 bankruptcy. This is a very expensive and very complicated bankruptcy that allows for the restructuring of debts and/or liquidation of assets. With smaller businesses, Chapter 11 is unnecessary, and a normal consumer Chapter 7 bankruptcy can be filed instead.

Chapter 7 bankruptcy is normally filed on consumer debt (such as credit cards, medical bills, mortgages, and car payments). However, it can also be used to eliminate business debts that were personally accrued during the operation of the business. This is important because these debts are often quite large, larger than most personal debts. Fortunately, Chapter 7 bankruptcy can be used to eliminate these business debts once you decide to shut down the business.

What types of business debts can be discharged in Chapter 7 bankruptcy? Almost all types related to a small business. The most important type of debt is the remaining time on a business lease. Landlords can go after the entire remaining lease once you stop paying, and considering that commercial leases are normally for multiple years and tens-of-thousands of dollars, this can be quite significant. In most small business cases, the debtor is personally obligated on the lease, which allows the landlord to sue both the company and individual. Given the large amounts of money at stake with these leases, Chapter 7 bankruptcy may almost be a necessity. The lease can be eliminated whether there are 3 months or 3 years remaining, so there is no need to continue the business once you have decide it is best to shut it down.

Business loans and debts personally backed by debtor are also dischargeable. The range of these types of debts is as broad as the range of different types of businesses. It can include (but is not limited to) debts to vendors, service providers, or leased property. Loans used for equipment or products can be wiped out (though the items themselves could be property of the bankruptcy). It can also discharge loans that are part of a lawsuit.

Personal credit cards used in purchases related to the business can also be discharged. Debtors will often use their personal credit cards to keep a business going, often racking up tens-of-thousands of dollars of debt. These debts will be treated the same as business loans, and unless they were used to pay taxes, they will be dischargeable. These can be discharged along with personal credit card debt on consumer purchases.

Business vehicle loans can also be wiped out. A vehicle used in the business, but secured by a loan signed by the debtor can be surrendered and discharged. This is even the case if the vehicle was (or wasn't) used for personal reasons. Of course, the vehicle will need to be returned to the creditor.

One final point about Chapter 7 bankruptcies filed on business debts is that there is no means test. The means test (which looks at the last 6 months of income for a debtor looking to file bankruptcy to determine the type of bankruptcy they can file) does not apply when the debts listed are "primarily business in nature". This will be helpful for filers with higher incomes at the time of filing.

Contact us if your small business is facing large debts and you are considering bankruptcy. The bankruptcy code may allow you to avoid personal obligation and move on with your life. The end of your business doesn't need to be the end of your financial future.

What Happens After The Bankruptcy Meeting of Creditors?

I have discussed the bankruptcy Meeting of Creditors in some previous posts, including it's purposes and procedure. The Meeting of Creditors is very straightforward. The trustee assigned to your case reviews your petition, your income and expenses, and your property and debts. He or she verifies you are being truthful and thorough, and they also recommend (or object to) your case being discharged. But, your case is not quite complete when the Meeting of Creditors is over. There are still a few things to keep in mind.

I will mostly discuss what happens after the Meeting of Creditors in a Chapter 7 case. The Chapter 13 case typically lasts 3 to 5 years, so the time after the meeting is much greater, and the continued case is more complex. A Chapter 13 Meeting of Creditors is more of a beginning to your case than an end. There is still a lot to do.

The Chapter 7 Meeting of Creditors, on the other hand, signifies that your case is almost complete. The Chapter 7 discharge is usually official 60 days after the Meeting of Creditors. While you do not need to do anything yourself to bring about the discharge, you should keep an eye out for the notice in the mail. If you have not received it within 90 days, give your attorney a call. You should keep your discharge notice on file in case a creditor ever attempts to collect in the future. You may also need the notice of discharge in order to get student loan companies to accept your payments after bankruptcy (creditors are not allowed to attempt to collect from you while you are in bankruptcy, and some will want proof). So, keep an eye out for this discharge notice.

A responsibility you will need to remember after the Meeting of Creditors is to complete the second course, also known as the Financial Management Course. My office will order this course for you, but you will need to complete it over the phone or internet within 60 days of the Meeting of Creditors. Your case will be dismissed if you fail to do so, and you will be required to re-file EVERYTHING, with additional legal fees and costs. It's easy enough to complete, so there is no reason to take any chances... get it done as soon as possible. The consequences of not doing it are too great.

One final thing to keep in mind after the Meeting of Creditors is that you must notify your attorney of any inheritances, lawsuits settlements, insurance claims, or lottery winnings in the 6 months after your case is discharged. In some rare situations, creditors can make claims for a piece of this windfall. These situations are rare, but keep your attorney updated.

In every case, you should not transfer any property or take out any loans until your case is discharged. Your creditors will have the option of objecting to your discharge until 60 days after the Meeting of the Creditors, so it is safest to take no actions during this period, at least without consulting your attorney. I always tell my clients not to do anything there were told not to do in the months leading up to bankruptcy. Better safe than sorry.

Contact us if you have any questions about the Meeting of Creditors, or the period afterwards. There isn't much to do, but you should still be vigilant. Your case will almost be complete, there is no reason to needlessly raise an issue.

Savings and Bankruptcy

Most of my clients facing bankruptcy do not have much in the way of personal savings. In most cases, savings have been spent down to live. Bankruptcy becomes necessary because there are no savings. However, what savings my clients do have becomes that much more important. It is a final safety net, and losing those savings could be devastating. Fortunately, some savings will always be protected in bankruptcy.

Under the bankruptcy code, exemptions allow debtors to protect their personal property from their creditors. Every state has its own set of exemptions, and some allow debtors to opt for the Federal exemptions. This is the case in Pennsylvania. Under the Federal exemptions, debtors can protect their homes, cars, household items, retirement accounts, and most other goods. While there is no explicit exemption for savings, there is a "wildcard" exemption that can be used on anything. This exemption can be for over $11,000, depending on how much must be used to protect things such as equity in a home. It can be less than $2,000 if you have a large amount of equity in your home.

This "wildcard" exemption can be used to protect savings, and it is usually sufficient. Keep in mind, if your savings accounts are joint, only your 1/2 interest in the account must be exempted. Also, if you are married and filing jointly, your exemptions double. This can make protecting more savings possible. It will be important to review and list every account in your bankruptcy petition.

Your total of savings that needs to be exempted is set at the day of filing. So, if it will be close, you may want to file just before a new pay check arrives in your account, or just after you have paid your attorney, car payment, mortgage, or other major monthly expenses. Just because you must disclose your savings doesn't mean you must file at their highest tide. Discussing this planning with your attorney will be important if your savings are pushing the allowable limit. Intelligent bankruptcy planning is a must.

One thing you should NOT do with your savings before filing is hide it, or give it to your friends or family members to hold. This could be considered a fraudulent transfer, and it could prevent you from filing. It is better to speak to an experienced bankruptcy attorney before doing anything with your savings besides living off it. This also includes doing anything with your federal income tax return when you receive it, or it is due to be received..

Contact us if you have any questions about protecting your savings, or if you wish to set up a free consultation. I will be happy to review your situation and help you protect as much property as possible.

"Can I Keep My Car?"

This may be the most frequent question I am asked when I first meet with a new client. Thankfully, in most cases the answer is "yes", assuming you want to keep the car.

The Bankruptcy Code allow filers to keep their vehicles using the bankruptcy exemptions. The exemptions protect your car, home, and other personal property. The idea is to give filers a "fresh start", and a fresh start would not be possible if you were required to surrender all of your property to your creditors. You need your car to go to work, pick up your kids from school, and generally to live your life. So, it makes sense that bankruptcy law would you to continue doing these things by protecting your car.

However, this protection is not without some limitations and qualifications. First, in order to keep your car, you need to be able to continue to make payments. If you are behind on the payment, or do not have the income to make the payment going forward, you will need to surrender the car. Bankruptcy will wipe out your obligation on any amount owed, however the car will need to be surrendered. Bankruptcy law does not allow you to keep a car you cannot afford to pay for.

In some case, my clients want to surrender a car, either because the payment is too high, and/or the car does not run well (or at all). This is not a problem. In these cases, we will notify the finance company through the "Statement of Intent" that the car will be returned. You will be under no obligation to pay on the deficiency. Sometimes my clients believe they MUST keep their car, but they don't.

What if you are behind on the payment (perhaps due to temporary job loss) but wish to keep the car? You can still keep it through a Chapter 13 bankruptcy. Chapter 13 bankruptcy will allow you to catch up on the arrears and make the payment spread out over 3-to-5 years. Chapter 13 bankruptcy can even get your car back from the repo yard, as long as it has not been auctioned. Of course, this could make the car prohibitively expensive, but if you are comfortable with the payment and truly need the car, Chapter 13 bankruptcy can save it. It is rarely too late.

You cannot keep the car in Chapter 7 bankruptcy if you are behind on the payment. You will need to catch up (and keep the payments current) before filing. It is sometimes important to clearly explore all of these options before deciding what type of bankruptcy to file. Will you be able to finance another vehicle after bankruptcy? Do you owe far more than what the car is worth? What type of working condition is it in? These will be important questions to consider.

If you have multiple cars, or a motorcycle along with your car, the exemptions to protect them all may be strained. In these cases, we will need to examine the value and necessity of each vehicle. In any case, you can even keep multiple cars that are not exempt, as long as you file a Chapter 13 bankruptcy.

For now, it is only important to know that yes, you can keep your car in almost every situation in bankruptcy. Contact us if you wish to set up a free consultation. We will discuss any situation with your car and everything else relevant to filing bankruptcy.