Mitchell & Culp » Bankruptcy Counseling

Financial Strategies to Employ Until the Economy Improves

Heather Culp — Tue, 20 Jul 2010 12:02:41 +0000

The latest report from RealtyTrac concerning foreclosures says, “The roller coaster pattern of foreclosure activity over the past 12 months demonstrates that while the foreclosure problem is being managed on the surface, a massive number of distressed properties and underwater loans continues to sit just below the surface, threatening the fragile stability of the housing market.”

Based on these numbers, commentators on NPR theorized that it will be the end of 2013 before the foreclosure/REO/inventory problems are worked through, and the housing market can begin to recover.

Bankruptcy counseling/asset planning & protection session for strategies

This means that those in precarious financial health should consider a bankruptcy counseling session, whether they intend to file for bankruptcy protection of fight to prevent such a filing. Here’s why:

If you intend to sell your home to take the equity and pay off debts or live on it while you wait for the economy to improve
- You’ll be competing for buyers who expect to name their (low) price for your property
- You most probably will not get the price you hoped for
- You’ll most likely have to wait over 100 days to get a “ratified” contract
If you, like many Americans, feel your employment prospects are fragile, a bankruptcy attorney can help you develop asset planning and protection strategies to employ until the economy returns to better footing (perhaps in 2013). Asset planning refers to either placing assets beyond the reach of creditors, or making the process of reaching assets so difficult for creditors that it will deter collection efforts, or some combination of the two.
- If you consult with an attorney or planning professional before you have significant debt, or while you’re solvent, assets can be moved without concern.
- Unfortunately, we usually see clients when they have incurred significant debt – usually either from business obligations or questionable investments.
If you’ve guaranteed business loans or co-signed debts for others, the strength of the overall economy will bear on whether you can renew loans or how quickly loans will be called when payments are missed. An independent professional can help you assess your risks and help you develop strategies.
The collapse in the real estate market has also created another roadblock to obtaining a small business loan, since many business owners depend on the value of their real estate as collateral for loans.

For more information on bankruptcy counseling, asset planning and protection, or small business loan guarantees search our site.

First “Flipping,” Now “Flopping”

Heather Culp — Mon, 21 Jun 2010 12:02:13 +0000

Bloomberg Business Week published an article on a new scheme for profiting in the real estate market during a time of unprecedented foreclosures. Back during the boom, people “flipped” houses by buying low and selling high. During the bust, that same premise is being used to “flop” houses through the use of short sales.

In flopping, investors or home buyers hire brokers to assess a home for less than its market value and convince banks to accept a sale at that level. The buyer conceals from the lender that he has lined up a higher offer and then quickly resells the property for a profit. Someone interviewed in the article observed that investors often use real estate broker opinions, which may rely on drive-by inspections instead of full appraisals, to persuade lenders to sell at a low price.

Let’s not forget the impact of a short sale on the original owner

What the article failed to address was the impact of a short sale on the original homeowner. My partner, Rick Mitchell, and I have written extensively on short sales here. They are usually in the best interests of everyone but the seller for a number of reasons, most notably, debt forgiveness income.

The government, through its Home Affordable Foreclosure Alternatives Program, that month began offering as much as $1,500 to servicers, $2,000 to investors and $3,000 to homeowners who close short sales. The Bloomberg Business Week article quoted data from the National Association of Realtors that 12 percent of existing home sales, or almost 622,000 houses, were short sales in the 12 months through April.

If you are struggling to pay your bills and considering alternatives to bankruptcy, call a qualified bankruptcy practitioner for an expert opinion. Bankruptcy lawyers know how to avoid filing for bankruptcy.

Life After Bankruptcy

Heather Culp — Wed, 16 Jun 2010 11:38:42 +0000

There are scores of inaccurate beliefs about what happens to someone after they’ve received bankruptcy protection. What people read on the Internet, hear from friends and family, see in advertisements from “tax repair” services, “credit repair” services, “debt consolidation” services and the like is often (at best) misleading or misinformed, and (at worst) downright criminal.

Here are three common questions about life after bankruptcy.

Q: Will I be living off cash? How will I buy a car?

A: There are a couple of local lenders who specialize in car loans to people in open Chapter 7 bankruptcies, so car loans can be had — but the paperwork and process is burdensome, and the price is high. Many lenders will loan to Chapter 13 debtors during the five-year period their case is open, assuming the trustee has given permission for the loan and the Chapter 13 debtor has the income or other ways to make the payments.

Q: Is it true there’s a fat chance I”ll ever get another mortgage?

A: This is an open question. Until the recession, our bankruptcy clients reported that they were able to get a mortgage 1 to 2 years after discharge, assuming that they had the income to support the payments and had been responsible about making payments to any creditors they had post-bankruptcy. We just don’t know now what’s happening or is going to happen in this extraordinary economic cycle.

Q: Will I ever qualify for credit again?

A: Typically, Chapter 7 debtors begin receiving credit card offers within 6 months of their discharge order. Once you receive a discharge order in any chapter of bankruptcy (Chapter 7, Chapter 11 or Chapter 13), you can do anything anyone else can do — own a business, obtain lines of credit, have credit cards, etc. — but you may have to pay higher interest rates or provide some collateral or other security.

Get the facts as they pertain to your situation through a bankruptcy counseling session with a qualified attorney.

Beware Foreclosure Scams Part 2

Heather Culp — Wed, 09 Jun 2010 11:47:09 +0000

Part 1 of this series advised of free consumer protection resources for homeowners in foreclosure who receive offers to purchase their homes before the foreclosure process finalizes.

THESE OFFERS ARE USUALLY SCAMS.

Go into foreclosure and get sued at the same time?

Why are these presumably well-meaning offers usually scams? In general terms, if you enter into a contract to sell a home without the ability to convey title at closing (the reasons for which may vary), the would-be buyers could sue you to recover damages for failing to close the deal. In that case, you’ll have a foreclosure on your hands along with a judgment in court and, perhaps a hefty legal bill.

Reasons you may be unable to convey good title:

The foreclosure takes place before the sale can be concluded — you no longer own the house
The amount they offer does not satisfy the total owed on the house
- liens (including tax liens)
- penalties accrued by the mortgage company for being in arrears
- assessments by homeowners association

Our advice to homeowners who cannot afford their homes is to seek good legal advice, such as that obtained in a bankruptcy consultation. Bankruptcy may not be the answer, but it is certainly an option to consider along with others.

Get the facts on your legal rights and protections before making an emotional decision.

A Roof Over Your Head or Your Credit Score?

Heather Culp — Thu, 13 May 2010 11:29:54 +0000

Q: I’m unemployed and will soon have to choose between paying the mortgage and paying my other debts. If the unemployment continues I’ll have to choose between feeding my family and paying any bills at all, including the mortgage. What can I do to preserve my credit score while I look for a job and get back on track?

A: There’s no one-size-fits-all strategy. Within the past month, we’ve had several clients mention that their credit scores took a huge hit when they applied for a mortgage modification (ultimately unsuccessful), and that they wish they’d just pursued bankruptcy in the first place.

It is impossible to give one-size-fits-all advice in a blog post. If you find yourself unable to pay your bills, consider a credit counseling or bankruptcy counseling session with a qualified legal advisor.

I’ll Just Ignore the Certified Letters

Heather Culp — Fri, 16 Apr 2010 11:49:29 +0000

Some people think they can tie their creditors’ hands by ignoring requests for payment or by contesting their debts with a credit bureau. They also call our offices for help cleaning up their credit reports, which is not a service we offer.

If you wish to dispute an entry to your credit report, we suggest you use this letter guide, provided courtesy of the Consumer Credit Counseling Service of Orange County.

We advise sending the letter to all three bureaus (Equifax, TransUnion, and Experian), by certified mail, return receipt requested, and including your SSN and full legal name in the re: line.

These letters are the first step in trying to remove inaccurate information in a credit report. These letters will not result in the removal of accurate but negative information in a credit report; there is no procedure for such removal. ”Credit repair” and “credit clean-up” offers are that are commonly seen online, on the radio, on TV, etc. are scams.

Further, the mere sending of these letters, without any response from the creditor, does not constitute a defense to action by the creditor to seek payment for a valid debt that the borrower owes. We’ve had a few clients in recent months who incorrectly believe that sending these letters somehow cuts off their liability for a valid debt. This is incorrect.

If you have doubts about your liability for a debt or wish to approach your creditors to modify your debts, contact our offices or the offices of a qualified advisor for a credit card debt or bankruptcy counseling session.

Doesn’t the IRS Say My Debt Forgiveness Income Can’t Be Taxed?

Heather Culp — Wed, 14 Apr 2010 11:42:09 +0000

All this talk about mortgage principal reduction and mortgage modification in the general press is incomplete and often confusing. People searching for answers can even find that information on government websites is too general for their specific needs.

Take, for example, debt forgiveness income. This IRS page on The Mortgage Forgiveness Debt Relief Act and Debt Cancellation says, in part:

Is Cancellation of Debt income always taxable?

Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:

Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

Who am I to take issue with the IRS? Well, from our experience I feel obliged to qualify some of these statements.

The third bullet on insolvency: I hear this can be very time consuming and difficult to prove. The taxpayer needs an accountant to fill out and submit the required form, which the IRS often contests — all at a cost to the taxpayer.

The last bullet on non-recourse loans: This is a bit of a red herring, because I have never seen a non-recourse loan in all my years of practicing bankruptcy law. The statute is so easily avoided it’s pretty meaningless.

Whether debt forgiveness income is triggered is a legal and accounting question that depends completely on the facts of the case. Even if there is no debt forgiveness income resulting from a mortgage modification, and thus no tax consequence, 95%+ of our clients who cannot pay their mortgage as it becomes due have substantial other debts that they also cannot pay as they become due. This may be tens of thousands of dollars in credit card debt; medical debt; tax debt; business debt; or other debt.

If mortgage modification will still leave you with debts that you are unable to pay, then mortgage modification is not the answer to all of your problems. A bankruptcy counseling session with a qualified advisor is the best way for you to know what will help you, specifically.

This is a bit of a red herring, if you’re planning to post this on the website. I have never seen a non-recourse loan in all my years doing this. The statute is so easily avoided it’s pretty meaningless.

Mortgage Modification Mixups

Heather Culp — Tue, 26 Jan 2010 11:31:12 +0000

My law partner, Rick Mitchell, and I are disgusted by the false promises and abysmal performance of the nation’s mortgage lenders who claim to be participating in the “Making Homes Affordable” program. Homeowners were lured into this program with the expectation that they would get an answer within the “modification period” (usually 3-6 months) and that their credit would not be impacted by participating in the program.

With a nod to the NYT for the graphic above, the Obama administration’s $75 billion program to protect homeowners from foreclosure has done little more than prolong the pain for homeowners and forestall the reckoning for lenders.

As for credit scores, we had a client come in this month with a notice from their homeowner’s insurance company that, after 22 years of being insured with the same company, it was placing them in a high risk pool of insureds. Their new annual premium will be 18% higher than last year’s. The client has been making “partial mortgage payments” as conditioned by the mortgage company for the past six months and this hurt their credit score, which is a leading variable in how insurance companies price coverage. This client also reported that, despite making the agreed partial payments on time in full and sending all requested documentation to the lender, the mortgage company has lost that documentation twice and begun threatening foreclosure. What a mess.

The real scoop

We see clients in our offices weekly who were given false hope that the mortgage company would move quickly to modify their mortgages only to find their credit ruined and their homes foreclosed upon.

A fair majority of these homeowners would have been better served to stop paying their unaffordable mortgage and lived in their homes until they were foreclosed upon. Rather than remitting substantial monthly payments to their lender over a period of months (sometimes in excess of a year) in order to explore the possibility of modifying the mortgage(s) on a home that they ultimately cannot afford, these clients now tell us that they wish they’d never started down the modification road — and had instead used those monthly payments to save for a security deposit on a rental, pay for medical bills, etc.

A consultation with a good bankruptcy attorney may give you the context you need to decide whether mortgage modification is a viable option.

Charlotte Bankruptcy Education for Realtors & Financial Professionals

Richard Mitchell — Tue, 19 Jan 2010 14:57:03 +0000

With bankruptcy filings surging, people are turning to non-bankruptcy financial professionals for bankruptcy counseling. These professionals include real estate agents, non-bankruptcy attorneys, financial advisors and others. Then there’s the internet.

It’s human nature to try to help a client, but sometimes the advice given by someone with no bankruptcy training can do the person in financial distress more harm than good. People who’ve received advice from a trusted advisor are likely to trust what they say even when it’s incorrect. My law partner and I spend an inordinate amount of times debunking the so-called common knowledge that our clients walk in with.

This is why I hope to see a full house at the March 1 seminar I’ll be teaching with two other bankruptcy lawyers, “Nuts and Bolts of Bankruptcy Law.”

The course will begin with the fundamentals of various bankruptcy chapters and their subsequent procedures of filing and litigation. Additional topics in the seminar to include: administering the means test and permitted exceptions; understanding the duties for debtor’s counsel and the rules governing bankruptcy petition preparers; how to create Chapter 13 repayment plans that satisfy creditors and clients; converting a Chapter 13 to a Chapter 7 is permitted; and conducting and analyzing client intake interviews. The seminar will carry continuing education credit for Continuing Legal Education, Institute of Certified Bankers, International Association for Continuing Education Training and National Association of State Boards of Accountancy.

Held on March 1, 2010 from 9:00 – 4:30pm at Doubletree Hotel, 2600 Yorkmont Road, Charlotte, NC, seminar details available through: National Business Institute,  PO Box 3067 Eau Claire, WI 54702,  Phone: 800-930-6182, or  email:customerservice@nbi-sems.com

Press release: Spikes in Bankruptcy Filings Drives Demand for Bankruptcy Law Seminar

If you want to dispense valid information about bankruptcy, get training from a certified provider.

Surviving USAirways Layoffs & Furloughs

Heather Culp — Thu, 19 Nov 2009 17:39:30 +0000

Charlotte has fared better than other cities at the hands of USAirways, but it hasn’t been easy for those who’ve been laid off, furloughed or left doing the work of their former coworkers.

CEO Doug Parker says analysts predict the airline will lose $600 million this year and obviously such losses are untenable. Management will continue to explore ways to cut costs and grow revenues.

Seek Sound Advice

Our offices have seen an uptick in the number of USAirways employees seeking bankruptcy counseling, help negotiating with creditors and advice on short sales of their homes.

If you’re an employed airline employee in Charlotte, our advice is to walk a conservative financial path. Although management claims the Charlotte hub is a focus, the only sure things in life are death and taxes. These are extraordinary times for us all.

If you are laid off or furloughed, and are like 90% of Americans who are unaccustomed to budgeting, investigate a budgeting and money management course.

Get Control of Your Assets

If you have no idea how you are going to pay your mortgage and other debts in the short or long run, call our offices immediately. We will counsel you on your legal rights and, if appropriate, provide you with asset planning and protection strategies to implement while you look for another job or restructure your financial life. People too often consult us much later than they should, which limits their options.

We know how much you’re resisting calling a “bankruptcy lawyer.” The earlier you call, the more options you have to avoid bankruptcy.