Mitchell & Culp » Bankruptcy

Reference Materials for Home Affordable Modification Program (HAMP)

Heather Culp — Thu, 29 Jul 2010 11:52:24 +0000

Although the Home Affordable Modification Program (HAMP) has been widely reported as under-serving those in need, and hat has been our clients’ experience here, if you are considering filing for bankruptcy protection or have already done so, and you have also applied for HAMP, this guide explains policies and procedures related to borrower outreach and communication.

Chapter 13 must be considered for HAMP upon request

According to the American Bankruptcy Institute, “These guidelines, originally proposed in March, greatly increase the attractiveness of chapter 13 as a platform to obtain a mortgage modification under HAMP. Under the new provisions, homeowners in chapter 13 are required to be considered for HAMP upon request. The chapter 13 plan may provide for modified payments at 31 percent of gross income, thus allowing chapter 13 debtors a means to reduce their mortgage to an affordable level.”

We’ve written at great length about mortgage modifications. Mortgage companies and other creditors have legal counsel and you should also.

If you are experiencing financial difficulty, consult a qualified legal professional before taking any action.

Chapter 11 May Help Small Businesses Weather Downturn

Heather Culp — Thu, 22 Jul 2010 11:50:38 +0000

Since a good percentage of our bankruptcy clients are small business owners, I keep an eye out for articles on financing.

This article from Christian Science Monitor caught my eye because of the contradictory messages about small business lending. While the federal reserve system is “encouraging” banks to lend to small businesses, banks counter that small businesses simply aren’t asking for loans.

Banks have…been restricted by tightened lending standards, says Bob Seiwart, a senior vice president at the American Bankers Association, who manages the group’s Center for Commercial Banking and Business Lending. “Money is available to viable small businesses,” says Mr. Seiwart. “But the terms will be different than in the past, as they should be reflecting the added risk of lending in today’s economy: rates will be higher and loan terms will be shorter.” Regulators have also started to require that banks maintain a higher level of capital in order to lend. In the current economic climate, the new standards have been difficult to sustain, said Seiwart.

CNNMoney reported, “Loans to small businesses dropped from more than $710 billion in the second quarter of 2008 to less than $670 billion in the first quarter of 2010, according to bank financial reports submitted to the Federal Financial Institutions Examination Council.”

Chapter 11 for breathing room and restructuring

If you are a business owner who cannot fund operations, consider talking to a qualified bankruptcy attorney. One option that might fit your circumstances is Chapter 11 bankruptcy, which allows for an orderly reorganization. Chapter 11 provides the debtor time and space to reorganize its financial affairs and repay its creditors some or all of the debt owed. It is a vehicle through which debtors can reject or cancel certain leases, contracts, and other debt obligations, and get breathing room to obtain new financing, sell property, or otherwise arrange to repay creditors.

No one wants to file for bankruptcy protection, but it serves an important purpose in re-ordering a troubled economy in a regulated manner.

Get the facts about filing or avoiding bankruptcy by speaking to an experienced bankruptcy attorney. Many will offer you a free initial consultation.

Identity Theft and Bankruptcy

Heather Culp — Wed, 21 Jul 2010 11:22:55 +0000

The kind of identity theft that most often leads to bankruptcy is perpetuated by someone KNOWN to the victim. The usual scenario involves someone knowingly allowing a friend, family member or associate apply for and use credit in his or her name, because the other person isn’t credit worthy but agrees to pay the bills.

Surprise: they don’t.

This video may help you prevent identity fraud.

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.

The Power of the Automatic Stay

Heather Culp — Fri, 02 Jul 2010 01:44:17 +0000

Firethorne Country Club filed for Chapter 11 in March. In a prime example of the power of the automatic stay, the club’s owners bought some time to reorganize before a creditor could seize operations. A 2 p.m. hearing in federal court on was canceled after Firethorne’s owner’s filed the bankruptcy petition just after 1 p.m.

How the automatic stay works

The automatic stay applies to most creditors and is a statutory injunction that stops harassing telephone calls, lawsuits, foreclosures, garnishments, repossessions and all collection activities, the moment your bankruptcy petition is filed with the bankruptcy court. It places you and your property under the protection of the bankruptcy court and allows time and space for an orderly administration of the bankruptcy estate by a bankruptcy trustee.

The injunction takes effect against your creditors without you or your attorney appearing in court, filing a motion or waiting for an order from the bankruptcy court.
Read more: Firethorne Country Club files bankruptcy – Charlotte Business Journal

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.

Good-bye Forever: The Permanent Injunction

Heather Culp — Thu, 29 Apr 2010 11:49:25 +0000

We wrote about the automatic stay (immediate debtor relief) in an earlier post.

When the debtor has fulfilled his or her post-petition obligations, the bankruptcy case is closed and a discharge order is issued, pursuant to 11 U.S.C. §524, discharging (wiping out) eligible debts as of the date of the bankruptcy filing. When the bankruptcy court enters the discharge order, the debtor is granted permanent, lifetime relief from bankruptcy creditors in what’s called a discharge injunction. Section 524′s discharge injunction forbids “the commencement or continuantion of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not such discharge of debt is waived.”

The discharge order automatically gives rise to a permanent statutory injunction prohibiting creditors from taking any action to collect a discharged debt. Since the purpose of filing bankruptcy is to obtain relief from the pressure of paying your overwhelming debts, the discharge injunction is your most important protection.

The discharge injunction does not prevent a secured creditor from foreclosing its lien or mortgage and taking back the property. However, the discharge injunction prohibits the secured creditor from any attempt to collect a deficiency debt which results from a foreclosure. While it is unusual for creditors to violate the discharge injunction by attempting to collect a debt discharged in a bankruptcy, it does happen. We have represented folks who surrendered a mortgaged house in a bankruptcy, and had the mortgage debt discharged in the bankruptcy, only to have the mortgage company assert years later that they owed the mortgage debt (plus interest, late fees, penalties, etc.). The mortgage company’s error may be attributable to its failure to foreclose on the property and thus cut off the debtor’s legal title to (legal ownership of) the property, or human error by its personnel, or merger with another bank — but whatever the reason, it’s the fault of the creditor and a violation of the discharge injunction.

If you have been contacted by a creditor and believe that contact violates the discharge injunction, seek legal counsel.