truthaboutbankruptcy » Loans / Mortgages

Post-Bankruptcy Survival: Why Debit Card Limits Could Be Bad News For Debtors

poster1 — Fri, 11 Mar 2011 11:16:21 +0000

Post-Bankruptcy Survival: Why Debit Card Limits Could Be Bad News For Debtors-Image via Wikipedia

For debtors exiting bankruptcy, the ability to use debit cards for transactions requiring a credit card has been a lifesaver. From purchasing airline tickets to renting a car, post-bankruptcy debtors are depending on debit cards while they save enough cash for a secured credit card and build their credit so they can eventually qualify for an unsecured credit card. But some banks may be planning to limit how much debtors can charge onto their debit cards at one time because of proposed legislation designed to limit interchange fees. Interchange fees are the charges that retailers and other commercial ventures absorb so that they can use the debit card/credit card infrastructure provided by banks.

The revenue banks get from interchange fees helps to offset money lost from fraudulent transactions. So with the Fed’s proposed cap in place, banks argue they won’t have the money to protect themselves against fraud. And, of course, the bigger the purchase the bigger the risk, so banks are considering limiting consumers’ ability to pay by debit card.

“If banks cannot recapture their fraud-prevention costs, it is likely that a lower percentage of transactions at the point of sale would be approved,” Price said. “If the final rules that are issued in April look like the draft, there’s no question that it will impact how we and other issuers price deposit and payment services and what features and benefits are included.”

If banks limit transactions on debit cards we could see transactions being limited to as little as $100 or $50. This would be a nightmare for bankruptcy debtors who need debit cards while they rebuild their credit. Debtors exiting bankruptcy need to keep a close look at their bank’s debit card policy in the coming months. It might even be wise for post-bankruptcy debtors to switch banks if debit card limits are instituted.

(source: http://money.cnn.com/2011/03/10/pf/debit_cards_limit/index.htm?iid=RNM)

Creating Viable Businesses After Chapter 11 Bankruptcy

poster1 — Fri, 11 Mar 2011 11:09:11 +0000

Creating Viable Businesses After Chapter 11 Bankruptcy-Image via Wikipedia

The number of businesses filing bankruptcy has increased significantly over the past few years. But how does a company exiting Chapter 11 bankruptcy become truly viable? Let’s take a look at a few post-bankruptcy survival tips for businesses:

The secret to post-bankruptcy survival for businesses begins before they ever file bankruptcy. As you may have noticed, many companies work hard to pre-package their bankruptcy, complete with debtor-in-possession financing and creditor concessions. This type of bankruptcy planning can pave the wave for the type of smooth and speedy bankruptcy exit needed if a company plans to remain viable.
The next important step for businesses in Chapter 11 bankruptcy is to make sure that their business model is viable. As we have seen with companies such as Blockbuster and Borders, a business model which is outdated can become a liability and can cause creditors to question the very survival of the company. This type of doubt can doom the company to a lengthy and arduous bankruptcy and/or to liquidation.
Companies in Chapter 11 bankruptcy must forge supplier, vendor and leasing agreements which will make it possible for the company to profitably exist after bankruptcy. Companies such as Blockbuster and Borders found themselves battling to get out of expensive leases and unprofitable contracts with vendors. But if they or any other bankrupt company wants to survive after bankruptcy, they will need to renegotiate these contracts.
Win favorable payment terms during your bankruptcy negotiations. Post-bankruptcy survival is also dependent upon keeping your cashflow steady. In order to do this, bankrupt companies must negotiate payment terms which allow them to get paid quickly but also allow them to pay within a reasonable amount of time. Borders is a perfect example of a company which is experiencing cashflow problems because of unfavorable payment terms.

Cramming Down Bloated Vehicle Loans In Bankruptcy Fair And Just

poster1 — Thu, 03 Mar 2011 16:32:06 +0000

Image by dok1 via Flickr

Some have come out against the practice of cramming down vehicle loans which are more than the value of the automobile. But where is the justice in asking bankruptcy debtors to pay inflated debt when they are suppose to be getting a second chance financially through bankruptcy?

As is often the case with about one-third of new vehicle purchases, the debtor trades in their vehicle or “trades up.” Unfortunately the trade in often comes with a hefty price tag, as was the case with one debtor in a Chapter 13 bankruptcy.

Like millions of car purchasers every year, Marlene Penrod went into a dealership with an old car, a 1999 Ford Explorer, wanting to purchase a new car, a 2005 Ford Taurus. She held only registered, not legal, title to the Explorer. Her lender for the Explorer held legal title until she paid off the remainder of the loan. To get legal title to her Explorer, which she needed to trade it in for the Taurus, Penrod needed the entire debt on the Explorer paid off.

Penrod owed more on the Explorer than its agreed trade-in value, and this difference is known in the auto trade as “negative equity.” The bankruptcy court ruled that the negative equity portion of the loan could be treated as unsecured debt. The BAP affirmed this ruling, and the three-judge panel affirmed the BAP.

In this case, the debtor ended up with a loan for $31,000 on a vehicle which was only worth $25,000, and that was at the time of the sale. By the time the debtor filed bankruptcy, the vehicle’s value had depreciated so its worth was significantly less than the loan amount. Some say that the debtor should have been made to pay the full amount in their Chapter 13 bankruptcy, but we say that forcing the debtor to repay the full amount of that bloated loan would have defeated the purpose of the bankruptcy.

(source: http://www.leagle.com/xmlResult.aspx?xmldoc=In%20FCO%2020110228144.xml&docbase=CSLWAR3-2007-CURR)

Three Signs That You Need Bankruptcy Relief

poster1 — Thu, 03 Mar 2011 16:12:49 +0000

Three Signs That You Need Bankruptcy Relief-Image via Wikipedia

In 2010, more than 1.5 million Americans filed bankruptcy, that’s an increase of 9 percent from 2009 and the highest number of bankruptcy filings since the controversial bankruptcy reform law was passed in 2005. But surprisingly many experts believe that there are even more Americans out there who need to file bankruptcy but either are avoiding it or don’t understand that they have a real need for bankruptcy relief. Does that sound like you? Let’s take a look at three signs that you may need bankruptcy relief.

Your house is facing foreclosure and you can’t do anything about it because you’re money is tied up paying other debts. Many debtors who file bankruptcy do so because they want to save their home for foreclosure. Bankruptcy allows them to discharge other unsecured debts such as medical bills and credit card debts so that they can put more of their money towards paying the mortgage.
You are struggling to pay medical debts that you owe and which your insurance provider won’t cover. It’s an unfortunate reality, but many Americans are being financially ruined by medical debt which they simply cannot pay. Some of them don’t understand that bankruptcy can discharge all medical debt and give them a fresh financial start.
You are being sued by creditors and/or your wages are being garnished. Getting in a legal entanglement with creditors is a disaster which bankruptcy can handle. Once a debtor files bankruptcy, the automatic stay stops creditors’ legal proceedings against the debtor. This means that if a creditor is suing the debtor or garnishing their wages, after the bankruptcy is filed they must cease immediately.

(source: http://thedowneypatriot.com/bookmark/11594996-Choosing-the-right-type-of-bankruptcy-for-you)

Equitable Subrogation In Bankruptcy

poster1 — Thu, 03 Mar 2011 15:18:19 +0000

Equitable Subrogation In Bankruptcy Image by Getty Images via @daylife

Under most state laws a business is not allowed to assert an action or claim against someone in another state if it the action/claim arises for a transaction for which they are not properly registered with the state. This often arises in the case where lenders are not licensed to grant home equity loans in a certain state. The law usually states: “A foreign filing entity . . . may not maintain an action, suit, or proceeding in a court of this state . . . on a cause of action that arises out of the transaction of business in this state unless the foreign filing entity is registered in accordance with this chapter.” However, an entity sometimes seeks equitable subrogation, especially in bankruptcy so that they can pursue a claim.

“The doctrine of equitable subrogation has been repeatedly applied to preserve lien rights on homestead property.” “It has been called a legal fiction by which an obligation, extinguished by a payment made by a third person, is treated as still subsisting for the benefit of this third person.”

For example, there are a lot of bankruptcy cases where a bankruptcy debtor is fighting a lien which they say is invalid because the creditor violated the state law. This is often the case with home equity loans. The mortgage lender refinances a mortgage and gives a home equity loan to the debtor although the lender is not legally entitled to because they don’t have a license in that particular state. Once the debtor files bankruptcy, they attempt to invalidate the lien saying that because the lender was not licensed to give home equity loans, the lien is void and that the lender should get no repayment. However, the bankruptcy court has repeatedly found that while a mortgage lender may have violated the state law by giving a home equity loan, they still are entitled to repayment under equitable subrogation. The purpose of equitable subrogation is to prevent the unjust enrichment of the debtor who owed the debt.

(source: http://www.leagle.com/xmlResult.aspx?xmldoc=In%20BCO%2020110217729.xml&docbase=CSLWAR3-2007-CURR)

Four Options For Your Car Loan In Chapter 7 Bankruptcy

poster1 — Fri, 11 Feb 2011 13:30:01 +0000

Four Options For Your Car Loan In Chapter 7 Bankruptcy --Image via Wikipedia

Having a vehicle to get to and from work is an important part of recovering financially after Chapter 7 bankruptcy. That’s why bankruptcy offers many options for handling car loans. Let’s take a look at four options for handling your car loan in Chapter 7 bankruptcy:

If you can no longer afford your vehicle, bankruptcy gives you an opportunity to surrender it to the lender. Even if you owe a balance and the lender is unable to sell the car for enough to cover what you owe, you still won’t owe them any money after bankruptcy.
A bankruptcy debtor can usually keep the car and continue making payments after bankruptcy according to the original terms of the loan. The only thing with this option is that you will need to catch up on any delinquent payments if you want to keep your car. So if you file bankruptcy, don’t stop making payments on your vehicle if you plan to use this option.
Bankruptcy debtors may be asked to reaffirm their car loan if they want to keep the vehicle. Most bankruptcy attorneys advise against this route because it legally obligates the debtor to pay the existing loans as if they never filed bankruptcy. In option #2 mentioned above, if the debtor stops making payments, the only recourse the lender has is to repossess the vehicle.
If the bankruptcy debtor’s vehicle is upside down – they owe more than the car is worth, the bankruptcy court may allow them to refinance the vehicle at its true value while discharging the balance of the original loan. There are very few lenders who will do this, but some bankruptcy debtors have taken this route. Alternatively, some lenders may be willing to cram-down a bankruptcy debtor’s car loan so that it is in line with the vehicle true market value.

Student Loans: Chapter 7 vs. Chapter 13 Bankruptcy

poster1 — Wed, 02 Feb 2011 13:30:55 +0000

Student Loans: Chapter 7 vs. Chapter 13 Bankruptcy --Image via Wikipedia

Many debtors who are filing bankruptcy with student loans wonder if it would be better to include the loans in a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. Well the first thing debtors need to know is that the determination of whether they will file Chapter 7 or Chapter 13 bankruptcy is made by their income. If they earn below the median income for their household size and location, they may qualify for Chapter 7 bankruptcy. On the other hand, if they are an above median income earner they will need to take the Means Test to determine if they will need to file Chapter 7 bankruptcy or Chapter 13 bankruptcy. Fortunately, they may be allowed to deduct the costs of paying their student loans from their income in the Means Test. If this is so, above median income debtors paying student loans may be able to qualify for Chapter 7 bankruptcy if their income is reduce by those loan payments.

If the debtor paying student loans qualifies for Chapter 7 bankruptcy, they will most likely not be able to discharge their student loans in bankruptcy. The bankruptcy court will allow them to continue paying their student loan debt while discharging other non-priority unsecured debt such as credit card debt. Creditors in a Chapter 7 bankruptcy can’t argue that they are being treated unfairly if the debtor is allowed to pay student loans while discharging other debts because student loan debt is basically nondischargeable unless they cause undue hardship. One of the benefits of paying student loans in Chapter 7 bankruptcy is that the debtor does not accrue excess interest by delaying payments while waiting for a determination of their discharge. If a debtor files Chapter 13 bankruptcy with student loans, they may be allowed to make their student loan payments outside of the bankruptcy plan so that excess interest does not accrue. However, the debtor will need to work with their bankruptcy attorney to make sure that they can afford to make plan payments plus their student loan payments so they don’t default.

(source: http://www.bankruptcylawnetwork.com/2008/01/28/student-loan-payments-special-circumstance-in-means-testing/)

Is A Reverse Mortgage A “Solution” For Those Trying To Avoid Bankruptcy?

admin — Fri, 17 Dec 2010 21:23:52 +0000

As baby-boomers begin to retire, the reverse mortgage industry is poised for a massive expansion. But are reverse mortgages a “solution” for indebted seniors trying to avoid bankruptcy? Let’s take a look at a few facts.

Reverse mortgages are used by seniors who are “house rich” and “cash poor.” In order for a senior, someone who is at least 62 years old, to receive a reverse mortgage, he/she must own a home which is unencumbered by another mortgage or loan (unless it is a secondary loan). The reality is that many seniors moving into retirement will still owe mortgages on their primary homes, disqualifying them for a reverse mortgage unless the other mortgage is made secondary.
For seniors who are qualified for a reverse mortgage, there are some risks involved. While the mortgage borrower will receive monthly payments from their reverse mortgage, they are still responsible for paying their property taxes and insurance. Failure to pay their property taxes and insurance can result in a foreclosure. If the senior is already running into financial trouble and cannot pay their debts even with the reverse mortgage they may still be unable to pay their property taxes and home insurance policy making them vulnerable to foreclosure. Bankruptcy may allow some seniors to discharge old taxes under some circumstances and discharge credit card debt, freeing up more cash to be used on their home.
If the senior depletes the equity in their home, they may run into trouble paying for long-term care at some point in the future. Many seniors use their home equity to pay for long-term care because Medicaid will only pay for the most basic care and many high quality long-term care facilities are expensive. If a senior chooses bankruptcy to discharge their debts while keeping their home, they may be able to avoid depleting the equity in their home and leave more resources available for unexpected medical problems which could land them in a long-term care facility.

Bankruptcy & Divorce: Splitting The House In Bankruptcy

admin — Fri, 10 Dec 2010 23:15:50 +0000

Divorce and bankruptcy can be a sticky situation. Oftentimes the two parties involved are not amicable and want very different things. Let’s take the case of a divorced couple who have an agreement that they will both continue to make mortgage payments on a house; but one of the spouses stop paying on the mortgage. Maybe their income decreased or they lost their job. Whatever the case may be, they have stopped making payments on the house and are now considering bankruptcy. On the other hand, the other spouse is continuing to make payments on the mortgage and is trying to sell the house. What will happen if the nonpaying spouse files bankruptcy? Let’s take a look at a few possible scenarios:

If the nonpaying spouse files bankruptcy the bankruptcy trustee will take a look at the house and other assets to find out if he/she can sell them to pay creditors. If there is no equity in the house, then the bankruptcy trustee won’t sell the house; but the mortgage will still need to be paid. And the only way that the debtor in bankruptcy can be legally relieved of their obligation to pay is to surrender the house to the lender in bankruptcy. If this happens, the mortgage lender will sell the house in foreclosure. However, if the full amount of the mortgage is not covered by the sale of the home, the lender will go after the assets of the spouse who is not in bankruptcy. In the end the non-filing spouse could end up with no house and a large bill to pay after their spouse files bankruptcy.
If the nonpaying spouse files bankruptcy and there is equity in the home, the bankruptcy trustee will try to sell it and pay creditors with the filing-spouses’ share of the equity. The non-filing spouse’s equity share will be paid to them. But as the housing market is still depressed the payment the non-filing spouse receives may be smaller than it would have been if they had sold the house during a recovery.

The ideal solution is for the divorced couple to amicably resolve the issue with the house. Working with a divorce and bankruptcy attorney might help them resolve the issue.

Fraud on Rise for Reverse Mortgages

poster1 — Mon, 08 Feb 2010 12:01:01 +0000

A recent Wall Street Journal Article describes recent concerns regarding abuses associated with reverse mortgages. A reverse mortgage is a type of home equity loan available to persons who are over 62 years of age. The benefit of the reverse mortgage is that it can free up the equity for the senior to use for other expenses. There are no restrictions on how the proceeds can be used. At first blush, this seems like a win-win for a senior who is struggling with the constraints of a fixed income in a bad economy. The WSJ cautions, however, that incidents of fraud are on the rise when in the reverse mortgage fraud industry. One consumer, Lawrence Ford, obtained a reverse mortgage that he thought would improve his finances and enabled him to pay off his existing mortgage. When his lender threatened foreclosure, he learned that the reverse mortgage never went through because the title agent did not forward the funds to pay off the mortgage. The foreclosure would have left him homeless at 68 years of age. The even more disturbing part of the WSJ report is who is involved in the fraud. Everyone expects there to be a white collar criminal in the background waiting to pillage. Unfortunately, many of the new complaints of fraud also involve family members and caretakers. The increase is attributed to a recent change in reverse mortgage rules which increased the maximum amount to be borrowed from $417,000 to $625,500. Essentially, greed is still the motivator for fraud…. But you can reverse that trend.

A qualified bankruptcy attorney in your area can review all your options with you and help you make decisions that help you keep your home and resolve your debt issues. Depending on your retirement status and your age you are eligible for certain government programs. When you participate in a reverse mortgage program, you may obtain a sum of proceeds. Even though these proceeds are not considered income, they are considered assets which could disqualify your eligibility for certain assets—in addition to the fraud risks discussed above. Instead of risking your home or your much needed benefits, bankruptcy is a better option. First, you don’t have to worry about being scammed by an unscrupulous lender. The bankruptcy process includes safeguards like approval of plans by a bankruptcy judge to make sure that all parties are treated fairly. Second, you can resolve high debt issues, which will improve your cash flow… so you can afford to live. Third, you don’t get back lashed by the gains you obtain through bankruptcy being considered “assets” that would disqualify you for important programs.

If you are in retirement mode, or close to retirement mode, gambling with your finances is not an option. Bankruptcy is the best way to protect what you have and re-align your debt. To learn what options are available and are best for your situation, contact a qualified bankruptcy attorney to get more information. Even if you’re not over 62 years of age, your house is more than siding and a roof, it’s your home. Bankruptcy can help you protect your home.