Recent Blog Posts in January 2010

When contemplating filing bankruptcy, sometime individuals will max out their credit cards right before filing. This is a mistake, and could jeopardize your entire case.

Some debts in bankruptcy are non-dischargeable, meaning you will still be responsible to repay your debts even after your bankruptcy case is over. This includes luxury items charged to your credit cards within 90 days of filing. Someone may think, max out the cards and wait 90 days and then file. This too will not work.

Any debt that you ever incurred without the intent to repay is also non-dischargeable.  

By maxing out your cards you may risk the discharge not only on the maxed out cards but all your debt.

If you are thinking about filing bankruptcy stop using credits and talk to a lawyer.

Bankruptcy laws, like all laws, attempt to be fair (I admit not all laws actually are fair). In an effort to be fair to all creditors a bankruptcy debtor may not pay off one creditor in favor of another. In other words your relative cannot get all the money back you owe them and your credit card companies nothing.

Many times a bankruptcy debtor owes money to a relative and instead of listing the relative in the bankruptcy filing they pay off the loan before filing.

If this happens your case trustee or a creditor could bring a “Preference Action” against your relative in order to get back the money you paid them. This means that your relative will be sued in the bankruptcy Court and forced to repay the money.

Repaying Small loans will not likely result in a “preference action” against your relative. Also, after your bankruptcy case is over you are free to repay any creditor, including your relative.

Chapter 13 bankruptcy is often called a payment plan. In chapter 13 bankruptcy the debtor will make a monthly payment for either 3 or 5 years. The amount of the payment is reasonable based on the debtor’s income and expenses and not on how much debt the debtor has.

The debtor is required to have income. Unemployment income is enough to file. Of course unemployment does not last forever so the debtor filing with unemployment alone will need another source of income by the time unemployment runs out.

If you live in or around Framingham your §341 meeting will be at:

J.W. McCormack Post Office & Court House
5 Post Office Square, Room 325
Boston, MA 02109

If you file for bankruptcy and are behind on a public utility bill then you can discharge the arrearage and not lose service.

What happens is the amount you are behind will be discharged in your bankruptcy. Anything you incur for a charge after the date of filing bankruptcy you will be required to pay.

Public utilities include the electrical (National Grid) and gas (NStar) company.

Cable or satellite television and land or cell phones are not public utilities. Your obligation to repay these bills will be discharged in bankruptcy.  You may or may not lose service depending on the policy of your provider.

Water and sewer bills attach to your home so those will need to be repaid.

If you file bankruptcy you will keep your home; unless you want to surrender it to the bank.

In order to keep your home you will need to at a minimum be able to make the current monthly payment on the first mortgage.

If you are filing chapter 7 bankruptcy, you will need to be current with all mortgages on the home when you file and continue to be current after the case is over. This is just like it would be without the bankruptcy filing. As long as you are current with the mortgage payments the bank will not foreclose.

If you are behind on your mortgage, or have a second mortgage, worry not, you will still be able to keep your home. In chapter 13 you are given up to 5 years to catch-up the missed mortgage payments under a court approved plan. Your bank will legally be barred from foreclosing during your bankrutpcy.

Additionally, in chapter 13 you may be able to eliminate your second mortgage and keep your home. In order to eliminate the second mortgage you will have to prove to the Court that the value of your home is less than the value of your first mortgage.

Bankruptcy can help. As soon as your bankruptcy case is filed the “automatic stay comes into effect. (See 11 U.S.C. §362)

The automatic stay is much like the name implies, it happens automatically by the filing of your case, and it stays actions against you.

Simply put, as soon as you file bankruptcy your creditors are legally prohibited from calling any more.

Leave it there.

An individual filing a chapter 7 bankruptcy case you may be able to exempt up to $11,200 ($22,400 for a married couple) of cash and bank deposits.

If the money is exempt it will not be touched by the bankruptcy court, trustee, or your creditors. Simply put you can keep.

If you are filing a chapter 13 case there is no liquidation of your assets, unless you want there to be, so here again you can keep the money in your bank.

If you have cash and bank deposits that exceed the exemptions, fear not, you may be able to protect some of the non-exempt money by placing it into an IRA or putting a new roof on your home. I strongly encourage you to meet with a lawyer prior to planning any exemption.

No, your bankruptcy filing will not be in the newspaper.

However, the local newspapers here in Massachusetts does not list who filed for bankruptcy. Look for yourself, pick up the newspaper and look for the bankruptcy filings section, you will not find one.

You should know that foreclosure listings are in the newspaper. Also, if you were famous, perhaps a  town official or celebrity, then the paper may run a story regarding your bankruptcy.

When looking for home loan help, please know that help from the Department of Housing and Urban Development is free.

Below are some of the warning signs that HUD has put together:

" Beware of Foreclosure Rescue Scams - Help Is Free!

• Beware of anyone who asks you to pay a fee in exchange for a counseling service or modification of a delinquent loan.
• Scam artists often target homeowners who are struggling to meet their mortgage commitment or anxious to sell their homes. Recognize and avoid common scams.     
• Assistance from a HUD-approved housing counselor is FREE.
• Beware of people who pressure you to sign papers immediately, or who try to convince you that they can “save” your home if you sign or transfer over the deed to your house.
• Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt.
• Never make a mortgage payment to anyone other than your mortgage company without their approval."

For more information about scams and “Making Homes Affordable” please visit their website at

http://www.makinghomesaffordable.gov/

Student loans are typically non-dischargeable in bankruptcy. Therefore after your bankruptcy case is over you will still be personally liable on your student loans and have to pay them.

In very rare cases student loans are discharged in bankruptcy. In order to discharge student loans in bankruptcy you must prove that the loans cause an “undue hardship.” This would involve a trial within the bankruptcy court, often referred to as an Adversarial Proceeding or “AP.”

Successful litigants are typically are currently not working and will be unable to ever again have gainful employment.

If you filed bankruptcy under chapter 7 you will be able to obtain a new credit card very shortly after filing. Most banks will want your business, because (1) you have reduced your debt, (2) cannot get another bankruptcy discharge for 8 years, and (3) the bank will be able to charge you a high interest rate.

Most individuals are able to get unsecured credit cards, however, in some cases the bank my require you to get a secured credit card. A secured credit card is much like the traditional unsecured card, however you will be required to secure the card with a deposit. This is different than a prepaid card. With the secured card you will still need to pay the monthly bill.

If you are in chapter 11 or 13 you are not permitted to get a credit card or other loans until after the case is over.

In either chapter getting a new card and using it responsibly will increase your credit score and rehabilitate your credit score. Using your card responsibly should include paying your bill on time and never charging more than 30% of your credit limit.

Yes, you can but you will need permission of the Court.

While you are in chapter 13 bankruptcy you are prohibited from incurring new debt without permission of the Court. This means no new credit cards, home loans, car loans, or other sorts of debt until your case is over.

However, the Court will grant you permission to incur certain types of debt. The Court will understand that a car is a necessity for you to get to work and run your daily life. Therefore the Court will grant permission for you to incur a new car loan that is reasonable. Luxury cars are not likely necessary nor are trucks or SUVs, unless you need the truck for work, or have an exceptionally large family.

To better serve our clients from Framingham, Natick, and all of Middlesex County the Law Office of Robert W. Kovacs, Jr. is pleased to announce the opening of our Framingham Office.

The address is:

945 Concord Street
Framingham, MA 01701

Our Worcester office continues to be located at:

172 Shrewsbury Street

Worcester, MA 01604

The Framingham Office will open on February 1, 2010. More details will be announced shortly.

If you have any questions please call us at:

(508) 926 - 8833

Worcester:

Worcester U.S. Trustee Office
446 Main Street, 1st Floor
Worcester, MA 01608

Boston:

J.W. McCormack Post Office & Court House
5 Post Office Square, Room 325
Boston, MA 02109

Filing bankruptcy does not prevent you from buying any property, including a new home or cars. However, the better question is; when will a bank give me a mortgage for a new home?

Chapter 7 bankruptcy will be listed on your credit report for ten years after you file bankruptcy. The listing of the bankruptcy on your credit report is not a legal bar to obtaining credit; however, it is a factor that a bank will use in determining whether or not to extend you credit.

Smaller loans, such as credit cards, will be available to most debtors shortly after filing. Most debtors start getting solicitations for post-petition credit cards within a month or two of filing.

Car loans may also be available right after the case is filed but you should expect a very high interest rate.

As for home mortgage, it will likely take 2 – 3 years until you can expect to be approved. However, some individuals get a new home mortgage in as little as 1 – 2 years or sooner.

The bank’s decision to extend credit is unique based on your situation, the bank will look at factors such as, credit reports and score and income to debt ratio to determine to extend credit to you.

 Filing bankruptcy will automatically stay any foreclosure proceeding. So long as your bankruptcy case is filed prior to the actual foreclosure sale.  

If your intention is to permanently save your home from foreclosure then you will need to catch-up your missed mortgage payments in chapter 11, 12, or 13.

In chapter 13 you will have to make a monthly payment for either 3 or 5 years. This payment must be enough to pay back the entire arrears on at least the first mortgage.

In some cases you are able to eliminate the second mortgage and keep your home.  

If you are unable to afford your car loan you may chose to voluntarily surrender the car to the bank.  After the bank has the car they will sell the car at an auction. They will apply the proceeds of the sale to the outstanding balance you have on the loan. If the bank collects more than you owe on the loan they will send you a check. However, if they do not collect enough at the auction to pay off the entire loan the bank will send you a bill for the deficiency.

If you owe a deficiency, you have a few opinions. Of course you could pay the bill, work out a payment plan with the bank.

Bankruptcy may also be an option. Bankruptcy will discharge your legal obligation to pay the deficiency.

Also, you may be able to save the car and reduce your car payments in bankruptcy by redeeming in chapter 7 or cramming down in chapter 13.

The following is a list of FREE internet sites that may help in the valuing of your home:

http://realestate.yahoo.com/Homevalues

http://www.zillow.com/

http://www.cyberhomes.com/

http://www.bankofamerica.com/modular/index.cfm?template=hc_home_worth_modular

It should be noted, that often the internet values do not reflect the current value of your home and a formal appraisal or brokers price opinion are needed to determine value.

The goal for most individuals in bankruptcy is to receive a discharge of their debts. A discharge is a release of your legal obligation to repay your debt. With limited exception the discharge will discharge all your debt including your car loan.

However, in order to keep the car post bankruptcy you MUST continue to make the payments to avoid repossession.

Reaffirmation is a process in which an agreement is filed with the Court which says that the debtor is again personally liable on the debt.

In Massachusetts this agreement is unnecessary. Under Massachusetts State Law a bank cannot repossess a car unless there is a default which must includes one or more missed payments (see MGL Chapter 255 §20A).

Therefore, as long as you remain current on your car loan, in Massachusetts, you are able to keep the car without threat of repossession.

Banks will often point to federal law to scare people in to reaffirming. The federal law states that if there is no reaffirmation agreement then the bank can repossess even if you are current on the payments. However, your bank is bound to repossess under state law. So do not fall for this scare tactic.

If you have any questions about reaffirmation please feel free to give me call.

The goal for most individuals in bankruptcy is to receive a discharge of their debts. A discharge is a release of your legal obligation to repay your debt. With limited exception the discharge will discharge all your debt including credit card bills, medical bills, auto loans, home mortgages, and some tax obligations.

Some debts do not typically get discharged in bankruptcy including student loans, some tax obligations, child support, alimony and government or court fines (such as a speeding tickets).

The discharge does not typically affect a lien held on property. Therefore in order to for the debtor to keep property that has been used as collateral to secure a loan, the debtor must continue to make payments.

Some liens can be removed in bankruptcy. Liens held by the second mortgage can be removed, in this case the debtor will be able to keep their home and never again have to pay the second mortgage.

Judicial liens can also be removed. These are liens that have come out of a court action. Typically these occur after a credit card company has sued you over a debt and then they put a lien on your home.  

This is called “Setoff.”  A bank has the right to “setoff” one account against another. For example if you have a loan and a checking account (or other account with money on deposit) at the same bank and you stop paying the loan the bank may pay the loan by taking the money out of your checking account. The bank does not have to tell you in advance of doing this.

What to do? How to avoid setoff?

If you are falling behind on loan payments and have a bank account at the same bank. Then simply withdraw your money from the banking account and go to a new bank. Since there is no money in your banking account there can be no setoff.

If you are struggling with your home payments you may be able to get a bank approved home loan modification.

The government program is run through the Department of Housing and Urban Development. HUD has setup a website for dealing with the issue of home loan modification called Making Homes Affordable, http://makinghomeaffordable.gov/ .

Watch out for companies or lawyers that require a fee for home loan modification help. The government program is FREE and you should not be asked to pay. Remember “if asked to pay walk away.”

The report http://money.cnn.com/2010/01/06/news/economy/job_cuts/index.htm indicates that the amount of jobs lost in December 2009 where less than that of November 2009.

It is good news that there are less people losing their jobs; however, the article reports that still 84,000 jobs were lost in December 2009. Further 2009 looks to be a record setter in jobs lost for Americans.

After filing for bankruptcy a debtor is protected from discriminatory treatment because of the bankruptcy filing.

Section 525(b) of the Bankruptcy Code reads:

 “(b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—

(1)  is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;

(2)  has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or

(3)   has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.”

What does this mean for you?

Employers cannot fire you because you filed bankruptcy and potential employers cannot decide against hiring you because of your bankruptcy filing.

If you fear you have been fired or denied employment because of a bankruptcy filing then give the office a call and we can discuss you rights, you may even be entitled to money damages.

With so much heard about credit reports and scores it is important to check your credit report regularly.

There are three major organizations that report on your credit, Experian, Trans Union, and Equifax. Each, upon your request, is required to provide you a copy of your report at no cost each year.

You can go to www.annualcreditreport.com to request your free report. The site will take you through the process of getting the reports by mail or over the internet.

Be sure to get all three reports as they are not always consistent. Also, you can dispute inaccurate information on-line or through the mail. Typically disputing an incorrect item is simple. Be careful of anyone that promises to remove information from your credit report for a fee.

Finally, if you want your credit score you will be charged a fee.

Very often the value of your car is much lower than the amount of your outstanding loan. (Check the value of your car at Kelly Blue Book, www.KBB.com  ). If this is your case bankruptcy may be able to help you reduce the amount of your loan and/or reduce your payments.

Debtors filing chapter 7 have the ability to redeem their car. Redemption is a process during your bankruptcy case where you pay to the bank the current value of the car. The amount of the loan that exceeds the value of the car is discharged.

Most debtors do not have enough cash to pay the current value of their car. However, there are banks that have loan programs for redeeming (checkout www.722redemption.com ). Your new loan payment will be less than your current payments because the principle of the new loan will be much less.

Debtors filing chapter 13 are unable to redeem their car, however they are able to cram down. Cram down is much like redemption without having to get a new loan. Chapter 13 is a court ordered payment plan, which is reasonable based upon the debtor’s income.

Through the plan you can repay your bank the current value of the car and then be discharged from the remainder of the loan. In order to cram down in chapter 13 the car loan must have been incurred more than 910 days prior to filing bankruptcy. At the conclusion of the chapter 13 plan you will own the car free of the lien.

Despite a recent stabilization in home prices, CNN Money is reporting that home values will continue to decline in 2010 (http://money.cnn.com/2009/12/31/real_estate/home_price_drop/index.htm) .

If the housing market continues to decline more people, and perhaps you, will be able to eliminate your second mortgage and retain your home in chapter 13 bankruptcy.

If the value of your home is equal to or less than the value of your home then you will be able to eliminate your second mortgage in chapter 13. Since the housing market is continuing to decline you may be able to eliminate your second mortgage in 2010 even if you were unable to in years past.

In chapter 13 you make a reasonable monthly payment on your debts, based on your income and expenses and not on how much money you owe creditors, for either 3 or 5 years. After making all the payments whatever has not been paid through the bankruptcy is discharged.

A common question that comes up is: “Can I file bankruptcy without my spouse?”

The Answer, Yes. If you are a married couple you may file as an individual or as a couple.

If an individual files, the non-filing spouse’s credit will not be impacted by the bankruptcy filing of his or her spouse.  If you are filing as an individual and you are married you should watch out, because if there is joint debt (with both husband and wife’s name on the debt) the bankruptcy filing of one spouse will leave the non-filing spouse on the hook for the entire balance on the loan.