Recent Posts in Asset Protection Category

Starting today, June 1, 2010, HAMP Home Loan Modifications cannot be denied because you are in an active chapter 7 or 13 bankruptcy.

This is significant for many consumers. Many consumers facing foreclosure need both bankruptcy and a modification.

A bankruptcy filing will automatically stay a foreclosure on your home and a modification of the terms of the mortgage will make the home more affordable.

For more information about this important change please visit https://www.hmpadmin.com/portal/docs/hamp_servicer/sd1002.pdf

Chapter 13 bankruptcy is a payment plan. In chapter 13 the debtor makes a reasonable monthly payment based on his or her income and expenses. Whatever does not get paid back to creditors through the plan is discharged and you never have to repay again.

In order to determine the amount of the monthly payment we first look to the debtor’s income and then take off deductions for living expenses. Such as utilities, rent, mortgage, car loan payments, food, gas, retirement contributions, and life insurance to name a few.

With some careful planning we can reduce the amount of the chapter 13 plan payment. The simplest way to reduce the payment is to increase the amount of you contribute to your employee retirement plan. For every dollar you contribute you have to pay one less dollar to your creditors. However, your contribution cannot exceed 15% of your annual salary.

If you owe the IRS or the Massachusetts Department of Revenue (“DOR”) back taxes then filing bankruptcy may help.

Filing bankruptcy under chapter 13 or 11 will put you into an interest free repayment plan. Yes, you will have to pay the IRS or DOR back, but it will be INTEREST FREE, penalty free, and you will be able to do it over 5 years in chapter 13 and possibly even longer in chapter 11.

It should also be noted that some taxes will get discharged in bankruptcy meaning you never have to pay them back.

For most debtors filing under chapter 7, 11, 12, or 13 you are able to keep your tax return without surrendering it over to the case trustee or the estate.

In bankruptcy you are able to exempt certain asset from your creditors and the bankruptcy estate. Although there is no specific exemption for tax returns, the federal exemptions allow for a “wild card” exemption for up to $11,200 per person or $22,400 for married debtors filing jointly.

Because of the large value of the wild card exemption it is rare that a debtor will lose their tax return in bankruptcy.

Also, individuals filing under chapter 11, 12, or 13 will simply factor their anticipated tax return into their monthly budget as to not lose their tax return over the course of the bankruptcy plan.

In order to protect an asset a person thinking about filing bankruptcy may transfer an asset out of her name and into the name of another. This can include a home, vacation home, car, boat, plan, motorcycle, or even cash in the bank.

This is a huge bankruptcy mistake.

This would be an attempt to defraud your creditors. It could result in, a denial of the bankruptcy discharge, loss of the asset, or even criminal actions.

The good news. The asset, would be bankruptcy debtors are trying to hide can typically be exempted in a chapter 7 bankruptcy or protected in chapter 13 filing. In short if you try to hide something from the Court you are risking a lot with no possible reward.

Before taking any action with your assets talk to a qualified attorney.

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.

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.

 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 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.”

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.

In an article from the Worcester Telegram and Gazette (http://www.telegram.com/article/20091230/NEWS/912309982/1002) it is reported that foreclosure petitions in Massachusetts remain high.

The good news is that the actual number of foreclosures that have been completed for 2009 has been less than 2008. However, the number of foreclosures started with the filing of a Petition to Foreclose has increased in 2009 from 2008.

Bankruptcy has several options that may help if you have facing foreclosure, in chapter 13 you may be able to eliminate your second mortgage forever, and catch up the missed payments with the first mortgage.

Additionally, you may be able to eliminate all your unsecured debt in either chapter 7 or 13 thus freeing up money to pay towards the mortgage.

If you are facing foreclosure, please give me a call and we can find a solution to the problem. Bankruptcy can stop the foreclosure and save your home BUT ONLY if you file before the foreclosure sale.

If you can no longer meet your financial obligations bankruptcy may be able to relieve the stress related with too much debt.

There are two concerns if you have recently charged a lot on your credit cards prior to filing bankruptcy.

First, luxury goods charged on your credit cards that exceed about $450 within 90 days of filing bankruptcy are not dischargeable in bankruptcy. Luxury items are not defined in the bankruptcy code, however, the law tells us that luxury items do not includes charges for things that are reasonably necessary for the support of you and your dependents. Therefore, food, gas, and clothing for you and your family are not likely viewed as luxury items.

If you have recently charged luxury items on your cards then you may need to wait up to 90 days until you should file bankruptcy.

Second, anything charged to your credit cards without a present intent to repay is non-dischargeable in bankruptcy. This is a more difficult issue. This means that at the time you made the charge to your card you thought to yourself that you would never repay the debt. This is very difficult to prove for creditors.

If you are considering bankruptcy I would be happy to sit down with you to discuss all your opinions.

Around this time of the year many struggling families look to their income tax return to provide some relief. These same struggling families often consider filing for bankruptcy.

A common question becomes: Can I file bankruptcy and keep my tax returns?

Typically, yes an individual can keep his or her tax return.

Although everyone’s bankruptcy case is different and an individual assessment of your case will be required, most debtors are able to completely exempt their tax return, thus protecting from the case trustee and your creditors.

If, you are in the small minority of debtors that are unable to fully exempt your tax return, you may be able to plan your exemptions and spend down some of the tax return prior to filing for bankruptcy. Thus, you will keep the entire tax return.

Please feel free to give me a call to discuss your particular case and determine the best way to protect your tax return and all your assets from your creditors and the bankruptcy trustee.