Discharging Credit Card Debt in Bankruptcy

image of VISA credit cardIn an economy where housing problems dominate the headlines, high interest credit cards still remain one of the largest issues consumers face in their fight for financial health. It should come as no surprise to learn then, that credit card debt is still one of the primary reasons consumers are forced to file for bankruptcy. Incurring credit card debt can happen easily enough: your furnace suddenly stops working and needs to be replaced, your car needs new brakes, or you simply find yourself a little short at the end of the month and need to use a credit card to buy a week’s worth of groceries.

But if you are only able to pay the minimum balances each month, you find yourself in a never-ending cycle of paying only the interest back, and never paying down the principal. You pay hundreds or thousands over time to the credit card companies, but make no progress in paying back the debt. And should you have trouble paying even the minimum balances, you find that not only are the credit card companies unwilling to work with you to lower your interest or principal, they charge you outrageous late fees and even higher interest rates, making it next to impossible to get out of debt. Moreover, once a credit card account becomes delinquent, the banks will charge off what is owed as bad debt and sell the account to a debt collector who will call, harass and even sue if the past due balances are not paid immediately. Mounting pressure from debt collectors pushes many consumers through the front door of a bankruptcy office because bankruptcy protection is the cheapest and most prudent way to get out from under unmanageable credit card debt. Continue reading

Discharging Junior Mortgages In Bankruptcy

image of coins in handWith the decline in property values over the last few years, many people are finding that their homes have little to no equity. If you owe more on your home than it is worth, you may be able to file a Chapter 13 bankruptcy and “strip” the junior mortgage(s) off. In other words, if you have a junior mortgage (a 2nd mortgage, 3rd mortgage, or home equity loan), and your house does not have enough equity to secure these mortgages, then you may be able to file a Chapter 13 bankruptcy, stop making payments on the junior mortgage(s), and discharge the debt in bankruptcy.

This process is called “Lien Stripping”. Once your Chapter 13 is filed, you can file an adversary proceeding in bankruptcy court to “strip off” the junior mortgage(s) and reclassify the mortgage(s) as unsecured debt. Under a Chapter 13 bankruptcy, unsecured creditors take last priority and depending on your income, often do not have to be paid back at all. Continue reading

Life After Bankruptcy

An insightful article from the New York Times. In many instances, the fresh start that a bankruptcy provides can shorten the time that it takes for a person to qualify for a mortgage. — Jim Stanek

Life After Bankruptcy

Every month tens of thousands of people file for federal bankruptcy protection, mostly to wipe out debts and start anew.

Many of these filers mistakenly think that it will be many years before they can obtain a mortgage or refinance an existing home loan, if they ever can — perhaps because notice of a bankruptcy filing typically stays on a credit report for 7 to 10 years. In reality, they could become eligible in as little as one year, as long as they work diligently to improve their financial picture.

Mortgages guaranteed by the Federal Housing Administration are permitted one year after a consumer exits a Chapter 13 bankruptcy reorganization, which requires a repayment plan that is often a fraction of what is owed, and two years after the more common Chapter 7 liquidation, which discharges most or all debts. Conventional mortgage guidelines from Fannie Mae and Freddie Mac, meanwhile, call for a wait of two to four years.

“There’s a lot of other things that go into your ability to get approved” for a mortgage after a bankruptcy, said John Walsh, the president of Total Mortgage, a direct lender based in Milford, Conn.

The most important point, he and other industry experts say, is that consumers re-establish their credit and show that they can manage it responsibly. They can do this by paying rent and utility bills on time, or perhaps by obtaining a secured credit card, according to Mr. Walsh.

Read more by Vickie Elmer at NYTimes.com

The Changing Perception of Bankruptcy

image of 100 dollar billDo you know what Abraham Lincoln, Thomas Jefferson, Ben Franklin, Ulysses S. Grant, Mark Twain, Henry Ford, Walt Disney, Wayne Newton, Donald Trump, Larry King, Willie Nelson, Tom Petty, Dorothy Hamill, and Burt Reynolds all have in common? They all have filed for bankruptcy, some more than once.

While the perception of bankruptcy is often negative, it shouldn’t be. Bankruptcy does not cause financial problems, it comes as a result of them. When Henry Ford realized he had more debt than he could pay, he didn’t wallow in self-pity and inactivity, he acted in his best interests by using bankruptcy as a financial tool to relieve him of debt so that he could continue to move forward. Had he not been able to effectively deal with his debt through the bankruptcy process he may never have become the enormous success that he later became. Bankruptcy is not something to be feared, it is an opportunity to start fresh financially. Continue reading

Cramdown of Auto Loans In Bankruptcy: Saving Your Car and Money in Chapter 13

image of white carIf your vehicle is worth less than you owe, or you are paying excessive interest, cramming down a car loan in a Chapter 13 bankruptcy can reduce your balance, cut your interest rate, and slash your payment. A “cramdown” of an auto loan is a major benefit available in Chapter 13 that is not available in Chapter 7 bankruptcy.

Bad car loans can be devastating financially. As a bankruptcy firm in Wisconsin, we have seen clients with auto loans nearly two times the value of their vehicles and at higher than 20% interest. However, it is not only debtors with egregiously bad loans who benefit from Chapter 13 cramdowns. Unexpected depreciation of a vehicle’s value and a modestly high interest rate will quickly place almost anyone underwater on a car loan. Continue reading

Mortgage Modification Mediation in Bankruptcy

image of judge's gavelIn response to the foreclosure crisis, bankruptcy courts in several districts, including the Eastern District of Wisconsin, have adopted mortgage modification mediation programs. These programs attempt to provide some relief to debtors, especially those whose homes are in foreclosure or whose loan terms are more than they can afford. They allow parties to discuss mortgage modification in an informal setting as well as to provide a “fast track” for both the debtors and the lenders. The mediations are for negotiation purposes only and neither the debtors nor the lenders are required to enter into any agreement. The Bankruptcy Court will not force any modification and will make no adjudication except with the consent of both parties. Common issues to negotiate include a reduced interest rate (either temporary or permanent), moving payment for mortgage arrears to the end of the loan, and, in some instances, reducing the principal. Any or all of these outcomes are possible and will greatly improve the success of a Chapter 13 plan.

The program is streamlined to reduce costs, save considerable time, and make it easier for the parties to facilitate a loan modification. Mortgage Modification Mediation in the Eastern District of Wisconsin has helped several people work out meaningful mortgage modifications. Continue reading

Protecting Your Assets When Filing For Bankruptcy

In most cases, when a person is filing for bankruptcy, he will be allowed to keep all of his assets. The rules that govern which assets are protected are referred to as “exemptions”, and these are set by the laws of the state in which you reside. While bankruptcy cases are done through the federal court system, the federal bankruptcy laws allow each state to determine which assets a person is allowed to keep when a bankruptcy case is filed. Exemptions vary, from one state to another. Some states have generous exemptions, some don’t. Proper exemption planning is essential to successfully accomplishing the debtor’s goal of protecting assets. However, great care must be taken. Non-attorneys, such as the so-called legal document preparers, paralegals, or other non-attorneys, cannot be relied upon to properly guide a person through the legal maze of bankruptcy laws. If the property has more equity in it than can be covered by every applicable exemption, (sometimes an asset may be cross-covered by more than one exemption) the bankruptcy trustee may sell the property. When the trustee sells the asset, the trustee will pay the amount of the exemption to the debtor, and retain the nonexempt amount of equity for the bankruptcy estate. Continue reading

Bankruptcy and Utilities – Preventing Disconnection

image of a utility meterThe filing of a bankruptcy can help you to prevent your utility company from disconnecting your service, as well as to discharge any past due amounts. If you are behind on payments to your gas or electric provider, bankruptcy may provide a very useful remedy to you.

Wisconsin law states that if the utility service directly or indirectly affects the primary heat source of the home, consumers cannot be disconnected during the heating moratorium period from November 1 to April 15. But once April 15th comes around, if you are behind on utility payments, you are subject to disconnection.

The Bankruptcy Code specifically addresses utilities, and provides that a “utility may not alter, refuse or discontinue service” to a debtor who files for bankruptcy. In addition, the Bankruptcy Code allows you to discharge any amounts owed to the utility provider, and prevents that utility provider from disconnecting service as a result of those past due amounts. Continue reading

If You Are A Homeowner Facing Foreclosure

foreclosure-home-sale-signIf you are facing foreclosure, bankruptcy might be able to help. A Chapter 13 bankruptcy can provide an effective solution to enable you to keep your home.

What is Foreclosure?

Foreclosure is the legal process the lender must go through in order to take over ownership of a property after the homeowner falls behind on mortgage payments. The process involves numerous steps, and takes several months. The lender is required to notify you when the foreclosure process is initiated, and due to the length of the process you will still have time to consult with an attorney after a foreclosure is begun to see if Chapter 13 is a good option to keep you in your home. Continue reading

Improving Your Credit Report After Bankruptcy

Many consumers are under the impression that going through bankruptcy will ruin a person’s credit score. While it is true that the entry of a recent bankruptcy filing on a credit report may decrease the overall score, a consumer still has ways that he or she can improve that score. The person will want to take certain steps before and after filing for bankruptcy. Additionally, it would be wise for an individual considering filing for bankruptcy to do such with a reputable attorney. A reputable attorney will have the skills necessary to navigate the laws in a way that benefits the debtor. Continue reading