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bankruptcy

Can Bankruptcy Actually SAVE Your Home?

Millions of underwater debtors including individuals and businesses have turned to bankruptcy for relief. While bankruptcy is a powerful way to shield debtors from further debt collection efforts, it does not solve all financial problems. Additionally, there are different things that bankruptcy can accomplish based on the type of bankruptcy that is filed.


Can Do

Bankruptcy can do a lot for debtors, including: 

Eliminate Unsecured Debt

Both Chapter 7 and Chapter 13 bankruptcy fillings can help wipe out unsecured debt, such as credit card debt. Other debts may include personal loans, medical debt and unsecured business debt. These debts are those that the creditor does not have a lien against the property and does not have the right to repossess the item purchased if the debtor does not pay off the debt. 

Although Chapter 13 bankruptcy can also eliminate unsecured debt, it does not have as great a capacity to eliminate it as Chapter 7. Chapter 13 bankruptcy requires the debtor to agree on a debt repayment plan and make continued payments for the number of years detailed in the plan. While secured debts usually have priority, most debtors have to pay back some portion of their unsecured debts. Any debts remaining after the repayment plan expires is generally discharged. 

Place an Automatic Stay

Bankruptcy provides debt relief through an automatic stay. Once bankruptcy is filed, an automatic stay prevents further collection efforts from creditors, including phone calls, letters, repossession attempts or foreclosure actions. 

Keep Certain Assets

Debtors can keep certain assets during a Chapter 7 filing, which are their exempt property. Federal and state-specific laws determine which property is considered exempt and free from liquidation during the bankruptcy process. Bankruptcy does not eliminate liens, so property can still be taken by debtors that do have a lien against certain property. 

A Chapter 13 bankruptcy filing can help prevent a foreclosure action and require the lender to accept a plan that allows the debtor to reimburse the lender for missed payments. A bankruptcy lawyer is often needed during this process who can help show that the debtor will have sufficient income to provide for such payments while staying current on the existing debt. 

Additionally, Chapter 13 bankruptcy does not require the sale of the debtor’s assets, so he or she can also keep non-exempt property. 

Reduce Secured Debt

In many cases, debtors find themselves underwater on their secured debts by owing more money to pay off the property than the property is actually worth. Chapter 13 bankruptcy may allow the debtor to reduce the debt of secured property and then pay off this reduced amount of debt. There are special rules that prohibit reducing secured debt of debts that were acquired within a certain time period near the bankruptcy filing. 

Cannot Do

Although bankruptcy can accomplish many things, some things that it cannot accomplish includes: 

Eliminate Tax Debt

Usually a Chapter 7 filing does not permit a debtor to discharge state or federal income tax debts. A debtor may be able to wipe out some of this debt in a Chapter 13 filing, depending on the type, amount and timing of the debt.

Eliminate Support Obligations

Generally, obligations to pay child support or spousal support survive bankruptcy. With a Chapter 13 filing, the debtor is usually required to show how back payments will be paid in full within the repayment plan period. 

Eliminate Student Loan Debt

Most student loans cannot be discharged in bankruptcy. There are some exceptions, such as if the person is permanently disabled and can demonstrate that repaying the loan would cause undue hardship.

Eliminate All Debt

In Chapter 13, the debtor has to repay much of the debt. Under both types of bankruptcies, the debtor may not be able to eliminate all types of debt, including the debts that the debtor forgot to list in the bankruptcy filing, fines and penalties for criminal action, criminal restitution and certain other debts prohibited by law. Additionally, a creditor may be able to convince a judge not to discharge a certain debt in the interest of fairness, such as not discharging a debt off a recent purchase or one that was made due to fraud. 

Legal Assistance

Bankruptcy is a complex area of law and usually requires the assistance of a lawyer who is knowledgeable in this area of the law. A bankruptcy lawyer can explain the process of bankruptcy and provide information specific to the debtor regarding how bankruptcy can and cannot accomplish certain goals.

6 Ways to Stop Foreclosure

There are several ways that homeowners can help guard against foreclosure so that they can keep their homes and avoid the negative consequences of this action.

Reasons for Foreclosure

When a person acquires a mortgage on his or her property, the loan is secured with the mortgage. If the person gets behind on the payments or otherwise fails to meet his or her obligations under the mortgage contract, the lender can take steps to foreclose on the home.

Consequences of Foreclosure

In addition to losing the residence, the homeowner faces many additional consequences if the property is foreclosed upon. The homeowner can be charged for the expenses related to dispossession and other charges allowed by law. In many states, the lender can still pursue a deficiency judgment for any difference between the amount owed on the loan and the sale price. Additionally, the homeowner’s credit will likely be significantly impacted by this event.

There may be several options available to avoid foreclosure depending on the circumstances, including:

Foreclosure Settlement

Rather than selling the house at auction, the bank may be willing to work out some type of settlement that will allow the homeowner with the loan. In Florida, this usually happens before or during the lawsuit that is filed.  It is always a good idea for homeowners to act sooner than later if this is their goal.

Loan Modification

The lender may agree to modify the loan rather than foreclosing the property. A loan modification can make an existing loan more feasible by resulting in lower monthly payments, lower interest rates, more time to pay or unpaid payments added to the back end of the loan. In some loan modifications, the amount of the loan may be reduced. The lender may be more willing to work with a homeowner who has taken additional steps to try to meet the financial obligation, such as reducing other expenses or getting an additional job.

Deed in Lieu of Foreclosure

A deed in lieu of foreclosure results when the person whose name the home is in voluntarily signs the deed to the property back over to the lender. This can help the homeowner avoid the additional expenses related to foreclosure and the public nature of the proceedings. There are some disadvantages to this approach, so it is important that a person in this situation seek legal counsel.

Short Sale

One common way that a person can avoid foreclosure is by having a short sale of the property. Many lenders during the real estate crisis used short sales as an exit plan so that they would get more proceeds from the sale of the house than they would have received through a public auction. Once the homeowner receives a Notice of Default or otherwise suspects that he or she may have trouble meeting the obligation, he or she may consider a short sale. A short sale occurs when the homeowner sells the property for less than the current value of the property. The lender may agree to this arrangement rather than having to proceed with a foreclosure. However, the lender may still be able to seek a deficiency judgment for the unpaid portion of the loan. Some states do not permit this while others do. Individuals who are considering a short sale should be careful to negotiate an acceptance by the lender of the purchase amount and to accept it as payment in full. Even with this scenario, there may be tax implications to a short sale, so it is important

Bankruptcy

Filing bankruptcy can sometimes help avoid bankruptcy. When a person files bankruptcy, an automatic stay is issued which prevents further collection efforts. Therefore, a bankruptcy works to effectively freeze a foreclosure. However, the homeowner may still wind up losing the home in the bankruptcy proceedings if he or she cannot show that the debt can be repaid. So bankruptcy often works as a mere delay of the foreclosure. However, during bankruptcy, the debtor and the creditors may be able to work out an arrangement that will allow the debtor to repay some of the loan. The secured debt has priority over unsecured debts. Bankruptcy has many ramifications of which the debtor should be aware and seek counsel.

Hiring a Foreclosure Defense Attorney

Individuals who believe that they may be in fear of a foreclosure may wish to contact a lawyer. A real estate lawyer can help explain the process of foreclosure and evaluate the individual’s circumstances to determine whether there are any alternatives to foreclosure. He or she can explain the pros and cons of these potential alternatives.

Source: HG.org

3 Foreclosure Myths That Can Cost You Your Home

by Stefan McHardy, Esq.

For anyone faced with the prospect of losing their home to foreclosure, the pressure alone is enough to drive you up a wall.  Now throw in the reality of it all; the high-powered bank suing you in court (if you live in a judicial foreclosure state, that is), their high-priced lawyers, and the convoluted mess of a system we've come to know as the loan modification process.

Now I can very easily start out by claiming mistake number one is not hiring an attorney to represent your legal rights, etc., etc., etc.  But, besides being far too cliché for anyone's liking, the simple fact is this: it’s your home and however you choose to defend it is up to you.  There aren't many countries in the world that give you the rights to defend yourself and your property as this one.  But for the record, you should at least consult with a foreclosure defense attorney.

With that said, if you're going to get all Matthew McConaughey/Lincoln Lawyer about it, then at the very least give yourself a fighting chance and proceed in an informed way.  Lets bust a few myths.

Myth: If I'm Doing a Loan Modification They Can't Sell My House at Foreclosure Auction.

Yes they can.  Unless you have a court order, signed by a Judge, ordering that foreclosure sale canceled, the foreclosure sale will not be stopped simply because your modification package is under review.  The loan servicer that is reviewing your application is under no legal obligation to ask the court to cancel the foreclosure sale.  It's up to you, to notify the court by filing a motion and setting a hearing.  Once you get in front of the judge for that hearing, then you can bring it to his or her attention that the loan modification application is still pending review and that you would like the foreclosure sale canceled.

Now, I know many of you who have been through this are saying that you've had the bank's lawyers cancel the sale for you.  Well, congrats to you.  You have the friendliest opposing counsel the bank's money can buy.  But, if your legal strategy is to depend on the kindness of the lawyer who is being paid to take your house, then my friends, you have a tougher road ahead of you than you think.

Myth: If I'm Doing a Short Sale They Can't Sell My House at Foreclosure Auction.

Again, not true.  And if your realtor tells you this, then shame on you for taking legal advice from a realtor.  Unless your realtor just happens to also be a seasoned, skilled, and [quite charming] attorney. In that case, this savvy realtor-lawyer would never tell you such a thing.

Short Sales, much like loan modifications, need to be negotiated with and approved by the lender.  In fact, if you've ever seen the paperwork you have to fill out for a short sale approval, it is virtually identical to the loan modification paperwork.  And just like the above myth with the loan modification application, it's not a guarantee or a requirement on the part of the bank to cancel any upcoming sale just because your application is pending approval or currently listed for [short] sale.  And more importantly, the clock is always ticking; meaning, if your home isn't selling, or isn't getting approved for short sale, even the most patient of judges will eventually tell you it's "too little, too late."

Myth: Filing Bankruptcy Will Stop The Foreclosure.

Well maybe you're a better Lincoln Lawyer than we all thought because you are distorting the word "stop" more than Bill Clinton distorted the word "relations".  Although bankruptcy can delay foreclosure, if done correctly, that alone will certainly not make the problem go away.  What you are actually doing here is having the foreclosure delayed in state court while a federal judge in the bankruptcy court weighs the merits of your bankruptcy claim. (So now you are taking on a federal court case as well, Lincoln Lawyer.  Time to increase your retainer fee!).  If the federal court determines that you do not qualify for bankruptcy, or if your case is dismissed for any other reason, then the state court will reset your foreclosure sale date.

I'm not saying it's impossible to get out of trouble if you go about a bankruptcy correctly, but quite honestly, federal bankruptcy court is not a playground for the inexperienced.

-Stefan McHardy, Esq.