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As many of our clients filing personal bankruptcy get older, we often see clients who have taken reverse mortgages on their homes. Either because they needed income to live on or to deal with a spouse’s end-of-life care, I meet with a growing number of bankruptcy clients who have turned to these types of loans in order to get by. And no wonder, the banks have been pushing reverse mortgages aggressively for several years now. Daytime television is now inundated with commercials for reverse mortgages. I’m not going to get into the financial wisdom of these loans in this post, but I do want to focus on how reverse mortgages are treated in bankruptcy, particularly in Chapter 7 bankruptcy.
Reverse mortgages generally fall into different categories. There are those where the homeowner takes a lump sum from her home equity, and those where she might receive monthly payments that accrue as a loan against her home equity. Typically, the reverse mortgage loan becomes due and payable within a specified time after the homeowner’s death. At which point, either the decedent’s estate representative must either sell the property in order to pay off the reverse mortgage loan, or if the estate is unable to sell the property after a given period of time, then the lender will generally have a right to foreclose on the property in order to recover the balance of the loan.
So, what if the homeowner needs to file bankruptcy? In bankruptcy a reverse mortgage loan is treated no differently than any other mortgage or home equity loan, to the extent that the bankruptcy attorney together with his client must provide a current fair market value for the property that is subject to the reverse mortgage and determine the current total payoff balance of the reverse mortgage loan. After determining these values, the bankruptcy attorney must analyze how much equity the bankruptcy client has in the property. The amount of the bankruptcy debtor’s equity is critically important to exemption planning for a Chapter 7 bankruptcy, and is likewise central to a liquidation analysis in Chapter 13 bankruptcy.
Say we have an elderly widow who needs to file bankruptcy in San Jose, California, because she has incurred some large unsecured debts, including credit cards and substantial medical debts uncovered by insurance. She now lives only on social security income. Several years before she and her late husband took out a reverse mortgage on their home in San Jose, which at the time had been paid off and had a value of $450,000. They took a lump sum from their equity of $150,000 to pay for in home nursing care for him and to pay off other debts. Since then it has depreciated significantly and has a current value of $375,000. The reverse mortgage payoff balance has risen steadily over the years as interest has accrued on the loan, and now stands at $210,000. Hence, the bankruptcy debtor now has only $165,000 of equity in the home.
Assuming that our bankruptcy debtor in the example above is over the age of 65, then for purposes of her Chapter 7 bankruptcy in California, the homestead exemption will protect up to $175,000 of equity in her home. She would, therefore, be able to entirely protect her home from the Chapter 7 trustee.
Before filing such a case, however, it is imperative that the bankruptcy attorney communicate with the lender and review the original reverse mortgage contract language to ensure that the mere filing of a bankruptcy case by the borrower will not be treated as an even of default. In my experience, most reverse mortgage lenders will not call their note due solely because of a bankruptcy filing, but again, it is imperative that debtor’s counsel confirm this with the lender prior to filing. Just another reason why if you are contemplating filing bankruptcy in the Bay Area, that you contact one of our experienced San Jose bankruptcy attorneys.

Whether an illegal or undocumented immigrant in the United States may file for Bankruptcy apparently hinges on whether or not the immigrant has an Individual Taxpayer Identification Number (ITIN) according to attorney Drake Shunneson.
Shunneson provides that a Social Security number or ITIN must be present inorder to proceed with the bankruptcy. Obviously, many immigrants are unable to obtain a SSN because of their illegal status. Thus, obtaining an ITIN is typically the only other way to obtain a discharge of debt through bankruptcy.
Roughly more than half of the 11 million undocumented immigrants in this country have ITIN’s. Many of these ITIN holders file their income taxes each year despite their potential illegal status. The road to citizenship often rests on proof of paying taxes and an ITIN would provide the only identification number to do so. Thus, it may be presumed that only some undocumented immigrants in this country may file for bankruptcy depending on whether they file taxes or at least have an ITIN.
Shunneson also cautions against filing for bankruptcy even if the immigrant has an ITIN if there is a pending lawsuit against them. Pending lawsuits, depending on the nature of the suit, may prevent continuation of the bankruptcy process and may open up potential issues with Immigration authorities. It is advised to speak to an attorney if this is the case.
Regardless, there are many reasons why an undocumented immigrant should obtain an ITIN. For tax purposes, you may receive your federal withholding back. You may be required to show proof of paying taxes for purposes of the Naturalization process in a N-400 Citizenship application, and, if in dire financial straights, an ITIN may qualify you, even if illegal, to receive a discharge of your debts.
Obtaining an ITIN number is free and easy. You should caution against paying someone to receive an ITIN because the process is so simple and free.
You may find out more about how to receive an ITIN on the IRS website here:

By Mary Ann Pekara
It's tax time and you're getting ready to file your taxes. Have you had any debt forgiven this year? How much debt? Have you thought about how that affects your taxes?
Many people do not realize that forgiven debt is sometimes taxable income. Now, there are exceptions to every rule but it is important to look into if you had debt forgiven last year and what that could mean.
Certain types of forgiven debt are exempt from Federal taxes. Those include but may not be limited to:

• Debts discharged in bankruptcy
• Debts canceled when you are insolvent
• Mortgage debt forgiven in foreclosure
• Some student loan debt

Other forgiven debt, specifically if you saved over $600, may be considered taxable income according to the IRS. This must be claimed on your tax return, otherwise the IRS has grounds to come after you.
Credit and debt collectors are required to file 1099-C forms with the IRS for forgiven debts of $600 or more. Some collectors will send a copy of the form to their customer but it is not required that they do so.
The 1099-C is a very complicated form and it is important to double-check the form before submission to verify that all the information is correct.
The IRS is expected to get $6.5 million in debt forgiveness this year based on the 1099-C form.
If you're unsure of anything, contact a local professional as soon as possible.

When You Can Be Contacted
Unless you agree to it, debt collectors cannot contact you at inconvenient times, like prior to 8am or after 9pm. If you tell them, in writing, to stop contacting you, they generally must stop contacting you altogether. Also, if they are told they cannot call you at work, they may not contact you in that way.
Who May Be Contacted
Generally, a debt collector cannot discuss your debt with anyone other than you, your spouse, co-signer, executor, administrator, guardian, parent of a minor, or your attorney. However, if you are represented by an attorney for your debt, the debt collector may not contact you, and instead must contact your attorney. They may contact others (usually only once) to obtain information about where you are located, what your phone number is, and where you work. They cannot reveal that you owe a debt or discuss details of the debt, aside from identifying the name of the collection agency, but they may only do that if asked.
Prohibitions
Debt collectors are not allowed to harass you. This means they cannot threaten to harm you, use profanity, call you repeatedly to annoy you, publish your name as someone who refuses to pay her debt, or harass you in any other way.
Debt collectors may not make false statements. They may not claim they are an attorney when they are not, use a fake company name, accuse you of committing a crime, lie about the amount of your debt, falsely claim that documents they send you are or are not legal forms, or make any other false statements. Furthermore, they may not send you a document that looks like it is from a court or government agency. They are also prohibited from giving false credit information to credit reporting companies or anyone else.
Debt collectors cannot falsely claim they are going to take legal action against you, like telling you that they will have you arrested. They might claim that they will seize your property, garnish your wages, or take other legal action against you unless you pay your debt. They may not say these things unless they are permitted by law to take those actions and they intend to do so.
Debt collectors must not use unfair practices when trying to collect. They cannot deposit post-dated checks early, contact you by postcard, or try to collect additional charges (such as fees or interest) over your owed amount unless your contract or state law allows it.
A debt collector cannot disregard your payment choices; you have the right to choose which debt you make a payment on. A debt collector cannot apply payment for one debt to another debt that you did not choose to pay. Additionally, the collector cannot apply your payment to a debt you do not believe you owe.
Garnishment
Generally, you may be sued by a creditor or debt collector to collect a delinquent debt. If you lose your case, the court will enter a judgment stating how much you owe and may allow the creditor or collector to secure a garnishment order. This means the creditor or debt collector will be able to direct a third party, such as your bank or employer, to turn over your funds. If your wages are garnished, your employer will withhold part of your pay to satisfy your debts.
Whether your wages can actually be garnished in Texas is a complicated matter. While it is generally the case that wage garnishment is not allowed in Texas, several factors and exceptions need to be considered. Factors include whom the creditor is, who you work for if you have moved, your financial obligations, and how you are paid. Do not trust that your wages are automatically safe in Texas.
While wage garnishment is one possibility, there are many federal benefits that generally cannot be garnished:

• Social Security Benefits
• Supplemental Security Income Benefits
• Veteran’s Benefits
• Civil Service and Federal Retirement and Disability Benefits
• Service Members’ Pay
• Military Annuities and Survivors’ Benefits
• Student Assistance
• Railroad Retirement Benefits
• Merchant Seamen Wages
• Longshoremen’s and Harbor Workers’ Death and Disability Benefits
• Foreign Service Retirement and Disability Benefits
• Compensation for Injury, Death, or Detention of Employees of U.S. Contractors Outside the U.S.
• Federal Emergency Management Agency Federal Disaster Assistance

Not all federal benefits are immune from garnishment in all circumstances. For example, if you are delinquent on your child support, alimony, student loans, or taxes, your benefits may be garnished.
Garnishment is a serious matter, so contact an attorney immediately if you are facing garnishment. Immediately stopping wage garnishment is possible through bankruptcy. An attorney will help you consider all of your options.
See Related Blog Posts:
Even Debt Collectors Have a Mean Big Brother
Deny that Friend Request: How Debt Collectors Utilize Facebook
The post The Basics – Fair Debt Collection Practices Act: Your Rights appeared first on AKB.