10 years 8 months ago

Bankruptcy is a very effective tool to deal with financial problems. There are times, however, when it just does NOT make sense. The following facts are from a consultation where I advised AGAINST a filing.

The gentleman had a condominium which had become a financial burden. Like a lot of property purchased shortly before the financial crisis, this one had depreciated significantly. It was a small, 840 square foot condo purchased for about $300,000 in 2006. Upon listing with a realtor, the best offer he could draw $185,000, but the lender would not approve the short sale. He had two mortgages. The payment on the first was about $1,400/month, and the second was about $400/month. The monthly condo fee was $275/month. With rent coming in at $1,500/month, he had to put in $575 a month from his own pocket to carry it. He had recently been pre-approved for a loan to purchase a larger $400,000 for his wife and new baby. He complained he could not afford to keep on paying the condo.

Given his income of $82,000 a year and wife's $51,000 a year, if they declared bankruptcy, they would likely not qualify for a simple Chapter 7 and would have to pay all disposable income into the court for the next five years. Furthermore, the wife had $16,000 in a money market fund, so the minimum contribution over time would have to be a minimum of $11,000. (Since the couple lived in Virginia, that state's $5,000 homestead exemption would apply.)

I advised him that bankruptcy should be only a last resort. Instead, there are other options that should be explored first. The $16,000 cash (and possibly additional funds from a hardship distribution from the $60,000 they had in a 401K) could be dangled in front of the second mortgage lender to try to obtain a lump sum payment in return for a release of the second mortgage. The second mortgage was, for all practical purposes unsecured, so that if the property went to foreclosure, the second would end up with nothing anyway. Some money would be better than none, to this lender.

Once the second mortgage was gone, the net negative income would drop to about $175/month, which could be manageable with some belt-tightening of his household expenses. Furthermore, the net debt against the property would drop to about $232,000 (the amount of the first mortgage). With a present value of $185,500, the property could recover to positive range in a few years.

The situation would not be entirely cost-free, but the trade-off -- in this case -- to a bankruptcy filing, in my opinion, was worth it.

It's the policy of this office to be absolutely honest, even when we lose business. We win by knowing we do the right thing for our clients or prospects.

Nevertheless, in the end, it's the client's decision, and we respect that. Call our law firm, if you want to discuss your situation.

10 years 8 months ago

There has been little success with the money allocated by Congress, through HAMP, to help fix the mortgage crisis. Very few people having trouble with their mortgages have received any relief of any kind.  No reduction in interest rates, no reduction in the mortgage amount etc. etc. etc.  Now there's been an investigation launched to examine why the two giant government created entities seem to be unresponsive and has adopted new rules that make it even harder to obtain help.  According to everything I've read the general consensus is that fixing a mortgage for a consumer hurts the profit margin of Fannie and Freddie. foreclosure, bankruptcy, chapter 13, chapter 11, loan modification,
What makes the problem worse is that a Bankruptcy Judge has no authority to do anything with a mortgage on your principal residence in a Chapter 13 or a personal Chapter 11, except to allow for a cure of the past due amount plus the attending fees leading up to the attempt to foreclose.  If one has a mortgage on an apartment complex, office building, manufacturing plant, vacation home or any other type of real estate a Bankruptcy Judge in a Chapter 11 can change the interest, redo the amortization period and if the property is underwater (worth less than the debt) reduce the amount of the mortgage to equal the value of the property.  For the life of me I cannot see any difference between a mortgage on a home and a mortgage on any other piece of real estate. Why should an apartment owner have more clout than a homeowner? 
I am beginning to wonder if there is a complete disconnect between the federal government and the average consumer that is having trouble with their mortgage.  There are multiple ways to fix this problem  -- most of which seem to be always below the radar.  On the other hand those 'fixes' that have been proposed and passed into law have a slim chance of granting the relief they were designed to give. 

10 years 8 months ago

I recently started to do some financial video lessons for Everyday, I realize how poorly we are all educated about handling our money. To think that two-thirds of our economy is built on consumer spending yet we don’t teach anything about personal finance in school or about the value of saving. Come to think of it, maybe this is why we are not taught how to handle are money…
I hope to do my little part in broadening financial education through these financial education videos. Don’t worry, they are short and to the point- plus, I’m sure they will get better the more I do.  A transcript of the video follows or you can watch the video here.
More and more people are are retiring with mortgages on their homes. So don’t feel bad if you still have mortgage. Don’t feel like you’re being the curve. It’s not necessarily a bad thing but the most important thing to think about is whether can you afford to have that mortgage when you retire. You have to make sure you can budget properly with the mortgage in mind is that’s going to be a fixed cost until the end of the term. So one possibility would be to pay off your mortgage with the savings that you have which is sometimes thrown out there as an option for people who have a mortgage going into retirement.
I do not recommend this. I think it’s more important that you have your savings available to you then you can use that money in other ways and keep your mortgage. I would instead like to propose a couple other options on what you might be able to do if your mortgage might be a little too much and does not fit into your budget of what you need for retirement. I mean the first option I recommend would be to move out of your house to smaller house. That way you are going to save that expense. I know the family home is important and it has a great sentimental value but if you can you would really benefit yourself greatly if you move to a smaller house, cut down on the mortgage payment or hopefully have no mortgage at all with this move to the smaller house.
Second, what you could think about is a 30 year mortgage, entering into a new one. Interest rates are at historic lows. You could capitalize on that. It puts the payment down at a lower rate and then there might be some left over when you die but it most likely won’t be a huge amount and it will benefit you with a lower payment throughout your retirement.
Third, perhaps you can work it out with your children so that they can pick up a percentage of your mortgage. You could deed the house to them, enter into a new mortgage with them or outright sell the house. There are various strategies you could pursue along that line that could keep the house within the family and I recommend inter-family transfers as a way to get around reverse mortgages which I do not recommend. The fees and expenses in a reverse mortgage eat up the equity in your house so quickly that do not consider reverse mortgages as an option. I’m Ted Connolly and that’s how to retire with a mortgage that’s not paid for.


10 years 8 months ago

business bankruptcy, business bankruptcy alternatives, business ch 13, business ch 11Chapter 13 can be used to save a small business provided  the business is a proprietorship (not incorporated and not a partnership) and provided the debt limitations of a Chapter 13 are met.   A Business Chapter 13 works best if most of the debts are unsecured and those debts that are secured can be repaid within a 5 year period.  Restructuring loans on equipment and vehicles can also be accomplished provided the ownership time periods are met.  
A Chapter 13 has some limitations which may not make a business chapter 13 your best choice:   

  • A Chapter 13 plan must be filed immediately with the first payment due 30 days from the filing date.  In many cases a business, large or small, needs some time to reorganize internally, such as cutting operating expenses, before addressing creditors and begin paying their creditors back.   
  •  A Chapter 13 plan cannot exceed 60 months.  In many cases this limitation prevents a small business from addressing certain issues that need to be addressed  to make the Business Chapter 13 successful.   
  • If a business owner also owns the building and real estate from which the business operates and the loan against the building needs to be adjusted because the interest rate is too high; the value of the building is worth less than the debt or the amortization period is too long, a Business Chapter 13 will not work because any such debt that is restructured in this manner must be paid in full in 5 years or 60 months. 
  •  The equipment or vehicles have not been owned long enough to allow the debt to be modified sufficiently under Chapter 13. 

 There is an alternative to a Business Chapter 13 - a Small Business Chapter 11   There are now numerous  features that cut the cost of a Small Business Chapter 11:

  • There is now a form Chapter 11 Plan and a form Chapter 11 Disclosure Statement.  This helps reduce the cost of a Small Business Chapter 11.  
  •  Monthly operating reports for a small business have been made simpler than the standard monthly operating report. 
  • One of the problems for an individual filing a small business chapter 11 is that a discharge is not granted until after the last payment is made.  This fact added a significant additional burden because the quarterly reports and quarterly fees had to be paid while the case was open.
  •  Under limited circumstances to allow a discharge to be entered immediately as part of the Order Confirming the Plan.   The fees and  expenses for a Small Business Chapter 11 is now a reasonable alternative to a Business Chapter 13.

It's important as a business owner to weigh the benefits and costs of a Business Chapter 13 versus the benefits and costs of a Small Business Chapter 11.   As with any important decision be sure to get a second opinion.  Many bankruptcy lawyers are  consumer - only chapter 7’s and chapter 13’s or a business bankruptcy chapter 11 practice.  A Small Business Chapter 11 requires the finesse of both.       

10 years 8 months ago

Growing up in El Paso and being Hispanic, I was brought up with the mentality that Bankruptcy was wrong.  Since I started working at Diamond Law almost 3 years ago, my mentality on Bankruptcy has changed.  Bankruptcy to so many people is a scary step to take. After working with so many clients throughout these 3 years I have witnessed the relief bankruptcy (Ch 7 and Ch 13) has brought to them. 
file bankruptcy, successful bankruptcy, ch 13, ch 7, bankruptcy I can’t say all of our clients have experienced relief.  It's a shame really, since occasionally I see some clients staying stuck in old patterns - the negative mentality towards Bankruptcy. Why - because they judge themselves as failures and they fear being judged because they judge - shame and embarrassment.  This mentality irritates me now because life isn't fair and circumstances kick you in the teeth and you're left without options.  It is so unfair to be judged negatively because you made decisions that were in your control when everything else was so out of control.  
 Many people come into our office in a state of denial.  Somehow their finances are all but a nightmare and their expecting to wake up one day and all is well.  Now, if you are currently in that mental state - get real - financial miracles rarely come.  Honestly, all that denial just adds more stress on yourself and your relationships. 
 Now, we are not miracle workers at Diamond Law although we really do try. We can only be as much help as our client's allow.  No more self sabotage - no more procrastination.  This help really comes from within - believing in yourself again, regaining self-worth.  Don't let old ideals stand in the way of your financial wellness because we can help you if you let us.  Bankruptcy's public policy should be thought as: a fresh start for an honest debtor.

10 years 8 months ago

bankruptcy lawyer, bankruptcy attorney, el paso lawyer, el paso attorneyMany clients come into our office hoping that we can lower their monthly mortgage payments. Unfortunately when the house is their homestead we do not have the means to modify the loan within the Bankruptcy. However, many banks are now offering loan modifications to people who are in Bankruptcy. It seems to be a growing trend that these modifications are being approved quicker and with less effort when they are dealing with a person who is in Bankruptcy. What does this mean for you? If you are in financial trouble and find yourself filing for Chapter 13 or Chapter 7 Bankruptcy, you do not need to be discouraged about a possible loan modification. The only thing that the mortgage company will require is a letter from your Bankruptcy Attorney allowing them to contact you directly in order to being the process. We had an instance where the mortgage company actually called our office to inform us of a loan modification opportunity for one of our clients. We then called our client in, they signed the documents and their mortgage payment went down by 33%.  Although many see bankruptcy under a negative light this is just one example of new opportunities that bankruptcy may bring to you and your family.

10 years 8 months ago

Once a realm where where only the richest dared to dwell, more and more of the other 99% are looking into the world of asset protection.
And rightfully we should, as making money is only half of the battle. Holding onto the money you’ve made is the biggest challenge these days. As we see what little money we have being eaten up by taxes, fees, interest, and even lawsuits, we need to be more and more conscious of how to protect our assets.
Sensing this change, Nevada has taken a giant step forward in becoming the “go-to” place for asset protection.
Nevada enacted 2 laws that provide greater asset protection than you will find in most states, according to Mass Lawyers Weekly.  The first law contains a provision that allows trusts set up in other jurisdictions to be moved to Nevada without re-starting the applicable statute of limitations.  The second law makes charging orders the exclusive remedies for creditors against certain corporations, LLCs and LPs.
While it is not uncommon for states to recognize spendthrift trusts even though the settlor remains a discretionary beneficiary, the updated Nevada law broadens the type of spendthrift trusts available to explicitly include a charitable remainder trust, a grantor retained annuity trust and a qualified personal residence trust.  In addition, the new law extends that protection to trusts from other jurisdictions so that the spendthrift trust property is protected from future creditors after the two-year statute of limitations period has run, no matter what state the trust was established.  Moreover, under the new law, grantors can avoid any estate tax implications by excluding the trust from their estates because their self-settled spendthrift trust is viewed as a completed trust gift.
Second, the other, new law makes charging orders the sole remedy for creditors against Nevada LLCs, LPs and some corporations (non-public S and C corporations with one or more shareholders but fewer than 100.).  Charging orders are basically liens on the membership interests in LLCs and LPs and are usually worthless.  In addition, the new law does not give judges to option of issuing an equitable remedy.  Equitable remedies, like a constructive trust or a reverse veil piercing, allow a judge to do an end-run around statutes like the Nevada’s, because they make the entity’s assets available to the plaintiff where they would not have otherwise been available.
One caveat:  Courts in other states are usually more inclined to use the laws of their states in interpreting the protections of the Nevada trust or LLC.  Nevertheless, Nevada’s law may reverberate across the country.

10 years 8 months ago

Earlier this month there was a great deal of hoopla by both politicians and the banking industry about the changes being made so that people facing foreclosure could deal with their situation better; either by refinancing, modifying their home loan or in extreme cases making an orderly  transition when the homeowner needs to surrender the property back to the Lender. 
On the way to work this morning I was listening to the news which featured a story about a woman faced with foreclosure who was assigned to a specific person to speak to regarding her mortgage.  Every time she called the lending institution and dialed her loan number she was automatically routed to this individual.  The only problem was that this individual never answered the phone and never returned a phone call.  She must have been frantic since there is a short window of time to seek action before foreclosure actually takes place. There did not seem to be anyway around this employee.  When reporters contacted the lending institution all of a sudden this homeowner was given someone new to contact and the lending institution said they were taking disciplinary action.  Seems to me that it shouldn't take a call from a national news organization to get this lending institution to help one of it's customers and  speak to a live person.

10 years 8 months ago

Multiple banks and multiple states have entered into a settlement agreement over how the banks handled foreclosure or were in the process of handling foreclosures.  Finally many Banks being made accountable for their actions. The settlement appears to be for a significant amount of money.  This settlement should provide money to be used to refinance or modify home mortgages (what is purported to be a large number of homeowners) and compensation for those folks who had their homes improperly foreclosed.  This settlement has been trumpeted by the states, the banks, the media and even the president of the United States.describe the image
 The one firm dollar amount that has been announced for those people who lost their homes is a grand total of $2,000.  How would $2000 ease the loss of your home? It seems to me $2,000 is far from fair considering the alleged predatory conduct of the banks and so it makes me wonder just how far the modification and refinancing will really go.  If the effect is anything close to the compensation being paid to those who lost their homes not much is really going to happen.  Once again there appears to be this strange disconnect between those folks advancing the cause of homeowners and what is happening in the real world.     

10 years 8 months ago

Filing for Bankruptcy was something that I never dreamed would “happen” to me.  I worked hard to pay my bills and seldom even had a late payment.  My husband made a good salary.  Life was good.
Then one day I found myself in the middle of a messy divorce and learning about my soon to be ex-husband’s gambling problem.   I ended up with $15,000 in credit card debt (my half) and only one income.  I had 2 small kids and made just enough to pay the mortgage, utilities and keep food in the house. 
For 5 years after the divorce  I paid the bare minimum to the credit card companies.   That got me nowhere…  I paid nothing but interest and the balances seemed to grow instead of shrink.  We had no disposable income.  I ended up selling my house because I just didn’t make enough to pay everything. My parents had to start helping me make ends meet by buying Me resized 600school clothes for my kids.  I stopped answering the phone because  it was always a bill collector on the other end - and they were nasty.   I felt like something was going to give… me.  I felt hopeless.  I was never going to be able to dig myself out of this.
Then someone suggested Bankruptcy Chapter 7.  I was horrified.   But after much thought and a consultation with a bankruptcy lawyer I realized that it was not only a good option; it was my only option if I wanted to get my life back on track.  It was a difficult decision, but putting my pride aside - filing was the best decision I ever made.   Just a couple of months after filing I was able to start rebuilding my credit and my life.  I had a fresh start.  I will never regret my decision to file.
I realized that Bankruptcy did not mean I was  an irresponsible person.  This experience showed me I had the courage to take action, to resolve a huge problem. Bankruptcy gave me my life back.