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There are always people ready to take advantage of other people in desperate situations and the current home foreclosure situation is no different. A whole cottage industry has sprung up made up of predators prepared to charge large fees for helping someone avoid foreclosure through a loan modification.
The vast majority of these people simply take a person's money and perform no service whatsoever. I am sure that there must be a few people who actually attempt to do what they have been hired to accomplish and I am sure that on occasion a loan actually gets modified.
The truth is there is no reason to pay anyone for this type of help. There are non-profit companies all across the country that has qualified people ready to lend a hand for no charge of any kind. In short, there are no fees or other charges for obtaining their help.
The U.S. Department of Housing and Urban Development ("HUD") offers a variety of services and assistance in avoiding foreclosure through a variety of resources, both new and old. Trying to understand these programs by going directly to HUD is difficult and confusing. This agency actually understands the problem and has come up with a solution that really works. On one of their web pages the following statement is made by HUD:
"Foreclosure prevention counseling services are provided free of charge by nonprofit housing counseling agencies working in partnership with the Federal Government. These agencies are funded, in part, by HUD and NeighborWorks® America. There is no need to pay a private company for these services...."
Finding a reliable free agency is now easy; just go to http://www.hud.gov/offices/hsg/sfh/hcc/fc/. Find the pull down menu on the page which allows you to pick your state. That selection then takes you to a web page that allows you to narrow your search by city; with several other choices such as your preferred language.
I am located in El Paso, Texas. I went through the search instructions and came up with four (4) agencies. Much to my delight I was familiar with all four. I have referred clients to each. I can vouch for each agency having highly trained, qualified and very courteous people to address a full range of problems. While they do not always succeed, one can rest assured that they have made a maximum effort to help.
There has been a great deal of publicity about money being infused into banks and financial institutions by the government. A significant portion of that infusion is supposed to be used to modify existing mortgages that are in default or are on the verge of foreclosure. In addition, there has been a great deal made by various government or semi-government agencies about their assistance in loan modifications and/or accelerating the process.
There has been a great deal of hype regarding loan modifications; to enable people to keep their homes, as well as, getting the banking system stable and profitable so that new loans can be made. After a number of months the banks and other financial institutions have announced a return to profitability.Yet according to the media, based upon various statistical data, foreclosures continue to increase. Perhaps what is most important is what is not being said, discussed, published or announced either by the government or the financial institutions. How many loan modifications have been made and/or are in process? What terms and conditions, if any, are being offered to people who are behind in their mortgage payments? It would seem to me that these financial institutions would be making one press release after another (creating goodwill and improved public relations) about how they are helping people out of difficult if not impossible situations. The silence in this area has become deafening.
I am a small bankruptcy lawyer whose practice is practice is primarily in El Paso, Texas and the surrounding area. My only real knowledge is based on: what is happening to my clients who are trying, or have tried to modify their mortgages; what I have observed in the bankruptcy court with other cases; what the discussions have been over coffee and the water cooler with other local bankruptcy lawyers. Sad to say, based upon all of the foregoing there have been very, very few loan modifications actually being accomplished.
The best advice I can give a person seeking a loan modification, in a general sense, since each person's situation is unique, is to avoid the new companies that have sprung up offering to assist with a loan modification for a fee. Go directly to the lender. Insist on their terms be reduced to writing. Give yourself plenty of time to seek an alternative if the proposed modification does not work, and finally the alternative of seeking relief under Chapter 13.
This is not to be taken as legal advice and is given only as information. Only a consultation with your attorney with facts specific to your circumstances can be relied upon as legal advice.
There are a number of things a person should not do when considering bankruptcy or when bankruptcy is a solution but one you wish to avoid. The bill collectors are hounding you with a barrage of telephone calls, in many cases they are breaking the law by calling your relatives, your employer, calling you very early in the morning, after 9pm or when you are at work and/or threatening to do all kinds of awful things if you do not pay up. It is understandable that all you can think about is getting them off of your back, at least for a little while. So what do you do? You promise to make them a payment(s) in the future; knowing there is no way you'll have the money to pay them, short of a miracle. In some cases people go so far as to sign a new agreement with their creditor.
You then seek the protection of the Bankruptcy Court and the creditor screams foul and seeks to have the debt you owe not be forgiven. Why? You made a promise to pay and did not keep your promise and because you made the promise the creditor did not take any action to collect on the debt. If a creditor can show you're promising to pay in the future delayed action to collect the money it was owed, you may well be denied forgiveness of that debt.
Do not make a creditor a promise or enter into an agreement with a creditor if there is any chance that you can not make the payments. The best thing to do is make no promises of any kind. If you are being hounded by creditors use the rights given to you under the Fair Debt Collection Practices Act,( which I have written about before) and write your creditors letters telling them to stop calling you, etc. Remember empty promises can hurt.
Parties in control of Congress change, politicians that control the parties change, but it appears regardless of which party has the upper hand, the one thing that never changes is the people behind the scenes controlling the show. The bankruptcy bill that would give some protection back to the consumer is now stalled in the Senate, on the other hand, provisions that give businesses additional rights in bankruptcy, especially against the average guy trying to hang on to his job and support his family, is quietly moving through Congress and will probably end up being approved. There is also another law that received a great deal of publicity, when it passed Congress, dealing with the abusive tactics used by banks and other companies issuing credit cards. There is now a new proposed law that has been introduced in Congress that would push back the time that the law goes into effect by several years.
After you read this, I hope you are as angry as I am and you contact your representatives.
If you have lived in Texas two (2) years prior to the date you filed your Chapter 7 bankruptcy (or plan on filing) you are entitled to use Texas Law to determine what property you get to keep. That means you may either use the property that is "exempt (free to keep)" from bankruptcy under the Texas State Statute or you may choose to use the Federal Exemption Laws. Which law you use is up to the person(s) filing Chapter 7, which means you get to choose the statute (Texas State or Federal) that gives you the most benefit. For most people this generally means you get to keep everything you have, with few exceptions.
Which law is most advantageous depends on whether or not you own a home and how much equity you have in your home. Equity is determined by the difference between what you owe on the house and how much the house is worth. If your house has a lot of equity one usually finds the Texas Statute gives a person the biggest relief. While Texas Law protects most things it does not protect cash, cash in banks or income tax refunds. Federal Law on the other hand would allow you to apply the "wild card". The "Wild Card" under federal exemptions is exactly the same concept as the wild card used in a poker game - it is any card you want it to be. In a bankruptcy case, it can be used to exempt from the bankruptcy anything that the debtor wants to keep that is not otherwise exempt. The 'Wild Card' is contained in Section 5 of the Federal Statute.
The exemption laws are designed to allow people to keep enough of their property to have a "fresh start", not to strip them of their assets or dignity.
Click on these links to see an outline of the Texas Exemption Code and an outline of the Federal Exemption Code.
The fate of your property not protected by either statute (Texas or Federal) is in the hands of the Chapter 7 Trustee. The Chapter 7 Trustee is only going to take things he can turn into a relatively large amount of cash quickly which he can then use to pay your creditors.
6. What property will I get to keep?
Dealing with the Internal Revenue Service is a scary proposition, especially if you owe them money. The Bankruptcy Court is one of the tools a taxpayer has at his/her disposal in dealing with "the tax man" in a variety of situations.
The Bankruptcy Court can be used to:
-Stop wage garnishments, bank account garnishments, levies, seizures of property and remove income tax liens that are in excess of the value of the property claimed as exempt;
-Income tax and certain other types of taxes become dischargeable after a period of time ranging from two to three years after the date tax returns were filed provided certain other conditions have been met;
-Taxes can be paid in monthly installments over a period of five years, usually without interest or additional penalties accruing in a Chapter 13 case;
-Disputes over how much is owed can be determined quickly and inexpensively by a Bankruptcy Judge;
-Tax liability can be determined by a Bankruptcy Judge in a setting which the Internal Revenue Service is subject to a level playing field.
This is a general outline of the options a taxpayer has in the Bankruptcy Court. As with anything dealing with taxes and the law can have numerous complications and exceptions.
The "Means Test" is part of the bankruptcy code which determines if you qualify for a Chapter 7 or a Chapter 13 Bankruptcy. A Chapter 13 Bankruptcy also determines your disposable income. Disposable Income is the amount of money you have to pay out of your monthly income to the Chapter 13 Trustee which in turn gets distributed to your unsecured creditors.
On Sunday all of the numbers in the Means Test will be revised upward. Because the average median income will rise, it will be easier to qualify for a Chapter 7 bankruptcy (which is the first part of the Means Test). If you do not qualify for Chapter 7 because of your average median income you may still qualify for Chapter 7, depending on the result of the second part of this Test. These figures will also increase on Sunday. Visit our resources page for links to these revised tables.
My general rule of thumb is a person will be able to obtain a credit card on reasonable terms after two (2) years of your bankruptcy discharge. Now you can acquire an FHA loan to buy a house after two (2) years from your bankruptcy discharge. Take time in choosing your new credit card and mortgage because terms and conditions vary from company to company. FICO scores are important to some while others value how long it's been since you were past due on any obligation.
Here are a few simple rules to follow to restore your credit:
- 1. Obtain a copy of your credit report within 90 days after your bankruptcy has been discharged. Make sure that all discharged debts have been removed from your credit report. If you don't want to do the required leg work - contact your bankruptcy attorney.
- 2. Be sure to keep your current debts (obligations) current and paid on time.
- 3. Start a savings program so that you can have a down payment available when you are ready to purchase a house.
- 4. New credit card charges should be paid in full each month.
These simple rules will allow you to improve your FICO score, prove you are responsible in paying your obligations, as well as demonstrate you are fiscally responsible by keeping your obligations low and finally have the ability to make a reasonable down payment on a house.
So, you can have credit cards and qualify for a mortgage to buy a house after discharged from your BANKRUPTCY.
According to multiple sources, including the American Bankruptcy Institute and the National Association of Consumer Bankruptcy Lawyers, efforts to amend the bankruptcy code to allow bankruptcy judges to modify home mortgage including reducing the outstanding debt to the current market value and modifying the interest rates to current rates is moving forward. It is not clear what the final legislation will look like inasmuch as there are multiple versions of the amendment being offered and there is bound to be last minute changes to the legislation as well as changes made to resolve differences between any bill passed by the Senate and the Congress. WHAT'S IMPORTANT IS SOME TYPE OF RELIEF IS ON THE WAY.
One of the things that is lost in the confusion over the various provisions of the stimulus package is that the amendment to the bankruptcy code will cost the American Taxpayer nothing. Absolutely no funds are needed for this amendment to be implemented.
It has been said that if you tell a ‘story' often enough over a long enough period of time, sooner or later people will become to believe the ‘story' to be the truth regardless of how outrageous it is. This is exactly what has happened concerning the proposed changes to the bankruptcy code; to allow bankruptcy judges to deal with home mortgages by restructuring the loans and by reducing the debt to fair market value of the property.
The most important fact is that the proposed changes are nothing new, but rather putting the law back to what it originally was. Special interest groups made up of mortgage companies and banks lobbied Congress to change the law; preventing bankruptcy judges from dealing with home mortgages in any manner other than to cure an existing arrearage at the time a chapter 13 case is filed.
The second most important fact is that bankruptcy judges have for many years and continues to deal today with all types of real property and mortgages by restructuring the debt; including changing the interest rate and terms of the loan by "cram down". A cram down reduces the debt of the property to fair market value, thereby securing the debt.
The next fact is there is a large body of law that has accumulated over the years instructing bankruptcy judges on how restructuring and/or cram down should be handled. The Supreme Court of the United States has multiple opinions dealing with this issue. The result: bankruptcy judges have vast experience, and a comprehensive set of rules, in dealing with restructuring mortgage debt.
The wailing, moaning, cry of foul plan, including the statement that changing the law would dramatically hurt the mortgage business is bull. The mortgage business has not been hurt in other areas of lending such as: office buildings; apartment houses; second homes and it did not hurt the mortgage business on home loans before congress changed the law under the last administration.
The truth is, the change in the law probably contributed to the present crisis by allowing banks and mortgage companies to make loans they should never have made in the first place. The banks and mortgage companies knew they would not have to answer the hard questions from a bankruptcy judge; the result of which might well be a change in the loan. Simply put, the changes that have occurred put the fox in the hen house and all that is being asked of Congress is to chase the fox out of the hen house. If congress passes the appropriate changes the effect will be to make mortgage companies and banks accountable for their actions and subject to the same laws that all others are subject to. Congress is not being asked to make special provisions for homeowners but rather being asked to give homeowners the same laws that all others have access to.
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