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When you file bankruptcy protection you are required to report household income to determine eligibility of the chapter you wish to file. The same is true for married couples who file a joint bankruptcy or a married person filing an individual petition. In other words, you are required to report income of your spouse even [...]
Cash out your equity, get money to pay debts, and live happily ever after. Better watch out.
Last week I spoke with a wonderful woman with $50,000 in credit card debt, medical debts approaching six figures, and no equity in her home. She’s retired, 74 years old, and looking to file for bankruptcy.
We talked about the debts, her assets and, ultimately, the mortgage. Turns out, this was no ordinary mortgage.
Rather, it was a reverse mortgage. And as the name implies, it had gotten her turned upside down.
Reverse Mortgage Basics
A reverse mortgage allows you to borrow against the value of your house, just like a regular mortgage.
The difference is that you don’t have to pay back any of the money until you die or the house is sold.
To qualify for a reverse mortgage, you must be at least 62 years old and live in the property as your primary residence. Any mortgage you have on the property must be paid off with the reverse mortgage proceeds, and the limit on the loan is $625,500 as of this writing in 2013.
There’s usually no minimum income or credit requirement to get a reverse mortgage because s because no payments are required on the mortgage.
How You Get The Money
Once you’re approved, you can choose to either get the money all at once as a lump sum, fixed monthly payments either for a set term or for as long as you live in the home, as a line of credit, or a combination of those options.
The choice is entirely yours, and most reverse mortgages will give you the option and freedom of choice.
Beware The Dangers Of Reverse Mortgages
It all sounds good on paper, especially if you’re strapped for cash. But a reverse mortgage isn’t all wine and roses.
First, realize that you’re probably going to be paying more in fees and interest. This loan isn’t based on your credit, after all; as such, it’s not too far off from those subprime loans that pose such a threat to homeowners.
In addition, the loan’s got to be paid off when you die – often in a short period of time. So if you’re thinking of leaving the house to your children or other heirs, this may pose a problem for them. They’ll need to either sell the house or scramble to get a mortgage to pay off the reverse mortgage. If they’ve got bad credit, this may prove to be difficult.
The Danger Of The Debt Spiral
My client at the beginning of this article came to me with medical debts and no equity in her home. She’d gotten over $250,000 in a lump-sum payment on the reverse mortgage but that was a few years ago – the money went to pay off her old debts.
Now the money was gone, she’d drained her equity and her ability to leave an inheritance, and she was up to her eyeballs in new debt.
There was nowhere for her to turn except bankruptcy.
This is the same problem many other people have when they refinance. The difference here is that my client was elderly and didn’t have the ability to refinance her existing loan again.
That’s not to say that a reverse mortgage is always a bad idea, however. If you can use the funds to get out of debt, understand the risks and costs, and remain debt free then it’s a viable option.
Be sure to remain vigilant and informed.
For more information and resources, check out the following:
- Top 10 Things To Know About Reverse Mortgages (HUD)
- Reverse Mortgages For Seniors (HUD)
- Reverse Mortgages (AARP)
- Reverse Mortgage Information (FTC)
Image credit: Rusty Clark
Reverse Mortgages – Tool For Getting Out Of Debt, Or Recipe For More Trouble? was originally published on Consumer Help Central. If you're seeing this message on another site, it has been stolen and is being used without permission. That's illegal, a violation of copyright, and just plain awful.
Most often when you think about filing bankruptcy the process is completed by the debtor seeking protection. Yet, there are special circumstances in which a debtor may not be able to file a petition due to mental, physical, or financial challenges. It may actually make sense for them to file bankruptcy, but they are unable [...]
Courts have largely rejected a restrictive definition of the term debt allowing coverage of a broad spectrum of “consumer debts” beyond what you might normally expect including such diverse obligation as rent, student loans, utility and insurance bills,condo and attorney fees, judgements, debts already discharged in bankruptcy, car rental agreements and even campground memberships.
Some debts are just not debts for FDCPA purposes including some debts that you might expect to be covered such as taxes, shoplifting civil claims, fines, license fees, car accidents and child support. If a collector is harassing you for any of these non-FDCPA debts, relief still might be found under either Washington or Oregon state collection laws or under the Bankruptcy code, but you cannot seek assistance under the FDCPA
If you are getting harassed by any creditor or collector give us a call today. We can discuss your situation over the phone or, even better, set up an appointment for you to come in either of our Washington offices in Seattle or Vancouver or one of our Oregon offices in Salem or Portland. We will look forward to hearing from you.
The original post is titled Consumer Debts Covered Under the Fair Debt Collection Practices Act , and it came from Oregon Bankruptcy Lawyer | Portland, Salem, and Vancouver, Wa .
Written by: Robert DeMarco
The Fifth Circuit has confirmed that the absolute priority rule remains intact for an individual filing a chapter 11 bankruptcy petition. Judge Edith Jones, writing for the Court, in In re Lively, 12-20277, 2013 WL 2347045 (5th Cir. May 29, 2013), concluded that section 1129(b)(2)(B), as amended by the Bankruptcy Abuse Prevention & Consumer Protection Act of 2005 (Pub.L. No. 109-8, 119 Stat. 23 (2005)) applies to individual debtor cases.
The scenario that Philip Lively [“Lively”] faced is nothing remarkable. To the contrary, it is rather commonplace. Lively initially filed a chapter 13 bankruptcy petition. However, Lively’s bankruptcy case had to be converted to on under chapter 11 once it was learned that the debtor’s claims exceeded the chapter 13 debt ceiling. See 11 U.S.C. § 109(e).
Lively proposed a chapter 11 plan that permitted him to retain all of his property, including the beneficial interest in a mortgage and none railroad tank cars that were being leased. The unsecured creditors’ class voted against confirmation, thereby putting into play the question of whether the absolute priority rule applies to an individual chapter 11 debtor.
The absolute priority rule provides that a Chapter 11 reorganization plan is “fair and equitable” with respect to a dissenting class of unsecured claims, if
(i) the plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the plan, equal to the allowed amount of such claim; or
(ii) the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property; except that in a case in which the debtor is an individual, the debtor may retain property included in the estate under section 1115, subject to the requirements of subsection (a)(14) of this section.
In re Lively, 12-20277, 2013 WL 2347045, pages 1-2 (5th Cir. May 29, 2013) (citations omitted) (emphasis in original). There was no dispute that the subject chapter 11 bankruptcy plan failed to comply with the absolute priority rule. Instead, Lively relied upon the minority position which, in reliance upon the above italicized language, holds that individuals are exempt from the rule’s application.
Judge Jones, in discussing why Lively’s position was in error, stated thusly:
Before the BAPCPA amendments, however, an individual Chapter 11 debtor would only have to satisfy the absolute priority rule with assets that were “property of the estate” at the date of filing for relief; the individual debtor’s personal post-petition earnings were not subject to liability to satisfy his creditors. In § 1115, Congress remedied this potential inequity in Chapter 11 by adding to the § 541 definition the individual debtor’s post-petition earnings and property acquisitions.
Id. at page 2. The Court then continued, quoting from In re Kanell, 451 B.R. 505, 511 (Bankr. C.D.Cal. 2011):
the property included in the estate under § 1115 includes all post-petition earnings, not limited by deduction for monthly expenses [as in Chapter 13] … [s]o, if the ‘absolute priority rule’ persisted after BAPCPA, it would have prevented the debtor from keeping any of his post-petition earnings as the price for cram down; thus enters the necessary amelioration in § 1129(b)(2)(B)(ii)…. But this is as far as one needs to go to make sense of the new statutory scheme.
Id. at page 3.
Be it good news or bad news, the issue is now resolved. An individual chapter 11 debtor, like any other chapter 11 debtor, must comply with the absolute priority rule in the Fifth Circuit.
DATED: May 31, 2013
Halsey Minor, founder of CNET, filed for bankruptcy in Los Angeles on May 24, 2013. What’s the lesson for the small business owner?
Let’s say you’ve hit on a grand business idea. You take a risk, throw a bunch of money at the venture, and dive deeply.
A few years later, you’re deep in the red.
Rather than fight an uphill battle against creditors, you do what the capitalist system allows.
You cut your losses, file for bankruptcy, and move onto the next big thing.
That’s what Halsey Minor did. And beneath the surface of his perceived excess, it makes perfect sense.
A Grand Opportunity
CNET was launched in 1994 as a production company for television programs dealing with the then-nascent technology industry. Riding the wave of the technology boom, CNET became a one-stop source for tech news and information, eventually expanding into radio and a series of web properties.
Those web properties are familiar to those who download software online (download.com) and look for the latest information about cutting edge technology. Some of the now-valuable domain named owned by CNET were:
- download.com
- downloads.com
- upload.com
- news.com
- search.com
- TV.com
- mp3.com
- chat.com
- computers.com
- help.com
- shopper.com
- radio.com
In 2008, CNET was bought by CBS Corporation for $1.8 billion. And with that sale, Halsey Minor did what every entrepreneur dreams of.
He cashed out.
Waking Up From The American Dream
From there, Minor embarked on a series of business transactions. He bought art. He bought real estate. He invested in companies such as Grand Central, the precursor to Google Voice.
Some made money (Grand Central was a big win) and others lost money (the real estate venture was a notable bust).
In the end, Minor was left with $100 million in debt and only $50 in assets.
The Bankruptcy Bargain
Minor chose to file for Chapter 7 bankruptcy, turning over his assets in exchange for a discharge of his debts.
For the American business person, it’s a fair trade: you gamble with the house’s money and, if you lose, you cash in your chips.
Minor clearly realizes this, and says, “if you win some you are going to lose some too.”
It’s no cavalier attitude, despite what the press may think. It’s the reality of the business world. You bet, you lose, you go home.
But that’s not the full story.
In the time after you begin your business dealings and before you file for bankruptcy, you employ people to help realize your dream. You pay them money and they, in turn, spend that money back into the economy.
That doesn’t make it easy or fun for the person filing for bankruptcy, of course. Losing hurts, after all.
You lose your business, your belongings, and a piece of your ego. It’s a harsh price to pay, but a fair one.
That’s What Makes The Country Move Forward
Without bankruptcy as a means for the business person to cut their losses, no risk or innovation happens.
The guy with the great idea doesn’t take a chance because he knows that if he loses, he’s got nowhere to turn.
That new technology never sees the light of day because nobody’s willing to put their neck on the line.
Those employees are never hired. They never buy homes and cars.
The wheels of commerce grind to a halt.
Next time you see a business fail, think about all the good that came out of it before the fall.
Image credit: jdlasica
Halsey Minor And The Bargain Of Business And Bankruptcy was originally published on Consumer Help Central. If you're seeing this message on another site, it has been stolen and is being used without permission. That's illegal, a violation of copyright, and just plain awful.
Not all debts are covered by the Fair Debt Collection Practices Act. Consumer debts are the only debts that fall within the ambit of the Act. Though a collector may violate Washington or Oregon state collections laws by engaging in collections activity that would normally violate the FDCPA, if the debt itself is commercial rather than consumer, there is no violation of the Fair Debt Collection Practices Act.
The original purpose of the debt determines whether the debt is consumer or comercial. This is not an all or nothing approach. If the business purpose was a small part of an otherwise personal loan, the FDCPA likely applies. Moreover, personal checks made out to retain businesses create a rebuttable presumption that the debt was made for consumer purposes. It has been found that where personal debts incurred with a business credit card, the actual use of the card ultimately won out over the business label on the card.
The original post is titled Consumer and Business Debts and the FDCPA , and it came from Oregon Bankruptcy Lawyer | Portland, Salem, and Vancouver, Wa .
The Fair Debt Collection Practices Act limits the places and times for a collector to contact an Oregon or Washington consumer. The Act also severely limits third-party contacts and bars a collector from contacting a consumer represented by counsel.
The presumption is that any phone call received between nine p.m and eight a.m was at an inconvenient or unusual time. Because many collectors, calling from out of state like to raise this defense–”I had no idea it was six in the morning, it’s nine a.m. where I am calling from–it is important to document your calls and note that you let the creditor know about the inconvenience of their calls and instructions to stop.
With respect to inconvenient places, the workplace stands out as a fundamentally inconvenient place for a call for many different kinds of workers, including nurses, teachers and restaurant workers. With respect to all other places, the question is whether the collector knew or should have known that the call was inconvenient. WIth respect to the workplace, once the consumer requests that the debt collector cease calls to the workplace, the collector is barred from doing so.
Document your phone conversations with your collectors and contact our offices if you have any questions at all. We would be happy to meet you at either of our Washington offices in Seattle and Vancouver or at either of our Oregon offices in Portland or Salem.
The original post is titled When and Where Can a Collector Contact Me? , and it came from Oregon Bankruptcy Lawyer | Portland, Salem, and Vancouver, Wa .
You’re sitting at the kitchen table, poring over the bills – again. What impact does it have on your family?
If you’re deep inside your own financial problems, you’re probably not in a frame of mind to think about those around you.
You don’t see their faces as they watch you grimace over the past-due bills.
When you’re talking with a debt collector, their reaction isn’t in your field of vision.
And you don’t know the impact on them when you snap, nerves on edge as you worry about how to pay the creditors before they sue you.
Don’t fool yourself.
The Things That Form Your Views In Life
Matt Bellamy, front man of the rock band Muse and partner of actress Kate Hudson, credits his father’s escape from debt with his own success.
According to an interview with Bellamy in The Sun:
“Money and success haven’t really changed my beliefs or opinions over the years. When I was growing up my mum and dad split when I was 13 or 14 during the early-’90s recession. At that time my dad went bankrupt and it played a huge part in it all at home.
“I experienced the sharp end of a tough time, living with a single parent, my mum, and she was really struggling to get a job. These are the things that form your views in life. They are established when you are growing up and being raised. That stuff doesn’t really go away, that stays with you.”
Overwhelming debt led his father to bankruptcy and his parents to divorce. Though this has instilled in Bellamy something of a Depression Era Mentality that drives his work ethic years later, it crushed his family.
The Problem, Not The Solution, Sharpens The Edge
Some may say that Bellamy’s father’s bankruptcy was what caused the, “sharp end of a tough time,” but those who work with people experiencing bill problems know otherwise.
Bankruptcy signals the end of the debt collection calls. It marks the moment that the bills stop showing up in the mailbox.
And the day a bankruptcy case is filed is the day the arguments stop about how to pay the bills.
This, in other words, is when the sharp end dulls a bit and conversations can involve other things. Things like family, togetherness, and the future.
Dull The Edge For Your Family’s Future
It doesn’t matter how you take care of your bill problems. There are lots of options out there, and your solution may not be the same one as the next person’s.
Regardless, you need to get a handle on things right now. Call a reputable credit counselor. Talk with a lawyer. Ask your accountant for a recommendation. Go to your local clergy or community leader to find someone who’s good at what they do and will treat you properly.
If you don’t, the impact on your personal life will get worse. The sharp edge will get sharper until it cuts you and your loved ones to ribbons.
And that’s not a good place to be.
Image credit: Kent, J
The Sharp Edge Of A Tough Time was originally published on Consumer Help Central. If you're seeing this message on another site, it has been stolen and is being used without permission. That's illegal, a violation of copyright, and just plain awful.
Sallie Mae splits into two companies. Why should we all be worried?
On May 29, 2013 it was announced that student loan servicing giant Sallie Mae would be splitting into two separate companies – one to service existing loans, and one to lend money as a private student loan lender.
If you owe money for student loans, you probably know Sallie Mae fairly well. They service many federal as well as private student loans, and used to act as a federal student loan lender before 2010.
The difference this time is that Sallie Mae is getting into one of the most profitable loan markets, taking advantage of their industry strength to pummel student loan borrowers.
The Two New Sallie Mae Entities
One company, the education-loan management business, will continue to handle the $118.1 billion in federal loans and $31.6 billion of old private loans in the company’s book of business.
The other company will make student loans that are not federally-funded, guaranteed or controlled. In other words, the most profitable type of student loans – those not subject to federal regulations or interest rate caps.
Why Private Student Loans Are Great For Lenders
Over the past decade, the cost of attending a four-year undergraduate college have risen 41 percent. The average net tuition at a four-year private not-for-profit university rose to $13,880 in the 2012-13 school year from $13,150 a decade earlier. Room and board went to $10,460, up from $8,660.
For the 2012-13 school year, the limit for federal student loans was $5,500 for Freshmen, $6,500 for sophomores, and $7,500 for Juniors and Seniors.
That means an undergraduate student who needs student loans to pay for his or her entire cost of attendance is going to need $18,110 in non-governmental loans for the first year alone.
That’s where the private student loan comes in.
The Profit Behind The Loan
According to Chase, a large private student loan lender, the average interest rate it charges for these loans as of May 2013 is between 3.33% – 9.23%.
These loans accrue interest from the moment of disbursement, which means that a loan of $18,110 taken out in Freshman year at an interest rate of 3.33% (the low end of the spectrum) will have a balance of $20,645 by the time you graduate (assuming you’re on the four-year plan).
Payments come due immediately, and there are no repayment options such as income-based repayment available. You can’t get any of the federal student loan discharges or forgiveness either.
A Toe In Roiling Waters
More than half of outstanding student loans are in deferment, according to a report issued by TransUnion.
13.4 percent of student loans that are not in deferment are currently in default.
Outstanding total student loan debt is more than $1 trillion.
But with nowhere to turn, new students are forced to look to an ever-increasing private student loan market.
For Sallie, Nothing But Net
You’ve got a captive audience – students fed the lie that the only road to prosperity is a post-high school education.
Those student have no federal protection from private lenders. Many turn to co-signers to help get loans, obligating the last generation for the debts of the next.
There’s nothing but money in the pot for Sallie Mae and other private student loan lenders.
And not much upside for student loan borrowers unless consumer protection laws are changed to help manage the private student loan debt.
Image courtesy of Wikipedia
Student Loans And The Troubling Tale Of Two Sallies was originally published on Consumer Help Central. If you're seeing this message on another site, it has been stolen and is being used without permission. That's illegal, a violation of copyright, and just plain awful.
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