Can You Legally Discharge Your Debt With Bankruptcy?

When should someone declare bankruptcy? What type of bankruptcy am I eligible for? These are very common questions. Unfortunately, there often are no direct answer as "it all depends." For some, individuals, a BK may be the only option to be able to get out from under overwhelming debt. In some cases, it may be the only way to save your home, your car and other assets. New legislation has made it more difficult to obtain a full bankruptcy where all debt is eliminated with no effects other than a negative reporting on your credit report. In fact the new regulations stipulate the types and kinds of debt, which can be discharged, and in some cases the reasons.

There some things, which are not considered to be bankruptcy debt, these are usually federally issued or managed loans such as student loans. These are not cleared under bankruptcy laws and cannot be applied for when applying to have debt liquidated under chapter 7 or placed on a repayment plan such as available through chapter 13. The new requirements for both chapter 7 and chapter 13 bankruptcy filings make it more difficult to obtain a chapter 7 which is total liquidation of debt and it makes it harder for bankruptcy attorneys to file for clients. This in turn makes it more expensive and a much lengthier process to file for bankruptcy now than in previous years.

In order to be eligible to file chapter 7 bankruptcy you must meet a certain set of guidelines. These guidelines are that you attend credit counseling as well as personal finance and budgeting classes. These have to be from a registered provider and there must be documentation that you attended and made yourself available to the services they provide. It is also necessary that you meet income guidelines. This means that after allowable expenses are removed you do not have enough disposable income to make payments on a repayment plan. The key word in this is allowable. The government has set regulations on expenses. These regulations allow only so much of each type of expense to be deducted and it stipulates the types of expenses, which are allowable.

Chapter 7, which is total liquidation of debt, is much harder to qualify for and obtain than a chapter 13. After you have obtained credit counseling and it has been documented that you do not have the income necessary to pay off your debt. There are a few things that occur. You must present your case in court where creditors often send representatives to argue for a dismissal of a chapter 7 or to remove their debt from the list of accepted debts that were to be liquidated. It is possible for some bankruptcy debt to be presented and not be ultimately included in the decision of the court regarding your bankruptcy.

Chapter 13 bankruptcy is based on a repayment plan. This plan is usually set up by the credit counseling service and courses that you are required to take when filing any form of bankruptcy. This is the type of bankruptcy, which does not remove debt but requires creditors to adhere to a repayment plan and in some cases reduction in debt.

This is done for individuals who have, after consideration, enough disposable income to pay off a portion if not all of the debt in a reasonable amount of time without causing an issue with their home, transportation or other necessary expenses. It is important to remember that the expenses that are deducted from your incoming cash flow are determined by governmental guidelines and are determined in part by family size. Even if you are filing for chapter 7 bankruptcy you may not with these guideline actually qualify.

There are recourses if your actual expenses are indeed more than the allowable by government guidelines however these require additional time and may require additional costs when it comes to court fees, legal fees and rising debt. How you handle credit and budgeting after bankruptcy is important. The number of times you can file is limited and in many cases one time is all that is allowable. Repairing your credit after either a chapter 13 or chapter 7 bankruptcies can be difficult.

This is why bankruptcy credit card options exist. They are designed to provide you with the ability to be able to help repair your credit after you have filed bankruptcy and discharged your bankruptcy debt. There are a few earmarks of the type of credit card that can be classified as a bankruptcy credit card.

One of the biggest is that it is a secured card. This means that your credit limit on the card is limited to the amount of money you place on the card. If you place $50 on the card then your credit limit is $50. Every time however you pay that back to the card and renew the total amount a positive report is sent to the credit reporting agencies indicating that you paid the card. This in turn improves your credit rating in regards to revolving credit. Revolving credit is characterized by having a renewable source of credit such as a credit card or line of credit style loan.

Other things, which may characterize the type of credit card available, as a bankruptcy credit card is a credit card with a low balance and high interest rate that you are allowed to keep regular payments of this card have the same effect as a secured credit card. It is important with these cards is that you purchase no more than you can afford to pay off by the time the bill is due. This creates an even greater impact because you are paying the debt off in full at the turn of each billing cycle.

Filing for bankruptcy may be a way to release you from overwhelming debt legally but it is not a decision to be made lightly and should be used as a final resort. It remains one of the biggest marks, which can negatively affect credit scores and ratings. The new legislation also makes it difficult to obtain a full liquidation leaving you not only with the debt to repay but also with the negative effects of a bankruptcy.

Tools and resources for rebuilding credit after a bankruptcy can be found at http://www.MinnesotaDebt.net John Mazzara is involved with financial services in the Twin Cities, MN. Officing out of Edina, Minnesota-John is centrally located within the 7 county MN metropolitan area. John owns three separate businesses-a licensed real estate broker associate selling Minnesota real estate since 1986-affiliated with RE/MAX Associates Plus http://www.MinneapolisStPaulHomes.com, an independent CFP-certified financial planner since 1989 with an independent Minnesota financial planning firm-Financial Planning Associates and the owner of a Minnesota mortgage broker firm-Venture Development Inc-specializing in residential, commercial and investment mortgages for purchases of single family homes, investment properties and commercial property. Venture brokers FHA, VA, Conventional loans and lines of credit. If you are looking for someone to help you in the areas of real estate sales/purchase, mortgages, or and/or financial planning and insurance you should call John for a free 1 hour consultation to see if he can meet your needs. 952-929-2577. RE/MAX Associates Plus and Venture Development are located at 7300 France Ave S, Suite 410, Edina, MN 55435

Loan Modification - Buyer Beware

With the national unprecedented rise in foreclosures and delinquent mortgages caused in part by irresponsible lending practices during 2001 to 2007, and exacerbated by the economic downturn, a plethora of Loan Modifications companies have popped up looking to take your money.

Why hire a modification company?

The common perception of the average consumer is that my lender does not want to take the loss by foreclosing on my property and that they want to work with me if I need financial help in modifying my loan. In most cases, nothing could be further from the truth! Most lenders, despite taking TARP money, have little interest in helping the average consumer and have hired an army of minions in their loss mitigation departments who will block you at every step and lose your paperwork in a focused attempt to dissuade all but the most tenacious and astute borrower. Additionally, they will push you to take your financial information so they may record and document it, mainly in an effort to disqualify you from a loan modification.

To qualify for a loan modification, your financial situation (assets vs. liabilities) must fit into a narrowly defined box for your lender to consider you for a modification. You must have just enough income, but not too much. Your debt to income ratios must fit within certain guidelines, and these guidelines vary be lender and change all the time based on the Investors guidelines (the person or entity that actually owns your Mortgage Note as the bank is just the servicer in most cases). Your housing costs vs. your net income must be within certain limits as well. Giving your financials incorrectly or not within guidelines may permanently disqualify you for a loan modification, ending your chances for financial relief. It is in properly preparing your financials where Loan Modification companies in part earn their money!

What type of loan modification company should I hire?

Buyer beware! There are many non-qualified companies including debt settlement companies and former mortgage companies vying for your money, all claiming to help you with a loan modification. They promise you anything and tell you what you want to hear in regards to the outcome of your case without taking any financial information or doing any analysis of your situation. A reputable company will turn down close to 40% of the people seeking help as they will not fit within the lenders modification guidelines.

Many companies have started offering a "money back guarantee". Don't be fooled! They are doing this because of the recent crackdown by the Department of Real Estates limits on advance fees for loan modification services on non-attorneys as many consumers have been ripped off! Most of your fees will be eaten up in "hard costs" which they are allowed to keep. Many non-attorney or "Attorney based" or "Attorney backed" companies are operating illegally. Beware as these companies are taking money, filling out the basic paperwork for submission to the lender, but not fighting for you in most cases. They are loosely using attorneys in an attempt to skirt Department of Real Estate laws and guidelines, but also do not follow state bar guidelines as they are not a Law Office and you are not directly retaining an attorney. These are mortgage companies or former mortgage brokers in most cases who have hired an attorney but are not a law office. Their attorney cannot legally represent you! Unless you directly retain an attorney, they are unable to directly represent you and your rights will not be protected. Robert G. Scurrah, attorney for the Consumer Debt Advocate Law Center ( www.cdalawcenter.com) states: "Make sure the attorney is on site, that he directly works on your case, that he is available for a discussion, as after all, you are his client! Based on bar rules, your attorney must work on your case and directly supervise the employees working on your case, and he must document that work. The company cannot have an owner that is not an attorney. Make sure that your attorney is available to meet with you if your go down to the office. Ask these questions as if you do not hire a law center or law firm, you are likely being misled." Mr. Scurrah goes on and says that: "I or one of our associate attorneys are hands on with every case and personally prepare the case proposal letters as well as other correspondence with our clients lenders. We want to ensure that our client's unique hardship and financial situation is fully illuminated for the lenders and we are directly involved in the negotiation process which yields better results for our clients."

The banks are not very receptive if you have not retained an attorney from a law center or law office. Understand that re-negotiating an existing executed contract by its very definition is the practice of law. Only an attorney can practice law which is why so many of these companies are being shut down by the various government agencies. If you want someone to leverage the fact that there are predatory lending issues on your case, push the lender to modify, make sure you hire an attorney. Do your diligence!!

What type of outcome can I reasonably expect?

A loan modification by definition is designed as temporary financial relief to help a borrower get through a documentable financial hardship such as job loss, income loss, divorce, medical issues, etc. It is not as give-away program just because you want a lower payment. A proposed payment to your lender is typically calculated by taking your net income and trying to fit it within the upper limits of your lenders underwriting guidelines. If you are being promised a new interest rate or a principal write down by a company, they are likely scamming you. Make sure the company takes a full financial profile before determining if they can help you. Make sure they are proposing a new payment within the lenders underwriting guidelines.

Lenders are typically not doing any principal write down despite the fact that many homeowners owe more than their home is worth. Why is this? You made a risk based investment when you bought your home and it is not your lenders responsibility to bail you out. They did not add money onto your loan balance while your property was appreciating, and they are not responsible for bailing you out now that it has depreciated, as it will go up in value once the liquidity and credit crisis is over when buyers come back to the market. If you are being offered this up front by a loan modification company, you are likely being scammed as very few borrowers can reasonably expect a write down, unless it is on a second mortgage with the same lender who holds your primary mortgage, and even then it is hit or miss. Your attorney can certainly ask for that as part of your proposal if you desire, but understand going in that it is a long shot.

Most modifications are for a 3-5 year terms, and some lenders are offering a market rate fixed for 30 years after that term if you currently have a high interest rate. Some large mortgage can get the term extended to 40 years to further lower your payment, it depends on the bank you are working with. We have found that Countrywide Home Mortgage is the most difficult bank to work with as unlike most banks, they are being very unreasonable and seem to be deliberately turning down as many people as possible despite taking TARP money and a PR campaign proclaiming how they are helping people. This lack of a reasonable negotiation process was clearly documented on an NBC Nightline episode featuring Congresswoman Waters who was trying to help a constituent get a loan modification from Countrywide Home loans. Countrywide and Bank of America who now owns them should be ashamed of the way they are acting! If you owe an arrearage, you may expect the lender to add that to your principal balance and not make you come up with it during the loan modification, unless you owe more than 3 months in missed payments. In that case, expect to come up with a good faith payment of up to 30% of the arrearage to get you "current" with your lender, and they may offer you a "pre-modification" agreement at first. If you make these payments, it will often convert to a permanent modification if you do not make a late payment or miss another one.

In summary, never pay for loan modification services unless you are retaining an attorney who has at the very least taken your full financial profile before determining if they will take your case. If they are not interested enough to see if you qualify, they have little regard for the outcome of your case. Remember, it is still a negotiation process and ultimately it is up to the lender to decide if they will modify your loan. If you don't fit within the financial guidelines of your lender, your chances of a successful outcome are slim.

Nikki Vaughn is a seasoned professional concentrating her studies and education within the personal finance and mortgage verticals. Paying close attention to consumer driven products and personal/national issues, she's driven to alert and educate by delivering industry news and hot topics to her fan base. She currently writes for http://www.consumerdebtadvocate.net on consumer education pieces and freelance for client's websites

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