Name: Attorney Mark Buckley, CFP
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Debt Settlement Lawyer

Debt settlement can be the right solution in certain situations. Its a matter of knowing when its appropriate and how to do it effectively.

I’m not talking about the typical debt-relief advertisements you hear on radio and television. You know the ones. They instruct you to stop paying your bills and send them your money instead. Usually to some address outside of Rhode Island.

After starving your creditors for 6+ months, the theory is that there should be a pool of money big enough to offer settlements to your desperate creditors.

These programs usually fail because they are not a good fit for most people drowning in debt. If you owe a lot of money and are dealing with too many creditors, it isn’t likely that everyone will agree to negotiate.

Will you be satisfied if you can only settle some of your accounts, while the remaining debt is unpayable? You might create a tax liability on the forgiven debt, and a possible lawsuit on the unpaid debt.

To make matters worse, debt settlement companies are paid-in-full long before you realize its a losing battle. You could waste thousands of dollars and be left with a problem that still requires filing bankruptcy.

So when does debt settlement make sense? Answer: When you have a pile of money, under your own control, that can be used to offer lump sum settlements.

Effective debt settlement works best when you have cash in hand and can afford to pay income tax on the amount of debt forgiven. Money talks.

A few times each year, I encounter such a person. Someone who has immediate access to money, but wants to pay as little as possible to settle old credit accounts. If this describes you, I can help.

I had a client who owed $ 60,000 in old debt and now could afford to pay the debt in full. Wanting to avoid the interest and penalties that accumulated over many years, he asked me to contact each creditor and settle for the smallest amount possible. I negotiated settlement for less than $ 8,000 and he was more than happy to pay the income tax owed.

If bankruptcy is avoidable, and you have the money to make it work, a debt settlement may be an option to consider.

As your debt settlement lawyer, I can be the go-between to negotiate a low settlement. I can explain that unless we receive a good offer, the creditor will likely get nothing in a bankruptcy.

Debt Settlement Companies: Unbelievable

by Mark Buckley

Debt settlement company advertisements are everywhere. They sound appealing: who wouldn’t want to settle their debt for pennies on the dollar? Most everyone would rather erase their debts without having to file for bankruptcy—but do debt settlement companies promise more than they can deliver?

It’s important to understand that most of the advertisements are dramatized and do not represent typical results. The smiling characters on the TV screen are usually not actual clients sharing personal experiences, but actors voicing what may be “possible”.

Sending a monthly check to a far away debt settlement company usually does not end well. One of the first signs of trouble is that the company in question does not have a local office.

If you truly need help budgeting or drafting a repayment program, you would do well to work with a legal/financial adviser from your own community. In fact, calling a reputable local bankruptcy lawyer should be your first step in making sense of your debt-relief options. Even if your situation does not require a bankruptcy solution, a good bankruptcy lawyer can explain non-bankruptcy options and make sure you don’t become a victim of a debt settlement scam.

Also, be sure to never sign a contract or start any debt repayment program until you have had it thoroughly examined by a qualified bankruptcy lawyer. Too many people have thrown away valuable time and money on unworkable debt repayment plans. Even those who may be successful in settling a debt, need to be prepared to pay income tax to the IRS on the amount of debt forgiven. A 1099-Misc income form will likely be sent to you before your next tax filing.

If you are struggling with excessive unsecured debt, it is important to understand how a Chapter 7 bankruptcy may help. It is the most common form of consumer bankruptcy and only takes 90 days to complete.

For each case filed, the Rhode Island Bankruptcy Court assigns a trustee and schedules a meeting of creditors. This private meeting occurs thirty days into the process and does not take place in a courtroom. At the creditor meeting, the debtor is asked a series of questions by the trustee in order to make sure the debtor’s petition is complete, accurate, and truthful. These question and answer sessions are quite short, and most trustees can conduct six or so of these meetings in a half-hour. After the meeting, sixty days remain before debts are wiped out.

A Unique Opportunity: Second Mortgages in Chapter 13

by Mark Buckley

Guest post by South Carolina Bankruptcy Lawyer Lex Rogerson.

If you’re trying to decide which approach to bankruptcy is best for you, the prospect of writing off a second mortgage can be a powerful reason to consider filing Chapter 13.

Chapter 13 carries certain disadvantages for consumer debtors as compared with Chapter 7. The fees are higher, the bankruptcy case continues for years instead of months, and the debtor usually has to pay some creditors who might get nothing if he filed Chapter 7. So there has to be a good reason to choose Chapter 13.

Traditionally the most common reason is that Chapter 13 lets debtors catch up with delinquent mortgage payments in an orderly way. But with real estate values down an average of 30% over the last few years, an increasingly common reason to file Chapter 13 is to strip off an “underwater” second (or third) mortgage.

Let’s start by looking at how secured debts are treated in bankruptcy. In Chapter 7, for the most part, secured debts pass through unaffected. If you have two mortgages when you file Chapter 7, you will almost always have two mortgages when you finish your case. You cannot strip off a mortgage in Chapter 7.

By comparison, in Chapter 13, secured debts generally are paid in full. But unsecured creditors are often paid a nominal amount, possibly as low as one to two percent of their claims. If a debt can be classified as unsecured, the debtor can likely eliminate it with a minimal payment.

Now, we typically think of a mortgage as a classic secured debt, because the creditor has a lien on the home or other real estate to secure payment. But the Bankruptcy Code has a special definition of secured debts. Under Section 506, a debt is secured only to the extent of the value of the collateral. So if I own a TV worth $200 but owe $300 on the TV, the creditor has a secured claim of $200 and an unsecured claim for the remaining $100. We refer to this as bifurcating the claim or “cramdown.”

With home mortgages, it works a little differently. In order to encourage mortgage lending, Congress has decreed that first mortgages on residential real estate cannot be crammed down. So while Chapter 13 can help you catch up with a first mortgage if you are behind, it cannot reduce the total amount required to pay off the mortgage debt.

The situation can be different for second mortgages. If the value of the property is less than the payoff on the first mortgage, the second mortgage has no remaining value to “attach to.” In effect, the first mortgage eats up all the value of the property, leaving none for the second. In this situation, the second mortgage can be classified as fully unsecured. This means the debt to the second mortgage holder, like any other unsecured debt, can be discharged, usually with only a nominal payment. We refer to this as stripping off the second mortgage.

To illustrate how this works, let’s say you have a first mortgage with a balance of $100,000 and a second of $40,000. If your home is worth less than $100,000, your Chapter 13 plan can classify the second mortgage as an unsecured debt and usually pay it off at pennies on the dollar, because the first mortgage eats up all the value in the home. But if your home is worth $100,001, the entire second mortgage survives and must be paid in full.

Because determining real estate values is not a precise matter, it is not always possible to tell for sure whether a stripoff will succeed. But the potential upside is tremendous: the debtor can emerge from Chapter 13 after three to five years with only one mortgage instead of two, and without paying a substantial amount on the second. It’s an opportunity you will want to discuss with your RI bankruptcy attorney if your second (or third) mortgage may be underwater.

One last wrinkle. If the value of the property is more than the first mortgage payoff – even if only a few dollars – this leaves some value in the property that the second mortgage can attach to. The second mortgage then gets the same protection as the first. It must be paid in full. It’s an all-or-nothing proposition. Any value beyond the first mortgage means the second mortgage survives.

The Truth About the Mortgage Modification Process

by Mark Buckley

Obama’s mortgage modification program: on its way out?

Could the Obama Administration’s program to help American homeowners stay afloat be nearing the end of its usefulness? A committee of Washington Republicans assigned to oversee White House programs says this could be the case.

Soon after it became obvious that a major national financial crisis was looming on the horizon, the Obama Administration launched its Home Affordable Modification Program (HAMP), offering mortgage lenders financial incentive to restructure their customers’ payment plans. Although optimists predicted this program would stem the tide of sub-prime mortgage failures, it only ended up being temporarily effective: confusing paperwork, uninformed staffs, and poorly organized processes hopelessly confounded a large number of participants, many of whom ultimately failed to acquire long-term mortgage modification.

Newly elected Republican officials are expected to study and scrutinize many of the President’s recession-protection strategies, and thanks to its less-than-stellar performance, HAMP will probably make an easy target. “This program seems to have outlived its usefulness,” stated Darell Issa of the House Oversight and Government Reform Committee. In Issa’s opinion, the incentive program is yet another example of superfluous government intervention.

This allegation is not entirely without basis in reality. Although hopes ran high for HAMP, in truth the entire program was rushed and poorly planned from the beginning. Of the 500,000 homeowners granted temporary mortgage modifications under HAMP, only a miniscule fraction was approved for permanent modifications. In the long run, this left many further behind on their mortgage than they began.

Additionally, recent unemployment rates have been less than conducive for HAMP’s success. In recent years it has become impossible for much of the country to attain income levels capable of handling modified mortgages, let alone unadjusted ones.

The fact that HAMP has been associated with the robo-signing controversy only compounds problems. Republicans now blame Democratic regulators for not paying close enough attention to the foreclosure industry. Representative Robert Goodlatte is quoted in a recent hearing on Capitol Hill as demanding Democrats to “explain how the OCC [the agency in charge of overseeing the activity of America’s largest banks] …failed to detect that there were foreclosure documentation issues well before this turned into a crisis.”

Julie Williams, Chief counsel for the OCC, had little to say in response: “In hindsight, if we think about the volume of transactions that were going through the process, we could have been more suspicious.”

Get Bankruptcy Advice Even If You Have No Intention To File

by Mark Buckley

A common emotion for most Chapter 7 bankruptcy filers is REGRET. Not regret for filing bankruptcy, but regret for not seeking legal help earlier for their financial struggles.

This may sound self-serving coming from someone who has helped more than 3,000 clients in Rhode Island file for bankruptcy relief, but ask anyone who has filed a Chapter 7 bankruptcy. Most debtors waste time and money on weak attempts to solve an unfixable mess.

Recently, I spoke to married client who hadn’t saved much for retirement. He sold his house a few years ago and put the $ 120,000 profit in the bank, hoping it would supplement the $ 40,000 kept in a 401k plan.

Over the years, he spent $ 80,000 of his precious savings and all of his 401k in order to pay substantial credit card debt. He still owes $ 37,000 and asked me if he could NOW file a Chapter 7 bankruptcy to discharge the remaining debt.

Under federal bankruptcy protection laws, he would have difficulty protecting his remaining $ 40,000 in the bank. Because the account is joint, he may be able to protect half, but the rest is fair game for the bankruptcy trustee to go after. Now in his 70’s, there is no way this retired man could afford to lose $ 20,000.

What went wrong? What should he have done?

If he had called me years ago, I would have explained how under Rhode Island law, he could have exempted all the equity in his modest home and still file bankruptcy to discharge his considerable credit card debt. I would have also explained how it almost never makes sense to liquidate qualified retirement assets to pay credit card obligations. Instead of taking a 10% penalty on the early withdrawal, paying income tax on the gain, and forfeiting the future growth of the account, he should have known that bankruptcy exemption laws are quite generous in protecting retirement assets.

In other words, he could have kept his house and retirement account and discharged all his credit card debt . . . with ease!

It is unfortunate that he spent most of his life savings on debt that could have been eliminated with a simple Chapter 7 bankruptcy filing.

Here is my point. You may never want to, or need to, file for bankruptcy relief. But you should talk with a skilled bankruptcy lawyer who can explain all of your debt options.

So, when do you know its time to seek help? Do you have more than $10,000 in unsecured debt, are you robbing Peter to pay Paul, are debt collectors calling you at home or at work? If so, something is seriously wrong.

Bottom line: You would be surprised what you could learn from sitting with a qualified bankruptcy attorney. A good bankruptcy lawyer can offer a free consultation and patiently explain all of your debt-relief options.

Debt Settlement Lawyer

Debt Settlement Companies: Unbelievable

A Unique Opportunity: Second Mortgages in Chapter 13

The Truth About the Mortgage Modification Process

Get Bankruptcy Advice Even If You Have No Intention To File

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