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Rhode Island Bankruptcy Debtors Catch a Break

by Mark Buckley

Twice a year, the US Census Bureau and the IRS provide data used by bankruptcy lawyers to determine who qualifies for debt relief.  On May, 1, 2012, the new income numbers became effective for all new bankruptcy case filings.  The good news is that median income figures rose for all household sizes in Rhode Island.

Below are the new median income figures that I will use for my Rhode Island clients who need to file for bankruptcy:

  • 1 person household $ 47,798 (up from $ 46,335)
  • 2 person household $ 61,506 (up from $ 59,624)
  • 3 person household $ 68,909 (up from $ 66,800)
  • 4 person household $ 88,990 (up from $ 86,267)
  • Add $ 7,500 for each additional household member above a 4 person household

As a reminder, these are gross income figures.  To determine whether you qualify for Chapter 7 bankruptcy relief, I will examine your trailing 6 months of gross income from all sources, except Social Security and unemployment.  I will then double the gross figure and compare it to the chart above.

Bottom line: Many more who need to file for bankruptcy protection in Rhode Island now qualify.  This window of opportunity may only be available for a short period, so if you are considering bankruptcy, call a qualified RI bankruptcy attorney today.

Filed Under: Blog, Means Test, Rhode Island Bankruptcy Articles Tagged With: Bankruptcy, bankruptcy attorneys, bankruptcy filing, bankruptcy lawyer, bankruptcy lawyers, Chapter 7 bankruptcy, filing bankruptcy in Rhode Island, Mark Buckley, Rhode Island bankruptcy, Rhode Island Bankruptcy lawyer, RI bankruptcy lawyer, RI means test

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.

Filed Under: Blog, Chapter 13, Personal Finance, Rhode Island Bankruptcy Articles Tagged With: bankruptcy attorneys, bankruptcy lawyers, Chapter 13, filing bankruptcy in Rhode Island, Mark Buckley, Rhode Island, Rhode Island bankruptcy, Rhode Island Bankruptcy lawyer, RI bankruptcy lawyer, RI bankruptcy lawyer Mark Buckley, RI Chapter 13, SC bankruptcy lawyer Lex Rogerson, second mortgage, stripping off mortgage

How To File a Chapter 7 Bankruptcy Petition

by Mark Buckley

For the last 30 years, I’ve been drawing pictures and timelines to explain to my Chapter 7 bankruptcy clients how the process works. I finally decided to make a video and hope you find it helpful.

Filed Under: Blog, Rhode Island Bankruptcy Videos, Rhode Island Chapter 7 Tagged With: Bankruptcy, bankruptcy attorneys, bankruptcy court, bankruptcy courts, bankruptcy drawing, bankruptcy filing, bankruptcy lawyer, bankruptcy lawyers, bankruptcy timeline, Chapter 13, Chapter 7 bankruptcy, credit cards, debt, filing bankruptcy in Rhode Island, Mark Buckley, pri-sidebar, Rhode Island bankruptcy, Rhode Island bankruptcy law, Rhode Island Bankruptcy lawyer, Rhode Island Chapter 7

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.”

Filed Under: Blog, Personal Finance, Rhode Island, Rhode Island Bankruptcy Articles, Rhode Island Chapter 7 Tagged With: bankruptcy attorneys, bankruptcy lawyer, bankruptcy lawyers, CERTIFIED FINANCIAL PLANNER, Chapter 7 bankruptcy, filing for bankruptcy in RI, foreclosure, HAMP, Home Affordable Modification Program, Mark Buckley, mortgage, Rhode Island bankruptcy, Rhode Island Bankruptcy lawyer

Choosing the Best Rhode Island Bankruptcy Lawyer

by Mark Buckley

The tiny state of Rhode Island is home to 5,878 licensed attorneys.  With a population of only 1,050,788, Rhode Island has one lawyer for every 178 people.

Did you know that an attorney is licensed in the general practice of law?  With only a few exceptions, any lawyer can represent any matter he pleases, whether it be a murder case, a speeding ticket, or a bankruptcy case. With tough economic conditions affecting the legal profession, many lawyers are doing just that: reinventing themselves as bankruptcy lawyers. You will find no shortage of lawyers willing to take your Rhode Island bankruptcy case.  Advertisements for bankruptcy lawyers are everywhere. The question is, however, which RI bankruptcy lawyer should you hire?

The answer is simple: Get the best experienced bankruptcy lawyer you can afford.

The key is finding a lawyer who concentrates his practice exclusively doing bankruptcy work.  Just because a lawyer will take a bankruptcy case doesn’t mean he has experience in the field of bankruptcy law.  Just as you wouldn’t hire a dentist with only pliers and a bucket for tools, you don’t want to hire an inexperienced lawyer to represent you in the Rhode Island bankruptcy court.

Here are just a few questions to ask:

  1. What areas of law does he practice in addition to bankruptcy law?  A debtor is best represented by an attorney who devotes his entire practice to RI bankruptcy law.
  2. How long has he been practicing bankruptcy law?  If he changed his personal injury law firm into a “bankruptcy boutique” just last week, you have the right to know.
  3. How many bankruptcy cases has he personally handled?  Would you feel better knowing he has handled only a few cases like yours, or a few hundred?
  4. Who will do most of the work?  Does he spend just 30 minutes with you on the initial consultation before letting his secretary takes over?  If he has you filling out lengthy questionnaires without spending much time with you himself, you should be concerned.  You may be at a “bankruptcy mill.”
  5. Who will represent you at the creditor’s meeting?  Will you be disappointed if an attorney you’ve never spoken to before represents you at your hearing, because the lawyer you hired is too busy to attend?
  6. Are his fees comparable to what other experienced bankruptcy lawyers are charging? Not too low, not too high.

Like most things in life, you get what you pay for.  An experienced bankruptcy lawyer will save you money by avoiding costly mistakes and offer you the peace of mind that comes from knowing that your case has been handled properly and professionally.

Filed Under: Blog, Personal Finance Tagged With: bankruptcy attorneys, bankruptcy filing, best bankruptcy lawyer, Chapter 13, Chapter 7 bankruptcy, cheap bankruptcy lawyer, credit card, filing bankruptcy in RI, Mark Buckley, Rhode Island bankruptcy law, RI bankruptcy lawyer Mark Buckley

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