For the last 28 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.
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.”
Your Duties to Disclose During Bankruptcy
A successful Chapter 7 bankruptcy requires honesty in order to work. When filing for bankruptcy in Rhode Island (or any state for that matter), honesty is not just necessary: it is mandatory. Anyone filing for bankruptcy should know that they are expected—required, rather—to act in good faith and be completely transparent with their RI bankruptcy attorney and Chapter 7 bankruptcy trustee.
There are three areas in particular where this “duty to disclose” comes into play for those filing for bankruptcy.
(1) Duty to Disclose Pre-Bankruptcy Asset Transfers
Imagine you own a number of expensive assets (real estate, valuable jewelry, multiple cars, perhaps a boat) but have created considerable debt in acquiring them. Scared that you may lose something, you secretly transfer these items to a close relative before filing for bankruptcy, with the intent of taking them back after your debt has been eliminated. This would be considered fraud under bankruptcy law and could be grounds for the denial of your debt discharge. For this reason, you are required to alert your attorney of any and all transfers of interest in the period before you filed for bankruptcy.
(2) Duty to Disclose Payments Made Before Your Bankruptcy
You may or may not have been advised to avoid repaying loans to family and friends prior to filing for bankruptcy. This is partially because of your “duty to disclose” pre-bankruptcy payments, since repaying loans from family and friends in this context can also be considered as fraudulent. In repaying old debts, you have chosen a lesser priority “creditor” over another higher-priority creditor, an action that can have serious repercussions in bankruptcy court. For this reason, any pre-bankruptcy payments beyond what bankruptcy court considers “essential” must be disclosed to one’s bankruptcy attorney.
(3) Duty to Disclose Any Lawsuits
Your “duty to disclose” extends to payments you expect to receive as well. If you are currently involved in a lawsuit from which you expect to receive some form of financial settlement or compensation, you have an obligation to alert your bankruptcy attorney of your situation.
Bankruptcy is a complicated business, so consulting a qualified bankruptcy attorney is an intelligent move for any person struggling with excessive debt. A good bankruptcy attorney can help you make sense of bankruptcy law’s complex procedures and make the most of a difficult financial situation. The Law Offices of Mark Buckley offer free debt consultation and are a good place to start when looking for financial direction.
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.
Re-prioritizing Your Bills
You may have been advised by experts to pay off high-interest debt before other expenses. In most cases, this advice is quite sound; however, did you know that there are certain times in which it is best to pay off debts with lower interest rates first? Don’t exhaust your limited resources without first prioritizing your debt obligations.
NerdWallet financial expert Tim Chen says, “When you have several different types of debts and your income isn’t quite keeping up with your total expenses, it can be tough to figure which debts to pay first. Ignoring high priority debts and focusing on less important ones may ultimately leave you in a worse situation than you were before. It’s often helpful for many people to have a table that lists their debts in order of highest priority to lowest.”
Here are some tips to help you re-prioritize your personal expenses?
First, start with secured debts—debts associated with assets that can be repossessed or otherwise seized. Your car and your house keep you moving, protected, and able to look for work, and as such they should be your first priority as far as protection is concerned. In the event that paying for even these most basic of priorities becomes untenable, Chapter 13 bankruptcy offers makes it possible to re-sort your finances, restructure your payments, and satisfy your creditors.
Deal with debts that can result in serious penalties second. Failing to pay off certain kinds of debt can result in serious penalties (including prison time.) Clearly, it is best to resolve these financial shortcomings as soon as possible.
The next debts to clear are those for services that require continued use. There are certain services that we simply cannot do without—electricity, running water, medical aid in the event of injury. Failing to recompense your doctor for his services will probably require you to find another, and late payment on utilities bring financial penalties with them. Although increasing numbers of doctors and utilities are willing to work with you on payment plans during these difficult economic times, you need to try to pay off debts associated with these services in a timely manner.
Finally, leave your unsecured debts (debts with no assets backing them) for last. Although the creditors of these debts may harass you while you make more pressing payments, they are unlikely—and in many cases unable—to repossess your property and more willing to work something out with you. If you still can’t cover your credit card debt after eliminating the first three varieties of debt, you should probably consider filing for Chapter 7 bankruptcy, which removes unsecured debt in order to allow you time to save for higher priority expenses.
If you are one of the millions of Americans in financial trouble, consult a qualified bankruptcy attorney.