Peter Francis Geraci A Bankruptcy Blog - Chapter 7 & 13

An average American solider has more debt than the average civilian.  In honor of Memorial Day, I want to discuss (belatedly) the Service Members Civil Relief Act.  The law was put into place for soldiers to focus on defending the country and be free of financial distractions.  This law is made (especially for) military men and women who are indebted because of their service.  We want to protect our military from financial hardship and stress and using SCRA can help.  SCRA primarily will:

 

-Prevent filing of a default judgment

-Stop evictions (as long as rent is not more than $1200 per month)

-Reduce interest on debt (protected against credit with interest over 6%)

 

However, this is not a permanent solution for debt. Collections, judgments, and interest can resume after 90 days of a soldier’s discharge. So a soldier comes back from serving his/her country and after reclamation, the collection calls and lawsuits will resume.  We suspend the stress caused by debt – but after discharge, a soldier loses his/her SCRA protection.

 

The only debt protected by SCRA is debt incurred before active duty. To use SCRA for the benefits, a soldier must show service have a “material effect” on the cause of the judgment. SCRA also does not happen automatically. A soldier should send a copy of the mobilization orders to the creditors before being deployed. While SCRA helps soldiers, it can be considered a Band-Aid for a possible debt wound.

 

The long term solution is a bankruptcy. After the 90-day grace period, a veteran can find themselves with creditor calls and possible lawsuits. The way to stop the lawsuits and judgments is a filed bankruptcy. Eliminating all debt with a Chapter 7 or consolidating in a Chapter 13 repayment plan is the way to permanently relieve the stress of our veterans.  While in active duty, interest on debt (again incurred before duty) is reduced, but after the 90 days, interest will start again.

 

Bankruptcy is the best way to be debt free.  It doesn’t matter if you are a civilian or a soldier, bankruptcy law is there to protect you for the long run – not until you are discharged from active duty.

Rain, rain, go away. The rain in the Midwest never seems to stop. Like the bad weather, debt never seems to stop. Unless you win the lottery, your debt is not going anywhere, anytime soon. Debt hangs over your head like a black cloud ruining a sunny day. Minimum payments do not decrease a large balance and settling the debt could land you with a 1099 IRS form.

 

I have spoken to enough people to understand no one plans on being in debt. Something happens – whether a medical calamity, divorce, loss of job, etc. where someone is not able to move financially move forward.  Options like debt consolidation work the same as holding a newspaper over your head in a downpour. The newspaper eventually rips and you get soaked – or sued by a creditor.

 

Debt freedom does not happen overnight.  Your case can be filed in as little as one day – with Geraci Law, LLC – and for the next 60-90 days you and your attorneys are waiting out the creditor storm for your discharge from the bankruptcy court. If you have a big debt balance, filing a bankruptcy is like finding shelter from a thunderstorm. A Geraci attorney will help you get some relief and feel ease.  With the economy in shambles and gas prices increasing another $0.30, everyone needs some help.

 

Bankruptcy is a great solution if you are being followed by a financial storm cloud. The creditor calls and the constant headaches can make any situation seem like a rainy day. Discharging your debt could be the best thing you do – instead of worrying about how you are going to stay current with credit cards and put food on the table, you could worry about…nothing but finding the pesky lost umbrella.

 

 

There is an irony to unemployment and credit. If you receive unemployment and cannot afford your minimum payments – your credit suffers, but if your credit suffers you may have difficultly finding a job. More often than not, unemployment does not come close to paying normal monthly living expenses and often a credit score suffers. For example, the Transportation Security Administration (TSA) will not hire if someone owes over $5,000 in debt. So you receive unemployment and possibly may not find employment because your credit is taking hit after hit with every late payment.

 

According to a study done by the Society for Human Resource Management, over 60 percent of the private sector uses credit as a determiner for employment. That’s a big percentage to have credit checks only done for bankers and financers.  Employers are looking at two big things on your credit – the amount of debt you are in and your payment history (conveniently the two biggest contributors to your credit score calculation). Filing a bankruptcy will eliminate large amount of debt and poor payment history. If you make timely payments, you can actually rebuild!  

 

The Bankruptcy Code prohibits an employer from discriminating against someone who has filed for bankruptcy and an employer is supposed to tell you if credit information is used against you. So if you file a bankruptcy, an employer cannot use it against you but if you do not file a bankruptcy and have poor credit – you could miss out on a job.  Seemingly, bankruptcy is your better option.

 

The irrational logic behind bad credit affecting an employee’s ability to complete a job is based on the idea if you have bad credit; you will be distracted from completing your work. My thought is if someone has bad credit, they are thinking about finding work to help with their bad credit! The distraction of “bad credit” happens while they are out of work and trying to put food on the table.  Especially post-bankruptcy, a potential employee has zero debt to distract them while at work.

 

When your debt starts affecting your ability to find work (and actually pay off the debt), then it’s time to bite the bullet, open the mail and actually do something about it. After your debt is discharged through bankruptcy, make your payments and time and work to rebuild your credit. If a potential employer asks you about your bankruptcy, honesty is the best policy.  Explain to your interviewer you are debt free and have zero distractions to keep you from doing your job.

The housing bubble is going to burst – again. The big difference is the housing bubble is a foreclosure bubble. With the foreclosure rate slowing and the unemployment rate (in many states) rising, the burst is bound to happen soon.

 

Foreclosure rates could be slowing for numerous reasons. The biggest reason probably is the scrutiny of mortgage companies’ foreclosure process.  A person used to lose their home after being delinquent for 6-8 months. Now, it could take up to a year (s) for a homeowner to actually be evicted.  Mortgage companies are required to provide HAMP options and in some counties, mortgage counseling services before a foreclosure judgment can be entered. In some cases, a homeowner could be behind 9 months before being contacted by a foreclosure attorney.

 

The decrease in the amount of foreclosures filed does not mean there are fewer homes in trouble – it means there are more delays by banks to actually take homes. A loan modification application can delay a foreclosure for months (in some cases years). A mortgage company cannot foreclosure on a property without offering a HAMP modification opportunity and the backlog of applications and homeowners with arrears could delay even the most efficient of foreclosure attorneys.

 

This is seemingly good news for struggling homeowners who can stay in their homes until they return to work (and file a Chapter 13 to get caught up on the arrears) or find a new living space. But at some point, the foreclosure bubble will burst and many will find themselves with an expedited foreclosure and a pending sale date.  This happens often after a loan modification is denied. After months of faxing, e-mailing, and mailing the same documents to a mortgage company, a homeowner could find a summons for foreclosure on their front door.

 

It is easy to ignore the collection letters and the notices – even when the notice is being handed to you by a process server. Since foreclosure generally takes over a year, a person can gather a hefty amount of mail from mortgage companies and attorneys. I have heard people say, “My mortgage company told me if I want a modification I should not make my mortgage payment.” The answer is your mortgage company is suing you because you are going into foreclosure! A loan modification can be denied and the default amount, late fees, court costs, and interest can add up to a substantial amount. At this point, your mortgage company is probably done working with you. Often, your mortgage servicer will demand the entire amount to stop the foreclosure proceedings.

 

Checking and actually reading your mail is important – especially if you want to save the house. Once the foreclosure attorneys get their ducks in a row, the number of foreclosures will start to match the increasing number of people with defaulted mortgage payments (in Chicago, the number of defaulted mortgages increased from last year, while the number of filed foreclosures decreased 20 percent).

 

Once the foreclosure attorneys work out the backlog, I predict there will be a storm of foreclosure filings and sheriff sale dates. You are able to stop a foreclosure sale by filing a Chapter 13 bankruptcy before the home is auctioned off. If your home is already sold, your Chapter 13 bankruptcy option is gone. Do not wait until the last second – contact Geraci Law LLC. If you have waited until the last second, Geraci Law can file your case in as little as a day to save your home.

 

A new mayor took office in Chicago this week and has some ambitious plans to curb the effects of foreclosure. Mayor Rahm Emanuel in the 2011 transition report called for the mortgage providers to develop a strategy to prevent foreclosures. In the report, the new mayor demanded an inventory of abandoned buildings and to invigorate older foreclosure programs.

 

Current foreclosure prevention programs are available to Chicago residents including foreclosure counseling available through HUD-approved agencies. In 2010, the city sponsored “Fix Your Mortgage” events (using $1 million in stimulus funds) and helped over 2,200 homeowners with foreclosure. The report does not indicate whether the homeowners kept their homes or vacated the property.  According to the Department of Housing and Urban Development (HUD)’s Web site, the events help homeowners find out if they are eligible for a HAMP modification. 

 

The 2,200 homeowners pale in comparison to the 25,000 homeowners with a foreclosure filed in 2010. The success rate of the event is pretty comparable to the national success rate of loan modifications. Many people who apply do not qualify from the onset and despite submitting documents for a modification – a foreclosure is still inevitable.

 

So the success rate is pretty terrible in the Chicagoland area.  The national mortgage deficiency decreased last year and Chicago’s increased! According to the Chicago Tribune, approximately 7.75% of Chicago homeowners are at least 60 days behind on their mortgages – compared to the national average of 6.19%.  The city is helping a minimal percentage with counseling – but what if you are in foreclosure? What if you want to save your home? These questions do not seem to be answered by the counselors or a loan modification application nor the 22,800 other people faced with foreclosure last year.

 

A foreclosure crisis is not going to be curbed by housing counseling. Most people do not find themselves in foreclosure because they never had housing counseling – most people fall behind because of loss of income, high amounts of debt, or they were never able to afford the house to begin with. Counseling a person on the foreclosure process is not going to help them save their homes or retain homes years from now.

 

Bankruptcy is the way to do so. A chapter 13 is a repayment plan – through the federal court – allowing a person to catch up on mortgage arrears.  Depending on your individual situation and value of your home, a chapter 13 could eliminate your second mortgage. How’s that for a modification? You could pay back a small percentage of what you owe to unsecured creditors (i.e. credit cards, medical bills, etc.) and eliminate your second mortgage. If you can afford your home, Geraci Law, LLC can help you save your home.

 

If you cannot afford your home, if you could never afford your home – counseling is not going to help. You are able to apply for a loan modification; however the major mortgage servicers do not consider unemployment to be income.  Often, an unemployed person will apply for a modification only to endure years of “we lost your documents” or “it’s been transferred to someone for review.” If you are receiving unemployment with few job prospects, the probability of you qualifying for a loan modification is almost nonexistent. 

 

Again, a bankruptcy could help you. A chapter 7 bankruptcy would eliminate all of your other debt including medical and credit card debt and protect you against a mortgage deficiency (if one were entered).

 

Good luck to our new mayor. He was elected to a difficult position in a city where mortgages are falling further and further behind. Mayor Emanuel governs an entire city – as an individual you need to look at what is best for you. If you want to save your home, contact Geraci Law, LLC to find out your best option to get out of debt.

The worst part of the bankruptcy process is making the initial phone call. It’s inevitable –no one wants to file a bankruptcy and I do not think many people know enough about the benefits of bankruptcy to consider it an option. Bills are easy to ignore. No one wants to go to the mailbox to find collection letters and notices and if you have multiple creditors, the amount of bills can quickly become overwhelming and the idea of bankruptcy can become frightening.

 

Once you start opening the mail and bring out the calculator to add up your total debt, most people will try to call creditors to work out a payment plan.  The problem is, some creditors will refuse to work with you, most creditors will propose an unfeasible payment plan, and others will close your account, lower your credit limit and demand the balance in full. If you have ever tried to call your creditors, you understand talking to multiple “representatives” and feeling like nothing has been resolved. That is not very reassuring to someone calling for help.

 

After a failed attempt at working with creditors, many people try alternatives to get a handle on the debt.  Debtors seek out debt consolidation, credit counseling, or borrowing from retirement. Each option takes time.  Debt consolidation has no set time limit – you could very well be in a repayment plan for 10 years while paying interest, a payment to the debt consolidator and your monthly bills. A Chapter 7 bankruptcy on the other hand could be done (and you could be debt free) in as little as 3-4 months.

 

The majority of people who go through the agony of debt consolidation eventually seek bankruptcy relief. If you have more debt than income, if you can’t sleep at night because of worries about debt and if you are afraid to answer your phone – consider bankruptcy. It’s a sigh of relief when you hear the words, “we can help.”

 

The Social Security trustees report came out last week and discovered social security will run out earlier than expected. The trust fund is called the Social Security Old Age and Survivors Trust fund and originally the fund was supposed to pay out benefits until 2037 and now the date has been pushed to 2036.  After, the fund will only be able to pay out 77% of benefits.

Currently, it is estimated that 54 million people received retiree and disability benefits and these people have not received a cost of living increase in the last two years.  With the fund going bankrupt, they should not expect increase anytime soon.  The cause could be attributed to the high unemployment rates (less people paying into the trust) or the high, high, high costs of healthcare. 

 

So with higher premiums with health care and no raises in income, what does a person on a fixed income supposed to do? Bankruptcy is one option.  Your social security cannot be garnished but creditor harassment is terrible enough. If you have assets, you are leaving them exposed to creditor’s liens. Not to mention if you are making minimum payments with your fixed income – the payments are probably just going to interest.  Think about it, if you are paying $200 per month toward $20,000 of credit card debt – the $200 could go to paying for your prescriptions or rent.  If you put the $200 in a savings account, you could have $2400 saved in a year.

 

Filing a bankruptcy will eliminate your debt and you can develop a feasible budget with the required credit counseling and debtor education courses.  When the bankruptcy is discharged, you can put the money you were paying on the debt into a savings account to help with the inevitable increases in the costs of living and health care.  Instead of waiting for the trust to go bankrupt, get control of your finances now.

 

 

A common question for potential bankruptcy filers is what will bankruptcy do to my credit?  Your credit score is based off of multiple factors including: payment history, amount owed to all creditors, length of credit history, amount of new credit, and types of credit in-use. Your credit score will range generally from 300-800 and a financer contributes a low credit score to high credit risk.

After filing a bankruptcy, you are able to improve your credit score. People have been filing bankruptcies for centuries and rarely have issues getting more credit.  Taking on too much debt after a bankruptcy is where people get into problems. Once you file a Chapter 7 bankruptcy, you are not able to file again for eight years. Creditors want you to be in debt and may send offers with higher interest rates to entice you to get back into debt and you would not be able to file again until your time bar is up. 

 

Rebuilding your credit is important so if you want to take on more credit again you are able to do so with better interest rates and contract terms.  Understanding your credit score and can help you rebuild your credit so you do not need to file again in eight years.

 

So how is your FICO score calculated?  Your payment history is the biggest contributor to your credit score accounting for 35% of the credit score calculation.  Multiple late payments are the biggest hit to your credit score, even without a bankruptcy if you are not making payments your score will be in the 300s or 400s. If you file a bankruptcy, the debt is eliminated and you have a fresh start to rebuild your credit.

 

The amount of debt you are in is another big contributor to your credit score – the debt amount is 30% of the calculation.  After your bankruptcy is complete, you have ZERO debt. If you have zero debt, your debt-to-income ratio is stellar and if you make your payments on time post-bankruptcy you should be significantly better off than before you filed.

 

Length of credit history accounts for 15%, the amount of new credit for 10% and the remaining 10% is for the types of credit in-use. If you file a bankruptcy, you want to prevent filing again and applying for more credit with higher interest rates is not the way to do so.

 

Ultimately credit is not important after a bankruptcy. Saving money is the way to get back on track. If you want to make a large purchase, be prepared for a 20% down payment because it shows the financer you are investing in their loan to you. Give yourself some time to get back on your feet financially and you will be able to afford new debt if you choose to take more on.

 

Summer is here! It’s going to be 80 degrees in the Chicagoland area today and jackets are finally going back into storage.  Summer means sunscreen, sundresses, and of course increased spending.  If you are about to receive your discharge from a bankruptcy, it is important control your spending this summer and stay debt-free.  It is easier said than done.  If you are working, you may face the added expense of childcare or if you want to take a road trip you will face $3.81 per gallon gas prices (the national average). 

 

So to save money this summer, look at your bankruptcy petition schedule I form – this will show your monthly income and your monthly expenses. Look for ways to trim your expenses.  For example, instead of going to a restaurant to eat out – pick up some hot dogs and buns for grilling. Ask some of your family members, neighbors or friends to attend and have pot-luck meal. You would be outside in the summer heat and save money. 

 

Another example of cost-cutting is eliminating or amending your big summer vacation plans.  Summer is a great time to take a vacation because the kids are out of school; however it is also peak vacation time for resorts.  You need to set money aside and save for the vacation.  Instead of purchasing the trip on credit, have the money saved so you can enjoy the vacation instead of worrying how you are going to pay for it.  If you wait to take your vacation during slower months for hotels, the cost will be significantly less. Camping is another solution, you may have to pay for a permit but the cost will be less than a beach resort.

 

Most cities offer a plethora of activities for families in the summer months.  Going to free fairs in your local community or contacting your park district is an affordable way to make the most of your summer.  Options like the local pool will offer discounts for families and also for residents of the city.  Most churches and other nonprofit agencies will offer low-cost summer day camps for younger children.

 

With the cost of living going up, watch your spending this summer.  Create a feasible budget and stick to it.  Maintaining your finances is as important as SPF 15.

                                                                                                                          

When you hear the word bankruptcy, you probably think of Chapter 7 debt liquidation.  The assumption stems from a game like Monopoly where you go bankrupt when you have no more money, your assets have been borrowed against and you have nothing to do but admit defeat to your opponent, the battleship. But the little known cousin of consumer bankruptcy is Chapter 13 debt reorganization and realistically if you are working, Chapter 13 is probably your better option. A Chapter 13 bankruptcy could help you win the game!

 

So what is a Chapter 13? A Chapter 13 is a no-interest, no penalty repayment plan. Repayment plans are for people with steady income, if you are working part-time or are self-employed a promise to the bankruptcy court to make timely payments is unlikely.  But, if you are a salaried employee who is still up to date with minimum payments, a Chapter 13 will allow you to actually pay off the debt with out the crazy interest and penalties.  If you are paying back 10% of your debt, then at the end of your repayment plan, you will eliminate or discharge 90% (just like in a Chapter 7).

 

A Chapter 13 bankruptcy will keep your Chapter 7 option open if you were to lose your job or have some tragedy where a repayment plan would not work. Life happens and debt happens to anyone.  For example, you file a Chapter 7 while you were other else qualified for a Chapter 13 and eliminate your debt.  Then after your discharge you lose your job and have $30,000 in medical bills because of lack of insurance – you do not have a bankruptcy option for another eight years or until you find work and ultimately file a Chapter 13. 

 

Chapter 13 bankruptcies also protect your assets.  For example, if you inherited a house from a long-lost aunt, valued at $200,000 – a Chapter 13 will allow you to keep the property.  If you were to file a Chapter 7 bankruptcy, you risk losing your home.  When you file a bankruptcy, a bankruptcy trustee will look for anything of value to sell to pay your creditors. By filing a Chapter 13 repayment plan however, you are able to pay back your debt to protect your equity. Your attorney will protect as much as the law allows in a Chapter 7 but if your property cannot be protected, then a Chapter 13 repayment is for you. 

 

The best part of a Chapter 13 is the immediate relief.  A Chapter 13 bankruptcy with Geraci Law, LLC can be filed immediately.  Depending on your individual situation, you case could be filed for as little as the filing fee.  Attorneys do not require the bulk of attorney fees to be paid before filing unlike the Chapter 7.  If creditors are calling you constantly or if your wages are being garnished, quickly filing a Chapter 13 will stop the creditor harassment and the garnishment.

 

Chapters 13s also cover debt like taxes and parking tickets. You cannot discharge parking ticket debt with a Chapter 7 but you are able to consolidate and pay a portion back in a Chapter 13.  Debt from marriage settlement agreements can be taken care of in a Chapter 13.  Most importantly, a Chapter 13 bankruptcy can save houses and cars.  Because of the repayment, you are able to stop a car from being auctioned after repossession and you are able to stop a sheriff sale on your home. 

 

If you file a Chapter 13 bankruptcy, you are able to file immediately (with Geraci Law, LLC), pay back what you can actually afford to pay back, and protect and save your assets from repossession or liquidation by the Bankruptcy Court.  A Chapter 7 bankruptcy will just eliminate your debt and possibly your assets.  So the next time you are playing Monopoly, think twice about admitting defeat.  If you are working and have disposable income, think of a repayment plan.  A Chapter 7 will wipe out your debt and assets and I suppose you would lose, but a Chapter 13 could help you save your red hotels on Boardwalk and Park Place.

Recognizing you are in debt is the easy part.  I have spoken with many people who laugh about the severe amount of unsecured debt they accumulated. I’m missing to see the joke.  When you have a substantial amount of debt, it’s really not a laughing matter. Yes, creditor threats can be so ridiculous that it can seem comical. But, if collectors are calling you to the point of being afraid to actually answer your home phone – it’s time to put the comedy aside and do something about it.

 

With our current economy, a lot of Band-Aids for debt wounds are available. You can pay $10 per month minimum payment and sure the collection calls will stop but the debt wound still exists.  I have rescheduled more appointments for potential bankruptcy filers based on nothing more than “I don’t know if I want to file.” For most people contemplating bankruptcy, there is no reason not to file. With more debt than income, what are you supposed to do? Why spend the rest of your life, making minimum payments?  You are not moving forward – you are barely moving side-to side. I’m addressing the people with more than $10,000 in debt and are fully employed.           

 

For a working person, a Chapter 13 bankruptcy is a great solution.  You pay back what you can afford to pay back without the interest.  It answers the “moral” question of I spent it so I should pay it (is it moral for some creditors to slash your credit limit, increase your minimum payment, and charge you close to 30% in interest?).  Not to mention, a Chapter 13 repayment has no interest!  For people who are working and have credit card debt – the interest is what makes many people fall behind and get to the point of needing a bankruptcy. 

 

In a Chapter 13 you are able to protect all of your assets.  It’s a repayment plan so there’s no reason to lose your comic book collection or your Porsche 944. Depending on your individual debt, income, and assets you could be paying as low as 10 percent of what you owe.  A filed Chapter 13 bankruptcy allows you to keep your Chapter 7 option available – just in case. Life happens and having the safety net of Chapter 7 debt liquidation is comforting.

 

Realistically, if you have more debt than income in a month and you want to want to get a handle on things – bankruptcy is your best option.  It is the sane way of getting control of your situation.  I have heard more make-shift solutions for paying off debt and ultimately whether it’s today, tomorrow or five years from now, these people file a bankruptcy.  Debt is not a laughing matter; it can be a bar to your financial future.  Instead of doing the debt negotiating, money borrowing, ignoring dance of the debtor – file a bankruptcy and in a couple of months you can actually feel some relief.

 

Blame the economy, the job market, the cold weather, choose any reason you want but a wave of “boomerang” children are moving back in with their parents.  The phrase boomerang child defines an adult dependent that moves out on their own and ultimately returns (like a boomerang) to their parent’s home. If a child loses their job or has a different loss of income, the child turns to parents for financial support.  Generally, the parents are either retired and on a fixed income or are having financial problems of their own.  Parents need to draw a line in the sand defining how much financial help they are willing (and able) to provide.

 

Making payments to save a credit score is ridiculous especially if it causing you to fall behind on your own debt. You can assume with a job loss, a possible apartment eviction/foreclosure and high credit card debt, your child probably does not have good credit now. Not to mention the additional expenses with having another full-grown adult living with you.  All of a sudden you have two mouths to feed instead of one. Additional cost for utilities and other expenses can double when you have an adult child back at home.

 

You need to feel comfortable with how much you are willing to help your child. Approach providing financial help to your children as a financer would to you for a loan.  Think about your child’s financial history and payment history.  Think about whether you want to loan the amount or if you do not expect repayment, you can gift the amount.  If you child has quit three jobs and “boomeranged” three times back into your household, co-signing a loan and paying for their financial mistakes will not help you or them.  You need to answer how much is too much? Helping your family is one thing, digging yourself a financial grave is another.  Bankruptcy can be a great solution to help you and your child.

 

Instead of paying the minimum payments on their debt, pay for their bankruptcy attorney to eliminate their poor past financial decisions.  You and your child could create a budget to live by until your child gets back on their feet.  By eliminating the debt with a Chapter 7, your adult child can focus on job-hunting and eventually move out of your home. 

 

As a parent, you never want to say no to your child. By allowing them sanctum in your home, you are providing them shelter from the difficulties (especially financial difficulties) that come with adulthood.  Protecting yourself is also important, you want to live within your means and help your child find a solution their problem.

 

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