Peter Francis Geraci A Bankruptcy Blog - Chapter 7 & 13

Deed-in-Lieu of Foreclosure

A deed-in-lieu is an agreement between you and your mortgage company to transfer the deed in exchange for release of mortgage obligations.  Your mortgage company will not receive any proceeds because the home is not being sold.  Instead the deed to the property is being transferred back to them. Your mortgage company will NOT offer a deed in lieu-of-foreclosure if they think you can make your payment. Before consideration, you will be asked to provide bank statement, paystubs, and years of tax forms.

Foreclosure

If you cannot afford your home, if you do not expect to return to work in the next twelve months, and if you do not want to keep your home – stop paying your mortgage. You will lose your home eventually but you will lose your home anyway with the previous options.  A foreclosure can up to 20 months. You can save money on rent and stay in your home, rent-free! The money you will pay in association dues and insurance will probably be significantly less then rent.

If you want to save your home, look at a Chapter 13 bankruptcy. A Chapter 13 will stop the foreclosure process and allow you to repay the arrears in a 3-5 year repayment plan. If you are underwater on your first mortgage and have a home equity loan, you can possibly strip the second in a Chapter 13!

There is a moment when you realize you cannot afford your home anymore. It may happen when you lose your job or hours are cut. Or when you check your savings account and there is nothing left over. When you come to the realization, it is important to understand your options.  So begins the what to do with my house guide…

Loan Modification

The original purpose of loan modifications was to help an estimated 3 to 4 million homeowners save their homes.  According to a report done by the Office of the Special Inspector General for the Trouble Asset Relief Program (SIGTARP), only 168,708 permanent loan modifications have been approved.  This is a year after the program!

Loan modifications can take months. If you have lost your job and your only income is unemployment, a loan modification will not work. You can call your mortgage company about working with you while you’re unemployed. But understand, unemployment does not count as income. Unemployment can run out (in approximately 2 years) or change. It is not a long term solution for your or your mortgage financer.

Bankruptcy will not modify your loan.  But if you have other debt, you can file a Chapter 7 to eliminate the other bills and free up money to pay your mortgage. If your mortgage payment is $850 and you pay $600 per month in minimums – a solution is discharge credit card debt and use $600 to pay your mortgage!  Eliminating the debt-income ratio issue could also help you with a loan modification application in the future.

There is no harm in applying for a loan modification. You could be one of the few who is accepted. It is crucial to understand loan modifications are NOT guaranteed. It is up to your mortgage company to modify your loan. A bankruptcy discharge is!

Short Sale

A short sale is an agreement with your mortgage company to sell your home at less than what is owed.  Short sales like loan modifications are long, tedious and strenuous processes. More often than not, the short sale falls through and you still go into foreclosure.  

It is not as simple as the ads and the flyers you receive from realtors.  Understand you are asking the bank to take a loss on their investment. Before the bank agrees, you will need to provide bank statements, tax returns and other financial documents. Your financer wants to make sure you have no other means to pay your mortgage.

A short sale can still destroy your credit report. A deficiency meaning the difference of what you owe and how much the home is sold for. If the deficiency is reported to the credit bureau, it would show as a settled debt.  This is still negative! Not to mention, you could receive a 1099-C during tax season. You would pay tax on the deficiency.

If your credit is going to plummet anyway, why leave your home early? An average foreclosure takes 20 months – why not stay RENT FREE at your home? Let the property go through foreclosure, if there is a deficiency call Geraci for a bankruptcy. Mortgage deficiencies are dischargeable debt!

I spoke to a woman today who hated credit card companies almost more than I do. She made payments on time every month for the last 30 years. Every month her letters were addressed as a valued customer and she took pride in the title.

Because of some bad luck, she lost her job and now is on unemployment.  She called the credit card company to ask for help. The lovely woman on the phone closed her account, reduced her credit line and demanded payment.

Thirty years of timely payments and when she called the only helped offered is an inevitable hit to her credit report. If the amount of debt she had on the card was close to the limit, she will now be charged high penalties because of the lower credit limit.

When you have debt, listening to financial advisors like Suze Orman does not get you out of debt. Talking to your creditors is not easy when you owe thousands and have reduced income. The Geraci Chapter 7 solution will eliminate all of her debt so she can start rebuilding.

Understanding that your creditors do not care about you is the first step to rebuilding. Your creditors want payment and if you are unable to do so, the valued customer title will change drastically.

My grandmother reads the financial section of the paper for anything related to debt and bankruptcy. Apparently after weeks of research, she came to the conclusion that articles about foreclosure do not mention bankruptcy.  I saw her recently and was given a stack of news articles related to foreclosure help and she was right. Not one journalist thought to contact a bankruptcy attorney as a source.

Most of the articles are wishy-washy and talk about contacting your mortgage company to ask for a loan modification. A particular favorite was the Chicago Tribune’s “Taking the Fear out of Foreclosure.” The author tells homeowners not to worry and there is help available. I do not think the author is behind on their mortgage because homeowners should worry!

Once a foreclosure judgment is entered, crossing your fingers will not save your home. It’s time to be proactive and look at ways to actually protect yourself and your property.

In the “Taking the Fear” article, the author writes, “Even years into the housing crisis, they still don’t have the manpower with the training and experience to handle the onslaught. So be patient – and keep trying and trying to reach your lender.”

This would be wonderful advice if there was no such thing as foreclosure. The more patient you are and the more you try to reach your lender, the more you get behind on your mortgage payment.

Another popular tip from the news media is to apply for a loan modification.  If you know anyone who has applied for a modification, then you understand it is not the seamless process portrayed by the media.

Loan modifications are rarely successful. Mortgage companies want current documents and will routinely deny modification applications if the most recent paystub is not sent in.  On average, a definitive answer will take at least eight months. Its eight months to get caught up on if you are denied for a modification.

More often than not, the people I speak to can afford their regular monthly mortgage payment. It is the thousands of dollars in late fees and penalties that they struggle to get current on. These people should be reading articles in the Trib about the wonder of a Chapter 13 bankruptcy.

A Chapter 13 will STOP the foreclosure. I do not want to provide the vague, useless information that most of these articles provide. If you are in foreclosure and you can actually afford your mortgage, then file a Chapter 13.

A filed case with an experienced law firm like Geraci Law will prevent the same ol’ song and dance of deferred payments and forbearance agreements.  If you were denied for a modification and receive the disheartening alternatives to foreclosure packet, do not feel defeated. A Chapter 13 will save your home.

A report done by the Federal Reserve said consumer debt rises for the eighth straight month.  Credit cards are the reason for the spike.  According to analysts, more consumers are using credit cards to pay for necessities.

The problem is when the bill comes in; the user pays only the minimum payment. If you spend $400 on groceries and only pay the $20 minimum payment, you are living beyond your means. Your debt will quickly spiral out of control and with high interest rates; the $400 balance can turn into $600, then $800, etc.

The CARD Act passed in 2009 requires creditors to explain minimum payments.  If you look at your statement, you should see two figures. The first shows how long it will take you to pay off your debt making only the minimum payments. Another amount should show how much you will pay in interest over three years of minimum payments.

Credit is NOT an extension of your income.  You can quickly get into the cycle of using your income to make minimum payments and using your credit because your income is gone. Staying current with your minimum payments while charging necessities each month does not get you anywhere.

Your solution is to file a bankruptcy! A bankruptcy eliminates all of your credit card debt.  You cannot use the plastic while in a bankruptcy and are forced to live within your means. Take a minute and think how much you spend on minimums. My guess is the money is more than enough to fill up your gas tank – even at $4.00 per gallon.

Bankruptcy is as American as apple pie and fireworks on the 4^th of July.  Bankruptcy is one of our country’s oldest laws and has helped citizen and patriots find debt relief. Many great political figures in American history filed a bankruptcy.  This proves debt and bad luck can happen to the greatest of Americans.  Happy 4^th of July!

Abraham Lincoln

When Lincoln was in his early twenties, he and a friend decided to open a general store. Neither believed the store would close and purchased all supplies on credit.  The store eventually closed and Lincoln’s partner died leaving him with a large bill.  He filed a bankruptcy and became one of our country’s greatest presidents.

Thomas Jefferson

When President Jefferson left the White House, he left with close to $20,000 in debt (this number is not adjusted with inflation). Jefferson has been considered to be one of the most influential thinkers of his time and he filed multiple times.  He understood the importance of bankruptcy law in protecting debtors.  In 1809 at a debate regarding amending the Bank Bill, Jefferson said,

“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks], will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

Ulysses S. Grant

After leaving office, President Ulysses S. Grant filed a bankruptcy after a trip around the world. The trip depleted his life savings and to earn it back, he invested in a fraudulent bank. Grant ultimately was required to pay back a large loan using Civil War memorabilia.

Mark Twain  

Before becoming an acclaimed author, Mark Twain tried to open his own publishing house.  He invested his money into a typesetting machine and was relying on the return from the invention.  Reality hit and the typesetting machine was never completed and Twain ultimately filed a bankruptcy.  After the bankruptcy, Twain was determined to stay out of debt and began writing novels to pay the bills.