Your House & Bankruptcy

Your house and bankruptcy

By Bankruptcy Info Blog | September 13, 2014 at 04:09 PM EDT | No Comments

You have a home and a mortgage and you are in financial trouble.  Now what?  The following are some scenarios that just might fit your situation:

Scene one:  Jane  and John Doe have a home worth $100,000.  Their mortgage balance is $70,000. and they are current in their house payments but behind in just about everything else.  They think if they could just get rid of the credit card debt they will be okay.  They could file a chapter 7 bankruptcy, wipe out all that credit card and medical debt and still keep their house.  In Illinois each bankruptcy filer is allowed a $15,000. homestead exemption.  In this case husband and wife stack their exemptions.

Scene two:  Jane and John Doe’s house is still worth $100,000. but their mortgage is only $45,000. If they file a chapter 7 the bankruptcy trustee would want the house.  It would be sold and the Does would receive their exemption amount of $30,000. – not their $55,000. equity.  They would lose $25,000. which would be distributed to creditors.  In this situation a chapter 13 payment plan would be a better option.  They keep their house and make payments through the plan up to the amount of their unprotected equity ($25,000.).  If they have $20,000. in total debt they must pay 100% of their debt.  But if they have $200,000. in total debt they only have to pay around 12% of their unsecured debt.

Scene three:  The Hunters are 4 months behind in their mortgage payments and the bank has just served them with foreclosure papers.  But Edward Hunter lost his job and can’t find another.  His wife’s salary is not enough to cover the mortgage and keep food on the table.  They cannot keep their home.  They can’t file a chapter 7 and keep their home because the mortgage company would simply ask the bankruptcy court for permission to continue their foreclosure action because they are not getting current mortgage payments.  They can’t file a chapter 13 because after paying all their current living expenses they do not have enough money to pay into a plan.  If the Hunters have a lot of equity in their home they should immediately try to sell their home.  If they have little or no equity they should consider staying in the home but not making mortgage payments for the many months it takes before the foreclosure is final.  They might consider filing a chapter 7 at some point in the future to wipe out all their debt and get a fresh start.

Scene four:  Mary bought her condo in 2007 just before the housing market fell apart.  It is now worth $40,000. less than the mortgage balance.  Her house is “under water”.  Her mortgage payments are killing her and she finds she is falling farther and farther into credit card debt.  She can’t sell the house unless the mortgage company agrees to take less than the full balance.  This is called a “short sale”.  She could also offer to give the condo back to the bank if they release her from making future payments.  This is called giving a “deed in lieu of foreclosure”.  Mary could also file a chapter 7 and just walk away from her mortgage and other debt.  She would have to move but she would be able to sleep at night.

Scene five:  Jack and Jill own a house that is underwater by a substantial amount.  They have been able to keep current on their low monthly mortgage payments but not their other bills.  A creditor filed a lawsuit and Jack’s wages are being garnished.  They have a son in high school and don’t want him to change schools but don’t want to be stuck in their unsellable home forever.  They can file a chapter 7 now and immediately stop the wage garnishment.  Jack and Jill have decided to continue making their mortgage payments until their son graduates.  If the housing market has improved in 3 years they will sell their home.  If they can’t sell it they will simply walk away.  The bank will be able to foreclose on the property but they won’t owe a dime because of the chapter 7.

If you are worried about your house and your debt give me a call or send me an email.  I can help you go through your many options and perhaps together we can find a solution that works.

Rebuilding Credit after Bankruptcy

REBUILDING CREDIT AFTER BANKRUPTCY

By Bankruptcy Info Blog | August 20, 2014 at 01:02 PM EDT | No Comments

 1)  REPAIR: Dispute any errors on your credit report.

What should your credit report look like after bankruptcy? The accounts on your credit report don’t simply disappear from the report. For all debts discharged in bankruptcy, the account entry should show (1) zero balance due, (2) the comments or status section should state “included in bankruptcy,” and (3) no late payments stated after the date you filed bankruptcy. However, negative entries that predate your bankruptcy stay on your report. Obtain a free copy of your credit report from www.annualcreditreport.com about 2 months after your bankruptcy discharge. If any entry is not reported as stated above, you need to dispute the account with the Credit Reporting Agencies.  Don’t contact the creditor directly.  Each agency’s website contains instructions on disputing entries.  The best way to do so is in writing.  The dispute process takes about 30-45 days and most of the time it will resolve the issue.

2)  REBUILD: Obtain new credit.

Credit cards have the greatest impact on your credit score so focus on obtaining ONE new credit card as soon as possible. Try to get an unsecured card with no annual fee, but if you can only get a secured card that’s okay too.  Note:  secured credit cards are not prepaid debit cards.  Prepaid debit cards are not reported to the credit agencies. Also, make sure the card you end up choosing does report to the credit reporting agencies.  Some small credit union cards don’t report. These cards initially will have low available balances.  Charge no more than 10% of the available balance per month and pay it off each month ON TIME. For example, if the available balance is $1,000, charge no more than $100 per month.  DO NOT PAY LATE AND DO NOT SKIP PAYMENTS!!  Your goal is eventually to have three credit cards so you immediately want to start with whatever card you can get.  For the other two cards, wait until your credit recovers to the point that you can get unsecured, non-subprime credit cards from major providers.

 

3)  RELAX:  Time heals all wounds.

Bankruptcy is not a 10 year death sentence to your credit. As negative items age the entries have less impact on your credit score. Although a bankruptcy will be on your credit report for 10 years it only meaningfully impacts your credit for about 3 years. For example, current FHA mortgage lending guidelines will not disqualify a borrower for filing a bankruptcy after two years from the bankruptcy discharge.  The natural passage of time should heal your credit.

4)  Additional DONT’s

DON’T pay for credit monitoring. DON’T pay for a credit repair service. Most are scams and the ones that aren’t do what you can do easily yourself. DON’T listen to anyone that says he/she can delete your bankruptcy from your credit report. Your credit report is allowed to contain true information about you. (However, inside tip, if the entry about your bankruptcy has an error, e.g. wrong date, you can dispute it and sometimes the bankruptcy gets removed).  DON’T reaffirm a debt in your bankruptcy for the sake of credit reporting. Your credit will recover after filing a bankruptcy without reaffirming needless debts.

5)  Additional DO’s

DO sign up for free credit monitoring. www. annualcreditreport.com only allows a free credit report per year. Depending on how bad your credit was prior to bankruptcy, the repair phase can take a while and even if you fix an item, it can reappear. So, you will want to monitor your credit for about a year after bankruptcy.  DO consider paying cash and putting off purchases until you can afford to pay for them.  The credit you rack up today affects your life tomorrow.

Additional Resources:

To access your credit report for free, visit http://www.annualcreditreport.com.  The credit reporting agencies:  http://www.transunion.com/  http://www.experian.com  and http://www.equifax.com.  Free Credit Monitoring:   http://www.creditkarma.com/ (Credit Karma uses your information to make offers to you).