Despite what the mortgage companies would have you believe, there are few advantages to reaffirming the debt attached to your home. In fact, there are actually more advantages to NOT reaffirming. Read the following blog post from a bankruptcy attorney in Illinios, which sums up the advantages to not reaffirming your home loan:
Can I Get a Mortgage After I File for Bankruptcy?
The short answer is, yes. However, there are of course some limitations on this, chiefly among them is time. You likely will not be able to get financing for a mortgage right after a bankruptcy, however with the passage of time and careful financial decisions, you certainly will be able to in the not too distant future. Read the following blog post from a local Minnesota Bankruptcy Attorney, Craig Andresen, in which he lays out some of the specifics:
This is a common concern for those who are considering filing for bankruptcy. It is important to realize that once your finances are to the point where you are considering bankruptcy as your only viable option, your credit has probably already began to suffer. Every month that goes by where you cannot make a payment on a debt, or are even late on a payment, your credit score takes a hit. It’s time for some perspective. Doesn’t it make more sense to file bankruptcy, let your credit score take a hit, and then get on with your life? Bankruptcy is meant to provide you with a clean slate, then you can focus on living your life with less stress and worry and you can work on building your credit score back up from there. There are even circumstances where filing bankruptcy can actually improve your credit socre. But you don’t just have to take our word for it, read this article from Smart Money.com about bankruptcy and your credit.
*Don’t: Delay in getting legal advice if you’re in financial trouble. Lawsuits can be filed and creditors can take advantage of how overwhelmed most ordinary people become when they’re sued. Inaction by you is good for them. Get yourself informed, pronto.
*Don’t: Feel guilty about the predicament in which you now find yourself. It’s normal, natural to feel badly, like there is some moral defect in you that caused your economic implosion. Very often, debtors continue to go deeper and deeper into debt out of guilt, and this only makes the situation worse. Examples: taking balance transfers on credit cards; taking loans or outright withdrawals against retirement plan(s) to make mortgage payments on homes which are either losing value or at best not holding it. Those retirement loans have to be repaid. And retirement withdrawals are a double whammy: you pay taxes, and a 10% penalty right off the top, and you may have just poured good money after bad if it’s to hold onto a home that you’re already “upside down” on, i.e., you owe more on the home than it is worth. Lots of people don’t realize that even in bankruptcy, you can usually keep all your retirement savings.
*Don’t: Pay off personal loans to family members, close business associates or friends. These so-called “insider transactions” are “preferential transfers”, and they really irk the bankruptcy trustees. Such payments can be voided, and the relative, associate, or friend can be forced to hand over the money to the bankruptcy trustee.
*Don’t: Take cash advances on credit cards when you are considering filing for bankruptcy and expect they’ll routinely be discharged in your bankruptcy;
*Don’t: Pay for elective/cosmetic surgery with a credit card, and anticipate the debt will be routinely discharged. If the creditor is paying attention, discharge of that debt could well be challenged.
*Don’t: Travel for luxury, or buy luxury goods with a credit card, and anticipate that debt will be routinely discharged in bankruptcy;
*Don’t: Say anything to anyone about your finances that is inconsistent with what you said, or will say, in your bankruptcy papers. Example 1: credit application overstates income, bankruptcy papers list accurate (read LESS) income. Result: if the discrepancy is discovered in the bankruptcy proceedings, big trouble. Example 2: you’re involved in litigation over something, most commonly in Family Court, regarding financial issues (support, etc.),and you list information, in writing, signed by you under penalty of perjury, that is inconsistent with paper submitted or to be submitted to the Bankruptcy Court. People tend to be sort of casual at times, or less than thorough, about the information submitted in Family Court. Sometimes they even…GASP! LIE!! I can’t explain why, but sloppiness and downright untruthfulness are common enough that one must be very vigilant to get the information right.
A Chapter 7 bankruptcy may enable you to get rid of all your unsecured debts. Under the new bankruptcy law, you are eligible to file for bankruptcy under Chapter 7 if you earn less than the median income in your state. If you earn more than the median income in your state, then you will only be eligible to file for bankruptcy if you pass a means test to determine whether you are eligible. If you do not pass the means test, you will instead be required to file a Chapter 13, which has also been described as a “debt consolidation” or wage earner bankruptcy.
In a Chapter 13 proceeding, the court will require you to pay, usually for five years, all of your disposable income to thebankruptcy trustee, who will in turn pay your creditors. The amount of your monthly payment to the trustee will be approximately equal to the amount of the cash you ordinarily have on hand after you pay your basic necessary living expenses. In many cases, you will not have to pay back everything that you owe, and usually its only cents on the dollar.
There are many events which commonly may trigger a client’s need to file bankruptcy or curiosity about bankruptcy. Some of the more frequently observed events are: an impending foreclosure, repossession, lawsuit, lien, and wage garnishment, loss of employment, unexpected medical emergencies, and divorce. In these unstable economic times it is very difficult to know what options are realistic with out a thorough review of your financials.
Some of the terms that are going to make you eligible to file are recent However, a new bankruptcy law – theBankruptcy Abuse Prevention and Consumer Protection Act of 2005 – came into effect on October 17, 2005. Under the new bankruptcy law, you are eligible to file for bankruptcy under Chapter 7 if you earn less than the median income in your state. If you earn more than the median income in your state, then you will only be eligible to file for bankruptcy if you pass a means test to determine whether you are eligible.
Discharge under Chapter 7 is not available if you filed for bankruptcy and were granted a discharge under Chapter 7 within the past eight years. You should contact Lamey Law Firm for a free consultation as to whether you may be eligible and whether it is advisable for you to file bankruptcy.
My spouse and I are thinking about a divorce but need to file bankruptcy. How are divorce and bankruptcy related?
It is common that in the divorce proceeding an agreement is reached that spells out who will pay which debts and in what amounts. Trouble brews when after they have finalized the Judgment of Dissolution (Divorce), one spouse files bankruptcy and the creditor(s) can no longer proceed against the spouse who filed bankruptcy. What’s a creditor to do? Go after the other (non-filing) spouse for all the debt. The agreement in the divorce case does not bind the creditors: it only affects the relationship between the two spouses. These situations are messy, and the non-filing spouse may need legal help in forcing the other spouse to make good on the agreement entered as a Judgment in Family Court.
My spouse and I are separated and may be getting divorced (or there is already a divorce proceeding pending, but not yet final.) We have a lot of debt together. What should I / we do?
If your marriage has not legally ended, you and your spouse may file bankruptcy jointly (after signing a “conflict” waiver). A joint filing is usually advisable to maximize the benefits of a bankruptcy discharge, and, less importantly, to save money on attorney and filing fees. Once the ‘marital status’ has terminated though, you and your spouse may not file jointly, but instead must file individually. Timing, therefore, is everything. Of course, a joint filing assumes you and your spouse can put aside the differences in the interest of financial self-preservation. You might be surprised how often divorcing spouses accomplish this degree of cooperation. The attorneys in the divorce case are, or at least should be, well aware of the consequences of bankruptcy in divorce. And you should discuss these possible consequences with your divorce attorney.
In addition to your recurring expenses such as utility bills (you don’t want your power cut off!), you must continue to pay certain creditors. You must continue to pay your secured creditors even after you have filed bankruptcy.
Secured creditors are usually the lender(s) on your house and/or car. If you don’t make your regular house payment, the bank or mortgage company will foreclose. If you don’t make your car payment, the lender will repossess the car. Foreclosure or repossession during a bankruptcy does require pre-approval of the bankruptcy court, but such pre-approval is routinely granted.
Unsecured creditors, usually credit cards, you need not continue to pay. In a Chapter 7, you will pay none of the unsecured creditors.
In a Chapter 13, unsecured creditors will be paid by the bankruptcy trustee through the plan. You will not pay the unsecured creditors directly. You must, however, make your Chapter 13 plan payments in full and on time. Failure to do so may result in the trustee requesting your case be dismissed. The first plan payment is generally due thirty days after the filing of the Chapter 13 Plan and Schedules.
Usually, a debt is secured and hence the lender has a “security interest” and is a “secured creditor” if the creditor lent you all or part of the purchase price of the asset and reserved a “security interest” in it. The latter is referred to as a “purchase money security interest” and a creditor who has one is highly favored among creditors in a bankruptcy proceeding. There are other types of security interest but, for the sake of brevity, only the most common is discussed here.
A purchase money security interest gives the seller/lender the right to repossess the asset if you fail to make the required payment. A secured debt is most commonly a home mortgage or a car loan, but might be any asset against which money may be borrowed. Whether you have filed a Chapter 7 or a Chapter 13, if you wish to keep property that you financed to purchase, you must continue to make the current payments (as distinguished from arrears) on any such debts. If you fail to make payments as they come due on these assets, the lender may ask the bankruptcy court for permission to repossess your car or foreclose on your home, as the case may be.
It is therefore imperative that you continue to make these payments, and to make them on time. If you are behind on your mortgage payments, for instance, or your car payments, and you have filed a Chapter 13, the amount that you are behind can be repaid in the Chapter 13 bankruptcy payment plan. One of the most common uses of a Chapter 13 bankruptcy is to stop a foreclosure and provide the borrower (that’s you) with an opportunity to create and implement a repayment plan. The end result in an ordinary case, if the plan is performed by you, is that you keep your house or car or both, you make your current mortgage/car payments, and you will have paid the arrears off as part and parcel of your repayment plan. In a Chapter 7 or 13, you may choose to simply surrender the property, sometimes referred to by the lender as “collateral”, to the lender. As with most rules, there are exceptions. Not all security interests are absolutely enforceable by the lender in a bankruptcy proceeding. Call our office for a consultation to discuss further details.
Foreclosure may be stopped temporarily by the filing of either Chapter 7 or Chapter 13, or stopped permanently upon the filing and contingent upon complete performance of a Chapter 13 plan.
Usually, if one is far behind on one’s mortgage, the lender will start a foreclosure proceeding and, unless a bankruptcy is filed for the borrower or the borrower is able to pay all the arrears, will complete it. Many of my clients have had “near misses”, calling on our office to file bankruptcy on the very eve of a foreclosure sale.
It is best not to wait until the last minute, since unexpected problems might delay a filing. Your choice of Chapters (i.e. 7 or 13) is crucial in the context of a foreclosure.
If your choice of bankruptcy is a Chapter 7, and you are in arrears, the lender will simply ask the court for permission to proceed with its foreclosure. The court routinely will grant such a request. This is not to say that a Chapter 7 is never the right choice when a foreclosure is threatened, pending or proceeding. You should call our office to discuss your options.
In a Chapter 13, you will usually be permitted to repay the arrears over a period of years, depending upon the length of the plan, as long as you comply with the rest of your Chapter 13 repayment plan and continue to pay the current mortgage payment.
Taxes, spousal support, child support and student loans
Some unsecured debts get treated with “priority.” These might include taxes, whether payroll, income or other taxes, student loans, child support, spousal support and support arrears. This is not a complete list. Not all unsecured priority debts are created equal, however. Some are simply not dischargeable at all, such as child and spousal support. Others get priority among the unsecured creditors, depending on whether yours is a Chapter 7 or 13. Consult our office to learn what may be critical distinctions in your individual case.
As a general rule, if you have an income tax debt that is at least three years old, and you filed your tax returns on time for the year in question, you may be able to discharge all such taxes in a Chapter 7 proceeding. In a Chapter 13, however, that tax debt would be paid in the same way as any other unsecured creditor (i.e., repaid over three years). There are other tax debts that are generally not dischargeable. This is a complex area of law. Call to dicuss.
If you are behind on either or both of these support obligations, you will not be permitted to discharge the obligation or the arrears in bankruptcy.
Student loans are rarely dischargeable except in the most dire hardship cases. Call to discuss.
Sound legal advice, preparation, and understanding your rights are absolutely essential. There is no legal requirement that you be represented by an attorney in bankruptcy court, nor that you have an attorney prepare your bankruptcy documents. However, the risk of loss through error is high if you are without competent legal advice.
If you are considering bankruptcy it’s important to have a good idea about what you can keep, and it isn’t all bad news. What we tell you may surprise you. Most clients get to keep all of their possessions. Certainly, there are exceptions to this. We as lawyers cannot promise you that you get to keep all of your belongings, but we can tell you that if you come and spend time talking to our attorneys, you will know at the end of the meeting what you can expect in this regard. Knowing this information can really make your life easier.
Like we said before, the best thing you could do right now is just ask (It will help you sleep better.).
Among other things, his or her income will be deemed by the bankruptcy trustee and, if it comes to an actual court hearing, by the judge, to be available to pay debts and household expenses. This can have a significant impact on whether you may qualify for a Chapter 7, for instance, or on how much you may be required to pay monthly to the trustee under a Chapter 13 plan.
Download our bankruptcy questionnaire, and then start a file of what you owe. Assemble the most recent bills for your credit cards, home, and cars from each of your creditors.
Go to your HR staff where you work and get copies of your last 6 months of pay stubs Get a copy of the trust deed and/or loan agreement for any secured debts, such as a home or car.
Be sure all your tax returns have been completed and filed for the current and at least the two previous tax years.
Provide to your attorney copies of all of the documents mentioned in this paragraph. That should get things rolling, but it’s not an exhaustive list.
Then it is important to get an appointment with a bankruptcy attorney to go over these documents. At our office one of our attorneys will go over this information and discuss your options. There is no cost for this appointment. It is the only way you can know if you qualify to proceed with either a Chapter 7 or a Chapter 13 Bankruptcy.
Creditors are harassing me (or us, as the case may be) calling me at home and work, sending threatening letters. What will happen if I file bankruptcy?
As soon as your petition is filed with the court, an “Automatic Stay” goes into effect which prohibits all of your creditors from taking any action to collect a debt. The creditors listed in your Petition, Schedules and Mailing Matrix get a notice from the Court shortly after filing, but the Stay is effective even if the creditor doesn’t know about it! Violations of the Stay by any creditor should be immediately brought to the attention of your attorney. Serious fines can be imposed for willful violations of the Stay.
That depends on whether yours is a Chapter 7 or Chapter 13 proceeding. Usually the most important thing for my clients is that, as soon as you file you can stop the calls from creditors no matter if you file Chapter 7 or Chapter 13.
Chapter 7 typically runs its course from start to finish in about three months. The biggest issue is finishing the bankruptcy is collecting all the paper work needed to file the bankruptcy. This is due to the new bankruptcy laws of 2005. You will need to collect everything required so that your attorneys can complete the means test. If you are considering filing, start organizing your paper work and documents NOW.
A Chapter 13 usually takes five years to complete but in special cases can take as little as three years. This is because in a chapter 13 (a debt repayment plan) the bankruptcy is completed when the payments are completely received by the creditor.
What bankruptcy you file either Chapter 7 or chapter 13 depends on the “means test”. When you go in for a bankruptcy consultation your lawyer can explain your options. You may call our office for a free consultation.
If someone, say, a creditor, sues you, at the end of that lawsuit there will be a “judgment.” That means you owe them money in whatever amount the judgment says. A judgment is valid for 10 years and can be renewed for another ten years (or more often.) You can discharge almost any judgment in a bankruptcy.
The answer depends on what Chapter bankruptcy you file under: either chapter 7 or chapter 13. The other question is the debt is secured (like a home mortgage or auto loan) or unsecured, like most credit card debt. Secured creditors usually get paid in full no matter whether yours is a Chapter 7 or 13 if you decide to keep the collateral (i.e. the house, the car). In a Chapter 7, where most creditors are unsecured creditors, that is the credit cards, the creidtors will get paid nothing at all. A debtor may “reaffirm” some secured debt and not others. However, you may not discriminate between one unsecured creditor and another.
Determining whether a bankruptcy is necessary or helpful is a complex question. If you are trying to decide whether to file a bankruptcy, we encourage you to come in and meet with us. Each business is unique, and getting good legal advice requires talking about your company, reviewing your profits and losses, and discussing your performance expectations for the future. We make it a priority to give you legal advice that is tailored to your situation because we know that your company is important to you.
Is the business a corporation, a partnership, or a proprietorship?
- Corporations, limited liability companies and partnerships are legal entities separate from their shareholders or partners. They can file Chapter 7 in their own right without the partners or shareholders filing for bankruptcy.
- Partnerships are just an extension of the owner. As a result, a partnership can’t file bankruptcy without the owner/proprietor filing bankruptcy. This is because the assets and the liabilities of the business belong to the proprietor. Depending on the circumstances, the owner may file a Chapter 7, Chapter 11 or Chapter 13.
Your company is important. Meeting with an attorney and discussing your unique situation is the best way to weigh your bankruptcy options. Call us today to schedule a free consultation.