Author: Amanda Barrett

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The Devil in the Details: Tapping The Reverse Mortgage Piggy Bank

Actors Henry Winkler, Tom Selleck and Fred Thompson have all appeared on my television or computer screen at some point touting the benefits of a “government insured”,  safe, reverse mortgage. They want you to, “Get the money you deserve to live the good life”  by tapping the equity you have in your home.  .

I’ve seen the aftermath of that sales pitch play out for numerous clients, and it’s not “the good life” they promised that I’m watching unfold. In fact, all too often, the foreclosure sale on the home looms just weeks down the road.

Intentions thwarted

The borrower, often a retiree who took out the reverse mortgage and drew down on the loan in an effort to remain independent or take that trip of a lifetime, passes away and leaves the house to a loved one or to their estate. You often find that a house may have thousands of dollars in equity over and above the reverse mortgage amount, but once the house is gone, its equity gone too. Often times, when the borrower has passed away, the lender won’t take payments from anyone else.  The loan is considered due and payable only in full, says the lien holder, and that’s that.

There are times where you can refinance the house, or if you have tons of cash, you can pay off the loan, but… if you don’t, the house, and all that equity, may go, not to the relative chosen by the deceased, but to the “friendly”, reverse mortgage lender.

You MIGHT can use bankruptcy

A bankruptcy filing may solve this particular problem but not in all situations.

Bankruptcy is an option only if the heir to the house is an individual.  Individuals can file bankruptcy. If the home is left to a trust or estate, you’re toast. Trusts and estates cannot file bankruptcy.  

If you get a reverse mortgage on a house, you should always leave it to an individual.  If that individual files bankruptcy, the automatic stay that comes with a bankruptcy filing, would be available to the individual whereas it would not be available to the estate.  

Your House as a piggy bank

The risks associated with reverse mortgages are becoming more apparent to more people and have been summarized in this Consumer Financial Protection Bureau report to Congress.  Despite the economic crisis of the late 2000s and early 2010s, reverse mortgages are making a comeback

Another problem with reverse mortgages is that surviving spouses who are not on the loan may have no right to stay in the home on the borrower’s death.   These loans are complex and may encourage premature tapping of home equity for non essential things.  In the grand scheme, the pressure to tap home equity to support retirement becoming more and more irresistible.  This is a direct result of people regarding their  home as a piggy bank or your as a retirement nest egg. You should NEVER view your home this way.  You should instead take steps to build a retirement nest egg outside of your home’s equity. Homes are a long term investment, not a source of funding for your next vacation. If you have to use your home equity as a source of retirement funding, there are other ways to tap this equity than reverse mortgages.  Reverse Mortgages are almost ALWAYS a bad idea and I warn my clients against them 99% of the time.  

If you find yourself in a bad financial situation, call the attorneys at Harmon and Gorove to set up a free no obligation consultation to see what your options are.  You may be surprised to learn how Bankruptcy can help you secure your financial future. 

Keep your Bankruptcy Papers

Life is full of papers we don’t need but have laying around the house anyways – junk mail, old receipts for things we won’t return, old school work, even decades old pay stubs. As a society that’s working towards becoming paperless, we’ve got a long way to go. But what about bankruptcy papers, especially your discharge paperwork? How long should you keep those? Honestly, outside of your will, no document should be treated with more reverence than that discharge paperwork.

Storing Important Papers

When it comes to your tax returns, keeping your return along with any supporting documents for seven years after filing is a good practice. If you’re late paying the tax, keep the return seven years from the date you paid or ten years from when you actually filed your taxes (whichever is later).

 Like your taxes, receipts are also important, especially if there’s a warranty In the event that a warranty exists, keep the receipt until the warranty runs out. If there is no warranty, keep the receipt for anything you might need to take back, until the return period is up. If you are able to deduct the item as a tax expense follow whatever rules have been laid out by your accountant.

Even though your documents and discharge order seem like financial documents that could be treated the same as your tax returns, they are NOT. They are vastly more important and should be kept for the rest of your life.

Why Keep Bankruptcy Papers Forever?

The long and short of it is that creditors might re-emerge even decades later and try to collect on a debt that was part of your bankruptcy. Being able to show the debt was discharged as part of your bankruptcy can put the breaks on collection actions for debts you don’t legally owe.

Additionally, creditors often sell off bad debt in large chunks of hundreds, thousands and even hundreds of thousands of accounts. Bad debt buyers often pay pennies on the dollar but are looking to make a quick buck.  They are usually aggressive and quite often unscrupulous. By having your bankruptcy documents on-hand, you can quickly shut them down and keep old items that you took care of years ago from popping back up on your credit report.

In some states, especially when applying for a professional licenses such as a doctor, lawyer, nurse or teacher, you may have to prove that your bankruptcy was discharged in order to actually receive your license. Having copies of your paperwork can prevent a delay in your licensure.

Which Bankruptcy Documents Should You Keep?

The short answer? Everything you have. Getting copies of your bankruptcy documents from your lawyer is often a time consuming process, especially if your case was discharged more than 7 years ago or the copies have been moved to off site archives. Obtaining your bankruptcy documents from federal court officials can be costly and even more time consuming than getting them from your lawyer.

As with all important documents, it is best to have your own archive readily accessible.  That way you don’t have to scramble to get copies if something crops up that requires these papers. These are the documents you need to keep ideally:

  • Bankruptcy petition, supporting schedules, and exhibits
  • Statements, disclosures, and declarations
  • Mailing list of creditors
  • Proof of income and social security proof filed with petition
  • Notices from the bankruptcy court, your attorney or the Trustee.

This is the document  you absolutely must keep at all costs

  • Final bankruptcy discharge

This can usually be pages and pages of information. A bankruptcy petition will average between 40 and 80 pages once you account for the schedules and supporting documents. Keep every page you get. Get a box, large envelope, a notebook or a safe deposit box and put them inside. It’s better to have too much than too little.

Put them in a safe place. Treat it like you would your will, the deed to your home, the title on your car or other important documents. Then just leave them there. Ideally, you never need them. If you do, you know where to find them so you can nip any problems in the bud, immediately. 

Call the experts

The attorneys at Harmon and Gorove are experts at helping people navigate the ins and outs of Bankruptcy.  Contact our office today for a free consultation with a qualified attorney to see how we can help you eliminate problem debts and get your life back. 

 

What is a Bankruptcy Risk Score?

There is a little known piece of information out there floating around in the world of credit data that most people have never heard of.  In fact, I didn’t even know it existed until I became a bankruptcy attorney. Most everyone has heard of a credit score and I get tons of questions about what the credit score is, how its used and how you can improve it.  In fact, the discussion about credit scores is part of nearly every consultation we do at Harmon and Gorove. The piece of information that isn’t often discussed is a person’s bankruptcy risk score. A bankruptcy risk score is a number that indicates the likelihood of an individual filing for bankruptcy.  

According to bankrate.com, “According to financial experts, this score is used secondarily to the credit score when financial institutions scrutinize a consumer’s credit history. Kept tucked away from consumers for nearly 20 years, this number differs from the credit risk score, because it’s a little more specific. It measures how likely a person is to file for bankruptcy.”  The banking industry uses the number for a myriad of reasons including lending decisions and compliance. In other words, if your bankruptcy score is too high, they likely won’t lend to you and additionally, if banks know that they have a number of loans on the books that have a high risk of filing bankruptcy, they will know how much they need to keep in reserve to cover these potentially bad loans.  

Consumers also get a raw deal when it comes to figuring out what these scores actually mean.  Each bureau has their own ratings score. Whereas the credit bureaus generally use a scale from 300 to 850 with 850 being the highest, the bankruptcy risk score doesn’t have a standard index of measurement like credit scores. This means consumers are only able to get general information about their bankruptcy risk. This means that unlike credit scores, there’s no surefire way to know if your score is high or low compared to other numbers. 

The absolute last thing any creditor wants is for you to seek bankruptcy protection, particularly Chapter 7. Once that case is filed, they have to quit calling and leave you alone.  What that means for them is that they will get no money out of you, ever. The only debts that generally aren’t wiped out in bankruptcy are student loans and income taxes (and even those can be reduced or eliminated depending on your circumstances). If your bankruptcy risk score rises, even as you are in the worst financial shape you’ve ever been in and have the least ability to pay, collection efforts may grow extremely aggressive as creditors and their slimy collection agents often view this as their last chance to get anything from you before you are protected by the law. 

If you find yourself struggling financially and you’re tired of trying to keep your head above water, give the attorneys at Harmon and Gorove a call to see how we can help you get out of debt for good.  Our attorneys have over 30 years of experience helping good people out of tough situations.  Our attorneys work every day to help people just like you, get out of debt and get a fresh start on life.  Let us put our experience to work for you.

Never Trust Your Mortgage Servicer

If you’re one of the millions of Americans who have a mortgage I’m going to say something pointed and perhaps, upsetting. Don’t trust the loan servicer on your mortgage for one second. The mortgage industry has, for lack of a better term, created a swamp around your home.  The lender’s representative (or snake as I call them) lives in that swamp.

Don’t ever turn your back on a snake.

By stating this, I don’t mean to foster distrust between people and their mortgage lender, but in all honesty, that’s the best legal advice I can give.  Ronald Reagan once use the term, “Trust but verify.” I just advise you to verify, verify, keep records and don’t believe a word they say unless you have it in writing. 

Never ever, ever rely on anything your loan servicer tells you on the phone.  Nothing.

You may use the information you gather on the phone as clues, but don’t ever draw conclusions from what you’re told by the person on the other end of the line because chances are, they don’t know anymore about your mortgage than you do.

Why these agents just can’t be trusted….

Loan servicing in this country is a huge industry with narrow profit margins. The difference between your mortgage lender and your mortgage servicer can be found here.   One of the biggest expenses for loan servicers is customer service. Good customer service is expensive. As I stated, the companies who are contracted to collect the payments on your home loan operate on very tight margins in an extremely competitive business. The cheaper the better (at least in their eyes).

People:  The most obvious place any business can reduce costs and make more money is to hire the least expensive employees you can find.  Cut their training to the bare minimum, and give them absolutely zero flexibility in how they do their jobs. In short, the person on the other end of the line probably just isn’t up for the job and chances are, it isn’t even their fault.

Procedures:  When you get a copy of how your payments are posted to your loan balance, you often see a payment posted, then reversed, then reapplied differently. A friend of mine received a loan history where the servicer made more than sixty entries on the loan ledger in a single day. I don’t know about you, but sixty entries in a single day is a bit excessive.

Selloffs:  It’s extremely rare that a servicer handles a loan for the life of that loan.  Instead, the right to service the loan is handed off or sold. One servicer to another, presumably to a company who will charge the owner of the loan even less to do the job. Usually, what the new servicer doesn’t even get a reasonable history of the loan, just a bunch of numbers that are supposed to add up to something, but what that something is, who knows.

Phone calls are not evidence so don’t even try…

The root problem with relying on what your loan service agent says on the phone is this:  How do you prove it?  You may have taken meticulous notes but unless you recorded the call (which could be illegal) you don’t have anything.

Words are fleeting and it is extremely easy to misunderstand what someone said, especially if there is a language barrier.  If there’s trouble, and there usually will be, there’s no paper record. An oral agreement isn’t worth the paper it’s written on.

You won’t work it out…

A client recently was dealing with “customer service” trying to determine how much money was required to bring the loan current before the foreclosure sale which was ten days away. Four days from the actual date of foreclosure, the servicer admitted that the loan has been sold and they had no authority to do anything, but it gets worse. The new servicer said the loan isn’t in our system yet, so we can’t tell you.  Truly, this client was almost out of options because they waited until the last minute.

When you’re in default on your loan…

Number 1, don’t wait until the last second to try to stop your foreclosure.  Foreclosure is very serious and deserves your full attention the minute you see the problem.  You will only make a bad situation worse. You should always utilize the tools you have under federal law to get the accounting and answers you are entitled to. Also, I know I’ve said it before but I can’t state it enough, don’t trust anything you’re told on the phone.  If it’s important (and if you’re behind, everything’s important), GET IT IN WRITING.

Finally, If you’re out of options and need legal protection, start interviewing bankruptcy attorneys before you get a foreclosure notice.  If you show up at the last second and many lawyers assume you’ll be a rotten client.

 

Can I Convert From Chapter 13 to Chapter 7

A very common problem for a lot of people who have filed a Chapter 13 bankruptcy  is the repayment plan that must take place during the case. So much can happen in your financial life during the 36 to 60 months that it takes to complete a Chapter 13 and receive a discharge. You could have a medical emergency, lose a job or experience the loss of a loved one. Life has a way of throwing us little curves that could complicate the repayment plan under a Chapter 13 bankruptcy and make it almost impossible to complete. The question is: Can you convert from a Chapter 13 to a Chapter 7 in this situation?

Fortunately, you are generally allowed to convert from a Chapter 13 to a Chapter 7 at any time. It is probably the most common conversion in bankruptcy. In reality, only about 33% of people filing for Chapter 13 bankruptcy are able to complete the entire three to five years required for a repayment plan in its original format. Usually this is due to some unforeseen circumstances like the ones mentioned above. If your back is up against a financial wall, a conversion may be one of your only options.  

Remember, if you have filed a Chapter 13 bankruptcy, you are allowed to dismiss your case at any time. However, it’s important to remember that once your case is dismissed, the automatic stay is lifted. That means your creditors are once again free to start collection activity or begin foreclosure proceedings.

What Do You Need in order to convert?

Once you’ve decided you want to convert from Chapter 13 to Chapter 7, there are some technical requirements that you must meet. First, you will need to file a Notice of Conversion form with the bankruptcy court. It will also require a $25 fee. Once filed, the conversion usually takes place in just a few days. When all goes smoothly, you won’t lose the protection of your automatic stay.

The one issue that you may run into is the means test that must be passed for the conversion to become final. You may have originally chosen Chapter 13 bankruptcy because your income was too high to qualify for a Chapter 7.Remember,  the income limitations will still remain in effect for a Chapter 7 conversion.

The means test was implemented as a part of the bankruptcy reform act of 2005 as a way to make sure that debtors with high enough incomes ultimately repaid at least some of the money owed to their creditors. If your job or income has changed or you have gotten a divorce or lost a spouse that brought income into the household that pushed your into a Chapter 13 bankruptcy, you will likely be able to pass the means test now. However, if you still make too much money to qualify for a Chapter 7, your conversion will be denied.

What Happens After the Conversion?

Once your petition to convert from Chapter 13 to Chapter 7 is approved by the court, any money you have paid the trustee that has not been divvied out to  your creditors will be returned to you. Your Chapter 13, at this point, is concluded. You will now receive a new Chapter 7 trustee and you will have another 341 hearing with that trustee. Harmon and Gorove will then assist with filing a new statement listing all your assets, liabilities, income and expenses. Going forward, your case will act just like a normal Chapter 7 bankruptcy.

Pros of Converting From a 13 to a 7

  1. You’re done with the Chapter 13 repayment plan.
  2. A normal Chapter 7 is usually completed within 4-6 MONTHS of filing, not 3-5 years.
  3. All unsecured debts are discharged under a Chapter 7.

 

Cons of Converting to a 7 from a 13

  1. Depending on what kind of debt you have, a Chapter 7 may not help if your troubles are from certain types of secured debts.
  2. A Chapter 7 can be on your credit report for up to ten years.
  3. The Chapter 7 trustee may sell certain assets you possess to pay creditors in Chapter 7.

If your Chapter 13 repayment plan is creating an unbearable burden on you, a Chapter 7 bankruptcy may be a better fit for your financial situation. In order to understand the process and your rights under Georgia bankruptcy laws, you’ll need to speak with an experienced Georgia bankruptcy attorney. Remember; you have options!

Adding Debts to your Bankruptcy

Bankruptcy, whether it is a Chapter 7 or Chapter 13 case, is a useful and wonderful tool you can use to dig yourself out of a bad financial situation. The only downside is that it’s pretty much a one shot deal. Think of it as a yard sale for your debt. On that day you have to unload your stuff and you can’t go back and add anything to that garage sale after the fact. That’s a broad idea of how debt in a bankruptcy works. Every penny of debt you have when the bankruptcy is filed can be part of the bankruptcy but adding debts, as a rule, can be difficult. However, there are some rare exceptions.

When can you add debt to a Chapter 7?

When you come in to our office for your bankruptcy consultation, you should bring copies of all your bills. A recent version of your credit report would also be extremely helpful as well. By doing this, you can make sure that all your debts make it into the bankruptcy petition we file with the court. But you may not bring everything or you may have a recent bill that you don’t have a copy of or that isn’t reflected on your credit report.

If you realize after the initial filing that you forgot to tell us about a debt you incurred BEFORE the petition was filed, you can notify your attorney and the petition can be modified to include that debt. Generally speaking, there is a modest fee for the additional paperwork due to the court costs incurred by us to file the updated petition. 

When can you add debt to a Chapter 13?

We can modify your Chapter 13 bankruptcy if you forgot to include a bill or debt in the pile of paperwork you gave your attorney just like we can in a Chapter 7. However, this can be a little more of a hassle if the debt is substantial or if it’s secured because it could trigger a change in your Chapter 13 repayment plan and possibly cause your Chapter 13 payment to go up. If your attorney has to redraft your repayment plan, you’ll likely have to pay an additional fee including more court costs to modify the case.

When can you add debt to a bankruptcy after the initial filing date?

Sometimes you can add debts to your bankruptcy that were incurred after your initial filing date. These situations are as follows:

  • Your Chapter 13 is dismissed and you file another Chapter 13 case. All of the new debt you incurred between the two filings can be included.
  • If you file a Chapter 7 and receive a discharge then file for Chapter 13 protection, you can add any new debts to the Chapter 13.
  • If you file a Chapter 13 and then find yourself unable to make the payments and choose to convert to a Chapter 7, all the debts you racked up between the Chapter 13 filing date and the date of conversion can be added to your new Chapter 7.

 

How to avoid having to modify your bankruptcy case

You generally want to avoid modifications if you can.  Modifying your case can add time and expense that can be avoided if you plan your case the right way.  Planning your case often seems counter intuitive because most people view bankruptcy as an option of last resort and rush into it with the first attorney they find. The better scenario is to schedule a free bankruptcy consultation with a reputable attorney who can help you. They can help you plan the best time to file so that it maximizes the impact the bankruptcy will have on your debts.  You should never try to figure out bankruptcy on your own.  A mistake can be very costly and potentially wipe out any benefit you may actually receive by filing bankruptcy. 

The second thing to consider is preparation. Preparation is imperative to the success of your case.  You will need two years worth of tax returns, 6 months worth of pay stubs, a copy of all your bills, your bank statements and any other statements you have including savings accounts, receipts for childcare, rent or mortgage statements, and any other financial agreements.  Basically anything you would need to prove your financial situation. 

The experienced attorneys at Harmon and Gorove can give you advice based on your individual circumstances. Their decades of experience can help you make sure that your filing is as successful and impactful as is possible. Do yourself a favor and invest in your future. Contact the competent and compassionate attorneys at Harmon and Gorove today for a FREE consultation.  Let us help you get your life and your financial freedom back from greedy creditors.