Bankruptcy

2nd Mortgage Lien Stripping in Bankruptcy.

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A 2nd mortgage or home equity line of credit (HELOC) can be a very tricky situation when it comes time to file bankruptcy.  Unfortunately, due to the housing collapse and the Great Recession of 2007, many people in this country have multiple mortgages or other types of loans attached to their homes, often a high rates of interest.  Despite what people may think, 2nd mortgages and HELOCs CAN be stripped and removed through the 2nd Mortgage Lien Stripping process in a bankruptcy if you have the right circumstances.   

Here’s how they’re treated by the bankruptcy court

A HELOC in Chapter 13 bankruptcy:

Chapter 13 bankruptcies require debtors to make payments to the holder of their primary mortgage holder as well as a Chapter 13 Trustee.  The Trustee’s job is to distribute these payments among the creditors who hold priority status. In a Chapter 13, your HELOC debt may ultimately be discharged as the lender will have likely gotten a percentage of the payments you made into your case through the trustee’s office.  

A HELOC in Chapter 7 bankruptcy:

In a Chapter 7 Bankruptcy, you can cancel the debt on your home equity line of credit.  The only problem with this is the fact that you can’t cancel the lien that the creditor has on the house.  As a matter of fact, the HELOC lender could possibly still foreclose on your house after the bankruptcy has concluded.  While it would only benefit them if there was equity in the house, there’s still technically no way to stop them from doing this.  The best way to avoid a foreclosure after a Chapter 7 has concluded is to sign a reaffirmation agreement with your HELOC lender during the bankruptcy.

Second mortgages in Chapter 13:

2nd Mortgage Lien Stripping is possible when a second mortgage isn’t secured by a home’s value and can potentially be eliminated in a Chapter 13.  Homes that are underwater may have second and third mortgages that aren’t secured by the value of the property anymore due to the fact that the amount of the loans total more than the current value of the property.  One thing to remember though is that discharging a second or third mortgage will have no effect on what you owe on your first mortgage and you will still have to pay that mortgage in full.

If you find yourself facing the reality of foreclosure due to a second or third mortgage on your home and you think that 2nd mortgage lien stripping may be right for you, come see one of our experienced attorneys at Harmon and Gorove today.  Our attorneys have decades of experience handling cases like this and they can advise you if you will benefit from this valuable tool under the bankruptcy code.  

Bankruptcy: How it Affects your Spouse

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Marriage means much more than just living with someone, it means sharing a life together and that life includes your finances. Still, sometimes one spouse may need to declare bankruptcy to get out from under their debts, even if husband or wife does not. There are any number of reason why this may be the case.  The filing spouse may have racked up credit card debt as a college student or may have incurred medical expenses that the other spouse isn’t liable for. If you are married, you often can file for bankruptcy without your husband or wife. Even when you file and individual bankruptcy case, it may still have a profound effect on your non filing spouse.

How Bankruptcy can Affect your Spouse:

Generally speaking, if you are filing for an individual bankruptcy case, it will not have much of an effect on your spouse in many cases. One of the areas in which it may have an impact is If you have joint debts discharged in the bankruptcy. By doing this,  the bankruptcy may appear on your spouse’s credit regardless of whether they have filed.

Also, when you file for bankruptcy, it only eliminates your personal debt, but your husband or wife is still obligated to pay back their own debts and any joint debts that they may be on with you. Your creditors can pursue legal action against your spouse to collect your joint debts once you have filed for bankruptcy. While this past statement is true if don’t life in a community property state, if you do live in a community property state and discharge the debts you owe jointly with your spouse, the creditors cannot pursue collections against your marital community property after your bankruptcy. In this case, your spouse benefits from discharge of your joint debts.

Filing for Chapter 13 bankruptcy protection can protect your spouse from creditors with the Co-Debtor stay. A Co-Debtor protects the debtor against almost all types of debt collection activity by virtue of you having filed for protection yourself. A chapter 13 also prohibits creditors from pursuing your co-debtors during the course of your bankruptcy. However, in a chapter 7 bankruptcy, the co-debtor stay is not included. At that point a collector will not be able to collect the debt from you, but it can collect it from your spouse.

Finding Financial Freedom:

Filing for bankruptcy is a last resort for many and a challenging process for everyone, especially if affects your loved ones. Understanding what your options are helps you both make good decisions that can get you back on the road to financial prosperity and security. If you are considering filing bankruptcy, contact our experienced bankruptcy attorneys today so they may explain the different options you have available to you under the law. Harmon and Gorove has helped thousands of families recover from difficult financial situations over the course of the last 35 years.  Contact our office today for a free, no obligation consultation.

Savings Rate in America is Scary

in Bankruptcy, Credit and Credit Cards

The average American family is struggling with savings.  While as much as 70% of people agree that the economy is humming along at a record pace, many people often do not see the real benefit that Wall Street is reaping in their own bank accounts.  Here in the United States, the economy may be doing well but the savings rate reaches has reached a new low.

 

A recent study by the Federal Reserve says that the average American consumer is unable to cover a $400 emergency expense without tapping credit or having to sell some possessions. Many attribute this to the rising cost of living and the recent uptick in consumer debt and student loan debt which are both having a negative effect on the savings rate.  Student loan debt in America now tops 1.4 Trillion dollars and is causing many people to not be able to purchase homes and cars and is even blamed for delaying marriages and keeping people from starting families.

 

Another disturbing trend in the savings rate in America is the fact that more than 50% of people have less than 1,000 dollars in savings.  Despite the fact that more Americans are feeling confident in the economy, a full 57% of Americans don’t even have 1,000 dollars saved. This is disturbing because many people still expect to retire at or around 65.  The average social security check people receive in retirement is approximately 1,400 per month.  While that will continue to increase as time goes on, it is a sobering thought that many people who are late to get into the savings game may have to finance their retirement on just under 17,000 dollars per year.  


As we stated earlier, most people are feeling more financially secure but they are failing to save.  You can make that savings easier if you contribute to employer funded or matched retirement plans which save your money for you, keeping you from ever getting your hands on it.  If you work for an employer that does this, we highly recommend you using this. If you are having to save on your own and you keep finding it harder and harder to put money away you may be a good candidate for bankruptcy.  Bankruptcy can be a positive thing for your finances and it can help you eliminate may of the unnecessary debts that are holding you back from creating a savings plan. If you are struggling with creating a savings plan, give us a call.  The attorneys at Harmon and Gorove have decades of experience helping people out of debt and making meaningful financial changes in their lives.  

Presidents Who Have Filed Bankruptcy

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If you’re feeling burdened by debt and you think that you’re alone, think again.  Some of history’s most well known people; celebrities, politicians and other world leaders have found themselves facing financial hardships. Even several Presidents have found themselves in serious financial trouble.  Below I’ll list several U.S. Presidents who have filed bankruptcy either before or after they left office.

Thomas Jefferson

Thomas Jefferson was a brilliant lawyer, a gifted writer and a wealthy landowner but Jefferson wasn’t the best at managing his finances. His main occupation was that of a farmer.  Due to this he suffered the ups and downs that often go with the unpredictable nature of agriculture. He also used his considerable wealth to lend out money and the payments made against those loans were often unreliable. He also inherited debt from his father-in-law and from a friend who did not pay off a debt that Jefferson had co-signed. Jefferson also had problems with his spending.  Jefferson’s love of luxury led to expensive spending habits as well and he died with more than $100,000 in debt (roughly 2-3 million dollars in today). However, unlike today, he didn’t have the option to file bankruptcy except during a brief window from 1800 to 1803, which he did utilize. Thomas Jefferson died broke and unable to pass along any assets to his heirs and was even unable to free his slaves at his death as they were considered property and were auctioned to settle his debts but Jefferson wasn’t the last of the Presidents who have filed bankruptcy.

Abraham Lincoln

Abraham Lincoln, one of our greatest presidents, found himself in the soup financially after the failure of a business venture. Lincoln even found himself having to assume more than half of the debt from this failed venture when his partner in the business died shortly after the business shut its doors. Lincoln, out of a sense of duty, assumed the debt and struggled for some time with it. Lincoln lost all of his assets and he spent several years trying to pay off the debts. Despite all this hardship, Lincoln was undaunted and didn’t allow the stigma of bankruptcy  to follow him for years on end. Just a mere 8 years later, Lincoln was elected to Congress and in 1860 became President of the United States. Lincoln had trouble with his finances for the rest of his life largely due to his wife’s extravagant spending habits which she carried over even after his death in 1865.  Lincoln was one of the first Presidents who have filed bankruptcy

Ulysses S. Grant

Grant was a Civil War hero who many credit with saving the Union, right along with Abraham Lincoln. As good as Grant was on the battlefield, he was an awful businessman. Grant, with his judgement often clouded by his alcoholism, made a series of bad investments. Grant invested heavily in Grant & Ward, a Wall-Street investment company set up by his son and his son’s friend Ferdinand Ward. Ward stole and embezzled the funds Grant invested, eventually going to jail for it. This didn’t change the fact that the President was still on the hook for hundreds of thousands of dollars of debt after Grant & Ward failed and he went bankrupt. Ulysses Grant worked nearly until his dying day writing his memoirs and only way he was able to repay any of his creditors was through selling his Civil War memoirs which were published posthumously.

William McKinley

William McKinley was a lawyer like Thomas Jefferson and like Jefferson, McKinley cosigned on a debt for a friend.  When this friend decided to bankrupt on the debt, McKinley was forced to take over the debt as a co-signer. All of this occurred shortly after his election as Governor and he was forced to declare bankruptcy while serving as the Governor of Ohio.  Bankruptcy wasn’t all bad for McKinley. Less than three years later, he was elected President of the United States.

Donald J. Trump

Donald Trump is a businessman who inherited the business his sons now manage called the Trump Organization in the 1970s when his father retired from the business.  While Trump did see a great deal of success as a real estate investor, perhaps his biggest failure was as the owner of several Atlantic City Casinos during the late 1980s and early 1990s.  Trump’s casino, the Trump Taj Mahal, found itself 3 billion dollars in debt with Trump personally guaranteeing nearly 1 billion dollars worth of the debt personally.  Trump was forced to sell off several pieces of personal property including a yacht and an investment in an airline to satisfy the debts and even then he was forced to make payments on the debt for several years after due to debts that weren’t discharged in the bankruptcy. While Donald Trump is the most recent of the Presidents who have filed bankruptcy, I’m sure he won’t be the last. 

 

Even great people find themselves overwhelmed by debt. Whether that’s due to failed businesses, a job loss, medical emergencies or illness, or just bad luck. Bankruptcy is a resource that can help you get back on your feet and give you a fresh start if you, like these Presidents, find yourself in over your head. Call us today to learn what your options are!

Why does Bankruptcy Exist?

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Why does bankruptcy exist?  I can tell you from more than 10 years of legal experience, that is the question most often asked by creditors who are baffled as to why they lose out when someone files bankruptcy against a debt that is owed to them.  While it can be unfortunate for the creditor, for the person needing protection that bankruptcy offers, the choice is stark.

First, let’s look at a little bit of the history of bankruptcy.  For hundred of years, if you couldn’t pay back your debts, your assets were often seized to satisfy those debts and if you didn’t have enough assets to cover the debts owed, you’d be thrown in jail.  While this doesn’t make much sense, being that if you’re imprisoned you can’t exactly work to pay off your debts, it was the law in Great Britain and even in colonial times here in America. This all changed with the Financial Panic of 1837.  This was the first time that debtors were able to file for bankruptcy protection voluntarily. Changes have occurred over the past 180 years that have made bankruptcy fairer for the debtor and the creditor.

At times, a person’s debts can become so overwhelming that they become paralyzing.  Debts can feel like a type of financial bondage that steals a person’s hope for future prosperity and ability to take care of his or her family.  From my ten years of experience, I have found that none of my clients actually want to file bankruptcy and all of them desperately want to have the financial capacity to repay their creditors. Unfortunately, they have reached a point in their life where they feel that this is simply impossible.

This is where bankruptcy becomes a type of safety net.  The reasons for bankruptcy are numerous. First, bankruptcy serves to provide a debtor with a fresh start and renewed sense of hope.  The Supreme Court has stated that this fresh start is the “essence of modern bankruptcy law” and that debtor is provided with special protections in bankruptcy called exemptions “to ensure that bankruptcy will provide a fresh start.” Local Loan Co. v. Hunt, 292 U.S. 244 (1934).

From the perspective of macroeconomics, bankruptcy is an essential part of capitalism. In an economy without bankruptcy protections if a business fails you’re out of luck but in our country bankruptcy can serve as a fail safe.  Without this fail safe what business person would ever take a risk with his or her money? It is obvious that no one starts a business just to file bankruptcy, bankruptcy itself provides for an invaluable safety net that will allow a person to take the debts from the past and move forward into a brighter future.

Many creditors often ask, what about me?   While it is not obvious why bankruptcy would benefit creditors, creditors are protected by the law as well.  First of all, we assume that a person who is looking at filing bankruptcy has exhausted all other financial options.   For the most part, debtors generally don’t have much more than their household goods and furniture, a car, and a home, if they’re lucky. The reality of the situation is, no one is going to get paid back in full. By assuming bankruptcy is unfair for creditors, must also acknowledge that the alternative probably wouldn’t be better either.

Understanding all this we realize that bankruptcy is an equalizing force among creditors. Creditors are broken up into roughly three different classifications: The first is secured creditors like your mortgage or car loans, the second is a priority creditor like alimony or child support, and the third is just unsecured like a credit card or medical bill.  An example of this works would be a situation like this. A debt collection law firm is attempting to collect on a credit card issued by a bank and the debt collection law firm pursued a garnishment suit against the debtor in magistrate court. They won and got a judgment, and started garnishing the debtor’s paycheck to the fullest extent allowed by law.  By doing this the debt collection law firm collected $1,500.00 in three months for the bank.  The problem with this is that there is a section of the bankruptcy law that says that if an unsecured creditor is paid more than $600 within 90 days of the debtor filing bankruptcy (even if it’s court ordered), that creditor was given preferential treatment.  This means that the bankruptcy trustee can force the bank to turn over the $1,500 so the trustee can distribute that money to the unsecured creditors in equal shares. So, from that perspective, even creditors may benefit by some equalization under the bankruptcy code.

With all this said, I hope I’ve answered the question, Why does bankruptcy exist. It exists for both the creditor and the debtor.  It helps to ensure fair treatment of the creditors and to help the debtor get a fresh start. If you feel that you may be in need of a consultation with a bankruptcy attorney give the caring and compassionate attorneys at Harmon and Gorove a call to schedule a free, no obligation consultation with an experienced bankruptcy attorney. With our expertise you may be able to regain your financial freedom and start down the road to prosperity.

Stopping Creditor Harassment

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Not much is more stressful that feeling the heavy burden of unmanageable debt. When you add the prospect of non stop harassment by creditors on top of the burden of debt the situation becomes unbearable.  People who have been victims of creditor harassment and bill collectors know how uncomfortable it is when the phone rings, especially when it keeps rings all day long. A number of people assume there isn’t a way around being constant creditor harassment, there are provision in the law to make it stop.

What you have to do first is to realize that doing nothing will not fix the problem. The sad reality of it is that collection agencies have hundreds of staff members whose sole job is to make phone calls and harass you into paying a debt that you may not even owe. The question is, how do I make it stop?

Creditor Harassment: know your rights

You DO NOT have to accept being bullied by collection agencies. One thing you have to understand is that while they may be rude to you and harass you, you are not under their control. Don’t ever scream at them, lose your temper or threaten them; always keep a level head.

You must remember that you have rights that they absolutely must respect. There are a number of things that collectors can’t do when attempting to collect debts. They are not allowed to call before 8 a.m. or after 9 p.m. unless you have given them permission to reach out to you at those hours. You should always establish boundaries on the very first phone call. You also have the right to tell them they are not allowed to contact you at work or reach out to your family. Finally, and most importantly, if you wish for the calls to cease, you can tell them not to contact you.  Once you have completed the phone call send a follow up letter via certified mail asking for proof that you explained to them how they should contact you in the future. Under Federal law all notices must be in writing to retain full legal effect.

You are protected by the Fair Debt Collections Practices Act. Under the Fair Debt Collections Practices Act, creditors are not legally allowed to do the following:

  • Repeatedly call you
  • Call you at unreasonable hours or late at night
  • Call your employer if you’ve told them not to
  • Call without identifying who they are
  • Contact your friends, family or neighbors unless you give them permission
  • Employ deceptive tactics
  • Threaten you with child custody, arrest, or loss of welfare benefits
  • Threaten with self-help repossession when not authorized by the law
  • Use derogatory, obscene, or insulting remarks
  • Directly contact you after you’ve told them to call your lawyer instead

Always make sure you receive proof of debt

Don’t just assume that you owe a debt to someone just because a debt collector has called you. The cold hard truth is that you should never pay the collector anything until they can prove that you actually owe the debt. Debt collectors often try this tactic to scare people into paying a debt by mistake. If the company calling you is unable to provide you with real proof of the debt you can simply tell them to stop calling you. .

I would even go so far as to say that even if you are pretty sure that you owe the debt, make them prove it to you anyways. As I have previously stated, sometimes debt collectors try to collect on fraudulent debt. Additionally, third party debt collectors often buy debt without ever receiving proof that someone owes it. This situation gives you a huge leg up and can often times result in you not having to pay the debt.

You should always be honest. If there isn’t any way you can pay the debt tell the person who called you the truth. If you think there may be a time when you’ll have some money then give them an estimated time when you might be able to pay. By doing this you could eliminate the incessant phone calls.

You can try to make a deal

There are some creditors that are not impossible to work with.  They may be inclined to make a deal with you. Some companies may allow you to make small payments over time or they may forgive a portion of the debt they say you owe if you’re willing to pay right then.  Generally speaking, third party companies are usually more willing to work with you since they often buy debt in bulk for much less than it was previously worth.

If all else fails, see a lawyer

If you feel you’re a victim of creditor harassment and you can’t find a way to get them to stop contact the Attorneys at Harmon & Gorove today.  We can assist you in filing bankruptcy so that your creditors will stop harassing you, ruining your credit and garnishing your wages.