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Another Problem with Loan Modifications When Contemplating Bankruptcy: Waiting

Jeff Curl — Sun, 20 Jun 2010 06:12:56 +0000

With the continuing economic turbulence, underwater properties and struggles to keep homes show no signs of slowing. As of May 2010, California had 412,605 foreclosure sales on the market. Judging by the clients walking through the doors, it’s not getting better anytime soon.

My job is to help clients keep their homes and belongings, and get rid of the debt. For clients with homes, I have lost count of how many clients that are attempting to obtain a loan modification. Many have given up by the time they get to me. After Bank of America or Wells Fargo loses their paperwork for the fifth time, they just can’t go through the process again. Or my favorite is where the bank gives the homeowner a “trial period” where the homeowner pays the agreed amount in a timely manner, and the bank then denies the loan modification. The process appears designed to squeeze the last dollar out of a desperate person followed by an arbitrary denial.

But many of my clients insist on pursuing modifications. Additionally, many times they will ask to delay filing bankruptcy while the loan modification process is underway. This can be a risky and unnecessary delay. First, the new HAMP guidelines made effective June 1, 2010 require lenders to entertain loan modifications for those in bankruptcy, if the borrower is otherwise qualified under HAMP. Will filing bankruptcy and seeking a loan modification accelerate the consideration, and subsequent acceptance or denial of a loan modification? Too soon to tell.

Second, things can change to the detriment of the homeowner by waiting. I have bankruptcy clients that I met with well over a year ago that are waiting for this magical loan modification. One client qualified for both Chapter 7 and a Chapter 13 with a lien strip (basically removing the second mortgage) at the time we met. Because he followed his realtor’s advice in seeking a loan modification, the client stopped paying the mortgage. When he was current on his mortgage, he could have qualified for Chapter 7. Now that he is several months behind, the home would almost certainly be lost.

The other potential remedy available to the client a year ago was the powerful tool of stripping the second mortgage in Chapter 13. To do this, the value of the home must be less than the first mortgage. The second mortgage is then determined to be unsecured and “stripped.” Unfortunately in this case, my client is one of the few whose home rose in value due to unique circumstances where he lives. The second mortgage can no longer be stripped. Worse, by missing so many months of mortgage payments, he probably cannot afford a Chapter 13 plan that includes all of those arrears.

I must have expressed my concern and the potential consequences a dozen times. I fully understand that homes have economic and emotional values. But it is this emotional attachment that is hurting homeowners. They pay predatory loan modification companies money that accomplishes nothing more than taking hard earned money they can’t spare. Or they don’t realize that the home is unaffordable no matter what modification is coming their way.

Or in my all too familiar experience, the homeowner misses getting a fresh start afforded under bankruptcy protection. My client’s credit card debt could be wiped out, the second mortgage sent to oblivion, and the home saved. Instead, he’s now facing lawsuits from other creditors, and now looking as some very tough options because he spent over a year attempting to modify his loan without any success.

Disclaimer: Unfortunately, it is impossible to give legal advice over the internet, no matter how well researched or written. Before relying on any information I give, contact a lawyer to discuss your particular situation. I am a San Francisco bankruptcy attorney. The information given is based on California law.

Saving your car through bankruptcy

Jeena Cho — Sun, 20 Jun 2010 02:07:12 +0000

By: Jeena Cho

If you have fallen behind on your car payments and can’t afford to make up the missed payments, Chapter 13 may be a solution to keeping your car. Contrary to popular belief, bankruptcy is about restructuring your debt and helping you keep those secured property you can afford to keep.

Let’s take an example:
Suppose your monthly payment on a car is $500 and there is 30 payments left on it.
You are 3 months behind on your payment.
Current interest rate of 8%.

By filing for Chapter 13, we can restructure the debt as follows:

Stretch out the payments to 60 months, hence reducing the monthly payments.
Reduce the interest rate to approximately 4-5%.
Make up the missed payments over the course of 60 months.

By filing for Chapter 13, it’s possible to reduce the monthly payment to less than $250 per month over 60 months, hence (hopefully) making the vehicle affordable.

If you are facing repossession of your car due to missed payments, or are struggling to make your monthly payments, call me for a confidential consultation at (415) 963-4004.

Beware of Student Loans

Jeena Cho — Thu, 27 May 2010 18:34:02 +0000

By: Jeena Cho

I frequently meet clients who took out student loans to fund their education. Many of them share their regrets and feel they were too naive and young to understand the consequences of borrowing money so freely for the promise of a “better future.” We are all taught to believe the value of a degree and also told that borrowers will be able to pay it back. However, student loans can be debilitating and unlike many other debts, it’s difficult if not impossible to discharge.

Students need much more guidance and education about the cost of their education. My parents encouraged me to go to a state university for my law degree and in hindsight, they were right. A private law school would’ve cost approximately 4x as much as the in-state law school. Do I feel I’m making 75% less with my state degree? Absolutely not.

Student loans are not dischargeable in bankruptcy. Student loan is also defined very broadly. It encompasses all “obligation to repay funds received as an educational benefit, scholarship, or stipend.”

Before taking out student loans, consider the following:

Is there a cheaper alternative? Consider going to a community college and transferring. You can also consider going to school part-time and working to pay for a portion or all of your education.
Do your homework. Make sure your school is accredited – especially if it’s an online only school without an actual campus.
Borrow what’s absolutely necessary. Don’t use student loan money to go on spring break or anything else not related to your education.
Crunch the numbers. How much will your monthly payment be after graduation? Make sure you do your research and figure out what you can expect to make with your degree after graduation.
Look into Federal loans before considering private. These often have better interest rates and will offer more options should you have trouble repaying the loan down the line.

What if you already took out too much student loan and have no real hope of repaying it?

Call the lender. Most programs have a deferment or forbearance program.
Consider going back to school part time at a local community college. Most student loans can be deferred if you attend school more than certain credit hours. Generally, community colleges are fairly inexpensive and it can be a cheap way to defer your student loans.
Consider Chapter 13. Bankruptcy will not get rid of student loans. However, if you are being chased down by a zealous lender, Chapter 13 may be an option to keep them at bay.

Many student loan lenders prey on students who are probably too young to understand the consequences of borrowing from the future. Yes, student loan may be a way to build a brighter future, but it can also lead to ruins. I’ve seen it many times. Buyers beware.

Looking out for #1 (Part I)

Jeena Cho — Fri, 21 May 2010 03:23:33 +0000

By: Jeena Cho

When I was in law school, they opened a Starbucks in the student union. Instantly, I was addicted. Every break between classes, I would wonder over and order a venti soy Mocha Frappuccino. It was just the “cool” thing to do. After about a month of this bad behavior, I noticed two things. 1. I didn’t have money for groceries and 2. I was craving more Frappuccino. Initially, I thought someone had stolen money out of my account because the bank balance was much lower than where it should have been. After a little investigation, I was horrified at the fact that I had wasted my precious grocery money at Starbucks! Even at 2 cups a day at $4.75, that’s $285 a month!

I spent the next month tracking every dime I spent. Not just money I spent on Starbucks but on food, eating out, entertainment, clothing, etc. It was a real eye opener because I didn’t realize where my money was going. Once I figured out what I was spending money on, I set rules for myself. I didn’t stop going to Starbucks, but I set a budget for 1 Tall brewed coffee 3x a week. Hence, I reduced my Starbucks spending from $285 to $18.

The moral of the story? In order for you to figure out the the solution, first, you need to identify the problem. If you are feeling overwhelmed by debt, there are three things you need to figure out.

1. How much debt do you have?

Surprisingly, many of my clients have no idea how much debt they have. If you don’t know, it’s time to face reality and open ALL of your bills. Will it be painful? Probably. But this is the first step in looking out for #1 – you.

2. How much income do you have?

Sounds simple, right? Look at your pay stubs. This is true for most people but if you are self employed and operate your own business, it may not be as easy as it sounds. If you have not been keeping a P&L statement, it’s time to do so.

3. Where are you spending your money?

Do you know how much you spend on Starbucks? How about groceries? Eating out? Try a little experiment and spend 4 weeks writing down every single thing you pay for. I mean everything. Every cup of coffee, pack of gum, newspaper, etc. If you’ve never done this, you may be surprised at the results.

Once you are armed with this information, you can make an informed decision about your financial situation. Look at your budget and see if there are areas where you can “trim the fat” and if that will be enough to get you out of debt.

How to start saving

Jeena Cho — Fri, 05 Mar 2010 04:10:28 +0000

by Brandi Bernazzani

Have you always wanted to be a saver but could never find the extra money?

If that describes you or your family, you are the RULE and not the exception in America. Most people pay their major bills first and then spend as they need to and want to. For the most part, unless people are in the habit of saving, they spend what’s in their account and sometimes more, regardless of how much they make.

If the idea of savings makes you cringe you’ve got to put a plan in place that automates the savings and removes the money from “your fingers” before you get a chance to find it a new home.

Here’s the solution in 3 easy steps:

1. Go to the web and find a reputable online savings account that offers these benefits and set up a new account:

a.      No fees to open or maintain an account
b.      No minimum deposit amount or account value to keep from paying fees
c.      Interest on savings of > 1%
d.      FDIC insured
e.      Easily able to open multiple accounts
f.       A company you’ve heard of or one that is well established
(My favorite is ingdirect.com’s Orange Savings Account)

Once you have opened the account, nickname it “Cushion”. Then commit to not touching it, think of it as money that is untouchable. This part is really important.

2. Determine a rough estimate of how much you could realistically save per month.
An easy way to do this is to go through at least 2 months worth of past spending. Make sure to add in items (as if you spent on them monthly) that you pay once or twice a year like property tax or insurance. Most working families in the bay area can reasonably save $500 to $1k per month but you’ll have to determine what you can do. Remember, even $10 a month or $100 a month is better than $0 a month. Start with an amount you know will make you successful.

3. Next, set up an auto transfer (at ingdirect.com) from your checking account (where you receive your direct deposit) to your Cushion Account, for the total that you’ve chosen to save each month. Make sure the transfer is set up to take place a few days after you are paid each month. You are also welcome to break up the savings into as many times a month as you are paid. That is up to you.

Once you’ve set up the auto savings, carefully monitor your spending to make sure you spend less than is in your checking account. The first couple of months you may miss the $ that has been saved, but soon you won’t even notice and you will have adjusted your spending. It’s likely the amount you see accumulating in your Cushion account won’t be exciting until you have at least $5K or $10K. However, at some point, you are going to become motivated to add to your savings and before you know it, you might even become a Savings Evangelist. Pass on this article, share the idea with friends, and break the Financial Silence. Make savings a new habit that is hard to break!

For more information, contact Brandi Bernazzani at (415) 664-5884

San Francisco based Financial Planner with Scalisi & Bernazzani Financial Services, LLC
Building a Roadmap to your Financial Success

Debts & Expenses Exceeds Monthly Income – Should I file?

Jeena Cho — Thu, 04 Mar 2010 18:46:53 +0000

By: Jeena Cho

One of the most compelling reason to file for bankruptcy is if you cannot afford to pay your monthly living expenses and your debt. There comes a point where a person has so much debt that no amount of budgeting or living on beans & rice will make a bit of a difference.

If you are reading this blog, you probably already know about the two different bankruptcy (Chapter 7 and Chapter 13). Many people think they don’t qualify for Chapter 7 bankruptcy because their income is too high. That is true but not always. It’s possible that an above median income earner can pass the Means Test due to payments on secured property, or high medical costs. If majority of your debt is non-consumer (meaning business related) you don’t have to pass the Means Test at all.

If the client does not qualify for Chapter 7, the next step is Chapter 13. Here are three things to consider.

I will have to pay back all of my debt. Rarely is this the case that the client’s income is so high that he or she will have to pay back 100% of the debt. Even if you do end up in a “100% plan” meaning all of your debts have to be paid back, you generally pay it back with no interest and no penalties.

I don’t want to be locked in for five years. I get it. The idea of having to write a check every month for five years is not too appealing for most people. However, ask yourself – what are my alternatives? Are you expecting a big raise at your job where you’ll be able to tackle the debt on your own? Are you willing to continue on your current track making the minimum payments? Or deal with creditor harassment?

Learn to save. Imagine after your Chapter 13 plan being debt free. No more harassing phone calls, threats of law suits or wage garnishment. Just be debt free. By the time you are done with your Chapter 13 plan, you should be used to setting aside certain amount of money every month for the plan. Now, that money is yours to save. Think of what you can do once you are debt free.

Bankruptcy is the beginning. Not the end. Is it scary? Yes. Will you be better off debt free? Are there other alternatives to filing? These are all the questions one should answer before filing. Bankruptcy should be the last resort, but it’s not the end, but a beginning.

Disclaimer: Please read our disclaimer. Unless you have hired JC Law Group as your attorney, there is no attorney-client relationship. This article is not intended to be legal advice. Obviously, you should consult with an attorney about your particular situation.

What to expect when meeting with a bankruptcy attorney

Jeena Cho — Wed, 03 Mar 2010 01:50:22 +0000

By: Jeena Cho

Have you been meaning to call for an appointment but afraid to? You might be wondering, what happens at a meeting with a bankruptcy attorney? Well, for one thing, I promise you, it won’t hurt a bit, and you might even feel better.

When you call our office, Chris, our receptionist will schedule a time for you to meet with either myself or my partner Jeff Curl. It will usually be about 1-2 weeks out.

We send you a two-page questionnaire to fill out and send to us before the meeting. It asks for basic information: amount of debt, amount of income, and assets/liabilities.

The meetings generally last from 45 minutes to 1 hour. Either Jeff or I will meet you personally. We don’t believe a paralegal can assess your situation as competently as an attorney can.

We do the following at the consultation: Listen, Ask, Answer, and Analyze.

Listen

Go ahead, tell us your story. What happened that led you to this point? Tell us the obvious, but also tell us about you. What do you do? What do you enjoy? What are you passionate about? I listen to people all day long and I love it.

Ask

I’ll ask you questions so that I can assess your situation and make sure I did not miss any important details.

Answer

Of course, you’ll have questions for me. I will do my best to answer all of your questions. Sometimes, a referral may be in order. I only practice bankruptcy law. I can’t help with tax, real estate, family law, immigration, etc. I have good people I can refer you to. You can ask me any question you like. Some people ask about credit after bankruptcy, others about being able to keep their job after bankruptcy, keeping homes or cars after bankruptcy.

Analyze

The next step is for me to analyze your situation to determine if bankruptcy is an appropriate solution for you. We will also discuss other alternatives (if any). Just as it would be unethical for a doctor to recommend an unnecessary surgery, it would be unethical for me to recommend bankruptcy unless I believed it was in your best interest. We build our practice based on trust, and by exceeding your expectations so that you will refer your friends and family. Obviously, we can’t build trust unless I’m completely honest with you.

If bankruptcy is a solution for you (notice, I said “a” solution, not “the” solution), I will quote you a flat fee. Please don’t call and ask how much we charge for bankruptcy. There is no way for me to know the details of your circumstances without having done the above analysis. After that, you go home and think about it. I don’t push you to sign a contract on the spot. I always say go home and think about it.

So, think about this article. Chew it over. Sleep on it. When you’re ready, we’ll talk.

Disclaimer: We are San Francisco bankruptcy attorneys. Unless you have hired JC Law Group as your attorney, there is no attorney-client relationship. This article is not intended to be legal advice. Please consult with a San Francisco bankruptcy attorney about your particular situation.

Who files for bankruptcy?

Jeena Cho — Mon, 01 Mar 2010 03:07:35 +0000

By: Jeena Cho

Good people are good because they’ve come to wisdom through failure. William Saroyan (1908 – 1981)

Upon the conclusion of the winter Olympics this year, what really caught my attention were the stories of the athletes. My favorite stories are those athletes that failed before but came back to win. Everyone loves the underdog that comes back to win.

If there was one message I wish I can convey to every person contemplating bankruptcy, it is this: You are NOT a failure simply because you filed for bankruptcy. Just like the athlete that bounced back to win the gold after a severe injury, illness, drug addiction or scandal so can you. We meet on average 16 – 20 clients per week. Assuming 50 weeks, that’s over 800 people per year. This doesn’t count the phone calls and emails we get from people in financial distress. So I know a little something about people who are filing for bankruptcy. The only common denominator among all these people is that 1) they are in financial distress and 2) they are struggling with the decision to file or not to file. That’s where the commonality ends and the uniqueness begins.

Who are these people filing for bankruptcy?

Doctors, lawyers, actors, teachers, waitresses, entrepreneurs, business owners, construction workers, financial advisors, accountants, athletes, students, parents, married, divorced, widowed, elderly, young, home owners, realtors, mortgage brokers, investors, government employees, nurses, restaurant owners, researchers, single parents, unemployed, employed, under-employed, receptionists, stock brokers, photographers, artists, designers, home owners… The lists goes on and on… All of them hit a bump on the road. Ok, maybe a very big bump.

All of them have come to a single conclusion – I cannot live with this debt anymore.

For some, this can take weeks. For others, years. Those who have more resources can delay longer, but the truth is, if you are going to file anyway, save your money and file sooner rather than later. Don’t cash out your 401(K), don’t borrow from your family and friends. The decision is the hard part. Execution is much easier. Just like those athletes that overcame great obstacles to win the gold, so can you. Ask yourself, can I be a better member of society, better father, mother, sister, brother, daughter, son, better employee, better business owner if I didn’t have this debt? Of course.

Everyone has their story.
Everyone struggles with the decision.
It’s painful.
Many feel a sense of remorse and guilt.
The hardest part is making the decision.
Do people regret the decisions that led them this point? Yes.
Has anyone told me they regret filing? No.

You are not in this alone. You are certainly not the only one with overwhelming debt. Look around. There are cities, counties contemplating or filing for bankruptcy. I certainly don’t need to list the companies that have filed for bankruptcy in recent years. I’m stating the obvious by saying we’re in very tough times.

Many people delay coming to meet with me — a bankruptcy lawyer – in the same way they delay going to see a doctor. It’s easy to ignore the problem and hope that it goes away. You cannot afford to ignore your finances and hope that it will magically get better.

What happens to my case now that Mann Bracken has filed for bankruptcy?

Jeena Cho — Wed, 17 Feb 2010 04:59:14 +0000

by: Jeena Cho

We’ve received several emails and calls regarding Mann Braken’s bankruptcy. Most common question being, “I was sued by Mann Bracken and they have filed for bankruptcy. What happens to my case?” First, it’s important to realize Mann Bracken was the law firm representing the plaintiff in your case. So, it’s not Mann Bracken suing you, but Discover, Chase, Bank of America, etc. Mann Bracken as the law firm has filed for bankruptcy, but the plaintiff in your case still has the claim against you. The law suit won’t be dismissed simply because Mann Bracken cease to exist. Most likely, the plaintiff in your case will get new counsel and the law suit will continue.

If you do have a pending case, it’s important to get legal representation in your case. We suggest you contact a lawyer regarding your particular law suit.

Can I keep my tax refund if I file for bankruptcy?

Jeena Cho — Thu, 04 Feb 2010 18:55:02 +0000

By: Jeena Cho

Tax season is right around the corner and this is a common question regarding tax refund. If you live in California and can use California exemption, chances are, you can keep your tax refund. The amount of property you can keep through bankruptcy is governed by exemption laws. Some states have its own exemptions (including California). Other states use the Federal exemption.

In California, clients have the option of using either the 703 or 704 exemption. 703 exemptions are great for clients without equity in their home. 703 has what is known as “wild card” of $21,825 that can be applied towards any property of the debtor. This includes potential refund from either the IRS or Franchise Tax Board (FTB). Certain items have its own separate exemptions, hence you do not need to use your Wild Card to protect it.

Let’s take an example. Suppose Jane has $5,000 in her bank account, $3,000 in IRS refund pending, vehicle worth $10,000 and household furnishings worth $5,000.

Starting with the household items, we would apply the $525 exemption towards each item in the home. If any item exceeds $525, the excess amount would get peeled off the Wild Card.

Next, the car. She would first apply the vehicle exemption of $3,300. Next, she would peel off $6,700 from the Wild Card to protect her car. Now she’s down to $18,525. This amount would be sufficient to cover both the money in her bank account as well as the IRS refund.

Assuming she is filing for Chapter 7, this would be a “no asset” case, meaning she loses the debt, and keeps all of her property.

If you have any questions regarding the property you can keep through bankruptcy, you should consult with a bankruptcy attorney. Jeena Cho is a San Francisco and San Mateo bankruptcy lawyer. The information contained in this article is meant to be educational in nature and should not be taken as legal advice. Please consult with an attorney regarding your particular circumstance.