The ultimate solution to joblessness is getting a job, but while you are unemployed, there are some common sense things you can do to survive.  No, this isn’t going to be as much about bankruptcy as common sense, but sometimes when you are in the middle of the storm, common sense isn’t so common.  That’s OK, there will be a litany of people giving you advice, myself included, pick the advice that makes the best sense to you and discard the rest.  Don’t worry, I won’t hold a grudge if some of these tips don’t suit your fancy.

Tip #1, figure out your financial situation.  If you are newly laid off and collecting unemployment and you have some money saved in the bank, you may not be in a terrible situation at all.  Unemployment lasts a while these days, in some areas as long as 99 weeks, and while I would hope you’d find employment before that, at least there is that cushion.  If on the other hand you have nothing in the bank and you aren’t able to collect unemployment, you are definitely in some hotter water.  It is best to be armed with as much information as possible, and as painful as it may be to look at your account balances dwindle, you need to know where you stand.

Tip #2, coupons.  Coupons are very high on the list of awesomeness! Companies are giving you discounts on items you probably buy anyway, so clip away.  Our local newspaper the Morning Call advertises hundreds of dollars in savings every week.  I don’t know if that’s true or not, but I know a good deal when I see one and when I can routinely get $50 in savings on things I would buy anyway from a $1.25 Sunday newspaper, that’s a steal.

Tip #3, buying in bulk.  One of the best quotes from one of my favorite cult classic movies, Employee of the Month, is “Buying in bulk is our God-given right!”.  Well I didn’t see anything like that in a version of the Bible but even so its still a good idea if you can store food.  If you can’t and it rots, well you lose money, but if you can, it can be a Godsend, and I promise you I’ve gotten more mileage out of my Sam’s Club membership than what it cost.  Think about it.  If you spend $8 for 24 rolls of toilet paper, is that a better deal than $19 for 96 rolls of toilet paper?  No it isn’t, and since toilet paper doesn’t go bad, it makes perfect sense to buy this sort of thing in bulk.  As long as it can be stored safely and bought at a discount and it’s going to be used (bulk purchases of brussels sprouts are not a deal if they aren’t eaten), its worth it to buy more ahead of time.

Tip #4, The Best By Date on the Milk Carton was Created By Lawyers, the Sniff Test by God. God gave you a nose for a reason.  One of the big reasons for the olfactory sense is to know when we are about to eat something we shouldn’t.  While I’ve wondered who was the first person to look at a cow and think, “hmm, I bet that tastes great?”, the milk isn’t bad unless it smells bad.  You can’t always trust the best by date either.  As a teenager I poured some wonderfully sour milk into Cheerios and wow, you don’t forget that.  My wife will tell you that I will sniff the milk twice or three times, every time I pour my kids cereal.  Yeah, you don’t forget that.

Tip #5, a car burns gas faster with the air conditioner on.  It’s true.  I don’t know why it works like that but it does.  On days where it is 100 degrees out (like today), you probably need to have the air conditioner on (although I had a 1977 Chevy when I was in college and it didn’t have air conditioning and that was Missouri in the summer), but on a day where its in the high 70s to the low 80s, roll the window down, enjoy the fresh air.

Tip #6, when you have less money coming in, prioritize what you spend money on.  Power, water and food comes first.  Then transportation.  Don’t fall too far behind on your car loan, they will repossess it and then you will have to pay the whole balance to get the car back.  A mortgage you can fall further behind on, but don’t deliberately do it.  If you can’t afford your mortgage, you can usually stay in your house a year before it is foreclosed on in Pennsylvania.  Hopefully you will be back to work before then and can work something out with your bank, but if you can’t consider Chapter 13 bankruptcy, I know a lawyer who is pretty good at that.  Your credit cards are the last people who get paid.  They will hoot and holler and call you all sorts of nasty names, but if its between whether feeding your kid or having someone berate you on the phone, I choose feeding my kid every time.  Don’t let these jokers bully you, because if they do, they could find themselves being sued.  I stole one of my favorite lines from Dave Ramsey, “I’d sure like to own a collections company.”

Tip #7, cut the fat.  I’m not talking about your diet, however if money is scarce going on a diet might make things seem a little less oppressive.  I’m talking about the things we can’t live without that we probably can live without.  Cable TV is probably the first thing on my list.  Cable has become expensive, and frankly not worth it.  The cable/internet/phone deal costs almost $150 per month in my area, but you can get internet for $50 a month and Netflix for $8 per month.  Couple that with an antenna (used to be called rabbit ears) to get local programming and you will have almost everything you had anyway.  Do you really need an extra two food channels?  Is your life better because you get MSNBC or FOX News?  Do you really need a land line phone when everyone and their child has a cell phone?  No, you could cut your entertainment budget in a third and if you really need to see a TV show, most stations are streaming current TV shows on their web-site.

Tip #8, Never Surrender! Don’t give up.  When you get knocked down, get up and try again.  We’re Americans, it’s what we do.  The West would never have been won if the original settlers gave up the first time they encountered trouble.  If you want to live in a country that is going to coddle you from the day you are born until the day you die but you will never really get a chance to be successful, try France.  It may take a year, it may take longer to find a job.  You may never find another job.  When I got laid off , I start
ed this law practice because it was clear that the legal jobs that I was qualified to do were drying up and being sent overseas.  You may find something that you have always wanted to try but couldn’t because it would be too much of a pay decrease.  Now it won’t be.  One day, and maybe not to long from now, I’m going to try something new, something different.  For you, that day may be today, so go for it with all the gusto you have. But most of all don’t give up, don’t ever give up.

If you find yourself in a financial position that you can’t handle or you can’t get a handle on and you need to talk to a competent professional, call 610-400-3093 for a free consultation.  You don’t have to do this alone, and you may not even need legal advice, just friendly advice.  It would be my privilege to provide you with either.

One of the most common mortgages was an 80/20 mortgage.  You would be given a first mortgage which would cover 80 percent of the cost of the home and then a second mortgage that would cover the remaining 20 percent of the loan.  The 80% mortgage would be in put in first position and the 20% mortgage would be put in second position.  You had this second mortgage to avoid paying PMI payments each month.

You would put no money down, so essentially you went from renting to paying a mortgage without any pain in the pocket, in fact, a lot of these mortgage payments were less than what a person could rent for.

Very few thought about the chances of these homes going down in value (I did, but I make Murphy look like an optimist).  The idea was that the house would increase in value in a few years and there was no risk in there being a lack of equity in the home because real estate always went up.

There were a few who did think about the chance of property losing value and a few of them were mortgage lenders.  Some of these lenders made the 20% mortgage the mortgage in first position and this is why:

A secondary mortgage can be considered completely unsecured if the value of the property is less than that of the first mortgage.  For example, suppose a borrower has a first mortgage balance of $200,000 and a second mortgage balance of $40,000.  Now in our example, the house is worth $180,000.  The house is worth less than the balance of the first mortgage and that makes the second mortgage completely unsecured.

There is an option inside a Chapter 13 bankruptcy to have that second mortgage treated as unsecured.  In the Eastern District of Pennsylvania, where I practice, you need to have a motion to value the real property and then file an adversarial matter to have the mortgage treated as completely unsecured.

The only way to have the mortgage treated this way is if it were COMPLETELY unsecured.  That means if the property is worth $200,000.01, the second mortgage is not completely unsecured and you cannot treat any of it as unsecured.

What a few unscrupulous lenders did during the housing boom was to put the 20% mortgage in first position.  Now when the borrower finds themselves in financial straits and files Chapter 13 bankruptcy, the option to claim the second mortgage is completely unsecured is off the table because the documents were filed incorrectly, deliberately or not.  The 20% mortgage is considered the first mortgage and unless your property has really taken a dive in value, the 80% mortgage is not going to be completely unsecured.

This is an area that is ripe for another class-action lawsuit, even if you are not planning to file Chapter 13 bankruptcy, because bank malfeasance has taken this option off the table.  If you find yourself struggling to keep up with your debts, please call 610-400-3093 or email me at jim@padebt911.com for a free consultation or a referral to an attorney in your area.

I’ve been thinking of ways to make the new Chapter 13 process work.  It seems like with the economic pinch the powers that be have determined to make Chapter 13 more difficult.

The first thing that jumps out is that we can no longer extend plans beyond 60 months.  Judges used to be given discretion to allow a 66 month or even longer length of plan, now we are stuck with 60, leaving bankruptcy attorneys to decide whether or not they want to do a balloon payment or do a step-up plan that they know their client can’t handle unless some financial miracle comes their way… in this economy the miracle man hasn’t been around often.

I think I have a solution, but it will require Republicans or Democrats (hereinafter referred to as Republicrats) to set aside their animus and ignore lobbyists from mortgage lenders.

The solution is to create a new Chapter in bankruptcy.  I vote for Chapter 15, but I don’t really care what it is called.

This would be a supervised repayment plan like Chapter 13 is, but instead of repaying it over 5 years, the past-due amount on the mortgage would be put on the end of the mortgage.

The mortgage would be reset to 31% of the debtor’s take home pay for five years, and the difference in the mortgage would be put to the end of the mortgage as well.

Take this example:

Joe & Susie Homebuyer have a mortgage at $1200 per month.  After being laid off for a year, Joe’s income dropped to $3000 from $5o00 (FYI I know women work too, but for mathematical purposes, assume Susie does not work outside the home).

Joe is now 10 months behind on his mortgage, which is $12,000.  He is looking at a sheriff sale and instead chooses to file Chapter 15 bankruptcy.  31% of Joe’s income is $930 per month.  The difference between $930 and $1200 over 60 months is $16,200.  (The reason I suggest 5 years is because this recession should be over in 5 years or less…hopefully).

The total amount of $28,200 gains interest at the rate the Federal Reserve Lends on a short term basis + 1% at the time of the case being filed (that is the rate mortgage lenders can borrow money from the Federal Reserve at).

Right now, that rate would be 1.25%, and over the course of 30 years the interest would be $5630 (rounded off from $5631.64).

That would put an endcap of $33830 on the end of the mortgage.  That endcap would also gain interest at the standard interest rate of the original mortgage.  Joe & Susie would pay $1217 per month for the remaining 30 months and then the mortgage would be paid off.

If Joe & Susie decide to move, they can sell their property and catch up the mortgage and the endcap interest.  If Joe & Susie still default and wind up getting foreclosed on, the endcap debt CANNOT be discharged in a Chapter 7 case.

There you go, the borrowers get relief, the lenders get security, and we don’t have 6 to 7 million homes foreclosed upon.

Next time I’ll be talking about a new kind of debt settlement, one that actually works (I guess I’ll have to put the snake away) and I’ll also brighten your day with some famous people who have filed bankruptcy.

Stay tuned…

In April 2010, 50% of the adjustable jumbo-loans (mortgages over $417K) are set to adjust.

For the first two years of this foreclosure crisis, the lower and middle class residents of the Lehigh Valley bore the burden, but now the upper class homeowners are about to get hit.

This is how it is going to go down. 

Joe and Jane Homeowner have been paying a teaser rate of 2% or even just interest, resulting in a payment of $708 – $1570 per month.

The loans are going to reset, possibly to 6% or higher, resulting in a $1000 jump in payment.  This is happening at the same time as salaries shrink.

Pressure on salaries and the increasing home payment will result in the homeowner dipping into their savings and when the savings dry up, they will fall behind.

Already the effects are being seen of this and the tidal wave hasn’t really hit yet.

What is going to happen when 50% of jumbo loans begin the reset process?

The housing crisis is going to get worse, that’s what, because instead of a recovering housing market we will have downward depression on home values as these McMansions go onto the market at a discounted price.

Yesterday, I sent emails to Senator Arlen Specter and Representative Charlie Dent, the text of that email is here.

So far, Representative Dent has responded with an auto-email message that he got my message… thanks for that.

Senator Specter’s office has done even less.  Not even an auto-response saying I got the email.  Hello Senator Specter, its 2010, its called Aweber, it costs $20 a month and is based in Pennsylvania, I think you can afford it.

I didn’t expect a quick response, although I was hopeful as Representative Dent at least has been responsive in the past.

So now I’ve decided to throw down the gauntlet.  I’m not exactly Paul Revere riding through the city yelling the Red Coats are Coming!  I’m just a local bankruptcy attorney who is fed up with the lack of meaningful action by Congress in response to this crisis.  Instead they choose to drone on about Health Care, Cap and Trade, and exactly who is more evil, George Bush and the Republicans or Barack Obama and the Democrats.  This is one instance where I think Monty Brewster was right but instead of voting for None of the Above I’m going to vote for all of the above.

So here is the gauntlet. 

Senator Specter has two potential opponents in 2010, Joe Sestak and Pat Toomey.

Representative Dent has two potential opponents in November, John Callahan and Jake Towne.

So our current Congressmen as of now have not replied to my email, lets see what their opponents have to say about it.  Why can’t we have a meaningful bankruptcy overhaul in this economy.

I don’t know the answer to that question, but I do know that HAMP is not working.  I do know that the only way to stop foreclosures is to actually stop foreclosures, and so far only bankruptcy can assure that foreclosures are stopped.

I will report back to you the responses I get here.  Its time to turn the heat up and find out who the weasels actually are.