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.

Dear Senator Specter/Representative Dent:

In 2005, you voted with credit card companies and against the American consumer by voting for BACPA (Bankruptcy Abuse and Consumer Protection Act).

BACPA doubled the cost of filing bankruptcy in the United States.  BACPA chased otherwise qualified attorneys out of the field because of its stringent and unfair requirements that put the lawyers who practice in this field at risk.

This bill further injures those who practice in this field by lumping them in with debt settlement companies and various other non-professional groups by requiring them to call themselves “debt relief agencies.”

A solo attorney is no more a debt relief agency than a chicken farmer is a Kentucky Fried Chicken franchisee.  Both operate in similar arenas but have different functions.

This is the worst economy I have seen in my lifetime, and it is probably the worst you have seen as well.  Real unemployment is somewhere around 18% and people are hurting.

While Congress and the President have spent the last year and a half arguing about National Health Care, the economy has gotten worse.  Like with BACPA, Congress is listening to the special interests with deep pockets, not the people who elect them.  This is a mistake.

While Congress and the President have spent $1.4 trillion ($700 billion TARP, $700 billion stimulus) bailing out banks and stimulating government labor, the economy has worsened.

That $1.4 trillion is gone.  Like toilet paper, it cannot be reused, so pointing out that you could have given every man, woman and child a check for $4700 on a debit card with a 90 day expiration date and jump started our economy much more effectively, is pointless.  Aggravating but pointless.

One thing Congress can do right now is to repeal BACPA.  BACPA was bought and paid for by credit card companies and banks, the same banks that took bailout money from the taxpayers who are suffering under BACPA.

Another thing Congress can do is to allow mortgages to be modified inside of Chapter 13 bankruptcy.  Yes the courts would need some more staff, maybe even a special modification master, but it would alleviate some of the pressure on this economy.

This is how modification inside of a Chapter 13 would work.  Lets take Joe Taxpayer (the guy who is probably going to vote for none of the above in 2010).  Joe has a mortgage of $200,000 at a 9% interest rate.  His payment (not including taxes) is $1609.25.  The total interest paid on the loan would be $379,328.28.  On the date the mortgage was closed, banks were borrowing from the fed at a rate of 2.2%.

The bank can still turn a profit on 2% interest, so the bankruptcy special master would lower the interest rate to 4.4%

Joe Taxpayer’s payment would drop to $1000 per month.  The term of the mortgage would be extended out to 42 years.  The total interest paid on this term would be $238,999.36, but the extra 12 years of principle payments of $1000 would be $144,000.00.

Now Joe Taxpayer can afford his mortgage, and the bank gets what they bargained for, albeit on a delayed basis.

The banks will complain about the time value of money, but the reality is that the average mortgage is paid off in about 5.8 years, meaning mortgages are refinanced or sold, so most banks will not be waiting 44 years to get their money, and when the mortgage is paid off the bank is getting what it bargained for anyway.

So how about it Congressman?  Why don’t we put HAMP and BACPA in the circular file where they belong and do something for the American people?

So there it is, I will follow up on this with a response from my Representatives.  Feel free to cut and paste a copy of this text and email it to your Congressman or Congresswoman and see what happens as well.

The two things for the consumer to know is that BACPA (the act passed in 2005 that made bankruptcy more difficult and expensive) considers bankruptcy lawyers debt relief agencies and that bankruptcy lawyers cannot advise their client to take on more debt before filing bankruptcy.

Lets take this case one part at a time.  The idea that Congress has lumped bankruptcy lawyers together with credit counseling, debt settlement agents, mortgage modification firms and other associated crooks is infuriating, but that is what the law that the banks paid for says.

The second and more nefarious part of this decision is that attorneys may not advise their clients to take on more debt prior to filing bankruptcy.

On its face, that makes common sense, but what about the automobile issue?  Every few years, people will need to change cars.  Buying a reliable car prior to bankruptcy has two positives for the client:

1. A reliable vehicle is a necessity everywhere but the major metropolitan areas, and
2. A reasonable car note that is kept in bankruptcy can serve as a means to improve one’s credit score after filing bankruptcy

Footnote 6 (which does not have the force of law) indicates that purchasing a car, buying groceries, paying medical bills or making purchases that a reasonable in anticipation of filing bankruptcy are acceptable.

While I am hesitant to advise a client based on a footnote, it seems to clear that the Supreme Court allows bankruptcy lawyers to have frank discussions with their clients about life.

While I am still infuriated by being lumped into a group of thieves, that was Congress’ doing, not the Supreme Court, and my representative Charlie Dent and my Senator Arlen Specter who both voted for this.  I wonder if they would like a do-over considering the current economy.  I’m going to email his office and let you know.

Oh, and perhaps Congress should be considered by a debt relief agency since they are the greatest group of crooks and frauds ever assembled.

My dad was a car guy.  He loved driving around in a long Cadillac or a Corvette.  He didn’t pass the desire for flashy cars to his son though, my Kia is sitting out in the parking lot.

Other people seem to have the car gene, and I have to admit that when I was behind the wheel of a 2002 Chevy Impala, I almost paid cash for it.

I said almost.  Paying cash for a vehicle is the best way to do it.  For starters, if I were to pull out $8,000 cash and put it on the dealer’s desk, it would hurt more  than 36 months at $250.  It is almost the same thing, except when its in your hand, there is a real connection to the brain, that is why dealers are so ready to offer credit.  Its not because they are nice guys (they might be), it’s because the car salesman already knows that if you have dig into your pocket to write a large check to buy a car, you are not going to do it unless you absolutely need the vehicle.

The following rules are rules I picked up from my father about dealing with vehicles (he had a lot of do as I say, not as I do rules), but I have done my best to follow them and they have kept me out of financial trouble.

1. Before you buy a teenager a car, make sure they have some miles under their belt… only a dummy buys a new driver a new car.
2. Always go for the higher deductible on insurance.  Changing your deductible from $500 to $1000 can save you as much as $50 a month on your insurance.  You will have that money saved in short order… if you save it.
3. When you have a paid off car, save up the equivalent of a monthly car payment.  My last car payment was $278.  When it was paid off, I saved $278 per month.  I wasn’t able to fully pay for the new car (I should say newer, it wasn’t new), but I had the down payment and then some.
4. Never buy a brand new car.  Most people buy a brand new car for the smell… you can get it in a can.  Buy a four year old car that has already lost most of its value, let someone else take the financial beating on it.
5. Never buy a car without sleeping on it.  I don’t care what the dealer says or how much the salesman insists that the deal won’t be there for you tomorrow… it will be.  Buying a car is a big financial decision, don’t let a salesman bully you into making it a day early, if its the right car for you, you’ll still feel good about buying it in the morning.
6. A car with 100,000 miles on it is just being broken in, don’t trade in your vehicle until at least 150,000 miles have been driven on it because you will get similar trade in value.  You might as well get the extra 2-3 years out of the car, and if you are saving your monthly payment you might be able to pay cash for the next car, and not having a car payment is nice.

I’m not saying don’t buy a car.  I’m not saying don’t buy a new car, I’m saying use your brain when you look for a car.

Far too many people drive themselves into bankruptcy.  I see it every day.

In Pennsylvania, having a reliable car is a must, there is no getting around it.  Our public transportation system is pitiful, but don’t let the need for an automobile be converted into a want for an expensive automobile.  Buy the car you can afford, and if possible pay cash, and if not, get the lowest payment you can afford and save so next time you don’t have to beg the bank for a loan to buy a car.

The answer is probably.

There are only a few reasons why you could not file your case again and most of them revolve around abuse of the system.  If your case has been dismissed with prejudice, you may not file bankruptcy again for 6 months without leave (permission) from the court.

Your case may also be dismissed with a bench order barring you from filing again for a year or longer.  I did have a man in my office who had a lifetime bar from filing bankruptcy.  I’m uncertain the Constitutionality of that, but if anyone deserved it, he did (he filed 8 cases in four year and literally held off foreclosure on his home for 5 1/2 years).

Also if you file a motion to dismiss (ask for your case to be dismissed) and it is granted, then you may not file again for six months without permission from the court.

Other than for the above mentioned reasons, you can (and sometimes should) file a new Chapter 13 bankruptcy case.  I’ve even had trustees recommend to me to recommend to a few of my clients that they let the case get dismissed and refile so they can get another swing at the bat.

If you are using a bankruptcy to stop a sheriff sale, the sale will be stayed (stopped), but there are other issues to be resolved in a second bankruptcy case filed within a year.

In the second bankruptcy case filed within a year, the automatic stay only lasts for 30 days.  Your attorney must file (and do it quickly) a motion to extend the automatic stay beyond 30 days.  The rules for this motion can be found at 11 U.S.C.  § 362(c)(3)(b).

Essentially this is a motion to ask the court to keep the automatic stay in place (stop the bank from foreclosing) as if this was the first case.  The standard the court has to see is if this case is more likely to succeed than the previous case.

This is a high standard, after all if everything were going well your first case probably would not have been dismissed.  I have filed four such motions, and in all the motions that have been filed, they have been granted, but not without some serious discussions with the bankruptcy judge.

Yes Virginia, you can file Chapter 13 bankruptcy after your first case is dismissed, but the road to confirmation is longer.

Al Capone gave his creditors an offer they couldn’t refuse.

Now I’m not suggesting that you go over to Bank of America armed with a Tommy-gun and take matters into your own hands, nor am I suggesting that you should hire someone to go to your mortgage lender to break their kneecaps (not that your lender wouldn’t do it to you if it were not for the FDCPA), but what I am suggesting is that you are not powerless in your debt situation, in fact you can give your creditors and offer they can’t refuse!

Your creditors may not be required to cooperate with you, but they must cooperate with the bankruptcy court.  Your creditors may not be required to treat you with courtesy but they must respect the bankruptcy code.

I had a client in my office this weekend who was shocked to learn that the bank must comply with a confirmed Chapter 13 bankruptcy plan.  They were also surprised to find out that the bank may not call to collect on debts once a bankruptcy case is filed.

The reality is that once a bankruptcy case is filed an automatic stay is put in place which makes it illegal for a bank to continue collection efforts.   That’s right, illegal!

Bankruptcy isn’t for everyone and some people may not even qualify, but before you go paying a small fortune to a debt settlement company or a mortgage modification, go see a bankruptcy attorney, Because only a bankruptcy attorney can give your bank an offer they can’t refuse!

Click Here To See Original Article

This is a slimy tactic tried by debt settlement companies to steal from you.  That’s right, other lawyers and professionals will call debt settlement a poor product, a bad decision, or a lousy product.  I call them crooks, and here’s why.

Debt settlement companies use misleading advertising (that is being kind) to get people to call them.

Every day on the radio I hear about a government bailout of credit card companies.

They have the nerve to claim that the government is requiring them to clear their books in order to qualify for this bailout.

Baloney!

There is no credit card bailout, there is no government bailout, there is no Obama plan for credit cards.  There just isn’t.

Why would a credit card company need a bailout?  The average interest rate on a credit card is around 20%.  If you owe $1000 on your credit card, that company makes $200 per month on you interest alone.  Multiply that by a couple of million and you can see why credit card companies own the big buildings.

You are better off lighting your own money on fire than working with a debt settlement company.

The first $2500 from debt settlement goes right into their coffers so they can run more radio ads to steal from more people.

If you burned your money, at the very least you wouldn’t be helping them pay to defraud others.

Now I’m not suggesting that you should light hundred dollar bills on fire (and if you truly have money to burn, feel free to drop it off), especially if you are struggling with debt.

If you are under a mountain of credit card debt and don’t know where to go, don’t trust the debt settlement companies.  If you are in trouble with credit card debt, you need a lawyer.

One of my favorite clubs is Objecting to a Proof of Claim. 

There are a lot of creditors out there that just cannot or will not file a proof of claim correctly.

When a creditor fails to file an appropriate proof of claim, they leave themselves open for an objection, and when you hire an attorney like me, an objection is what you are going to get.

There are a lot of clients who are required to pay all of their excess income into the Chapter 13 plan for the benefit of unsecured creditors.  However if the income exceeds that of the unsecured debt, then you get to keep that money.

To simplify matters, think of your debt as going into one of two trash cans.  In one trash can your past due secured debt such as past due mortgage and car payments go.  That trash can is paid first.

The second trash can is where your unsecured debt, such as credit cards, personal loans and collection accounts go.

Those are the creditors who tend to foul up their proof of claim.

The creditors who really stink at this are the zombie debt buyers.  A zombie debt buyer normally pays a cent or two on the dollar for your debt and tries to collect it.  They pay so little for it because these are old debts that are unlikely to be collected and they have very little supporting documents, if any.

These creditors also like to inflate the numbers on the debt they claim you owe.  For example, I had one creditor who purchased an account that was charged off in 1989 (Bush was still in office, the first one!) and it had a balance of $4300.  That debt buyer calculated interest on the debt and filed a proof of claim for $11,280.

The debt buyer is allowed to do this, but I filed an objection on the grounds that the statute of limitation on debt in Pennsylvania is four years, not four Presidents, and that they did not provide documentation for their debt.

At this point you might be saying “So what?”.  Think about it like this, every $6000 worth of debt that is paid off in a Chapter13 plan is $100 per month.  By killing off this proof of claim, I saved my client $11,280, or $190 per month!

The creditor realized I wasn’t playing games and I had every intention of showing up in Reading and demanding proof of the debt and proof that the statute of limitations did not apply.

The creditor quickly withdrew its proof of claim (12 hours actually) and now my client is off the hook for $11,280 in debt.

This is why you should not file Chapter 13 bankruptcy pro se.  Nearly every one of my clients has a proof of claim that needs to be objected too.  For nearly every one of my clients, the debt I wipe out with objections is more than my fee.

Using a competent, aggressive attorney with a competitive desire to win and beat the daylights out of unscrupulous debtors nearly always pays for itself.

Imagine a classroom full of desks.  At each of those desks there is a child, which represents one of your creditors.  A proof of claim is simply when one of these children raises their hand and says you owe them money.

That is essentially what a proof of claim is.

Creditors don’t just get to raise their hands though, and they can’t call the trustee either, they have to submit a proof of claim in writing.

Click here to see what a proof of claim looks like

A proof of claim should also have proof of the debt (hence the term proof), but most of the time creditors just include a summary page of the debt.

The proof of claim is one of the most important documents in bankruptcy.  It can make or break a bankruptcy case.  It is important to review all proofs of claim for accuracy, or you might wind up paying a lot more than you should in your Chapter 13 case.