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5 Essential Tips To Understand Your Mortgage Loan

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mortgage debt

Figuring out what your home loan balance is can be harder than a calculus exam.

For most people, their mortgage is their biggest debt.  And their home is their most important asset.

Yet, the people accounting for your payments are increasingly incapable of the very basics of their job.  And that makes your job, as borrower and homeowner, more challenging.

Not your parents’ home loan

Things have changed since the local bank made you a loan to buy a house and collected the payments you made on that loan.

Now, home loans get sold to someone else the moment the deal closes.  The right to collect the loan payments is bought and sold separately from the right to the payment amount.

And increasingly, the servicers make mistakes as they cut  corners to make a buck.

What do you need to know to assess whether your loan servicer has got the numbers right?

1.  Principal balance isn’t what you owe

Ask someone what they owe on their mortgage and they’ll recite the principal balance.  The principal balance is the remaining part of the amount originally borrowed that is still unpaid.

Yet you may well owe additional sums:  delinquent payments that are mostly interest;  late fees;  escrow advances; or the junk fees that most delinquent loans are larded with.

Finding the principal balance gets trickier yet if the loan has been modified to include a non-interest bearing amount or some other, non standard adjustment.

So the amount necessary to pay off the loan upon sale, or refinance, may well include charges from the past, plus fees for calculating what you need to pay to satisfy the debt.

2.  Payments are credited to oldest month unpaid

If you fall behind on a home loan, then resume making payments, your payment is credited to the oldest month still unpaid.

So the payment you make in June may be credited to February if you haven’t paid the payment that first came due in February.

And the servicer will report that you remain due for June, even though you sent a check in June.  It’s all in the rules about how payments are credited under the terms of the note.

3.  Payments may not be credited

Loan servicers seem to have a separate “pocket” labeled “Suspense”  into which they sometimes dump your payment. They’ve got your money, they just haven’t credited it to the amount you owe. The money is in “Suspense”.

The only reason for putting funds in suspense that seems justified is when the payment is too little to make a full payment on the loan.  Servicers don’t have to credit partial payments.

So, they put the money in suspense until they receive enough money to make the regular payment.

For reasons no servicer has ever adequately explained, I’ve seen suspense accounts in the tens or even a hundred thousand dollars.

So, a mortgage statement that doesn’t address any funds held in suspense doesn’t tell the whole story.

4.  Escrow accounts are padded

If your property taxes and hazard insurance are paid by the lender, you have an escrow account.

Under federal law, the lender is allowed to collect more than the sum of the year’s taxes and insurance as protection against the borrower’s non payment.

The extra money, the “cushion”, can be no more than 1/6 th of the annual expenditures.  It remains your money, it’s just held by the servicer should it have to pay when you haven’t paid.

You should get an annual escrow analysis that shows income and expenses in the past year’s escrow account and a projection of the coming year’s expenses.

That projection will determine what you pay in escrow payments going forward.

5.  Statement doesn’t come from owner of note

Ever since loans were bundled up and sold on Wall Street to investment trusts, the work of collecting your payments has been handed off to loan “servicers”.

The owner of the note pays a company to deposit your payments, keep track of fees and expenses, and take action if you don’t pay.

The servicer seldom owns the note, they just own the right to collect the money for the holder of the note.

And servicers change.  Sometimes as often as we change the oil in our car.

When there’s a loan handoff from one servicer to a new servicer, details about anything unusual in the loan account sometimes get lost.

Get behind the monthly statement

The problem of finding out what the servicer thinks you owe became such a problem that regulations written pursuant to the Dodd-Frank act gave borrowers some clout.

Now, a borrower with a home loan can make a Request For Information about their loan and expect answers within a shorter period than under the old law.

If the servicing of the loan has changed hands, the borrower has a window in which to request information from the old servicer, to compare with what the new servicer thinks.

Find the “how-to” for a Request for Information.

More

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Bad mortgage accounting violates your Chapter 13 discharge

Get tax credit for curing mortgage defaults in Chapter 13

How Chapter 13 works

Bankruptcy Schedules Are More Than Just Paperwork

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Bankruptcy paperwork can make you feel like you are drowning in paper.

There’s your paper; there’s the paper your lawyer needs.  And there’s the paper the court insists on.

Why bankruptcy schedules worth the work

It’s easy to try to skate. To cut corners.  To shut down.

But that paper is critical.

Nearly every question, benefit, or dispute in an individual’s bankruptcy case starts with the bankruptcy papers.

Those papers are called the schedules.  The schedules form the heart of a bankruptcy case.  They lay out what the person filing the case owns, owes, and spends.

And most debtors (those who file bankruptcy) have little idea how much paper is involved til they see the schedules and sign them in their lawyer’s office.

Before they get to the signing, debtors chafe at the endless questions from their attorney about the nature of the debt, who is liable, and whether the debt is disputed.

Is all this effort really needed?

First impressions matter

Your schedules constitute  the trustee’s first look at you. Well-done schedules project engagement with the process and they tend to limit digging by the trustee.

The creditor schedules control who gets notice of your case and notice of the automatic stay.

Notice to all affected assures that anyone with a right to challenge the discharge of your debt to them is bound by the timelines of the Bankruptcy Code.

Creditors who don’t get notice may reopen the bankruptcy case later to assert that their debt isn’t dischargeable.

Omit assets and you may lose them, as case law limits your right to claim an exemption in an asset you didn’t disclose in the first place.

List it or lose it

Leave out a legal right or pending lawsuit and the defendant in that suit can have your lawsuit dismissed.

Then, there’s the matter of perjury:  the law provides for fines and imprisonment for deliberate untruths on the bankruptcy schedules.  Not something you want to expose yourself to.

What the schedules contain

Seen broadly, bankruptcy schedules list the debtor’s assets; debts; projected budget; and recent financial history.

Asset forms

Secured creditor form

Priority & unsecured creditor form

Since 2005, there’s a schedule for the means test.

You file proof of having taken prebankruptcy credit counseling and statement of your intentions with respect to debts secured by personal property, like your car.

Helping you get them right is part of the job of a bankruptcy attorney.

New bankruptcy forms

The courts are rolling out new versions of the bankruptcy forms which claim to be more “modern” and user friendly.

I find them verbose and impossible to scan easily to get the big picture in a bankruptcy filing.

The new forms read like tax forms and they suggest that you could competently file bankruptcy without a lawyer.  My experience is that, since 2005, it is the rare individual who can correctly file out the forms, much less understand the implications of those forms.

Enlist a professional to assess whether bankruptcy is right for you and whether now is the right time, before you file.  Afterward, it may be too late.

More

How to find the right bankruptcy lawyer

Understand exemptions

What debts don’t get wiped out

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Your Right To Credit Reporting After Bankruptcy

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credit report after bankruptcy

You’ve finished your Chapter 13 and emerged from bankruptcy with your home loan current.

But your credit report is a blank page as to your mortgage.

The mortgage servicer isn’t reporting your payments to the credit reporting agencies [CRA’s].  

Nothing. Nada.  Crickets.

So, even though you’re making regular payments, you’re not visibly rebuilding your credit.

Ask the servicer and they’ll tell you that they can’t report your payments “because of your bankruptcy discharge“.

But they are wrong.

Mortgages aren’t discharged

In Chapter 13, your liability on your mortgage is an exception to the discharge.

 The mortgage loan is not discharged as a personal obligation.

And therefore, there is no legal bar to the servicer reporting your payments, and every danger should they not report.

Here’s the part of the Bankruptcy Code that excludes long term debt like your mortgage.

Section 1328 says,

(a)… the court shall grant the debtor a discharge of all debts provided for by the plan …, except any debt—

(1) provided for under section 1322(b)(5); 

 Section 1322(b), defining the debts excepted from the discharge,  says

(b)Subject to subsections (a) and (c) of this section, the plan may—

(5) … provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due;

So, among the debts excepted from the Chapter 13 discharge is a secured claim with a payment schedule that extends beyond the life of the Chapter 13 plan.

Servicer’s obligation to report

Put simply, if a creditor reported to credit reporting agencies  before the bankruptcy was filed, then there is an obligation to report after the bankruptcy.  

The “furnisher”, the creditor who supplies information to the credit reporting agency, has an obligation to make the information on file fully accurate.

In contrast to an unsecured debt like a credit card, which should be reported as having a zero balance after the discharge, the mortgage loan after Chapter 13 has a balance.

Presumably, it is also current.  Both facts which should appear on your credit report.

Get mortgage payments reported

If you find that your post discharge payments on your home loan aren’t being reported, challenge the accuracy of what is on your report about that loan with the credit reporting agency.

It is the CRA’s responsibility to see that information in your credit file is accurate.  The CRA is supposed to ask the furnisher to reinvestigate the challenged tradeline.

The Consumer Financial Protection Bureau has a how-to, with a template letter, on how to dispute inaccurate information on your credit report.

Get the good information reported as part of your fresh start.

More

How to find and fix credit reporting errors

Your post bankruptcy to-do list

Bankruptcy Is Not Your Last Resort

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Every personal finance guru intones that “bankruptcy is the last resort.”

In my opinion, they have it wrong: bankruptcy is the big gun in getting out of a financial mess, but it shouldn’t be the last thing you try to get financially healthy. Some situations call for the big gun.

When you are facing financial trouble, there are three circumstances when it makes sense to file bankruptcy.

None of them is labeled “last resort”.

That kind of thinking keeps people suffering too long.  The delay wastes money spent servicing debt when recovery outside bankruptcy is a lost cause.  The resulting stress imperils health.

Putting emotions to the side, let’s walk through those three situations when filing bankruptcy is the right choice, not your “last resort”.

1.  You have a crisis

Foreclosure, repossession, or wage garnishment threaten the foundation of your finances.  Without a house, a car, and a paycheck, not much about day-to-day life is manageable.

Bankruptcy is may allow you to keep something that you would otherwise lose to creditors without bankruptcy.

Bankruptcy provides the “time-out” that stops all collection action.

The automatic stay triggered by filing bankruptcy has the force of law to make everyone stop in their tracks and move the action to bankruptcy court.

Sometimes, just getting served with a collection lawsuit seems like a crisis.

10 things to know about judgments

A lawsuit, after all,  is the precursor to a judgment that leads to garnishment, liens, or levies on your assets.

Being served isn’t really a crisis, but it’s a wake-up call that trouble looms ahead.

Usually, actually getting sued is often just a symptom of a much larger problem:  it’s not just the creditor who filed this suit, but the bunch of  other creditors who aren’t getting paid either.

Bankruptcy gets you a moment to consider the big picture, and provides the legal forgiveness of most unsecured debts.  It’s the long term effect of the discharge that is precious.

2.  You see the big picture

It doesn’t require a crisis to look at your balance sheet and realize you can’t dig your way out of a financial hole.

A lifetime of minimum payments on suffocating debt is no life.  Keep making minimum payments and the debt doesn’t even die of old age, because payments extend the statute of limitations.

Healthy finances include a reserve for emergencies and serious savings for your old age.  Keep feeding VISA and AMEX and you’ll be eating cat food at 70.

Bankruptcy exists because lawmakers understood that the economy is better off when people aren’t driven into the economic underground, and when families have the chance to be self sufficient.

It doesn’t matter how got you into debt: most bankruptcies result from events the individual didn’t control, like job loss, illness, or divorce. And now, add pandemic.

Whether you’re in financial trouble because of bad luck or bad judgment, a fresh financial start is energizing.

3.  You’re worrying yourself sick

How we feel about owing money has a huge impact on physical and mental health.

It’s unfortunate in a way that our societal tendency to lionize those who doggedly pay off their debts:  the heroic story of slaying debts blinds us to the fact that stress kills.

True story of retired couple who made wrong choices about who to pay

And stress makes us stupid:  actually, measurably less likely to make good decisions going forward.  Collection pressures force too many folks make foolish choices about which creditor to pay.

So, when money worries interfere with sleep, digestion, work or relationships, it’s worth considering whether a bankruptcy discharge would improve the situation.

Even elders and the disabled, who are often legally protected from collection by non bankruptcy laws, decide to discharge debts so the bills are gone legally, for all time. And they enjoy peace at home.

Reasons for bankruptcy overlap

These three reasons for filing bankruptcy aren’t mutually exclusive:  you can have a crisis and see the big picture.

But the idea that bankruptcy is only a last resort, when you’ve exhausted all other avenues, is just flat wrong.

Bankruptcy should not be taken lightly, but neither should it be the last option.

The sooner you look at the big picture provided by bankruptcy, the less likely you are to waste money trying to pay impossible debts or make catastrophic decisions like invading retirement or borrowing against your house to pay dischargeable debts.

More

Does debt settlement work?

The real causes of bankruptcy

Why bankruptcy seems scary

Can A Trust Protect You In Bankruptcy?

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protect assets

Can a trust protect your assets from loss?

According to the lawyer advertising and the self-help books, everyone needs a revocable trust.

The asset protection industry loves irrevocable trusts to get assets out of your name so your creditors can’t reach your wealth.

So, do trusts work in bankruptcy to change the rights of debtors and their creditors?

Not so much.

What’s a revocable trust

A revocable trust is also called a living trust.  It’s created during the lifetime of the person putting their assets in trust.

The settlor, the person creating the trust, can unwind the trust altogether.  Or, the settlor can extract one or more assets from the trust.  It’s revocable.

The appeal of a revocable trust is that assets owned by a trust don’t need to be probated at the settlor’s death.  The terms of the trust determine who gets the trust assets.

I find revocable trusts useful to manage assets of the aging or the incapacitated.

Title to trust assets in a revocable reads:  George Smith, Trustee.  The asset appears to no longer be George’s asset, personally, but the asset of his trust.

Many people would like to think that George’s creditors can’t reach the asset if George doesn’t pay his debts.  Is it so?

Revocable trust and creditors

The very quality that makes a revocable trust appealing, that it can be revoked in whole or in part, is what defeats it as an asset protection tool.

The law says, if the settlor, the person who settles assets on the trustee, can revoke the trust, the settlor is treated as the absolute owner of the assets.

The trust changes nothing as far as the settlor’s exposure to his creditors.

California law puts it this way:

If the settlor retains the power to revoke the trust in whole or in part, the trust property is subject to the claims of creditors of the settlor to the extent of the power of revocation during the lifetime of the settlor.  Ca. Prob. Code § 18200

So when bankruptcy schedules ask for a list of your assets, the property in your revocable trust must be listed.

If the trust is irrevocable

An irrevocable trust is one where the trust can’t be revoked.  Assets that flow into the trust can’t be extracted by the settlor.

With an irrevocable trust, you’ve traded flexibility as to your assets for protection.

So, some see the irrevocable trust as the answer to creditor problems:  put the money in trust, let the trustee pay it out to you, and thumb your nose at creditors.

But there’s this pesky idea called the law against fraudulent transfers.

In this case, the law protects creditors who have a claim at the time the trust is funded.  The theory of law is that you can’t defeat the claims of your creditors by giving your property to a trust without getting back reasonably equivalent value.

If you got nothing for giving away your assets to the trust, it’s a fraudulent transfer.

State law, and bankruptcy law, have rules about how long a fraudulent transfer can be challenged by creditors.

Further, state law and the terms of the trust itself will determine the rights of creditors to monies paid out from an irrevocable trust.

Make sure your expectations about trusts, creditors, and bankruptcy are grounded in law.

More

Asset protection for cheapskates

The dangers of giving

Before you clean your financial house

What you keep through bankruptcy

 

Before You List Your Home For Sale: The Essential First Task

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Selling your home?  

  • Before you list your home,
  • before you interview a realtor,
  • before you lift a paint brush, or clean a closet, you need to write a letter.

A letter to the servicer of your mortgage.

You want full disclosure of what charges, fees, expenses and other “stuff” they want to collect from you when your sale closes.

For all you know, they’ve stuffed your loan full of fees, not authorized by law or agreement,  that pad their bottom line, and suck money out of your pocket.

Or, they’ve misapplied your payments or failed to note a mortgage modification.

So, your first step in selling your home is to get a handle on the loan payoff, while there’s still time to strip the mistakes and the junk fees from the payoff demand.

Why tackle your loan first?

Is it really necessary to explore your existing loan before you list your home for sale.  Yup.  You start with the existing lender because getting informatin takes time. Federal law requires them to make full disclosure if you ask, but they get 30 business days to do so.

So it may be a month and a half before you have their first response.  And if you don’t agree with the figures they produce, it takes longer still to resolve the dispute.

All too often, the inflated payoff demand doesn’t surface until your sale is about to close.  Maybe the payoff demand from the servicer bears little relation to the mortgage statement you’ve been receiving monthly.

And with a sales contract in place, a deadline for closing, and a buyer’s loan commitment about to expire, too many sellers are forced to accept the servicer’s numbers or lose the sale.

They end up paying too much because there’s no time.

Since good information takes time, start here first.

How to make a Request For Information

The Dodd Frank Act beefed up your rights as a home loan borrower to get information from the servicer of your loan.  Time lines were shortened;  broader inquiries were permitted.  And some consequences created for failure to respond.

Here are the essentials of a Request for Information under Reg. X 1024.36

An enforceable request must

  • Be in writing
  • Identify the borrower, the loan and the property address
  • Indicate that the property is your principal residence
  • Set out the information you seek
  • Be sent to the specially designated address of the servicer for RIF’s

The last requirement, delivery to the servicer’s designated address, that trips people up.  The magic address is often found on the back of the monthly mortgage statement.

Sometimes the address designated uses the previous name for the kind of request we’re talking about: Qualified Written Request.  Servicers usually have the address on their website, tho it may require digging to find it.

Don’t send an RFI with your payment.  Don’t ask for it over the phone.  You have a right to good answers only if you follow the procedures in the regulation.

What to ask the servicer

If you are selling your home, you want a payoff figure, itemized.

RFI example

Chances are you know what the principal balance is.  It’s the other stuff that doesn’t necessarily appear on your statement that you want to flush out.

Are there late fees, escrow deficiencies, non-interest bearing balances, inspection fees, appraisal fees, processing fees.

You get the picture.  Fees, fees, fees.  For too many servicers, their profit is all in the fees.  Find out ahead of time what you are facing.

Heading to sale

With your RFI in the mail, you’re ready to list your home for sale and turn to the myriad of other things to do to get your house on the market.

Mark your calendar for 30 business days so you know when to expect good information.

What if you get a response and you don’t agree with it.

Call the servicer.  Complain to the CFPB.  Ask a HUD certified housing counselor for help.  Get an attorney.

Consumer rights are only meaningful if they are used.

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Ten Debts That Follow You After Bankruptcy

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debts after bankruptcy

Some debts just follow you out of bankruptcy.

Not many but a few.

These debts continue to be collectible even after a Chapter 7 discharge.  The discharge in Chapter 13 is different and broader:  just another reason to choose Chapter 13.

1.   Family support

Regardless of what it’s called, court ordered payments for support of children or spouses

2.   Recent taxes

Income taxes for tax years  more than three years old, counting from when the return was due

3.   Taxes still assessable

The IRS ability to assess additional tax survives if the tax year was still assessable at filing

4.   Taxes for unfiled years

The clock doesn’t run on tax discharge until an honest return is filed.

5.   Payroll taxes

The trust portion of payroll taxes, federal and state:  that’s what the employer withholds from employee checks

6.   Judgments for drunk driving

Liability for death or personal injury from impaired operation of a vehicle

7.   Debts to spouse or child from divorce

Debts to your own lawyer do get wiped out

8.   Student loans

Unless you file suit in the bankruptcy and prove repayment is an undue hardship

9.   Money borrowed to pay non dischargeable tax

No paying taxes with a loan you want to discharge.

10.  Penalties to governments

This covers fines, penalties and forfeitures that are intended to punish not compensate

Non dischargeable if….

Three additional categories of debts survive bankruptcy only if the affected creditor successfully jumps through some legal hoops in the bankruptcy case.

Debts incurred by fraud; debts for conversion or breach of fiduciary duty; and debts for deliberate injury to person or property require the victim to file suit and prove the operative facts.

There’s a short period for filing a non dischargeability action and the presumptions operate in favor of the debtor.  But if the creditor can establish the bad behavior of the debtor that created the debt, public policy says we don’t want to shelter bad actors.

It’s important to understand that the debt must have been incurred by the bad behavior;  just trying to evade payment of an honestly incurred debt doesn’t make it non dischargeable, in most instances.

Liens survive unless…

How to get rid of liens through bankruptcy

While a bankruptcy discharge wipes out your personal liability for discharged debts, a lien on property you owned when you filed bankruptcy continues to be liable for the debt.  So you aren’t liable but your property can be seized to pay the debt.

Think of your home loan:  your discharge keeps the lender from suing you after bankruptcy for a money judgment, but it doesn’t keep the lender from foreclosing on your house if you don’t pay after bankruptcy..

After bankruptcy, as long as you continue to pay on a secured debt, the creditor is generally happy to take your money and leave you alone.  If you change your mind, or further financial troubles loom, you can walk away from the liened property, losing only the property.

An experienced bankruptcy lawyer can walk you through the bankruptcy discharge and the landscape after your case is over.

More

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What to do about tax liens

Reaffirming a car debt

 

How 13 Works To Save Your House From Foreclosure

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save house

Saving a house from foreclosure is the single reason most people file bankruptcy.

Bankruptcy stops foreclosure- that’s a given.

But then what?

How can bankruptcy save the house from foreclosure,  rather than just putting off the inevitable loss?

After all, the mortgage lender has a lien on the house, and liens aren’t discharged in bankruptcy.

So, how does bankruptcy help?  Meet Chapter 13 of the Bankruptcy Code.

Chapter 13 bankruptcy is the chapter of choice if your goal is to keep living in the house.  Or it works to enable a sale to realize equity or to avoid the credit hit of a foreclosure.

Chapter 13 imposes a payment plan on lender

Chapter 13 is built to allow the homeowener to cure defaults on long term debts like mortgages.

Gone is the ability of the lender to refuse to take catch-up payments or to insist on cure in a single payment.

This is federal law, and the homeowner is at the helm of this ship.

The homeowner in Chapter 13 proposes a plan for payments to the Chapter 13 trustee.  The court approves the plan. The trustee pays creditors according to the plan.  The usual distribution scheme pays secured claims, like home loans, first.

So,  your plan can provide that you pay the trustee a monthly payment that catches up on that default.  Chapter 13 plans last a minimum of three years and a maximum of five years.

Your plan will need to provide that you make the on going payments on the mortgage as well.  Each district has its own protocol as to whether you write the check to the mortgage lender for ongoing payments or whether you pay the trustee, who pays the lender.

Once your plan is confirmed, the lender is required to accept the payments.  Absent some post filing breach on your part, the lender is unlikely to have any way to push back against the payment plan.

Trustee challenges to confirmation

Because the confirmed Chapter 13 plan has such power, both the Chapter 13 trustee and the mortgage lender have opportunity and incentive to object to your plan.

coins in a stackThe trustee’s objection is often focused on feasibility.  Does your projected budget show that you can pay enough into the plan to do what’s required?

Remember that the amount necessary to fund the plan is not just the amount of the mortgage arrears.

The Chapter 13 trustee gets a commission on the money she handles in the case.  So, to get $1000 to the mortgage lender, you have to pay the trustee $1100, where the trustee’s commission is the 10% maximum.

Also, if you owe priority taxes, the Bankruptcy Code requires that those taxes be paid in full over the life of the plan.  Likewise,  any delinquent family support claims must be paid in full.

So, the total payments to creditors through the plan may need to cover other creditors as well.  It depends on the means test or the net value of your assets.

The trustee will look at the total amount your plan provides over the life of the plan and compare it to your projected income on schedules I and J.  Does it look like you can pay your current living expenses and the amount required by the plan?  If you propose to increase plan payments in future months, is there reason to think you will have the money to do that?

If not, your plan may not be feasible.  If it’s not feasible, it doesn’t get confirmed.

Mortgage creditor fights back

The mortgage creditor has standing to oppose confirmation as well.

Even if the secured creditor doesn’t challenge feasibility or good faith, both required for confirmation, the secured creditor has another, less direct weapon.

When you file bankruptcy, the secured creditor gets to claim not only the missed mortgage payments, but any money the lender has advanced for taxes or insurance.  And, they may have an escrow shortage projected for the current year’s payments.  That’s not to mention foreclosure costs and other fees.

So the lender’s claim may be larger than you expected.

The beauty of Chapter 13 is that the lender has to make full disclosure of those claims and you get to challenge whether the accounting is correct.  You can also challenge whether the fees sought are really allowed by the mortgage.

Mortgage check up at plan’s end

So let’s assume that you get your plan confirmed and faithfully make all the payments required.

New bankruptcy rules work to make sure that you emerge from Chapter 13 fully current on your home loan.

Bankruptcy Rule 3002.1 requires a lender secured by a principal residence to give notice to the court, the trustee and the homeowner of payment changes that occur during the case.

Also, if the required escrow payment changes, or any fees get added to the loan during the case, the lender has to file a notice describing the change.

And the homeowner can challenge changes or additions to the debt.  If it doesn’t get sorted out, a judge will look at the situation and make a ruling.

After the last payment to the plan, there’s a mortgage check up. If the lender contends you aren’t fully current on the loan, it has to file a detailed accounting showing how much it claims is unpaid.  That accounting is subject to challenge.

Debtor’s rights after 13 is over

mortgage tools for homeownersOne of the few good things included in the 2005 amendments to the Bankruptcy Code, in my opinion, are the provisions that make it a violation of the debtor’s discharge to improperly credit payments made pursuant to a Chapter 13 plan.

All too often, the lender or mortgage servicer either has two sets of books on a loan, or the entries it has made for payments during the plan get altered after the Chapter 13 is over.

Bingo, the lender now claims the borrower is in default, and foreclosure looms.

The bankruptcy court is now a forum for challenging those contentions and getting redress, including the borrower’s attorneys fees to make it happen.

Chapter 13 saves houses

The power of Chapter 13 goes far beyond the automatic stay in giving homeowners a chance to save their homes from foreclosure.

Not only does it get the homeowner some law to counter balance the endless rights of the lender in the loan documents, it gives the homeowner a referee in the form of a bankruptcy judge who can resolve disputes.

Bankruptcy judges over the last decade have seen much of the mortgage meltdown up close.  They’ve also seen the deterioration of mortgage servicing.  They are familiar with the problems and less and less tolerant of lender abuses.

Chapter 13 can be a struggling homeowner’s lucky number to save their house from foreclosure.

More

Our best advice on keeping your house

Image copyright Fotolia and Jakub Krechowicz

Who Gets Grannie’s Cash – Grannie Or The Bankruptcy Trustee?

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joint accounts bankruptcy

When there’s a joint bank account and a bankruptcy filing, good intentions can quickly go sour.

The bankruptcy trustee sees a pile of money in the bank to which the debtor has access, even though the account also bears the name of someone not in bankruptcy.

If the debtor can get the money, the trustee contends, so can a bankruptcy trustee for the benefit of creditors.

Well and good, if the money belongs to the debtor. But what if it’s really someone else’s money?

Do it yourself elder care

Who doesn’t have a joint bank account with someone they care about?

Most often, it’s the adult child’s name on an elder’s bank account.  It’s simple, convenient, and reassuring that if the elder loses capacity, a trusted party has access to pay the elder’s bills.

But if the trusted party loses a lawsuit, or files bankruptcy, all bets are off.  The elder’s money in a joint account  looks like money that belongs to the child.

And the elder’s funds are at risk of being seized to pay someone else’s debts.

Who gets the cash?

The answer lies in state law, since state law determines what the debtor owns, while bankruptcy law determines what happens to that property.

In California, the answer lies in Probate Code 5100 and the statutes following.

“[a]n account belongs, during the lifetime of all parties, to the parties in proportion to the net contributions by each to the sums on deposit, unless there is clear and convincing evidence of a different intent.” (Cal Probate Code, § 5301, subd. (a))1
 
“In the absence of proof otherwise” the net contribution of each of the parties is deemed to be an equal amount. § 5134, subd. (b)(2).
 
That’s a vast improvement over the prior law that presumed that the people named on the account owned the money equally.
 
California’s statute is based on the Uniform Probate Code, which drafts laws for adoption by the states to make law more uniform.
 
So, the result of the “joint account in bankruptcy” issue may be different in other states.
 

Avoid a fight over joint bank account

More important than who wins a legal battle is the chance to skip the fight altogether.

Debtors need to disclose joint accounts to their attorneys.  Don’t fall into the “it’s not my money” trap and keep quiet about it.  As I said, that’s a trap.

Why you don’t want your attorney to fight for you

Attorneys need to quiz their clients about such arrangements and get all the bank account statements.  See what the situation will look like to the trustee.

Know what state law says on the subject.

Consider, if the money in fact is traceable to someone other than the debtor, having that person withdraw it from the joint account before filing.

Make it your goal not to have someone else’s money in an bank account to which the bankruptcy debtor has access.

All involved might consider use of a revocable trust as a vehicle for the elder to empower another to manage their money in the face of incapacity.

This post draws on the always-comprehensive observations of Oakland bankruptcy attorney Larry Szabo.  Thanks, Larry, for your boundless willingness to share.

Image courtesy of Flickr & Duncan Hull

Myth Of The Corporate Credit Card

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business credit cardAs far as myths go, the myth of the business credit card ranks right up there with  unicorns, Big Foot, and leprechauns .

Every struggling small business owner who crosses the threshold of my office believes that his corporate credit card is not a personal debt.

Wrong.

In 39 years of bankruptcy practice, I have never seen a credit card for which a living, breathing human being was not liable.  Not one.

The card may have the corporate business name on it.  Mine says  Cathleen Moran, Moran Law Group.  

But in fact, my corporation is not even jointly liable with me on that card.  It’s just me on the hook.

Which is scary given that these “business” cards are marketed as another form of business financing.  Their debt limits are easily five figures and many businesses have a drawer full of them.

The 23% business loan

What is insidious about business credit cards is their impact on the likelihood of a small business using them becoming profitable.

Just like the consumer credit card, business folks are conditioned to think they’re doing OK in business if they make regular payments on the 23% loan they have from Big Bank on the card.

But it takes a hell of a business to pay 23% for seed capital and make a profit.

Yet few business plans look at the cost of funds when assessing how they’re doing.

Business cards when business craters

There’s a perverse “benefit” to the fact the business isn’t liable for the credit card if the corporate business gets in financial trouble.  The card isn’t a debt of the corporation.

More times than I can count, the corporate business can continue on, assuming that there is a path forward, and the shareholder can file bankruptcy and ditch the credit card balance.

The corporation is a separate legal person and the bankruptcy of its shareholder doesn’t directly impact the corporation.  And it’s far easier and cheaper to reorganize the financial affairs of the shareholder in Chapter 13 than it is to reorganize a corporation in Chapter 11, the only form of bankruptcy that gets a corporation a discharge.

Now, the business has to have a plan for funding operations without the shareholder’s credit cards.  But, if we face the fact that the business doesn’t have to service that debt either going forward, the numbers may look different.

Seems there are two sides to every coin, and every card.

More

“B” is for business in my Bankruptcy Alphabet

How to sign the corporation’s name

Your business needs a prenup

Draft an enforceable contract without a lawyer

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Redwood City, CA 94063
Phone: (650) 694-4700

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