Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

How To Save Your House With Chapter 13 Bankruptcy

By

Saving your house ranks high on the list of reasons people file Chapter 13.

The automatic stay stops foreclosures; Chapter 13 gives you time to fix the problem.

Powerful stuff.

But the stay and more time, alone, aren’t enough to save the day if you run afoul of other rules, written and unwritten, about homeownership in Chapter 13.

So, here’s your manual for Keeping Your Home Through Bankruptcy.

Read your Chapter 13 plan

The basic premise of Chapter 13 is that you continue making payments on your home loan during the plan.  Typically, you make the payments that come due after you file, plus catch up on any missed payments via your payments to the Chapter 13 trustee.

In the Bay Area, debtors can choose direct payment or a conduit plan

Every Chapter 13 district does things a little differently  but they all treat post filing payments in one of two ways:

  • either the homeowner makes the payments directly to the mortgage servicer, just as if there were no bankruptcy.
  • or, the on going payments are made to the Chapter 13 trustee, who in turn pays the mortgage servicer. (Those are called conduit payments.)

Make sure you know how it works in your district,  and when your first payment after filing bankruptcy is due.

Keep track of payments you make

Future disputes about whether you made payments directly to the servicer are virtually certain.  Arm yourself with a paper record.

You want your paper trail to be complete and retrievable.  Chances are, the servicer’s records won’t be as good.

I suggest clients pay by personal check (so you get a cancelled check) and transmit that payment by a means that gets you a receipt showing delivery.  With a receipt, you can monitor whether the servicer is promptly crediting your payment, as they are required to do.

Any automatic payments from your bank account or even your ability to pay electronically will undoubtedly be canceled by the servicer.

Compare monthly statements

A new federal rule requires servicers to continue sending you monthly mortgage statements.  That’s a welcome change.

More on the new mortgage statement format

The rule breaks out what is happening with your loan, both as to any pre-bankruptcy default and as to the post-filing payments.

Check out the statements to see if they are consistent, and save them for support in case there’s a dispute in the future.

Watch for payment changes

Your monthly payment on your home loan may change during the Chapter 13.  Escrow amounts for taxes or insurance may change; your loan may have an adjustable rate, or a time-limited interest only feature.

Bankruptcy rule 3002.1 now requires the servicer to give you advance notice of any change in the monthly payment you must make.  If you are in a conduit district, where the trustee makes the on-going payment, ask your attorney how increases in payments are handled.

The rule also requires the servicer to disclose any fees, expenses or charges that it adds to the loan balance during your case.  The disclosure must be made to you, your attorney and the court within 180 days of the expense being incurred.  You have the right to challenge the expense and have a hearing on whether it’s truly owed.

Pay your property taxes

Depending on your loan terms, you may pay property taxes directly to the local taxing authority.  Staying current on property taxes is a condition of being in good standing on your loan.

Know whether your property taxes are escrowed and thus included in your monthly payment, or whether you pay them directly.

If you pay property taxes directly, make it a habit to set aside 1/12th of your annual property taxes when you make your mortgage payment, so you don’t fall behind.

Avoid suffering a motion for relief from stay

The automatic stay is automatic, but it’s not necessarily forever.

If you fail to make required ongoing payments or fail to keep the property insured, the servicer can file a motion asking the court to lift the stay and allow it to foreclose.

More about motions for relief from the stay

Even if you manage to get a deal to cure any defaults, a motion to lift the stay will add to the lender’s attorneys fees, which they will want to collect from you.  And that’s on top of whatever you have to pay your own attorney to protect your property.

Don’t go there:  stay current.

Deduct the mortgage interest you pay

A large part of most mortgage payments is made up of interest on the loan balance.  That interest and any property taxes you pay to the lender are probably tax deductible.  But for reasons I can’t explain, servicers don’t give you a tax form 1098 showing the deductible payments you’ve made or the trustee has made on your behalf.

Follow our how-to on calculating your deduction and assembling the records to support your claimed deduction.  If you don’t do it, you can be sure the IRS won’t do it for you.

Reducing your income tax bill frees up money to make your plan payments.

Heads up and keep your house

This post bankruptcy to-do list isn’t complicated but it is important.  Armed with knowledge of the possible pitfalls, you can head off trouble and sail through Chapter 13.

More

Mistakes that crater Chapter 13 plans

If you can’t make your plan payments

Why discharge gets snatched away at plan’s end

Free Tax Preparation Offered In Bay Area

By

Households with an annual income of $54,000 or less can have their tax returns prepared for free through the Bay Area United Way’s Earn It, Keep It, Save It program.

Earned Income Tax Credit

The Earn It, Keep It, Save It campaign is particularly focused on enabling qualifying individuals and families to access this tax credit that stands to put real money in the pockets of working families.

Too many families miss claiming the EITC.  Something like 20% of the families that are eligible fail to take advantage of this support for low and moderate income folks.

Even if you owe no taxes, you can claim the tax credit and receive a check.

Generally, the lower your income and the more children you have, the larger the payment you’re entitled to.

Low income families need tax help

Too many Californians – far too many here in the Bay Area – work hard yet find themselves unable to meet their most basic needs. Furthermore, tax season can be stressful time for many people, as they round up tax documents and receipts, and make sense of confusing tax forms. Those of us who can afford it may pay for tax software that walks us through the process, or we may pay a tax preparer to file on our behalf. But the cost for paid preparers can be costly, and tax software varies widely in price. For low-income families who may not be able to afford these services, tax time can be a significant source of stress, and securing a full refund is not assured. Additionally, many of these families face additional challenges in doing their own taxes –English may not be their primary language or they may have limited computer skills. This is why EKS is so important in our community.

Get help with your taxes.

California puts money in pockets, too

California has a state version of the Earned Income Tax Credit.  The California rules are set out in this fact sheet from the Franchise Tax Board.

Who Owns Your Business When You File Bankruptcy?

By

business bankruptcy

The bankruptcy trustee’s question was straightforward (if inartful) yet the business owner nearly blew the answer.

The trustee asked:  are you the sole owner of your business?

When my client hesitated, she followed up:  are you a sole proprietor?

Focusing on the fact that he was the only person with an interest in the business, he said yes.

Wait a minute, was my response. That’s not so.

It took several minutes of sworn testimony at the first meeting of creditors to sort the matter out.

Who owns the corporate business

We were once again experiencing the phenomenon of the shape-shifting business owner.  The businessman had, in his mind, morphed into a sole proprietor rather than a stockholder.

The debtor was the sole owner of the corporation that owned and operated the failed business.

He was correct that no one else had an interest.  He skipped over the part that it was another legal entity, his corporation, that actually owned the assets and owed the debts of the business.

He owned the corporation that owned the business.

Why it matters

A sole proprietor owns a business as a personal asset.  In law, he owns the assets of the business and is liable for its debts.

A sole proprietorship has no legal existence separate from the owner.  The proprietorship may adopt a fictitious business name, but behind that dba is the individual who owns and operates the business.

So, if my client were a sole proprietor, the inventory of the business would have been an asset of the bankruptcy estate created when he filed bankruptcy.  The business bank accounts would fall to the control of the trustee.

When a corporation is created, it becomes a legal entity distinct from the individuals who own the shares in the corporation.  The corporation can have its own debts and its own funds that don’t belong directly to the shareholders.

That’s why business people incorporate:  to create a legal “person” that can take risks without exposing the shareholder’s other assets to that risk.

When my client filed his Chapter 7 case, his stock in the corporation was an asset of the bankruptcy estate, but not the business itself.  The business was owned and operated by the corporation.

Since the corporation had tons of debts, the stock that the bankruptcy trustee could administer had no net value.  That’s because, equity holders get money when a corporation liquidates only after creditors of the corporation have been paid off.

The takeaway

The first meeting of creditors in a bankruptcy case is the trustee’s opportunity to gather more information about what the debtor owns and owes.

Once you focus on what the trustee needs to get from the meeting, it’s easier to answer correctly and avoid the confusion that happened in my case.

When confusion ensues, it’s important to sort it out on the spot.

And that’s how I earned my keep in this case.

More

Rules for testifying at a bankruptcy hearing

How corporate officers can avoid personal liability

When a business needs to wind down

What The Fool Got Wrong About Filing Bankruptcy

By

should I file bankruptcy

The famous poem begins, “how do I love thee? let me count the ways”.

But what if it’s not love that we are counting, but loathing?

Let me count the ways I loathe the Motley Fool’s article asking should I file for bankruptcy?

The Fool’s underlying assumption is that people in debt flock to bankruptcy as an “easy way out”, and damage their credit score for seven years or more.

This is so wrong, where do I start?

Who files bankruptcy

No one I’ve met in 40 years as a bankruptcy lawyer arrived in my office on a whim, trying to make their financial life easier with a “get-out-of-jail-free” card.

Instead, they’ve agonized about even considering bankruptcy.  They feel guilty and ashamed. 

Why  creditors want them to feel guilty, ashamed and fearful about bankruptcy.

Often, they’ve delayed learning about bankruptcy so long that they’ve made their situation even worse.  Not only has their financial situation worsened while they tried to find a way to pay, but their health and their relationships have deteriorated.

The most common triggers for financial distress are job loss; illness; business failure; and divorce.  None are exactly choices made frivolously.

Drowning in debt

The premise of the Fool’s article is that you are up to your eyeballs in bills.  If that’s your situation, the remedies the author proposes are band-aids on a gut wound.

  • Get a second job
  • Cut your living expenses
  • Negotiate with your creditors

All of these suggestions are sound, standing alone.  But they are inadequate remedies for someone truly drowning in debt.

If the rising water is at your knees, fine.  These might work.  But if the water’s at your chin, this is fantasy.

And all of them are offered without discussion of the age, health and family situation of the person in debt.  Neither does the author address the size of the debt and the time required to pay off the debt.   Much less, discuss the ongoing interest on the unpaid balance.

Realities of negotiating with creditors

The logic of a creditor settling for less than is owed, rather than get nothing in bankruptcy, is rock solid.  Only, little logic is found in the collection departments of most creditors.

They’ve heard the threat to file bankruptcy before.  It doesn’t phase them.

And the people you can get on the phone to discuss a reduction in the debt generally don’t have the authority to make the deal, much less the vision to see the benefits of a deal.

Debts get easier to settle the older and stinkier they get.  So, stop paying for long enough and some creditors will come to the negotiating table.

But getting all your creditors to reduce their claims is nearly impossible.

And there’s no discussion of where you’re going to get the money to pay off the reduced debt, nor the time to engage creditors in negotiations.

Protecting the credit score

The utter irony of the Fool’s approach is that you should avoid bankruptcy to protect your credit score!  Truly foolish.

Your credit score is an arbitrary and unregulated construct, created by businesses working for creditors, to measure the cost to you of incurring more debt.

Study shows credit scores RISE after filing bankruptcy

Granted, it’s now used in other enterprises for which it wasn’t designed, and, I would argue, not particularly predictive of whether you’ll pay your rent, for instance, or commit insurance fraud.

Isn’t the point of discussing bankruptcy alternatives to get you out of debt?  Not enable you to get into more debt?

Unaddressed is the current impact of repayment strategies on your credit score.  Suppose to get a creditor to negotiate, you have to stop paying altogether, so they see that your situation is dire.

There’s a hit to your credit score, right there.

And the score won’t begin to improve until all that’s behind you.  No discussion by the Fool of how long that may take.

Living on a financial knife edge

Personal finance writers all tout saving.  Whether it’s an emergency reserve or retirement savings, no ethical financial expert proposes that you spend every penny you have, with nothing in reserve.

Yet the Fool omits any assessment of whether the money spent paying off old debts would be better off creating a financial cushion, which would be possible after a bankruptcy discharge.

My bankruptcy clients too often have neither savings, nor health insurance, nor health care.  I suggest that a better future requires those things, not a robust credit score.

Bankruptcy misrepresented

Finally, the Fool repeats myths about bankruptcy.

The author claims that “your major assets are sold off” in Chapter 7.

Nonsense. Nearly 98% of Chapter 7’s result in no loss of the filer’s assets.

Between exemptions and the lack of real equity, most people in bankruptcy don’t have assets that are saleable by a bankruptcy trustee.  And those who have assets with non-exempt equity, there’s Chapter 13.

In Chapter 13, you keep your “stuff” and essentially buy it back from your creditors, at a discount, over time.

While Chapter 13 is a repayment plan, but that plan may pay little or nothing to creditors, depending on your income, living expenses, or the equity in your assets after a deduction for exemptions.

How Chapter 13 payments are figured

The very debts that the author warns may not be wiped out in bankruptcy are the debts that are paid first from any money flowing through the bankruptcy estate.  The priorities for payment in bankruptcy see that secured debt, recent taxes, and support are paid before the run of the mill unsecured creditor.

Student loans, the bane of many struggling Americans, are the exception.  They aren’t generally dischargeable in bankruptcy, but they don’t have a priority for payment.  Bankruptcy for a student loan borrower may only wipe out other debts, making it easier to pay off student loans.

What does it cost to stay in debt

The Fool is quick to point out that filing bankruptcy costs money.  That in fact is the first of the downsides of bankruptcy that the author highlights.

There’s no mention of the cost, both monetary and emotionally, of remaining in debt.

While the author notes that bankruptcy appears on your credit report for years and is visible to potential employers and landlords, absent is any evaluation of how a credit report full of delinquent, or even just overwhelming debt, impacts those same parties.

Negative information about a debt  can be reported for seven years.  Not so different than bankruptcy.

Your balance sheet matters

When assessing your financial health, your credit score is secondary.  First of all, look at your balance sheet, not your ability to borrow more money in the short run.

Look at the demands on your income, your age, and your prospects when picking a get-out-of-debt strategy.

Understand that your credit heals with time, and a bankruptcy on your record is not a bar to getting new credit.  A recent bankruptcy affects the price you pay for a loan;  a bankruptcy years ago fades in significance.

And that’s why, for many people, I love the fresh start provided by bankruptcy.

More

What Kenny Rogers tells us about getting out of debt

What bankruptcy should cost

Credit heals

Why I love Chapter 13

Life after bankruptcy

Debt Collector Threats: Which Ones Are Real?

By

debt collector

“What debt collector threats should people be afraid of?” was the question my friend bankruptcy attorney Cathy Moran asked.

To which I replied, “Afraid of? Pretty much none of them!”

Because they’re mostly all empty threats.

  • You’re not going to jail,  

    Can you be jailed for not paying your debts?

  • They are not going to come get you,
  • Your credit is not about to be ruined, and
  • Who cares if your “account is being referred to the attorneys for review?”

Trust me, I’m actually a former debt collection attorney!  None of those threats, even if they happened, changes anything in your tussle with a debt collector.

The three threats with teeth

There are only three things you really need to heed.

ONE: There’s a court judgment against you or your spouse and they just proved to you that they found out where you work and are threatening to garnish your wages.

TWO:  There’s a lien against your property by an HOA or a mortgage lender and they are threatening to foreclose on your home.

THREE:  You’re late on your car payment and they’re threatening to repossess it.

That’s it. (And even those three things aren’t too big of a problem, because the lender wants to make a deal without doing ANY of those things).  Watch for our next post on what to do if threatened with any of these genuine threats.

Turning the tables

The rest of it, well, that’s just opportunity.

An opportunity to either block your phone from illegal scammers OR an opportunity to teach these purveyors of empty threats a quality lesson by getting some free legal advice about filing a lawsuit that could eliminate your debt and entitle you to compensation!

The debt collector who may be worthy of a lawsuit sends you real letters or dials you from a number that’s connected to a real company, or at least calls and says they’re from a real company. (Just because they’re from a “real company” doesn’t mean they won’t tell you lies, call your work, tell your family about your debt, or otherwise do illegal things.)

The criminal scammer never tells you who she is or who she represents. She just gets really crazy (like YOU’RE the crazy one for not paying her RIGHT NOW) and then wants your debit card ASAP. (Notice that the criminals don’t want credit cards because you could reverse the charges).  Because they’re a scammer, rather than just a sleaze, you’ll never find them to sue them for breaking the laws on fair debt collection.

So, the simple rule is this – If you can find out who the “real company” is that’s harassing you, reach out and get free help.

If they’re just scary vague threats with no address, just block those calls and let them drift away from your mind forever.

More

Wage garnishment survival guide

A close look at the weapons of a debt collector

When debt collectors call after bankruptcy

Collecting from the debt collectors

 

We Live In An Economic House Of Cards

By

I’ve long said to bankruptcy clients that bankruptcy can’t fix an income problem, it can just ameliorate an outgo problem.

In the last round of frantic bankruptcy filings a decade ago, one symptom seemed to be that too many families in the Silicon Valley  couldn’t really afford to live a middle class life here.

They filled the gap between economic realities and their expectations with credit cards until the house of cards came tumbling down. 

In bankruptcy, I could provide the tourniquet that staunched the credit card outflow. But it seems the problem of struggling families isn’t just an outgo problem: it’s income based and it’s everywhere, not just California.

A United Way study shows 43% of American households can’t afford a bare bones budget.  That’s 51 million households that can’t afford the basics of food, rent, child care, transportation, health care and a cell phone.

Even when unemployment was low, the income generated falls short for a huge swath of our populace.  The people the United Way set out to study were those they dubbed ALICE:  Asset Limited, Income Constrained, Employed.

What they found calls out for national attention and an economic reordering that keeps all of our families self sufficient. The problem has been further exposed and exacerbated by COVID-19.

My skill-set in bankruptcy is no match for people on the edge of destitution. Only a national resolve to spread the blessings of liberty more equally will suffice.

Debts You Can’t Wipe Out In Bankruptcy

By

nondischargeable debts

Nineteen kinds of debt survive a bankruptcy discharge: but three stand out from the rest.

Those three exceptions to discharge look, not at the kind of debt such as taxes, or support or student loans.  Rather the exceptions look at  how the debt arose.

These exceptions prevent bad actors from escaping the consequences in bankruptcy.  Bankruptcy is supposed to help the honest but unfortunate person.

There’s another, significant difference:  a creditor who holds one of these claims has to act, promptly, to except his claim from discharge.

The creditor has to file a timely challenge to the discharge of its debt.

And then, carry the burden of proof at trial.  The debtor gets a presumption that the debt is dischargeable.

So, what kind of bad behavior may keep a debt from being discharged?

Fraud is first

Debts that are created as a result of fraud, misrepresentation or false pretenses aren’t subject to being wiped out.  That’s §523(a)(2).

Note that the exception looks at the transaction at its begining. The statute focuses on money, property, services to the extent obtained by fraud.

While the debtor may have behaved badly after a debt was created. that bad behavior doesn’t exclude the debt from discharge.

There’s another wrinkle. If the alleged false statement is one about the debtor’s financial condition, that statement must be in writing to preclude discharge.

Breach of fiduciary duty survives

The second clutch of bad behaviors that can’t be discharged involve breach of fiduciary duty, embezzlement and larceny. §523(a)(4).

Embezzlement and larceny, which is a kind of theft, are easy to understand.  But not so, fiduciary duty.  Bankruptcy law has a narrow definition of who is a fiduciary.

For breach of fiduciary duty to be nondischargeable, the duty must arise under an express trust.  So trusts that are created by law to further equity or prevent undue enrichment don’t fall under this subsection.

One of the first judges I practiced before used to say that under California law, everyone is a fiduciary for everyone else.  But not in his federal court.

Willful and malicious injury gets no discharge

Debts grounded in intentional injury to person or property live on after bankruptcy. Section 523(a)(6)makes non dischargeable debts for willful and malicious injury by the debtor to another entity or to the property of another entity;

There’s a huge body of law tussling with the meaning of “willful” and “malicious”.  And the plot thickens when you realize that the protections for creditors created by this subsection is greater in Chapter 13 than in Chapter 7.

In Chapter 13 a debt for damages for personal injury is non dischargeable if it results from either willfulness or malice!  Damage property willfully or maliciously and you’re OK in Chapter 13.

Timing is everything

There’s a timing issue for both creditors and debtors in these three discharge exception cases.

Debtors facing state court litigation may want to file bankruptcy before trial of the matter.  Findings of fact made in a state court trial will be entitled to finality in a  bankruptcy trial.

So,  suffer an adverse finding in state court and you’re stuck with that finding in bankruptcy.

But since the standards of what is fraud or false representations is slightly different in federal law than in state law, you may have a dispute about whether the finding is really on the same issue that the bankruptcy court is focused on.

It may be cheaper to try the issue once, in bankruptcy court, than risk having to defend yourself twice in state court, then bankruptcy court.

Creditors must be diligent once a bankruptcy case is filed, to meet the filing deadline for challenging the discharge of their debt.  Generally, the bankruptcy court sets a deadline 60 days after the date set for the first meeting of creditors by which challenges to dischargeability must be filed.

Miss that deadline for one of these kinds of debts and you’re out of luck.  The debt will be discharged regardless of the merits of the challenge you could have brought to exclude it from discharge.

More

How bankruptcy treats debts to the government

What happens to judgment liens in bankruptcy

Does a bankruptcy discharge last forever?

You Can Make Debt Collectors Stop

By

stop debt collectors

You can make debt collectors stop.

You don’t have to endure phone calls and threatening letters.

In fact, you have a statutory legal right to be free from harassing debt collection.  All it takes is a letter to the collector.

We’ll show you how to write that letter and exercise your right.

And, if you live in California, that letter will not only stop collection agencies, it will stop the  creditor itself from nearly all contact about the debt.

Right to be free of collector, not the debt

Understand, this right doesn’t make the debt go away.  It doesn’t keep the creditor from suing you.

It does keep debt collectors from using all their weapons to get you to pay to harass you until you pay.

Suing you is time consuming and expensive to the collector. So, they want to harass, shame, or frighten you until you pay just to get them off the phone.

Write a do-not-contact letter

Here’s a template letter invoking your right to be free of collection.

Dear Collector:

Please take notice that I elect to exercise my rights not to be contacted by you about this alleged debt as provided by the federal Fair Debt Collection Act (15 U.S.C. 1692 b.  )

Do not contact me further about this debt except in strict compliance with the law.

Very truly yours,

YOUR NAME

Simple, huh?

California residents have more rights

While the federal FDCPA applies only to collectors hired by your creditor, California’s Rosenthal Fair Debt Collection Practices Act goes further.  It applies the same do-not-contact rules to the original creditor as well.

So, in California, you can add a reference to California Civil Code Section 1788.17, which is where the Rosenthal Act is found.

Make the  creditor give up

You may want to add a paragraph to your letter if there are facts that suggest that there is no point in suing you to collect.

More about your debt collection rights

While, this letter only says they can’t harass you by phone or by mail;  they still have the right to sue you.  You just want to give them facts that suggest that suing you gets them nothing.

So, throw in any relevant facts such as your age, employment, health, or family situation that support your claim that you’ll never be able to pay.

I’m 68 and living on Social Security.

I’m permanently disabled.

I’m the sole support of a handicapped child.

You get the idea.

I suggest that people with tax problems make clear to the collector that paying the taxes comes first.

Make a record

Your case is strengthened by a line that identifies the debt you’re talking about.

It’s also strengthened by sending it to a named individual, preferably the President of the collector or of the creditor. Nothing keeps you from sending copies to the name the collector is using (it’s often not their real name) AND to officers of the collector.

Keep a copy of the letter.  Send it by means that will get you a receipt showing that it was delivered.

Then, if you get communications that are not consistent with the rights you’ve claimed, keep notes about phone calls or copies of letters.  Those documents can support your claim to statutory damages and payment of your legal expenses.

Enjoy peace at home and at work.

More

What to do if you are sued

Do elders need to file bankruptcy

What’s wrong with debt settlement

 

Automatic Stay Has Exceptions: It Doesn’t Stop Everything

By

bankruptcy stay exceptions

The automatic stay is the signature feature of American bankruptcy.

Just by filing a bankruptcy case, a federal court injunction instantly prohibits your creditors  from actions to collect a debt from you or your assets.

But, there’s a whole list of actions that aren’t included in the stay.  We forget that some kinds of lawsuits with a financial aspect get excluded from the stay.

How the stay works

The automatic stay applies in all bankruptcy cases (unless you’ve filed more than two bankruptcy cases in the last year).

To get a stay outside of bankruptcy, you have to prove that you are entitled to an injunction.  A bond may be required.

In bankruptcy the injunction is granted automatically, just because you filed.

The burden falls to creditors to take action to extract themselves from the stay.

The stay has its limits

The list of exceptions is long and many of the excluded actions are very specific and technical. See 11 U.S.C. 362(b).

But there are some biggies there too among the exceptions.

Here are the ones of most interest to the typical bankruptcy filer.

Family law issues

Actions to establish or modify support are not stayed.  Neither are proceedings involving custody, marital status or paternity.

Support can be collected from property that isn’t “property of the estate” without violating bankruptcy law.  And state issued licenses can be suspended for failure to pay support.  That’s subsection (b)(2).

Law enforcement

The stay doesn’t stop criminal prosecutions.  Nor does it stop the enforcement of actions grounded in the public health and safety; that’s called the government regulatory exemption.  More about that below.

Tax administration

Your state tax folks and the feds can legally demand the filing of a tax return; audit returns you’ve filed; and assess taxes they claim you owe.

Government can’t, however, record liens or levy assets to collect a tax you owed when you filed bankruptcy.

Private rights

A landlord under a lease that expired according to its terms before the bankruptcy case was filed can proceed to get possession of non residential property.

Civil contempt sanctions

Collection of court-ordered sanctions for misconduct in litigation is not prohibited by the stay.

The 9th Circuit Court of Appeals recently decided that the public’s interest in making parties to a lawsuit play by the rules outweighed the sanctioned party’s interest in getting complete protection from collection action.  The fact that the sanctions might be payable to the other party to the litigation didn’t change the state’s interest in enforcing its sanction for bad behavior in court.  The case is Dingley.

More

Automatic stay in lawsuits

What litigators must know about bankruptcy

When your ex files bankruptcy

Explaining The Increase In Monthly Mortgage Payments On Long Established Loans

By

mortgage payments jump

Why has my mortgage payment increased so much? That’s the question I’m getting from lots of clients recently.

Interest rates are creeping up on variable rate loans, but not dramatically.

For most of those asking, it’s because the interest-only period of their home loan has run.

Loans promised increased mortgage payments

Borrowers forgot that lots of loans written 10 years ago  promised low initial payments of interest only.

While it wasn’t a free ride,  it was cheaper than a fully amortized, 30 year loan.

Appealing, and the interest-only feature probably allowed borrowers to believe that they could afford the house they were buying.

But, time’s up on many of these loans.

And math tells us that when 10 years have passed and the remaining life of the loan is 20 years, it will take larger monthly payments to retire the amount borrowed.

Understanding your loan

The easiest way to see if the loan terms explains the payment increase is to pull out the promissory note.

Many of these notes have some description of unusual terms on the first page of the note, right under the heading “NOTE”.

It may say explicitly, “10 year interest only” or “interest fixed” or “variable interest”.  All of those are among the products peddled before the Great Recession.

The note should tell you when the “change date” on the loan is, and if variable, what index is used as a base for the interest rate calculation.

If you can’t find your note, you can ask the servicer for a copy using a Request for Information under RESPA.  Here’s a how-to for making a request.

Alternatively, you can ask your questions about loan terms directly from the servicer, again, using a Request for Information.

There’s no charge to make such a request, but the timeline for getting an answer can be as much as 30 business days.

If you can’t make the increased payment

If the increased payment is unmanageable, consider seeking a loan modification from the existing lender.

An alternative is to see what your options are to refinance the loan with a new lender, a new loan, and another 30 years to pay.

Be proactive.  The further behind you get on the existing loan, the less attractive you are as a borrower on a new loan.

More

Critical questions about your home loan

Mortgage payments during the pandemic

Find a free HUD housing counselor

643 Bair Island Road
Suite 403
Redwood City, CA 94063
Phone: (650) 694-4700

Categories