The Dangers of Adjustable Rate Mortgages (ARMs)

February 28, 2007 - 16:59 by rwaple

Over the last several years, adjustable rate mortgages have seen a large increase in popularity as many consumers were attracted to the initial low monthly payments offered by these loans. Lenders typically offer lower monthly payments on ARMs, but after a fixed period of time the monthly payment can either increase or decrease depending on the overall market interest rates.

Unfortunately for many, a gradual increase in market interest rates has increased overall monthly mortgage payments, and made it difficult for many to maintain their mortgage payments, contributing to a large increase in foreclosures in 2006. A study by www.realtytrac.com shows that “more than 1.2 million foreclosure filings were reported nationwide during the year, up 42 percent from 2005 and a foreclosure rate of one foreclosure filing for every 92 U.S. households.” The study attributes the increase in foreclosure filings “”¦partly by the impact of monthly mortgage payments increasing dramatically for homeowners who held some of the riskier types of adjustable rate and sub-prime mortgages”¦”

I’ve consulted with many bankruptcy clients who weren’t aware that their monthly payments could increase and made the mistake of only paying attention to what the initial monthly mortgage payment was. Refinancing with a fixed rate mortgage may be the solution, but it can be difficult to refinance, especially if you are already behind on your mortgage payments.

Bankruptcy laws do offer help for individuals facing foreclosure or unmanageable mortgage payments. A Chapter 13 bankruptcy can stop a foreclosure and give you a period of 3-5 years to payback any mortgage arrears, but you will still be required to make the scheduled monthly mortgage payment in addition to the trustee payment. For some, the monthly obligations are just too much, and a Chapter 7 bankruptcy may be the best option to allow you to “surrender” the house and walk away from all outstanding mortgage balances.

-Attorney Richard J. Waple

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In an unprecedented move, the New Jersey Bankruptcy Court is mounting an informational campaign through the news media to educate the residents of New Jersey of the new bankruptcy laws.

Bankruptcy Filings were down by 39 percent in New Jersey and 37.6 percent nationally in 2006. The New Jersey Bankruptcy Court believes that a widespread misperception among its residents about the availability of bankruptcy has contributed to the continued sag in bankruptcy filings happening still today.

Unfortunately, these common misperceptions about bankruptcy aren’t confined to the residents of New Jersey alone. Nationwide, there are many inaccurate rumors flying around about the new bankruptcy laws. Many people even still believe that the bankruptcy law was completely abolished when the law changed and is no longer available to anyone. This of course is the opposite of the truth.

You have an economic right to file a Chapter 7 bankruptcy once every eight years if you can satisfy the new income requirements which are based on your state’s median income and your household size. In the case where your income is too high to file a Chapter 7 bankruptcy, you still have the legal right to stop all creditor harassment and pay back a reduced percentage of your debt through a Chapter 13 bankruptcy. Consulting with an experienced bankruptcy attorney is a fail-proof way to determine which bankruptcy chapter is a better fit for your specific situation.

Bankruptcy HQ commends the New Jersey Bankruptcy Court for being proactive in attempting to cure this problem and better inform its public.

Read the article on which I based this blog:
http://www.northjersey.com

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It is much easier for a consultation with a bankruptcy attorney:

1. Bills: Copies of the most recent bill you have received from each of your creditors
2. Credit reports from each of the three major credit reporting bureaus. Highlight any debts that you would like to keep (mortgage, car loans, furniture, etc). Obtain free copies of your credit report
3. Copies of your most recent mortgage, home equity loan, and auto statements.
4. Copies of pay-stubs received in the last 6 months.
5. Copies of your 2 most recent Federal Tax Returns.
6. Documentation regarding any lawsuits you have being a party to within the last 3 years
7. Deeds to any real estate or property owned
8. Auto Title(s)
9. Investment, Pension, and Life Insurance Summaries
10. Social Security Card

Attorney Richard J. Waple

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Debt Consolidation Headaches

February 3, 2007 - 06:00 by apartridge

Many Americans have turned to the fast-growing Debt Counseling industry over the last decade to help solve their debt problems. Debt Counseling companies attempt to improve people's financial situations by working-out reduced payments with their individual creditors and/or consolidating their debts into one payment.

On a weekly basis for as long as I have practiced consumer bankruptcy law, I've heard horror stories from my bankruptcy clients of Debt Counseling relationships that have gone bad. Common complaints that I hear include: Creditors included in my client's debt consolidation suing them for collection (even though they had been making timely monthly payments to the Debt Counseling company); mismanagement of the funds paid to these companies; credit report scores plummeting; and even fraud and class-action lawsuits filed against these companies.

Since most people consider the filing of bankruptcy a last resort, a large number of my clients over the years have pursued debt consolidation before coming into my office. In all the time I've been practicing, I've yet to meet anyone who has had a positive opinion of the Debt Counseling company they've used. In fact, I've actually never met or even heard of anyone who debt consolidation has sucessfully worked for.

According to a recent consumeraffairs.com article, the root of the problem is that there is next to no government oversight of Debt Counseling companies. In fact, there's NO federal regulation of debt counseling services whatsoever, and only 17 states have specific regulations to govern debt counseling. Thus, a lack of fear of legal recourse has allowed these companies to act and perform in many instances unethically and without regard for their clients who they are supposed to be helping in a difficult time.

While I obviously personally can't endorse the process, if you're considering consolidation of your debt with a Debt Counseling company, please refer to this list of suggestions to help you avoid the irreputable companies and find the decent ones:
http://www.consumeraffairs.com/debt_counsel/

Additionally, for a list of Debt-Counseling companies that consumers have filed complaints against, please see:
http://www.consumeraffairs.com/debt_counsel/

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Debt Collection Violations Rampant

February 2, 2007 - 20:34 by rwaple

ABC’s popular television show 20/20 ran an interesting investigative report exposing the sometimes abusive and illegal practices of debt collection. The report featured recorded abusive debt collection phone calls and exposed the often unethical practices of the debt collection industry. These recordings can be heard at ABC News.

It came as no surprise to me to hear some of the abusive language and illegal tactics used by debt collectors. Over the years, I’ve heard countless similar stories from my bankruptcy clients who are often hounded on a daily basis for debts that they simply cannot afford to repay. Often, it is these abusive phone calls that motivate people to file bankruptcy. To be fair, some debt collectors are courteous and act in a professional manner, but clearly something needs to be done to clamp down on the rampant abuse throughout the industry.

Consumers do have protections available for violations of the The Fair Debt Collection Practice Act (FDCPA), but the damages are often statutorily limited to as little as a $1000 for violations. To most large collection agencies, the potential fines are so small compared with their profits, that they don’t have the motivation to make fair and ethical practices a priority.

In my opinion, Congress needs to impose tougher fines and increase the statutory damages limits. They need to send a message to the debt collection industry that unethical or illegal collection methods will not be tolerated. Only then will consumers receive enough protection to rest assured that they will not be illegally harassed by debt collectors in their time of financial distress.

Rich Waple
Attorney, BankruptcyHQ

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Metro Detroit Foreclosures Skyrocket

January 30, 2007 - 20:03 by rwaple

I recently read an article in the Detroit Free Press by Frank Witsil, “Number of foreclosures in metro Detroit skyrockets.” The article discusses how a combination of factors including low housing sales, loss of income, and increases in adjustable rate mortgages have created “the perfect storm” and caused the foreclosure rates to increase dramatically.  He also reports that the foreclosure trend is predicted to worsen. 

The article goes on to give several tips on avoiding foreclosure, but fails to even mention that Chapter 13 bankruptcy  is a viable (and possibly the best) means to legally stop a foreclosure.  The filing of a Chapter 13 bankruptcy immediately stops any further collection activity, including a foreclosure sale, and gives qualified homeowners a minimum of three years to repay any mortgage arrears.  I’ve seen many people save their homes by filing a Chapter 13 bankruptcy and have always felt that it’s the cheapest and safest way to avoid a foreclosure sale if your mortgage company refuses to work with you. 

If you are living in Detroit and are facing a foreclosure, you can learn more about Bankruptcy Laws in Michigan and complete a free legal evaluation form to talk to a Detroit bankruptcy attorney about how a Chapter 13 bankruptcy might help save your home from foreclosure. 

By
Attorney Richard J. Waple

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Getting a Mortgage After Filing Bankruptcy

January 20, 2007 - 18:31 by apartridge

Many Americans fear they won't be able to ever get a mortgage if they file bankruptcy. Others are under the mistaken impression that it would take them seven to ten years to qualify for a mortgage after filing bankruptcy. While this may have been true 20-30 years ago, nowadays this is no longer the case. Today, more mortgage lenders than ever are willing to work with people who have fallen on hard times or filed for bankruptcy. In fact, buying a home after bankruptcy can be a great way to rebuild your credit.

After your bankruptcy discharge but before you start house-hunting, follow the 4 below  steps:

1) Give your credit time to rebound

Whether you filed bankruptcy because of a divorce, medical bills, job loss, or bad spending habits — put some time on the calendar between your bankruptcy and any application for a mortgage.  As a general rule, the more time that has passed since your past financial problems, the better. It's a smart idea to use this down-time to start saving for your down payment.

2) Fix the root of your money problems

Figure out what caused your financial problems and do what you can to make sure you don't repeat the past. If you had to file bankruptcy because of your credit card spending, make sure you don't get yourself into the same mess after your bankruptcy discharge. Mortgage lenders aren't likely to help you if you appear to be repeating the same bad habits.

3) Pay your rent and any other monthly bills on time for two years

Do whatever it takes to pay your rent and other monthly bills on time for twenty-four consecutive months. If you miss a month and it's reported to the credit bureaus, the clock starts again from zero. If your landlord or creditors don't report your late payments to the bureaus, you'll still be on track. Also, make sure you get a dated receipt from your landlord for every rent payment, which you can use to show a mortgage underwriter that you're now financially responsible.

4) Try to save up as much as you can for a down payment

Be wary of no-money-down or interest-only mortgages.  Having a solid down payment shows a mortgage lender that you've taken steps to save and overcome your past financial problems. A down payment will also reduce your monthly mortgage note and may save you from paying additional default insurance on your loan.

While there are some lenders who may finance a mortgage in as little as one day after your bankruptcy discharge, the interest rates offered by those lenders will usually be higher than the rate you could obtain after rebuilding your credit for two years. Therefore when buying a house after filing bankruptcy, it's often wise to wait the two years to rebuild your credit and save for a down payment.

-- Attorney Andrew W. Partridge
   BankruptcyHQ.com

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Bankruptcy Filings Expected to Increase in 2007

January 15, 2007 - 04:02 by rwaple

The new bankruptcy laws went into effect October 17th, 2005, since then the number of bankruptcy filings has plummeted.  For the 3rd quarter of ’06, bankruptcy filings were down an astonishing 68.4% from the same quarter of ’05.  Many commentators attribute the dramatic reduction in filings to the “new and tougher” bankruptcy laws. However, I believe that the new bankruptcy laws themselves have little to do with the downturn in filings and that consumer bankruptcy filings will gradually increase throughout 2007 as the public gains a better understanding of the new laws and the backlog of financially distressed people rebuilds. 

The vast majority of people who filed under the “old law” would still qualify to file bankruptcy under the "new law."  Although the new bankruptcy law includes a “means-test” that sets an income limit for Chapter 7 bankruptcy eligibility, the majority of debtors are below this limit and Chapter 13 bankruptcy is still available to anyone whose income exceeds the allowable amount. A basic credit counseling course, debtor education course, and more required documentation are the most significant changes required by the new bankruptcy law.  Even after the law change, bankruptcy remains a relatively simple option, especially with the help of an experienced bankruptcy attorney.  

I expect bankruptcy fillings to increase in 2007 for two major reasons:

  • The Public is Learning the Facts about the Bankruptcy Law Change

    In an attempt to capitalize on the bankruptcy law change, many bankruptcy law firms heavily advertised the urgency of filing before the impending legislation and painted a dire picture of bankruptcy after the law change. Their messages included “File now, before it’s too late,” “Beat the Law Change,” “Last Chance to File Bankruptcy.”Â This advertising blitz had the desired effect of a large spike in bankruptcy filings leading up to the law change, but also inadvertently created a misconception that the new bankruptcy laws were so tough that bankruptcy would not be a viable option after the law change. 

    In reality, bankruptcy still exits and offers much the same relief that was offered prior to the bankruptcy law change. As bankruptcy attorneys shift their advertising messages to “You Can Still File Bankruptcy” and “Bankruptcy is Still an Option,” the public is slowly gaining a better understanding that although the law change did make dramatic changes to the bankruptcy law, the intent and power of the bankruptcy process remains largely unchanged.  It takes time to educate the public, but look for bankruptcy filings in 2007 to increase as the public separates the bankruptcy myths form the bankruptcy truths.

  • The Amount of People Who Need to File Bankruptcy is Increasing 

    People usually don’t go bankrupt overnight; the accumulation of debt is usually a gradual process over a period of years.  People usually file for bankruptcy shortly after an event that forced them to take action; this is usually some form of creditor collection activity (phone calls, garnishments, lawsuits, foreclosures, etc.). Many people who could benefit from filing bankruptcy don’t file until a creditor forces them to take action. 

    In my experience as a bankruptcy attorney, I’ve noticed that creditors only have the resources to actively collect on a small percentage of total debts. This results in a large buildup of people who are effectively “bankrupt,” but haven’t filed formal bankruptcy proceedings. Before the law change of 2005, this buildup steadily maintained itself, but the majority of people who were effectively “bankrupt” filed for bankruptcy independent of any action from their creditors because of the bankruptcy law change. Over the course of the 15 months since the law change, the number of people “on-the-fence” has steadily increased and bankruptcy filings are likely to increase in 2007 as creditors force these people into taking action to protect their property and wages.

Most bankruptcy attorneys that I have spoken with agree that the volume is steadily increasing and anticipate the filings to increase in 2007, especially over the 1st quarter, which is usually the busiest time of year for a bankruptcy law firm.   

Richard J. Waple
Attorney at Law

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Using Tax Refunds to Pay Attorney Fees

January 8, 2007 - 22:09 by apartridge

In 2004, the U.S. Supreme Court ruled that all attorney fees in a Chapter 7 bankruptcy must be paid by the client before the filing of their case.  The court's rationale was based on the fact that once a Chapter 7 bankruptcy was filed, any debts that the client owed at that time of filing were eliminated, including owed bankruptcy attorney fees. This ruling therefore made any unpaid attorney fees uncollectible after the filing of the client's Chapter 7.  The ruling also did away with the commonly-used "split fee", where bankruptcy attorneys would allow their clients to pay a portion of the attorney fees pre-filing, and then pay the remainder of the owed fees after the filing of their Chapter 7 bankruptcy.

While the majority of bankruptcy attorneys nowadays offer a monthly payment plan for their attorney fees, a Chapter 7 bankruptcy can't be filed until all the attorney fees are paid-in-full.  This can make it difficult for those people who need their cases filed immediately because of a garnishment, utility shutoff, etc., but don't have the funds to pay theentirety of their attorney fees.  This is where tax refunds can come in handy.

The largest number of Chapter 7 bankruptcies and Chapter 13 bankruptcies are filed in the first-quarter of the calendar year, and this is largely due to the fact that most people receive their tax refunds around this time.  Many bankruptcy clients have discovered that it's a good idea to use their tax refunds to pay their bankruptcy attorney fees in full and expedite the filing of their cases.  This can be especially beneficial for those who have
a "rush case" that involves a foreclosure, repossession, license suspension, frozen bank account, garnishment or utility shutoff.

So keep in mind it's typically smart to take advantage of the lump-sum received from a tax refund to get your attorney fees paid. The faster your attorney fees are paid, the faster your case can be filed. The faster your case is filed, the closer you are to a financial fresh start.

-- Attorney Andrew Partridge
   BankruptcyHQ.com

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Senators Orrin Hatch and Barack Obama have recently proposed legislation that would allow individuals in bankruptcy to continue tithing and giving to charities.

Tithing is a scripture-based practice followed by many Christian groups. It means giving a portion of your income, usually 10-15%, to support one's local church. Tithes are usually donated before any personal bills or expenses are paid by the giving person.

In a recent New York case, a bankruptcy judge ruled that debtors can't tithe or donate money to charity if they want the federal protection of a Chapter 13 bankruptcy. The New York bankruptcy judge ruled that because of the recent changes to the bankruptcy code, the $100 a week a New York couple wanted to give to their local church had to be used to pay creditors.

Before the new bankruptcy law went into effect in October, 2005, bankruptcy court judges generally permitted chapter 7&13 filers to tithe a portion of their income each month. In 1998, the passing of the Religious Liberty and Charitable Donation Protection Act allowed debtors filing for bankruptcy to exempt up to 15 percent of their annual income from creditors for tithing or charitable donations.  However, this law was unfortunately wiped out by the October, 2005 law changes. 

Now, Senators Obama and Hatch would like to see similar law reinstated.  I for one agree with them. With all the poverty in our country and people still living in squalor from the devastation of Hurricane Katrina, the last thing Congress needs to do is stifle charitable giving by the American public.  This includes people in bankruptcy.

The bill has already passed in the Senate and has now been referred to the House.  Hopefully Congress and the President do the right thing and pass the bill.

-- Attorney Andrew Partridge
   BankruptcyHQ.com

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