mortgage in bankruptcyOne of the best reasons people file Chapter 13 bankruptcy is to save their home.  A bankruptcy stops a foreclosure sale, even if it is only an hour away from happening.  You then have 5 years to pay back the amount you were behind, during which time you must also make the monthly mortgage payment as it comes due.  So if you missed three mortgage payments of $1,000 each, you are $3,000 in arrears on your mortgage.  In Chapter 13, you can prevent the foreclosure and even though you cannot come up with the $3,000 to catch the mortgage up immediately, you can do so over the next 3 to 5 years.  But very often, when a person files a Chapter 13 bankruptcy, the bank will file a claim not only for the $3,000 owed, but for attorneys' fees as well.  On the one hand, nobody requires a bank to hire an attorney just because you file bankruptcy, so it isn't fair that you be made to pay them.  On the other hand, your loan contract probably says that they have the right to do just that.  Is this allowed?

Only in certain circumstances.  For mortgage attorneys' fees to be allowed against you in bankruptcy, the bank must prove three things.  First, that the contract gives them the right to collect attorneys' fees from you - it probably does.  Second, that the amount of the fee is reasonable.  And third, that you have equity in the property.  Due to the current condition of the housing market, it is usually unlikely that all three criteria are met.  If your mortgage balance is $150,000 and your home is only worth $149,000, then the bank cannot charge you their attorneys' fees.  

And even if you do have equity in the home, the bank must show that the fees are reasonable.  Most bankruptcy courts have a certain amount that they routinely accept as reasonable.  There typically is not much attorney work required to simply file a claim in a Chapter 13 case, so any fees over $300 should raise an eyebrow.  If your bank is claiming over $500 in attorneys fees simply because you filed a bankruptcy, you need to talk to your bankruptcy lawyer and ask him to check it out.  He may be able to argue to the court that it should be reduced to a more reasonable amount.  Every penny counts when you're in Chapter thirteen!

business debtIf you are self-employed and facing bankruptcy, do you need to file a bankrutpcy for your business?  This is a common question for many self-employed people facing insurmountable debt problems.  Especially if you have a corporation, many of your debts are probably enforceable against both the corporation and the owner.  If there are multiple owners, one or all of them could be liable for the business' debts.  The question of who is liable for the business debts depends on what documents govern the debts - in other words, what does the contract say and who signed it?  Most small businesses, even if they exist as corporations, are not the sole entities liable for their debts.  Usually, creditors require that the owner co-sign for the business debts, making him or her personally liable.

A personal bankruptcy will handle all of your personal debts, including any debts you incurred as a co-signor for your business.  So what happens to your business debts? Do you need to file a separate bankruptcy for your business?  

Usually, the answer is "no."  I have heard an old lawyer describe a bankruptcy for a closed business is like a funeral for a ghost: there is no body, no casket, no grave, and no widow, so who cares?  The fact is that by the time you are facing personal bankruptcy, your business has probably already lost all of its assets and is going to have to shut down anyway.  If that is the case, then there is no need for a separate bankruptcy for your business, because it has nothing its creditors can take.  And if you file a personal bankruptcy, then they cannot come after you, so as the old lawyer said, who cares?

The only time when you should file a bankruptcy for your business is if the business has value as a going concern and you want to keep it running.  In that case, a Chapter 11 bankruptcy can help you re-organize your business debts while still operating the business.  Chapter 11 cases can be complex and expensive, however, so it is only a good option if your business has a lot of value or assets in its own right.

cfpbNew Rules from the Consumer Finance Protection Bureau have been issued to prevent some of the abuses that created the housing crisis.  The rules, which can be seen here, will require banks issuing mortgage loans to verify a borrower's income - through pay stubs or tax returns or other documentation - before issuing a loan.  This is likely to create more paperwork for borrowers and lenders, but since a mortgage already requires a ton of paperwork, what is a few sheets of paper extra?  The more important aspect of the rule is that the banks are not allowed to issue a loan whose monthly payment amounts to more than 43% of a borrower's income - this includes taxes, insurance, and other loans that are may be bundled with the mortgage payment.  To illustrate how this differs from the old system that created economic calamity, during the housing bubble, banks routinely made loans that required over 50% of a borrower's income, just to cover principal and interest.  

Banks get a break, too, because if they comply with the rules, they are immune to certain lawsuits that consumers can bring for violations of 'ability-to-repay' laws.  This rule has been welcomed by the finance industry because it frees them from liability for a lot of past bad behavior, and hopefully it will enable more home buyers to have access to credit for new purchases at today's historically low interest rates.

used-car-bankruptcyYes.  Many people ask us this question.  After all, a lot can happen in the 5 years while a Chapter 13 case is active.  Cars break down, get wrecked, and sometimes you need a replacement.  There are two aspects of the process: finding the car you can afford (and the credit to buy it) and getting court approval.

The easiest way to get a car in Chapter 13 is to simply  pay cash for it.  If you scrimp along on ramen noodles and ham sandwiches for a year to save money to buy yourself a paid-for clunker, then you have done the smart thing.  You don't need credit or court approval.  Congratulations on being in the top 1% of the financial intelligence spectrum.

But for most people, the car you want costs more than what cash you have on hand.  So what do you do?

1.  Find a Deal.  Go car shopping.  Find a car you can afford.  Make the biggest down payment you can (this reduces the finance charges you'll ultimately pay by thousands).  Once you have the terms of the deal nailed down (price, amount financed, interest rate, make & Model, etc.) take that information to your attorney so he can file the motion to obtain court approval.

2.  Obtaining Bankruptcy Court Approval for the Loan.   You cannot borrow money without bankruptcy court approval.  Judges don't like it when debtors come to them seeking even more debt, but they realize that you need transportation, so if your request is reasonable, they'll likely approve it if you meet a few basic criteria:

a) You actually need the vehicle.  You cannot buy a brand new sports car or a BMW unless you're already paying all of your creditors 100% of what they are owed.  So don't even try.

b)  You can afford it.  You must be able to show the court that you can afford the payments on the vehicle.  This means that you must be current on your bankruptcy payments, and that you make enough money to cover the additional expense.  If you are constantly late with your bankruptcy payments or have missed some recently, you will get denied.  You may need to submit an amended Schedules I and J (income and expense sheets) to the court as proof of your ability.  The Trustee may object.

c) It is not a total ripoff.  25% APR is a ripoff, and a horrible idea.  Judges are sometimes wiser than you, and they will sometimes refuse to approve your horrible financial decision, no matter how badly you want to waste your money.  If you cannot find an interest rate under 20%, shop smaller, save cash for a down payment, or find a co-signor.  

taxmanIt is tax season, and while most struggling Alabama working folks look forward to getting a refund this time of year, the Mobile Police Department has issued a warning that tax scams abound this year.  What happens is this: you have worked all year and are entitled to a refund for overpayment of taxes and, possibly, a big Earned Income Tax Credit. This can mean a check for thousands of dollars.  And wherever there is money to be paid, there is a crook hoping to steal it.  You go to an 'expert' for help filing your taxes, and they file them for you.  But instead of sending you a check, they keep the money.  Or they give you only part of what you should receive.  Or they give you a 'loan' that you must repay with your tax refund.  Despite the potential for big criminal penalties - tax fraud is a federal crime - ripoff schemes abound.  

According to the Mobile Police Department, here are some things to watch out for: personally investigate any business you are dealing with, especially if you have never heard of them.  Check them out with the Better Business Bureau or ripoffreport.com.  Use only secure websites if you go online.  In fact, I would recommend that you use a certified public accountant (C.P.A.) and if you go with a chain tax preparer, only use large, well-funded corporations like Turbotax or H & R Block.