Bankruptcy Basics

Bankruptcy, in general terms, is when you can't pay your bills and you're being hounded to pay them. This is a legal proceeding where the courts step in to "discharge," or remove your debts.

In most cases, declaring bankruptcy is voluntary, however, some creditors can make the company or person who owes money (debtor) go into bankruptcy.

The segments below provide an overview of what you need to know about bankruptcy. They link to other articles that explain the information more thoroughly.

What Law Applies to Bankruptcy?

For the most part, Federal laws govern bankruptcy practices, except when Congress has allowed states to make their own laws. In general, though all of the laws have two main goals:

• To provide a fresh start for both citizens and businesses involved in bankruptcy proceedings
• obtain fair treatment for creditors

Should I File Bankruptcy?

Factors to Consider before filing for bankruptcy.

Most of the time, bankruptcy is voluntary and there are no clear-cut rules for deciding when to file. Here are some factors that might contribute to your decision. If you:

• Pay only minimum amounts on your bills and can't pay any more
• Can't see a way to clear your debt within five years
• Receive notices and calls from creditors about not receiving payment
• Had a severe financial setback such as losing your job, a divorce or costly illness

Alternatives to Bankruptcy

Alternatives to bankruptcy include:

• Negotiation with creditors to reduce monthly payments or skip payments
• Asking for help from reputable credit couseling group

Consequences of Bankruptcy

What happens if you decide to file for bankruptcy? The lasting affect that filing for bankruptcy has is on your future credit. If you attempt to obtain a loan for a house, a car (new or used) or even apply for a new credit card, you may face higher interest rates. Creditors can see your history and will consider you a higher risk. Once you file, this information stays on your credit report for 10 years.

You can't get fired from your job, and every state has restrictions protecting what possessions may be taken if necessary. In general, you can keep everything you own as long as you keep making payments.

Bankruptcy doesn't take away all debts. Among those are:

• Alimony
• Child support
• Most recent back taxes
• Student loans
• Purchases of luxury goods or services costing more than $550, which were bought within 90 days of filing
• Cash advances totaling more than $825 that were made within 70 days of filing
• Fines or penalties to government agencies relating to tax or relating to an event or transaction that occurred 3 years before the filing
• Debts obtained through false pretenses, false statements or fraud

Main Bankruptcy Types

Several types or "Chapters" of bankruptcy are available. These are the six basic types:

• Chapter 7, also know as straight bankruptcy allows individuals or businesses to give up some "nonexempt" assets and clear most debts
• Chapter 9 is municipality bankrupty. This allows cities and towns to update their debt
• Chapter 11 is also known as reorganization. This is mostly used by businesses that want to continue in business and repay creditors at the same time. They receive a court-approved plan to do this
• Chapter 12 provides relief to family farmers and fishermen with regular income
• Chapter 13 is available for individuals who has a regular source of income and allows repayment through an approved plan
• Chapter 15 replaces Section 304. This was added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. It's designed to deal with cross-border bankruptcy proceedings

Bankruptcy Chapters for Individuals

Individuals most commonly file for Chapter 7 or Chapter 13 bankruptcy.

Once Chapter 7 is filed, a your assets are taken over by a court-appointed trustee. The assets are turned into cash and distributes the proceeds to the people you own money to. This would only apply to assets allowable under law to take. After a few months, you're released from the debts you owe.

Under Chapter 13 relief, you're able to keep and use all of your property, exempt or not and pay some or all of your debts according to a court-approved plan. Debts aren't immediately removed, but must complete the payments required before being released from payback.

In 2005, a new bankruptcy law was passed that included a "means test." This helps the court determine whether you have enough money available to make minimal payments under Chapter 13. You must also pass a means test to be eligible for Chapter 7.

What is a Discharge in Bankruptcy?

A common term you'll hear in bankruptcy is discharge. Basically, a discharge releases you from personal liability for certain types of debts. The discharge prohibits creditors from using debt collection actions and communications with you to collect money. This can be telephone calls, letters and personal contact.

What is an Automatic Stay?

During bankruptcy proceedings, an automatic stay starts immediately. This may be one of the most valuable actions since it forces an abrupt halt to repossessions, garnishments or attachments, utility shutoffs, foreclosures, evictions and other collection efforts.

Questions for Your Attorney

• Given my circumstances, is it optimal to file for bankruptcy now or later? Or can I solve my problem by using an alternative to bankruptcy?
• I would like to file for bankruptcy so that I can make payments to my creditors based on a plan. Which chapter is preferable and why?
• Is there anyway to not to be seen as a high risk to creditors if I file for bankruptcy?

If you need help filing chapter 7 give us a call.

Kelly Robbennolt
kellyrobbennolt@gmail.com
801-787-6398

We have network connections to assist individuals filing bankruptcy in 35 states. Prices as low as $799

Bankruptcy laws changed how people file for debt relief

Rules for bankruptcy that took effect years ago may have changed how consumers pursue that option as a way to find debt relief.

A recent story for Colorado's Vail Daily newspaper noted that as a result of the law changes, a "means test" was put in place for Chapter 7 bankruptcy. As a result, more consumers may be forced to file a Chapter 13 bankruptcy.

In a Chapter 13 plan, consumersare required to have debts repaid through a five-year plan. The new laws, which were enacted in 2005, require that people declaring bankruptcy get financial counseling. The purpose of the educational portion of the law is to help people manage their finances better in the future.

"Under the law, consumers must also take education classes about alternatives to bankruptcy, and before the process is complete, debtors also must complete a personal financial management course," the story from the news organization noted.

Kelly Robbennolt
801-787-6398
kellyrobbennolt@gmail.com

Foreclosures Are More Profitable Than Loan Modifications, According To New Report

Mortgage companies are more likely to foreclose on homeowners than modify their loans because they make more money off foreclosures, argues a new report by a consumer advocacy group.

While homeowners, lenders and investors typically lose money on a foreclosure, mortgage servicers do not, says report author Diane E. Thompson, of counsel at the National Consumer Law Center. Servicers are the companies that manage the mortgages and collect payments.

"Servicers may even make money on a foreclosure," she writes. "And, usually, a loan modification will cost the servicer something. A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified and no penalty, but potential profit, if the home is foreclosed."

Thompson attributes this to a system of perverse incentives created by lawmakers and rulemakers in the market, like credit rating agencies and bond issuers. The private rulemakers typically dictate how a servicer can account for potential losses and profits. They hold enormous sway over securitized mortgages, which are owned by investors. More than two-thirds of mortgages issued since 2005 have been securitized, notes the report, using data from the industry publication Inside Mortgage Finance.

In those cases, the servicer is empowered to handle virtually all aspects of the mortgage, from collecting the monthly payments to initiating foreclosure proceedings. While they're obligated to do what's best for the ultimate owners of the mortgage -- the investors -- servicers have some latitude in deciding what course of action to pursue, be it a foreclosure or loan modification.

When a homeowner is delinquent on a mortgage that's been securitized, the servicer must front the late payment to the investors. When a home is foreclosed, the servicer is typically first in line to recoup losses. But if a mortgage is modified, the servicer typically loses money that isn't necessarily recoverable.

"Servicers lose no money from foreclosures because they recover all of their expenses when a loan is foreclosed, before any of the investors get paid. The rules for recovery of expenses in a modification are much less clear and somewhat less generous," she said.

That's part of the reason why the Obama administration created a $75 billion program to limit foreclosures. The money is to be distributed to servicers who successfully modify home loans, with the hope that the incentives to modify outweigh the incentives to foreclose.

Kelly Robbennolt

801-787-6398

kellyrobbennolt@gmail.com

Read more at: http://www.huffingtonpost.com/2009/10/21/perverse-incentives-lead_n_328378.html

The Obama administration is facing stepped up pressure to provide more details about its efforts to help struggling homeowners stay in their homes.

U.S. Treasury Secretary Timothy Geithner earlier this month said about half a million American families are now participating in a home loan modification program initiated by the Obama administration to try to slow the rate of foreclosures.

"But the measure of success for the Home Affordable Mortgage Program (HAMP) is not only the number of borrowers who enter the process," said New York Bank Superintendent Richard Neiman, a member of the Congressional Oversight Panel (COP) which oversees the government's Troubled Asset Relief Program (TARP), the $700 billion bailout launched under the Bush administration.

"The real test is the number of families who complete the trial modification period and receive sustainable permanent modifications," Neiman said in a prepared statement released Thursday after Treasury Assistant Secretary for Financial Stability Herbert Allison testified Thursday before the COP.

And Rep. Maxine Waters, a California Democrat who chairs the House Financial Services Subcommittee on Housing and Community Opportunity, wants Geithner to send her detailed -- down to each congressional district - information about how many trial modifications have been converted into permanent modifications.

"Several issues continue to exist within the HAMP program, including the need for increased (loan) servicer participation and knowledge about the program and additional homeowner outreach," Waters wrote in an October 21 letter released Thursday and co-signed by Rep. Kathy Castor, a Florida Democrat. Waters wants an answer by next Wednesday.

The pressure comes just two weeks after a COP report found that government programs to fight the U.S. home foreclosure crisis look increasingly inadequate and should be reworked, expanded and supplemented with new ideas.

With a foreclosure filing occurring every 13 seconds, the United States is mired in a housing slump that is destroying billions of dollars in property values and threatening to choke off the economy's recovery from a stubborn recession.

Federal Reserve Board Chairman Ben Bernanke attended a Consumer Advisory Council Meeting Thursday at the central bank's headquarters, where consumer advocates pressed the Fed for better protections for consumers seeking mortgages and credit cards.

Bernanke made no substantive comments during his 90 minute appearance at the beginning of the three and a half hour meeting that included a discussion of credit card regulations and disclosure requirements for mortgage originators. The Fed chief left the room before the discussion turned to foreclosure issues.

It increasingly appears that HAMP, which reduces monthly mortgage payments to help borrowers who are facing foreclosure keep their homes, is not equipped to deal with the changing nature of the housing crisis, the October 9 COP report said.

The government's other effort to stem foreclosures, the Home Affordable Refinance Program, or HARP, helps homeowners who are current on their mortgages but owe more than their homes are worth, get more affordable loans.

As of September 1, the watchdog report said, HAMP had helped arrange 1,711 permanent mortgage modifications, with an additional 362,348 borrowers in a three-month trial stage. HARP has closed 95,729 mortgage refinancings, it said.

Kelly Robbennolt

801-787-6398

kellyrobbennolt@gmail.com

Foreclosure Prevention - Preserving the Dream of Homeownership

Important Announcement:

President Obama announced a comprehensive plan to help responsible homeowners avoid foreclosure by providing affordable and sustainable mortgage loans. The Homeowner Affordability and Stability Plan provides for a sweeping loan modification program targeted at borrowers who are at risk of foreclosure because their incomes are not sufficient to make their mortgage payments. It also includes refinance opportunities for borrowers who are current on their mortgage payments but have been unable to refinance because their homes have decreased in value.

Under the Homeowner Stability Initiative, Treasury will spend up to $75 billion dollars to make mortgage payments affordable and sustainable for middle income American families that are at risk of foreclosure. Borrowers who are delinquent on the mortgage for their primary residence and borrowers who, due to a loss of income or increase in expenses, are struggling to keep their payments current may be eligible for a loan modification.

Treasury, HUD and other Federal Agencies are working with lenders and non-profit housing counselors to put all the systems in place to implement this massive program by March 4, 2009.

Borrowers who are delinquent and have not yet been in contact with their lender should call their servicer or a HUD-approved housing counselor immediately, whether or not they believe they are eligible for the Homeowner Stability Initiative. The Financial Stability Web site provides links to HUD-approved housing counselors and lists phone numbers for most lenders.

Under the Homeowner Affordability and Stability Plan borrowers who are current on their mortgage but have been unable to refinance because their house has decreased in value, may now have the opportunity to refinance into a 30 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinance of mortgage loans that they hold in their portfolios or that they guarantee in their own mortgage-backed securities. Lenders will be able to begin accepting refinance applications on March 4, 2009. To determine if your loan is owned or has been securitized by Fannie Mae or Freddie Mac and is eligible for this refinance, you should contact your mortgage lender.

In the meantime, borrowers can get additional information at www.financialstability.gov. This site includes questions and answers that will help homeowners determine if they are eligible for refinance assistance. Information is also available at www.fanniemae.com and www.freddiemac.com.

Kelly Robbennolt

801-787-6398

kellyrobbennolt@gmail.com

Foreclosure Prevention - Preserving the Dream of Homeownership

Important Announcement:

President Obama announced a comprehensive plan to help responsible homeowners avoid foreclosure by providing affordable and sustainable mortgage loans. The Homeowner Affordability and Stability Plan provides for a sweeping loan modification program targeted at borrowers who are at risk of foreclosure because their incomes are not sufficient to make their mortgage payments. It also includes refinance opportunities for borrowers who are current on their mortgage payments but have been unable to refinance because their homes have decreased in value.

Under the Homeowner Stability Initiative, Treasury will spend up to $75 billion dollars to make mortgage payments affordable and sustainable for middle income American families that are at risk of foreclosure. Borrowers who are delinquent on the mortgage for their primary residence and borrowers who, due to a loss of income or increase in expenses, are struggling to keep their payments current may be eligible for a loan modification.

Treasury, HUD and other Federal Agencies are working with lenders and non-profit housing counselors to put all the systems in place to implement this massive program by March 4, 2009.

There is no fee to borrowers for assistance through the Homeowner Stability Initiative. Beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they ask for money in advance.

Borrowers who are delinquent and have not yet been in contact with their lender should call their servicer or a HUD-approved housing counselor immediately, whether or not they believe they are eligible for the Homeowner Stability Initiative. The Financial Stability Web site provides links to HUD-approved housing counselors and lists phone numbers for most lenders.

Under the Homeowner Affordability and Stability Plan borrowers who are current on their mortgage but have been unable to refinance because their house has decreased in value, may now have the opportunity to refinance into a 30 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinance of mortgage loans that they hold in their portfolios or that they guarantee in their own mortgage-backed securities. Lenders will be able to begin accepting refinance applications on March 4, 2009. To determine if your loan is owned or has been securitized by Fannie Mae or Freddie Mac and is eligible for this refinance, you should contact your mortgage lender.

In the meantime, borrowers can get additional information at www.financialstability.gov. This site includes questions and answers that will help homeowners determine if they are eligible for refinance assistance. Information is also available at www.fanniemae.com and www.freddiemac.com.

Personal Bankruptcy Filings Soar

Consumer bankruptcies topped one million for the first nine months of this year, the highest point since the system was overhauled in 2005.

The number of personal bankruptcy filings for the nine months rose to 1,046,449 as of Sept. 30, the American Bankruptcy Institute, an organization made up of attorneys, accountants and other bankruptcy professionals, said Friday, using data from the National Bankruptcy Research Center. There were 773,810 personal bankruptcy filings for the same time period in 2008.

September's filings reached 124,790, 41% higher than the same month last year.

The 2005 revamp was intended to make it harder for Americans to shed their debts by filing for bankruptcy. In that year, before the law took effect, there were 1.35 million bankruptcy filings in the first nine months.

Kelly Robbennolt

801-787-6398

kellyrobbennolt@gmail.com