Monthly Archives: October 2010

How to Get Rid of Your Second or Third Mortgage and Line of Credit in a Bay Area Bankruptcy

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One of the few benefits of the recent foreclosure meltdown for homeowners is how second or third mortgages and lines of credit can be treated in a Chapter 13 bankruptcy when the value of their house is less than what is owed on the first mortgage.   When the value of a house is below what is owed on the first mortgage, then the second or third mortgages or a line of credit are not secured by any value in the house. Unfortunately, this means that your house has decreased in value significantly.   The good news is that you can get rid of the second mortgage, third mortgage or line of credit when filing a Chapter 13 bankruptcy.

Value of House =                                          $700,000 at time of purchase
Amount Owed on First Mortgage =               $550,000 at time of purchase
Amount Owed on Second Mortgage =           $100,000 at time of purchase
Amount Owed on Third Mortgage =              $50,000 at the time of Purchase

Total owed on all mortgages at time of purchase is $700,000

After four years of decreasing home values the same house purchased for $700,000 is now only worth $500,000.  This means if the house were sold or foreclosed on today the second and third mortgages listed above would get nothing given the house is only worth $500,000 and the amount owed on the first mortgage is more than that, $550,000.

So, when the circumstances above exist, and a Chapter 13 bankruptcy is filed, the second and third mortgages or a line of credit can be valued at zero and the liens securing the payment of the second and third mortgages or line of credit can be stripped from the property and can be treated as unsecured debts.  Instead of having to pay the second and third mortgages or lines of credit in full as secured debts, these debts are treated like all the other unsecured debts in the case such as credit cards or medical debts.  Once the Chapter 13 bankruptcy case is filed, the filer will only be required to pay the first mortgage and their other living expenses along with the Chapter 13 Plan payment.  If the Chapter 13 Plan calls for only paying 5% of the unsecured debts, than the other 95% of the unsecured debt is discharged at the end of the Chapter 13 Plan, including the second and third mortgages or line of credit.

In short, when filing a Chapter 13 bankruptcy case, and the value of your house is less than what you owe to the first mortgage holder, you will not have to pay the second or third mortgage or line of credit if your Bankruptcy Attorney correctly files your case.

How to File a Bay Area Low Cost Bankruptcy

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Unfortunately in today’s economy with increasing layoffs, hiring freezes, foreclosure and increases in taxes, bankruptcy filings have increased. How do you obtain the best bankruptcy experience for the lowest fees though? At West Coast Bankruptcy Attorneys we are committed to keeping the fees you pay as cheap as possible in all aspects of your case. You can pay a reasonable fee for bankruptcy and still retain a quality attorney. Our clients do it everyday.

Reasonable Attorney Fees

How is this accomplished?  Our attorney fees are based only on the amount of work your case requires based upon your income, expense and assets. Other bankruptcy attorneys will charge attorney fees based upon what the market dictates. With more and more bankruptcy cases being filed under Chapter 7 and Chapter 13 fees have increased as the demand for bankruptcy services has increased. If you make less than $40,000 a year and do not own property you should not have to pay $1500 or more in attorney fees.

Least Expensive Courses and Credit Reports

The reforms of the Bankruptcy Code in 2005 require that two courses be completed when filing for bankruptcy now. At West Coast Bankruptcy Attorneys we do not increase the cost of these courses to make more money.

1.    Credit Counseling Course – FREE or $5.00 Per Person

The first course, Credit Counseling, must be completed before your bankruptcy case is filed. We have found a Court approved provider of the Credit Counseling course for FREE if your income is less than the median income for the number of people in your household. Other attorneys will not only charge you for the course, but increase the fee for the course by $20-$30 so that they pocket some money each time a client of theirs completes the course. We believe this is wrong and a disservice to our clients in their time of greatest need.

2.    Financial Management Course $7.95

The second course, Financial Management Course, must be completed within 45 days of the Meeting of the Creditors. See the Chapter 7 Time Line or Chapter 13 Time Line for all the steps necessary to complete the bankruptcy process. At West Coast Bankruptcy Attorneys we are constantly searching for the lowest prices for this course. We have found a Court approved provider of this course for $7.95 for one person or a couple. Again, other attorneys will not only charge you for the course, but increase the fee for the course by $20-$30 so that they pocket some money each time a client of theirs completes the course. We believe this is wrong and a disservice to our clients in their time of greatest need.

That is both required courses for $12.95 total it single and $17.95 is married and filing jointly.

3. Credit Reports

At West Coast Bankruptcy Attorneys we only charge are clients exactly what it costs us to obtain your credit report from all three credit bureaus. Again, other attorneys will not only charge you for the credit report, but increase the fee for the credit report by $20-$60 so that they pocket some money each time a client they obtain a credit report for their clients. We believe this is wrong and a disservice to our clients in their time of greatest need.

At West Coast Bankruptcy Attorneys we are committed to providing the best bankruptcy experience for the lowest cost possible by only charging attorney fees based upon each client’s individual financial condition. We do not increase the costs of the required courses or credit reports to pocket extra money. Call us now toll free at 1-877-9NEW-LIFE to start your new life without your burdensome debt and get the debt relief you deserve. You may also contact a Bankruptcy Attorney now at www.WestCoastBK.com.

Student Loans and Bankruptcy

By Kitty J. Lin, Attorney at Law

More and more people are going back to school, especially in a bad economy, so they can better themselves and further their education, in the hopes of obtaining that elusive job. In certain situations, that is most definitely true. These recent graduates have more job opportunities than before. However, not everyone achieves these dreams. They are left with hefty student loans and no job, so they have no way of repaying these debts. Unfortunately, most of the time, filing for bankruptcy will not discharge these student loans either.

The Ninth Circuit has adopted what is now commonly known as the Brunner Test, in Brunner v. New York State High Education Services Corp., 831 F.2d 395 (1987, 2nd Cir.). Under the Brunner Test, in order to discharge your student loans in bankruptcy, you need to prove:

1. That you cannot maintain, based on current income and expenses, a ‘minimal’ standard of living for yourself and your dependents if forced to repay the loans;

2. That additional circumstances exist indicating that this state of financial affairs is likely to persist for a significant portion of the repayment period of the student loans; and,

3. That you made good faith effort to repay the loans.

The hardest element to prove is the “undue hardship” test. It is not as easy as it sounds. You cannot merely prove that it is hard for you to repay your student loans. The successful cases had debtors that were never able to work again due to a physical or mental ailment. If you are able to work, chances are, you may not receive a discharge of your student loans. It is advisable that you speak with a bankruptcy attorney or bankruptcy lawyer today from West Coast Bankruptcy Attorneys for a free consultation regarding your student loans. We have offices in Redwood City, San Francisco, Oakland, and San Jose for your convenience.

Can Taxes be Discharged When Filing Bankruptcy?

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The answer is maybe or it depends upon the circumstances.  The discharge of taxes when filing for bankruptcy under Chapter 7 or Chapter 13 is possible depending upon the type of taxes and a number of factors as discussed below.

If you have outstanding taxes owed to the Internal Revenue Service or Franchise Tax Board, seek the counsel of an experienced bankruptcy attorney for assistance.  The following is a complex explanation of the requirements that must be met to allow taxes to be completely discharged when filing for bankruptcy protection.

What Requirements Must be Met to Discharge Taxes?

If taxes are owed they are usually owed to the Internal Revenue Service or the Franchise Tax Board for the State of California. It is highly recommended that your bankruptcy lawyer obtain an account transcript from both the IRS and FTB. There are many different types of taxes.  This article is limited to income taxes that are owed.  Generally though, taxes are dischargeable or partially dischargeable in bankruptcy depending upon the circumstances.

Which chapter of the Bankruptcy Code will also effect if all or some of your tax obligation will be discharged.  In a Chapter 13 usually a portion of non-priority general unsecured debts are paid back to creditors in the Chapter 13 Plan over three to five years.  In a Chapter 7 bankruptcy all of the tax obligation may be dischargeable.

The Bankruptcy Code mandates that all priority debts must be paid back in full when filing for bankruptcy protection.  The key to discharging a tax obligation is when does the tax obligation no longer have to be classified as a priority debt?  Once the tax obligation can be classified as a non-priority general unsecured debt, it can then be discharged in bankruptcy.  Another key point is whether the taxing entity has already obtained a tax lien against your property?  If a lien has been obtained, then the taxed owed is a secured debt, and the tax then must be paid in full.

When Does a Tax Debt Become a Non-Priority General Unsecured Debt?

Taxes owed are classified as a priority debt until:

1)     the tax debt is over three years old from the date the taxes were due at the time the bankruptcy case is filed;  if your tax return   was due April 15, 2007, it would now be over three years old;

2)   the tax debt was accessed over 240 days prior to the filing of the bankruptcy case;

3)  the tax return(s) were filed on time or at least two years before the bankruptcy case was filed;

4)  there must have been no attempt to evade or defeat the tax by filing a false return.

To summarize, a tax obligation may be dischargeable in a Chapter 7 bankruptcy or Chapter 13 bankruptcy if the taxes were due at least three years prior to the filing of the bankruptcy case, accessed at least 240 days prior to the filing of the bankruptcy case, the tax return was filed on time or at least two years prior to the filing of the bankruptcy case and there was no fraud or intent to evade the taxes.  If these requirements are met, then the tax obligation is not a priority debt, but a non-priority general unsecured debt that may be discharged in bankruptcy.

The CARD Act: Will This New Law Help Consumers

By Ryan C .Wood

The Credit Card Accountability and Disclosure Act (CARD Act) was passed in 2009 to protect consumers from abusive credit card issuers. One of the driving forces providing bankruptcy attorneys more clients is overwhelming credit card debt. Here’s how some of the laws will affect you.

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You Will Receive Notice of Rate Changes

The CARD Act prohibits credit card issuers from arbitrarily increasing your APR without 45 days notice and applying rate increases to existing credit card balances. The credit card issuers must also provide you with notice and the right to cancel your credit card and pay off the existing balance if the interest rate increases. The Act will also prevent a credit card issuer from increasing the rates in the first year after a credit card has been opened and requires promotional rates to last at least 6 months.

You Will not be Penalized for Making Timely Payments

The CARD Act prevents credit card issuers from charging interest on debts that are paid on time, otherwise known as “double-cycle” billing. It also requires credit card issuers to credit payments made at a local branch store immediately to your account, and it prevents credit card issuers from charging late fees if they delayed crediting payments made. If your rate increased, but you have been making payments on-time for at least 6 months, credit card issuers are required to review your account and return to your interest rate to the interest rate prior to the increase. If you make payments in excess of the minimum payment, the excess amount will be applied towards your debt with the highest interest rate first.

Your Payment Due Date Will be the Same Every Month

Your payment will be due by 5:00 p.m. EST on the same day every month, and if this date lands on a weekend or holiday, the due date will be pushed back to the next business day. Credit card issuers are also required to provide you with notice regarding penalties and late fees they will charge if you are late. In addition, credit card issuers are required to mail out credit card statements at least 21 days prior to the payment due date.

Prevents You From Paying Unfair Fees

The CARD Act prohibits credit card issuers from charging a fee for taking payments, either by phone, mail, online, etc. except in instances where you receive live in-person service to make expedited payments. It also prohibits credit card issuers from charging over-the-limit fees unless you “opt-in” for the credit card issuers to complete over-the-limit transactions. The fees charged by the credit card issuers must be reasonable and proportional to the violation, and it protects you from excessive fees on low-limit, high fee credit cards.

You will Receive More Detailed Information from Credit Card Issuers

Your credit card issuer will need to include more information on your credit card bill, including: 1) if you only make minimum payments, how long will it take for you to pay off your debt, and how much total interest you would have paid, 2) how much you would need to pay per month if you wanted to retire your debt in three years, how much total interest you would have paid, and 3) the difference between 1) and 2).

You will be Protected Against Misleading Terms

The CARD Act prevents credit card issuers from using terms such as “fixed rate” and “prime rate” in a misleading manner by providing set definitions to those terms. Credit Card issuers also must use a minimum font size for their statements to provide you with better readability. You also have an opportunity to reject any pre-approved credit card up until the moment of activating the card.

Strengthens Oversight of the Credit Card Industry

The CARD Act requires credit card issuers to post the credit card agreements on their website, and to provide their agreements to the Federal Reserve Board to post on their website. It also requires the Federal Reserve Board to review the consumer credit card market and allows the Federal Trade Commission powers to make rules preventing deceptive marketing of free credit reports.

Younger People will be Safeguarded from the Credit Card Issuers

Credit cards will not be issued to anyone under 21 years of age unless they have a co-signer over 21 and limits the amount of prescreened offers to younger people. The CARD Act also requires banks to provide a reason to participate on college campuses and university-themed events. The CARD Act prohibits banks from giving out promotional material to entice consumers into taking on debt by signing with their credit cards.

You will Receive Gift Card Protection

The CARD Act requires a minimum of a five year lifespan on gift cards issued. Credit card issuers are prohibited from charging hidden fees and declining values on gift cards unless the gift card has been inactive for at least 12 months. If fees are charged after this period, it must be clearly stated on the gift card, and credit card issuers cannot charge more than one fee per month under any circumstances.

The above benefits are a summary only! As with most laws, there are many rules and exceptions. Please consult with an attorney if you need legal advice. We have bankruptcy attorneys ready and available to help you, with offices in Oakland, San Francisco, San Jose, and Redwood City for your convenience.

Could Senate Bill 1275 Have Prevented CA Home Foreclosures

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Everyone is aware of the foreclosure and mortgage crisis that has plagued California and many other states for the last few years.  In response, many states have passed new laws to help homeowners keep their homes and avoid foreclosure.  Unfortunately, our state legislature in California recently did not believe additional protections for homeowners in California were necessary.

Home Foreclosures

Could Senate Bill 1275 Have Prevented This?

For the steps necessary to complete a non-judicial foreclosure in California, see our California Foreclosure Timeline.

Senate Bill 1275 proposed to add a few additional steps to this process and require lenders to provide homeowners facing foreclosure the following information prior to recording the Notice of Default.

  1. Mail borrowers a notice informing them of their foreclosure-related rights and foreclosure avoidance options that may be available to them.
  2. Mail borrowers an application for a loan modification or other alternative to foreclosure.
  3. Evaluate borrowers who submit a written request for a loan modification or other alternative to foreclosure for that modification or other alternative.
  4. Mail borrowers who have been denied a loan modification or other alternative to foreclosure a detailed denial explanation letter explaining the reasons for their denial.

Great!  What is wrong with a little information and education?  If a homeowner does qualify for a loan modification, then banks and society as a whole would benefit from the homeowner keeping their home.    Giving homeowner’s information would have been invaluable and California bankruptcy attorneys would have more information to work with to help clients save their homes from foreclosure and make the loan modification process more transparent.  Any Bankruptcy Lawyer would agree that providing homeowners with more options before they receive a notice of default in the mail would reduce California foreclosures.

Critics of SB 1275 believe giving homeowners more information and creating more requirements for mortgage companies before they can foreclose on a home is only delaying the inevitable.  Another criticism is that parts of SB1275 would conflict with provisions of the Obama administrations Home Affordable Modification Program (HAMP).  Conflicts between California state law and Federal law would just lead to more litigation.  From most bankruptcy attorney’s perspective, giving homeowners more information about what there available options are outweigh the potential negative effects.

Critics have also alleged that SB 1275 and continue to drain local coffers due to decreased property tax revenue.  The only problem with that argument is that whoever is on the recorded title is responsible for paying the property taxes.  Local cities and counties will eventually receive payment of the back property taxes.