Monthly Archives: May 2011

Why are Adjustable Rate Mortgages Still Being Sold?

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Our country is still trying to overcome the mortgage meltdown and stop home after home from being foreclosed on.  Adjustable rate mortgages (ARMs) were one the leading causes of the mortgage meltdown.  ARMSs are exactly what they sound like.  They are mortgages that do not have a fixed interest rate for the whole loan term.  The typical adjustable rate mortgage lures an unsuspecting borrower in with a low fixed interest rate for the first five to ten years.  After the fixed interest rate period the interest rate then becomes variable.  Variable to a mortgage company means the interest rate will increase and you will have to make higher mortgage payments.  Many new homeowners were able to afford the fixed monthly mortgage payments during the first five years, but when the interest rate adjusted up many homeowners could no longer afford to keep their homes.  This led to thousands if not millions of foreclosures.

ARMs are being advertised as beneficial given that the average person only keeps a mortgage for a few years.  So naturally you should pay a lower interest rate and therefore a lower mortgage payment.  Then just get rid of the mortgage after five years by selling the home or refinancing the existing ARM.  Okay, so why buy a house at all then?  The home will probably not go up in value any time soon and you will now have the pleasure of paying property taxes and most likely pay more for utilities.  These mortgages are also advertised as having more controls on them so that when the fixed period ends the mortgage cannot increase too much.  Also there are no longer prepayment penalties with most adjustable rate mortgages.

So why are adjustable rate mortgages still being offered by lenders?  The answer is simple, because mortgage companies make money off of them in the long run.    They make money when you obtained the adjustable rate mortgage to purchase a home, and then make more money when you have to refinance or sell the home.  In California, a homeowner is protected by what is called a purchase money security interest.  An original mortgage that is obtained for the purchase of a home protects a homeowner in California if they can no longer make the mortgage payments.  A mortgage company cannot seek any money from the ex-homeowner if they choose to walk away and the purchase money security interest is still in place.  But what happens in the event of refinancing a home?  The refinanced loan is not obtained to purchase the home, so no purchase money security interest and the mortgage company can seek any difference between the value of the house and what is owed at the time of foreclosure.  To recap; the mortgage company made money by issuing the adjustable rate mortgage, then made money when you had to refinance the mortgage to a fixed rate mortgage so you could afford the payment again, and then you lost your ability to walk away from the home debt free by refinancing and the mortgage company can now make more money after they get the house back in foreclosure.

A major bank here in the Bay Area offers an adjustable rate mortgage that is fixed for the first five or seven years at 3.125 percent.  After that the interest rate is described as projected.  So what is a projected interest rate?  The mortgage company provides the following definition:   “The government requires us to display this information.  So what does it mean? The Adjustable Rate Mortgage has a fixed rate and monthly payment for the first five or seven years. After that the rate can adjust up or down annually. As a result, we’re required to display what the rate and payment will be after the fixed rate period ends. Keep in mind, since we don’t know what rates will be in the future, the actual interest rate and payment may be higher or lower.” With interest rates at historical lows the interest rate on this loan will most likely increase significantly during the twenty-five years the interest rate can adjust.  The question is will the person who chooses this loan be able to make the higher payments after the mortgage adjusts up?  The last six years tells us no.

The only logical answer as to why adjustable rate mortgages are being sold by mortgage companies is mortgage companies make a lot of money issuing loans whether the homeowner is successful in making the payments long term or not.  This is a transaction driven industry.  Sell the original mortgage, refinance the mortgage, issue a line of credit, foreclose on the property, auction off the property and make money on each transaction.

For information about how bankruptcy can help homeowners in distress please contact our San Mateo bankruptcy attorney or San Jose bankruptcy attorney toll free at 877-963-9543 to schedule a free consultation.

What are the Required Courses to File Bankruptcy

By Kitty J. Lin, Attorney at Law

After the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005, consumers have a lot more hoops to jump through to file for bankruptcy.  One of those hoops is the pre and post filing classes that are now mandatory.

Credit Counseling Course

If you want to file for bankruptcy, you first have to complete a credit counseling course within 180 days before filing your bankruptcy petition.  The credit counseling course normally lasts between 1 to 2 hours, and can be completed either by phone, on-line, or in person.  The class asks questions about your financial situation and provides different courses of action that may be available for you, including bankruptcy.  Towards the end of the course you will speak with a counselor, either online, by phone, or in person.  After you complete the class, you receive a certificate to prove you completed the course.  You will need to file this certificate with the court with very few exceptions.

The course providers need to be approved by the Department of Justice US Trustee Program, so you cannot just go to any course provider.  You need to check to see if the provider you are using to take the course is approved by the US Trustees.  The credit counseling courses range in price from Free to $50.  If you are below the poverty level, a lot of the course providers provide fee waivers and offer the course for free.

If you have not taken the pre-filing course prior to filing your voluntary petition, the court will most likely dismiss your case.  It does not matter if you take the course after your case is filed – the case will with very few exceptions still be dismissed, and you will need to re-file your voluntary petition, and pay another filing fee.  There are, however, exceptions to this credit counseling course rule.  One of the exceptions is that a waiver can be obtained if the judge determines, after a hearing, that the person filing the bankruptcy case cannot take the credit counseling course because of incapacity (such as a mental illness), disability (where the person filing the bankruptcy case is physically unable to take the course by phone, online, or in person), illness, or active military duty in a combat zone.  Needless to say, not many people fall in these categories to obtain a waiver of the credit counseling course.

Another exception is the “exigent circumstances” situation, where it was impossible for a bankruptcy filer to take the course prior to filing the voluntary petition due to an emergency.  This is not a waiver of the credit counseling requirement; rather, it is a postponement of the course requirement.  You still need to take the class soon after you file your petition.  Currently, many people file for bankruptcy to halt foreclosure proceedings, most likely filing the day before the foreclosure sale date.  What many do not know is that even if it was an emergency, they need to prove that they had requested the credit counseling course and just did not have the opportunity to take the class yet.

Financial Management/Debtor Education Course

After filing a bankruptcy case, the financial management/debtor education course must be completed to receive a discharge.  The financial management/debtor education course provides information on how to budget and manage money and using credit better in the future.  Similar to the credit counseling course, you may take the course online, in person, or by phone.  The fee for the financial management/debtor education course ranges between $9 to $50.

In a Chapter 7 case, the deadline to take the course is within 60 days after the first date set for the meeting of creditors.  Failure to take the post-filing course during this period could result in the case being closed without a discharge.  The main goal of most people filing a bankruptcy case is to obtain a discharge.  If you do not take this second and final class, then you will have file for bankruptcy protection for nothing.  If you wish take your financial management/debtor education course after your case is closed without a discharge, you will need to re-open your case to file the certificate, and court fee are necessary, both from court filing fees and additional attorney fees, if you have an attorney.

In a Chapter 13 case, you need to take the course prior to the discharge of your case, which normally lasts somewhere between 3 to 5 years.  However, it is advisable to take the course in the beginning, because most people forget the last requirement of taking the course.  You do not want to have made 5 years of Chapter 13 plan payments and not receive the discharge you worked so hard to obtain.

If you have further questions regarding the credit counseling or financial management courses, you may seek the advice of an experienced bankruptcy attorney or bankruptcy attorney at 877-9NEW-LIFE or 877-963-9543, or you can go to www.WestCoastBK.com to schedule a free consultation today.

What Happens to My Car When Filing Bankruptcy?

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When filing for bankruptcy protection there are exemptions that protect the stuff you own.  In most bankruptcy cases, whether filing a Chapter 7 or Chapter 13 bankruptcy, you will be able to keep your cars.  If you have a loan on the vehicle you can keep making the payments just like you did before filing for bankruptcy and keep the car.  Below details the different circumstances in a Chapter 7 or Chapter 13 filed in California that allows you to keep your car if it is paid in full, if you have a car loan and how bankruptcy can help.

Chapter 7/13 Bankruptcy and Your Car is Paid in Full

In most bankruptcy cases you will be able to keep a paid in full car.  California has two sets of exemptions to choose from when filing for bankruptcy protection.  California Civil Procedure 703 exemptions include an exemption of $3,525 (Increased to $5,100 as of 2013) to protect a car plus the wildcard exemption totaling $23,250 (Increased to $26,925 as of 2013).  So if you have one or more cars and the combined value of the vehicles does not exceed $26,775 (increased to $32,025 as of 2013) they can be protected.  Keep in mind that the wildcard exemption is also used to protect other assets such as the money in your bank accounts and other valuable assets like expensive jewelry, so the full wildcard exemption of $23,250 (Increased to $26,925 as of 2013) will most likely not be available to protect other assets like a car.  California Civil Procedure 704 exemptions include a vehicle exemption totaling $2,750 (Increased to $2,900 as of 2013).  California Civil Procedure 704 exemptions provide generous homestead exemptions to protect equity in houses and the exemptions to protect other assets are more limited.

Chapter 7 Bankruptcy and Cars With Loans

If you have a vehicle loan and you choose to file a Chapter 7 case, there are three options to deal with the car loan.  If you want to keep the car and can afford to make the car payment each month you can continue to make your normal monthly payment and keep the car.  The car loan company will most like want you to agree to continue to pay them after the bankruptcy is filed by signing a reaffirmation agreement.

If you cannot afford the car loan and want to get rid of the car then you may surrender the car or give it back to the loan company.  If you surrender the car to the loan company any debt resulting from the surrender of the car is discharged in the bankruptcy case.  Once the bankruptcy case is filed and you intend to surrender the car, arrangements need to be made to give the car back.

The last option is to redeem the vehicle for its fair market value.  This option is complicated and must have Court approval.  When redeeming a vehicle for its fair market value the original car loan company must be paid in full what the car is worth, not what is owed on the loan at the time the bankruptcy case is filed.  In most cases coming up with a lump sum payment is not an option.

Chapter 13 and Cars With Loans

In 2005 Congress reformed the Bankruptcy Code and changed the laws regarding car loans and their treatment when filing a Chapter 13 Bankruptcy.  When you buy a car the value of the car usually decreases faster than you are paying for the car.  So after some time has passed your car is worth less than what you owe on the car.  In a Chapter 13 bankruptcy you can cram down the amount you owe on the car to the fair market value if the car was purchased 910 days before the bankruptcy case was filed, which is about two and a half years.  Let’s say you owe $15,000 on your car loan and the car is only worth $8,000 at the time you filed the Chapter 13 bankruptcy case and purchased the car three years ago.  You will be able now pay $8,000 for the car in the Chapter 13 plan over three or six years depending upon the circumstances.  You still must pay interest on the $8,000 you will now be paying in the Chapter 13 plan.  This is a very powerful way to save money especially if you paid too much for the vehicle or have a car loan with a high interest rate.  The car loan company can also object to the value of the car in the Chapter 13 plan.  Ultimately the Bankruptcy Judge assigned to your case will decide what the value of the car is if there is a difference of opinion as to the cars value.

To find out more about how cars are treated when filing for bankruptcy and how bankruptcy can help. Contact one of our experienced bankruptcy lawyers or bankruptcy attorneys to schedule a free consultation.



Multiple Bankruptcy Filings – How Long Do I Have To Wait To File Again?

By Kitty J. Lin, Attorney at Law

In a bad economy, it is not surprising to see an increase in bankruptcy filings.  However, once your debts are discharged in your bankruptcy petition, the law limits your ability to file another bankruptcy petition for a certain number of years.  This law was made to prevent bankruptcy fraud and abuse.  If anyone could discharge debt at any time banks would not want to lend money and would have severed consequences for economy, students and almost everyone.  How would anyone ever buy a home or start a business?  The Bankruptcy Code provides rules for when another bankruptcy can filed and under what chapter of the Bankruptcy Code.

Chapter 7 to Chapter 7

If you have previously filed a Chapter 7 or 11 bankruptcy petition and received a discharge, under §727(8) of the Bankruptcy Code, you cannot receive another discharge in another Chapter 7 bankruptcy petition until at least 8 years after the date you filed your first Chapter 7 petition.

Chapter 7 to Chapter 13

If you have previously filed a Chapter 7, 11, or 12, §1328(f)(1) indicates that you will need to wait at least 4 years from the date to file a Chapter 13 petition.

Chapter 13 to Chapter 7

Under §727(9), you cannot receive a Chapter 7 discharge if you have previously filed a Chapter 12 or 13 petition within 6 years before the date of filing the Chapter 7 petition.  However, the exception to this rule is that you can receive a discharge in the Chapter 7 petition if your previous Chapter 13 petition paid at least 100% of the allowed unsecured claims or 70% of the allowed unsecured claims and the plan was proposed by the debtor in good faith and was the debtor’s best efforts.

Chapter 13 to Chapter 13

§1328(f)(2) provides that if you received a discharge in a previous Chapter 13 petition, you cannot receive a discharge in another Chapter 13 petition filed in the 2 year period preceding the date of the discharge order in the previous Chapter 13 petition.

Thus, in summary, if you want to file a Chapter 7 petition, and you wish to file another Chapter 7 petition, you have to wait 8 years from the date you filed the first Chapter 7 petition before you will be eligible for a discharge.  If you want to file a Chapter 7 petition and you have previously filed a Chapter 13 petition, you have to wait for 6 years.  If you had previously filed a Chapter 7 petition and you wish to file a Chapter 13 petition, you have to wait for 4 years.  Finally, if you filed a previous Chapter 13 petition, you cannot file another Chapter 13 petition in the 2 year period prior to the discharge order of the previous Chapter 13 petition.

Now that you know how long you have to wait before you can file another bankruptcy petition, what happens if you cannot wait for the required 8,6,4, or 2 years?  Can you still file for bankruptcy?  The answer to this question is “Yes.”  However, the catch is that although you can file for bankruptcy, you do not receive a discharge.  This means that you will still be obligated to pay for the debts after your bankruptcy case is completed.  Many people may ask, if I don’t receive a discharge of all my debt, why should I file for bankruptcy?  There are a lot of reasons why people may file for bankruptcy protection: to stop a foreclosure sale on their home, to create a payment plan to pay off their non-dischargeable tax debt, to stop a levy of their bank accounts and many others reasons.

Whatever your reasons may be, you may wish to seek the services of a bankruptcy lawyer or an bankruptcy lawyertoday.  You can contact us today at 877-9NEW-LIFE or 877-963-9543 to schedule a FREE consultation with an experienced attorney today.  You may also go online to www.WestCoastBK.com for more information.

The Dirty Secrets About Debt Consolidation

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The idea of consolidating your debts and paying them off for less or sooner is a great idea in a bubble.  The reality is that it rarely seems to work and can cost you more money than merely making higher payments than the minimum payments on your existing credit card debts.  The question is does it work?  Well, as bankruptcy attorneys, we meet with clients every day that debt consolidation has not worked.  As bankruptcy attorneys everything we do is by Court order and it is black and white.  Bankruptcy is either right for you based upon your income, expenses or assets or it is not.  Bankruptcy also is usually less expensive than trying to get out of debt with a debt consolidation company.  Bankruptcy does not have to be the answer though.  Yes, even though we are bankruptcy attorneys, you can get out from under your debts yourself.

1.  You Can Consolidate and Negotiate Away Your Debts Yourself

Why do you need to pay a company to negotiate lower interest rates or negotiate a settlement of your debts?  Do these companies have some secret that allows them to obtain a better deal for you than you can obtain yourself?  The answer is no, they do not.  The typical debt consolidation company will tell you that they can take over the payment of your debts and negotiate with your credit card companies and lenders to obtain lower interest rates and reduce the amount of debt you owe.  You can do this yourself.  Just take a few minutes and call your credit card company and let them know you are having trouble making the payments.  You will be surprised at the results you can achieve by being persistent.  There are also not for profit organizations that you can seek help from for free.  You do not have to pay a company to reduce your debt.

2.  Pay Off Your Credit Cards With Smaller Balances First

The easiest way to pay off your credit cards is to get rid of the smaller balances first and then apply the money you would be paying to the smaller balances to the larger balance credit cards.  You will then hopefully be making significantly higher payments than the minimum payment on the larger balance credit cards.  This is not easy to do and takes a lot of discipline.  This approach is also assuming you have steady income, which unfortunately is not the reality for many given our economy.  If you can stay disciplined, over time you will reduce your debt and eventually pay off your credit card debt without a debt consolidation company or having to file for bankruptcy protection.

3.  Save Up Some Money and Settle Your Debts With Lump Sum Payments

Another approach is to save up a few thousand dollars and offer your credit card company a lump sum payment to settle the debts for less than what you owe.  This approach is again assuming you are able to save a few thousand dollars, which is not easy to do for many.  Many credit card companies will accept one-time lump sum payments for far less than what you owe them.  This is one way a debt consolidation company will assist you too, for a fee of course.  The debt consolidation company will request monthly payments from you until they have a lump sum to pay your credit card company and settle the debt.  Again, you can do this yourself.

4. What Does a Typical Debt Consolidation Company Actually Do For You Then

The answer is they make money at your expense and usually do not obtain the debt relief you originally thought you were going to get.  You may get some peace of mind for a little while, but ultimately if you did not have the money to make your credit card payments debt consolidation will not work.  The debt consolidation will show you how much money you will save over a few years by allowing them to pay your bills for you with lower interest rates.  These figures do not usually exist in reality.  These are marketing gimmicks that show results that they never achieve.  They will charge a fee, sometimes a flat monthly fee or a percentage of the monthly payment they request you pay to them.  The problem is not all of your credit card companies will do business with these companies, so you will have four of your credit cards being paid by a debt consolidation company and then you will continue to pay your other debts.  Time and time again we have clients that get sued by one or more of their credit card companies even though they are using a debt consolidation company.  It is usually the credit card company that will not participate in the debt consolidation company plan.  Once the lawsuit is filed, there is nothing a debt consolidation company can do for you and this is when most people seek the counsel of a bankruptcy attorney to finally obtain debt relief by Court order.  New laws have been passed to limit the business practices of debt consolidation companies.  The reality is that these companies are marketing machines.  It sounds great, but does not seem to work.

If you believe bankruptcy may be the best choice for you though, please contact our Bankruptcy Lawyer or Bankruptcy Lawyer today to schedule a free consultation (877-963-9543).