Monthly Archives: September 2011

What is the Principal Paydown Plan?

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For more than five years various plans were submitted to our lawmakers to help with the mortgage crisis.  The HAMP program is the most widely known.  The last big push was to amend the bankruptcy code to allow first mortgages on bankruptcy filers primary residences to be modified when filing a chapter 13 bankruptcy.  The first mortgage on a primary residence is the sacred cow in bankruptcy.  It cannot be modified.  This law change was killed in the Senate though.

The Principal Paydown Plan is the new attempt to help people with undersecured or underwater mortgages get some relief and help them to keep their homes.  An undersecured mortgage exists when the value of a house falls below what is owed on the mortgage(s).  How does the PPP work?

The PPP would allow homeowners with underwater mortgages to file a chapter 13 bankruptcy and reduce the interest rate on the mortgage to 0% for the term of the chapter 13 plan.  Reducing the interest rate to 0% would allow all of the monthly mortgage payment to be applied to the principal owed on the mortgage instead of principal and interest.  The monthly mortgage payment could be reduced too.  How much the monthly mortgage payment is would be calculated by taking 31% of the bankruptcy filer’s gross income.  This is similar to how a modified mortgage payment is calculated in the HAMP program.  The maximum length of a chapter 13 plan is five years.  So a homeowner would be able to pay down the principal owed significantly over the five years and reduce the negative equity.  After the five year chapter 13 plan is complete, then the remaining balance owed is amortized over 25 years at the Freddie Mac survey percentage rate.

In exchange for a mortgage company and/or servicer accepting this treatment in a chapter 13 plan of reorganization, the borrower waives any future right to sue the mortgage company or servicer for title or loan litigation.

The idea is that the homeowner will exit the chapter 13 bankruptcy with a house that is worth closer to what is owed on the mortgages.  For some homeowners the value of their home has decreased so much over the last 5 years that no reduction in interest rate will help them obtain equity in their home any time soon.  This plan does have limitations, but anything is better than the current loan modification system.

For more information about bankruptcy contact our Redwood City bankruptcy attorneys or San Jose bankruptcy lawyers today to schedule a free consultation.

Fair Debt Collection Practices Act (FDCPA ) and Collection Agencies

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The Fair Debt Collection Practices Act controls how and when collection agencies go about collecting outstanding debts.  Congress determined that collection practices were abusive, deceptive, and unfair debt collection practices by many debt collectors.  To combat inadequacies in existing laws, the FDCPA was passed.  The purpose of the Fair Debt Collection Practices Act is to insure collection agencies do not use any abusive collection actions and to make sure there is consistent State action to protect consumers from collection agencies.  A large limitation of the FDCPA is that this law only applies to collection agencies, not the original creditor attempting to collect a debt.

What is a Violation of the FDCPA?

A collection agency may not contact a person owing a debt during an unusual time, an unusual place or a time or place that is known to be inconvenient.  A convenient time is assumed to be between the hours of 8:00 a.m. and 9:00 p.m.  A debt collector may not contact a consumer if the debt collector knows the consumer is represented by an attorney and the attorney’s contact information is readily available.  A collector may not contact a person at their place of employment if they know the employer does not allow such phone calls.  Collection agencies may not call or speak with any person other than the consumer who owes the debt or their attorney.  If a consumer sends in writing a cease and desist letter to the debt collector, the collector shall not communicate any further with the consumer unless it is to advise that the collection agency is terminating all collection efforts or a remedy to the nonpayment of the debt is being chosen.  A deb collector may not take any action to harass, oppress or abuse any person in connection with an attempt to collect a debt.  The following are defined as harassment: the use and/or threat of use of violence or harm to reputation and property; the use of profane language; advertisement of sale debt to force payment.  A collector may not represent they are attorneys or part of the State or Federal governments.

What are the Penalties for Violation of the Fair Debt Collections Practices Act?

A consumer may collect actual damages incurred by a violation of the FDCPA, but not exceeding $1,000 and the cost of the action including reasonable attorney’s fees.  The court may consider any violation of this act, the frequency and persistence of the violations of this act and the extent the noncompliance was intentional when considering if liability is present.

If you are tired of harassing phone calls, contact our Redwood bankruptcy lawyers or Fremont bankruptcy attorneys to find out if bankruptcy is right for you.  Call toll free, 1-877-963-9543 to schedule a free consultation.

How Can Filing For Bankruptcy Help Release My DMV License Suspension?

By Kitty J. Lin, Attorney at Law

There may be many reasons why the Department of Motor Vehicles (“DMV”) may suspend your driver’s license.  If your license was suspended due to debt, you may be able to file for bankruptcy to eliminate the debt and have the DMV release your license.  One of the most common examples of when the DMV may suspend your license is if you were in a car accident and you did not have insurance, or you were under-insured.  If you were at fault and you do not have the funds to pay the other party’s personal injuries or property claims, your license may be suspended until you are able to pay the funds in full.

Having your license suspended may put you in a financial bind, especially if you commute long distances for work and there is no convenient public transportation.  If you don’t have your license, you cannot get to work.  If you cannot get to work, you won’t have the funds to repay your debt and may even end up owing more in credit card debt.  There are also those people that rely on having a driver’s license for their work, like delivery people or repairmen.  For these people, having a driver’s license is crucial.

So, how can you get your driver’s license suspension released?  You can either pay the judgment/debt in full, or, if you don’t have the funds, you can file for bankruptcy.  A Chapter 7 bankruptcy, if you qualify, will help you wipe out your dischargeable debt, including any civil judgments or monetary damages for car accidents.  Once you are able to show the DMV that your debts are included in your bankruptcy filing, the DMV would release your driver’s license.  A Chapter 13 bankruptcy would also help you get your driver’s license re-instated as well.  Chapter 13 bankruptcies are especially helpful if you have non-dischargeable debt.

Non-Dischargeable debt

There are certain debts that are not dischargeable in bankruptcy, and therefore the DMV will not release the suspension on your driver’s license until the money judgment is satisfied.  If you were in an accident while driving under the influence (“DUI”), any monetary judgment for personal injuries or personal property claims awarded to the other party is not dischargeable in a bankruptcy case.  This means that you would have to pay the debt in full – bankruptcy will not be able to help you get rid of that debt.  Additionally, any punitive damages or restitution ordered by the court related to the DUI will not be dischargeable.

Even if it was not a DUI, if the debt was incurred due to a willful or malicious injury to a person or property, that debt is also non-dischargeable.  Thus, if you intentionally use your car to run into your noisy neighbor’s fence or tree, the resulting damages are not dischargeable in bankruptcy.

Other non-dischargeable debt include arrears in alimony or child support payments, as well as parking tickets or other debts owed to a governmental unit for fines or penalties.  Since these debts are non-dischargeable, it means you need to pay off these debts before your driver’s license can be released.

How to get your driver’s license released for non-dischargeable debt

So if you have non-dischargeable debt and you need your driver’s license released, one way you can do so is if you file a Chapter 13 bankruptcy.  In a Chapter 13, you will be able to provide a payment plan to pay off the non-dischargeable debt in a period of three to five years.  As long as you can show that you are making payments on your Chapter 13 plan, the DMV will be able to release your license.  However, if your case is dismissed for any reason, including non-payment, then the DMV has the power to re-suspend your license again because the debt has not been paid.

If you have any questions regarding how you can get your driver’s license released, contact a San Jose bankruptcy lawyer or Fremont bankruptcy lawyer today for a free consultation.  Call 1-877-9NEW-LIFE to get that fresh start you deserve.

Should I File Bankruptcy?

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This is a common question, “Should I file bankruptcy?”  Well, that depends upon many factors and only the person who is actually filing for bankruptcy protection can answer that.  Bankruptcy is designed to provide an individual or business filing for bankruptcy relief from their creditors and discharge their eligible debts.  After the discharge is entered by the court the individual or business can continue without the burdens of the discharged debts and lead a healthy productive life.  Bankruptcy is designed to provide a fresh start.

So how is the question whether to actually file bankruptcy answered?  Each individual or business needs to weigh the positives and negatives of filing bankruptcy and then make the best financial decision.  There are no easy answers when debts become so much of a burden that bankruptcy help is sought.

During one of our free consultations we will discuss your income, expenses and assets to determine what is possible.  Do you qualify to file a chapter 7 bankruptcy and receive a complete discharge of your eligible debts, or is a chapter 13 necessary to reorganize your debts.  Not everyone will qualify to have all of their eligible unsecured debts discharged in a chapter 7 bankruptcy.  Filing a chapter 13 case is not the end of the world though.  Filing a chapter 13 reorganization could result in the discharge of most or all of eligible unsecured debts, depending upon the circumstances, just like in a chapter 7.  Chapter 13 requires that the filer pay back what they can afford to pay back, usually over three to five years.  The monthly chapter 13 plan of reorganization payment could be very little, or quite a bit depending upon your income, expenses and assets.

In 2005 the Bankruptcy Code was modified to include a test to determine whether a filer has any disposable income to pay their unsecured debts with after normal living expenses.  This is probably the largest area of confusion.  Just because a bankruptcy filer spends $1,000 a month on food does not mean that expense will be allowed.  If you have family of 6 or more people though, spending $1,000 a month may be very reasonable though.  It all depends upon the circumstances.  Or an expense for yoga lessons costing $1,000 a month.  Is that reasonable in light of having a mountain of credit card debt?  Yoga lessons will most likely be deemed not reasonable and need to be stopped so that the person can afford to pay something to their creditors.

The bottom line is that filing bankruptcy is a personal decision that must be made by the person or business filing for bankruptcy protection.  How a person or business fits into the bankruptcy box depends upon income, expenses and assets, and there are all different.  That is why it is important to seek the counsel of an experienced bankruptcy attorney.

For more information about filing bankruptcy, contact one of our bankruptcy lawyers or Redwood City bankruptcy lawyer today and schedule a free consultation.