5 Tips to Avoid Foreclosure

1.      Prioritize!

 

 

In order to keep  your home out of foreclosure, you need to make your house the number priority.  We see many cases where a person’s obligations exceed his income, and it is the mortgage that does not get paid.  Instead of missing the mortgage: cancel your cable, quit eating out, and take the bus.   Do you want to keep your house or ESPN?  Want to keep your house or your iPhone?  Instead of paying your credit card bill, pay the mortgage.  But the credit card has a 20% interest rate and late fee!  Well, being late on your house equals losing your home!  Therefore, making the house your top priority ahead of your other creditors and daily luxuries can keep you in your home.

 

 

 2.      Savings!

 

 

This tip is two fold.  First, just as Dave Ramsey preaches, you should always have an emergency fund.  Dave says when you are cleaning up your debt to put $1,000 in an emergency fund for when disaster hits.  I personally prefer to have at least the $1,000 but if your mortgage payment is $1,200 then make the fund $1,200.  That way you always have at least one month of a mortgage payment ready just in case you will not be able to make it with your current checking account.  

 

 

Second part of savings.  If you fall behind on your mortgage payments, almost every bank out there will not accept any payments to catch back up unless it is the full amount including late fees, interest, etc.  Therefore, if you are $3,000 behind, and have $1,500 ready to give to the bank, but they won’t accept it, do not keep it in your checking account.  Otherwise you will see your account with an extra $1,500 and it will be used at the grocery, gas, other bills, etc.  Instead, open up a separate savings account, and place that $1,500 in there.  And then when the next month begins and you will owe another mortgage payment, which will not be accepted, pay yourself the mortgage payment in the savings account.  Therefore, you can catch yourself back up and be ready to pay the bank in full. 

 

3.      Watch out for scams!

 

 

There are a plethora of scammers waiting to pounce on desperate homeowners.  Since the home is almost everyone’s prized possession, we are willing to spend lots of money on the hope of a solution.  A lot of people offer services that will stop a foreclosure, but they end up with the money instead of the bank, and instead of you.  Please be careful.  If you choose to go through a third party to work with the bank on stopping the foreclosure, instead of through bankruptcy, use only HUD approved housing counselors:  http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm.

 

 

 4.      Communication!

 

 

Be sure to open all mail you receive from your bank and respond to everything.  The lender might be offering modifications, loan restructuring or other relief options to help you keep your home.  You need to know your rights and options and you cannot do that unless you open all of your mail.  Also, be sure to respond to all of it as well.  Keep a record of all communications.  Also, when speaking to a bank representative or customer service, keep a record of the phone calls such as date, time, person, phone number, and notes of the conversation.  These records can help you in the long run with a future cause of action if the bank does not do what they promised you, so you are not going only from memory and “he said, she said.”

 

5.      Bankruptcy

 

 

Bankruptcy is a last resort option, but filing a bankruptcy will stop a foreclosure and allow you to repay the bank over a three to five year period to get caught back up.  Bankruptcy is a legal way to force your bank to listen to you instead of just ignoring you.  Bankruptcy is not for everyone and you must contact a local attorney to see if your situation warrants filing Bankruptcy.  This is something we have much experience and do regularly.   

What is a Chapter 20 Bankruptcy?

       A Chapter 20 Bankruptcy is the situation where a debtor files for Chapter 7, and then immediately refiles another case under Chapter 13.  The purpose are a few reasons why a debtor would want to take this strategy.  The first purpose is to reduce the monthly payments that will be required in a Chapter 13 plan.  If a person has $50,000 of general unsecured consumer debt (such as medical bills and credit cards) and also has $50,000 of student loans, which is not dischargeable, then chapter 13 payments to pay everyone in full would be $1,666.67 per month for 60 months.  However, if the debtor first files Chapter 7 bankruptcy, then $50,000 of the consumer debt would be discharged. After the case is closed the debtor can immediately refile under Chapter 13 in order to pay the nondischarged student loans.  That monthly payment would be $833.33 for 60 months. 

       Another reason to file a chapter 20 is because the debtor exceeds the Chapter 13 debt limits.  Currently, a debtor cannot file a Chapter 13 bankruptcy if the unsecured debt exceeds $360,475.  Chapter 7 has no debt limits.  Thus, a debtor may have $400,000 in unsecured debt, which is mixed with dischargeable and nondischargeable debt, as well as secured debt of a house and car.  The debtor (if he qualifies for a chapter 7) file the chapter 7 first reduce the overall debt to be under the debt limit.  Then the debtor could file a Chapter 13 bankruptcy in order to cram-down the car loan or strip off a second mortgage on a house.

       Now, one thing to remember is that by filing a Chapter 7 first, the debtor will not be eligible for a second discharge in the Chapter 13 bankruptcy.  All of the consumer debt would've already been discharged in the Chapter 7, but the debtor would be liable for any deficiency if he later choose to surrender the house or car in the chapter 13 bankruptcy.  

What are the current Tennessee Estate Taxes?

      Now that is it 2013 the Tennessee inheritance tax exemptions have changed for the better of Tennessee residents. From 2006 through 2012 the estate tax exemption was One-million dollars( $1,000,000.00). In 2013, Tennessee estate tax emption moves up to One-million, two hundred fifty thousand dollars ($1,250,000.00).  That means if a resident of Tennessee dies, $1,250,000 of the person's estate will be transferred to the designees or heirs, without an estate tax.  In 2014, the exemption grows to Two million dollars ($2,000,000.00); in 2015 to five-million dollars ($5,000,000.00); and in 2016 the exemption will be unlimited. 

 

       Now, estate planners must still be wary despite the laxation of taxation for Tennessee residents because federal estate tax will still have to be paid.  Congress was able to act intime to avoid the fiscal cliff consequences for estate planning.  Instead of the $5.12 million exemption being reduced to $1 million the amount remained the same at $5.12 million, but the maximum rate increased from 35% to 40%.  Very importantly, portablility remained intact, so that if one spouse transfers all of his estate to his surviving wife, then the wife may use his and her exemptions when she finally dies, thus being able to have a maximum $10.24 million federal exemption.

 

      Given these changes if you think that your will needs to be redone call your attorney to setup an appointment to specifically talk about your situation.  If you do not have a will, then you should contact an attorney to discuss the legal consequences.

Bankruptcy Case Update: Student Loan Discharge

In a recent decision out of the Central District of Illinois, the Court held that while a debtor's prior, sporadic payments on her student loans were likely all that she could afford, given that she was unemployed, her unexplained failure to participate in the income contingent repayment plan (ICRP), along with her extreme hesitance to consider jobs outside her chosen field of study and admission that, after unsuccessfully applying for such jobs, she had effectively given up looking for work, precluded a finding that the debtor had made the requisite "good faith" effort to repay her student loans and prevented her from obtaining an "undue hardship" discharge of this debt. To find that the debtor had made a "good faith" effort to repay her student loans, based on the fact that the debtor had paid off one of these loans with proceeds of a divorce settlement and made sporadic payments on others, the bankruptcy court, at a minimum, had to correctly explain why the ICRP or a similar program was a bad deal for that particular debtor, and could not simply dismiss her admitted unwillingness to participate in the ICRP as "not dispositive."

Educational Credit Management Corp. v. Krieger

Estate Planning Is For Everyone

      There a giant misconception that estate planning is just for the rich. Growing up, before becoming an attorney I used to have a false belief of estate planning. When I heard “estate planning”, I envisioned some millionaire sitting down with an attorney coming up with ways of how to hide money in Island countries and writing five hundred page trust documents that keep his money out of the hands of the government forever while showering his family with wealth.

      I could not have been more wrong. Estate planning is making sure that not only are your assets distributed in the way you wish when you pass, but that the end of your life wishes are emphatically published to all so that there is no confusion, strife, or bickering among your family.

      The primary instruments that are used for estate planning are: Will, Power of Attorney, Power of Attorney for Health Care, and a Living Will.

       The Powers of Attorney give a person who you appoint the power to take care of your finances and health care decisions if you reach a state of mental incapacity, whether from illness or injury. You can put restrictions on your attorney-in-fact or give him free reign. Usually this power goes to a spouse or other family member.

     The Living Will, also known as an “affirmative directive”, authorizes, or does not authorize, the withholding of artificially provided food, water, or other nourishment or fluids if the patient reaches a terminal state with no reasonable medical expectation of recovery.

       All of these documents are affordable for everyone, but so many people do not have these drawn up either because of the misconception that “Estate Planning” is for the very wealthy, or do not like to dwell on the end of their life. Make the smart decision and call an estate planning to get these documents executed to prevent hassles and inter-family strife at the end of your life.