As you may have read, one of the practical implications of the October, 2005 changes to the bankruptcy law has been to "push" debtors away from Chapter 7 and into Chapter 13. Chapter 13 is still a form of bankruptcy and it is a very powerful tool, but you need to be very careful at the outset of your case to make sure that you and your lawyer create a liveable and reasonable budget.
Clark and Washington sees dozens of clients each month in our five Tampa/St. Pete offices and our attorneys regularly meet to compare notes and to discuss current cases. One of the changes that we have implemented in our case evaluation process has been to emphasize to our clients the importance of giving us accurate information about what the client and members of his household actually spend each month. Chapter 13 lasts between 36 and 60 months and we need to work hard to make sure that we do not commit our client to a Chapter 13 payment that our client cannot afford.
We now suggest that our new clients keep a "to the penny" diary about spending habits. You should keep this diary for a minimum of two weeks, although 30 days would be better. You need to write down every penny you spend and keep receipts whereever possible.
Based on experience, we find that:
- most people underestimate how much they spend on food – both groceries and eating out
- many people spend $25 to $100 per month on items like cigarettes, checkout line magazine or candy purchases and other items that don't otherwise make their way into a budget
- kids are expensive!
If we have receipts and documentation we have resources to argue for a Chapter 13 payment that reflects reality, rather than estimates. Keeping track of what you spend is always important, but never more so than when you are considering bankruptcy.
Filed under Bankruptcy budgets by 
Will Congress give bankruptcy judges the power to modify the terms of mortgage loans? Scripps News reports that several bills have been introduced in Congress to do just that. These bills would limit relief to homeowners who didn't earn enough income to afford mortgage payments, had a subprime or nontraditional loan or faced imminent foreclosure. Bankruptcy judges would be required to set commercially reasonable interest rates on modified mortgages and not reduce loan balances to less than the market value of the property.
Needless to say, advocates for the mortgage industry are not happy about this prospect. They envision a situation in which homeowners turn to bankruptcy to rewrite unfavorable mortgage loan terms and they fear a slippery slope in which the mortgage securities market becomes unstable because of a lack of certainty regarding the value of a mortgage backed security.
As a bankruptcy law firm, we see many situations in which the onerous terms of a mortgage note limit the scope of relief that a debtor can obtain. Further, bankruptcy loan term modifications are commonplace in automobile, furniture, jewelry and other commerical loans, without causing havoc in those industries.
Despite the limited scope of this relief, President Bush has stated that he will not sign any change to the bankruptcy law that would give bankruptcty judges the power to modify mortgage loans. We will keep an eye on this very controversial topic and report any significant developments.
Filed under Mortgages by
When is the right time to file for Chapter 7? Clark and Washington's Jamie Allen explain why Chapter 7 can provide the most benefit to you when are not expecting your financial situation to get much worse.
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If you ask 10 bankruptcy lawyers why their clients file for bankruptcy, you are likely to get ten different answers. I ran across this post from the Silicon Valley Blogger on the Digerati Life blog that offers the following reasons:
- Bad luck – unexpected illnesses, accidents, crime, unexpected job loss
- Lack of preparation – lack of emergency funds, insufficient insurance, poor estate planning
- Bad Financial Decisions – divorce, bad investments, gambling, falling for something that sounds too good to be true
Here at Clark and Washington, we probably see more bankruptcies resulting from medical problems and related bills than from any other cause. Our #2 reason would be bad decisions – such as buying too much house or a too-expensive car.
Of course some bad decisions are worse than others. Take, for example the case of Tony Alleyne in England. Tony is an interior designer and he came up with the idea of creating a house who came up with the idea of decorating the interior of his house as an exact replica of the Starship Enterprise from Star Trek – The Next Generation. Tony believed that fellow Trekkies would rush to hire his firm to redecorate their houses in a Star Trek motif.
After going through several hundred thousand dollars (and 1 wife), Tony discovered that this Trekkie market did not exist and that he had spent almost 10 years pursuing a business plan that had no chance for success.
If you have any thoughts about what causes bankruptcy, we'd love to hear from you. If you want to replace your refrigerator with a "warp coil" let us know as well – we can set you up!
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Can you save your home from foreclosure without filing for bankruptcy? There has been a lot of news lately about possible voluntary actions by mortgage companies to re-write loans, to hold off on foreclosure and to "work with" cash strapped homeowners. All these possibilities are out there, but if you are facing an actual foreclosure, Chapter 13 bankruptcy remains your most reliable tool to stop a foreclosure.
This does not mean that scamsters have not found a way to use Chapter 13 as a tool for their fraudulent activity. We recently came across an article in a Kasas City newspaper that described the activities of a foreclosure scammer. The scammer would contact homeowners facing foreclosure and offer to stop the process for several hundred dollars. He would then file a "two page" emergency Chapter 13 petition, then disappear.
The two page Chapter 13 will stop a foreclosure, but the homeowner is left with an incomplete petition and, quite possibly, a bankruptcy that they did not want. Further, if someone signs your name to a bankruptcy petition that you did not authorize, this is a form of identity theft.
The U.S. Trustee estimates that this scammer stopped foreclosures on over $50 million of property in four States. Although this particular scammer does not appear to have operated in the Tampa area, we regularly speak with clients who have been approached or vicitimized by foreclosure scammers here as well.
If you are facing a foreclosure, don't take a chance with a non-attorney who makes unrealistic promises. A legitimate consumer bankruptcy law firm will tell you about the good and the bad having to do with Chapter 13. Remember – if something sounds too good to be true, it probably is.
Filed under Foreclosure issues by
