Reed's Bankruptcy Blog

Paying Credit Cards While Neglecting Mortgage Payments Can Hurt Your Future

Reed Allmand — Thu, 02 Sep 2010 23:28:15 +0000

Credit card delinquencies have dropped slightly while foreclosures continue to rise; but one of the reasons cited for this shift is debtors’ neglect of mortgage payments in favor of keeping their credit cards current. Current high levels of unemployment and financial uncertainty have conspired to create an incentive for debtors to neglect their mortgages while making payments on their credit cards. Many debtors are afraid that they may lose their job soon and they want to have a source of easy to get to cash so they keep their credit cards in the black. Other debtors are already falling behind on mortgage payments, are unemployed or soon to be unemployed and figure that they will lose their home to foreclosure anyway so why bother trying to make payments. Many are betting on the fact that foreclosures in this country are so numerous that mortgage companies are backlogged for as much as a year which will give more homeowners time to live “rent free.” But there is a catch, even if mortgage companies don’t crack down on delinquent homeowners as fast as their credit card counterparts, they will eventually come after delinquent borrowers even after foreclosure. Because of the rapid loss of value in the housing market, many homes sold at foreclosure are sold for significantly less than the mortgage that the original homeowner owes. This means that the mortgage company will come after the debtor for the balance of that loan and will have the legal right to file lawsuits and use judgments to seize assets and garnish wages. Even if a debtor is without assets and jobless, the mortgage servicers are betting that eventually the debtor’s finances will improve and that they will be able to get repaid. Many debtors find that without the help of a bankruptcy discharge, once they regain employment and assets, old debts such as unpaid mortgages come back to haunt them. This is why debtors who find themselves neglecting their mortgage payments in order to pay credit cards, should really consider how bankruptcy can help them. Remember, bankruptcy will discharge unsecured debt and make it impossible for creditors to come after you once you’re financially on your feet again.

HOA Fees Deliver Double Whammy For Homeowners Hit By Foreclosure

Reed Allmand — Thu, 02 Sep 2010 22:14:32 +0000

The foreclosure crisis has special significance for homeowners with properties governed by homeowner associations which often charge large monthly fees for the general maintenance of the common areas. Many homeowners who have lost their condos and planned community homes to foreclosure are finding that they are indebted to homeowner associations for thousands of dollars long after they have lost their home to foreclosure.

Homeowner associations are clamping down hard on delinquent residents and former residents who owe past-due HOA fees. Many of these homeowner associations are hiring debt collection companies, filing lawsuits and garnishing the wages and assets of homeowners’ who have lost their properties to foreclosure and have failed to pay HOA fees. It’s a double whammy for homeowners’ who have succumb to foreclosure because oftentimes they are on the hook for 12 months or more of HOA fees even if they weren’t living in the property at the time. Because homeowners remain liable for HOA fees until their home is sold or seized via foreclosure by the bank, many homeowners are being relentlessly pursued by homeowner associations. And even if they were only behind a month or two at the time they moved out of the property, they could end up paying much more because the bank delayed their foreclosure. Some even suspect that mortgage companies are hesitant to foreclose on condos/townhomes with HOA fees because they know it may take a long time to sell these property and they don’t want to spend out thousands in fees on a property that isn’t profitable. Fortunately for those debtors who file bankruptcy, HOA fees can be discharged in bankruptcy.

Playlist Files Chapter 11 Bankruptcy

Reed Allmand — Thu, 02 Sep 2010 18:12:08 +0000

As the recession continues to sweep through the entertainment industry, another on-demand music company files bankruptcy. Playlist, a site which hosts on-demand music filed Chapter 11 bankruptcy with $24 million in debt from unpaid royalty payments to major record labels.

Playlist, a site which hosts on-demand music for users to share and generate playlists, is mired in debt. The company owes more than $24 million to major labels and $1.68 million to indies in royalty costs. Additionally, its bandwidth bill alone for providing free online streaming comes to $803,470–not exactly a sustainable financial picture.

After settling royalty lawsuits with Universal, WMG, RIAA and nine other labels throughout the year, Playlist was not able to pull itself out of its financial rut and hopes to restructure its debts in Chapter 11 bankruptcy. But it may have some trouble finding bankruptcy financing because the music industry has been unable to turn on-demand music streaming into a profitable business model. Investors specializing in bankruptcy exit financing may be hesitant to sink their money into any company using a business model that even the largest players such as iTunes are shying away from. One of the requirements of having a successful Chapter 11 bankruptcy is that the business must convince current creditors and investors as well as possible bankruptcy exit investors that their business is in fact viable. But if the business model a Chapter 11 bankruptcy company is using is considered flawed or not viable, it could be nearly impossible to convince creditors and investors to stick with them over the long haul. This is one of the challenges that Blockbuster is facing if in fact they choose to file bankruptcy and it will probably be a challenge for Playlist as they work through the bankruptcy process.

The Third Fastest Man In America Files Bankruptcy

Reed Allmand — Thu, 02 Sep 2010 00:12:22 +0000

Legendary marathon runner Dick Beardsley and his wife Jill have filed for Chapter 13 bankruptcy, listing assets of $72,509 and liabilities of $176,734.

Beardsley and his wife, Jill, filed a petition for Chapter 13 bankruptcy petition on July 20, listing assets of $72,509 and liabilities of $176,734.

They owe the Internal Revenue Service $87,616 in taxes from 2006 to 2009, making the IRS the largest of the more than 50 creditors on their list filed with the U.S. Bankruptcy Court in Austin, where they live.

“We did it to consolidate some IRS debt, and that’s it. That’s the end of the story,” Jill Beardsley said by phone this week.

The IRS seized cash from the couple five days before they filed for bankruptcy, according to their statement of financial affairs filed with the court.

Beardsley is best known for finishing the 1982 Boston Marathon in 2:08:54, just two seconds behind winner Alberto Salazar in a famous race dubbed “The Duel in the Sun.” But his bankruptcy filing is another example of what can happen when debtors refuses to move quickly to protect their finance and delay a necessary bankruptcy filing. The IRS seized cash from this star athlete’s home only five days before he filed bankruptcy. It is almost certain beyond a reasonable doubt that Beardsley knew he had tax debts before his cash was seized. So why is it that he delayed filing bankruptcy? Beardsley like many other debtors probably believed that somehow his debt troubles would work themselves out or that maybe he would eventually catch up; but the truth is that it rarely happens that way. What does happen is that creditors, especially the IRS, become aggressive and seize assets that could have been protected if bankruptcy had been filed in a timely manner. Remember, bankruptcy can even stop the most powerful creditors such as the IRS from seizing your assets and give you a chance to put your financial house in order.

Visteon Bankruptcy Plan Wins Approval

Reed Allmand — Wed, 01 Sep 2010 22:01:38 +0000

After settling a dispute with its retirees, Visteon Corp. won support for its reorganization plan from its major shareholders, lenders and the bankruptcy court, and raised more than $1.3 billion by selling stock to bondholders. Visteon retirees had been the one major challenge preventing Visteon from moving forward with its plan to cut $2 billion in debt and exit bankruptcy under the control of its bondholders. Under the new deal with retirees, Visteon will pay $12 million to unions representing more than 6,000 former Visteon employees. But the Visteon bankruptcy plan has not avoided controversy, a handful of shareholders oppose the bankruptcy plan saying that they should have been given a chance to participate in the stock sale. But with about 76 percent of Visteon’s shareholders voting to support the plan, the company has successfully won the court’s approval of the bankruptcy reorganization plan and should be exiting bankruptcy soon.

In most Chapter 11 bankruptcy plans, unsecured shareholders are left with either nothing or very little compensation after secured creditors are repaid. This is one of the pitfalls of Chapter 11 bankruptcy for unsecured creditors. Also, employees are often faced with drastic losses in benefits and salaries, especially retirees who are considered a huge financial liability for the company in Chapter 11 bankruptcy. On the upside, a company that enters Chapter 11 bankruptcy with an effective strategy can unload large amounts of debt while giving their company a fighting chance of survival even in the most hostile economic conditions experienced since the Great Depression.

“American Pie” Film Producer Warren Zide Files Chapter 7 Bankruptcy

Reed Allmand — Wed, 01 Sep 2010 20:37:05 +0000

Film producer Warren Zide best known for his hit movie “American Pie” has filed for Chapter 7 bankruptcy. Zide’s Chapter 7 bankruptcy petition did not list all of his specific debts; but it did list that he had $1 million to $10 million in liabilities and $518,630 in back taxes owed to the state of California. The fact that Zide filed Chapter 7 bankruptcy means that he does not make more than the median income in his state and that his debt and assets do not exceed the thresholds imposed by the bankruptcy code. The Zide bankruptcy is interesting in that while in many ways he is similar to other wage earners filing for Chapter 7 bankruptcy, he also owns assets such as copyrights, merchandise licensing deals and other intellectual property assets related to the movies he has produced that may be liquidated to pay creditors. However, Zide may still avail himself of the bankruptcy exemptions and may also have the opportunity to “buy back” some of his most valuable assets during bankruptcy with the help of an experienced bankruptcy attorney.

And while the details of Zide’s bankruptcy filing have not been disclosed yet, it is likely that this successful filmmaker overspent after his smash 1999 hit “American Pie” made millions and then found that his income had shrunk over the past 10 years. Unfortunately for celebrities such as Zide and even individuals who are not so famous, the unwillingness to make financial adjustments once income drops can lead them down the road of financial troubles. But with Chapter 7 bankruptcy, Zide will be able to discharge many of his debts, protect his most valuable assets and emerge from bankruptcy better positioned financially.

Why Bankruptcy Has Become Baby Boomers’ Safe Haven In Troubled Times

Reed Allmand — Wed, 01 Sep 2010 01:26:40 +0000

The American Bankruptcy Institute’s ABI Journal recently released a study that says that 42 percent of all debtors filing for bankruptcy were between the ages of 45 and 64 in 2007 and that older Americans file for bankruptcy at a faster rate than young adults. The increased rate of bankruptcy filings among older Americans is due to a combination of unemployment, medical debt, high credit card debt, devalued homes and the decimation of retirement funds. Not to mention the amount of discrimination many older Americans face in the employment market making it difficult for them to reenter the workforce after suffering devastating financial blows. Many older Americans are losing their jobs and losing their health insurance which can make them vulnerable to the financial fallout of medical emergencies. Medical debts pile up and they file bankruptcy. But before an older debtor files bankruptcy because of unemployment or medical debt, they often drain their home of equity or raid their retirement account in an attempt to repay debtors and avoid bankruptcy. What they don’t’ understand is that by doing this they are often digging themselves deeper into a debt hole that only bankruptcy can dig them out of. And like a line of tipped over dominos older debtors with equity lines of credit struggle to repay their debts and succumb to foreclosure, rely on credit cards and eventually face creditor lawsuits after months of avoidance and using one source of debt to pay another. It is at this point that older debtors finally file for bankruptcy. And it is at this point in their financial crisis that bankruptcy is the save haven they so badly need.

How The Triple Threat Foreclosure Crisis Is Fueling The Rise Of Bankruptcy

Reed Allmand — Wed, 01 Sep 2010 00:21:21 +0000

The truth is out, the housing industry is not recovering and the economy may be facing a double dip recession. Sales of previously occupied homes plunged to their lowest level in 15 years and that’s despite the presence of some of the lowest mortgage rates we’ve seen in decades. But what is driving this perfect storm of economic malaise? And why are the current conditions driving even more people into bankruptcy? Fear, unemployment and the mortgage industry’s resistance to change are three major factors driving the foreclosure crisis and the tsunami of bankruptcies hitting cities around the nation.

People are afraid, afraid of losing their jobs, losing their homes to foreclosure and not being able to sustain the payments on a new mortgage. This is why they aren’t buying the glut of houses on the market; but this is also why the mortgage industry has severely tightened their lending standards. The mortgage industry knows that unemployment, right now the leading cause of foreclosure and bankruptcy, is rampant and they are afraid of lending to the “wrong” people. But the irony of the mortgage industry’s stance during this foreclosure crisis is that they are primarily responsible for creating the quagmire that is currently crippling this economy. It is the mortgage industry that refuses to change, to modify toxic mortgages or to even untie the hands of the bankruptcy system so that bankruptcy judges can modify residential mortgages and save homeowners from foreclosure. But the other irony is that because the mortgage industry’s fear and resistance to change, even more homeowners are seeking the protection of bankruptcy. So many homes have lost significant value that many 2^nd and 3^rd mortgages are becoming unsecured debt and dischargeable in bankruptcy. In a twist of fate, this devaluation of personal real estate gives many homeowners the opportunity to save their home from foreclosure by using bankruptcy after all and many of them are jumping at the opportunity.

Your Post Bankruptcy Life: Employment

Reed Allmand — Tue, 31 Aug 2010 23:18:43 +0000

Many unemployed debtors are filing bankruptcy because they simply can’t pay their bills, are facing lawsuits and asset seizures. Generally speaking these unemployed debtors have had decent credit and paid their debts faithfully and on-time while employed; but because of unemployment or persistent underemployed they have become delinquent and need to file bankruptcy. Unfortunately, some uninformed or misinformed employers may misunderstand a job candidate’s bankruptcy filing and misinterpret their bankruptcy filing as a moral and character failing. This type of thinking, especially during this economy is a sign that many employers need a dose of reeducation regarding personal bankruptcy. But until we can reeducate these businesses on a mass scale, post-bankruptcy debtors need to be careful to present their bankruptcy in the proper light. Below are two important things every post-bankruptcy debtor must do if they are looking for employment:

Don’t hide your bankruptcy. If an employer says that he/she is going to run a credit check then you need to make them aware of your bankruptcy filing.
Understand that those employers who misjudge bankruptcy filers are not necessarily against bankruptcy; but they are usually against many of the misconceptions about why people file bankruptcy. For example, some misinformed employers believe that bankruptcy filers are irresponsible, have poor impulse control or refuse to take responsibility for their actions. While there are certainly bankruptcy debtors who fall into those categories, most bankruptcy debtors are individuals who have fallen upon hard times and need a helping hand. It is the post-bankruptcy debtor’s job to assure the employer that they belong to the category of responsible debtors who have fallen upon hard times and used bankruptcy to get a second chance.

Lessons From Teresa Giudice’s Bankruptcy

Reed Allmand — Tue, 31 Aug 2010 01:15:01 +0000

If you’ve been watching the news and following the celebrity blogs then you’ve probably heard that Teresa Giudice is taking a lot of heat for spending $60,000 on home furnishings after filing bankruptcy. Her bankruptcy attorney is supposedly defending the purchases saying that the money spent was from income earned after the bankruptcy fling and therefore could be legitimately spent for necessities such as furnishing her home.

“That was the money she earned as an advance for her book Skinny Italian,” her attorney Jim Kridel tells PEOPLE. “Since she earned it after the filing, she was absolutely free to spend it.”

But many people were shocked and upset about Giudice’s splurge not so much because she may have broken bankruptcy laws, but because they felt that she was spending lavishly while in bankruptcy. This is the deal, Giudice lives a lifestyle that requires lavish spending and that lifestyle is probably one of the things that drove her into bankruptcy. How many of us live a lifestyle where we live beyond our means, drive up debts we can’t pay and eventually need to file bankruptcy? Bankruptcy is offering Teresa Giudice and her husband an opportunity to get a fresh financial start; but she cannot successfully take advantage of that opportunity if she is not willing to change her spending habits after bankruptcy. The Giudice family must make the effort to drastically pull back on their spending and abandon the idea of living a luxurious lifestyle if they cannot afford it. Giudice and many other less wealthy individuals are seduced by the idea of appearing to live in the lap of luxury even if it means they will squander the second chance that bankruptcy affords them. Don’t allow the ego boost that a faux luxurious lifestyle provides to ruin you second chance after bankruptcy.

How To Property Disclose Income During Bankruptcy

Reed Allmand — Mon, 30 Aug 2010 23:30:08 +0000

When a debtor files bankruptcy, they must fill out what is called the Statement of Financial Affairs. On the Statement of Financial Affairs the debtor must disclose all the income they have earned from employment or the operation of a business. They must also disclose to the bankruptcy court all income received from any other sources. Here a few things you need to know about properly disclosing income on your bankruptcy’s Statement of Financial Affairs:

The bankruptcy debtor must disclose all income received for the year that they are filing bankruptcy and the previous two years. For example, if a debtor filed bankruptcy in October 2010, they would need to disclose all income for the years 2008 and 2009. This can usually be accomplished by providing tax returns, W-2s, paystubs or a profit and loss statement if the debtor is self-employed or owns a business.
If a debtor is filing Chapter 13 bankruptcy or Chapter 11 bankruptcy they need to also disclose their spouse’s income. The disclosure of a spouse’s income when filing Chapter 7 bankruptcy is not required on the Statement of Financial Affairs unless the spouse is also filing bankruptcy. However, since the spouse’s income is already listed on the Means Test, many bankruptcy attorneys also list it on the Statement of Financial Affairs when filing Chapter 7 bankruptcy despite the fact that it is not required.
When disclosing income on the Statement of Financial Affairs the debtor must include all income even income that is exempt in bankruptcy such as Social Security and child support payments. Also, if the debtor is being paid in cash or “under the table” this income should also be included in the bankruptcy filing’s Statement of Financial Affairs.

How To Battle Non-Wage Garnishments

Reed Allmand — Mon, 30 Aug 2010 22:12:53 +0000

If a debtor has become delinquent on their debt payments for long enough, creditors will eventually file a lawsuit against them and may win a judgment. With a judgment in place the creditor can garnish wages and get the right to use non-wage garnishments which typically means they will seize bank accounts. If a creditor serves the debtor’s bank a non-wage garnishment affidavit, the bank is required by law to hand over the debtor’s money on deposit up to the amount owed to the creditor, even if that puts the debtor’s bank account at a zero balance. For example if a debtor owed $3,000 and had $1,500 in their bank account, the non-wage garnishment could wipe out the account handing over the $1500 to creditors. But there are things a debtor can do to protect their bank accounts from non-wage garnishments:

Be aware of any lawsuits filed against you by creditors. If you are significantly delinquent on any debt payments, there will be a lawsuit, it is just a matter of time. If you are facing a lawsuit, don’t ignore it. Show up to court and consider filing bankruptcy to stop the lawsuit. Bankruptcy will stop the lawsuit and prevent a non-wage garnishment before it happens.
Don’t deposit all of your money into your bank account. Yes, we know that is inconvenient; but depositing money into your bank account gives the creditor access to your funds. Consider paying your bills using money orders until you can sort out your financial affairs. Also, consider filing bankruptcy if you have large amounts of debt that you simply cannot pay.
If a creditor has already won a judgment against you, consider challenging the validity of that judgment. Were you served properly? Many creditors fail to properly serve debtors when they file a lawsuit leaving the debtor unaware of litigation. If a creditor failed to serve you, you may be able to have the judgment thrown out. Has the statute of limitations passed? In Texas, credit card companies have only four years to sue a debtor for non-payment. If the creditor files a lawsuit after the statute of limitations has expired, the debtor can have that judgment thrown out.

Homeowner Are Still Suffering From ARMs But Bankruptcy May Help

Reed Allmand — Sun, 29 Aug 2010 21:14:11 +0000

When the foreclosure crisis first began we heard a lot about the devastating effects of adjustable rate mortgages (ARMs) which were financially crippling millions of homeowners whose interest rates had reset. Unfortunately for many homeowners, ARMs are still pushing many into foreclosure causing a silent crisis on the thousands of communities across the nation. At the height of the housing boom and lending mania homeowners were given the option of choosing to structure their mortgages in a way that allowed them to make very low monthly payments for the first 3 to 5 years of their mortgage repayment period, but held the risk that the mortgage payment would balloon to sometimes double or even triple the original monthly payment. Many of those homeowners ended up in foreclosure because they were not prepared for the drastic increase in their mortgage payments. The good news for those debtors facing foreclosure due to an ARM reset is that if the value of their home fell below the balance of their second or third mortgage they may be able to discharge those debts in Chapter 13 bankruptcy while keeping their home and enjoying a lower payment. How is that possible? Well under the rules of bankruptcy, a debt is only considered a secured debt as long as the property it is secured by has enough value in it. For example, if you purchased a $250,000 home with three mortgages, a $150,000 first mortgage, a $50,000 second mortgage and a $50,000 third mortgage and your property’s value fell to $150,000 by the time you filed for bankruptcy, the second and third mortgage would not be considered secured debt. Technically the second and third mortgages mentioned in the example could be discharged in bankruptcy. To find out more about how you can save your underwater home in bankruptcy speak with a Dallas-Fort Worth bankruptcy attorney.

New Efforts To Aid Unemployed Homeowners Avoid Foreclosure Misguided?

Reed Allmand — Sun, 29 Aug 2010 18:09:16 +0000

The newest foreclosure prevention scheme to come out of the White House is a $3 billion loan program that’s intended to help unemployed homeowners avoid foreclosure. But some homeowner and consumer advocate groups are crying foul saying that the only people guaranteed to benefit will be the banks. Right now, the government is targeting states hardest hit by the foreclosure crisis (Texas is not currently included on that list) for a program that would offer loans of up to $50,000 over the course of two years to unemployed homeowners facing foreclosure. This money would be given to the banks to issue loans to unemployed homeowners facing foreclosure but the banks would not be required to provide matching funds, modify the mortgages or any other concessions that would further aid the homeowners. However, the banks would benefit once the loans are repaid with interest. Furthermore, many housing advocates are saying that because the banks are not required to make any type of beneficial changes to the mortgages which are often underwater, many of the homeowners still won’t have any equity in their homes at the end of two years leaving them once again vulnerable to foreclosure.

Housing advocates have a very good point. At this point the way the unemployed homeowner loan program is designed banks don’t really have any skin in the game. They get to control who gets the loan and they get the benefits when the loan is paid back; but they are not required to modify mortgages which have balances significantly above the real value of the home. Also, it is the homeowner once again who is taking on all of the risk as they will need to repay the loans in two years regardless of the home’s value and whether or not they have found employment. Also, there is a great risk that many people will opt for these loans instead of filing bankruptcy even if their financial situation clearly indicates that a bankruptcy filing is necessary.

Bankruptcy Automatic Stay Protection and Post-Foreclosure Proceedings

Reed Allmand — Sun, 29 Aug 2010 14:58:35 +0000

Has your mortgage servicer already filed a foreclosure against your property? Has the mortgage servicer already won a foreclosure judgment for possession and is just waiting to evict you from the property? You may still be able to reap limited and temporary protections from the foreclosure eviction after filing bankruptcy. Here’s what you need to know:

Section 326(b)(22) of the Bankruptcy code states:

The filing of a petition…does not operate as a stay subject to subsection (l), under subsection (a)(3), of the continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor.

In other words, filing bankruptcy after a mortgage servicer has successfully filed a foreclosure against your property and is in the process of evicting you will not reverse the foreclosure at this point. However, filing bankruptcy even at this point may buy the debtor more time to put their affairs in order before they are evicted. It is important to understand that if the mortgage servicer has not won a judgment for possession before you file bankruptcy, you may still be able to save your home. For example, if a debtor receives a notice saying that the mortgage servicer is planning to file foreclosure against the property, the debtor may still save the home if they file bankruptcy at any point before the mortgage servicer wins a judgment for possession. Speak with a qualified Dallas-Fort Worth bankruptcy attorney to find out exactly how bankruptcy can save your home from foreclosure.

Foreclosures Continue To Rise Because Of Ineffective Programs

Reed Allmand — Sun, 29 Aug 2010 03:45:59 +0000

The foreclosure crisis is threatening to enter a third year as the Tarrant County foreclosure rate for September showed an increase of 36 percent from August and Dallas County foreclosure postings jumped by 19 percent from a year ago. The root of the foreclosure crisis is not just unemployment and toxic mortgages but also the ineffective foreclosure prevention programs that the government continues to implement. It is very telling that the government continues to create and implement ineffective foreclosure programs such as Making Home Affordable while simple solutions such as allowing bankruptcy judges to modify toxic mortgages in Chapter 13 bankruptcy are ignored. Why is that? The obvious answer is that the mortgage industry has a lot of influence over our legislators while homeowners have few advocates strong enough to force the type of policy changes that are really necessary to stop the foreclosure crisis. Legislators seem to have forgotten who they truly represent and insist on funneling foreclosure prevention funding to mortgage companies instead of homeowners who need it. Billions were spent on the modification program that was designed to help 4 million homeowners avoid foreclosure; but many have not benefited. Many mortgage companies have enrolled homeowners into temporary modification programs only to deny them permanent modifications they really needed to avoid foreclosure. In the meantime the mortgage companies still benefit, reaping the rewards of the foreclosure prevention programs funded by taxpayers while avoiding the responsibilities of actually preventing foreclosure on a long-term basis. Also, many homeowners are given false hope that they can save their home with the ineffective foreclosure prevention programs only to find that the only way they have a fighting chance to save their home is if they file bankruptcy.

Exercising Your Debtor Rights

Reed Allmand — Sun, 29 Aug 2010 01:46:03 +0000

Many debtors feel helpless under the onslaught of bills, but every debtor has a specific set of rights as established and protected by the Fair Debt Collection Practices Act. It is important that every debtor exercise his/her rights when they are contacted by a bill collector. Here’s what you need to know:

When a debt collector contacts you regarding a debt the law requires that they provide the following information in writing within 5 days:

The debt collector must provide the debtor with the exact amount of the debt owed. This is important because oftentimes when a debt is sold to a collections agency the amount owed is wrong. If the amount is not correct you have the right and it is in your best interests to challenge the incorrect amount.
The debt collector must provide the name of the creditor that says that you owe the debt. You would be surprised at the number of mix-ups in this area. Because debts are being sold so often and because of the carelessness of some debt collection agencies debtors can end up with debts that don’t belong to them. By providing this information in writing, you will have the opportunity to challenge the debt if you never took out a loan from the company listed.
The debt collector must also state in writing that the debtor has the right to dispute the validity of the debt within 30 days or the debt will be assumed valid. Debtors who think that the debt is not valid need to move quickly to dispute the debt in writing. After the dispute is submitted to the debt collector they must prove that the debt is valid and do so in writing.

Federal Reserve Adopts New Rules To End Harmful Mortgage Loan Kickbacks

Reed Allmand — Sat, 28 Aug 2010 22:47:07 +0000

The Federal Reserve has adopted new rules banning what is called “yield spread premiums,” a practice which allowed mortgage brokers and lenders to earn extra profits every time a borrower was placed in a mortgage that had higher-than-market interest rates. What are yield spread premiums? Before the mortgage bubble, mortgage brokers were traditionally paid directly from the home buyer. But with yield spread premiums, mortgage brokers were allowed to receive compensation from both the buyer and lender. Lenders offered an incentive to brokers who placed borrowers in high interest toxic loans by paying bonuses on those loans. Many critics of yield spread premiums argue that this type of kick-back compensation fueled the foreclosure crisis by creating an environment where mortgage brokers were rewarded for placing unsuspecting borrowers in expensive and toxic loans that made them more vulnerable to foreclosure.

The new rules now prohibit bonuses based on a loan’s interest rate; but does allow compensation based on a fixed percentage of the actual loan amount. Also, the new rules state that the mortgage broker must provide the borrower with several mortgage options, including mortgages that have the lowest qualifying interest rate, the lowest points and origination fees and the lowest qualifying rate.

While it is good news that the Federal Reserve has finally stepped forward to stop these unethical business practices, it is unfortunate that they waited until the foreclosure crisis did major damage to those who fell prey to toxic mortgages. The Federal Reserve also needs to include some penalties for those who violate the new rules and remain vigilant for any signs that the mortgage industry may be discovering and exploiting loopholes in the new laws.

Statute Of Limitations, Credit Reports and Your Credit Card Delinquency

Reed Allmand — Sat, 28 Aug 2010 00:45:20 +0000

Debtors facing collections actions by creditors are often unaware of time limits concerning their delinquent credit card accounts and other debts. In the state of Texas, a creditor cannot sue a debtor for payment on a delinquent account four years after last payment. For example, if you last made a payment on a credit card in 2006, the creditors would only have until 2010 to sue you for the balance of the loan. That doesn’t mean that the creditor has to stop pursuing you for payment; but it does mean that they can’t use the court system to help them collect on the credit card debt. Also, the credit bureaus are only allowed to keep delinquent account information on your credit report for seven years from the first date of delinquency. What this means is that if you stopped paying your credit card in June of 2005, the credit bureaus would only be allowed to report that information until June of 2012.

Debtors should be aware of the following issues that often come up with old delinquent credit card accounts and other delinquent debts when they are nearing the expiration of the statute of limitations:

Creditors will often file “midnight hour lawsuits” against a debtor whose delinquent credit card account or other debt is reaching the statue of limitations. The creditors file the lawsuit hoping that they will be able to win a default judgment and extend the time they can pursue the debtor for payment using the courts. Because many debtors fail to show up to court, many creditors are able to get default judgments even if the statute of limitations has expired.
Making a payment and in some cases acknowledging that you owe the debt can reset the clock for the statute of limitations. This is why debtors who have delinquent credit card accounts or other debts should not begin making payments on the old account unless they are sure they can pay it off.

Why You Should Not Opt-In For Overdraft “Protection”

Reed Allmand — Fri, 27 Aug 2010 23:17:12 +0000

New laws have prohibited banks from automatically enrolling their checking account customers into overdraft “protection” schemes. But many banks are getting creative about convincing their customers that signing up for overdraft “protection” schemes is to their benefit. Don’t doubt for one minute that the only people that the overdraft “protection” schemes benefit are the banks. Below are several reasons why you should not enroll in your bank’s overdraft “protection” scheme:

High cost. It costs a lot of money to overdraft your checking account and enrolling in an overdraft “protection” program does not reduce or eliminate that cost. When a consumer overdrafts their bank account it can cost as much as $40 per transaction and some banks have been accused of engineering their overdraft “protection” schemes so that they earn the maximum amount of fees they can. A matter of fact, overdraft “protection” raked in nearly $40 billion in 2009 alone.
You probably don’t need overdraft “protection.” What you need is a system of balancing your checking account. First of all, if you don’t overdraft your checking account, this is a non-issue; but if you routinely overdraft your checking account, the good news is that the new laws state that if there are not enough funds in the account when you attempt to make a purchase that the transaction must be denied.
It really isn’t “free.” One of the biggest selling points of overdraft “protection” schemes is that they are supposedly free. But while they may be free at sign-up, once the “protection” is triggered the costs can pile up very quickly.