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Posts Tagged ‘property’

Can I keep my house in bankruptcy? Another exciting installment of “Ask Doan Law Firm” (Part 2).

Friday, October 1st, 2010

Q:  Can I keep my house in bankruptcy?

A:  In the last post we analyzed this question in a Chapter 7.  Let’s look at a Chapter 13.

Just like a Chapter 7, in a Chapter 13 you receive an automatic stay on the date of filing.  That means no foreclosure can take place without court permission, i.e., the court grants a Motion for Relief from Stay.

Chapter 13 is a bit different because you are proposing a holistic financial plan for the next 3 – 5 years.  Your intention with the house will be a driving force in the plan.  Just like in a Chapter 7, you can surrender the house.  If you do, the resulting debt will put into the pot with your unsecured debt, credit cards, medical debt, etc., and will be addressed in your plan.

If you’d like to keep the house in a Chapter 13 plan, it needs to be part of the entire plan.  That means you need to be able to pay the payment, taxes, insurance and repairs going forward.  This often works because when the rest of your debt is worked into an affordable plan payment, the house may become affordable.

The Chapter 13 plan must address any missed payments.  These are priority claims and will be given special treatment.  You need to make sure you can make a plan payment large enough to catch up the house over the 3 – 5 years of your Chapter 13 plan.

As you might guess, keeping your home in a Chapter 13 is complicated to determine; you’re going to need assistance.  Doan Law Firm has a team of Chapter 13 professionals that do only Chapter 13 bankruptcies all day, every day.  They’re very knowledgeable, caring, and are ready to help you.

Your Underwater Mortgage Doesn’t Have to be a Ball & Chain

Monday, August 2nd, 2010

California is a non-recourse state for the first mortgage on a home, meaning that the debt is tied up in the collateral, not the individual.   This means that when the bank forecloses on your home, once you turn over the collateral (your house), the bank cannot come after you for any outstanding debt.

Using an example, say you bought a house in 2003 for $800,000 by taking out a $600,000 mortgage.  You live in the house for a couple of years enjoying relative prosperity and pay off about $50,000 of the mortgage.  Then, tragedy: the real estate market crashes and the value of the home is now $250,000.  $300,000 of your mortgage is now unsecured, which means your house is now an under-secured debt.  Say you then lose your job and cannot make the mortgage payments.  After struggling to make ends meet and defaulting on your mortgage several months in a row, the bank starts foreclosure proceedings and sells your home for $250,000.  Because California is a non-recourse state, once you turned over the collateral (your house), your mortgage lender cannot collect from you.  Even if you had $200,000 in your bank account, the lender cannot touch it.  The lender assumed this risk when they approved your mortgage application, so after you hand over the house you can walk away and live happily ever after.

However, even in a non-recourse state, if you have a second mortgage that you took out after your first mortgage, you are still on the hook for that debt.  For example, say in 2003 you bought the house for $800,000 with a mortgage of $500,000.  You then enjoyed a year of prosperity followed by a few years of hardship.  After struggling to make ends meet, you decide to take out a second mortgage on your house worth $100,000.  Real estate market crashes and the house is now worth $200,000, leaving you upside-down on the house by $400,000.  If you turn over the house, you can walk away from the first $500,000 mortgage, but you’re still liable for the second $100,000 mortgage.  Since you no longer have the collateral, the second mortgage is now an unsecured debt, which you are still liable for.

Most people cannot afford to continue making payments on a mortgage for a house they no longer own.  If you default on your payments, the bad news is that the lender could get pretty aggressive about collecting on the outstanding balance.  The lender can go to court and get a judgment allowing them to collect from you through wage garnishments or a bank levy.  For someone who is struggling to make ends meet, these garnishments or levies can be brutal.

The good news is that unsecured debts can be discharged in bankruptcy.  If you simply cannot afford to continue making the mortgage payments for a house you no longer own—or if you are facing potential wage garnishments or bank levies—call the Doan Law Firm for a free, no obligation consultation to learn about how bankruptcy can alleviate this financial stress.

Your Upside Down Car Becomes a Win-Win

Wednesday, June 16th, 2010

The general rule going into bankruptcy is that the debt attached to the asset follows it around like a lost puppy.  The most obvious choices are keeping the asset with the debt or surrendering the asset to get rid of the debt.  Where the amount owed is significantly more than the value of the property (like most cars), but the asset is important to daily life, neither choice is very appetizing, both sound like a lose-lose proposition.  Enter the third, lesser known option, Redemption.

Redemption is available for all personal property primarily used for household purposes, but it works especially well with cars.  If you’ve owned the car more than 910 days, you have the option of paying the value of the car in a lump sum and owning it outright.  Wait, wait, before you stop reading thinking, “if I had that kind of cash I wouldn’t be reading this blog.”, there are companies that lend the lump sum necessary for just these types of situations.  As you can imagine, credit scores are moot and the interest rate is higher, but when the principal balance is brought in line with the value of the car, there is generally significant savings.  Also, there’s no penalty for early payoff so after your fresh start you can take all the money you’d been throwing down the vast pit of credit card debt and own your car free and clear.  Like retaining an experienced Orange County Bankruptcy Attorney at Doan Law Firm, that’s a win-win.

Property Insurance: Don’t Save a Buck and Lose 100

Wednesday, March 31st, 2010

Following on the heels of Doan Law Firm’s previous blog post regarding how Homeowner’s Association fees (HOA) are handled in bankruptcy, its sister issue, property insurance, is equally important.

Despite the cost, it is imperative the borrower to keep property insurance in place until their name is completely off the title to the property.  That point does not occur until after the foreclosure sale is completed and the trustee’s deed has been recorded.  The problem is that any claims arising after the bankruptcy case is filed will not be dischargeable.  Yikes, isn’t that the whole idea of bankruptcy?  Who wants to complete a bankruptcy only to find they still have debt?

Are you ready for a scary example?  Let’s say a borrower falls behind on mortgage payments and decides to walk away from the property.  They can file a bankruptcy case using Los Angeles Bankruptcy Attorneys to resolve mortgage debt, property tax and HOA (with some limitations).  What if, after the bankruptcy is filed and during the foreclosure, a neighborhood kid or utility company employee reading a meter slips on a discarded piece of linoleum and breaks their back?  The first question the lucky personal injury attorney will ask is:  who is responsible for this real estate, i.e, who is on title?  The person on title will be the one signing the spinal fusion checks.  Don’t let that be you. As your Orange County Bankruptcy Attorneys will tell you,  the cost of property insurance is low compared to the potential liability.

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