FORECLOSURE DEFENSE TECHNIQUES:
BANKRUPTCY STRATEGIES
* This Q&A is a general discussion and should not be used as specific to your situation or anyone else's. Please seek individual consultation with a licensed attorney for evaluation of your case.
1) Explain the advantages and disadvantages of filing bankruptcy.
Advantages:
• Stops collection calls (many of my clients feel this is the BEST advantage)
As soon as a debtor files for bankruptcy, there is an automatic stay and most creditors must stop their collection efforts. Thus, the debtor can begin rebuilding his or her credit; financially speaking, the debtor can start over.
• Property will be protected
Certain categories of property (mainly "homestead" or primary residences) may not be taken by creditors after a debtor files for bankruptcy. Also, this protection (typically) may include motor vehicles up to a certain value, some clothing and household furnishings, life insurance and portions of earned wages.
• Clears obligations to pay in the future (deficiency judgments)
Obligations to repay debts are erased through the discharge of debts during the bankruptcy process. Therefore, the debtor is no longer legally liable for the debts (i.e., all the upside-down mortgages), which will help a debtor's ability to maintain a reasonable level of credit payment history over the course of the next 10 years.
• See attached sheet in deficiency judgments.
Disadvantages:
The most obvious disadvantage of filing for bankruptcy is that it will affect your credit for at least seven to 10 years. Other disadvantages include:
• Losing credit cards
• Losing nonessential possessions
• Inability to obtain a mortgage for some time
• Not all debt will be discharged
• Embarrassment (which most people are not too concerned with now)
2) Who should consider bankruptcy as an option (how much minimum debt should you have)?
• My "general" rule of thumb is more than $5,000 of credit card debt, AND/OR a home's value upside down so much that it will take more than five years to even consider seeing any equity return.
• For clients seeking my assistance for debts under $5,000, I rarely recommend proceeding with filing anything, as direct negotiations with creditors for settlement are a much more advisable action.
3) How long does it take for a bankruptcy to go through?
• Chapter 7 generally takes three months (90 days) to complete.
• Chapter 13 cases run between three to five years, depending on the circumstances.
4) Which debts will not be erased in bankruptcy court?
• Past due child support or alimony payments and other debts resulting from divorce settlement agreements
• Student loans except in certain exceptional circumstances
• Income taxes that are less than three years past due
• DUI judgments against the debtor
• Debts incurred by fraudulent means (e.g., writing a bad check or providing false info on a credit application)
5) Explain the benefits of bankruptcy vs. foreclosure if a person is behind in mortgage payments.
Clears obligation to pay in the future (deficiency judgments)
Obligations to repay debts are erased through the discharge of debts during the bankruptcy process. Therefore, the debtor is no longer legally liable for the debts (i.e., all the upside-down and/or past due mortgages), which will help a debtor's ability to maintain a reasonable level of credit payment history over the course of the next 10 years. In a foreclosure and in Florida, the bank has up to five years to come after the borrower for the deficient amounts (very similar to chasing a deadbeat father for child support).
6) What is a short sale? Is that easier/better than a foreclosure?
• Borrowers can be considered for loans following a short sale after 24 months, if the sale was due to extenuating circumstances outside a borrowers' control, or 48 months if it was the result of financial mismanagement on the borrower's part.
7) How do short sales/foreclosures/bankruptcy affect credit?
• See attachment to this e-mail on credit scores.
• General rule of thumb: "The higher you are (credit score), the farther you fall."
8) What can people do to improve their credit score after they file bankruptcy?
Clean the credit report
• One common problem after emerging from bankruptcy is that credit reports frequently show accounts as open and overdue, when in fact they were closed and the obligations wiped out as part of the bankruptcy.
• Filers need to contact the credit bureaus, either on their own or through a credit repair company, and insist that those accounts be properly reported as "included in bankruptcy."
Get a secured credit card
• A secured card generally gives a credit limit that's equal to an amount deposited at the issuing bank (Typically $200 to $500).
• Filers should not be charging more than 30 percent or so of the credit limit and need to pay the balance off in full each month.
• IN SHORT: Light, regular use of a credit card is what helps build credit.
WHAT TO DO NOW: Seek counsel to have your situation individually reviewed, as no two cases are alike.
The Law Offices of Jake Miller, LLC, offers a free initial consultation. To schedule an appointment with a Miami lawyer, call 305-758-2020 or contact us online.
