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Bankruptcy versus new mortgage
Checklist for discussion with your attorney
The bankruptcy process
Means Test
Foreclosure Defense

Bankruptcy versus New Mortgage
Before jumping into a bankruptcy or a new mortgage, consumers should consider the pros and cons of each option.

Bankruptcy sometimes is viewed as an "easy way out," and some feel that there is a stigma associated with it. Although obtaining another mortgage on a house may seem somewhat more "macho" and acceptable for those who are very concerned about others finding out out and who care what those other people think.

Generally speaking, for those individuals who have a very mild financial problem, another mortgage may be a better alternative; for those who have more than a mild financial problem, bankruptcy is probably the better route.

However, in either situation, the only real and honest way to determine the best approach for you is to "run the numbers." Simply determine your income, your expenditures, and what each alternative will do for you.

Although the bankruptcy can stay on your credit report for years, banks normally will consider someone who previously has filed a bankruptcy. Keep in mind, though, that a mortgage normally has a long-term commitment, such as 15, 20, or 30 years.

Moreover, particularly if the real estate market is stagnant, consider whether it makes sense to pay substantial mortgage debt most of your working life and over-leverage the house (i.e., pay $65,000 of principal back to the banks on a house that was originally purchased for $50,000).

Checklist to Discuss with Your Attorney

 1. Budgeting for expenses

  • Housing
  • Clothing
  • Food
  • Medical
  • Insurance
  • Child Care
  • Transportation
  • Entertainment
  • Education

2. Warning signs of bankruptcy

  • Frequent calls from bill collectors
  • Inability to pay bills
  • Liens filed against your property
  • Garnishments taken on your wages
  • Foreclosure begins on your home
  • Threats or actual repossession of your vehicle
  • Making only minimum credit card payments
  • Attachment of bank accounts
  • Lawsuits

3. Benefits of bankruptcy proceedings

  • Creditors may not phone you
  • Garnishment stops
  • Repossessions stop
  • Probably retain your house
  • Probably retain your vehicle

4. Debts that may not be dischargeable

  • Alimony
  • Child Support
  • Secured loans
  • Educational loans
  • Bills for luxury items
  • Fraudulent use of credit
  • Debts arising from drunken driving, willful and malicious injury, or fraud

 5. Partly/fully-protected property

  • Houses
  • Automobiles
  • Bank accounts
  • Jewelry
  • Tools
  • Computers and electronic equipment
  • Retirement
  • Household goods

6. The attorney Scott Humble will prepare the following bankruptcy schedules

  • List of real property
  • List of personal property
  • Property claimed as exempt
  • Creditors holding secured claims
  • Creditors holding unsecured priority claims
  • Creditors holding unsecured nonpriority claims
  • Executory contracts and unexpired leases
  • Codebtors
  • Current income of individual debtors
  • Current expenditures of individual debtors
  • Chapter 13 plan - if necessary

The Bankruptcy Process
I understand that there are many reasons for financial difficulties, such as the loss of a job, the death of a breadwinner, or too many credit card purchases. Money problems can be emotionally wrenching and may seriously damage family relations.

However disturbing the idea of bankruptcy might initially seem, the fact is bankruptcy laws are there to help those who are unable to pay their bills. The next section describes the bankruptcy process and reviews your alternatives under the bankruptcy laws. The attorney Scott Humble can advise you about your options so that you can get the maximum advantage available to you by law.

Means Test
As of October 14, 2005, the bankruptcy law has instituted a "means test." The means test is an arbitrary test based upon your household income and household size for the first part of the test; and if you fail, you are allowed arbitrary expenses (with very few actual expenses) in an attempt to pass the second part. It is similar to filling out three (3) federal tax returns. If you pass, you may file a Chapter 7 Bankruptcy. If you fail, you must file a Chapter 13 Bankruptcy. Where I like my clients to pay unsecured non-priority creditors only 5 cents on the dollar over five (5) years, the means test will determine the amount paid to this class of creditor.

Foreclosure Defense
There is that slight possibility of fighting a foreclosure based upon "robo-writing." It is expensive. And, although you may not have to pay your mortgage, what happens when you go to sell your property? Therein lies the problem. Even if you win and don't have to pay your mortgage, very few cases include the discharge of mortgage. If the discharge is not available, then no one is going to buy your house. You may have been wronged. You may wish to "stiff" the bank. But, there is another option to save your house, and it was specifically designed to do just that: Chapter 13 Bankruptcy. The foreclosure is stopped as soon as the papers are filed electronically with the court. So, no more worries about losing the house. The arrears are put into a five (5) year payment plan to make it affordable.

 

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