Monthly Archives: May 2012

Everything You Wanted To Know About Bankruptcy

What Is Bankruptcy?

Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law. A decision to file for bankruptcy should be made only after determining that bankruptcy is the best way to deal with your financial problems. Bankruptcy is a difficult and personal decision, but it is a choice that may help if you are facing serious financial problems.

Although bankruptcy can help with some financial problems, its effects are not permanent. If you choose bankruptcy, you should take advantage of the fresh start it offers and then make careful decisions about future borrowing and credit, so you won’t ever need to file for bankruptcy again!

What Can Bankruptcy Do for Me?  Bankruptcy may make it possible for you to:

1. Eliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of debts. It is designed to give you a fresh financial start.

2. Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)

3. Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.

4. Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.

5. Restore or prevent termination of utility service.

6. Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.

What Can’t Bankruptcy Do for Me?

Bankruptcy cannot, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:

1. Eliminate certain rights of “secured” creditors. A “secured” creditor has taken a mortgage or other lien on property as collateral for the loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt.

2. Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and some taxes.

3. Protect cosigners on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.

4. Discharge debts that arise after bankruptcy has been filed. How can you save your assets? Bankruptcy is a federal legal process for debt management available to most individuals and businesses. Successfully completing a bankruptcy case allows individuals and businesses to either eliminate or reorganize most of their debt. The bankruptcy laws are contained in 11 U.S.C. Sec. 101 et. seq.

When should I consider bankruptcy?  You should consider bankruptcy when:

1. you’ve been unemployed for several months and your prospects are questionable.

2. it becomes evident you cannot pay your bills as they come due.

3. you start considering using your VISA card to pay your MasterCard.

4. you receive a letter from your mortgage company threatening foreclosure.

5. you fear your car will be repossessed.

6. your car HAS been repossessed.

7. you’re considering a home equity loan to consolidate your bills.

8. you’re considering cashing in your 401(k) or your IRA.

9. you’re worried about protecting other assets.

10. a creditor is threatening or has filed suit.

11. you have significant IRS debt.

12. you just can’t abide any more collection letters and phone calls.

Are there alternatives to bankruptcy? Of course. Some people have successfully managed their finances through nonprofit credit counseling centers. Sometimes a payment plan can be negotiated directly with a creditor. Obtaining loan extensions, compromises and workout agreements require negotiation skills and experience. These alternatives may alert your creditors to the existence of nonexempt property that the creditor could reach and can involve considerable expenses. You also have the option of doing nothing, which may entail certain risks. Creditors can obtain court judgments on the debt and then attempt to collect the judgment. Some states allow creditors to satisfy their judgments out of the debtor’s property, including bank accounts and certain personal property. If you sell real property after the judgment is filed, you will most likely have to satisfy the judgment out of the proceeds of the sale. Judgment creditors cannot, however, foreclose on your homestead to satisfy the judgment, and they cannot garnish your wages.

What kinds of bankruptcy are available?  There are five kinds of bankruptcy:

Chapter 7 – also known as “straight” bankruptcy.

Chapter 9 – reorganization for municipal entities.

Chapter 11 – reorganization for businesses and for individuals with excessive debt.

Chapter 12 – reorganization for family farmers.

Chapter 13 – reorganization for individuals with a regular source of income Most individuals and couples file either a Chapter 7 case or a Chapter 13 case.

Do I need an attorney to file bankruptcy? No, but the process can be intimidating, and complications can cause dire results. Try to use an attorney if possible.

What is a Chapter 7 bankruptcy? The bankruptcy laws are designed so that all debtors emerge from bankruptcy with sufficient assets to make a fresh start. These assets are called exempt property. Chapter 7, also known as “straight” bankruptcy, requires that you turn over all nonexempt property to a bankruptcy trustee, who then converts it to cash for distribution to your creditors.

What is a Chapter 13 bankruptcy? When you file a Chapter 13 case, you agree to pay over to the Chapter 13 trustee a portion of your disposable income each month for 3 to 5 years.

Will the bankruptcy stop bill collectors from calling? Yes. A provision of the Bankruptcy Code stops these calls.

Will bankruptcy stop a wage attachment? Yes, including IRS wage attachments.

Will bankruptcy stop a foreclosure? Temporarily, yes. But, not forever.

Will bankruptcy stop a lawsuit? Bankruptcy stops most civil lawsuits, including most IRS proceedings.

Is it true I can cancel all debts by filing bankruptcy? The underlying policy of bankruptcy law is that the honest debtor who is in debt beyond her ability to repay the debt should receive a fresh start through the discharge of debts.

Is alimony dis-chargeable? Alimony, maintenance and child support payments generally are not dischargeable.

Will bankruptcy remove a lien? Under some circumstances, once the bankrutcy proceedings have started, a special motion can be filed to remove certain liens.

Can I discharge student loans? Generally, student loans are not discharged in bankruptcy.

Can I discharge taxes? In most instances, taxes owed to the federal government are not discharged unless they are more than 3 years old.

Will bankruptcy affect my job? Your employer cannot fire you for filing bankruptcy.

What happens to my personal property, real property and other assets? You are required to file a schedule with the court describing all of your assets. Certain property is either excluded from the bankruptcy or exempt, and you will be able to keep that property.

Will I have to go to court? About 4 to 6 weeks after filing the bankruptcy petition, you will have to attend a hearing presided over by a bankruptcy trustee.

What if someone who owes me money files bankruptcy? If you are listed as a creditor in the case, you will receive notice of the bankruptcy from the court in which the case was filed.

My employer filed bankruptcy. How do I get paid? If you are a union employee, contact your union. If not, file a proof of claim for any unpaid wages, vacation benefits, etc. owed from before the date of filing.

What should I do to prepare for filing bankruptcy? First, you should consult with an attorney. An attorney can help you plan for the bankruptcy, decide when to file a bankruptcy petition, or even avoid filing for bankruptcy.

If you decide to file a bankruptcy petition, you should:

1. Stop using your credit cards. If you charge up your credit cards knowing that you’re going to file bankruptcy, the debt may not be discharged. Also luxury purchases over $1,150 and cash advances totaling more than $1,150 within 60 days before the bankruptcy filing are not dis-chargeable.

2. Don’t transfer your assets to friends, family and business associates to protect the assets from your creditors. The transfer may be considered a fraudulent conveyance. If it is, you may lose both the property and your right to a bankruptcy discharge. Instead, consult an attorney. There may be legitimate ways to save the property.

3. Don’t destroy any business or financial records. You can lose your right to a bankruptcy discharge as a result.

4. Carefully choose the creditors you pay. Some creditors, such as landlords, secured creditors, and some utilities should be paid under most circumstances. If you pay a credit card debt that eventually will be discharged, you may be throwing money away.

Home Equity Loans

Most common uses of Home Equity Loans:

  1. Home improvement
  2. Debt consolidation for homeowner’s
  3. Pay for college
  4. Add an addition to your home
  5. Pay off credit card bills
  6. And many other uses along these lines

A home equity loan and home equity lines of credit are two of the best ways of making your home work for you.  For homeowners who are interested in receiving a lump sum payment a home equity loan may be the best way to use your home equity to your advantage.  If as a homeowner you’re running into large costs like post secondary tuition, medical expenses or starting a small business a home equity line of credit may also work to your advantage.  In some situations, a home equity loan or a home equity line of credit makes more sense than refinancing.

If you’re a homeowner who has built up equity with a substantial down payment, has paid down a large part of your mortgage principal and/or has seen an increase in property values you can reap the benefits of a home equity loan by borrowing against the equity you have in your home. As a rule, a home equity loan is based on a given percentage of your home’s appraised value, minus any outstanding balance.

For instance, if your home is appraised at $200,000 then 80 percent of that total would be $160,000.  If your remaining unpaid mortgage amount is $130,000, then you would have $30,000 in available equity.   It may also be important for you to realize that some lenders now offer a home equity line of credit up to 125% for well qualified consumers.  Your ability to repay the home equity line of credit is also taken into account when you apply.

As with any mortgage loan, your home equity loan rate will vary with your own unique personal credit history, outstanding debts and income. Your home equity loan rate is usually variable and one to three points above prime.  You also benefit from interest rates being tax-deductible as your house is used as collateral for your home equity loan.  Your home equity loan options include traditional fixed rate and variable rate loans.

A home equity loan is similar to a second mortgage in that payments are often made monthly over a 10 to 30 year term and result in full repayment. With a variable rate home equity loan, you should understand what your minimum monthly payments and maximum interest will be for your personal equity amount.  Note also that fees usually apply on all home equity loans. Additional expenses often include points, application costs, appraisal fees and the cost of having a credit check done.  If however, you opt to pay more points up front to borrow at a 100 percent loan to value (LTV) ratio, many if not all of these charges may be waived.

Home Equity Loans – Equity seconds – Equity seconds are second mortgages that use the equity you have in your house as the basis upon which a lender loans you money.  These loans include home equity loans and home equity lines of credit, or HELOC ‘s.  Most lenders will require an appraisal in order to establish your house’s value and the equity contained therein. Borrowing with an equity second normally allows you to obtain a better rate due to the fact that the money borrower is secured on property you have ownership in.

Home Equity Loans – Over-equity seconds – Over-equity seconds are second mortgages that lend you money over and above the value of your house. Over-equity seconds are commonly known as “125’s” or “115’s” because they allow a lender to loan you money at 125% or 115% of your house’s value. Requirement of appraisal is based upon the amount of money borrowed. Typically, if you plan to borrow over $35,000 on an over-equity loan, an appraisal is required. Borrowing with an over-equity second allows you to obtain a loan when a personal loan may have not been possible.

Home Equity Line Of Credit (HELOC) – A home equity line of credit is often more flexible than a standard lump-sum home equity loan since it carries a shorter term.  For homeowners who occasionally need some extra cash, a home equity line of credit may be just the product to protect you against overdraft fees on your checking account.

A home equity line of credit gives you a specific credit limit based on a percentage of your home’s appraised value less your remaining mortgage balance.  A benefit of the credit line option is that you only have to pay interest on the amount you use.  No interest is charged on unused portions and if you decide not to use it, it costs you nothing.  A home equity line of credit agreement is usually divided into what is known as a draw period and a repayment period.  The draw period usually runs five to ten years during which you can take out any portion of the funds you desire simply by writing a check against the line of credit.

Any payments then go back onto your credit line and become available funds.  Sometimes homeowners opt to make interest only payments until the home equity line of credit comes due.  At the end of the draw period you may opt to renew your home equity line of credit or pay off the outstanding balance. Whether you will be able to renew your line of credit or not is at the discretion of your lender.  Please note as well that some line of credits have minimum withdrawal amounts and or monthly payments guidelines you must adhere to. Any limitation should be spelled out in your agreement.

Debt Consolidation Loans for homeowner’s are not the same as debt consolidation loans for non-homeowner’s.  Debt consolidation loans for homeowner’s are loans that are backed by the equity the homeowner has in their home.  Debt consolidation loans for homeowner’s are secured loans.  We offer both debt consolidation for homeowners and non-homeowners.  Debt consolidation loans for homeowner’s are very similar with second mortgages, home equity loans and HELOC’s.  They can usually be used interchangeably.

Home Improvement Loans can be either a home equity second mortgage or over-equity second mortgage can be used for home improvement purposes ranging from minor repair to major refurbishing to new home additions.  In the case of an over-equity second being used for home improvement, a lender will normally require an estimate of work to be completed on the home for amounts above $10,000.  Some lenders may also require that the money borrowed be directly paid to the contractor performing the work.  Either way, if you want to spruce up your home, add an addition, have landscaping done, or whatever, please fill out our no-obligation form and an experienced home mortgage specialist will contact you within 24 hours and get you the loan you need.

Top 5 Mistakes People Make When Taking Out a Home Equity Loan

1. Choosing a home equity lender for the wrong reason (i.e., the lowest rate, your existing lender.)

People choose home equity lenders for all the wrong reasons. Getting a low rate is important, but it’s not the only consideration when you want to take out a home equity loan. Lenders may offer the lowest rate but charge extra fees (loan fees, origination fees, copy fees) so that in the end you’ll pay more for the home equity loan even though your rate may be lower. The only way to protect yourself is to wait for the Good-Faith Estimate (GFE) which should list all the closing costs.  Compare the GFE’s from a number of home equity lenders.

But comparing GFE’s is not the only story when you want to take out a home equity loan. If time is important, you want to choose a mortgage company that is capable of acting quickly. Ask each company to give you their average closing time for loans similar to yours.

Ask around among your trusted friends. Find out who took out a home equity loan lately and ask them what they thought of the company. Don’t assume that your existing lender is any better than a new lender. Since most loans are sold in the secondary market, everyone has to meet certain criteria, and your existing lender will probably require the same documentation as a new lender. However, once you have a commitment from a new lender, it doesn’t hurt to ask your existing lender to beat it. Often times they will. We will get you the best rate available.

2. Not getting everything in writing when seeking a home equity loan.

Get everything in writing. No matter what the Loan Officer tells you about your home equity loan, ask him/her to confirm it in writing. Don’t believe someone when they tell you that your home equity rate is guaranteed. Get it in writing.

3. Not knowing the difference between a home equity loan and a home equity line of credit.

A home equity loan is a loan, like a 2nd mortgage. A home equity line of credit is a credit line – money that is made available to you to use when you need it. There’s a big difference. Some credit lines have interest rates which are adjustable and which can go as high as 15% or more.

4. Not knowing the appraised value of your home.

Home equity loans and home equity lines of credit are based on the difference between what you owe on your house and what your house is worth. Many people go ahead and try to get a home equity loan on their home without knowing the true value. There are many places you can get an estimate of the true value of your home. Many realtor sites have home value estimators on their site. For the price of listening to a mortgage company try to sell you a mortgage, you can get an approximate value for your home.

Check the recent sales in your neighborhood and try to find a comparable house in a comparable location. Or you can ask the appraiser to do a drive by and give you a verbal estimate of the value of your home. If it’s in the right ballpark, you can order a thorough appraisal.

5. Not doing the math on a home equity loan.

Having a home equity loan can be better than taking out a 2nd mortgage because the origination costs are less. However, the monthly interest rate may be more with a home equity loan than with a 2nd mortgage. So, depending on how much you are going to need and how soon you are going to need it, you may find that a 2nd mortgage is a better way to go.

Another big mistake people make with home equity loans is to take out a large amount of money and put it into their checking account. You may pay as much as 8% for the home equity loan while the money you took out is only earning 2% in your bank account. Recommendation – only take out as much as you are planning to use.