Bankruptcy Can Prevent Foreclosure

If you are behind on your mortgage and facing foreclosure, bankruptcy may offer you relief.  For most filers, the instant your bankruptcy case is filed, the automatic stay goes in to effect.  Once your creditors are notified about your case, foreclosures and other collection activities by your creditors are halted.

Filing Chapter 7 bankruptcy can temporarily stop a foreclosure for a few months. This may give you time for a loan modification or to receive assistance from the North Carolina Foreclosure Prevention Fund. However, if neither of those solutions work, your mortgage lender may eventually succeed in foreclosing your home. At most, this may only stall the process for six months because Chapter 7 does not cure the arrears on your mortgage loan.

On the other hand, Chapter 13 bankruptcy is an effective way to prevent your home from being foreclosed because it gives you time to catch up on missed payments.  This is done by filing your Chapter 13 plan with the court, which allows for up to 60 months to pay off your past due mortgage payments.  Unlike a loan modification, your lender does not have to agree with your plan.  As long has you make your plan payments and your plan complies with the bankruptcy laws, the court will approve your plan.

But don’t wait until it’s too late.  It is much better to talk to an Asheville Bankruptcy Attorney sooner than later.  If your mortgage company starts a foreclosure, it can typically add $2,500.00 or more that you will have to pay back in the bankruptcy just to pay your lender’s foreclosure attorney fee.  Also, if you wait until after the foreclosure sale and upset period, the foreclosure will be final and bankruptcy may offer you no relief.  Contact Mosley Law Firm today to get started.

Are You Thinking About Filing Bankruptcy? Don’t Try These Three Things First.

When a client comes to me seeking help to file bankruptcy, many times they have tried something else first.  Whatever they tried didn’t work.  It was also time, money, and headache that could have been avoided.  Sometimes there are strategic reasons to wait to file bankruptcy.  But usually, the sooner you file bankruptcy, the sooner you eliminate your debts and begin making a financial recovery.

If you are considering doing one of these three things to try and get out of debt, call me first.  It may do more harm than good:

 

  1. Don’t try to make a debt settlement program work.

Bankruptcy is cheaper, takes less time, and stops lawsuits from your creditors.  If you sign up for a debt settlement program, your creditors aren’t getting paid and after a while they are likely to sue you.  This is usually about the time many of my clients decided debt settlement was not worth it.

 

  1. Don’t borrow money from friends and family.

You’ll feel morally obligated to repay them, and if you do, the court might view the repayment as fraudulent and your friends or family may have to give the payments back.  Do this and you may have to wait before you can file bankruptcy.

 

  1. Don’t use your 401(k) to pay down debt.

You’ll need the money for retirement and you’ll get to keep all of it when you file bankruptcy.  Use it to fend off your creditors before filing bankruptcy and you won’t get that money back.  It may also trigger tax consequences, and if you can’t afford the tax bill when it comes due, you may not be able to discharge the debt in a Chapter 7 bankruptcy.  If you file a Chapter 13 bankruptcy instead, it may increase the amount of your monthly plan payments.

 

Talk to me first.

Don’t try figuring it out on your own.  I will tell you if bankruptcy is the best option or if there is another solution that would work better.  These solutions might make sense if bankruptcy isn’t a workable solution.  Usually, it just delays the inevitable.  The longer you take until you file bankruptcy, the longer it will take to get a fresh start.

Which Exemptions Do You Use When You File Bankruptcy?

When you file bankruptcy, your exemptions determine what property you get to keep.  There are federal exemptions and state-law exemptions.  The exemptions you use depends on where you have lived for the past two years prior to filing bankruptcy and whether that state requires you to use its exemptions or permits you to use the federal exemption.  If you’ve lived in North Carolina for the past two years, the answer is simple – you’ll use the North Carolina exemptions when you file bankruptcy.  You can read about those here.

 

But what if you haven’t lived in North Carolina for two years?  In that case, you look to where you lived for the 6-month period just before the two-year period.  For example, if you are filing bankruptcy on January 1st, 2018, you look to where you lived for the majority of the time from July 1st, 2015 to Dec 31st, 2015.

 

Once you have figured out which state applies for the 6-month period, there is one more step – you must look to the law of that state to determine if non-residents can use that state’s exemptions.  Many states do not allow non-residents to use its exemptions so you’ll use the federal exemptions. Some states do, and in that case, you will use your prior state’s exemptions, or if permitted, the federal exemptions.

 

The state-law exemptions usually differ from the federal exemptions, and depending on what you own, one set of exemptions may be more advantageous.  That is why it is important to carefully review the time periods and your assets to determine if you should go ahead and file bankruptcy now, or if it would be better to wait so that you can use North Carolina exemptions.

Do You Qualify For Bankruptcy?

Odds are that you qualify for at least one of the bankruptcy chapters.   Very few things will actually disqualify you from filing bankruptcy:

  • If you have been in a bankruptcy in the past six months and your case was dismissed under limited circumstances
  • If you failed to take an approved pre-bankruptcy credit counseling course within six months before filing your bankruptcy case and you do not meet any of exceptions that would excuse you from taking the course.

 

The bigger question is what type of bankruptcy you qualify for.  Below is a general overview for 99% of bankruptcy filers:

 

  • Is your household income below the average for North Carolina?  Is your monthly take home pay about the same, or less than, your monthly expenses?  (When making this calculation include payments you make on your car or home, but exclude all other unsecured debts like medical bills, credit cards, and personal loans.)

If so, you may qualify for Chapter 7 bankruptcy.

 

  • Is your household income above the median?  Are your unsecured debts less than $394,725 and your secured debts less than $1,184,200?  Do you have regular income that exceeds the expenses of your bare necessities?

If so, you may qualify for Chapter 13 bankruptcy.

 

  • Do your debts exceed the dollar limits allowed in Chapter 13?

If so, you may qualify for Chapter 11 bankruptcy.

 

  • Are you a family farmer or family fisherman?

If so, you may qualify for Chapter 12 bankruptcy instead of Chapter 13 bankruptcy.  You may also qualify for Chapter 7 bankruptcy.

 

However, qualifying for bankruptcy is one thing, but whether or not you will be able to obtain a discharge and keep your property gets a little more complicated. Look for part 2 of this article for an overview why you may not want to file bankruptcy even though you qualify.

 

You Don’t Lose Your Retirement Accounts in Bankruptcy

You made responsible choices and contributed to a retirement account, and now that nest egg has grown significantly.  Don’t worry about losing your retirement savings in bankruptcy, because it’s exempt.  Under North Carolina exemptions, all IRS qualified retirement accounts (employer pensions, 401(k)’s, Traditional IRA’s, Roth IRA, etc.) can’t be touched by the bankruptcy court.

If you are a state or municipal employee, those retirement benefits are exempt too.  This also applies to retirement accounts from the federal government, as well as other states and their municipalities.

If you haven’t filed bankruptcy yet, but are considering withdrawing from your retirement benefits to pay down debt, please call me first.  Many times this just delays the time before you end up filing bankruptcy, except now you’ve spent your retirement funds.  Funds you would have kept had you filed bankruptcy first.

Every dollar that you spend from an exempt source is a dollar that you could have otherwise kept after filing bankruptcy. The sooner you file bankruptcy, the sooner you will stop making payments on old debts that are keeping you from getting a fresh start.

 

I was sued for a debt, is it too late to file for bankruptcy relief?

I was sued on a credit card debt, I didn’t contest the lawsuit and the creditor obtained a judgment. Now they have judgment lien against my home. Is it too late to file for bankruptcy relief?

For most bankruptcy filers, the answer is “No!” But if you can, don’t wait until a creditor obtains a final judgment. The quicker you act, the better.

In North Carolina, if a judgment is obtained against you, it acts as a lien against any real estate you own. This is called a “judgment lien”. This can prevent you from selling your home without first paying off the judgment. If you don’t have equity in your home or available cash to pay off the judgment, the judgment lien can prevent you from being able to sell your home.  But, help is still available through bankruptcy relief.

The Bankruptcy Code allows debtors to remove judgment liens when there is no equity available in your home above and beyond your mortgage and exemption allowances. I can file an adversary proceeding in the bankruptcy case to “strip” the lien from your home. An adversary proceeding is like a mini-lawsuit within the bankruptcy. However, if an adversary proceeding must be filed, it can make the costs increase in your bankruptcy case.

If you’ve been sued over a debt, don’t wait.  Give me a call today so we can discuss you options and hopefully save you money in the long run.

Discharging Student Loan Debt Through Bankruptcy

The strain of student loan debt is felt by many these days as the nation’s student loan debt total exceeds a trillion dollars – more than the nation’s credit card debt. Many wonder whether student loans debt can be eliminated or reduced through bankruptcy.

Lenders typically have little risk of losing money on loans because Congress has given the lenders greater power than typically afforded to credit card or mortgage lenders.

But for the borrower, Congress has made is especially difficult to get rid of student loan debt if you are unable to pay. To discharge student loan debt in bankruptcy, the debtor must show that the student loans are causing the “undue hardship.”

For bankruptcy filers in Tennessee, the courts have held that to show undue hardship, the bankruptcy debtor must show:

  1. that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for one’s self and dependents if forced to repay the loans;
  2. that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
  3. that the debtor has made good faith efforts to repay the loans.

If you are considering bankruptcy and you have a large amount of student loans, you should contact us to discuss your options. Even if you are unable to obtain a bankruptcy discharge of your student loans, often times the other benefits of discharging your other debts through bankruptcy will put you in a better position to repay your student loans.

What Can You Keep When You File Bankruptcy?

A common myth is that you lose all of your belongings when you file bankruptcy.  This is far from true. Your bankruptcy case can be structured so that you keep everything that you own by claiming various exemptions under North Carolina and federal laws.  Were it not for exemptions, a bankruptcy trustee would take your assets, sell them, and distribute the proceeds to your creditors.  However, bankruptcy law is designed so that you can keep a certain amount of your belongings.  The amount you can keep will depend on the category of each asset, although some categories have no dollar limits.  If you are married and filing a joint bankruptcy case, most of the dollar limits can be doubled.

If you have lived in North Carolina for the past two years, the following exemptions apply for your bankruptcy:

Earnings to Support Family – You can exempt an unlimited amount of wages you earned in the past 60 days, so long as those earnings are necessary to support your family.

Residence – You can exempt up to $35,000 in equity in your home.  This means that if your home is worth $135,000, but you have a mortgage payoff of $100,000, the remaining $35,000 cannot be touched by the bankruptcy trustee.  If you are married and filing a joint bankruptcy case, you can exempt up to $70,000.  If you are over 65 years old and unmarried, you can exempt $60,000 in value so long as the property was previously owned by you and someone that is deceased, and the property was owned jointly with rights of survivorship.

An important note for Western North Carolina bankruptcy filers is that the residence exemption applies to real property or personal property that you or your dependent uses as a residence.  “Real property” means land and a traditional stick-built home, modular, or trailer that has had the tongue and wheels removed.  Personal property used as a residence could be a trailer that still has its wheels or tongue, or even an RV.

The residence exemption also applies to you and your dependents. If you own a family compound, this means you can exempt the main house that you live in, plus the trailer that your kids or parents live in, so long as you support them like dependents.

Wildcard – If you do not use the full value of your residence exemption, you can exempt up to $5,000 of surplus residence exemption on any property that you want.  This means you can even exempt your fishing boat.

Vehicle – You can exempt up to $3,500 for one vehicle.  If you have multiple vehicles you may need to claim the second vehicle under the wildcard exemption.  If you are married filing a joint bankruptcy case, you can double the exemption, but only if the vehicle is titled in both names.  This means that if you and your spouse each own a vehicle and only one spouse is listed on each title, you can only exempt up to $3500 on each vehicle. But, if you are both listed on the titles, you could exempt $1,500 on one vehicle and up to $5,500 on a second vehicle.

Household Goods – You can exempt up to $5,000 in household goods, furnishing, wearing apparel, appliances, animals, crops, or musical instruments so long as it is used for personal or family use of you or your dependents.  If you have dependents, you can exempt $1,000 for each dependent, up to $4,000.

Tools of the Trade – You can exempt up to $2,000 for tools of the trade or professional books.

Life Insurance – You can exempt an unlimited amount of life insurance.

Health Aids – You can exempt an unlimited amount of professionally prescribed health aids.  This means if your doctor prescribed a mobility scooter, you can exempt the full value.

Personal Injury & Wrongful Death, & Disability Awards – You can exempt an unlimited amount of compensation received as part of a personal injury, wrongful death or disability award.  Hurt in a car wreck – you can keep your settlement for personal injuries.  Are you on maternity leave and receiving short-term disability payments – you can keep that too.  All of it.

Retirement Accounts – If your retirement account or plan is a qualified plan under IRS rules, you can exempt an unlimited amount.  This includes IRA’s, 401k’s and defined benefit plans.

College Savings Plan – You can exempt up to $25,000 in a college savings plan, excluding any amounts deposited in the last 12 months.  The plan must be for your child.

Social Security – All of your funds traceable to your social security retirement or disability is 100% exempt.

 

There are a few more categories, but those are the ones most commonly used.  If you are otherwise eligible to file for Chapter 7 bankruptcy, you should be able to keep all of your property.  The big exception is if you are facing foreclosure or repossession.

 

If your property exceeds your exemptions, you still have options such as Chapter 13 bankruptcy.  Schedule an appointment with me so you can figure out what will work best for you.