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Recent Blog Posts
Choosing Between Bankruptcy and Foreclosure
The decision between filing for bankruptcy or foreclosing on your home is stressful. Neither is optimal when it comes to the immediate financial impact to your credit score, however, neither are late payments. Bankruptcy stays on your credit report for 10 years, while foreclosure typically rolls off in seven years. But, before you give in to losing your home, there are a few details worth considering.
Saving the Home
First, you must decide if you want to save the home. If you are behind by a month or two, contact your lender. The foreclosure process is expensive for banks. In many cases, your lender will work with you. Options to consider include:
- Make up the late payments;
- Restructure the loan; or
- Request a forbearance.
The Foreclosure Option
First, consider that foreclosure is very serious to future mortgage lenders, more than a bankruptcy that did not include the house. Additionally, foreclosure will drop your credit score by 200 or 300 points. Discuss the option of a short sale instead of foreclosure with your lender. With this option, the house is worth less than the principal balance of the loan, in which case, you may owe the remaining balance. In many situations, banks waive this difference. If a short sale is not an option, some banks accept “deed in lieu of foreclosure,” where you turn the house over to the lender and owe nothing. Explore these opportunities with your lender
The Surprising Benefits: Removing a Judgment Lien on Your Home
Bankruptcy usually does not get rid of liens against your assets. However, in many situations you can “avoid” a judgment lien on your home.
We’re on a series of blog posts about the powerful but less obvious benefits of bankruptcy. Bankruptcy can do much more than just give you immediate and long-term relief from your debts. Today we get into the extremely helpful way bankruptcy can take judgment liens off the title to your home.
The Problem Begging for a Solution
When a creditor sues you, most often it gets a judgment against you. If you do not respond to the lawsuit, the creditor gets a default judgment. That’s a court determination that you owe the debt. The judgment also usually includes substantial fees related to the lawsuit that you then also legally owe.
Even if you do respond, formally or informally, to the lawsuit and work out some kind of deal with the creditor, that deal often includes the creditor getting a judgment against you.
The Surprising Benefits: Resolving the "Preference" Problem through Chapter 13
Avoid the risks or persuading or negotiating with the Chapter 7 trustee by solving your preference problem through Chapter 13.
Our last several blog posts have been about the problem of preference payments:
- 3 weeks ago we introduced the problem resulting from paying a favored creditor before you file bankruptcy
- 2 weeks ago we discussed avoiding the problem by delaying filing your case or persuading the trustee to do nothing
- Last week was about negotiating with the trustee to pay off the preference money yourself
Today we get into how to solve this problem by filing a Chapter 13 “adjustment of debts” case instead of a Chapter 7 “straight bankruptcy” one.
When Filing a Chapter 13 Case May Be Worthwhile
A Chapter 13 case is very, very different from a Chapter 7 one. For starters, instead of taking about 4 months a Chapter 13 case almost always takes 3 to 5 YEARS. Using it to resolve a preference is almost never a good enough reason to file a Chapter 13 case.
Reversing Real Estate Judgment Liens with Bankruptcy
Creditors know how to work the system to get the money owed to them. In some cases, creditors have the courts put a lien on debtor’s possessions without the owner’s consent or knowledge, granting the creditor a legal claim over the property. By placing a lien on real estate, a vehicle, or personal property, a creditor secures payment of the money owed, sooner or later.
Buyers will not purchase items without a clear title, and a lien makes any title unclear. Although a creditor has the option to sell the property, such as in foreclosure, most wait until the debtor chooses to sell the property. At that point, seller pays the debt out-of-pocket or uses part of the purchase price to repay the debt. Fortunately, in Chapter 7 bankruptcy, you may be able to avoid the whole ordeal by getting rid of the judgment lien altogether.
Consensual Versus Non-Consensual Liens
Liens are placed on property both with and without consent. If consent is given, it happens at the origination of the creditor-debtor relationship. For example, either the debtor is asking for money to purchase property, such as a home or a vehicle, where the bank would then own the property, and the purchaser makes payments to the financial institution; or the debtor is asking for a financial loan and offers property they already own as collateral.
The Surprising Benefits: Resolving the "Preference" Problem through Negotiation
Prevent your Chapter 7 trustee from requiring a relative or friend to return your pre-bankruptcy payment by paying the trustee yourself.
Our blog post two weeks ago introduced an uncomfortable problem: preference payments to a friendly creditor. (Please read that blog post before reading this one.) Then last week we discussed two possible solutions to this problem. Today we discuss the first of two other solutions.
The First Two Solutions
One way to avoid this problem is simply to wait long enough so that enough time passes from the time of your payment to your favored creditor to the time you file your Chapter 7 bankruptcy case. That’s because a payment is considered preferential only if you paid it within a specific time period before your bankruptcy filing. That time period is only 90 days, or one year if the payment was to an “insider.” If you file your case after the pertinent time period has passed, the payment is no longer a preference. You’ve avoided the problem altogether.
The Surprising Benefits: Solving an Uncomfortable "Preference" Problem
A preferential payment to a relative or friend can turn very uncomfortable. But there are some good solutions. One should work for you.
Last week’s blog post introduced an uncomfortable problem: preference payments to a friendly creditor. (If you haven’t already please read that one before reading further here.)
The Solutions
We ended that blog post by listing and giving short descriptions of 4 likely practical solutions. We explain the first two of them today and the other two next week.
1. Wait to File Until after the 1-Year or 90-Day Preference Look-Back Period:
There’s one very simple way to avoid having money you paid to a favored creditor turn into a problematic preference. Wait to file your bankruptcy case long enough so that enough time passes since that payment. Then it’s no longer a preferential payment that the trustee can cause you problems with.
Reclaiming Your Texas Driver’s License through Bankruptcy
Creditors can take the issue of unresolved debt to court and have a judge issue a judgment against the debtor. In most states, judgments do not severely impact the life of a debtor thanks to existing exemptions that protect against losing homes and other possessions. However, in Texas, an unpaid judgement authorizes loss of driving privileges by suspending a driver’s license. The suspension goes on often indefinitely until there is a proof of repayment, or until the issuance of an automatic stay. Such a blow to one’s independence can wreak havoc on any life. Fortunately, reclaiming your license is one of the many surprising benefits of filing for bankruptcy.
How The Loss of Driving Privileges Turns Into A Catastrophe
Although for some the loss of legal driving privileges is a slight inconvenience, the set back is devastating for many others. Having driving abilities is not just about getting to work on time, it is also family availability and other daily life requirements. Furthermore, many employers require a valid driver’s license to maintain employment, such as in positions requiring travel. The next steps are up to the employer. Sometimes, an employer can choose to relocate an employee to an area that does not necessitate a license (or the handling of money, since financial instability creates a liability for many business operations). If termination of employment is the ultimate decision, the loss of income may affect the following payments:
The Surprising Benefits: A "Preference" Payment to a Relative or Friend
A preferential payment to a favored creditor—a relative or friend—can be a problem, but one which usually has a workable solution.
Our last two blog posts have been about one of the more confusing parts of bankruptcy: the law of preferences. This law says that if a creditor takes or receives money from you within the 90 days before you file your bankruptcy case, the creditor may need to pay it back. A creditor would not pay that money to you but rather to your Chapter 7 bankruptcy trustee. The trustee would then pay out that money to creditors based on a priorities schedule in bankruptcy law.
Our last blog post was about how that priority schedule could result in most of that money going to a creditor you need and want to be paid. One example we used was a recent income tax debt. That can’t be discharged (written off) in bankruptcy. So preference law could result in the trustee getting some money back from a creditor you don’t care about to pay the tax debt so you don’t have to.
The Surprising Benefits: Use "Preference" Money to Pay a Favored Debt
When a creditor is forced to pay back recently received money through “preference” law, that money can go to pay a debt you want to be paid.
Last week we introduced the law of preferences. This law says that if a creditor takes or receives money from you within the 90 days before you file your bankruptcy case, the creditor may need to pay it back. There are some complicated conditions that may apply, but in many situations the creditor does need to pay it back. See Section 547 of the Bankruptcy Code.
We ended last week by asking where this returned money goes. What good does it do you if that money just goes to your Chapter 7 trustee? After all, this liquidating trustee’s job is to distribute that money among all your other creditors. So how does that help you?
Chapter 7 Trustee’s Collection of Bankruptcy Assets
Surprising Bankruptcy Benefits: Make Creditors Return Your Money
Bankruptcy doesn’t just stop garnishments and other collections. Sometimes you can make a creditor return money it recently took from you.
Bankruptcy’s “automatic stay” is one of the most immediate and powerful benefits of bankruptcy. It immediately stops almost all creditor collection actions against you, your income, and your assets. See Section 362 of the U.S. Bankruptcy Code.
But it does not go into effect until the moment you file your bankruptcy case. What if a creditor garnishes or otherwise gets your money right BEFORE you file bankruptcy?
Sometimes the creditor can be forced to give up such recently received money as well.
The Law of Preferences
This happens through the surprising and easily misunderstood law of “preferences.”
This law says that if a creditor takes money (or some other asset) from you within the 90 days before you file your bankruptcy case, the creditor may need to pay it back. It has to do so if keeping that money results in that creditor receiving a greater share of its debt than the rest of your creditors would get out of your bankruptcy case. See Section 547(b) of the Bankruptcy Code.
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