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Recent Blog Posts
A Fresh Start by "Avoiding" a Judgment Lien on Your Home
Bankruptcy doesn’t just give you a fresh start by writing off debts. It frees up your home by often getting rid of its judgment liens.
Writing off debts is good. But if a creditor got a judgment against you, and you own a home, most likely that debt has also turned into a judgment lien on the title of your home. You’re not going to get much of a fresh start on your home if it continues to be saddled by a judgment lien or two.
Bankruptcy is relatively good at writing off (“discharging”) debts. But getting rid of liens can be trickier. However, both Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts” do provide a way to get rid of, or “avoid,” judgment liens.
Today’s blog post is about judgment liens, why they are so dangerous, and how both “Chapters” of consumer bankruptcy can be very helpful in dealing with judgment liens. (Then the next blog post will be about whether a particular judgment lien can be “avoided,” and how that’s done.
Consumer Warning: A Scam Targeting Bankruptcy Filers
Watch out for phone calls seemingly from somebody you think you should trust with reliable sounding information, requesting fast money. You Wouldn’t Be Fooled by This If you get an email written in imperfect English from somebody saying she needs your help to move a huge amount of money out of her African country, and that you’ll get a healthy percentage of that amount if you just provide your bank account information, you probably know better than to respond to that email. Here’s a part of an email which is an example of these advance-fee scams, in which you’re invited to send money to a stranger on the promise of some fast money for you:Dear Beloved Friend,
I know this message will come to you as surprised but permit me of my desire to go into a business relationship with you.
... my late father came to Cotonou Benin republic with the sum of US$4.2M which he deposited in a Bank her in Cotonou Benin Republic West Africa for safe keeping.
A Fresh Start by "Stripping" Your Second Mortgage
Stripping your second mortgage could give your home the very best fresh start by saving you a tremendous amount of money.
If You Can’t Afford the Monthly Payments on Your Home
Last week we compared three ways to save a home in which you’re behind on your mortgage payments: mortgage modification, a forbearance agreement, and Chapter 13.
Mortgage modification is the only one of these three which lowers the monthly payment on your first mortgage. A forbearance agreement just gives you a number of months to catch up on missed mortgage payments, during the same time that you are also required to make the usual monthly mortgage payments. Chapter 13 is similar except giving you much longer to catch up, up to 5 years. Stretching out the catch-up time greatly reduces the amount you have to pay per month compared to a forbearance agreement.
The problem is that mortgage modification is difficult to qualify for. Whether using a governmental program or one provided directly by your mortgage lender, there is a quite narrow window that your income must fit into in order to qualify. So what do you do if you don’t qualify for mortgage modification but still can’t afford what you have to pay each month towards your home?
A Fresh Start on Your Home with Chapter 13
Adjusting your mortgage and other home-related debts under Chapter 13 can often give your home the very best fresh start.
Our last two blog posts have been about two options for when you need help making mortgage payments: a mortgage modification and a forbearance agreement.
In a nutshell, a mortgage modification reduces the monthly mortgage payments through a permanent restructuring of one or more of the terms of the mortgage. A reduction in the principal amount of the mortgage debt is seldom included. So while modification can help in the short-term--if you’re fortunate enough to meet the relatively tight qualifying standards—be careful about what it costs you long-term.
With a forbearance agreement the monthly mortgage payments don’t change. The lender simply gives you a certain number of months to catch up on the unpaid mortgage payments, while at the same time you must also make your regular monthly mortgage payment.
A Fresh Start with a Forbearance Agreement
Whether you’re about to fall behind on your mortgage or have already done so, a forbearance agreement avoids foreclosure while you catch up.
Quick Definition
A forbearance agreement gives you short-term relief to deal with a temporary period of financial hardship. Your mortgage lender agrees, either in advance or after the fact, to accept a period of reduced or suspended monthly payments in return for your agreement to return to full monthly payments and catch up on the missed payments within a certain length of time. The lender agrees to not foreclose—to “forbear” from foreclosing—as long as you make the agreed regular and catch-up payments. You are given this grace period to bring the mortgage current and then return to making just the regular monthly payments.
Compared to Mortgage Modification
Forbearance agreements are usually much easier to qualify for and quicker to negotiate with the lender. After all you are not changing most of the terms of the mortgage—almost always the regular monthly payment, the interest rate, and the length of the overall mortgage don’t change. You’re just forgiven for a period of time of being in default on the payments, and are then required to catch up relatively quickly. A forbearance agreement does not make your mortgage more affordable long-term, but rather gets you back in good graces with the same mortgage you signed up for originally.
A Fresh Start with a Mortgage Modification
Mortgage modification may reduce your monthly payments but not likely reduce your balance owed. So it costs less short-term, not long-term.
Quick Definition
A mortgage modification is a permanent restructuring of one or more of the terms of the mortgage intended to make it more affordable on a monthly basis.
Compared to Forbearance Agreement
A mortgage modification is intended to deal with the permanent unaffordability of the mortgage payment, while a forbearance agreement deals with a short-term unaffordability.
With a forbearance agreement the monthly mortgage payments don’t change. The lender simply gives you a limited time to catch up on missed mortgage payments, while you must make your full regular mortgage payment as well. If you simply don’t have the cash flow to do that—even after writing off most or all of your other debts in a Chapter 7 “straight bankruptcy”—than you should look closely at mortgage modification.
A Fresh Start on Your Home If You're Behind on Your Mortgage
If you are behind on your home mortgage & want to keep your home, do a mortgage modification, a forbearance agreement, or a Chapter 13 plan.
The Three Options
Here’s a summary of 3 ways to get a fresh start on your mortgage:
- A mortgage modification is a permanent restructuring of one or more of the terms of the mortgage to make it more affordable. This usually involves a reduced interest rate, the conversion of a variable interest rate to a fixed one, an extended payback period (often to 40 years), or a deferral of paying part of the principal. An actual write-off of any of the principal is very rare. A number of governmental and in-house lender programs may be available. The process can be complicated and eligibility requirements are quite rigid. The reason is that they are intended for homeowners who neither make too much nor too little—who definitely need the help but also stand a decent chance of successfully meeting the terms of the modification.
A Fresh Start on Your Vehicle Loan through Chapter 13 "Cramdown"
If your vehicle is worth less than you owe, Chapter 13 “cramdown” can reduce your monthly vehicle payment and the total you pay on the loan.
You could get a fresh start on your vehicle loan by:
- Paying a smaller monthly payment immediately
- Reducing the interest rate
- Not needing to catch up on payments if you’re behind
- Reducing the total amount you pay before the vehicle is yours free and clear
If you owe on your vehicle loan more than your vehicle is worth, and your loan is more than 910 days old (about 2 and a half years), you can very likely do some or all of the above through a Chapter 13 “cramdown” of the vehicle loan.
The Chapter 7 Vehicle Loan Dilemma
In the last two blog posts we described how to keep your vehicle under a Chapter 7 “straight bankruptcy” case through either “reaffirming” the vehicle loan or “redeeming” it. Both can cause problems.
A Fresh Start on Your Vehicle Loan through Chapter 7 "Redemption"
You may be able to keep your vehicle for less money by “redeeming” it—paying its present fair market value instead of the full debt.
If you owe much more on your vehicle than it is worth and absolutely must keep this vehicle, you may greatly benefit from a fresh start on that vehicle. It may even be worth getting a new loan, one based on what the vehicle is now worth.
If you want to keep your car or truck when filing a Chapter 7 “straight bankruptcy” your main options are “reaffirmation” and “redemption.” We covered reaffirmation—entering into a formal agreement to repay the loan as if you had not filed bankruptcy—in our last blog post. Redemption is not as common but can be a useful option, especially if you owe much more on your vehicle than its present value.
What is Redemption?
Instead of “reaffirming” the vehicle loan by in effect re-promising to pay it in spite of your bankruptcy, with redemption you are getting rid of that loan by paying less—the current fair market value of the vehicle. The challenge is that current value has to be paid to your lender all in one lump sum. We’ll talk about how to get the money for this lump sum pay off shortly.
A Fresh Start on Your Vehicle Loan through Chapter 7 "Reaffirmation"
A reaffirmation agreement makes you still liable on your vehicle loan so you can keep your car or truck after writing off your other debts.
The Problem
Is it a struggle to make your car or truck payments? Have you been late on the payments and worried about your vehicle getting repossessed? Would it help your peace of mind if you could comfortably make these crucial payments?
A Solution
If you filed a Chapter 7 “straight bankruptcy” case, most or all of your other debts would likely be permanently written off (“discharged”). As a result you could much better afford to make your monthly vehicle payments.
You’d enter into a “reaffirmation agreement” with your vehicle lender, through which you’d agree to exclude its loan from the discharge of your debts so that you would remain liable on it. And you’d agree to make future payments on time. In return your creditor would allow you to keep the vehicle and would report your on-time payments to the credit bureaus so that you could start rebuilding your credit right away.
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