Law Offices of Paul R. Bartleson, Sacramento Bankrupty Lawyer, Chapter 7, Chapter 11 and 13 Reorganization, Debt Resolution, Loan Modifications, What You Can Do to Avoid Filing Bankruptcy

The first question we ask you is whether you have investigated other alternatives to keep you out of the Bankruptcy Court. First, examine your budget and find out where you are spending your money. Sometimes, debt consolidation through Consumer Credit Agencies can help.. You can also call your credit card companies or other creditors and negotiate lower payments or interest rates. Frequently, however, that doesn’t work, because some creditors can be unreasonable and won’t back off. If you have a tax problem with the IRS or Franchise Tax Board, you can try an offer in compromise. If you haven’t filed tax returns, get them filed. Consult a Tax Professional such as a CPA, Enrolled Agent, or Tax Attorney. In order to be eligible for Bankruptcy, you are required to have filed your last four years of tax returns. You are required by law anyway to file your tax returns; the failure to do so results in late filing fees, penalties, interest, and can be punished as a crime. Filing Bankruptcy doesn’t dispense with the requirement to file your return, so just go ahead and do it.

The second question you should address is, “What does the future hold for you? Is the present situation temporary, or do you expect it to get better in the future? If you don’t have a realistic plan for paying off your debts in the near future, you are kidding yourself. Many people act with the best intentions and try in vain to pay their debts, only to wake up years later and come to the sad realization that their life has gotten worse, not better, and that they have just been throwing away money at their debts that they could have been using to rebuild their lives.

If you are faced with a lawsuit, we will review to see if you have any defenses. We will also tell you if bankruptcy won't help you.

If you are behind on your mortgage payments, its important to investigate your optionos as soon as there are signs of trouble. In order for a lender to foreclose on your house, they must go through and strictly comply with a process set forth in the California Civil Code Getting behind on your payments doesn't mean your in foreclosure; the foreclosure process officialy starts when a lender records what is called a "Notice of Default"(NOD) with the County Reocrder, They must send you a copy of the notice by certified mail. They have twait three months, and then they have to publish Notice of Trustees sale in the local newspaper letting you know that they are goiong to sell your property at a private or trustee's sale, usually held on the courthouse steps. They have to wait 20 days after the notice is published before they can go to sale. In the meantime, you bring the loan current, or "cure the default, by paying all the past accrued, penalties, interest, and trustees fees. The longer you wait, the more you have to come up with.

You generallly have at least 5 options if you are facing foreclosure:

You can sometimes get a voluntary agreement with your lender to defer payments on the loan, usually by rolling them over to the end of the loan term. This usually only works with people who have had an established credit history. The bank may also be willing to work out a repayment plan so you can bring the loan current by making the onoging payments plus an amount that will cure the default over a short period of time. The problem with this approach is that if you're short of cash, your not goiong to come up with the money, unless the reason for missing the payments was interruption in job or income, illness, and you have the ability to make up the payments. You can call your lender. It never hurts to ask, and at least you know whether they are willing to work with you.

If you've seen the handwriting on the wall and want to give the house back to the bank, you can do it simply by signing a grant deed to the property conveyance title without the necessity of going through a foreclosure. There are two problems with this approach though: The bank may not accept the deed and proceed to foreclose anyway. They do this for different reasons, some of which are to clear title, and some having to do with how they calculate the loan reserve on the books. An even bigger problem though, is the tax consequences associated with a deed in liue. Its usually treated as forgivenss of debt, which means that the loan is written off and taxable to you as ordinary income

If you've fallen behind on your mortgage for whatever reason, and have sufficient equity in the property but not the credit to qualify for a conventional loan, you may be able to arrange a "hard money: loan with a private investor. You usually have to have a lot of equity in your property, and you'll pay hight interest rates and fees. In today's market, this probably isn't a practical option, but you have to keep it in mind if it fits your situation.

There is an entire industry devoted to salvaging the home owner's problem by offering to bail out the delingquent loan in exchange for the homeowner entering into a sale of property to a third party with a lease back and an option to buy. In theory, this is not necessary a bad option, and if you can clean up your credit during the lease-option period, you may be able to qualify for a loan. If you can't you'll lose whatever equity you had in the property. The likelihood of this happening is pretty high, so its not recommended. This area of the law is strictly regulated by the DRE and subject to stringent disclosure laws in the Civil Code because the ineustry is prone to predatory lending pra ctices. What may appear to be a white knight may turn out to be a great white shark in disguise. If someone contacts you and tells you they'll buy your home, save the equity, and then sell it back to you later. Warning! Before you do anything, call a lawyer and have him review whatever proposal is being made. Its generally better to file bankruptcy than to get into one of these deals, because in bankruptcy you maintain title and retain control. Once you transfer title out of your name, your options become more limited.

A short sale occurs when you sell your house to a third party and the bank agrees to take less than the full amount of what they are owed. This is usually done in connection with a home that has two mortgages, and the second agrees to take a fraction of what they owed. They are usually willing to do this, because their other option, if they fail to approve the sale is to have the senior lender foreclose on top of them, in which case they get nothing. You can do a short sale, but you have to have a knolwedgeable and creative realtor, and you also have to get the bank's agreement to have the loan reported as paid in full to avoid both a deficiency claim and a tax liability. The other thing to consider, is that even if you do a short sale, and you are not going to get anything out of it, your better option might be to file bankruptcy and live there for rent and payment free until the lender forecloses to save money to move and rent another house or apartment. Typically, in today's market, the short sale doesn't help anybody but the borker and the bank. The only thing it does for you is to force you out of the house. But financially, it's of no benefit to you.

If you're over your head and your debt is killing you, a global debt settlement as part of a loan modification may also be an option. We can work with your creditors to negotiate a different repayment plan Call us today at (916) 447-6640 or email us at info@sactobankruptcy.com.

If you got into, or were duped into, a negative-am, fixed-variable, or adjustable loan rate on your mortgage which is coming due, or past due, you may be eligible for a modification of your loan through a workout with a lender. SHORT SALES: A short sale is simply a sale to buyer who agrees to buy your house and the bank agrees to accept less than the full amount due on the loan due to it. The problem with a short sale is that a) you have to find a willing, able, and qualified buyer before your foreclosure; and 2) your bank has to agree to the short sale. This doesn't benefit you, it only benefits the buyer and your real estate broker. Even if you find a buyer, if the transaction is not handled properly it may result in unintended adverse tax consequences to you.

Many people who allow their house to go in foreclosure not only face having a foreclosure on their record, ruining their credit; they face an unknown danger of being sued for a deficency and adverse tax consequences as a result of a foreclosure. How it works is like this: Let's say you have a house that was worth $500,000.00 that is now worth say, $325,000.00. You have a first in the amount of $400,000.00 and a second with a balance of 100,000.00. Your real estate broker got in you in to your dream home on a 100%, income stated, fixed variable with "Great Bargain Mortgage Company." It's an 80-20 loan, and its a 2-28 or 3-27, and now the interest rate, instead of being 5 and 7%, is now 6-1/2 and 9%, and your payments are now $1,000.00 to $1,500.00 more a month. Between the rising cost of living, child care, groceries, you simply can't afford it anymore and eat too. The problem is that if you walk away from the house, the 1st forecloses and the 2nd, the junior lien is wiped out. There is no deficiency on the 1st because of the anti-deficiency laws found in CCP 580b and 580d, and the "one action rule" in CCP 726. But the second mortgage (even though it's owned by GBMC) can now sue you individually, because they are a foreclosed junior lienholder. It doesn't matter that they're the same lender as the 1st and it was a package deal. Ah, but it gets better! There's a hidden tax time bomb that's waiting to go off. If the lender forecloses or charges off the loan, this "forgiven debt" is treated by the IRS as ordinary income to you, The forgiveness of debt is offset by the fair market value of your house at the time of the foreclosure. But if you have a junior lien that is under or unsecured, the first mortgage forecloses and the junior lien is wiped out, instead of owing $100,000.00 to the bank, you now owe the IRS ordinary income tax on $100,000.00. Its a gift that keeps on giving. When your real estate broker got you into to this loan, he probably told you that don't worry about the adjustable interest rate, when real estate prices go up, we'll just refinance you and get you into a low rate, fixed interest loan. Unfortunately, your broker left out all the other little details, and he didn't have a crystal ball predicting the economic future of the real estate industry or the economy in general. So your dream house has now officially become your nightmare. Your choice is to file bankruptcy, and get rid of all your unsecured debt, like credit cards and medical bills. It doesn't get rid of the secured debt, however, and it doesn't change the terms of the loan. In a Chapter 7, a secured debt is not discharged, and you cant strip off a junior lien. If you file Chapter 13, you may be able to strip off the 2nd, but that's if you qualify and make the payments into the plan for the appropriate period.

The Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec. 20, 2007, provides an exception to rule that foregiveness of debt results in taxable income. Under this Act, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person filing a separate return.

The new law applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. In most cases, eligible homeowners only need to fill out a few lines on Irs Form 982 (specifically, lines 1e, 2 and 10b).

However, the law applies to debt primarily incurred in connection with purchase money loans, and must have been used to buy, build or substantially improve the taxpayer's principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing. That means that if you refinanced your house and took money out to pay bills, credit cards, pay for college or any other purpose other than home improvement, the gain on the debt forgiven does not qualify and you still have to pay the tax.

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision.

Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lender. For debt cancelled in 2007, the lender was required to provide this form to the borrower by Jan. 31, 2008. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.

Instead of filing bankruptcy, your other option, and possibly a better solution to your problem is to a do a loan modification with your lender, the Great Bargain Mortgage Company. By doing a loan modification, you can negotiate different terms for your loan (s), including a lower or fix the interest rate, reduce the principle, and agree on different terms, which might include rolling over or deferring the payments on your loan to the end of the term. In order to do so, you will need a skilled bankruptcy and real estate lawyer who is familiar with Federal and State Laws such as Real Estate Settlement Procedures Act (RESPA), and the Truth in Lending Act (TILA), The Fair Credit Reporting Act , and California's recent foreclosure deferment act. Through a loan modification, you can keep your house and your sanity.

If you"re over your head and your debt is killing you, a global debt settlement as part of the loan modification may also be an option. We can work with your creditors to negotiate a different repayment plan Call us today at (916) 447-6640 or email us at info@sactobankruptcy.com.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) imposed new eligibilty requirements on debtors seeking to discharge their debts in Chapter 7:

1. Tax Returns/Proof of Income
You must have filed your tax returns for the four years preceding your petition. You also have to provide two years of tax returns and proof of income for a six month period prior to your Bankruptcy.

2. The “Means Test”
Consumer debtors have to go through a “means test” designed by Congress to weed out people who are abusing the system. The formula uses actual numbers regarding your income and expenses, with artificial standards for expenses. Information that you provide is entered into an artificial formula, and if your income exceeds the mean income for the District in which you file, and you are able to pay a portion of the debt back, you maybe ineligible for Chapter 7. You are entitled to deduct certain things such as secured debt payments on a house or car, taxes, medical expenses, spousal and child support etc. within certain limitations. Although the means test disqualifies some from a Chapter 7 filing, as a practical matter experience has shown that the “means test” has not affected the vast majority of filers. Most people wanting to file a Chapter 7 are still eligible. There is also another myth that you'll have to give up your house and cars and be forced to pay back all your secured creditors. It's simply not true.

3. Education Requirements:
The Bankruptcy Code now also requires that you complete two educational requirements from a credit counseling agency approved by the Department of Justice. 1) Prior to filing, you must obtain a “credit counseling certificate;” which consists of a review of your current financial situation. 2) Before the discharge is entered you must complete a “debtor education”, a course that provides you with more insight on how to handle your finances. The purpose of these two courses is to make you examine your finances and make sure that you have done everything to avoid filing bankruptcy, and second, that you have some minimal financial skills so that once you are completed, you will never have to go through the process again. Once we accept your case, we will ask you to fill out a questionnaire and return it to our offices to begin.

To Learn More About the Bankruptcy Process, and understand how the Bankrtupcy Process wroks, you can take our crash course by, Going to Bankruptcy 101>>>