WHEN SHOULD BANKRUPTCY BE A PART OF THE DIVORCE?

Divorce is the ending of a marriage; the ending of a union that is physical, emotional and financial. While most people think about the emotional and physical separation involved in divorce, there is also the financial separation. This raises the question: When is Bankruptcy a part of the Divorce?

Pursuant to 13 Delaware C. §1513, marital property is any property acquired during the marriage by either party regardless of how it’s titled. This means that under Delaware law, both the assets and debts of the marriage are marital property and are subject to be equitably divided by the court. Equitable division is determined by the court based on the circumstances of the case. Generally, 50/50 is the starting point. However, equitable division of marital property can be 60/40 or even 70/30. It is important to take note that the marital property is divided regardless how it’s titled. In practice, the debts titled in the name of one spouse can be divided in such a way that the other spouse is responsible for all or a portion of the debt.

When evaluating a case, it is important to consider both the assets and debts of the parties. If the debts exceed the assets then bankruptcy may be the answer. It has been my experience in recent cases, where the debts exceed the assets; the real property is worth less than is owed on the mortgage and/or neither party can retain the property, the Court has suggested that the parties investigate whether bankruptcy is an option.

By the time the Court is making this suggestion, it is often just before the hearing on the ancillary matters. This is too late to file bankruptcy jointly. It is more economical for the parties to file bankruptcy jointly before the divorce decree is entered because the parties will file as a couple instead of separately. The joint bankruptcy petition will permit the parties to resolve all of the joint debt, surrender joint property that no one wants or can afford to retain and at the same time identifying the remaining issues in dispute.

Therefore, when considering divorce, include the financial separation, not just alimony or property division, but also the division of debt. If the debts exceed the assets, then a consultation with a bankruptcy attorney is a must. Don’t divide marital debt to your financial detriment that may be discharged in bankruptcy.

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The author of this guest blog post is Gretchen Gilchrist, Esquire

Ms. Gilchrist is licensed to practice law in both Delaware and Pennsylvania. Her practice areas include Family Law, Divorce Law, and Wills, Healthcare Directives and Powers of Attorney. Her website: http://www.thegilchristfirm.com/

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Have You or Someone You Know Been Hit With a Wage Garnishment?

Most Americans owe someone something and we are living in a day and time where creditors are very creative in their ways of making you pay. One of these ways is through a wage garnishment.

Before panic sets in and you start thinking that every creditor can automatically begin to garnish wages from your check, stay calm — there are a few steps they must take before this happens. First, the creditor must sue you for the payments you owe them and then they must receive a court judgment. This involves several steps. After you are served with a lawsuit, you have 20 days to respond. After your response is filed with the Court, a trial date is set. If you fail to appear at the hearing, or fail to respond to the lawsuit, the plaintiff obtains a judgment by default against you. If the creditor wins at trial, they will then obtain a judgment against you. Either way, a judgment may then be used to place a lien on your house or car, or to garnish your wages.

Beware of a common creditor harassment technique — threatening you prematurely with a wage garnishment. Unless the above steps are followed, then a creditor cannot garnish your wages. You should speak with a lawyer if a debt collector falsely threatens you.

Once a creditor obtains a judgment against you, they can then obtain a garnishment order that is sent to your employer to attach your wages. This court order requires your employer to withhold a certain amount of money from your paycheck and then send it directly to your creditor. After federal taxes, health benefits and retirement savings are taken out of your check, Delaware law limits the garnishment amount to 15% of your pay, with some exceptions. If you have more than one wage garnishment, the total maximum is still only 15% for all creditors. If you have unpaid income taxes, court ordered child support, child support arrears or default student loans, these particular creditors do not need a court judgment in order to start garnishing your wages.

One common mistake that I see is people suffering from the loss of income due to a wage garnishment. A bankruptcy filing, either Chapter 7 or Chapter 13, will immediately stop a creditor’s wage garnishment, and if more than $600 has been taken from your pay within 90 days prior to the date you filed bankruptcy, you may be able to get some of that money back.

The most common mistake that I see people make is ignoring the lawsuit. This problem is so prevalent that debt buyers have created an entire business model banking on the fact that a high percentage of debt lawsuits result in a default judgment. Just because you are being sued, does not mean the person suing you automatically wins.

You can best fight back by reading the paperwork very closely. This often reveals common problems with the lawsuit, including: the case is barred by the statute of limitations (3 years in Delaware, 4 years for open-ended accounts); there is no proof that the specific individual account being sued on was sold; there is no contract attached; the “Bill of Sale” is not between the alleged seller and the alleged debt buyer, and many others. The best thing to do is to contact an attorney immediately after you are served with the lawsuit, to consider your options for fighting the lawsuit, negotiations, or even bankruptcy.

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What To Do If You Can’t Stop Worrying About Your Bills

The following is a link to a very good post by Philip Tirone of 720 Credit — an educational program that shows you how to raise your credit score to 700+ 12-24 months after a bankruptcy discharge. I offer his program free to anyone who files bankruptcy with my firm.

Here is a link to his article:

http://www.720creditscore.com/blog/what-to-do-if-you-cant-stop-worrying-about-your-bills/

For more information on the 720 Program:

http://www.cynthiacarrolllaw.com/creditrepair.php

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Which Is Better for your FICO Score?

Which is better for your FICO score: Paying off your credit cards, or paying off your mortgage?

Most people say they would pay off their mortgage to increase their credit score the fastest. But when it comes to FICO scores, eliminating charge card debt is far more powerful than eliminating mortgages and car loans.

And if you think about it, it makes sense. When assigning a credit score, the scoring bureaus assess risk by asking one question: How likely will this borrower default in the next two years?

Most people prioritize their mortgage payments; they would rather skip a few meals than lose their home. So having a balance on your mortgage isn’t really that risky. But people aren’t quite as responsible with their Visas and MasterCards. In fact, even the most financially responsible people make a few bad decisions when it comes to the allure of credit card spending.

So keeping a low balance (or no balance at all) on your credit cards is a far better indicator of your financial situation, and your ability to pay upcoming bills.

The moral of the story: If you want to increase your FICO score, get your credit card balances under control!

Source: Philip Tirone

http://www.720creditscore.com/

P.S. Philip says: “Indeed, if I had to give a person only one piece of advice, it would be: “pay down your credit card balances.” Plus, once you pay down your credit card balances, it will be a lot easier to make those mortgage and car payments!”

P.S.S. Everyone who files bankruptcy with our firm gets FREE ENROLLMENT into the 720 Credit Program.

http://www.cynthiacarrolllaw.com/creditrepair.php

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7 Steps to a 720 Credit Score!

720 score 12-24 Months After Bankruptcy

720 score 12-24 Months After Bankruptcy

Most people assume once they file bankruptcy, their credit score will be affected for the entire time that your bankruptcy is on your credit report—7 years. I am writing this blog to dispel that myth! You can obtain a great credit (score of 720) within 12-24 months of filing bankruptcy! Yes, you read it correctly—within 2 years, you can have better interest rates and be proud to talk about your credit score in public.

Naturally, your 720 credit score will not come over night. It requires some work, but not that much. The 7 Steps to a 720 Credit Score is a credit education program with 15 minute modules and 15 minute homework assignments. So, for a total of 30 minutes per week (for 14 weeks), you will have the tools and the resources to boost your credit score to 720 or well over. This robust program includes topics like “Why Most Credit Scores are Wrong”, and “How to Rebuild After a Bankruptcy or Foreclosure”, just to name a few.

In fact, I tested the 7 Steps to a 720 Credit Score course myself and I’m not only impressed by the results, but I want to share with anyone who will listen!

After reviewing the program, I now have a great new partnership with 720CreditScore.com to help work with my clients after their bankruptcy, OR anyone who simply wants to boost their credit score. I now offer this program free to anyone who files bankruptcy through my office!

No more thinking your credit score is doomed and UN-repairable. With the right credit education, you (even with your bankruptcies, foreclosures, repossessions, and collections) can transform your credit scores in just 12 to 24 months.
To learn how to enroll in this FREE program–7 Steps to 720 Credit Score (valued at $1000), contact Cynthia L Carroll at (302) 733-0411 or Cynthia@CynthiaCarrolllaw.com.

P.S. To give you an idea of why I’m now giving this credit rebuilding process to my clients, listen to this three-minute recording of how this works. It’s amazing!

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Do Not Default On Your Loan Modification!

 

Many of my clients have successfully received loan modifications. However, I’ve seen an increasing number of people default on their loan modifications.  When this happens, it is difficult and often impossible to obtain another loan modification, and this situation oen leads to foreclosure.

 

The Federal Government’s Making Home Affordable Program (HAMP), will be offering loan modifications to qualified borrowers through participating servicers through December 31, 2013.  A default under the HAMP program is defined as a three (3) month or more delinquency. Under HAMP guidelines, absent a change in circumstances, a borrower may generally only receive one modification for their principal residence.

 

Once a re-default occurs (a default on modified loan payments), HAMP Guidelines require participating servicers to consider the homeowner for other home-retention loss mitigation options, such as refinance, forbearance or other in-house modifications that the servicer may offer.  They must also consider the homeowner for options that ultimately lead to the loss of the home outside of foreclosure, such as a short-sale or deed-in-lieu of foreclosure.

 

If you have defaulted on your loan modification, and are not currently in

a Chapter 13 bankruptcy, consider a Chapter 13 Bankruptcy filing.  This will allow you to retain your home, make your mortgage payments based on the modified mortgage payment, and cure the default over a five-year plan of reorganization.  You can also use Chapter 13 bankruptcy to discharge (or eliminate) unsecured debts which may have contributed to the loan modification default. Examples of unsecured debt include hospital bills, pay-day loans, credit cards, personal loans, repossession deficiencies, and certain old taxes.

 

If your mortgage goes into default for any reason, and the mortgage company stops accepting your payments, DO NOT SPEND THAT MONEY! Instead, put those mortgage payments in a savings account, instead of spending the money, or instead of using the money to catch up on other bills. This will make it easier for you to save your home from foreclosure down the road.

 

 

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Do Not Default On Your Loan Modification!

Many of my clients have successfully received loan modifications. However, I’ve seen an increasing number of people default on their loan modifications. When this happens, it is difficult and often impossible to obtain another loan modification, and this situation often leads to foreclosure.

The Federal Government’s Making Home Affordable Program (HAMP), will be offering loan modifications to qualified borrowers through participating servicers through December 31, 2013. A default under the HAMP program is defined as a three (3) month or more delinquency. Under HAMP guidelines, absent a change in circumstances, a borrower may generally only receive one modification for their principal residence.

Once a re-default occurs (a default on modified loan payments), HAMP Guidelines require participating servicers to consider the homeowner for other home-retention loss mitigation options, such as refinance, forbearance or other in-house modifications that the servicer may offer. They must also consider the homeowner for options that ultimately lead to the loss of the home outside of foreclosure, such as a short-sale or deed-in-lieu of foreclosure.

If you have defaulted on your loan modification, and are not currently in a Chapter 13 bankruptcy, consider a Chapter 13 Bankruptcy filing. This will allow you to retain your home, make your mortgage payments based on the modified mortgage payment, and cure the default over a five-year plan of reorganization. You can also use Chapter 13 bankruptcy to discharge (or eliminate) unsecured debts which may have contributed to the loan modification default. Examples of unsecured debt include hospital bills, pay-day loans, credit cards, personal loans, repossession deficiencies, and certain old taxes.

If your mortgage goes into default for any reason, and the mortgage company stops accepting your payments, DO NOT SPEND THAT MONEY! Instead, put those mortgage payments in a savings account, instead of spending the money, or instead of using the money to catch up on other bills. This will make it easier for you to save your home from foreclosure down the road.

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Congress Extends The Mortgage Forgiveness Debt Relief Act Until 1-1-2014

As part of a last-ditch effort to avoid the fiscal cliff, Congress voted to extend the Mortgage Forgiveness Debt Relief Act for another year, until January 1, 2014. The act, originally adopted in 2007, would have expired at the end of 2012.

This provision waives forgiveness of mortgage debt on a homeowner’s personal residence from being counted as taxable income by the Internal Revenue Service.  Thus, struggling homeowners who are considering short-sales or a loan modification would be able to exclude the “forgiven” debt from taxable income through the end of 2013.

For more information on short-sales, please refer to my post “Will A Short-Sale Benefit Me If I’m Filing Bankruptcy”.   http://www.delawarebankruptcyhelp.com/?p=31

 

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National Mortgage Settlement-What it Means for Delaware Homeowners

In February 2012, the State Attorneys General from 49 States (excluding Oklahoma), and the federal government (HUD, US Dept. of Justice, U.S. Treasury, and the U.S. Trustee Program) announced a $25 Million settlement with the country’s five largest mortgage servicers (“the Big 5”):

  • Ally/GMAC
  • Bank of America
  • Citi
  • JPMorgan Chase
  • Wells Fargo

Delaware has received $45 million in relief for distressed borrowers, to help homeowners facing foreclosure with refinance and principal reduction, support homeowner assistance programs, educational outreach, and Delaware’s new mortgage mediation program.

Also, according to Delaware Attorney General Beau Biden’s Office, forms are being sent out this week to approximately 2,300 Delawareans who may be eligible for up to $2,000 in direct payments whose mortgage was serviced by one of the Big 5 servicers (above) AND who lost their homes to foreclosure between January 1, 2008-December 31, 2011.  Those eligible should receive their forms by October 12th. The deadline to file a claim is January 18, 2013 and claims may be filed online or by mail. Payment checks are expected to be sent out in mid-2013. If you believe you are entitled to file a claim for a direct payment under this Settlement, you may file your claim at the National Mortgage Settlement Claim Filing Site.

Refinance and Principal Reduction

The 5 largest servicers mentioned above have agreed to provide $17 Billion in loan modifications under three programs:

  • First Lien Principal Reductions
  • Second Lien Principal Reductions
  • Refinance Program

FHA/VA, Fannie Mae and Freddie MAC mortgage loans are excluded from these programs.

First Lien Principal Reductions

Wells Fargo, Citi and GMAC/ALLY have agreed to provide Principal Reductions to qualified homeowners with loans owned and serviced by them, only.  Bank of America and Chase have agreed to offer Principal Reductions to qualified borrowers with loans they service that are not only owned by them, but those which are also owned by investors that have delegated the authority to them to provide principal reductions.

Under the settlement, the Servicers that signed on to the National Mortgage Settlement (“the Big 5”) will generally receive a dollar-for-dollar credit for each principal reduction.  For example, for each dollar in principal reduced, the Servicer will receive a dollar credit toward the $17 Billion in principal that the Big 5 servicers agreed to write-down.  These Servicers will receive a special incentive for principal reductions granted during the first year of the Settlement.  70% of these principal reductions must be for loans under $725,000.

Minimum qualifications include:

  • under-water (mortgage loan balance exceeds the property’s value);
  •  at least 60 days delinquent as of January 31, 2012;
  •  Not sold at sheriff’s sale;
  • Not subject to a foreclosure judgment;
  • And the homeowner’s debt-to-income ratio must be 25% or more
  • Each Servicer may have other criteria

Homeowners with BofA loans that qualify for principal reductions as outlined above are subject to mandatory solicitation requirements, so please do watch out for information on this from Bank of America via Federal Express or Priority mail.  For Qualified homeowners with BofA-serviced mortgages with pending (not discharged) Chapter 13 or Chapter 7 bankruptcy cases are to be solicited through their bankruptcy attorney.  For our clients, we will be sure to promptly forward any correspondence we receive from your Servicer directly to you.

Even if your Servicer is not one of the “Big 5” Servicers  that signed on to the National Mortgage Settlement, we understand that  12 more servicers, including Ocwen and SunTrust, will consider offering principal reductions to qualified borrowers.  Please note that our office offers Loan Modification Services to our client.  We finance the loan modification legal fees through the Chapter 13 plan for our clients who have pending Chapter 13 bankruptcy cases.  Please contact us discuss your loan modification options.

Second Lien Principal Reductions

Bank of America is in the process of mailing out 150,000 notices to homeowners who qualify for 2nd Lien Principal Reductions under the National Mortgage Settlement, so please do watch out for these notices as well.  BofA will contact you – you cannot request this relief.  However, this program results in complete forgiveness of qualified 2nd liens, but you have the option of opting-out of this offer should you choose to do so.  Qualified debtors in Bankruptcy with 2nd mortgage loans owned and serviced by BofA are also being solicited, including those qualified borrowers whose cases have been discharged.

Homeowners with 2nd liens serviced by Wells Fargo, Chase, Citi, or GMAC/Ally are also eligible for modification relief.  The programs with these Servicers vary, but primarily occur when the first lien is modified under the National Mortgage Settlement, either by them or another Settlement lender.

Remember, even if your loan is not serviced by one of the “Big 5”, you may also be eligible to have your second mortgage discharged in Chapter 13 bankruptcy, if your first mortgage balance exceeds your home’s value.  Please contact us for more information regarding this, and read our blog “Eliminate Your Mortgage in Chapter 13 Bankruptcy”.

One very important cautionary note on principal reductions and debt forgiveness:  debt forgiveness is subject to income taxes.  For example, if your mortgage balance was $500,000, but your Servicer has agreed to reduce the principal balance to $300,000, the $200,000 “forgiven” amount will be deemed income, and subject to income taxes.   This is also the case for first lien Principal Reductions, as well as 2nd Lien Principal Reductions.  There are exceptions for this, including debt cancelled in bankruptcy, or debt cancelled while you are to the extent you were insolvent immediately before the cancellation.  There is also an exception, through 2012, for cancelled debt on your principal residence

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.  This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately).

For advice on the tax implications for cancelled debt, please contact a tax professional, as well as the IRS Website.

 Refinance Program

As part of the National Mortgage Settlement, refinancing is available to first liens (owned by one of the 5 Servicers involved in the National Mortgage Settlement) of homeowners who are underwater on their mortgages, but CURRENT.  This program, which offers a streamlined refinancing of your underwater home loan,  is not available to borrowers in bankruptcy, or to those who have been in bankruptcy within the last 24 months.  But, if your bankruptcy has been discharged for more than 24 months, you may qualify.  Eligible borrowers will be contacted by the Servicers, but please do contact your Servicer if you believe you are eligible and have not been contacted.  Remember, Delaware homeowners must have an attorney in order to refinance, and our firm does provide real estate settlement services, so please Please contact us, and we will be happy to assist you with this.

 

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Will a Short-Sale Benefit Me If I’m Filing Banruptcy?

One of the most common questions I’m asked from clients is whether a short-sale is a viable option for a person who will be filing Chapter 7 or Chapter 13 bankruptcy, but who is not able to retain their home.

A short-sale is the sale of real estate at a price that is insufficient to cover all costs associated with the sale of a property. These costs include the payoff of all mortgages and liens encumbering the property, transfer taxes (1.5% of the sales price in Delaware), outstanding property-related taxes, and realtor commissions, which average 6% of the sale’s price. This means, the mortgage lenders must agree to accept less than what they are owed, and the homeowner must agree not to receive any proceeds from the sale of the property.

Generally, my experience has been that short-sales provide no financial benefit to a homeowner who is considering bankruptcy. Unless the property in question is a condominium, or a home that incurs substantial homeowner’s association dues, the mortgage obligation will be discharged in bankruptcy, and the homeowner may simply surrender the property to the mortgage lender and move out. The homeowner will still be responsible for the upkeep of property surrendered in bankruptcy as long as the property’s title remains in the homeowner’s name. Property title will not be divested until the foreclosure process is completed, and property is sold at the Sherriff’s sale by the mortgage lender.

Since condominium fees and homeowner association dues may not be discharged in a Chapter 7 bankruptcy, there may be some benefit to pursuing a condominium short sale, even after the mortgage lender has initiated foreclosure proceedings and has obtained a foreclosure judgment. In this instance, a short sale would be one strategy to mitigate the costs of accrued condo fees.

If bankruptcy is not an option for you, a short-sale will have less of a negative impact on a homeowner’s credit rating than a foreclosure, provided that this short-sale is completed before the home goes into foreclosure (i.e., before the mortgage lender obtains a court foreclosure judgment). A foreclosure judgment remains on your credit rating for seven (7) years. A pre-foreclosure short-sale, in comparison, will remain on your credit 2-4 years. For example, a homeowner who sells their home through a short sale pre-foreclosure may be able to qualify for a mortgage four years from the date the sale closed, with a 10% down payment for the purchase of a personal residence; or 2 years with 20% down.

Homeowners should also beware of potential tax implications for a short sale, unless the home is your personal residence. The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence, applicable to debt forgiven in 2007-2013.

Please contact us at (302) 733-0411, or Cynthia@CynthiaCarrollLaw.com to explore your debt relief options, including bankruptcy, or other non-bankruptcy debt relief options such as debt settlement or short sales.

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