Foreclosure And Bankruptcy--Can I keep my home?

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How bankruptcy can help prevent foreclosure and resolve foreclosure issues

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Foreclosure And Bankruptcy--Can I keep my home?

  1. 1. Foreclosure and Bankruptcy: Can you keep your home? Lars Peterson - Attorney at Law Law Office of Lars Peterson, LLLC 1188 Bishop Street, Suite 3107 Honolulu, HI 96813 P: (808) 469-4300 F: (808) 237-5849 [email_address]
  2. 2. Is this you? <ul><li>Does your household have less income than it used to? </li></ul><ul><ul><li>Job loss or furlough
  3. 3. Unexpected medical bills
  4. 4. Creditors require higher payments than before (e.g., credit card terms) </li></ul></ul><ul><li>Are you behind on paying your bills?
  5. 5. Are your credit card debts increasing?
  6. 6. Has the value of your home decreased? </li></ul><ul><ul><li>Property values of homes in Hawai`i have decreased substantially – that often leads to loss of equity and, in fact, many people now owe more than the home is worth </li></ul></ul><ul><li>Have you received a foreclosure notice? Or is you lender calling you? </li></ul>In other words: Has your financial situation worsened or will it in the foreseeable future? If yes, ...
  7. 7. DO SOMETHING - NOW <ul><li>Taking no action will have consequences
  8. 8. It is important to take that first step and talk to somebody: </li></ul><ul><ul><li>Your bank or lender
  9. 9. Your realtor
  10. 10. Your mortgage broker
  11. 11. Your attorney </li></ul></ul>
  12. 12. Talk to a “Bankruptcy” Attorney <ul><li>Ask for free advice & consultations </li></ul><ul><ul><li>A good bankruptcy attorney will offer a free consultation. Why? Because we need to find out if bankruptcy is right for you!
  13. 13. There are non-bankruptcy alternatives (debt settlement or negotiation) with which a bankruptcy attorney can help
  14. 14. You need to know your options and evaluate your situation carefully
  15. 15. Many services are free or cheaper than you think! </li></ul></ul><ul><li>Why deal with it when the financial problems start or are foreseeable? </li></ul><ul><ul><li>Each case is different and many solutions will take time
  16. 16. Hiring an attorney when the financial problems are foreseeable or have just begun is usually much cheaper than waiting until the foreclosure is taking place
  17. 17. You can prevent the foreclosure by filing bankruptcy </li></ul></ul><ul><li>Be realistic about your situation and your options </li></ul><ul><ul><li>Budget: Income and expenses
  18. 18. A third party can be objective about an issue which can be very emotional and confusing </li></ul></ul>
  19. 19. How does Bankruptcy affect Foreclosure <ul><li>Chapter 13 and 11 can help you prevent foreclosure (you will keep your home)
  20. 20. Chapter 7 usually does not allow you to keep your home (you give up your home); but it can help you prevent negative consequences after foreclosure (deficiency judgments, taxes) </li></ul>
  21. 21. Foreclosure & Timing of Bankruptcy <ul><li>To save your home or avoid negative consequences: </li></ul><ul><ul><li>You should file bankruptcy before the auction takes place
  22. 22. You can file bankruptcy until a court confirms the foreclosure (after the auction) </li></ul></ul>
  23. 23. Why Bankruptcy <ul><li>Bankruptcy might save your home
  24. 24. Sometimes, even if you get a loan modification, you still might have to consider bankruptcy
  25. 25. It can avoid other negative consequences (taxes, deficiency judgments) </li></ul>
  26. 26. Bankruptcy Options <ul><li>3 Chapters: Which one is right for you? </li></ul><ul><ul><li>Chapter 13
  27. 27. Chapter 11
  28. 28. Chapter 7 </li></ul></ul>
  29. 29. Chapter 13 <ul><li>“Reorganization” of Individual (or couple) with regular income
  30. 30. Chapter 13 is right for you if: </li></ul><ul><ul><li>If you are behind on your mortgage payment (called “in arrears” or “arrearage”);
  31. 31. If your decreased household income is only temporary; and
  32. 32. You can catch up on the arrears during a 3-5 year period </li></ul></ul>
  33. 33. Advantages of Chapter 13 <ul><li>It can provide you with the time you need to catch up on the arrearage.
  34. 34. Usually, Chapter 13 debtors have significant other debts, too (e.g., credit cards, medical bills, etc.)  you will only have to pay back a fraction of these unsecured debts in Chapter 13. </li></ul><ul><ul><li>Unsecured vs. secured debts: </li><ul><li>unsecured means there is no collateral/security besides your personal obligation to pay back the debt; secured means that besides your personal obligation, the lender can take back the collateral (home, car, furniture) and sell it to satisfy the debt. </li></ul><li>Lower payments on other (unsecured) debts makes the most important debt (your mortgage) easier to pay </li></ul></ul>
  35. 35. Payments in Chapter 13 <ul><li>If you file Chapter 13, you are in bankruptcy for 3-5 years.
  36. 36. You pay your mortgage lender directly (regular monthly mortgage payment)
  37. 37. You make 1 monthly payment to the Chapter 13 bankruptcy trustee for all your other debts
  38. 38. The mortgage arrearage is paid through your bankruptcy </li></ul><ul><ul><li>Example: you are 6 months behind on your monthly mortgage payment of $2,000  arrears: $12,000.
  39. 39. 3-year plan: $330/month (for mortgage only)
  40. 40. 5-year plan: $200/month (for mortgage only) </li></ul></ul>
  41. 41. Chapter 11 <ul><li>Reorganization of Individual (or couple) on a larger scale </li></ul><ul><ul><li>Usually, large businesses file Chapter 11 </li></ul></ul><ul><li>When do you have to consider Chapter 11? </li></ul><ul><ul><li>If you owe $1,010,650 on your promissory note (mortgage) for the house, you do NOT qualify for Chapter 13 </li></ul></ul><ul><li>Chapter 11 is time consuming & costly, but sometimes the only option to save a home. </li></ul>
  42. 42. Chapter 7 <ul><li>Liquidation – get rid of all unprotected assets AND your debts
  43. 43. When to consider Chapter 7: </li></ul><ul><ul><li>If you have realized that you cannot save your home and you have to give it up </li><ul><li>you could not pay your mortgage and make the monthly payments to the Chapter 13 bankruptcy trustee for the other debts </li></ul></ul></ul>
  44. 44. Why to file Chapter 7 <ul><li>Ok, I am losing my home – why should I consider Chapter 7?
  45. 45. When you receive a discharge in bankruptcy, you are no longer personally liable for your debts </li></ul><ul><ul><li>What does that mean? </li><ul><li>For unsecured debt (e.g., credit cards, medical bills) - you no longer owe the money
  46. 46. For secured debt (e.g., your home, cars) - the lender can only take back the security or collateral and sell it </li></ul></ul></ul><ul><li>If there is a deficiency (the house sells at foreclosure for less than the amount you currently owe), the lender will –very likely - get a deficiency judgment against you (local lenders usually do!) </li></ul>
  47. 47. Chapter 7 & Deficiency Judgments <ul><li>If you do not file a Chapter 7 bankruptcy, you will still owe money to the lender </li></ul><ul><ul><li>Example: You owe $450,000 on promissory note; house sells at foreclosure for 350,000. You have lost your home AND you are now personally liable for the $100,000 (plus costs of foreclosure). </li></ul></ul><ul><li>A judgment can be valid in Hawaii for 20 years. So, if you ever own anything of value again, the lender can pursue you for up to 20 years. </li></ul><ul><ul><li>Interest accrues on judgments </li></ul></ul>
  48. 48. Chapter 7 & Taxes <ul><li>Without Chapter 7, you may face substantial tax consequences </li></ul><ul><ul><li>If the lender cannot collect the money you owe after foreclosure (deficiency), the lender will likely file form 1099-C with the IRS and deficiency amount will be added to your income  significantly higher income taxes </li></ul></ul><ul><li>With Chapter 7 - and if the home you gave up was your personal residence – you will not owe income taxes. </li></ul><ul><ul><li>Example continued: </li><ul><li>you owe $100,000 after foreclosure; if lender writes off debt and files 1099-C, your annual income increases by $100,000;
  49. 49. If you file Chapter 7, there will be no increased income </li></ul></ul></ul><ul><li>In sum: Chapter 7 avoids deficiency claims & income taxes </li></ul>
  50. 50. Deed in Lieu of Foreclosure <ul><li>Possible alternative to Chapter 7
  51. 51. What is it? </li><ul><li>You return the property to the lender </li></ul><li>Requirements: </li><ul><li>Only one mortgage (1 st mortgage) </li></ul><li>Considerations: </li><ul><li>Usually you have more time to move out
  52. 52. Not useful if you have significant equity in property
  53. 53. Not useful if you have significant other debts
  54. 54. Lender must waive any deficiency claim </li></ul></ul>
  55. 55. Take charge before it is too late! <ul><li>Talk to professionals & get a clear picture of your situation
  56. 56. Call me for a free consultation – I will tell you if you should consider bankruptcy
  57. 57. Although nobody likes to discuss financial problems, it is important to take charge while you still can
  58. 58. Everything you tell your attorney is confidential (attorney-client privilege) </li></ul>

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