By Sally Herigstad • Bankrate.com

• There’s a big difference between being an authorized user and a co-signer.
• If your ex takes custody of a joint credit card, it pays to check your credit.
• Credit card debt is unsecured, so collectors could end up out of luck.

After the death of a family member, many spouses, ex-spouses and even adult children find themselves with a surprise “inheritance” — leftover credit card debt.

When someone dies, the estate pays credit card balances and other debts. If a person dies with more debts than assets to pay them, creditors can be out of luck — and they often are.

But there are exceptions that could leave you on the hook for someone else’s credit card balance after that person’s death.

Joint cardholders beware

If you’re a joint cardholder, meaning you co-signed for the credit card, you’re liable for the debt. Parents sometimes do this for children who are just starting out, or adult children will co-sign with their elderly parents, perhaps to help keep track of expenses.



• Jul 09, 2012, 2:05 PM

By AnnaMaria Andriotis

Borrowers continue to pay record low rates, with one major exception: credit cards.

Rates on student credit cards hit 16.3% on average during the second quarter of 2012, up from 15.8% during the previous quarter and 15.9% a year ago, according to new data from CardHub.com, a credit-card comparison web site. Banks have been raising rates on credit-card users of all stripes over the past year, but consumers with no credit histories or poor credit scores saw the biggest increases. Rates on “secured cards,” which require borrowers to pay a security deposit in order to get a line of credit, now average about 19%, up from 17.7% in the first quarter.

Rates for consumers with excellent credit scores averaged nearly 13% during the second quarter. That was unchanged from the first quarter, but up from 12.7% a year prior. Merchants, meanwhile, are pushing for the right to charge customers extra for credit card purchases, The Wall Street Journal reported Monday.

Financial advisers say consumers should rely on a mix of payment methods in light of rising credit card costs. They suggest shoppers pay mostly with cash and limit credit cards use to purchases which can be paid off in full each month.

These higher credit-card rates come as rates on other types of loans are at historic lows. For example, rates on 30-year mortgages average 3.76%, according to HSH Associates, a mortgage-data firm. Rates on many car loans also remain in low single-digit territory. The reason for the discrepancy, says Keith Leggett, vice president and senior economist at the American Bankers Association, is that credit cards still present more risk than most other types of loans. Most credit cards are unsecured, meaning lenders can’t reclaim an asset if borrowers stop paying their bills. In contrast, banks take back homes and cars when those loans aren’t paid.

In addition, banks have been offering more credit cards to riskier borrowers since last year, which has led to an increase in the average credit card rate.

Another contributor: incentives. Credit card issuers have been expanding their 0% interest-rate offers on purchases and balance transfers, and to make money they’re raising the rates they’re charging after the promotional periods end, says Odysseas Papadimitriou, chief executive at CardHub.om. The average length of 0% introductory offers on balance transfers and purchases lasted around 10 months during the second quarter, up from seven to eight months a year prior, according to CardHub.com.

www.eramolaw.com

Bankruptcy Massachusetts. North Shore, Danvers, Beverly, Gloucester, Peabody, Newburyport, Essex, Salem,

ACCESSIBLE, AFFORDABLE, CARING

AP  / June 19, 2012

— It received 17,000 complaints

Online: www.consumerfinance.gov/complaintdatabase

Eramolaw.com

6/11/2012 7:25 PM ET

|

By Marcia Passos Duffy, Bankrate.com

Unscrupulous lenders are eager to prey on people desperate for loans in these tight economic times. Here’s how to avoid falling into their snare.

Borrowing money in this economy is not easy. But even if you are desperate to get a loan, don’t let your guard down. Predator creditors are on the loose.

These unscrupulous lenders prey on borrowers using deceit, manipulation, sales pressure and even fraud to get their victims to sign on the dotted line.

The hallmarks of a predatory loan are exploitation and entrapment: These loans have sky-high interest rates and target consumers who have little ability to repay, such as the elderly, people with limited education, those with weak credit histories and other low-income groups, according to the Center for Responsible Lending, a nonprofit research group based in Durham, N.C.

While predatory lending is often associated with payday loans and subprime mortgages, the practice can be found with any loan. And new schemes are cropping up every day — online and off.

Predators of all stripes

According to the center, predatory lending practices can happen in a wide range of loans, including home improvement, auto financing, car title, tax refund anticipation and payday loans.

Don’t be fooled into thinking that predators are lurking only in back-alley storefronts or on flashy websites. There is a growing trend among some large, reputable banks to offer high-cost, short-term “payday” loans as well, says Kathleen Day, spokeswoman for the center. These loans are typically called “account advances.”

“These loans can have an APR (annual percentage rate) in the triple digits,” Day says, referring to the types of short-term, high-interest loans that some banks are offering.

For example, one bank’s “checking account advance” loan charges $2 in interest per $20 borrowed (with a $35 late fee), which must be paid back within 10 days. Taking out a $400 loan would cost $40, which calculates to a staggering 365% APR.

“All high-cost, short-term loans trap people. Steer clear of these loans,” Day says. “They are designed to make you come back over and over again for more loans.”

Look for red flags

While borrowers should be wary of any short-term, high-interest loan, regardless of its source, predatory practices on long-term loans, such as auto loans or mortgages, also can entrap the unsuspecting.

Tom Alexander, an associate professor of finance at Northwood University in Midland, Mich., says predatory loans have recognizable red flags.

Be on the alert if the lender allows you to borrow more money than you can afford or asserts that bad credit isn’t a problem, he says. Suspect a predatory loan if the lender asks you to fudge or make false statements on your loan application, asks you to sign blank documents or a document with blank spaces, or discourages you from reading the fine print, Alexander says.

Steve Wolf, a certified fraud examiner and executive director of Capstone Advisory Group in Washington, D.C., says borrowers should also be wary of any lender that:

• Charges excessive fees or penalties if the loan is refinanced or payment is late.
• Puts in fine print that the borrower cannot take legal action against the lender.
• Adds unnecessary insurance or financial products to the loan.

Ask the right questions before signing

While your questions will depend on the loan product purchased, Wolf suggests these basic questions that you should ask the lender before you sign:

• What is the actual rate of interest when all loan origination fees and prepaid interest is included?
• What is the payoff period for the loan? (Six months, 10 years, 30 years, etc.)
• When will the loan rate go up or reset?
• When the loan resets, what will the payment be?
• Are there any penalties for late or delinquent payments?
• Do late payments trigger a higher loan rate for the remaining period of the loan?
• Are there any refinance restrictions and fees?

Not only should you grill the lender, but you should also ask yourself some hard questions, says Alexander.

• Can I afford to pay back this loan?
• Is the length of time for the loan reasonable? For example, a 10-year car loan might not be reasonable.
• Are my total loan payments more than 36% of my gross monthly pay? They shouldn’t be.

What to do if you are caught in a predatory loan

If you realize that the loan form you have signed is predatory, there are some steps you can take.

The Obama administration’s newly established Consumer Financial Protection Bureau is the place to launch a complaint about any predatory loans except those from auto dealerships, which are exempt from the bureau’s authority.

“People should also complain to their state attorney general,” Day says. If you suspect fraud, you may want to consult with a legal aid attorney.

“As (borrowers) become aware that they can take action against mortgage fraud and predatory lending, and policymakers, consumer advocates and civil-rights leaders take more action against the predators, more people will be protected from its burden,” Wolf says.

However, launching a complaint may not immediately ease your problem, such as a high monthly loan payment with unfavorable terms or an exorbitant interest rate.

For that, there is only one solution: “Do whatever you can to pay off the loan and get out from under it,” Day says.

EramoLaw.com

Attorney Michael Eramo

Danvers, Beverly, Salem, Lynn, Glocester, Peabody, Newburyport, Amesbury, North Shore, Boston, Malden, Burlington, Massachusetts, MA.

ACCESSIBLE, AFFORDABLE, CARING

5/25/2012 3:20 PM ET

|

By Karen Haywood Queen, CardRatings.com

Using plastic can be convenient and even rewarding. But if you handle credit poorly, you’ll pay dearly in time, money and frustration.

Likely you’ve lost your credit card bill under a pile of papers at least once. By the time the bill surfaces, it’s past due. Congratulations, you’ve just committed one of the seven deadly sins of credit card use — and the costs will add up.

Yes, the best credit cards make paying convenient. Compare the time you save when you swipe your credit card at the gas pump with the hassle of stepping inside a cramped, noisy convenience store to hand over cash. When you pay with plastic, you can also rack up credit card rewards. But committing any of the following credit card no-no’s can ding your credit score, cost you money and even eat up some of that time you thought you’d saved.

Paying late

“The No. 1 deadly mistake is paying your bill late,” says Manisha Thakor, the author of “Get Financially Naked.” “People say, ‘It’s just a day late — it’s not a big deal.’ But a lot of people don’t realize that being an hour or a day late is as bad as being five days late.”

And you can end up paying in multiple ways. First, a late credit card payment can cost you up to $25 in late fees, plus interest. Second, your low-interest card can quickly become a high-interest-rate card, says Jessica Cecere, a former regional president for CredAbility of South Florida, a nonprofit for credit counseling and education. “You can be late one time and you’re done,” she says. “You might have a 12% interest rate and it could go to 24%.”

Finally, your credit score also can be affected. “The timeliness of your credit card payment is 35% of your credit score,” Thakor says. “One small thing — being late — mucks up a third of your credit score.”

Paying only the minimum

“A lot of people are still paying off Christmas 2010,” says credit counselor Patrick Owens, of ClearPoint Credit Counseling Solutions in Richmond, Va. Bad idea. You’ve probably noticed that your credit card bill now has a required box showing how much you’ll pay over time if you cover only the monthly minimum payment. “You may be paying for 20 years on a couple thousand dollar balance,” he says.

You could end up paying nearly double for that cute outfit or fancy meal, Thakor says. “A rough rule of thumb is, if you have an interest rate in the high teens or above and just make the minimum payment, you have essentially almost doubled the price,” Thakor says. “So that $100 pair of jeans cost you nearly $200.”

Co-signing for a credit card

Many parents co-sign for a young adult child’s credit card with good intentions, hoping to help the child establish credit, Owens says.

• Calculator: How long to pay off your credit cards?

“But it’s a gamble for parents when you add children on,” he continues. “Some kids have not used credit cards before and they run up a big balance. That causes problems for both the kids and the parents.”

If you’re co-signing for a credit card, first make sure your child understands how credit cards work, Owens says. Also, consider a secured credit card or prepaid debit card set up with money to cover the balance, he advises. When the money’s in such an account is gone, the card can’t be used anymore.

It’s not just parents getting burned on co-signing for a child’s credit card. Sometimes it’s the other way around, Thakor says. “I’ve seen cases of kids helping adult parents,” she says.

Co-signing for anyone can be a bad idea, Thakor says. “It’s like unprotected sex once you co-sign,” she says. “The other person’s reputation is reflecting back on you. And if they don’t pay, creditors are going to be coming to you next for that money.”

Letting someone else use your credit card

Letting someone borrow your credit card can cause problems that go beyond exposing you to financial risk. “One of my friends lent her credit card to an individual to use at a store,” Owens says. “His name wasn’t on the card. They asked for ID at the store and when the name didn’t match, they confiscated the card and she had to go to the store to pick it up.”

Robbing Peter to pay Paul

While a balance transfer to a low-rate card can save you money on interest, if you’re transferring the balance because you can’t afford to pay it, that’s a bad sign, Cecere says. “You’re not actually getting yourself anywhere when you do that,” she says. “You’re robbing Peter to pay Paul. That’s not only one of the seven deadly sins, but also a warning sign you’re in financial trouble if you’re using one card to pay another.”

Too many credit cards

Rewards programs and store discounts can entice you to apply for, and end up with, too many credit cards, Cecere says. “If you apply for too many cards at once, your credit score will go down,” she says.

Canceling all of your credit cards

Perhaps you’ve decided to just get rid of all your credit cards — the business credit card, the gas credit card, the rewards credit card. All the plastic, gone. Then you can’t possibly mess up your credit. Right?

Wrong. “You don’t want to cancel all your credit cards at once,” Cecere says. Then you have no available credit, she says. Further, you’re essentially closing the book on your credit history, which will lower your credit scores. Instead, pay them all off but don’t close them, she advises.

I am proud to have helped thousands of individuals and families in the course of my practice. My office has provided guidance to our clients to work their way from unmanageable debt to regaining financial control. My office is not a “bankruptcy factory,” where clients are processed without regard to their individual needs. Rather, I build relationships and represent people not only in their bankruptcies, but with their other legal needs. In fact, knowing my clients and their families is the only way I can understand their individual goals and aspirations. I understand that nobody wants to talk about bankruptcy with a lawyer. I have learned over the years that clients filing for bankruptcy are not trying to avoid their responsibilities, but are looking to alleviate a difficult situation. You owe it to yourself to consider all of your options. I look forward to meeting you, answering your questions and helping you and your family.

- Michael T. Eramo

In times of financial trouble, everyone needs solid legal advice, practical wisdom and common sense. Our firm provides legal services to individuals and small businesses in need of experienced legal counsel and possibly bankruptcy protection. This is what we do. We have built our reputation on assisting honest people faced with overwhelming debt obtain what the United States Federal Courts refer to as a “fresh start,” or what our office commonly refers to as regaining financial control.

Our firm was established with the very purpose of assisting Massachusetts families and individuals who face overwhelming debt.

At the Law offices of Michael T. Eramo and Associates, we understand that honest people sometimes find themselves overburdened with debt they cannot pay. Over the years, we have had the opportunity to talk to and provide legal counsel to thousands of clients throughout Massachusetts. From the initial consultation until the discharge of debt has been granted, our legal team is exceptionally well educated, trained and committed to serving the needs of all our clients.

Whether a client needs to file a chapter 7 petition, a chapter 13 petition, or is facing foreclosure, tax issues, wage garnishment or a pending lawsuit, we may be able to help. If you are honest, overwhelmed with debt, and looking for a fresh start, call us and begin the process of regaining your financial control.

Offices in Danvers, Chelmsford,
Gloucester, North Andover,
Lynnfield, and Wakefield,
Massachusetts

Beverly, Salem, Peabody, Gloucester, Rockport,

1/16/2012 3:12 PM ET |  By Liz Weston,

There’s no easy way to escape from your college loans, but for most people, options such as repayment and forgiveness plans do exist. The point is to avoid defaulting.

Here are two things you need to know about student loan debt:

1. There’s no magic wand that makes it easily disappear.

2. The more desperate you are, the fewer options you may have for relief.

The rising default rate on federal student loans reflects these realities. The U.S. Department of Education in September said 8.8% of borrowers had defaulted in their first two years of repayment, up from 7% the previous year.

That’s just the tip of the iceberg. When the window is expanded beyond the first few years of repayment, the default rate soars. One in five federal student loans that entered repayment in 1995 has gone into default, according to a review by the Chronicle of Higher Education.

Still, most people have better options to deal with their education debt than to simply stop paying it. A smart repayment approach can get you out of debt faster or at least make your loans more manageable as you build the rest of your financial life.

Here’s what you need to know to start planning your escape from student loan debt:

Understand the trade-offs

Federal student loans offer a variety of repayment options. If the payments on the standard 10-year repayment schedule are too high, you may be able to get extended plans that lower payments by stretching your loan term out to as many as 30 years. Or you can ask for graduated payments that start smaller and get bigger over time. Or you can take advantage of repayment plans based on your income.

The longer you take to pay back the loan, the more interest you’ll pay. Switching from a 10-year to a 20-year plan, for example, will cut your monthly payment by about one-third but will more than double the total interest you’ll pay, said financial aid expert Mark Kantrowitz, the publisher of FinAid and Fastweb.

If you have a manageable amount of federal student loan debt and can afford to make the bigger payments, you should do so. But consider opting for lower payments, even though you may pay more interest, if:

• You really can’t afford a larger payment right now.
• You otherwise couldn’t save for retirement.
• You have private student loan debt in addition to federal loans.

Focus on your private student loans first

Unlike federal student loans, private student loans have variable rates. Even if the rates are low now, they likely won’t stay that way for long, Kantrowitz said.

Private student loans also have fewer consumer protections and repayment options than federal loans, plus no forgiveness options — more reasons to dispatch this debt as fast as you can. Consider paying the minimum possible on your federal loans so you can throw more money at your private loans. Your lenders can help you compare your repayment options; if you’re not sure who holds your loans, start your search here.

Consider income-based repayment plans

Federal student loans offer three repayment options that are tied to your earnings: income-contingent, income-sensitive and income-based. The income-based plan is the most generous and can even get your payments down to zero if you’re poor. The plan caps payments at 15% of your so-called discretionary income, which is the difference between your adjusted gross income and 150% of the federal poverty line.

This cap will fall to 10% in 2014. (The cap will fall this year for certain borrowers, who will be notified this month by mail if they’re eligible for lower payments. To qualify, the borrowers can’t have taken out any loans before 2008 and must have taken out one new loan in 2012.)

Explore your forgiveness options

The balance of your federal loans can be forgiven after 25 years of on-time payments if you’re in the income-based repayment plan. That term will drop to 20 years starting in 2014 and will drop this year for a select group of borrowers — who, again, will be notified by mail if they qualify. The clock generally starts when you enter the income-based repayment program.

You can get your balance erased in just 10 years if you’re in the income-based repayment plan and work in certain public service jobs, including teaching, health, military and public safety jobs. (See a complete list here.)

You also can get some or all of your federal loans forgiven through volunteer work, military service or working in certain high-need areas. Service in AmeriCorps or Vista, for example, can earn you a $4,725 stipend toward paying off your loans. Participating in the Army National Guard can earn you up to $10,000 for loan repayment. Doctors and nurses can get loan forgiveness through the National Health Service Corps or the Nursing Education Loan Repayment Program if they work for a few years in areas that lack adequate medical care. Teachers have a number of options for forgiveness if they work in disadvantaged areas or with special-needs children. For more, visit FinAid’s page on loan forgiveness.

Don’t ignore your debt

Defaulting will trash your credit, which will make it harder for you to get other loans and may impair your ability to get a job. You could be sued and have your wages garnisheed. Your income tax refunds could be withheld, and you might not be able to get or renew professional licenses.

If you really can’t pay your federal loans, even under an income-based repayment plan, consider applying for a deferral or forbearance — which will allow you to suspend payments for a time without penalty, although interest will still accrue — rather than simply ignoring your debt. You must apply for deferrals or forbearance before your loans go into default. (Default is defined as being more than 270 days overdue on your federal student loans or 120 days overdue on your private loans.)

Private student loans have fewer options when you can’t pay, but a one-year forbearance may be available, or you may be able to get extended-payment plans.

If you’ve exhausted all your repayment and forgiveness options and still can’t pay, you should:

Understand your worst-case options

Student loans are different from most other debts. Education debts typically can’t be erased in bankruptcy court, and there’s no statute of limitations on how long a lender can pursue you for what you owe. Age or disability won’t protect you: The U.S. Supreme Court ruled against a 67-year-old disabled man who lived in public housing, deciding that he had to give up 15% of his $874 Social Security check to pay back defaulted student loans.

Because they have such powers to pursue you, student lenders aren’t going to settle your debt for a fraction of what you owe, as a credit card lender or collection agency might. But Kantrowitz said that people who have lump sums to offer may be able to negotiate small discounts on what they owe, such as 10% off the total amount or forgiveness of half the interest accrued since defaulting. Again, this assumes you have a lump sum, such as an inheritance or a loan from your parents. If you have to make payments, you’ll be stuck paying off the full amount you owe.

• Connect with Liz Weston on Facebook

Bankruptcy almost certainly won’t help you get rid of your student loans. Of 72,000 filers who asked for discharge of their student loans in 2008, only 29 were granted any relief, according to student loan guarantor Educational Credit Management, the U.S. Department of Education’s designated provider for student loan bankruptcy services. Borrowers essentially have to prove not only that their financial situation is dire but that it’s unlikely to ever improve — which is a harsh standard to try to meet, Kantrowitz noted. If you’re permanently and totally disabled, you may have a shot; otherwise, fuhgeddaboudit.

Bankruptcy may, however, wipe out enough other debt to give you the ability to start repaying your student loans. Credit card and medical bills are among the debts that can be erased in a bankruptcy filing.

• Calculator: When will your credit cards be paid off?

If you’re really up against a wall, consider talking to a bankruptcy attorney about your options. You can get referrals from the National Association of Consumer Bankruptcy Attorneys.

Liz Weston is the Web’s most-read personal-finance writer. She is the author of several books, most recently “The 10 Commandments of Money: Survive and Thrive in the New Economy.” Weston’s award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Click here to find Weston’s most recent articles.

Are you an honest individual who is overwhelmed by debt,
facing a foreclosure or considering bankruptcy?

In times of financial trouble, everyone needs solid legal advice, practical wisdom and common sense. Our law firm provides legal services to Massachusetts families and individuals in need of experienced legal counsel and possibly Bankruptcy protection. This is what we do. We have built our reputation on assisting honest people burdened with overwhelming debt obtain what the United States Federal Bankruptcy Courts refers to as a “fresh start” or what we call “regaining your financial control”.

I am proud to have helped thousands of individuals and families in the course of my practice. My office has provided guidance to our clients to work their way from unmanageable debt to regaining financial control. My office is not a “bankruptcy factory,” where clients are processed without regard to their individual needs. Rather, I build relationships and represent people not only in their bankruptcies, but with their other legal needs. In fact, knowing my clients and their families is the only way I can understand their individual goals and aspirations. I understand that nobody wants to talk about bankruptcy with a lawyer. I have learned over the years that clients filing for bankruptcy are not trying to avoid their responsibilities, but are looking to alleviate a difficult situation. You owe it to yourself to consider all of your options. I look forward to meeting you, answering your questions and helping you and your family.

- Michael T. Eramo

In times of financial trouble, everyone needs solid legal advice, practical wisdom and common sense. Our firm provides legal services to individuals and small businesses in need of experienced legal counsel and possibly bankruptcy protection. This is what we do. We have built our reputation on assisting honest people faced with overwhelming debt obtain what the United States Federal Courts refer to as a “fresh start,” or what our office commonly refers to as regaining financial control.

Our firm was established with the very purpose of assisting Massachusetts families and individuals who face overwhelming debt.

At the Law offices of Michael T. Eramo and Associates, we understand that honest people sometimes find themselves overburdened with debt they cannot pay. Over the years, we have had the opportunity to talk to and provide legal counsel to thousands of clients throughout Massachusetts. From the initial consultation until the discharge of debt has been granted, our legal team is exceptionally well educated, trained and committed to serving the needs of all our clients.

Whether a client needs to file a chapter 7 petition, a chapter 13 petition, or is facing foreclosure, tax issues, wage garnishment or a pending lawsuit, we may be able to help. If you are honest, overwhelmed with debt, and looking for a fresh start, call us and begin the process of regaining your financial control.

Frequently Asked Bankruptcy Questions

I understand the Federal Bankruptcy Laws dramatically changed October 17th, 2005. How does the law change affect me?

It is important to speak with a qualified bankruptcy lawyer. The new laws are complex and knowledge of the new rules is required. Bankruptcy is still an available option for most, if not all, honest individuals facing overwhelming debt or foreclosure.

What is bankruptcy?

Bankruptcy is a legal proceeding under Federal law where a person is released from paying debts by declaring bankruptcy and turning all non-exempt property over to the court’s Trustee.

Who can file bankruptcy?

Any person who resides in, does business in, or has property in this country can file bankruptcy.

Should I stop paying creditors once I decide to file for bankruptcy?

Yes. Debts that can be discharged in bankruptcy such as credit card and medical obligations, should not be paid once an informed decision is made to file a Chapter 7 petition. Monthly bills such as rent, mortgage payments, telephone, and utilities, however, still must be paid.

Will filing for bankruptcy stop harassing phone calls from bill collectors?

When you file either kind of bankruptcy, something called an “automatic stay” goes into effect. The automatic stay prohibits virtually all creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor proceed with collections.

How long does a bankruptcy remain on my credit report?

The fact that an individual filed a bankruptcy can remain on the credit report no longer than 10 years under provisions of the Fair Credit Reporting Act.

How much does it cost to file?

In Massachusetts, the filing fee is $299.00 for individual, joint and business petitions under Chapter 7, or $274.00 for Chapter 13.

What is the difference between Chapter 7 and Chapter 13?

In Chapter 13, the debtor pays a portion of non-secured debt and all of the secured and priority debt over a period of 3 to 5 years. The debtor is allowed to keep both exempt and non-exempt property. In Chapter 7, the debtor is not required to pay any dischargeable, debt and is not allowed to keep any non-exempt property. Whether to file under Chapter 7 or Chapter 13 should be discussed with an attorney.

Where is a bankruptcy filed?

A bankruptcy petition is filed in the United States District Court in the district where the debtor lives or does business.

How long does it take?

Chapter 7′s are generally very fast. The court will schedule a creditor’s meeting in approximately 30 days after the bankruptcy petition has been filed. At the meeting, the trustee will ask you about the information contained in your bankruptcy schedules. The meeting may last only a few minutes, and is generally the only “court” appearance you will have to make. In approximately 120 days you will receive your discharge and the final decree will follow a few weeks later. Chapter 13′s and 11′s take longer. Your attorney can give you a rough estimate of the time involved.

What do I need for the initial meeting with my attorney?

Clients should bring in these four things: 1) a list of assets and liabilities, 2) a list of creditors showing the amount due to each creditor, 3) a list of income and expenses, and 4) last two years tax returns. We will discuss your financial situation and determine if bankruptcy is appropriate. If it looks like bankruptcy is appropriate, I will provide you with forms to fill out. When this is complete, the petition and schedules will be prepared and filed. 5) Evidence of last 6 months of income.

I am in debt because I’ve been irresponsible in using credit. Will I be denied a debt discharge because I don’t have a good excuse for my behavior?

No. The bankruptcy system does not ask whether your debt is due to unforeseen circumstances that were no fault of your own, or whether you were living “over your head.”

What does the term “fresh start” mean in association with bankruptcy?

By discharging your debts in a Chapter 7 bankruptcy you can receive a “fresh start”, and move on to rebuild your financial and personal life, without the worry of being overwhelmed by an unbearable load of debt.

Is my primary residence protected?

In Massachusetts, if you own your own home and it serves as your principle residence, you may be able to protect it against the claims of creditors and/or a forced sale by filing a Declaration of Homestead . Speak with a qualified bankruptcy attorney to determine the status of your Homestead Exemption should you file bancruptcy.

Will I lose my job?

No. Bankruptcy laws prohibit discrimination based upon a debtor filing for protection under the bankruptcy laws.

Can I go to jail if I file bankruptcy?

No. There are no debtor’s prisons in the United States.

Will bankruptcy stop a wage attachment?

Yes.

Will bankruptcy stop a judgment?

Possibly. Most civil judgments are stopped by bankruptcy.

Will bankruptcy wipe out all my debts?

Yes, with some exceptions. Bankruptcy will not normally wipe out: (1) money owed for child support or alimony, fines, and some taxes; (2) debts not listed on your bankruptcy petition; (3) loans you received by knowingly providing false information to a creditor who reasonably relied on it in making you the loan; (4) debts resulting from “willful and malicious” harm; (5) student loans owed to a school or government body, except if: the loan first became due more than 7 years before the bankruptcy was filed or; the court decides that payment would be an undue hardship; (6) mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).

Will I have to appear in Court?

In most bankruptcy cases, you only have to go to a proceeding called the “Meeting of Creditors” to meet with a bankruptcy trustee and any creditor who chooses to come. This meeting is usually a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation. Upon the filing of a Chapter 7 petition, a Meeting of Creditors is scheduled by the Court, which takes place one to two months after the petition is filed. If the petitioner is represented by counsel, the attorney will sit with the petitioner and provide assistance when needed. The trustee will tape record this meeting as he/she swears in the debtor. He/she will ask if the debtor read the petition before signing it, and if the signature on the petition belongs to the debtor. Additional questions such as the following may be asked: 1) How did you get into financial trouble? 2) During what period of time were your debts accrued? 3) How did you value your house (if applicable)? 4) Do you have the right to sue anybody? 5) Does anyone owe you money? 6) Do you expect to receive any moneys in the near future from tax returns, inheritance, or any other source? 7) Have you transferred any real or personal property to others within the last year? These questions are designed to help the trustee determine if the debtor possesses assets that can be distributed to creditors, and if the debtor is honest in filing the petition in good faith. Creditors may also appear at the meeting to ask questions, but this rarely happens. The Meeting of Creditors usually takes no more than five minutes to complete.

What happens after the Meeting of Creditors?

In “no asset” cases (the usual Chapter 7 where all assets are exempt), a few months after the Meeting of Creditors, the Court will grant a discharge. At this point the case ends with the debtor free and clear of dischargeable obligations listed in the petition.

Can I use bankruptcy to stop a foreclosure?

Yes, but there are limitations to this strategy. A chapter 7 will only delay a foreclosure for a short while until the creditor is able to file a motion for relief from the bankruptcy stay. Unless you are able to cure the default within a month or so of the bankruptcy, filing a chapter 7 probably won’t do you much good. A chapter 13 will allow you to pay the past due mortgage payments over a period of 3 years but you must still be able to make the regular monthly payments. If you can’t do this, a chapter 13 probably won’t work.

Can I discharge my student loans?

Until recently, student loans were dischargeable for undue hardship or if payments were due for at least 7 years. A late 1998 amendment to the bankruptcy code has eliminated the 7 year discharge provision entirely. Now student loans are not dischargeable except for undue hardship. If you can convince a judge that having to pay the student loan would impose an undue hardship on your ability to get a fresh start, the judge can order that the student loan debt be discharged. This is not an easy thing to do since most people can pay their student loans once their credit card debt, medical bills, etc. are discharged.

Can I discharge child support?

No.

What is a reaffirmation agreement?

A reaffirmation agreement is simply an agreement to pay a debt that existed at the time you filed bankruptcy. Usually debtors are willing to enter into reaffirmation agreements on secured debts such as homes and automobiles. Most credit cards, medical bills and other debts are “unsecured” and debtors generally don’t enter into reaffirmation agreements on those kinds of debts. Typically, the creditor provides your bankruptcy attorney with a reaffirmation agreement for your review and signature. The one big downside to reaffirmation agreements is that you remain personally liable for the debt. If you later default on your payments you could lose the property and become personally liable for any deficiency. Obviously, you will need to give careful consideration to your ability to make the payments and the potential consequences of a default. The bottom line: If you don’t need the property and can’t make the payments don’t enter into a reaffirmation agreement.

What are the federal exemptions?

The federal exemptions can be found at 11 U.S.C. ß 522. There are numerous exemptions, but the most important and widely used ones are as follows: (Note: The federal exemption amounts listed below were adjusted on April 1, 2001 pursuant to 11 U.S.C. ß104. You will need to double these amounts for married couples filing jointly). (d)(1) Homestead – $18,450.00 (d)(2) Motor vehicle – $2,950.00 (d)(3) Household goods – $9,850.00 (d)(4) Jewelry – $1,225.00 (d)(5) Wildcard (unused homestead) – $9,250.00 (d)(6) Tools of the trade – $1,850.00 (d)(8) Loan value of any life insurance – $9,850.00 (11)(D) Personal injury award – $18,450.00 There are other exemption for retirement accounts, health aids, etc., but these are the most commonly used exemptions with values that most people need to be concerned about. The selection of exemptions can be very tricky and your attorney will help you decide whether you should select the state exemptions or the federal exemptions for your particular bankruptcy.

What can be done about judgment liens?

A judgment lien is a lien obtained as a result of a money judgment and recorded against property such as a house or a car. If the lien applies to exempt property, it may be eliminated. To avoid a judgment lien, a motion must be filed in addition to the Chapter 7 petition. Liens related to child and spousal support judgments may not be avoided.

What do we do if someone in bankruptcy owes us money?

In a chapter 7 no-asset case do not file a claim unless requested to do so by the court. In a chapter 7 asset case you will receive a claim form, and a notice, setting a date to file the claim. In a chapter 13 case, a proof of claim must be filed within 90 days of the 341 meeting date.

From MSNBC.com

By John W. Schoen, Senior Producer

When David Martin and his wife bought their north Seattle condo five years ago, they figured they had plenty of time to downsize if they needed to before they retired.

Now, with the property worth roughly $60,000 less than the balance of their mortgage, Martin, 68, has been giving serious thought to just walking away, a process lenders call “strategic default.”

“Guilt and morality are one side, and objective financial analysis are on the other side,” Martin said. “They’re coming to two opposite conclusions. I wonder how many other people are struggling with the same question.”

Strategic defaults like the one contemplated by Martin are on the rise. A survey last year by two Chicago-area finance professors, Paola Sapienza at Northwestern University and Luigi Zingales at the University of Chicago, found that roughly three out of 10  mortgage defaults in 2010 were by homeowners who could afford to make their payments, up from 22 percent in 2009.

“It’s a looming problem that’s in the shadows,” said Jason Kopcak, a mortgage trader at Cantor Fitzgerald who advises lenders on how to value the loans on their books. “It’s very worrisome to mortgage lenders.”

Researchers point to a number of forces that are driving borrowers to walk away from their mortgages. At the top of the list is the estimated 12 million homes that are underwater, meaning the owners owe more than they are worth.

Until recently, borrowers like Martin and many industry analysts held out hope that a housing recovery would reverse the rising tide of “negative equity.” But after stabilizing this summer, home prices began falling again, dropping 7.5 percent in the third quarter alone and leaving more homeowners underwater.

Even if prices stabilize this year, millions of underwater borrowers face a long wait before they can sell their homes without having to write a big check to their lender to cover the shortfall. Economists at Goldman Sachs recently forecast that after bottoming in 2013 house prices won’t recover their 2006 peak until 2023. (No, that’s not a typo.)

Many homeowners simply can’t wait that long.

In the early stages of the housing bust, the main causes of defaults included unemployment or other financial setbacks and adjustable mortgages that reset to unaffordable levels, according to researchers. Now, five years into the housing recession, strategic defaults are growing as financially healthy borrowers learn of friends or family who have decided to walk away.

A recent study commissioned by the Mortgage Bankers Association likens the rise in the rate of strategic defaults to the spread of a disease. The longer the crisis drags on, the more homeowners will be exposed to someone who has successfully walked away, making the decision easier, the study suggested. “As fundamentally social animals, humans consciously (and subconsciously) look to their peers when forming opinions, habits and behaviors,” the report said.

“Most people who own a home know of someone — a friend, a colleague a family member — who has defaulted, especially in housing markets that have taken a big hit,” said Chad Ruyle, co-founder of youwalkaway.com, a service that advises homeowners on walking away from their mortgage. “They realize these are not bad people. They’re not deadbeats. They’re just like them.”

Researchers say strategic default is also more common among borrowers who feel no personal connection to the party on the other end of the transaction. Gone are the days when you walked into a bank and met with a lender who shepherded your application and congratulated you when the loan was approved, said Michael Seiler, a finance professor at Old Dominion University and a co-author of the MBA study.

“If you defaulted, it was like you were defaulting on your friend,” he said. “Your kids might go to the same school. You all might go to the same church. And you’re constantly reminded of who you’re defaulting on.”

That scenario is a far cry from the modern system of mortgage finance, where loans are sold over the phone or online, chopped up into pieces and then sold to multiple, anonymous investors. Many underwater homeowners who try to negotiate with their lender can’t even find out who owns their loan.

“We’re finding that people are much more willing to walk away when the other party is unknown or what you might call a ‘bad bank,’” said Seiler. “Those are the ones that received a lot of bailout funds or were active in the subprime market, giving loans to people who couldn’t afford them and they knew that.”

The mortgage lending industry’s widespread reluctance to modify loan terms has also changed homeowner attitudes about walking away, according to Ruyle.

“They feel much better about doing it if they’ve tried to contact the lender and the lender won’t budge,” he said. “They feel justified about it because they’ve tried to do their best to work it out.”

Shifting attitudes about the causes of the housing bust are also playing a role, say researchers. In their surveys, Sapienza and Zingales found that 48 percent of Americans said they would be more likely to default if their bank was accused of predatory lending, even if they are morally opposed to strategic default. Some 11 percent said they’d be less likely to pay their mortgage, and more likely to walk away from their loan, if their lender was cited for using false foreclosure documentation.

The government’s ineffective response to the housing crisis, even as it went to extraordinary lengths to backstop banks, has also propelled walkaways, say researchers. Since the housing bubble burst in 2006, some $7 trillion in home equity has evaporated, according to Federal Reserve data. Now, as home prices resume their fall, some homeowners believe lenders should bear at least a portion of the losses inflicted by a housing bust the industry helped create.

“The money didn’t disappear,” said Martin. “We still owe it to the bank, so the bank will end up getting all of its money back on a loan that no longer has its original value. They’re taking no part in the loss.”

Widespread reports of lenders’ bad behavior, from filing defective paperwork to selling investors bad loans, have begun to erode one of the strongest deterrents to walking away: the sense that skipping out on a debt is morally wrong. University of Arizona finance professor Brent White interviewed hundreds of homeowners for his research on strategic default. He found that, in the eyes of many homeowners, mortgage bankers have lost the moral high ground.

“The reality is: for the bank it is simply an economic transaction,” he said. “They have no moral qualm about taking your house, and they feel no moral obligation to modify your mortgage even if you’re in a difficult financial situation.”

Still, there are much more serious consequences to strategic default than pangs of guilt. Any loan default will damage a borrower’s credit score. But some strategic defaulters are finding that the impact isn’t as long-lasting as widely believed, according to Ruyle.

“You don’t destroy your credit, you wound your credit,” he said. “Just like a wound, it heals over time.”

Ruyle said surveys of the roughly 8,000 customers who have signed up for his service in the last four years found that some strategic defaulters are able to restore their credit in as little as a year and a half.

The bigger risk for walkaway borrowers is that their lender will pursue them in court and win a so-called “deficiency judgment,” a court-ordered, full repayment of the mortgage balance. That process is governed by state laws; some so-called “non-recourse” states bar lenders from pursuing such judgments.

But the force of that deterrent is also weakening, according to Sapienza.

“(There’s an) increasing perception that lenders are not going after borrowers who walk away,” he said.

That perception may be dangerously misplaced, as many lenders continue to aggressively pursue judgments against homeowners who strategically default. That’s why there’s widespread agreement that homeowners considering it need to get solid legal advice from an experienced real estate attorney in their state.

“There’s a process to strategic default and a lot of people don’t know how to do it,” said Kopcak. “They don’t really know what their options are. People really need to talk to a lawyer who knows the process.”

For now, Martin is electing to stay in his home and continue paying the mortgage.

“We intend to continue as we are on the basis that we gain nothing from acting at this point,” he said in a note. ”We think that the real estate market in Seattle will rise by 2013 enough to offer better alternatives. There is a small chance that the federal government will act to offer more rational choices. The real possibility is that the debt might be refinanced in 2013 at a level that might offer enough reduction in payments to allow us to hang on long enough to shore up our financial position.”

In short, giving up at this point may be worst of all alternatives. Giving up seems to run counter to our value system, no matter how financially wise experts seem to believe it may be.”

By Kenneth R. Harney / The Nation’s Housing
Sunday, December 4, 2011