August 19, 2009
Is debt consolidation better than chapter 13?
What advantage is there to chapter 13 over debt consolidation? There are several. Chapter 13
- protects all your assets from all your creditors by court order. Debt consolidation cannot protect your from lawsuits, garnishments and judgment liens;
- allow you stop foreclosure and catch up house payments. Debt consolidation does not do this;
- reduces payments on vehicle loans and lower interest to about 5%. You won't get this benefit with debt consolidation;
- consolidate all debts like credit cards, loans and medical bills. Debt consolidation often only covers part of your debts;
- end interest and penalty charges on unsecured debts. Debt consolidation may reduce interest but seldom eliminates it completely.
Payments in most chapter 13 cases are based on your ability to pay. That means the court looks at both your income and monthly living expenses in determining your monthly payment on your debts.
You make payments to the court from three to five years. Then the court wipes out the unpaid portion of debts except for student loans.
So while debt consolidation may seem like the way to go, chapter 13 is much better at protecting you and getting you out of debt.
August 13, 2009
Why don't banks modify more loans?
Lenders modified less than nine per cent of loans of eligible mortgages between March and July. Why is that? The federal government has put up $75 billion in incentive money for banks who rewrite loans. There are a couple of reasons why the federal program is not stopping more foreclosures. Some lenders prefer foreclosure because it delays reporting to investors a loss on the loan. Modifying loans also takes more time and effort than foreclosing. Another reason is that fees and costs generated by delinquencies outweigh the incentive payment the government offers banks. The result is that the number of foreclosures is at an all time high with no end in sight.
So what can be done? Change the bankruptcy laws to allow judges to modify mortgage loans. It would force lenders to get serious about modifying loans. And it would not cost tax payers anything.
July 10, 2009
Fewer mortgage loan modifications
You may recall back in April the federal government started the "Making Homes Affordable" program. It offered an incentive payment for each mortgage a lender agreed to refinance. Unfortunately, the number of mortgage modifications has declined each month since the start of the refinancing program.
Its not surprising that lenders don't modify loans because it reduces their income. The baffling part is that lenders are not better off choosing to foreclose rather than refinancing their loans. The average loss on a foreclosed property is 64% of the original loan balance, according to a recent study. So lenders are losing huge sums by foreclosing. But they continue to favor foreclosing over refinancing.
If your bank offers to refinance, don't be surprised if they start foreclosure proceedings. And to me that means the lender is not seriously considering refinancing your mortgage.
July 6, 2009
Inadequate medical insurance
Three out of four people who file bankruptcy because of medical expenses had insurance at the time they got sick. The number of uninsured people has increased as more have fallen victim to deceptive marketing practices and bought what essentially is fake insurance.
The New York Times article describes a man whose $150,000 insurance policy covered his mainly his room and board at the hospital. The insurance provided only limited coverage for his operations, drugs and testing. As a result he had to file a bankruptcy to get rid of everything not covered by his policy.
July 1, 2009
Medical bankruptcy study
A recent study published in the American Journal of Medicine had some eye-opening findings. These included
- 62% of all bankruptcies have a medical cause.
- Most medical debtors were well-educated and middle class; three-quarters had health insurance.
- The share of bankruptcies attributable to medical problems rose by 50% between 2001-2007.
- In 1981, only 8% of families filing for bankruptcy did so after serious medical problems. By 2007, that number grew to 50%.
If you are considering filing a bankruptcy due to unpaid medical bills, you are not alone
June 11, 2009
Feds Investigate Foreclosure Scams
The Federal Trade Commission is seeking the assistance of Ohio homeowners in identifying companies engaged in foreclosure rescue scams for possible law enforcement actions. You can send the agency copies of advertisements, flyers, or other promotional materials from companies promising to stop foreclosures, modify loans, or otherwise save homeowners in financial straits.
Victims of foreclosure rescue or other scams should call the FTC's toll-free hotline, 1-877-FTC-HELP (1-877-382-4357) or file a complaint on-line at www.ftc.gov. By law, the FTC cannot represent individuals in disputes with companies. Consumer complaints, though, help the agency identify businesses whose practices warrant further inquiry.
June 2, 2009
Debt Settlement Companies Sued
People in debt are people who are stressed. Maybe thats why they turn to debt settlement companies for relief with their bills. I have seen scores of people who had a bad experience with these companies. Now the New York attorney general sued two large debt settlement companies. Both were accused of fraud, deceptive business practices and false advertising. Credit Solutions of America enrolled 18,000 people but settled the debts of less than 2,000 of them. Nationwide Asset signed up 2,000 people but only 64 completed the program. Credit Solutions charges a 15% fee of a person's total debt before any money is distributed to creditors.
May 31, 2009
Mortgage defaults on the rise
12% of all mortgages in the country are in default according to the Mortgage Bankers Association. Experts expect the numbers to continue to rise driven in part by an increased number of people who are unemployed. But the numbers suggest that the problem is spreading to include previously stable borrowers. The foreclosure rate on prime fixed-rate mortgages doubled in the last year. You can expect this trend to continue for some time.
May 13, 2009
Foreclosure swindlers
Beware of foreclosure rescue companies. They charge upfront fees to modify loans without doing anything to stop foreclosures. The upfront costs typically run $3,000. The industry is unregulated and there is no way for you to tell if the company is legitimate. Local prosecutors and the Federal Trade Commission have sued dozens of these companies.
You can obtain better results through bankruptcy. Chapter\r 13 stops foreclosure and protects you from your creditors.
May 7, 2009
Worried about credit rating?
Many of my clients worry about rebuilding their credit following bankruptcy. Think of rebuilding credit as a two-step process. The first step is the elimination of past-due debt. That is what bankruptcy does. It cleans up your credit history. The second step is staying current on debts that survive bankruptcy. These debts include debts you agree to repay, like mortgages and vehicle loans. It also includes debts such as student loans that bankruptcy does not eliminate. Staying current on these debts following bankruptcy is the quickest way to rebuild your credit score.
May 5, 2009
Sometimes bankruptcy just makes sense.
Don't wait too long to file a bankruptcy. According to Jane Bryant Quinn, personal finance columnist and author, people wait too long to file for relief. Many people use their retirement or college savings in an effort to keep from filing bankruptcy. It makes sense for them to file a bankruptcy before they use up all their assets.
People think that bankruptcy ruins their credit scores. Quinn believes the chances are their credit scores are terrible already. The bigger issue is planning a debt-free future that won't lead back to bankruptcy.
May 4, 2009
Bankruptcy legislation dies in the Senate
A law designed to allow bankruptcy judges to modify home mortgage loans failed to pass in the Senate. The legislation could have helped homeowners to reduce their mortgage debt to the value of their homes. As a result of the defeat, continued uncertainty in the value of real estate is likely to prolong the economic recession.
May 4, 2009
Who owns your mortgage?
MERS holds 60 million mortgages but most people have never heard of it. It is a computer registry system created by mortgage companies to help them save money. Unfortunately, for homeowners who need to resolve a problem with their mortgage company, MERS can hide who actually owns the mortgage. That means the homeowner may not know how to contact the company when a dispute arises.
April 27, 2009
BANKRUPTCY REFORM STALLED
Bankruptcy legislation designed to help the foreclosure crisis is stalled in the Senate. Republicans oppose giving bankruptcy judges the power to change home mortgages. Under the proposed law, judges could change mortgage principal, interest and payments on home loans. Passing the law would increase the pressure on mortgage lenders to negotiate with home owners outside bankruptcy. Let's hope the legislation passes. It offers a promising way to end the foreclosure mess that is dragging down the economy.
