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While bankruptcy often seems to be suggested as a way to stop harassment from collectors, if not totally eradicating one’s debts, seniors and retirees should carefully consider their options thoroughly. How much or how little property they have acquired may work against them.
If the elderly have inherited or acquired substantial assets, they are at risk of losing this property under a Chapter 7 bankruptcy filing. This is because in a Chapter 7 filing, most, if not all, debts are discharged and all nonexempt assets are turned over to the bankruptcy trustee for disposition in order to pay off creditors. On the other hand, if they do not have enough disposable income, they will not be able to sustain the high monthly payments for their Chapter 13 bankruptcy repayment plan, which normally requires settlement of their non-exempt property within three to five years. This goes without saying that a senior citizen who does not have assets, save for basic necessities, means that the creditor has nothing to collect. As such, it is not necessary for an elderly in this circumstance to file for bankruptcy unless they are fed up with harassment from creditors or are concerned about a levy from a bank account.
What Does The Elderly Look Into Before Considering Bankruptcy?
Even if filing for Chapter 7 or Chapter 13 bankruptcy can offer the means to address financial debt, it is also of importance to understand the limitations of bankruptcy because there are certain issues that debtors should consider before filing bankruptcy. Issues such as how much of their debt can be discharged, how much of their property can be exempted, and whether they owe debts attached to a home or car, should all be considered. In addition to these concerns, a senior citizen or retiree should also look into a variety of issues such as home ownership, Social Security, and retirement funds. In some instances, the elderly are not immediately aware that their income and assets may be judgment proof and therefore, protected even without filing for bankruptcy.
Let’s Look Into Home Ownership and Its Impact on A Senior Citizen’s Bankruptcy Filing
In Chapter 7 bankruptcy, if you have substantial home equity not covered by a homestead exemption (an amount that is protected in bankruptcy), your bankruptcy trustee will liquidate your house to pay your creditors. More often than not, this poses a higher risk to the elderly to lose their homes because most of them have already paid off their mortgages or have substantial amounts of equity in their homes.
You may also look into your outstanding medical bills. If you have accumulated huge bills with health care providers, these can make you consider filing for bankruptcy. However, you should be aware that being judgment proof (if you are) means that no matter how aggressive the creditors are, they cannot collect on these bills.
In this regard, it is best to consult with an experienced bankruptcy lawyer in Washington and Oregon so that you are aware of your options.
How do my Social Security benefits affect my bankruptcy filing as a Senior Citizen?
The same goes for Social Security benefits that you depend on. Rest assured, creditors cannot collect from these benefits. Yes, you need to declare them as part of your income when you file bankruptcy. But, you can keep them if you hold them in a separate account. In Chapter 7 bankruptcy, your Social Security or Social Security Disability benefits are protected. These are also not computed as income in the Chapter 7 means test. Therefore, if all or most of your income comes from Social Security, this means you are eligible for Chapter 7 bankruptcy. On the other hand, in Chapter 13 bankruptcy, your Social Security income is included in computing how much you must pay each month through your repayment plan.
Will my retirement accounts be affected?
In your golden years, you may find that you will be relying on your retirement accounts to get you by Most tax-exempt retirement accounts are protected in Chapter 7 bankruptcy by federal law, including 401(k)s, 403(b)s, profit-sharing, and money purchase plans, IRAs, and defined-benefit plans. IRAs and Roth IRAs are exempted up to a certain amount. However, if you withdraw money from a retirement account, this will be considered as income and will be treated differently in bankruptcy filings. In Chapter 7 bankruptcy, the court will consider it income that gets factored in your Chapter 7 means test qualification if you receive a monthly payment from a pension or retirement account. Although the bankruptcy court cannot take any retirement benefits that are necessary for your basic needs, it could take amounts over and above what you need for your support and use it to pay back your creditors. For Chapter 13 bankruptcy filing, all of your retirement accounts are safe. However, retirement income will help determine what portion of your unsecured debts you need to settle in your Chapter 13 repayment plan. It is best to keep your retirement withdrawals separate from Social Security benefits so that the Social Security benefits remain protected. Retirement withdrawals may be subject to a bank levy by a creditor.
Contact a Bankruptcy Lawyer in Seattle, Tacoma or Vancouver
At this stage in your life, it is important to protect your interests by consulting an experienced bankruptcy lawyer in Washington and Oregon. Talk to us at Northwest Debt Relief Law Firm and let us help you enjoy your twilight years.
The post Is Bankruptcy Beneficial to Senior Citizens? appeared first on Vancouver Bankruptcy Attorney | Northwest Debt Relief Law Firm.
By Kevin Carey
The Department of Education on Tuesday released a trove of information that shows the average amount of debt incurred by graduates of different academic programs at each college and university in America. This focus on discrete programs, rather than institutions as a whole, is gaining favor among political leaders and could have far-reaching effects.
With anxiety about student debt soaring — the billionaire Robert F. Smith made headlines last weekend with his surprise promise to pay off the debts of Morehouse College’s 2019 graduating class — the program-level information has the potential to alter how colleges are funded, regulated and understood by consumers in the marketplace.
Everyone knows that different majors have different economic payoffs. Social workers earn less than chemical engineers. But federal laws that regulate college success don’t account for that. Instead, they average results across the university. People don’t have a good way of seeing how big those differences are within a particular university, let alone comparing programs across universities.
The new, more detailed debt information was created in response to an executive order issued in March by President Trump.
Other lawmakers have called for similar approaches. In February, Senator Lamar Alexander of Tennessee, chairman of the Senate Education Committee and a former university president, gave a speech outlining his plans to revise the federal Higher Education Act. Currently the federal government measures the percentage of borrowers at a given college who pay their loans back. If too many students fail to repay, colleges are barred from receiving federal funds.
Mr. Alexander proposed a “new accountability system” based on loan repayment rates for individual programs within colleges. This, said Mr. Alexander, “should provide colleges with an incentive to lower tuition and help their students finish their degrees and find jobs so they can repay their loans.”
Both Mr. Trump and Mr. Alexander, despite their strong criticism of President Obama on education, are following in the footsteps of his regulatory crackdown on for-profit colleges and short-term certificate programs. Rather than evaluate sprawling educational conglomerates based on the average results of hundreds of programs, the Obama rules disqualified specific programs whose graduates didn’t earn enough money to pay back their loans.
Mr. Alexander wants to extend scrutiny and accountability to all colleges, but using different measures. The Trump administration wants to replace the Obama rules and penalties with simple transparency of outcomes by program.
In addition, a bipartisan congressional coalition that includes Senators Joni Ernst and Elizabeth Warren has sponsored the College Transparency Act, which would create more comprehensive program-level data.
The debt information released by the Department of Education is still preliminary, so students should be cautious when using it to choose programs and colleges. But there are other examples of how program-level data could change how we look at higher education. The University of Virginia, for instance, is the one of the most prestigious and selective public universities in the nation, with an average freshman SAT score around 1400 and barely a quarter of applicants admitted. But data published by the state’s higher education coordinating body reveals large differences within the university. Some University of Virginia majors earn more than $70,000 or $80,000 three years after graduating, while others are in the $35,000 to $50,000 range. University of Virginia systems engineers, for example, make almost double what environmental science majors earn.
George Mason University, in Fairfax, Va., is less prestigious. A former commuter school, it has a typical freshman SAT score under 1200 and accepts about 80 percent of applicants. On average, George Mason graduates earn less than University of Virginia graduates. But as with Virginia, there are large differences between majors within George Mason, to the point that earnings results at the two universities greatly overlap.
Accountants and civil engineers who graduate from George Mason earn over $60,000 per year. Psychology and architecture majors who graduate from Virginia earn less than $45,000.
Mark Schneider, a higher education scholar, helped the state of Virginia gather earnings information for each university program. He is now the director of the federal Department of Education’s institute of education sciences, guiding collection of the program-level data called for in Mr. Trump’s executive order. The key insight, Mr. Schneider says, is that there is usually more variation in earnings results between programs within colleges than between colleges.
If Congress adopts Mr. Alexander’s plan, colleges will need to give much closer scrutiny to programs where students borrow large amounts of money and then struggle to land well-paying jobs. Such programs are often overlooked, as Harvard discovered when its graduate theater program ran afoul of the Obama regulations. This could be a sea change in campus administrative culture, which is typically so hands-off that the University of North Carolina at Chapel Hill had no idea (this is the most charitable explanation) that one of its departments ran a huge academic fraud operation for 18 years.
The shift to programs could also begin to change the dynamics of the higher education market, which is currently dominated by institutional reputations, to the point that wealthy families are willing to pay enormous bribes for admission on the strength of brand names alone.
There are still many disagreements and details to resolve. The Trump approach relies on the idea that if students have better information, choices in the higher education market will be enough to ensure quality. But there is little evidence to support this view. Even with program data, students will still be vulnerable to the deceptive marketing and aggressive sales tactics that remain widespread in the for-profit college industry.
The measures matter, too. Mr. Alexander’s plan is to evaluate programs based on loan repayment rates. But it isn’t known whether those rates are a good measure of program quality. The Obama method of comparing debt levels to student earnings, by contrast, was so accurate that many colleges pre-emptively shut down their low-performing programs before the sanctions were even applied. Education Secretary Betsy DeVos is now working to repeal those regulations.
Policymakers will have to guard against institutional gamesmanship. Poorly performing programs could simply be relabeled. At-risk students could be pushed to not declare a major at all. Program-level regulations probably work best if accompanied by standards that apply to the college as a whole.
Time frames are also important. It makes sense to judge a nine-month-long medical assisting program on whether graduates find jobs as medical assistants. The payoff for bachelor’s degrees, particularly in the liberal arts and humanities, can take longer to manifest. And, of course, higher learning isn’t just a way to get a job. It should guide people toward more enlightened, fulfilling lives.
But while college is about more than money, it can be paid for only with money. With student debt at a record high and with one million people defaulting on their college loans every year, it’s not surprising that politicians across the political spectrum want to give students and parents more information about how different programs pay off. When that happens, higher education may never be quite the same.
Copyright 2019 The New York Times Company. All rights reserved.
The New York attorney general’s office said Monday it had opened an inquiry into more than a decade of lending practices that left thousands of immigrant taxi drivers in crushing debt, while
Mayor Bill de Blasio ordered a separate investigation into the brokers who helped arrange the loans.
The efforts marked the government’s first steps toward addressing a crisis that has engulfed the city’s yellow cab industry. They came a day after The New York Times published a two-part investigation revealing that a handful of taxi industry leaders artificially inflated the price of a medallion — the coveted permit that allows a driver to own and operate a cab — and made hundreds of millions of dollars by issuing reckless loans to low-income buyers.
The investigation also found that regulators at every level of government ignored warning signs, and the city fed the frenzy by selling medallions and promoting them in ads as being “better than the stock market.”
The price of a medallion rose to more than $1 million before crashing in late 2014, which left borrowers with debt they had little hope of repaying. More than 950 medallion owners have filed for bankruptcy, and thousands more are struggling to stay afloat.
The findings also drew a quick response from other elected officials. The chairman of the Assembly’s banking committee, Kenneth Zebrowski, a Democrat, said his committee would hold a hearing on the issue; the City Council speaker, Corey Johnson, said he was drafting legislation; and several other officials in New York and Albany called for the government to pressure lenders to soften loan terms.
The biggest threat to the industry leaders appeared to be the inquiry by the attorney general, Letitia James, which will aim to determine if the lenders engaged in any illegal activity.
“Our office is beginning an inquiry into the disturbing reports regarding the lending and business practices that may have created the taxi medallion crisis,” an office spokeswoman said in a statement.
“These allegations are serious and must be thoroughly scrutinized.”
Gov. Andrew M. Cuomo said through a spokesman that he supported the inquiry. “If any of these businesses or lenders did something wrong, they deserve to be held fully accountable,” the spokesman said in a statement.
Lenders did not respond to requests for comment. Previously, they denied wrongdoing, saying regulators had approved all of their practices and some borrowers had made poor decisions and assumed too much debt. Lenders blamed the crisis on the city for allowing ride-hailing companies like Uber and Lyft to enter without regulation, which they said led medallion values to plummet.
Mr. de Blasio said the city’s investigation will focus on the brokers who arranged the loans for drivers and sometimes lent money themselves.
“The 45-day review will identify and penalize brokers who have taken advantage of buyers and misled city authorities,” the mayor said in a statement. “The review will set down strict new rules that prevent broker practices that hurt hard-working drivers.”
Four of the city’s biggest taxi brokers did not respond to requests for comment.
Bhairavi Desai, founder of the Taxi Workers Alliance, which represents drivers and independent owners, said the city should not get to investigate the business practices because it was complicit in many of them.
The government has already closed or merged all of the nonprofit credit unions that were involved in the industry, saying they participated in “unsafe and unsound banking practices.” At least one credit union leader, Alan Kaufman, the former chief executive of Melrose Credit Union, a major medallion lender, is facing civil charges.
The other lenders in the industry include Medallion Financial, a specialty finance company; some major banks, including Capital One and Signature Bank; and several loosely regulated taxi fleet owners and brokers who entered the lending business.
At City Hall, officials said Monday they were focused on how to help the roughly 4,000 drivers who bought medallions during the bubble, as well as thousands of longtime owners who were encouraged to refinance their loans to take out more money during that period.
One city councilman, Mark Levine, said he was drafting a bill that would allow the city to buy medallion loans from lenders and then forgive much of the debt owed by the borrowers. He said lenders likely would agree because they are eager to exit the business. But he added that his bill would force lenders to sell at discounted prices.
“The city made hundreds of millions by pumping up sales of wildly overpriced medallions — as late as 2014 when it was clear that these assets were poised to decline,” said Mr. Levine, a Democrat. “We have an obligation now to find some way to offer relief to the driver-owners whose lives have been ruined.”
Scott M. Stringer, the city comptroller, proposed a similar solution in a letter to the mayor. He said the city should convene the lenders and pressure them to partially forgive loans.
“These lenders too often dealt in bad faith with a group of hard-working, unsuspecting workers who deserved much better and have yet to receive any measure of justice,” wrote Mr. Stringer, who added that the state should close a loophole that allowed the lenders to classify their loans as business deals, which have looser regulations.
Last November, amid a spate of suicides by taxi drivers, including three medallion owners with overwhelming debt, the Council created a task force to study the taxi industry.
On Monday, a spokesman for the speaker, Mr. Johnson, said that members of the task force would be appointed very soon. He also criticized the Taxi and Limousine Commission, the city agency that sold the medallions.
“We will explore every tool we have to ensure that moving forward, the T.L.C. protects medallion owners and drivers from predatory actors including lenders, medallion brokers, and fleet managers,” Mr. Johnson said in a statement.
Another councilman, Ritchie Torres, who heads the Council’s oversight committee, disclosed Monday for the first time that he had been trying to launch his own probe since last year, but had been stymied by the taxi commission. “The T.L.C. hasn’t just been asleep at the wheel, they have been actively stonewalling,” he said.
A T.L.C. spokesman declined to comment.
In Albany, several lawmakers also said they were researching potential bills.
One of them, Assemblywoman Yuh-Line Niou of Manhattan, a member of the committee on banks, said she hoped to pass legislation before the end of the year. She said the state agencies involved in the crisis, including the Department of Financial Services, should be examined.
“My world has been shaken right now, to be honest,” Ms. Niou said.
Copyright 2019 The New York Times Company. All rights reserved.
Yesterday, the New York Times published the first part of a devastating investigation into taxi medallion loans. We highly recommend the article and will post further parts as soon as they become available.
By Helaine Olen
Last month Sen. Elizabeth Warren (D-Mass.) debuted a proposal that would wipe away the majority of student debt through a generous forgiveness program. It may have been controversial among pundits, but it was popular with the public. Now there’s another plan out there that offers help too — and Warren, along with fellow presidential candidates Sens. Bernie Sanders (I-Vt.), Kamala Harris (D-Calif.), Amy Klobuchar (D-Minn.) and Rep. Eric Swallwell (D-Calif.) are all co-sponsoring it.
Let’s talk about bankruptcy. Americans owe a collective $1.5 trillion in student loan debt, an amount that’s increased from $90 billion over the past two decades. In 2018, more than two-thirds of college graduates graduated with student loans. The average amount borrowed (from all sources) by a 2018 graduate is just under $30,000. The burden is impacting people from early adulthood to those in retirement: Some senior citizens are using their Social Security checks to pay back student loan bills. If all these people were facing unsupportable housing, credit card debt, medical or auto loan bills they could turn to a bankruptcy court for help. But short of something called “undue hardship,” an extremely difficult standard to meet, it’s essentially impossible to receive court-ordered relief from college loans.
The legislation, which debuted last week, would seek to fix this. It’s bipartisan, attracting two Republican co-sponsors in the House, including Rep. John Katko (R-N.Y.), who introduced a similar bill in the last session of Congress. It would, as sponsor House Judiciary Chair Jerrold Nadler (D-N.Y.) put it in a statement, "ensure student loan debt is treated like almost every other form of consumer debt."
The issue goes back to the 1970s, when the banks and media outlets began pushing the narrative there was an explosion in new graduates declaring bankruptcy to unload their student loans. The Government Accountability Office (then the General Accounting Office) found that such acts were extremely rare. But little matter: In 1976, Congress passed legislation that banned students from receiving relief for their student debts for a period of five years. Over the next several decades, they would extend that period to seven years, and then in 1998 they shut the door almost entirely on relief for federally issued loans. In 2005, as part of controversial “bankruptcy reform” legislation, that stricture was extended to privately issued loans as well. One man who supported all of this: Joe Biden, then a senator from Delaware. He championed the multiple changes that made it harder for people to declare bankruptcy and receive relief for their student debt.
Over that same period, student loan debt ballooned. That’s likely not a coincidence. Many things factored into the rise of debt financing of education, including the decreasing rates at which many states supported their public colleges and, most prominently, the growth of for-profit colleges. But the usual risk associated with loaning money is that the person might not pay it back; common sense says banning that outcome would lead to an exploding student loan market. When you can get blood from a stone, someone — the government, a bank or a financial institution specializing in refinancing student debt — will lend the rock money.
Restoring bankruptcy could protect borrowers in another way too, by potentially acting as a check on the careless treatment of debtors by the student loan servicers. In 2017, the Consumer Financial Protection Bureau sued Navient, claiming the student loan giant repeatedly did not tell borrowers experiencing financial difficulties about income-based repayment options, and instead pushed them into forbearance, a strategy that resulted in further interest charges and increased the amount borrowers owed.
At the same time, Education Secretary Betsy DeVos is slow-walking promised debt forgiveness to students defrauded by sketchy and predatory for-profit colleges. Meaningful bankruptcy reform would give these victims another option, as well as expand the potential for relief to former debt-encumbered students who also need the help but are outside of the relatively narrow eligibility groups to apply for relief.
Yes, there are other things we could do as well. A beefed up, income-based repayment program, with automatic enrollment and a more realistic assessment of the earned income needed for people to begin the process of paying back their loans, would make a significant difference. But that won’t help everyone, especially those whose loans did not originate with or are no longer held by the government. It’s also worth noting that the students most likely to fall into default — that is, cease paying their student loans entirely — are those who attend for-profit colleges, who are disproportionately likely to be older, and come from a more economically disadvantaged background,than the traditional college student.
There is little evidence that people frivolously file for bankruptcy. If anything, it’s the opposite; many put off seeking help. There’s no reason to believe things would be different when it comes to student debt. Restoring the right to declare bankruptcy when one can’t financially handle paying for one’s education is a change that should be supported even by those who believe Warren’s debt forgiveness plan is too generous — or a giveaway to the wealthy.
The right to declare bankruptcy is fundamental to a capitalist economic system. We believe that people who make economic mistakes deserve a second chance. Think about it this way: Donald Trump has taken his businesses to bankruptcy court and excised many of his debts a half a dozen times, while people whose only mistake was doing their best to get ahead find it almost impossible to receive similar relief. That’s not right. We should fix that.
© 1996-2019 The Washington Post. All rights reserved.
Here at Shenwick & Associates, one of the most difficult issues for our clients (especially younger ones) is student loan debt, which is now over $1.5 trillion (that’s not a typo), far eclipsing other types of consumer debt. As we’ve discussed many times in our posts, most courts follow the “undue hardship” Brunner test, which makes it almost impossible to discharge student loan debts in bankruptcy.
However, relief may be on the horizon, as more opinion leaders and courts express opposition to the Brunner factors. Earlier this month, members of Congress (including Sens. Elizabeth Warren (D-Mass.) and Dick Durbin (D-Ill.), along with Reps. Jerrold Nadler (D-N.Y.), John Katko (R-N.Y.) and Joe Neguse (D-Colo.)) introduced the Student Borrower Bankruptcy Relief Act of 2019, which would eliminate the section of the bankruptcy code (523(a)(8)) that makes private and federal student loans nondischargeable, allowing these loans to be treated like nearly all other forms of consumer debt.
The bill should easily pass the House. No bill text is available yet, but we’re sure we’ll be writing about this vexing issue again soon. For trusted bankruptcy advice on all types of debt, please contact Jim Shenwick.
The April 2019 New York City Taxi & Limousine Commission (TLC) sales resultshave been released to the public. And as is our practice, provided below are Jim Shenwick’s comments about those sales results.
1. The volume of transfers rose from March. In April, there were 75 unrestricted taxi medallion sales.
2. 57 of the 75 sales were foreclosure sales (76%), which means that the medallion owner defaulted on the bank loan and the banks were foreclosing to obtain possession of the medallion. Four sales were estate sales for no consideration. We disregard these transfers in our analysis of the data, because we believe that they are outliers and not indicative of the true value of the medallion, which is a sale between a buyer and a seller under no pressure to sell (fair market value).
3. The large volume of foreclosure sales (approximately 76%) is in our opinion evidence of the continued weakness in the taxi medallion market.
4. The 14 regular sales for consideration ranged from a low of $125,000 (one medallion) to a high of $230,000 (one medallion), with a median sales value of $170,000.
5. The fact that 76% of all transfers in April 2019 were foreclosure sales shows continued weakness in the taxi medallion market and no sign of a correction.
6. At Shenwick & Associates we believe that the value of a medallion is approximately $160,000 and the value of medallions continues to weaken.
Please continue to read our blog to see what happens to medallion pricing in the future. Any individuals or businesses with questions about taxi medallion valuations or workouts should contact Jim Shenwick at (212) 541-6224 or via email at j[email protected].
Here at Shenwick & Associates, spring is in the air and the A/C isn’t on yet. One of things that we love about the law is that it’s always changing, and we do our best to keep up with new developments in bankruptcy law.
So we were excited to see that the American Bankruptcy Institute(one of the most respected institutions in bankruptcy law) issued the final report of its Commission on Consumer Bankruptcy earlier this month, which contains a plethora of recommendations to amend the Bankruptcy Code and Federal Rules of Bankruptcy Procedure. In this e-mail, we’ll review its key recommendations.
Student loans. As our readers know, it’s extremely difficult to discharge student loans in bankruptcy. The Commission recommends that student loans that are: (a) made by nongovernmental entities; (b) incurred by a person other than the person receiving the education; (c) being paid through a five-year chapter 13 plan; or (d) first payable more than seven years before a chapter 7 bankruptcy is filed be made dischargeable in bankruptcy.
Remedies for Violation of the Discharge Injunction. Currently most violations of the discharge injunction can only be remedied by contempt proceedings. The Commission recommends creating a statutory private right of action for violations of the discharge injunction, like the action for violations of the automatic stay, which would provide the full range of sanctions, including costs, attorney fees, and punitive damages.
Credit Counseling and Financial Management Course. The Commission recommends eliminating prepetition credit counseling and eliminating the requirement for a course in financial management in chapter 7, but retaining it in chapter 13, with further study of its effectiveness.
Means Test Revisions & Interpretation. The Commission recommends amending the means test to require reduced documentation from debtors with below-median income; to exclude from income public assistance, government retirement, and disability benefits, capped by the maximum allowed Social Security benefit; to remove the presumption of abuse if the debtor shows special circumstances, even if the circumstances arose voluntarily; and to allow certain statutory expense deductions from income only to the extent actually incurred by the debtor and necessary for the support of the debtor and debtor’s dependents.
Chapter 13 Debt Limits. To reduce the need for individuals to file under chapter 11, the Commission recommends increasing the chapter 13 debt limit to $3 million, eliminating the distinction between secured and unsecured debts; and for married couples, applying the limit separately to each spouse and not aggregating the spousal debt, even in joint cases.
All of the Commission’s recommendations would dramatically improve access to bankruptcy relief, but Congress would need to introduce bills to enact the Commission’s recommendations for statutory amendments. For information on how bankruptcy relief could help you, please contact Jim Shenwick.
No one looks forward to having to file for bankruptcy. However, if you have filed and also own a home, you may be surprised to learn that you can, in fact, refinance an existing mortgage.
Refinancing comes with plenty of advantages. By lowering the interest rate you pay, it can help reduce your monthly payment. By extending your loan term — from, say, 15 years to 30 years — you may also be able to reduce your current mortgage costs. Refinancing also offers a way to either consolidate other debt, or produce cash for home improvements or other large expenses.
Still, It’s important to know that not every lender approaches post-bankruptcy refinancing the same way, and some have strict criteria, like long wait periods. At the same time, it’s worth noting that bankruptcy filers, as a group, pay considerably more for loans, according to a 2018 LendingTree study. The study found that the average lending terms offered to consumers three years after bankruptcy were $8,887 higher than those offered to consumers who had never had to file.
What to know about refinancing after bankruptcyBankruptcy gets a bad rap, but it’s also a way for consumers who are overwhelmed by debt to receive federal protection while they work to pay off obligations. While filing for bankruptcy is a very serious decision — and the move can stay on your credit report for years — it might be a reasonable move for your financial future if you’ve exhausted every other option.
There are several types of bankruptcy, and each might affect a potential refinancing differently, depending on factors like the discharge date.
A discharge date is the time when a debtor who has filed for bankruptcy is no longer legally liable for — or required to pay back — certain types of debt.
For Chapter 7 bankruptcies, a bankruptcy court will issue a discharge order relatively early — generally, 60 to 90 days after the date first set for creditors to meet. With a Chapter 7 bankruptcy, a debtor’s assets are liquidated, or sold, as a way to pay back creditors.
In Chapter 13 bankruptcies, a debtor who has a regular income is allowed to keep assets but also has to agree to a debt repayment plan, usually over three to five years. The debt is technically discharged only after it’s been paid off under the plan.
Even with a Chapter 7 bankruptcy filing, you may still be able to reaffirm, or pay off, certain debts with specific creditors. If you have a mortgage, this usually means re-entering a contract with your lender to affirm that you intend to repay part or all of your loan. As long as you follow through with mortgage payments, the lender is then legally obligated to refrain from repossessing your home and forcing a foreclosure.
For homeowners, one advantage to reaffirming a debt is that your mortgage payments will keep showing up on your credit report because lenders will be obligated to report them to the credit bureaus. Also, by reaffirming your mortgage, you might be able to renegotiate the terms of the loan, including the total amount and the interest rate.
According to federal court data, bankruptcy filings have been declining in recent years. Still, during the 12-month period that ended on June 30, 2018, 22,245 businesses and 753,333 non-businesses filed for bankruptcy, for a total of 775,578 filings.
If you own a home and absolutely must file for bankruptcy, be sure you understand how bankruptcy conditions differ.
“A Chapter 7 bankruptcy in essence is a liquidation and a fresh start, and people who don’t own highly appreciated assets are better off with this type of bankruptcy,” said James Shenwick, bankruptcy attorney at Shenwick & Associates in New York. “But if that person owns a highly appreciated house, or they want to keep a business, or they have an expensive piece of jewelry, then Chapter 13 is better.”
Here are the ways bankruptcies affect mortgages in particular:
Chapter 7 bankruptcy: Unlike a Chapter 13 bankruptcy, a Chapter 7 bankruptcy doesn’t have a repayment plan. Instead, an appointed trustee gathers and liquidates the debtor’s assets to pay off creditors which, in turn, lets the debtor start with a clean slate. Chapter 7 bankruptcies stay on credit reports for up to 10 years.
With a Chapter 7 bankruptcy, you have to wait two years after the discharge date before you can become eligible for a government-backed residential mortgage like a Federal Housing Administration (FHA) loan. For conventional home loans, the wait period is four years.
Certain types of debts — like child support payments and certain taxes — can’t be discharged, or basically forgiven, with a Chapter 7 bankruptcy filing. Mortgage debt can be discharged, but your lender will still have a lien on your home, which means you may lose it if the loan isn’t eventually repaid.
Chapter 13 bankruptcy: A Chapter 13 bankruptcy requires debtors to restructure their debts in order to pay them off over a period of three to five years. Compared to Chapter 7 bankruptcies, Chapter 13 filings carry the advantage of allowing homeowners to stop foreclosure proceedings, as long as they keep up with all mortgage payments due during the repayment period.
A Chapter 13 bankruptcy is often referred to as a “wage earner bankruptcy” because it offers a repayment plan to people who have regular income. You are eligible one year after the discharge of your bankruptcy for a government-backed home loan. With a conventional home loan, however, you’ll need to wait two years.
Chapter 11 bankruptcy: Chapter 11 bankruptcies are for business owners. They allow a business to follow a plan of rehabilitation or reorganization so it may continue to function while repaying debt.
FHA loans are subject to rules for after-bankruptcy refinancingIt’s entirely possible to get an affordable government-backed FHA loan for a refinance after declaring Chapter 7 bankruptcy, but you’ll need to do three things: Wait two years after your discharge, re-establish good credit during that time and avoid taking on more debt.
It’s also possible to become eligible for an FHA loan after just 12 months. However, you’ll need to prove your bankruptcy occurred due to circumstances beyond your control, and you’ll also need documentation to show you’re now managing your finances responsibly. Your lender will have to vouch for you on paper that the bankruptcy is unlikely to happen again.
To get an FHA loan after filing a Chapter 13 bankruptcy, you’ll need to show you made full, on-time mortgage payments for at least a year under your repayment plan, according to the U.S. Department of Housing and Urban Development. You’ll also need to get written permission from a bankruptcy court.
Conventional loans have stricter terms for after-bankruptcy refinancingConventional loans are not government-insured, so interest rates and credit score requirements tend to be higher than those for a government-backed mortgage like an FHA loan. For example, you can get an FHA loan with a credit score of just 500 (assuming you’re willing to put down a 10% down payment, or 580 if you only want to put down 3.5%. By contrast, conventional mortgages usually require a minimum score of 620.
According to Jeremy Schachter, branch manager at Fairway Independent Mortgage Corporation in Phoenix, Ariz., some lenders offer niche refinance loans that don’t require a waiting period, but these are adjustable-rate mortgages that come with higher fees.
“The majority of people fall in the FHA or VA loan buckets,” he said. “It doesn’t make sense if you’ve been through a bankruptcy to go with a loan with higher rates and fees.”
Tips on repairing credit after bankruptcyA bankruptcy typically takes a huge toll on your credit standing, cautioned Schachter, adding that the first thing any lender will look at is whether your credit has been re-established.
“While most bankruptcies happen not out of laziness but because of personal situations such as high medical bills, the worst thing you can do after a bankruptcy is be late on your debt,” he said. “It’s a red flag for lenders who think you should have learned your lesson.”
It’s usually easier to rehabilitate your credit if you file a Chapter 13 bankruptcy, rather than a Chapter 7 bankruptcy.
“In a Chapter 13, creditors are repaid about 10 or 20 cents on the dollar, so the debt is not fully wiped and lenders see that as more of a positive and are more willing to lend to you,” said Shenwick. Still, he added it’s possible to generally rehabilitate your credit even with a Chapter 7 bankruptcy in a year or a year-and-a-half by doing two things: spending as little as possible and saving as much as possible.
Shenwick’s best tip for a credit rebuild: Get a secured credit card, as repayments will show up on your credit history. Secured credit cards are “secured” by money you deposit, unlike regular credit cards, which require no deposits.
Schachter also recommended secured credit cards; he suggested getting a card to pay for very small expenses like gas or groceries, and then making payments on time.
“I see people who do it for six months and that dramatically increases their score,” he said. “It shows they repay debt. It’s a great way to establish or re-establish credit, even for people who don’t have a bankruptcy on file.”
The bottom lineYes, you may be able to refinance your home after bankruptcy, although you may have a waiting period. And you’re more likely to get a government-sponsored FHA loan rather than a conventional loan.
To boost your odds significantly, focus on repairing your credit, steering clear of piling on more debt and, if you filed a Chapter 13 bankruptcy, sticking to your repayment plan. Still, boosting your credit standing may be your biggest ally: According to the 2018 LendingTree study, five years after declaring bankruptcy, 75% of filers were able to boost their credit scores to a loan-eligible 640 or more.
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Seila Law Investigated for Illegal Sale of Debt Relief Services, plus more…
On February 27, 2017, the Consumer Financial Protection Bureau “CFPB” issued a civil investigation demand “CID” to Seila Law, LLC seeking information about its business.
to determine whether debt relief providers, lead generators, or other unnamed persons are engaging in unlawful acts or practices in the advertising, marketing, or sale of debt relief services or products, including but not limited to debt negotiation, debt elimination, debt settlement, and credit counseling, in violation of Sections 103 1 and 1036 of the Consumer Financial Protection Act of2010, 12 U.S.C. §§ 5531,5536; 12 U.S.C. § 5481 el seq., the Telemarketing Sales Rule, 16 C.F.R. § 310. 1 el seq., or any other Federal consumer financial law.
Seila Law’s response was to object to CFPB’s right investigate the firm, but did not deny any allegations. The 9th Circuit Court of Appeals (May 6, 2019) found the CFPB was empowered to investigate whether Seila Law was violating the Telemarketing Sales Rule, among other laws.
MUSINGS FROM DIANE:
I am always disgusted when anyone prays on someone who trusts them to do the right thing. Whether it is a bad mechanic, a doctor who prescribes unnecessary treatment or a lawyer who lies and intentionally misleads their clients. All of these sharks are focused on one thing – filling their own pockets. Of course, everyone has a right to make a living, but not if that means robbing someone.
My advice – use your common sense before hiring anyone (even my law firm). Check out their reviews (with the understanding that many are fake). If your gut tells you to run, then do so immediately.
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