It is possible to eliminate a second mortgage through bankruptcy

Things can get tricky when filers have second mortgages or home equity lines of credit (HELOCs) when they file for bankruptcy. And thanks to the housing market that collapsed in 2007, many Americans currently do have multiple mortgages or loans attached to their homes.

A common misconception is that mortgage liens can not be removed through bankruptcy. In fact, 2nd mortgages (and HELOCs) CAN be stripped and/or discharged through bankruptcy.

Here’s how they’re treated by the bankruptcy court:

• A HELOC in Chapter 13 bankruptcy: In Chapter 13, filers are required to make payments to their primary mortgage lender and to the bankruptcy trustee. The trustee distributes these payments among priority debtors. After the case concludes, the HELOC may be eliminated (discharged). The lender will have gotten a percentage of trustee payments during the case.

• A HELOC in Chapter 7 bankruptcy: Chapter 7 may cancel the debt on a home equity credit line, but it cannot cancel the lien that creditor has on the house. In fact, a HELOC lender may still be able to foreclose on a filer’s house after bankruptcy is over (though if there’s no equity in the house, this would be unlikely). One way to avoid post-Chapter 7 foreclosure is to reaffirm payments to a HELOC lender in during bankruptcy.

• Second mortgages in Chapter 13: Second mortgages that are no longer secured by a home’s value can be discharged in Chapter 13 bankruptcy. Underwater homes may have second or third mortgages that are not secured any longer by the house’s value (that is, the amount of the loans totals more than what the house is currently worth). However, discharging a second mortgage will not affect what a bankruptcy filer owes on a first mortgage.

Brian Cahn,

Senior partner with Perrotta, Cahn & Associates

Perrotta, Cahn & Associates represents clients throughout Georgia and the Southeastern United States.  We have offices conveniently located throughout Georgia.  To schedule a free consultation with a lawyer at our firm, call us toll-free at 866-382-8900 or visit us online at www.northgabankruptcy.com.

We have offices in: Cartersville, Calhoun, Dalton and Dallas

Serving clients in: Bartow, Floyd, Paulding, Cherokee, Polk, Whitfield, Douglas, Cobb, Fulton, Chatham, and all of Northwest Georgia.

Should you sign a reaffirmation agreement?

One of the benefits of a Chapter 7 bankruptcy, is the ability to keep (or “reaffirm”) debts secured by property the debtor needs for his or her fresh start.  Typically, clients need their vehicle and house and reaffirming the loans on those items seems like the right thing to do.

Maybe.  Maybe not.

More often than not, I will advise clients NOT to reaffirm their mortgage loan, especially under the following circumstances:

• (1) if there is a 2nd mortgage;
• (2) if my client is self-employed or has fluctuating pay; or
• (3) if the property has little or negative equity.

Under the new bankruptcy laws, a mortgage company could foreclose on the property if a reaffirmation agreement is not signed, even if the debtor is current with their mortgages (I will blog about ipso facto clauses in the near future).   However, in 17+ years of bankruptcy practice, I have never seen a mortgage company attempt to foreclose when a reaffirmation is not signed and the debtor remains current.  The chances are very slim that the mortgage company would want to foreclose when the loan is current, especially in today’s real estate market.  By not signing the reaffirmation agreement, the debt would be discharged and would show up on the credit report as being discharged.  But as long as the debtor continues making regular mortgage payments, there is a great chance that they would be able to keep the property, and own it outright at the end of the loan.  There is no guarantee, but chances are very good that the mortgage company would never foreclose if the account remains current.  And in two to three years after the bankruptcy, the borrower could qualify to refinance their house!

Another debt that most individuals may want to reaffirm is a car payment.  I will typically advise my clients to reaffirm their car payment IF they’re one-thousand percent certain they can afford the payment; the car is worth at least what’s owed; and the account is current.   If a debtor wants to keep their car through the bankruptcy, they probably need to sign a reaffirmation agreement.  Car creditors, unlike mortgage companies, can and do repossess collateral (the car), even if the payments are current, but a reaffirmation agreement is not signed!  Why?  The new bankruptcy laws gives the creditor this remedy.  Why are they doing it?  It could be to go ahead and cut their loses?  Or, as I believe, it could be a way for them to scare debtors into signing the reaffirmation agreement.  Some debtors may need to sign a reaffirmation to keep their car, but usually most individuals can and do qualify to purchase another vehicle soon after their bankruptcy is over.  Therefore, one should really think twice before signing a reaffirmation for their car.

Other secured debts that my clients like to reaffirm are furniture loans, or loans for jewelry or a computer (typically Dell Financial).  Again, I also advise them NOT to sign reaffirmation agreements for these items.  If a reaffirmation is not signed on a furniture debt, the debt is discharged and the only recourse for the creditor is to pick up the furniture.  What are the chances that the creditor will pick up their furniture.  Very, very, very slim.  The reason is simple.  Most furniture depreciates as soon as you take it out of their store.  Further, the creditor can not sell used furniture for more than what it would cost them to pick it up.  So, the best course of action is to NEVER sign a reaffirmation for a furniture debt and take the chance that they do not come and pick up the furniture.

What about loan companies that made you pledge everything of value as collateral for the loan?  Do NOT reaffirm this loan.  The Bankruptcy Code gives us the ability to avoid the finance company’s lien on your household items.  Yes, we can eliminate the loan, and you keep your household items.  I will explain the details to you at your free consultation.

All in all, the only two debts that consumers should ever consider reaffirming are their house or their car.  The main objective is to avoid biting off more than you can chew.  Sure, reaffirming the debt helps your credit and will guarantee that the lender won’t take your car or home as long as you stay current.  But the risk of future financial problems frequently outweighs the benefit of reaffirmations.

Brian Cahn, senior partner with Perrotta, Cahn & Associates

Perrotta, Cahn & Associates represents clients throughout Georgia and the Southeastern United States.  We have offices conveniently located throughout Georgia.  To schedule a free consultation with a lawyer at our firm, call us toll-free at 866-382-8900 or visit us online at www.northgabankruptcy.com.

We have offices in: Cartersville, Calhoun, Dalton and Dallas

Serving clients in: Bartow, Floyd, Paulding, Cherokee, Polk, Whitfield, Douglas, Cobb, Fulton, Chatham, and all of Northwest Georgia.

When declaring bankruptcy, where do you start and what do you bring?

There’s a right and wrong way to handle any situation. For example, this is the wrong (but hilarious) way to declare bankruptcy.

If you’re getting calls from collectors, falling behind on mortgage or car payments, or just curious about your legal rights to eliminate or manage your debt, the right thing to do is GET A FREE CONSULTATION FROM AN EXPERIENCED ATTORNEY. The starting point is a phone call.

The lawyers with Perrotta, Cahn & Prieto offer free consultations. Our phone number is (770) 382-8900. We can meet with you at your convenience in any of our offices. We have offices located in Cartersville, Calhoun, Dallas and Dalton.

Make sure to bring a list of bills, or the bills themselves. If you’ve been sued, bring the lawsuit.

We have a worksheet that you can print and fill-out. The worksheet covers almost every question and issue that we need to guide you in the right direction.

Finally, make sure to bring your last-filed tax return, and all pay stubs you and your spouse have received in the past 60 days.

Your consultation is confidential and free. We give you INFORMATION and OPTIONS. We help empower you to protect your property, and get the fresh start you deserve.

Brian Cahn, senior partner with Perrotta, Cahn and Prieto, P.C.

Perrotta, Cahn & Prieto represents clients throughout Georgia and the Southeastern United States.  We have offices conveniently located throughout Georgia.  To schedule a free consultation with a lawyer at our firm, call us toll-free at 866-382-8900 or visit us online at www.northgabankruptcy.com.

We have offices in: Cartersville, Calhoun, Dalton, Atlanta and Dallas

Serving clients in: Bartow, Floyd, Paulding, Cherokee, Polk, Whitfield, Douglas, Cobb, Fulton, Chatham, and all of Northwest Georgia.

Rebuilding your credit after bankruptcy

A bankruptcy discharge is the formal order entered at the successful completion of the case.  The discharge is your ticket out of bankruptcy and the beginning of a fresh financial start.

Building and maintaining good credit after bankruptcy is critical to a fresh start. The higher your credit score, the lower your interest rate on credit cards, mortgages and auto loans.

No sooner than 4-months after receiving your discharge, but no later than 9-months after discharge, your first step should be to secure a copy of your credit report to see where you stand. You are entitled to one free credit report per year from Equifax, Experian and TransUnion, and you can get it easily by going to www.annualcreditreport.com or calling 1-877-322-8228.   Beware of other web sites that sound “free,” because they probably require you pay a fee or enroll in a monitoring service at a cost.  The only service that I’m aware of that’s absolutely free (no strings attached) is www.annualcreditreport.com.

Once you get your report, check it for accuracy: you will be surprised how often mistakes show up.  The bankruptcy case should say “Discharged” (not “Dismissed”).  Each account that was discharged should say “Discharged in Bankruptcy.”  Conversely, any account that was reaffirmed should say “Account in Good Standing” if you’re current.  Verify that each creditor listed is actually one you either use or have used in the past, and dispute any errors – including old or outdated addresses.

Tips to rebuilding and maintaining good credit

• Open a checking or savings account. Having a financial history will help you secure a loan.
• Pay your reaffirmed or post-bankruptcy bills on time; take advantage of auto-pay to avoid late-fees.
• Keep balances as low as possible on “revolving credit” (i.e., credit cards).
• When possible, pay off debt instead of transferring it to low-interest rate cards.
• Don’t open lines of credit you don’t need.
• Protecting your credit from identity theft is another pro-active way of maintaining good credit; if your identity is stolen and fraudulent charges appear, it will take some time to straighten it all out.

Tips on protecting your credit

• Guard your mail from theft by shredding it before discarding it – especially mail containing personal information, including charge receipts, credit offers and applications, insurance forms, doctor’s statements, discarded bank checks and statements, and expired credit cards.
• Be protective of your personal information.
• Be cautious when giving out your credit card number, address, or other personal information. When possible, only share this information with reputable organizations.
• Never carry your Social Security card. Leave it in a secure place at home or in a safe deposit box if you have one.
• Use secure online purchases (https://) whenever possible, and look for graphic images of a lock and key at the bottom corner of your browser or the words Secure Sockets Layer (SSL).
• Avoid using your card as identification. Thieves can use this information to assume your identity and open bank accounts, make purchases – even get a job or apartment using your identity. Only use your credit card at recognized and reputable merchants.
• If you suspect fraud, contact the bank that issued your card and have them put a “credit freeze” on your account. A credit freeze will flag your account and make it difficult for would-be-thieves to open a new line of credit under your name.

Tips if you are a victim of identity theft and fraud

• If you suspect fraud, the first thing to do is place a Fraud Alert on your credit file. This alert will stay in place for 90 days and will require creditors to verify your identity before issuing credit in your name.
• If you have already been a victim of fraud, fill out an Identity Complaint Form with the FTC and have them place an extended fraud alert on your credit file which requires all creditors to actually speak with you before issuing credit. The extended fraud alert stays on your file for 7 years.
• Repairing your credit will take time. It’s similar to building your credit from scratch – but more challenging since the blemishes from the past will be on your file for a while.

Tips on improving or repairing your credit

• Pay your bills on time. The length of time you’ve paid your bills timely impacts your credit score.
• Get current on all your accounts. If you are behind, creditors will send your accounts to collectors and this will negatively impact your credit file.
• If you fall behind on payments, contact the creditors or see a credit counselor and let them know your situation. This will give you a chance to work something out with the creditors – possibly delaying reports of delinquencies to the credit agencies.
• Get your credit report a few times a year to monitor your progress. Although it takes time to raise those scores, watching them rise should serve as motivation to reinforce these new habits.

Disputing Errors on your Credit Report

If your credit report does not accurately reflect accounts discharged in bankruptcy, or other material information, it’s important to send a dispute letter to all 3 bureaus ASAP.   Under the Fair Credit Reporting Act (FCRA), the credit bureau is required by law to correct any disputed items within 30-days.  Here’s a sample dispute letter:

Date Your Name Your Address Your City, State, Zip CodeComplaint Department Name of Credit Bureau Address City, State, Zip Code Dear Sir or Madam:I am writing to dispute the following information in my file. The items I dispute also are encircled on the attached copy of the report I received.This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be deleted (or request another specific change) to correct the information.Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please investigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible. Sincerely, Your name Enclosures: (List what you are enclosing)

Brian Cahn, senior partner with Perrotta, Cahn and Prieto, P.C.

Perrotta, Cahn & Prieto represents clients throughout Georgia and the Southeastern United States.  We have offices conveniently located throughout Georgia.  To schedule a free consultation with a lawyer at our firm, call us toll-free at 866-382-8900 or visit us online at www.northgabankruptcy.com.

We have offices in: Cartersville, Calhoun, Dalton, Atlanta and Dallas

Serving clients in: Bartow, Floyd, Paulding, Cherokee, Polk, Whitfield, Douglas, Cobb, Fulton, Chatham, and all of Northwest Georgia.

How do I pick a bankruptcy lawyer or attorney?

“You want an experienced attorney.  You don’t want somebody that just started practicing bankruptcy law.   There has been so much change and there is so much information under the umbrella of bankruptcy law that you need someone that’s been doing it for a while.  I can say I’ve been a bankruptcy lawyer, doing exclusively bankruptcy work, for over 17 years now.  I think I’ve seen almost every aspect that a case could present so I know how to deal with problems; I know how to see them before they come up and take measures before the case is even filed to prevent the case from being contested or a problem case.”

Brian Cahn, senior partner with Perrotta, Cahn and Prieto, P.C.

Perrotta, Cahn & Prieto represents clients throughout Georgia and the Southeastern United States.  We have offices conveniently located throughout Georgia.  To schedule a free consultation with a lawyer at our firm, call us toll-free at 866-382-8900 or visit us online at www.northgabankruptcy.com.

We have offices in: Cartersville, Calhoun, Dalton, Atlanta and Dallas

Serving clients in: Bartow, Floyd, Paulding, Cherokee, Polk, Whitfield, Douglas, Cobb, Fulton, Chatham, and all of Northwest Georgia.