Thursday, November 11, 2021

Bankruptcy - What is the impact of inflation on my budget? Don't let it trap you.

Image courtesy of jscreationzs
at FreeDigitalPhotos.net
As many probably heard in the news this week (11/10/2021), inflation is at a 30-year high. I hear all these numbers and percentages thrown out at me, but I was not sure how to analyze them. So, I thought I would use the statistics and data used by the bankruptcy courts and US Trustee to try and measure and illustrate the impact of inflation on our lives. I am using the CNBC article “U.S. consumer prices jump 6.2% in October, the biggest inflation  surge in more than 30 years” and “MEANS TESTING” page (updated May 15, 2021) as the data sources for this article.

Consumer prices jumped 6.2%. I'm not completely sure what that means and how they come up with the figure of "6.2%" or how it applies. Looking at these statistic, a family of four spends about $5,389.00. If you increase that figure by 6.2%, you increase your monthly spending by $334.00 per month to $5,723.00 or $4,009.00 per year. But I'm not sure it that is the best measure. 

Look at the figures when you break them out of the overall combined average. Fuel oil and Energy prices (gasoline, natural gas, propane, electricity) are up double digits. Meat, poultry, fish and eggs are also up double digits.

The CNBC article shows:

  • "... Annual core inflation ran at a 4.6% pace..."
  • "... Fuel oil prices soared 12.3% for the month [Oct], part of a 59.1% increase over the past year...";
  • "... Energy prices overall rose 4.8% in October and are up 30% for the 12-month period..."
  •  "... Food prices also showed a sizeable bounce, up 0.9% [Oct] and 5.3% [year] respectively. Within the food category, meat, poultry, fish and eggs collectively rose 1.7% for the month and 11.9% year over year..."
  • "... Shelter costs, which make up one-third of the CPI computation, increased 0.5% for the month and are now up 3.5% on a year-over-year basis..."

The current costs for a family of four using bankruptcy statistics for the my region:

       Expenses                              Cost (05/15/21)           Increase            Est Increase           

- Mortgage/Rental                             $2,002.00                 3.5%               $ 2,072.00

- Utilities/Maintenance                       $ 789.00              30% - 59.1%       $ 1,025.00 (@ 30%)

- Food                                                $ 955.00              5.3% - 11.9%      $ 1,006.00 (@ 5.3%)   

- Housekeeping, Clothes, Etc.           $ 785.00                   4.6%              $    821.00

- Out-of-pocket Med expenses          $ 272.00                   4.6%              $    284.00

- Reg Operating expense - 2 cars     $ 586.00                  59.1%             $    932.00                

   Total per month                              $ 5,389.00                                       $6,140.00

Using the lowest percentage of increases, statistically, the increased costs for a family of 4 would be approximately $751.00 per month, which is approximately $9,012.00 per year. Utilities, Food and Operating costs for two cars are variables because those costs include multiple products with different rates of inflation increases. If you drive a good distance to work, regularly consume meat, poultry, fish and eggs, use fuel oil to heat your home, I think the monthly increase is higher. If you have a fixed mortgage, maybe you will not see an increase in the Mortgage/Rental category.

I am not an economist and maybe my analysis is flawed. I'm sure someone out there would contest this. These are my personal thoughts and how I think these numbers really work.

So, if you were just making your minimum payments on your credit cards and other unsecure debt over the last several months, you may have felt like your income was shrinking. How much trouble will you have making the same payments going forward? Maybe it is time to look at your options including bankruptcy.

If you want assistance, legal representation, or just want to know more about Mark Medvesky or our firm of Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.

#bankruptcy #Chapter7 #Chapter13 #MontgomeryCounty #lawfirm #BucksCounty #Pennsylvania


Wednesday, November 10, 2021

Bankruptcy - Chapter 7 - Can I keep my home?

This is a topic I wrote about before but worth discussing again. In many cases, a family can keep their home in a chapter 7 bankruptcy case. One question is "how much equity do you have in your home?" Some people don't understand what "equity" is and others just don't know the values needed to calculate the equity. Equity is the full value of your home minus the balance of the mortgage (and second mortgage if you have one) owed on your home.

For instance, if your home is worth $200,000.00 and your mortgage balance is $160,000.00; your equity is $40,000.00 ($200K - $160K = $40K). Basically, you own $40K of value in your home.

If your home is worth $200,000.00 and your first mortgage balance is $160,000.00 and you have a second mortgage of $20,000.00, you add the mortgages ($160K+$20K= $180K) and deduct that number for the value of the home ($200K - $180K = $20K). You own $20K of value in your home.

Bankruptcy law allows a debtor to exempt (protect or keep) a certain amount of value in their home. In the Eastern District of Pennsylvania, a couple can use bankruptcy law to keep a little over $50,000 of equity in their home. That means in both examples above, a couple filing bankruptcy that have $20K - $40K of equity in their home could keep their home in a chapter 7 bankruptcy case, providing they meet all the other requirements to file for chapter 7 protection.

One of the challenges people are facing today is the rapid increase of value that real estate is experiencing under the current market conditions. In Pennsylvania, home values have increased about 16% over the last year.

So, if your home was valued at $200,000.00 last year, your home may be worth $32,000.00 more for a total of $232,000.00. Using the examples above and let's say your mortgage balance last year was $160,000.00 and you paid down $10,000.00 on the principal of your mortgage. That means your mortgage balance is now $150,000.00.

Using the first example, the equity in your home is now $82,000 ($232K - $150K = $82K). Using the second example, the equity in your home is now $62,000.00 ($232K - $170K = $62K). In both examples your equity now exceeds the $50,000.00 exemption.

This is an oversimplification of the analysis needed. Other factors, like the cost to sell your home, to consider. If this is your concern, don't make a decision based on this article alone. Talk to a bankruptcy attorney for a more thorough review.

Also, for a married couple who own a home as husband and wife, there is another way to protect a home but that is a topic for another blog.

If you want assistance, legal representation, or just want to know more about Mark Medvesky or our firm of Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.

Other articles:

Bankruptcy - “Can I keep my house?” - is that the best question?


Bankruptcy and equity in your home Part 1: What is equity?


Bankruptcy and equity in your home Part 2: How does equity impact my choices? Can you own too much of your home?



#bankruptcy #Chapter7 #MontgomeryCounty #lawfirm #BucksCounty #Pennsylvania

Saturday, July 3, 2021

Mortgage relief coming to an end ... Now what?

Image courtesy of Stuart Miles at FreeDigitalPhotos.net
The mortgage forbearance period is coming to an end and homeowners are months behind on their mortgage payments. What happens next. The expectations are that homeowners will work out repayment plans with their lenders. Some will just extend their mortgages and add the missed payments to the back of the loan. Some will temporarily increase their payments for a period of time before it goes back to normal. Some people may be able to refinance completely and others may opt to sell in this market. I have had a couple clients go into and come out of forbearance periods successfully since this all started. But as we all know, nothing is perfect and some borrowers will find themselves unable to work out a plan with their mortgage companies. 

If working with your mortgage doesn't work, you may have another option; Chapter 13 Bankruptcy. Chapter 13 allows you to take up to 5 years to catch up on your mortgage. You will be required to start paying your regular mortgage payment and make another payment to a Trustee to pay your mortgage arrears. But, if you can do that, the mortgage company has no real say accepting the back payments over 5 years. If you find yourself out of options with the mortgage company and want to save your home, talk to a bankruptcy attorney. 

If you want assistance, legal representation, or just want to know more about Mark Medvesky or our firm of Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.

#bankruptcy #Chapter7 #Chapter13 #MontgomeryCounty #lawfirm #BucksCounty #Pennsylvania

Another article:

 Mortgage servicers brace for fallout as Covid bailout comes to an end

Sunday, August 16, 2020

Credit Unions - not your friend in bankruptcy

Many people love working with their credit union. Credit Unions generally offer better interest rates and can have an easier lending process. Their service is more personable too. These are valid reasons to use a credit union. 
Image courtesy of David Castillo Dominici
at FreeDigitalPhotos.net

What many people don't think about is credit unions are membership based. The rules and their practices are a little different from a bank. Most have policies that if a member causes the credit union to lose money (i.e. discharge a debt/credit card in bankruptcy), the customer can no longer be a member. The credit union will terminate the customer's checking and savings accounts as well as no longer provide loans. 

Another issue is Cross Collateralization. Most credit unions set up their loans to be cross-collateral loans. Let's say a customer goes into a credit union to apply for a car loan and, to so, opens a shares account for checking and savings. After financing a car for $25,000, the same customer applies and receives a credit card with a limit of $10,000. As time passes, the car loan is reduced to 15,000 but the customer max's out the card increasing his/her credit card debt to $10,000. Unknowingly, the agreement the customer signed when opening the accounts and applying for the credit, he/she agreed to secure all the credit to any collateral on any loan. As a result, the loan amount against the car is still $25,000. 

This can be disheartening when a person is trying to dig out of a financial hole and need their car to do so. There may be other options (like redemption - a topic for another blog) but it complicates the case. 

If you want assistance, legal representation, or just want to know more about me, Mark M. Medvesky, or Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.

We are working with clients via telephone, internet and video conferencing during this time. We are starting to accept office appointments as well.

Other Blog entries: 

Sunday, July 5, 2020

Hidden Income - Bankruptcy - Chapter 13

Image courtesy of
Vichaya  Kiatying-Angsulee 
at FreeDigitalPhotos.net
Many people set their federal tax withholding amount well above the amount they need to pay their federal tax obligation. When they file their federal tax return, the receive a large refund. They feel like it is a bonus. I have some clients that regularly receive refunds of $3K to $5K. This is not a bonus. 

This is the same as if you sent Amazon $500 for the purchase of a product that costs only $250 and receive a refund of $250. The extra money is already yours and always was yours. That is the way the bankruptcy law views it. It the Eastern District of Pennsylvania, the Trustee's office includes the refunds as part of the debtors' income. 

In my experience, the Trustee wants the refund divided into 12 payments and added to the monthly plan payment going forward. For instance, after completing an extensive budget, the debtors (a couple) may show they have $500/month of disposable income to be paid into a chapter 13 plan. But the same couple has received over $4000 every year for the last 3 - 4 years in their federal tax refund. 

The Trustee expects the debtors to adjust their monthly tax withholding figure to bring that refund back into the monthly income and paid into the plan. If you divide $4000 by 12 months, the debtors have $333/month to add to their disposal income of $500/month. As a result, the Trustee is expecting a proposed plan with a monthly payment of $833/month. This is hard for many people to understand because they do not see their refund as income. They are resistant to changing their withholdings. But without paying the additional amount, the Trustee will attempt to block the plan.   

If a person is exploring a chapter 13 filing and usually have a large tax refund, the person needs to discuss this issue with their attorney. 

NOTE: I assume other jurisdictions handle this issue differently. Also, I expect some attorneys work a plan with an annual lump sum payment of the refund every year. I think adding an annual lump sum payment could complicate a plan. I could and would propose such a plan if a client wanted such a plan but my recommendation is to adjust withholdings and add the amount across the plan.

If you want assistance, legal representation, or just want to know more about me, Mark M. Medvesky, or Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.

We are working with clients via telephone, internet and video conferencing during this time. We are starting to accept office appointments as well.

Other Blog entries: