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: 

Why would I do that? ... change banks before filing for bankruptcy

Bankruptcy - Secured Debt, Unsecured Debt, Priority Debt ... should I care?

Study shows Bankruptcy can give fresh start it promises

#bankruptcy #Chapter_7 #Chapter_13 #Montgomery_County #law_firm #Bucks_County #Pennsylvania

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: 

Bankruptcy Chapter 13 - How much will my monthly payment be? (Final - Part 4)

Bankruptcy Chapter 13 - How much will my monthly payment be? (Part 3)

Bankruptcy Chapter 13 - How much will my monthly payment be? (Part 2)

Bankruptcy Chapter 13 - How much will my monthly payment be? (Part 1)

 

 

  

"Charged Off" - don't get so excited - Bankruptcy

mage courtesy of Stuart Miles at FreeDigitalPhotos.net

As we exit this Covid-19 crisis and start back to work, many people are going to find they are further behind on their debts than they realize. They will try to work it out but, in the end, will not be able to make it. As a result, they will be forced to stop paying the monthly credit card and loan payments.

After a period of non-payment, many debtors will receive notices their debt has been "charged off."  The bank or credit card company is telling the IRS the debt is uncollectible. This is for the benefit of the bank or creditor. It allows the creditors to write the bad debt off as a business expense. This doesn't mean you are released from the debt. This is a common misconception I have found during my conversations with clients. The debt remains due and most likely will be transferred or sold to debt collection agency or debt buyer. 

It usually takes months of non-payment before a creditor charges off a debt. But keep in mind, many people are in months of forbearance already. My guess, just my personal opinion, is the creditors will carry the debt through through 2020 because they have enough losses already for this year. 

So, if you are one of those people who find a notice like this in your mailbox that states your debt has been charged off, know that the notice does not end your responsibility to pay the debt. It is probably just the beginning of a new chapter to the life of your debt.

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 links:

What Does Charged Off as Bad Debt Mean?

Everything you need to know about a charged-off debt

What is a charged-off account?

#bankruptcy #Chapter_7 #Chapter_13 #Montgomery_County #law_firm #Bucks_County #Pennsylvania

Moving Forward after the Covid-19 crisis passes

Image courtesy of David Castillo Dominici
at FreeDigitalPhotos.net

This is a post I am copying over from our Face Book page.

Many people are facing tough financial times during this pandemic. 

According to:

Here’s How Badly The Coronavirus Has Impacted Americans’ Personal Finances            by: SARAH HANSEN, Forbes Staff, Forbes.com

"106 million

That’s the number of consumer loan accounts in forbearance, deferred payment, or natural disaster status as of May 31. At the end of April, just a month earlier, that number was 35 million...

 16%

That’s the portion of consumers who said they are refinancing their debt... 

$985.20

That’s the average budget shortfall American households are facing..."

As we emerge from this crisis, we will have many tough decisions to make on how to move forward. I am sure many people are already planning how to start their recovery. 

Some people will think about taking money out of their IRA's or 401K's. I want to take a moment to remind people they do not necessarily need to spend down their retirement savings to make ends meet now. Under most circumstances, retirement accounts are protected in a bankruptcy case.  

Also, as you set up a plan to move forward, consider how long the plan will take to complete. Many debt settlement plans, debt management plans, or  consolidation loans are based on a multi-year plan. Paying minimum balances on credit cards can take decades.

What if after a year, the plan fails? Or a family takes another economic hit for another reason or a person miscalculates their ability to catch up? All the money the family put into the plan is gone and they find themselves where they started the year before. I find this common in my practice and that can be avoided.

Bankruptcy may be the best option. To file and complete a Chapter 7 Bankruptcy Case usually take months. A Chapter 13 Bankruptcy Case, which allows a debtor to pay what they can afford (as shown on paper), can usually take as little as 3 years and go on for as long as 5 years. The CARES act allows payments for up to 7 years. The key difference with a Chapter 13 payment plan is the Court and Trustee oversee the process and not the creditors. This helps to protect the debtor.   

People should consider all the options as they plan their personal recovery from this crisis. 

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. 

#bankruptcy #Chapter_7 #Chapter_13 #Montgomery_County #law_firm #Bucks_County #Pennsylvania

Look who needed bankruptcy help once too

No one is immune from financial troubles and everyone needs help sometime in their lives. The analysts predict many people will find themselves on the financial ropes as we emerge from this crisis. If you find you are one of those who is struggling as the world opens up, don't think of bankruptcy as defeat. Look at it for what it is; a tool or opportunity to reset your financial life. 

I found this article, "9 Famous People That Went Bankrupt Before They Were Rich" on Forbes. 

Look who used bankruptcy protections to restart their financial lives:

Abraham Lincoln: "1833, a young Lincoln declared bankruptcy after a business he owned went under. His penalty for doing so was severe - Lincoln spent 17 long years repaying his creditors before he regained his financial footing and embarked on his journey to the U.S. presidency and the history books." (TheStreet)

Dave Ramsey: "Dave came out of the starting gate like a championship horse. By the age of 26, he built a portfolio of rental real estate worth over $4 million through his brokerage firm, Ramsey Investments, Inc. He had become a superstar in the real estate market of his home state of Tennessee at a very tender age.

But success didn’t last. His real estate holdings were heavily leveraged, and creditors began calling in his debts. This forced him to file for bankruptcy."

Walt Disney: "...from humble beginnings, Walt Disney showed entrepreneurial drive at an early age. But he also filed for bankruptcy, while still barely more than a teenager. And it almost happened a few years later, just before one of his greatest successes."

George Foreman: "He retired from boxing, moved back to his hometown, and became an ordained Christian minister. He started a youth center for troubled children, where they could participate in sports. But the declining income led him to file for bankruptcy in 1983."

Elton John: "... enjoyed a lavish lifestyle. In 2002, he declared bankruptcy after incurring huge debts on properties he owned all over the world. Wikipedia also confirms he went on a two-year spending spree – around 2000 – in which he spent about 1.5 million British pounds per month (well over $2 million per month)."

Anyone can fall on hard times no matter what is going on in the economy. Some of the most successful people we know of used bankruptcy to start over. Using the bankruptcy laws appropriately can help prevent prolonged financial suffering created or worsened during this crisis.   

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.

During the "stay at home" orders, we are working with clients via telephone, internet and limited video conferencing. 

A storm is coming and it is time to prepare now - Bankruptcy

I want to be clear, this blog is strictly my opinion and it based on the information I found. My research is by no means exhaustive and my conclusions could turn out to be wrong. But I truly believe this is the quiet before the storm and collection efforts on outstanding debt are going to explode as soon as restrictions on the court are lifted. Here is why I hold this belief.

First, collection agencies and attorneys are businesses too. They have payroll and overhead expenses like any other business. People's livelihood rely on income from this industry. Most of them only make money when they collect money. They are not making money now and they are falling behind on there own bills too. The only way to catch up is to collect.

Second, they are planning for the courts to open. It may seem quiet for some (not all) because the law suits have slowed and local governments have set up temporary protections but creditors are working in the background. I did another quick check of the filings (the dockets) of Montgomery and Bucks Counties from March 1 to April 30, 2020 (April 18 actually) and I found 176 cases in Montgomery County and 132 cases filed in Bucks County. Again this is not an exhaustive search and these numbers may have some duplicates due to multiple parties (husband and wife). 

Here are a couple interesting/concerning things I found:

Creditors are setting up judgments for execution. I found several creditors filing numbers of district court judgments in county court. 

The filings above set the creditors up to file for Writs of Execution that direct the Sheriff to go out to people's homes and levy against property and/or garnish bank accounts.

I also noticed that some creditors are still filing new cases. Several creditors have filed multiple new complaints while this crisis was developing and continued into the state shutdown.

During this same time period, mortgage companies seemed to continued filing foreclosure complaints as well. Some people may be surprised after all the political talk about stopping foreclosure and evictions. That is all fine for now but it is temporary. 

Now realize that the cases above are for debts that accrued and the debtors defaulted prior to the current crisis. The cases were probably prepared before the full scope of the pandemic was understood. Also, these filing may even be less than normal but the creditors have not completely paused their efforts and continue to posture their cases to go forward.

Finally, in addition to the cases above, people now are falling behind on current debt and many are burning through their savings. Once we come out of this lock-down, people are going to find their debts have grown, their ability to pay has weakened, and, I expect, the demands for payment will be aggressive. 

The bottom-line is creditors and their collectors are taking a hit in their cash flow too. While they have to wait now, they are poised to start collecting as soon as the courts open. Also, they will have plenty of new accounts to collect as we start to come out to assess our damage. 

They are preparing. Shouldn't you?  

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.

During the "stay at home" orders, we are working with clients via telephone, internet and limited video conferencing. 

NOTE: this is similar to or an extension of my previous blog: 

Corona virus, finances, bankruptcy ... Part 4 ... Credit Card Collections

Other Links:

‘It’s really a question of when.’ The coronavirus pandemic is about to spawn a surge in bankruptcies, experts say

Bankruptcy Phones Ring Off the Hook; Firms Prep for Deluge (1)

LEGAL INDEX SHOWS JUMP IN CONSUMER FINANCIAL STRESS

   

Corona virus, finances, bankruptcy ... Part 4 ... Credit Card Collections

There is much talk about "forbearance," "deferral" and other "loan assistance" programs. What does that mean for people who were already behind on their credit cards, mortgages, and other loans? If collection efforts for those debts have stopped, I have not seen any evidence to that fact.

I received a call two weeks ago from a potential client. A collection law firm filed a law suit against him on March 23, the same day Gov. Wolf issued the stay at home order for the Philadelphia suburban counties. This week, a new client hired me after the county sheriff showed up at her door with a Writ of Execution for a judgment on a credit card debt. 

As I was thinking about this issue, I looked up the filings in the Montgomery County Court, Pennsylvania using the search term "bank." I found that 175 cases have been filed between March 1 and April 10, 2020. The last case filed was a mortgage foreclosure complaint filed yesterday, April 9, 2020 by DEUTSCHE BANK NATIONAL TRUST COMPANY. There were numerous actions to file Judgments from District Justices in the county court, which create liens and allows creditors to execute on the judgments by taking actions like garnishing bank accounts.

Since the courts in this area are closed for the most part now, I do not expect much activity on these filings now. But, once the courts reopen, I expect things to start moving quickly. 

While there are programs out there to help people who started having trouble making payments during this crisis, they do not seem set up to help people who were behind before this started. It appears that the collection attorneys are readying their cases to go as soon as the courts open up again. 

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.

During the "stay at home" orders, we are working with clients via telephone, internet and limited video conferencing. 

Other Link:

DEBT COLLECTION INDUSTRY DEEMS ITSELF ESSENTIAL TO “FINANCIAL HEALTH” OF CONSUMERS, FIGHTS COVID-19 SHUTDOWN

Corona virus, finances, bankruptcy ... Part 3 ... "Forbearance"

Photo posted on Facebook page of the Consumer Bankruptcy Attorneys
Case Law, Practice Management & CLE group

04/28/2020 - UPDATE: Federal backed mortgages will not require immediate pay back of missed payment while a mortgage was in forbearance. "... the Federal Housing Finance Agency (FHFA) reiterated that borrowers in forbearance with a Fannie Mae or Freddie Mac (the Enterprises)-backed mortgage are not required to repay the missed payments in one lump sum...

...

If the hardship has not been resolved, the forbearance plan can be extended. If the hardship has been resolved, the servicer will work with the borrower to:

• Set up a repayment plan;
• Modify the loan so the borrower's payments are added to the end of the mortgage; or
• Set up a modification that reduces the borrower's monthly mortgage payment." 

VA Mortgages have similar protections. It is estimated this covers about 60% of mortgages. Many will benefit from this program but there are always people who get snagged in the bureaucracy and are left out. I still recommend this program only be used if necessary. 

04/04/2020 - Original Post

As the "Stay at Home" orders are extended and finances grow tighter, people are looking for options to lessen the economic pressures at home. One of the programs being offered is mortgage forbearance. That may be an option for people but they need to understand what that means and only use it if they need it.

Forbearance does not "forgive" that month's payment or those months' payments. It doesn't extend the payments by adding them to the end of the loan; that is a loan modification. Forbearance merely puts the payments off for a few months and then they need to be caught up, possibly all at the same time. 

For instance, if your mortgage is $1,500.00/month and you ask for 3 months forbearance that covers April, May, and June, in July, your bank will expect all four months of mortgage of payments or $6,000.00 at one time to cover April through July. You may be to work out additional terms with you bank but the initial expectation it to catch up the loan. 

For some people, this may be a suitable amount of relief and for others it may be a necessary evil. If you absolutely need this relief, use it. Just understand what the terms are. If you start a forbearance and find you don't need it, put your mortgage payments away as a safety net during this time and you may have it to pay up your mortgage after this crisis is over. If you know you will not be able to make up the payments in the short term, be ready for the next step. 

Some banks may offer a "catch up" payment plan such as a regular payment and an additional 1/2 monthly payment for 6 months. Maybe you will need to apply for a loan modification. If you believe may need a loan modification, start looking at your bank's loan modification program and its requirements now. I cannot tell you how you will need to make up your back payments; just realize you will not automatically just start up where you left off and continue until the mortgage is paid. If a people cannot work out a catch up plan with the bank, they may be able to use Chapter 13 bankruptcy protection to catch up their mortgage.  

I recommend people don't use forbearance if they do need it but forbearance on a mortgage may be a necessary evil for a family during this crisis.  People need to understand there will be more to do and what options they may have after the crisis passes. They will have additional decisions to make and steps to take.

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.

Corona virus, finances, bankruptcy ... Part 2 ... Government Assistance

Image courtesy of Stuart Miles at
FreeDigitalPhotos.net

We will make it through this. There is relief available to help people get back on track. Government programs are starting to ramp up but, remember, they have their limitations. Additional help may be needed.

As the crisis worsens, Federal and Local governments are attempting to offer financial relief to the public. One of the actions I have seen in the news is a Federal Government program. Federal regulators announced a Freddie Mac and Fannie Mae federal mortgage relief plan that can give up to a yearlong break on mortgage payments. The announcement is new and I am not sure many details are available. The article (linked above) indicates:

"Under the plan, people who have suffered a loss of income can qualify to make reduced payments or be granted a complete pause in payments."

Homeowners need to follow the plan and have responsibilities too:

 "'That forbearance is up to 12 months, depending on their particular situation,' says Mark Calabria, director of the Federal Housing Finance Agency, which oversees Fannie and Freddie.

Homeowners can't just stop paying their mortgage. 'They need to contact their servicer — that is the lender that they send the check to every month,' he says. 'That lender will work with them to be able to work out a payment plan. Obviously, we hope to get them back on their feet as soon as possible.'"

And here is the keys homeowners need to keep in mind:

• Not all mortgage loans are Freddie Mac and Fannie Mae backed loans;
• A homeowner must "qualify" for this program, which will probably be easy at first and, I suspect, harder as we recover; and
• This is not a forgiveness program, everyone will ultimately need to make up all payments they missed at some point. 

So my point? There may be help and temporary relief out there for homeowners but they need to understand what it is, how it works now, and pay attention to how it changes as we exit this crisis. Keep in mind, if a mortgage payment is $1,500/month and the homeowner has to skip 3 months due to lay-offs or other loss of income, the outstanding balance due in month four will be $6,000. The amount owed does not change. The critical issue is how will catch up payments work? I do not think we have an answer. From what I have read so far, it seems it will be up to the bank and homeowner to negotiate.

Many of us will have no choice but to use this assistance. So, use this relief as necessary. I recommend people try to use only what they need. I know that is easier said than done. If people find themselves missing more payments than they can afford to pay back in the time the bank wants to allow, bankruptcy laws may be the additional help they need. Chapter 13 is set up to let people catch up their mortgage payments over 5 years if needed. Keep in mind, there is other help available beyond the temporary measures being offered now. 

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.

Other Links:

Freddie Mac.com Covid-19 Response
Fannie Mae Covid-19 Approach
Bankrate.com Mortgage lenders offer help to borrowers affected by coronavirus
Bankrate.com - Programs to freeze foreclosures and evictions

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

Corona virus, finances, bankruptcy ... Part 1 ... Budget and 401(K)

I hope this blog makes sense. Like anyone reading this during this time, my head is spinning. I am thinking about keeping people, clients and employees, coming into my office safe; how I keep my office going to the extent I can;  my kids are home from school for at least the next two weeks; and just the uncertainty for the near future. So, if my thoughts are not clear here, I apologize now.

Image courtesy of Ambro
at FreeDigitalPhotos.net

Whether you believe the events and precautions surrounding the Corona virus are necessary actions or just mass hysteria, the fact is people are probably going to suffer financially as well as medically as a result of this pandemic. 

I think about those families that are just on the edge of becoming financially healthy. The economy was growing and the job rates showed signs of joblessness dropping across all communities. Now, faced with the uncertainty of the effect on the economy; schools and daycare closed in my state; the temporary loss of income; and the dramatic loss in the markets, I sense there will be a renewed sense of desperation among families who are on the financial edge.

If a person was struggling financially before this pandemic, it probably isn't going to get better during this crisis. If people felt themselves climbing out of a hole, they may feel their progress is starting to stall. Don't let this crisis take all you have earned over the last few years. This may be the time to consider (or reconsider) filing for bankruptcy protection. 

During the time of financial crisis, many people reach into their retirement accounts to make ends meet. Most times, emptying a 401(k) plan is not the answer. I work with people who spent down their retirements funds or never saved and now are trying to live on Social Security alone. Considering how many clients I have filing for bankruptcy whose only income is social security, I cannot stress it enough, I believe people should file for bankruptcy before using retirement money for debts. In most case, retirement accounts are protected in bankruptcy. 

During this time, people need to examine their budget. I recommend people prioritize payments. People need a place to live. If a person does not want to move, I would argue rent or mortgage holds the highest priority. Not only do people need a place to live, rent or mortgage is usually their largest bill making it harder to catch up after missing one, two or three payments. 

After paying for your home, utilities, food. car, and transportation are competing for your money. These may not be everyone's priorities but, I would argue, everyone should review their payments and set their priorities. Skipping important payments to pay lesser bills can make a bad situation worse. 

If a person cannot make ends meet after taking these steps, this may be the time to consider bankruptcy. Think about it as part of your crisis plan. This can be part of the actions to keep a family financially healthy during this global pandemic.

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.

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