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.