Benefits and drawbacks of personal bankruptcy vs. debt settlement

I asked Google Search AI for a response to "Benefits and drawbacks of personal bankruptcy vs. debt settlement" This was the response:

"Both personal bankruptcy and debt settlement are paths to financial relief, but they differ significantly in legal protection, tax consequences, and long-term credit impact. Bankruptcy is a formal, court-supervised process that can eliminate most debts in about 90 days (Chapter 7), whereas debt settlement is an informal negotiation that can take several years and relies entirely on creditor cooperation.

Personal Bankruptcy

Bankruptcy provides a "clean slate" by discharging most unsecured debts under the protection of federal law.

• Benefits
  • Immediate Legal Protection: An "automatic stay" immediately stops lawsuits, wage garnishments, foreclosure actions, and creditor calls.
  • Speed of Resolution: Under Chapter 7, most debts are wiped clean in about 3 to 6 months.
  • No Tax Liability: Debts discharged in bankruptcy are generally not treated as taxable income by the IRS.
  • Debt Elimination: Chapter 7 can eliminate unsecured debts like credit cards and medical bills entirely.
  • Structured Rebuilding: You can often begin rebuilding your credit score immediately after discharge.
• Drawbacks
  • Severe Credit Impact: Bankruptcy remains on your credit report for 7 to 10 years, which can hinder future loans or housing applications.
  • Public Record: A bankruptcy filing is a matter of public record, which may be a privacy concern for some.
  • Asset Risk: In Chapter 7, non-exempt assets (like a second car or valuable collectibles) may be sold to pay creditors.
  • Court and Attorney Fees: The process can cost thousands of dollars in legal and filing fees. 

Debt Settlement

Debt settlement involves paying a lump sum that is less than the total amount originally owed to close the account. 

• Benefits
  • Avoids Bankruptcy Stigma: Does not appear on your credit report as a "bankruptcy," though settled accounts are still negatively flagged.
  • Potential Savings: You may resolve your debt for 25% to 50% of what you originally owed.
  • Asset Protection: Generally allows you to keep your property without the risk of court-ordered liquidation.
  • Informal Process: Negotiated directly with creditors or through a settlement company without entering the court system.
• Drawbacks
  • Tax Liability: The IRS often considers forgiven debt over $600 as taxable income, potentially resulting in a large tax bill.
  • No Legal Protection: Creditors can still sue you or garnish your wages while you are trying to negotiate or save for a settlement.
  • Damage to Credit: Missed payments during negotiation and "settled for less than full balance" marks can severely lower your credit score.
  • Uncertain Outcome: Creditors are not legally required to negotiate or accept a settlement offer.
  • Hefty Fees: Third-party settlement companies often charge high fees, sometimes before even reaching a deal.

Perspective on the Debt Relief Choice

Community feedback highlights that while bankruptcy seems more "extreme," it often offers a more predictable recovery than settlement."

I don't 100% agree with everything stated above but there is good information in this AI response. You can submit similar inquiries yourself. But, consulting with a bankruptcy attorney can help you fully understand your options and help you make informed decisions about your financial future.

If you want assistance, legal representation, or just want to know more about Mark Medvesky or our firm Medvesky Law Office, LLC at http://www.medveskylaw.com/

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

NOTE: Author used AI to help draft this blog entry.

What are the benefits of Chapter 7 Bankruptcy?

 Chapter 7 bankruptcy, also known as "liquidation" bankruptcy, offers several benefits for individuals facing overwhelming debt:

1. Debt Discharge: One of the primary benefits is that it allows for the discharge of most unsecured debts. This means debts like credit card balances, medical bills, personal loans, and utility bills can be wiped out, giving the filer a fresh start.

2. Automatic Stay: Filing for Chapter 7 initiates an automatic stay, which halts most collection actions by creditors. This means creditors must stop wage garnishments and debt collection lawsuits. Foreclosure proceedings and repossession efforts will be stopped temporarily by the automatic stay. The Debtor will need to catch up the mortgage or auto payments to cure the loan in order to keep the property with a secured interest (lien) against it.   

3. Speed: Chapter 7 bankruptcy typically moves swiftly compared to other bankruptcy options. The process usually takes around two to six months to complete, providing a relatively quick resolution to overwhelming debt.

4. No Repayment Plan: Unlike Chapter 13 bankruptcy, which requires the filer to create a repayment plan to pay off debts over several years, Chapter 7 doesn't involve a repayment plan. Instead, non-exempt assets are sold to pay off creditors, and remaining eligible debts are discharged.

5. Fresh Financial Start: Chapter 7 bankruptcy allows individuals  to obtain a fresh financial start by eliminating burdensome debts and giving them the opportunity to rebuild their credit and finances without the weight of past debts.

6. Exemption Protections: In Pennsylvania many assets may be protected from liquidation under exemption laws. This means you may be able to keep essential assets like your home, car, and personal belongings.

7. Legal Protection: Once debts are discharged through Chapter 7 bankruptcy, creditors are legally barred from attempting to collect on those debts in the future. This provides peace of mind and protection from persistent creditor harassment.

However, it's essential to consider the potential drawbacks and eligibility requirements of Chapter 7 bankruptcy as well such as:

1. the impact on credit scores; however, by the time a person is considering bankruptcy, his/her credit score has been impacted or is on the verge of being impacted by late payments. 

2. the potential loss of non-exempt assets; however, the exemptions in PA cover many assets needed by people to have a successful fresh start.

3. the inability to discharge certain types of debts like student loans and recent taxes; however, eliminating unsecure debt can help free up income to make payments on these non-dischargeable debts. 

Consulting with a bankruptcy attorney can help people fully understand their options and make informed decisions about their financial future.

If you want assistance, legal representation, or just want to know more about Mark Medvesky or our firm Medvesky Law Office, LLC at http://www.medveskylaw.com/

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

NOTE: Author used AI to help draft this blog entry.

Bankruptcy - Judgments can live for a long long time.

People should not be lulled into a false sense of finality because creditor has not pursued collection on an old, and mostly forgotten, judgment. Judgments in Pennsylvania can be collectible for years. 

Image courtesy of hywards
 at FreeDigitalPhotos.net

Over the last few weeks, I have received calls from potential clients because a creditor with an old judgment has frozen a bank account with the intent to garnish the money in the client's account. One judgment was entered December 2004 and the Writ of Execution was issued in December 2023. The people I spoke with about this issue were shocked the creditors and judgments came back for collection after being so quiet for so many years. I get a sense creditors are starting to ramp up after this long COVID collections break. Debtors should not assume a judgment debt just "went away." A bankruptcy case may help you deal with these old and dormant debts.

If you want assistance, legal representation, or just want to know more about Mark Medvesky or our firm Medvesky Law Office, LLC at http://www.medveskylaw.com/

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

Bankruptcy - 401(k) ‘hardship’ withdrawals - there may be another option

Image courtesy of
Vichaya Kiatying-Angsulee
at FreeDigitalPhotos.net

I have written on this topic a few time before but It seems worth mentioning again. Your retirement saving may be safe from creditors as long as it remains in your retirement account.
I found this article:

401(k) ‘hardship’ withdrawals hit record high, Vanguard says — another sign households feel the pinch of inflation  PUBLISHED THU, DEC 8 2022 on CNBC by Greg Iacurci @GREGIACURCI

"The share of retirement savers who withdrew money from a 401(k) plan to cover a financial hardship hit a record high in October, according to data from Vanguard Group..."

The market has been turbulent and most accounts are down. A person should ask themselves "is this really the time to withdraw from retirement accounts." It is bad enough to sell in a down market but selling your future off in a down market while in carrying unmanageable debt seems to compound the problem. Finally, if a person uses retirement savings to try to get out of debt and is not successful causing  them to file bankruptcy, that is just good money after bad. Bankruptcy not only gets people back on track in the present but can protect their future as well.   

You can also check out some of my other blog entries:

Why you should not borrow from your retirement fund...

Bankruptcy - I cannot say it any better than this: "Bankruptcy is an excellent retirement strategy"

Bankruptcy - How can I file bankruptcy with $50,000 in my retirement account?

If you want assistance, legal representation, or just want to know more about Mark Medvesky or our firm Medvesky Law Office, LLC at http://www.medveskylaw.com/

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

Transition from WELLS, HOFFMAN, HOLLOWAY and MEDVESKY, LLP to MEDVESKY LAW OFFICE, LLC

The law firm of WELLS, HOFFMAN, HOLLOWAY and MEDVESKY, LLP has dissolved and the members no longer practice law as a firm. Below is contact information for the members of the former firm in case you have questions or need assistance.

Mark M. Medvesky & Dawn E. Miller Medvesky

Mr. and Mrs. Medvesky continue to practice law in the Souderton area at MEDVESKY LAW OFFICE, LLC located at 601 E. Broad Street, Ste 110. Their contact number is still 215-660-3170. For more information about them and their practice, click here.

************************************************************************

Richard E. Wells

Mr. Wells continues to practice in the Pottstown area . He can be reached at 610-310-0115. If any client of Mr. Wells’ has questions about his/her records for services provided by Mr. Wells, please contact him at rewells545@gmail.com or 610-310-0115.

*************************************************************************

R. Kurtz (Kurt) Holloway

Mr. Holloway has retired. He recommends that his clients seeking an attorney in the Pottstown area contact the law firm of Yergey-Daylor-Allebach-Scheffey-Picardi for any legal services. That firm’s phone number is 610-323-1400. If you wish to reach Mr. Holloway for copies of your file records, he can be reached at hollowaykurt@gmail.com.

**************************************************************************

Thomas L. Hoffman, 1950 – 2021

Mr. Hoffman passed away September 16, 2021. His clients who need legal services should contact the law firm of Yergey-Daylor-Allebach-Scheffey-Picardi for any legal services. That firm’s phone number is 610-323-1400. If any client of Mr. Hoffman’s has questions about his/her records for services provided by Mr. Hoffman, please also contact the Yergey-Daylor-Allebach-Scheffey-Picardi law firm.

Bankruptcy - Everything is tight, should I be saving for retirement?

Image courtesy of David Castillo Dominici
at FreeDigitalPhotos.net

First of all, I need to say I am not a financial planner or an accountant. This post is not meant to replace advice of other professionals. But, if you are reading this, it may be a topic to address with them.

As a bankruptcy attorney, I have clients who come in and have either spent down their retirement savings or, in some cases, never started. I have a couple clients now who never started. They were small business owners. One did not successfully make the transition to on-line sales. The other's  problem was just poor timing. Eventually, the businesses were forced to close. They had a good deal of debt, which was personally guaranteed or placed on credit cards. Now, most of the debts are in collections or reduced to judgments and they are planning for bankruptcy. This is not an uncommon story.

As I was preparing their cases, I asked about 401(K)'s, SEP's, IRA's, etc. One told me his accountant advised that a better plan was to pay down the debt first then start his retirement savings afterwards. The other client just didn't feel like she was able to start. While my clients had some great years and paying off the debt was not a worry, times changed. Unfortunately, they never paid off the debts and bankruptcy is being considered or has occurred. Had my clients saved money in an IRA during the good times, they would have a valuable asset they could protect. 

I am not suggesting anyone should put money away to hide it from creditors. I am suggesting if you set up a "Pay Yourself First" type budget to appropriately save for retirement, you will not be penalized if you find yourself in a bankruptcy case.  

Another common step taken by clients is to withdraw money from a retirement account to try to get debt under control. I have had clients that spent all their retirement money and still needed to file for bankruptcy protection anyway. If you are thinking about dipping into your 401(K), SEP or IRA, you may be in more financial trouble than you realize. Most retirement accounts are protected in a bankruptcy case. You should consider meeting with a bankruptcy before you take that step. 

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 - I cannot say it any better than this: "Bankruptcy is an excellent retirement strategy"

Why you should not borrow from your retirement fund...

Bankruptcy - How can I file bankruptcy with $50,000 in my retirement account?

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

Mortgage Relief may be available

Did you fall behind on your mortgage because of the COVID-19 pandemic? You may be eligible for assistance. Check this site out:

Pennsylvania Homeowner Assistance Fund

Image courtesy of Master isolated images at FreeDigitalPhotos.net

"The Pennsylvania Homeowner Assistance Fund, or PAHAF, is a housing-related program funded by the U.S. Department of the Treasury to assist Pennsylvania homeowners facing financial hardship due to the COVID-19 pandemic that began after January 21, 2020, (including a hardship that began before January 21, 2020, and continued after that date). The program will provide financial assistance to homeowners for qualified mortgage and housing-related expenses to address delinquency and avoid default, foreclosure, or displacement."

If you are behind on your mortgage payments, this program might be the answer. If this doesn't work for you, you may still be able to protect your home through a Chapter 13 bankruptcy plan. 

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

Bankruptcy - Age is not a factor, don't let it be a barrier

Most people who come into my office to talk about bankruptcy are embarrassed. They seem to think that no matter what major events have occurred in their lives; serious illness, divorce, extended unemployment/under-employment, and/or downturns in the economy in general, they still feel they did something wrong. The reality is, life happens. Like now, high inflation, gas prices through the roof, a war in Europe, and no real end in sight. On top of bad times, people sometimes kick money issue down the road for years. So, what happens when you want to retire?

Recently, I have had several people in their 70's contact me about bankruptcy over the past few months. Everyone feels embarrassment when they need to speak to an attorney about bankruptcy but this group seems to feel it more. They feel they should be wiser and more responsible for their situation. The reality is they seem to be more vulnerable. 

Part of their income is fixed and they are working menial jobs to pay the debt they accrued when they were working in their careers. They have depleted their savings trying to get ahead of the debt and have made very little progress. If they are working when they come in, it is just enough to make ends meet and have nothing saved for an emergency. Finally, they will never be in a position to save again. They are coming to the realization they need help and bankruptcy is their option. 

Hard times are not limited to the young or foolish. As people age, they become more vulnerable to economic hardships and less able to recover. Everybody needs help sometime in their life. Sometimes it is later in life. Don't let your age be the reason you don't ask for help. 

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 - I cannot say it any better than this: "Bankruptcy is an excellent retirement strategy"

Why you should not borrow from your retirement fund...

Bankruptcy - How can I file bankruptcy with $50,000 in my retirement account?

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

Things do not seems to be getting any better... Is it time to clean the slate by filing for bankruptcy protection?

Image courtesy of jscreationzs
at FreeDigitalPhotos.net

 Here are some of the current headlines:

"How sky-high inflation is evaporating Americans' savings, imposing 'cruelest tax' on
the poor" ABC News

"Rising prices put American families in deeper debt" FOX Business News, which states in the body:

"... According to a recent study from NerdWallet, Inc. the average U.S. household owes $155,622, with American households holding $15.23 trillion in debt nationwide. That figure is up 6.2% from a year ago..."

"The Fed Has Signaled Rate Hikes for 2022. Here's How That Could Impact Consumers" the ascent, which states in the body:

"... Once the Federal Reserve raises its rates, we could see credit card interest rates follow suit. That would be bad news for consumers who rack up balances during the holiday, or who carry existing balances into the new year..." 

"Get ready for the climb. Here’s what history says about stock-market returns during Fed rate-hike cycles. MarketWatch, which states in the body:

"...To be sure, it is harder to see the market producing outperformance during a period in which the economy experiences 1970s-style inflation. Right now, it feels unlikely that bullish investors will get a whiff of double-digit returns based on the way stocks are shaping up so far in 2022. The Dow is down 1.2%, the S&P 500 is off 2.2%, while the Nasdaq Composite is down a whopping 4.8% thus far in January..."

So, people are exhausting their savings, paying more for the essential goods, accruing more debt, and interest rates on current credit card debt is set to rise. Along with all this economic news, the federal stimulus money has ended. If you are just keeping your head above water now, you may start feeling like you are trying to bail out the Titanic in a few months. 

On top of all this, your retirement accounts (401(K)'s, IRA's, 403b's, etc.) will probably see a rough ride as well. This is not the time to withdraw retirement savings. I would argue it in never time to withdraw retirement savings if you are not retired. 

This may be the time to start the year with a clean slate? If this is the case, talk to a bankruptcy attorney about options.

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

Thinking about bankruptcy? This is not the time to pay back your family or friends...

Times are tough ... inflation is raging, stimulus ended, and interest rates about to increase. Many people have not fared well through the Covid-19 pandemic. Also, some people relied on family and friends for help to make ends meet. The natural desire is to pay back friends and family first.

Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net

If a person does so, it could cause problems later if that person needs to file for bankruptcy protection. Bankruptcy laws do not allow a debtor to treat one unsecure creditor different from another. Believe it or not, according to the law, owing a family member money is the same as owing a credit card company money. You cannot pay one creditor (your family) over another (credit card company). That can be called a "preference."

It may also be considered a "fraudulent conveyance." When you pay money to a friend or family member, an "insider", to avoid paying another creditor like a credit card company, a court could find this a "fraudulent conveyance." As a result, a Trustee can look to recover the payments from your family and friends. Don't get caught in this situation; 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

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

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 and equity in your home Part 3 (final): I have too much equity in my home ... now what?

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

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

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

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Hidden Income - Bankruptcy - Chapter 13

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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)