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

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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

Can I keep my home ... or other property in a Bankruptcy?

The answer is ... it depends. Most of the time, there are ways to keep a home and other property. But a debtor needs to be ready to help his or her attorney. Debtors need to gather and produce the documents for their bankruptcy attorneys to show value and ownership. Sometimes, these documents can be a hassle to obtain.

The first issue is to determine the value of the real estate. This can be a simple as using a couple real estate websites that estimates property value for free. A debtor usually has a sense if these sites are accurate. If the sites are not accurate, a homeowner can work with a real estate agent to work up a market analysis on the home. This usually take a little time with an agent. Finally, some jurisdictions may require a full appraisal, which will require paying an appraiser a fee.

The next consideration is the mortgage balance or payoff amount. The balance can be found on the most recent mortgage statement. Most mortgage companies have a place on their website to calculate a mortgage pay off figure. A debtor should provide these documents to his or her attorney.

Subtracting the mortgage balance from the property value will give the debtor the amount of equity he or she has in the property. Equity is the part of t
he house or property that is free of the mortgage lien and the value you want/need to protect. Once it is determine what value of the house or property is free of the mortgage, the debtor has to determine how or what type of ownership he or she has.

If the debtor owns a home alone, that is easy - a single person usually owns a house or real property in "fee simple." That means the person owns it completely with no other owners. The debtor would own all the equity.

It becomes more complicated when a debtor owns a house with someone else. If they are not married, they are generally "tenants in common" or "joint tenants." If the debtor is married and lives in Pennsylvania*, the home could be owned as "tenants by the entireties." This type of ownership provides the strongest protection from creditor and can offer a great advantage is a bankruptcy.

The only way to know for sure the type of ownership a person holds is to review a copy of the deed. Many people lose track of their deed. A copy can be found at the county recorder of deeds. Again, a fee is usually charged for the copy. But it is an important document and should be provided to the debtor's attorney. The chances are the trustee will ask for it at the creditor's meeting if not provided sooner.

While gathering these documents may be a hassle, debtors need to be ready to work with their attorneys to get this information.

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

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

Attorneys, paralegals and other legal and real estate professionals use the term "equity' regularly when talking about property. We forget not everyone knows the word or understands the concept. Some of my clients know what it is when I use the word, others quickly grasp the concept after I explain it, and some people are just too distracted by everything going on to fully grasp the concept and rely on us and the documents we present to calculate equity.

The equity in your home is the value of the property less the balance of the mortgage. So if your home is worth $100,000 and you still owe $80,000 on your mortgage, the equity in your home is $20,000 ($100K value of the home - $80K remaining on the mortgage = $20K you actually own in your home). Pretty simple, right?

What is the value of a home? Unless someone really negotiates a sale, we cannot "know" the true value. So we need to estimate value. One method is to use the real estate estimator sites on the internet. They can work well, and fortunately in this district, the trustees will normally accept an estimate from a better known site.

If the client thinks the real estate websites are off on their estimates, a person can ask a realtor to draft a market analysis. This is a more detailed review of the home and the area market for homes. Finally, a trustee may require a debtor to obtain a complete appraisal by a real estate professional. An appraisal can cost a few hundred dollars. This is the most detailed report on a home.

Once you have a value you believe to be accurate, you subtract the balance left on your mortgage from the value and you will have your equity ... basically the amount of your home you own or amount of money you would receive if you sold your home and paid off your mortgage. But, in a bankruptcy, we take one more step. We may be able to subtract the amount of money it would cost to sell the home. In this district, we can usually subtract 6% as an estimate of the real estate agent commission and other closing costs. 

This final figure is important because a debtor may only be able to keep a certain amount of the equity through an exemption. Because a person may limited to a certain amount they can keep or exempt, it is important to keep the estimated value appropriately lower to lessen the risk of not being able to exempt all the equity. The result of these calculations will be part of the decision of what chapter (7 or 13) to file under in a 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 or call us a 215-660-3170 and schedule an appointment.

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