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21

Aug 2010

Do I need to file bankruptcy after foreclosure?

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Do I need to file bankruptcy after foreclosure?

As a Virginia bankruptcy lawyer, I talk to about a dozen people a month who have already lost their home to foreclosure.  When we look at the credit reports together, the first mortgage usually shows foreclosed, with a balance of $0.   And talk about the question, after the foreclosure, do I still need to file bankruptcy?

For some people, the answer is obvious.  If there was a second mortgage on the foreclosed house–those almost always sue.  Usually within a year.   If the credit cards got out of control while trying to save the house, then people need to file bankruptcy to clean up the credit cards.

But what if the foreclosed first mortgage is the only problem?

Up to this point, I’ve told people I almost never see any effort by anyone to collect on those foreclosed first mortgages.  (A couple months ago I saw a couple being sued on a first mortgage forelcosure.  That mortgage had been a rural development loan backed by the Department of Agriculture. Don’t see much of that around here.  That house had been in Culpeper County.  That may be the only time I’ve seen someone sued on a first mortgage.)

That may be about to change.  Bill and Janie (not their real names) came to talk to me about filing bankruptcy last week.

Bill and Janie had a collection letter for $137,000 from a company called Strategic Recovery Group.   This was the mortgage deficiency on a first mortgage that had been held by GMAC.  Their credit report showed “foreclosed” and $0 balance for GMAC; but now a debt collector was after them.

(The debt collector did not say they were collecting for GMAC.   They said they were collecting for Fannie Mae.  Most mortgage loans in the country are made by one of the big banks, but then sold to Fannie Mae, who bundles them up and sells them to big investors.)

Other than that, they had no credit problems,  Each had one small credit card that was current.   What to do?

Back in June, Fannie Mae put our a press release saying they were going to start taking legal action to collect on those foreclosed loans.  Looked like this might be the first sign that they were doing it.

We spent a long time talking about what was the best way to go.  The debt collector had not his their credit report, at least so far.  And there was still no sign that Fannie Mae really was suing on these.  So waiting to see what happened next was definitely an option.  That was my recommendation.  (Also, personally, I was curious.)

Why go ahead now?   This family wanted to buy a house in a few more years.   If they went ahead and file bankruptcy now, they knew they’d be back to good credit in a couple years, when they wanted to buy.

Does that surprise you?  Take a look at this chart.  It was prepared by the National Association of Realtors.  It shows the current policies of Fannie Mae, Freddie Mac and FHA.  Basically, you can have good enough credit to buy a house two years after a bankruptcy.  Three years after a foreclosure.

Bill and Janie lost their house to foreclosure about a year ago.  So if the go ahead and file bankruptcy now, the two years after bankruptcy and three years after foreclosure will end at about the same time.    If they wait to see if Fannie or Strategic sues them for the $137,000–maybe a year and a half from now–then the two year waiting period after bankruptcy would start then.  and that would put off their chance to buy a house again.

(Actually, they wouldn’t even have to sue.  If Strategic or Fannie waited a year and then hit their credit report–bam–then they’d have to file bankruptcy or never get back to good credit.)

So rather than wait and see what happens next–and take a chance on ruining their credit just as it was getting good again–they decide to go ahead and file bankruptcy now.

It was a close call, but it makes sense to me.   (So I still don’t know if Fannie Mae actually does follow up on its threat to start suing.)

(This is specific to Virginia law.  In about half the states, they cannot sue on a foreclosed first mortgage.   But in Virginia, they can.)

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01

Aug 2010

Lawyer Klinette Kindred named bankruptcy trustee

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The Bankruptcy Law Office of Robert Weed is proud to announce that Klinette Kindred has been named a bankruptcy trustee.  Kindred joins the panel of six chapter 7 bankruptcy trustees in Alexandria, Virginia.  New appointments to the panel are very rare.  Five of the six chapter 7 bankruptcy trustees have served for more than twenty years.

Kindred is an honors graduate of Virginia State University.  She earned her law degree at the University of Virginia.   She has been a bankruptcy attorney with the Law Office of Robert Weed for more than ten years.

Kindred has been the Chapter 13 attorney for the Bankruptcy Law Office of Robert Weed.  She also handles most of the law firm’s hearings and court appearances.

As a bankruptcy trustee, Kindred will be assigned cases beginning  in September 2010.   Her duties include, conducting the meeting of creditors,  investigating the financial affairs of the debtor, collecting non-exempt assets of the debtor, for prompt distribution to creditors,  and opposing the discharge of the debtor, when advisable.

Trustee service is a part-time.   Attorney Kindred will continue her work with the Bankruptcy Law Office of Robert Weed.    She is based in the firm’s Alexandria, VA, office.

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25

Jul 2010

After bankruptcy: Is Donald Trump Embarrassed?

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Donald Trump isn't embarrassed and he's worth $2.7 billion.

Donald Trump isn’t embarrassed and he’s worth $2.7 billion.

Donald Trump’s casinos, Trump Entertainment Resorts, emerged from Chapter 11 bankruptcy on Friday, July 16 2010.    This followed two previous bankruptcies by the Trump casinos.  First in 1991 and again in 2004 – 2005. (Trump’s other big business failure was  Trump Airlines , which never made a profit.)

This newest bankruptcy eliminated $1.3 billion in debt.

The Reuters news article reporting all this, called Trump a “celebrity developer.”

Apparently Donald Trump can stay a celebrity developer while wiping out over a billion dollars in the bankruptcy court.  (All 12,000 bankruptcies I’ve handled, eliminated about half that, total.)

So far, Trump has avoided personal bankruptcy.  He makes better use of corporations than most people.    Also, he’s benefited because the hundreds of millions in business bankruptcy losses are enormous!

The massive size of the debts encouraged the creditors to  “restructure his debt to avoid the risk of losing more money in court.” I pass this on, because I talk to dozens of people every month who are mortified at having to file bankruptcy.

People can feel like their lives are over.  People say, “I wasn’t raised this way.”  (As if the way people are raised can pay the credit cards when you lose your job.  Or get sick.)

Last I checked, Donald Trump still has his TV show.  And, while other stockholders were wiped out. Trump is still 10% owner of the casinos.

Donald Trump filed bankruptcy on ten thousand times more debt than my highest dollar clients.  I doubt he’s ten thousand times as embarrassed.

PS  Here’s a link to a short article about Donald Trump bankruptcies from Forbes.

PPS.  Here’s an article from the Washington Post that explains his first big bankruptcy, the Taj Mahal Casino, in detail.  Trump points out that while a lot of banks, suppliers, and employees got hurt, Trump himself got out ok.  I’ve also downloaded it from the Post, Trump’s bad bet here.  

Trump said,  “It’s not personal. This was just business,” he said. “I got out great.”

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16

Jun 2010

Bankruptcy and Will Rogers "Never Met a Man I Didn't Like"

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Eighty years ago today, June 16, 1930, Will Rogers‘ most famous quote first appeared in print.  “I never met a man I didn’t like.”

Probably, he’d said it before, because the Boston Globe had Rogers saying he’d be proud to have that on his tombstone.  “I can hardly wait to die so it can be carved,” he added.

I was reminded about that last Friday by one of the people who came to see me about bankruptcy.  Fellow said that he had been really frightened about coming to see me.  He had seen one lawyer about bankruptcy before “and I could feel right away he didn’t want me as a client.”

He knew we were different when he met with my paralegal, Vicky.  And he really appreciated the time I took with him to understand his problem.

I’m a Virginia bankruptcy lawyer.  I’m glad to be able to help people who have been knocked down by life.  And who are doing their best to get back up.  That’s all I do.

The chance to get a second chance is one of the great things about America.  And I’m proud to use bankruptcy law to help people get the second chance they deserve.  They are good people.

Lots of people who need to file for bankruptcy feel bad, but you shouldn’t feel bad around your bankruptcy lawyer. You don’t need to feel bad around me.

I don’t want it on my tombstone;  but I’ll put that same thing on my website.  I hope to be able to say, like Will Rogers, “I never met a man or woman I didn’t like.”

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05

Jun 2010

After bankruptcy: depression and getting back on your feet

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As a bankruptcy lawyer,  I see a lot of people who have been knocked down by life.  Filing bankruptcy can get you back on your feet financially, but other problems might still hold you down.

One of those problems can be depression.

When life knocks you down, there can be changes in the chemistry of your brain. When things get better–when filing for bankruptcy stops the financial pressure–the brain is still damaged.

I’m a lawyer.  My law degree is from the University of Maryland.  It’s called a Juris doctor.   That Latin means I’m a “doctor of justice.”  I’m a bankruptcy lawyer, not a medical doctor.  I’m not a good place to go for medical advice.

But I think its my job to speak up when I think people need to go for medical advice.    If you have medical insurance, my advice is simple.  Go talk to your doctor.

If you don’t have insurance, that’s tougher.  The prescription anti-depressant medications can be very expensive, without insurance.   What can you do?

I’m told that the county mental health clinics clinics can help you get low cost of free medications if you don’t have insurance.  The website for Prince William county is here:  http://www.pwcgov.org/default.aspx?topic=010009000890000647

There is also an herbal remedy.  Studies, especially in Germany, show that St. John’s Wort works as well as many of the expensive prescription anti-depressants.  And with fewer side effects.  (Studies in other countries have not been as positive, so the popularity of St. John’s has dropped in recent years.)

The advantage is that you can buy it in the vitamin section of any of the pharmacies or grocery stores around here.  It’s about $20.00 for a months supply.

I know a number of people who say they have been really helped by it.   This includes bankruptcy clients, and members of my family.

OK, that’s it.  Talk to your doctor.  I’m a bankruptcy lawyer.

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30

May 2010

Debt Collector Midland buys debt for nickel on a dollar

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Debt collector and debt buyer Midland Credit Management pays an average of less than five cents for each dollar of debt they buy.

That means if Midland is harassing you for a $7000 old account, they probably paid less than $350 for it.

That’s what I saw when Midland’s parent company, Encore, announced their first quarter results last Thursday.    They paid $82 million to buy $2.1 billion worth of debt.  Actually that’s more like four cents on the dollar.

Many of my bankruptcy clients are people who faced months of harassing calls or even garnishment on debt owned by Midland.   Those people, when they first got into trouble, often asked the credit card companies or banks to work with them.  And got little or no help.

Those same banks then turned around and sold the account for less than five cents on the dollar.

If the banks had been willing to settle for even 25 cents on the dollar, these folks would not be filing bankruptcy.

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18

May 2010

Bankruptcy Reform Law Causes Mortgage Default to Rise?

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A new study by the National Bureau of Economic Research suggests that the 2005 bankruptcy reform law added to the housing crisis 200,000 more mortgage defaults each year.

“Bankruptcy reform squeezed homeowners’ budgets by raising the cost of filing for bankruptcy and reducing the amount of debt discharged in bankruptcy,” according to the report by Wenli Li of the Federal Reserve Bank of Philadelphia, Michelle J. White of the University of California at San Diego and Ning Zhu of the Graduate School of Management at the University of California.

This study was cited on foxnews.com and the American Bankruptcy Institute.

I agree with both their points

Bankruptcy reform added to the housing crisis because it made filing bankruptcy harder and more expensive.   Some people, who could have filed bankruptcy to lose the credit cards and save the house, couldn’t move fast enough.  By the time they got rid of the credit cards, the house was too far gone.

Bankruptcy reform also added to the housing crisis in a second way.  The budget in the 2005 law is unrealistically low for people with big families.  Especially in expensive urban areas.  So, some people who tried to use Chapter 13 to catch up the house could not make the Chapter 13  payment and also feed their children.  The food budget is just too low.  The only way people could feed the kids was to let the house go.

I think there’s a third point.  People were scared by news coverage of bankruptcy reform.  They believed that bankruptcy could no longer help them.  They thought the door of the courthouse was locked.  Many of those people got caught in foreclosure rescue scams and debt settlement scams, and never talked to a competent bankruptcy lawyer.

The country is paying a big price.  The banks got their bailout loans when they needed them, but rising defaults and falling real estate values hurt every homeowner in America.  Bankruptcy reform is a part, only a small part, of what triggered this crisis.

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16

May 2010

File bankruptcy? Or pay $1,134,164 for $7,783 credit card

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Maureen O’Malley, a leading bankruptcy lawyer in Herndon, Va,  sent me this credit card disclosure.  It shows it will take $1.1 million to pay off $7783.37.  And it will take 2670 years to do it.  You can see for yourself here. (The person’s name and account number are deleted, of course, but this is for real!)

This is the worst I’ve ever seen, but I’ve seen plenty disclosures that are shocking.  This one shows the impact of the 27% interest combined with the $39 over limit fee.  Anybody can see why this person has to file bankruptcy.

At the minimum payment, this person can never pay this card off.  Well “never” is not exactly right, but it will take a million dollars and two thousand years.

The banks, who fought for the bankruptcy law of 2005, said that somehow the American people were at fault for the big jump in the number people who file bankruptcy.  Actually, the fault is with the high interest rates charged by the banks.  And by the failure of Congress to do anything about it.

Before 1978, the state governments could set a limit on interest rates charged to each state.  And they did.  (One reason for this regulation is that interest rates are hard for most of us to calculate in our heads.)

In 1978, the Supreme Court threw that out.  In Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp. (439 U.S. 299), the Supreme Court ruled that a law passed back in 1863 blocked the states from protecting their own citizens.

After 1978, if just one state raised its interest rates, banks set up in that state could charge the higher rate anywhere in the country.   South Dakota was the first state to do that.  And they invited Citibank to move there.  Delaware followed.  (That’s why so many of credit card payments are still mailed to South Dakota or Delaware.)  Interest rates skyrocketed everywhere.

That’s why people who file bankruptcy increased from about 300,000 per year in the early 1980’s, to way over a million a year today.

If Congress really wanted fewer people to file bankruptcy, it would be easy.  Cap credit card interest rates at 12%.  In four or five years, bankruptcies would be cut in half.  In five years, I’ll be 67–I’ll be ready to retire.

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26

Apr 2010

Filing Bankruptcy to Save Security Clearance

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Someone came to me today and we are filing her bankruptcy tomorrow–we hope to save her security clearance and her job.

This lady had talked to me two years ago, when she first got into financial trouble.  But she was persuaded by her friends that filing bankruptcy would cost her job.  She struggled but could not fix her financial problems.

Last Friday she was told that her security clearance had been taken away.  And that she had no job assignment and would soon have no job.  That was the bad news.

But–this is the good news, and the boss really wants to help her–if she files bankruptcy and cleans up her credit, she can reapply for her clearance.   They wanted her to do that this week.  So we are filing her case tomorrow.

What’s the lesson?  This is what I tell everyone who will listen.  Filing bankruptcy causes your clearance to be investigated.  Being behind on your debts causes your clearance to be revoked.   (You cannot be in financial trouble and keep your clearance because you are tempted to sell things that don’t belong to you.)  Nobody likes being investigated, but just being told you are out of a job is a lot worse.

This lady is doing something important for our country–and keeping her job is important for her family–so we went all out to get her forms ready to send to the court tomorrow.  Hope it works.

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26

Apr 2010

If I file bankruptcy, can I still get a mortgage modification?

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Important new regulations issued by the Obama administration say two very important things for people struggling with their debts and trying to save their homes.

First, filing bankruptcy does not affect your eligibility to apply for a mortgage loan mod.

Second, if you are in a trial modification, bankruptcy does not push you out of the trial and back to the end of the line.

Both of those are very good news.

Since the beginning of the crisis, I’ve told people to try to get their mortgage loan modification before we filed the bankruptcy.   For some people, that’s been a really long time.  (Last week we celebrated that a lady I’ve be working with since the middle of 2008 finally got a mod approved.)

Stalling the other creditors until the modification has been approved hasn’t always been easy.  Sometimes it hasn’t been possible.  So I’m glad we don’t have to do it any more.

I can also tell you that people who filed bankruptcy to fix their credit card problems back in 2008 are now telling me they are getting approved for modifications.  And I have a couple people who filed bankruptcy and moved out at the end of 2009 ask me why Bank of America sending them modification applications at their new address.   (They’d rather get some payment then foreclose.)

So how does it add up?  If you need a loan modification to save your house,  but also need protection from your credit cards or medical bills, it’s safe to file bankruptcy and still apply for the modification.

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NORTHERN VIRGINIA BANKRUPTCY LAW OFFICES