Ain’t No Reason To Reaffirm Your Mortgage, But There Certainly Is For Your Automobile

Let’s begin by defining reaffirmation:  A reaffirmation is an agreement made between a debtor and the creditor to re-pay a debt, whether it is the entire debt or part of the debt, that would be discharged in a Chapter 7 Bankruptcy.

Why would you agree to pay a creditor whose debt can be discharged? The answer requires understanding the difference between an unsecured and a secured debt.  An unsecured debt is simply a  promise to pay, whether orally or in writing. There is no collateral to secure the debt and the discharge that you receive when your Chapter 7 is completed, discharges the promise that you made to the creditor.

A secured debt has the same promise to repay as an unsecured debt but a secured debt also has collateral that secures the promise.  That collateral can be taken back by the creditor if you do not pay the debt. An example is a loan to finance the purchase of an automobile. The lender has a lien against the title to the vehicle. The lien rights allow the lender to repossess the vehicle if payment is not made.

What happens to a secured debt when you file a Chapter 7 Bankruptcy?  Let’s use that automobile loan as an example.  The completion of the Chapter 7 Bankruptcy discharges your personal obligation to pay on the promise, but the lien rights SURVIVE the bankruptcy. This means that you have to make a decision to either return your automobile or keep it and pay for it. If you return or surrender your vehicle, the Chapter 7 Bankruptcy discharge protects you from ever owing any money to the lender.

There are two ways to pay for your automobile. The first is to pay for it by redeeming the vehicle, making a one-time lump-sum payment equal to the value of the vehicle, which is a very uncommon situation. The second is to sign a reaffirmation agreement, agreeing to make the regular monthly payments until the vehicle is paid, after which you will receive the title. To keep your vehicle, even though you filed a bankruptcy, you will need to pay for it since the lien rights survive the bankruptcy.

What about your mortgage? Many clients ask me about reaffirming their mortgage. They think that it is required and is something that they should do. My response is that there is almost never a good enough reason to reaffirm a mortgage. Why? The mortgage lender will not foreclose as long as you make the mortgage payments. It may be a hassle to deal with the lender without the reaffirmation; your credit report may not reflect that you are making mortgage payments so that the payments do not help increase your credit score.; but the advantage of never having to worry about being personally responsible for the debt far outweighs any possible negatives. In our current times, when so many homeowners are “upside-down” on their home, and so many homeowners are considering whether it makes sense for them to keep their home ( Will there ever be equity in my house? How long will it take?), knowing that any time after your bankruptcy is completed you decide not to continue mortgage payments, clients have told me that it is a wonderful feeling knowing they never have to worry about “getting stuck” for the mortgage payments.

If you want to learn more about bankruptcy proceedings, contact an attorney at Joseph Wrobel, Ltd. The firm’s website contains informative videos about financial issues as well as bankruptcy protection for families who want a fresh start. To keep in touch and read about consumer finance news and stories you can Like the firm’s Facebook page and Follow Joseph Wrobel. Ltd. on Twitter. If you need legal assistance please call Joseph Wrobel, Ltd. by dialing (312) 781-0996 to talk to an attorney.

What is a Bankruptcy Petition?

A petition is a formal application made to a court in writing that requests action on a certain matter. For bankruptcy purposes, a petition is the document that is filed with the Clerk of the Bankruptcy Court, seeking relief from your debts. The petition is the document that “gets it all started”. When your lawyer files your petition, the bankruptcy is now in effect, and you are now protected against harassment and collection activity from creditors by the “automatic stay”.

Petitions run at least 30 pages, sometimes they can be 50 pages long. There are many parts to the petition. The most important are: Voluntary Petition, Schedules, Statement of Financial Affairs, Median Income/Means Test, and if a Chapter 13, Chapter 13 plan.

Voluntary Petition It contains basic information: Name, address including county, social security number, individual or joint case, type of bankruptcy, and whether you have filed any previous cases in the last eight years.

Schedules The Schedules are labeled from A to J. A – Real estate owned. B  – Personal possessions: cash, bank accounts, furniture, vehicles, life insurance, etc., etc. C – Exemptions. D – Secured Creditors E- Priority Creditors F- Unsecured Creditors G – Leases H – Co-Debtors I – Income J- Expenses

Statement of Financial Affairs This is a series of questions that must be answered. There are 18 questions, 25 if a business is owned by the Debtor. Some of the questions: Income from all sources for the last two years plus the current year to date income; pending lawsuits; garnishments and repossession; fees paid to your attorney; transfers of any property.

Median Income/Means Test This is a very, very complicated form that many attorneys have trouble understanding. Essentially, it sets forth the income to the Debtor’s household for the six months before the month in which the bankruptcy was filed. If over the median, there is a second part of the form known as the Means Test. The Median Income/Means Test is a major factor to determine if a Debtor qualifies for a Chapter 7 or is a factor in determining the amount of a payment plan in a Chapter 13.

Chapter 13 Plan This sets forth the amount of the monthly payment that the Debtor will pay to the Trustee each month, the length of the plan, and the percentage paid to unsecured creditors.

Bankruptcy: Think of Chapter 7 and 13 as financial planning tools

Some people operate with a misconception that a bankruptcy filing means giving up, throwing in the towel and going to hide in a corner wearing a dunce hat. Wrong! As discussed during a recent radio Interview on the new Chicago Bankruptcy Update podcast, Chicago Bankruptcy Attorney, Joseph Wrobel, explains that many prominent individuals and businesses use the law and protections set forth in Chapters 7 and 13 to reorganize their debts and get finances and balance sheets in order. Click/tap here to listen to the inaugural episode, “Bankruptcy in Detroit: Any saving Motor City? In this program, Wrobel compares and contrasts what has been happening with the well-known Detroit bankruptcy case and how what has been in the news would apply to Main Street businesses and individuals.

If you're at a fork in the road, get some proper direction.
If you're at a fork in the road, get some proper direction.

In another recent publication, ChicagoNow’s Friends in Family Law, Wrobel was praised for his compassion and understanding that bankruptcy clients often feel like they have failed somehow and should hang their head in shame. What many people do not realize is that they can keep their home, car and items of personal and sentimental value. The article, “Bankruptcy is a financial planning tool: Chicago area families deserve a fresh start,” remarks that people even think about suicide when they feel there is no way out of debt and financial stress. Also noted, the act of filing a petition for bankruptcy relief helps protect the consumer against continued collection activity and phone calls.

If you find yourself behind the eight ball and feel like they’re is no relief in sight, take some advice: slow down, take a few deep breaths and imagine you had all the money you need to get by from day to day and save for tomorrow. After you calm down, make a list of financial obligations you can afford to pay and which ones seem impossible to handle. Now, what if you had a period of time where you could put those troublesome bills away and forget about them for a while. Would you be able to feel better and maybe take your family out for dinner for some laughter and to create some nice memories? Think of a bankruptcy filing as one of those drawers where you put those pesky debts. Chapter 13 is just a little closer to the front of the door and Chapter 7 is so far in the rear of the drawer you will never see those bills again!

Having respect for yourself and your family means facing your troubles head on and doing what’s right to take care of yourself and them. Don’t make your decisions based on what your friends say at work or what you hear second hand. When you make a private consultation with a bankruptcy attorney at Joseph Wrobel, Ltd., you will get the fair and honest truth. You might be surprised that bankruptcy relief is not as treacherous as you thought. You can call and make an appointment by dialing 312-781-0996. Before you call, if you’d like, watch the videos on the Joseph Wrobel, Ltd. website. The firm also has Facebook, Twitter and LinkedIn pages where you can find more information and interesting articles on a variety of consumer finance topics.

Bankruptcy Court: go ahead and make their day

The last thing you want to do when asking for bankruptcy protection is lie to the judge! A woman in upstate New York learned her lesson the hard way when a federal judge recently threw the book at her for failing to disclose that she could afford payments on her leased Mercedes. The 33 year-old was sentenced to two years of probation and 50 hours of community service. Luckily, for her, she pled guilty to defrauding the court, because had prosecutors needed to spend efforts further prosecuting the case she may have ended up behind bars.[i]

One of the comments to the article: “Simple mistake. I countless friends of mine have done the same thing.” Not Yet Hacked Bluesman (response to his comment: “Nice ‘friends’ you have!” seniorplus)

So, you think…”probation isn’t that big of a deal…I’ll risk fibbing…” Here are some of the results you might earn if you fail to list assets and the trustee and the court find out (as noted in a recent Nolo legal resource article[ii]).

  1. The court will disallow your discharge of debts. Do not pass go, do not collect $200 because you’re done and just wasted your time and money.
  2. Your bankruptcy case may still be active but you may not receive discharge protection but may have to sell or turn over assets while keeping debts.
  3. The trustee could revoke your discharge, and you will need to go back into repayment of your debts. This may happen at any time before or after your case is closed by the court.
  4. In subsequent bankruptcies you might not be able to discharge the debts involved during the bankruptcy proceedings in which you were not truthful.
  5. Criminal charges could be fined against you. As in the case of the “hidden Mercedes” payments, you could end up with a criminal conviction and sentencing. No fun.

If you want to learn more about bankruptcy proceedings, contact an attorney at Joseph Wrobel, Ltd. The firm’s website contains informative videos about financial issues as well as bankruptcy protection for families who want a fresh start. To keep in touch and read about consumer finance news and stories you can Like the firm’s Facebook page and Follow Joseph Wrobel. Ltd. on Twitter. If you need legal assistance please call Joseph Wrobel, Ltd. by dialing (312) 781-0996 to talk to an attorney.

[i] Syracuse News: Woman sentenced for not revealing money for Mercedes to bankruptcy court

[ii] Hiding Assets in Bankruptcy: It’s never a good idea to hide assets in bankruptcy. Here’s wny.

Child identity theft: Protecting your kids and their credit score

Imagine that your son or daughter is ready to start college and apply for student loans. You do your job as a financially prudent parent and talk to your kids about finances, budgets and the importance of credit. How would you react to learning that your child’s credit score was damaged due to identity theft? Can your family pay for college tuition and expenses if your son or daughter cannot get a student loan? It can happen to anyone, and often, child victims of identity theft do not learn about it until they are young adults and are denied credit.

Strangers as well as adult family members perpetrate child identity theft.

It may not occur to most people, but there are parents who take advantage of their children by using their social security numbers to obtain credit, often when their own credit reputations are damaged. Divorced parents who suspect their former spouse is using their child’s credit can order a copy of the child’s credit report and investigate suspected identity theft. In the event you discover fraud, an attorney can help. Credit damage experts can also get involved to suggest options to repair damaged credit and in some cases, assist in lawsuits against identity thieves.

Protecting your children from identity theft starts with an audit of the individuals and organizations having access to your son or daughter’s non-public information. The Federal Trade Commission website contains consumer information about identity theft prevention and states, “A child’s Social Security number can be used by identity thieves to apply for government benefits, open bank and credit card accounts, apply for a loan or utility service, or rent a place to live. Check for a credit report to see if someone misused your child’s information. Take immediate action if it is.” You may be surprised how easily private information can travel and fall into the wrong hands. “Many school forms require personal and, sometimes, sensitive information. Find out how your child’s information is collected, used, stored, and thrown away. Your child’s personal information is protected by law. Asking schools and other organizations to safeguard your child’s information can help minimize your child’s risk of identity theft,” says the FTC.[i]

Take some time to review the resources offered by the Federal Trade Commission regarding child identity theft.

The FTC Child Identity Theft page on its website contains a list of warning signs and helps parents who want to check for a credit report to prevent and repair damage. Fraud alerts, credit freezes and other steps parents can take to protect their son or daughter are worth some time and consideration.[ii] Being aware of the risks and acting proactively can help families maintain peace of mind, especially as kids head to school this fall.

If you want to learn more about consumer credit, child identity theft and matters affecting a family’s finances, contact an attorney at Joseph Wrobel, Ltd. The firm’s website contains informative videos about financial issues as well as bankruptcy protection for families who want a fresh start. To keep in touch and read about consumer finance news and stories you can Like the firm’s Facebook page and Follow Joseph Wrobel. Ltd. on Twitter. If you do suspect your son or daughter is a victim of child identity theft and you need legal assistance and referral to other experts who can help please call Joseph Wrobel, Ltd. by dialing (312) 781-0996 to talk to an attorney.

[i] Federal Trade Commission Consumer Information on Child Identity Theft

[ii] Federal Trade Commission Consumer Information on Extended Fraud Alerts and Credit Freezes

Flash News Report – Foreclosure Rights Survive Bankruptcy – Full Story Below

In 2010, we filed a Chapter 7 bankruptcy for a client.  Among other assets, she owned a condominium that was burdened with a first and a second mortgage. She could no longer afford to pay both mortgage payments and the condominium assessments. As have many properties around he country, her condo had dropped a lot in value; it was not worth her while to keep it.

Her Chapter 7 went smoothly and she received her discharge.

I recently received the following email from this same client:

“Mr. Joseph Wrobel:

I received a summons in the mail on Dec. 23rd. I faxed it to your office so you could see exactly what it says. Is this just a formality or am I in more financial trouble?I assume since it’s a summons I do have to attend the court hearing on Feb 9. It says to contact the lender but I do not want the property so is there anything I should do now? This was filed by the second mortgage company. What are they going to do in court am I really going to have to pay the $198.00 filing fee and is there anything else they will make me pay. Thank you.”

This is a common scenario:  as part of the Chapter 7 process, many clients in our current economy
have decided that it is not worthwhile to retain the real estate that they own. They use the discharge that comes with the Chapter 7 to eliminate their legal obligation to pay their mortgages.

Often, at the time the Chapter 7 petition is filed, the mortgage company has not yet filed the foreclosure complaint. Clients are then surprised ( and often nervous ) when they later receive a summons to appear in foreclosure court. How can this happen? Understand that the Chapter 7 eliminates the ability of the mortgage lender to collect the debt. The debt was created by the “note” that was signed when the loan was taken out. However, the Chapter 7 does eliminate the rights that the mortgage lender has to foreclose. Those rights were created by the mortgage which is a lien against the property. Those rights survive the Chapter 7.

So how did I answer my client’s email?

You need not do anything. You need pay a filing fee, file an appearance or appear in court; you can ignore the whole thing. The foreclosure will run its course through the courts. Your bankruptcy protects you.

Don’t worry about it.

Happy New Year.

Why Do I Have To List All My Credit Cards?

“I went to this lawyer the other day and he told me that I can’t pick and choose who goes into my bk. Hey, what gives here? I gotta keep one of my Visas.”

Sorry, but you can’t. A petition in bankruptcy requires the complete disclosure of all financial information, which includes a complete listing of all your debts. What happens if you don’t? Your petition is signed under oath; you do not want to commit perjury by signing a false oath.

You might be able to keep one or more credit cards. First of all, you need to be able to afford to pay them. Secondly, the interest rate need to be sensible. How does one go about doing this? Wait a few weeks after your bankruptcy petition is filed. Contact the creditor. Find out if they will allow you to continue to charge on the credit card if you agree to pay them. If so, you still have a useable credit card. You probably have a better chance retaining a department store card. If the creditor says they will not, you have only wasted a little time on the telephone.

In general, retaining the use of a credit card is not the best idea since for many but not all clients, the credit cards caused the financial problems leading to bankruptcy.

But there is only $5.00 in my checking account

Something that I see routinely:  On our forms that we ask our clients to complete providing us with information about their finances so that we can provide proper advice to them, there is a section to list bank accounts. Every so often, a prospective client leaves this section completely blank. Although some clients do not have any checking or savings accounts, it is not a very common situation.  So I ask the client: “You have no checking and no savings accounts at all, even if there is nothing in the accounts?”  I am answered: “Oh yes, I do have a checking account at ‘so-and’so’ bank, but there is just five dollars in the account, so I didn’t list it since I didn’t think it mattered.”
BUT IT DOES MATTER: all bank accounts need to be listed, regardless of how little is in the account. The Bankruptcy Code requires complete disclosure of all assets. Anything less and you are risking adverse consequences against you. Your lawyer cannot properly represent you unless you have provided your lawyer with everything requested concerning your financial situation.

How In the World Did We Get Here? – The Making of Our Present Bankruptcy Law

In the late 1990’s and into the early 2000’s, the finance industry ( Visa, MasterCard, the major National Banks, the major automotive loan finance companies, the mortgage industry) complained to Congress about Americans who were filing bankruptcy. Why were they complaining?

“We are losing money”,  whined the companies-that-charge-you-outrageous-interest-on-your-credit-cards.  “You people are getting away with murder by filing bankruptcy when you really don’t need to”.  These “needless” bankruptcies supposedly were bad for the bottom line of the finance industry.

Indeed!!! I have been practicing for more than 37 years and I have NEVER had a client file a bankruptcy without there being an actual need to do so.

” Plus, these bankruptcy filers – they are all liars. They are hiding gobs of money and assets that they never tell anyone about.”

“And….. and….. and ….. you know what else?” said the whiny industry. ” It is way too easy to file a bankrutpcy. We need to make it harder”.

And so they did.

Millions of dollars were spent lobbying Congress and after years of lobbying efforts in Washington, a new bankruptcy law was voted into being by Congress. Welcome to BAPCPA, the Bankruptcy Abuse Prevention and Consumer Protection Act, enacted in April, 2005 and Effective October 17, 2005.  (See what I mean? Congress used the word “abuse prevention”. ) As a bankruptcy attorney, my life became much more complicated once the new law went into effect. In fact, I know quite a number of attorneys who stopped handling bankruptcy cases once the new law went into effect. They found the learning curve too steep. What our Senators and Representatives did with the enactment of the current law which governs the bankruptcy process was to create a paper monster. I wish I owned the trees from which the paper is created for all the documents that are needed in order to properly prepare a bankruptcy petition.

Stay tuned. There is more to come.