March 2010 Archives

Mortgage defaults aren't just for homeowners who can no longer make payments. Especially in states like California, where thousands of mortgages are underwater, even those who can still make payments are opting to opt out.

This decision is referred to as a "strategic mortgage default." For these individuals, the amount owed simply outweighs the benefit of keeping the home. While putting your mortgage payment into default is not a simple decision, and shouldn't be an easy one, sometimes it is the best option given the circumstances.

Then again, sometimes it isn't.

It is very important that any individual or couple considering a strategic default carefully consider their situation and the ramifications of such an action.

A recent ruling by the U.S. Supreme Court could change how some bankruptcy filings are handled - as well as how lenders may follow up in cases where there is a dispute over provisions for loan repayment. The case revolved around Francisco J. Espinosa, who had borrowed just under $14,000 in 1988 and 1989 to attend trade school.

By 1993, Espinosa owed about $17,000 in student loans, interest and penalties. At the time, he was making a mere $6.70 per hour and filed for Chapter 13 bankruptcy to restructure his debt. His court-approved payment plan included stipulations to repay the principal amount, but did not require him to pay off any of the interest or penalties he had accrued.

Along the way, both Espinosa and the judge in his bankruptcy case made procedural errors.

Think the number one cause of bankruptcy is job loss? Think again.

According a recent study by researchers at Harvard University, the biggest motivating factor in 62 percent of bankruptcies is actually medical expenses. While this number is not limited to those without health insurance, it seems obvious that a lack of coverage can result in much higher medical bills.

If an uninsured individual develops a rare disease or suffers a serious injury, then bankruptcy may be the only option open to him or her for resolving the debt acquired during treatment. Even for someone who has saved their entire life - without insurance to carry some of the weight, expensive medical procedures can quickly deplete savings.

You are on a mission to repair your credit. Today, you will send in the last payment on your credit card and close out all your debt for good. The smell of a fresh start is in the air and you want nothing more than to cancel all credit cards.

Don't pick up the phone just yet!

While fiscal responsibility (paying off your debt) is by far the most important factor in establishing good credit, cancelling your old credit cards is not necessarily a solid next step. It may feel right, but, in the end, you may wish you had kept those lines open.

Why is this?

On April 5, the government will put into action a plan designed to offer homeowners facing underwater mortgages incentive to sell their home below the market value. Banks and other lenders will be encouraged to accept the short-sales as Obama attempts to keep the economy's momentum on track in the coming months.

Underwater mortgages, in addition to unemployment and other economic factors, have had a huge impact on bankruptcy filings across the country. In states like California, where foreclosure rates and bankruptcy filings continue to skyrocket, the government has already promised millions in additional aid to struggling homeowners.

These new funds are aimed at those who have not already been helped by the $75 billion mortgage modification plan and will be available to mortgage owners across the country.

This is separate from the additional aid slated for California. That money, thus far, is only available to states with the highest rates of foreclosure - Arizona, Florida, Michigan, Nevada and California.

Bankruptcy lawyers in California, and across the country, appear to have mixed feelings about being grouped with debt relief agencies under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

That was the Supreme Court's ruling this week in the case of Milavetz, Gallop & Milavetz, P.A. v. United States.

Under the 2005 act, debt relief agencies may not advise consumers to take on more debt in preparation for filing bankruptcy. The worry here is that consumers would be able to, essentially, game the system by incurring debt that would then be wiped out in the event of a bankruptcy.

The question, posed by the bankruptcy attorneys who brought the case, was whether or not the stipulation applied to bankruptcy lawyers and, if so, whether it violated the First Ammendment right to free speech. Further, the plaintiffs questioned whether or not such a restriction would affect the client/attorney relationship by disallowing attorneys to give the best advice possible to their clients.

Many Californians, in San Diego and across the state, are taking a hard look at household finances and, for many, part of that discussion is credit repair. This is especially true for those who have been forced to declare bankruptcy - whether Chapter 7 or Chapter 13.

In 2009, this was true for more than 200,000 consumers across California.

While filing for bankruptcy can give you a jumpstart in turning your life and finances around, it also affects your credit. This is inevitable, but it doesn't have to be permanent. Luckily, there are many credit repair lawyers, and some credit repair companies, which can help you rebuild your financial state and emerge better off than ever.

Still, for every honest credit repair specialist, there is one or more looking to take you for a ride. As a consumer rebuilding credit history, you have to be very careful with who you trust.

As a nationa, we may be in recovery mode, but that doesn't mean we're going to see a decrease in bankruptcy filings anytime soon. This February, the American Bankruptcy Institute (ABI) counted 111,693 consumer filings - a 14 percent increase from February 2009, and a nine percent jump from this past January.