Wednesday, June 30, 2010

Mortgage Reaffirmation and Bankruptcy

Mortgage companies will attempt to have a debtor sign a reaffirmation agreement during a Chapter 7 Bankruptcy case.

Most of the time, it is not advisable to sign a Mortgage Reaffirmation agreement.

Think about it. When a debtor files a Chapter 7 bankruptcy, all of his/her debt is discharged. Why would you want to “guarantee” that you are liable on a mortgage debt after bankruptcy. It completely defeats the whole purpose in filing bankruptcy in the first place. A debtor files bankruptcy to “discharge” debt.

In a Chapter 7 bankruptcy, a debtor can surrender the home and walk away without any debt or continue to live in the home and pay the mortgage, insurance and taxes.

Does a debtor have to reaffirm the mortgage note and sign a binding contract making him/her personally liable on the mortgage note post bankruptcy.

The answer to that question is emphatically “NO.” Unfortunately, I imagine a lot of debtors sign reaffirmation documents not realizing the serious consequences of a reaffirmation agreement.

Word to the wise. If it the document came from a bank, read it twice, show it to a trusted friend and consult an attorney if you can afford it. Do not simply sign it and return it to the bank.

Dunne Law Offices, P.C.

1500 John F Kennedy Boulevard Suite #200

Philadelphia, PA 19102

(215) 854-6342 (Office)

Monday, June 28, 2010

Can I eliminate tax debt in bankruptcy?

Can I eliminate tax debt in bankruptcy?

YES. The bankruptcy law allows debtors to eliminate tax debt in bankruptcy.

HOWEVER, the debtor’s taxes must satisfy a few tests to qualify for discharge.

GENERAL RULE: The debtor must have filed his/her taxes and must not have illegally or fraudulently attempted to evade or defeat paying the taxes stemming from that tax year.  Given those basic requirements, there are three main tests that apply: the 3 year rule, the 2 year rule, and the 240 day rule.

RULE # 1: A minimum of three years must have passed from the date a return is due before the taxes due according to that return could be dischargeable.

RULE # 2: A minimum of two years must have passed from the time the return was filed to when the bankruptcy petition was filed.

RULE # 3: At least 240 days must have passed from the date the tax was “assessed” before you file your petition.

The hardest debt to discharge in the US is IRS tax debt due to the fact that IRS can object to a tax debt discharge based on the fact that the debtor technically violated one of the preceding three rules.

Additionally, the three rules can be tolled or frozen if certain things occur, such as the IRS sending the debtor an offer to compromise or the debtor sending the IRS an amended tax return. These acts could allow the IRS to object to a tax discharge.

The smartest thing to do is to contact a bankruptcy attorney and perform a complete analysis of your tax debt to determine whether you can discharge your debt tax.

If you do not have a tax return, complete the Form 4506T and request a copy of your transcript from the IRS prior to consulting with a bankruptcy attorney. The following IRS website contains Form 4506T.

Form 4506T (Request for Transcript of Return) (January 2010 Form)

Dunne Law Offices, P.C.

1500 John F Kennedy Boulevard Suite #200

Philadelphia, PA 19102

(215) 854-6342 (Office)

Thursday, June 24, 2010

What are the advantages of Bankruptcy?

There are several advantages to filing for bankruptcy. By far the most important advantage is that debtors may obtain a fresh financial start.

Here is a list of the possible benefits that bankruptcy can bring:
  1. Allows for the "discharge" of most, if not all of your debts. This means that you are no longer legally obligated to pay the debts.
  2. Prevents property from being repossessed, or it may require creditors to return property that was repossessed.
  3. Stops the collection process. This means that creditors must stop attempting to collect on the debts.
  4. Prevents you from having your utilities cut off, or if they are cut off, requires the utility company to restore service.
  5. Stops/Prevents wage garnishment.
  6. Halts the foreclosure process and gives you time to catch up on payments. This means you will not necessarily lose your house or mobile home.
  7. Gives you the opportunity to dispute false claims from creditors who may be trying to collect more than what it owed to them.
Dunne Law Offices, P.C.

1500 John F Kennedy Boulevard Suite #200

Philadelphia, PA 19102

(215) 854-6342 (Office)

Bankruptcy Stops Your Creditors by Virtue of: The Automatic Stay

What is the "automatic stay"?

The automatic stay is one of the most important aspects of the bankruptcy process. Once you file a bankruptcy petition, the automatic stay stops all collection efforts and proceedings against you, all harassment, lawsuits, and any foreclosure proceedings. It gives you breathing room to deal with your financial affairs without interference from your creditors.

The automatic stay is the bankruptcy equivalent of a temporary injunction against virtually all creditor activity that might have the effect of advancing the creditor's interest at the expense of the debtor.

An automatic stay restrains creditors from sending collection letters, calling the debtor regarding collection, suing on the debt, garnishing wages, repossessing property, foreclosing on home mortgages, or any other activity to collect a debt. The stay continues until the bankruptcy case concludes.

Most importantly, the automatic stay provides the debtor immediate calm amidst the storm of financial difficulties.

Dunne Law Offices, P.C.

1500 John F Kennedy Boulevard Suite #200

Philadelphia, PA 19102

(215) 854-6342 (Office)

What is Chapter 13 Bankruptcy?

A chapter 13 bankruptcy is also called a wage earner's plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years.

Generally, chapter 13 is preferred by debtors who have a valuable asset, such as a home, that is not completely covered by exemptions and that they wish to keep. Since the debtors plan will require regular monthly or biweekly payments, Chapter 13 is usually only appropriate for an individual debtor who has a regular source of income.

Chapter 13 offers individuals a number of advantages over liquidation under chapter 7. Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time.

Another advantage of chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the chapter 13 plan. Doing this may lower the payments.

Dunne Law Offices, P.C.

1500 John F Kennedy Boulevard Suite #200

Philadelphia, PA 19102

(215) 854-6342 (Office)

What is Chapter 7 Bankruptcy?

Chapter 7 Bankruptcy wipes out ("discharges") your debts. Chapter 7 is the bankruptcy provision most frequently used by individuals. It involves the complete liquidation of a debtor's property to pay creditors and wipes out the remaining debts, giving the debtor what's known as a "fresh start".  The whole Chapter 7 bankruptcy process takes about three to four months, costs $299 in filing and administrative fees, and commonly requires only one trip to the courthouse.

Are You Eligible for Chapter 7?

Visit the following website to determine if you are eligible to file Chapter 7 Bankruptcy.

The bankruptcy law determines your income by looking at your household income during the six full calendar months before your bankruptcy filing. The following is brief summary of who is eligible to file Chapter & Bankruptcy in Pennsylvania:

1 # of people in Household: $3,700 per month or $44,396 annually

2 # of people in Household: $4,464 per month or $53,572 annually

3 # of people in Household: $5,626 per month or $67,516 annually

4 # of people in Household: $6,466 per month or $77,590 annually

5 # of people in Household: $7,041 per month or $84,490 annually

You may have noticed already that changing the number of persons in the household dramatically affects the median income figure.  For your information, all children, dependents and anyone that lives with you that you take care of can be included in the household number.

Chapter 7 Bankruptcy wipes out ("discharges") your debts. Chapter 7 is the bankruptcy provision most frequently used by individuals. It involves the complete liquidation of a debtor's property to pay creditors and wipes out the remaining debts, giving the debtor what's known as a "fresh start".  The whole Chapter 7 bankruptcy process takes about three to four months, costs $299 in filing and administrative fees, and commonly requires only one trip to the courthouse.

Dunne Law Offices, P.C.

1500 John F Kennedy Boulevard, Suite #200

Philadelphia, PA 19102

(215) 854-6342 (Office)

What is Bankruptcy?

Bankruptcy is intended to give people a fresh start - free of debt.  The bankruptcy laws provide an opportunity for a fresh start to those individuals whose financial difficulties have left them unable to pay their bills and have put them at risk of losing their house, cars, or other property.

Why do people file bankruptcy in Pennsylvania?  In my experience as a bankruptcy lawyer, these are some common scenarios:
  • You are trying to keep debts current but are borrowing money from one card to pay another (robbing Peter to pay Paul).
  • You are trying to keep debts current by using your savings but can see the day when your savings will run out (don't wait until it does).
  • You have defaulted on credit card debt and are dealing with debt collectors who are not willing to help you and are rude and harassing.
  • You have defaulted on credit card debt and are being sued or already have civil judgments against you.
  • You have looked into credit counseling and found that they demanded a payment you could not afford.
  • You have lost a job or had a sudden reduction in income.
  • You have incurred substantial medical debt because of illness or an accident.
  • You have fallen behind on house or car payments and are facing foreclosure or repossession.
  • You had a business that failed or is failing.
People often feel embarrassed and feel like there is no hope when they find themselves in situations like these.  They may know that bankruptcy exists but are scared by it.  Bankruptcy is not something to take lightly, but it is not as scary as you might think.

You owe it to yourself to at least know your options.

Dunne Law Offices, P.C.
1500 John F Kennedy Boulevard, Suite 200
Philadelphia, PA 19102
(215) 854-6342 (Office)

Tuesday, June 22, 2010

Ten Things to Think About Before Getting a New Credit Card

Ten Things to Think About Before Getting a New Credit Card

1. Don’t apply for a credit card until you are ready.

Unfortunately, bankruptcy may not have permanently resolved all of your financial problems. It is a bad idea to apply for new credit before you can afford it.

2. Avoid accepting too many offers.

There is rarely a good reason to have more than one or two credit cards. Having too much credit can lead to bad decisions and unmanageable debts, and it will lower your credit rating. This can make it harder for you to get other lower interest rate loans. Avoid accepting a credit card just to get a discount at a store or a “free” gift.

3. Remember that lenders are looking for people who run up big balances, because those consumers pay the most interest.

You may find that credit card companies are pursuing you aggressively by mail and phone even though you filed bankruptcy. Do not view this as a sign that you can afford more credit. The lender may have a marketing profile telling them you are someone who is likely to carry a big credit card balance and pay a good deal of interest. Or they may see you as a good credit risk because you cannot file a Chapter 7 bankruptcy again for quite a few years.

4. Interest rate is important in choosing a card but not the only consideration.

You should always try to get a card with an interest rate as low as possible. But it is rarely a good idea to take a new card just because of a low rate. The rate only matters if you carry a balance from month to month. Also, the rate can easily change, with or without a reason. Remember that even the best credit cards are expensive unless you pay your balance in full every month. And other credit terms can add to your cost, like annual fees, late charges, over-the-limit fees, account set-up fees, cash advance fees, and the method of calculating balances. Sometimes a credit card that appears cheaper is actually more expensive.

5. Beware of temporary “teaser” rates. A teaser rate is an artificially low initial rate that applies only for a limited time.

Most teaser rates are good only for six months or less. After that, the rate automatically goes up. Remember that, if you build up a balance under the teaser rate, the much higher permanent rate will apply when you repay the bill. This means that the permanent long-term rate on the card is much more important than the temporary rate.

6. If your rate is variable, understand how it may change.

Variable interest rates can be very confusing. Some variable rate terms can make your rate go up steeply over time. Read the credit contract to understand how and when your rate may change. And don’t be misled by advertisements that claim “fixed rate,” as his may mean the rate is fixed only until the lender decides to change it again.

7. Check terms related to late payment charges and penalty rates of interest.

Most credit card contracts have terms in the small print for late charges or penalty interest rates that increase if you make even a single late payment. Try to avoid cards with late fees as high as $25–$35 or penalty interest rates of 21–24 percent or higher. Even if you are not having financial problems, these terms may become important, because they apply equally to accidental late payments.

8. Get a card with a grace period and learn the billing method.

It is important to understand how you will be billed. Look for a card with a grace period that lets you pay off the balance each month without interest. If the card does not have a grace period and interest will apply from the date of your purchase, a low interest rate may actually be higher than it looks. The terms of the grace period are also important, as it may not apply to balance transfers and cash advances. And look out for different interest rates that may apply depending upon the type of charge: these usually include a higher rate for cash advances.

9. Don’t accept a card just because you qualify for a high credit limit.

It is easy to assume that because a card offer includes a high credit limit, this means the lender thinks you can afford more credit. In fact, the opposite may be true. Lenders often give high credit limits to consumers hoping that they think will carry a bigger balance and pay more interest. You must evaluate whether you can afford more credit based on your individual circumstances.

10. Always read both the disclosures and the credit contract.

You will find disclosures about the terms of a credit card offer, usually in small print on the reverse or at the bottom of the offer. Review these carefully. However, the law does not require that all relevant information be disclosed. For this reason, you must also read your credit contract, which comes with the card. This will include terms such as late payment fees, default rates of interest, and a description of the billing method. Since these terms are not easy to understand, you may want to call the lender for an explanation. Or better yet, refuse credit with too many complex provisions, because those terms are likely to work to your disadvantage.

Ten Things to Think About Before Using Your Credit Card

1. Establish a realistic budget.

Before using a credit card after bankruptcy, try paying cash for a while. This will help you learn how much money you need each month to pay the basic necessities. Don’t forget to budget for the payments on any debts you reaffirmed in your bankruptcy.

2. It is important not to use credit cards to make up for a budget shortfall.

Credit card debt is expensive. Sometimes credit cards are so easy to use that people forget they are loans. Be sure to charge only things you really need and plan to pay the balance off in full each month. If you find you are constantly using your card without being able to pay the bill in full each month, you need to consider that you are using cards to finance an unaffordable lifestyle.

3. If you get into financial trouble, do not make it worse by using credit cards to make ends meet.

If you find that you are using credit cards to get through a period of financial difficulty, it is likely that additional credit will only make things worse. For example, if you use cash advances on your credit card to pay bills, the interest due will only add to your debt burden sooner rather than later.

4. Don’t get hooked on minimum payments.

Credit card lenders usually offer an optional “minimum payment” in their monthly billing. These are usually set very low (usually 2 percent of the balance), barely covering the monthly interest charge. If you pay only the minimum, chances are that you will be paying your debt very slowly or not at all, and you may think you are managing the debt when you are really getting in over your head. For example, if you make only the monthly minimum payments to pay off a $1000 balance at a 17 percent interest rate, it will take over 7 years to pay your debt! If you are also making new purchases every month while making minimum payments, your debt will grow and take even longer to pay off. This means that your monthly interest obligations will increase and you will have less money in the monthly budget for necessities.

5. Don’t run up the balance based on a temporary “teaser” interest rate.

Money borrowed during a temporary rate period of 6 percent is likely to be paid back at a much higher permanent rate of 15 percent or more. Also be careful about juggling cards to take advantage of teaser rates and balance transfer options. It takes a great deal of time and effort to take advantage of terms designed to be temporary. Remember that all teaser rate offers are designed to get you locked into the higher rate for the long term, because that is how the lender makes the most money.

6. Avoid the special services and programs credit card lenders offer to bill to your card.

You are likely to get many mail offers and telemarketer calls from your credit card lender about special services such as credit card fraud protection plans, credit report protection, travel clubs, life and unemployment insurance, and other similar offers. These products are generally overpriced. It is best to throw out and refuse these offers, or at a minimum, treat them with a high degree of caution. And avoid “free trial” offers as you will be billed automatically if you forget to cancel the service.

7. If you can afford to do so, always make your credit card payments on time.

Be careful to avoid late payment charges and penalty rates if you can do so while still paying higher priority debts. Bad problems get worse fast when you have a new higher interest rate and late charge to pay during a time of financial difficulty. Most lenders will waive a late charge or default interest rate one time only. It is worth calling to ask for a waiver if you make a late payment accidentally or with a good excuse.

8. Know exactly when the grace period ends.

The grace period usually ends on the payment “due date,” which may change every month. Many lenders do not mail bills until late in the grace period, so your payment may be due quite soon after you receive the bill. This also means that the grace period may be less than a full month, usually about 20-25 days. Some lenders are slow in posting payments or have strange rules about deadlines (like payments received after 10:00 a.m. on the due date are considered late). Try to mail your payment well before the due date so there will be no question it gets there on time. Paying credit cards on time not only saves you interest and late fees but is a good way to improve your credit rating after bankruptcy.

9. Beware of unsolicited increases by a credit card lender to your credit card limit.

Some lenders increase your credit limit even when you have not asked for more credit. Avoid using the full credit line as your debt can easily spiral out of control. And going over the credit limit even by a few dollars can be very costly as you will likely be charged an over-the-limit fee and a higher penalty interest rate.

10. If you do take a credit card and discover terms you do not like: Cancel!

You can always cancel any credit card at any time. Although you will be responsible for any balance due at the time of cancellation, you should not keep using a card after you discover that its terms are unfavorable.

To speak directly, one on one, with an experienced and knowledgeable Philadelphia Bankruptcy Lawyer, please contact the Dunne Law Offices at (215) 854-6342. We offer a free initial consultation for all consumer bankruptcy matters.

Dunne Law Offices, P.C.

1500 John F Kennedy Boulevard Suite #200

Philadelphia, PA 19102

(215) 854-6342

Monday, June 21, 2010

Chapter 7 Reaffirmation Agreement

Chapter 7 Reaffirmation Agreement

Reaffirmation agreement is a contract entered into during a Chapter 7 bankruptcy case which stops the particular debt from being discharged. It creates an obligation to repay that debt after the bankruptcy case is completed.

Typically, only secured debts are reaffirmed in order to allow the debtor

to retain the collateral. Under the amendments to the Bankruptcy Code, secured creditors can treat the filing of the bankruptcy as a default and use that as a basis to repossess their collateral (such as an automobile) after the bankruptcy case is over, if applicable state law allows it. As a result, the only sure way to keep a secured motor vehicle or other personal property is to enter into a reaffirmation agreement.

However, there is a big downside to reaffirmation agreements, namely that if you fail to make the required payments, not only can the creditor repossess its collateral, but the debtor will also owe whatever is left on the balance of the reaffirmed debt.

The upside is that the majority of vehicle creditors will allow debtors to just stay current and maintain their payments without entering into a reaffirmation agreement.

Additionally, if a debtor attempts to ratify a reaffirmation agreement and the judge denies it, then the debtor should be able to retain the collateral and make payments because they have done all that is required of them by the bankruptcy code.

Dunne Law Offices, P.C.

1500 John F Kennedy Boulevard Suite #200

Philadelphia, PA 19102

(215) 854-6342

Friday, June 18, 2010

Chapter 7 Bankruptcy: A Fresh Start

1. Eliminate Your Debt – It is one of the main reasons why people file for Bankruptcy.
2. Loss of Employment – It is very common reason for filing bankruptcy.
3. Stop Foreclosure – Foreclosure of house can be stopped at any time prior to the sale with the help of Chapter 13 Bankruptcy.
4. Stop Repossession – If you file bankruptcy quickly enough you can avoid a vehicle repossession.
5. Relief from harassing behavior of creditors – Filing bankruptcy instantly stops the harassing behavior of the creditors and collection agencies.
6. Relief from huge medical bills – Through Chapter 7 Bankruptcy medical bills can be eliminated.
7. Stop Wage garnishment – Wage garnishment is also very important reason for filing bankruptcy. But chapter 7 bankruptcy can spot wage garnishment.

Dunne Law Offices, P.C.

1500 John F Kennedy Boulevard Suite #200

Philadelphia, PA 19102

215) 854-6342

Wednesday, June 2, 2010

Cautiously Optimistic About President Obama’s Stimulus Package

A quick glance at the bankruptcy statistics from around the Country
illustrate that bankruptcy filings have increased by 220% from 2007
thru 2010.

Between March 31, 2006 and March 31, 2007
695,575 bankruptcy cases were filed.

Between March 31, 2007 and March 31, 2008
901,927 bankruptcy cases were filed.

Between March 31, 2008 and March 31, 2009
1,202,503 bankruptcy cases were filed.

Between March 31, 2009 and March 31, 2010
1,531,997 bankruptcy cases were filed.

The statistics show a remarkable increase in bankruptcy filings
which are a good barometer for the economic situation in this Country.

The percentage increase from 2007 to 2008 was 29.7%
The percentage increase from 2008 to 2009 was 33.3%
The percentage increase from 2009 to 2010 was 27.4%

This is hard evidence that millions of Americans are
filing bankruptcy and the numbers are increasing at a startling rate.
A 220% increase over three (3) years indicates that we are knee
deep in a recession and it is more likely that we are in the
thick of it rather than on the way out.

I am cautiously optimistic about America’s economic recovery.

Stephen M. Dunne, Esq.
Dunne Law Offices, P.C.
1500 John F. Kennedy Boulevard
Two Penn Center, Suite 200
Philadelphia, PA 19102
(215) 854 – 6342 office
(215) 205 – 6367 cell
(215) 525 – 9721 fax

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