Watch out for mortgage foreclosure scams

The Minnesota Star-Tribune had an interesting article on December 27, 2024.  Here is a link:

https://www.startribune.com/foreclosure-mortgage-delinquency-scam-late-payment-past-due-assistance-counselor/601199370

A couple of paragraphs caught my eye--

“They say, ‘Pay your mortgage funds to us, and we will work with the mortgage lender to secure a better rate,’” he said. “Asking for money up front is by far the biggest red flag. Any reputable foreclosure-assistance organization is not going to charge up-front fees.”

Another common ploy comes with a promise of a “forensic audit,” meaning scouring mortgage documents in hopes of finding errors that will void the terms of the mortgage or enable renegotiating more favorable terms."

It be incredibly frustrating to deal with the "loss mitigation" teams at the mortgage company or the mortgage servicer.  I have had many clients tell me that they sent paperwork that the servicer claims they never got, and that they get repeated requests for the same information.  However, you should not have to pay for that service.

Two things I wish the article had mentioned.  First, Lutheran Social Services has a contract to help people in Greater Minnesota deal with foreclosure.  Their assistance would be free.

Second, and dear to my heart of course, the writer did not mention that Chapter 13 bankruptcy can be used to catch up a delinquent mortgage.  You have to make the regular scheduled payment plus a  catch-up payment to the trustee, but if you are behind because of a temporary loss of income, Chapter 13 can be a very useful tool.

As always, feel free to call me to discuss your legal issues.   My number is:  320-252-4473

No one wants to file for bankruptcy, but if you're heading in that direction, delaying the inevitable may only make things worse

 

I came across this article on the American Bankruptcy Institute and thought I would pass the first several paragraphs of the article along.  It was originally on the CBS News website, posted Nov. 20, 2024:

"No one wants to file for bankruptcy, but if you're heading in that direction, delaying the inevitable may only make things worse.

But those struggling to stay financially afloat should consider the option sooner rather than later, advise experts who study when and why people file.

"When a consumer feels financial pressure, the last thing on their mind is seeking bankruptcy protection," said Michael Hunter, vice president, business development, at Epiq Aacer, a provider of bankruptcy information and partner to the American Bankruptcy Institute, or ABI. Most people don't file until 18 to 24 months after they've incurred financial hardship, Hunter said.

Researchers, over decades of interviewing thousands of people who've declared personal bankruptcy, have found that about two-thirds of individual filers struggle with paying their debts for up to five years before seeking help.

"The common response is people are struggling with their debt for more than two years" before seeking a legal remedy, Robert Lawless, a professor at the University of Illinois College of Law, told CBS MoneyWatch.

"People misunderstand bankruptcy and wait too long to see a bankruptcy lawyer. Most people would benefit by going earlier," said Lawless, a co-principal investigator in the Consumer Bankruptcy Project, launched in 1981 by a group of academics including Senator Elizabeth Warren, D-Mass., a law school professor at the time.

When to file for bankruptcy

Because of the stigma and shame that Americans attach to bankruptcy, people turn to it as a last resort — oftentimes after they have plowed through retirement funds and other assets that would be have been shielded from creditors by filing for debt relief.

"If you are raiding pension or other retirement assets, that is a red flag," said Lawless, noting those funds are protected from creditors in bankruptcy. Borrowing money to cover current expenses is another warning sign, he offered.

"It makes sense to file if a creditor is going to be able to take away something you need," said Pamela Foohey, a professor of law at the University of Georgia School of Law in Athens. "If a person is dealing with a wage garnishment that is harming their lives, or if a lender is threatening to repossess your car. If there's no other way to get a car that will fit your budget, filing could be a way to keep your car, or keep your house."

Otherwise the broad answer is to first address how they might solve the cause of their financial distress before filing for bankruptcy. "It doesn't help to find a better-paying job if after bankruptcy more is going out than coming in," said Lawless.

"If you lost your job, file after you found a new job; if you have a health crisis, you file after you've gotten better to discharge all of the medical debt that you've racked up," said Foohey.

If someone undergoes a change in their family situation, whether it's a divorce or the birth of twins, she advises that they first figure out how they're going to manage going forward on a budget after the debt is discharged.

"Bankruptcy does one thing, it gets rid of debt. It doesn't find you a job, it doesn't put money in your pocket," said Lawless. ...."

Feel free to call me to discuss matters.  My number is:  320-252-4473.  Congress says I have to tell you that I am a debt relief agency and help people filed for bankruptcy.

They Were Ashamed About Their Debt. Bankruptcy Gave Them a Second Chance.

I came across an article in the New York Times by Rachel Bussel, (dated Nov. 4 2024) that I thought was worth sharing.  So the following is not original to me.  The article is longer.

Many people who should consider filing for bankruptcy avoid doing so out of shame or fear it could ruin their credit. But it can provide much-needed relief.

In my 20s, while attending law school at New York University by day and concerts by night, I racked up over $30,000 in credit card debt. I wasn’t thinking about my credit score; I was solely living in the moment.

 After three years, I left law school without graduating. The $40,000 salary for my administrative assistant day job barely covered rent and student loans. I made minimum payments on my credit cards, cringing as hefty interest rates ballooned my balance.

 A friend whom I confessed all this to advised me to “never declare bankruptcy,” citing a bad experience. He was older and, I assumed, wiser, so I took his words to heart, crossing that option off my list.

Instead, I consolidated my debt with a service that promised to streamline the repayment process. But because my monthly income wasn’t high enough to pay extra toward the principal, I didn’t make much headway after several years of making payments. So I researched bankruptcy options, discovered that I was eligible and decided to file. The process was far less painful than I had anticipated, wiping my debt slate clean.

I regret not filing sooner. Many people avoid filing for bankruptcy out of shame and embarrassment around their financial circumstances, because they receive poor advice or because they’re too proud. But bankruptcy may be a prudent option to eliminate burdensome debt, save a home from foreclosure and end collection calls

As always, if I can be of help discussing or dealing with your financial issues, call me at  320-252-4473

Sam Calvert

Congress requires me to say that I am a debt relief agency and help people file for relief under the Bankruptcy Code.

Mom co-signed for me. Now what?

 From time to time  I run into a person (we'll call him Bob) who has a loan which was co-signed by someone, usually a parent (we'll call the co-signer Mom). So, what happens if Bob files bankruptcy?

Well, if the debt is unsecured, in a chapter 7 Bob's debt is wiped out but the co-signer is still liable for the debt.  After the bankruptcy is filed, Bob is free to pay the debt if he wants to, or he is free to give money to Mom and Mom can pay the debt.  But the lender is free to try to collect from Mom in the meanwhile.

But in a chapter 13, there is something called "the co-debtor stay" for consumer loans (11 U.S.C. Sec. 1301).  What that means is that if Bob got the benefit of the loan, and if Bob promises to pay the co-signed debt in full through the chapter 13, the lender has to sit back and accept payments and leave the co-signer alone.

On the other hand, if Bob does not  pay the co-signed debt in full, the lender can ask the court for permission to go after the co-signer.

The real moral of the story is:  Don't co-sign for someone else's loan.  If you refuse to do so, you won't have to worry about the co-debtor stay!

As always, if I can be of help, call me at 320-252-4473.

Don't pay mom back!

 Actually, the headline should say:  "Don't pay mom back before filing".

In the paperwork that is filed with your bankruptcy paperwork, we have to list any payments that you have made to "insiders" within the year before filing the bankruptcy.  And at the trustee meeting the trustee will ask about payments to relatives or friends. 

So, what is an "insider"?  Relatives and business "partners" are insiders.  Close friends may be insiders.  (A definition is below.)

If you owe mom money and  have paid mom $600 or more dollars (payments of less than $600 are exempt) within the year prior to filing bankruptcy, the trustee may very well sue them to get the money back.  The trustee will then subtract his fees from the amount he gets and divide up the remainder amongst all your creditors. 

One of the theories of bankruptcy law is that similar creditors should be treated in a similar manner.  If you "prefer" one unsecured creditor over all of your other unsecured creditors, that  preferential transfer must be disclosed and can be reversed.

You can't "forget" to mention this in your paperwork, because you are signing the papers under penalty of perjury.  And the money is probably traceable, anyway.

Notice that I said "unsecured" creditor.  Your car payment or house payment are payments on secured debts and would not be subject to this. 

However, the good news is that after you file, you can pay mom back without a problem.  You may hear someone say that doing so brings all the debts back, and even if that were true in 1960 or so, that has not been true since the Bankruptcy Code became effective in 1979

As always, if you have questions, feel free to call me at 320-252-4473.

Sam Calvert

The definition of "insider" for individuals is below:

The term "insider" includes-

(A) if the debtor is an individual-

(i) relative of the debtor or of a general partner of the debtor;

(ii) partnership in which the debtor is a general partner;

(iii) general partner of the debtor; or

(iv) corporation of which the debtor is a director, officer, or person in control;

New Law Helps People

You can't always write that headline, of course, but I think it applies to a law passed by the Minnesota Legislature in 2024.  Chapter 114 updated exemption laws in Minnesota.  (An exemption law means that a creditor cannot take a specific item).  Among other things the new law did the following:

a)  the exemption for a motor vehicle is $10,000 (more if modified to be handicapped accessible);

b)  there is now a jewelry exemption of $3,062.50 (formerly it was only "wedding rings")

c)  there is now an exemption of $3,000 for tools, snow removal equipment and lawnmowers

d)  there is now an exemption of $1,000 for pets.

All of these increases or new exemptions are effective ".. August 1, 2024, and appl[y] to causes of action commenced on or after that date."  I am not sure what that means.  Does it mean if the debt arose before August 1, 2024 you are stuck with the old exemptions?  Or does it mean that if a lawsuit or garnishment or bankruptcy is filed after August 1, 2024 that the new exemptions apply?  I assume we will get some court decisions fairly soon on that point.  

Whatever it means this is good news going forward.

As always, if you have questions feel free to contact me at 320-252-4473.

New unhappy decision in chapter 13 cases

 In In re Goetz, 2024 WL 998765 (8th Cir. Mar. 8, 2024), the Eighth Circuit Court of Appeals gave bankruptcy 13 debtors reason to be concerned about conversions from chapter 13 to chapter 7.

On August 19, 2020, the debtor Machele Goetz (“Debtor”) filed a chapter 13 bankruptcy petition and plan. At that time, she owned a residence worth $130,000 and claimed the full $15,000 homestead exemption under Missouri law. The lender held a roughly $107,000 lien against the residence. Liquidation of the residence on the date of the petition would have resulted in no recovery for the bankruptcy estate.

On April 5, 2022, Debtor converted her case from chapter 13 to chapter 7. Between the chapter 13 filing and the date of the conversion order, Debtor’s residence had increased in value by $75,000. Liquidation of the residence on the date of conversion would have resulted in a recovery of roughly $62,000 for the bankruptcy estate. 

The Bankruptcy Court for the Western District of Missouri held that, pursuant to 11 U.S.C. § 348(f)(1)(A) and § 541, the post-petition, pre-conversion increase in equity in Debtor’s residence became property of her converted bankruptcy estate. The Bankruptcy Appellate Panel for the Eighth Circuit affirmed and Debtor appealed.

In affirming, the Eighth Circuit Court of Appeals (“Eighth Circuit”) looked to the text of § 348(f)(1)(A) that states, for a chapter 13 case converted to chapter 7, the “property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion.” The  Eighth Circuit held that the post-petition, pre-conversion increase in Debtor’s equity was property of the converted estate, as proceeds “from property of the estate” under § 541(a)(6), and Debtor had effective control of the equity because she still possessed her residence on the date of conversion. 

In Minnesota, the state homestead exemption is significantly higher than the Missouri homestead exemption. As such, for a case converted from chapter 13 to chapter 7, the Goetz decision may have little impact for a post-petition, pre-conversion increase in equity in a debtor’s residence protected by the Minnesota homestead exemption; however, the decision could impact a post-petition, pre-conversion increase in equity in non-exempt property of the estate.