Blog
Law Offices of Chance M. McGhee

Call Today for a FREE Consultation

210-342-3400

How Do I Know if I Should File for Bankruptcy?

July 1st, 2020 at 7:46 pm

Texas bankruptcy attorney, file for bankruptcy in TexasFor many people, the thought of filing for bankruptcy is a scary one. However, for many people, filing for bankruptcy is the best thing they could do for their finances. Filing for bankruptcy allows you to wipe your slate clean and discharge most of your unsecured debts, but it does come with some consequences. Filing for bankruptcy might make your life more difficult in the future, by making it harder to borrow money, lowering your credit score or even affecting your insurance rates. It can be difficult for some people to gauge whether or not bankruptcy is in their best interests, which is where a skilled Texas bankruptcy lawyer can help.

Your Debts Far Exceed Your Income

Think about all of your different types of debt: your mortgage or rent, car payment, all of your different credit cards, and personal loans. How much total debt do you have? Now, think of your income. How much money do you bring in each month? If your monthly debt obligations are much higher than the amount of money you bring in, you may want to consider filing for bankruptcy.

You Face Foreclosure or Repossession of Your Home or Car

Another big reason why people file for bankruptcy is that they are currently experiencing or being threatened with a foreclosure or repossession. When you purchase an expensive object, such as a home or vehicle, it is unlikely that you will buy it outright. Rather, you borrow the money from a lender and repay it over time. If you fail to repay your loan, your property could be taken back. Filing for bankruptcy puts a temporary halt to any foreclosure or repossession actions, giving you time to readjust your finances.

You Have Tried Negotiating with Your Creditors

If you are considering bankruptcy, you have likely already looked at other options for debt relief. One of the easiest things you can do to help lessen the burden is contacting your debtors and seeing if they are willing to work something out with you. Many lenders do not get anything if you file for bankruptcy and will want to work with you, but this is not always the case. If your creditors are unwilling to negotiate or you are still having trouble, bankruptcy might be your best option.

Discuss Your Situation with a San Antonio, TX Bankruptcy Lawyer

Bankruptcy is not for everyone, but for many people, it can give them a second chance with their finances. If you are in debt and are wondering if bankruptcy is right for you, you should speak with a knowledgeable Boerne, TX bankruptcy attorney. At the Law Offices of Chance M. McGhee, we will look over your financial situation with you and determine whether or not bankruptcy would be in your best interests. To schedule a free consultation, call us today at 210-342-3400.

 

Sources:

https://www.investopedia.com/articles/pf/08/bankruptcy-filing.asp

https://www.thebalance.com/should-you-file-bankruptcy-960627

https://www.moneyunder30.com/when-you-need-to-file-bankruptcy

 

Unfiled Tax Returns and Bankruptcy

June 29th, 2020 at 7:00 am

  

If you’re considering filing bankruptcy, should you first prepare and submit any unfiled income tax returns? Should you prioritize paying them? 


Our last two blog posts have been about what you should and should not do before filing bankruptcy. These are important to consider even if you hope to avoid bankruptcy but are sensibly admitting it’s possible.

So two weeks ago we focused on keeping, and not selling or giving up your:

  1. assets
  2. especially any retirement funds
  3. collateral on debts, such as your home, vehicles, or furniture

Last week we discussed whether to take on more debt to buy time and maybe avoid needing to file bankruptcy.

Today we look at whether you should file any unfiled income tax returns, and possibly prioritize paying unpaid income taxes.

The Quick Answer

In general you should:

  1. prepare but not submit your tax returns to the IRS/state before seeing your bankruptcy lawyer;
  2. not hold off on getting advice from a lawyer if you can’t get your tax return(s) prepared beforehand;
  3. avoid paying any income taxes before getting advice about doing so from a lawyer;
  4. if you’ve recently paid income taxes or are being forced to, all the more reason to get legal advice about how to proceed now.

Prepare Tax Returns

There’s a simple reason why it’s good to have any unfiled tax returns prepared before seeing a lawyer. The more information you can provide to your lawyer the more concrete his or her advice to you can be.

Bankruptcy can be a surprising good way to solve your tax problems, in numerous ways. It can virtually always stop tax collection, both forced (garnishments) and voluntary (installment payments). Bankruptcy can sometimes reduce payment of tax interest and penalties. Bankruptcy can buy you time, and protect you while you prioritize who you pay. And under the right conditions bankruptcy can even completely wipe out (“discharge”) an income tax debt.

But as you might expect the interplay between tax law and bankruptcy law can get complicated. For example, whether bankruptcy discharges an income tax debt depends on whether that tax meets some detailed conditions. So the more details about your taxes you bring to your lawyer the more specific the legal advice you’ll receive.

Therefore, if you haven’t prepared any outstanding tax returns, it helps to do so before visiting your lawyer.

But Do Not Submit the Tax Returns

There’s just as simple of a reason not to submit your tax returns to the IRS/state tax authority before seeing your lawyer. Once you submit them you can’t un-submit them.

Of course you are legally compelled to send in your income tax returns. And there’s a legal deadline to do so. And you can submit an amended return if you need to correct the original return.

But submitting a tax return is in effect a legal act which has consequences. For example, it may affect the timing of your bankruptcy filing, and impose otherwise avoidable timing pressure.  

So, when possible, it generally makes sense to see your lawyer before submitting the outstanding tax return(s).

Don’t Delay Getting Legal Advice

Life can get complicated, financial and otherwise. You may have big roadblocks to getting your tax returns prepared. You may not have the necessary information or documents available to do so. Your tax returns may need the help of a tax preparer and you don’t have the money.

However, your financial circumstances may be crying out for bankruptcy and/or other legal advice. You may simply not be able to prepare the tax return(s) beforehand. While doing so would likely be helpful, this should not stop you from getting advice when you need it.

Prioritizing Paying Income Taxes

Every situation is different but, generally, see your bankruptcy lawyer before paying taxes.

Again, obviously you have a legal obligation to pay your income taxes.

However, if you have more debts than you can pay, it’s legitimate to ask which you should pay first. What order should you pay an income tax debt vs. an unpaid home mortgage vs. a late vehicle loan payment?

If you owe more than one income tax, which should you pay first? The IRS or the state? The older or newer one? Can you earmark the payment and should you do so between the tax itself vs. the unpaid interest vs. accrued penalties?  

How does the timing of tax payments affect the timing of the possible bankruptcy filing?

So you can see that there are various fair questions about paying your income taxes when you’re considering bankruptcy. All of these questions, and likely more, would greatly benefit from legal advice.

If Paying Taxes Now

So what if you are making income tax payments now. Consider three scenarios.

First, you’re making agreed monthly installment payments on an older unpaid income tax. You know the IRS/state will come after you hard and fast if you stop paying.

However, the tax you’re paying may qualify for discharge—a complete legal write off. It may make sense to stop paying the monthly payments so you can put that money for better use. You need to determine your game plan and coordinate the timing with your bankruptcy lawyer.

Second, the IRS/state is garnishing your paycheck for an income tax debt. Whether or not that tax debt qualifies for discharge, a bankruptcy filing would stop the garnishments. Clearly you would benefit from learning about how this works, and especially the pertinent timing. Plus of course you need to learn about the different bankruptcy options for your entire financial situation.

Third, you’re paying an older income tax monthly, either voluntarily or by garnishment. As a result you’re not paying any or enough current tax withholding or quarterly estimated payments. As a consequence, you may be paying an older tax debt that bankruptcy would discharge and not paying one that you could not discharge. You may be using your precious money to pay a not-required-to-pay debt instead of one you must pay after bankruptcy. It would certainly make sense to get legal advice to prevent such a less-than-best use of your money.

 

More Actions to Take When Considering Bankruptcy

June 22nd, 2020 at 7:00 am

If you’re considering filing bankruptcy, what debts can you incur and which should you avoid? What are the possible consequences?


Two weeks ago we listed 5 crucial things you’d benefit from learning about if you’re thinking about bankruptcy:

  1. if bankruptcy is indeed the best option for you
  2. how Chapter 7, 11, 12, and 13 work, and whether one is right for you
  3. what actions you should take to position yourself for either a possible or definite filing
  4. what you should avoid doing
  5. the best timing for your bankruptcy filing

We covered the first 2 of these back then. Then last week we got into # 3 and #4, actions you should take and those to avoid before bankruptcy. We focused on keeping, and not selling or giving up your:

  1. assets
  2. especially any retirement funds
  3. collateral on debts, such as your home, vehicles, or furniture

But there are many other actions that could be smart to take or to avoid as you’re contemplating bankruptcy. Consider the following questions. Should you:

  1. take on more debt to buy time and maybe avoid filing bankruptcy?
  2. file unfiled income tax returns and/or prioritize paying unpaid income taxes?
  3. catch up on late child or spousal support payments?
  4. file for divorce before or after filing bankruptcy?

We’ll cover the first of these today, the rest in upcoming blog posts.

Taking on More Debt

Taking on more debt can take many forms. Whether doing so is smart depends on which form it takes. It also depends on each person’s own circumstances.

Here are some of the most common forms:

  1. increasing unsecured debt from present creditor(s), such as adding to present credit card(s)
  2. getting new unsecured debt, such as accepting a new credit card offer
  3. getting new secured debt, such as buying a vehicle or furniture on credit
  4. increasing or getting new “priority debt,” essentially income taxes or child/spousal support

Let’s look at the first two of these today, involving increased or new unsecured debt.

Increasing Present Unsecured Debt

If the goal is to improve your financial situation, digging a deep financial hole deeper seldom works. It’s seldom a successful recipe for avoiding bankruptcy. But there may be exceptions.

Most of the time the decision to go deeper in debt is an act of near desperation. It’s generally not a well-thought out decision. You don’t have enough in your checking account to get something you need (or believe you need). So you put it on the credit card. You know it puts you further behind but you feel you don’t have much choice.

Or sometimes you do have a plan, or at least an attempt at one. You sit down (by yourself or with your spouse or a significant other). You look at your bills and the rest of your financial life and try to figure out what you should do about your increasing debt. You may tell yourself, for example, that you’ll keep on adding to your credit cards for no more than 2-3 more months. Until you get back to work, or into a better paying job, or until you pay off another debt and free up some cash flow. And if those things won’t happen then you’ll think about getting bankruptcy advice.

But whether you’re adding to your debt impulsively or following a plan, it’s really hard to know if you’re doing the right thing for yourself. It’s almost impossible to be objective because these are really personal, emotion-driving circumstances. There’s almost always a lot of fear and hope involved. Your self-esteem is on the line. And it gets crazy complicated if there’s a spouse or other loved one deeply involved. These are not good environments for making good decisions.

Getting New Unsecured Debt

The situation is similar if you have the opportunity to get a new source of unsecured debt. You wonder if it makes sense to transfer some of your current debt to the new source of credit. It may have a lower interest rate, or better payment terms, at least for the short term. Consolidating all or part of your unsecured debt seems to make sense. It looks sensible for the short term, and you hope it will help you make long term progress on your debts.

Or again, maybe you just can’t meet your expenses this month and feel you have no choice. So the new source of credit enables you to get by for another month or two.

Risk of Challenges to Discharge of a Debt

But incurring new debt can be risky ahead of filing bankruptcy. This is true if it’s additional debt on an existing account. The creditor could challenge the “discharge” (legal write off) of recently incurred debt in your bankruptcy case. The recent debt could be considered fraudulent. The argument would be that you incurred it without intending to pay it or any sensible ability to do so. (See Section 523(a)(2) of the U.S. Bankruptcy Code.)

That could be especially problematic if you are consolidating a lot of your debt with a new creditor or on a new account. Such actions could convert debt(s) that you could have legally discharged into one(s) you cannot.

Again, the larger the amount of the debt you recently accrue the greater this risk. The more that is at issue the more likely the creditor would raise the challenge. And of course the more the amount of the money the more you may still owe in spite of filing bankruptcy.

Rare Challenge to the Discharge of Any Debts

In certain (admittedly rare) circumstances taking certain actions before or during a bankruptcy could be even more dangerous. Lying on bankruptcy documents, hiding assets and such, could threaten your ability to discharge ANY of your debts. (See Section 727(a) of the Bankruptcy Code.)

 Incurring a significant amount of new debt soon before filing bankruptcy might also run you afoul of this provision.

The Best Pre-Bankruptcy Advice

It’s near impossible to know whether in your unique circumstances it make sense to incur a certain debt or not. As we said above, it’s hard not to act mostly out of hopes and fears—to be driven by such emotions. Even if you have the discipline to stop and try to figure things out, it’s still difficult to be objective.

Then if you do get your head and heart in the right place, you still don’t have information you need. Under what circumstances would incurring a new debt result in the creditor’s dischargeability challenge of that debt? What debt amounts and their timing would likely be okay and what would not? What debt actions by you would be acceptable and what would not?

The answers to these questions turn on your individual circumstances. The only source of the right answers to your truly unique questions is your bankruptcy lawyer.

Under the counsel of a lawyer, you’ll cut through the emotions to an objective analysis of your situation. You’ll get the information you need—the law as it applies to you—leading to answers to your questions. You’ll know better what debts you can incur and those you shouldn’t.

 

The Best Bankruptcy Advice: Get Legal Advice

June 8th, 2020 at 7:00 am

Businesses considering bankruptcy get intense legal advice before filing. You would also be smart to get solid advice to make a good decision. 


What Businesses Do Before Filing Bankruptcy

The following are just a few of the companies which have filed business bankruptcy in the last couple months:

  • Pier 1 Imports
  • CMX Cinemas
  • J. Crew
  • Gold’s Gym
  • Neiman Marcus
  • JC Penney
  • Hertz
  • Tuesday Morning

Some of these companies will completely go out of business, some will continue on after a financial restructuring.

What they all have in common is that they got lots of legal advice before deciding to file bankruptcy. They likely got that advice over the course of many months. They likely used that advice to try to avoid entering into bankruptcy, take steps to position themselves for filing, and then to time the filing as well as possible.

If Bankruptcy Is Even a Possibility, Get Immediate Legal Advice

That likely applies to you if you are reading this. If there is even just a chance you need to file bankruptcy, you should get legal advice for similar reasons. You would be wise to get legal advice to find out:

  1. if bankruptcy is the best option for you, and how to pursue other alternatives
  2. how Chapter 7, 11, 12, and 13 work, and whether either are right for you
  3. what actions you should take to position yourself for either a possible or definite filing
  4. what you should avoid doing
  5. the best timing for your bankruptcy filing

1. Bankruptcy or Other Alternatives?

Bankruptcy may feel like an option of absolutely last resort. Sure, it’s something to avoid when possible. But that doesn’t mean you should avoid finding out about it.

Bankruptcy is a tool. It’s a legal tool provided for in the U.S. Constitution (Article I, Section 8, Clause 4) and federal law to provide you financial relief.

It may be right for you, either now or at some point in the near future. Or it may not be. You would feel better knowing one way or the other.

2. The Different Chapters of Bankruptcy

Chapters 7, 11, 12, and 13 are each very different. They are designed for very different circumstances.

If you own a business, generally Chapter 7 is for closing down your business, Chapter 11 is for reorganizing it. Chapter 12 is essentially a Chapter 11 for farmers and fishermen.

If you are instead of consumer debtor your two options are usually either Chapter 7 or Chapter 13.

Chapter 7 is sometimes called “straight bankruptcy.” It takes only 3-4 months, usually you keep what you own and can “discharge” (legally write off) most debts. But Chapter 7 is very limited in how it deals with certain important debts. With secured debts (home mortgage and vehicle loans) you either keep current or lose the house/vehicle. Also, Chapter 7 doesn’t help much with debts that you can’t discharge, like recent income taxes, child/spousal support, and such.

Chapter 13 “adjustment of debts” is much more flexible, especially with secured and other special debts. But it takes much longer—usually 3 to 5 years. That extra time is what provides much of the flexibility. You and your bankruptcy lawyer put together a payment plan, mostly for dealing with the secured and special debts. There’s a plan approval process and then you pay according to the plan for as long as it lasts. Chapter 13 can often give you tremendous power over your secured and special debts.

In relatively straightforward situations, Chapter 7 provides immediate and lasting financial relief. In situations with more diverse debts, Chapter 13 also provides immediate, and more flexible and powerful relief with those debts especially.

Interim Conclusion

More on what to do, what not to do, and the timing of bankruptcy coming up in our next blog posts. In the meantime…

As bankruptcy lawyers we are genuinely in this to help people. We love it when we can provide real solutions for our clients’ serious financial dilemmas. So it’s sad when people come in to see us who would have significantly benefitted from coming in earlier.

Please get in touch with your bankruptcy lawyer as soon as bankruptcy becomes a possibility. Doing so will give you the peace of mind that comes from

  • knowing that you have some really helpful options, often better than you thought
  • learning how to either avoid bankruptcy or position yourself in the best way for it
  • establishing a trusting relationship with your bankruptcy lawyer
  • knowing that you are avoiding taking seemingly sensible but actually unwise actions
  • taking charge of your life instead of living in fear

There is no downside for getting legal advice when you’re hurting financially. The initial consultations are almost always free. It may well be the single best decision you could make now.

 

Is Student Loan Debt Dischargeable in a Texas Bankruptcy?

June 1st, 2020 at 7:51 pm

TX bankruptcy attorney, Texas student loan debt attorney Student loan debt is something that is becoming an issue in the United States. According to the latest statistics from Forbes, there are currently an estimated 45 million borrows who collectively owe about $1.56 trillion in debt for student loans. Of those, around 11 percent are delinquent on their loans, which means they are 90 days or more late on a payment. For many borrowers, student loan payments are expensive and they are struggling to make ends meet. Many have inquired as to whether or not student loan debt is dischargeable in bankruptcy, but the answer is not quite as simple as a “yes” or “no.”

Is it Even Possible?

Many people believe that student loans are ineligible to be included in a bankruptcy and they would be correct — but only in most situations. It is not impossible to discharge your student loan debt in a bankruptcy case, but it will make your bankruptcy more difficult because you will have to file an adversary proceeding to determine whether or not you are eligible to have your student loans discharged.

Determining “Undue Hardship”

During the adversary proceeding, the court will determine whether or not you have demonstrated that paying your student loans has caused you “undue hardship.” The difficulty with this determination is that it was never actually defined and was therefore left up to individual courts and judges to determine. The most commonly used test to determine eligibility for student loan discharge is called the Brunner Test and consists of proving three simple points:

  • You cannot maintain a minimal standard of living in addition to supporting your dependents if you continue to pay the debt
  • Your financial distress is likely to exist for a majority of the repayment period of the loan
  • You have made good faith efforts to repay the loan thus far

Contact a San Antonio, TX Bankruptcy Attorney

If you are having difficulties making your monthly student loan payments because you also have other types of debt, such as credit card or auto loan debt, you still may have options. At the Law Offices of Chance M. McGhee, we can help you determine whether or not you should pursue bankruptcy and include your student loans in your discharge, or if your best option would be to take another route. Our skilled New Braunfels, TX bankruptcy lawyer can help you through the bankruptcy process from beginning to end. Call our office today at 210-342-3400 to schedule a free consultation.

 

Sources:

https://www.studentloanborrowerassistance.org/bankruptcy/#:~:text=Home%20%C2%BB%20Bankruptcy-,Bankruptcy,has%20shown%20an%20undue%20hardship.

https://studentaid.gov/manage-loans/forgiveness-cancellation/bankruptcy

https://www.forbes.com/sites/zackfriedman/2020/02/03/student-loan-debt-statistics/#f9cfa89281fe

Paying Missed Mortgage Forbearance Payments

June 1st, 2020 at 7:00 am

If you receive forbearance on your mortgage payments under the CARES Act, when do you have to catch up on those missed payments?  

 

Last week we presented the new law allowing forbearance—skipping payments—on federally backed mortgages during the pandemic. Basically, if you’ve been financially affected by the pandemic you can request and receive a 6-month forbearance on payments. This can be extended another 6 months if the declared emergency continues at that point.

The obvious question this raises is when do these missed payments need to be paid. This is the topic of today’s blog post.

Major Confusion about Timing of Repayment

The CARES Act provided what is essentially a right to forbearance on federally backed mortgages. But CARES doesn’t say a word about the terms for payment of those payments missed during the period of forbearance.

There are several possibilities potentially available for paying the missed payments:

  • in a lump sum at the end of the forbearance period
  • through payments spread over a period of months beginning after the forbearance period
  • in a lump sum at the sale or refinance of the home
  • through extending the length of the mortgage at the back end

The differences in these options are huge. Assume, for example, that you have a monthly mortgage of $1,100. (That’s the current national median mortgage amount.). If you get a 6-month forbearance, that could mean a lump sum payment of $6,600 due at that time. For most people coming out of a financially challenging time, coming up with that money would be impossible. Even if the amount due was spread out over a year or several years, many would not have this extra money, on top of their regular mortgage, each month.  Paying the missed payments by extending the length of the mortgage is much easier. So is paying at the time of sale or refinance of the home.

Unfortunately Forbearance Can Be Complicated

The foremost federal agency tasked with protecting consumers is the appropriately named Consumer Financial Protection Bureau. It says the following about mortgage forbearance under the CARES Act:

  • Forbearance doesn’t mean your payments are forgiven or erased. You are still required to repay any missed or reduced payments in the future.
  • Make sure you understand how the forbearance will be repaid. There can be different forbearance programs or options, depending on the type of your loan.

For example, if you have a Fannie Mae, Freddie Mac, FHA, VA, or USDA loan, you won’t have to pay back the amount that was suspended all at once—unless you are able to do so.

At the end of the forbearance, your options can include paying all of your missed payments at one time, spread out over a period of months, or added as additional payments or a lump sum at the end of your mortgage.

So, a big part of the confusion is that different loans have different options for paying the missed payments.

The Fannie Mae (FNMA) Example

Among all the federally-backed mortgage holders Fannie Mae (Federal National Mortgage Association) “is the largest backer of 30-year fixed-rate mortgages.” Already as of May 1, 2020, more than 1 million Fannie Mae mortgages were in forbearance. Many more were expected during the month of May. So by way of example let’s see how Fannie Mae allows customers to deal with payments missed because of forbearance.

Here is their recent announcement: Fannie Mae reminds homeowners they are not required to repay missed payments all at once. It’s main message:

At the end of the forbearance plan, the homeowner will be provided with several options from their mortgage servicer for making up the missed payments and will not be required to pay everything back all at once.

This announcement contains a link to their separate KnowYourOptions.com website, which provides more information on the post-forbearance options.

One practical source of information is this COVID-19 Forbearance Script that Fannie Mae has their mortgage services use with homeowners. It provides this script in order “[t]o continue to ensure clarity and transparency for mortgage servicers and homeowners alike.” It’s an interesting and informative read.

If You Have Another Federal Agency’s Mortgage

If your mortgage is instead owned or backed by one of the following agencies, here are similar resources for you:

How Are Monthly Payments Calculated in a Chapter 13 Repayment Plan?

May 29th, 2020 at 6:05 pm

TX bankrutpcy attorney, Texas chapter 13 lawyer, Being unable to meet your monthly debt obligations can be a serious source of stress. Many people in this situation turn to bankruptcy as a possible solution. For some people who have a steady income, a Chapter 13 repayment plan may be the best option. Often referred to as the “wage earner’s plan,” this type of bankruptcy allows individuals to repay all or a portion of their debts over a period of three or five years. Each month, a single payment is made to the bankruptcy trustee, who then distributes the appropriate amount to each creditor.

Chapter 13 bankruptcies are popular with individuals who have secured debt attached to certain items that they want to keep, like a house or a car. This is because a Chapter 13 bankruptcy allows individuals to distribute any past due payments into the repayment plan so they can get caught up. While the draw of a Chapter 13 bankruptcy is present, most peoples’ first question is, “How much will my payments be?”

Factors Affecting Your Payment

When you enter into a Chapter 13 repayment plan, you agree to pay a specified monthly amount to your trustee who will then pay your creditors. Your monthly payment amount depends on a variety of factors including your income, expenses, the amount of debt you owe, the types of debt you have, and the value of your property.

  • Income and expenses: Two of the biggest factors that affect the amount of your monthly payment are your income and your expenses. You must have a steady and reliable income to qualify for a Chapter 13 plan and provide the bankruptcy court with a record of your income from the past six months. You must also supply the court with your actual monthly expenses.
  • Amount of disposable income: Once you have your income and your expenses, your expenses will be subtracted from your income. The amount that remains is considered to be your disposable income. For many people, the amount of their disposable income is usually the amount that their payments are based on.
  • Value of Non-Exempt Assets: If you have assets that you want to keep, rather than liquidate, you have to factor in that cost as well. For example, a mortgage or a car payment would be added to your monthly payment amount. You also must factor in the amount of any other non-exempt assets that creditors would have received if you had filed for a Chapter 7 bankruptcy.

A San Antonio, TX Chapter 13 Bankruptcy Lawyer Can Walk You Through the Calculations

Bankruptcy can be confusing, no matter which process you choose. During a Chapter 13 bankruptcy, your monthly calculations will likely be calculated using a computer, but a skilled Boerne, TX Chapter 13 bankruptcy attorney can guide you through the process. At the Law Offices of Chance M. McGhee, we have been helping clients file for bankruptcy for more than 18 years. To schedule your free consultation, call our office today at 210-342-3400.

 

Sources:

https://www.thebalance.com/how-much-will-my-chapter-13-plan-payment-be-316209

https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics

 

Pandemic Mortgage Forbearance

May 25th, 2020 at 7:00 am

Mortgage delinquencies skyrocketed in April. One big reason: the pandemic CARES Act provided for extraordinary mortgage payment forbearance.  

 

Epic Increase in Mortgage Delinquencies

The number of home mortgages that became delinquent in April was largest one-month increase in U.S. history. 1.6 million mortgages current in March were not paid in April, according to Black Knight, a mortgage data provider.

For some perspective, the percentage of all mortgages that became delinquent nearly doubled in that one month—from 3.39% to 6.45%. This percentage increase was also the largest in history. It broke the last record monthly percentage increase set in 2008, during the Great Recession. The April increase was nearly 3 times the monthly increase back then. This is in spite of the reality that the Great Recession was an epic mortgage crisis.

The size of April’s increase reflects the unprecedentedly sudden economic effects of the pandemic—the self-induced shut-down. 

It was also substantially fed by the mortgage relief provided by the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) Act passed by Congress in late March. As of May 19, 2020 more than 4.75 million mortgages had entered into forbearance—authorized deferred payment—plans. Black Knight Press Release, May 22, 2020.

So homeowners are clearly taking advantage of mortgage forbearances. Should you, too? It’s been nearly two months since the CARES Act became law, a good time to review its mortgage benefits. Here is what it provided.

CARES Applies Only to Federal Mortgages

At the outset be aware that CARES applies only to federally- owned or -backed mortgages. About three-quarters of all mortgages are federally owned or backed by a federal agency or entity. These include U.S. Department of Housing and Urban Development (HUD), U. S. Department of Agriculture (USDA Direct  and USDA Guaranteed Federal Housing Administration (FHA) (includes reverse mortgages) ), U.S. Department of Veterans Affairs (VA), Fannie Mae (check here to see if your loan is backed by Fannie Mae) , Freddie Mac (check here to see if your loan is backed by Freddie Mac).

Also check out the U.S. Consumer Financial Protection Bureau’s How can I tell who owns my mortgage?

If You Don’t Have Federal Mortgage

Contact your mortgage servicer if you have a mortgage not owned or backed by a federal agency or entity. Financial regulators have urged all financial institutions to work with borrowers in this extraordinarily disruptive time. Interagency Statement on Loan Modifications…, April 7, 2020.  

Here’s a list of some of the pandemic-related services offered by a huge number of the nation’s banks. Many include references to mortgage payment deferrals and forbearance.

CARES’ Mortgage Relief Options

For federally owned or backed mortgages, the CARES Act provided two separate forms of relief. These included a short moratorium on foreclosures and forbearance of monthly payments.

The foreclosure moratorium was so short that it’s already expired. It was in effect for only 60 days starting from March 18 through May 17, 2020. During this period CARES prevented the starting or completion of a judicial or non-judicial foreclosure. CARES Section 4022(c)(2).

The forbearance part of the law is the focus of the rest of this blog post.

Mortgage Servicer “Shall Provide the Forbearance”

The CARES law is quite straightforward. The mortgage servicer (the entity you make mortgage payments to) “shall… provide the [requested] forbearance”:

  • to a borrower who “submit[ted] a request”
  • including an “affirm[ation] that the borrower is experiencing a financial hardship during the COVID–19 emergency”              

The servicer can’t:

  • require “any additional documentation … other than the borrower’s attestation to a financial hardship caused by the COVID–19 emergency”
  • charge any “fees, penalties, or interest (beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract)”
  • require that the mortgage be in any particular “delinquency status” in order to provide the forbearance

CARES Section 4022 (b) and (c)(1).

Length of Forbearance

“Upon a request by a borrower for forbearance… such forbearance shall be granted for up to 180 days, and shall be extended for an additional period of up to 180 days at the request of the borrower, provided that, at the borrower’s request, either the initial or extended period of forbearance may be shortened.”

CARES Section 4022 (b)(2).

There’s a potentially important timing condition when the borrower submits the extension for an additional 180 days of forbearance. “[T]he borrower’s request for an extension [must be] made during the covered period.” CARES Section 4022 (c)(1). “Covered period” is a phrase used earlier in the Section, referring almost certainly to the officially declared national “COVID-19 Emergency.” That is, the borrower must submit the request for a 180-day extension while this emergency is still in legal effect.

After Getting Your Mortgage Forbearance

The CARES Act does not say anything about the timing for repayment of the deferred payments. That crucial issue is the topic of our next blog post.

 

Consumer Bankruptcies Not Increasing–Yet

May 18th, 2020 at 7:00 am

After declining significantly since 2010, consumer bankruptcies edged up in 2019, increased in March, then oddly sharply declined in April. 

 

In the last two weeks three major retailers filed Chapter 11 bankruptcy: J. Crew, Neiman Marcus, and J.C. Penny. Total business Chapter 11 reorganizations were up 26% in April 2020 compared to the same month last year. (560 compared to 444.)

What about consumer bankruptcy filings? What has happened so far, and what’s to come?

Consumer Bankruptcy Filings So Far

Since the Great Recession, consumer bankruptcy filings had been declining. They’d topped out at more than 1.5 million filings in 2010, then came down steadily for almost the full decade. Only half as many consumer bankruptcies were filed in 2018, about 751,000. Then in 2019 the number nudged up for the first time since the Great Recession, although just barely. Annual Business and Non­-business Filings by Year (1980­-2019).

So what about the first few months of 2020? The last couple monthly totals are very unusual. After holding steady during January and February, there was a significant uptick in filing in March. Consumer filings increased 12% that month from the prior month (from 53,087 to 59,668). But then in April filings plummeted, dropping 39% (down to 36,161 for the month).

What’s going on? Common sense says that as the reality of the pandemic set it, people who had been on the brink, and/or started getting hit economically, and rushed to file. That accounts for the March increase.

Then when states started shutting down in late March and early April, connecting with a bankruptcy lawyer to start the bankruptcy process became more difficult. Plus the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) passed in late March. People have been waiting to see if the one-time relief payments, and its enhanced unemployment benefits, would help enough. These account for the sharp decrease in April filings.

What’s Happening Soon

In the last 8 weeks 36.5 million Americans filed unemployment claims. Countless others are working less hours and/or for lower pay.

According to one recent poll 77% of laid off workers believe they’ll get their jobs back “after stay-at-home orders are lifted.” That may well be overly optimistic. Millions of businesses face deep financial stress because of the pandemic. Many will not reopen. The health safety changes required by the virus will add costs and reduce income for entire industries. Restaurants, transportation, and retail are obvious examples. Businesses with thin financial margins will either not reopen or will try but won’t succeed. As part of a recent Time magazine article title says, A Flood of Small Business Bankruptcies Likely in Coming Months.

On top of all that, states and local governments are sharply losing tax revenue so job cuts are inevitable.

Even among those who do get back their jobs, those without enough savings will be left with an income hole. Many will need bankruptcy relief.

According to Amy Quackenboss of the American Bankruptcy Institute, “We think business filings will see an uptick in April with consumer filings to surge in May and June.” She said this in early April. She was accurate about the April business filings. She’s likely right about the consumer filing surge as well.

Household Debt Burden

One very reliable indicator of future consumer bankruptcy filings are the amount of household debt and its delinquency rate. Here’s a comparison of these two just before the 2008-09 Great Recession vs. just before the COVID-19 pandemic.

While mortgage and credit card debt is only modestly higher now, vehicle loan debts are up 63% and student loan debt has nearly tripled.

The delinquency rate overall was recently virtually as high as it was just before the Great Recession. Back then that resulted in a doubling and then nearly tripling of consumer bankruptcy filings between 2006 and 2010. The even worse household debt burden and delinquency rate pre-pandemic foretell a similar new surge in bankruptcy filings.

 

How Has the Coronavirus Pandemic Affected Bankruptcy Cases?

May 15th, 2020 at 11:54 am

TX bankrutpcy lawyer, Texas bankruptcy laws, Nobody wants to file for bankruptcy. Even though you can discharge your debts so that you are no longer legally liable for them, there are a few negative consequences that come from filing for bankruptcy, including a hit to your credit score. However, if you are one of the millions of Americans who are struggling financially, bankruptcy may be the solution. The current coronavirus pandemic has hit the U.S. economy hard, causing unemployment to soar to levels unseen since the Great Depression. The coronavirus has affected many things, including making temporary changes to the bankruptcy code.

The CARES Act

Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in response to the economic crisis emerging from the pandemic. Valued at more than $2 trillion, the CARES Act was monumental for the U.S. as it is the largest stimulus package to become enacted in the history of the country. One of the most popular benefits the Act provides is the economic impact payments that are given to most households and individuals. Single tax filers will receive $1,200, while married couples who file jointly will receive $2,400. Each child that an individual or married couple has that is under 17 will receive an additional $500.

The economic impact payments have greatly helped those who have lost their jobs or have had their hours reduced because of the pandemic. However, for many households, the economic impact payments may not be enough to make the monthly obligations for all of their debts. To file for bankruptcy, you have to meet certain income requirements, which has led some to worry about how the economic impact payments will affect their status.

Temporary Changes to the Bankruptcy Code

When an individual files for bankruptcy, their income and assets are examined to determine if they are eligible for bankruptcy. To ensure all bankruptcy trustees are on the same page, the U.S. Trustee Program (USTP) issued a notice to address these issues that may arise because of the pandemic.

The notice stated that the economic impact payments are not to be included as “current monthly income” or “disposable income.” More specifically, the economic impact payments should not be used in any calculations to figure a person’s income and should not be included as a factor in determining whether or not a person can repay his or her debt in Chapter 7 or Chapter 13 bankruptcy. The notice also states that any trustee that attempts to recover the economic impact payments to become a part of the bankruptcy estate must notify the USTP before doing so.

Our San Antonio, TX Bankruptcy Attorney Is Here For You

The idea of getting a bankruptcy can be daunting to some, but sometimes it is the best option. At the Law Offices of Chance M. McGhee, we understand that you may be concerned about your eligibility for bankruptcy with all of the changes that have taken place. Our skilled New Braunfels, TX bankruptcy lawyer can answer any questions that you might have about your eligibility or even just about bankruptcy in general. To speak with an attorney about your case, call our office today at 210-342-3400.

 

Sources:

https://www.justice.gov/ust/file/cares_act_recovery_rebate_notice.pdf/download?fbclid=IwAR1FVLAkidW9nd5F8lAzAJ4EzJLrgj8_Ok-eIXKxvVxJQGH5GBou1d-kui0

https://www.congress.gov/bill/116th-congress/senate-bill/3548/text?q=product+actualizaci%C3%B3n

 

 

Call today for a FREE Consultation

210-342-3400

Facebook Blog
Back to Top Back to Top