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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

 

 

New Modified 7-Year Chapter 13 Plans

May 11th, 2020 at 7:00 am

The coronavirus CARES Act temporarily allows ongoing Chapter 13 plans to be amended or “modified” to last a total of 7 years (instead of 5). 

 

Last month we described the changes to bankruptcy law made by the coronavirus CARES Act enacted on March 27, 2020. One of those changes is the ability to extend the length of ongoing Chapter 13 payment plans. Until now these previously-approved plans could last from a usual minimum of 3 years to a maximum of 5 years. That maximum has now been extended to 7 years.

Longer Plans Can Be Very Helpful

Overall, longer Chapter 13 payment plans give you more flexibility. And greater flexibility is one of the main advantages of the Chapter 13 bankruptcy option.

Usually you want to finish your bankruptcy case as soon as possible to get on with life. But often having more time within Chapter 13 can be a huge benefit.

You choose Chapter 13 over Chapter 7 “straight bankruptcy” to meet a specific goal (or two). You’re saving your home from foreclosure, or cramming down a vehicle loan, or paying nondischargeable income taxes. You’re keeping an asset you’d otherwise lose, catching up on child or spousal support, or saving a sole proprietorship business.  

To accomplish these goals you have to pay a certain amount into your Chapter 13 plan over time. Having more time to do so means being able to pay less per month during the plan. This can make the difference between a plan payment that you can’t afford and one that you can. So, having the option of two more years to finish off a payment plan can make the difference between an impossible plan and a feasible one. It’s the difference between an unsuccessful Chapter 13 case and a successful one.

Longer Plans during the Pandemic

This is especially true during this time of the COVID-19 pandemic. If you lost your job or have taken a pay cut while you’re in a Chapter 13 case, you may not be able to make your plan payment at all. Or you may only be able to pay a lower amount.

More time to pay means that you would likely be able to skip some payments if your unemployment is temporary. You would likely be able to reduce the plan payments—either temporarily or from now on—and still finish successfully.

This greater flexibility could well become especially important going forward. That’s because for most of us the pandemic’s financial consequences will likely be playing out for many months. So having this extra two-year cushion to finish your case successfully may become invaluable.

Only Court-Approved Plans Included

However, these new 7-year Chapter 13 payment plans have two strict timing considerations.

First, this 7-year change applies “to any case for which a plan has been confirmed… before the date of enactment of this Act.” Coronavirus Aid, Relief, and Economic Security Act (“CARES”), Section 1113(b)(1)(D(ii). CARES was enacted on March 27, 2020. The “confirming” of a plan is the bankruptcy judge’s formal approval of a plan that you and your bankruptcy lawyer proposed. Confirmation usually occurs at or around the time of your “confirmation hearing.” That’s usually happens about two months after you file your Chapter 13 case.

So to be able to extend your plan up to 7 years you must have had a court-confirmed plan by March 27. Even if you’d filed your case but your plan wasn’t confirmed by that date, you’re limited to the 5-year maximum.

Second, this 7-year provision has a “sunset” clause. It’s deleted from the Bankruptcy Code effective “on the date that is 1 year after the date of enactment.” CARES, Section 1113(b)(2). So assuming you had a confirmed plan before March 27, 2020, you must successfully modify your payment plan by March 26, 2021. Otherwise you’d lose out on this temporary 7-year plan modification option.

The Primary Condition to Meet

The new law says that you can modify a plan if you are “experiencing or [have] experienced a material financial hardship due, directly or indirectly, to the coronavirus disease 2019 (COVID–19) pandemic.” CARES, Section 1113(b)(1)(C). What a “material financial hardship” is, especially one “due… indirectly… to the… pandemic,” isn’t clear. Presumably a job or income loss related in any way to the pandemic should count. Beyond that bankruptcy judges will be making case by case decisions about what circumstances qualify.  

The Usual Other Conditions for Modification Still Apply

The modified plan also must meet the normal set of conditions laid out in Chapter 13 of the Bankruptcy Code. (“Sections 1322(a), 1322(b), 1323(c), and the requirements of section 1325(a) [of the Bankruptcy Code] shall apply to any [such plan] modification… .” CARES, Section 1113(b)(1)(C).) Generally these are the same conditions that you had to meet to get your original plan—or a previous modified plan—approved. Contact with your bankruptcy lawyer about qualifying.

Other Changes May Be Coming

There will very likely be more legislation coming from Congress regarding the pandemic. Some may tweak the Bankruptcy Code further. The 7-year provision may be extended more, such as to new Chapter 13 cases. We will report on any such future changes affecting bankruptcy.

 

Protecting Your Pandemic Relief Payment from Your Bank

May 4th, 2020 at 7:00 am

If you owe money to the bank or credit union where your $1,200 relief payment is being deposited, can it take that money to pay itself first?

 

Our last blog post was about whether your creditors can seize the $1,200 (or so) pandemic relief payments. Today’s is about one specific class of creditors: your own bank or credit union. What if you have a debt to the financial institution where your relief money is being direct-deposited? Can it pay itself to cover your debt instead of paying you? Would you only get whatever’s left, if any?

The Banker’s Powerful Right of Setoff

To force payment from your bank account, most creditors must sue and get a judgment against you first. So the big focus in last week’s blog post was on determining whether you had a judgment against you, and a resulting garnishment order on the bank account where your coronavirus relief payment was arriving. If no judgment, than no garnishment, and the relief payment is safe from creditors.

But the bank where you have your account is different. (All references to banks in this blog post also include credit unions and other financial institutions.) Banks have a right of setoff.

The basic idea is that money you have in a checking or savings account is money the bank owes you. It can set off its debt to you against your debt to it. It zeros out its debt to you (by taking the money in your account) and lowers your debt to it by the same amount. The practical effect is that money comes out of your checking/savings account to pay off or pay towards your debt.

This right is put into likely every contract you enter into with your bank governing your deposit accounts. For example, here’s the pertinent language from a recent 64-page Wells Fargo Bank Deposit Account Agreement:

[W]e have the right to apply funds in your accounts to any debt you owe us. This is known as setoff. When we setoff a debt you owe us, we reduce the funds in your accounts by the amount of the debt. We are not required to give you any prior notice to exercise our right of setoff.

A debt includes any amount you owe individually or together with someone else both now or in the future. It includes any overdrafts and our fees. We may setoff for any debt you owe us that is due or past due as allowed by the laws governing your account. If your account is a joint account, we may setoff funds in it to pay the debt of any joint owner.

So, in general a bank can take the relief money as it arrives into your account. It uses the money to pay any debt you owe the bank. That debt may be on the account itself—such as an overdraft fee—or any other debt you owe it.

Special Credit Card Law

This right of setoff usually does not apply to unsecured consumer credit card debts. Under Federal law

A card issuer may not take any action to offset a cardholder’s indebtedness arising in connection with a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer…   .

15 U.S.C. Section 1666h(a). For more details see the related regulations at 12 C.F.R. § 1026.12(d).

So, if you owe your bank on a credit card, it can’t take your relief payment to pay that debt. (This assumes the bank hasn’t sued you and gotten a judgment and garnishment on that account.)

Special Closed Account Rule

What if you had an account at a bank but either you’ve closed it or the bank has done so? In particular, what if the relief payment is slated to come to that closed account? That’s what would happen if you had the IRS send last year’s tax refund to that account (while still open).

In this situation the bank can’t take your relief payment to pay a debt you owe to the bank. Its right to setoff is cut off when either you or the bank close the account. 31 C.F.R. § 210.4(c)(3).

This means that the bank has to return the payment to the IRS (actually the U.S. Treasury). Then you should receive the payment by paper check through the mail. How long before you’d receive that check? The lower your income the quicker the IRS is mailing the paper checks. Here’s a recent article listing the mailing dates based on your adjusted gross income.

Therefore, in some circumstances it may make sense to close your account to prevent a setoff. The delay in receiving the payment may be worth avoiding losing some or all of it through a setoff. Then of course when you receive the check, cash or deposit it at a different financial institution.

If this is your situation you’d likely benefit from talking with a bankruptcy lawyer about this, and about your overall financial options.

Important Exception to the Closed Account Rule

Be careful about one important twist. If you believe your bank closed your account because of unpaid fees, it may not actually be closed. The bank may have charged off the account with a negative balance but not legally closed that account. Then this closed-account exception would not apply. The bank could pay the unpaid fees with your relief payment when it hits your account. It could also set off any other debts you may owe to the bank (other than credit cards). Again, this is a situation to discuss with a lawyer.

Local Pandemic Collection Protections May Apply

Last week we gave a list of state emergency orders preventing seizure of the relief payments to pay ordinary creditors. Most of these addressed creditor garnishment of bank accounts. Most did not directly address the separate question of setoffs by the banks themselves. However, some of those orders did so, including:

 This situation is constantly changing so it’s worth seeing whether your state has created similar setoff protections.

Some Banks’ Voluntary Policies

Some individual banks have announced that they’re not exercising their setoff rights specifically regarding relief payments. These include JP Morgan Chase, Citibank, Bank of America, USAA, and Wells Fargo, and likely others.

Because these are voluntary, and temporary, the exact details will vary at each bank, and may change. They may even vary customer by customer. So be careful, and find out whatever details you can before relying on these voluntary policies.

 

What Is an Automatic Stay in a Texas Bankruptcy?

April 30th, 2020 at 1:24 am

TX bankruptcy lawyer, Texas chapter 13 lawyer, Texas chapter 7 lawyer, For most people, filing for bankruptcy is a last resort. It can be easy to dig yourself into a pit of debt that you are unable to climb out of. Once the bills start becoming due, it can feel like an ocean wave washing over you, with you struggling to stay above water. Not paying your bills can cause creditors to resort to collections actions, such as wage garnishment and repossession. Once you file for bankruptcy, however, all of those collections actions must stop. This is what is known as the automatic stay.

Understanding the Automatic Stay

The automatic stay is a provision in the U.S. Bankruptcy Code that temporarily halts collections attempts from all creditors. The automatic stay goes into effect immediately after you file for bankruptcy and prevents any and all creditors from contacting you about debts you may have with them. The automatic stay does not last forever. As soon as your bankruptcy case is finished, the automatic stay is lifted.

What Can the Automatic Stay Prevent?

The automatic stay is meant to stop creditors from performing a variety of collections activities while you are going through with your bankruptcy. This was meant to help keep things fair among creditors, to prevent one creditor from settling their debts over another, but it also helps the person filing for the bankruptcy. Here are a few things the automatic stay can prevent from happening:

  • Foreclosure or eviction: The automatic stay prevents the completion of a foreclosure on your home or eviction from a place you rent. However, the automatic stay does not prevent foreclosure or eviction from happening. Your creditor can file a petition for the foreclosure to proceed, and mortgage debt is not discharged with a Chapter 7 bankruptcy, leaving you still responsible after the bankruptcy is over.
  • Wage garnishments: If you have had creditors garnish your wages, they are not permitted to do so during the time that the bankruptcy case is open. You should be receiving your full wages once the automatic stay is in place, as long as the garnishment is not for secured debt.
  • Repossessions: The automatic stay can also help prevent repossessions from happening on property that you do not fully owe yet, such as vehicles. Auto debt is also not discharged in Chapter 7 bankruptcies, which is why you must work out a repayment plan with your lender. As soon as the bankruptcy is over, your lender can repossess your vehicle if you have not worked out a repayment plan.

Our San Antonio, TX Bankruptcy Attorney is Here to Help

In some situations, creditors can be aggressive and intrusive into your life. If you have filed for bankruptcy, you should not be experiencing any collections actions against you. If you have creditors who are still trying to collect, you should speak with a skilled Boerne, TX bankruptcy lawyer. At the Law Offices of Chance M. McGhee, we can help you through your bankruptcy case. To schedule a free consultation, call our office today at 210-342-3400.

 

Sources:

https://www.investopedia.com/terms/a/automaticstay.asp

https://upsolve.org/learn/what-is-automatic-stay-bankruptcy/

Protecting Your Pandemic Relief Payment from Creditors

April 27th, 2020 at 7:00 am

Your $1,200 or so coronavirus relief payment is subject to seizure by your creditors, if they have a garnishment order on your bank account.  

 

Our blog post four weeks ago was about the $1,200 pandemic relief payments going out to most U.S. adults. The CARES Act explicitly protected these payments from seizure for certain governmental debts. Generally, the payments can’t be reduced or taken to pay past-due federal taxes and student loans. They can be for past-due child support obligations.

But the CARES Act made no mention of protection from debts owed to non-governmental creditors. So the relief payments are generally subject to possible seizure by your creditors. Today we address this concern about private creditors’ access to these payments.

There are two classes of creditors at play:

1)      Setoffs by your own bank or credit union for a debt you owe to it

2)      Garnishment by other creditors which have a judgment against you

Next week we address setoffs by for fees or other debts owed to your own financial institution. Today is about protecting your relief payment from other creditors.

Judgments and Garnishment Orders

Generally a non-governmental creditor can’t take money from your bank account without a court’s garnishment order. And to get a garnishment order a creditor virtually always must first sue you and get a judgment. (This assumes that the creditor isn’t a governmental agency or the bank/credit union itself.) If a creditor has an active garnishment order on your bank/credit union account, your relief payment would arrive there and go to pay the debt instead of giving you the financial relief you need.

Do You have a Garnishment Order on Your Bank/Credit Union Account?

This question is not necessarily so easy to answer, for a number of reasons.

First, although most of the time you’d know that you received lawsuit papers, not necessarily. You may have not noticed it in the mail.  It may not have looked much different from other collections paperwork. If you’ve moved a lot, it’s possible you didn’t even get the lawsuit papers.

Second, you may not know that the lawsuit resulted in a judgment. If you didn’t respond within a very short time to the lawsuit papers, you probably lost the lawsuit by default. That almost always immediately turns into a judgment—a court decision that you owe the debt. The judgment gives the creditor power to—among other things—garnish your bank account.  

Third, you may not know about the garnishment order, or the pertinent details about it. For example, you may think it only applies to your paycheck, not your bank account. Or the bank garnishment order may have happened a while ago and you don’t realize that it’s still active.   

Fourth, the laws about lawsuits, judgments, and garnishments are detailed, complicated, and different in every state. And they change (sometimes in a good way, as we show below.)  So what you may have heard in one situation may not apply at all to you regarding these relief payments.

Finding Out If You Have a Bank Garnishment Order

Some common sense questions you should ask yourself. Have you:

  • ever received lawsuit papers and then did not fully resolve the debt?
  • had any kind of creditor garnishment or seizure, even if unrelated to your bank/credit union account?
  • had anything repossessed, especially a vehicle, where you may still owe a balance?
  • gone through a real estate foreclosure in which you may still owe a money to junior mortgage or other lienholder?
  • moved from another state and thought you left unresolved debts behind?

In these and similar situations you may have a judgment against you and a garnishment on your bank/credit union account. So your relief money would likely go to pay the judgment before you’d get any of it.

Is there any more direct way of finding out if there’s a garnishment order? Yes, you could contact your bank/credit union and ask. The problem is that in the midst of the pandemic you may well have trouble getting anyone to answer. More to the point, you’d likely have trouble getting through to somebody who could accurately and reliably answer this question.

A debtors’ rights or bankruptcy lawyer could help. He or she likely knows the right people to call at your financial institution, including that institution’s lawyers.

 What To Do If You Do Have a Garnishment Order

First, every state has exemptions that you may be able to claim to protect the relief money from garnishment. Each state has different procedures for claiming those exemptions. An extra challenge during the pandemic is getting access the courts to assert your exemption rights. Many courts are physically closed, you may be subject to a stay-at-home order, and contacting a lawyer may be harder. But if you don’t want to lose your relief money, you’ll likely need to assert your exemption protections.

Second, you may want to consider some other tactical steps:

  • If a garnishment order has expired and the creditor needs to renew it, you may have time to take the money out of the account immediately after it arrives.
  • Has the IRS has not yet direct-deposited your payment? Then you may be able to redirect it to an account at a different (non-garnished) financial institution. Go to the Get My Payment webpage to provide new bank account routing information (if it’s not too late).
  • Are you currently waiting to receive the relief payment in paper checks? Consider NOT providing the IRS direct deposit information even though that may delay the payment. (Here’s an article with the dates that the IRS is mailing out paper checks, based on income.)

Third, a number of states are issuing orders to prevent garnishments of bank accounts:

California Governor’s Executive Order N-57-20District of Columbia Act 23-286

Illinois Governor’s Executive Order 2020-25

• Indiana Supreme Court Order in case nos. 20S-MS-258 and 20S-CB-123

Massachusetts emergency regulation 940 C.M.R. 35.00

Nebraska Attorney General Warning

• New York Attorney General Guidance on CARES Act Payments

• Oregon Governor’s Executive Order 20-18

• Texas Supreme Court Tenth Emergency Order Regarding the Covid-19 State of Disaster

Virginia Supreme Court Order Extending Declaration of Judicial Emergency

• Washington State Governor’s Proclamation 20-49 Garnishments and Accrual of Interest

This list is expanding all the time. So if your state isn’t listed here it may have acted after this writing (4/27/20).

This IS Complicated

Garnishment law is detailed and not at all straightforward. And that was before all the legal and serious practical complications caused by the pandemic. So if at all possible, get through to a debtor’s rights or bankruptcy lawyer. We have spent our professional lives helping people deal with garnishments and protect their assets from creditors. This is just another twist on what we do all day every day.

 

Student Loan Changes in the CARES Act

April 20th, 2020 at 7:00 am

The recent coronavirus relief law includes help for some student loan borrowers—suspending payments, interest, collections, credit reporting.  

 

The 880-page Coronavirus Aid, Relief, and Economic Security Act (“CARES”) has 4 pages of help for certain student loan borrowers. Section 3513 of CARES. It provides meaningful albeit temporary help, for those who qualify by having the right kind of student loan.

The Kinds of Student Loans Covered

First, the relief applies only to federal student loans, not to private student loans. The private loan portion of student loans has been growing but still only consists of about 8% of student loans. Nevertheless, private student loans total about $125 billion. The CARES Act does not help if you owe any of this.

Second, not all federal student loans are included. Direct Loans—those made directly by the federal government’s Department of Education—are covered. Federal Family Education Loans—FFELs—are covered if they’re currently owned by the federal Department of Education. FFEL loans held by commercial lenders and campus-based Perkins loans are not covered. These non-covered loans amount to only about 12 percent of federal student loan dollars, so most federal student loans are covered.

The Key Benefits

For the applicable federal student loans, CARES accomplishes the following:

  1. Suspends all loan payments through September 30, 2020.
  2. Waives interest during this suspension period.
  3. For credit reporting purposes, the lender must treat each suspended payment as if the borrower actually paid the payment.
  4. Student loan creditors must suspend involuntary collection during the suspension period.
  5. The payment suspension time counts for purpose of loan forgiveness and loan rehabilitation.

1. Payment Suspension

The new law suspends “all payments due for [applicable student] loans… through September 30, 2020.” Section 3513(a), CARES Act. The law did not specify when this non-payment period started. But since then the U.S. Department of Education has specified that the “administrative forbearance will last from March 13, 2020 through September 30, 2020.” (Administrative forbearance means a “temporary suspension of payments.”) Coronavirus and Forbearance Info for Students, Borrowers, and Parents.

If you’ve already made a payment during the same March 13 through September 30, 2020, your student loan servicer should refund it to you. This includes auto-debit payments, which are supposed to stop automatically during this same period. Coronavirus and Forbearance Info for Students, Borrowers, and Parents.

2. Interest Waiver

“[I]nterest shall not accrue on a[n applicable student] loan… for which payment was suspended for the period of the suspension.” Section 3513(b), CARES Act. So no interest will accrue during the March 13 through September 30, 2020 period. This should happen automatically, without requiring any action by you. Coronavirus and Forbearance Info for Students, Borrowers, and Parents.

3. Credit Reporting

“During [this same] period… , for the purpose of reporting information about the loan to a consumer reporting agency, any payment that has been suspended is treated as if it were a regularly scheduled payment made by a borrower.” Section 3513(d), CARES Act. The suspended payments should show as actually made payments on your credit reports.

4. Collection Freeze

“During the [same ]period [the loan servicers] shall suspend all involuntary collection related to the loan.” Section 3513(e), CARES Act. The law lists three specific types of collection that are explicitly included: wage garnishment, tax refund offset, and administrative offset by “a reduction of any other Federal benefit payment.” But it also broadly adds “any other involuntary collection activity.” Section 3513(e)(1-4), CARES Act. So during the March 13 through September 30 period, no collection activity of any kind should happen on the applicable student loans.

5. Non-Payments Count

“[E]ach month for which a loan payment was suspended [counts] as if the borrower of the loan had made a payment for the purpose of any loan forgiveness program or loan rehabilitation program… for which the borrower would have otherwise qualified. Section 3513(c), CARES Act.

This means that if you are now in an Income-Driven Repayment (IDR) plan, these months of non-payment count towards loan forgiveness as if you had made the payments. The same is true for monthly credit towards Public Service Loan Forgiveness (PSLF). Also, if you are working on “rehabilitating” your defaulted student loan, the suspended payments count as payments made for that purpose. Coronavirus and Forbearance Info for Students, Borrowers, and Parents.

 

Note: Please see our last several blog posts for information on other relevant aspects of the CARES Act. Contact your local bankruptcy lawyer to apply these to your own unique circumstances.

 

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