Experienced Massachusetts Bankruptcy Lawyers | Boston Metro | Braintree | Brockton | Randolph | Stoughton | Quincy | Weymouth | Massachusetts
1. How will filing bankruptcy affect my credit and ability to borrow money?
The damage of a bankruptcy filing to your credit is probably much less than you expect. (I’m shocked at how many people actually believe that you can’t get credit cards or loans for 7 or even 10 years after filing). In fact, most people considering bankruptcy have a record of late or missed payments and/or high credit balances reflected in their credit report. Some may also have charged off accounts or even accounts in collection. Their credit score is already low. For these people, the horse is already out of the barn. The task is to improve their credit score as quickly as possible, so they can again borrow at competitive rates.
Filing bankruptcy in such a situation does not have a major negative impact on your credit score and, in some instances, may actually improve your credit score. How is this possible? High debt balances, late payments, and charged off accounts are wiped clean on the credit report when you file bankruptcy. These debts continue to show as “Included in Bankruptcy” for up to ten years. But since they are no longer carried as debt balances or delinquent accounts, they no longer bring down your score based on these categories. As time passes, the “Included in Bankruptcy” items carry less weight in your credit score. Also, as your credit score compares you to other bankruptcy filers, this causes a further positive effect on your score. As a result, someone who has filed bankruptcy can have a very good credit score providing good borrowing habits after your filing. In fact, many bankruptcy filers improve their credit scores back into the 700s within two to three years. It is important after filing to re-establish good credit with your new credit cards by paying balances, preferably down to “0”, on a month to month basis. Even obtaining a home mortgage is possible following only two to three years, of good post-bankruptcy debt management.
2. What can I keep?
Most often, everything. Bankruptcy allows certain amount of different kinds of property to be kept by the Debtor. Under the state exemptions, you can keep up to $500,000.00 of your EQUITY in your home. Under federal exemptions, most automobiles are retained by the Debtor. Most retirement accounts and annuities are fully exempt from bankruptcy, as are cash value of most life insurance policies. A married couple with no real estate equity can keep over $40,000.00 in cash.
3. Loan Modification
If you have only one mortgage, and you can’t refinance for a longer payout or lower rate, Bankruptcy cannot reduce your mortgage payment. You can and should make application to your lender for a LOAN MODIFICATION. If your mortgage qualifies, you can apply to have the payment significantly reduced by extending the loan out to 40 years and significantly reducing the interest rate under the Making Home Affordable Program. Even if your loan is not held by FNMA or FHLMC, there are modification programs that may be available for your loan.
The fact that you have filed or are in bankruptcy does not disqualify you from a loan modification. Some lenders may require that you agree to waive the automatic stay that a bankruptcy provides as a condition of modification, but this is a simple process.
4. Second Mortgage Stripping
If you have a second mortgage, and the payoff of your first mortgage exceeds the sale value of your house, the second mortgage can be “stripped off” in a Chapter 13 filing.
Under these circumstances, the mortgage is determined to be unsecured and is therefore paid based on your ability to pay over the period of the Chapter 13 Plan, either 3 or 5 years. At the end of the Plan, the mortgage is discharged in exchange for whatever was paid on it during the Plan. Assuming you have income sufficient to continue to make your first mortgage payment and pay your other household expenses, any extra money or “Disposable Income” gets paid into the Chapter 13 Plan for the term of the Plan (3 or 5 years). At the end of the Plan, the second mortgage is discharged.
5. Foreclosure Avoidance
If you are behind on your mortgage, but the bank won’t restructure the loan, you can avoid foreclosure using Chapter 13. Under this Chapter the amount you are behind on mortgage payments can be paid over 5 years in sixty equal monthly Plan Payments. At the end of the five years, you are current on your mortgage. Of course, in addition to making the Plan payments, you have to continue making your regularly scheduled monthly mortgage payments after filing your Chapter 13.
6. Can anyone file Chapter 13?
No. If your secured or unsecured debt exceeds limits set by law, you cannot file Chapter 13.
7. How can bankruptcy help if I am behind on my mortgage and facing foreclosure?
Filing bankruptcy will stop a foreclosure in its tracks, at least temporarily. A mortgage default can be cured by filing a Chapter 13. If you successfully complete the plan payments, the default will be cured and you will avoid foreclosure. For example, if you are 6 months behind on your mortgage of $1,000.00 per month (6 x $1000 = $6,000), you must pay a minimum of $110.00 per month on a 5 year plan to “catch up” on the $6,000.00 arrearage (including a 10% Trustee fee). As long as you make your plan payment AND make your regular monthly mortgage payment during the plan period, you will catch up and avoid foreclosure.
8. What if my monthly disposable income is MORE than $110.00 per month?
In our example, if your disposable income is found to be $200.00 per month, the payment would be paid out as follows:
Trustee Fee @10% $ 20.00/mo.
Mortgage Arrearage $ 100.00/mo.
Unsecured Creditors $ 80.00/mo.
The $80.00 payable to your Unsecured Creditors (e.g. credit cards, medical bills, personal loans, etc.) would total $4,800.00 over the 5 year (60 month) plan. At the end of the plan, any remaining balance due on the unsecured debt would be discharged, like in a Chapter 7. For example, if your credit card debt was $48,000.00 at the beginning of the plan, your unsecured creditors would receive 10% of the total due and that would be all they are entitled to receive under the Plan. At plans end, you would owe no more money on the cards.
9. What is the difference between unsecured debt and secured debt?
Unsecured debt is based on a promise to pay with no collateral pledged to insure payments. Examples are credit card debt, medical bills and personal loans. Secured debt is debt for which you have pledged collateral as security. Examples are a home mortgage and an automobile loan for which the lender is named on your title as a lien holder.
10. Is secured debt discharged in Bankruptcy or only unsecured debt.
In a Chapter 7, all debt is discharged. This means you are no longer personally liable on the debt. However, secured debt is still subject to the Creditor’s right to the collateral pledged for the loan. After a Chapter 7, your auto lender can still repossess your car if you stop making payments. However, they cannot chase you for any deficiency after auction. Similarly, your mortgage company can foreclose if you stop making mortgage payments. However you are personally discharged so that, after foreclosure, they cannot seek to collect from you any balance still due on the underlying note.
In a Chapter 13, unsecured debt is discharged after completion of your payments. However, you remain personally liable on secured debt that is not paid off prior to the end of the Plan period.
11. Can I keep certain cards or debts out of bankruptcy and continue to pay them?
In a chapter 7, with certain exceptions, you can continue to pay secured creditors directly and keep the collateral. For example, you can keep your car and continue to make car payments or keep your house and continue to pay the mortgage. You are discharged personally from the underlying debt but the collateral remains as security for the debt. The secured debt has to be listed in any event along with a designation that you intend to retain the collateral. You can also elect to surrender an asset securing a loan, such as an auto with high monthly payments you can no longer afford. The creditor’s only remedy is to repossess the car. After that, you are discharged.
In a chapter 13, generally, unsecured debt must be treated equally. Your Plan cannot provide for different treatment for different unsecured creditors unless they are classified differently in certain situations. All creditors must be listed and get the same dividend under the plan (even if it’s as little as 1%). Your secured debt continues to be paid, either directly to the creditor, or through the Plan. If you fall behind on payments, the Creditor can obtain permission from the bankruptcy court to move against the collateral (your home, auto, etc.).
12. Is all debt discharged in bankruptcy?
No. Certain debt is not discharged. Some examples are divorce/child support obligations, student loans and certain tax debt.
13. If I filed bankruptcy before, can I file again?
There are time limitations as to how soon you can file again.
For Chapter 7, you cannot file again for 8 years from the date of the earlier filing.
For Chapter 13, you cannot obtain a discharge unless you wait at least 2 years from a prior discharge before filing again. If you filed a Chapter 7, you must wait 4 years to file a Chapter 13 in order to obtain a discharge at the end of the Plan.
14. After getting a Bankruptcy Discharge, how soon can I qualify to buy a home?
Like any borrowing situation, a lender will look at many factors. The Bankruptcy itself is disregarded sufficiently after as little as 18-24 months to allow a home purchase, providing your payment history on new debt, income, and other financial factors are sufficient.
15. If I’m trying to get a Loan Modification on my Mortgage, will Bankruptcy make it more difficult?
No. In fact, the lender is more likely to modify your loan if your ability to make the modified loan payment is better. Filing bankruptcy usually eliminates or decreases your monthly debt obligation freeing up income to make your modified mortgage payment. If your debt is so high that modifying your loan is not going to be feasible due to your income limitation, bankruptcy can make the difference between a modification application be approved or denied. Even if you are already in a Chapter 13 bankruptcy, a loan modification is easy to get approved by the Court because it benefits your unsecured creditors by making available more of your monthly income for payments to your plan.
Contact us: Our bankruptcy lawyers will separate the facts from common misconceptions about bankruptcy law. There are many myths surrounding bankruptcy. For example, many people believe filing bankruptcy gives you terrible credit for ten years. That is not true. Many people can establish a positive credit rating within a few years.
Attorney Nashawaty is prepared to answer your debt consolidation questions and help you to sort the fact from the fiction. He will provide personalized attention to detail in your case to achieve the most desirable resolution possible based on your unique financial circumstances.
The Massachusetts bankruptcy attorneys at Nashawaty & Rand serve clients throughout the Greater Boston Massachusetts region including Abington, Avon, Boston, Braintree, Brockton, Bridgewater, Canton, Dedham, Dover, Easton, Hanover, Hingham, Hollbrook, Marshfield, Medfield, Milton, Norwell, Norwood, Quincy, Randolph, Rockland, Sharon, Stoughton, Walpole, Westwood, Weymouth, Whitman, Massachusetts.
NASHAWATY & RAND
Massachusetts Bankruptcy Lawyers
654 Washington Street
Braintree, MA 02184
Phone: 781.848.8545
E-mail Us | Map & Directions
