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Why Bankruptcy May Be a Better Option to Debt Consolidation

debt relief attorneyAs a consumer bankruptcy attorney I am often faced with the same initial question by many potential clients.  Why should I file bankruptcy instead of doing a debt consolidation program?  Won’t filing bankruptcy ruin my credit?  My answer to many of these people is relatively uniform:  I am not here to try to talk you into bankruptcy, but I do want you to be aware of your options, as well as the risks and guarantees each option provides.

 

The biggest issue I have with many debt consolidation companies, especially companies promoting online communication only as opposed to an in-person meeting, is that most of them are not legitimate.  This is not to say that there aren’t those individuals who legitimately can benefit from a debt relief plan.  However, in many cases the plan that is offered will take as long, if not longer then, a Chapter 13 bankruptcy and will cost you significantly more money due to the interest that continues to accrue.  Of course, this is different than debt settlement, where you are paying less then what you agreed to pay the creditor but there is still the uncertainty of whether the debt consolidation company is paying off your debt directly and then charging you a fee, or if they are trying to negotiate a better rate for you.  If the latter is the case and they are not successful, it is possible that you may find yourself in default due to lack of payment for several months while the debt consolidation company allegedly works on your behalf.

 

One of the key factors that you need to consider is that, if your debt is overwhelming now and you are finding it difficult to stay current on your financial obligations, your credit is already being destroyed.  As a result of this, a bankruptcy is probably the best option.  In a Chapter 13 bankruptcy case, you are allowed to repay your unsecured debt to the extent you are able to do so.  Additionally, if you have fallen behind on a mortgage, auto loan, or any other secured debt where you have used an asset as collateral, you will be given the chance to catch up on those missed payments without accruing interest or penalties in order to save the asset from foreclosure or repossession.  In a Chapter 7 bankruptcy, you will not have to pay back any of your credit cards, medical bills, or other unsecured debts.   Bankruptcy differs also in that, through a debt consolidation plan, a Debtor generally will repay creditors back over five years with interest and even penalties for missed payments.  Meanwhile, when you have a lot of debt and are behind on payments your credit is getting destroyed each and every month you are in default. Your debt to income ratio is another consideration that creditors take into account in giving you credit. Likely bankruptcy is the best option.

 

Regardless of which way you eventually turn, if you are considering either of these options, this is the time to meet with an experienced debt relief attorney who has experience in both debt settlement and bankruptcy filings.  That lawyer can let you know that options are available, what the risks of doing one versus the other are, and what makes the most sense for you.  Once you have all the information, you can then make an informed decision.

Landlord and Tenant Issues in Chapter 7 Bankruptcy

We have talked about one of the best kept secrets in bankruptcy cases when a Debtor is behind on a lease. Now, what happens if a Debtor is not behind? Once a Debtor files a petition in a Chapter 7 case, a Debtor takes on the responsibility, or the Trustee takes on the responsibility, to timely perform all obligations of the lease from the petition date until the lease is assumed or rejected. So, either the Debtor or the Trustee needs to stay current on the lease payments. If neither the Trustee nor the Debtor stays current on this duty, the Landlord may seek relief from the automatic stay.

Keep in mind that this process is different than the 30 day automatic stay termination because the Debtor is current going into the petition. The remedy of a motion to seek relief from the automatic stay must be filed because the 30 day automatic stay termination rule does not apply in this situation. The time line for the motion to seek relief from the automatic stay is generally a 90 day process.

Nevertheless, there are certain duties that a Debtor must ensure are completed in a Chapter 7 case even if the Debtor is current on the lease payment. The Code provides that a lease agreement is automatically rejected if the trustee does not assume or reject the lease within 60 days after the bankruptcy case is filed with the court. Therefore, the Debtor can be current and, 60 days after the bankruptcy was filed, the landlord can consider the lease rejected.

If the lease is rejected, the lease is considered to be breached as of the day before the bankruptcy filing and the landlord is entitled to repossess the premises pursuant to the remedies provided by State Law. The landlord is also then entitled to pre-petition damages as well as “rejection damages.” Rejection damages are determined as either 15 percent of the balance of the rent reserved in the lease or the rent reserved for one year from the filing date or surrender date.

So what can a landlord do if a Debtor is current and wants to keep the lease agreement in tact but the Debtor, due to failure of his counsel to indicate a rejected lease or assumed lease, has caused the landlord to be in limbo as to his intent. The landlord, through counsel, can file a motion requesting that the Debtor reject or assume the lease agreement.

As you can see, there are duties on behalf of both the Debtor and the landlord with respect to Title 11 that allow the parties to take appropriate actions in the court system with respect to lease agreements. The attitude often is that nothing must be stated if the Debtor is current, but that attitude is completely wrong pursuant to Title 11. Both the Debtor and the landlord should and must take steps to protect their interest in the lease agreement.

The effect of the Debtor not taking the right steps to complete his duties can result in the Debtor losing out on a property that he likes to live in, wants to live in, and can afford to live in. On the other hand, the landlord not taking the right steps in a Chapter 7 case could result in the harm of not being provided the remedies that are available to the landlord for protection.
The real issue is having an attorney understanding the duties when representing both the Debtor as well as the landlord.

MA foreclosures Just Became More Complicated for Banks

The Massachusetts Supreme Judicial Court has made the process of foreclosure in the state considerably more intricate and complicated for banks and loan servicers. As a matter of fact just a few weeks ago the highest court in Massachusetts heard the case of Eaton v. Federal National Mortgage Association, and issued a ruling that a lender who seeks to take possession of the property through the use of a forecloser versus the actaul owner of the house in MA must have in its possession not only the original notarized mortgage, but now must also have the original notarized promissory note. These are two separate documents, and the paper trail required is now doubled, which clearly provides additional protection for consumers and burdens of standing for lenders seeking to effectuate its alleged rights to foreclose on a property. This additional requirement will now likely delay many foreclosures due to the fact that when loans are sold from one lender to another, many papers seem to get lost and even if the mortgage is proper, the second document, the note, must also be present.

If a homeowner is going to defend against a foreclosure in Massachusetts, a good first step is to send a certified letter to the loan servicer demanding a certified copy of the original mortgage, and note pursuant to the General Laws of Massachusetts, Chapter 244. While foreclosure law varies from state to state, the Massachusetts decision highlights an important universal rule; you can not take a home if you do not own the right to do so. In simple terms, in order for a bank to foreclosure they must prove that the bank is entitled to received the monthly mortgage payments, and simply the fact that a consumer was paying them is not enough, the Court will not require the proper paperwork to show ownership, or more succinctly, as it was recently put by Henry J. Sommer, supervising attorney at the Consumer Bankruptcy Assistance Project, “The basic fact, which I think is true anywhere, is that if you don’t own a mortgage and note, you don’t have a right to foreclose on somebody’s house,” he said. “That is really what this decision boils down to”.

One significant comment of caution when asserting the note defense is that this holding does not seem to be retroactive. By that, I mean to say that this will not help homeowners who have already been foreclosed upon or those in the process prior the June 22, 2012. If however, a notice to foreclose has been received subsequent to June 22, the defense is not only valid but a must first line of defense against banks seeking to take a homeowner’s or investor’s real estate for lack of payment.

If you find yourself in the position of owing money to a bank who claims that they have a right to take your home away from you due to a lack of payment, you now have additional options and defenses. It would behoove you to seek the advice of a competent foreclosure defense or bankruptcy attorney in MA as soon as possible.