« February 2007 | Back to Archives by Date | April 2007 »
Subscribers to our e-newsletter, Debt|Dollars|Sense might remember our recent recommendation of Calculated Risk as a blog worth taking a look at. This blog provides unique analysis and insight into what's going on with our economy, the housing market and the sub-prime mortgage crisis (and what we might expect in the days, months and years ahead).
If you have not done so already, please check it out - and check back often.
I spent last night at the Kendall Square Cinema in Cambridge with a number of local bankruptcy attorneys for a special screening of Maxed Out. The movie tackles an important subject for my clients, for me and for just about everyone else I know: debt.
Director James Scurlock take us on a journey from the living rooms of average Americans to the halls and hearing rooms of Capital Hill. From there you will hear the personal stories (some funny, some not) of average people. You'll hear from bankers and credit card companies. You will hear from folks that you can agree and empathize with. You will also hear from folks that will leave your stomach feeling a little…um, let’s just say a little “off.” If you are remotely curious how the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 sailed through the House of Representatives, you need to see this movie.
Also, if you are wondering…
...how and why people are facing foreclosure;
...how and why people find themselves buried in debt they can not (and may not ever) climb out of; and
...what average people do when they are staring the debt-monster in the eye,
see this movie. No one can afford to miss it.
The screening was sponsored by Americans for Fairness in Lending, a non-profit group based in Boston. Please visit their website where you can learn more about what they do.
I heard it again this week: the myth. The misconception, the misunderstanding or whatever you want to call it. I was talking with an acquaintance and was asked “what are all of these folks facing foreclosure going to do if they cannot file bankruptcy anymore?” I am pretty sure my face suddenly, albeit briefly, went pale.
I told her (and am reminding my readers) that bankruptcy is still available, and contrary to whatever Urban Legend prompted her query, it never went away. Certainly, there are people that know this. While writing this, I checked PACER and saw that since January 1, 2007 more than 1,000 people have sought protection under Chapter 13 in the Massachusetts Bankruptcy Court.
Yes, there were changes to the law, and yes it has proven a challenge to even seasoned bankruptcy attorneys. However, there are still those out there who may think that there is no relief. People should not be losing their homes because they think they are under the erroneous belief that they cannot seek bankruptcy protection. I am not apt to hire a biplane pulling a banner that reads “Bankruptcy Is Still Available”, but I'll leave it to readers to chime in and let me know if that tactic is not as crass as I imagine it to be (after all, the Boston Marathon is coming up). For now, I will do my little bit. I informed the acquaintance that bankruptcy is still an available option, and I am reminding my readers of that fact as well.
There’s some good news for homeowners and real estate investors. Currently, people seeking relief under Chapter 13, which allows debtors to reorganize and manage their property, can have no more than $307,675 in unsecured (such as credit card) debt and secured debts (such as mortgages) can be no more than $922,975. People with debt higher than those amounts cannot invoke Chapter 13. If they are trying to keep their home, Chapter 11 was the only other option available.
While Chapter 11 still affords the benefits of the automatic stay under Section 362 as well as other benefits, it also imposes other requirements on debtors. These include monthly operating reports to the US Trustee as well as quarterly payments to the US Trustee. Additionally, legal fees are often substantially higher than Chapter 13 because of the work involved in putting together a workable reorganization plan. These funds could be used to pay creditors and manage property. Unfortunately, real estate investors, even those with only 2 or 3 properties may be forced to consider this more expensive route because of the amount of secured debt they hold.
As of April 1, those debt thresholds are increasing: to be eligible for Chapter 13, unsecured debt can be no higher than $336,900 and secured debt can be no higher than $1,010,650. For those people who have just about $1 million in secured debt, there are more options come April 1. In light of all the bad news about foreclosures, this is good news.
Many distress homeowners tell me that they are hoping to refinance their way out of their adjustable rate mortgages. USA Today reported this weekend that lenders are already raising the bar for prospective borrowers. In other words, it is not nearly as easy to refinance as people may need it to be.
To stem their losses, lenders nationwide are notifying mortgage brokers to cancel loan programs. Many of them are:.
•Reducing loans for 100% of the purchase price.
•Reducing the number of "piggyback" loans, whereby a lender makes one loan for 80% of the purchase price and a second loan for the remaining 20% of the price at a higher interest rate.
•Raising the required credit score.
•Requiring more documentation of a borrower's income and scrutinizing the appraisal and comparable-home sales data.
Subscribe - RSS Feed