Habib& Zalewski p.c. from there queens offices bring you a recent analysis of a bankruptcy ruling involving automobile deductions and the affect it could have on Queens county New York residents.

Feb 10, 2011 – Yesterday, the U.S. Supreme Court issued a creditor friendly decision in the case of Ransom v. Fia Card Services.  At issue was the “ownership expense” deduction in the means test, announces Jacksonville bankruptcy lawyer Robert Peters. 

The means test is a calculation used to determine whether a debtor has enough “disposable income” to afford a Chapter 13 repayment plan. 

In the Ransom case, the debtor (Jason Ransom) claimed a means test deduction for both operation of a vehicle ($338 per month) and for ownership ($471 per month).  The problem – Mr. Ransom owned his vehicle free and clear. 

In an 8-1 decision written by Obama appointee Elena Kagan (the lone dissent issued by conservative Justice Scalia), the Supreme Court held that a debtor who owns his vehicle free and clear can only claim a deduction for vehicle operation but not a deduction for ownership. 

In Mr. Ransom’s case, this means that for bankruptcy calculation purposes, he has an extra $471 sitting around that he can use to pay credit card companies in a Chapter 13. 

At first blush, the Supreme Court’s decision would seem to make sense – why should a debtor get to claim an ownership deduction if he does not have a car payment? 

Here is the issue:  Chapter 13 cases last 5 years.  Assuming that Mr. Ransom has a paid off car, it is likely that his car is not new.  What happens when Mr. Ransom needs to replace his car?  He will have no funds to do so because any funds that he might have left over are being used to fund his Chapter 13. 

Further, the means test budget is derived from IRS numbers that are used in tax settlement cases.  These means test budgets are a little better than a “rice and beans” budget but there is very little else.  Is it reasonable to expect that a debtor will have no emergencies during the next five years – a funeral to attend?  a roof to fix?  a major car repair? 

Queens County New York Bankruptcy lawyer. 

The Supreme Court’s decision ignores the realities of life.  In the immediate near term the debtor may have $471 to pay towards his Chapter 13, but is it reasonable to expect that this “disposable” money will be there month after month?  The Chapter 13 trustee will expect it, and these funds will come out in a payroll deduction.  But I fear that even more Chapter 13 cases will fail when debtors lose their jobs because they do not have transportation or checks for mortgages will bounce because the funds were used for plumbing repairs or other emergencies. 

The Ransom decision also sends a very strange message to debtors entering the bankruptcy process.  Instead of encouraging people to avoid debt, the Ransom decision encourages filers to incur more debt prior to filing.   In this upside down logic, a debtor would benefit from taking out a car title loan prior to bankruptcy since having debt owned on a car will allow that debtor to claim an ownership expense.

According to the Federal Reserve, the average credit card debt per American household is almost $16,000, with almost 610 million credit cards held by U.S. consumers in 2009. With each cardholder having an average of 3.5 credit cards, it is no surprise that chapters of Debtors Anonymous are popping up all over the country. Their 12-step program is patterned after Alcoholics Anonymous, and helps members recover from “compulsive debting” and lead happier, healthier lives.
According to Debtors Anonymous, the 12 signs of a compulsive debtor are:
• Being unclear about your financial situation: Not knowing account balances, monthly expenses, loan interest rates, fees, fines, or contractual obligations.
• Frequently “borrowing” items such as books, pens, or small amounts of money from friends or others, and failing to return them.
• Poor saving habits: Not planning for taxes, retirement or other non-recurring but predictable items, and then feeling surprised when they come due; a “live for today, don’t worry about tomorrow” attitude.
• Compulsive shopping: Being unable to pass up a “good deal;” making impulsive purchases; leaving price tags on clothes so they can be returned; not using items you’ve purchased.
• Difficulty in meeting basic personal or financial obligations, and/or an inordinate sense of accomplishment when such obligations are met.
• A different feeling when buying things on credit than when paying cash, a feeling of being in the club, of being accepted, of being grown up.
• Living in chaos and drama around money: Using one credit card to pay another; bouncing checks; always having a financial crisis to deal with.
• A tendency to live on the edge: Living paycheck to paycheck; taking risks with health and car insurance coverage; writing checks hoping money will appear to cover them.
• Unwarranted inhibition and embarrassment in what should be a normal discussion of money.
• Overworking or under-earning: Working extra hours to earn money to pay creditors; using time inefficiently; taking jobs below your skill and education level.
• An unwillingness to care for and value yourself: Living in self-imposed deprivation; denying your basic needs in order to pay your creditors.
• A feeling or hope that someone will take care of you if necessary, so that you won’t really get into serious financial trouble, that there will always be someone you can turn to.
If one or more of the above statements sounds familiar to you, Debtors Anonymous may be the answer. During their treatment, members trace their problems to a compulsion they were unable to control. Members begin their “recovery from compulsive debting” by keeping detailed records of their expenses and income – a process most find illuminating. Along with attending the meetings, members are encouraged to read the Debtors Anonymous literature and start implementing the 12 steps that lead to recovery. After 30 to 45 days in the program, a new member is teamed with two long-term members for a pressure relief meeting, where they review the new member’s situation and develop a spending plan and an action plan.

After climbing for three consecutive years, bankruptcy filings out of Albany didn’t change much in 2010, and there is little indication the numbers will drop in 2011, experts say.

There were 4,934 cases last year in the Albany office of the U.S. Bankruptcy Court, down 2.6 percent from 2009, but still higher than the previous three years.

“I don’t see it getting any better,” said Glens Falls bankruptcy attorney Edwin Adeson.

“The job market just still is not good, and the house values still aren’t going up and nobody can refinance.”

Adeson ended 2010 with 288 bankruptcy cases, the exact number as the year before. Credit card and medical bills continue to be the top problems for his clients, he said.

One change for 2010, though, was a shift to more Chapter 13 petitions, which he attributed to housing troubles.

Chapter 13 is an option for people who want to keep their homes because it gives them time to catch up on arrears. The success rate is about 50/50, he said, because the homeowner must make a new monthly payment that includes the back debt.

Saratoga Springs-based attorney Ronald Kim said bankruptcy doesn’t work for clients when they are too far behind on their mortgage and other bills, or haven’t fixed the problem that got them into trouble in the first place.

Cases that would have been Chapter 13 filings a few years ago now wind up in state court as foreclosure lawsuits, he said. His office has seen bankruptcies plateau and foreclosures spike from about two to 30 cases.

“If its huge amounts that have to catch up to, and you don’t have it, it’s not feasible,” he said of Chapter 13 restructuring.

Looking forward, Kim doesn’t expect bankruptcy and foreclosure to improve until unemployment does.

Christopher Nenninger, a Glens Falls-based bankruptcy attorney, agreed. He said his caseload has been steady, and that’s not likely to change right away.

“It’s the same stories and the same problems,” Nenninger said, noting he had more upper-middle class clients in the last year.

Nationally, consumer bankruptcies rose 9 percent in 2010 to the highest level since Congress overhauled the Bankruptcy Code in 2005, according to the American Bankruptcy Institute.

Samuel Gerdano, executive director of the institute, said he expects consumer filings will continue to rise in 2011.

“The steady climb of consumer filings, notwithstanding the 2005 bankruptcy law restrictions, demonstrate that families continue to turn to bankruptcy as a result of high debt burdens and stagnant income growth,” Gerdano said.

For December, U.S. consumer bankruptcies increased about 4 percent from the prior year, with a growing number of Chapter 13 filings.

The Bankruptcy Code contains a number of provisions specific to nonresidential leases. When the prospect of a tenant’s bankruptcy arises, a landlord should have a basic understanding of these provisions and prepare to move diligently to protect its rights and minimize harm. In bankruptcy, a creditor who sleeps on its rights often loses them.

As a starting point, the landlord should understand that a tenant’s bankruptcy does not prevent the landlord from evicting the tenant when the lease terminates “by expiration of its stated term” either before or during the bankruptcy. In all other situations, the landlord will likely need the assistance of the court to protect its rights early in the case.

In today’s environment, even a tenant in bankruptcy may be more desirable than no tenant at all, but if a landlord does not want the tenant, the landlord may want to terminate the lease before the tenant files bankruptcy, if possible. This is because the tenant loses all of its rights in the premises once the lease has been terminated. If the lease is terminated before the bankruptcy filing for any reason other than the “expiration of its stated term,” courts disagree as to whether the landlord can evict the tenant without bankruptcy court approval; so the safest course of action is to file a motion for relief from the automatic stay and ask the court for permission to evict. The motion should be granted because the tenant has no legal right to retain possession.

If the landlord does not terminate the lease before the bankruptcy filing, the landlord can not terminate the lease after the filing based upon a default by the tenant, even if the lease provides that the bankruptcy filing is a default.

At the outset of the bankruptcy case, the landlord must generally honor the lease. However, if there has been a default under the lease prior to the filing, the tenant cannot require the landlord to “provide services or supplies incidental to such lease” unless the landlord is compensated under the terms of the lease for the services or supplies.

The tenant is required to timely pay its post-petition rent when due until the lease is either “assumed” or “rejected” as discussed below; however the tenant can seek an extension to pay its rent in the first 60 days up to the 60th day. Unfortunately, the Bankruptcy Code does not contain a clear remedy if a tenant fails to do so. A landlord who is concerned about the tenant’s timely paying its post-petition rent should consider filing a motion early in the case requesting an order requiring timely rent payments or, in the alternative, termination of the lease. This often puts the tenant under pressure to either pay the rent or vacate the premises. Unfortunately the landlord may still not get paid because the tenant may not have the available cash to pay its administrative claims. Courts are divided on whether to order immediate payment where there is a question whether the debtor will have sufficient funds to pay all of its administrative claims. Also, if the case is converted from Chapter 11 to Chapter 7, the portion of the rent accrued before the conversion may be subordinated to the costs of the Chapter 7 case and paid at the end of the case, if at all. Nonetheless, even if the remedies available to the landlord may be inadequate, the landlord should take advantage of the remedies available to it without delay to avoid further harm.

The debtor-in-possession or the trustee has 120 days to file a motion to “assume,” or adopt and go forward with, the lease; otherwise, the lease is deemed to be “rejected” which is deemed to be a breach of the lease as of immediately before the filing, and the tenant is required to immediately turn over possession to the landlord.

To “assume” a lease, the trustee or debtor must show the court that it will (1) “cure” all monetary defaults (and certain types of non-monetary defaults), (2) compensate the landlord for any damages caused by the defaults, and (3) provide “adequate assurance of future performance.” In a shopping center, “adequate assurance” includes a showing that the percentage rent due under the lease will not decline substantially.

The court can extend this 120 day period an additional 90 days “for cause” but no longer without the landlord’s consent. Also the landlord can seek a reduction of this period and may want to consider doing so where, for example, the tenant is no longer using the premises and either the landlord cannot count on the tenant paying the post-petition rent or would rather have the tenant vacate the space.

Note that the tenant has no right to modify the terms of the lease without the landlord’s consent; however, this process does provide the landlord an opportunity to negotiate a modified lease should it choose to do so.

With court approval, the debtor or trustee may also assume and assign the lease to another party, notwithstanding an anti-assignment clause, by essentially satisfying the same standard the debtor must meet to assume the lease. There are special provisions for shopping center leases which require the assignee to satisfy the shopping center’s restrictions relating to tenant mix, balance, use, exclusivity and the like.

Where the trustee or debtor rejects a lease and the landlord terminates the lease, the landlord has a right to file a proof of claim for damages for the breach of the lease but the claim is capped by statute to the greater of one year’s rent or 15% of the remaining rent under the lease, not to exceed three years. There is some controversy as to how to calculate the cap but because the cap is a limitation on, not a measure of, the damages, we think the better view is that the damages are first calculated under applicable law and then are reduced to the extent they exceed the cap.

While this discussion generally describes a landlord’s rights and obligations, there are numerous exceptions and special circumstances which may come into play in any particular case. A misstep by the landlord which harms the debtor or its business may expose the landlord to damages. So we strongly urge landlords to consult with capable bankruptcy counsel to assist in the process.

Are you living with the worries that come with seemingly insurmountable debt? My Brooklyn law firm can help you find a way out of debt through Chapter 7 bankruptcy. With Chapter 7 bankruptcy, you can eliminate your debt and start anew on your finances.

I understand that if you are contemplating bankruptcy, you might think you cannot afford a lawyer. I offer payment plans to all Chapter 7 bankruptcy clients. Call a Brooklyn Chapter 7 bankruptcy lawyer today at (718)263-6800 for a free initial consultation.

Bankruptcy Means Test

Bankruptcy laws have changed in the past five years. It is more difficult to qualify for Chapter 7 bankruptcy under the current laws. However, with help from a skilled and dedicated attorney, it is still entirely possible.

Under current bankruptcy laws, you will be required to undergo a bankruptcy means test. The test considers your income relative to the median income of New York State residents. If you make “too much” money, you will not qualify.

My law firm can answer your questions about the Chapter 7 bankruptcy means test. I have been successful in helping many people qualify for Chapter 7 bankruptcy, despite the strict changes to the law.

How Does It Work?

Chapter 7 bankruptcy is debt liquidation bankruptcy. Your assets are sold, with the proceeds going to pay off your creditors. This can sound very frightening to most people. It is important to note that you will not lose all your property and assets. You may be able to save your home, your vehicle, your retirement funds and other valuable assets. I can help you understand your exemptions and eliminate your fears about losing everything.

There are several steps involved in bankruptcy filing ― the means test and debt liquidation are two of the most important steps. My law firm can walk you through all the processes, handle all meetings of the creditors and perform all document work. At the end of the bankruptcy process, you can start over fresh on your finances.

For experienced and affordable representation in a Chapter 7 bankruptcy, contact me to schedule a free initial consultation. My offices are open from 10 a.m. until 5 p.m., Monday through Friday, and evening and weekend appointments are available upon request. I offer payment plans for bankruptcy clients.

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Bankruptcy filings are a matter of public record. When you file for bankruptcy protection, your creditors are notified and it will appear on your credit report. However, there will not be a front page ad taken out announcing the fact that you have filed in your local newspaper. Unless your friends and family decide to do a search of public records, more likely than not, they will only know you have filed if you decide to tell them. Often, people have borrowed money from friends or family trying to stay afloat and these people must be listed as creditors on your bankruptcy petition and as a result, they will be notified that you have filed. This is to give them a chance to object.

However, in today’s economy especially, bankruptcy is not a way out reserved for deadbeats. The vast majority of clients we help in our office are honest and hard-working people who have lost jobs in the last year or two, whose home values have declined sharply, whose stock portfolios have become worthless, or who have medical expenses they cannot afford to pay after losing employer provided health insurance. Bankruptcy has always been intended for people who find themselves in over their heads with no other way out. While there has been a negative stigma attached to filing for bankruptcy in the past, there is less and less of that these days. Further, because bankruptcy goes a long way in providing people with the fresh start they deserve, it is not an option that should be dismissed because of any potential embarrassment you feel it might cause were people to find out.

“What was that?” you ask. “Bankruptcy provides a fresh start?” Yes. Bankruptcy isn’t the end of the line the way some people think it is. The purpose of bankruptcy is to give you some breathing room from your creditors, wipe your slate clean and give you a chance to start over financially. How this works exactly depends on what kind of bankruptcy you file. A good bankruptcy lawyer can explain your options to you and can tell you whether or not bankruptcy is even a good idea in your case. Most bankruptcy lawyers will offer a free consultation intended to answer your questions about the process and how a bankruptcy would help you. When you take advantage of a free consultation, take a look around the reception area. Other clients you may see will probably look just like you and me. Not deadbeats by any stretch – just people who have been stretched to the breaking point who need the protection bankruptcy offers to get back on their feet again.

If you are attempting a loan modification or making “trial mod” mortgage payments you need to know what’s going on behind the scenes. YOU ARE GOING DOWN THE ROAD TO FORECLOSURE!

It’s important to consult a bankruptcy attorney even if you are not considering filing bankruptcy as an option. When you are in the loan modification process and not making your mortgage payments you could be headed for disaster. If you fall too far behind in your mortgage payments and get declined it may be too late for a bankruptcy attorney to file a Chapter 13 to save your home from being foreclosed on.

Even if you are in an active trial mod and making reduced payments the foreclosure time clock is ticking. Know this, your delinquent mortgage payments, penalties and interest are piling up, and if you get denied your options are limited. Bankruptcy attorneys focus on foreclosure defense and debt relief and can help you avoid foreclosure. It’s important to understand the foreclosure process and know your options.

Foreclosure Timeline and Eviction Process

Notice of Default (NOD)

A NOD is typically filed 90 days after non-payment of your mortgage loan, New York State law allows lenders to record a Notice of Default on your property and starts the foreclosure process if you are over 90 day delinquent.

Notice of Trustee’s Sale

Ninety days (3 months) after NOD is filed New York State law allows the bank to record a Notice of Trustee’s Sale and escalate foreclosure proceedings.

Trustee’s Sale

21 days after the Notice of Trustee Sale is filed the bank can sell your home at a foreclosure auction. If your property is not sold on the court house steps, the bank takes title back as an “REO” (real estate-owned) property. If an investor buys it, it will be almost impossible to resend the sale

“Cash for Keys”

If the investor who holds the note takes the home back as an REO, the bank’s asset manager will hire a real estate agent to offer you “Cash for Keys”, to move out in 2-4 weeks. Cash for Key offers are typically $3,000 to $5,000 and you must sign an agreement. Once you vacate the property, the realtor will list the property for sale in the MLS to the public. If the property was sold to an outside buyer then you will most likely receive a 3 day notice to quit along with “Cash for Keys” offer. If you have renters in the property then they have renter’s rights which differ from owner’s rights. Renters with a valid lease may have up to 90 days. However, consulting an attorney to clarify this timeline is important at this time.

Unlawful Detainer Action

The banks would rather you surrender the property on good terms but if you don’t accept the Cash for Keys offer, the realtor will put a Three-Day Notice to Quit on your door. If you don’t move out after three days, the bank will hire an outside law firm to serve you with an Unlawful Detainer Complaint, which starts the eviction process. You have generally have five days to respond; if you don’t, the bank’s lawyer will get a default judgment against you. Additionally, this is the time when you may be able to negotiate a longer time frame to vacate. Try consulting an attorney to better understand your exact timeline if the investor does not want to work with you.

If you answer the Unlawful Detainer Complaint, you can expect to go to a brief trial in about three to five weeks, depending on the county you reside in. You will almost certainly lose at trial so the judge will issue a Writ of Possession order. In a week or so, a Notice to Vacate will be sent to your home and you will have approximately two weeks to vacate before the Sheriff’s Department shows up to lock you out. In most cases the Sheriff’s will give you 1 hour to get your belongings out of the home. The new investor may or may not allow you to come back at a scheduled time to retrieve the remainder of your possessions.

Options for Delinquent Homeowners

1. Loan Modification

Probably the number one choice for homeowners who have fallen behind on their mortgage payments is to get mortgage payment relief under the HAMP program. If you do not qualify under HAMP you may qualify for a lenders “in house” loan modification. Even though your lender will encourage you to work directly with them and not hire an attorney, you might consider otherwise. You must show a financial hardship and your mortgage payment, property taxes and insurance must be above 31% of your gross monthly income. Additionally, your lender will run a “Net Present Value Test” to determine if it’s more profitable to modify short sale or foreclose. If you are offered Trial Mod Payments you must be careful and consult an attorney, simply because you will fall further behind on your mortgage by making these reduced payments and head straight for foreclosure. Many people we speak with have no idea this is happening and think the coast is clear. If you are working directly with your lender be careful.

2. Short Sale

While most homeowners want to keep their home, some do not. You may need to relocate for employment and can’t sell your home for what you owe or simply can’t see paying for a home that has negative equity. Your mortgage lender must approve the sale of your home for less than what you owe. You must also consider your lender’s ability to issue you a 1099 for the forgiven debt. An attorney or real estate broker can attempt to negotiate a short sale with your lender.

3. Deed in Lieu

If you can no longer afford your mortgage and can’t qualify for a loan modification or short sale you can negotiate a deed in lieu of foreclosure. This is a process allowing you to surrender your property without going through the entire foreclosure process. With a deed in lieu you can typically negotiate”cash for keys”. If you leave the home in good (broom clean) condition your lender may offer you money to help you relocate. You can attempt this on your own or you might get a better result by hiring an attorney that handles these types of negotiations. A bankruptcy attorney can always file bankruptcy and frustrate the foreclosure process for months. Your lender knows this and will be encouraged to work with you.

4. File Bankruptcy

Let’s face it, no one wants to file bankruptcy but there are several good reasons for filing bankruptcy if you are behind on your mortgage payments. That’s why it makes good sense to talk to a bankruptcy attorney or a few bankruptcy attorneys and get their advice. If you are overwhelmed with bills and need debt relief to afford your mortgage, filing Chapter 7 or Chapter 13 might not be a bad decision. If you can eliminate unsecured debt and/or strip a 2nd lien you will be better able to afford your mortgage payments.

As bankruptcy attorneys we feel it’s absolutely critical to consult a bankruptcy attorney as soon as possible to discuss your bankruptcy options. Many of our clients need to do some pre planning before filing bankruptcy, or should have come to us earlier to achieve a better outcome. If you file a Chapter 13 you need to be able to afford the Chapter 13 plans payments. Some come to us to delinquent and do not qualify for a Chapter 13. In these cases you might qualify for a Chapter 7 and try to retain possession of the property. Once you file bankruptcy Chapter 7 your lender may chose to work with you on a loan modification if your bankruptcy attorney allows them to contact you.

If the bank does not voluntarily agree to stop the foreclosure process and issues a trustee sale date you have only two options to stop it stop the sale of your property:

1)     File Bankruptcy Chapter 7 or Chapter 13

A Chapter 7 or Chapter 13 bankruptcy filing creates an “automatic stay” on the foreclosure proceedings. If you file Chapter 13 you must be able to afford the Chapter 13 plan’s payments. If you file Chapter 7 you must either bring your loan current to retain your home or surrender it. The problem is that most borrowers can’t afford the Chapter 13 bankruptcy payments when they go several months delinquent and will have their bankruptcy case dismissed in about two months. If you are only a few months behind you need to consult a bankruptcy attorney early in your struggle to see if a Chapter 13 is right for you. When you file a Chapter 13 bankruptcy to allow you to keep your home, you will have to pay your bank the same monthly mortgage payment you were making plus all the back payments and fees you are delinquent on spread out over 3 to 5 years. If you can’t, your case will be dismissed and the bank can sell your home at a trustee’s sale without any further notice to you!

2)     Litigation

Over the past several years the mortgage industry was like the Wild Wild West. Mortgage brokers and financial institutions were “doing what it takes” to get “deals” through. If your loan terms were not clear, or your HUD1 did not match your “Good Faith Estimate” you might have a good case. If your loan documents were NOT in your first language or you were sold a high interest rate “sub prime” or teaser rate “option ARM” loan you might be able to rescind your loan.  Finding good causes of action and suing your bank might be the only other way to force them to stop the foreclosure and reach a settlement. You may need to get a TRO (Temporary Restraining Order) and judges are reluctant to issue them without very good reason. There has also been success with some cases in reversing wrongful foreclosures as well. If your home was foreclose on while attempting a loan modification you might have a good case.

About Us

The Law Offices of Steve Zalewski & Associates works with people every day trying to save their homes from foreclosure. Many are victims of toxic loans and failed loan modification attempts. We understand the importance of providing quality legal services at affordable rates. We are civil litigation and bankruptcy attorney and can stop foreclosure and creditor harassment immediately. If you are facing foreclosure and need to hire a bankruptcy attorney in New York we are here to help every step of the way. Please contact us for a FREE consultation. We will be happy to review your situation and discuss your options. We have over 5 New York locations; call us at 718-263-6800.

Homeowners who pay their monthly mortgage payments late risk losing their homes. If a homeowner can help it, staying current with mortgage payments prevents future financial problems. Situations occur at times, however, that make paying the mortgage more challenging, such as an unexpected illness or job loss. In these circumstances, some homeowners must accept lower-paying jobs. Depending on their income, borrowers may be unable to pay their mortgage payments on time, or they may be unable to pay them at all.

Foreclosure

Late or no mortgage payments can result in foreclosure. Depending on the state, lenders only have so many steps they must complete, and so much time they have to wait, before they can foreclose on a home. Once the lender completes all required steps, foreclosure is imminent. The lender schedules a sale date with the sheriff’s office, and the home is auctioned off.

Bankruptcy

For homeowners who are behind on payments, wish to keep their homes and can make mortgage payments going forward, bankruptcy may be the only way their homes may be saved. Filing Chapter 13 bankruptcy keeps a lender at bay until the federal court makes a determination regarding the case. The bankruptcy filing activates an initial stay period whereby all foreclosure activity stops. Once the court trustee approves the bankruptcy schedule and payments, the homeowner must continue to pay monthly bankruptcy payments throughout the lifetime of the bankruptcy, which typically runs three to five years.

Credit Reporting

A mortgage in arrears results in negative information being reported to the three major credit reporting agencies–Trans Union, Equifax and Experian. Negative marks on a credit report, such as late payments on a mortgage or bankruptcy, significantly reduce a homeowner’s credit score. Borrowers with low credit scores typically pay higher interest rates for future loans or credit cards, because creditors and lenders view them as higher risks.

Staying Behind

Being behind on a mortgage makes it difficult to catch up. A lender sometimes allows a homeowner to catch up on arrears over time if a homeowner can prove he has the financial capacity to do so. The homeowner already had a difficult time keeping up on the mortgage payments. Catching up on arrears presents an even greater challenge to maintain monthly mortgage payments.

Future Home Purchase In Doubt

Any future home purchase may be jeopardized by late mortgage payments. Lenders often will not consider a borrower for a new or refinanced mortgage for a minimum of two years after the date of a bankruptcy or the remedy of late mortgage payments. One late mortgage payment may not affect a lender’s decision, but a number of late payments will.

Andrew Keshner
New York Law Journal

In a case highlighting problems created by the widespread inability of debtors to hire attorneys, a Nassau County judge has rejected an out-of-court settlement between a debt buyer and a pro se litigant who said she had been “intimidated” into taking the deal.

“It was painfully obvious to the Court that plaintiff obtained the settlement outside of court by taking undue advantage of defendant,” District Court Judge Michael A. Ciaffa wrote in LR Credit 21 LLC v. Paryshkura, 30821-2010. “Judges have the power and duty to make appropriate inquiries, and in appropriate cases, allow the defendant to withdraw from a proposed settlement.”

Judge Ciaffa commented that the “adversary system works fairly well in civil cases where the parties are each represented by counsel. It works less well when one side has an attorney and the other appears pro se.” But debt collection defendants like Tatyana Paryshkura, who was a student and part-time waitress when the action was filed, “rarely [have] the benefit of a lawyer’s help,” he added.

The decision clears the way for a trial later this month on the merits of the claim of debt buyer LR Credit 21 LLC against Ms. Paryshkura for $7,564 in unpaid credit card bills.

Judge Ciaffa made his ruling after a Dec. 3 conference he called to consider the settlement. His opinion does not disclose the terms of the aborted agreement, but a lawyer for LR Credit 21 said that Ms. Paryshkura had agreed to pay $5,000 in increments of $100 a month for 50 months. The judge found that would be money “otherwise needed for food and rent.”

At the conference, Ms. Paryshkura told the judge that she had signed a “stipulation of payment” only after an attorney from Mel S. Harris & Associates, which represented the debt buyer, “convinced her that she had no choice but capitulate to plaintiff’s demands.”

Judge Ciaffa complained that the attorney who appeared for the firm at the conference was unable to offer proof of Ms. Paryshkura’s alleged debt even though the firm had been told that it should send someone with “complete knowledge of the file.”

“The absence of such proof weighs heavily in favor of allowing defendant to withdraw her consent to the settlement,” the judge said.

This was not the first time Judge Ciaffa had sided with a pro se collection defendant. Last year, he sanctioned a different law firm for what he called a “veritable ‘perfect storm’ of mistakes, errors, misdeeds and improper litigation practices” (NYLJ, March 8, 2010).

Arthur Sanders, managing attorney for Mel Harris, contended in an interview that Ms. Paryshkura had willingly signed the stipulation. He said that she had wanted to avoid going into court and traveled from Long Island to the firm’s Manhattan offices to sign an advantageous agreement that would have allowed her to save more than $2,500 on her debt.

The attorney said LR Credit 21 will not appeal; given the small amount involved, it would not be worth the cost. Mr. Sanders said he has not decided whether to pursue another settlement or to proceed in court.

Mr. Sanders said that the per diem attorney who appeared at the Dec. 3 conference had expected the court to approve the settlement and was not “there for a trial or to put witnesses on the stand.”

He added that “quite a few” debt collection cases are settled in out-of-court negotiations, and that the judge’s decision to call a conference and question the arrangement was not the norm in local courts.

“There was nothing unusual about this case until the very end,” he said. “I know collection lawyers are not the most popular people on the face of the earth but judges really can’t be advocates.”

‘Peculiar Responsibilities’

Judge Ciaffa said a defendant’s pro se status often makes the court’s role more difficult. Quoting U.S. Supreme Court Justice John Roberts Jr., he said that on the one hand, judges “act as umpires; their job is ‘to call balls and strikes and not to pitch or bat.’ On the other hand, Judges have peculiar responsibilities in cases involving pro se litigants,” including “in many cases the supervision of the settlement process, both in and out of court.”

Judge Ciaffa explained that his determination was founded in common law principles, citing a 1855 Manhattan Supreme Court case, Becker v. Lamont, 13 How. Pr. 23, that rejected a settlement, saying judges have the power to “protect those who are unable to protect themselves.”

“The circumstances at hand presented a classic case for granting such judicial relief,” Judge Ciaffa concluded. “The defendant, in this case, ignorant of her rights, signed an imprudent settlement, agreeing to pay plaintiff, a debt buyer, monthly sums otherwise needed for food and rent.”

State judges often face the dilemma like the one outlined by Judge Ciaffa. According to a New York Unified Court System report, more than 2.3 million New Yorkers “try to navigate the State’s complex civil justice system without a lawyer.”

The report of the Task Force to Expand Access to Civil Legal Services in New York noted that in 2009, only 1 percent of defendants were represented by counsel in 241,594 consumer credit cases filed in New York City Civil Court. But all of the entities bringing the actions had attorneys (See Report and Appendices).

“Persons who are being sued for an alleged indebtedness typically are individuals with multiple financial problems,” Judge Ciaffa said in his decision. “Regardless of whether they legitimately owe the alleged debt, or not, most cannot afford to hire a lawyer. As a consequence, those who appear must typically do so, pro se.”

Uncommon Defense

Jonathan Schwartz, staff attorney with Nassau/Suffolk Law Services, said pro se representation was especially problematic in cases brought by debt buyers because most debtors were not aware of a potentially effective defense: the argument that their adversaries lack standing because they could not prove that they actually owned the debt for which they were seeking payment.

Mr. Schwartz worked exclusively for a special consumer debt assistance project from November 2007 to April 2010, before budget problems forced its discontinuance. Out of the few hundred cases handled, he said that debt buyer plaintiffs were unable to prove standing in nine out of 10.

But he said that the argument is not raised by most pro se defendants.

“I would venture the majority have no idea what to do and kind of just go along,” Mr. Schwartz said. However, he said that Judge Ciaffa’s decision may contain enough detail to “tip off” Ms. Paryshkura to the argument.

“Most defendants aren’t fortunate enough to get a decision like this,” he said.

Judge Ciaffa wrote, “The judges of this Court, and the lawyers practicing before them, know all too well that debt buyers rarely have readily available proof to establish an assigned debt claim. The pennies paid by debt buyers for the right to pursue stale and questionable claims certainly do not justify misleading and heavy-handed collection tactics outside of Court. When such matters actually come on for trial, they are typically abandoned, dismissed or compromised for a small fraction of their hypothetical value.”

Mr. Sanders, the debt collector’s attorney, questioned that assertion as far as his own firm is concerned.

“I think it’s not true,” he said. “I’m certainly not aware of that. We do have standing. We do have documentation.”

Ms. Paryshkura could not be reached for comment. If her case goes to trial, it is unclear that she will have the assistance of an attorney. No attorney has filed an appearance in the case to represent her, according to the court.

For anyone who is going through financial crisis and fear the loss of your own home, know you aren’t alone. Just like countless other people, you could have lost a job or suffered a pay cut, your adjustable rate mortgage could quite possibly have reset and you also can’t afford the payment, or falling property values mean you can’t refinance. You could think that bankruptcy, foreclosure and loss of your dwelling is inevitable. A single answer doesn’t cover every scenario, and you will have possibilities that include keeping your property while you work through financial challenges. Explore all options before concluding that all will be lost in foreclosure or bankruptcy.

Your mortgage payment, which often can include amounts for property insurance and taxes, is perhaps the largest single bill you spend on a monthly basis. The check covers your housing needs, also it represents an investment for many homeowners – you’ll find financial and emotional aspects at the same time. If you fail to make your home loan repayments, you must have a hard review of your situation, financially and otherwise, and choose on an alternative that’s good for you. Consulting a bankruptcy or real estate lawyer in your area can help with your decision-making process.

Consider All Options

Here is a list of options and factors it is important to consider:

What is the magnitude of your financial crisis – is there a prominent element, like a job loss, or is paying just one debt at the root of the financial problems, like medical bills or your mortgage?

Is your financial crisis temporary, such as a short period of unemployment or underemployment, or is there an unchangeable change, such as a disability that can affect your earning power on a long-term basis?

How much equity is in your house?

How does the value of your house compare to the debt it secures – do you owe more than the house is worth?

How does your current home meet your housing needs – is it the right size, what are the ongoing maintenance and ownership costs, and does the location meet your lifestyle, family, and employment needs?

Is home ownership the best way to meet your housing needs? Do you have the abilities and resources needed to own the place in which you currently live?

If you want to keep your home, have all options for loan modification been explored?

If you don’t want to keep your home, have you tried to sell it, either through conventional means or through a short sale?

Is your lender willing to pursue foreclosure alternatives, such as accepting a deed in lieu of foreclosure?

Have foreclosure proceedings started, and if so, how far along is the process?

Would you qualify Chapter 7 or Chapter 13 bankruptcy relief?

Do you have other debts, and could those debts be discharged or restructured through bankruptcy?

Making Home Affordable Relief

Prior to reaching the crucial stage of bankruptcy or foreclosure, find out if refinancing or changing your mortgage is available. In response to common economic crises suffered by lots of homeowners, the Making Home Affordable program offers relief. Financial stability.gov is a government Web pages that provides information about eligibility along with the process to get help. The Web page includes an interactive tool for helping determine whether you’re qualified to apply for relief.

Making Home Affordable has two sorts of relief:

1.Home Affordable Refinancing for homeowners who have loans owned by Fannie Mae or Freddie Mac. This program targets those who haven’t got the ability to refinance their mortgages at today’s significantly low rates because of plummeting home values, leaving them “underwater” with a mortgage balance that’s over the home value

2.Home Affordable Modification for homeowners who can’t afford their mortgage payments as a result of loss or decrease in income, increased mortgage rates or who don’t get a Home Affordable Refinancing. This program aims to modify your mortgage terms and also to bring the payment within a reasonable range

Start by contacting your lender or loan service, but be patient and persistent. These programs are new, and lenders must work to quickly implement the programs and also the demand is high. Even if you don’t qualify for these programs, work with your lender to get yourself a solution. Avoiding foreclosure will likely be best for all parties.

For help with a  chapter 7 bankruptcy, select a Savannah Georgia bankruptcy attorney. A bankruptcy attorney Savannah GA could give you the help you need.