Archive for February, 2012

Chapter 13 Bankruptcy Time Bomb: Mortgage Modification

Wednesday, February 15th, 2012

Article Bankruptcy Law Network

by Eugene S. Melchionne,

One of the major benefits of Chapter 13 Bankruptcy is the ability to avoid second mortgages that are not secured by any value in your home. By following standards outlined in the Bankuptcy Code, you can reclassify that loan on your home into the same category as credit cards or other ordinary bills and discharge them at the end of your Chapter 13 payment plan. This is called lien stripping. You cannot do this to a mortgage in a Chapter 7 case.

However, if there is even a penny of value in the home that would go to a second mortgage when the property was sold, the loan cannot be valued as unsecured. That means it must be paid during the Chapter 13 case and it also survives the Chapter 13 as a lien on the property until it s paid off.

So where’s the Time Bomb? Let’s assume that you’ve been dealing with your lender trying to work out a modification of your first mortgage. Well, what if your lender were to give you a modification that reduces your principal balance? That modification now results in a little equity in your home. Sounds like good news, right? Nope. With the reduction in the principal balance gives your second mortgage a toe-hold onto your home. Once that happens, the Bankruptcy Code will not allow you to avoid that second mortgage and gain the benefit of a Chapter 13 case.

In a New York Times article, reporter Gretchen Morgenson criticized the terms of the “Great Mortgage Deal” with five major banks, Once of the points she brings out is that this “settlement” enhances the value of the second mortgage market. By creating equity in homes, the value is now exposed to claims by second mortgage holders in a Chapter 13 thus weighing down homeowners with yet another obligation that survives a bankruptcy. Once your first mortgage is reduced below the value of your home, the second mortgage will sink its claws into that home. KABOOM! Mortgage time bomb.

If there is any doubt that you should file a Chapter 13 Bankruptcy before you work our a debt reduction deal with your first mortgage, this should do it. File first, work out the modification later, before that second mortgage gets you.

Carolyn Secor is a Clearwater bankruptcy attorney and Clearwater foreclosure attorney serving Palm Harbor, New Port Richey, Oldsmar, Tarpon Springs, Seminole, St. Petersburg and the Tampa Bay area.

If you would like more information on our practice, please consult our website at:

www.bankruptcyfortampa.com
or call (727) 254-1704.

Top Ten Bankruptcy Myths Countdown: #8 Bankruptcy Will Ruin Future Credit.

Wednesday, February 1st, 2012

Bankruptcy Law Network

Article by Karen Oakes

One of the concerns about filing for bankruptcy is that those folks will never be able to obtain credit again after filing for bankruptcy protection and assistance. Most times, nothing could be further from the truth as bankruptcy may actually improve folks’ credit score, according to Smart Money on their website). Every debt collection note on a credit report, every late payment, every negative notation affects a debtor’s credit score.

Bankruptcy? It doesn’t add to the negative credit score; it replaces a number of negatives with ONE negative notation of “discharged in bankruptcy” with the account showing a “zero” balance. That act usually improves a debtor’s credit score.

There are a number of other ways to improve your credit score.

1. After your bankruptcy is discharged, check your credit report for errors

2. Check your report again

3. Make a budget and stick to it

4. Be careful when applying for new credit

5. Use the automatic payment function on credit so that you won’t (ever) forget to make a payment

6. If you have student loans, make SURE you make those payments on time (this will help rebuild your credit)

7. Apply for a secured credit card (where you deposit money against future charges)

8. When you do obtain new credit (and you will), do NOT max out the cards. Credit rating is affected by amount of credit available ratio to credit used.

Using the above tips, a diligent debtor will find that even a mortgage is obtainable quickly after filing for bankruptcy. Folks who educate themselves about the ways to protect themselves and who act wisely will find that their credit score improves rapidly.


Carolyn Secor is a Clearwater bankruptcy attorney and Clearwater foreclosure attorney serving Palm Harbor, New Port Richey, Oldsmar, Tarpon Springs, Seminole, St. Petersburg and the Tampa Bay area.

If you would like more information on our practice, please consult our website at:

www.bankruptcyfortampa.com
or call (727) 254-1704.