Buying Just Enough Time for Your Home with a Chapter 7 Straight Bankruptcy

What if you are under threat of foreclosure, don’t want to keep your house, but just need a little more time to find another place to live? Or if you just need to finish a pending sale before the scheduled foreclosure happens?

Or maybe you don’t want or need the extra benefits of Chapter 13. Or you just want to put it all behind you in a few months instead of going through a 3-to-5 year Chapter 13 Plan. A Chapter 7 “straight” bankruptcy may give you just the right amount of help.

A Chapter 7 case:

1. Stops a pending foreclosure sale, at least temporarily. Depending on your situation, and the aggressiveness of the mortgage lender, it may buy you an extra few weeks or an extra few months. Chapter 7 does give you much less control over the situation than a Chapter 13, but the extra time it gives you may be enough in your particular situation.

2. It temporarily stops not just foreclosures by your mortgage company, but also by other creditors. This includes foreclosures for unpaid property taxes, homeowner assessments, or judgment lien creditors.

3. Prevents, at least briefly, most kinds of liens from attaching to your house, such as income tax liens, or judgment liens by creditors who have sued you and have not yet gotten a judgment.

So if you have a pending sale of a house which has less equity than your allowed homestead exemption, and need to buy enough time to close the sale before the foreclosure or before a new lien eats into your equity, and need to file some kind of bankruptcy to deal with your debts, filing Chapter 7 may be your best option. Or if you have resigned to losing your house but need to postpone the foreclosure to give you time to save money for rental and moving costs, again Chapter 7 could well be the best tool for you.

Because the amount of time a Chapter 7 will gain for you depends a great deal on the facts of your case, the anticipated actions of your creditors, and sometimes the behavior of your Chapter 7 trustee, be sure to discuss this thoroughly with your bankruptcy attorney. Find out if the comparatively modest help a straight bankruptcy provides is enough help for you.

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Keep Your Vehicle In Spite of Paying Less Every Month

What if you really need to hang on to your car or truck, but can’t afford the monthly payments? Or if you’ve fallen behind and just can’t catch up?

“Straight bankruptcy”—Chapter 7—won’t help you here. Most of the time, you have to either quickly catch up or you lose the vehicle. And very few vehicle lenders will negotiate about the payment amount in a Chapter 7 case. With rare exceptions, it’s take it or leave it.

BUT, if you meet two conditions, you may have the option to KEEP your car or truck, NOT make up any missed payments, all while LOWER your monthly payments. This even REDUCES the total amount you must pay before the vehicle is yours free and clear.

The two conditions you must meet:

1. You got your vehicle loan at least two and a half years ago.

2. You owe more on the vehicle than it’s worth.

If so, through a Chapter 13 vehicle loan “cram-down,” we can re-write the terms of that vehicle loan. First, we can reduce the balance down to the fair market value of the vehicle. This can sometimes shave thousands of dollars off the balance. That in itself would reduce the monthly payment. But then also, depending on how many months of payments remained on the vehicle loan compared to the projected length of your Chapter 13 Plan, we may be able to stretch out the term of the loan. If so, that would lower the monthly payment even further.

An example will make this clearer. Say you were 4 years into a 6-year vehicle loan (meeting the 2-and-a-half-year condition), with a balance of $11,000 but the vehicle worth only $7,000 (meeting the owe-more-than-it’s-worth condition). Further, say the regular monthly payments were $498, with 24 months of them to go. Under a cram-down rewriting of the loan under a 3-year Chapter 13 Plan, the balance to be repaid would reduced to $7,000, and the term stretched to the 36 months of the Chapter 13 case. So now the monthly payment would be reduced to about $220, less than half the $498 regular monthly payment. Even though in this example it’s taking three years instead of two to pay it off, you’re saving close to $4,000. Plus we’re reducing the monthly payment to something much more affordable.

The difference in the balance on your vehicle loan contract and the reduced amount you would pay through your Chapter 13 Plan (the $4,000 or so in the example) would be treated as unsecured debt. It would be lumped in with the rest of your unsecured debts, and would be paid through your Plan at whatever percentage all your unsecured creditors were being paid. This can be a low percentage and sometimes even nothing. It would usually be determined by how much your budget says you can afford after living expenses.

So if your vehicle loan meets the two conditions above, you will likely be able to reduce both your monthly payment and the total amount needed to pay off your vehicle. All without having to cure any previously missed payments, and without risk of repossession as long as you fulfill the terms of your Chapter 13 Plan.

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The Great Recession More Than Wipes Out a Quarter-Century of Gains Made by Blacks and Hispanics in Household Wealth

I had no idea that the recession had such a worse impact on minorities. The gap in median household wealth between whites and each of the two largest minority groups has not only gotten tremendously wide, in fact this gap almost doubled in only four years.

This is according to a report just released on July 26, 2011 by the Pew Research Center’s Social & Demographic Trends project.

During the twenty years up through 2004, the wealth of black and Hispanic households compared to the wealth of white households did not change much. But even then, before the recession, the wealth disparity between racial groups was already astounding huge. In 2004 the median white household’s assets were worth about seven times that of the median Hispanic household’s, and about eleven times that of the median black household’s assets.

But then only four years later, by late 2009, after the official end of the recession, these ratios had virtually doubled, with the white household’s assets being worth fifteen times more than the Hispanic household’s, and nineteen times more than the black household’s.

 

© 2011 Pew Research Center, All Rights Reserved

What is the cause of this massive increase in wealth disparity among these races in such a short time? Simple: depreciated residential housing values. Blacks, and even more so Hispanics, have their wealth disproportionately tied up in their housing.

From 2005 to 2009, the median level of home equity held by Hispanic homeowners declined by half—from $99,983 to $49,145…. A geographic analysis suggests the reason: A disproportionate share of Hispanics live in California, Florida, Nevada and Arizona, which were in the vanguard of the housing real estate market bubble of the 1990s and early 2000s but that have since been among the states experiencing the steepest declines in housing values.

White and black homeowners also saw the median value of their home equity decline during this period, but not by as much as Hispanics. Among white homeowners, the decline was from $115,364 in 2005 to $95,000 in 2009. Among black homeowners, it was from $76,910 in 2005 to $59,000 in 2009.

This Pew Research does not get into what this increased disparity among the races means for our society. I suspect it is part of the broader picture of the overall widening gap between the wealthy and the rest of us. Overall reduced upward mobility strikes at the heart of our national identity. Add to that this racial disparity, and the suddenness with which it has occurred, and we are looking at profound economic shifts with very serious consequences.

Excerpts and graph: © 2011 Pew Research Center, Social & Demographic Trends Project
“Wealth Gaps Rise to Record Highs Between Whites, Blacks and Hispanics”
http://pewsocialtrends.org/2011/07/26/wealth-gaps-rise-to-record-highs-between-whites-blacks-hispanics
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