Wage Goodbye

Consumer Credit Counseling Services of Nebraska (CCCSN) closed its doors this year.  The agency opened in 1976 and was viewed as the best organization to help debtors avoid bankruptcy by establishing repayment plans with creditors.  The agency has been acquired by GreenPath Debt Solutions of Farmington Hills, Michigan, a large credit counseling agency with 60 offices in 13 states.

The closing represents a real loss to Nebraska residents.  CCCSN offered face-to-face financial counseling, but that type of organization has become expensive to operate. Credit counseling agencies are largely funded by a fee called “Fair Share” in which the agency used to keep up to 15% of the funds being paid in credit card payment plans.   However, in recent years banks have reduced that rate to 3 or 4 percent.

As the fair share rate has dropped, the industry has been forced to consolidate and larger credit counseling agencies with centralized computer and phone systems have gobbled up less efficient local agencies like CCCSN.  Although GreenPath still maintains an office in Omaha and Lincoln, the agency does not even come close to matching the personal counseling services provided by CCCSN.  Two or three GreenPath employees have replaced the large veteran staff CCCSN used to employ.

When the fair share rate was 15% the agency could afford to spend time in face-to-face meetings with clients. The agency was not limited to establishing Debt Management Plans (DMP) although that certainly was a core function.  CCCSN helped many customers avoid bankruptcy by teaching them to establish workable budgets. Those days are gone.  With lower fair share rates the only way to stay profitable is to enroll as many customers in a DMP as possible and then to farm out the work to a national organization. Personal counseling is basically a thing of the past.  Veteran counselors are gone. Lower paid data input workers are now the norm.

The dramatic changes in the credit counseling industry have been documented by professors Robert Manning and Anita Butera in their report A Failing Grade For the Post-BAPCPA Credit Counseling and Bankruptcy Education Industry?  Those changes include:

  • A growing dependence on referrals from credit card collection departments.
  • A reduction of Fair Share compensation rates from 15% to 3 or 4%.
  • A growth of for-profit credit counseling companies disguised as nonprofit credit counselors that utilize a maze of related companies to siphon off revenue from their nonprofit sister companies.
  • A consolidation of credit counseling agencies in favor of larger agencies that utilize economies of scale, large IT departments and DMPs that follow the strict guidelines established by the credit card industry.
  • A reduction in face-to-face counseling.
  • A movement towards DMP mills largely controlled by credit card collection departments though referral agreements best described as a Master-Slave relationship.
  • A failure of the Internal Revenue Service to deny nonprofit status to agencies that are controlled by a single family that siphon off revenues to their for-profit entities.

My own observation is that clients can not distinguish the difference between traditional credit counseling agencies, DMP mills, debt settlement firms and other debt relief agencies all claiming to be nonprofit agencies. Debtors cannot distinguish the true nonprofits from the profit-maximizing wolves in sheep clothing nonprofits.  As a consequence, the older community-based credit counseling agencies are dying nationwide.

Goodbye CCCSN.  We hate to see you go.

Image courtesy of Flickr and Sean MacEntee

Choices

What is the most effective solution to a serious debt problem?  Without a doubt, Chapter 7 remains the single most effective way to eliminate debt.  What is the success rate of chapter 7 cases?

In reviewing 172 cases filed by our firm since January 1, 2014, clients received a discharge in all but three cases.  Of those 3 cases where no discharge was entered, two of them converted to chapter 13 since their income was declared to be too high to be eligible for chapter 7 relief and they will receive a discharge when they complete their payment plan.  The remaining case was voluntarily dismissed after the client incurred significant unplanned medical bills during her case. After her case was dismissed she filed a new case and received a discharge.

To summarize, 100% of the clients who filed chapter 7 obtained bankruptcy protection, and 99% of the cases received a chapter 7 discharge.

There simply is no more effective way out of debt.  Chapter 7 relief is immediate.  The moment a case is filed a federal protection order comes into place that immediately stops garnishments, collection calls, lawsuits, and all other forms of collection.  On average, cases were discharged in 102 days.

Success Rate of Chapter 13:

A Chapter 13 case is a payment plan completed over 3 to 5 years.  A review of the first 210 cases filed in 2006 indicates that 58% of those cases were discharged. When you factor in that 19 cases were converted to chapter 7, the discharge rate increases to 67%. That is actually an amazing statistic considering that a dramatic overhaul of the bankruptcy law took effect in October 2005 and attorneys were working with an entirely new law.

The success rate of Nebraska chapter 13 cases  is significantly higher than the national success rate of 36% reported by law professor Katherine Porter in her article, The Pretend Solution: An Empirical Study of Bankruptcy Outcomes.  Much of that success is attributable to our Chapter 13 Trustee, Kathleen Laughlin, and the Nebraska bankruptcy court for making the process work.

The success rate of chapter 13 does not include those cases converted to chapter 7. So the real success rate may be higher depending how we define “success” in bankruptcy. Also omitted is a list of those cases dismissed the first time around but that were eventually refiled with a successful result.

Success Rate of Consumer Credit Counseling Debt Management Plans:

Measuring the success rate of Debt Management Plans (DMP) is difficult since, unlike bankruptcy court records, there is no public data to review.  However, a poll conducted by the National Foundation for Credit Counseling indicated that only 21% of the repayment plans were completed. To be fair, the poll indicated that another 21% withdrew from the repayment program to manage the payments on their own but there is no data as to whether they were successful. The chief stumbling block to the program is that the payments were not affordable.

Success Rate of Debt Settlement:

This is the darkest area of the debt management industry and there is no hard data available to show how many plans have been completed.  It is generally believed that the success rate of these programs is less than 10%.

Need help sorting out debt repayment options?  Click here for help.

Image courtesy of Flickr and Dan Moyle.

The Constitution guarantees certain rights, one of them being due process of law. And a large part of the process requires that each party to a lawsuit be given notice.  The legal process is designed to be an open process were everyone is given an opportunity to be heard.  To deny someone notice of a legal proceeding is to deny their right to due process guaranteed under the Constitution.

When a client complained about a judgment entered against her without her knowledge we checked the court record to see if she was correct.  We hear this complaint all the time, and it usually means the client moved and the court summons was sent to a former address.  This case was different.  She owned her home and had lived there for years.  Why didn’t she receive notice?

The court records indicated that a copy of the summons was left with the client’s daughter. The only problem was, the daughter was 10 years old and she tossed the lawsuit on top of a stack of her mother’s papers and forgot to tell her mom. Oops, the kid forgot to let mom know that she had just been sued.  Kids are so forgetful!

You can guess the rest of the story.  Since mom didn’t know she had been sued there was no written reply made to the lawsuit. After 30 days the creditor filed a motion for a Default Judgment and the next thing you know a Judgment Lien was slapped against mom’s home.

Can the Sheriff serve a summons on my kid when I’m not home?

It depends. Nebraska law indicates that the Sheriff may leave the summons with a person of suitable age and discretion who resides in the home.  Is a 10 year old a person of suitable age and discretion?  My guess is no.  If the kid were 16 or 18 that would be a different story, but a 10 year old clearly lacks sufficient age and discretion to understand the consequence of being served with a summons.

Can a judgment based on faulty service be set aside?

Yes, the judgment may be set aside if the court approves a Motion to Vacate Judgment.  In a recent Nebraska Supreme Court case of Capital One Bank vs. Lehmann the court indicated that a judgment based on lack of proper service may be set aside at any time.  If a judgment was based on defective service or if service was never made because you moved to a different address, a motion to vacate the judgment should be filed.

What should I do if I receive a Summons?

In short, if you are sued a written answer must be filed with the Clerk of the Court within 30 days of receiving the summons.  This article explains the process of filing a written response.

Image courtesy of Flickr and Jolante van Hemert.

The maximum amount a judgment creditor may garnish from a paycheck is 25%, but the IRS is not subject to state exemption laws and they may garnish almost all of a person’s paycheck.

In fact, IRS wage garnishments are not really based on what they can take as much as it is on what the taxpayer is allowed keep.

For example,  in 2015 a single parent of two kids who files as Head of Household may protect only $409 of wages per week. If they earn $1,000 per week, the IRS garnishes $591.  If that same parent earns $2,500 per week, the IRS garnishes $2,091.  Instead of placing a limit on the percentage of wages the IRS may take, the federal tax laws simply establish a flat amount they IRS cannot take.

What should you do if you receive an IRS Wage Levy?

Fill out an IRS Collection Statement.

The IRS can reduce the amount of the wage garnishment if you complete an Collection Information Statement, IRS Form 433-A.  Until you complete and submit this form, the IRS has no clue if you are single or married or a parent or disabled.  This form allows you to enter your monthly income and expenses.  The IRS will set your monthly deductions based on your income level and the number of people in your household for most expenses, but certain expenses, such as medical expenses, will be allowed in full if you can document the expense.

Call the IRS to set up an Installment Agreement.

After completing form Form 433-A, call the IRS to set up a payment agreement.  Hopefully the amount Form 433-A says you have to pay is less than what the IRS is currently garnishing.  If you are unable to complete the form the IRS will work with you over the phone to complete the schedule.  Call the IRS at 1-800-829-1010 to set up the payment agreement.

What if you call a crabby IRS agent who makes you uneasy?  Just hang up the phone and call back a few minutes later.  A different person will answer the phone.  In life, some people are nice and helpful, and some are . . . something else.  Find a nice person who will help you.  Most folks at the IRS are nice and helpful.  Some are . . . something else.

File Chapter 7 Bankruptcy.

Individual income taxes that were filed by you more than 3 years ago can probably be discharged in a Chapter 7 bankruptcy case.  It is important to know when the taxes were filed, whether an extension to filing the taxes was filed, and whether the taxes were filed by you or by the IRS.  If the IRS filed a substitute return because you did not file a tax return, the bankruptcy will not discharge he tax.

File Chapter 13 Bankruptcy.

In cases where your income is too high to qualify for chapter 7 or in cases where the taxes cannot be discharged in chapter 7, you may want to consider filing chapter 13.  In a chapter 13 case the tax debt that cannot be discharged may be paid back at a minimal interest rate (3%) over 3 to 5 years.  Filing Chapter 13 will stop the wage garnishment and a monthly payment to the court trustee will be based on your real living expenses instead of the IRS budget guidelines.

Get a Transcript of the Taxes You Owe.

Nebraska bankruptcy attorneys must be certain of what type of tax you owe, the day the tax was filed, the assessment date of the taxes, and the identity of the person who filed the taxes.  To verify this information we obtain an Account Transcript from the IRS.  You can get an Account Transcript by the calling the IRS and requesting an account transcript of each year you owe taxes or you can complete IRS Form 4506 and fax or mail that to the IRS.

In the Omaha area the IRS office is located at 16th & Capital Street and in Lincoln, Nebraska the IRS is located at 15th & O Street.  These forms may be obtained for free at either location and you may speak with an IRS Revenue Officer to establish a payment plan.  Don’t be afraid, they are nice people.

https://www.youtube.com/watch?v=RrCW2OPlXdo

Image courtesy of Flickr and Ryan.

My husband and I filed Chapter 7. Our primary residence was supposed to be excluded from the bankruptcy, but 2 years later we realized it had been included. How do I fix this and what issues would this cause should I decide to sell the property?

Can you exclude a mortgage from the bankruptcy?

In a word, no.  You can never exclude a mortgage or any other debt from the bankruptcy.  All debts must be listed and when you file bankruptcy you sign a document stating that you have, under penalties of perjury, listed all of your debts.

What people mean when they want to exclude a debt from bankruptcy is that they want to continue to pay the debt and keep in good standing with the creditor.  Typically, debtors wish to keep their mortgage and car loans out of the bankruptcy process.

Reaffirmation Agreements are legal agreements that are filed in Chapter 7 bankruptcy cases to essentially pull out a debt from the bankruptcy discharge.  The agreement is signed by the debtors, the creditor, the debtor’s attorney and is approved or disallowed by the bankruptcy judge.  Once approved by the bankruptcy court, a reaffirmation agreement removes the debt from the bankruptcy discharge.

If a Reaffirmation Agreement is not filed, is that fixable later?

The bad news is that this problem is not fixable.  Once a Chapter 7 case closes it is impossible to file a Reaffirmation Agreement, even if the case is reopened.  Although you may keep a home even if a reaffirmation agreement is not filed, the bank will no no longer report to the credit bureaus if the loan is paid on time.  That can cause dramatic problems when you attempt to refinance a mortgage loan when interest rates drop.  Debtors find it extremely difficult to refinance a mortgage loan that is not reaffirmed.

Is my bankruptcy lawyer at fault for not filing a reaffirmation agreement?

Although some lawyers may be at fault, the majority of the problem lies with the mortgage company.  Most banks simply do not offer reaffirmation agreements to their customers unless the customer demand the agreement.  We request that the bank send our clients a reaffirmation agreement in every single case we handle, but it seems like we receive agreements in less than 25% of the cases unless the client consistently calls the mortgage lender for the agreement. Reaffirmation agreements are voluntary.  Neither the bankruptcy lawyer nor the bankruptcy court can force the bank to offer an agreement.

Does this problem occur in Chapter 13?

This problem does not occur in chapter 13 since reaffirmation agreements are only used in chapter 7 cases. In a chapter 13 case the mortgage loan is reinstated at the end of the case so this problem never occurs when a debtor makes all required payments.

Can I sell my home if I do not reaffirm the mortgage?

Yes, you can sell the home even if the mortgage loan was not reaffirmed.  You may also keep the home and pay off the mortgage with the normal monthly payment even if the loan is not reaffirmed.  A reaffirmation agreement has only one benefit: continued credit reporting.  There really is no other benefit to reaffirming a mortgage loan.   However, that good credit reporting is darn important when refinancing the mortgage or when trying to buy a new home without the prior mortgage payments being reported.  Most clients prefer to reaffirm the mortgage.

For more information on this topic, contact our Omaha bankruptcy attorneys or Lincoln bankruptcy attorneys.

Image courtesy of Flickr and Wonderlane.

I’m contemplating filing Chapter 13. I really need money immediately for bills. Is it okay to get a car title loan if I may file for bankruptcy soon? I don’t necessarily want the title loan to go into the bankruptcy if I decide to file. I just want to know if it’s okay to do so-legally. Is it frowned upon on in court?

There are so many things wrong with this question that it is difficult to figure out where to start.  First, it is never possible to exclude a debt from bankruptcy.  All debts must be listed. If a balance is owed on the day the case is filed the debt must be listed.  You are signing a document that says “under penalties of perjury I have listed all my debts.”  Title loans must be reported, even if you intend to pay it back.

Is it okay to get a car title loan when you plan to file bankruptcy?

The short answer is no.  It is never permissible to incur debt when you plan on filing bankruptcy.  In fact, when you incur new debt shortly before bankruptcy you cross a line.  Creditors may object to the bankruptcy discharge if they can prove you knew you were going to file bankruptcy when he debt was incurred.  Once you meet with an attorney about filing bankruptcy, stop all use of credit.

Do I have to repay Title Loans after bankruptcy?

As a general rule, bankruptcy wipes out debts but not liens.  So, in many cases you must pay off the title loan to keep the vehicle. However, there is a special exception.

If your vehicle is used in your business or trade beyond merely traveling to and from work, the title loan lender will probably have to release its title lien.  For example, if you must use your vehicle to deliver supplies or meet customers or perform any other job function, then a special Tool of the Trade Rule comes into play that can void title loans.

For this reason, if you have a car title loan it is very important to tell your bankruptcy attorney how the vehicle is used on the job beyond merely traveling to and from work.

Chapter 13 allows a debtor to pay back car title loans at 5.25%.

File Chapter 13 to Rewrite the Title Loan.

Unlike a chapter 7 case, Chapter 13 allows a debtor to rewrite the terms of a the title loan.  Most title loans come with steep interest rates of 300% to 400%.  Chapter 13, however, allows a debtor to pay back car title loans at 5.25%.  (The rule in Chapter 13 is that secured debts must be repaid at Prime Rate (currently set at 3.25%) plus 2%.)

If you have questions about title loans in bankruptcy, contact our Nebraska bankruptcy attorneys for more information.

Image courtesy of Flickr and Sleep.

Debt settlement is a popular alternative to filing bankruptcy.  It avoids the public embarrassment associated with filing bankruptcy and entanglement with the court system.  However, debt settlement can create tax problems if you receive tax form 1099-C: Cancellation of Debt.

When a debt is settled for less than the balance owed, the creditor frequently files Form 1099-C with the IRS and sends the debtor a copy, although many clients claim they never receive the notice.  In most cases the settlement of a debt is not taxable, but the IRS will not know if it is taxable or not unless you file IRS Form 982 with your tax return.

Generally speaking, a debt settlement is not taxable if you are insolvent when the debt is forgiven (i.e., you have more debt than property).

The Internal Revenue Service has published a helpful video on this topic below:

https://www.youtube.com/watch?v=qdpwtaSGpfQ

A great question was posed on our Nebraska bankruptcy attorney listserv this morning:

Dear list-mates:  I have a older couple wishing to file bankruptcy who approximately a year ago transferred their house (which qualified then and now as their homestead valued at less than $60k) to their daughter retaining a life estate in themselves. My first instinct was that they don’t have to worry about the trustee trying to avoid the transfer because it was a transfer of exempt property – no harm no foul.  Now I’m wondering whether this will be seen as a constructively fraudulent transfer. The transfer was less than 2 years ago. Was for essentially no value. The debtor was insolvent at the time of the transfer, and certainly would have been as a result of it. There is no mortgage on the house. Any insight is appreciated.

He was right to be concerned about a fraudulent transfer.  Chapter 7 bankruptcy trustees have the power to reclaim property transferred out a debtor’s name that have occurred within four years of filing bankruptcy when property or services of equal value were not transferred back to the debtor.

The Nebraska Uniform Fraudulent Transfer Act states that “[a] transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.”

In the above example, the children of the debtor received the home, subject to a life estate in favor of the debtor, without exchanging anything of value.  It was a one-sided gift.  In this case the debtor seems to have transferred the home for Medicaid planning purposes and was not attempting to defraud his creditors, nevertheless the transfer would be deemed a fraudulent transfer since equivalent value was not exchanged.  Had a bankruptcy been filed the Chapter 7 trustee would have taken the children’s interest in the home.

What if a fraudulent transfer has occurred but you still need to file bankruptcy?

  • Reverse the Transfer.  The problem above could be fixed if the children were to convey their interest back tot he debtor prior to filing bankruptcy.  The value of the home was clearly less than the Nebraska homestead exemption protection ($60,000), so the home would have been fully protected if the debtors reversed the transfer.
  • Wait 4 years to file bankruptcy.  Most fraudulent transfers become protected after 4 years, but there are a few dangerous exceptions to this general rule.
  • File Chapter 13 Bankruptcy.  It really should not make a difference whether a chapter 7 or chapter 13 case is filed since unsecured creditors should receive equal treatment, but a key difference between the chapters is that the trustee in a a chapter 13 case does not have the power to go after fraudulent transfers.

Another important factor to consider with fraudulent transfers is that they must be reported on the bankruptcy schedules. Many bankruptcy attorneys wrongly believe that only transfers that occur in the preceding 2 years must be reported, but some courts and the US Trustee’s Office believe that all fraudulent transfers that are voidable must be reported on the asset schedules.

Image courtesy of Flickr and Mark Hillary.

Ten

Ten years ago this month the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) became effective. The act was designed to make filing bankruptcy more difficult by requiring filers to provide more information to court trustees that supervise the process and by installing a mathematical formula to keep higher income debtors out of chapter 7.

Is the reform act at success? Hardly. Despite the fact that some changes in the law had the effect of supplying the court with more income information and imposed limits on repeat filers, the vast majority of changes were unnecessary and are detrimental to the process.

The Good Reforms:

  1. Limits on Repeat Filers.  The drafters of the reform act felt that some people file too often, especially on the eve a foreclosure sale. BAPCPA limited how often a person could file bankruptcy. Chapter 7 cases may only be filed once every 8 years and those individuals who have been debtors in several cases within the preceding year do not automatically get protection without seeking court review of their case.
  2. Forum Shopping.  Some states have generous exemption laws that protect a debtor’s property, while other states are more frugal. BAPCPA curtailed this process by requiring debtors to use the exemption laws of the state a they lived in the majority of the two years prior to filing bankruptcy.
  3. Homestead Exemption Limits.  Prior to BAPCPA, wealthier debtors moved to states with unlimited homestead exemptions (such as Texas and Florida) and protected their money by purchasing expensive mansions. BAPCPA put a cap on homestead exemptions.  Sorry kids, no moving to a beach house when daddy’s business goes down.
  4. More Income Documents Provided to Trustees.  Debtors must supply the bankruptcy trustee with their last two tax returns and 2 months of paycheck stubs.
  5. Bankruptcy Attorneys Responsible for Accuracy of Case.  The reform act holds bankruptcy attorneys to a higher standard and requires that they perform a due diligence investigation of the information reported instead of just taking the debtor’s word for its accuracy. Good attorneys always did this, but it is fair to say that the reform act has put a healthy amount of fear in the hearts of bankruptcy attorneys.  Many attorneys, including this one, now obtain background reports to ensure that all property and property transfers are reported.

The Bad Aspects of the Reforms:

  1. Cost of Bankruptcy Skyrockets.  The cost of filing bankruptcy immediately doubled when BAPCPA was enacted, and for good reason.  Attorneys must gather substantially more information to prepare the case, they must prepare six-month income calculations and investigate the debtor’s financial condition much like an auditor.
  2. Means Test.  To keep higher income debtors out of Chapter 7 and to establish a nationwide standard of how much debt had to be repaid in Chapter 13, BAPCPA created a mathematical formula based on a debtor’s last six months of income. In practice, however, the Means Test has been a disaster to administer.  The central defect of the test is that most debtors do not have consistent income in the six months prior to filing bankruptcy. It is common that debtors have lost a good paying job just shortly before filing bankruptcy, so the six-month average does a poor job to forecasting what the debt they can really repay.  Conversely, some debtors were unemployed for a substantial time prior to bankruptcy but obtained a higher paying job just before filing. Past income is often a poor predictor of what future payments should be, but the Means Test is built on this faulty foundation. In addition, some types of income are not counted as income on the means test, such as Social Security income, so the test is often passed by debtors who really should fail.  Lastly, the means test favors secured debt so higher income debtors with big homes and fancy cars commonly pass the test while debtors who denied themselves such luxuries find they fail the means test.  Because of its complexity and poor drafting, bankruptcy courts struggle to establish a uniform method to apply the test.  The Means Test has failed its basic purpose and should be abolished.  Those who claim the means test has reduced the number of bankruptcies being filed are dead wrong.  Bankruptcy filings are down because the general rate of participation in the workforce is down.
  3. Mandatory Credit Counseling.  The drafters of the reform act require debtors to take a credit counseling class prior to filing bankruptcy and another course before the case is completed.  The idea here is that if people would just spend a little time getting the facts about budgeting and money management, perhaps fewer folks would file bankruptcy. This sounds nice, but as practiced this credit counseling is generally worthless.  Most of the courses are completed online and debtors just click through a series of mundane questions.  No real counseling is occurring.  Tragically, less sophisticated debtors without access to the internet are unable to get the credit counseling completed and, consequently, their homes are being lost to foreclosure and their paychecks are garnished. Thousands of debtors have lost their homes to foreclosure because bankruptcy attorneys are unwilling to meet with debtors whose homes are scheduled for sale until they complete the credit counseling class prior to meeting them.  Requiring a family who faces the humiliation of filing bankruptcy to learn about money management is just pouring salt in an open wound.  A single mom earning $9 per hour doesn’t need a credit counseling class–she needs housing, education, health insurance, child care and a higher paying job.
  4. Private Student Loan Discharge.  Prior to BAPCPA, a debtor could discharge a private student loan but not federally guaranteed loans.  The reform act now protects private student loans from discharge, and as a result there has been an explosion of debtors saddled with unmanageable student loan debt.  Private student loans are the single worst debt in America.  College financial aid departments steer students to these dangerous loans without any real discussion of the burden this will place on graduates and their families. Students are often unaware of the significant differences in repayment terms between federally guaranteed loans which offer income-based repayment plans and private loans which do not.  BAPCPA has created a monster student loan debt nightmare for millions of America’s young families and for the parents who foolishly co-signed these loans.
  5. Extended Duration of Chapter 13 Plans.  Prior to BAPCPA a chapter 13 case could be completed in 3 years.  Debtors with above-median incomes are now required to remain in chapter 13 for 5 years so that, in theory, they can repay more of their debt.  In reality, this change has decreased the success rate of chapter 13 payment plans and it also causes higher income debtors to load up on secured debts–especially car loans–prior to filing their case.  Debtors tied up in 5 year cases are not buying homes, cars, furniture, etc., and the economy as a whole takes a hit by taking these consumers out of the market.  Five year payment plans are too long.

Image courtesy of Flickr and Woodleywonderworks.

I still get a sick feeling in my stomach when I recall the lady who called me to say that her home was in foreclosure but her husband new nothing of it because she paid the bills.  She was hiding her gambling problem and the unpaid mortgage from him.  I told her that she needed to speak with him and then come see me immediately to stop the sale.  About a month later she called again saying she finally got the courage to speak to her husband.  He said he loved her and just wanted to stop the foreclosure, so they wanted an appointment.  I looked up her case and again and verified the foreclosure sale date.  My heart sank as I told her the home was sold the day before and there was nothing I could do to save the home.

How can this happen?  Why don’t homeowners know if their home is in foreclosure and when the sale will occur?  The reason is both appalling and common.  Under the Nebraska Trust Deed Act the homeowner receives notice of the foreclosure and sale by Certified Mail.  There is no requirement that a Sheriff personally deliver the notice.  There is no requirement that the homeowner sign for the certified mail.  The only requirement is that the notice be sent by certified mail.

Under postal regulations, if a person is not home when the certified mail is delivered the mailman should leave a postcard in the mailbox advising that they attempted to deliver a certified letter and that the homeowner has a certain number of days to go to the post office to get the letter.  The problem is, lots of unpleasant news comes via certified mail.  Some folks refuse to get their certified mail because they believe it may be a lawsuit and they don’t want to accept service of summons.  Many people say that “nothing good comes from certified mail” and they just ignore it.  Some clients complain that are working when the mail arrives and they never received a postcard telling them that certified mail arrived.

If you are seriously behind on the mortgage payment and have the nagging feeling that the home is in foreclosure, here are some ways to determine when the home will be sold at foreclosure:

  1. Call the Mortgage Company.  This seems obvious, but the best source of information is your mortgage company.  If you are in foreclosure the bank should be able to give the name and phone number of the law firm handling the foreclosure.  The bank may not actually know the date of sale date since the attorneys handle the legal proceedings, but if the loan is in foreclosure they should be able to prove the attorney’s name and phone number.  Call that attorney to check the status of the sale.
  2. Check Online Foreclosure Sales Listings.  There are only a handful of attorneys that handle foreclosures in Nebraska.  Some of these law firms, such as Kozney-McCubbin and South & Associates, have websites listing the upcoming foreclosure sales.
  3. Call Local Foreclosure Attorneys.  Most law firms that handle foreclosures will verify if a sale date is scheduled.  Call these law firms and ask their foreclosure departments to see if they are handling the foreclosure.  Some of the more common firms handling foreclosure matters include Eric Lindquist PC,   Steffi A. Swanson PC, and Walentine, O’Toole, McQuillan & Gordon PC.
  4. Check the Local Newspaper Legal Notices.  A Trustee Sale must be published in a legal newspaper in the county of the sale for five consecutive weeks.  Some of these newspapers are somewhat obscure, such as The Daily Record, that only publish legal notices.

When it comes to stopping  a foreclosure sale, time is of the essence.  You don’t have time to wait.  Filing chapter 13 bankruptcy is one way to stop a sale.  Under a chapter 13 case a homeowner is given 3 to 5 years to pay back the delinquent mortgage payments.  The moment a chapter 13 case is filed a federal court order automatically stops all pending foreclosure sales (with some exceptions for serial bankruptcy filers).

Bankruptcy attorneys need time to prepare a case, so if a sale is pending it is imperative that you make an appointment as soon as possible.  Prior to filing bankruptcy the homeowner must take a credit counseling class and provide their attorney with a certificate of credit counseling.

Another option to request a Loan Modification.  However, if a sale date is pending it may be too late to file an application.  Sometimes the wiser move is to file a chapter 13 case to stop the sale and then file the Loan Modification application so that the process may be completed in an organized fashion.  You can get a loan modification even if you are in the middle of a chapter 13 case, and the bankruptcy case can be dismissed if the loan modification is successful.

Image courtesy of Flickr & Fibonacci Blue.