Santa Fe Bankruptcy Lawyer Blog

Foreclosure rates are as alarming as unemployment rates. Deciding what to do if your home is threatened in this way is a severe test of maturity. We don’t want to lose what is usually both our biggest financial investment and, truly, our safety and refuge.

One of my favorite legal self-help publishers has an article I’m running in a series on, Monday  2/15, 2/22, 3/1, 3/8, 3/15, 3/22,/ 3/29, 4/5, 4/12, 4/19, 4/26, and 5/3.

Consider the Real Estate Market

If you are upside down on your mortgage or have little equity in your home, take stock of the real estate market before making your decision to keep or walk away from your home. If the market is slumped, and appears to stay that way for some time, your best option may be to let your home go. If the real estate market appears to be perking up (meaning prices may rise quickly), it might make sense to try to keep your home even if you have negative equity.

But how to know what the market will do in the future? Even if the market is a bust, judging by history, home prices will ultimately rise again. As Mark Twain is reputed to have advised a young man, “Buy land! God isn’t making any more of it.” Of course, knowing when prices will rise is the key question.

No formula can predict how soon a particular real estate bust will be over. But watch for signs that the market is either improving or stagnating. If some or all of the following factors are present, there’s a good chance the market is not headed for a speedy recovery:

• a collapse of the subprime loan market
• high numbers of foreclosures predicted to continue for a year or two
• an accelerated decline in residential real estate values
• an overall tightness of the credit markets
• a high likelihood of recession, or
• consumers who are tapped out and increasingly unable to make good on any of their debts, mortgages included.

Remember, there is no guarantee that your house will ever recover its original value. As the old saw goes, you don’t want to throw good money after bad. If the housing market doesn’t rebound quickly, every sacrifice you make now to keep your house could be for naught if you ultimately lose it.

Reprinted with permission from the publisher, Nolo, Copyright 2009, NoloWh

This is the third and final post in a three-part series by Charleston Bankruptcy Lawyer, Russell A. DeMott.  Russ explains how you can use the Bankruptcy Code to strip liens from personal property.

You might be embarrassed to admit it, but you did it.  You went to what I call “Flakey Finance Company.”  You needed money.  You were in a bind.  And they were over there on the corner with a sign that said, “Need Cash Fast?” And you fell for it.  You also gave them a lien—called a “security interest”—in your household goods.

You gave them what bankruptcy lawyers call a non-possessory, non-purchase money security interest in household goods.  That’s a mouthful, but it means that your “stuff” has been pledged as collateral for that loan you needed so badly. Don’t feel bad.  It can be fixed.

The Bankruptcy Code Allows You to Avoid this Lien as Well

These liens are avoidable as well, as long as you could otherwise exempt those household goods.  This means your lawyer can file a motion to avoid the lien, serve Flakey Finance Company, and….voila, your household goods no longer have a lien against them.

There is a small catch.  What you think of household goods might not be what the Bankruptcy Code thinks of household goods under this particular provision.   Those three TVs, for example, well, you’re limited to only one.  Same goes for your radio and VCR (yes, it says “VCR”—though most courts would say a DVD player is now the equivalent).  But there are many household goods you can keep that are listed in this provision.  And with only a few household goods left for Flakey Finance Company to take, they usually won’t bother enforcing their lien.  They would need to sue you in a “claim and delivery” action.  It’s unlikely they will do this when you’ve avoided liens on, say, 80% of your household goods.

The bottom line: your lien avoidance motion will just about gut any claim Flakey Finance Company has on your household goods.  In effect, it transforms their claim from a secured claim to an unsecured claim.

Be sure to tell your lawyer if you visited Flakey Finance Company. She’ll be sympathetic and want to help you.  And avoiding these types of liens is a good way to getting you the fresh start the Bankruptcy Code is all about.

Russ also is a Contributing Author at the Bankruptcy Law Network, an ABA “Top 100 Law Blog.”

This is the second post in a three-part series by Charleston Bankruptcy Lawyer, Russell A. DeMott.  Russ also practices real estate law, and has shared his knowledge of how the Bankruptcy Code can be used to strip judgment liens from real estate.

In “Lien Avoidance (Part One),” I introduced the concept of liens.  In this post, I’ll explain how a particular type of lien called a “judicial lien” works.

A judicial lien results from a creditor obtaining a judgment against you and recording that judgment in the county in which you live.

For example, if you default on your Master Card payments, the card issuer will eventually sue you.  Assuming you have no defense—you just stopped paying and the creditor hasn’t waited too long to sue you—the creditor will obtain a judgment against you.  Once that judgment is recorded in the county in which you own property, it’s a—you guessed it—a lien on your property.  We call judgment liens “judicial liens” because they arise out of the judicial process through court cases.

Why is This a Problem?

I discussed the obvious problem in Part One—that the judgment lien creditor can take your house.  But that’s not always the real problem.  Let me give you an example.  If you have a home worth $200,000 and you have a first mortgage on the property for $150,000 and a second mortgage (like a home equity loan) for $35,000, there’s $15,000 of equity.  That’s what the judicial lien creditor is after, right?  But the judicial lien creditor won’t try to take the property—called “levying execution.” Why?  The judicial lien creditor is third in line behind two other creditors.  In this example it’s the first and second mortgage. With so little equity, the judicial lien creditor is probably out of luck.  If the creditor were to force a sale of the property, the first and second mortgage holders would get paid first, leaving virtually nothing for the judicial lien creditor.  This is because the property would not be sold for its fair market value of $200,000.  Instead, it would likely be impossible for the judicial lien creditor to get enough to pay off the first and second mortgages.

So I’m Protected as Long as I Don’t Have Much Equity?

Not exactly. There are two things which need to concern you.  First, in New Mexico, judicial liens are valid for fourteen years.  So while you don’t have equity now, you may ten years from now.

Second, there’s another practical set of problems.  The judicial lien renders your property unmarketable.  It’s what real estate lawyers call a “cloud on title.”  You must pay it off in order to pass marketable title to someone who wants to buy your property.  In our example, with the judicial lien on your $15,000 of equity, it would be impossible to sell your property without paying off the lien.  There’s no equity left for costs of sale like realtors’ commissions, deed stamps, and property taxes.  And even if you don’t want to sell the property, you might want to refinance it some day.

Here’s Where the Bankruptcy Code Comes to the Rescue

Remember from Part One how “liens survive bankruptcy?”  Well, there’s an important exception.  The Bankruptcy Code provides that, to the extent the judicial lien impairs your exemption in your property; you may “avoid” the lien.  Exempt property is property which, by law, you are allowed to keep.

For example, if you have a home worth $200,000 and a mortgage for $170,000, you have $30,000 in equity.  In New Mexico you can exempt—retain— $60,000 in equity in your home ($120,000 for married debtors). If your credit card company sues you and gets a judgment against you for $20,000, that judicial lien “impairs” your exemption.  It’s eating up that $30,000 worth of equity.  Because of this impairment, you can file a motion to “avoid” the lien on your home.  The court will then enter an order providing that the lien is avoided.  The result is you avoid all of the problems discussed above.  Your property is no longer saddled with the judicial lien.

Make Sure You Tell Your Bankruptcy Lawyer About Any Judgments Against You

Be sure to tell your lawyer if you have judgments against you.  She can’t do anything to avoid these judicial liens unless she knows about them. Bankruptcy lawyers aren’t going to do a title search on your property as part of your bankruptcy case unless they first know of a problem.  And it’s up to you to tell them.

In “Liens in Bankruptcy (Part Three),” I’ll discuss another kind of liens, liens on your household goods.

Russ also is a Contributing Author at the Bankruptcy Law Network, an ABA “Top 100 Law Blog.” His series continues next week.

Foreclosure rates are as alarming as unemployment rates. Deciding what to do if your home is threatened in this way is a severe test of maturity. We don’t want to lose what is usually both our biggest financial investment and, truly, our safety and refuge.

One of my favorite legal self-help publishers has an article I’m running in a series on, Monday  2/15, 2/22, 3/1, 3/8, 3/15, 3/22,/ 3/29, 4/5, 4/12, 4/19, 4/26, and 5/3.

Deciding Whether to Try to Stay or Go

If you have some equity in your house, it’s probably worth it to try to hang on to your house, if you think you can afford future monthly mortgage payments (see “Are Your Monthly Payments Too High?,” below, for more on this). If you can’t afford the payments, see if you can reduce your debt load so that you can make them (see “Can You Reduce Your Debt Load?,” below, for ideas on how to free up more of your income or change the payments themselves).

If you find yourself significantly upside down (negative) when it comes to equity, and you are behind on your mortgage payments, there’s not much point, from an economic perspective, in trying to keep the house. What is significantly upside down? It probably makes sense to give up your house if its current value is 25% less than what you paid for it. That’s because your house’s value would have to appreciate by as much as it dropped for you to come out even, and that will likely take several years.

However, if you are upside down on your home and still want to keep it, you might be able to reduce your mortgage payments by working something out with your lender or taking advantage of a favorable refinanced loan under the HOPE for Homeowners Act of 2008. (See, “Can You Reduce Your Debt Load?” below, for more on this.)

Reprinted with permission from the publisher, Nolo, Copyright 2009, NoloWh

Guest Blogger  Russell A. DeMott, a Charleston, South Carolina bankruptcy lawyer who helps clients file Chapter 7 and Chapter 13 bankruptcy, begins his series today.

Lien Avoidance in Bankruptcy (Part One)

The Bankruptcy Code allows both judicial liens and liens on household goods to be “avoided,” that is, removed from your property.  In this three-part series, I’ll explain liens and how your bankruptcy lawyer can get them avoided. The Bankruptcy Code is federal law, so this applies to people in New Mexico just like it does with the clients I see in my Charleston, South Carolina practice.

What is a Lien?

A lien (typically pronounced “leen”) is a claim against property for payment of a debt.  There are many examples of liens. The mortgage on your home is a lien.  The security interest your automobile finance company has in your car is a lien.  If you don’t pay your homeowner’s association dues, you’ll have a lien on your property for those unpaid dues.  If you don’t pay the IRS, they’ll put a tax lien on your property.  The same goes for your property taxes.  And in most states, if you fail to pay a contractor—let’s say an electrician—he can put a “mechanics lien” or “construction lien” on your property.

In this series, I’ll not be dealing with these types of liens, however.  I’ll deal with two other types of liens: liens on household goods and judicial liens.

How Does the Bankruptcy Code Treat Liens?

The general rule is this: Liens survive bankruptcy.  That means, generally speaking, if you have a lien on your property when you file bankruptcy, you’ll have a lien on your property after your bankruptcy case is closed.

For example, if you file bankruptcy and have a mortgage on your property, you’ll have one when your case is closed as well.  The same goes for tax liens, property taxes, and other liens.  But this is the general rule!

Why are Liens a Bad Thing?

Liens are bad because if you don’t pay them, you can potentially lose your property.  And, like I said, liens survive bankruptcy.

In “Lien Avoidance (Part Two of Three)” I’ll tell you about judicial liens and how the Bankruptcy Code allows you to remove this type of lien from your property.

Russ also is a Contributing Author at the Bankruptcy Law Network, an ABA “Top 100 Law Blog.” His series continues next week.

Foreclosure rates are as alarming as unemployment rates. Deciding what to do if your home is threatened in this way is a severe test of maturity. We don’t want to lose what is usually both our biggest financial investment and, truly, our safety and refuge.

One of my favorite legal self-help publishers has an article I’m running in a series on, Monday  2/15, 2/22, 3/1, 3/8, 3/15, 3/22,/ 3/29, 4/5, 4/12, 4/19, 4/26, and 5/3.

Do You Have Equity in Your Home?

To a large degree, your options depend on whether you have equity in your house. Generally, your equity will be the difference between what you owe on the house and what you can sell it for. Unfortunately, many homeowners have negative equity — that is, selling your home would get you less money than what you own on your mortgage and other home loans.

What Is Your House Worth?

These days it’s not so easy to know what your house is worth. Estimates of real estate values are traditionally based on the amounts that similar houses in the neighborhood have recently sold for. To find out that information, check out websites such as  www.Zillow.com or www.housevalue.com. Local real estate brokers and agents can also give you an estimate by looking at similar sales in your neighborhood.

Unfortunately, as property values continue to decrease, it becomes next to impossible to determine the value of your property, especially if no houses in your neighborhood are selling. Or, if there are many foreclosures going on in your community, a house similar to yours may sell for far less than if you sold it outside of foreclosure. The only real way to find out your house’s market value is put it up for sale and see what happens.

Reprinted with permission from the publisher, Nolo, Copyright 2009, NoloWh

Foreclosure rates are as alarming as unemployment rates. Deciding what to do if your home is threatened in this way is a severe test of maturity. We don’t want to lose what is usually both our biggest financial investment and, truly, our safety and refuge.

One of my favorite legal self-help publishers has an article I’m running in a series beginning today and continuing on Monday  2/22, 3/1, 3/8, 3/15, 3/22,/ 3/29, 4/5, 4/12, 4/19, 4/26, and 5/3.

This is the introduction to the body of the article:

If you face foreclosure, realistically assess whether you should keep your home.

If foreclosure looms because you’ve missed some payments, or you think you will soon, it’s time to face what’s probably the toughest question of the whole process: Can you afford to keep your house?

Apart from the emotional considerations that surface whenever a foreclosure is threatened, there are economic factors you just can’t ignore. Before you can decide whether or not to try to keep your house, you need to take stock of your financial situation — which has no doubt changed since you bought your house.

Here are the basic steps:

• determine if you have equity in your home
• decide if you can afford your monthly mortgage payments, and
• reduce your debt load.

Reprinted with permission from the publisher, Nolo, Copyright 2009, Nolo

Unemployment rates continue to frighten most anyone who is watching. People are losing jobs, and it can be horribly difficult to find a new one, especially one that approaches the salary and benefits of an earlier one.  Times are different and they are difficult.

One of my favorite legal self-help publishers has an article I’m running in a series, on Tuesday  1/19, 1/26, 2/2, and 2/9.

Ways to keep a job loss from becoming a financial disaster, Part 3.

4. Continue your health insurance. If you had health insurance through your employer, complete any necessary paperwork to keep those benefits in place. Under the Consolidated Omnibus Budget Reconciliation Act (commonly known as COBRA), you can keep employer-based group insurance coverage for yourself and dependents for up to 18 months (sometimes longer). You will have to pay the full premium for coverage unless you are eligible for a partial subsidy: Those whose employment is terminated involuntarily from September 1, 2008, through the end of 2009 may qualify for a subsidy that pays 65% of the cost of COBRA for up to nine months. (For more information, see New COBRA Rules: Stimulus Package Subsidizes Continued Health Insurance.) Paying the full premium can be a real financial strain, but it should cost significantly less than buying your own individual policy. Your health plan should send you an “election notice” within 45 days of your job loss, and you have 60 days to decide whether to elect COBRA continuation coverage. If you do elect to continue your coverage, you’ll have 45 days after your election to pay the initial premium. If you don’t choose the continuation coverage and your coverage lapses, you may have difficulty getting new insurance. (For more information, see Your Rights When You Leave a Job.)

5. Cut your expenses. List your monthly expenses and determine which you can cut, or at least reduce, immediately. Good candidates for cutbacks include restaurant meals, premium cable subscriptions, clothing purchases, house cleaners, gardeners, and any other nonessential purchases. Remember that you can resume your normal spending habits once you’re working again.

6. Prioritize your debts. If your cash reserves are short and you are unable to pay certain bills, make sure to pay the essential ones first. Don’t risk losing your house, being cut off from medical care, or getting in trouble with the IRS when you could have let less crucial bills — such as your cable TV bill or your magazine subscriptions — slide. Also consider contacting your creditors to ask for a short-term hold or reduction on your payments. When discussing alternative payment arrangements with creditors, be sure to ask if the new arrangement will negatively affect your credit rating. (For more information, see Which Debts Must You Repay?)

Reprinted with permission from the publisher, Nolo, Copyright 2009, Nolo

From time to time, a Guest Blogger will share voice at the New Mexico Bankruptcy Law Blog. Today, we welcome Russell A. DeMott, a Charleston, South Carolina bankruptcy lawyer who helps clients file Chapter 7 and Chapter 13 bankruptcy. Russell also is a Contributing Author at the Bankruptcy Law Network, an ABA “Top 100 Law Blogs.”

Russ has written a 3-part series for the New Mexico Bankruptcy Law Blog on  “Lien Avoidance in Bankruptcy.”  It starts in two weeks. Topics include:

• What is a Lien?
• How Does the Bankruptcy Code Treat Liens?
• Why are Liens a Bad Thing?
• So I’m Protected as Long as I Don’t Have Much Equity?
• Here’s Where the Bankruptcy Code Comes to the Rescue

Welcome, Russ! We look forward to your series!

Unemployment rates continue to frighten most anyone who is watching. People are losing jobs, and it can be horribly difficult to find a new one, especially one that approaches the salary and benefits of an earlier one.  Times are different and they are difficult.

One of my favorite legal self-help publishers has an article I’m running in a series, on Tuesday  1/19, 1/26, 2/2, and 2/9.

Ways to keep a job loss from becoming a financial disaster, Part 2.

7. Consider getting a roommate. If you have the space, a short-term roommate can help mitigate the cost of your mortgage or rent. You might also consider a part-time roommate, someone who commutes from afar and needs a bed only a few nights a week.

8. Take on odd or part-time jobs while you search. House-sit, walk dogs, or be a companion for an older person. These and other part-time, low-commitment jobs can offer immediate income while allowing you time to conduct your search for a new job in your field.

9. Don’t use credit cards (unless you absolutely have to). One major risk of unemployment is spiraling debt. Credit card debt is notoriously difficult to get out of and should be avoided. Do everything you can to avoid getting into, or deeper into, any kind of debt.

10. Don’t lose heart. Remember, millions of others have faced a job loss and lived to tell about it. Many successful people have lost their jobs, only to go on to better things. And losing an income is not a reflection on your worth as a person, or even on the quality of your work. With the right attitude, you can use this opportunity to take a step back and consider new directions that may well prove to be more rewarding both personally and financially.

Whether you choose to do all or just some of the above, you’ll be taking important and useful steps to manage your finances during this difficult time.

Reprinted with permission from the publisher, Nolo, Copyright 2009, Nolo