How to Get Out of Debt With the Get Out of Debt Guy » bankruptcy protection

Bankruptcy Judges Should Have the Power to Modify Mortgages

Steve Rhode — Sat, 29 Nov 2008 21:40:25 +0000

The sagging home values are drawing attention to a gaping hole in bankruptcy protection, the ability for U.S. bankruptcy judges to be able to modify the terms of a mortgage to keep people in their homes that want to pay.

A couple of recent article really caught my eye, “Delahunt: Empower judges to modify mortgages” and “A Win-Win Bankruptcy Reform“.

Bankruptcy judges have the power to change the term of loans for vacation retreats, business and car loans, but no authority to keep you in your home. Silly.

Homeowners facing trouble today or headed to foreclosure will often file bankruptcy to stop the foreclosure on their home. But that won’t save the home if you can’t afford the mortgage.

Under existing law, bankruptcy courts cannot modify the terms of home mortgages. To keep her home, this debtor needed to demonstrate sufficient income not only to make her ongoing payments at 14 percent but also to cover, during her five-year repayment plan, the payments she had defaulted on. Her proposed plan was clearly not feasible based on her salary, so I had no choice but to lift the stay and allow the foreclosure to continue.

However, homeowners could easily be allowed to remain in their homes if the loans were modified either in length or to return the interest rates charged back to a fair and reasonable amount.

When mass foreclosures occur, as they are now, nobody wins. The homeowner, banks and investors win if they can keep the proud and emotionally attached homeowner in the property, making payments, and properly caring for the home. This allows neighborhoods to flourish that would otherwise have vacant and unkempt bank REO homes just sitting there.

If we can’t give bankruptcy judges the authority to modify these loans in specific situations and under specific guidance then who can we trust to do the right thing, lenders?

This gap in bankruptcy authority seems to be perpetuated because the mortgage industry feels it would be detrimental to the mortgage industry but I have to agree with Judge Leonard when he writes:

No one has been able to explain to me why it is not better for mortgage holders to get a fair return of principal back, albeit at a lower interest rate, than to take a lump sum through foreclosure that is probably much less than the value of the note.

It does not make sense.

Not allowing bankruptcy judges to have authority to modify mortgage terms only tosses people out on the street. People who will eventually get new mortgages when the economy improves.

It seems that the costs passed on to us, the consumers are not because mortgage defaults, but because logic does not prevail.

New Concerns About 40% Credit Card Debt Reduction Proposal

Steve Rhode — Mon, 03 Nov 2008 20:38:07 +0000

From How to Get Out of Debt

Last week I wrote an article Banks Agree to Wipe Out Up to 40 Percent of Credit Card Debt But Watch Out but more information has come to light since then.

While consumer advocates are happy about the possibility of getting banks to write off as much as 40% of the debt in order to help consumers avoid bankruptcy, this is a well intentioned plan that is still half baked.

Proponents of this initiative have not clearly thought out all the issues and appear to not be spending time learning from what has and has not worked from outside the United States fence. On first glance, an effort that would wipe out a large portion of debt seems like a blessing but from personal experience in helping people in the U.S. and the UK. These are the important areas we need to focus on.

Creditor Voting – I have not read or heard any discussion about the 40% plan becoming binding on all unsecured creditors if the majority of creditors, by debt, agree to the plan. Unless all creditors are bound to the plan all it takes is one creditor to not participate and the entire solution blows up. The reality of getting all to agree is unreasonable so a 51% acceptance of the plan should be sufficient.
Fast Track Individual Voluntary Arrangement (FTIVA) – In April, 2009 a new process will come into effect in the UK. The FTIVA is designed to allow 90% of insolvent debtors who would normally seek bankruptcy protection, to enter into a payment plan upon a 51% acceptance by creditors. The extensive research and framework of this plan is something that we should closely study and consider emulating before the U.S. goes off and learns the mistake lessons like the UK already has from the more formal IVA already in place since 1986. UK Fast Track IVA Review Document – PDF
Make Life Allowances – Not only does this repayment plan need to be binding on all creditors upon a majority vote but it needs to have allowances and processes built-in to handle an unexpected financial hardship for a consumer enrolled in the plan. Already, consumers are seeking bankruptcy protection secondary to unexpected life events which create hardship. If a consumer is enrolled in the 40% plan and three years into the plan they have an unexpected financial emergency, we don’t want the plan failed and creditors to go back after the entire debt and all the fees and interest they can heap on. We need to create some fail safe mechanism that does not leave, the consumer that has made their best effort, stranded after so much effort. Otherwise, why not just go bankrupt to begin with and avoid the possibility of wasting three or four years of repayment only to fail due to an accident, illness, downsizing, etc.
Provide Incentives For Hard Work and Extra Effort – A lesson to be learned from the UK system would be that we need to provide consumers with an incentive to end their 40% plan early if they work hard, increase their income and can pay the plan off early. Accelerated repayments benefit the creditors and the consumer since it gives them motivation to improve their financial standing during the time in the plan. In the UK it is far too common for a consumer to get a raise or increase income only to have it taken from them as a windfall and poured into the plan. We need to fix the total amount due under the plan at the start so that the consumer clearly knows the total debt to be repaid and let them be hungry to pay it off early through grit and determination.

United States consumers have been long abandoned and left without new and more progressive ways to repay their debt outside of bankruptcy. This is our opportunity to remedy this situation and give good people with bad debt a way to effectively repay their debt with more protections than a credit counseling plan can give and without the big gun of bankruptcy.

Slowdown nails contractors: Dozens of Idaho small business owners

Steve Rhode — Mon, 27 Oct 2008 05:41:17 +0000

From How to Get Out of Debt

Here is a great news story that gives you a real look at some of the recent small business failures and what the court documents tell us. It helps to put a real face on what would otherwise be just another tick in a column.

Court documents offer a window into some of the struggles of these entrepreneurs. The following vignettes were gathered from paperwork filed in bankruptcy court this summer and fall. Owners of these businesses either declined to comment or could not be reached:

Brad Echeverria started his Boise home-building company, Echeverria Construction Inc., in 1998. The company shut down in January 2008, and Echeverria has been working as a subcontractor for Steed Construction in Eagle since then. He and his wife filed for Chapter 7 bankruptcy protection on Aug. 28. They plan to surrender a $300,000 home on Diamond Ridge Way in Nampa to pay off Washington Mutual, which is owed $220,000 from a mortgage loan issued in 1997, and Wells Fargo, which is owed $66,000 from a second mortgage issued in 2004. Liabilities total $673,000, while the Echeverrias have assets of $313,000. Liabilities include a $28,000 business debt to Arenas Plaster of Eagle for masonry and stucco provided in 2006, $23,000 to Eagle Custom Wood Products of Emmett for cabinets and more than $100,000 owed on business credit cards.

David Cullison operated his Boise construction and remodeling company, Cullison Construction, from June 1994 until July 2008. He and his wife owe $290,000 and have $111,000 in assets. Their real property assets include a 50 percent interest in a home in the Country Club Manor development near Hillcrest Country Club, though they owe $205,000 to Countrywide Home Loans for the property. Other debts include $25,000 in wages they owe themselves and $55,000 related to a breach of contract lawsuit.
Kirk Carpenter of Boise has operated his own business for most of the time that he’s also served as a Nampa firefighter over the past 10 years. His company, Open Door Home Building, also known as Concore LLC or E4 Developments, has built homes since October 2000. For the past two years, Carpenter has also worked as a realtor for Idaho Properties GMAC. On Oct. 6, he and his wife filed for Chapter 7 bankruptcy protection with $149,400 in assets and $1.4 million in liabilities. Their $278,000 home on Riva Ridge in Boise was returned to the lender, HSBC Mortgage Services, on Sept. 3. They also lost possession of a home on Ardyce Street in Boise in January, when it was returned to Wells Fargo. Debts include $322,000 owed to Syringa Bank for construction loans issued in 2006; $150,000 to Darrell Wiseman, a private investor in Meridian; $225,000 to Kenny Lee, a private investor in Nampa; and $60,000 for a business loan from Wayne and Dru Carpenter of Baker City, Ore.
Chambers Construction of Meridian reported gross income of $42.3 million in 2006, which plummeted to $2.4 million in 2007 and $283,000 this year. The company, led by president Gary Chambers, filed for Chapter 7 bankruptcy protection on Oct. 7 with $1.1 million in assets and $1.8 million in liabilities. The assets consist of four properties, including a $424,000 home on Commander Street in Meridian, plus two additional properties of unknown value. Liabilities include four construction loans totaling $680,000 from Banner Bank issued in May and June 2008, a $464,000 construction loan issued by Provident Financial in May 2008 and a $218,000 construction loan from Action Mortgage issued in May 2008. Other unsecured debts include $8,600 owed to subcontractor Metric Industries Inc. of Boise, $28,000 to supplier Evans Building Center of Eagle, $30,275 to subcontractor Prestige Fence and Lands of Star and $18,300 to supplier Dale’s Floor and Granite Inc. of Nampa.
Scott Carroll closed his Post Falls painting company, Scotts Painting, in September after more than five years in business. He and his wife filed for bankruptcy on Oct. 17. The only major asset they possess is a $168,000 home, though they have $229,000 in liabilities. They plan to retain their home and pay CitiMortgage Inc. the $147,000 that’s still owed after the conclusion of the bankruptcy process. Most of the rest of their liabilities consist of medical bills, a car loan and credit card debt.
Boise home builder and contractor Russ Iverson filed for Chapter 7 bankruptcy protection on Aug. 29. Iverson and his company, Outlook Homes, will surrender five properties in the liquidation process after being in business from May 2003 to August 2008. Iverson and his wife have $1.2 million in assets and about the same in liabilities. The assets mostly consist of the five homes that will be returned to lenders, including their own $285,000 residence on Outlook Avenue in Boise, two duplexes in Nampa and two other mid-range homes. The liabilities largely entail the mortgages on the homes, taxes and credit card bills.

Slowdown nails contractors: Dozens of Idaho small business owners … Idaho Business Review, United States - 2 hours ago Most of the rest of their liabilities consist of medical bills, a car loan and credit card debt . · Boise home builder and contractor Russ Iverson filed for …

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Source: Slowdown nails contractors: Dozens of Idaho small business owners

How to Get Out of Debt With the Get Out of Debt Guy » bankruptcy protection

Bankruptcy Judges Should Have the Power to Modify Mortgages

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New Concerns About 40% Credit Card Debt Reduction Proposal

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Slowdown nails contractors: Dozens of Idaho small business owners

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