Bankruptcy is a very difficult decision to make. Nobody likes to be in a position where they are forced to make that choice. Unfortunately with the current condition of the market this is a reality for many home owners. I regularly receive many questions regarding bankruptcy and what it means personally and what it will mean financially now and further down the road. I have put together a few of the most common questions I receive along with the answers. I hope this will help give you a basic idea on how the process works but do not take this as legal advice, always seek legal council when facing the choice of bankruptcy.
I am a cosigner for a debt, how does bankruptcy affect my obligation?
If the debt is a dischargeable debt then you will not have to pay it. However, the cosigner will become primarily responsible for the debt. Be sure to list the co-signer as a creditor in your schedules as they have a contingent claim against you.
Can I keep my house after bankruptcy?
Depending upon which exemption scheme is selected and your circumstances, you may exempt up to $100,000 in equity. When calculating your equity you should use a value that is based upon a forced liquidation as opposed to the best selling conditions to arrive at a value for your home. Once you know the value, subtract the amount owed plus selling and transfer costs from the value to calculate the equity. In a depressed market, liquidated properties are often valued less than what we like to think the property is worth.
Can I keep my credit cards after bankruptcy?
Under some circumstances you may keep your credit cards. There are many factors which must be considered. Some of those include the credit card balance at the time of the bankruptcy, what the credit card company is willing to do and your ability to pay the present and future credit card debt.
Will I lose my job?
No. Bankruptcy laws prohibits discrimination based upon a debtor filing for protection under the bankruptcy laws.
Can I go to jail if I file bankruptcy?
No. There are no debtor’s prisons in the United States.
Will my employer find out about my bankruptcy?
Under normal circumstances, unless your employer is a creditor, your employer will not know.
Will bankruptcy stop a wage attachment?
Yes.
Will bankruptcy stop a judgment?
Yes. Most civil judgments are stopped by bankruptcy.
Will a bankruptcy remove a lien?
Under some circumstances once the bankruptcy proceedings have started, special motion can be filed to remove certain liens. It will take a bankruptcy court order to remove them. This is a complicated area of the bankruptcy law and an attorney should be consulted.
Will bankruptcy stop an eviction action?
Perhaps. However, this will only delay the inevitable. The owner is entitled to possession of his property and at best you will be able to remain in the property until you have received your discharge from bankruptcy or the landlord obtains an order from the bankruptcy court. I must caution you that if the only reason you filed the bankruptcy is to stop an eviction then this might be considered an abuse of Chapter 7. If the bankruptcy court finds that this is true then the court can immediately dismiss the bankruptcy and impose other legal and monetary sanctions on you.
Will bankruptcy stop a foreclosure?
Yes. However, a home is an asset usually secured by a deed of trust. The mortgage company is entitled to apply to the court for relief from the automatic stay, the order preventing creditor action by virtue of the bankruptcy. Depending upon several factors, you may be able to prolong a foreclosure until you have received your discharge from bankruptcy. Usually, to keep a home that is in foreclosure you will have to make a deal with the note holder.
I am divorced, will bankruptcy wipe out my obligation to pay community debts?
In general, you will be discharged from all dischargeable community debts. However, you should discuss this with your family law attorney to understand the other implications of the filing of a bankruptcy during the pendency of a dissolution action (divorce case). Also, remember that if you are discharged from community debts, your spouse is responsible for the entire balance owing on the debt. Put another way, they shift the responsibility on to you.
Are there any debts that I can’t wipe out in bankruptcy?
Yes, there are certain debts that are NOT dischargeable in bankruptcy. Generally speaking, the following debts will not be discharged: Taxes; Spousal and Child Support; Debts arising out of willful misconduct and or malicious misconduct by the debtor; liability for injury or death from driving while intoxicated; non-dischargeable debts from a prior bankruptcy; student loans and criminal fines, penalties and forfeitures. Those debts which are secured will be discharged, however, expect the creditor to take the necessary legal steps to take back the property. In most cases if the debtor’s equity interest in the property is exempt, the debtor may retain the property by redemption or reaffirmation.
Disclaimer:
This information deals with Chapter 7 consumer bankruptcy. Each state has its own bankruptcy laws, so you need to check with your state for details. Information dealing with Chapter 13 bankruptcy and consumer debt restructuring is not discussed in the above FAQs. The information contained in the following FAQs is provided for general information purposes only and is not intended to be a legal opinion nor legal advice nor is it intended to be a complete discussion of all the issues related to the area of Chapter 7 consumer bankruptcy. Every individual’s factual situation is different and you should seek independent legal advice regarding specific information.
Interest Rate Commentary
Wednesday: 02/27/08 10:30 AM EST:
Treasuries are ahead this morning on weak economic news but supply pressure is likely to keep a lid on the upside. The news has pulled the stock indices down in early trading action but the losses are mild and this may be interpreted as a bullish indicator considering the solid gains made in the last three sessions.
In today’s economic news, the Commerce Department reported that the seasonally adjusted level of new orders for durable goods items fell in January by 5.3% following a rise in December of 4.4% (previously reported as 5.0%). The decline was larger than the 4.0% drop that forecasters were predicting.
Durable goods are defined as items meant to last three years or more. They are usually labor-intensive to produce, expensive, and therefore often financed. Because of this, the trend in orders provides some insight regarding upcoming production activity and the effect interest rates may be having on the process.
All of the key sub-categories also saw declines last month. A large but volatile category of items is transportation and orders there were down by 13.4% following a 10.2% increase in December. January’s drop was the largest in over a year. But even excluding the category, orders were down by 1.6% after a 2.0% December increase.
Another category that is usually filtered out is orders in the defense sector. This is because they are not governed by standard market forces. Defense orders were down by 16.2% but even excluding them, orders were down by 4.7%. And excluding both the defense sector and the category of commercial aircraft (a highly volatile transportation component), orders were off by 1.8% last month.
Observers also attend to the category of non-defense capital goods minus aircraft since it provides some insight on core business demand. Orders there fell by 1.4% in January after a 5.2% rise in December.
In the second major release of the day, the Commerce Department reported that the seasonally adjusted, annualized rate of new home sales fell by 2.8% in January from December’s 605,000 to 588,000. This was lower than the predictions for a 600,000 reading and was the lowest sales pace since February of 1995. The decline was widespread. Only the West saw a pickup of 2.2%. The pace fell by 10.3% in the Northeast, by 7.6% in the Midwest, and by 2.4% in the South.
With the falling demand, the inventory of new homes on the market has been dropping. In January, the seasonally adjusted, annualized level of homes on the market was 482,000, the lowest reading since August of 2005. At the prevailing sales pace, the inventory would be depleted in 9.9 months, the longest turnover time since October of 1981.
Despite flagging sales, the average new home price edged higher last month by $2,200 to $276,600. However, this was still 12.1% below the previous January’s average. The median home price fell by $9,600 last month to $216,000, the lowest since September of 2004. The price was 15.1% below the previous January’s.
In related news, the Mortgage Bankers Association of America reported that its application index fell last week by 19.2% to its lowest level in eight weeks. The data series has been quite volatile recently, possibly due in part to faulty seasonal adjustment factors associated with the year-end holidays. In the last three weeks, the index has fallen by a total of 38.8% but this followed five weeks in which the index surged by 103.5%. In the three weeks before that, the index had fallen by 34.3%.
But the latest developments also reflect rising mortgage rates which have had the strongest effect on the refinance sector. The news release said that the index for which fell by 30.4% last week to an eight-week low. Refinances accounted for 52.0% of application activity, down from 61.7% in the previous week and the lowest portion recorded so far this year.
Yet, the purchase sector has not been strong lately, either. The purchase index was little changed last week with an increase of 0.2%. Despite the rise, the reading was still the second lowest in over seven years.
The index of applications for conventional loans fell by 21.4%. The index of applications for government-backed loans fell by 3.8%. Registrations for adjustable rate mortgages rose from 12.8% to 15.0% — the highest percentage since mid-November.
This afternoon, the Treasury will be conducting its monthly auction of 2-Year Notes and the offering is the largest in almost four years. The larger size means demand is likely to be comparatively less than last months’ and last month’s issue met with generally weak demand.
In January’s auction, bids exceeded the $24 billion offer amount by 2.33 to 1, up from the 2.23 bid-to-cover ratio in December’s auction and the 2.21 ratio in November. But it was still well below the 2.86 average for the twelve auctions preceding January’s.
Noncompetitive bids, a gauge of individual investor demand, totaled $597 million, up from $525 million in December but far short of the twelve-issue average of $745 million.
Foreign demand was extremely weak. Indirect competitive bids, which include those from foreign central banks, garnered just 18.8% of the issue, down from December’s 25.4% award portion and below the twelve month average of 29.7%.
Today’s issue has a face value of $26 billion. The deadline for competitive bids is 1:00 PM Eastern Time. The deadline for noncompetitive bids is noon.
Regardless of whether the auction is successful or not, any upside move is likely to be capped by preparation for more supply coming to market tomorrow. This is the monthly 5-Year Note offering and it, too, will have the largest offering size since April of 2004.
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