Housing Boom a Bust for Some!

The housing market is red hot right now with homes selling for well-above asking price. This has caused home values to skyrocket. For many homeowners, this is a welcomed phenomenon. With interest rates as low as they are, it is an opportune time to tap into that equity through a cash-out refinance or home equity line of credit.

However, this may have the unwelcome result for those needing to file for bankruptcy in Nebraska. Under Nebraska exemption laws, an individual filing for bankruptcy can exempt (protect) up to $60,000 in a home. The $60,000 exemption also applies to proceeds from the sale of a home for six (6) months after the sale. In Nebraska, the homestead exemption cannot be doubled, meaning that a married couple filing for bankruptcy cannot each claim the $60,000 exemption to protect up to $120,000 in equity.

Example: Husband and wife have $70,000 in credit card and medical debt, a home worth $250,000 with a mortgage of $150,000, and household income of $65,000, which has been stagnant for the last 3 years. Over the last 3 years, the home increased in value by $75,000 without any major renovations taking place. The home currently has $100,000 in equity, but only $60,000 of that equity can be exempt (protected). The couple needs to file bankruptcy to stop a garnishment and to address the $70,000 in unsecured debt. Based upon their income and household size (2), they qualify for a Chapter bankruptcy, If they file a Chapter 7 bankruptcy, they risk a Chapter 7 Trustee selling their home, paying $150,000 to the mortgage company, $60,000 to them for the homestead exemption, and distributing the remaining $40,000 to the unsecured creditors. In short, they'd risk losing their home.

The couple has some other choices to explore as alternatives to filing Chapter 7 bankruptcy:

1. Sell the home and settle debts. Sell while the market is hot. With this option, the couple would have funds available to negotiate lump sum settlements of the $70,000 credit card and medical debt. Many creditors will settle debts for 30-60% of the debt.
2. Do a cash-out refinance and settle debts. Assuming the couple qualified for a cash-out refinance, this would be a great time to tap into the equity to address the debts they have.
3. File a Chapter 13 bankruptcy to reorganize debts. Instead of going to each individual creditor to work out a settlement, the couple could file a Chapter 13 bankruptcy a propose a 3-5 year plan of reorganization. In the Chapter 13 bankruptcy, the couple would retain their home, but would have to pay the unsecured creditors an amount equal to the non-exempt equity in their home of $40,000. The issue would be whether they could afford to pay the $40,000 over the duration of the plan.

The housing boom may have the adverse effect for those needing to file for bankruptcy because the homestead exemption in Nebraska is only $60,000, which may not be enough to protect Nebraskan's home in the current housing market.

Deciding whether to file a bankruptcy is a complex and emotional decision. Finding the right attorney to work with you to make that decision is crucial. Instead of worrying what will come next, you should meet with a bankruptcy attorney to discover your options for dealing with your financial situation.

Car Repossessions on the Rise!

I do not usually employ scare tactics when discussing bankruptcy. Quite honestly, it only perpetuates the fears and anxieties that people have about bankruptcy, causing a stalling effect in many situations. When people are faced with an emergency, they need to move swiftly and remove barriers for addressing the emergency. With the pandemic lingering into its 11th month, unemployment claims are expected to rise again and new jobs reporting looks bleak. The $600 stimulus check for many families is simply not going to be enough to keep afloat. Financial emergencies are going to be on the rise.

One emergency that is likely to proliferate in 2021, car repossessions. Car lenders have run out of patience (0r maybe compassion) and have jumpstarted vehicle repossessions for defaulted car loans.

You could also cure the default, but chances are you don't have the funds available to do so. A Chapter 13 bankruptcy allows a borrower to retain the vehicle and pay for it in a 3-5 year repayment plan.

1. Reduce Interest Rate. Interest rates on car loans can be as high as 18%, which can add thousands to the amount owed on a loan. In a Chapter 13, you can reduce the interest rate to the prime rate plus 2%. For many, this reduction saves thousands of dollars. You would never have this option outside of a bankruptcy unless you refinanced the loan.
2. Cramdown. If the car loan was obtained more than 910 days before you filed your bankruptcy, then you can do a cramdown, meaning that you pay only the value of your vehicle instead of the amount owed. For example: Let's say you owe $10,000 on your car loan, but your vehicle is worth only $5,000. You would pay $5,000 instead of $10,000. For many people who are underwater on their cars, this can be a huge benefit.
3. Effectively Reduce Your Monthly Car Payment. Let's say that your current vehicle payment is $400/month. You have 24 months remaining, meaning you still owe $9,600 on the remaining months. You are behind 5 months, meaning you have an arrearage of $2,000 for a total due and owing of $11,600. In a Chapter 13, you can effectively spread that payment over a 3-5 year plan (or 36 to 60 months). Spread over 36 months, the modified monthly amount would be $325. Spread over 60 months, the modified monthly amount would be $195. You would never have this option outside of a bankruptcy unless you refinanced the loan.
4. Cure Default. You can catch your car loan up through your Chapter 13 repayment plan. You cannot do this in a Chapter 7 bankruptcy.
5. Stop a Repossession. Once your bankruptcy is filed, something called the automatic stay goes into effect and puts you and your assets into a protective bubble, meaning the car lender cannot repossess your vehicle.
6. Protect Co-Debtors. The automatic stay extends to co-debtors, meaning anyone who cosigned the car loan is also protected.
7. Get Your Car Back. Even if your vehicle has been repossessed, you can get it back if you file Chapter 13 bankruptcy before the vehicle is sold at auction.
8. Handle All of Your Debt. By filing bankruptcy, you are able to handle all of your creditors in one place and at one time. From a mental and emotional standpoint, you no longer have to expend the energy juggling all of your debt.

Instead of worrying what will come next, meet with a bankruptcy attorney to discover your options tailored to your situation.

What is Chapter 7 Bankruptcy?

A Chapter 7 is a bankruptcy where a Chapter 7 Trustee claims and liquidates a Debtor’s non-exempt assets to pay debt. In exchange, the Debtor receives a discharge with some exceptions like student loans and domestic support obligations.

When a person files for bankruptcy they are required to list a bunch of financial information, including what they own (assets), what they owe (debt), income, and expenses. All of the assets are put into a "bin" that is called property of the estate. The goal is for a person to protect as many assets in their "bin" as possible using exemptions. When an exemption is claimed, the person effectively removes the asset from the "bin" and puts it on their "shelf".

When it comes time to handover the "bin" to the Chapter 7 Trustee, the goal is for the "bin" to be empty or filled with assets of minimal or inconsequential value. If there is nothing in the "bin", the Chapter 7 Trustee has nothing to claim an interest in and liquidate to pay debt. If there are only assets of minimal or inconsequential value, the Chapter 7 Trustee will most likely abandon those assets to your "shelf". If there is anything of value, the Chapter 7 Trustee will claim that asset, remove it from your "bin", and place it on his "shelf" to then sell/liquidate to pay your creditors. In an overwhelming number of Chapter 7 bankruptcies, the Trustee claims no assets. As such, the person filing for Chapter 7 bankruptcy retains all of his or her property.

The ultimate goal of the Chapter 7 bankruptcy is to obtain the discharge, which eliminates the filer's legal obligation on his or her debts. The person fills a "box" with all of his or her debts, including but not limited to credit cards, medical bills, car loans, payday loans, mortgage loans, and loans owed to family and friends. Certain debts are pulled out of the "box" and put on the shelf, meaning those debts survive the bankruptcy and are non-dischargeable. The goal is to have as much of the debt stay in the "box" and be incinerated once the discharge is granted. Some debts that come out of the box are student loans and child support obligations to name a few.

Instead of worrying what will come next, meet with a bankruptcy attorney to discover your options tailored to your situation.

Chapter 13 Bankruptcy: A Helpful Tool

When the foreclosure moratorium ends at the end of this month, thousands of individuals will be faced with the stark reality that a foreclosure is looming.

In addition, many forbearance programs, a process where a lender agrees that an individual doesn't have to make a payment for a period of time, will also be expiring soon. Individuals who communicated with their lender to ensure that they didn't have to make monthly mortgage payments may have been given wrong or misleading information. Some lenders are putting the payments that should have been made on the back-end of the loan, effectively extending the loan. However, some lenders will be requesting a lump sum equal to the payments that would have been due and owing up front once the forbearance ends.

Here is how a Chapter 13 bankruptcy can help you in Nebraska:

1. Stop Foreclosure. With the bankruptcy being filed, you enter the protective bubble called the automatic stay. Creditors must stop the foreclosure process the second your bankruptcy is filed. You then can bring your mortgage current through your plan.
2. 3-5 Year Plan. You put forth a plan that lasts 3-5 years. At the end of the plan, you are debt free!
3. Handle Creditors Unwilling to Work with You. Creditors are essentially dragged into your bankruptcy. A creditor has 70 days to file a claim. If they don’t, they don’t get any payments and are eliminated 100%.
4. Easy Wage Withholding. If you’re employed, the plan payment is made from a wage withholding, meaning you no longer have to run around each month trying to figure out how and when you are going to make payments on your debt.
5. Asset Protection. Creditors can’t take your property, garnish your wages, or repossess a vehicle while you are in the bankruptcy making plan payments. You retain your property.
6. Protect Co-debtors. The Ch. 13 automatic stay extends to co-signors or guarantors on your debt.
7. Eliminate Non-Support Obligations. In a Ch. 13 bankruptcy you can eliminate non-support obligations stemming from a divorce decree. If you are left paying a property settlement but no longer have the funds or income to do so, a Chapter 13 may be a great solution.
8. Cram down a Car Loan. If you owe more than your vehicle is worth and you acquired the car more than 910 days ago, you can do what is called a cram down, meaning you only pay what the vehicle is worth in your plan instead of what is owed.
9. Pay Only a Percentage of Debt Back. In many cases, you only end up paying a percentage of your general unsecured debt (i.e. credit cards and medical bills) back. For example: You have $100,000 of credit card debt. You may only pay 50% or $50,000 back. The other 50% gets eliminated (discharges) at the end of your plan.

Instead of worrying what will come next, meet with a bankruptcy attorney to discover your options tailored to your situation.

Don't Miss These Deadlines

With an economic downturn on the horizon, there is likely to be a high rate a default on credit cards, home mortgages, and car loans. Nebraskans will need to know what deadlines that they must pay attention to in order to avoid an emergency or disaster.

Answering Lawsuit. You have 30 days from being served with a lawsuit to file a response. If you miss this deadline, the plaintiff (creditor) bringing the lawsuit, can obtain a default judgment and move forward with garnishing your wages and/or your bank accounts. The Nebraska Supreme Court provides a general answer and denial for you to prepare and file with the court.

Claiming Exemptions. If a creditor obtains a judgment against you and moves forward with garnishing your bank account, you should receive a Notice to Judgment Debtor. You have to move swiftly having only 3 business days from receiving the notice to request a hearing to determine if the account is exempt. In Nebraska, you have a $5,000 wildcard exemption to protect a bank account, meaning if you have $5,000 or less in your account it is fully exempt (protected).

Trust Deed Foreclosure. Most foreclosures in Nebraska are completed pursuant to the Nebraska Trust Deed Act, meaning that the creditor/lender does not have to initiate a court action to foreclose. The lender simply has to file a Notice of Default with the Register of Deeds for the county where the Deed of Trust is filed. The lender will send that Notice by certified mail to the borrower. The lender then has to wait 30 days after filing the Notice of Default before publishing notice of sale, which has to run for five (5) consecutive weeks. Once the sale takes place, there is no right of redemption in Nebraska.

Right to Cure Car Loan. The lender has to provide written notice to the borrower that the borrower has 20 days to cure the default from borrower's failure to make a required payment. If the default is not cured, then the borrower can accelerate the loan, making the entirety of the loan due, and pursue repossession. The lender is not required to provide the same notice and the borrower has no right to cure.

Instead of worrying what will come next, meet with a bankruptcy attorney to discover your options tailored to your situation. Patino Law Office is a boutique bankruptcy firm located in Omaha, Nebraska providing services statewide.

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When to File Chapter 13 Bankruptcy in Nebraska

Figuring out when is the best time to file for Chapter 13 bankruptcy doesn’t have to be hard. In many situations, the person dealing with financial distress has been trying to figure out how to handle their debt for months or even years. The person is constantly juggling money, deadlines, and how they’re going to get it all accomplished. Chapter 13 bankruptcy exists as a solution to allow people in Nebraska to consolidate debt and handle it all in one place at one time. The creditors get dragged into the bankruptcy system and must partake in the 3-5-year repayment plan.

There are some factors to evaluate when figuring out whether Chapter 13 bankruptcy is a viable solution for the financially distressed Nebraskan.

1. Good Income, But Not Enough. You always pay your debt on time, but you run into a situation where you never get ahead. The Debt continues to grow with no sign of stopping. On paper, you make good income, but it is not enough to pay down your debt or to build any savings. The Chapter 13 bankruptcy is largely based upon your disposable monthly income or excess monthly income, basically the amount of money you have left over ever month after considering general living expenses.
2. Temporary or Permanent Reduction of Income. You were out of work for a short period of time or now have taken a new job with a significant pay cut. Your income no longer stretches as far as it used to, and you have fallen behind on your bills. You do not have an ability to catch up or get ahead.
3. Behind on Mortgage or Car Loan. For whatever reason, divorce, job loss, death of a love one, etc., you have fallen behind on your mortgage or car loan. You’ve tried to complete the loss mitigation packet with your mortgage company and have gotten nowhere. You’ve tried to work out a deal with your car lender, but they want too much. The Chapter 13 bankruptcy allows you to cure the arrears, the amount you have fallen behind in your 3-5-year repayment plan.
4. Tax Debt. You have recent income tax debt or other tax debt that you cannot afford to resolve through a repayment plan. You can resolve your tax debt by handling it through a Chapter 13 bankruptcy.
5. Status Quo Keeps You in Debt Cycle. Iusually spend some time comparing the Chapter 13 bankruptcy with the alternative, which is the status quo. I call it the “do nothing” approach. You always have the option of doing nothing other than what you’re currently doing. However, there is typically no clear light at the end of the tunnel with this option. For example: I had a client who was faced with $2,500 per month in minimum monthly payments. In a Ch. 13 she was able to repay 100% of her debt through a 5-year repayment plan making monthly payments of $1,000 and will be debt free at the end of the Chapter 13 plan.
6. Asset Retention. In a Chapter 13 bankruptcy, you keep your property. The plan is funded through post-filing excess/disposable income. Pause before you start liquidating your retirement accounts or other assets before considering Chapter 13 bankruptcy as a viable solution to handle your debt. I have seen countless times where a client liquidates assets to handle debt when they could have retained the asset and still handled the debt.
7. Accelerated Debt Recovery. If you successfully complete your repayment plan, you are debt free in 3-5 years. That is a much better situation than paying minimum payments on credit cards indefinitely. I frequently am asked, “how will bankruptcy negatively impact me?” I usually respond with the fact that a Chapter 13 bankruptcy puts you in a better position financially quicker than if you were trying to resolve this with another non-bankruptcy solution.
8. Creditors Must Participate. The bankruptcy automatic stay, the provision in the bankruptcy laws that protects you, prohibits creditors from attempting to collect a debt directly from you. What that means is that all the phone calls, collection efforts, and lawsuit stop. The general unsecured creditors (i.e. medical bills, credit cards, consolidation loans, etc.) must file a claim within 70 days of your case being filed in order to participate in the distribution. If they snooze, they lose. Also, it is a lot easier to deal with all your creditors in one place instead of scattered all over the place.
9. Stop Garnishments. The garnishment laws in Nebraska allow for 15% to 25% of your gross adjusted wages to be garnished. For some people, this involuntary repayment of debt causes you to default on your other debt such as your house or car. It creates a domino effect. You can get into a Chapter 13 to stop the garnishment and propose a repayment plan based upon your budget as opposed to an unforgiving percentage of your income.

Deciding whether to file a bankruptcy is a complex and emotional decision. Finding the right attorney to work with you to make that decision is crucial. Instead of worrying what will come next, you should meet with a bankruptcy attorney to discover your options for dealing with your financial situation.