Blog

Missed Mortgage Payments in Your Chapter 13 – An Expensive Problem

By Jonathan on January 7, 2009

In the Northern District of Georgia, the “standard” Chapter 13 plan that is used provides that on-going mortgage payments are to be made directly to the mortgage company during the pendency of your Chapter 13 plan. In other words, if you file Chapter 13 because you are three payments delinquent, your missed payments (the mortgage “arrearage”) will be paid in your plan. However your ongoing mortgage payments are sent directly to the mortgage company.

I know that in some bankruptcy filing districts, on-going payments are collected by the trustee and paid through the trustee’s office. The trustees in the Northern District of Georgia do not do this as a matter of course.

This means, therefore that Chapter 13 debtors have the significant responsibility for paying their mortgage payments on time each month after their cases are filed. If you miss one or two payments, the mortgage lender can and will file a Motion for Relief from Stay. They will argue that your missed payments reflect your inability to afford your mortgage and that bankruptcy protection ought to be lifted so that the mortgage lender can foreclose. [Read more…] about Missed Mortgage Payments in Your Chapter 13 – An Expensive Problem

Inside the Belly of the Beast – How Debt Collectors Think

By Jonathan on January 6, 2009

Back in February, 2007, I wrote a blog post entitled Understand the Psychology of Debt Collection Tactics and Avoid Being Manipulated. In this article I noted that bill collectors use techniques identified by psychologists to trigger guilt and other emotional responses that might cause you to send money to a particular bill collector.

For example, bill collectors will try to persuade you to verbally authorize a draft from your checking account because such an action is immediate. Presumably the collection statistics for individuals who promise to mail a check are significantly less impressive than those who authorize a direct payment. Never authorize anyone to access your account electronically, by the way – it is a bad idea for many reasons.

In any case, my Bankruptcy Law Network college Andy Miofsky recently posted an interesting article in the Debt Law Network blog entitled “How to Read Your Debt Collector’s Mind.” In this article, Andy identifies a number of freely available web sites published by and for the debt collection industry that reveal many of these psychological tricks.

If you are dealing with debt collectors you need to treat negotiations as a business transaction and the resources Andy identifies can help you in this regard.

Is Your Mortgage Company Making the Correct Property Tax Calculations?

By Jonathan on January 3, 2009

If you are financing your home purchase with a large mortgage company, there is a good chance that your lender has set up an escrow account to collect and pay your county real estate taxes. Mortgage companies escrow taxes and insurance to protect their interests – a lapse of insurance coupled with a fire or flood could destroy the loan collateral (your home) and a lapse of tax payments could lead to a tax sale.

Escrowing taxes and insurance can also help if you do not have the discipline or cash flow to save up several thousand dollars every year to pay these costs. The mortgage payment alone should not be seen as the sole cost of owning property – I think it is wise for any prospective homeowner to prepare a detailed budget with projections for all home ownership costs – taxes, insurance, maintenance, increased utility costs, repairs, etc.

My Bankruptcy Law Network colleague, Texas attorney Pam Stewart recently published a valuable post entitled “Is your Mortgage Company Collecting the Right Amount of Taxes?” Her post relates to Texas law, but the principle applies in Georgia as well. Georgia offers homeowners age 65 and older a series of property tax breaks. Some of these breaks apply when you hit age 62. There are other breaks that apply to disabled veterans. You should not assume that your mortgage company knows that you are age 62 or 65 or that they have the correct information about exemptions to which you may be entitled.

How are Year End Bonuses Treated in a Median Income Test Calculation?

By Jonathan on December 27, 2008

When I meet with a potential client, one of the first calculations I run is a “median income test” evaluation. The median income test adds up your gross income from all sources during the six months preceding the month of filing, then divides by six to arrive at a monthly average. If that monthly average exceeds the median income for a similarly sized family in Georgia (or other applicable State), then you “fail” the median income test and a “presumption of abuse” arises. As a practical matter, above-median debtors often find themselves in a Chapter 13 repayment plan rather than a Chapter 7 liquidation.

How should the median income calculation deal with Christmas bonsues? If we read the Bankruptcy Code literally, a Christmas bonus will distort your median income calculation if you file your case in January, February, March, April, May or June. A June filing, for example, would look at gross income during December through May to generate a monthly average. A July filing, by contrast, would look at gross income for January through June, and not count any Christmas bonuses. [Read more…] about How are Year End Bonuses Treated in a Median Income Test Calculation?

Chase Home Finance Accused of Adding Improper Charges to Bankruptcy Claims

By Jonathan on December 24, 2008

As a member of the Bankruptcy Law Network, I am part of a small group of knowledgeable and prolific bankruptcy lawyers from all over the country. If you have not yet checked out the Bankruptcy Law Network blog, I encourage you to do so.

In addition to writing for the BLN family of blogs, most of my colleagues in this endeavor publish their own websites and blogs that address more local concerns. Just as this blog focuses on bankruptcy issues relevant to the Northern District of Georgia, frequently the BLN member blogs will have a local focus as well. However, there are some bankruptcy and consumer protection issues that have a national focus. I subscribe (using RSS and my iGoogle page) to a variety of bankruptcy and consumer bankruptcy blogs from around the country for the purpose of picking up trends and learning about case strategies that may very well work for me in my local practice. If you are a bankruptcy lawyer or individual interested in keeping track of what is going on in the bankruptcy world, I invite you to subscribe not just to this blog, but to several of the bankruptcy related blogs listed on my blogroll.

BLN member (and founder) Jay Fleischman recently posted a blog article that has relevance in any bankruptcy jurisdiction. His post entitled “Chase Home Finance, Caught Manufacturing Defaults in Bankruptcy Court, Nears Deal with U.S. Trustee” discusses a problem that I believe has existed for years with many mortgage lenders who file claims in bankruptcy court. [Read more…] about Chase Home Finance Accused of Adding Improper Charges to Bankruptcy Claims

Will Your Credit Limit Be Reduced Based on Where You Shop?

By Jonathan on December 21, 2008

Today’s Atlanta Journal-Constitution contains a very interesting article entitled “Consumer Profiling? – His card’s limit was cut over where he shopped.” The story describes the plight of a 29 year old businessman named Kevin Johnson who received notification from American Express that his credit limit was being reduced. Why? According to Amex “other customers who have used their card at establishments where you recently shopped have a poor repayment history.”

Mr. Johnson notes that he has a perfect payment history with American Express, a solid credit score and that he does not exceed 30% of his credit limit. He also reports that American Express will not offer any explanation as to which particular charges triggered the action from the credit card issuer.

Mr. Johnson’s personal credit profile does not seem to matter to the credit card issuer. Instead, Amex’ model makes assumptions about Mr. Johnson based on the stores where he shops. American Express has refused to offer any explanation as to how their model works, which is kind of baffling as it is not too difficult to imagine that some enterprising lawyer will find a client and file a lawsuit accusing the credit card lender of a form of redlining.

It will be interesting to see what kind of fallout this revelation about American Express’ credit policies will generate. My wholly unscientific guesses as to the type of activity that may trigger a credit reduction include:

use of credit cards to pay groceries
use of credit cards to pay tax debt
using credit cards to pay restaurant tabs when you are running a high balance
a pattern of use that shows an increasing frequency of credit card use at bars or clubs

What do you think about this form of credit profiling? Will you now change how you manage your credit card use?