The Florida Bankruptcy Law Blog

FICO Chief Talks About Credit After Bankruptcy

People considering bankruptcy are usually concerned about bankruptcy’s effect upon their credit score and what they need to do in order to rehabilitate their credit. I saw an interesting article in  Yahoo Finance about an interview with Mr. Mark Greene, the CEO of Fair Isaac & Co., the managers of your FICO score. 

Mr. Greene says that a bankruptcy or a foreclosure will reduce your credit score by 150 points, and that it takes up to seven years to restore your credit score. There is a common understanding that bankruptcy stays on your credit report for seven years. The fact that your credit report includes a prior bankruptcy filing, and that it takes up to seven years to fix your credit does not mean that you will not have good credit for seven years; it means that some people do not restore their credit score until the bankruptcy report is removed at the end of seven years.

I have had many clients who report that they have rehabilitated their credit three or four years after filing bankruptcy. Post-bankruptcy credit depends upon how well you do financially after bankruptcy and whether you follow the several good-credit practices Mr. Greene discusses in the Yahoo article. 
This article makes interesting reading whether or not you consider yourself a bankruptcy candidate. 

Additional Issues In Probable Casey Anthony Bankruptcy: Where To File?

I have received several emails commenting on my post about the legal issues in the hypothetical, but probable, Casey Anthony bankruptcy. My earlier post said that the well-known facts provide a good discussion opportunity about many technical bankruptcy law issues. The news reports that Ms Anthony may be compelled to testify under oath this coming October in the “Zanny” civil suit makes bankruptcy almost inevitable. Also, there have been more reports about book offers, and her attorneys do not want whatever opportunities materialize in the future to be subject to creditor claims or part of the bankruptcy estate. She will likely file bankruptcy before the civil case deposition.

Additional issues. One of the emails asked me what would happen to the bankruptcy if Ms. Anthony wants to relocate outside of either Orlando or outside of Florida. Ms. Anthony can move to another Florida city and file bankruptcy wherever she chooses to reside, whether or not the new location is near Orlando, Florida.

If she moves out of state the rules are different. Assume that Ms. Anthony is on her way to a new location far, far away. For example, assume  next week she will be living in Alaska. For the next ninety days Ms. Anthony still must file bankruptcy in Florida. After residing in Alaska for 91 days she can file bankruptcy there. However, Alaska exemptions will not apply because she will not have lived in Alaska for two years. Florida exemptions will not apply to her case because she will no longer be a Florida resident; Florida exemptions require Florida residency. Her bankruptcy in the new location will be under the default Federal exemptions.

Chapter 7 Trustees Attacking Debtors' Right To Stay Put In Their Upside Down Homestead Property

The Florida Supreme Court’s expanded debtor’s $4,000 wildcard exemption earlier this year giving debtors substantially more exemptions to apply to their cars and personal property. Any debtor who does not need to use their homestead exemption can take the wildcard exemption; joint debtors have a combined additional $8,000 of available exemptions.

Chapter 7 bankruptcy trustees get compensated based upon the amount of non-exempt assets they capture and administer in the bankruptcy estate. The more that courts expand debtor exemptions the less property is available for trustees. Trustee pay goes down..  The wildcard exemption expansion is not good for bankruptcy trustees.

In today’s real estate market, most bankruptcy debtors live in upside down homestead properties. The debtor does not have to be current on his mortgage to stay in his house during bankruptcy, and a large percentage of Chapter 7  debtors, being in financial trouble for one reason or another, will remain in possession of their upside down house, default on their mortgage, and also claim the wildcard exemption because they have no homestead equity. Such debtor who defends a mortgage foreclosure case in state court can remain in their home for a year or more during and after filing bankruptcy. When a debtor does not claim homestead exemption on an upside down house in order to get the wildcard exemption the debtor is betting that the Chapter 7 trustee will not attempt to administer the homestead because there is no value for creditors.

Many of the bankruptcy trustees are trying to obtain money for the bankruptcy estate of debtors who want to remain in their upside down homes while claiming the wildcard exemption.. For example, I have heard one trustee who sold the bankruptcy estate’s rights such a home to a third party investor. The investor acquires title subject to the mortgage in default. The bankruptcy debtor becomes a tenant. The investor can charge the debtor rent, or evict the debtor and find a higher paying tenant. The investor can fight the foreclosure and collect rents while fighting with the bank.

Social Media Poses Trap For Bankruptcy Debtors

I really liked this post on Georgia attorney Jonathan Ginsburg’s bankruptcy blog about how debtor’s Facebook posts could jeopardize their bankruptcy case. If you are part of the “social media generation” and are considering bankruptcy you should read this post.  I have not had any experience with a Chapter 7 trustee researching debtors’ social media content, but I suspect that the trustees will eventually realize that the social media sites are a good source to find inconsistencies with debtors’ bankruptcy schedules. I think a trustee could compel you to provide access to debtors’ Facebook and Twitter accounts as well as any other personal electronic information. In any event, make sure you have not posted something online that refers to assets or income which is inconsistent with your bankruptcy schedules.

Article Explains Risk Of Hiding Assets In Bankruptcy

Two people told me about a St. Peterburg Times article about people who get in trouble and lose their bankruptcy discharge because they tried to hide assets in a Chapter 7 bankruptcy. The author, Susan Taylor Martin, tells the story of bankruptcy debtor Gary K Parker who filed a bankruptcy petition listing few assets. Parker pleaded guilty to criminal act of failing to disclose an account with $35,000. The article states that many, if not most, bankruptcy debtors intentionally undervalue non-exempt assets or fail to disclose very valuable assets such as boats and gold watches. Such bankruptcy law violations are often  uncovered, according by to the article, when angry former employees or spouses contact the bankruptcy trustee.

My own experience is that most clients are very honest; they feel badly about having to file bankruptcy and do not want to cheat the system. There are also some clients who I suspect may be less than fully truthful in completing a bankruptcy questionnaire. Sometimes, after a bankruptcy attorney tells a client they have non-exempt assets the client will go to a second bankruptcy attorney and not disclose the same assets.

The newspaper article suggests that the bankruptcy system should, and is, becoming more aggressive in finding fraud. The article explains what many bankruptcy debtors do not understand to be the risk about lying on a bankruptcy petition.

Wells Fargo/Wachovia Bank Is Freezing Bank Accounts Of Bankruptcy Debtors: Get Your Money Out While You Can

If you file bankruptcy with a checking account at Wells Fargo/Wachovia bank you have a problem. This bank has decided to freeze checking accounts of any customer who files bankruptcy. No, the debtor does not owe the bank or its credit card any money, and the money in the account could be exempt wages, retirement proceeds, or social security. Doesn’t matter; don’t care. If you file bankruptcy your bank account is frozen until the money is released by your bankruptcy trustee. The bank’s position is that they are not violating the bankruptcy stay when the bankruptcy debtor does not owe the bank a debt.

A federal court recently issued an order directing Wells Fargo/Wachovia to stop freezing bankruptcy debtor accounts. The bank is appealing the order and stated it intends to continue freezing the accounts of customers who file bankruptcy. If you are thinking about bankruptcy get your money out of Wachovia/Wells Fargo bank.

Bankruptcy Court Set To Require Mortgage Lenders To Negotiate Mortgage Modifications With Chapter 13 Debtors

The Orlando bankruptcy court is preparing to adopt a rule providing for mandatory mediation between homeowners and their mortgage companies to facilitate mortgage modification. Congress rejected a change in the bankruptcy code that would have empowered Chapter 13 debtors to force reduction in their first mortgage principal to their residence’s current fair market value. This proposed procedural rule will not circumvent the bankruptcy code and will not force reduction of first mortgage principal. What the rule will do is enable Chapter 13 debtors by motion filed with the court to compel a bank representative with full authority to modify mortgages to meet with the debtor and an independent mediator to negotiate in good faith a possible modification of the debtor’s first mortgage terms. The terms and the conditions of the rule are expected to be announced shortly. This bankruptcy rule should be a big help to debtors who want to save their primary residence from foreclosure.

The Florida Supreme Court is requiring mediation in state court foreclosure cases. This state court rule is helpful, but the bankruptcy court rule could be better for homeowners. Before getting to mediate with a bank agent with full authority the homeowner has to be in a foreclosure case. The homeowner first has to stop paying the mortgage for at least three months, wait for the bank to file a lawsuit, hire a civil attorney to answer the lawsuit, proceed for several months in civil litigation, and then at some point, arrange for a court ordered mediation. The result of the mediation is a contractual agreement to modify the mortgage, and the modification usually calls for a few months of trial payments before it is binding.

Chapter 13 Debt Limits Set To Rise: Many People Still Denied 13 Relief By High Mortgage Debts

The 2005 bankruptcy law was supposed to encourage, or require, many debtors to file a Chapter 13 repayment bankruptcy instead of a Chapter 7 "wipe out" bankruptcy. People who make too much money relative to expenses usually fail the Chapter 7 means test and are forced into Chapter 13. Not exactly. The problem is that Chapter 13 has debt ceilings. Regardless of how badly you flunk the means test you are ineligible to file Chapter 13 if your secured debts total more than approximately $1,000,000 or if your unsecured debts total more than approximately $350,000.

These debt limits frequently close people out of Chapter 13 even if they are willing to pay what they can afford to creditors. Blame it on the housing bubble. The great housing inflation not only raised prices, but it also increased mortgage amounts. Liberal issuance of second mortgages took peoples total mortgages even higher. Many people now filing bankruptcy became insolvent because of the depreciation of investment real estate- more mortgages. All homestead mortgages and all investment property mortgages count as secured debts to the extent they remain secured by property value. Upside down mortgages are secured debts to extent of current property value and are unsecured debts to the extent of the deficiency. The sum of this mortgage debt is throwing many people out of Chapter 13.

Chapter 7 Bankruptcy Made More Difficult By The Newest Lower Median Income Numbers

The census bureau’s median income figures are changing effective for bankruptcy petitions filed after November 1, 2009. Median income is used to determine if prospective bankruptcy debtors pass the means test. Florida’s median income has been increasing since the new bankruptcy law went into effect in October, 2005. People whose family income is below the median income for their family size can file for Chapter 7 bankruptcy automatically without having to pass the "means test." As the median income increased it became easier for people to qualify for Chapter 7.

The latest revised median income levels are lower probably because more people have lost jobs or have reduced income during the recession. For example the median income for a single person household in Florida is reduced from $42, 468 to $41,226. For a family of four, the median family income is lowered from $71,124 to $69,009. The recession is making it somewhat more difficult to file bankruptcy. For those debtors above median income, the lower census figures make it a little harder to pass the means test.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida

Second Mortgage Sabotage Of First Mortgage Modification Plan

I would like to ask you, the blog readers, to help a reporter who is investigating  practices in the mortgage modification programs. A national business publication is investigating overly aggressive second mortgage lenders. The reporter, Mr. Robert Berner (312-451-7149), is looking at situations where a second mortgage lender sues a homeowner after the homeowner has already entered into a modification agreement with the first mortgage. The second mortgage gets a judgment against the homeowner and then garnishes the owner's bank accounts or salary which causes the homeowner to default under the first mortgage modification agreement. These second mortgage lenders are sabotaging the modification programs set up and encouraged by the government to help homeowners. In some cases where the same bank holds the first and second mortgage the bank modifies the first mortgage and then sells the second mortgage to a third party investor which then agressively collects the second or even sues the homeowner for delinquent second mortgage payments. These mortgage lenders appear cooperative in modifying their first mortgages but then undermine the same modification by collecting or selling the second mortgage.

A related mortgage issue I have heard about from my own clients occurs when a homeowner has checking accounts at the same bank that holds his home mortgage. Some clients have reported that when they missed a mortgage payment the bank invaded their checking account and pulled the mortgage payment out of their checking account without notice. I have previously posted my general advice which is to move your accounts out of the bank that holds your home mortgage if you miss a mortgage payment.

Please get involved. If you have had a mortgage modification plan ruined by a second mortgage holder who sued you during the modification process, or if you have had your mortgage lender grab mortgage payments from your checking account at the same back before a foreclosure or other lawsuit was even filed, call Mr. Berner (312-451-7149) and discuss your experiences.