Unemployment Rate Rises to 9.2%

Further proof that the economic recovery seems one-sided (for the ultra-rich), the government released a “dismal job report” and the unemployment rate rose to 9.2%.  What this means is that despite an individual’s good faith effort to pay off their debts, economic factors out of their control have prevented millions of Americans from doing so.  Recently there was some seemingly good news of bankruptcy filings falling by 5%, however reasons for the drop may not be so great.  Due to unemployment, many individuals can not AFFORD to file for bankruptcy.  In the NYC Metro area, bankruptcy attorney fees + court fees typically range around $1500-$2500.  Also, due to the credit crunch that began in 2008, the amount of available credit, and therefore debt, has also fallen.  A decrease in foreclosures may be temporary due to a stricter review of foreclosures causing a backlog of cases courts must handle.  If you are thinking about filing for bankruptcy, speak to your attorney to see if an affordable payment plan can be reached.

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Foreclosureville, NJ

CNN recently ran a story on the astronomical foreclosure rates in Plainfield, NJ.  Nearly 10% of the homes in this middle class town is in the process of being foreclosed.  This is nearly 3 times the national average.  The unfortunate consequences include lower property values, business slowdowns, increased crime and population defections.  Filing for Chapter 13 bankruptcy can stop a foreclosure and enable you to make up missed payments in a court approved Plan.  This makes sense if you want to keep the home and have enough equity in the home.  If the home is underwater, meaning the mortgage balance is higher than the home’s value, then filing for Chapter 7 bankruptcy can protect the homeowner from the bank.  New Jersey is a “recourse state,” meaning that the bank may sue the homeowner for the difference between the mortgage balance and the foreclosure sale price.

Double Dip Housing Market Now Official

Due to the prolonged recession and the unwillingness of lenders to modify or refinance home mortgages, housing market prices have now officially dropped below the previous lows in March 2009.  What this means is that more and more homes will be underwater.  A house is underwater when the value of the home is below the balance of a mortgage.  In these cases, many people decide is doesn’t make sense to keep making payments and simply “walk away” from their homes.  There are some negative consequences of course: the home will eventually be foreclosed and the mortgagor(s) will be personally liable for the difference between the mortgage balance and the amount the lender receives when they sell the foreclosed home.

Filing for Chapter 7 bankruptcy can extinguish the personal liability of the mortgage.  A warning: mortgages are often co-signed (by the husband or wife) so both would have to file jointly for bankruptcy if they want to get rid of the personal liability.

Automatic Stay

An automatic stay prevents creditors from taking any collection action against you.  This includes phone calls, filing lawsuites, pre-foreclosure activities, monetary collections, garnishments and freezing bank accounts.  An automatic stay is one of the most powerful tools in a bankruptcy filing because it allows debtors some immediate breathing room.  If a filer’s wages are being garnished, the bankruptcy court immediately notifies the employer, and the garnishments must stop.  All collection calls must also stop.  That’s the good news.

The issue is when there is secured property (such as a home or car).  Because physical property has been secured by a mortgage or auto loan, the creditor in these situations can file a motion seeking relief from the stay.  Some do, some don’t.  If the secured creditor does file the motion, the bankruptcy court will almost always grant it, thereby allowing the secured creditor continue their collection activities.

Facing Foreclosure

When facing foreclosure, there are several options.  The first is to try to renegotiate the mortgage loan terms.  The likelihood of refinancing or obtaining a loan modification varies from lender to lender.  Some are open to working with you, others are ruthless and won’t budge.

A short sale is the second option.  A short sale occurs when the selling price of a home is lower than the mortgage amount.  The benefit of a short sale is that it won’t harm your credit score as much as a foreclosure would.

The third scenario is a foreclosure.  In New Jersey, lenders must go through the courts to foreclose on a home.  The process is costly for lenders which is why some of them are open to renegotiate loan terms.

New Jersey is a recourse state.  This means that if a lender forecloses on your home, sells it, and there is a deficiency between the mortgage amount and the selling price, the foreclosed homeowner is responsible for the difference.  The lender would then ask the court for a deficiency judgment for the difference.  If you file for bankruptcy, any deficiencies resulting from the sale of a foreclosed home is wiped away.

If you file for bankruptcy, this may relieve you of your other debts in order to continue making payments on your mortgage to save your home.  It also provides some time for you to assess your financial situation, attempt to renegotiate the mortgage, and to determine whether it is worth keeping the home or not.