Articles

A Florida Chapter 7 Filing May Now Eliminate a Second Mortgage

For many in the Orlando area it has become common to owe more on your home than it is currently worth. A recent decision out of the Eleventh Circuit Court of Appeals offers a new avenue of relief for struggling homeowners who may soon face foreclosure. In McNeal v. GMAC Mortgage, LLC, the court found that in a Chapter 7 bankruptcy an individual can “strip off” a junior lien. The bankruptcy term “strip off” means that an unsecured lien is removed in its entirety. What is an Unsecured Junior Lien? A homeowner purchased a home for $200,000 in 2004 and financed $165,000 through a mortgage. The value of the home increased and in 2006, the homeowner consolidated debts with a second mortgage of $40,000. In 2012, the home is now valued at $150,000. The homeowner owes $158,000 on the first mortgage and $35,000 on the second mortgage. The second mortgage is a junior lien and is unsecured, because the house is no longer worth the amount owed on the first mortgage. How Does the Case Benefit Underwater Homeowners? Prior to this case, an individual who was underwater and facing foreclosure could only strip a junior lien, such as a home equity line of credit or a homeowner’s association lien, with a Chapter 13 filing. The individual pays back a portion of the debt they owe under a three- or five-year plan in Chapter 13. Banks holding those junior liens receive a portion of what was owed and are treated similarly to other unsecured creditors. In the past a homeowner might have needed to file a Chapter 13 solely to strip off junior...

Florida Bankruptcy Court Orders Creditor to Compensate Debtor

The Florida Bankruptcy Court recently came down hard on Bank of America after it ignored a Florida debtor’s discharge and continued to call the debtor thirty-eight times trying to collect on debts. The court ordered the bank to pay the debtor for emotional distress and attorney’s fees. A debtor’s discharge is a legal action intended to protect a debtor. Following a discharge, collection agencies are not allowed to send letters or make phone calls asking for payment. This gives debtors time to collect their finances without harassing phone calls and other communications. Creditors can file an objection to the debtor’s discharge. All creditors get notice of the debtor’s filing and a deadline to object. The court will not always grant a debtor’s discharge if the debtor concealed assets or has not fulfilled the necessary discharge requirements such as taking classes on personal financial management. Not all debts are dischargeable in a Florida bankruptcy petition. The most common non-dischargeable debts are those for child or spousal support or willful injuries to another person or their property. Student loan debts are also usually not dischargeable, but sometimes a knowledgeable Orlando student loan help attorney can help. Collection Agencies May Not Know of Discharge Bank of America has ignored debtor discharges in the past. The Bank will give the debtor’s information to outside collection agencies even though the debtors have a discharge. One court ruled that Bank of America took “clearly inadequate” steps in order to determine if a debtor had a discharge. Another woman spent three years working with Bank of America after they had sold her account to a collection agency. The woman...

Families Struggle to Pay College Tuition as Costs Soar in Florida

The costs of higher education continue to increase faster than the overall rate of inflation. Parents are struggling to pay tuition costs for their children. Although funding college was never easy, the ballooning increase in tuition and fees forces many parents to take out loans they may not be able to repay. These excessive loans can worsen your financial situation and drive you to consider filing for bankruptcy protection. In the past, families would often fund college expenses through a second mortgage. But as home prices have plunged borrowers no longer have adequate equity for a second mortgage. Many parents are turning to other forms of funding. One popular choice is the Parent Loans for Undergraduate Students (PLUS) loan. This loan is government issued and requires no collateral. But a PLUS loan comes with a 7.9 percent fixed interest rate. Differences from Student Loans Student loans differ from PLUS loans in two important ways: Student loans carry lower interest rates Interest on student loans accrues after graduation, which makes student loans generally favorable However, a larger student loan award generally is only granted after a PLUS loan application is rejected. College financial aid officers have voiced concerns about this system, according to U.S. News. They find that PLUS loans are awarded to financially strapped parents, who may not be able to repay the loans and need student loan debt relief. Bankruptcy and Educational Loans Bankruptcy is designed to aid individuals attempting to manage excessive amounts of debt by offering a fresh start. However, a PLUS loan is not dischargeable in bankruptcy. Forgiveness from a PLUS loan is only granted in extreme...

Medical Bills Force Orlando Family into Bankruptcy

Many individuals and families have considered bankruptcy in recent years due to the poor economy, a lost job and the sharp downturn in the housing market. But there is another all-too-common reason for seeking bankruptcy relief, one an Orlando family knows all to well: medical bills. The birth of their daughter in 2007 was a celebrated event for the Sutherland family. But, shortly after Ellie’s birth, she was whisked away to a neonatal intensive care unit, where she remained for 25 days, thus beginning a lifetime of visits to hospitals and specialists trying to determine what was affecting little Ellie. She was partially deaf, suffered from high fevers, was lacking muscle tone on one-half of her face and would scratch and bite until she bled. In 2009, the Sutherland’s filed for bankruptcy. The medical bills were piling up, the couple made too much money to qualify for government benefits for Ellie, but not enough to keep up with the house, the living expenses and Ellie’s treatment. Medical Bankruptcies are Not Uncommon in Florida and Throughout the U.S. Researchers at Harvard and Ohio found that 62 percent of all bankruptcies are due at least in part to medical debt. Every 90 seconds, a family somewhere in the United States files for bankruptcy relief because of overwhelming medical expenses. Contrary to popular belief, a majority of those families, three-quarters to be exact, had health insurance. Both of the Sutherlands were employed when Ellie was born and both had insurance. Neither thought that medical bills would become an issue. But the insurance companies pointed fingers at each other, claiming that the other was the...

Florida Bankruptcy Statistics Show a Decline, But Many Are Still Struggling With Debt

While Florida bankruptcy filings show a decline compared to last year, experts say the percentages may be skewed. Most economists are not celebrating yet; they do not believe that Florida is quite yet on the mend as unemployment remains high throughout Central Florida. Some believe the drop-off was caused by a temporary backlog of foreclosure filings from lenders due to the accusations of fraudulent paperwork in 2009-2010. While banks sort though legal issues and company tactics, delinquent mortgages have been put on the back burner, slowing the number of foreclosures. The Hidden Benefit of the Foreclosure Backlog: No Mortgage Payments Some Florida homeowners who have lost their jobs or have otherwise fallen prey to the Great Recession are benefitting from the backlog. As lenders slow the rate at which they are filing foreclosures, many people have been able to live ‘rent free’ in their home, allowing funds to be used elsewhere. Living without a mortgage payment and being able to stay in their home is enabling some homeowners to get back on their feet financially, avoiding or postponing bankruptcy. The timing of a bankruptcy filing is a critical issue for anyone considering bankruptcy relief; the lack of a mortgage payment has given some Orlando-area families additional time and money during these difficult times. Bankruptcy Options for Floridians Individuals have two main bankruptcy options, Chapter 7 and Chapter 13 bankruptcy. A Chapter 7 bankruptcy, if filed correctly, will allow the homeowner to eliminate unsecured debt and keep their home. A Chapter 13 bankruptcy allows you to restructure all debt including your mortgage in order to make payments more manageable. A Chapter 13 filing...

Foreclosure, Bankruptcy and Security Clearances for Florida Workers

For the hundreds of Floridians whose employment with NASA, Lockheed Martin or other government agency or contractor in Central Florida depends on an active security clearance, fighting a Florida foreclosure may mean more than saving your house. It may also mean saving your job. Although no specific reports tie the number of denied or revoked security clearances to the current mortgage crisis, federal officials have noted an increase in both for purely financial reasons, including foreclosure. Why is a Security Clearance Related to Personal Finances? There are more than dozen criteria examined in when granting or revoking a security clearance; debt is one of them. When an applicant for a security clearance has substantial debt problems, that person could potentially sell confidential government information to generate additional income. The mere existence of a foreclosure on your credit report does not guarantee that an existing security clearance will be revoked or a new request will be denied. Examiners may consider factors surrounding both the purchase of the home–whether the purchase itself overextended the borrower at the time of sale–as well as the mortgage status throughout repayment and eventually foreclosure–did the borrower take steps, such as pursuing a loan modification or short sale, to change or end the financial obligation. Bankruptcy and Your Security Clearance A bankruptcy on your credit history may also affect your ability to obtain or maintain a security clearance. However, as with foreclosure, the circumstances surrounding your bankruptcy will be examined to determine what impact, if any, it will have on your security clearance. For example, if the bankruptcy resulted primarily from issues beyond your control, such as a large medical bill, it is...
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