Owing to the recession and economic shortfall, every American is finding it difficult to cope up with their financial situation. Almost 98% of the homeowners are on the verge of losing their homes. People are finding it hard to work out a probable solution for their problem. In order to save thousands of homeowners from losing their homes to foreclosure, Obama Administration stepped in to bail out distressed homeowners.

The mortgage bail out plan introduced by Obama is referred to as Making Home Affordable Plan. As many as 7 million to 9 million homeowners are expected to benefit from this program. One of the most sought after mortgage bailout plans is Loan modification. Loan modification can help homeowners to prevent their property from foreclosure.

Another important factor to take into account is the lenders’ willingness to modify loans. The government has taken necessary steps in this regard too and lenders that are willing to join the bandwagon are being offered financial incentives for the same. In fact, the government is extending incentives to keep borrowers regular with their mortgage payments. An important factor to consider is you can opt for loan modification only if you qualify for the program. This is one of the major limitations of the program. And homeowners have been complaining about the drawbacks of the program. One of the major drawbacks of the program was that it failed to address the needs of homeowners who had second mortgages. There are many loan modification companies operating in the industry and it is important that you take help
of an authentic loan modification company.

There are 3 ways in which the lender can help you by loan modification. The lender may increase the loan term. Alternatively, the interest rate may be reduced or you can switch over to fixed-rate mortgage. By doing so, your mortgage payments become predictable. In some cases, the principal amount is also reduced.

Important aspects of loan modification

• You need to understand the type of documentation that is required for the loan modification process.
• You need to know the person whom you are supposed to approach to get your loan modified.
• Since the first mortgage bailout program introduced by Obama had many drawbacks, a second program was introduced to address the needs of the homeowners that were not deriving any benefits from the first program. It can help you to save your home from foreclosure.
• Selling your home may also help you in these situations provided you are not “underwater”.

There is yet another way you can prevent your home from foreclosure. You can opt for a forensic loan audit with the help of experienced audit professionals.

The incidence of bankruptcy filings and foreclosure is at an all time high and debt trapped people are taking all possible measures to wriggle out of the country’s “economic avalanche”, which has managed to knock out consumers from the driver’s seat. It is a well known fact that prior to the liquidity crunch, the economy of United States was consumer driven. Employment rate was high; taxes were quite low, even the real estate market was doing pretty well. Filing bankruptcy was infrequent and much easier.

The new Federal bankruptcy Laws that came into effect on 17th October 2005 changed the way bankruptcy is filed. Norms have become stringent and there are plenty of barriers you have to overcome in form of eligibility criteria. The Means Test is one of them.

Means test has been introduced so that people with higher income don’t file for Chapter 7 bankruptcy. Means test is applicable for consumer debts. Business debts are kept outside the purview of the Means test. If you fail to qualify for Chapter 7 bankruptcy, you can qualify for Chapter 13 bankruptcy. If you have a higher income doesn’t mean that you don’t qualify for Chapter 7 bankruptcy. Your expenses may be very high.

How does Means test in Chapter 7 work?

Means test was introduced so that consumers who are genuinely unable to repay debts can make use of Chapter 7 bankruptcy. Chapter 7 bankruptcy is the easiest of all bankruptcies and you can get out of debt within a very short time span by converting your assets into money and by paying off your creditors. In means test your expenses are deducted from your monthly disposable income. If your disposable income is very high you won’t qualify for Chapter 7 bankruptcy. Your income is compared to the median income of a similar household in the state you reside. If your current income is less than the median income you are eligible for filing Chapter 7 bankruptcy.

Use online calculators for Means test

There are many websites offering online calculators. You can find out whether you qualify for Chapter 7 bankruptcy or not with the help of the online calculators from the comfort of your home and office.

Filing bankruptcy is expensive and it cannot be filed for free. Under the new federal bankruptcy laws, credit counseling has been made mandatory. You are required to take credit counseling session at least 180 days prior to filing bankruptcy. And these classes are not free. You have to shell out approximately USD$60 for a class. However, through a waiver program, you can avoid paying for the credit counseling classes if you can prove that you have a very low income and if you have an attorney representing you from a free legal aid program.

Legal representation in bankruptcy is important

It is important to have legal representation and hiring a bankruptcy attorney can be a very expensive affair. You may be given an option of availing “free legal counsel” under a state program. This may prove to be very time consuming because you may be in a long queue and may have to wait for a considerable time period. In majority of the cases, chances of availing free legal counsel are rare.

Cost of filing

You cannot escape the cost of filing bankruptcy. You have to pay the “filing fee” to the clerk of the court when you file bankruptcy. Filing fee is the fee that you pay for the court. This is in addition to the cost of hiring an attorney. If you are planning to file Chapter 7 bankruptcy (liquidation), the amount you have to shell out is USD$299. The cost of filing for Chapter 13 bankruptcy or repayment and reorganization plan is USD$274.

As far as the attorney fee is concerned, it varies from one case to another. It may range between USD$1000 and USD$2000. In some cases, attorneys may charge more if you ask them to accompany you for the 341 meeting. For instance, in Massachusetts, attorneys are required to be present for the 341 meeting. In case the attorney fails to do so, it will be concluded that he is not representing the debtor.

General Motors sought bankruptcy protection and filed Chapter 11 bankruptcy on June 1st 2009. GM’s filing bankruptcy followed on close heels of another auto giant Chrysler filing bankruptcy. GM is trying to emerge as a new company by filing bankruptcy. Reports suggest that this is probably the 4th largest bankruptcy filing in the history of United States. The company is trying hard to avert a lengthy sale that could delay and postpone its emergence as a new company. When Chrysler filed bankruptcy, several bondholders objected to Chrysler’s filing bankruptcy. As such, the sale hearing was delayed for 3 days.

On July 1st 2009, the chief of General Motors Fritz Henderson had to face questions from attorneys that lasted several hours. There are many parties challenging the company’s sale. The opposing parties include unions, bondholders and various consumer groups. When questioned about the company’s current operations, Fritz Henderson the CEO of the company stated that the company’s performance in the month of June had improved.

The CEO of GM went on to say that in case the Treasury doesn’t extend support to the company, GM will have to face liquidation. In fact, the company has 2 options left with. It is either liquidation or sale. GM plans to sell its assets through a process that is referred to as 363 sale, which is a chapter in bankruptcy code. The sale value is USD$90 billion.

What will be the nature of the “New GM?”

The company intends to do away with dealerships, plants debts and other liabilities. The company intends to emerge anew from Chapter 11. The new GM will have approximately USD$17 billion as debt. This is in sharp contrast to USD$54.4 billion GM owed to creditors as of 31st March, 2009.

Major shareholders of New GM

The new GM will have the U.S. government as its major owner with 60% stake followed by the Canadian government that will have a 12.5% stake. United Auto Workers Union will have a 17.5% share. The remaining 10% will go to the unsecured bondholders. The existing shareholders of GM will no longer have any stake in the new GM.

Bankruptcy law can be quite confusing at times. This is because bankruptcy laws are made up of state as well as federal laws. Selecting the correct bankruptcy exemptions and using them to your benefit can be a challenging task. Although the federal government has the power to enact laws, it also empowers the states to decide about bankruptcy exemptions. Exemptions may vary from one state to another. The laws which protect your property from creditors are referred to as exemptions.

Are you eligible for state exemptions or federal exemptions?

Few states have developed their own exemptions and replace the federal exemptions completely. There are a couple of states that offer a choice between state exemptions as well as federal exemptions. For instance, California will offer you a choice to choose between federal exemptions and state exemptions. However, these exemptions are under the jurisdiction of the California state law.

You can use either state exemptions or federal exemptions. You cannot use both exemptions simultaneously. The following states allow you to choose between state exemptions and federal exemptions.

• Arkansas
• Connecticut
• Hawaii
• District of Columbia
• Michigan
• Massachusetts
• Minnesota
• Pennsylvania
• New Jersey
• New Mexico
• Rhode Island
• Texas
• South Carolina
• Vermont
• Washington
• Wisconsin

Just as federal exemptions are different from state exemptions, state exemptions in turn differ from one another. For example, the maximum exemption limit for a car in Texas can be up to USD$30,000. On the contrary, maximum exemption limit in Florida is USD$1,000. In some states, the court appointed trustee cannot take away your home no matter how expensive it is. The same may not be true for another state and the protected value of the house may not exceed even USD$10,000.

What are the residency requirements for bankruptcy exemptions?

In order to avail bankruptcy exemptions, you are also required to fulfill residency requirements. As per the new federal bankruptcy laws that were introduced in October 2005, residency requirements have also undergone changes. It was observed that people intending to file bankruptcy were moving to states where they could avail exemptions according to their convenience. In order to put a stop to such activities, the government introduced the residency requirements.

So, you should have lived for at least 2 years in a particular state to use the exemptions of that state. If you haven’t lived for 2 years, you have to use exemptions of the state you were residing in prior to your current state of residence. There are a couple of states that don’t permit you to use their exemptions unless you are currently residing in that state. Under such circumstances, you have to use federal exemptions. If you haven’t lived in a particular state for 2 years, you can use federal exemptions after 91 days, provided the state in which you are filing bankruptcy permits you to do so.

Choosing between state and federal exemptions

You choose exemptions depending on the property you value most. For instance, if you don’t want to lose your home, you concentrate on homestead exemptions. If the state in which you reside offers larger homestead exemption, you can use state exemptions else you can use federal exemptions, whichever works better for you.

More and more consumers are opting for debt settlement as they are wrestling with their debts. Debt settlement is usually opted for when you fail to get the desired results from debt consolidation or you have not qualified for bankruptcy. Filing bankruptcy has become increasingly difficult after the new federal bankruptcy laws were introduced in 2005.

In debt settlement, the amount you owe is greatly reduced and if the debt settlement company you are hiring is capable enough, the amount you owe can get reduced by as much as 40% to 60%. A debt settlement company has always acted as the Good Samaritan but lately the Federal Trade Commission; state attorney generals have received several complaints against debt settlement companies.

The common complaint against these debt settlement companies is that these companies charge very high upfront fees and before they can deliver what they have promised, they want to get paid for the services. If a debtor is enrolling for debt settlement, the company helping the debtor in settling the debts has to be paid when the debtor signs up for the program. Alternatively, the debtor can make the payment when the program kicks off. However, the payment has to be made during the first few months of the program.

The incidence of dropouts of such program is also high. So, a debtor may have to shell out the entire money even if he drops out in the middle of the program. In order to do away with such anomalies, bill AB350 that is expected to regulate the modus operandi of debt settlement companies in California is “moving closer to passage”.

As far as paying upfront fees is concerned there is a “twist” in the bill which says “The provider

If you find it difficult to meet your minimum financial obligations every month and you have also fallen behind on your payments, it is time you try to strike a balance between your monthly income and expenses. How will you deal with debt collectors? And how will you consolidate your debts? Similar questions may be haunting you always. Falling into debt is a very common problem faced by many people in United States and all over the world. Credit card debts are very common. If you are unable to control your finances properly, you will find yourself dragged into a vicious cycle of debt. Your expenses should never exceed your income. It spells doom. However, there may be instances when you may have to shell out money due to a medical emergency or health problems.

If you are not being able to manage your finances judiciously, take professional help and talk to financial consultants who can assist you in managing your debts effectively. You can also surf the net to get online help. You will come across several debt management articles and tutorials. There are many debt relief options that can help you get out of debt. If you are not being able to decide which debt help option to opt for, a credit counselor can help you in taking a decision. Once it
has been identified that bankruptcy is your only option, next is- how to declare yourself bankrupt?

There are many legal aspects that need to be addressed when you file bankruptcy and these can be best tackled by a bankruptcy lawyer. Under the New Federal Bankruptcy Laws, you have to be eligible for filing for bankruptcy. The New Bankruptcy Law has made it mandatory that you have to undergo a credit counseling session prior to filing for bankruptcy. You also have to undergo the Means Test also to find out if you qualify for Chapter 7 or Chapter 13 bankruptcy. In other words, filing for bankruptcy has been made tougher. In this regard, an attorney will be able to help you with the Means Test and accordingly guide you in your attempt to file bankruptcy.

When you declare that you are bankrupt, there are several benefits you can enjoy. Automatic stay, a court order comes into effect. Your creditors are informed that you have declared bankruptcy and they don’t harass you for making payments for debts. Automatic stay is just the tip of the iceberg. There are several procedures that need to be followed when you file bankruptcy.

Bankruptcy is a federal court procedure that helps you to address your debts under the supervision of a trustee appointed by the court. You can repay your debts either by selling your assets or making payments according to a repayment plan. The most common types of bankruptcy filed by consumers include Chapter 7 and Chapter 13 bankruptcy. Chapter 11 is not uncommon though. Bankruptcy laws also help business houses facing financial stalemate.

There are 94 federal judicial districts that handle matters related to bankruptcy. And bankruptcy cases are filed in almost all districts in the bankruptcy courts. Bankruptcy cases cannot be filed in state courts.

New federal bankruptcy laws were introduced in 2005 to reduce debtors from filing bankruptcy. The new bankruptcy laws have made it compulsory to undergo a credit counseling session before you file bankruptcy.

The individuals providing debtor education as well as credit counseling to consumers intending to file bankruptcy are approved by the U.S. trustee in majority of the states. The bankruptcy administrators are responsible for approving the individuals offering the “special pre-bankruptcy briefing” in 6 districts located in North Carolina and Alabama. A list of debtor education as well as credit counseling providers is maintained by the bankruptcy administrators and the United States trustee.

When you are filing bankruptcy, you are also required to pay fees for the same. The filing fee has to be paid to the Clerk of Court for United States Bankruptcy Court. In case you are filing Chapter 13 bankruptcy, the fees you have to shell out is USD$274. If you are filing Chapter 7 bankruptcy, the fees you are required to pay is USD$299. And if you are planning to file Chapter 11 bankruptcy, you will be required to pay USD$1039. The filing fees for Chapter 12 bankruptcy is USD$239. The fee you pay for filing bankruptcy has several components.

Fees are required to be paid by the debtor’s attorney through registered credit card if the debtor’s attorney files bankruptcy electronically. As per the new federal bankruptcy laws, the debtor’s attorney has to take the responsibility of verifying the debtors information and the expenses are required to be borne by the debtor. The verification is done to ensure that the information provided by the debtor that is recorded in the bankruptcy court and to the attorney is accurate.

For similar reasons, attorneys are taking outside help to verify the correctness of details provided by the debtors. As per the new federal bankruptcy laws, you are required to take a credit counseling session. You will be required to pay fees for the credit counseling session too.

The Attorney fees vary greatly. The attorney fees differ greatly because the fees charged by the attorney depend on the complexity of the case. Every case in bankruptcy is treated differently and has different requirements. The facts related to every case are also different. The number of creditors to deal with and facts related to the case are 2 parameters on which cases differ. However, you are required to make payments to the attorney only once as fixed fee. Thereafter you are not required to shell out any more cash to the attorney for representing you legally. Usually attorney fees start from USD$1000 in case of Chapter 7 bankruptcy. If you qualify for Chapter 13 bankruptcy, majority of the attorneys charge the minimum fee that is approved by the court which is USD$3,000.

When you file bankruptcy under any Chapter of Bankruptcy Code, any action taken by a creditor, collection agency or any government entity can be stopped with the help of automatic stay. It is an injunction against any action taken by the aforesaid entities. It helps debtor and also protects their property under certain circumstances. In case of Chapter 13 bankruptcy, even co debtors are protected.

The automatic stay prevents the following actions

• Collection calls
• Repossessions
• Foreclosure sales
• Filing lawsuit against you
• Wage garnishment etc.

How long does automatic stay remain?

Automatic stay remains till the time the judge doesn’t lift the stay at the creditor’s request. It is valid till the time a debtor doesn’t get a discharge.

In Chapter 7 bankruptcy, the automatic stay may prevent foreclosure from taking place on a debt that is secured by real estate. However, the stay gets lifted and the creditor is allowed to proceed when debts are discharged. In this case, it is also assumed that there is no “non exempt equity” left in the property.

In case of Chapter 13, the automatic stay remains valid through the entire period of the Chapter 13 plan.

What happens if the automatic stay is violated?

The court takes several weeks to send notices to the creditors. During this period if the creditors file lawsuit against you, it is treated as null and void.

How does automatic stay help you in the following?

• Foreclosure

If you are on the verge of facing foreclosure, automatic stay can delay the foreclosure proceedings temporarily. However, sooner or later, the creditor can proceed with the foreclosure process. In case you intend to retain the house, filing Chapter 13 bankruptcy is a better option as compared to Chapter 7 bankruptcy.

• Eviction

In the event, you are being evicted from your home; automatic stay can help you to some extent. However as per the new federal bankruptcy laws, the landlord can proceed with eviction. In case an eviction order was already pending against you and you file bankruptcy, the automatic stay cannot prevent the eviction from taking place.

• Utility disconnection

If you have fallen behind on payments and the service provider is threatening to disconnect gas, electric and water connections, automatic stay can stop this for a period of 20 days.

• Wage garnishment

Automatic stay can prevent wage garnishment. As per norms, not more than 25% of your salary can be used for satisfying court judgments.

File bankruptcy protection