New Bankruptcy Means Test Amounts - Effective November, 2016

The U.S. Department of Justice has published new median, gross income data for use in bankruptcy cases filed on or after November 1, 2016. For Minnesota residents, the figures have increased, making it more likely that you will qualify for Chapter 7 relief.

The new figures are available on the Means Testing section of this site. The numbers for all federal districts as of November 1st are available on the DOJ's website.

Here is how much the median amounts will increase in Minnesota from numbers used in cases filed between April 1, 2016 and October 31, 2016:

  • One person household: +$867 (from $51,260 to $52,127)

  • Two person household: +$1,410 (from $68,596 to $70,006)

  • Three person household: +$3,074 (from $80,900 to $83,974)

  • Four person household: +$1,930 (from $98,564 to $100,494)

The increase for additional household members above the first four remains the same, at $8,400.

A reminder: the median income amounts are only part of the analysis for determining whether you qualify for Chapter 7 relief. You can sometimes be over the amount and still qualify after completing the full, long-form means test. How to count household income can be tricky as well, depending on sources (social security benefits do not count, for instance) along with the amounts that are contributed by other household members. And calculating your household size is not aways as straightforward as you might think.

As always, consultation with a qualified, experienced bankruptcy attorney is critical. But if you're struggling with debts, starting next month it is going to get a little easier to qualify for relief.

About the author: Dan Cooke

Image credit: Cafe Credit

Minnesota Judgment Removals are Back to $5 Each, Where They Belong

For anyone with an adverse, prior Minnesota State Court judgment against them, the process of removing that judgment record from a credit report just got a whole lot less expensive.

Under Minnesota Statute Section 548.181, anyone who was sued in the past and wanted to petition for removal of the judgment record only has to pay the Court clerk $5 per judgment for the service. Because the mere record of a prior judgment can dramatically hurt someone's credit score and ability to obtain a loan -- particularly a home mortgage loan -- being able to remove the judgment record is important. While judgment records cannot be removed until paid or otherwise discharged, after they are satisfied or discharged they can be. But you have to take action to do it yourself. Otherwise, the written record of the judgment could still stick around as a blot on your credit.

Long ago, the Minnesota legislature recognized the importance of this by enacting the $5 fee for each removal. The problem is that a few years back, County Court Administrators across the State decided on their own to interpret the law to allow them to not only charge $5 for the judgment removal, but a full Court filing fee as well -- the same fee that was charged to anyone wanting to file papers to start a lawsuit. These fees vary by County but are often $300 or more. What this meant is that if you had a few judgments against you that you took care of and simply wanted to clean up your credit history, it could cost you well over $300 per judgment to do so. And mortgage lenders often required this step before allowing any home lending, even to refinance.

The Courts were essentially grabbing cash from folks who as a group are not particularly wealthy and who were simply trying to clean up their credit history by using a Court service that takes all of three minutes. That cash grab ends August 1, 2015. As part of the recent Omnibus public safety finance and policy bill signed into law by Governor Dayton, the statutes are being clarified to state that Court Administrators cannot charge more than $5 per judgment removal.

Some of my colleagues worked very hard to get this bill passed into law. The $5 fee is fair and its return is a welcome sight.

About the author: Dan Cooke

Image credit: Teresa Boardman

Underwater Mortgage Lien Stripping Upheld

In a case originating in Minnesota, the Eighth Circuit Court of Appeals has upheld the legality of "lien stripping" wholly unsecured junior mortgages on residences in Chapter 13 cases. The decision follows earlier decisions in seven other federal appellate courts around the country, better settling the law for those of us who live in Minnesota. Congratulations are in order for local attorney Tim Theisen for his work on behalf of the homeowners in the case.

Homeowners with second or third mortgages that are underwater -- meaning the value of the residence is less than the amount owed on the primary mortgage(s) -- can rest easier in the knowledge that they can use a Chapter 13 reorganization plan as a means to removing those underwater mortgages entirely from their homes. For example, a homeowner who owns a home with a fair market value of $150,000 and a first mortgage with a principal balance of more than $150,000 could eliminate any additional mortgage debt on his or her home as part of a Chapter 13 filing.

There are, of course, other requirements that must be met before anyone with underwater mortgages can file a Petition under Chapter 13. But anyone with significant underwater mortgages on their residence may want to consider this avenue of debt relief, particularly if it means the difference between keeping and losing a home.

About the author: Dan Cooke

Image credit: Kevie

Car Loans are the New Tickets to Bankruptcy

23% interest on a motor vehicle loan? Even with today's low interest rates? How about 100%?

Over the past few years banks have been targeting people who used to be denied for car loans. Now, these folks are getting multiple car loan offers in the mail promising "easy credit". It can be tempting to sign up for one of these loans when your existing vehicle is on its last legs.

The trouble is the cost. Auto lenders try to get you to focus on the monthly payment instead of the true cost of the loan. Paying a total of $15,000 with interest for a car you bought for $7,500 might work out, but the $7,500 car is likely to need repairs and maintenance over the next few years and may even quit running before your car loan is paid.

The new wave of easy but expensive auto loans is being driven by banks that cannot make risky home loans anymore. They've turned to auto loans instead. Mortgages are now heavily regulated so car loans are a much easier place for banks and car financiers to rip you off. And that can happen to anyone paying 23% interest on an older vehicle that's out of warrantee.

Even more devastating are title loans, the quick cash loans you can get using your current vehicle as collateral. These loans often require payments of over 100% interest. I've seen title loan contracts charging 300% in interest. Most States, including Minnesota, prohibit title loans with interest rates that high but they are legal in Wisconsin. Many Minnesotans -- often desperate for cash to pay their rent -- drive over the border to get a Wisconsin title loan.

As you might imagine, the title lenders are doing very well. You don't have to be a math whiz to realize that a 300% title loan can quickly cost you more than your car is worth. If you borrow $2,000 at 300% interest and it takes you 12 months to pay off the loan, you're paying $6,000 in interest, or $8,000 altogether. If your car is worth less than $8,000, you might be better off letting the lender repossess the car than paying them back.

So what do you do? When you're in the market to buy or replace a vehicle, ignore the car loan offers you receive in the mail. Those offers are almost all going to have outrageous interest rates. And ignore the pushy finance guy who tells you that the interest rate he found is the "best you're ever going to get." These days, you can often find a better interest rate yourself by calling around. You can start with your bank or credit union. If you have bad credit, taking steps to clean it up before you apply can often get you a much better interest rate. This can save you thousands of dollars over the life of the loan.

What about when you're stuck with a title loan? Thankfully, there is a remedy in bankruptcy to deal with title loans that allows you to compel the lender to accept a more reasonable interest rate. If you borrowed money on a title loan and you can't afford the payments, this remedy can give you a way to keep your car.

If you need help with bad credit, credit cleanup, or with a terrible title loan, give me a call. We can probably help.

About the author: Dan Cooke

Image credit: Misfit Photographer

Got Student Loans? Beware a Newly Exposed Payoff Pitfall.

Part of our government's response to the massive 2008 economic collapse (aside from the massive bailouts) was to pass new financial industry regulations to try and prevent another collapse. This included the creation of the "Consumer Finance and Protection Bureau," which is in essence a watchdog for big banks and other lenders.

The CFPB has a Student Loan Ombudsman who recently wrote an "Annual Report" that reviews a large number of complaints they have received over the past year. Guess what they found? Student loan payments aren't always being processed properly. Instead of applying additional payments towards principal reduction (as is often requried with other loans, such as mortgages) some banks are escrowing those funds as "advance payments" toward future month's bills. The result? Honest borrowers end up paying more to settle their student loans.

So the private student loan banks are applying payments in confusing ways so they can make more money? What a shocker. 

The takeaway? Take advantage of the government's attempt to help and use the resources provided to you by the CFPB to learn more about how to pay off your student loans as efficiently and as quickly as possible. And be sure to file a complaint when something goes wrong.

If you're still left with questions about your student loans, call us. We can go over your options with you.

About the author: Dan Cooke

Image credit: Bossi

Eight Mortgage Modification Tips

As you may have heard, the U.S. government's mortgage relief programs -- including the Home Affordable Modification Program, or "HAMP" -- have been extended through 2015. Applications made ahead of the December 31, 2015 deadline can help distressed homeowners save money on their monthly mortgage payments and extend the due date for balances that are past due. Just make sure to apply well before that deadline so your application can be processed in time.

There have been many complaints about the program. I've heard a bunch of them myself. Folks tell me their banks are not cooperating and are demanding a mountain of paperwork before they'll even get consideration. People are also frustrated by the delays. It can take months for a simple application to be approved or denied. Meanwhile, folks are left in the dark to worry about whether they may lose their home.

And sadly, most people who apply do not qualify for a mortgage modification. But if you need help it is definitely worth trying. Here are a few tips to help with the process:

  1. It's generally a bad idea to pay anyone to help you with a loan modification application. There are companies out there that will take an up-front fee to assist you with the process. This is tempting, partly because you may think an "expert" can increase your odds. But as the Minnesota Attorney General's Office has warned, many of these are scams. If they ask you to pay up front, it's probably best to steer clear.

  2. Instead, try getting help from a non-profit or governmental agency. The Attorney General has provided some links for places to start.

  3. When trying to figure out who to call at your bank, it usually makes the most sense to start with the phone number on your mortgage bill. Even if you have received past-due notices from a collection agency or a law firm, it is still probably best to start with the phone number on your mortgage statement if your goal is to try for a mortgage modification. Note, however, that if you have already received a foreclosure notice it may be too late to work with the bank, in which case you may want to contact a debt relief attorney (like me) right away to find out about your options. There are things that can be done, including applying for foreclosure extensions or for Chapter 13 relief.

  4. When you make the call to the bank, be prepared. Tell whoever answers that you're having trouble paying your mortgage and would like to apply for "any relief I am eligible for under the Making Home Affordable program." Making Home Affordable is the current umbrella term for all of the various mortgage-relief programs, including HAMP. By asking for this you are more likely to be directed down the application funnel correctly. Confusing? Yes. Sadly, the government isn't always so good at coming up with names for its programs.

  5. Have a notepad and a working pen or pencil ready to go to take notes. It's also a good idea to have your financial paperwork in front of you. The bank's agent will be able to look up your payment history but having things like your most recent tax return and a recent paystub for each wage earner in your household may help streamline the first call, in case they ask for monthly income information. Write down the names of anyone you speak with and the date and time of the call. In fact, it's a good idea to do this for all calls that you make so you have a record of your efforts in case there is any misunderstanding later on.

  6. A HAMP application -- or, possibly, a "Streamlined Modification Initiative" if your loan is guaranteed by Freddie Mac or Fannie Mae -- will involve you providing your bank with paperwork. Lots of it. Try not to get overwhelmed. Take it one step at a time. You may feel frustrated but keep telling yourself that it's worth the effort (because it is).

  7. Whenever you send documents to the bank, it's a good idea to follow that up with a phone call to make sure they got everything they need. Do not be surprised if you need to re-send something.

  8. The entire application process can take weeks. While you are waiting to hear back it will not hurt to call every so often to check up on your application. Once or twice a week is probably enough.

Will following these tips guarantee success? Absolutely not. The odds are stacked against you. But if you qualify for help you will see a significant benefit. In rare cases some of the principal owed on the home loan can be forgiven.

Don't give up if the application is denied. You are entitled to ask why you were denied and you can re-apply if your circumstances change later. For instance, people can be denied for having too much or too little income. Your income may change down the road and you can reapply if that happens.

If all else fails, there are legal options available. That is where my office fits in. And you're welcome to call me anytime for a free consultation about those options.

About the author: Dan Cooke

Image credit: Chris Scott