Archives for May 2012

Mortgage Modification? Try filing bankruptcy…

Many people wanting or needing a mortgage modification are drowning in debt. Indeed, it may well be that in a fruitless effort to stay caught up on credit card debt that they let their mortgage payments slide… which is exactly the wrong thing to do.  Surprisingly, a bankruptcy filing may be the best avenue to getting the relief that overburdened borrowers may need.

To begin the process of saving a home through mortgage modification, you need to shed excess debt so that you can free up more income for paying housing costs. And since your ability to pay is a major factor in whether you get a mortgage modification or other relief, anything which reduces other expenses is quite helpful.

For some people, a Chapter 13 Plan in which they cure their mortgage arrears over 3 to 5 years, often without interest, is the best course of action. Many other tools can be used in Chapter 13, including possibly removing second or third mortgages (see other posts by me in this blog)

Even better, in New Jersey, (and in a few other places) the court has implemented a “Loss Mitigation” program which allows people filing bankruptcy to request mortgage modification or other forms of relief (such as a deed in lieu of foreclosure or short sale). Doing this has several big advantages. First, the process is under court supervision. Second and just as important, debtors have use of the DMM Loss Mitigation Portal. This is a specialized website that collects and makes available to borrowers and lenders (and in this case the court) any documents which have been uploaded in a particular case. As a result, no lender can claim they did not get the documents you filed, since they are always available right on the web portal, along with a record of when they were filed and by whom. This eliminates a big problems (and a big source of frustration for borrowers). Third, lenders have to designate a single point of contact on the lender side–a person who is responsible and answerable for the lender. Finally, the court monitors the process and sets deadlines by which things either happen or they do not. No more dragging things on interminably!

Some of these ideas are being adopted outside of bankruptcy. But in our view, when courts get involved, if anything good is going to happen it is more likely.

Cram down or strip off– a way to surface after being underwater

Many people have homes that are “underwater”, ie the mortgage balances are more than the home is worth. Under certain circumstances, in a Chapter 13 bankruptcy, relief is available through a “cram-down” or a “strip-off”. A cram-down is where you get the Court to reduce the lien to the amount of equity available for it. For example if the first mortgage is $150,000.00 and the house is worth $160,000.00, there is only $10,000.00 in equity for the second mortgage. If the second mortgage is more than this, it can be crammed down to the $10,000.00, in Chapter 13.

There are, however, two big catches. First, you cannot do this if the second mortgage is secured only by your  residence. You have to have given some other collateral as well. This could happen where the second mortgage was given in support of a business loan also secured by the assets of a business.

Secondly, if you do the cram down, you have to pay off the reduced balance through your Chapter 13 plan. However, once you do that, you have only the first mortgage.

Cram down is usually not available for most homeowners. But a “strip-off” can be. A strip-off is where there is ZERO equity for the second mortgage (ie the value of the house equals or exceeds the first mortgage). Many courts, including those in New Jersey, will allow this. The result is that the stripped off junior mortgage becomes an unsecured debt, treated the same as credit cards or other unsecured debt. And at the end of the plan, the second mortgage can be discharged.

Either way, the result is a court-ordered “mortgage modification” that can help beleaguered homeowners get back on track.

These are options that deserve careful consideration, and assistance of a qualified bankruptcy attorney. They also require careful consideration of your long term and short term financies and objectives.

Medical billing errors can destroy your credit

As a follow up to our previous post, I invite you to read the attached more recent article from the New York Times on how medical billing errors can create havoc with your credit score

http://www.nytimes.com/2012/05/05/your-money/medical-debts-can-leave-stains-on-credit-scores.html?_r=1

We recommend demanding that as part of any resolution of a medical billing error, the offending biller be required to remove and correct any erroneous entries and agree in writing not to repost the erroneous bill as unpaid. Merely marking it as resolved is not enough to prevent damage.

You also have rights under the Fair Credit Reporting Act to dispute the erroneous report with the credit reporting agencies. We suggest this be done in the form of a letter which you send by fax or certified mail (be sure to keep a copy!!)

If this is only a part of your financial problems then you will need to consult with an experienced attorney.

No one should have to suffer with a diminished credit score because a medical service provider made a mistake. But ignoring this aspect is unwise.

Hopefully new laws can be passed to put the burden on the medical providers to correct erroneous reports of unpaid bills.

 

Medical bills and billing traps-a prime cause of financial problems

Here is another perceptive article from the New York Times about the traps people can get into when they end up in a hospital or medical facility that is out of their insurance company’s provider network .

http://well.blogs.nytimes.com/2012/04/23/the-confusion-of-hospital-pricing/

The system is completely irrational, but that doesn’t help people who find themselves trapped by high medical bills. We are still finding that medical expenses are still a major contributor to financial distress and eventual bankruptcy. We are also seeing increasingly aggressive collection efforts by hospitals. In recent cases, these have continued even after a bankruptcy filing.

If you are facing high medical bills, we recommend you start by verifying the charges and the services. In some instances, collectors are trying to collect beyond the amounts they have agreed to accept from the health insurance carrier. You can start by using the appeal process through your health insurance.

You have the right to dispute a medical bill, if you think there is a basis. But too often, people throw out or ignor the Explanation of Benefits or “EOB” issued by the health insurance carrier. You need to keep all medical bills and related papers.

Even if the process does not end entirely in your favor, consider efforts to settle for a reduced amount.

Of course, before agreeing to pay anything, you need to prepare a personal budget to compare your monthly net income to the total you need to spend to meet basic living expenses.  There are budget forms on the the Forms page of our website. Don’t get yourself in over your head by promising more than you can pay.

If the bills are substantial, you may benefit from a free consultation to examine the options available to you.

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