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.

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.

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.

http://www.nytimes.com/2012/04/22/realestate/mortgages-avoiding-mortgage-relief-scams.html?_r=1

There is a lot of hype about mortgage relief. And there is a cottage industry of companies that promise to reduce your debts through negotiation (these are called “Debt Relief” agencies). The consistent thread I see is that it is hard to predict who gets what results from lenders and when. But here are some things to remember:

1. No lender is required to modify any mortgage or other loan. It is a contract. If the lender is going to give you something, they are going to want something of value in return.

2. Reputable professionals do not make promises of specific results when it comes to loan modifications. They can give you opinions on possible or likely outcomes.

3.  A licensed attorney in your state may require an up front deposit, but you are entitled to have a clear written explanation of what fees are going to be based on.

4. A loan modification may be the right move for you, or it may not. You need to explore all the alternatives.

5. Finding the right professional for you requires some research. Stay with recognized professionals with whom you feel comfortable.

http://www.nytimes.com/2012/04/05/business/smallbusiness/how-they-beat-the-odds-to-keep-family-businesses-healthy.html?_r=1

In our experience the watchword for business owners is “fail to plan, plan to fail”. These businesses do the following:

1. They stay on top of their game, and stay flexible, ready to find and meet the needs of their customers and of the marketplace.

2. They make everyone pull his/her weight, and avoid favoritism to family members. I would add that business owners who develop a sense of entitlement to a certain income or livestyle can be the downfall of the business.

On the other hand, many business owners do not do the converse: make the business pull its weight, and if it is not then start asking hard questions.. Instead, they blindly put money into a failing business without asking the tough questions, why this is necessary. We all know some businesses are cyclical, and have to get through the lean months to make money in season. But if the good times are not enough to pay off the deficit run up during the lean times, all that happens is that the owners end up further and further in debt until they run out of money. Long before this happens the owners need to take a hard look at what is happening.

3. They seek out and get qualified advice from attorneys and accountants.  This follows from the “fail to plan…” thought above. Sometimes early advice from a trained and objective outsider can be just what is needed to get back on track.

With years of experience advising business owners, and in dealing with the aftermath of failed businesses, we know how these sad results can happen. Business owners who think they must contuinue to run a failing business need to explore the alternatives, and the ways they can avoid the vicious trap of feeding a failing business. Too often the end result is an avoidable or far-too-costly and painful business bankruptcy.

Before 1998, student loans could be discharged after 7 years. Now, the only way such loans can be discharged is by showing special hardship. That showing is very difficult to make, and generally requires that the borrower have no present income, and no prospect of any income any time in the future.

We see plenty of people who are saddled with student loans that are 3-10 times their total annual income. Most have no extra money in which to make any payment, without foregoing basic necessaries like food, transportation, or basic medical care.

Many student loan lenders, unlike mortgage lenders, seem to be far more willing to adjust payment terms to meet the borrower’s financial realities. (They can afford to wait, knowing there is no escape and the interest keeps accruing. The result can be perpetual debt. To be fair, if the bankruptcy law changes, lenders may end up being more aggressive and the cost of student loans could go up. But we think that freely lending to people without regard to their ability to repay and without some avenue for repayment or relief is not in our society’s best interest.

We hope the change comes about. One alternative is to make such loans dischargeable in Chapter 13 through a repayment plan, or to setting easier standards for a court to find them dischargeable. However, even if changes in the law do not come (and the lenders have a powerful lobby), many people can discharge other debts or make other arrangements through bankruptcy that can contribute to solving the student loan problem. This needs a careful and individualized review by a qualified attorney.

Usually, the owners want to just start up the same business, with the same customers at the same location with the same owners. That is a recipe for problems. The problems come from two principles.

The first is successor liability. The second is that business owners operating a firm in the “zone of insolvency” have a “fiduciary duty” (or an obligation to serve as a trustee) to their creditors. A detailed discussion of these principles is beyond the scope of this article.

In New Jersey, a new business can have successor liability for the debts of the old if a court finds that a “de facto merger” occurred, or if the business is the “mere continuation” of the old. This means that the old creditors can pursue the new business for payment, providing they can convince a court that this is the case. Courts look for the following to show a defacto merger/mere continuation:

1. the new business has the same ownership, management, personnel, physical location, assets and/or general business operations as the old one;

2. the old business shuts down suddenly at about the time the new business starts up.

3. the new business or its owners assume some but not all debts of the old business, especially those ordinarily needed to continue business;

4. the new business holds itself out to the public as continuing the old business.

Any time business owners start a new business under a new name, successor liability is a risk. There are steps that can be taken to minimize the risk. Each case is different, and a detailed review by a knowledgeable and experienced bankruptcy or business attorney is needed, in advance of any such move.

The second trap is fiduciary liability of business owners. Violating this duty could expose the business owners to a later lawsuit and debts that might not be dischargeable in a personal bankruptcy. Simply put, business owners are held to a high standard of care towards their creditors when a business is failing. They have a duty to maximize the value of the business, and to not take steps which benefit themselves unfairly at the expense of creditors or which treat creditors unfairly. This does not mean that business owners are not entitled to be paid for their services, or that they have to put more of their own money into the failing business.  But lining their own pockets, or transferring assets to themselves or others without the company getting fair value in exchange; engaging in preferential treatment of certain creditors; or making false statements to creditors are some of the “no-no’s” to avoid. Again, this is not a complete list and what can or should be done is very fact sensitive and requires careful review by an experienced attorney. As always, careful planning and advice are critical

Business owners are entitled to try to start over, but without careful planning and the right advice, the result could be that the old debts beleager the new business

This article I wrote for our local bar journal, to be published in April covers three topics:

(1) liability if the property is vacated before delivery of the Sheriff’s deed;
(2) risks of possible deficiency liability; and
(3) a quick but not dispositive discussion of some possible tax liabilities.

These are all important to deciding whether to do a short sale or deed in lieu of foreclosure, file for bankruptcy, or ride it out to the Sheriff’s sale.

Read article here.

This is a pattern of denial that we see too often. While the defenses to a foreclosure are limited, they do exist, but the time to seek legal advice is at the start of the process not the end. Too often also, people think that their chances of getting a loan modification  are better than they are. No matter what the situation, it does not get better over time. The best time to assess the options available and to work towards a suitable outcome is right away. Whether the solution is bankruptcy, or a vigorous foreclosure defense, or some other option, a foreclosure should be a wake-up call.

In this case, Countrywide claimed it was entitled to add to the post-bankruptcy mortgage payments an amount to pay back pre-bankruptcy shortfalls in the debtor’s escrow account. The debtors claimed this was an unlawful attempt to collect a pre-petition debt, and that the deficiency amount should have been included instead in Countrywide’s claim which would be paid in the bankruptcy. The debtors originally claimed that Countrywide was violating the “automatic stay” that renders illegal any attempt after a bankruptcy is filed to collect a debt that pre-existed that filing. The question went all the way to the Third Circuit Court of Appeals which ruled that Countrywide was wrong.

Under section 362(k) of the Bankruptcy Code, an individual who suffers any actual injury from a wilful violation of the automatic stay may seek damages, punitive damages and counsel fees. A violation is wilful so long was the collection effort was intentional and made by someone who knew about the bankruptcy. The Third Circuit sent the case back to Judge Kaplan to determine whether Countrywide wilfully violated the automatic stay and what damages the debtors were entitled to.

Here Judge Kaplan found that Countrywide wilfully violated the automatic stay because it proceeded, without seeking permission from the bankruptcy court, to demand payment of escrow monies after receiving notice of the bankruptcy filing. He hit Countrywide with payment of all the resulting counsel fees incurred by the debtors as they fought the issue up to the Third Circuit. Since Countrywide chose to litigate the issues, Judge Kaplan found, they should not be faulted for defending their rights.

This case underscores  important lessons for any creditor receiving notice of a bankruptcy:

1. Get qualified legal advice right away;

2. Do not attempt to collect the debt except through the bankruptcy court process, without first seeking permission and authority to do so.  When in doubt, err on the side of caution.

Steven R. Neuner has over 29 years of experience helping creditors, trustees and debtors protect their rights in bankruptcy court. For more information about these and related topics, see our website at http://www.nv-njlaw.com.