Last Sunday’s New York Times Op-Ed Lead reminds us that the mortgage crises is far from over, but it still neglects to address what has always been the fairest and most viable option – permitting Federal Bankruptcy Judges to restructure first mortgages, including rate and principal reductions, in Chapter 13 bankruptcy proceedings.

Early in the financial crises, a few members of Congress were brave enough to draft bills to modify the bankruptcy laws to permit modifications. Their efforts were shot down by the bank lobby and quickly died – never to be brought back to life in any viable form. Now is the time to put this option back on the table on a National level.

Many States, including New York, have put procedures in place, as part of their foreclosure process, to force lenders to the table to try to modify mortgages before a foreclosure is allowed to proceed. The process in New York, while laudable, has done nothing more than to “kick the can down the road” in that there are no mandates for lenders to do anything but to participate in the process. State Court Justices have absolutely no authority to truly force the issue on any meaningful level.

If the Bankruptcy Laws were modified, Bankruptcy Judges would have the authority to act as the arbiter (subject to the appellate process) to (a) set fair and equitable principal reductions based upon current market conditions; and (b) restructure mortgage payments based upon a homeowners’ actual ability to pay.

One of the underlying principals in Chapter 13 bankruptcy is that a debtor must be able to establish that they have the financial ability to make the payments proposed in a Chapter 13 Plan. This standard has to be met to the satisfaction of both the Chapter 13 Trustee and the Court. This is a simple, straight forward, requirement that all parties have worked with for over 25 years.

Bankruptcy is financial triage – not every debtor can be saved. Chapter 13 bankruptcy has always been, and will continue to be, a process to weed out the homeowners who truly cannot afford a mortgage on any level. In many cases, the current State Court processes are being abused by homeowners who, perhaps, never had the financial means to support home ownership from the beginning. Unfortunately, State Court Justices have not been provided with the tools to do what is necessary in these situations.

It is still not too late to revisit first mortgage modifications in bankruptcy proceedings. The filing of a Chapter 13 petition for this purpose could even be conditioned upon a homeowner having applied for a modification within a certain number of days prior to filing bankruptcy and having been turned down by their lender.

Fannie and Freddie are not the answer…

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Credit After Bankruptcy – Now Easier That Ever

by Richard S. Feinsilver on April 15, 2012

Subprime credit cards are back….

The New York Times reported this week that credit card solicitations, particularly for those individuals who have tarnished credit or have previously filed bankruptcy, rose substantially during the fourth quarter of 2011. Credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3 percent from the same month a year earlier, according to Equifax’s credit trends report released in March. These borrowers accounted for 23 percent of new auto loans in the fourth quarter of 2011, up from 17 percent in the same period of 2009, Experian, a credit scoring firm, said.

The reason for this trend is that it is becoming much easier to re-establish credit after bankruptcy, and the following outlines why:
1 You can now only obtain a discharge in bankruptcy once every eight (8) years
2. Lender’s bottom lines are suffering. They are constantly seeking new sources of business.
3. Most individuals who have filed for bankruptcy, unfortunately, have a craving for credit.
4. We live in a plastic society. Even if you have filed for bankruptcy, you must have at least one credit card, or a line of credit tied to a debit card, for emergencies.
5. Lenders know that if they extended a credit card offer to an individual after filing bankruptcy, and the offer is accepted, they love that individual because the lender knows that they cannot bail out again in bankruptcy for another eight years.
6. Unfortunately, despite everything that has been published on this topic, Lenders have already “built” a contingency into the pricing of credit cards. Lenders are not fools. They know that from day one, if they lender a dollar ($1.00), they are going to lose a nickel ($.05) – there will always be bankruptcies, slow payers, non-payers and the like. This is one of the reasons that many interest rates hover above 15-18% and higher.

Never say never in this world. Many of my clients say that they will never use credit again. This is an absolute fallacy . One of the goals of filing bankruptcy is to obtain a fresh start and begin to rebuild. Part of the rebuilding process is to re-establish credit. I am not advocating the re-establishment of multiple lines of credit but I do advocate obtaining at least one line of credit – just for emergencies.

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Housing Crisis and Student Loan Crisis Are Joined At the Hip

April 2, 2012

Over the past few weeks, I have read and noted a number of blogs and other commentaries from respected economists and authors touting the growing concern about the student loan crisis as the outstanding balances on student loans approach the $1 trillion mark. Many pundits have commented about the value of college education relative to […]

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Do You Want Bank of America As Your Landlord?

March 25, 2012

Bank of America has announced that it is rolling out a test program in three states (including New York) in which the bank will accept a deed-in-lieu of foreclosure from homeowners in foreclosure and then rent the properties back to the homeowners for an unspecified period of time. For those homeowners who have tried to […]

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Most Long Island Residents Could Be Left Underwater on Mortgage Settlement

February 13, 2012

The proposed settlement reached last week between the Federal Government and the five major banks may prove to be nothing more than smoke and mirrors for Long Island Homeowners. Many Underwater Properties Will Still Remain Underwater The major prong of the settlement that everyone has been awaiting is principal reductions on underwater mortgages. Under the […]

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Details of Mortgage Settlement Still Unclear – Don’t Jump For Joy Just Yet

February 10, 2012

After months of wrangling, the long-awaited foreclosure settlement between the government and the banks appears to be at hand. A $26 billion settlement was announced Thursday morning between the federal government, state attorneys general and the five largest banks in the mortgage market: Ally Financial (GMAC), Bank of America, Wells Fargo, JP Morgan and Citigroup. […]

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Mortgage Deal Between Banks and AGs may still be at risk

February 3, 2012

Bloomberg News reported earlier today that regardless of any resolution reached between the Attorneys General and the major banks servicing distressed mortgages in the next few days, a threat still looms over whether various investors will commence litigation to block the deal. If such an impediment is put in place, it will once and for […]

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New Means Test Housing Allowances Levels Playing Field for Long Island Renters

November 20, 2011

Most individuals or couples filing for protection under either Chapter 7 Bankruptcy or Chapter 13 Bankruptcy are required to meet certain income eligibility requirements under the “Means Test.” Under the Means Test, you must first determine if your average monthly income for the last six months is below the median income for your state, based […]

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Tax Refunds and Chapter 7 Bankruptcy – Nothing Has Changed For Homeowners With Equity

November 11, 2011

In bankruptcy, you are allowed to protect various assets, such as cash or cash equivalent assets such as the right to receive a tax refund. This is called exempt property or exemptions. When the exemption laws were overhauled in New York in January 2011, it proved to be a major benefit to homeowners and renters […]

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Massachusetts Not-For-Profit Has Right Idea to Fix Mortgage Mess – One Home At A Time

October 25, 2011

Daniel Gross recently reported on Yahoo Finance that there is one ray of light in the mortgage modification mess – Boston Community Capital. Here are some excerpts from his report… Five years after the housing market peaked, the mortgage mess remains a significant drag on the economy. Banks, policymakers and investors have yet to figure […]

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