AZ Foreclosure Realtor

It’s been a while since I posted- my wife had her baby and I’ve been EXTREMELY busy, as you can imagine. Here’s a few little Bankruptcy insights for you…

While I strongly push the idea that filing BK is a bad idea for most people in foreclosure, there are some circumstances where it’s a great idea. For example- if you earn $60k/yr, and have $150k in credit card debt and are upside down on your property, it MIGHT be a good idea to file BK. However- I had a reader contact me from this site asking if they should file… they made $80k/yr, had $10k in credit card debt, and were currently employed. For them, I strongly suggest that they DON’T file BK. They can pay $10k off in credit card debt pretty quickly if they just restrict their lifestyles a bit.

In the first scenario, it could take 10-15 years to pay that debt down. That’s years of stress, bad credit, lifestyle impact, etc. You have to make a decision whether or not it’s worth it to you. You can file BK, be free of your debt and have your credit cleaned up within 2-3 years at the most, if you’re diligent about it. Bankruptcy is a right we have as American Citizens, it’s there to be used for a specific purpose. Using it for the right scenario can be very worth while. Obviously, the key here is to learn from your mistakes and make sure you don’t get into that same situation again.

Remember, filing Bankruptcy doesn’t save your home. It merely pauses the foreclosure process for a month or two. 98% of the bankruptcies I see filed from people in foreclosure ultimately end up losing the home anyways. The kicker is not only did they lose their home, but now they damaged their credit for the next 7-10 years to boot.

In the first part of this article, I showed you the basics of a Bankruptcy filing, and how a Lender can still foreclose once they obtain a Relief of Stay from the Court. In this part I will explain the differences between a Chapter 7 and Chapter 13 filing, as well as some more secrets the Bankruptcy Lawyers don’t want you to know. Lastly you’ll learn why 98.7% of the homeowners who file Bankruptcy end up losing their home to foreclosure anyway.

Chapter 13, Chapter 7- What’s the Difference?

When you initially file for Bankruptcy Protection, the new Federal Laws state that you must first attend a credit counseling class before you can OFFICIALLY file Bankruptcy. This class can take from several days, to several weeks to complete. I’ve had some homeowners tell me it took them 2 months to complete the entire process. I believe this entirely depends on how aggressive you are with scheduling the sessions. While I’m on the subject, the new laws also make it near impossible for a homeowner to file Bankruptcy multiple times, and it’s very difficult to get them to accept a Chapter 7 filing right off the bat. The Government wants to make sure you have every opportunity to repay your debts first and foremost.

So what’s the difference between a Chapter 7 and 13 case? Essentially, a Chapter 13 filing is a ‘Re-Organization’ of your existing debts. You will have to declare all your assets (jewelry, cars, clothing, etc) as well as list out every last penny of your living expenses, and submit that to the court. You’ll also work to come up with a payment plan for all of your creditors. It is at this point that the judge begins working between you and your creditors. They’ll make every attempt to get you to make payments, and satisfy as much of your debt as possible. They may negotiate lower monthly payments, or even knock off the total amount due to your lenders (mainly the smaller, unsecured creditors like credit cards, cell phones, etc). Be ready to sacrifice most of your luxeries, as well as sell off your assets with proceeds going to your creditors. Think of a Chapter 13 as a ‘crunch down’ of your finances, and a payment plan for all of your creditors.

A Chapter 7 is where you completely walk from everything you owe, and own. This is very damaging to your credit report, making it very difficult to buy a home, car, or even a cell phone within the following 7-10 years. This is your worst case scenario. The court will typically require you to file a Chapter 13 first, and then only after all other attempts to get your creditors paid, will they allow you to file for a Chapter 7. The new laws make it much more difficult for homeowners to walk out on their financial responsibilities.

Why Most Bankruptcies Fail

Most people who file Bankruptcy will file a Chapter 13 first. They will work out a payment plan with the Court, and be forced to make those payments for up to 5 years (maybe longer, in some cases). So add up all your debts, and spread the payments out over 5 years. That’s close to what you’ll be forced to pay to the court. The Court then distributes those payments to your creditors, as it sees fit. The problem comes when you can’t make your payment to the court on time. You see, most people who fall into a financial hardship, still remain in that hardship while they are in the bankruptcy process. They have not resolved the problem well enough to be able to make their payments to the court. So, if you have lost your job, and have been unable to obtain a new one, you will most likely default on your payments owed to the Bankruptcy Court. As soon as you are late on this payment, the lenders will file for a Relief of Stay, and continue to foreclose on your home.

Here’s the kicker- not only do you have to make the payments for all of your past due amounts to your creditors- but you must also make the payments that are CURRENTLY due each month as well. If your income hasn’t increased enough to support the rise in monthly payments, then you will default on your monies due to the court. At this point, the lenders request a Relief of Stay, and continue to foreclose on your home. Another problem is when life happens during this process. You become disabled. A family member passes away, you go through a painful divorce, your car gets totaled in an accident. You don’t have the money for emergencies like this, and thus end up defaulting on your payments to the Court. By the way- any increase in income above what was stated to the court can also be taken to pay the debts off more quickly. It is for these reasons that most people who file Bankruptcy end up losing their homes to foreclosure eventually.

At this point, the judge may determine that you’re a candidate for a Chapter 7 filing. Again, this is a worst case scenario, however, most people who file a Chapter 13, end up rolling it over to a Chapter 7 eventually anyways. In all my years of working with homeowners, I’ve only seen one couple file a Chapter 13, make every payment on time for 5 years, and complete the process. It’s a very rare that this happens, I assure you. Filing Chapter 7 means you walk from everything you own, and all the debts you owe. Your credit will be damaged for 7-10 years, making your life miserable. There is hope on the horizon for you, however. In a future post I will explain how you can work to improve your credit to get your life back on track. I have seen some people purchase a home in as little as 2 years after filing Bankruptcy. If you’re determined and focused, you can recover quicker than most.

Hiring an Attorney- You Get What You Pay For

You may have seen billboards that say you can file Bankruptcy for $195. Let me assure you, it costs much more than that to get it done properly. For $195, the Attorney files initial paperwork to get the process started. Most of the time they file it ‘incorrectly’ or they conveniently ‘missed a couple lines’. So now the Bankruptcy Court returns the documents as incomplete. Your Attorney will now require you to pay another $195 (or more) to re-file the paperwork again. A couple weeks go by, and guess what. The Court needs a different form filled out (as if the Attorney didn’t know or anticipate that!). That’ll be another $395, please. This cycle keeps going on and on until you:

   1. can’t afford to pay the attorney any more money
   2. the Judge throws out the case for incompleteness or improper paperwork
   3. complete the bankruptcy process

In the 1st case, the Attorney will nickel and dime you consistently, until you pay his complete bill- which is usually more than it would’ve been had you paid it all up front. At some point, you can’t afford to pay the Attorney any more, and he just stops in his tracks. You don’t get your money you’ve already paid returned, it’s long gone. Essentially, you wasted your money.

In the 2nd scenario, the Judge may get tired of the Attorney’s antics, and just throw the entire case out the window. Mostly, this is linked to the 1st scenario, where the Attorney is just milking you for more and more money. The last scenario is that you finally complete the process, and everything is done. By the end of all this, you have paid THOUSANDS of dollars to the Attorney- much more than you would have if you had used a reputable lawyer from the beginning.

Let’s face it, Lawyers get paid by the hour, and they get paid very well for their time. A Bankruptcy case has tons and tons of paperwork, hours at the court house, going through your finances, etc etc. I’ve seen cases with hundreds of hours logged in by the Lawyer. There’s not one lawyer out there who can or will file a complete case for less than $200. Most cost $5,000 to $10,000, depending on the complexity of your case. If you have a lawyer telling you he can save your home by filing Bankruptcy for less then $500, it’s time to find a different lawyer.

There are some very reputable and honest attorneys out there. The key is to interview them first, check with any previous customers, and ask nearly everyone you know for referrals. The Better Business Bureau will also have some good recommendations for you as well. Just like most things in life, if it’s too good to be true, it probably is.

There are many situations where a homeowner who is in foreclosure should file for Bankruptcy Protection. However, the majority of homeowners file Bankruptcy when they didn’t really need to, and, will end up losing their home anyways. Having a foreclosure on your credit is a pretty bad mark, however, having a Bankruptcy on your credit is much more severe. If you are losing your home to Foreclosure, or are considering Bankruptcy as an option, please contact me with any questions you may have. The call and advice are free, no cost to you.

Please note- I am not a Lawyer and am not giving legal advice. Please consult a Licensed Attorney for any legal advice. I can refer you to a great Attorney if you need, just contact me.

98.7% of the homeowners who file Bankruptcy still end up losing their homes to foreclosure. In most cases, filing Bankruptcy will only postpone the foreclosure sale 3-6 weeks. The end result is that you’ve still lost your home, but now you’ve damaged your credit for the next 7-10 years with a Bankruptcy AND foreclosure both. Shocked to hear that? Keep reading, and I’ll explain why. I’m going to tell you everything the Bankruptcy Lawyer’s don’t want you to know. First, you have to understand how Bankruptcy works, and the purpose of it. In the second part, I will explain how the different types of Bankruptcy Cases work, and some other things the Lawyers don’t want you to know.

The Basics of Bankruptcy and The Foreclosure Process in Arizona

Most people believe that filing Bankruptcy will stop the foreclosure and allow them to save their home. In fact, Bankruptcy Attorney’s pay their bills and build their fortunes off of this popular misconception (well, the slimey ones do- there ARE some very good, legit Attorneys out there!) In an earlier article titled "Timeline to Arizona’s Foreclosure Process", I explained that the bank has 90 days from the time they file the Notice of Trustee’s Sale until the day of the Foreclosure Auction. When a homeowner files Bankruptcy anytime during this process, it puts an immediate HOLD on the foreclosure proceedings. Now, understand here, it doesn’t STOP the foreclosure sale, it merely PAUSES it in place. All actions are paused until the Bankruptcy Judge hears your case. Once the case is dismissed, or the banks are released from the case, they may immediately CONTINUE the foreclosure process, picking right up from where they left off.

For example- if you file bankruptcy 30 days before the foreclosure sale, the banks will NOT have to start the foreclosure process over once the case is dismissed. Instead, they can continue where they left off with only 30 days left until the sale. As soon as you file Bankruptcy, the banks merely POSTPONE the foreclosure sale until the case is released out of the Bankruptcy stay. Here’s the worst part, now you have a foreclosure AND a Bankruptcy on your credit report! Typically, that will drop off after 7-10 years, making it very difficult to purchase a new home, car, cell phone, etc or anything credit based within that time.

The Relief of Stay

As soon as your attorney files the proper paperwork with the court, a notice is sent out to every creditor involved. It doesn’t matter if you’re current on your payments or not, every creditor is now notified that you are in Bankruptcy. Federal Laws state that those creditors are not allowed to contact you for any reason. This is why the phone calls and letters will stop. They now hire Attorneys to talk to your attorney and file papers at every step in the process. I’ll give you one guess as to who they pass those Attorney’s fees on to. Yep, you’ve got it- they pass those Legal fees onto your balance payoffs. And that goes for every creditor you have. Not to mention the current interest, principle and late fees you’re incurring on a daily basis. Note- not every creditor will choose to hire an Attorney. Typically, it’s the major ones (Mortgage Holders, sometimes Car lenders- the smaller credit cards/creditors just hang out and wait for any scraps that may fall off the table).

Once the Court notifies all creditors of your Bankruptcy filing, your Lenders’ Attorneys will immediately file a Request for a ‘Relief of Stay’. Basically, this is a Request to the Judge to ‘Release’ the Lender from the Bankruptcy Proceedings, and continue on with the foreclosure. Their reasoning for this is that you cannot afford to bring the payments current, and they need to attempt to recoup as much collateral as possible, as soon as possible. You see, the banks lose a ton more money when you file for Bankruptcy, due to a loss of interest and delay in collecting their asset for liquidation. The longer they are dragged through a Bankruptcy case, the more money they lose in the end. And don’t forget the Lawyer’s fees they are paying for in the mean time.

Depending on your case and how busy the courts are with prior cases, it can take 3-6 weeks for the bank to obtain a Relief of Stay. Now, this occurs most of the time. However, there are instances where, depending on the type of Bankruptcy you file and complexities of your case, this process can be delayed for a longer period of time. The end reults are usually all the same- the bank eventually obtains a Relief of Stay, and continues on with the foreclosure until the auction. They will always take it to foreclosure sale, as that’s the easiest way to secure a clean title for them, and, have active buyers bidding on it.

In Part 2 of this article, I will explain the differences between the types of Bankruptcy, and other things the lawyers don’t want you to know. If you are facing foreclosure in Arizona and are considering filing Bankruptcy to stop it, please feel free to contact me. I am not a lawyer, but can answer many questions you might have. The call is free, no risk to you!

CONTINUE READING PART 2 OF THIS ARTICLE