Articles Posted in Credit

Published on:

We represent many consumers in Bankruptcy, and getting our Clients back on their feet afterwards is a big part of what we do. Often, cases are driven by upside-down home loans or even reasonable loans in which payments have become too high because the homeowner lost their job or had to take a lower paying job as a result of the Great Recession. One option for those who’ve gone through Bankruptcy and are looking to borrow again is the FHA Loan.

Before the housing bubble burst in 2008 FHA loans were considered the choice for buyers with little credit or bad credit; or an option for those with low incomes. But since everyone’s home value began falling – often taking their credit standing with it – FHA mortgages have become more widely appealing, especially when compared to conventional loans that require private mortgage insurance (“PMI”). PMI is the mortgage lender’s way of ensuring it gets paid following default. It is insurance for which the borrower pays the premium, adding to the cost of the loan.

For those considering an FHA Loan, keep these points in mind:

Published on:

So you’re doing business as usual and notice that payments from your customer are getting later and later. Turns out that customer is struggling to navigate in the sputtering economy. Waiting for your money is bad enough; but what if you receive a demand to refund what you’ve been paid? And not because of anything you’ve done but because your customer has filed for Bankruptcy?

Sound like a nightmare? Actually, it happens everyday. So what do you do if you’re next? That was the question addressed in the recent New York case of Davis vs. Clark-Lift, in which a reorganizing Chapter 11 Debtor paid vendors later and later as it listed towards Bankruptcy. But even those lucky creditors who got paid could not escape the demand of the Trustee (Davis) to fork over what they had received.

As the Court in Davis explained, to set aside a payment as a “Preferential Transfer” under Section 547(b) of the Bankruptcy Code the moving Creditor or Trustee must established that the Debtor made it:

Published on:

This piece from the Wall Street Journal’s Real Time Economics site answers the question with charts galore! The short answer comes in 3 parts:

1) For working people, 2013 was more of the same slow, jobless recovery;

2) For high net-worth individuals and corporations it was a bonanza; and;

Published on:

Where Did the Equity Go?

If you’re an Illinois homeowner chances are any equity you had in your home disappeared between 2008 and 2011; and hasn’t been seen since. If you’re lucky that equity may start crawling back to “normal” levels in 2013; but if you haven’t seen it happen you’re not alone. Despite recent reports in the news about recoveries in California, Arizona, and Las Vegas, Illinois property values continue to languish. Of course it’s not all bad news. For instance, as of January the overall price of housing in the Chicago area was up 3.3% from a year ago, with condo prices up a robust 5.8%. Then again, the Illinois foreclosure rate has merely leveled off rathern than falling as it has in other States. And as the “jobless recovery” grinds on, a few basic truths are coming to light:

The value of real estate is still well below pre-crash levels and many people borrowed against those inflated values. These people owe well more than their homes are worth.

Published on:

Yes Virginia, it is possible to both discharge unsecured debts forever (Chapter 7) and strip down secondary mortgages (Chapter 13). The result is a so-called “Chapter 20.” But should Debtors file two cases when it’s hard enough to put themselves through one? Read on and find out.

When Is Chapter 20 a Good Idea?

There are situations that fairly cry out for Chapter 20 treatment:

Published on:

Everything Was Going Fine Until…

Your customer or borrower has been paying like clockwork and you, the creditor or vendor, have been dispensing goods and services as promised. Then your customer starts to pay a little later, then later still. Why not? Times are tough. So you do the decent thing and take their payments without complaining. Next thing you know, your customer seeks bankruptcy protection, leaving you holding the bag for thousands, tens of thousands, even hundreds of thousands of dollars worth of goods and services. Money you’ll never see again. 

The Worst Part Is (Not) Over

Published on:

Written by Jonathan Trent and Mazyar Hedayat  Edited by Mazyar M. Hedayat, Esq.

Small business remains the backbone of the most vibrant economy in the world. America leads in innovation and hard work thanks in large part to small businesses and entrepreneurs. But despite the best intentions of their owners small businesses have a high failure rate; especially in the first few years of operation. 

But why the high failure rate? One of the most common reasons is that the business owner, entrepreneur, or manager of the business 

Published on:

By Andrew Jackson  Edited by Mazyar M. Hedayat, Esq.

In this post we will skim the surface of how the Automatic Stay, put into effect via Section 362 if Title 11 of the United States Code, helps clear the air for people and companies that file Bankruptcy; allowing them to repay their creditors the best they can. What Is the Automatic Stay? Bankruptcy is the Federal process by which an individual, a couples, or a business entity is permitted to shed liabilities and obtain a fresh start. This process can take the form of a one time liquidation or a reorganization that unfolds over time. But all forms of Bankruptcy have one thing in common: the Automatic Stay found at 11 USC 362.  So what is the Stay? It is

a self-executing, universal injunction that goes into effect the moment a case is filed and keeps most creditors from exercising control over the assets of the Bankruptcy Estate.

Why An Automatic Stay?

To ensure that similarly-situated creditors get treated equitably in a Bankruptcy, Congress wrote the Bankruptcy Code to ensure that nobody could get the advantage. The Automatic Stay ensures that there is enough to go around, and that no single Creditor gets too much; even if what is left to distribute is only pennies on the Dollar. Under the Code, fairness equals equitable distribution.To ensure fairness, Section 362 makes it a punishable offense for most creditors to take actions such as:

  • Filing or pursuing a lawsuit to collect
  • Garnishing wages or issuing a citation
  • Filing or foreclosing a mortgage or lien
  • Demanding payment orally or in writing

What if the Stay is Violated?

Because the intent of Congress in creating the Automatic Stay was to usher in a quiet period during which the Bankruptcy Trustee could take stock of assets and liabilities without having to fight the Debtor’s battles, penalties for violation of the Stay are harsh. Any breach of the peace, with or without the creditors’ knowledge, is considered contempt of Court punishable by injunctive, monetary, and in proper circumstances punitive, damages. This is worth repeating:creditors can be punished even if they did not know  that they were violating the Automatic Stay. As long as the Stay is in effect – that is, a Bankruptcy case was filed – violation by a creditor is a civil offense. Note however; Congress considered some things too important even for the Automatic Stay. Thus, Criminal matters are not affected; nor are family law (i.e. Divorce) matters.

How is the Automatic Stay Put Into Effect?

Neither a Debtor, the Debtor’s Lawyer, nor the Court needs to take any action to activate the Stay – it comes into existence by operation of law when the case is filed. How do creditors know? Every creditor listed in the Bankruptcy Petition is served notice by the Court Clerk.

What if My Creditors Say They Didn’t Know?

All creditors identified in the Petition receive notice of the case from the Court Clerk, and all recipients are bound by the provisions of §362 whether or not they know they are violating it. You read that right: even if a creditor was unaware of the Stay when they violated it, they can nonetheless be punished by the Bankruptcy Court. In fact, the Automatic Stay is so powerful that it restrains not only creditors but the majority of Judges and Attorneys from exercising dominion or control over assets of the Bankruptcy Estate.

How Long Does The Automatic Stay Last?

In practice, the Automatic Stay lasts for a relatively short time in the case of liquidation and much longer in the event of reorganization. In Chapter 7 the Automatic Stay protects all non-exempt property that can be administered by the Trustee for about 90 days (the length of most Chapter 7 cases). That is, until a discharge is issued, the Stay protects all items in the Bankruptcy Estate. In Chapter 11 and 13 the Stay remains in effect for as long as the Plan of Reorganization is active. In Chapter 13 that means a maximum of 5 years. In Chapter 11 that means a long as it takes to repay creditors according to the Plan approved by the Court and a majority of unsecured creditors. Wrapping It All Up After reading this article it should be evident that the Automatic Stay is a powerful tool. While we have discussed only a fraction of its ramifications here, you should now have a better understanding of this portion of the Bankruptcy Code. Take advantage of your new appreciation for the law by contacting M.Hedayat & Associates to set up a free telephone or office consultation.

Continue reading