Lenders are failing to do loan modifications despite financial incentives by the government to do just that.

http://www.boston.com/business/articles/2009/07/07/lenders_avoid_redoing_loans_fed_concludes/?page=1

What can you do? You have options, one of which is bankruptcy. Talk to an experienced bankruptcy attorney.

If you are considering filing for bankruptcy, you have likely heard about the dreaded “Means Test.” It is a test under the new bankruptcy law you have to “pass” in order to qualify for Chapter 7 bankruptcy.

The way you can determine whether you pass is you look at your gross monthly income for the previous 6 months, divide the number by 6 and multiply by 12. Sounds fun! This is one of the many reasons getting an experienced bankruptcy attorney is advisable. You compare that number with the median income in your state. The median income varies depending on the size of the household. As you may guess, it goes up as the household goes up. If you are under the median income, that’s it. Your worries about the Means Test are over and it is likely that your attorney breathes a sigh of relief and you Chapter 7 bankruptcy is less costly. If you are over the median, your attorney will likely need to do more work and ask you more questions. In many cases, there will be nothing left, but to file a Chapter 13 or Chapter 11, which is more costly and in some cases infeasible and usually more complicated.

Let’s go back to the household size issue. Especially for people whose income is close to the median or over the median, determination of the number of people in the household is important, because it could mean a difference in qualifying for a Chapter 7 bankruptcy or not. In California, where I practice bankruptcy law, the current median income for 1 person is $49,182 and for 2 people it is $65,097. That is a big difference!

In some cases it is very clear what the household size is. A mother living with two minor daughters in one house. Father has passed away and no relatives/friends living with them. That is a clear household of 3.

However, some cases are not as clear, living with girlfriend who is currently in school, fiancé from another country, roommates, grandmother and her husband, adult child moving back in, gay unemployed partner and her adult child. What is the size of your household now? As you can see tell, some situations are less clear-cut and an argument can probably be made to include or exclude those people.

An experienced bankruptcy attorney will likely spot that issue right away, especially in situations where it is critical (you are above the median or close to it).

It is a bit of a balance for an attorney, because once you include the person as part of the household, you have to include their contribution to the household…As you may have guessed, while it helps to include people without income into your household, including income from people who make a lot more money may hurt your chance of qualifying.  Seeing the issue and making the right decision is important.

Household size

There are several approaches on to how to calculate this size of the household and no “right” answer, though most attorneys will argue that currently the controlling approach is the “heads on bed” approach. The name basically says it all, in that the household consists of heads on bed occupying the housing unit. In re Ellringer, 370 B.R. 905 (Bankr. D. Minn. 2007). This approach is also known as Census Bureau test.

A more limited approach is the “financial dependency” approach, which basically looks to the number of people debtor is financially responsible for within the household. A less followed approach is the “IRS regulation” approach, allowing household size to be controlled by the number claimed as dependents allowed under the IRS code.

The moral of the story is to know that there are options and to know that a decision on the size of household in case of Chapter 7 is made at time of filing, therefore, the timing of your case may be as important as anything else. Consulting with an experienced bankruptcy attorney will help you make the right decision for you.

While having to file for bankruptcy is certainly not anybody’s idea of a good time or something to strive for, it is not the end, but rather a beginning or a fresh start. If you are considering filing for bankruptcy, you are in the company of some very famous and successful people.

Abraham Lincoln – while his face is currently on a penny, at one time, didn’t have a single cent to spare. He tried his hand at many occupations as a young man, including buying a general store in New Salem, Illinois, in 1832. Honest Abe turned out to be a poor shopkeeper, and while he didn’t have modern bankruptcy laws to protect him, he ended up losing his remaining assets, including his horse. He also continued paying off his debts well into the 1840s.

Lincoln is not the only United States president that filed for bankruptcy. Ulysses S. Grant filed for bankruptcy after leaving office. Thomas Jefferson filed for bankruptcy several times. William McKinley filed for bankruptcy and was at one point $130,000 in the red.

Henry Ford – automobile manufacturer’s first two companies failed. The first company filed for bankruptcy and the second ended because of a disagreement with his business partner. In 1903, at the age of forty, he created a third company. By July 1903 the bank balance of the company dwindled to $223.65, but then Ford sold its first car, and the rest is history.

Walt Disney – cartoon creator, filed for bankruptcy in 1920. In 1923 he formed a new company with a loan from his parents and brother and in 1928 he created “Mickey Mouse.” The rest is, you guessed it, history!

H.J. Heinz – When Heinz was just 25 years old he and his partners began a company that made horseradish. The condiment didn’t prove to be very lucrative. His company was bankrupt by 1875. The very next year, Heinz got together with his brother and cousin to start a new company. The reorganized company started making ketchup, and the business took off. Last year the H.J. Heinz Company had over $10 billion in revenue.

Milton Hershey – founder of Hershey’s chocolate, started four candy companies that failed and filed bankruptcy before starting what is now knows as Hershey’s Food Corp. Mr. Hershey had only a fourth grade education, but was certain he could make a good product. His fifth attempt was, as we all know, successful.

Mark Twain – the famous American writer, lost most of his money investing in a worthless machine called the Paige Compositor. He filed for bankruptcy in 1894 and discharged all his debts, but was determined to repay all the debts anyway. He knew he could earn money by giving lectures to large audiences, so he traveled to Europe and spent the next four years lecturing in all major cities. He used the proceeds from these lectures to repay all his debts. He also wrote several of his more famous books after filing bankruptcy, including Following the Equator.

Kim Basinger – the famous actress, earned so much money at one point from her movies that she was able to purchase the town of Braselton, Georgia. After the purchase she was sued for breach of contract for pulling out the movie, Boxing Helena. She was not able to pay the damages resulting from the suit and filed for bankruptcy in 1993. As part of her bankruptcy, she sold the town. She later married, had a child and won an Oscar for her role in  L.A. Confidential.

Sometimes my clients are forced to file for bankruptcy because their credit was ruined through fraudulent transactions by people they knew or they were victims of stolen identity. Unfortunately, these days most of us can find our selves victims of stolen identity. Here is what you can do to prevent further damage.

Placing a Fraud Alert

By placing a fraud alert on your consumer credit file, you let creditors know to watch for unusual or suspicious activity in any of your accounts, such as someone trying to open a credit card account in your name.

To place a fraud alert, call one of the following three major credit reporting agencies. Your phone call will take you to an automated phone system. Be sure to listen carefully to the selections and indicate that you are at risk for credit fraud.

You need only contact one of these agencies, which will automatically forward the fraud alert to the other two.

Equifax
(888) 766-0008
Consumer Fraud Division
P.O. Box 740256
Atlanta, GA 30374
http://www.equifax.com

Experian
(888) 397-3742
Credit Fraud Center
P.O. Box 1017
Allen, TX 75013
http://www.experian.com/fraud

TransUnion
(800) 680-7289
Fraud Victim Assistance Department
P.O. Box 6790
Fullerton, CA 92834
http://www.tuc.com

Soon after you place a fraud alert, you will receive confirmation letters from all three credit reporting agencies, with instructions on how to order free credit reports. If you find anything that looks wrong or suspicious or that you don’t understand in a credit report, call the credit agency at the telephone number listed on the credit report. You may also wish to call your local police or sheriff’s office to file a report of identity theft.

Placing a Fraud Alert

By placing a fraud alert on your consumer credit file, you let creditors know to watch for unusual or suspicious activity in any of your accounts, such as someone trying to open a credit card account in your name.

To place a fraud alert, call one of the following three major credit reporting agencies. Your phone call will take you to an automated phone system. Be sure to listen carefully to the selections and indicate that you are at risk for credit fraud.

You need only contact one of these agencies, which will automatically forward the fraud alert to the other two.

Equifax
(888) 766-0008
Consumer Fraud Division
P.O. Box 740256
Atlanta, GA 30374
http://www.equifax.com

Experian
(888) 397-3742
Credit Fraud Center
P.O. Box 1017
Allen, TX 75013
http://www.experian.com/fraud

TransUnion
(800) 680-7289
Fraud Victim Assistance Department
P.O. Box 6790
Fullerton, CA 92834
http://www.tuc.com

Soon after you place a fraud alert, you will receive confirmation letters from all three credit reporting agencies, with instructions on how to order free credit reports. If you find anything that looks wrong or suspicious or that you don’t understand in a credit report, call the credit agency at the telephone number listed on the credit report. You may also wish to call your local police or sheriff’s office to file a report of identity theft.

I have a lot of people calling me asking me if I do loan modifications. My answer is always, “No.” Why don’t I do them? It seems like it would be a lucrative business to get into?

There are several reasons:

1. Lenders are not quick to perform the modifications – this puts the homeowner at risk. The filing of Notice of Default and subsequent Foreclosure will proceed as planned and scheduled. Negotiations for home modifications do nothing to stop or slow things down. I see it as a distraction. I will get frantic calls from people all the time shocked about the fact that they were getting the run-around and in the mean time their home is getting foreclosed on tomorrow. I hate to see this happen and unfortunately there is so much misinformation out there. Loan modification negotiations don’t stop foreclosure proceedings! Bankruptcy does!

2. I have simply not heard too many success stories. I have heard a lot of sad failure stories. I like to produce results for my clients, not just take their money and waste their time. If I don’t think you can afford to realistically keep the property, I will tell you. Most of the people performing modifications will not.

The moral of the story is this. You can try to modify your loan outside of bankruptcy (not with me), but please be vigilant about deadlines like foreclosure proceedings. I would hate to see anyone lose a home, especially if there are options out there to save it.