The Homestead Exemption

When a person files bankruptcy, you are entitled to keep certain types of property up to a certain value. The property you get to keep is known as “exempt.” An example of exempt property is your residence, known as a “homestead.” In Massachusetts, if you own a home, you are entitled to an exemption in your homestead. As of March 2011, Massachusetts residents are entitled to an automatic homestead for $125,000. This means that if you have less than $125,000 in equity in your home, it is automatically exempt and you can keep your home in a bankruptcy. If you have more than $125,000 in equity, then you need to actually file a document at the registry of deeds in the county that your home is located known as a “declaration of homestead.” Filing this document will increase your homestead and protect the equity in your home up to $500,000.00.

However, if you have more equity in your home than $500,000, then your home could be soled in the bankruptcy to repay your debt. For example, if you have $600,000 in equity in your home, then $100,000 is not exempt and your home can be sold to satisfy your creditors. After the sale you will get $500,000, but the other $100,000 would be used to repay your creditors. In bankruptcy there are certain debts that a homestead will not protect you from, and your homestead is limited if you have not owned you home for at least 40 months. For more information on the limitations of a homestead in bankruptcy, you should consult with a qualified Massachusetts bankruptcy attorney.

The Trustee’s Power to Sell

What happens if you jointly own property with someone else and the property is not exempt? In Bankruptcy, the Trustee who is overseeing your case has the authority to force a sale of the entire asset, including the co-owner’s interest; even when the co-owner is not filing bankruptcy. See 11 U.S.C. 363(h).

However, the Trustee does not have the power to act independently and cannot simply sell the property. The Trustee must seek the Bankruptcy Court’s approval by filing a lawsuit in the Bankruptcy Court, known as an “adversary proceeding.” In this adversary proceeding, the co-owner will have the ability to present evidence to the court that the detriment that they will suffer is greater than the benefit to the creditors. Many times, the co-owner will be given the opportunity to purchase the debtor’s interest in the property at a discounted rate. If the property is sold, then the co-owner will be paid back their fraction of the ownership interest in the property after the Trustee’s expenses are paid.

Real Estate Ownership Scenarios

In bankruptcy, we typically see three situations where a debtor owns real estate jointly with someone else: home ownership with a spouse, co-ownership of a parents home, and co-ownership of investment property.

Home Ownership With a Souse

If you own your home with your spouse, chances are, you either own it as Joint Tenants with Rights of Survivorship (“JTROS”) or as Tenants by the Entirety. This means that both you and your spouse each own the whole home, as compared to you having ½ ownership and your spouse having ½ ownership. Then if you or your spouse dies, the other spouse automatically owns the whole.

There are clear advantages to owning your home with your spouse as Tenants by the Entirety, because it prevents once spouse’s creditors from interfering with the other spouse’s right of possession. This is also beneficial in bankruptcy in Massachusetts, because any interest that the debtor has as a tenant by the entirety is exempt “to the extent that such interest … is exempt from process under applicable non-bankruptcy law.” 11 U.S.C. § 522(b)(2). This means that in Massachusetts the debtor’s interest in their home that is owned with a spouse as tenancy-by-the-entirety is subject to attachment but not subject to levy or execution at this time and, so, the debtor’s right to possession cannot be interfered with unless and until the property is sold, or debtor and their spouse are divorced, or the debtor survives her spouse, in which event the trustee will be free to enforce his interest in the debtor’s real estate.

However, as I stated earlier, filing a declaration of homestead on your residence will protect up to $500,000 of the equity in your home, regardless of how you hold title with your spouse; therefore, it is always a good idea to go to your local registry of deeds and have one recorded. The declaration of homestead may be in either spouses name and will protect all the family members. It is also important to remember that a homestead is not available for investment property and can only protect property that you either live in, or you intend to make your home and permanent residence. You should contact a qualified bankruptcy attorney for more information on how a homestead can protect your home.

Joint Ownership of a Parent’s Home: The “Poor-Man’s” Will

It is not uncommon for elderly parents to decide to add their children to the deed of their homes for estate planning purposes. Typically, in order to save on the expense of paying an attorney to properly prepare a will, parents transfer title of their property to themselves and their children, as joint tenants. While this is an effective method of transferring property and avoiding probate upon the parents’ death, it can have undesired consequences because the parents’ property can be attached and seized by their children’s creditors. Moreover, as I discussed earlier in this article, if one of the children files bankruptcy, the bankruptcy trustee can sell the parents’ home to repay creditors.

If your parents have added you to the deed of their home, it is important to inform your bankruptcy attorney before your case is filed. A qualified attorney should be able to ensure that your parents’ property is properly protected.

Co-Ownership of Investment Property

There are very few exemptions that are available for investment/vacation property. Therefore, co-ownership of both investment and vacation property is nearly impossible to protect in bankruptcy unless there is no equity in the property. (the value of the property is equal or less than the amount owed on the mortgage.) If you file bankruptcy and you co-own investment or vacation property that has equity; you can be assured that the bankruptcy trustee will take the steps to sell the property.

Conclusion

Co-ownership of real estate presents numerous complex issues if one of the co-owners decides to file bankruptcy. If you co-own property with a spouse, parent or partner and you are facing financial difficulties, you should seek a qualified bankruptcy attorney for advice. A good attorney will be able to advise you of any potential issues that may arise, and take steps to ensure that you and your loved ones can keep your homes. Under no circumstances should you decide to try to transfer property out of your name, without advice from an attorney, because such a transfer could be seen as a fraudulent and would make it easier for a Bankruptcy Trustee to seize the property.

These debt collectors are searching these social media sites for information on debtors, such as employment information, current residence, friends and family information, aliases, and nicknames.  This information can be used to help track down Debtors for collection purposes. They are also attempting to relay messages to Debtors through friends, family, and colleagues asking the Debtors to contact to collector at a specified phone number.

One way to avoid the use of social media against you is to closely monitor and manage your privacy settings.  Make sure that the details of your profile are not viewable by search engine or on the social media site itself. Also, closely monitor and screen who is attempting to connect to your social network.  Finally, reconsider the information that your publishing on the Internet.  It is nearly impossible to control that information once you send it into the Web.

If you have filed for bankruptcy, your case filing will appear on your credit report. However, you will be grouped on a Score Card with other individuals who have filed for bankruptcy.  As such, your credit history will be compared with others in your Score Card, and could be viewed favorably by lenders.  However, if and when you are placed into a different Score Card with individuals who have not filed bankruptcy, and who have strong credit histories, your credit rating could be viewed unfavorably by lenders.  In other words, your credit score will be lower, and your credit score can drop when you “jump” from one Score Card to the next.

The best way to avoid a significant drop off in a credit score and recover your credit rating when switching score cards is to repay all debts on-time; pay down all outstanding debts; refrain from opening new credit accounts; and keeping low balances when you do incur debt.  Adhering to this formula will invariably raise your credit score, which will allow you to borrow money to purchase a car or a home at a more favorable interest rate.  Rebuilding your credit score after filing for Chapter 7 or Chapter 13 bankruptcy is possible, however, it takes discipline and time to achieve a higher credit score rating.

After an  Application by a Judgment Creditor has been made to a District Court, you will be issued a summons by the Court, which commands your attendance a  hearing on a specific date and time.  The goal of the application and summons is to compel you to be physically present at a courthouse. This will allow the attorney for the Judgment Creditor to investigate your financial affairs and examine your ability to pay the outstanding judgment. Many collection attorneys send a financial worksheet to Judgment Debtors to fill out prior to the hearing date.  Otherwise, you will likely be handed this worksheet by the collection attorney on the day of supplementary process hearing.  In most cases, the Creditor’s attorney will insist that you enter into a monthly payment plan, or make a lump sum payment, if there are assets available to satisfy the judgment. In other words, your Creditors are placing you on a court supervised payment plan and schedule, and can use the District Court as an enforcement mechanism.

If you fail to appear at the scheduled Supplementary Process hearing, you will be defaulted by the Clerk, and a Capias will issue against you.  The court will also continue (reschedule) the hearing for a later date.  A Capias is a civil warrant, also called a “bench warrant,” for your arrest.  This warrant was issued because you have failed to obey the summons issued to you, and failed to be physically present at the Supplementary Process hearing.  Once the Capias is issued to the Creditor’s attorney, you will likely be contacted by a Deputy Sheriff from the Sheriff’s Department, who will provide you with instructions on where you must meet him/her prior to the continued hearing date. If you fail to cooperate with the Deputy Sheriff, you can be placed in custody by the Sheriff’s Department, and will be physically transported to the courthouse for examination, and will be required to explain to the Court your reasons for non-compliance with the summons.  In other words, there are great risks associated with being uncooperative during a Supplementary Process proceeding, and you should make every effort to comply with a Court issued summons or the Deputy Sheriff, until you decide to file for bankruptcy.

How can one avoid Supplementary Process and its perils?

The most certain method of stopping a supplementary process proceeding; collection attorney investigation of your financial affairs; court ordered payment plans; court summonses; oversight by the Sheriff’s Department; and arrest, is to file a Chapter 7 or Chapter 13 bankruptcy petition. The automatic stay, 11 U.S.C. s. 362, prohibits your creditors from engaging in collection activity against you after you have file a petition for relief under the bankruptcy code.  If you are subject to a supplementary process proceeding, a copy of your Notice of Bankruptcy Case filing can be provided to the Deputy Sheriff and/or the District Court, which will suspend that proceeding until you receive your bankruptcy discharge.  A bankruptcy petition has many benefits, and it is extremely effective in terminating the pains and perils associated with supplementary process.  Even if you have an inability to pay the judgment on the first hearing date, the Supplementary process action will remain ongoing and you may be required to go to the courthouse every 3-6 months, depending on the court’s schedule.  If you are currently subject to this proceeding, please contact one of our bankruptcy attorneys for more information on how to obtain a fresh start and stop collection activity against you.

A “charge off” means that your delinquent debt was sold and/or transferred for collection purposes to a third party.   In all likelihood, after your debts are charged off, you will remain legally responsible for repaying the debt.  In other words, your debt is a contract to repay money, and those rights may be sold, assigned, and transferred to a third party. Some of the large credit card companies use collection agencies to collect their debts.  Here, credit issuers prefer to outsource their collections to aggressive third party agencies who take the risk and rewards in collecting delinquent debts.  In the alternative, many companies and debt collectors are active in the delinquent consumer debt market, and purchase delinquent debt from credit card companies. In these cases, your debt is sold to these companies for a fraction of its full value.

In either instance you have a right to request that the original creditor or new account owner provide documentation that verifies the debt.  You have a right to request a record of assignment and transfer if your debt was sold to a third party.  You also have the right to request an account statement that provides a breakdown of the principal and interest owed, as well as a statement of all credits made to your account. For more information, see the Fair Debt Collection Practices Act, 15 USC s. 1692(g) for the Federal statutes concerning the validation of debts.

If you are considering paying debts that are now owned by a third party, keep in mind that paying off those debts may not improve your FICO credit score. The most important factor that weighs upon your credit score is what the original creditor reports to the consumer reporting agency. This report is weighed upon much more heavily than what is reported by a debt collector or third party assignee of a debt.  In other words, paying off collections accounts does not improve your FICO credit score.

In order to assist you in selecting the right bankruptcy attorney, you should strongly consider the following evaluation factors when interviewing or consulting with any attorney:

Experience – The knowledge and ability to successfully handle the variety of issues that may arise before or after the filing of a bankruptcy petition is the most important factor for the evaluation of a bankruptcy attorney. Each bankruptcy case in unique and your case is unique within itself. The great number and more extensive of the diversity of bankruptcy cases that your attorney has worked on, means that is more likely that your bankruptcy attorney will be able to obtain your bankruptcy discharge or have your repayment plan approved.

Your bankruptcy attorney should not have filed less than 20 bankruptcy petitions within the last six months. Beware of firms that do not specialize in bankruptcy law, or firms that have just started to practice bankruptcy within the past 12 months. Make sure that the bankruptcy attorney or Massachusetts law firm that you chose to work with has a longstanding track record of success in the bankruptcy court, and makes you feel confident that they have expertise in bankruptcy law.

Multi-disciplinary expertise – Your bankruptcy attorney should have significant expertise in real estate, tax and corporation’s law, as well as civil litigation experience. Typically, with most bankruptcy cases, issues may arise in the areas of real estate, corporations, or tax law, or sometimes lawsuits result in a bankruptcy case. A bankruptcy attorney who has experience and the resources to advise you on different areas of law and resolve potential issues that may arise in a bankruptcy case will greatly ease the progression and success of your bankruptcy case.

Communication – Effective communication from the beginning of any client- bankruptcy attorney relationship, and is essential for the success of your bankruptcy case. An experienced bankruptcy attorney will provide his/her clients with many methods of communication (phone, e-mail, web, fax), as well as a bankruptcy support staff that can quickly assist any bankruptcy client with their needs. It is important that your bankruptcy attorney not “leave you in the dark,” as the bankruptcy process can sometimes become daunting and intimidating. It is also important for any bankruptcy attorney to keep any bankruptcy client updated on the status and progress of their case, and advised if any issues with the bankruptcy trustee or creditors should arise during the process.

Professionalism - Your bankruptcy attorney should come across as professional. Does the attorney have a physical office that you can visit? What type of impression do you get from the attorney’s website, is it informative, professional looking, current? A first impression can say a lot about an attorney. Did the attorney present you with a fee agreement before he asked for money? All these things show how professional your attorney is, if you answer no to any of these questions, then you should look for someone else.

FACTORS THAT YOU SHOULD NOT USE WHEN CHOOSING THE RIGHT BANKRUPTCY ATTORNEY

Cost – The legal fees charges by your bankruptcy attorney should not be your primary decision factor when selecting the right bankruptcy attorney for you. Many attorneys who charge their clients lower attorney’s fees than the industry average have less experience and a short track record of success in the District of Massachusetts Bankruptcy Court. Naturally, the more qualified, diverse, and well experienced attorneys charge greater legal fees than inexperienced attorneys new to the bankruptcy practice in Massachusetts. The old adage applies here:”You get what you pay for.”

Location – Selecting a bankruptcy attorney in your town or city, or a bankruptcy attorney who is within short distance to you place of employment is not always the best decision factor. Many bankruptcy clients who look for a bankruptcy attorney within the Boston-metro area of Massachusetts or outside of their immediate location are likely to find bankruptcy attorneys who meet the important criteria discussed above.

Any prospective client considering bankruptcy should interview several attorneys before making a final decision on who will assist them in putting in place their financial future. Asking questions about experience, multi-disciplinary expertise, and capabilities to communicate will help you determine the right attorney for you. Also you may want to ask yourself during the initial consultation whether you have developed a comfort level with your bankruptcy attorney and feel confident in hiring that individual to assist you in your bankruptcy needs. Selecting the right Massachusetts bankruptcy attorney is an important life decision, and we hope that these important factors assist you in your search for legal representation.

Ok, another reprint.  But a lot of people are trying to save their homes and don’t know that Chapter 13 Bankruptcy offers homeowners a lot of options to save their home and actually reduce the amount owed on their mortgages.  For example; if you have fallen behind on your mortgage payments, Chapter 13 Bankruptcy will allow you to resume your normal monthly payments while setting up a repayment plan to repay your arrears (past due payment), over the course of five years. However, what if your property is worth less than what you owe? There are two situations that that bankruptcy may be able to help you avoid the unsecured portion of your mortgage.

Your Primary Residence
In the case of your primary residence, it is possible to completely avoid your second mortgage. Massachusetts bankruptcy courts have held that if you have a second mortgage on your property and it is completely unsecured, then you can avoid the second mortgage and convert it to unsecured debt. Here is how it works: Assume that you have a 1st mortgage for $350,000 and a second mortgage for $50,000. If your home value has dropped below $350,000, then your second mortgage is “wholly unsecured.” Using the Bankruptcy Court’s equitable powers, we can “strip” the second mortgage and make it an unsecured debt. Then at the end of your plan repayment, the remaining balance of your second mortgage will be discharged, leaving only your first mortgage on your property.

Investment Property
In the case of investment property, if your mortgage is more than the property is worth, the bankruptcy code allows you to “strip” the unsecured portion of the loan. Unfortunately, this option is not available if the property is your primary residence.

The current bankruptcy laws can’t help everyone, but there may be options available. To find out more, feel free to contact us for a free consultation. The attorneys at Grantham Cencarik, PC aren’t new to bankruptcy, we have been helping clients in the areas of Bankruptcy for years, call us today for your appointment.

After talking to my client, he disclosed that he fell behind on his mortgage payments he contacted his mortgage company when he fell behind 3 payments and asked for a loan modification. His lender told him not to make any payments, because they would not accept them. This went on for 12 months. So, in our clients mind, he was only 3 months behind on his mortgage payments, although he did not make a payment for 15 months….ouch. So, now it looks like the amount of the arrears is so large that it cannot be repaid through a Chapter 13 Bankruptcy plan. This means that I may not be able to save his house.

So, this leads me to my point. If you are having problems with your mortgage, don’t delay; talk to a bankruptcy attorney as soon as possible. Keep making your mortgage payments, even if you are behind. If your lender returns the payment, deposit it into a savings account…do not spend it. Then, pick up the telephone and call a bankruptcy lawyer. A good lawyer will tell you if you are a good candidate for bankruptcy or if there are other options available to you.

Next, do not think that your mortgage lender will look out for your best interest. Remember, your mortgage company is in business for one purpose; to make money for its shareholders. No matter how bad your situation, (family death, illness, etc.) your creditors are only concerned about making money. Maybe the government will come through and bail you out; but don’t count on it. Ultimately, you are the only person who has to power to control your future. Don’t be afraid to use all the tools you have available.