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Purchase Money Security Interests and California Non-Judicial Foreclosure

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One of the little known concepts regarding the mortgage crisis in California is PMSI or purchase money security interest.  It is a little known concept because loan officers and mortgage brokers failed to tell people about what a purchase money security interest is when convincing homeowners to refinance or take out equity lines of credit and second mortgages.  While bankruptcy is governed by Federal Law, the foreclosure laws are governed by state law.  Each state has their own laws regarding the legal consequences of losing a home by foreclosure.

What is a Purchase Money Security Interest?

In California a lender receives a purchase money security interest in a home to secure the payment of the mortgage given to purchase a home.  The key point is the mortgage was obtained to purchase the home, not refinance or obtain money from an equity line of credit or second mortgage.  When you obtain a home loan, you do not own the home until you pay off the mortgage.  The lender still has an interest in the property until you pay off the mortgage in full and the house is then owned free and clear.

As mentioned above, each state has different laws regarding foreclosure.  In California, homeowners receive protection when a purchase money security interest is still in place and a homeowner defaults on the mortgage.  A mortgage company cannot seek payment of any difference between the value of the home and the mortgage.  But this is only the case in California if the purchase money security interest still exists.  If a California homeowner refinances their mortgage, they are destroying the purchase money security interest and therefore losing protection given by California State Law.  The most unfortunate part of refinancing a home is that the loan officer or mortgage broker probably never even mentioned this consequence of refinancing.

The good news for homeowners in California is mortgage companies almost always seek foreclosure by non-judicial foreclosure and then cannot seek a deficiency judgment.  A non-judicial foreclosure is cheaper and quicker for a mortgage company to take a home back.  A typical California Non-Judicial foreclosure can be accomplished in as little as four months.

Consult our experienced bankruptcy lawyers or bankruptcy attorneys for more information about California foreclosures, non-judicial foreclosures and judicial foreclosures in California.

Ask Our San Jose Bankruptcy Lawyer: How Will a Foreclosure, Short-Sale, Deed-in-Lieu of Foreclosure, and Bankruptcy Affect Your Credit Score?

By Kitty J. Lin, Attorney at Law

Every day we have more and more clients ask us the question of how foreclosure affects their credit score vs. bankruptcy, or whether it may be more beneficial to short-sale a house rather than a bankruptcy, and the answer is always, “It Depends.”  This may seem like an evasive lawyer-like answer, but it is true.  The answer always varies depending on each particular person’s individual situation.  No two people’s credit situation is exactly alike; therefore, the answers will tend to change depending on the person’s spending habits.

There are many different factors in the determination of your credit score, including things such as how long you have had credit, if you make monthly payments on time, how much credit you have available to spend, how many different credit accounts you have.  How a foreclosure, short-sale, deed-in-lieu of foreclosure, or bankruptcy affects your credit score depends on what your credit score was prior to the foreclosure, short-sale, deed-in-lieu of foreclosure or bankruptcy.

A foreclosure occurs when you are unable to pay your mortgage for a long period of time.  The mortgage lender takes back your home to sell to someone else.  A short-sale is when you sell your home for less than what you owe on the mortgage.  You would need your mortgage lender’s approval prior to the short-sale of the home.  A deed-in-lieu of foreclosure is essentially giving title of your home back to your mortgage lender in exchange for having the debt forgiven and not having a foreclosure on your credit report.

A bankruptcy is when you receive a discharge of all your debts, and your personal liability for all of the debt is wiped out.  For secured debt, like houses or cars, you can keep the property if you continue to make payments, but the lenders will not be able to pursue you for any deficiency if you choose to surrender the property in the bankruptcy.

Most people are surprised to know that foreclosure, short-sale, and deed-in-lieu of foreclosure have approximately the same impact on a credit score.  All three of these ways to lose a home are reported to the credit bureaus as having the account settled for less than what was owed.  People have always been under the impression that a short-sale may be better than a foreclosure, or signing a deed-in-lieu of foreclosure is better than either a foreclosure or a short-sale.  However, the important factor in determining a credit score is how long an account has been delinquent, such as 30 days, 90 days or 120 days.  Most of the time people that have a foreclosure, short-sale, or deed-in-lieu of foreclosure on their credit report have been delinquent on their mortgages for a long time.  By the time the foreclosure, short-sale, or deed-in-lieu of foreclosure actually take place, the damage to their credit score has already been done.  The higher your credit score is, the steeper the fall.  The opposite is also true.  If your credit score is already low, having a foreclosure, short-sale, or deed-in-lieu of foreclosure will not affect it as much.  There is no such thing as having a negative credit score, so there’s a limit to how low your credit score can go.

Filing bankruptcy generally lowers a credit score the most, because you are receiving a discharge of all your debts, so it has a bigger impact.  However, if you are struggling under a mountain of bills and a mortgage you cannot afford, bankruptcy may be the best option for you, regardless of how it impacts your credit score.  If you are considering bankruptcy, please contact an bankruptcy lawyer or bankruptcy attorney today at 877-9NEW-LIFE or 877-963-9543 to schedule a free consultation to discuss your case.

Do I Qualify For Bankruptcy?

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This question is asked time and time again by potential clients.  The only accurate answer is maybe, depending on your income, expenses and assets.  Bankruptcy is all about your income, expenses and assets and how they interact to form a financial picture.

Chapter 7 Bankruptcy

To qualify to file a Chapter 7 bankruptcy the means test must be passed or be negative.  If the means test is zero or negative, then that means there is no monthly disposable income to pay back unsecured creditors, and therefore a complete discharge of debts is acceptable.  The means test was created in 2005 when the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was passed by Congress.  The means test takes the average income for the six-month period prior to the month the bankruptcy case was filed and compares that average to the median income for the county lived in.  The means test then applies certain standard deductions for food, housing, utilities, vehicle expenses, health care costs and other deductions based upon the number of people in the household.  The problem is the means test is a fiction, not actual reality.  The means test attempts to apply a standardized system on households that are far from the same. During your free consultation with our bankruptcy lawyer you will discuss your income, expenses and assets to determine if bankruptcy can help you.

Chapter 13 Bankruptcy

There are quite a few reasons to file a Chapter 13 bankruptcy.  See Chapter 13 Basics for more details about circumstances that a Chapter 13 bankruptcy is helpful.  Just like a Chapter 7 bankruptcy, Chapter 13 bankruptcy is a function of income, expenses and assets.  Chapter 13 bankruptcy also incorporates the means test.  The means test in a Chapter 13 bankruptcy helps to determine how much monthly disposable income is available to pay back unsecured creditors in the Chapter 13 plan of reorganization.  Just like in a Chapter 7 bankruptcy there may not be any monthly disposable income to pay back unsecured debt.

The means test is a very complicated form that is the essential part of filing for bankruptcy protection since the passage of the BAPCPA in 2005.  It is imperative that anyone facing burdensome debt consult with a San Jose bankruptcy lawyer prior to filing for bankruptcy protection.

San Francisco Bankruptcy Lawyer: Mortgage Rates Increasing

By Kitty J. Lin, Attorney at Law

Consumers that have purchased or refinanced their homes at the historically low mortgage rates will be glad to know that they were able to take advantage of those mortgage rates before they disappeared.  That is what is currently happening.  Mortgage rates are now slowly increasing again.  As of week ending February 11, 2011, the national average 30 year fixed mortgages are now 5.05%.  Interest rates have not been this low since May 2010.

Mortgage rates are tied to Treasury yields, particularly the 10 year Treasury yield.  The Treasury yield has been slowly increasing, so it’s no surprise that the mortgage rates are increasing as well.  Higher mortgage rates tend to affect people trying to refinance rather than people trying to buy a home because people looking to purchase a home are more concerned with other factors, such as the price of the home itself.  Currently, home prices are still low enough that buyers will overlook the slightly higher interest rate.

If you have any questions about bankruptcy consult with our Oakland bankruptcy lawyer or schedule a free consultation with our San Jose bankruptcy lawyer.  Call toll free 1-877-9NEWLIFE to schedule a free consultation to start your new life debt free.,

Asset Protection Lawyers: California Bankruptcy Exemptions

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One of the biggest myths about bankruptcy is that the Bankruptcy Court will take all of your stuff.  At West Coast Bankruptcy Attorneys we discuss in detail the things you own and whether they can be protected or not by Bankruptcy Exemptions.  There are cases in which not all assets can be protected, in those situations settling with the Chapter 7 trustee assigned to your case could be the remedy, or filing a Chapter 13 bankruptcy to protect the assets may be best.

The most expensive asset most people have is there home.  Given the mortgage crisis and the crash of the housing market almost everyone in need of bankruptcy services no longer has any equity in their home to protect.  Remember, if you owe more on your mortgage than the fair market value of the house, the house is not worth anything

The next most expensive asset most people own is their vehicles.  If the vehicle is paid in full and there are no loans on the vehicle, it would be worth quite a bit of money.  The best way to determine how much a paid in full vehicle may be worth is to visit a Kelley Blue Book at www.kbb.com.  Kelley Blue Book will provide the value of the vehicle depending upon mileage and condition of the vehicle, excellent, good and poor.  Usually with California’s generous vehicle and wild card exemptions will protect all vehicles.

There are many types of bankruptcy exemptions available to protect assets such as household goods, jewelry and the money held in bank accounts.  Without the experience counsel of our bankruptcy lawyers your assets could be lost to your bankruptcy estate.  Contact us today toll free at 877-963-9543 and schedule a free consultation with our best bankruptcy lawyers.

Bankruptcy Lawyer: What to Know About Property Taxes

By Ryan C. Wood, Attorney at Law

As we begin 2011 the mortgage crisis has yet to come to an end.  Many homeowners are struggling to pay their mortgage and are forced to make very difficult decisions about who gets paid each month.  So what about property taxes in this mess?  What happens if property taxes are not paid?

Property taxes are secured by the property you own, just like the mortgage you agreed to when you purchased your home.  Unlike a credit card debt, personal loan or medical debt, property taxes and mortgages are not debts that you are personally liable for; they are only secured by the property itself.  If your house is foreclosed or short-sold you will not owe the unpaid property taxes to the county.

The next issue is whether you are trying to keep the house or not?  If yes, then you will have to pay the property taxes at some point.  If your property taxes have not been paid for a year or more, and you cannot make the lump sum payment, there is help.  The first thing you should do is contact your county to see what options are available for you to enter into a repayment plan.  Another option is to file Chapter 13 Bankruptcy to make paying back the property taxes affordable by spreading out the unpaid property taxes over three to five years.  See our Chapter 13 Time Line for more information about filing a Chapter 13 Bankruptcy.

What about taking a cash advance on a credit card or borrowing from a retirement account to pay property taxes?  Do not do it.  You can go for years without paying property taxes before your county initiates a tax sale.  As mentioned above, property taxes are secured by the property.  If the property is gone, so is your obligation to pay the property taxes and the property taxes that are past due.  So why take on debt from a source that will be with you after the property is gone.  Long after your property has been foreclosed on or short-sold you will still be making payments to the credit card or retirement account you borrowed the money from to pay your property taxes.  So if you are having trouble paying your bills each month, your property taxes should not be at the top of your list.  You should also not borrow funds to pay your property taxes.

For more information about property taxes and bankruptcy you may contact us toll free at 1-877-9NEW-LIFE.  We have offices located in Oakland, San Francisco, San Jose and Redwood City proudly serving those in need of debt relief.

San Mateo Bankruptcy Lawyer: Does Receiving a Lump Sum Social Security Payment Affect My Bankruptcy Case?

By Kitty J. Lin, Attorney at Law

If you file for bankruptcy, you need to be aware that under 11 USC §541, all your legal and equitable interests belong to the bankruptcy estate.  This means that all of your assets (such as household goods like furniture and electronics, vehicles, and real estate) no longer belong to you at the time you file for bankruptcy unless they can be protected.  The bankruptcy code usually allows you to keep all of your assets by using exemptions to protect these assets.  Please check our blog shortly for an explanation of the available exemptions to protect your assets in California.

What About Lump Sum Payments from Social Security?

If you receive a lump sum Social Security payment, it may be fully protected, depending on the circumstances.  Under C.C.P. Section 703.140(b)(10)(A) and C.C.P. Section 704.080, Social Security benefits are completely exempt.  See also 42 USC §407 (a), which states, “The right of any person to any future payment under this subchapter (Old-Age and Survivors Insurance Benefit Payments) shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter  shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.”

However, you need to be careful.  If you are about to receive a lump sum Social Security payment, in order for the payment to be fully protected, you should deposit the lump sum Social Security payment into a new account that is separate from other accounts and not comingled in your existing bank accounts.  This is advisable for tracing purposes.  You can easily prove that the funds in the new account only came from the Social Security payment, and not for anything else.  If you have your Social Security benefits mixed in with other deposits, it may be harder to prove how much in your account can be fully protected.

Please contact one of our bankruptcy lawyers or bankruptcy lawyers if you have any questions regarding social security benefits, and how they affect your bankruptcy case.  You may also obtain Chapter 13 Bankruptcy information by calling us at 877-9NEW-LIFE or 877-963-9543 or visit us online at www.WestCoastBK.com to schedule a free consultation with an experienced attorney today.

San Jose Bankruptcy Lawyer: Stop Wage Garnishment and Get Some of the Money Back by Filing Bankruptcy

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Many creditors and collection agencies threaten to garnish wages to scare people into making a payment.  The truth is that creditors must first file a lawsuit for breach of contract and obtain a judgment for the nonpayment of the debt.  Obtaining a judgment is not free and will cost the creditor anywhere from $1,000 to $2,000 to obtain a default judgment against someone.  There is a Court filing fee and the lawsuit must be personally served on the defendant.  If no answer is filed to the complaint, then the creditor that filed the lawsuit can request the Court enter the judgment by default.

Once a creditor has obtained a judgment, then they can enforce the judgment by garnishing the judgment debtor’s wages.  Again, garnishing wages is not free and requires a number of steps.  Eventually the payroll department of the person the judgment is against will be served with the writ of attachment/garnishment.  At this point it is only a matter of time before the judgment debtor’s wages will be garnished if all procedures have been followed properly.  A judgment debtor’s wages can be garnished up to 25% depending upon the circumstances.

The good news is that wages that are garnished in the 90 days prior to the filing date of the bankruptcy can be returned if certain requirements are met. While wage garnishment is a sign that it is time to consult an experienced bankruptcy lawyer, it is not the end of the world.  You can stop the wage garnishment and get some of the money back by filing a Chapter 7 bankruptcy or Chapter 13 bankruptcy as soon as the wage garnishment starts.  Contact one of our experienced bankruptcy lawyers today and request a free consultation.

Free Bankruptcy Consultations Are Always Completely Confidential

By Kitty J. Lin, Attorney at Law

When you meet with one of our Bay Area or San Mateo County bankruptcy lawyers, you can be assured that everything you tell us in the free consultation is completely confidential.  We are ethically bound by the attorney-client privilege to keep all communications between a client and his or her attorney completely confidential.  The attorney-client privilege is in effect as soon as you step through our doors.  Even if you do not end up retaining our services, we do not reveal anything you have told us in the consultation to anyone outside our office doors.   Thus, you can always speak freely and get an honest opinion about your case without the worry that your secrets will be revealed to the world.

Keep in mind that although our consultations are completely confidential, if and when you file your bankruptcy petition, the petition is public record.  This does not mean that your financial situation will be broadcasted to the world.  The fact that you have filed for bankruptcy protection is not sent to newspaper outlets, your neighbors or to your employer.  This means that if anyone wishes to search for your bankruptcy records, they will be able to do so, and they can find the records.  However, it is not free and takes some time and effort.  The only people that receive actual notice of your bankruptcy filing are the creditors that you owe money to.  This is similar to home ownership – your property information is recorded with the county, and anyone can search for your property holdings.   The only people that receive actual notice are the parties involved in the transaction.

If you need a free and confidential consultation with an experienced bankruptcy lawyer, please call us at 877-9NEW-LIFE or 877-963-9543.   We have offices in San Francisco, Redwood City, Oakland, and San Jose for your convenience.  You can also visit us online at www.WestCoastBK.com to schedule a free bankruptcy consultation.

Ownership Cost for Vehicles in the Means Test Finally Put to Rest in the Ransom Case

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In 2005 the Bankruptcy Abuse Prevention and Consumer Protection Act or BAPCPA was passed by Congress and created the Means Test.  The Means Test was created in an attempt to change a perceived problem with the bankruptcy system.  The idea behind the Means Test was to take IRS standard deductions and compare them to the income of those in need of bankruptcy protection to determine if someone has disposable income to pay some of their debts back in a Chapter 13 bankruptcy rather than having all of the debts discharged in a Chapter 7 bankruptcy.

In 2006, Mr. Ransom filed for bankruptcy protection under Chapter 13 of the bankruptcy code.  In his Means Test Mr. Ransom included an “Ownership Cost” in line 28 of the Means Test or Form 22C even though he did not actually have a car loan or lease payment.  By taking this deduction totaling $471 per month, Mr. Ransom reduced his monthly disposable income available to pay his unsecured creditors.  Taken over a 60 month Chapter 13 plan, Mr. Ransom would not have to pay back to his unsecured creditors approximately $28,000.  FIA Cards objected to the confirmation or approval of Mr. Ransom’s Chapter 13 Plan arguing that the $471 deduction can only be taken if Mr. Ransom actually has a car loan or lease payment.

While the Ninth Circuit agreed with FIA Cards and held that Mr. Ransom could not take the $471 “Ownership Cost,” the Fifth Circuit, Seventh Circuit and Eighth Circuit in similar cases did not agree.  On January 11, 2011, the United States Supreme Court upheld the Ninth Circuits judgment and agreed that the “Ownership Cost” in line 28 and line 29 of the Means Test or Form 22C may only be taken if the bankruptcy filer actually has a car loan or lease expense.  If a person owns their car free and clear then they must not take the “Ownership Cost” deduction. A bankruptcy attorney formerly could choose to take the additional ownership expense to decrease the line 59 disposable income of their client or pass the means test altogether.

The issue in this case turns on the interpretation of the word “applicable.”  What a mess one simple word could create.  The moral of the story is when Congress is considering the language of laws to pass, they must make their intent clear and analyze each word they use when drafting new legislation.  One word could make a huge difference.  In Mr. Ransom’s case, it is now a $28,000 difference.  Contact one of our bankruptcy lawyers for more information about the Means Test or In re Ransom.