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Surviving Debt: Sample Listing of Monthly Income, Expenses, and Debts

Monthly Income

This is a sample listing of a family’s last month’s income. Your income may include other sources than those listed here, such as workers’ compensation, unemployment compensation, food stamps, other public benefits, or pensions. For wages, use take-home pay. If self-employed, include all income and also list under expenses any income taxes and self-employment taxes you pay in a given month.

Surviving Debt: First Considerations

Mortgage problems tend to have a snowballing effect if not resolved quickly. Small issues grow into big problems that can eventually lead to foreclosure—always act sooner rather than later.

Surviving Debt: Surprising Facts About Partial Mortgage Payments

Try not to make a mortgage payment for less than the amount due (a partial payment). The servicer typically does not apply a partial payment to your mortgage. Instead, the servicer may return your partial payment check back to you un-cashed. If so, you should set the money aside and not use it to pay other bills, so you can use it later to help with your mortgage payments. In a worst case scenario, if foreclosure becomes inevitable, you will have some money saved for moving expenses.

Surviving Debt: How to Determine the Status of Your Mortgage Loan

You receive monthly statements from your mortgage servicer or a coupon book with similar information. The statements include the amount due for the billing period; an explanation of the total amount due on the account including fees; a breakdown of how your last payment was applied; transaction activity; partial payment information; and contact and account information.

Surviving Debt: Disputing the Amount Due

You can dispute the amount the servicer says is due in a monthly statement. For example, your servicer may have failed to or incorrectly credited your payment, neglected to make payments out of your escrow account and instead forced you to pay for extra insurance, charged unnecessary or duplicative fees, or improperly refused to accept a payment. Contact the servicer right away.

Surviving Debt: Escrow, Taxes, and Insurance

Your Rights Concerning Your Escrow Account. If your monthly mortgage payment includes an amount to cover property insurance and taxes on your home, you have a mortgage with an “escrow” or “impound” account. Your servicer is supposed to pay the insurance and tax bills for you when they are due.

Surviving Debt: Reduced Mortgage Rates for Active-Duty Military

When a homeowner entered into a mortgage loan prior to becoming active-duty military, federal law requires that the homeowner while on active-duty and for one year thereafter shall not pay an interest rate exceeding 6%. This includes any fees or other charges payable on the loan (late charges, for example). Any interest that you have been paying over 6% is eliminated while you are on active duty and for another year—the excess interest is not just put off until later.

Surviving Debt: Introduction

This chapter summarizes how bankruptcy works. A far more detailed description for lawyers is found in NCLC’s two-volume treatise, Consumer Bankruptcy Law and Practice. NCLC’s Bankruptcy Basics is a step-by-step guide for pro bono attorneys, general practitioners, and legal services office new to bankruptcy. Both of these books are available at www.nclc.org/bookstore.

Surviving Debt: Step One: Get the Right Help with Your Bankruptcy Filing

Hiring a Bankruptcy Attorney. Generally, if you are considering bankruptcy, it is best to consult an attorney who is a consumer bankruptcy expert. Select an attorney who will be responsive to your personal situation and is not too busy to meet with you individually and to answer your questions. Before hiring an attorney, meet the attorney personally and make sure that you are comfortable with the attorney’s style. At all points in the case, your attorney should take time to answer questions either directly or through an office paralegal.

Surviving Debt: Step Two: Exemption Planning

You can legally take steps that improve your position prior to filing bankruptcy, called “exemption planning.” Exemption planning allows you to keep the maximum amount of your property after filing bankruptcy and lose as little as possible to creditors. It is similar to taking maximum advantage of tax laws, and, if done reasonably, it is perfectly legal.

Surviving Debt: Step Three: The Credit Counseling Requirement

Bankruptcy law requires that before you file for bankruptcy you receive budget and credit counseling from an approved credit counseling agency and, on completion, file a certificate from that agency. First meet with your bankruptcy attorney because the credit counseling agency may try to dissuade you from filing bankruptcy. It is best to first hear whether your bankruptcy attorney thinks bankruptcy is your best option and why.

Surviving Debt: Step Four: Choosing Between Chapter 7 and Chapter 13

Bankruptcy law provides for two main types of consumer bankruptcies—chapter 7 and chapter 13. You should decide with your attorney which is the better chapter for you.

If a chapter 7 bankruptcy will accomplish your goals, it is generally the best choice because it is simpler and quicker than a chapter 13 bankruptcy. Unless unusual issues are raised, you will typically receive a discharge within three to five months of filing.

Generally, chapter 7 is the best option when two factors are present:

Surviving Debt: Step Five: Deciding Whether to File Bankruptcy Jointly with a Spouse

If you and your spouse are living together and have debts that you are both responsible for, it is usually preferable for the two of you to file bankruptcy jointly. The filing fee is the same as if you were filing alone. If you file together, you will both get the advantages of a bankruptcy discharge. Since married couples often have joint debts, a spouse who does not file remains liable as a co-debtor and may be pursued by creditors.

Surviving Debt: How Chapter 7 Bankruptcies Work

Most Families Keep Most of Their Property Even in a Chapter 7. A chapter 7 bankruptcy case is often called a “liquidation,” but that is inaccurate because most families keep most of their property in a chapter 7 bankruptcy. While the bankruptcy trustee will try to sell property for the benefit of creditors, federal and state law exempt much of your property from this sale.

Surviving Debt: How Chapter 13 Bankruptcies Work

The Initial Steps. Chapter 13 bankruptcy cases can be quite complicated. Definitely seek the help of an attorney specializing in bankruptcy as quickly as possible. Your delay may allow a foreclosure or repossession to proceed to the point where the chapter 13 bankruptcy can no longer help.

Surviving Debt: Bankruptcy’s Tax Consequences

Consumers are often surprised to learn that forgiven debt often is taxable to them. Bankruptcy is one exception to this rule. If debt is discharged in the bankruptcy process, you do not owe taxes on the unpaid amount of the debt.

Surviving Debt: Using Credit Wisely After Bankruptcy

Do not assume that, because you filed for bankruptcy, you will only be offered credit on the worst terms. If you can’t get credit on decent terms right after bankruptcy, it may be better to wait. Most lenders will not hold a bankruptcy against you if, after a few years, you can show that you have avoided problems and can manage your debts.

Surviving Debt: Introduction

This chapter explains ways to temporarily or even permanently reduce your mortgage payments if you are having trouble keeping up with your payments. The next chapter describes your rights when your home is actually in foreclosure. The last two chapters describe the bankruptcy option, which offers additional rights to save your home. Sometimes bankruptcy may be a better option because it lets you deal with all your debt problems at the same time.

Surviving Debt: The Help Offered Depends on the Lender Involved

Different lenders have different loss mitigation guidelines. Fortunately, just a few entities own, insure, or guarantee almost all residential mortgage loans in the United States: Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the U.S. Department of Agriculture’s Rural Housing Service (RHS). You must identify who owns or insures your mortgage in order to know your options for modifying your mortgage payments. To determine who owns your loan, use these tips:

Surviving Debt: Options for Fannie Mae and Freddie Mac Loans

Fannie Mae and Freddie Mac are large government-chartered corporations that own or guarantee over one-half of the home mortgages in the United States. Fannie Mae and Freddie Mac have similar loss mitigation guidelines, divided between short-term options for temporary problems and long-term options for significant changes in your financial circumstances. When you ask for loss mitigation help for a Fannie or Freddie loan, your servicer must review your request by considering a series of specific options in a required order.

Surviving Debt: Options for VA Mortgages

For mortgage loans guaranteed by the Department of Veterans Affairs (VA), the VA expects the servicer to exhaust all possible alternatives before pursuing foreclosure. (In some cases, the VA actually takes over the loan and then you work with the VA instead of the servicer.) If the servicer fails to exhaust the alternatives discussed below, contact one of the eight VA regional centers.

Surviving Debt: Options for the Rural Housing Service (RHS) Guaranteed Loan Program

The Rural Housing Service (RHS), a division of the U.S. Department of Agriculture (USDA) and formerly known as FmHA, runs two home loan programs. This section describes options for the program that guaranties loans made by private lenders. For more detail, see chapter 18 of RHS Handbook HB-1-3555, available at www.rd.usda.gov/files/hb-1-3555.pdf. The next section describes options for the RHS program that makes government loans directly to borrowers.

Surviving Debt: The RHS Direct Loan Program

The RHS administers a direct loan program where the U.S. Department of Agriculture extends the loan and remains the owner of the loan at all times, including during foreclosure. You deal with the single Customer Service Center (formerly the “Centralized Servicing Center”) in St. Louis, Missouri, available by phone at 800-793-8861. It is easier to get assistance if you have your account number handy.

Surviving Debt: The Loss Mitigation Application Process

Start Loss Mitigation Discussions as Early as Possible. Starting early avoids the difficulty of negotiating at the last minute with a potential foreclosure sale date pending and also avoids potential foreclosure fees and costs, which can be substantial. It is better to begin negotiations before the lender has turned the matter over to a foreclosure lawyer. You also appear more responsible if you try to prevent the problem from getting out of hand.