Rosenberg, Musso & Weiner, LLP

Banks Are More Willing to Negotiate a Settlement on a Second Mortgage in New York Than One Might Think

stevenwaseda — Thu, 09 Feb 2012 14:01:32 +0000

When homeowners are deeply underwater on their mortgages and also have a second mortgage or home equity line of credit, they might be able to negotiate with the bank holding the second mortgage. The resulting settlement occasionally comes to a fraction of the total loan, and it’s understandable for people to wonder why second mortgagee would be willing to agree to such a serious loss. Banks have their reasons.

The key point is that the second mortgage isn’t secured, so it’s likely easily dischargeable in a Chapter 13 bankruptcy in which the lien on the house will be removed as well. In a Chapter 7 filing, the debt is discharged but the lien on the house remains intact. This can still result in favorable negotiations with second mortgagees, but if debtors are willing to give up on the property, then filing Chapter 7 is a good idea because the second mortgagee is more likely to sue on the mortgage note rather than foreclose on the house. In different circumstances, i.e. if there’s any equity in the house, the bank will be far less willing to settle. One thing underwater homeowners may want to consider is appraising their house’s value so they can determine if the loan has any equity in it.

Another reason banks are willing to negotiate is they know that they will lose everything if the debtor’s house goes into foreclosure. Because they’re in line after the primary mortgagee, if a foreclosure proceeding begins, they know they won’t get the house, no matter what it’s worth. The house at least has some resale value for the first bank. Consequently, once a homeowner falls behind on a second mortgage on an underwater home, the bank knows it’s probably going to lose money. Sure, sometimes homeowners get a break and find a new job or get a raise, but that’s unlikely. Homeowners who are still current on their payments, though, are less likely to receive sympathy from lenders.

Ultimately, lenders will figure out which mortgages are high-risk and which are not, and they might calculate a settlement is worth getting only 10 to 15 cents on the dollar. Once the loan isn’t secured, the negotiating power shifts to the homeowner. Thus, consulting with an experienced New York bankruptcy attorney can result in a fair settlement or a Chapter 7 discharge, whichever debtors think is right for them.

For more questions about mortgage settlements, underwater homes, second mortgages, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

]]>

Yes, New Yorkers, Some Income Tax Debt Can Be Discharged in Chapters 7

stevenwaseda — Wed, 08 Feb 2012 14:01:31 +0000

One creditor that can cause more hassles in a Chapter 7 New York bankruptcy than others is the government, specifically the IRS, New York’s Department of Taxation and Finance, or municipal revenue agencies. The bankruptcy code is kinder to the IRS than other creditors, but while tax debts generally receive “priorities” in bankruptcy—meaning they can’t be discharged and must be repaid—there are conditions in which the bankruptcy code allows a discharge.

Debts to the IRS must meet five criteria:

(1) The debt must be at least three years older than the tax deadline of the year it was due, including extensions.

(2) Petitioners must have filed a tax return including that debt more than two years before filing bankruptcy. If they’ve filed more recently, they will be denied a discharge.

(3) The petitioner must have filed a non-fraudulent tax return the year the debt was due.

(4) The IRS must assess the tax at least 240 days before the petitioner files bankruptcy.

(5) The petitioner is not guilty of tax evasion.

After their bankruptcy cases begin, petitioners must then prove that they filed income tax returns for the previous four years before the 341 meeting with the creditors. If creditors request it, petitioners will have to file the returns with the bankruptcy court and provide them to other creditors or the Trustee if requested.

The critical issue is point three, that the petitioner must have filed a tax return with the debt. The reason is that the IRS will assess tax on unfiled returns, meaning petitioners can’t simply decline to file a return. Rather, they must file a return and not pay the full amount. Consequently, finding oneself in the circumstances that allow a discharge of a tax debt can be quite difficult to meet. Obviously, the government will do everything it can to collect its revenue. This is why hiring an experienced New York bankruptcy attorney is important to handling a Chapter 7 bankruptcy.

For more questions about tax debt, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

]]>

A Short Guide to Short Sales for New Yorkers

stevenwaseda — Tue, 07 Feb 2012 15:25:20 +0000

Short selling a home in New York is one alternative for resolving the underwater mortgage. Others include refinancing, loan modifications, deed in lieu of foreclosure agreements, and of course bankruptcy. The short sale, though, is quite common and the process is essentially simple. The homeowner sells his or her house for less than the remaining balance on the mortgage, but the homeowner still must resolve the deficiency, which is the difference between the sale price and what’s left on the mortgage. There are several things worth knowing about short sales.

First of all, banks will avoid canceling the deficiency, which makes this a critical point when negotiating a short sale agreement. If the bank says nothing, homeowners can expect to be stuck with the bill. Even if the bank does agree to forgive the remaining balance, the homeowner must claim that as income and pay income tax on it. This is the IRS Form 1099-C. Consequently, those considering short sales need to consider what happens to the deficiency and how much it will cost them in income tax payments.

Next, it’s important to note that homeowners who have multiple mortgages on their homes will have more work to do because all mortgagees must approve the short sale. Things can get especially tricky if more than one mortgage will end up deficient, but if the alternative is bankruptcy or foreclosure, lenders will have an incentive to negotiate.

Executing a short sale isn’t always easy. Banks won’t give in easily to homeowners who aren’t in a hardship situation. Those who have high incomes or retirement investments that can be used to pay mortgage balances will have difficulty gaining approval. Buyers can sometimes withdraw if they find better options, so asking the buyer to deposit money in an escrow account can prevent the deal from falling through. Ultimately, consulting with professionals in real estate, tax, and law is usually a wise move.

Finally, those who are underwater on their mortgages and are suffering financial difficulties can avail themselves of the federal government’s Home Affordable Foreclosure Alternatives Program (HAFA). Those who meet the eligibility requirements can avoid paying on deficiencies and receive up to $3,000 if they successfully complete a short sale.

Underwater homes are a real tragedy for New Yorkers, but they can be dealt with through effective use of professionals. Just remember that filing bankruptcy can also be a strategic option worth exploring.

For more questions about short sales, underwater homes, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

]]>

Stay Clear of Payday Lenders, Bankruptcy Is So Much Safer

stevenwaseda — Mon, 23 Jan 2012 14:05:10 +0000

For too many people, bankruptcy feels like giving up. Choosing other, riskier options may make them feel as though they’re still in control, and who knows? Maybe things will turn around for them. They run down their savings, rely on credit cards, and then as a last resort make a visit to a payday lender.

Payday lending is a straightforward concept: The borrower writes the payday lender a post-dated check that’s valid after two weeks, and in exchange the payday lender gives them that amount of cash, minus a fee. After two weeks, the lender deposits the check. The chief problem is the interest the payday lender demanded. Payday loans often charge interest rates of 18 percent per two week period. That means that if the borrower doesn’t repay the interest in time, the lender will likely assess a late fee, and watch the interest compound upon itself. If the original check turns out to be bad, the borrower’s debt will double in 59 days. The annualized rate is 7,295 percent.

It gets worse. The lending fee can go as high as 25 percent, which is added to the principal on Day 1. If the borrower’s check is bad, he or she has two options: either let the check bounce and watch the interest recapitalize onto the principal along with any assessed late fees, or take out another payday loan with a new origination fee and make everything worse. If the amount grows out of control, the payday lender will sue. Worse, two law professors wrote a paper titled, “Do Payday Loans Cause Bankruptcy?” in which the authors discovered payday lenders discourage borrowers from paying on time.

Also, as with other creditors, payday lenders will occasionally lie to borrowers by telling them they will be sent to jail if they don’t pay. This is untrue. Even if the check bounces, the borrower can only be charged with criminal fraud if he or she had no intention to make good on the loan, which is almost never the case.

Payday lending is not an optimal way of solving credit problems, and if you are at your wits end, there’s no time better than now to consult with an experienced New York bankruptcy lawyer.

For more questions about payday loans, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

]]>

House Costs Are Greater than Sticker Price

stevenwaseda — Fri, 20 Jan 2012 14:08:54 +0000

New Yorkers who are on a tight budget might look at their mortgage payments in isolation from the other costs of owning a home. This is a serious mistake as the other, hidden costs of home ownership might be harder to budget, but they can easily turn a shoestring budget into a reason to sell, refinance, or file bankruptcy. It’s one of the reasons to look at mortgage payments differently from rent for an apartment. Here are several examples:

(1) Property taxes. Obviously, property taxes vary depending on your home’s value, which has more to do with its surrounding community than the buildings sitting on it. New Yorkers living outside the five boroughs might be happy to know that the state passed a law capping property taxes last summer. This will undoubtedly save homeowners outside New York City some money and provide them with breathing room if they’re having mortgage difficulties.
(2) Utilities. Some of these can be higher or lower depending on whether you own or rent. Providing heat, electricity, gas, water, sewer service, landlines, cable, satellite, even garbage service can all take a substantial amount out of your monthly incomes.
(3) Insurance. Obviously renters pay renters insurance and homeowners pay homeowner insurance, but there are quirks, such as if your house is older, it’ll cost more to insure. It’s a cost to bear in mind, even though most people pay it yearly rather than monthly.
(4) Maintenance. Part of this is cost but another part is time. Renters can require landlords repair and maintain the premises. This comes out of the landlord’s pocket, which ultimately comes out of your rent. Homeowners, though, have to do all the work themselves and pay for it too. This requires setting aside a budget for emergencies as well as the time necessary to conduct the repairs or wait for tradespeople to do it instead.
(5) Exterior maintenance. Homeowners have to trim trees and bushes, maintain lawns, shovel snow, etc. Renters do not. This means renters have less yard work to do, less equipment (like snow blowers) to store and maintain, and they don’t have to worry about whether neighbors’ unkempt lawns affect their homes’ values if they’re considering selling.

These costs (on top of mortgage payments) might escape those who are trying to maintain a house on a tighter budget. As a result, it’s worthwhile to consult with a bankruptcy attorney, or a financial planner if things aren’t so dire, before trying to cut corners or max out on credit card to maintain a house you can’t afford.

For more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

]]>

Why Using a ‘Loss Carryforward’ before Bankruptcy Is a Good Move

stevenwaseda — Fri, 20 Jan 2012 01:08:42 +0000

Business owners entering bankruptcy almost always have more complex cases than simple private bankruptcies, especially because the business owners themselves are filing on their own behalves as well. The differences in how the tax code applies to small businesses as opposed to individuals don’t help either.

One quirk business owners need to be aware of in particular is called a “loss carryfoward.” What is this?

Let’s say you own a small business, and it loses money in one year. (This is referred to as “negative net operating income” in business lingo.) Obviously, it won’t pay any income tax that year. However, if the business posts profits in two of the seven subsequent years, the business can apply the loss from the first year to the income gained in a profiting year. The losses from a previous year are “carried forward” to the subsequent year, and your business benefits because as far as the IRS is concerned, your business made less money than it actually did, and so it pays less in income taxes. So far so good.

In a business bankruptcy, though, holding on to a loss carryforward is often a not a good idea. The reason is that the bankruptcy Trustee collects all the business’ assets into the bankruptcy estate and essentially assumes financial control over it, meaning he or she files the business’ income tax returns. The Trustee, though, does not have the business’ long-term financial future in mind. The goal is to free up as much income as possible and transfer it to the business’ creditors. Moreover, the Trustee receives a commission on the amount of money the bankruptcy estate transfers to the creditors, so if the business has a poor year before and then a solid one subsequently, the Trustee won’t hesitate to use the business’ loss carryforward. It’s easier money than liquidating the business’ physical capital.

The loss carryforward is one of a few unique ways the tax code allows the bankruptcy Trustee to find money in the bankruptcy estate, and the easiest way to keep it is to use it yourself by amending a previous tax return, if possible. If you own a business and it’s running into financial difficulties (and you may be yourself), quirks like the loss carryforward are things you want your bankruptcy attorney to knowledgeable of. It’s one situation where experience counts.

For more questions about businesses in bankruptcy, bankruptcy and tax attributes, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

]]>

Note to New Yorkers: “Charged Off” Debt is NOT “Zombie Debt”

stevenwaseda — Thu, 05 Jan 2012 14:05:07 +0000

“Zombie debt,” for New Yorkers unfamiliar with the term, is a debt you no longer owe that a collector has bought from a creditor nonetheless—whether it originated the loan or not—for a fraction of the price. The collector then tries to enforce the loan hoping you’ll repay it. Elsewhere, you may have heard the term, “charged off debt,” and wonder if it’s the same thing, or if it isn’t, what it means. Well, for one, it’s not zombie debt. What is it exactly?

“Charged off” debt is an accounting term, unlike zombie debt, which is a collection term. A bank charges off debt by declaring that it doesn’t expect the debtor to ever repay it. The important distinction here is that the zombie debt is unenforceable while charged off debt is. The debtor still owes the money, and if the bank sells it to a collector, it will have a valid enforcement claim against the debtor. The bank benefits by charging off debt because doing so gives it a tax exemption. Banks business is to buy and sell money, so a debt that has gone unpaid for a significant period of time is merely a business loss to the bank. Declaring the debt as a loss means it can remove it from its income for income tax purposes, so it pays less in taxes to the government.

There are a few rules banks must follow to charge off debt, otherwise they’d do it as often as they could around December to avoid having to pay income taxes. Installment loans cannot be charged off until 120 days after the first delinquent payment. For credit card debt, the rules are different. The minimum amount of time it must wait to charge off the debt is 180 days, and once it’s charged off, the account is no longer usable by the debtor.

The effects of a charge off on a credit score are significant. If it appears on your credit score, you will have significant difficulty obtaining new credit, and it stays on there for seven years. Even if you pay down the debt or settle it, the credit agencies will only change the entry from “Charged Off,” to, “Charge-Off Paid,” or, “Charge-Off Settled.” Paying down or settling a charged-off debt does not reduce the seven-year window, but it certainly looks better on one’s credit report.

Like zombie debt, banks will bundle charged off debt and sell it to collection agencies at a fraction of the cost. There are some defenses to collection attempts over charged-off debt, and they’re similar to typical collection efforts: you can claim the statute of limitations has run out if the creditor or collection agency has waited too long to collect on it (the limitations period begins at the first delinquent payment). If the limitations period runs out, the charged-off debt becomes zombie debt.

Otherwise, if the collection agency or the bank has a legitimate claim against you over charged-off debt, you will need to pay it, settle it, or discharge it in bankruptcy. At this point, you would likely need an experienced New York bankruptcy lawyer to handle your situation before it worsens.

For more questions about charged-off debt, zombie debt, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

]]>

Mortgage Modifications in New York: A Quick Guide

stevenwaseda — Wed, 04 Jan 2012 14:05:42 +0000

After the housing bubble burst, millions of Americans found themselves underwater in their mortgages, meaning they owed more to the bank than their houses were currently worth. In this nasty situation, people are still looking for options for making things easier for themselves, particularly because selling a house at a loss leaves the homeowner liable for the balance of the mortgage. One option that gained much publicity was obtaining a loan modification.

A while back, the New York Times reported on a handful of banks that were modifying loan principals of those who had “option ARM” mortgages. However, aside from these lucky few, typical loan modifications only apply to the interest rates and the lengths of the loans. A modified loan usually has a lower interest rate, which reduces monthly payments on the principal, but banks will frequently ask for more payments to compensate. This can help homeowners rebuild equity more quickly because more of their monthly payments go to principal, and hopefully to positive equity.

The federal government created the Home Affordable Mortgage Program (HAMP) to facilitate modifications. The program successfully reduced the median mortgage by 40 percent, which equaled $520 per month. Those who are ineligible for a HAMP modification can still try to negotiate a modification with their lenders. Often they are willing to negotiate if it means keeping loans out of default, but beware modification scams, which appear as offers to help with a mortgage modification for a fee. These are illegal.

Nevertheless, HAMP loans have not reversed the negative equity problem as the median modification resulted in a mortgage of 118 percent the house’s value. This means that a single calamity such as an injury or job loss can eliminate the hard-earned benefits of the loan modification. Many loan modifications still fail.

Mortgage modifications can benefit some people, but it’s important for homeowners to consider all their options, including filing bankruptcy, which can discharge second mortgages with zero equity in them. Bankruptcy also benefits homeowners by protecting them from foreclosure via the automatic stay.

For more questions about mortgage modifications, HAMP, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

]]>

What Is Form 1099-C?

stevenwaseda — Tue, 03 Jan 2012 14:05:19 +0000

When a creditor cancels a debt owed to it in New York or elsewhere, and the debt is greater than $600, then it must send the now-former debtor IRS Form 1099-C. The debtor includes this in his or her income tax filing to demonstrate that the canceled debt is in fact income subject to income tax. Debtors are often surprised to receive these forms and believe it unfair.

Most of the time, people receive 1099-C forms when a bank cancels their mortgage deficiencies after either a short sale or deed-in-lieu of foreclosure agreement. In other circumstances, they’ve settled their debt via a debt management or debt settlement company, and now they must pay income tax on the forgiveness, which can force them into bankruptcy anyway. The one time debtors should not receive these forms is after their debts have been discharged in bankruptcy. In those situations, the debt is not canceled but is rendered unenforceable by court order. That means it’s the bank’s problem, not yours.

There are a few ways people can exempt a forgiven loan from their income taxes. One, if the debt was discharged in bankruptcy, then it is exempt. Two, the form allows people to claim insolvency if their total liabilities (debts) is greater than their assets (income, including the forgiven loan). Three, since 2007, the Mortgage Forgiveness Act allows people whose mortgage debt on their principal residences is restructured or forgiven in foreclosure by a bank to claim an exception. The IRS discusses it here.

If your financial situation is dire, particularly if you have an underwater mortgage, or credit problems, it’s best to discuss it with a New York bankruptcy lawyer to sort it out. It’s best to be prepared because receiving a 1099-C can pose challenges.

For more questions about debt forgiveness, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

]]>

401(k) Loans Can Put New Yorkers Deeper into Debt

stevenwaseda — Wed, 07 Dec 2011 14:05:28 +0000

Starting in the 1980s, 401(k) plans rapidly become one of the most popular retirement savings vehicles for workers in New York and elsewhere. The concept grew to replace the corporate pension because it became more common for workers to move between industries instead of work in just one company.

Here’s how they work, if you didn’t already know. Workers deposit money into the 401(k) account, and often their employers will match their deposits. At six months before their sixtieth birthdays, workers can withdraw money from the accounts without paying a 10 percent early withdrawal penalty and income tax.

Because people have been finding it difficult to get credit, some workers are turning to their 401(k) accounts, not to withdraw from them and take the penalties but to take loans from them. In 2011, according to the Wall Street Journal, 401(k) borrowing reached a record high of 30 percent. The benefits of borrowing from a 401(k) is that the interest goes back to the account, which makes it very cheap compared to other loans, no credit check is necessary, and it only costs $75 for the initiation fee. The early withdrawal and income tax penalties only occur if the loan’s term is greater than five years.

Despite these benefits—especially the interest going back to the account—there are reasons not to take a 401(k) loan. One, borrowers who lose their jobs have sixty days to repay the loan, otherwise it will be deemed an early withdrawal and the full balance will become due. This is bad, and it’s even worse for workers who are under more than six months from their sixtieth birthdays. Second, most people who borrow from their 401(k) accounts do so because their spouses lost their jobs and now the family is relying on one income. In these circumstances, it’s probably a better bet for the unemployed spouse to file bankruptcy. A 401(k) loan would work best for someone who will very likely find work soon, and in this economy that is fairly unusual. Finally, 401(k)s are exempt from the bankruptcy estate, and repaying a 401(k) loan is permissible in a Chapter 13 bankruptcy. Thus, it’s better to let the 401(k) be and file bankruptcy anyway. If worse comes to worse, the fact that there are no credit checks means that borrowing from a 401(k) after bankruptcy is still a viable option, though it’s still not recommended.

401(k) loans are a tempting option for cash-strapped families, but bankruptcy is a better option.

For more questions about retirement income in bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

]]>

Rosenberg, Musso & Weiner, LLP

Banks Are More Willing to Negotiate a Settlement on a Second Mortgage in New York Than One Might Think

Related Stories

Yes, New Yorkers, Some Income Tax Debt Can Be Discharged in Chapters 7

Related Stories

A Short Guide to Short Sales for New Yorkers

Related Stories

Stay Clear of Payday Lenders, Bankruptcy Is So Much Safer

Related Stories

House Costs Are Greater than Sticker Price

Related Stories

Why Using a ‘Loss Carryforward’ before Bankruptcy Is a Good Move

Related Stories

Note to New Yorkers: “Charged Off” Debt is NOT “Zombie Debt”

Related Stories

Mortgage Modifications in New York: A Quick Guide

Related Stories

What Is Form 1099-C?

Related Stories

401(k) Loans Can Put New Yorkers Deeper into Debt

Related Stories