Abuse of the Homeowner

In this article I explore how the mortgage industry abuses the homeowners before and then after a bankruptcy case is filed. Our homes are supposed to be our castles, yet if we are not careful, the mortgage companies can quickly dethrone us.

During these rough economic times, many of us can find ourselves facing financial difficulties at some point. It could be that there were unexpected medical bills, a business downturn or a loss of income. Sometimes, the mortgage “momentarily” takes a backseat to the emergencies in our life.

What we have seen practiced by some mortgage servicers is that, when a homeowner gets behind in payments, the servicer begins two processes aimed at protecting its interest in the property. On one hand, it may offer the owner an opportunity to refinance/restructure the note, and on the other hand, it may initiate foreclosure proceedings.

The difficulty for the homeowner is to understand that the loan servicer could be executing both processes in parallel. This confusion is due to misrepresentations or misunderstandings occurring during the frantic phone calls between the homeowner and the different service personnel in the servicer’s customer service department. The difficulty is made worse when the homeowner does not seek legal advice early in the process for a myriad of reasons, often involving pride in being able to handle one’s own problems.

Fortunate few, however, at some point before the foreclosure make themselves get legal advice that can save their homes. For others who try to work it out on their own, they sometimes learn after the fact that their homes were foreclosed on during the time that they were sending in the piles and piles of the paperwork required for refinancing, paperwork that the mortgage company conveniently loses.

Consulting with a bankruptcy attorney early in the process when a homeowner gets into financial distress can be beneficial more often than not. Bankruptcy attorneys can quickly develop insights into your situation and can plan actions to take so that an orderly bankruptcy process is undertaken. Most people do not like the stigma of filing for bankruptcy; however, those who truly consider all options will be more likely to come up with a better plan for getting a fresh start in life while keeping their home.

Review your cash flow situation months ahead if possible. However, if you foresee a negative cash flow situation, consider talking to a bankruptcy attorney prior to using up your savings and other resources that you and your family may need to meet your basic needs. The consultation is free and there may be other options. Until you sit down with an experienced attorney, you will not know if bankruptcy can help. Come see us.

“Can I Keep My Stuff?”

“Can I keep my stuff?” is one of the most common questions asked by a bankruptcy client of Bailey & Galyen, and for the overwhelming majority of our clients, the answer is yes … you can keep your stuff after a bankruptcy.

Assuming you have lived in Texas at least two years before the filing of a bankruptcy, you can choose between the Texas and Federal “exemptions” – laws that allow you to protect and keep property through a bankruptcy. The choice of exemptions is an important legal decision that will be based on kind of property you own and its value, and at Bailey & Galyen our job is to maximize your exemptions. Both exemption paths have a few things in common:

• Homesteads are exempt from your ordinary creditors. Mortgages, taxes, and certain other debts remain on your home.
• Most vehicles are exempt from your ordinary creditors, but like houses are subject to valid debts from any vehicle finance company.
• Retirement assets (such as 401ks, IRAs, pensions, teachers’ retirement, etc.) are exempt from your creditors.
• Most if not all of your personal property assets are also exempt from ordinary creditors (unless they have a “purchase money” lien on them like a car loan), such as furniture, clothing, jewelry, tools of the trade, pets, and household goods.

There are important limits on exemptions, and here at Bailey & Galyen our job is to apply the law to your specific situation so you know what your options are. Even if you own property of a kind that is normally not exempt, there may be bankruptcy options available to you that allow you to keep non-exempt property.

On a related note, you can also keep certain debts. Depending on the chapter of bankruptcy selected and your payment status with the creditor, you are generally able to keep debts on necessary property, such as your homestead and vehicle. “Reaffirming” these debts in a chapter 7 bankruptcy allows those debts to survive the bankruptcy so that you can keep the collateral (house or car) and hopefully rebuild your credit by continuing to pay those particular creditors.

Texas: ‘Miracle’ or Myth?

What does it mean to be a middle class wage-earner and consumer in Texas?

For too many families, it means a struggle to make ends meet. Texans want safe, stable jobs with decent wages and reasonable benefits that allow them to raise a family, own a home, and save for a comfortable retirement. Much has been made lately about job growth in Texas. Unfortunately, for middle class Texans, the so-called “Texas Miracle” has been more myth than reality. So, how does Texas stack up to the rest of the nation on key quality of life indicators?

So, how about those jobs? Texas has the highest rate of workers paid at or below the federal minimum wage and our median hourly wage is 10% lower than the national average. We are dead last in the percent of Texans with health insurance and are near the bottom in the percent of workers with employer-based health insurance.

As for workplace safety, nine Texans die on the job every week, making Texas the deadliest state to work in, according to data from the Bureau of Labor Statistics. We also have the highest rate of workplace fatalities among the 10 biggest states. Also, with a quarter of workers without workers’ compensation coverage, we are last in workers’ compensation coverage, lagging far behind the rest of the country.

And home ownership? Texas ranks near the bottom in the rate of home ownership, a fact that is exacerbated by our high rates of personal bankruptcy, low personal credit scores, and high rates of foreclosure and subprime mortgages. Plus, with the highest home insurance rates in the nation, more of our money is going to pad insurance company profits.

Finally, what about that comfortable retirement? It isn’t so comfortable. Texas ranks near the bottom in median household net worth and in the “nest egg index” which looks at personal savings and investing behavior. Also, nearly half of middle income Texans report having less than $5,000 in total savings – over a quarter have less than $1,000.

This stark reality is compounded by a lax regulatory climate that typically favors industry over individuals and a broken civil justice system that is too often closed to consumers, patients, and workers who face needless injury and financial devastation. That’s right. If you are hurt on the job, ripped off by your insurance company, or have your savings wiped out by Wall Street shenanigans, you likely won’t be able to have your day in court.

Not quite the picture of middle class bliss that many politicians and spinmeisters would have us believe.

Texas Watch | 815 Brazos Street, Suite 603 | Austin, TX 78701

Work (512) 381-1111 | Fax (512) 381-1115


Chevy Cruze: Top Selling Car Thanks to Bankruptcy!

Many who read the headline of this article might question the premise of a bankruptcy leading to the hottest selling car in the world. It would be a stretch if this was a fictional story. The amazing thing about this article is that it is absolutely true.

First of all, the Chevy Cruze is one of the hottest selling cars in any domestic car line. There are a lot of reasons. It is apparently a well-built car and it gets great gas mileage. The Cruze has sold over 700,000 units either under that name or the Daewoo or Holden names. The Cruze grew out of a former good seller, the Cobalt. The Cruze sales have tripled those of the best sales year for the Cobalt. The Cruze is overtaking even imports. More importantly for the future of GMC, the vast majority of Cruze buyers are purchasing the first Chevrolet they have ever owned. Not only is it a very popular car, it has better gas mileage than any gasoline powered car including the hybrids. Further, it is loaded with many safety features often found only on the more expensive imports.

How does bankruptcy lead to such a success? Prior to the bankruptcy of GMAC, the company was bogged down with lines of cars which had quit selling many years ago. They did not have the resources to develop new lines of automobiles or the flexibility to re-tool plants because so much of the monthly income was devoted to servicing too much debt. If ¾ of the income is debt service, then there is nothing left for investment by the time a company that size pays payroll and buys current materials.

GMAC filed what many call a pre-packaged bankruptcy. Realistically, it is not all that different than the type many individuals file. All pre-packaged meant is that the outcome of the case was fairly certain. A good consumer bankruptcy practitioner can predict how a case will be resolved. Just as in the GMAC bankruptcy, there are no guarantees but with the expertise of the law firm, results are somewhat predictable.

GMAC stripped off millions of dollars in Debt. They were able to take that freed-up capital and by the tooling and pay the engineers to come up with a radically different design for an automobile. That one car has led them to the profitability which had eluded them for all of these years.

Individuals often have a very similar result. It is not uncommon to have a client who has devoted 30 to 40% of their income to paying past debt. They have had to clean out savings and not buy the things needed to fix up the residence. By filing bankruptcy, the 30 to 40% of the income which was going for debt now can go for those capital improvements.

It is not uncommon for a client to let our firm know that, post bankruptcy, they are able to actually visualize a retirement or send a child to college. Prior to the filing of the case, they really believed they would have to work their entire lives just to get a chance to catch up. In reality, had they continued in the cycle they were in, the credit card debts would not have reduced in their lifetime. Most people are paying the minimums and can only maintain the level they are currently paying. You may be in the same situation, but you will not really know until you meet with a qualified bankruptcy attorney. Come visit with one of our attorneys and see what we may be able to do with your crushing debt.

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