Tuesday, June 16, 2015

Big Changes for Underwater Second Mortgages


On June 1, 2015, the Supreme Court of the United States issued a decision in the case of Bank of America vs. Caulkett that changed the bankruptcy picture for people who hoped to “strip off” their underwater second mortgage. Until the time of that decision, people in the Eleventh Circuit Bankruptcy Court, including those in Florida, could strip off a second mortgage in a Chapter 7 bankruptcy, which converted that debt to an unsecured debt. This allowed many people to obtain bankruptcy relief from an underwater property because most unsecured debt is discharged (wiped out).

A Chapter 7 bankruptcy is a much simpler process than a Chapter 13, the other consumer bankruptcy option. In a Chapter 7, the debtor gets to keep all of their exempt assets, which includes their homestead. It also does not require any future payments to a trustee to pay creditors. People can generally only file for Chapter 7 bankruptcy protection if their income is below the median income for the state in which they reside. Right now in Florida, this annual amount is $42,718 for a single person, $52,421 for a married couple, $57,977 for a family of 3 and $67,539 for a family of 4. Thus, Chapter 7 debtors are typically those who have the fewest financial resources. The ability to strip off the underwater second mortgage allowed many Chapter 7 debtors to keep a home they otherwise would have lost. In one blow, the Supreme Court took that tool away from them.

Currently, people can still strip off a completely underwater second mortgage in a Chapter 13 bankruptcy, meaning that the house is worth less than the first mortgage.  However, the process of a Chapter 13 is more complex and requires the debtor(s) to pay back at least some of the debts owed. This makes the Chapter 13 alternative less attractive for many people who are solely seeking to strip off their underwater second mortgage.

Chapter 13 is called a wage earners bankruptcy and is for those who do not qualify for a Chapter 7 due to an income above the state median. In a Chapter 13, the bankruptcy court requires the debtors to pay a certain amount to their unsecured creditors that is referred to as the “disposable monthly income.” Disposable monthly income is a calculation made using the bankruptcy code and rules to determine how much will need to be paid back. A Chapter 13 bankruptcy commits the debtors to making payments of their disposable monthly income to a trustee for a period of time, usually five years.  

As you can tell, this is a very complex subject and requires the analysis of an experienced bankruptcy attorney. If you feel that bankruptcy may help you to resolve your financial issues, contact our office for a free consultation.

Wednesday, April 8, 2015

New Assistance Program for Borrowers with Modified Mortgages

The two largest owners and servicers of mortgages in the US, Fannie Mae and Freddie Mac, have introduced a new program to help those homeowners who received a loan modification in 2010 and whose interest rates are going to reset to a higher rate this year.
Read more . . .

Wednesday, April 1, 2015

Welcome to Patrick Neale & Associates Law Blog

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© 2015 Patrick Neale & Associates | Disclaimer
5470 Bryson Court, Suite 103, Naples, FL 34109
950 North Collier Blvd., 4th Floor, Marco Island, FL 34145 (hours by appointment)
Mailing Address: P. O. Box 9440, Naples, FL 34101
Phone: 239-642-1485 | Fax: 239-642-1487
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