A basic will may be all you need.

You’ve heard that if you do nothing else to take care of your legal affairs, you should write a will, and it’s pretty good advice. If you don’t make a will before your death, state law will determine who gets your property and a judge may decide who will raise your children (and either or both may not be whom you would have chosen). Writing such an important document can be daunting, but it doesn’t need to be.

If all you need is a basic will, you can confidently use a good self-help book or software to make a legally binding will that:

• leaves your property to the people and organizations you choose
• names a guardian to care for your minor children if you can’t
• names someone to manage property you leave to minor children (yours or someone else’s), and
• names your executor, the person with authority to make sure that the terms of your will are carried out.

When a Basic Will Is Enough

By and large, if you are under age 50 and don’t expect to leave assets valuable enough to be subject to estate taxes, you can probably get by with only a basic will. But as you grow older and acquire more property, you may want to engage in more sophisticated planning — we go into these details below.

Take a common situation where a husband and wife want to leave their property to each other or, if they die together, to their children in equal shares. They also want to name a personal guardian for their children. They can safely make simple wills themselves without hiring a costly expert.

Here are a few other examples of real-life situations where a basic will is all that’s needed.

• Heather and Jerome, in their late 30s, own a home, two cars, and some savings. Their net worth totals $400,000. They have one child, Mark, age 11. Each prepares a will leaving all his or her property to the other. If they die at the same time, Mark is to receive all their property. Heather and Jerome agree that Heather’s brother will care for Mark and manage the property until Mark turns 18.
• Sam, a widower with three grown children, owns property with a net worth of $510,000. He creates a will leaving all his property equally to the children. He specifies that if any child dies before him, that child’s share is to be divided equally between the surviving children.
• Barbara is a single mother with two teenage children. Though she’s not on great terms with her ex-husband, he’s a decent father and pays child support more or less on time. Barbara’s will leaves all her property equally to her children. Because she does not want her ex-husband managing money left to her children if she dies, she uses her will to appoint her sister Debbie to manage each child’s property until that child turns 18.

Will a Basic Will Avoid Probate?

No. If you leave anything more than a small amount of property through a will, probate court proceedings will probably be necessary after your death. Although it varies from state to state, probate can take six months or a year and eat up three to five percent of your estate in lawyers’ and court fees. And your beneficiaries will probably get little or nothing until probate is complete.

But if you need only a basic will, you have little reason to concern yourself now with probate. If you’re relatively young and healthy and you don’t have piles of money, your real concern is to make legal arrangements for the statistically unlikely event that you will die suddenly and unexpectedly. You’ve almost certainly got plenty of time to plan for probate avoidance later.

Is a Basic Will for You?

If the following statements describe you, a basic will is probably enough:

• You’re under age 50.
• You’re in pretty good health.
• You don’t expect to owe estate tax at your death..

On the other hand, if one of the following applies to your situation, then you probably need something more than a basic will:

• You expect to owe estate tax you die or when your spouse does. (See Nolo’s Estate Taxes area.)
• You want to control what happens to property after your death — for example, you want to leave some property in trust for your child and have it go to your grandchildren when your child dies.
• You have a child with a disability or other special need that you wish to address in your estate plan. (See Special Needs Trusts.)
• You have children from a prior marriage and you fear conflict between them and your current spouse.
• You think someone might contest your will, claiming that you were not mentally competent when writing it, or that the will was procured by fraud or duress.

When it comes to debt collectors the key is to remember that they are people also and they are tasked with doing a job.  Common courtesy and manners go a long way in getting what you want and generally that includes stopping the harassing calls.  There is an old axiom that stays “it’s not what you say, but how you say it.”  This is never truer than today when it comes to electronic communications.

That being said, you, as a consumer, should never have to be harassed, belittled, yelled at or talked down to.  As they are trying to do their jobs, debt collectors need to be understanding and professional as well.  Many people do not know that consumers are protected from debt collectors by the Fair Debt Collections Practices Act.   The Federal Trade Commission has prepared a pdf file of the complete Act that is available for download at http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre27.pdf.

The Fair Debt Collections Practice Act, FDCPA for short, sets out the federal standards by which debt collectors must conform.  Many states have supplemented the FDCPA and enacted their own set of rules and regulations concerning the collection of debts.  In North Carolina it is contained in Article 2 of Chapter 75 of the North Carolina General Statutes, referred to as “Prohibited Acts by Debt Collectors.”  Consumers should consult their local communities to see if their particular state has enacted additional legislation.

The FDCPA is in place to protect consumers from harassment, abuse, false and misleading information and unfair practices by debt collectors.  The act also provides for civil liability for violating the provisions of the FDCPA.  North Carolina also has similar protections and liability which runs concurrently with the federal protections of the FDCPA.

Consumers are protected from calls by a debt collector during unusual hours, generally referred to as after 8:00 pm and before 9:00 am debtor local time.  If a consumer is represented by an attorney and the debt collector has knowledge of that representation, than they are not permitted to contact the consumer, with a couple of small exceptions.

Finally, the debt collector cannot contact the consumer at his place of business if they know or should have reason to know that the consumer is not permitted to receive such communication at their place of work.

These are just a few of the limitations placed on debt collectors, there are many more prohibitions and restrictions on what can be said and how it can be said.

When dealing with debt collectors a consumer should take the offensive and not feel afraid or threatened.   You the consumer have just as much right to ask questions and quiz the collector on their practices and your debt as they have to question you.

Remember, the number one thing is to remain calm, cool and professional.  If you have received collection calls in the past or expect to receive calls take time to write out a list of questions that you want to find out.  For example, the debt collector should know exactly what you owe and whom you owe.  A half dozen prepared questions can provide you and your attorney with great information should you need to work out a negotiated settlement or need to file bankruptcy.  In addition, this information is very helpful should you have to pursue a complaint for a violation of the FDCPA or your state statute.

Some examples of questions would be:

1. What is the legal name of the debt collection company?
2. What is the name of the company you are attempting to collect for?
3. What is your account number and what is the account number for the company that you are trying to collect for?
4. How much is the current debt and how was that calculated?
5. How much do I need to provide to pay off or bring the debt current?  How long is this number good for?
6. What is the address to make a payment too?  What is the address for sending correspondence?

Don’t forget to ask for the name of the person that you spoke to.  In some cases debt collectors are afraid to give out their real names because of fear of threats or reprisals for their collection efforts, so make sure to ask if that is their real name and if they have an ID number so you can reference the conversation in the future.

Make sure that you keep good notes of the time and date of the call and the questions you asked and the responses they gave.  In some states it is permissible to record the conversation.  Check your local laws to see if it is legal and then get the debt collectors consent to record the call, they do it so you should to.

There are a lot of stories of the tactics that debt collectors use to try and get consumers to pay.  These go from threatening arrest, judgments, civil and criminal prosecution to bodily harm.  There are also cases where foul language, intimidation or racial slurs have been used.  In most cases this is not the norm, but they do happen and when they do it is important that you have documented the calls so that you can use it to pursue a violation against the debt collector.  However, if you are not professional or if you get into threats or use unpleasant language  yourself, your chances of recovery and having the collection efforts curtailed becomes more of problem for you or your attorney.

Remember, that debt collectors are not to be feared.  They cannot threaten, harass or mislead you into paying the debt.  If they violate their standards of conduct, you have rights and protections under the FDCPA and possible local laws.  Be calm, listen to what they are saying, document the call and then contact an attorney that can help you stop the abuse.

For more information about bankruptcy, Chapter 7 or Chapter 13, contact Dennis Jay Sargent Jr, at 919-654-4545 or visit us on the web at http://www.SargentLawNC.com. Dennis Jay Sargent Jr is a North Carolina attorney that focuses his practice in consumer bankruptcy. The Law Office of Dennis Jay Sargent Jr, PLLC is a debt relief agency, helping people file for Chapter 7 or Chapter 13 bankruptcy relief under the United States Bankruptcy Code. We are also a proud member of the National Association of Consumer Bankruptcy Attorneys and the American Bankruptcy Institute.

That being said, the number one thing that a potential bankruptcy client can do is to get organized.  Chapter 7 and Chapter 13 bankruptcy, which are the two most common types the average consumer can use, require that the debtor fully disclose all of their assets (what you own), income (what you make) and expenses (what you spend).  Getting organized is the most important thing to do to make sure your experience in bankruptcy is efficient and effective, allowing you to get back on the track to a fresh start.

There are no magic methods for getting organized; whatever system works for you is fine, so long as you take the necessary actions.  Even though you are paying a Bankruptcy Attorney to represent you, they cannot know all the details of your particular financial situation.  You will have to provide that information to them, and remember, if you do not disclose it (a debt), it probably will not be discharged in bankruptcy.

A good way to start is by opening all of your mail and sorting it by company and then by debt type.  For example, you should sort all of your bank statements by date, from most recent to oldest and have at least six months’ worth of statements.  Six months is good practice for all of your statements and bills.  You can put them in different folders or get an expandable folder and sort them that way, but whatever the method, you should have six months of every bill you receive.  Break them down into categories; Mortgage/Rent, Utilities, Credit Cards, Car Payment, Signature Loans, Bank Statements, Investment Accounts, Pay Stubs and Misc.  If you have a bill where you do not receive monthly statement make sure you write down the account number and address for the creditor on a separate sheet of paper and include that in the appropriate category.

If you are in collections and are receiving collection calls, it is important to track them.  You should keep track of when exactly the collection agency is calling, who you are talking to and also their address, phone number and the account number that they have assigned you.  The best way to handle a collection call is to ask them questions about their practices.  Ask them their name, manager’s name, company name, address, phone number, account number, balance, payoff and any other information that you think will help you disclose the debt to the bankruptcy court.

Once you have your statements and bills in hand, a great way to continue to track your expenses is with an online or software based program.  One example of a software based system is Intuit^®’s Quicken^®. This program has a lot of power and many functions to track and view income and expenses.  The downside for this program is that it costs money to purchase the program and to get the most out of it you will need an internet connection.  Most major lenders and banks have the ability to sync up or download your transactions so that you do not have to enter every transaction.  On the free side there is a web based application, also from Intuit, called Mint.com.  Mint.com is like a trimmed down Quicken.  It has many of the same features, such as linking with your financial institutions and budgeting, but is all web based and will require an internet connection.  The nice thing about Mint.com is that it is free and even provides helpful hints as you use it.

There are many of these types of programs for the average consumer and you do not need to be a computer genius to use them.  Many have handy tutorials that help with the learning process.

No matter what program or system you use, the most important thing is that you use one.  Financial management is one of the most important steps a consumer can do to get a handle on their spending and lifestyle.

Last thing to keep in mind, when you hire a Bankruptcy Attorney, you are hiring them for their experience and legal training to help guide you through the process.  You are ultimately responsible for what is disclosed in bankruptcy.  You the client have to sign the petition stating that everything is true and accurate.  As your attorney, we do not know what your assets are or what you debts are.  If you fail to inform your attorney of a loan, say an internet or a payday loan, in many cases we will not know.  Those companies do not report on your credit report and there would be no way for your attorney to know.  Keep in mind that if you do not report the existence of the debt along with a good mailing address, it likely will not be discharged in bankruptcy.

For more information about bankruptcy, Chapter 7 or Chapter 13, contact Dennis Jay Sargent Jr, at 919-654-4545 or visit us on the web at http://www.SargentLawNC.com.  Dennis Jay Sargent Jr is a North Carolina attorney that focuses his practice in consumer bankruptcy.  The Law Office of Dennis Jay Sargent Jr, PLLC is a debt relief agency,  helping people file for Chapter 7 or Chapter 13 bankruptcy relief under the United States Bankruptcy Code.  We are also a proud member of the National Association of Consumer Bankruptcy Attorneys and the American Bankruptcy Institute.

How Chapter 7 bankruptcy works.

Chapter 7 bankruptcy is sometimes called “liquidation” bankruptcy — it cancels your debts, but you might have to let the bankruptcy court liquidate (sell) some of your property for the benefit of your creditors. (“Chapter 7″ refers to the chapter of the federal Bankruptcy Code that contains the bankruptcy law.)

Chapter 7 Bankruptcy Costs in Time and Money

The whole Chapter 7 bankruptcy process takes about four to six months, costs $299 in filing and administrative fees, and commonly requires only one trip to the courthouse.

You must also complete credit counseling with an agency approved by the United States Trustee. (For a list of approved agencies in each state, go to the Trustee’s website, www.usdoj.gov/ust, and click “Credit Counseling and Debtor Education.”)

Who Can File

You won’t be able to use Chapter 7 bankruptcy if you already received a bankruptcy discharge in the last six to eight years (depending which type of bankruptcy you filed) or if, based on your income, expenses, and debt burden, you could feasibly complete a Chapter 13 repayment plan. (For more information on these eligibility requirements, see Chapter 7 Bankruptcy — Who Can File?)

Bankruptcy Forms

To file for Chapter 7 bankruptcy, you fill out a petition and a number of other forms and file them with the bankruptcy court in your area. Basically, the forms ask you to describe:

• your property
• your current income and monthly living expenses
• your debts
• property you claim the law allows you to keep through the Chapter 7 bankruptcy process (called “exempt property”) — most states let you keep some equity in your home, clothing, household furnishings, Social Security payments you haven’t spent, and other necessities such as a car and the tools of your trade.
• property you owned and money you spent during the previous two years, and
• property you sold or gave away during the previous two years.

You’ll find step-by-step instructions for filling out all of the required forms in How to File for Chapter 7 Bankruptcy, by Stephen Elias, Albin Renauer, and Robin Leonard (Nolo).

Bankruptcy’s Magic Wand — The Automatic Stay

Filing for Chapter 7 bankruptcy puts into effect an “Order for Relief” — known informally as the “automatic stay.” The automatic stay immediately stops most creditors from trying to collect what you owe them. So, at least temporarily, creditors cannot legally grab (“garnish”) your wages, empty your bank account, go after your car, house, or other property, or cut off your utility service or welfare benefits. For more information, see How Bankruptcy Stops Your Creditors: The Automatic Stay.

Bankruptcy Court’s Control Over Your Financial Affairs

By filing for Chapter 7 bankruptcy, you are technically placing the property you own and the debts you owe in the hands of the bankruptcy court. You can’t sell or give away any of the property you own when you file, or pay off your pre-filing debts, without the court’s consent. However, with a few exceptions, you can do what you wish with property you acquire and income you earn after you file for bankruptcy.

The Bankruptcy Trustee for Chapter 7 Bankruptcy

The court exercises its control through a court-appointed person called a “bankruptcy trustee.” The trustee’s primary duty is to see that your creditors are paid as much as possible on what you owe them. And the more assets the trustee recovers for creditors, the more the trustee is paid.

The trustee (or the trustee’s staff) will examine your papers to make sure they are complete and to look for nonexempt property to sell for the benefit of creditors. The trustee will also look at your financial transactions during the previous year to see if any can be undone to free up assets to distribute to your creditors. In most Chapter 7 bankruptcy cases, the trustee finds nothing of value to sell.

The Creditors Meeting

A week or two after you file, you (and all the creditors you list in your bankruptcy papers) will receive a notice that a “creditors meeting” has been scheduled. The bankruptcy trustee runs the meeting and, after swearing you in, may ask you questions about your bankruptcy and the papers you filed. In the vast majority of Chapter 7 bankruptcies, this is the debtor’s only visit to the courthouse.

What Happens to Your Property

If, after the creditors meeting, the trustee determines that you have some nonexempt property, you may be required to either surrender that property or provide the trustee with its equivalent value in cash. If the property isn’t worth very much or would be cumbersome for the trustee to sell, the trustee may “abandon” the property — which means that you get to keep it, even though it is nonexempt. (For information on which types of property are typically exempt, see When Chapter 7 Bankruptcy Isn’t the Right Choice. However, which property is exempt varies by state — you can find complete lists of exempt property for every state in How to File for Chapter 7 Bankruptcy, by Stephen Elias, Albin Renauer, and Robin Leonard (Nolo).)

Most property owned by Chapter 7 debtors is either exempt or is essentially worthless for purposes of raising money for the creditors. As a result, few debtors end up having to surrender any property, unless it is collateral for a secured debt (see below).

How Your Secured Debts Are Treated

If you’ve pledged property as collateral for a loan, the loan is called a secured debt. The most common examples of collateral are houses and automobiles. If you’re behind on your payments, the creditor can ask to have the automatic stay lifted in order to repossess or foreclose on the property. However, if you are current on your payments, you can keep the property and keep making payments as before — unless you have enough equity in the property to justify its sale by the trustee.

If a creditor has recorded a lien against your property because of a debt you haven’t paid (for example, because the creditor obtained a court judgment against you), that debt is also secured. You may be able to wipe out the lien in Chapter 7 bankruptcy.

The Chapter 7 Bankruptcy Discharge

At the end of the bankruptcy process, all of your debts are wiped out (discharged) by the court, except:

• debts that automatically survive bankruptcy, such as child support, most tax debts, and student loans, unless the court rules otherwise, and
• debts that the court has declared nondischargeable because the creditor objected (for example, debts incurred by your fraud or malicious acts).

For more information and step-by-step help filing for Chapter 7 bankruptcy, see How to File for Chapter 7 Bankruptcy, by Stephen Elias, Albin Renauer, and Robin Leonard (Nolo).

Chapter 7 bankruptcy may be harder to file under the new law.

The latest changes to bankruptcy law may be making it harder for some people to file bankruptcy. And a few filers with higher incomes are no longer allowed to use Chapter 7 bankruptcy, but will instead have to repay at least some of their debt under Chapter 13. All debtors now have to get credit counseling before they can file a bankruptcy case — and additional counseling on budgeting and debt management before their debts can be wiped out. And, because the law imposes new requirements on lawyers, it is sometimes tougher to find an attorney to represent you in a bankruptcy case.

Here are some of the most important changes.

Restricted Eligibility for Chapter 7 Bankruptcy

Under the old rules, most filers could choose the type of bankruptcy that seemed best for them — and most chose Chapter 7 bankruptcy (liquidation) over Chapter 13 bankruptcy (repayment). The new law prohibits some filers with higher incomes from using Chapter 7 bankruptcy.

How High is Your Income?

Under the new rules, the first step in figuring out whether you can file for Chapter 7 bankruptcy is to measure your “current monthly income” against the median income for a household of your size in your state. If your income is less than or equal to the median, you can file for Chapter 7 bankruptcy. If it is more than the median, however, you must pass “the means test” — another requirement of the new law — in order to file for Chapter 7.

The Means Test

The purpose of the means test is to figure out whether you have enough disposable income, after subtracting certain allowed expenses and required debt payments, to make payments on a Chapter 13 plan. To find out whether you pass the means test, you subtract certain allowed expenses and debt payments from your current monthly income. If the income that’s left over after these calculations is below a certain amount, you can file for Chapter 7.

If you’re looking for an easy way to determine your eligibility under the means test, use our online means test calculator, created by the author of Nolo’s book How to File for Chapter 7 Bankruptcy, Albin Renauer, J.D. Once you enter your zip code, the calculator uses the applicable income and expense standards for your state, county, and region to determine your eligibility.

Counseling Requirements

Before you can file for bankruptcy under either Chapter 7 or Chapter 13, you must complete credit counseling with an agency approved by the United States Trustee’s office. (To find an approved agency in your area, go to the Trustee’s website, www.usdoj.gov/ust, and click “Credit Counseling and Debtor Education”.) The purpose of this counseling is to give you an idea of whether you really need to file for bankruptcy or whether an informal repayment plan would get you back on your economic feet.

Counseling is required even if it’s obvious that a repayment plan isn’t feasible or you are facing debts that you find unfair and don’t want to pay. You are required only to participate, not to go along with any repayment plan the agency proposes. However, if the agency does come up with a repayment plan, you will have to submit it to the court, along with a certificate showing that you completed the counseling, before you can file for bankruptcy.

Toward the end of your bankruptcy case, you’ll have to attend another counseling session, this time to learn personal financial management. Only after you submit proof to the court that you fulfilled this requirement can you get a bankruptcy discharge wiping out your debts. (The website above also lists approved debt counselors.)

Lawyers May Be Harder to Find — and More Expensive

As you can see, the new law adds some complicated requirements to the field of bankruptcy. This makes it more expensive — and time-consuming — for lawyers to represent clients in bankruptcy cases, which means attorney fees have gone up.

The new law also imposes some additional requirements on lawyers, chief among them that the lawyer must personally vouch for the accuracy of all of the information their clients provide them. This means attorneys have to spend more time on bankruptcy cases, and charge their clients accordingly. This combination of new requirements have driven some bankruptcy lawyers out of the field altogether.

Some Chapter 13 Filers Will Have to Live on Less

Under the old rules, people who filed under Chapter 13 had to devote all of their disposable income — what they had left after paying their actual living expenses — to their repayment plan. The new law added a wrinkle to this equation: Although Chapter 13 filers still have to hand over all of their disposable income, they have to calculate their disposable income using allowed expense amounts dictated by the IRS — not their actual expenses — if their income is higher than the median in their state. And these allowed expense amounts must be subtracted not from the filer’s actual earnings each month, but from the filer’s average income during the six months before filing.

Other Changes

There are other changes that can affect bankruptcy filers negatively, including how property is valued (at replacement cost instead of auction value) — this means more debtors are at risk of having their property taken and sold by the trustee — and how long a filer must live in a state to use that state’s exemption laws (this can make a big difference in the amount of property a bankruptcy filer gets to hold on to). These changes and others are explained in The New Bankruptcy: Will It Work for You?, by Attorney Stephen Elias (Nolo).

Also, you might find author Stephen Elias’s podcast helpful:

What Are the Rules Under the New Bankruptcy Law?

The basic steps involved in a typical Chapter 13 bankruptcy case.

Chapter 13 bankruptcy, sometimes called reorganization bankruptcy, is quite different from Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, most of your debts are wiped out; in exchange, you must relinquish any property that isn’t exempt from seizure by your creditors. In a Chapter 13 bankruptcy, you don’t have to hand over any property, but you must use your income to pay some or all of what you owe to your creditors over time — from three to five years, depending on the size of your debts and income.

Chapter 13 Eligibility

Chapter 13 bankruptcy isn’t for everyone. Because Chapter 13 requires you to use your income to repay some or all of your debt, you’ll have to prove to the court that you can afford to meet your payment obligations. If your income is irregular or too low, the court might not allow you to file for Chapter 13. If your total debt burden is too high, you are also ineligible. Your secured debts cannot exceed $1,010,650, and your unsecured debts cannot be more than $336,900. A “secured debt” is one that gives a creditor the right to take a specific item of property (such as your house or car) if you don’t pay the debt. An “unsecured debt” (such as a credit card or medical bill) doesn’t give the creditor this right.

The Chapter 13 Process

Before you can file for bankruptcy, you must receive credit counseling from an agency approved by the United States Trustee’s office. (For a list of approved agencies, go to the Trustee’s website at www.usdoj.gov/ust and click “Credit Counseling and Debtor Education.”) These agencies are allowed to charge a fee for their services, but they must provide counseling for free or at reduced rates if you cannot afford to pay.

In addition, you’ll have to pay the filing fee, which is currently $274, and file numerous forms. For line-by-line instructions on filling out the required bankruptcy forms, see Chapter 13 Bankruptcy: Keep Your Property & Repay Debts Over Time, by Stephen Elias and Robin Leonard (Nolo).

The Chapter 13 Repayment Plan

The most important part of your Chapter 13 paperwork will be a repayment plan. Your repayment plan will describe in detail how (and how much) you will pay each of your debts. There is no official form for the plan, but many courts have designed their own forms.

How Much You Must Pay

Your Chapter 13 plan must pay certain debts in full. These debts are called “priority debts,” because they’re considered sufficiently important to jump to the head of the bankruptcy repayment line. Priority debts include child support and alimony, wages you owe to employees, and certain tax obligations.

In addition, your plan must include your regular payments on secured debts, such as a car loan or mortgage, as well as repayment of any arrearages on the debts (the amount by which you’ve fallen behind in your payments).

The plan must show that any disposable income you have left after making these required payments will go towards repaying your unsecured debts, such as credit card or medical bills. You don’t have to repay these debts in full (or at all, in some cases). You just have to show that you are putting any remaining income towards their repayment.

How Long Your Repayment Plan Will Last

The length of your repayment plan depends on how much you earn and how much you owe. If your average monthly income over the six months prior to the date you filed for bankruptcy is more than the median income for your state, you’ll have to propose a five-year plan. If your income is lower than the median, you may propose a three-year plan. (To get the median income figures for your state, go to the United States Trustee’s website, www.usdoj.gov/ust, and click “Means Testing Information.”)

No matter how much you earn, your plan will end if you repay all of your debts in full, even if you have not yet reached the three- or five-year mark.

If You Can’t Make Plan Payments

If for some reason you cannot finish a Chapter 13 repayment plan — for example, you lose your job six months into the plan and can’t keep up the payments — the bankruptcy trustee may modify your plan, or the court might let you discharge your debts on the basis of hardship. Examples of hardship would be a sudden plant closing in a one-factory town or a debilitating illness.

If the bankruptcy court won’t let you modify your plan or give you a hardship discharge, you might be able to convert to a Chapter 7 bankruptcy or ask the bankruptcy court to dismiss your Chapter 13 bankruptcy case (you would still owe your debts, plus any interest creditors did not charge while your Chapter 13 case was pending). For information on your
alternatives in this situation, see Chapter 13 Bankruptcy: Keep Your Property & Repay Debts Over Time, by Stephen Elias and Robin Leonard (Nolo).

How a Chapter 13 Case Ends

Once you complete your repayment plan, all remaining debts that are eligible for discharge will be wiped out. Before you can receive a discharge, you must show the court that you are current on your child support and/or alimony obligations and that you have completed a budget counseling course with an agency approved by the United States Trustee. (This requirement is separate from the mandatory credit counseling you must undergo before filing for bankruptcy — you can find a list of approved agencies at the Trustee’s website,
www.usdoj.gov/ust; click “Credit Counseling and Debtor Education.”)

For more information, see Chapter 13 Bankruptcy: Keep Your Property & Repay Debts Over Time, by Stephen Elias and Robin Leonard (Nolo).

by Attorney Stephen R. Elias

Challenge a foreclosure by bringing a defense such as unconscionability or lender mistake.

Until recently, successful defenses against foreclosure were relatively rare. But that is changing rapidly — more homeowners are successfully challenging foreclosure actions.

This sea change is due, in large part, to the unearthing of more and more evidence that the real estate industry has been rife with fraudulent and predatory lending practices. Because of this evidence, courts that once rubber-stamped foreclosure actions are now beginning to shift their sympathies towards homeowners.

Homeowners and their attorneys are taking advantage of this change in judicial attitude, and challenging foreclosure actions in many different ways. Here’s a review of some of the most common defenses to foreclosure, and how to raise them in court.

How to Raise a Defense to Foreclosure

In order to raise a defense to the foreclosure action, you must bring the issue before a judge. This is automatic in about half the states, where foreclosures are typically accomplished through civil lawsuits and judicial foreclosure orders.

In the other states, foreclosures typically take place outside of court (these are called non-judicial foreclosures) and you have no automatic means to mount a legal challenge. To have your defenses ruled on by a judge in these states, you have to file a lawsuit alleging that the foreclosure is illegal for some reason and asking the court to put the foreclosure on hold — pending the court’s review of the case.

Common Foreclosure Defenses

As courts are increasingly sympathetic to challenges to foreclosure actions, attorneys across the country are raising many different types of defenses. Below is a description of the most common of these.

The Terms of the Mortgage Are Unconscionable

Over the years, attorneys have used a branch of law called “equity” to come up with a panoply of approaches to defending against foreclosure. The equity branch of law focuses on fairness in situations where a legal statute doesn’t provide adequate relief. It usually isn’t enough to simply claim that the foreclosure is unfair; rather, you have to come up with a specific justification for your position that has previously been recognized by the courts.

One such justification is a principle known as unconscionability — that is, the terms of your mortgage, or the circumstances surrounding it, are so unfair that they “shock the conscience of the judge.” In one case where this defense was successful the borrower spoke very little English, was pressured to agree to a loan that he obviously couldn’t repay, was not represented by an attorney, and was unaware of the harsh terms attached to the loan (such as an unaffordable balloon payment ).

You Are a Servicemember on Active Duty

If you’re on active military duty, the Servicemembers Civil Relief Act (SCRA) provides you with special protections. Most importantly, if you took out your mortgage before you were on active duty, your foreclosure must take place in court even if foreclosures in your state customarily occur outside of court. If a foreclosure is initiated while you’re on active duty, you can automatically receive a nine-month postponement of the proceeding by requesting it from the court in writing.

The Foreclosing Party Didn’t Follow State Procedures

In some cases, the foreclosing party doesn’t follow state procedural requirements for bringing a foreclosure action (for example, it fails to properly serve on you a Notice of Default required by state law). If this happens, you may be able to challenge the foreclosure. If your challenge is successful, the court will issue an order requiring the foreclosing party to start over.

Virtually all judges will overlook errors that are inconsequential, such as the misspelling of a name. Similarly, if the foreclosing party’s error doesn’t actually cause you any harm, it may not be worth fighting over. More serious violations will get a more serious response from the court.

The Foreclosing Party Can’t Prove It Owns the Mortgage

In federal courts (where some large lenders prefer to bring their foreclosure actions), only the mortgage holder (the owner or someone acting on the owner’s behalf) may bring the action. If your mortgage, like many, has been sold and bought by many different banks, lenders, and investors, proving just who owns it can be difficult for the last holder in the chain.

Though state courts are usually looser than federal courts about who can bring a foreclosure action, appropriate documentation of who owns the mortgage must nevertheless be presented, and this is often difficult for the foreclosing party to do.

The Mortgage Servicer Made a Serious Mistake

Mortgage servicers (entities who contract with banks and other lenders to receive and disburse mortgage payments and enforce the terms of the mortgage) make mistakes all the time when they’re dealing with borrowers. A study by law professor Katherine M. Porter showed that in 1,700 Chapter 13 bankruptcy cases, a majority of the claims submitted by mortgage owners had errors. (Misbehavior and Mistake in Bankruptcy Mortgage Claims, Texas Law Review 2008.)

You may be able to challenge the foreclosure based on mistakes such as:

• crediting your payments to the wrong party (so you weren’t, in fact, delinquent to the extent asserted by the foreclosing party)
• imposing excessive fees or fees not authorized by the lender or owner, or
• substantially overstating the amount you must pay to reinstate your mortgage.

Mistakes on the amount you must pay to reinstate your mortgage are especially serious. This is because an overstated amount may deprive you of the main remedy available to keep your home. For example, if the mortgage holder says you owe $4,500 to reinstate (perhaps because it imposes unreasonable costs and fees), when in fact you owe only $3,000, you may not have been able to take advantage of reinstatement (say you could have afforded $3,000, but not $4,500).

The Original Lender Engaged in Unfair Lending Practices

You may be able to fight your foreclosure by proving that your lender violated a federal or state law designed to protect borrowers from illegal lending practices. Two federal laws protect against unfair lending practices associated with residential mortgages and loans: the Truth in Lending Act (TILA) and an amendment to TILA commonly termed the Home Ownership and Equity Protection Act (HOEPA). TILA applies to all loans. HOEPA only applies to “high cost” loans — certain loans that have an unusually high interest rate or that come with unusually high up-front processing fees.

Lenders violate TILA when they don’t make certain disclosures in the mortgage documents, including the annual percentage rate, the finance charge, the amount financed, the total payments, the payment schedule, and more.

In the case of loans covered by HOEPA, lenders must comply with various notice provisions and are prohibited from using certain mortgage terms, such as balloon payments in loans with terms of less than five years.

The right to rescind the loan. TILA and HOEPA provide a number of remedies for the borrower if these laws are violated. However, the key remedy in foreclosure actions is the borrower’s ability to retroactively cancel or rescind the loan. This is referred to as the right to an “extended rescission.” Unfortunately, the right to an extended rescission under these federal laws applies only if the loan is a second or third mortgage that you used for purposes other than buying or building your home (for instance you used it to pay off your unsecured credit card debt). Also, the violation must be considered “material” (that is, significant or substantial).

State-law remedies for “high-cost” loans. A few states have special protections for people facing foreclosure on “high-cost” mortgages. If your state is one of these, and the lender has violated any of its provisions, you might be able to raise that violation as a defense in your foreclosure case.

To learn more about these defenses, and other ways to avoid foreclosure, get The Foreclosure Survival Guide, by Stephen Elias (Nolo).

Bankruptcy is a powerful tool for debtors, but some kinds of debts can’t be wiped out in bankruptcy.

Bankruptcy is good at wiping out credit card debt, but you may have trouble eliminating some other kinds of debts, including child support, alimony, most tax debts, student loans, and secured debts.

What Bankruptcy Can Do

If you are facing serious debt problems, bankruptcy may offer a powerful remedy. Here are some of the things filing for bankruptcy can do:

Wipe out credit card debt and other unsecured debts. Bankruptcy is very good at wiping out credit card debt. Unless you have a special “secured” credit card, your credit card balance is an unsecured debt — that is, the creditor does not have a lien on any of your property and cannot repossess any items if you fail to pay the debt. This is precisely the kind of debt that bankruptcy is designed to eliminate. Besides credit card debt, you may have other unsecured debts, and bankruptcy can wipe these out as well.

If you file for Chapter 13 rather than Chapter 7, you may have to pay back some portion of your unsecured debts. However, any unsecured debts that remain once your repayment plan is complete will be discharged.

Stop creditor harassment and collection activities. Bankruptcy can stop creditor harassment, but if the “harassment”‘ is simply phone calls and letters, there are simpler ways to stop it; . If the harassment is more serious — for instance, if the creditor is about to repossess your car or foreclose your mortgage — bankruptcy can help; .

Eliminate certain kinds of liens. A lien is a creditor’s right to take some or all of your property and will survive bankruptcy unless you invoke certain procedures during your bankruptcy case. For more information, see How to File for Chapter 7 Bankruptcy, by attorney Stephen Elias, attorney Albin Renauer, and Robin Leonard, J.D. (Nolo).

What Bankruptcy Can’t Do

Here’s what bankruptcy cannot do for you:

Prevent a secured creditor from repossessing property. A bankruptcy discharge eliminates debts, but it does not eliminate liens. So, if you have a secured debt (a debt where the creditor has a lien on your property and can repossess it if you don’t pay the debt), bankruptcy can eliminate the debt, but it does not prevent the creditor from repossessing the property.

Eliminate child support and alimony obligations. Child support and alimony obligations survive bankruptcy — you will continue to owe these debts in full, just as if you had never filed for bankruptcy. And if you use Chapter 13, your plan will have to provide for these debts to be repaid in full.

Wipe out student loans, except in very limited circumstances. Student loans can be discharged in bankruptcy only if you can show that repaying the loan would cause you “undue hardship,” a very tough standard to meet. You must be able to show not only that you cannot afford to pay your loans now, but also that you have very little likelihood of being able to pay your loans in the future.

Eliminate most tax debts. Eliminating tax debt in bankruptcy is not easy, but it is sometimes possible for older debts for unpaid income taxes. There are many requirements to be met, however.

Eliminate other nondischargeable debts. The following debts are not dischargeable under either Chapter 7 or Chapter 13 bankruptcy:

• debts you forget to list in your bankruptcy papers, unless the creditor learns of your bankruptcy case
• debts for personal injury or death caused by your intoxicated driving, and
• fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution.

If you file for Chapter 7, these debts will remain when your case is over. If you file for Chapter 13, these debts will have to be paid in full during your repayment plan. If they are not repaid in full, the balance will remain at the end of your case.

In addition, some types of debts may not be discharged if the creditor convinces the judge that they should survive your bankruptcy. These include debts incurred through fraud, such as lying on a credit application or passing off borrowed property as your own to use as collateral for a loan.

What Only Chapter 13 Bankruptcy Can Do

Chapter 7 can’t help you with these situations, but Chapter 13 can:

Stop a mortgage foreclosure. Filing for Chapter 13 bankruptcy will stop a foreclosure and force the lender to accept a plan where you make up the missed payments over time while staying current on your regular monthly payments. To make this plan work, you must be able to demonstrate that you will have enough income in the future to support such a repayment plan.

Allow you to keep nonexempt property. You don’t have to give up any property in Chapter 13 because you use your income to fund your repayment plan.

“Cram down” secured debts that are worth more than the property that secures them. You can sometimes use Chapter 13 to reduce a debt to the replacement value of the property securing it, then pay off that debt through your plan. For example, if you owe $10,000 on a car loan and the car is worth only $6,000, you can propose a plan that pays the creditor $6,000 and have the rest of the loan discharged. However, under the new bankruptcy law, you can’t cram down a car debt if you purchased the car during the 30-month period before you filed for bankruptcy. For other types of personal property, you can’t cram down a secured debt if you purchased the property within one year of filing for bankruptcy.

For more information on Chapter 13 bankruptcy, see Chapter 13 Bankruptcy: Repay Your Debts, by attorney Stephen Elias and Robin Leonard, J.D. (Nolo).

Clean up your credit report so you can get the loans you need.

To clean up your credit report, you’ll need to order copies of your report from the three major credit bureaus, review the reports for inaccuracies or old information, and then ask the credit bureaus to correct the information.

How to Get a Copy of Your Credit Report

The three major credit reporting companies are Equifax, TransUnion, and Experian. You should order your report from all three, as they often contain different information. To order directly from one of these credit bureaus, visit its website.

Equifax
www.equifax.com

TransUnion LLC
www.transunion.com

Experian
www.experian.com

Free Reports

You can get one free credit report each year from each of the three major credit reporting companies. To order your free report, go to www.annualcreditreport.com or call 877-322-8228.

You are entitled to an additional free copy of your credit report each year if:

• You’ve been denied credit because of information in your credit report.
• You’re unemployed and looking for work.
• You receive public assistance.
• You believe your file contains errors due to fraud or identity theft.
• You’ve been denied employment (or another adverse employment decision has been made) based at least in part on information contained in a credit report.

Credit Reports for a Fee

If you do not qualify for a free report (for example, if you have already ordered your free report for the year), you’ll pay a $10 fee or less (depending on your state requirements).

Information Required to Order Your Report

When you request your credit report, you must provide your name, address, Social Security number, and date of birth. If you moved in the last two years, you may also have to provide your previous address.

To confirm your identity, you may also be required to provide information that only you would know. So be prepared to answer questions about your previous addresses or the amount of your monthly mortgage payment.

How to Clean Up Your Credit Report

After you get your credit report, read through it carefully and start correcting.

Out-of-Date Information

As you read through your report, make a list of everything that’s out of date. The following old information should not appear in your credit report:

• adverse information that’s more than seven years old, including lawsuits, judgments, paid tax liens, accounts sent to collection, criminal records (except criminal convictions, which may be reported indefinitely), late payments, and overdue child support
• bankruptcies reported more than ten years after the date of the last activity (usually the date you received your discharge or the date the case was dismissed, although credit bureaus sometimes start counting from the earlier date of filing), and
• credit inquiries (requests by companies for a copy of your report) that are more than two years old.

Note that some adverse information regarding U.S. government insured or guaranteed student loans, or national direct student loans, may be reported for more than seven years.

Inaccurate Information

Next, look for incorrect information, such as:

• incorrect or incomplete name, address, phone number, birthdate, Social Security number, or employment information
• bankruptcies not identified by their specific chapter number
• accounts that are not yours or lawsuits in which you were not involved
• incorrect account histories, such as a history of late payments when you paid on time
• any closed accounts that are listed as open — it may look as if you have too much open credit, and
• any account you closed that doesn’t say “closed by consumer.”

Request Removal of Bad Information

After reviewing your report, complete the form the credit bureau provided to dispute entries in your report. List each incorrect or out-of-date item and explain exactly what is wrong. Once the credit bureau receives your request, it must investigate the items you dispute and contact you within 30 days. If you let the bureau know that you’re trying to obtain a mortgage or car loan, it can often do a rush investigation.

If you are right (that the information is inaccurate or incomplete), or if the creditor who provided the information can no longer verify it, the credit bureau must remove the information from your report or modify it based on the results of the investigation. Sometimes credit bureaus will remove an item on request without an investigation if rechecking the item is more bother than it’s worth.

What to Do If the Credit Bureau Disagrees

If the credit bureau responds that the information is correct, contact the bureau directly to discuss the problem.

If you don’t get anywhere with the credit bureau, ask the creditor to tell the credit bureau to remove the information. Write to the customer service department, vice president of marketing, and president or CEO. If the information was reported by a collection agency, send the agency a copy of your letter too.

By law, creditors cannot ignore information they know contradicts information in their file, and cannot report incorrect information when they learn that it is, in fact, incorrect.

If you feel a credit bureau is wrongfully including information in your report, or you want to explain a particular entry, you have the right to put a brief statement in your report. The credit bureau must give a copy of your statement — or a summary — to anyone who requests your report. Be clear and concise.

How to Rebuild Your Credit

After you’ve cleaned up your credit report, work towards getting positive payment information into your record.

• Get a credit card if you no longer have one.
• If your credit score is too low to qualify for a regular credit card, get a secured credit card by paying a deposit of a few hundred dollars. After you’ve paid on time for six months to a year, you’ll be able to get a regular credit card.

It usually takes about two years to rebuild your credit so that you won’t be turned down for a major credit card or loan. After four years or so, you should be able to qualify for a mortgage.

For detailed information on how to clean your credit report, including dozens of forms and letters on CD-ROM that will help you repair your credit as easily as possible, get Nolo’s Credit Repair.

by Ilona Bray

Steps to avoid foreclosure — or at least minimize its impact.

Millions of Americans are losing, or close to losing, their homes. Foreclosures in the U.S. are hitting record numbers. If you’re having trouble paying your mortgage, learn about the steps you can take to avoid foreclosure or minimize your debt after it happens. Quick action is the key to success — it can save your home or help protect your credit rating.

Don’t Walk Away: Consider Your Options

Don’t give up and let the lender foreclose on your home without considering your options. A foreclosure will hurt your credit rating and make it difficult, if not impossible, to buy another home anytime soon. In addition, if the profits from selling your home don’t cover the unpaid portion of your loan, your lender might sue you for the rest.

Your best options if you’re having trouble making mortgage payments include:

• negotiating with your lender
• getting government help
• filing for bankruptcy
• selling your home yourself, or
• giving your home deed to the lender.

These options are described in more detail below.

Beware of scam artists. People facing foreclosure are often preyed upon by others claiming they’ll “help.” Some homeowners have unwittingly signed documents giving these scammers title to their property, turning the owners into renters. Don’t sign anything without getting a professional opinion first.

Negotiating With Your Lender

As soon as you realize you’ll have trouble paying your mortgage — ideally, before you’ve missed any payments – contact your lender. Now, more than ever, lenders are willing to negotiate with home loan borrowers, if only to reduce the number of foreclosures they’re dealing with. (Some lenders are even taking the initiative and contacting at-risk borrowers themselves.)

Do it sooner rather than later. If you call soon, you may be able to work out a solution with your lender. But if you’ve already missed three or four payments, it may be too late, and the lender may insist on foreclosure.

Possible solutions. The lender may accept partial payments for a few months (though you may have to agree to make up the difference later), accept a late payment, or agree to redo the terms of your loan.

What to say when you contact your lender. Here’s what you should ask for in lender-language. (And by the way, you’ll probably need to get to the right department first — it may have a name like “loss mitigation.”)

• Forbearance. You make a reduced payment, or no payment, for an agreed-upon period of time. Usually, the lender requires you to make up the difference at a later time. The lender is most likely to agree to this if you can demonstrate that you will soon receive a bonus, tax refund, or some other extra cash.
• Loan reinstatement. You agree to make up your missed (or reduced) payments by a specific date.
• Loan modification. Your lender agrees to alter the terms of the loan so that you can better afford the payments. For example, the lender may agree to add your missed payments to your loan balance, to stretch out your loan over a longer term (which will lower your payments but result in more interest over the life of the loan), or to convert an adjustable rate to a fixed rate mortgage.

Getting Government Help

The U.S. government is currently discussing ways to help homeowners facing foreclosure (and thereby lessen the impact on the U.S. economy). In the first plan to be implemented, FHASecure, the Federal Housing Administration (or FHA, at www.fha.gov) may grant FHA refinancing to borrowers who can show:

• a history of on-time mortgage payments before the borrower’s teaser rates expired and the loans reset
• interest rates that have or will reset between June 2005 and December 2008
• 3% cash or equity in the home
• a sustained history of employment, and
• enough income to make the mortgage payment.

Of course, many people won’t be helped by FHASecure, particularly if they’ve lost their job or their house’s value has declined. Keep your eyes on the news for other programs or forms of relief.

Filing for Bankruptcy

Filing for bankruptcy may help you keep your home, or at least get you out from under your mortgage. When you file, the foreclosure process is legally stopped (called an “automatic stay”). It can’t be reopened until your bankruptcy case closes or the lender gets court permission to proceed (called “lifting the stay”).

Selling Your Home

If you simply can’t afford the house you own, the above options won’t help. You will probably lose your home. But don’t wait for your lender to make the first move. If your home has appreciated in value since you bought it, you may be able to sell it yourself. (In fact, real estate investors may show up on your doorstep hoping for a bargain.) Again, contact your lender, who may let you stop making payments until the house is sold.

Ideally, the proceeds from the sale will cover your mortgage and selling costs. But if they won’t, ask your lender to consider what’s called a “short sale.” That means the lender accepts the sale proceeds even if they’re less than the amount you owe.

Handing the Deed Over to the Lender

If no one is interested in buying your house, your lender may agree to take the deed and cancel your debt. This is called a deed in lieu of foreclosure. The idea is that the bank can then sell your house (as with an actual foreclosure) but won’t report it as a foreclosure to the credit rating agencies — in fact, you can negotiate with the bank about how it can help you preserve your credit rating.

Short sales and deeds in lieu of foreclosure will no longer leave you owing taxes. In the past, the IRS considered forgiven debt to be taxable income. However, this was erased for situations where the loan was for a primary residence, by the “Mortgage Forgiveness Debt Relief Act of 2007,” or H.R. 3648.

For more detailed information on how bankruptcy can help you if you face foreclosure, get Chapter 13 Bankruptcy: Repay Your Debts, by Robin Leonard (Nolo). Also, Robin Leonard’s Solve Your Money Troubles: How to Get Creditors Off Your Back and Regain Financial Freedom(Nolo), contains everything you need to know to get out of debt and repair your credit.

If you’re having trouble making your mortgage payments or are already in jeopardy of foreclosure, see Nolo’s Bankruptcy and Foreclosure Blog or the bestselling Foreclosure Survival Guide, now available online at no charge. Both are written by practicing attorney Stephen R. Elias, president of the National Bankruptcy Law Project.