Bankruptcy can save your house from foreclosure

Bankruptcy can save your house from foreclosureBy Les Christie, staff writerJuly 24, 2010: 10:58 AM ET
NEW YORK (CNNMoney.com) -- Slick TV commercials and online ads tell delinquent borrowers that they can save their homes by filing for personal bankruptcy. But is it true -- or just too good to be true?True!

Bankruptcy can bring foreclosure proceedings to a halt, end harassment from debt collectors, and give borrowers time to make up missed payments and reorganize their finances. In some cases, bankruptcy can also help mortgage borrowers save their homes permanently.
It's not, however, going to help every troubled homeowner. If, for example, the homeowner's biggest problem is not enough money, bankruptcy is not going to solve that.
"It's the best tool there is for people behind in payments but who have ongoing income," according to Binghamton, N.Y., attorney Peter Orville, "those who had been making payments and who could be making payments again."

Halting the process

The first thing a bankruptcy filing accomplishes is to stop the foreclosure process. Lenders can't foreclose or even try to collect debt until permitted to do so by the court.
But first, you have to decide what type of bankruptcy to file for. There are, basically, two types to choose from: Chapter 7 and Chapter 13.
A Chapter 7 bankruptcy delays foreclosure. but eventually it usually results in the liquidation of most assets, according to attorney Stephen Elias, author of "The Foreclosure Survival Guide." Borrowers almost always lose their homes in a Chapter 7.

Some bankruptcy attorneys, like New York-based David Pankin, prefer Chapter 7 because it gets rid of all unsecured debt, leaving only secured debt, such as mortgages, exempt. In this scenario, borrowers still owe their mortgage payments but they can likely afford to make them because all the other debts have been discharged.
But for most experts, Chapter 13 is usually more effective at helping people keep their homes. It gives them time to repair their finances, usually three to five years, during which the court agrees to an income-based budget with monthly payments made to trustees.

The trustees pay the bills, first paying off the secured debt. After that, the trustee pays off unsecured debt, starting with back income taxes.
Next in line comes unsecured debt like credit cards and medical bills. By then, there's usually little cash left and these bills are paid at less than the full rate, often as little as five cents on the dollar.
Borrowers, if they kept up on their payments, can emerge from bankruptcy with their homes still in their possessions.
One thing courts cannot do is "cram down" loan balances on primary residences. That is, reduce mortgage debt to what the home is worth. Neither can they lower interest rates, in most cases, nor lengthen the term of the loans.They can, however, "strip off" second mortgages, like home equity loans or lines of credit, when home values fall below the first mortgage balances, according to Elias.
"This allows the judge to get rid of the second mortgage," he said. "If there's not enough equity to secure the second, it becomes unsecured debt."

That can be a huge advantage for borrowers. Homeowners may have, for example, a $200,000 first mortgage balance and another $50,000 on a home equity loan. If the home value has dropped to less than $200,000, the judge could rule that all $50,000 of the second is unsecured. Then, it can be paid off at the same pennies-on-the dollar as other unsecured debt.
But there are other downsides. Bankruptcy can lop as much as 240 points off credit scores. And bankruptcies can remain on credit reports for 10 years, said Pamela Simmons, a California real estate attorney, while all other black marks disappear after seven years or less.

Fending off deficiencies

There is also a potential tax advantage to filing for bankruptcy rather than going to foreclosure, according to Simmons. When a home is repossessed and the lender forgives the portion of the mortgage balance above its market value, a tax liability can be triggered. Any difference between what people borrow and what they repay is considered income.
Congress is temporarily allowing that unpaid debt to be forgiven -- but only for money specifically spent on the home purchase or on home improvement.

Millions of people, however, refinanced mortgages or took out home equity loans and used the money to fund vacations, pay college tuition, buy cars or boats or simply to live the good life. That money is taxable.

Simmons had a recent client who was allowing his lender to foreclose on him and called her about the timing, asking whether he had to vacate by the day of the auction.
In passing, she asked him how much he owed on the house. He said he bought it for a million but had taken out another $2 million, most of which had not been spent on the house. When she told him he would owe taxes on it both to Uncle Sam and the State of California, he was dismayed She rushed him into her office and they did the paperwork so he could file for bankruptcy.
"If they discharge that deficiency in bankruptcy, you don't owe tax on it," said Simmons.

Bankruptcy can save your house from foreclosure

Teach Your Teen Paycheck Savvy by Linda Stern

A great article authored by Linda Stern of CNN Money:

Teach Your Teen Paycheck Savvy

(Money Magazine) -- Congrats! Your kid landed a summer job in this tight, tight economy.
Now, of course, he'll have that $7.25 an hour burning a hole in his pocket. That's where you step in: "Parents have a real opportunity to help teens learn to manage that first paycheck," says Mari Adam, a Boca Raton, Fla., financial adviser. "I can't think of a better learning experience." Share some solid financial strategies with your teen now, and your child may even have some cash left over come September.

Have The Tax Talk

Better explain the harsh realities of gross vs. net before your teen gets any big ideas about what she'll spend her wages on. She may not yet understand that taxes will be withheld from every paycheck. So sit down with your child to go over that first pay stub, explaining how and why taxes are taken out, as well as the difference between income taxes (which most teens are likely to get back when they file tax returns) and FICA taxes (which they won't). "This will be a real shock to them," says Adam.

Take It To The Bank

Help your kid open two bank accounts -- one savings, one checking. Spend time together comparing fees and rates online, looking specifically for a no-fee checking account meant for teenagers. You'll have to co-sign the accounts, but it's worth it so your kid can start learning to use an ATM card and keep his balance in the black. (Just don't forget to mention the exorbitant costs of using another bank's ATM.)

Your child may balk at an analog check register but might enjoy tracking expenses online via Mint.com. To motivate him, explain about the $30 overdraft fees the bank will rapidly bestow if he messes up budget calculations. And remind him that at minimum wage, it would take most of a day's work to recoup that expense.

Share The Savings Secret

Deferred gratification is an important lesson. Your teen may not be inspired to stash cash for retirement but may be swayed to the savings habit with a near-term goal, like an iPod Touch or a limo for homecoming. Help her do the math so that she'll know how much to set aside per paycheck to afford her prize by summer's end. Show her how to have that automatically transferred from checking to savings every pay period. As an incentive, offer to match your child's contributions.

Avoid Micromanaging

Blowing that first paycheck on shoes that will be out of style before the next check arrives is a rite of passage, isn't it? It's also a "very good lesson," says Rob Gordon, a Coconut Grove, Fla., financial adviser. So let kids have space to make spending decisions, even if they'll end up with buyer's remorse.
There's nothing like having wasted your own hard- earned cash to make you more careful with your money next time.



Teach your teen paycheck savvy

Great Co-Parenting Tips to Consider

Every once in a while, I find an article that can stand alone as being a great reference on a particular topic. I felt the artilce about family therapist Terry Real by ABC news writer Suzan Clarke would be a great read for those parents trying to find the right course on co-parenting. Here is the aticle:

How to Co-Parent Successfully When Your Relationship Is Over

Kids Benefit When You Get Over Your Anger for Your Ex, Terry Real Says
Terry Real offers parents dealing with difficult divorces parenting advice.
Celebrity couples are raising their children together, even though their own relationships are on the rocks. So can people raise kids together after a breakup?

Family therapist Terry Real appeared on "Good Morning America" to talk about the concept of co-parenting.

He answered some questions and offered advice for parents who are experiencing -- or who have experienced --a bad breakup.

Terry Real's Co-Parenting Tips

Think of divorce from a child's perspective. What's the worst thing about a parent moving away, aside from the hurt that causes? For a child, that is having to constantly move his or her things to one parent's house or the other, Real said. To effectively co-parent, both parents need to live near to each other so children don't have to travel too much or too far.
Related

Establish a routine for the children. The children are already traumatized by the breakup of the family, so they need stability in their lives. Have the same rules in both houses, Real said. That means if a child can't watch TV in one parent's house after 9 p.m., that rule should apply in the other house.

Minimize differences in wealth. In a divorce situation, the spouse with the most money needs to be generous and ensure that the living arrangements in both houses are similar. It's not an act of generosity to your ex, but to your children, Real said. Large discrepancies in lifestyle create bad dynamics, because children may flock to the wealthier household, or they may feel guilty about the less wealthy one.

Don't be too friendly. Be clear that you are divorced. If you both show up at the kids' events, that's to be expected. But there is a difference between showing up at the same soccer game and getting together for dinner -- or sleeping over. Don't send mixed messages to your children, Real said.

If you truly dislike your ex, you have to get over it. Even if you had a terrible marital relationship, you can still rise to the occasion as co-parents, Real said. He urged parents not to overshare about their ex-spouse's faults to the children. Co-parents should treat each other as business partners.

Don't Vent in Front of the Kids

If parents are worried about issues of abuse or mistreatment, they should take those concerns directly to the other parent first, and go to the lawyers afterward.
Don't expect the relationship to improve after the divorce, he said. The issues that led to the split may still be there.
Don't vent your anger in front of the children. Save it for a friend or your therapist. Recognize that the co-parenting relationship is a marathon and not a sprint, and that you remain bonded for life through your children.