Does Your HELOC (Home Equity Line of Credit) Have You Locked?

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A few years ago when your home had equity, you obtained a Home Equity Line of Credit or HELOC to consolidate your debt and payoff credit cards, medical bills, personal loans, etc.  It seemed like a great idea because you could eliminate all of your revolving debt and make only two payments each month…your first mortgage and your HELOC payment.  This approach also provided a way to lower your monthly payment, since the interest rate on the HELOC was less than what you were paying on credit cards.  And we all thought at that time your home would appreciate in value!

Family Walking Holding HandsThat was circa 2008 and here you are in today.  You are lucky if your home is worth what you owe on the first mortgage, there’s no way will it will cover the HELOC.  So your HELOC has you locked!  What are your options?

Do absolutely nothing – You can see what is the HELOC creditor is going to do.

The HELOC creditor could foreclose on your home but probably not, since they would receive little if anything from the sale.  However, your credit will be negatively impacted because of late, slow or no payments on the HELOC.  The impact on your credit will make it difficult for you to obtain other credit for another car or other needs.

The HELOC creditor may actually decide to foreclose on the property.  They know they will receive little or nothing from the foreclosure, but they can write-off the bad loan from their books making the company more financially sound.

The HELOC creditor may write-off the debt on the loan and send a 1099C to you and the Internal Revenue Service.  It appears that this voluntary non-payment is excluded from the Mortgage Forgiveness Debt Relief Act of 2007.  At this point you will be responsible for taxes on the forgiven debt.  You should also remember that the creditor writing off the debt does not eliminate the lien by deed of trust on your home.  If you try to sell the house in the future, you must still deal with the HELOC creditor before you can convey the deed to another person.

Sell the home – You would sell the home, but you can’t get enough to pay the first mortgage and the HELOC.

You’ve talked to the HELOC creditor about a short-sale, and they want you to come to the closing table with at least some money to pay them.

Since you don’t have the money at closing, they have agreed to release the lien for you to sell the house, but they want you to sign an unsecured loan on at least a portion of the debt you owe them.  That is an option, but do you really want to pay for a house you do not own?  If you default on this unsecured loan in the future, they can actually sue you for the unpaid debt.

Chapter 13 bankruptcy – You can file a Chapter 13 bankruptcy to resolve the HELOC and any other outstanding debt.

The key is that your first mortgage must be greater than the value of your home.

You will be required to file a lawsuit or adversary proceeding in bankruptcy against the HELOC creditor.

You must complete your bankruptcy and receive a discharge.

This approach will allow you to retain your home and make it a more valuable asset, since you will no longer be saddled with the HELOC.

We you speak with your accountant or a bankruptcy attorney to determine what option is best for you.

What Happens When I Surrender My Property in Bankruptcy?

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How to Write a Cease and Desist Letter

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If you are currently suffering from some type of creditor harassment or dispute and you believe that if the matter went in front of a judge that you would win the dispute, writing a cease and desist letter may be a good option for you.

A cease and desist letter is a letter that may be written by anyone – not just a lawyer – in an attempt to stop some sort of harmful activity (usually harassment or a dispute by a bill collector). Cease and desist letters are usually used when the matter is not serious enough to spend money taking the other party to court. Although cease and desist letters are usually written by lawyers, they are not required to be and can certainly be written by an individual who is not a lawyer.

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Usually, a cease and desist letter threatens further legal action if the harmful harassment or dispute does not end immediately. For example, if debt collectors are constantly harassing you, you can write a cease and desist letter. The information you include in your letter should be:

The name and address of the person you are contacting

The name and address of the party who is harassing you or against whom you have a dispute

A description of the harmful actions that the other party has taken against you (harassing phone calls, harassing letters, etc. – be as specific as possible, including dates, times, people’s names, etc.)

A specific demand that the actions stop immediately

A statement that if the actions do not stop immediately, further legal action will be taken (you can be as specific here as you would like – lawsuit filed in a certain court, certain damages will be sought, etc.)

It is also a good idea to send the letter via certified mail, return receipt requested, so that someone will have to sign off on receipt of the letter. That way, the other party cannot argue that they never received your letter. If you send the letter via regular mail, the other party may argue that they never received your letter or that it was lost in the mail.

Although some people do hire attorneys to write a cease and desist letter on their behalf, it can definitely be done by an individual who is not an attorney – just be sure to include all necessary information and be stern in your demands. Here is an example of a Sample Cease and Desist Letter.

Will My Children’s Privacy Be Protected If I File Bankruptcy?

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What Financial Statements are Required for a Business if I’m Filing Bankruptcy?

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If you are self-employed or own your own business, you should prepare monthly financial statements to understand how your business is performing.  Realistically, financial statements are often the last thing a small business owner worries about.  He or she is usually more concerned about how to make the next sale or generate the next contract.  However, when an individual files bankruptcy, the financial statements of the business are required to determine the profitability of the business as well as the value of the business.

For our purposes, there are two basic financial statements for your business that will be required when you file personal bankruptcy:  a profit and loss and a balance sheet.

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The profit and loss reflects the profitability of the business over a period of time.  It takes into consideration the business’s income, expenses and the resulting profit or loss.  The period of time could be weekly, monthly, quarterly, annually, etc.  For the bankruptcy, we will want the profit and loss for each of the six months prior to filing bankruptcy as well as a current period year-to-date.  For example, if you are filing bankruptcy in April 2011, you would need the profit and loss statements for October, November, and December 2010 as well as January, February and March 2011.  In addition, an April 2011 year-to-date profit and loss would also be required.  We will look at the component of a profit and loss in more detail in another blog post.

The balance sheet reflects the value of the company at a point in time.  It is usually considered the most important financial statement for the business, but oddly enough, it is often overlooked by everyone except for your accountant and banker.   The balance sheet takes into consideration the profit or loss for the company as well as the assets and liabilities for the company.  A balance sheet is sometimes referred to as the thermometer of the business, since you can use it to check the business’ “temperature” to determine if it is “healthy – 98.6” or “sick – 102.”  The balance sheet reflects the true value of the business at a point in time, such as March 30, 2011.  If on March 30, 2011 your business has a value of $10,000, you should be able to sell the business for $10,000 if you have a willing and able buyer.  We will look at the components of a balance sheet in another blog post.

Preparing and understanding the financial statements for your business can be an overwhelming task.  Many small businesses purchase accounting software to help them prepare the financial statement or they may hire an accountant to assist the business owners.  Let’s look at a simplified version in the blog post, The Basics of Understanding Financial Statements for Your Business.

Can I Pay My Family or Friends Back Before I File Bankruptcy?

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Well, you can, but it’s probably not the best idea.  Family members and friends for the fact of the matter are considered “inside” creditors, as labeled in the bankruptcy code 11 U.S.C § 101 (31)(A)(i).   Because this is a loan from your family or friend and was never recorded, they are not looked at the same way as a regular creditor such as a credit card or a mortgage.

Daughter and Mother

You are required to list any payments that you have made that are over $600 in your petition.  But the court is going to look into where your payments went.  Did you pay your mother back $800 and not any other creditors?  If that is the case, the court could look at it as if you were playing “favorites” (meaning, you were choosing to pay her over another creditor) and the Trustee would have the right to go back to your mother and demand that she turn the funds that she took from you and give them to the bankruptcy Trustee for them to distribute to your creditors.  Meaning that you and her both would lose out on the money.

As in any case, each case is different and if this pertains to your situation you will need to discuss it with your bankruptcy attorney, so that he or she may properly advise you.

What if Creditors Keep Calling After I’ve Filed Bankruptcy?

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When you file bankruptcy, an “automatic stay” goes into effect against all of your creditors. The automatic stay, Section 362(a) of the U.S. Bankruptcy Code, among other things, prohibits creditors from contacting you to collect a pre-petition debt. In short, no more harassing phone calls from your creditors! This is one of many advantages the law offers to individuals who file Chapter 7 bankruptcy or Chapter 13 bankruptcy.
Smartphone IconAll of the creditors listed in your bankruptcy will receive notice within 5 business days when your bankruptcy petition is filed. This notice is sent to every creditor, both electronically and by mail. Generally, most creditors will stop all collection attempts immediately after they receive notice of the bankruptcy.

Should you receive phone calls from any of your creditors after you’ve filed bankruptcy be sure and let the creditor know you filed bankruptcy and provide them with your case number, the filing date and the name and phone number of your attorney. It is important that you document all of the phone calls you receive from the creditor by writing down the date and time you receive the calls and the name of the person you talked to. If a creditor continues calling you after you’ve informed them of your bankruptcy filing, they are in violation of the automatic stay and you should contact your attorney to let them know. Most likely your attorney will call the creditor and give them a courtesy warning to stop making contact with the debtor. At that point, if the creditor continues with their collection efforts by calling or sending you bills, your attorney may choose to file sanctions against the creditor for violating the automatic stay.