Here in Mobile, we have a lot of things to pride ourselves on compared to the rest of the state. The weather is better, the seafood is great, and we have Mardi Gras and the beach. But alas, there is one area where Mobile is doing worse than the rest of Alabama: mortgage deliqnuencies. A recent report by Alex Walsh for the Mobile Register and AL.com found that in Mobile, 8.19% of mortgage borrowers are at least 90 days behind on their payments. This compares to only 5.6% in Birmingham, 5.82% in Montgomery, and a nationwide average of 6.01%. What is really sad is that last year it was even worse: over 9%!
But there is good news: because so many homes are delinquent, it takes a bit longer for foreclosures to happen here. So if you are one of the many folks in the Mobile and Baldwin County area who are behind on their mortgage, you still have time to come and discuss your options with a bankruptcy attorney. We can explain how foreclosure works and help you do what you need to do to keep your home (or get rid of it without suffering a major financial disaster).
One of the common myths about Chapter 7 bankruptcy is that you lose everything. After all, they call it "Liquidation" for a reason, right? Well, yeah, it is true that the general theory of a Chapter 7 is that the nonexempt assets of the estate are liquidated and the proceeds given to your creditors, and you come out fresh and empty like a newborn baby. But, as is so often the case with us lawyers, there are exceptions. One of the biggest exceptions is where you have a vehicle that is financed by a secured creditor and you want to keep the vehicle.
So, can you file Chapter 7 in Alabama and still keep your car? YES.
The process for doing so is called "Reaffirmation" and basically it means that you agree to keep making the normal payments on the vehicle and to not discharge that specific debt. In return, the creditor lets you keep the vehicle. If you are current on your payments, most lenders want to keep doing business with you, even if you've filed bankruptcy. They don't want another used car: they want the money. So they're almost always willing to offer you a reaffirmation - many of them will practically beg you to reaffirm their debt, because they want to be able to go after you for the money even after your bankruptcy. This is, of course, the disadvantage to reaffirmation: you're stuck with the debt even after getting your other debts discharged. But this is why the law gives you a special protection: even after you've signed the reaffirmation agreement, you have 60 days to rescind it. So if the vehicle breaks down a month after you sign the reaffirmation, or you lose a job and can no longer make the payments, you can avoid being stuck with the debt left over on the vehicle.
It may seem strange that you'd be allowed to keep such a valuable asset as a vehicle - something worth thousands of dollars. Shouldn't it get liquidated like any other asset? But when you think about it, it makes perfect sense. Here's why: if you own a $15,000 F-150, but owe the bank $15,500 on the auto loan, then that isn't an asset. Or rather, it isn't your asset. It is the bank's asset. You just have the right to take title to the vehicle if you ever pay off the loan. So don't freak out about bankruptcy if you think that you'll lose your car. If you're current on it, you have options.
For some reason, a lot of mortgage companies nowadays seem to be forgetting to send their customers statements telling them just how much money they owe. Knowing just how much you owe the bank on your home is a very important part of making a complete plan to get rid of your family's debt forever. So if the mortgage company won't send you one, what do you do?
There are a few federal laws that address situations where a borrower alleges improper accounting of mortgage payments - a Qualified Written Requesut sent to the bank under Section 6 of RESPA can help you with that. But what if you don't want a long loan history? What if you just want an accurate payoff statement?
Well, in Alabama, we have a special statute that requires a mortgage company to send you a complete payoff figure within 14 days of a written demand that contains the following information:
(a) A person liable for payment or performance of the obligation secured by the real property described in a security instrument who makes proper notice pursuant to this section shall be entitled to receive a payoff statement.
(b) Proper notice must contain all of the following:
(1) The entitled person's name.
(2) If given by a person other than an entitled person, the name of the person giving the notification and a statement, if required by the secured party evidence, that the person is an authorized agent of the entitled person.
(3) The address to which the creditor must send the statement.
(4) The account number assigned by the secured creditor or other sufficient information to enable the creditor to identify the secured obligation and the real property encumbered by the security interest.
(5) If the secured obligation is an equity line, a statement that the entitled person requests the secured creditor to close the equity line upon receipt of full payment of the equity line on the payoff date specified in the notification and authorizes the secured creditor, at the secured creditor's sole discretion and upon notification to the entitled person or to the entitled person’s authorized agent, to suspend the extension of any additional amounts under the equity line for a period of time prior to the payoff date as designated by the secured creditor. Any payoff statement on an equity line may qualify the payoff amount as being subject to change.
So for a traditional mortgage, all you need to do is send the bank your name, address, account number, and they have 14 days to send you a response. It need not be anything fancy - just a normal typed letter with the basic information. If they don't respond, make sure you have the right address and try again. If they keep giving you the cold shoulder, it's time to contact an attorney. Hope this helps!
The amount of money you must pay in a Chapter 13 Bankruptcy in Alabama depends on numerous factors: what assets you are keeping, the value of those assets, your income, the types of debt you have, and the amount of debt you have - all of these things influence just how much you will have to pay each of your creditors in order to obtain a discharge. In turn, this determines your monthly payment amount.
In most cases, your Chapter 13 plan is 5 years long - that means you'll pay 60 payments. Your attorney should determine that payment amount at the very start of your case, and as long as you make all of your payments on time, that amount should stay the same for the entire 5 years. There are circumstances when the payment can rise - usually when new claims are added, like taxes that were due after the case was filed and not paid, or mortgage arrears that are added to the bankruptcy after it was filed.
There are also circumstances where your payment can be lowered: if you remove secured debts from the case - for instance if you surrender your home during the bankruptcy, whatever mortgage arrears you were scheduled to pay through the Chapter 13 plan are removed from the case, and you can lower your payment. Usually, your payment is not based on your income, so a job loss or layoff is typically not a reason to reduce a Chapter 13 payment.
For many clients with higher incomes or substantial assets, the amount of your payment depends directly on the amount of unsecured debt you have. In such cases, you can save a significant amount of money by reducing the amount of creditor claims that must be paid in your case. This requires time and work on the part of your attorney, and many attorneys never look back once a Chapter 13 case is confirmed.
We, however, take a hard look at every claim filed in these sorts of cases. We review each creditor and debt collector claim to make sure they are not asking for more money than they are owed. We also look for defects in the claim itself - was it filed on time? Was it filed properly? Did it have the correct documentation attached? If not, we object to it, and we routinely shave thousands of dollars off the amount of debt that our clients must pay.
One of the things we always tell our clients is that if you have money in a bank account and you owe money on a loan to that bank, then you need to move that money elsewhere before you file bankruptcy. Why? Because if you don't, then the bank will take all the money you have in that account, even though you have filed bankruptcy!
But how can they do that? Doesn't the bankruptcy stay automatically stop all collection attempts? For the most part, yes. But there is a small loophole for creditors that hold your checking and savings accounts. We have grown accustomed to thinking of our money in a bank account as solid, safe. As safe as, say "money in the bank." But 'your' money in your checking account is not really money. It is not cash sitting in a vault somewhere. It is a debt owed to you by the bank. You give them money when you make a deposit, and they promise to give you that money whenever you ask for it. So if you have money in the bank, it is not your money, but the bank's money and the bank just owes you a debt. Now normally, this situation is fine, even if you are in bankruptcy. But if you owe a debt to the same bank, then you have a situation where you owe a debt to someone who owes a debt to you.
This is called a "setoff." And a setoff is a lot like what is sounds like: if A owes money to B and B owes money to A, then they each have the right to set off their debts against each other. EVEN IN BANKRUPTCY! So if you owe Regions Bank $2500 on a loan, and you have $1000 in your checking account when you file bankruptcy, Regions can freeze that money - keeping you from withdrawing it or even honoring checks against that account. Your checking account will be sapped down to $0.00, and your debt to them will only be $1,500. It is only fair, if you think about it, but it still can be very painful to deal with when you were counting on that $1,000 to feed your kids.