Taking out a second mortgage may have seemed like a reasonable financial solution at the time, but as your debt level has risen, it may now represent an unmanageable burden. Bankruptcy may offer you an opportunity to eliminate your second mortgage through a process called lien stripping.
However, filing for bankruptcy does not automatically qualify you for lien stripping. There are requirements that you must meet to be eligible for elimination of your second mortgage.
Chapter 13
A handful of states allow filers to strip a second mortgage when filing Chapter 7 bankruptcy: Georgia, Florida and Alabama. However, in Mississippi, Tennessee and all other states, you can only eliminate a second mortgage when you file Chapter 13. You may qualify for Chapter 13 if you have a regular income, but your debt level is now beyond your control.
Home value
You can only eliminate a second mortgage through Chapter 13 bankruptcy if the current value of your home is less than what you still owe on the first mortgage. If this is the case, it means that your second mortgage represents unsecured debt, similar to medical bills or a credit card balance. Chapter 13 bankruptcy involves reorganizing your unsecured debt so that you pay it off gradually by making monthly payments over a period ranging from three to five years.
Lien stripping is only available if the value of your home has dropped since you took out the second mortgage. If you still have equity in your home, you cannot eliminate your second mortgage through bankruptcy because it does not qualify as an unsecured debt.
In addition to these requirements that pertain specifically to lien stripping, you must undergo credit counseling within 180 days before filing for bankruptcy. This is a requirement imposed by the Federal Trade Commission and, with a few exceptions, applies to all Chapter 7 and Chapter 13 bankruptcy filings.
Debt is a reality for millions of people living in Mississippi and across the country. According to the National Consumer Law Center and the Consumer Federal Protection Bureau, 70 million people nationwide interacted with a debt collector during the year 2017. One third of American adults had some type of debt in collections during 2016. It can be stressful for people who are struggling to pay their bills to have to speak with debt collection services, but there are some ways to make it easier.
First, it is important for the debtor to know his or her rights. Under the Fair Debt Collection Practices Act, creditors are prohibited from calling people outside of certain hours. They are also limited in the number of calls they can make and prohibited from harassing people. If a debt collector violates the FDCPA, there may be actionable claims for damages.
Second, it is important for people to verify that the debt collector is legitimate. There are a number of organizations in operation that are not the real owners of a debt but targeting people to scam them. It is simple to check the legitimacy of a debt collector with the Better Business Bureau or an online search.
Third, it is important to get the original paperwork associated with a particular debt. The contract that governs the debt can contain provisions that give a debtor rights, and it is generally necessary to show that a debt is legitimate.
People in Mississippi have options when it comes to dealing with debts and debt collectors. A lawyer may help people who are struggling to pay bills by suggesting avenues to reduce or eliminate debts, including filing for bankruptcy protection in some cases. A lawyer might be able to negotiate with creditors to reduce the amount of debts outstanding or arrange better payment terms.
Bankruptcy can be a beneficial tool when you utilize it properly. Also, in order to reap the benefits, you must complete all necessary aspects of the process.
Therefore, it can be helpful to understand the key aspects of the bankruptcy process before you begin. There are certain financial requirements in particular that you must meet before, during and after filing for bankruptcy.
Credit counseling
Before filing for bankruptcy, you must complete a credit counseling course. This course must be through an approved credit counseling agency, and you must submit the certificate of completion with your bankruptcy application. The course completion and filing must be within six months of each other. There are certain instances where you may not have to complete the counseling course:
In all cases, the bankruptcy court must approve of the pardon.
Means test
If you desire to file for Chapter 7 bankruptcy, the means test is a requirement. The first step is to compare your average income over the past six months with the average income in the state. If your income falls under the average, no further calculations are necessary, and you may file for Chapter 7. On the other hand, if your income is higher than the average, you must submit additional information for further consideration. Depending upon the final numbers, you may still qualify for Chapter 7 or have to file for Chapter 13.
Financial management course
In order to encourage filers to budget better and prevent bankruptcy in the future, you must complete a debtor education course before receiving a full bankruptcy discharge. This course covers income responsibility, budgeting and other financial tools. Upon completion, you must submit the debtor education certificate to the court.
Along with understanding the requirements that you must complete, it is important to make sure you fulfill each one by completing all paperwork and submitting any additional material. Doing so may aid in avoiding a bankruptcy denial or cancellation.
At the end of 2018, Americans owed credit card companies roughly $900 billion. However, the Consumer Financial Protection Board says that Mississippi residents and others throughout the country aren’t necessarily in a perilous financial situation. Currently, most of the credit card debt is being generated by people who have credit scores of at least 740. This means that they are more likely to pay their debts in full and on time.
Furthermore, interest rates for other debts such as mortgages and credit cards are lower by historical standards. This makes it easier for debtors to handle their overall debt loads. Finally, unemployment is reportedly at its lowest level in 50 years, and employers are expected to spend more money on worker salaries in 2020. Consumer confidence is also relatively high despite the fact that the United States and China have been engaged in a long-term trade battle.
However, there are some reasons to believe that increasing credit card debt could eventually become a problem. For example, those with lower credit scores are accumulating debt at a relatively high rate, and this has led to an increase in both late payments and charge-offs over the past two years. The CFPB also says that debtors have been increasingly seeking out debt settlements and other forms of relief in recent years.
Those who are seeking a fresh financial start may be able to obtain it by filing for bankruptcy. Doing so might make it possible to eliminate credit card and other debt balances. An attorney may be able to help a person learn more about the process of filing. In many cases, individuals who file are entitled to an automatic stay of creditor contact. This may prevent creditors from going through with a foreclosure or repossession until a case has been resolved.
When a Mississippi resident is facing overwhelming debt, options start to dwindle. Financial problems may have a single cause, such as an illness or job loss, or might be the result of several years of financial bad luck or mismanagement. However, the associated costs of bankruptcy may prove burdensome for a debtor and may even make filing for bankruptcy protection difficult.
Financial counselors indicate there are three categories of costs an individual filing for bankruptcy must consider: court filing fees, mandatory education classes and attorney fees. The minimum total for these is a little under $1500 while the maximum can be closer to $4000, depending primarily on whether Chapter 7 or Chapter 13 bankruptcy is involved. It is possible to have fees on filing and classes waived based on income as compared to federal poverty guidelines, in consideration of family size and state of residence.
Legal representation is not a guaranteed right, and it is possible to represent oneself in a bankruptcy proceeding. There are legal clinics that do not offer representation but can be of assistance with filling out the appropriate paperwork and legal forms. The question becomes whether it is worth the risk to file in pro per, that is, acting as one’s own counsel. Statistically, it is extremely difficult to successfully discharge debt through self-representation as compared to the success rate when represented by legal counsel.
Bankruptcy is governed by federal law, and procedures must be followed precisely. A consultation with an experienced bankruptcy lawyer might be helpful in determining if either Chapter 7 liquidation or Chapter 13 reorganization is appropriate under the specific circumstances of the case.
