Thursday

The ABCs of bankruptcy

In these difficult economic times, you may find yourself with too much debt and perhaps you are having difficulty meeting everyday expenses. If you are one of the millions of people who are struggling with overwhelming debt, you may be considering filing for bankruptcy. Before you file for bankruptcy, it is helpful if you first understand the bankruptcy laws as well as the restrictions of the bankruptcy codes.
Bankruptcy Codes

The three (3) bankruptcy codes that apply to individual persons are:
  • Chapter 12 bankruptcy - Chapter 12 is specifically set up for those who derive their income from fishing or farming. All states have their own requirements but this code allows for a restructuring of debt for those who have significant investments in equipment for employment reasons (i.e. tractors, boats, etc.).
  • Chapter 13 bankruptcy - Chapter 13 may be used by wage earners (those who are employed and collect W-2 wages) and allows you to restructure existing debt and pay the balances owed over three (3) to five (5) years.
  • Chapter 7 bankruptcy - Chapter 7 allows the full sale of non-allowable assets (i.e. your primary residence is an allowable asset) and allows you to pay off creditors with the proceeds. While each state has individual requirements (which should be reviewed by a qualified bankruptcy attorney) individuals who have assets that can be liquidated to reduce their debt often use a Chapter 7 filing. Chapter 7 is the most commonly used form of bankruptcy used by individuals since it allows for a full discharge of allowable debts such as credit cards, revolving credit and medical bills. You would still be required to pay the mortgage on your home even after filing a Chapter 7 bankruptcy.
Debts not eligible to be discharged

If you own a boat, a snowmobile, or other large assets that currently have outstanding loans (e.g. liens) against them, filing for bankruptcy may not protect those assets. In fact, there is a very good chance that once you file for bankruptcy protection, your failure to make payments may result in seizure by the lender.

If you are one of the thousands of people who owe back taxes, child support payments, alimony payments, have a judgment against you for a personal injury suit or have outstanding student loans, filing for bankruptcy will not eliminate these debts. These debts are considered non-revolving debts and if they are the bulk of your outstanding debt you may need to file Chapter 13 Bankruptcy rather than Chapter 7.

When you are filing for bankruptcy, you must list all monies you owe. Failure to include any debts in a bankruptcy filing means in spite of your filing you will still be required to pay the balances due along with any additional fees or penalties. When you meet with a bankruptcy lawyer, you should bring a copy of your credit report as well as a list of all debts that you owe to make sure that all of your debts are included in your filing.

Changes affecting a bankruptcy filing

In 2005, there were some significant changes made to the bankruptcy laws, which have an impact on your ability to file. While most people have previously used Chapter 7 as a way to discharge their debts, the new laws may require you to file a Chapter 13 Bankruptcy. The new laws state that you must provide full proof of your income. Once all of the calculations are completed if you are able to pay $100 per month on your debts you may not be allowed to file a Chapter 7 bankruptcy.

There are also rules for counseling that includes both before and after bankruptcy counseling. These classes must be conducted by a counseling agency that is approved by the US Bankruptcy court and certificates showing proof that you have attended will be required both before you file as well as before your bankruptcy is discharged. These classes are often offered free of charge but in some cases may charge a small fee. The typical classes include information on budgeting and personal financial management.

The bankruptcy rules are extremely complex and each state may have specific statutes that affect your ability to file for bankruptcy protection. Understanding how the bankruptcy laws apply to your individual circumstances will help you determine if filing for bankruptcy is right for you. If you're feeling overwhelmed with debt make sure you review all of your options carefully before making a final decision. An attorney who specializes in bankruptcy law can help you navigate the different requirements as they apply to your circumstances and help determine your best course of action.

Advantages of overpaying your mortgage

Mortgages are long-term commitments people undertake for the privilege of owning a home.  For most, a mortgage payment means that they will be paying a loan for 20 to 30 years and the bank will own part of their home until the time the mortgage is completely paid.

When a person applies for their mortgage they are often stunned at the amount of interest they will pay over the life of a home mortgage.  For a $100,000 loan at 7% interest, a homeowner will pay slightly more than $139,000 in interest payments on top of the principal of the loan.  In addition, if a homeowner has put less than 20% down on the home purchase, they will also be paying personal mortgage insurance which protects the lender in the event of default.

Benefits of making additional payments

The first benefit of making additional mortgage payments is a homeowner will pay less interest over the life of the loan. For example, if a homeowner has a mortgage of $100,000 at 7% interest rate, their monthly loan payment is $665.30 (principal and interest only).  If the homeowner were to divide this payment into two payments per month, rather than paying 12 payments in a year, they would make 13 payments.  The payments would be $332.65 every 2 weeks. The net result would look like this:

Making 12 payments: 
  • Mortgage amount: $100,000
  • Start date: January 2011
  • End date: December 2040
  • Total interest paid over life of loan: $139,508.90
Making 13 payments (e.g., equal payments every two weeks):
  • Mortgage amount: $100,000
  • Start date: January 2011
  • End date: August 2034
  • Total interest paid over life of loan $104,913.17
Net result:
  • Time saved: 6 years 4 months
  • Interest saved: $34,595.73
In addition, homeowners who have put down less than 20 percent will also realize significant savings on personal mortgage insurance as they will reach the 20 percent equity position faster using an accelerated payment schedule.

Warnings about overpaying your mortgage

Some mortgage companies offer a bi-weekly payment option for homeowners.  These plans are often not free and come with not only an up-front enrollment fee but also have monthly fees associated with them.  For most homeowners, paying additional portions of their mortgage on their own will provide more benefits since this option does not carry added fees.  However, homeowners will need to do the following if they elect to overpay their mortgage:
  • Include the extra payment with current mortgage payment and note that it is to be applied to the principal portion of the loan;
  • Request the lender recalculate the mortgage if you have made additional payments. Some lenders will not do this unless it is requested;
  • Review your loan documents.  Loans that contain prepayment penalty clauses may wind up costing you money if you pay down principal early;
  • If you made less than a 20 percent down payment make sure you determine when the equity in your home exceeds 20 percent so you may stop paying personal mortgage insurance.  If property values have increased, you may be able to get this waived as well (you will most likely need a property appraisal);
  • Contact your tax professional to discuss overpaying your mortgage. There may be tax benefits to not paying your mortgage off faster.  In some instances, homeowners may be better off paying down credit cards or other non-tax deductible interest bearing loans first.
There are many advantages of overpaying your mortgage if you understand  there are also disadvantages.  Understanding your home mortgage loan and the restrictions which may be contained in your mortgage note are the first requirements of undertaking this type of plan.  For many homeowners, the benefits of overpaying their mortgage often outweigh the disadvantages.

What homeowners should know about California foreclosure laws

When people are facing foreclosure it is typically due to circumstances that are beyond their control.  Currently, homeowners in California are facing foreclosure at staggering rates. Currently, California foreclosures are ranked as among one of the highest in the nation. As many as one home in every 243 homes is facing foreclosure. Therefore, what homeowners should know about California foreclosure laws is there are features that can help protect them from additional actions such as deficiency judgments.

California is a “consumer-friendly” state and as such, the foreclosure rules are written to help protect lenders and consumers alike. For most consumers, this is helpful since those facing foreclosure are under typically a great deal of stress. Here are some of the features of the California foreclosure laws that help protect consumers.

Types of foreclosure

Nearly all foreclosures in California are handled using the non-judicial procedure. For consumers this is beneficial as it prevents a lender from seeking a deficiency judgment after the foreclosure sale concludes. The primary reason for this is California statutes provide that the foreclosure process be what is termed “one action” which does not allow the lender an opportunity to collect a deficiency judgment.

While not as common, California law does allow a judicial foreclosure procedure to be exercised by the lender. In this case, the lender could request that they be granted a deficiency judgment as part of the process. However, since non-judicial foreclosures generally take as few as four months to complete, the judicial process is seldom used.

Rights of redemption

California redemption rights are very confusing for most homeowners and as such may not be exercised very often. Redemption rights in most cases allow a homeowner to pay their entire mortgage plus any associated costs for a specific period of time after a foreclosure has taken place. In California, there are conditions for redemption rights which are as follows:
  • One year rights - homeowners may exercise their rights of redemption for up to one year after a foreclosure sale has occurred. The exception to this is if the lender has been able to secure a “full price bid” which means that the sale of the home covered the entire amount of the mortgage that was owed to the lender.
  • Three month rights - in the event that the lender accepted a full price bid, the homeowner still has three months to exercise their rights of redemption. In addition, the homeowner has up to 90 days after a notice of default has been filed against them to exercise these rights, even though these rights occur prior to the sale of the property.
California Civil Code, Section 2924 (PDF) governs all aspects of foreclosure in California.  There are numerous sections that contain information that homeowners should know about California foreclosure laws including information regarding “consultants” who have offered their services to help homeowners keep their home.  It is also important to understand that if a homeowner should file for bankruptcy relief that the foreclosure process could take longer than the typical time of four months.

Tuesday

The origin of federal and state laws against stalking and harassment

Just the term "stalker" conjures up terrifying negative images for many people. We hear scary stories on the news about people, even working class citizens, who are seriously hurt or even killed by someone who was stalking them. This is especially true for celebrities, who face this serious and potentially life-threatening danger every time they walk out the door. To protect ourselves, no matter what class we fall under, the United States has regulated anti-stalking laws, in addition to state-mandated legislation.

The state of California is among the many states that have enacted specific anti-stalking laws to combat a serious problem. To understand this legislation, it is important to note the definition of stalking. According to dictionary.com , "stalking" is pursuing something (whether game, person, or other prey) stealthily or in a deliberate/sinister manner. The definition itself even sounds menacing.

California was the first state to pass anti-stalking legislation, in 1990, due to the horrible stalking and resulting death of actress Rebecca Schaeffer. Not only was her death a shock to the community, but it was also a wake-up call to the state, proving the inadequacies of then-current stalking legislation. Within three years, all 50 states had enacted anti-stalking laws of their own.

California Penal Code Section 646.9 states that someone is guilty of stalking if/when he/she: "...willfully and maliciously and repeatedly follows or harasses another person

How safe are money market mutual fund investments

Money market mutual funds are investment vehicles that are considered to be relatively safe. Most money market accounts are "cash" accounts and offer a safe haven for those who are concerned about putting their investment dollars at risk in the stock market.  As the stock market has become more volatile, investors often flock to money market investments.

Money market accounts were initially created for institutional investors who wished to maintain "cash accounts" as a safe haven between trades. Money market accounts for the individual investor are comprised of numerous smaller investors who create a "pool" of cash for investment.  These funds are similar to a bank savings account in that they are very liquid (e.g., able to be sold on short notice) and the principal remains the same unless all of the underlying investments lose one hundred percent of their value.

What investments are used for money market funds?
  • T-Bills or treasury bills are one of the most popular investments that are used for money market mutual fund investments. These bills are denominated in amounts as little as $1,000 and are obligations of the government.  Some money market funds pay a higher rate of interest because of the safety of the treasury bills in the money market fund portfolio.
  • Certificates of Deposit (CD's) are another common investment often in money market investment portfolios since they are also short term investments.  CD's offer flexibility as the funds are 100% guaranteed although they may be withdrawn immediately much like a checking account.
  • Commercial paper is another common component of a money market fund. Commercial paper is typically issued by banks as a way of securing funding from other banks on a short term basis. These investments are typically very secure as they are backed by the full faith and credit of the bank.  While bank failures do happen, commercial paper is issued only after a full review of the banks financial status.
  • Bankers acceptance investments are often used in money market mutual funds. These are notes that are often taken by companies who do import and export trading and are backed by a bank. These are almost always short term investments and are considered safe. Even if the company who issues the note fails, the bank who guaranteed the investment generally makes good on the bankers acceptance.
  • The euro-dollar is another investment that is used for money market mutual funds. This is not to be confused with the currency the "Euro". Instead, the euro-dollar is a trading market that was established in London and are US dollar based investments.  Many banks use these to avoid steep regulatory costs.
  • The short term "repo" is another vehicle that are often found in portfolios for money market mutual funds. These are short term notes that allow banks to borrow money from other banks for very short periods of time, generally overnight.  These investments are generally considered very safe.
Money market mutual fund investments are generally considered very safe. Unless you believe that all financial markets will fail at the same time, you can consider a money market mutual fund investment safe.  While interest rates may not be extremely high, at a minimum, the principal portion of your investment will be there when you need it.