Alabama Consumer Lawyer Blog

As an Alabama consumer lawyer I see more and more clients who are “over-extended” and having tough times economically. Deciding whether or not to file bankruptcy is one of the most difficult decisions a person can make. However, bankruptcy no longer carries the stigma it once did. This is especially true during these particularly dire economic times. Many of the country's largest and most prestigious institutions, like Lehman Brothers, have fallen on hard times and sought relief in bankruptcy.

If you’re trying to hold onto a house then you might want to consider filing a petition under Chapter 13. If you want to discharge all your debts and get a fresh start then you may wish to consider filing a petition under Chapter 7.

There are pros and cons to filing bankruptcy. The pros include:

• It can wipe out or “discharge” all or some of your debts;
• It can give you a chance to “catch your breath” by temporarily prohibiting creditors from foreclosing or repossessing your home or car;
• It can temporarily prohibit wage garnishment or disconnection of utilities;
• It will stop harassing creditor phone calls and letters;

The cons include:

• It puts a blemish on your credit report that will remain there for 10 years;
• Can be a source of embarrassment and may be seen by potential employers, insurance companies and such.

Exemptions are laws that exempt, protect or withhold a certain amount of property from creditors. These exemptions are applied in bankruptcy cases. Under Alabama law a person filing bankruptcy is entitled to exempt up to $5,000 in real property (house or mobile home) from creditors. The $5,000 real property exemption is doubled for husband and wife. Therefore, a couple filing bankruptcy in Alabama may exempt $10,000 in home equity from their creditors. If they have more than $10,000 in equity in their home then they will have to file a Chapter 13 and pay some or all of their unsecured creditors.

For example, if Mr. and Mrs. Smith’s home is worth $100,000 and their mortgage has an outstanding balance of $80,000, then they have $20,000 in equity in their home. The first $10,000 in equity is exempt. The remaining $10,000 will have to be paid to their creditors over the course of their bankruptcy. Most bankruptcies have a term of 60 months. Therefore, they will have to pay their creditors $167 per month. And they get to keep their home.

However, nowadays, with the mortgage crisis and the high foreclosure rate, most homeowners are not worried about the amount of their equity. Many, as I have reported numerous times, are upside-down in their mortgages and owe more than the value of their home. Recently, my office has seen a new attitude from some mortgage lenders which are now willing to negotiate new mortgage terms in some cases.

Continue reading "The Bankruptcy Option" »

Help may be on the way for Alabama consumers facing foreclosure. On Tuesday, January 27, 2009, the House Judiciary Committee voted 21-15 to send a bill designed to help consumers save their homes to the full House.

The bankruptcy reform bill will allow bankruptcy judges to cram-down residential home mortgages. The term "cram-down" in bankruptcy law means the power of a judge to reduce the amount of a mortgage to the value of the property. In the current real estate climate in which many consumers' homes are worth less now than when purchased (and mortgaged), a cram-down is the only thing that makes sense.

Republicans in Congress oppose the Democrats' cram-down mortgage proposal. They disingenuously argue that it will raise interest rates. What they fail to acknowledge is that without a cram-down law, millions of Americans will walk away from their homes leaving the banks to deal with the abandoned property which will still be worth less than the bank loaned the homeowner. The bank's losses are locked in either way.

Understanding that it is better to keep homeowners in their homes, Citigroup, one of the nations largest mortgage lenders, has split with the rest of the mortgage industry and supports the cram-down proposal for all mortgages entered into before the passage of the bill.

I am dismayed that Alabama officials have failed to take any substantive action in response to the foreclosure crisis. The economic and emotional toll that foreclosure is taking on our citizens is enormous. Imagine the emotional scars inflicted on children who lose their homes. We are fortunate that wiser leaders in Washington are now prevailing. Let us hope they act before too many more suffer.