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Will I go to jail (in California) if I don’t pay my debts? What about if I file bankruptcy?

NO! You will not go to jail if you do not pay your debts. And you will not go to jail if you file bankruptcy. Prior to the mid 19th century debtors’ prisons were a common way to deal with unpaid debt. In 1833 the United States abolished Federal imprisonment for unpaid debts, and most states outlawed the practice around the same time.

Six states (Arkansas, Arizona, Illinois, Indiana, Minnesota, and Washington) allow debt collectors to seek arrest warrants for debtors in default if all other collection methods have failed. In California, a bench warrant may be issued if the debtor fails to appear for an Order for Examination (“OEX”). An OEX is a method creditors may use to enforce a judgment. To have an OEX issued, the person you owe money must have already obtained a judgment which means you should have had notice of the lawsuit. It is not, however, uncommon to not have notice.

The OEX is an order signed by a judge ordering the judgment debtor to appear to answer questions concerning their finances (assets, debts, income, and expenses). If the judgment debtor fails to appear, the judge may hold the judgment debtor in contempt of court and issue a bench warrant. It is the contempt of court for failing to obey a court order (“you must appear in court on such and such date”) which forms the basis of the bench warrant not the underlying debt.

Modesto bankruptcy attorney Brian Haddix can explain exactly how creditors may enforce their judgments against you and advise you as to your options on how to deal with your creditors. Attorney Brian Haddix offers creditor and debtor services including debt settlement, debt litigation, and Chapter 7 and Chapter 13 bankruptcy.

Bank of America Signs onto Principal Reduction Program

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Bank of America announces in this press release that it has signed on to the principal reduction component of the Keep Your Home California program, which uses federal funds reserved for the 2008 rescue of the financial system to help homeowners behind on their mortgages.

According to the press release, Keep Your Home California’s Principal Reduction Program is part of a $2 billion, federally funded effort to help hard-hit families remain in their homes and ease the California foreclosure crisis. Bank of America has been engaged in a pilot of the principal reduction program since February, and is now moving into full participation to provide assistance to more qualified homeowners facing hardship. The bank is one of the largest servicers of single family mortgages in California, serving more than 2.2 million home loans.

For full details on the program, click here.

Debt is the Slavery of the 21st Century

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While this is a particularly strong statement, this article written by Brian Carr is relevant and thought provoking. As Mr. Carr succinctly explains, debt means you owe someone and you must work to pay off that debt. He points out that when you owe massive debt, the creditor owns you. You are not earning money for yourself to be used to further your interests but rather satisfy the obligation you owe. The creditor seeks every disposable dollar you earn to pay off the principal and interest that is accruing on that debt. And the longer you take to pay it off by making minimum payments, the more, it seems, you owe (and the more money the creditor earns off of you). The feeling is like a bottomless pit.

There are options and bankruptcy is one of them. Modesto bankruptcy lawyer Briann Haddix can advise you on all of your options under the bankruptcy code. For example, Chapter 7 allows a debtor to discharge their debts and retain certain “exempt” property. In California, a debtor may keep up to $26,775 in value of vehicles, toys, money in bank accounts, and collectibles. In the overwhelming majority of California bankruptcy case, debtors keep all of their property.

In Chapter 13, debtors keep all of their property but repay a portion of their debts over three years or five years.

Can I keep my house after bankruptcy?

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The short answer is yes, but you must be able to make the payments. In general, a Chapter 7 bankruptcy is not going to order a debtor to move out of their home. The bankruptcy is not going to remove a debtor’s name from title to their house. The only effect the bankruptcy will have is to discharge the debtor’s personal liability to repay the loan. The bank (or lender) retains the lien (a.k.a. the deed of trust) against the property. If the debtor does not or cannot make the payments, the bank will foreclose. If you have late mortgage payments at the time you file a Chapter 7 bankruptcy, you will still have to come current on the payments either by paying the past-due amounts (the “arrearages”) or by negotiating a loan modification with the lender.

In Chapter 13, if you want to keep your home and you have late mortgage payments, you propose a Chapter 13 repayment plan that pays off the late mortgage payments over 36 or 60 months. During this time, you also make the monthly mortgage payment. Depending on which district you file in (i.e., the Eastern District of California), will determine whether you pay your monthly mortgage payment directly or whether you pay it though your Chapter 13 plan.

Modesto bankruptcy attorney Brian Haddix can explain and advise you as to what option is best for you.

Is Debt Settlement Legitimate?

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Many clients come to me after they have attempted to work out payment plans with their creditors, usually by signing up with a so-called “debt settlement” company. Debt settlement is an alternative to bankruptcy that could be useful – if the debt settlement companies actually did any work. Usually, I hear that all the company did was take the debtor’s money without doing any work. A government investigation into the debt-settlement industry has found that many debt settlement firms misled consumers by claiming to be affiliated with federal stimulus programs and exaggerating their ability to reduce consumers’ loans.

The general debt settlement scheme tends to be a sixty-month plan in which the debtor forgoes paying their debts and instead pays the debt settlement company a set monthly amount. The first eight to ten months of payments usually go to the pay the debt settlement company’s fees. After that, the payments go into a “trust” account for the client that builds up value until there is a sufficient amount available for the debt settlement company to begin negotiating lump-sum settlements of the debtor’s obligations with the debtor’s creditors.

The problems begin when the creditors stop receiving their payments and begin calling the debtor six times a day. The debt settlement company might send out cease & desist letters pursuant to the Fair Debt Collections Practices Act. This requires the creditor to stop all phone calls but does nothing about the debtor’s obligation to repay the debt.

But the biggest problem is timing. The sixty-month payment plan set up by the debt settlement company is longer than the four year statute of limitations a creditor has to file a lawsuit for breach of contract. That means that the creditor will likely sue the debtor for breach of contract prior to the debtor completing the debt settlement company’s payment plan. If the creditor wins, which is very likely, the debtor is now responsible for the original principal, accrued interest, attorneys’ fees, and cost of suit. Furthermore, the debtor’s credit is trashed by years of non-payment, judgments, and possible judgment liens.

If you have questions about debt or your ability to repay your current obligations, make an appointment for a free initial consultation with Modesto bankruptcy attorney Brian Haddix. Mr. Haddix has extensive experience in dealing with debt and creditor claims. He can advise you about your options and let you know what is best for you.

Flawed Foreclosure Documents Thwart Home Sales

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The slowdown in foreclosures by banks appears to be creating a whole new set of problems, according to an article in today’s New York Times. “This crisis takes a situation that’s already bad and kind of cements it into place,” said Joshua Shapiro, chief United States economist for MFR Inc., an economic consulting firm.

With the sudden halt of foreclosures, new buyers who were in the process of preparing to move into foreclosed homes now find themselves in limbo. Amanda Ducksworth was supposed to move in to her new home this week, a three-bedroom steal here in central Florida with a horse farm across the road. Instead, she is camped out with her 7-year-old son at her boss’s house.

Like many buyers across the country, Ms. Ducksworth was about to complete the purchase of a foreclosed house when it suddenly went off the market. Fannie Mae, the giant mortgage holding company that buys loans from commercial lenders, is pulling back sales of homes that might have been foreclosed in bad faith.

There has been no foreclosure halt in California – yet. But some in government, including Nancy Pelosi, are calling for an investigation into foreclosure fraud.

If you are facing foreclosure, you should call Modesto bankruptcy attorney Brian Haddix for a FREE BANKRUPTCY CONSULTATION

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