Many people who think about filing for bankruptcy often want to avoid legal costs and either look to do their case themselves or pay a petition preparation company that charge anywhere from $200 to $500 to prepare the forms. The problem with not at least consulting with a qualified bankruptcy attorney is that you are going into a very complex federal court system. It is not just a matter of a few simple forms.
If your forms and schedules are not done properly with the most up to date forms or they are not filed in compliance with the federal and local rules of procedure, your case can be dismissed within a matter of weeks of filing. Not only will you have to possibly pay the filing fee again to re-file, the court often imposes a ban on re-filing for 6 months. The court can also prohibit re-filing for an even longer time if they think your filing was an abuse of the system.
I have clients come in and end up spending even more money in the long run for me to fix the problems and properly advise them than if they would have just come to me in the first place. Petition preparation companies often give legal advice, even though they are not supposed to. They tell people that they can remove 2nd mortgage or qualify for chapter 7 filing status, only to have the client later learn that they were not properly advised.
Most bankruptcy lawyers will offer free consultations, so even if you don’t hire them, you should at least get some advice before moving forward to be sure you are properly represented.
Chris Barsness, Bankruptcy Lawyer
These days many homeowners are realizing that loan modifications are extremely difficult to obtain, so they try to do a short sale of their home. A short sale is when you sell you home for less than what you owe the bank. The bank has to approve the sale which requires the homeowner to show a financial hardship. People assume that their real estate agent will protect them in the transaction. That is far from the truth. There are different legal issues that arise in the transaction for a short sale.
1) Future personal liability- most bank approval forms say they are agreeing to accept less than what they are owed to approve the sale, but many do not include any representation that they will not sue the homeowner down the road to get the difference between what they received and what they were owed. This means a year or two down the road, the homeowner could be served with a lawsuit when the bank thinks the homeowner may be back on their feet to collect.
2) Fraud- most bank are requiring the homeowner and the buyer to sign contracts stating that they are not engaging in some kind of side transaction. Many homeowners are approached by investors stating that they will rent the home back, sell the home back to the homeowner later, or pay the homeowner to do the short sale. If the homeowner signs this and they do something they stated they were not doing, the homeowner, investor, and real estate agents could face charges of fraud against the bank. The bank would argue that they would not have agreed to the sale if they knew there was a side deal.
Bottom line- check with a local real estate or bankruptcy attorney because a bankruptcy filing may be a better choice to walk away and eliminate personal liability or possible fraud claims.
Los Angeles Bankruptcy Attorney Chris Barsness, Esq.
The Treasury announced more attempts to help borrowers in foreclosure or close to foreclosure including payments toward relocation and short sales, as well as additional help for unemployed borrowers.
It remains to be seen whether these changes will help fix the foreclosure and loan modification problems, including problems facing borrowers going through bankruptcy.
For an overview of these changes, you can read more below:
Other states see the same issues regarding lenders coming after foreclosed homeowners years down the road. See the below article for this happening in Nevada.
Bankruptcy may be the best option to avoid worrying about the banks suing a homeowner after a short sale or foreclosure and no one should assume everything is fine when they walk away from a home.
Many people do not realize that they may face personal liability for certain debts if they walk away from their home or let it go to foreclosure. In California, if the 1st lender forecloses with a trustee sale, any other lienholders, such as a 2nd or 3rd mortgage or line of credit may be able to come after the borrower personally.
In fact, reports are that servicing companies are increasing their efforts to come after people who have been foreclosed upon for these personal obligations. Homeowners need to take steps to avoid going through more financial distress after a foreclosure. Often a Chapter 7 bankruptcy liquidation makes sense after a foreclosure to get rid of all other debts and personal liability.
See the report out today on CNBC: