Podcast #4: Social Security, Deficiency Judgments, And When Credit Score Recovers

Disclaimer

While the information given in this podcast is instructional, it is not intended to be taken as legal advice for your particular legal or financial situation. The recommendations that we give to one person may not be appropriate to your particular situation. The information contained in these podcasts is also not intended to replace the advice that you would receive from an actual consultation with a competent legal professional practicing in the area of consumer bankruptcy law.

Welcome

Welcome to Morsebankruptcy.com the podcasts. The podcasts we handle various topics of podcast from various different sources. This podcast concerns itself with the emails sent in from visitors to our website, Morsebankruptcy.com. These folks are writing in for the very first time to see if bankruptcy is the solutions to their situation. First one we have here is

Viewer Question

Is bankruptcy a good solution in the long run? I’m 78 years old, lost the house, my car and have many bills. Do I want keep paying out?

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This brings up actually several different topics for being a fairly short email. The first one that kind of comes to my mind is the age of the person writing it. Says he is 78 years old and that makes me wonder what the source of income is. There are certain types of income that are already protected by various statutes and place therefore your creditor could never truly collect any money from you through a wage or a bank garnishment or if they took money out of your bank account you can certainly file some paper work and get that back by asserting its protected status. So if our individual here is driving the income from social security act, social security checks, social security disability then it’s very likely that they may not need to file a bankruptcy to protect that income.

Now we’ve had plenty of folks in the last year come into our office who have fit this definition to a ‘T’ and it doesn’t matter what I say they are going to file a bankruptcy one way or another and lot of that has to do with how aggressive collections has got over the last couple of years. They are just simply tired to phone ringing off the hook all day. They are tired of people knocking on the their doors, in some cases peaking in their windows or going into the backyards, I don’t know that I personally blame them but they are filling bankruptcy in those cases when they have protected sources of income. Not because they are worried about losing that income but because they simple at a point in their life when they feel they need to harassment to end and if that’s the choice they’ve made that certainly the way we are going proceed with it.

Now, this individual brings up two other issues in that same sentence mentions that they have lost their house and car already and what will happen pretty commonly when they lose a house or a car is once that horror nightmare is over you find yourself in the middle of another one called deficiency judgments. Essentially when you use houses as an example, if you have a house let’s say that’s worth $150,000 and you have a $170,000 mortgage against it. When that house goes through a foreclosure sale often times the full amount of mortgage 170 isn’t bid. In some cases not even the amount of the value of the house, the 150 is bid. But in any event, let’s say in our example that the mortgage lender purchased the house back from the foreclosure auction for $150,000. But originally there was a $170,000 owed on that mortgage at the time it went through foreclosure that $20,000 difference is going to have added to it the cost of the sale and whatever other various penalties and interest they seem to dream up along the way. So that 20,000 may turn into 25,000, 30,000 just sort of depends upon who the lender is and what law firm they had performing a foreclosure. And another way effects our writer is that debt, since now the house is gone simple converts from a secure debt to an unsecured debt.

What does that mean? Well now they take that, let’s say $30,000 worth of deficiency down to county court or district court I guess because of the amount and they get a judgment on it and then they proceed to collect on that judgment the way a credit card or medical debt would nothing in particularly fancy or special about it. They proceed to collect on that judgment through a writ of garnishment of either wages, bank accounts and suppose at some point they can even seek property seizure or put a lien on any subsequent real estate purchases that somebody might make trying to put their life back together fairly understandably.

The point though is that once you have a car repossessed and they do the same thing with cars with the deficiency judgment or a house that goes through foreclosure. A lot of times the part that really affects the person having the house or car taken isn’t necessarily the house or car taken and it’s the deficiency judgment that then catches up to them in a matter of months or a years later that has to be dealt with so this individual want to find out following these foreclosures and repossessions, whether any additional money is owed that need to be dealt with.

The next thing this person brings up, actually at the beginning of the email that they bring up the long run Is bankruptcy a good solution in long run? Whether you are 78 or 28 you have to think ‘what’s my best course of action here’, Is bankruptcy a solution or should I get a second job to try to pay on this stuff or reorganize my budget. If you are looking at it in purely dollars and cents type of mentality I employ the two year rule. Folks who are trying to repair their credit score during and after bankruptcy usually can do so in about two years. A process that really isn’t that difficult. Bankruptcy isn’t quiet the scarlet letter that it may have been in our parents and grandparents generation and recoveries from bankruptcy can happen quite quickly. So if you are looking at a pure numbers analysis and if can pay off your debt and improve your credit score within about two years then that might be the route you need to take. Otherwise you can certainly discharge most of these debts if everything is properly situated and then repair your credit score in about two years.

That being said, I’ve talked to scores of the clients after the whole process was through, just curious about what made them finally decide to file a bankruptcy after years of dealing with these debts and I get the same answer almost universally which was when they stop sleeping at night. So whether looking at it from the numeric stand point in which case your two year rule is a pretty good guide line or whether you are looking at it from the human equation in which case its matter of what kind of lifestyle do you want to lead, how much sleep do you want to get most people will know for themselves when it’s time to file a bankruptcy or not. What credit situation you want to be in down the line is all involved with how much effort you want to put into to increase that credit score but with a moderate amount of effort for two years about would we generally expect.

All in all a pretty short e-mail but still three or four issues and good questions.

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