Keeping the condo in spite of bankruptcy filing

A young couple learns how to navigate troubled financial waters, By Cindy Weightman Franklin — Rob and Nicole Philipson* thought they were on the right track. Rob was earning great money and in December 2008 purchased a two-bedroom condo at Franklin Meadows. He came from a family that had always rented in Carlton Village in Hamburg and was thrilled to actually own a home. Nicole wasn’t earning anything near her husband’s pay but was doing better than most of her friends as a secretary and she was doing it without a college degree. But then, Rob’s work became less steady and he was subjected to frequent layoffs that lasted six months or more. Nicole had been laid off herself but quickly found a new job though she had lost some income along the way. An ovarian cyst saddled her with some pretty significant medical bills and forced her to take more time off work for lab tests and other doctor visits. The couple, in their late 20s, fell behind on their mortgage and other debt. In a last ditch effort to keep their condo, purchased before the market’s collapse, they say they will file Chapter 13 bankruptcy. The Philipsons are not alone. It’s an all too common trend now in New Jersey, where personal bankruptcies surged by 40 percent in the first half of the year according to statistics from U.S. Bankruptcy Court. There were 9,469 more bankruptcies in the 12-month period ending in August of 2009 than in the same period a year before. The Philipsons have obtained an attorney and are currently in the process of filing for bankruptcy. Nicole says it’s the only way they can keep their house. According to the U.S. Courts Web site (www.uscourts.gov) Chapter 13 bankruptcy is also called a “wage earner’s plan.” It enables individuals with regular income to develop a plan to repay all or part of their debts usually within a period of three to five years. Plenty of business for lawyers Dean Sutton is a consumer bankruptcy lawyer who practices in Sparta. He says business has been booming locally over the last couple years, so much so that he doesn’t have much time for business outside of Sussex county. Although he also has a Morris county office. Sutton says he’s pretty much lost patience for home loan modifications because banks just transfer him around and there are no guidelines for restructuring debt. He says he prefers doing an outright bankruptcy for his clients over reworking loans. “It puts you in their hands,” he says of the banks. “These are the guys that put us into this position in the first place through their stupidity.” Most people file either a Chapter 7 or a Chapter 13 bankruptcy and for those whose homes are no longer worth the loan, Sutton leans towards Chapter 7, advising clients to discharge their debt and save money living rent free since it takes about two years to actually foreclose on a home in New Jersey. Those who cannot pay their mortgages but remain in their homes during foreclosure procedures effectively have about two years to live “rent free.” The one thing Sutton advises against doing, is liquidating assets or withdrawing money from retirement accounts to pay down debt. He tells the story of one client who liquidated her IRA. “That’s a mistake. It’s money that can’t be touched by your creditors. If she’d come in six months before, she would have had $50,000 in her IRA and still discharge her debt.” Not so fast It sounds like a good deal but Fair Lawn based bankruptcy attorney Cathy Cosentino warns against entering into bankruptcy lightly. “Bankruptcy should be your last option.” Cosentino says she’s been doing a lot more foreclosure defense and loan modifications in her practice. And, she says, in cases where people are unable to pay their mortgages because they’ve lost their jobs, they usually qualify. Cosentino says the federal Making Homes Affordable program has made it easier to stave off foreclosure. “What you have to do is show that there’s been a change in circumstances such as an illness, loss of employment so that your monthly gross income falls below a certain level and therefore they can lower your monthly payment. Loan modifications can be a lower monthly payment, lower interest rates, they may forgive a portion of the loan. There are various things that can be done to help someone keep their home under that program.” Some homeowners can also take advantage of foreclosure mediation. The program is free to those who qualify and provides help from attorneys, housing counselors and a mediator for those who have fallen behind. More information is available at www.njforeclosuremediation.org. Even those who’ve already filed for bankruptcy can still participate in the program. Homeowners can apply right up to the day of a sheriff’s sale and if their motion is successful, can even temporarily block the sale from going forward while mediation is pending. Then what? First Jersey Credit Union loan supervisor Adelle Hook predicts that the days of people getting easy credit after a bankruptcy are gone. “Immediately, soon as they had their bankruptcy discharged they were getting letters in the mail, open up this credit card, y’know, start all over.” She says the “Great Recession” has changed things drastically and, “you’re not going to see that option.” Bankruptcy lawyer Sutton says that rebuilding credit is not to be taken lightly but it can be done. He tells people to wait until the debt is discharged and then start to repair credit by applying for a secured credit card. “You don’t apply for credit unless you know you’re going to get it. Then you use the card, pay it back in full and establish a good payment history.” In another few years, home-buying will become an option again. “It’s not as hard as you think,” he advises, citing programs for home-buyers with special circumstances, including one from the Federal Housing Administration (FHA). But Rob and Nicole Philipson don’t seem too worried about the availability of credit in the future. When their bankruptcy is finalized, they’ll be left with their home intact and only 10 percent of their existing debt. Rob will be allowed to tap into his retirement annuity and he says that will also help him catch up on his debt faster. *Not the couple’s real names.