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Success with Subprime
by Brian
Sacks
Do you have a question for Mr. Sacks? E-mail
it to brian@loanofficersuccess.com.
Click here
for more articles by Mr. Sacks.
How to Work with Buyers who have had a Bankruptcy or Other
Credit Issues
(Second in a series of four articles)
Click here
to see the previous installment of this series.
Bankruptcy is a U.S. Bankruptcy Court proceeding that may legally release a person
from repaying debts that he or she owes.
One of the earliest mentions of debt cancellation is in the book of Deuteronomy,
Chapter 15, verses 1 and 2:
At the end of every seven years thou shalt make a release. And this is the matter
of the release: every creditor shall release that which he hath lent unto his neighbor; he shall not exact it of
his neighbor and his brother because the Lord's release hath been proclaimed.
Bankruptcy is the state of being insolvent - that is, unable to pay one's debts.
United States bankruptcy law has been around for more than 200 years. The law can be found in the U.S. Constitution.
It is designed to help those who are so deeply in debt that they cannot reasonably be expected to repay that debt.
You might say that bankruptcy is medicine for the financially ill. It can give a person a fresh start. Let me give
you an example:
A twenty-two-year-old woman came into my office. She was an employed single mother
who wanted to buy a house and needed a mortgage. When I pulled her credit report, the first thing I noticed was
that it was page after page of collections - to the tune of about $35,000. I asked her what happened. She told
me that she had been employed at a fast-food restaurant and had become critically ill. She had to be rushed to
the hospital and was in the hospital for a few weeks. Her employer provided no medical insurance, so her medical
bills were entirely her responsibility. She was a responsible young person and had tried desperately to pay all
of the bills.
The hospital and doctors had saved her life, and she wanted to pay them. The problem
was that she made only $22,000 a year, and she had a child to support. There was no way she could get out from
under the mountain of debt. When I suggested that she file for bankruptcy, she started crying. She did end up filing
bankruptcy, and I was able to get her approved for a mortgage a year later.
As you can see from this example, a bankruptcy can give a deserving person a fresh
start.
Some Common Terms Related to Bankruptcy
We'll look now at some of the terms you'll need to know. The person who files
for bankruptcy is referred to as the "debtor." The persons or organizations to which the debtor owes
money are the "creditors." Debts that are "discharged" do not have to be paid by the debtor-
that is, the court releases the debtor from the debt. In some cases all or most of their debts are "discharged."
In other cases, their finances are "reorganized" - that is, they pay all or some of their debts according
to a specified plan. "Exempt" property is property that does not have to be included in the bankruptcy
proceedings. "Non-exempt" property - usually cash, bank accounts, prepaid rent, money earned but not
year received, etc. - must be included in the bankruptcy proceedings.
When a person files for bankruptcy, he or she files a petition with the court
asking that his or her debts be discharged (in the case of a Chapter 7 bankruptcy) or reorganized (in the case
of a Chapter 13 bankruptcy). The "filing" is a thick package of information that specifies which debts
are to be discharged, all the assets that can be kept, which assets are being liquidated, what the person's earnings
are, etc. - in short, a very comprehensive financial picture of the person.
The court reviews all of the information and then renders a decision. The court
can "discharge" the bankruptcy, meaning that all of the listed debts are wiped out, or it can "dismiss"
the bankruptcy, meaning that the paperwork was not completed properly or some other factors made the person ineligible
for bankruptcy. If the bankruptcy was dismissed, the person can start all over again and file a new petition for
bankruptcy.
Click here for the next installment of this series.
Click here for more articles by Mr. Sacks.
Visit Brian Sacks's web site at www.loanofficersuccess.com.
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