The Dangers of Adjustable Rate Mortgages (ARMs)

Over the last several years, adjustable rate mortgages have seen a large increase in popularity as many consumers were attracted to the initial low monthly payments offered by these loans. Lenders typically offer lower monthly payments on ARMs, but after a fixed period of time the monthly payment can either increase or decrease depending on the overall market interest rates.

Unfortunately for many, a gradual increase in market interest rates has increased overall monthly mortgage payments, and made it difficult for many to maintain their mortgage payments, contributing to a large increase in foreclosures in 2006. A study by shows that “more than 1.2 million foreclosure filings were reported nationwide during the year, up 42 percent from 2005 and a foreclosure rate of one foreclosure filing for every 92 U.S. households.” The study attributes the increase in foreclosure filings “”¦partly by the impact of monthly mortgage payments increasing dramatically for homeowners who held some of the riskier types of adjustable rate and sub-prime mortgages”¦”

I’ve consulted with many bankruptcy clients who weren’t aware that their monthly payments could increase and made the mistake of only paying attention to what the initial monthly mortgage payment was. Refinancing with a fixed rate mortgage may be the solution, but it can be difficult to refinance, especially if you are already behind on your mortgage payments.

Bankruptcy laws do offer help for individuals facing foreclosure or unmanageable mortgage payments. A Chapter 13 bankruptcy can stop a foreclosure and give you a period of 3-5 years to payback any mortgage arrears, but you will still be required to make the scheduled monthly mortgage payment in addition to the trustee payment. For some, the monthly obligations are just too much, and a Chapter 7 bankruptcy may be the best option to allow you to “surrender” the house and walk away from all outstanding mortgage balances.

New Jersey Bankruptcy Court Fears New Bankruptcy Laws Too Confusing

In an unprecedented move, the New Jersey Bankruptcy Court is mounting an informational campaign through the news media to educate the residents of New Jersey of the new bankruptcy laws.

Bankruptcy Filings were down by 39 percent in New Jersey and 37.6 percent nationally in 2006. The New Jersey Bankruptcy Court believes that a widespread misperception among its residents about the availability of bankruptcy has contributed to the continued sag in bankruptcy filings happening still today.

Unfortunately, these common misperceptions about bankruptcy aren’t confined to the residents of New Jersey alone. Nationwide, there are many inaccurate rumors flying around about the new bankruptcy laws. Many people even still believe that the bankruptcy law was completely abolished when the law changed and is no longer available to anyone. This of course is the opposite of the truth.

You have an economic right to file a Chapter 7 bankruptcy once every eight years if you can satisfy the new income requirements which are based on your state’s median income and your household size. In the case where your income is too high to file a Chapter 7 bankruptcy, you still have the legal right to stop all creditor harassment and pay back a reduced percentage of your debt through a Chapter 13 bankruptcy. Consulting with an experienced bankruptcy attorney is a fail-proof way to determine which bankruptcy chapter is a better fit for your specific situation.

Bankruptcy HQ commends the New Jersey Bankruptcy Court for being proactive in attempting to cure this problem and better inform its public.

Debt Consolidation Headaches

Many Americans have turned to the fast-growing Debt Counseling industry over the last decade to help solve their debt problems. Debt Counseling companies attempt to improve people’s financial situations by working-out reduced payments with their individual creditors and/or consolidating their debts into one payment.

On a weekly basis for as long as I have practiced consumer bankruptcy law, I’ve heard horror stories from my bankruptcy clients of Debt Counseling relationships that have gone bad. Common complaints that I hear include: Creditors included in my client’s debt consolidation suing them for collection (even though they had been making timely monthly payments to the Debt Counseling company); mismanagement of the funds paid to these companies; credit report scores plummeting; and even fraud and class-action lawsuits filed against these companies.

Since most people consider the filing of bankruptcy a last resort, a large number of my clients over the years have pursued debt consolidation before coming into my office. In all the time I’ve been practicing, I’ve yet to meet anyone who has had a positive opinion of the Debt Counseling company they’ve used. In fact, I’ve actually never met or even heard of anyone who debt consolidation has sucessfully worked for.

According to a recent article, the root of the problem is that there is next to no government oversight of Debt Counseling companies. In fact, there’s NO federal regulation of debt counseling services whatsoever, and only 17 states have specific regulations to govern debt counseling. Thus, a lack of fear of legal recourse has allowed these companies to act and perform in many instances unethically and without regard for their clients who they are supposed to be helping in a difficult time.

While I obviously personally can’t endorse the process, if you’re considering consolidation of your debt with a Debt Counseling company, please refer to this list of suggestions to help you avoid the irreputable companies and find the decent ones:

Additionally, for a list of Debt-Counseling companies that consumers have filed complaints against, please see:

10 Things to Take to Consultation with Bankruptcy Attorney

It is much easier for a consultation with a bankruptcy attorney:

1. Bills: Copies of the most recent bill you have received from each of your creditors
2. Credit reports from each of the three major credit reporting bureaus. Highlight any debts that you would like to keep (mortgage, car loans, furniture, etc). Obtain free copies of your credit report
3. Copies of your most recent mortgage, home equity loan, and auto statements.
4. Copies of pay-stubs received in the last 6 months.
5. Copies of your 2 most recent Federal Tax Returns.
6. Documentation regarding any lawsuits you have being a party to within the last 3 years
7. Deeds to any real estate or property owned
8. Auto Title(s)
9. Investment, Pension, and Life Insurance Summaries
10. Social Security Card

Attorney Richard J. Waple

Debt Collection Violations Rampant

ABC’s popular television show 20/20 ran an interesting investigative report exposing the sometimes abusive and illegal practices of debt collection. The report featured recorded abusive debt collection phone calls and exposed the often unethical practices of the debt collection industry. These recordings can be heard at ABC News.

It came as no surprise to me to hear some of the abusive language and illegal tactics used by debt collectors. Over the years, I’ve heard countless similar stories from my bankruptcy clients who are often hounded on a daily basis for debts that they simply cannot afford to repay. Often, it is these abusive phone calls that motivate people to file bankruptcy. To be fair, some debt collectors are courteous and act in a professional manner, but clearly something needs to be done to clamp down on the rampant abuse throughout the industry.

Consumers do have protections available for violations of the The Fair Debt Collection Practice Act (FDCPA), but the damages are often statutorily limited to as little as a $1000 for violations. To most large collection agencies, the potential fines are so small compared with their profits, that they don’t have the motivation to make fair and ethical practices a priority.

In my opinion, Congress needs to impose tougher fines and increase the statutory damages limits. They need to send a message to the debt collection industry that unethical or illegal collection methods will not be tolerated. Only then will consumers receive enough protection to rest assured that they will not be illegally harassed by debt collectors in their time of financial distress.

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