Mortgage Foreclosures are Falling, But Real Estate Sales Have Not Picked Up

Does anyone know why? I was interviewed by the Republican-American recently with this quandary, but it is what they left out that tells the story. You can see what they printed here.

But what was said was more expansive. The banks are running out of homes to foreclose with more than 5 million families losing their homes since 2007. Those who have not yet been foreclosed are the lucky ones who still have a job and who may not have a mortgage. Fully one-third of American homes have no mortgage. Another third of the population still have stable jobs.  The rest have no money, no jobs and ability to save their home.

Consider this: Sales of homes fell nationwide so far this year by around 20%. That is compared to last year which was;t great either. If sales of homes are falling, but foreclosures are not up, then where are we? We are at the bottom. Yes, we have reached the bottom, but the question now is how long do we stay here?

The unemployment rate is falling. A good part of that drop is caused by people falling off the rolls because their benefits have run out. Others have gotten jobs, but they are neither stable nor high paying. Another segment of the population has yet to enter the job market because they haven;t been able to find a job since getting out of school. They don’t count as formerly employed since the have NEVER been employed.  The job market is not recovering.

The final nail in the coffin is the student loan mess. Since kids coming out of school can’t find good paying jobs, they can’t pay their loans. But worse yet, even if they could find a good paying and stable job in their field of study, they have student loan payments that amount to a mortgage payment in size. So what’s it going to be, a mortgage payment roa student loan payment. You know the answer to that question.

So until student loan problem is resolved and the job market recovers, we are stuck at the bottom. Who knows how long it will be. And here’s to hoping that the ‘bottom’ doesn’t fall out.  There’s my rant for the day.

Updates on Money and Bankruptcy

Bankruptcy, credit, budgeting, debt collection and taxes are just a few of the topics we discuss at Money Go Roundtable.  There are now 19 episodes of Money Go Roundtable up and released through iTunes.  What started out as a six episode experiment with Consumer Attorney Jay Fleischman has now blossomed into a full-fledged podcast series.  We mix current financial news as well as tips and topics from the personal financial field.  Take a look at what we have covered so far:

Jay Fleischman and I have had a number of guests on the show and as you can see, there are a variety of issues covered there.  There will be a lot to discuss in the future as we start to deal with the new wave of foreclosures and unemployment that will come from the spring and warming temperatures.

If you have ideas or comments on the show, I’d like to hear from you.  If you have something really good, we’ll have you on as a guest.

Bankruptcy: It's Tax Time!

April 15th is rapidly approaching and we all know what that means – that’s right tax return deadlines.  Maybe you have already filed your tax return with the IRS and your state (assuming you have a astate income tax).  Maybe you are trying to decide whether or not to file because you know you will owe and you have no money to pay those taxes.  Here’s a quick rundown of things to think about when making these decisions.

The saying, “there’s nothing more certain in life than death and taxes” is not entirely true.  Most people think that even bankruptcy will not get rid of a tax bill.  That’s incorrect.  You can discharge certain kinds of taxes in bankruptcy provided you do it right.

Rule #1 – File your tax return even if you can’t pay.  Yes, you will get that nasty-gram from the IRS for not paying, but you can actually benefit by filing even if you cannot pay.  Some taxes are dischargeable in bankruptcy but only if you file your tax returns.

Rule #2 – The IRS determines your ability to pay much like the Bankruptcy Court determines your ability to pay your creditors.  So if can pay something, you should.  If you can’t, don’t worry about it right now.  The IRS doesn’t want you living in a cardboard box either.  A kinder, gentler IRS does exist if you play nice.

Rule #3 – Don;t try ot hide your tax refund.  If you are getting a tax refund, but owe debt, don’t give it away to someone to hide.  That’s fraud and it can land you in trouble.  If it is measured in the hundreds of dollars, it is likely exempt and if it is measured in the thousands of dollars, there are places you can put it legally where it will be safe.  This may be an opportunity to put the money to good use.  Perhaps you can use it to negotiate a settlement of your debts or in the worst case, it may be just the ticket to pay your bankruptcy lawyer.

What to hear more?  Check out my podcast episode where Jay Fleischman and I talk all about it.

Filing For Bankruptcy? Should You Apologize?

I'm SorryThe results of a recent study released by Professors Robert Lawless and Jennifer K. Robbennolt of the University of Illinois Law School seems to suggest that people who file for bankruptcy would fare greater chance of success if they would apologize for getting into debt.  Really?  I mean really.

What this study suggest is wrong on so many levels.  Let’s count them all:

  1. Ordinary people who file for bankruptcy did something wrong.
  2. What they did wrong was somehow intentional.
  3. What they did wrong was preventable.
  4. That people are happy to file for bankruptcy.
  5. That the means test passed as the main part of the Bankruptcy Code revisions in 2005 doesn’t matter.
  6. That procedurally judges have the time to consider an apology in every case set before them for confirmation of a payment plan.
  7. That judges have the discretion to approve a plan that is not the “best efforts” required by the Bankruptcy Code just because someone is sorry that they filed in the first place.

This study is getting great coverage in the press because it perpetuates all of the stereotypes created by the credit industry about a remedy included in the U.S. Constitution.  Face it, bad things happen to good people and not every financial problem is curable by a budget plan outside of bankruptcy.  And sometimes even in bankruptcy, Chapter 7 (straight bankruptcy) is warranted.

I covered this topic in this week’s Money Go Roundtable podcast with Jay Fleischman.  If you agree with with us, we want to hear from you. Tell us your story.  Send us an email and we’ll post it.

Charge-off and Form 1099

IRS_logoSo it’s tax season time again.  After the end of January, everyone gets their tax papers and receipts together and attempts to get their tax refunds.  And so also, anyone who has defaulted in any debt in the last year needs to watch out for some traps.

The first is the concept of ‘charge-off‘.  Street knowledge tells us that it menas that you no longer owe the debt.  The creditor has charged it off and now nothing is owed.  Dead wrong.  Charge-off is the process that a creditor takes after making a concerted effort to collect a debt.  The end result is a removal from the creditor’s books as an asset and a resulting tax deduction from the creditor’s income taxes.

While that is all fine, you can see that there is nothing in that process that forgives the debt and somehow closes the matter once and for all.  No, what that means is a ‘charge-off’ will be reported to the credit bureaus creating a negative effect on your credit rating.  The second is that the creditor is now free to issue a Form 1099 to you indicating that you have not paid the debt and therefore you have now received ‘income’ from the process for the purposes of tax reporting.  It is not real income; it is commonly referred to as phantom income because no real money has changed hands.  Instead, you received the benefit of the credit when you did receive real money or goods by placing a charge on the account and now the creditor is shifting the income benefit to you.

Receiving a 1099 form means you have to add the amount to your tax return as income thereby increasing the amount of taxes you will pay or reducing the amount of your tax refund.  There is a way around it by filing a companion Form 982 with your taxes if your liabilities still exceed your assets.  Go back and re-read my post on determining your asset picture.  If you are negative, then filling out the Form 982 will reverse that Form 1099.

Meanwhile, you STILL owe the debt.  Typically, creditor will then sell your account off to a debt buyer who specializes in buying bad accounts and then collecting on them.  So now, not only do you have the problem of getting your tax return straightened out so you can get your tax refund, you now have to deal with the incessant phone calls and letters from collectors attempting to collect that debt that your thought was ‘forgiven’.

If the Form 982 doesn’t help you with your taxes or you can’t deal with the phone calls, you can always explore the options of filing for bankruptcy.  Oh, and if you pay those charged off debts later, the debt buyers will pay taxes on the income, but you won’t get your lost tax refund back.

Before Bankruptcy – Do You Have Any Goals?


When you are in financial stress, it is hard to think of anything but dealing with the problem at hand.  Human nature is to deal with the present before dealing with the  future.  After all tomorrow never comes, right?

This is precisely when you should be thinking about the future most of all.  By dealing only with the problems of today, you are dealing with the trees and not seeing the forest.  You drift from one problem to the next.  So maybe for the first time ever, but certainly in a long time, set down and think about what YOU want.  Do not think about what you think you MUST do or what you SHOULD do, but rather what do you WANT to do.  Think about your dreams and aspirations.  OK, it sounds hokey, but bear with me.  What do you want to be when you grow up?

Let’s try some basic steps:

  1. Set some long term goals – Don’t try to formulate a life plan all at once.  When you look to the future, the furthest you can realistically see is about five years.  Beyond that things get a bit fuzzy.  So break things down into five year chunks.  Think about where you want to be five years from now.  What kind of job do you want to be doing?  Where do you want to live?  Who do you want around you?  Be realistic; winning the lottery is not something you can plan for, but having a new career or advancing in your current career track is.
  2. Now consider what is likely to happen in the near future.  There are the priorities.  What life events are going to occur in the next 6 months to a year?  Getting married (or divorced)?  Expecting a child or sending that child off to college?  Starting a new career or retiring from one?  These are the ‘bumps’ in the road that can de-rail any plan.

Since you have already taken stock of where you are now by your net worth and history and your current budget and now have some basic goals, we have the pieces necessary to put together a plan.  That New Year’s Resolution now has a fighting chance of success.  Stay tuned….

Before Bankruptcy – What Is Your Budget?

BudgetLast week, we covered the balance sheet – the net of your assets and liabilities.  The next step of knowing where you are befoe you can fulfill a New Year’s Resolution is to know what your spending looks like.

In fact, budget is not an accurate word, at least not yet.  More importantly, is knowing the balance of your income and expenses.

Part of this is easy.  What is the total of all money coming into your household?  If you get paid weekly, multiply your take home pay by 4.33 because the average month has four and a third weeks in it.  (30 days in a month ÷ 7 days in a week = 4.33 weeks per month)  If you get paid every other week, then multiply the take home pay by 2.14.  If you get paid ont he first and fifteemth of the month, then it is easy – add both checks together.  At this point, we are only looking at the net pay; we’ll look at gross pay and payroll deductions later.  Add all income from all sources, including things like social security and disability pay or alimony.  This is the total you have to spend.

Next is the more difficult part.  Write down every expense that you have to pay every month to live.  That means food, lights, heat, mortgage or rent, insurance, gasoline, etc.  Do not include your debts at this point.  You can include your mortgage or car payment because those are necessary expenses.  We’ll deal with their impact on your budget later.  Some things are difficult to determine becasue the expenses do not occur every month.  Insurance is not necessarily paid every month.  You don;t buy clothing every month and hopefully you do not need to go to the doctor every month.  In those cases, try to add up what you spend in a typical year and then divide by 12 and put that result into the expenses.

You can find many examples of budget worksheets online and I have included a few of them here and here or here.

Now for the big finish.  Subtract your expenses from your income.  Ta Daa!  Is the result surprising?  Coming up next:  How to form a real budget.  And while you are at it, don’t forget to listen to the Money Go Roundtable podcast.

Before Bankruptcy – Start By Figuring Out Where You Are Now And Where You Came From

It’s New Year’s Resolution time and what better way to start your budget than to figure out where you are?  Every good resolution requires knowing where your starting point is. So in the in the next few posts, we are going to analyze your finances, determine a good budget and make a plan to deal with the debt you have now.  So get out your piece of paper right now and let’s get started.  It will only take a few minutes.

Step 1 – Make a list of your assets.

On the first page of your pad, make a list of everything you own.  Use one line for each item and leave a blank line between each one. Leave room in the left hand margin to put values – we’ll get to that later. Start with the largest or most valuable items first; your house, other real estate like income houses and time shares.  Then list your car(s) and other motor vehicles like motorcycles, campers, trailers, boats, snowmobiles, ATVs, boats, etc (all the toys).  The list your financial accounts; checking, savings, retirement, stocks, bonds, and so on.  Finally personal property which is everything else.  As far as household goods and furniture, you cam lump that all together unless you have a particular pieces that is valuable like a Michelangelo sculpture or Picasso painting (as if!).  Household goods are rarely worth what you think they are and we’ll get to valuation in a minute.  Don’t forget to list your clothing and jewelry.

Step 2 – Make a list of your debts.

This is something most people get wrong.  Your debts are not your living expenses.  They are not the light bill or the phone bill or the car insurance.  Debts are accounts that you owe like credit cards, personal loans, mortgages, car loans, etc.  If you are behind on things like utilities, these can be ‘debts’, but it is important not to mix your living expenses; the monthly bills. with your other obligations.  Right now, we are not worried about the balances on those debts, there will be time for that later.  Just get everything written down.  Again, one line for each account and leave room to the left for the numbers and a blank line under each one.

Done?  Good, let’s move on.

Step 3 – Value Your Assets

In that empty space to the left of each item we are going to put in a number.  Some of these wil be easy to obtain.  Bank balances and retirement accounts come in regular statements – maybe not monthly, but regular.  Cars, motorcycles and boats are easy to value online.  You can go to Kelly Blue Book, NADA, Buck Book (for boats) or Yachtworld.  Jewelry can always be appraised in a jewelry store.  Household goods and furniture and clothing?  Well, plan on valuing those as what you could get for them at a yard or tag sale.  (Not much.)  And if you have that Michelangelo or Picasso, well, you probably know where to go to get those appraised.  As far as real estate, the best way to got that valued is to talk to a Real Estate Broker.  It is perfectly OK to ask how much you could get for your peropty if you were to list it and sell quick.  Once you have all those values, write them down.  While you are waiting for any missing values, let’s go on to step four.

Step 4 – Determine Your Debt

Remember all those blank spaces on your debt sheet?  Go back and fill in the balances of your mortgage, car loan(s), credit cards, etc.  That should be very easy to get since most send you statements each month  And for those that don’t, you should be able to get them online for each account or by looking at your Credit Report.  Just don;t count on the numbers in your credit report being very accurate.  (That;s a topic for another day.)

Step 5 – The Hard Part

Once you have all your numbers, you know what to do next, don’t you?  Yep, that’s right, add up the columns on each sheet of paper.  Total the value of all of your assets and total the amount of all of your debts.  Now, first take a deep breath and maybe down a shot ot two and then subtract the debt total from the asset total.  What you are looking at is your net worth.  If it is a negative number, we’e got a problem Houston and it’s time to go speak to a bankruptcy attorney.  If it is a positive number, you’re not out of the woods yet, there’s more work to do.


If you are so inclined and have the time, repeat this exercise as if it was five years ago.  And then do it again as if it was ten years ago.  Is the net worth number getting bigger as time goes on?  The same?  Smaller?  Don’t feel bad if the number from five years ago was bigger than it is today.  That’s pretty common these days given the real estate market and employment picture.  Remember that it’s only a number and numbers can be made to do whatever your want.  Check out my podcast on Money Go Roundtable where Jay Fleischman and and I discuss how to do this.

New Consumer Finance and Bankruptcy Podcast Goes Live

Welcome back.  It’s been a long time and hopefully not so long again before more posts on this site.

I am happy to announce that Jay Fleischman and I have started a new podcast project at Money Go Roundtable.  You can listen online or subscribe via iTunes to play on your i-device at your convenience.  The podcast episodes will be available weekly as we explore current issues of interest to consumers and lawyers alike.

The purpose of the Podcast is to feature current events and issues in matters of Bankruptcy law and Consumer Finance with others who work in the field.  It will not be geared solely to lawyers and we hope to have non-lawyer guests as well.  We will pick a topic and explore it as much as we can in the limited time we have.  Each episode will end with that money tip or tidbit that will help in day to day life.

Our first episode is up and features a discussion with Joshua Cohen, the Student Loan Lawyer as we cover issues such a complaints again credit bureaus, mobile wallets tied to our cellphones, the moral debate on whether bankruptcy is a bad things and complaints against the debt settlement industry.

Keep in mind that this is our first outing and the talk ran a little long.. Discussions are meant to be about 30 to 40 minutes long.   As time goes on, we will get better and have an interesting and livly discussion in these podcasts.  So give it a listen and psot your comments, criticisms, and suggestions for going forward.  Who knows, you could be our next guest!


Bankruptcy Put to Music

A friend of mine in New York City filed a bankruptcy for a musician.  That musician  learned so much from the process that he put it to music.  Maybe you don’t like loud music, so turn the volume down on your computer and read the captions.  This says it all:

Leave It All Behind

Leave It All Behind –  If banks are “too big to fail” does that mean the rest of us are just the right size?

Bankruptcy is all about a fresh start.  Learn to live without massive amounts of credit and dependency on the big banks.  Kick the habit of charging on the plastic.  Cash is king.  in hte long run, much of what we own is merely stuff and totally unnecessary.  There is certain freedom in living free of credit and debt.

Contact Attorney Melchionne

Eugene S. Melchionne, Esq.
27 First Ave.
Waterbury, CT 06710
(203) 757-3437