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Compliance, CRM, LOS, Servicing, Workflow, Internal Audit Products; Non-QM and Jumbo News

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Compliance, CRM, LOS, Servicing, Workflow, Internal Audit Products; Non-QM and Jumbo News

By:
Rob Chrisman

Tue, Dec 5 2023, 11:33 AM

My cat Myrtle doesn’t have a lot of rizz, and there are those that will argue that no cat has any charisma whatsoever. But plenty of marketing people do, or can create it, and even if you’re not in marketing, there are some clever marketing people out there. Creative minds as well, and if you’re looking for a Christmas present, here are the “best inventions of 2023” per Time Magazine. There is also cleverness and creativeness in the modular home manufacturing industry, probably far outpacing the ability of state and local government to issue permits. Meanwhile, lenders are facing a winter trying to figure out if they are in the “Survive until ‘25” camp or the “Grow more in ‘24” mindset? The credit industry is reeling as lenders grapple with soft versus hard pulls, renegotiating pricing, and bundled deals. And for some reason LO comp continues to be unsettled: dual comp, MLOs as real estate agents, transferring pipeline data when changing jobs, different fee structures within the same state, and so on. (Today’s podcast can be found here, and this week’s is sponsored by nCino, makers of the nCino Mortgage Suite for the modern mortgage lender. nCino Mortgage Suite’s three core products, nCino Mortgage, nCino Incentive Compensation, and nCino Mortgage Analytics, unite the people, systems, and stages of the mortgage process. Hear an interview with Mayer Brown LLP’s Holly Spencer Bunting on RESPA happenings and how the industry can get to better regulation.)

Lender and Broker Products, and Services

Out with the old; in with the new! One of the things we most look forward to in December (besides the holidays, of course!) is the opportunity to envision and plan for a great future. We’ve curated a killer panel of industry execs who will share best practices and their favorite secrets to help you usher in 2024 at the highest possible note. TrustEngine’s Dave Savage hosts Dustin Owen of Waterstone Mortgage and Brian Covey of Revolution Mortgage in “Chaos to Clarity”, a sure-to-be deliciously juicy webinar that will inspire and energize you to end 2023 with a bang and move powerfully into the new year. Register now to save your seat!

What’s an internal audit anyway and do you need one? An internal audit acts as a third line of defense for your mortgage operation. It provides comprehensive assurance based on the highest level of independence and objectivity to evaluate the effectiveness of management’s internal controls. This function should advise your mortgage operation on plans to achieve the company’s strategic, operational, financial and compliance goals. An effective internal audit should go far beyond just checking a compliance box; it should be an integral part of protecting your company. If you want to ensure you’re adhering to regulatory requirements and demonstrating good faith business practices, a Richey May internal audit is a good fit. If you’re looking to be Fannie Mae approved in the future or want to maintain your approved status, it’s required. If you’re unsure whether you need an internal audit, ask one of Richey May’s experts today or learn more here.

“Is it a challenge getting what was promised out of your current subservicer? New regulations are always moving the compliance goal posts and your customers are craving the newest technology and high-quality customer experience to meet their needs. After all, aren’t those the reasons you contracted with them? Perhaps it’s time for a change. Come meet Servbank at the MBA Servicing Solutions 2023 and let us show you how our cutting-edge, fully transparent and award-winning servicing platform (SIME), combined with our family of caring Customer Care reps, will protect your company from regulatory misses and keep your customers loyal by delivering a superior experience every time. If your current subservicer promised to make life easier for you, but continues to miss the mark, now is the time to partner with Servbank, the nation’s only fintech bank subservicer, who can meet your unique needs. Stop by booth #601, or schedule a meeting with Servbank.”

Right in time for the holidays, Floify has launched Floify Broker Edition, a one-stop lending platform that makes it easy for brokers to manage loans in one place. Wrapped in Floify’s famously sleek interface, Floify Broker Edition is packed with magical features that save precious time and money, such as automated mortgage call reporting, dual AUS functionality, and PPE and wholesaler integrations. Just like Santa’s elves, automated workflows advance loans behind the scenes so brokers can spend more time spreading the joy of homeownership and less time pushing paper. Treat yourself (and your borrowers!) this holiday season with a lending platform that’s a joy to use. Experience the magic of Floify Broker Edition firsthand and book a demo today.

Take advantage of more opportunities by adjusting your business to match the market. Recently, lenders who could quickly scale their home equity products were able to capitalize on the increased demand. Are you maximizing home equity lending in your system of record? Encompass® by ICE Mortgage Technology® is the only solution on the market that can be easily configured without any development efforts to support a user’s unique products and workflows for each of their channels, including retail, consumer direct, HELOC, wholesale and correspondent. This means you can quickly react to market changes and manage your business in your own way. Click here to read our recent blog that shares strategies to maximize your home equity lending business and how Encompass makes it easy.

A borrower’s servicing experience is only as good as the back-office environment that supports it, which is only as good as the technology that powers it. That’s why ICE is actively moving servicing forward through digitizing the consumer experience and streamlining back-office operations. The mortgage technology experts at ICE understand that effective servicing solutions are built from the “outside in”, designing with the customer in mind and working until the same level of convenience is brought to those working behind the scenes. Read the new blog from Sandra Madigan, Chief Digital Officer at ICE Mortgage Technology, to see how ICE is engineering with empathy, and helping people achieve and maintain the dream of homeownership.

In Naples, people hurl plates, appliances and even furniture out of their windows on New Year’s Eve to symbolize making room for the new. If your LOS has been causing you strife, take a cue from the Neapolitans and chuck it out the window. Dark Matter Technologies is here to help you usher in a more prosperous 2024 with its Empower LOS. A fully cloud-based system, Empower brings your tech ecosystem together in one place and intelligently orchestrates delightful borrower experiences and efficient loan production. Schedule a demo with the Dark Matter team to learn how Empower can elevate your business in the year ahead.

Two things come to mind when looking for strategies to help LOs today. First, understand home buyers in the context of uncertainty in the market today. Get back to basics of why homeownership still makes sense: pride of ownership, building equity for the future, and a better environment for their family to live and grow. Next, be able to articulate good solid strategies to make home buying more affordable, both down payment strategies and ARMs to lower payments. It’s also important to understand buyer’s bias against ARMs and counter with common sense arguments. Usherpa, the #1 ranked mortgage CRM in customer satisfaction and loyalty, is offering these FREE printable handouts with informational scripts to use when talking with your homebuyers and valuable resources you can easily send them about ARMs.

ActiveComply is thrilled to introduce a brand-new product, WebCompass™, to discover and manage your websites for branding, compliance, and accessibility. The same power as SocialShield™ for Social Media but now for website and brand compliance. With WebCompass™ you can discover and monitor company and employee websites & web pages, protect your brand with website content scans and compliance tracking, uncover rogue or unauthorized websites, and streamline reporting demands during regulatory examinations. Sign up today for a demo and the first 25 customers will receive a discount. ActiveComply cloud-based solutions help highly regulated industries confidently manage their social media and website compliance and virtual inspections.

Non-QM, DSCR, Jumbo Broker and Correspondent Program News

Can we continue our same ad please: Long-term Rental or Vacation Rental? Visio Lending is the nation’s leader in Non-QM Investor DSCR loans for buy and hold SFR rentals with nearly a decade of experience and over $2.5 billion in originations. No-DTI, 30-year terms, rate buy downs, free 45-day rate locks; I/O and Sub-1 DSCR options available. Through our top-notch Broker Program, brokers are able to earn up to 2 points YSP, and 5 points total. Visio Brokers can count on a designated Account Executive and in-house processing.

PRMG offers several Non-QM resources such as product matrices, job aids, trainings, calculators, worksheets, and other information to assist with using Non-QM loan products. Access the TPO Non-QM Resources page for detailed information.

Angel Oak Mortgage Solutions announced the release of its Blended Rate Calculator, providing borrowers with a quick and straightforward tool to estimate potential loan scenarios.

In tandem with its Angel Oak Mortgage Closed End Second Loans program, the Blended rate calculator helps you show borrowers what their 1st and 2nd payments, as well as LTV and blended rates, will be for both mortgages. This tool enables borrowers to easily assess how they can tap into their home’s equity while retaining their first mortgage.

PHH Mortgage announced new products for Non-Agency offering as of November 28th. Go to the company library to view the information.

A Jumbo option designed to empower homebuyers in high-value markets to secure their dream homes. Explore the advantages of Plaza’s new Jumbo Champion loan program, featuring top-notch pricing, loan amounts up to $3 million, and eligibility for FICO scores starting from 720.

LendSure Mortgage Corp., a Non-QM wholesale lender, announced the launch of its new Profit & Loss (P&L) Loan Program offering “a simplified and user-friendly process for business owners seeking capital in a complex financial landscape.” LendSure’s P&L Loan Program is designed to cater to business owners and self-employed investors with fluctuating seasonal income or cash businesses. It eliminates the need for a self-employment questionnaire, simplifying and speeding up the application process and making it more convenient for borrowers to secure financing. “We aim to empower business owners, redefining industry standards and facilitating their path to financial success… The program offers two tiers of loan amounts, giving borrowers the choice to provide only P&L statements for loan amounts up to $1,000,000 or supply two months of bank statements with P&L statements for loan amounts up to $1,500,000. This flexibility enhances the broker-customer relationship by providing a straightforward, efficient solution for business owners. Reach out to LendSure for more information.

First time home buyer/ first time investors now have a chance to buy an investment property with no income. Hometown Equity Mortgage offers a Bridge for First time home buyers; up to 75 percent LTV on a purchase, no ratio DSCR product, NO VOR/VOM, allowed to live rent free. FICO down to 650, Flexible guidelines, 12-24 month I/O with no prepay or EPO.

HighTech Lending Wholesale is now offering Jumbo Reverse Mortgages the Platinum Reverse which comes in three variations: Maximum LTV Fixed Rate, Adjustable Rate with a Line of Credit, and Reduced LTV with a lower Fixed Rate. The minimum age for the Platinum is 55 in most states, but some require the borrower to be 60 or 62.

Capital Markets

First Community Mortgage has named Jeff Pancer to the new position of Executive Vice President, Capital Markets. Congratulations!

Markets finally paused recent optimism that has been riding on the assumption that the Fed will lower interest rates in 2024. Until yesterday, that optimism had fueled rallies in both stocks and bonds over the past few weeks, with investors continuing to overlook Fed rhetoric and bet on deep interest rate cuts next year. Fed Chair Powell on Friday reiterated that it is too early to consider cutting rates, and that the Federal Open Market Committee plans to keep policy restrictive for some time. Despite his stance, markets are still at odds with the Fed, pricing in the first rate cut as early as March and 125 basis points of rate cuts in total for 2024. Remember, sticky inflation can prevent the Fed from cutting.

The Fed is widely expected to leave rates unchanged for the third consecutive FOMC meeting next week, in what would be no change for the fourth out of the past five meetings. However, the post-meeting statement will likely continue to indicate that additional tightening is possible. The fear is that the Fed declaring victory too early while the economy is growing, and the labor market is tight is a risk if inflation spikes back up. The Fed has entered its blackout period ahead of the meeting, so we won’t get any more chatter from FOMC members until after the meeting. Additionally, there will be no Treasury note or bond auctions this week. This week will be dominated by the jobs report on Friday where expectations are for an improvement from October’s report: an increase of 180,000 jobs in November and no change in unemployment.

Today’s economic calendar has a lot of non-market moving releases: Redbook same store sales for the week ending December 2, final November S&P Global services PMI, expected to decline slightly, ISM non-manufacturing PMI for November, expected to tick up, and JOLTS job opening for October, supposedly sliding to 9.35 million from 9.55 million in September. We begin the day with Agency MBS prices better by .125-.250, the 10-year yielding 4.23 after closing yesterday at 4.29 percent, and the 2-year yield down to 4.52 as investors continue to believe, perhaps mistakenly, that the Fed is not only done raising rates but will come around to cutting them.

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Source: mortgagenewsdaily.com

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

A pay for delete letter is a negotiation tool intended to get a negative item removed from your credit report. It entails asking a creditor to remove the negative information in exchange for paying the balance.

If you have a spotty credit history and you’re working to turn your finances around, you may be wondering how to remove negative items on your credit report. Late payments, charge-offs, credit inquiries and overdue account citations can all count against you.

There are, however, a few ways to potentially have past mistakes removed, one of which is a pay for delete letter.

What is a pay for delete letter?

A pay for delete letter is a negotiation tool intended to get negative information removed from your credit report. It’s most commonly used when a person still owes a balance on a negative account. Essentially, it entails asking a creditor to remove the negative information in exchange for paying the balance.

Even if you’ve gotten yourself out of debt and paid off collection accounts, without a pay for delete letter, negative credit items can remain on your credit bureau file for up to seven to 10 years.

Time heals all wounds—including credit mistakes—but if you can’t simply wait around for your credit to improve, you’ll want to consider taking some actions toward repairing your credit. Read on to learn when you should send a pay for delete letter, view sample templates and discover other credit repair options.

How a pay for delete letter works

An individual with debt writes a pay for delete letter to a collection agency with a request to remove negative information from their credit report in exchange for payment.

First, in order to understand how and why a pay for delete letter works, you’ll need some background on collection agencies.

Collection agencies are in the business of collecting debt. Some collection agencies are contracted to collect for a creditor and receive a percentage of what’s collected. Others buy the debt and seek collection as the “current creditor.”

Usually, a collection agency will only consider offering a pay for delete letter when you’re willing to pay more than it paid for the debt. There’s no magic number, but generally knowing what the other party wants gives you more information about what to include in your pay for delete letter. This increases your chances of succeeding in the negotiation.

Tips for sending a pay for delete letter

A pay for delete letter isn’t a magical fix. Not all creditors will accept pay for delete letters. Typically, many creditors like corporate banks, credit unions and even small-town banks may not be receptive to this strategy.

However, small utility bills, such as phone, cable and power bills, that go to collections are more likely to be accepted by creditors. Before you send a pay for delete letter, here are some tips to help you avoid common mistakes.

  • Consider the status of your credit reporting time limit. Is the debt several years old and about to expire? If so, a pay for delete letter isn’t necessary—the debt will no longer impact your credit score after the time limit has expired. If the credit reporting time limit is still far away, you may want to send a pay for delete letter. In addition, if you want to purchase a home or a car, the lender may require that the collection items are paid off, so you may want to send a pay for delete letter.
  • Verify your debt. Before making a pay for delete offer, it’s imperative that you’ve sent a debt validation letter within 30 days of initial contact with the debt collector and received verification of debt from them. In some cases, collectors could request payment even if your state’s statute of limitations on overdue accounts has run out.
  • Reassess your financial situation. If your pay for delete letter is approved, you often will only have a short window of time to make the payment. Only send one if you’re confident you can pay the agreed-upon amount.
  • Save details for your records. Before sending the letter, be sure to keep a copy for your records. Then when the recipient accepts your terms (hopefully), keep a copy for your records and include a copy with your payment. Also, try to utilize a method that you can verify shipping and delivery, such a “return receipt” or Registered Mail. In the event of any complications, you’ll be glad you did these things.

Pay for delete letter template

Your pay for delete letter doesn’t need to be long and complicated—or even full of legal jargon. Be sure to provide all the relevant information like dates, payment amounts and other details specific to your scenario.

The template below can help you write your own pay for delete letter. Simply update the bolded portions with your own information.

<Your Name>

<Your Address>

<Your City, State, Zip Code>

<Collection Agency’s Name>

<Collection Agency’s Address>

<Collection Agency’s City, State, Zip Code>

<Date>

Re: Account Number <XXXXXXXXXXX>

Dear <Creditor’s Name>,

I am writing this in response to your recent correspondence related to account number <XXXXXXXXXXX>.

I accept no responsibility for ownership of this debt; however, I’m willing to compromise. I can offer a settlement amount in exchange for your written agreement to the following terms:

  • You agree to accept this payment as satisfying the debt in full (once you receive the agreed-upon amount).
  • You agree to not list this debt as a “paid collection” or “settled account.”
  • You agree to completely remove any and all references to this account from the credit reporting agencies (Equifax, TransUnion and Experian) that you have reported to and validated this account.

I am willing to pay the <full balance owed / $XXX as settlement for this debt> in exchange for your agreement to the above terms within fifteen calendar days of receipt of payment. Understand that this is not a promise to pay. This is a restricted settlement offer and you must agree to the terms above in order for payment to be made.

Should you accept, please send a signed agreement with the aforementioned terms from an authorized representative on your company letterhead. Once I receive this, I will pay <$XXX> via <cashier’s check/money order/wire transfer>.

If I do not receive your response to this offer within fifteen calendar days, I will rescind this offer and it will no longer be valid.

I look forward to resolving this matter quickly.

Sincerely,

<Your Name>

<Your Address>

<Your City, State, Zip Code>

Sample letter to remove collection from credit report

Now that you have a template to write your own pay for delete letter, let’s take a look at a sample letter to make sure you’re fully set up for success.

What happens if a pay for delete letter is rejected

You should always be prepared for the event that the collection agency rejects (or ignores) your pay for delete letter. Not all agencies will see the value in agreeing to your terms or the practice of pay for delete letters as a whole.

It’s also worth noting that any acceptance of your offer must be made and returned to you in writing. In the event of a solely verbal agreement, you won’t have the ability to prove that an agreement was reached if the collector doesn’t follow through and remove the information from your credit report.

If your letter was rejected, there are still some other routes you can take to repair your credit.

Other ways to potentially have negative credit report entries removed:

  • Send a goodwill letter
  • Negotiate a settlement
  • Wait out the credit reporting time limit
  • Hire a professional

Common questions surrounding pay for delete letters

Pay for delete is a unique credit repair strategy, so it’s understandable if you have some lingering questions about it. Below, we address some of the most common ones.

Does pay for delete increase credit score?

Pay for delete can potentially increase your credit score if your negotiation is successful, but its impact largely depends on your overall credit profile. If you have several accounts in collections, your score is less likely to increase much from a single negative item being removed.

If you have a single account in collections, on the other hand, your chances of improving your score via pay for delete improve.

Which collection agency owns my debt?

If you’re unsure which collection agency is holding your debt, there are a few strategies you can use to try to learn more. Consider the following:

  • Check if you have any missed calls or voicemails from collection agencies
  • Ask your original creditor for help with tracking it down
  • Get your credit report and check the details surrounding your debt

Can I send a pay for delete letter to the original creditor instead of the collection agency?

You should send a pay for delete letter to the original creditor as long as they haven’t sold your debt to a collection agency. If the original creditor has already sold your debt to a collection agency, you can contact them to see if they are willing to reclaim your debt from collections; however, there’s no guarantee that they will agree to this proposal.

Is a pay for delete letter legal?

Sending a pay for delete letter is a legal way to negotiate to have negative items removed from your credit report. However, it’s important to note that creditors aren’t legally required to respond or accept the request. 

Oftentimes, creditors have contracts with the credit bureaus that prohibit them from removing accurate information from credit reports. If that’s the case, the creditor may not be able to enter into a pay for delete agreement with you.

Are pay for delete letters still common?

In recent years, pay for delete letters have become less common. This is partially because the latest credit scoring models, FICO® 9 and 10 and VantageScore® 3.0, do not take paid collection accounts into consideration when determining your credit score. There’s a chance these letters, even if approved, won’t impact your score at all.

Credit reporting agencies also discourage pay for delete efforts, strongly recommending that only inaccurate information be removed from reports. For these reasons, pay for delete is becoming a much less common practice.

That being said, if you’re in a more stable financial position now and expect collections activity to harm your credit, a pay for delete letter may be a good option for you to try DIY credit repair.

If you’re still not sure how to proceed or your pay for delete letter was rejected, consider equipping yourself with some personal finance tools and working with a credit consultant for a free credit report consultation.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Reviewed By

Nature Lewis

Associate Attorney

Before joining Lexington Law as an Associate Attorney, Nature Lewis managed a successful practice representing tenants in Maricopa County.

Through her representation of tenants, Nature gained experience in Federal law, Family law, Probate, Consumer protection and Civil law. She received numerous accolades for her dedication to Tenant Protection in Arizona, including, John P. Frank Advocate for Justice Award in 2016, Top 50 Pro Bono Attorney of 2015, New Tenant Attorney of the Year in 2015 and Maricopa County Attorney of the Month in March 2015. Nature continued her dedication to pro bono work while volunteering at Community Legal Services’ Volunteer Lawyer’s Program and assisting victims of Domestic Violence at the local shelter. Nature is passionate about providing free knowledge to the underserved community and continues to hold free seminars about tenant rights and plans to incorporate consumer rights in her free seminars. Nature is a wife and mother of 5 children. She and her husband have been married for 24 years and enjoy traveling internationally, watching movies and promoting their indie published comic books!

Source: lexingtonlaw.com

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It’s almost that time, when everyone resolves to do better and achieve more in the coming year. And a new survey suggests that some people may be fueling their 2024 resolutions with the financial regrets of 2023.

About two-thirds (67%) of Americans have financial regrets for 2023, according to a NerdWallet survey conducted online by The Harris Poll on Oct. 10-12. And three-fourths (75%) of that group say those regrets will lead to new resolutions in 2024.

Every year we face obstacles to our money goals. We may start out with plans to save more and spend less, but life happens. This year began with expenses taking bigger bites out of paychecks, in the form of high inflation. And as the year progressed, increasingly high interest rates added costs to credit card balances and loans, making it more expensive to borrow. Macroeconomic factors like these can be enough to derail financial goals alone, but if they’re paired with job loss, unexpected expenses or other household circumstances, they can push goals further and further out of reach.

If you have financial regrets, you’re in good company. And if your hope is to turn them into successes in 2024, plenty of other Americans have the same plan. Here’s how some of those regrets may have come about and what to expect in the year ahead.

Money regret No. 1: Not saving more

Nearly one-fourth (23%) of Americans regret not saving enough for their financial goals in 2023, according to the NerdWallet survey. And about one in five (21%) regret not saving for emergencies.

Government relief payments paired with constrained spending during COVID shutdowns to bring the personal saving rate to all-time highs in 2020 and 2021. In 2023, that rate, which measures the percentage of disposable income that can be saved, on average, settled below historic averages, making it more difficult to save for big purchases or unexpected emergencies.

In 2024: The personal saving rate, as a national average, is likely to stay on the low side. However, with inflation continuing to come down, you may find it easier to set aside funds in 2024 than you did in 2023. If you don’t have an emergency fund, start there — having a cushion set aside for unexpected expenses can insulate many of your other financial objectives. Then, set measurable and specific benchmarks — such as setting aside a certain portion of every paycheck — to get you toward your longer-term savings goals.

Money regret No. 2: Overspending

More than one in five (22%) Americans regret overspending on entertainment in 2023; 11% regret overspending on travel and 11% regret overspending on a big event (such as a wedding or party), according to the survey.

Consumer spending in 2023 has been surprisingly resilient in the face of inflation and high interest rates. This consumer resilience has been credited with keeping the economy strong when many expected a recession. But there is also evidence that this spending in the face of adversity has been achieved by busting household budgets.

In 2024: Overspending is a risk every year — it’s hard not to splurge on things like entertainment, travel and parties (we all enjoy a good time). The first step to reining in these urges, however, is setting a clear budget. Whether it’s a weekly entertainment budget or a wedding budget, setting a clear expectation for yourself beforehand can help ensure you’re not left with remorse when the dust settles.

Money regret No. 3: Mismanaging credit card debt

Equal shares of Americans (16%) regret not reducing/or paying off their credit card debt and taking on too much credit card debt in 2023, according to the survey.

Credit card debt levels fell during 2020 and early 2021, as people had excess money thanks to relief payments and student loan forbearance, for example, and were generally spending less due to COVID lockdowns. But since then, debt levels have been surpassing pre-pandemic normal. If you used your cards less in 2021 and even paid off some debt, this return to “normal” can feel especially bad.

In 2024: When your finances are in good shape, using credit cards as a tool — to earn points and cash back, for instance — can help you reach money goals more quickly. However, when you’re in debt or have to turn to a credit card to cover an emergency expense, the interest can pile up quickly and make it difficult to dig yourself out. Interest rates will likely remain high throughout 2024, so getting those balances under control is even more important. Make a concrete debt payoff plan, and if you’re struggling to make payments, consider debt relief options such as consolidation and debt management.

Lest 2023 sound like nothing more than money woes: More than three in five (62%) Americans say they achieved financial goals they set out to reach in 2023. Financial headwinds are always present in one form or another. Preparing for them and learning from mistakes may set you up for a greater chance of success in the near future.

METHODOLOGY

This survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet from Oct. 10-12, 2023, among 2,096 U.S. adults ages 18 and older. The sampling precision of Harris online polls is measured by using a Bayesian credible interval. For this study, the sample data is accurate to within +/- 2.7 percentage points using a 95% confidence level. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact [email protected].

Disclaimer

NerdWallet disclaims, expressly and impliedly, all warranties of any kind, including those of merchantability and fitness for a particular purpose or whether the article’s information is accurate, reliable or free of errors. Use or reliance on this information is at your own risk, and its completeness and accuracy are not guaranteed. The contents in this article should not be relied upon or associated with the future performance of NerdWallet or any of its affiliates or subsidiaries. Statements that are not historical facts are forward-looking statements that involve risks and uncertainties as indicated by words such as “believes,” “expects,” “estimates,” “may,” “will,” “should” or “anticipates” or similar expressions. These forward-looking statements may materially differ from NerdWallet’s presentation of information to analysts and its actual operational and financial results.

Source: nerdwallet.com

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Well, another year is nearly in the books, which means it’s time to look ahead at what 2024 might have in store.

As is customary, I take a look at mortgage rate predictions from a variety of economists and offer up my own take for the upcoming year.

I also look back at the predictions for the current year to see how everyone did (hint: not well!).

The big story in 2023 was out of control inflation. The story going forward might be cooling inflation.

Though there’s also the risk it resurges, at which point mortgage interest rates could rise again.

Mortgage Rates Are Expected to Go Down in 2024

First let’s talk about the general outlook. Most expect mortgage rates to go down in 2024, which was actually the call in 2023 as well.

But guess what? Everyone was wrong. Expectations that the 30-year fixed would fall back into the 5% range were way off.

Instead, interest rates on the popular loan program surpassed the 8% mark before finally letting up over the past month.

So while many economists are optimistic for the coming year, take note that they felt the same way a year ago. And got it wrong.

But things aren’t exactly the same. The Fed increased its fed funds rate 11 times, which many believe has worked to corral inflation.

And this could lead to weak economic output and rising unemployment, which could result in Fed rate cuts as early as March 2024.

This doesn’t necessarily mean mortgage rates would follow the Fed lower, but it could signal that the worst is behind us.

As such, mortgage rates may have peaked, and it’s possible they could continue to drift lower and find a comfortable medium between their old record lows and recent near-21st century highs.

MBA 2024 Mortgage Rate Predictions

First quarter 2024: 7.1%
Second quarter 2024: 6.6%
Third quarter 2024: 6.3%
Fourth quarter 2024: 6.1%

First up is the Mortgage Bankers Association (MBA), which is often fairly bullish about mortgage rates improving.

They are, after all, fans of mortgages being originated, and lower rates equate to higher funding volume.

Last year, they predicted that the 30-year fixed would ease throughout 2023 and average 5.2% in the fourth quarter.

That didn’t work out as planned, with the 30-year fixed closer to 7% today. And it was actually above 8% just a month ago.

Still, they are predicting lower mortgage rates in 2024, just as they did last year. The difference this time around might the inflation story.

It has cooled a lot since then, which could lead to Fed rate cuts and an easing in the 10-year treasury yield, which correlates well with mortgage rates.

Ultimately, they may have expected inflation to improve faster than it did, which is why they got rates wrong in 2023.

Now that inflation actually is significantly lower, their predictions could come to fruition. Also note that their latest prediction is a full percentage point higher than it was a year ago.

They only expect the 30-year fixed to fall to 6.1% by the end of 2024 versus 5.2% when they made the same forecast a year ago.

Fannie Mae 2024 Mortgage Rate Predictions

First quarter 2024: 7.6%
Second quarter 2024: 7.4%
Third quarter 2024: 7.2%
Fourth quarter 2024: 7.1%

Next up is Fannie Mae, which purchases and securitizes conforming mortgage loans.

They are a lot less bullish than the MBA, as they expect the 30-year fixed to remain in the 7% range for all of 2024.

It’s possible they’ll update their forecast in light of recent improvements in mortgage rates.

But as it stands, they don’t expect the 30-year fixed to drop below 7.10%, which is basically where it’s at now.

So we can take this to mean they expect mortgage rates to remain relatively flat at these new, higher levels for much of 2024.

I will update their numbers if they release a new forecast before the end of 2023.

Freddie Mac 2024 Mortgage Rate Predictions

First quarter 2024: n/a
Second quarter 2024: n/a
Third quarter 2024: n/a
Fourth quarter 2024: n/a

While Freddie Mac stopped releasing a monthly outlook for mortgage rates (for reasons unknown), they still do a monthly commentary.

And from that we can glean some ideas about where they think mortgage rates will go in 2024.

Their latest outlook notes that they expect “recent volatility in Treasury yields to abate which will allow modest reductions in mortgage rates.”

How modest? Well, they said mortgage rates will probably not fall below 6% “in the short run” thanks to the higher for longer narrative.

But given the recent improvement in rates (and the 10-year bond yield), it’s possible rates could get back in the low-6s in 2024.

And if the borrower pays discount points, a rate in the 5% range is also possible, assuming those mortgage rate spreads tighten due to decreased volatility.

A year ago, they expected the 30-year fixed to fall to 6.1% by the fourth quarter of 2023. So perhaps they’re being a bit more conservative.

However, they expect home prices to rise a further 2.6% in 2024 thanks to mortgage rate lock-in effect and favorable demographics, including an elevated share of first-time home buyers.

NAR 2024 Mortgage Rate Outlook

First quarter 2024: 7.5%
Second quarter 2024: 6.9%
Third quarter 2024: 6.5%
Fourth quarter 2024: 6.3%

The National Association of Realtors (NAR) releases a monthly U.S. Economic Outlook that contains their mortgage rate predictions for the year ahead.

I’m going off their October version until I can get a more updated one, so I expect their numbers to get even more optimistic given the recent improvement in mortgage rates.

There’s even a chance they’ll throw out a number in the high-5% range for the fourth quarter of 2024.

NAR chief economist Lawrence Yun also expects the 30-year fixed to average between 6-7% by the spring home buying season.

He added that “we’ve already reached the peak in terms of interest rates.” So his expectation is it’ll get better from here. The question is how much better.

Zillow’s 2024 Mortgage Rate Prediction

Next we have Zillow. Sometimes they make mortgage rate predictions, sometimes they don’t.

Given how wrong everyone has been lately, they said, “Predicting how mortgage rates will move is a nearly impossible task…”

However, they do expect home prices to “hold steady in 2024,” declining by a negligible 0.2%.

They also believe mortgage rates may “hold fairly steady” too in coming months if recent inflation readings are any indication.

Together, the cost of buying a home could level off next year, or even drop if mortgage rates do too. But they aren’t throwing out specific numbers.

Interestingly, Zillow expects more mortgage rate locked-in homeowners to “end their holdout for lower rates and go ahead with those moves.”

So even if rates don’t get much better, the holdouts might say enough is enough and list their properties.

If rates do keep dropping, this argument becomes even more compelling. So much-needed supply could be freed up in the process.

Redfin 2024 Mortgage Rate Predictions

Meanwhile, Redfin believes mortgage rates will steadily decline throughout 2024, but remain above 6%.

Specifically, they expect the average 30-year mortgage rate to linger around 7% in the first quarter, then inch down as the year goes on.

By the end of 2024, the real estate brokerage thinks mortgage rates will fall to about 6.6% thanks in part to 2-3 rate cuts from the Fed.

Offsetting these cuts is the expectation that we will avoid a recession in 2024. So a lack of serious economic pain means more modest declines in rates as opposed to sizable ones.

Still, they see home buyers finally catching a break because home prices are also predicted to be flat.

This means monthly payments will fall further from their recent all-time highs, which we can all agree is a good thing.

Realtor 2024 Mortgage Rate Forecast

Meanwhile, the economists at Realtor.com are predicting a minimal decline in mortgage rates, but still an improvement.

They expect the 30-year fixed to average 6.8% in 2024 after averaging 6.9% in 2023. So just a 10-basis point decrease.

However, they do expect rates to finish off 2024 at 6.5%, which is a little more optimistic.

It’s also markedly better than the 2023 year-end expectation of 7.4%. And would essentially take us back to the end of 2022, when the 30-year fixed averaged 6.42%.

In other words, we might be able to forget 2023 ever happened. But we still won’t be able to revisit early 2022 anytime soon.

At that time, the 30-year fixed was a mindboggling 3.22%.

The Truth’s 2024 Mortgage Rate Predictions

First quarter 2024: 6.875%
Second quarter 2024: 6.625%
Third quarter 2024: 6.25%
Fourth quarter 2024: 5.875%

Like everyone else, I was wrong about mortgage rates in 2023. I thought they’d slowly move lower throughout the year before ending the year around 5%.

Instead, we are closer to 7% today, which is a pretty big miss. That being said, what I assumed would play out last year (lower inflation), seems to be happening now.

There are also several rate cuts now expected in 2024, with the CME FedWatch Tool favoring a 4% – 4.25% range for the federal funds rate by December 2024.

The 10-year bond yield is also expected to moderate further, and could be back to the mid-3% range.

If we assume that mortgage rate spreads also tighten from their current levels near 300 bps to something more reasonable, such as 200 bps, we could see noticeably lower mortgage rates in 2024.

Taken together, a spread of 200 bps and a 3.5% 10-year yield could signal a return to mid-5% mortgage rates.

That might sound a little too good to be true, so I’ll err on the side of caution and go for an average rate as low as 5.875% to end the year.

Remember, there are still a lot of unknowns and potential curveballs ahead. We’ve got multiple geopolitical events that are still unfolding.

And potentially the most contentious U.S. presidential election in history. So as always, mortgage rates will ebb and flow, and opportunities will present themselves.

There will be good months and bad months, but I expect mortgage rates to continue trending lower as 2024 unfolds.

(photo: Marco Verch, CC)

Source: thetruthaboutmortgage.com

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All investments carry some risk, but the difference between speculating and investing is the amount of risk involved. Speculative investments are typically short-term, and far riskier than traditional investing products and strategies, and may involve the risk of total loss.

Investing typically indicates a more long-term approach to making a profit, with an eye toward managing risk.

Defining Investing and Speculation

Speculating often describes scenarios when there’s a high chance the investment will deliver losses, but also when the investment could result in a high profit. High-risk, high-reward investments include commodities, crypto, derivatives, futures, and more.

In contrast, investing generally refers to transactions where an individual has researched an asset, and puts money into it with the hope that prices will rise over time. There are no guarantees, of course, and all types of investing include some form of risk.

Examples of Investments and Speculative Investments

Assets that are thought of as more traditional types of investments include publicly traded stocks, mutual funds, exchange-traded funds (ETFs), bonds (e.g. U.S. Treasury bonds, municipal bonds, high-grade corporate bonds), and real estate.

Even some so-called alternative investments would be considered more long-term and less speculative: e.g., jewelry, art, collectibles.

Assets that are almost always considered speculative are junk bonds, options, futures, cryptocurrency, forex and foreign currencies, and investments in startup companies.

Sometimes it isn’t as simple as saying that all investments in the stock market or in exchange-traded funds or in mutual funds hold the same amount of risk, or are “definitely” classified as investments. Even within certain asset classes, there can be large variations across the speculation spectrum.
💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

The Traditional Approach to Investing

When it comes to the more traditional approach to investing, individuals typically buy and hold assets in their investment portfolios or retirement accounts, with the aim of seeing reasonable, long-term gains.

Traditional forms of investing focus on the performance of the underlying business or organization, not on the day-to-day or hour-by-hour price movements of an asset.

For this reason, more traditional investors tend to rely on various forms of analysis (e.g. fundamental analysis of stocks) and analytical tools and metrics to gauge the health of a company, asset, or market sector.

Speculation: A High-Risk, High-Reward Game

The difference between speculating and investing can be nuanced and a matter of opinion. (After all, some investors view the stock market as a form of gambling.) But when traders are speculating, they are typically seeking super-high gains in a relatively short period of time: e.g., hours, days, or weeks.

In the case of commodities or futures trading, the time horizon might be longer, but the aim of making a big profit fairly quickly is at the heart of most speculation.

Speculators may also use leverage, a.k.a. margin trading, to boost their buying power and amplify gains where possible (although using leverage can also lead to steep losses).

The Psychology of Investing vs. Speculating

The psychology of a typical investor is quite different from that of a speculative investor, and again revolves around the higher tolerance for risk in pursuit of a potentially bigger reward in a very short time frame.

Long-Term Investing Speculating
Taking calculated or minimal risks Willing to take on high-risk endeavors
Pursuit of reasonable gains Pursuit of abnormally high returns
Willing to invest for the long term Willing to invest only for the short term
Uses a mix of traditional investments and strategies (e.g. stocks, bonds, funds) Uses single strategies and alternative investments
Infrequent use of leverage/margin Frequent use of leverage/margin

Historical Perspectives on Investing and Speculation

The history of investing and speculating has long been entwined. In the earliest days of trading thousands of years ago, most markets were focused on the exchange of tangible commodities like livestock, grain, etc. Wealthy investors might put their money into global voyages or even wars. Thus many early investors could be described as speculators.

But investing in forms of debt as a way to make money was also common, eventually leading to the bond market as we know it today.

The concept of investing in companies and focusing on longer-term gains took hold gradually. As markets became more sophisticated over the centuries, and a wider range of technologies, strategies, and financial products came into use, the division between investing and speculating became more distinct.

Recommended: What Causes a Stock Market Bubble?

Speculation History: Notable Market Bubbles and Crashes

The history of investing is rife with market bubbles, manias, and crashes. While the speculative market around tulip bulbs in 17th-century Holland is well known, as is the Great Financial Crisis here in the U.S. in 2008-09, there have been many similar financial events throughout the world — most of them driven by speculation.

What marks a bubble is a well-established series of stages driven by investor emotions like exuberance (i.e., greed) followed by panic and loss. That’s because many investors tend to be irrational, especially when in pursuit of a quick profit that seems like “a sure thing.”

Some classic examples of financial bubbles that changed the course of history:

•   The South Sea Bubble (U.K., 1711 to 1720) — The South Sea company was created in 1711 to help reduce national war debt. The company stock peaked in 1720 and then crashed, taking with it the fortunes of many.

•   The Roaring Twenties (U.S., 1924 to 1929) — The 1920s saw a rapid expansion of the U.S. economy, thanks to both corporations’ and consumers’ growing use of credit. Stock market speculation reached a peak in 1929, followed by the infamous crash, and the Great Depression.

•   Japanese Bubble Economy (1984 to 1989) — The Japanese economy experienced a historic two-decade period of growth beginning in the 1960s, that was further fueled by financial deregulation and widespread speculation that artificially inflated the worth of many corporations and land values. By late 1989, as the government raised interest rates, the economy fell into a prolonged slowdown that took years to recover from.

•   Dot-Com Bubble (1995 to 2002) — Sparked by rapid internet adoption, the dot-com boom saw the rapid growth of tech companies in the late 1990s, when the Nasdaq rose 800%. But by October 2002 it had fallen 78% from that high mark.

Key Differences Between Investing and Speculating

What can be confusing for some investors is that there is an overlap between investing in the traditional sense, and speculative investing in higher risk instruments.

And some types of investing fall into the gray area between the two. For example, options trading, commodities trading, or buying IPO stock are considered high-risk endeavors that should be reserved for more experienced investors. What makes these types of investments more speculative, again, is the shorter time frame and the overall risk level.

Time Horizon: Long-term Goals vs. Quick Gains

As noted above, investors typically take a longer view and invest for a longer time frame; speculators seek quick-turn profits within a shorter period.

That’s because more traditional investors are inclined to seek profits over time, based on the quality of their investments. This strategy at its core is a way of managing risk in order to maximize potential gains.

Speculators are more aggressive: They’re geared toward quick profits, using a single strategy or asset to deliver an outsized gain — with a willingness to accept a much higher risk factor, and the potential for steep losses.

Fundamental Analysis vs. Market Timing

As a result of these two different mindsets, investors and speculators utilize different means of achieving their ends.

Investors focused on more traditional strategies might use tools like fundamental analysis to gauge the worthiness of an investment.

Speculators don’t necessarily base their choices on the quality of a certain asset. They’re more interested in the technical analysis of securities that will help them predict and, ideally, profit from short-term price movements.
While buy-and-hold investors focus on time in the market, speculators are looking to time the market.
💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

Real-World Implications of Investment vs. Speculation

To better understand the respective value and impact of investing vs. speculating, it helps to consider the real-world implications of each strategy.

The Impact of Speculation on Markets

It’s important to remember that speculation occurs in many if not all market sectors. So speculation isn’t bad, nor does it always add to volatility — although in certain circumstances it can.

For example, some point to IPO shares as an example of how speculative investors, who are looking for quick profits, may help fuel the volatility of IPO stock.

Speculation does add liquidity to the markets, though, which facilitates trading. And speculative investors often inject cash into companies that need it, which provides a vital function in the economy.

Strategic Approaches to Investment

Whether an investor chooses a more traditional route or a more speculative one, or a combination of these strategies, comes down to that person’s skill, goals, and ability to tolerate risk.

Diversification and Asset Allocation

For more traditional, longer-term investors, there are two main tools in their toolkit that help manage risk over time.

•   Diversification is the practice of investing in more than one asset class, and also diversifying within that asset class. Studies have shown that by diversifying the assets in your portfolio, you may offset a certain amount of investment risk and thereby improve returns.

•   Asset allocation is the practice of balancing a portfolio between more aggressive and more conservative holdings, also with the aim of growth while managing risk.

When Does Speculation Make Sense?

Speculation makes sense for a certain type of investor, with a certain level of experience and risk profile. It’s not so much that speculative investing always makes sense in Cases A, B, or C. It’s more about an investor mastering certain speculative strategies to the degree that they feel comfortable with the level of risk they’re taking on.

The Takeaway

One way to differentiate between investment and speculation is through the lens of probability. If an asset is purchased that carries a reasonable probability of profit over time, it’s an investment. If an asset carries a higher likelihood of significant fluctuation and volatility, it is speculation.

A long-term commitment to a broad stock market investment, like an equity-based index fund, is generally considered an investment. Historical data shows us that the likelihood of seeing gains over long periods, like 20 years or more, is high.

Compare that with a trader who purchases a single stock with the expectation that the price will surge that very day (or even that year!) — which is far more difficult to predict and has a much lower probability of success.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.


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Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

*Borrow at 10%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN1023133

Source: sofi.com

Apache is functioning normally

If you count the Friday after Thanksgiving as a business day, mortgage rates had fallen for 6 straight days as of yesterday afternoon.  Moreover, they’d reached the lowest levels in 3 months and had put an impressive amount of distance between themselves and the highs seen just over a month ago.

Ironically, yesterday’s analysis expressed some measure of bewilderment at just how much better rates were versus the previous day.  Now today, we see that all good things–especially those that look a little TOO good–come to an end.

This isn’t necessarily a bad thing.  When rate rallies continue unabated, the certainty and swiftness of the eventual rebound only increase.  By undergoing a moderate rebound in a measured, logical way, rates have made it easier for themselves to remain in the current range without excess volatility.

That doesn’t mean volatility is out of the question, but it’s more likely to be seen in response to the big ticket economic data that typically inspires bigger swings in rates.  We won’t get most of that big ticket data until next week, but there is a chance that tomorrow morning’s ISM Manufacturing index will spark a reaction if it’s much higher or lower than expected.

As is always the case, there’s no way to know if the data will be good or bad for rates ahead of time.  All we know is that the rate market is incredibly interested in the upcoming data as an indication of whether rates have officially turned a corner in the big picture.  While that’s exciting (or scary), keep in mind that it would take several months of cohesive data to do the trick.

Source: mortgagenewsdaily.com

Apache is functioning normally

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Bankruptcy is a legal process that individuals and businesses can undertake to eliminate their debts under the oversight of a bankruptcy court.

Bankruptcy is a legal process that individuals and businesses can undertake to eliminate all or part of their debts under the oversight of a bankruptcy court. For individuals who have amassed debt beyond what they can reasonably pay, bankruptcy is a potential path toward a clean slate.

There are different types of bankruptcy, important terms to know and significant consequences to watch out for. If you’re wondering, “What is bankruptcy?” or you’re considering it for yourself, read on to get an overview, or you can use the links below to jump to a specific question.

How does bankruptcy work?

Bankruptcy is a complicated legal process that involves several steps:

  • A debtor files a legal petition for bankruptcy in federal bankruptcy court.
  • The court appoints a trustee to oversee the case.
  • The trustee examines the debtor’s assets and liabilities and determines if they have any assets which can be administered by the trustee.

While it’s technically possible to file for bankruptcy on your own, working with a qualified attorney is recommended, as the amount of legal knowledge required is beyond what the average person possesses.

During the creditor’s meeting the trustee will examine the debtor and the case and file a report. What happens next depends on whether you filed for Chapter 7 or Chapter 13. In both cases, your debt can be discharged, but the process for achieving that end varies.

What are the different types of bankruptcy?

For individuals, the two most common forms of bankruptcy are Chapter 7 and Chapter 13. Businesses and local governments can also file for bankruptcy, but we won’t cover those types of bankruptcy in detail in this article.

Chapter 7

Chapter 7 bankruptcy is the most straightforward approach to filing for bankruptcy. Chapter 7 bankruptcy, also called liquidation bankruptcy or fresh start bankruptcy, sometimes involves the sale of assets to pay off debt.  In most cases a debtor’s assets are exempt and no assets need be sold. This is best for debtors who have no way to repay their debt.

When a debtor files for Chapter 7 bankruptcy, the following process takes place:

  1. The debtor provides the trustee with tax returns and other financial documents relevant to the case, plus a list of all their assets.
  2. The trustee evaluates the assets to determine which assets, if any, are nonexempt.
  3. The trustee sells all nonexempt assets to pay off creditors. Debtors can keep exempt property, which varies by state law. For example, in New York, a debtor can keep their car if they own it outright and it is worth $4,000 or less.
  4. The debtor meets with their trustee and creditors at a Meeting of Creditors, also called a 341 Hearing, to verify the information they’ve filed in their bankruptcy petition is accurate.
  5. The trustee might pay some of the debt using the proceeds from liquidating the debtor’s nonexempt assets.  However, this is rare.
  6. Any remaining debt is discharged. However, Chapter 7 does not eliminate all debt—debtors are still responsible for paying court-order alimony and child support, student loans and certain taxes.

The Chapter 7 process typically takes about four to five months from filing to final discharge of debt.

While Chapter 7 bankruptcy has powerful effects on debt, it also has consequences. The negative item from bankruptcy can remain on a credit report for 10 years.

A debtor can only file for this kind of bankruptcy once every eight years. For that reason, a condition of bankruptcy is always credit counseling and personal finance courses, which are aimed at supporting people to prevent them from ending up in the same financial situation again.

Chapter 13

Chapter 13 bankruptcy still leads to debt elimination, but it involves a debt payment plan. In Chapter 13 bankruptcy, debtors keep their property and pay debts over an agreed-upon period, usually three to five years. To qualify, a debtor must prove they have regular income. During the payment period, creditors are legally prohibited from collection efforts against the debtor. This type of bankruptcy is best for debtors who have steady income but still can’t afford to pay their debts in full.

If a debtor files a petition for Chapter 13 bankruptcy, the following will occur:

  1. The court reviews the repayment plan. Typically, repayment plans last three to five years and may repay some or all of the debt owed. The debtor prepares and files the plan and creditors have a chance to comment on it, the trustee comments on it and the court makes a final determination as to whether to approve the plan. 
  2. A court-appointed trustee collects your payments. Over the course of repayment, a trustee will collect funds and disburse them to creditors. 
  3. After repayment, the bankruptcy is discharged. After the specified repayment period, the debtor becomes eligible for a discharge. If the debtor has complied with the trustee’s requests, has paid all required payments and takes a financial management course, then the remaining balance on debt (if any) is forgiven. 

The entire Chapter 13 bankruptcy process can take up to five years from the filing date to the end of repayment.

While Chapter 13 bankruptcy also has detrimental consequences for credit and general financial health, it tends to be less detrimental than Chapter 7 bankruptcy. 

Additionally, Chapter 13 bankruptcy remains on a credit report for just seven years, and the process can be repeated more often if necessary. Having debt discharged or reorganized can be a vital financial tool.

Other types of bankruptcy

While individuals file Chapter 7 and Chapter 13 depending on their circumstances, there are other types of bankruptcy that farmers and fishermen, businesses and city governments can use in difficult financial situations.

Here’s a quick overview of other forms of bankruptcy:

  • Chapter 9 focuses on local governments and school districts that need to restructure debt in the wake of financial troubles. Similarly to Chapter 13, Chapter 9 utilizes a debt repayment plan.
  • Chapter 11 enables businesses to create a debt repayment plan in conjunction with a revised business plan that is aimed at increasing profitability. 
  • Chapter 12 is a narrowly focused form of bankruptcy that is exclusive to family farmers and fishers hoping to avoid liquidation.
  • Chapter 15 is an international provision that helps mediate bankruptcy proceedings that involve the United States and at least one other country. 

While all of these forms of bankruptcy are useful, only Chapter 7, Chapter 11 and Chapter 13 typically directly affect individuals in financial distress.

What does it mean when bankruptcy is discharged?

A bankruptcy discharge means a debtor is no longer personally responsible for certain debts. Regardless of the remaining balance of a previous debt, once a bankruptcy discharge is entered, creditors can no longer collect on the debt.

  • With Chapter 7 bankruptcy, discharge usually occurs after the creditor’s meeting. There is typically a 60-day window after the meeting of creditors for creditors to file complaints, after which the discharge may take effect.
  • With Chapter 13 bankruptcy, discharge typically takes place after the repayment plan is completed.

However, not all debts are eligible for bankruptcy discharge. Depending on the type of bankruptcy filed, the following debts may not be discharged:

  • Alimony
  • Child support
  • Tax liens
  • Some federal, state and local taxes (depending on the age of the debt)
  • Student Loans.
  • Debts for willful and malicious injury to a person or property
  • Debts for death or personal injury caused by the debtor driving while under the influence of alcohol or drugs
  • Any debt not listed in the bankruptcy filing

In general, a discharged bankruptcy is permanent, meaning creditors no longer have any claim to previous debt. In some cases, however, a bankruptcy discharge could be revoked if the party proves to the court that the initial petition was made fraudulently. The time period for taking an action in this way is limited to one year after discharge.

What is the benefit of filing for bankruptcy?

There are advantages to filing for bankruptcy for individuals who can no longer deal with overwhelming debt.

Some of the most important benefits of bankruptcy include:

  • The elimination of many types of debt
  • A fresh start with finances
  • An end to calls and letters from collection agencies
  • Relief from wage garnishment, foreclosure or repossession
  • Protection of certain kinds of property 

Bankruptcy courts exist for a reason, and bankruptcy serves an important financial function for many individuals whose debts significantly exceed their ability to repay. For those who have no other good options, bankruptcy provides important benefits and the chance for relief and a second chance at financial security.

How does bankruptcy affect your credit score?

Bankruptcy has a serious detrimental effect on your credit, though it is possible to rebuild credit after bankruptcy.

The negative item from bankruptcy will remain on your report for seven to ten years, depending on the type of bankruptcy. Any time you apply for credit, that negative item will be visible to creditors, who will factor it in when deciding whether to approve your application.

For those looking to rebuild credit after bankruptcy, a secured credit card is often the best starting point. A secured credit card is backed by a deposit, so creditors are usually willing to provide it even to those who have a bankruptcy on their record. Responsibly using the card and making payments on time can slowly lead to improved credit in the future.

Additionally, many people who have gone through bankruptcy choose to work with a credit repair company, which may be able to support the process of rebuilding credit.

What is bankruptcy fraud?

Bankruptcy fraud occurs when an individual withholds information about debts or assets from the federal bankruptcy court. In both Chapter 7 and Chapter 13 bankruptcy, information about your finances determines how your debt is handled, so providing false or misleading information could lead to a revocation of your bankruptcy discharge or criminal charges.

Here are some examples of bankruptcy fraud:

  • Hiding assets. During bankruptcy, you are forced to disclose all of your assets, which may be sold in order to pay creditors. Withholding information about your assets to try to protect them is not allowed.
  • Running up debt prior to discharge. If you use credit to purchase property or items with no intention of repayment simply because you believe the debt will be discharged, you are likely committing bankruptcy fraud.
  • Falsifying documents. Providing false information about property transfers, debts, assets or any other necessary information is forbidden during bankruptcy proceedings.

The consequences of bankruptcy fraud can be serious, especially if a party proves to the court that your efforts were intended to deceive creditors and prevent them from receiving their just payment. You could be denied a bankruptcy discharge. Fines and even prison time are possible outcomes for bankruptcy fraud, so it’s important to be truthful throughout the entire process.

Bankruptcy terms you should know

A bankruptcy score is used by financial institutions to predict the likelihood that an individual will file for bankruptcy within a certain period of time. Similar to credit scores, bankruptcy scores are calculated using a wide variety of factors. Unlike credit scores, however, bankruptcy scores are not available to consumers, so you can’t know your own score or make efforts to improve it directly.

Still, regardless of your bankruptcy score, the same financial habits that support a strong credit score are also likely to help prevent you from needing to file for bankruptcy:

  • Create and maintain a budget. Spending within your means and prioritizing essential expenses is an excellent way to maintain financial health.
  • Make full and on-time debt payments. Make timely payments for loans and credit cards, and avoid keeping a credit card balance from month to month.
  • Avoid unnecessary lines of credit. While credit is a valuable tool, it’s important to avoid opening too many lines of credit and letting debt become overwhelming. 

Bankruptcy scores are important tools for financial institutions making lending decisions, but they are largely unimportant to consumers. As long as you are making wise financial decisions over time, creditors will continue to recognize your efforts and your risk of bankruptcy will remain low.

Bankruptcy terms you should know

As you navigate bankruptcy, you’ll come across a variety of terms that may be unfamiliar. Understanding all of these terms makes navigating the process of bankruptcy much easier, and fortunately, none of them are difficult to understand.

Here’s a list of terms that you should know if you’re trying to understand bankruptcy better.

  • Assets and liabilities: An asset is anything you own, whereas a liability is anything you owe.
  • Chapter: A chapter is simply the specific type of bankruptcy being declared under Title 11 of the United States Federal Bankruptcy Code.
  • Discharge: A discharge means the associated dischargeable debts no longer need to be paid. 
  • Lien: A lien is a claim against a piece of property from a creditor who is owed a debt, such as a mortgage lender or a car creditor. 
  • Liquidation: Liquidation is the process of selling assets, usually to pay debts—for instance after filing Chapter 7.
  • Means test: The means test is used to determine who is eligible to file for Chapter 7 by accounting for income and debt. 
  • Repayment plan: An approved repayment plan is a court-authorized plan to give creditors back some or all of what they are owed. At the completion of a repayment plan under Chapter 13, remaining dischargeable debt is typically forgiven.
  • Secured and unsecured debt: A secured debt has some sort of valuable property as collateral—for instance, an auto loan is secured by the car itself. An unsecured debt has no associated collateral—for instance, a credit card is unsecured.
  • Trustee: Appointed by the court, the trustee is responsible for reviewing the debtor’s financial situation and documentation relation thereto, conducting the meeting of creditors and collecting and liquidating non-exempt assets or ensuring payments are made according to the repayment plan.

Armed with knowledge of these terms, you’ll have a much greater understanding of bankruptcy moving forward.

What does it cost to file for bankruptcy?

The cost to file bankruptcy can be broken down into two parts: court fees and attorney fees. According to the U.S. Court, you’ll pay a $78 administrative fee and a $15 trustee fee to file for Chapter 7 or Chapter 13 bankruptcy, plus any additional relevant fees. The total filing cost is generally under $500.

If a debtor cannot pay the fees associated with filing for bankruptcy, the court may break the fee payment into up to four installments or waive them altogether. Debtors who wish to have the fee waived must submit Form 103B.  Bankruptcy filing fees are not typically waived, even for the most destitute.

That said, most people will also require an attorney for bankruptcy proceedings, and fees can vary significantly. According to All Law, fees for Chapter 7 typically range from $1,000 to $3,500, whereas fees for Chapter 13 are a bit higher, ranging from $2,500 to $6,000. Depending on your location, fees may be lower or higher, so you’ll want to consult a local lawyer to determine a more accurate cost before proceeding.

Should you declare bankruptcy?

Deciding whether or not to declare bankruptcy can be difficult, so make sure you think about all of the alternatives first. People often consider bankruptcy due to unexpected or overwhelming debt—like a medical bill that has ballooned through interest or a handful of loans that have become unmanageable.

There may be ways to deal with these debts before resorting to bankruptcy. For example:

  • Negotiate with your creditors. Ultimately, creditors are looking for you to repay your debt. By contacting your creditors, you may be able to work out a favorable payment plan or have some of your debt erased in order to make it more manageable. 
  • Get a debt consolidation loan. A debt consolidation loan enables you to simplify and often reduce your debt payments by lowering your interest rate or extending your payment timeline. 
  • Work with a credit counselor. A credit counselor may be able to help you evaluate your entire financial picture and create an action plan to make debt more approachable.

Still, even after these alternatives, there are some people for whom bankruptcy is the best available option. If you have no means to pay back your debts and you’ve exhausted other options, contact a bankruptcy attorney to determine your best next steps.

Overall, bankruptcy exists to protect individuals from long-term financial ruin. Though the credit consequences of bankruptcy are long-lasting, the benefits of freedom from debt are absolutely essential in some cases.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Reviewed By

Vince R. Mayr

Supervising Attorney of Bankruptcies

Vince has considerable expertise in the field of bankruptcy law.

He has represented clients in more than 3,000 bankruptcy matters under chapters 7, 11, 12, and 13 of the U.S. Bankruptcy Code. Vince earned his Bachelor of Science Degree in Government from the University of Maryland. His Masters of Public Administration degree was earned from Golden Gate University School of Public Administration. His Juris Doctor was earned at Golden Gate University School of Law, San Francisco, California. Vince is licensed to practice law in Arizona, Nevada, and Colorado. He is located in the Phoenix office.

Source: lexingtonlaw.com