Navigating How Michigan’s Judicial Foreclosure Process Affects Out-of-State Property Owners

Navigating How Michigan’s Judicial Foreclosure Process Affects Out-of-State Property Owners

Every state has the right to set different rules and regulations for residential foreclosure. This can make it tough for homeowners to understand what their rights are, especially if they own property in another state.

The Michigan foreclosure process can be complex, but it’s very important to understand the laws and regulations that govern it. Just like other states, borrowers enjoy protections under Michigan foreclosure laws, including the right to a judicial foreclosure process vs. the Michigan foreclosure by advertisement.

This means that the foreclosure process will play out in the court system, rather than outside of it. 

Typically speaking, a judicial foreclosure in Michigan will begin with the borrower being sent a notice of default from their lender. That will be followed by an official lawsuit being filed and, if nothing is done to satisfy the outstanding debt, a foreclosure sale will take place.

Prior to Once the foreclosure process beginning, borrowers have the option right in Michigan to seek a loan modification or other loss mitigation alternatives to avoid losing their home.

Below, we’ll discuss how Michigan’s judicial foreclosure process works and how it affects out-of-state property owners.

The Judicial Foreclosure Process in Michigan

A judicial foreclosure in Michigan requires lenders to file a lawsuit against the borrower when they want to foreclose on a home.

Once the initial lawsuit is filed, the borrower will have 21 to 28 days to respond to it depending upon how the lawsuit was served upon them. If they fail to respond to the lawsuit, the lender has the right to obtain a default judgment to initiate the foreclosure auction process also known as the sheriff’s sale.

It can take several months for the judicial foreclosure process to complete in Michigan, and if it goes all the way to the end, it could involve a sheriff’s sale. This is an event where the home will be auctioned off to the highest bidder, with the lender trying to recoup as much of their losses as possible.

At any point during the judicial foreclosure process in Michigan, borrowers have the right to seek the advice of an experienced foreclosure attorney, such as those at Babi Legal Group. This is very important, as you need to understand what your rights and protections are throughout foreclosure.

Key Steps Leading to a Foreclosure Sale

In Michigan, mortgage loans are considered delinquent if they are one day past the due date. At this point, late charges can be assessed, and the lender or servicer has to make live contact with the borrower about the options they have.

At Day 45, the lender or servicer has to assign a specific contact to the borrower and provide written notification of the loan delinquency as well as the borrower’s options for loss mitigation.

If no resolution has been made by Day 121, the lender can proceed with the foreclosure process in Michigan.

At this point, they can file a complaint with the court to initiate the judicial foreclosure process. The borrower will have 21 days to respond to it, and the lender can obtain a default judgment and proceed with the foreclosure sale if the borrower does nothing at this point.

This sale is typically conducted by a local sheriff or other authorized official.

Options for Borrowers During the Foreclosure Process

The start of the foreclosure process is not the end of homeownership for borrowers. In the state of Michigan, borrowers have many rights and protections that can allow them to satisfy the outstanding debt so they can remain in their home.

It’s possible that while the foreclosure process is going on, borrowers can negotiate a loan modification or other repayment terms so they can avoid foreclosure. Housing counselors also may be able to explore other alternatives for borrowers so they can avoid foreclosure.

In certain cases, borrowers might be able to file for bankruptcy, which could stop the foreclosure process.

If you’re facing foreclosure, it’s very important to seek the advice of an experienced foreclosure attorney so you know all your rights, protections and options.

Redemption Period and Deficiency Judgments

Even after a home is sold at sheriff’s sale, borrowers in Michigan can still redeem their loan so they can remain in their home and satisfy the mortgage lender balance. This is called the redemption period.

In Michigan, the redemption period can last anywhere from six months to one year, based on a number of factors. The borrower can purchase the property back at this point by paying for the amount that was bid at the sheriff’s sale, plus any interest and/or fees that were incurred.

If the borrower fails to redeem the property during this period, then they will for the most part lose their rights to the property, and if still residing in the property will be facing an eviction lawsuit to recover possession of the property.

Consequences of Foreclosure

There are many serious consequences that borrowers can face in foreclosure. 

First and foremost, they may face eviction proceedings after the foreclosure sale, which would leave them without a place to live. While it’s possible for borrowers to negotiate a settlement with the lender to avoid eviction, it’s still a very real possibility.

Those who are foreclosed on also take a big hit to their credit score. This can hamper their ability to purchase or even rent a new place to live for a certain period of time.

This is why it’s very important to seek the advice of a foreclosure attorney if you’re facing foreclosure in Michigan.

Protections for Out-of-State Property Owners

Anyone who owns property in Michigan can be subject to the state’s foreclosure laws — even if their primary residence is in another state. The laws that regulate the foreclosure process, as well as the rights and protections for the borrower, depend on where the property in question is located, not where the borrower holds their primary residence.

Just like Michigan residents, out-of-state property owners enjoy the same rights and protections, as well the ability to seek advice from a local attorney who is familiar with the Michigan foreclosure laws. If you live outside of Michigan, you may also need to comply with federal mortgage servicing laws.

Seeking Help and Resources

If you are facing foreclosure in Michigan, it’s important to understand your rights, protections and options. 

Borrowers facing foreclosure can take advantage of the resources and assistance that is provided by the Michigan State Housing Development Authority (MSHDA). Housing counselors may also be able to explore alternatives to foreclosure, and non-profit credit counseling agencies may also be able to help.

The best thing to do if you’re facing foreclosure in Michigan, though, is to seek the advice of an experienced foreclosure attorney.

The professionals at Babi Legal Group have more than 20 years of real estate experience, and more than 15 years of foreclosure, bankruptcy, debt collection and debt settlement experience. For more information, contact us today.

Can You Use Retirement Funds to Avoid Bankruptcy?

Can You Use Retirement Funds to Avoid Bankruptcy?

If you are facing financial challenges, you might be searching for different ways that you can get out of debt and avoid bankruptcy. One potential consideration might be dipping into your retirement funds to pay off outstanding debt in one lump sum.

While this might sound like a good idea on the surface, it’s not always advisable. There are many reasons for this.

For one, if you withdraw funds from many tax-advantaged retirement accounts, you may face a penalty of 10% plus the fact that you’ll have to claim these funds as income. Doing so may also deplete your retirement savings.

What’s more, many retirement accounts such as 401(k)s and IRAs, are generally protected in bankruptcy proceedings and while they are considered part of the bankruptcy estate, they are generally 100% exempted and thus not recoverable by creditors or the Bankruptcy Trustee. As such, U.S. Bankruptcy Courts won’t force you to drain your retirement funds as you march toward debt relief.

Retirement funds are considered “protected assets” under bankruptcy laws, which means you can file bankruptcy without impacting your retirement accounts.

This is why filing bankruptcy may be the better choice.

What are Exemption Limits for IRAs?

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which was passed in 2005, protects both Traditional and Roth IRAs in bankruptcy proceedings. Each person has a protected limit of $1,512,350 that they can have in these accounts.

This limitation applies to all of the combined holdings that you have in all of your IRAs, not to each individual IRA that you may have. This means that if you have more than this combined in your IRA accounts, the surplus could be used to help repay your creditors.

The federal government adjusts this exemption limit every three years to account for rising cost of living.

Which Retirement Accounts Aren’t Protected?

It’s important to understand that only money that is stored in an officially designated retirement account is protected under U.S. bankruptcy laws. Any money that you store in regular savings accounts, stock option plans, investment accounts or any other non-retirement bank or brokerage account generally isn’t protected from bankruptcy — even if those funds are going to contribute to your retirement.

As such, any money that is stored in these accounts can be considered as part of your bankruptcy estate, which can then be used to pay off creditors. The only way for this money to be kept separate is to obtain a separate cash exemption, which may not be possible.

How Retirement Income is Treated in Bankruptcy?

What happens if you have already retired and are collecting retirement benefits, though? In this case, your retirement benefits are considered income.

Like other income, these retirement benefits can be used by the bankruptcy court to determine whether you’re able to repay your debts. How this retirement income is treated, though, depends on the type of bankruptcy that you are filing, as we’ll discuss below.

Chapter 7 Bankruptcy and Retirement Income

Chapter 7 bankruptcy is considered a liquidation bankruptcy. The end result is to have certain debts discharged at the end of the proceeding so that you can get a fresh start financially, while the Chapter 7 Trustee will seek to sell and turn into cash any unexempt, (e.g., unprotected) assets of the bankruptcy estate.

To be eligible for Chapter 7 bankruptcy, you have to have an income level that’s considered below the median for the state in which you live, as determined by the Chapter 7 means test. The test will take into account your secured debts and other expenses, along with your income.

The courts will also look to see how much monthly income you have remaining at the end of month after receiving your monthly income and spending it on your normal everyday living expenses.  If you have some money left over at the end of the month, then you may not be eligible for a chapter 7 case.

In this process, the bankruptcy court has the ability to consider monthly retirement benefits that you are receiving through retirement accounts and pensions. Any retirement benefits that are ultimately considered to be above and beyond what’s needed to support your life can be used to repay your creditors.

Chapter 13 Bankruptcy and Retirement Income

Chapter 13 bankruptcy, meanwhile, is considered a restructuring. The goal is to restructure your overall debt and come up with a repayment plan that satisfies you and your creditors, while also preserving your major assets.

In these cases, the court will use your income to determine how the debts will be repaid and how much of them you will be required to pay. Typically, the payment plans are set up to last about three to five years.

Any retirement benefits that you receive can be factored into the equation, which could potentially increase the total amount of debt you’re responsible for repaying.

Using Retirement Accounts to Avoid Filing Bankruptcy

If you have significant retirement funds, you may think it’s a good idea to use them to avoid bankruptcy altogether. However, as stated above, this might not be a good idea depending on your situation.

For instance, if you are younger than retirement age, withdrawing funds from these accounts can come with hefty penalties, fees and taxes. You’ll be responsible for paying a 10% penalty on all the money you withdraw, plus that money will be considered income for tax purposes..

Since bankruptcy laws consider money in retirement accounts as “protected assets,” you can file bankruptcy without any impact to what you’re built in your retirement accounts.

Borrowing from Your 401(k) to Avoid Bankruptcy

In some cases, you can avoid these hefty penalties, fees and taxes by borrowing from your 401(k). Generally speaking, doing so to avoid filing for bankruptcy is not usually a good idea.

The reason for this is that you will be required to repay these funds according to a strict schedule. While the interest you pay will benefit you rather than a creditor, it’s essentially just shifting around debt rather than paying it off. Plus, if you aren’t able to repay the debt, or if you lose your job, you may ultimately have to claim all the borrowed money as income and pay a hefty penalty.

An experienced bankruptcy attorney such as those at Babi Legal Group can help you assess your finances to determine whether bankruptcy is a better option than borrowing from your 401(k).

Withdrawing Retirement Funds to Pay Creditors

Usually, withdrawing retirement funds outright to pay off your creditors is not a good option, either. This can actually lead to more debt, tax liability and extra financial stress, rather than solving any problems.

That’s because bankruptcy protection allows you to get rid of debt and debt collectors while preserving retirement accounts.

Protecting Your Retirement Funds in Bankruptcy

In general, ERISA-qualified retirement funds and balances in both Traditional and Roth IRAs are protected from creditors during bankruptcy. There are limitations, of course, and rules that you must consider when filing for bankruptcy to protect these accounts.

Fully Protected Retirement Accounts

Pension plans that are considered ERISA-qualified are also fully protected during bankruptcy proceedings. Unlike IRAs, there are also no limits on the amount that will be exempted.

At the same time, any plan or account that isn’t ERISA-qualified — including stock options, investment accounts and general savings accounts — don’t enjoy bankruptcy protections. Only a few states have local exemptions that will protect these accounts, and even those states only provide minimal exemptions.

Bankruptcy and Retirement Planning

While filing for bankruptcy could be affected by the retirement benefits you receive, it will generally provide protection for funds in your 401(k), IRA, pension and other plans. 

Withdrawing money from these accounts usually comes with major tax penalties, and doing so may not even fix your financial problems. Since most unsecured debts such as balances on credit cards and medical bills can be eliminated through bankruptcy, and retirement funds are protected, bankruptcy is sometimes the better option.

Because of this protection, bankruptcy can allow you to get rid of your debt and debt collectors while preserving the money you have in your retirement accounts.

Bankruptcy Lawyers Can Help

Filing for bankruptcy is often the better option than drawing on retirement assets to pay off debts. Having a knowledgeable bankruptcy attorney on your side is invaluable, as they can provide you expert advice and assistance on how to best navigate bankruptcy without affecting your retirement funds.

Not only can these attorneys guide you through the process, they can help you understand all applicable federal and local laws. This is very important, as these laws are often extremely hard to understand.

Before you file for bankruptcy, consult with a local bankruptcy attorney that you can trust.

The attorneys at Babi Legal Group have more than 15 years of experience in bankruptcy, debt settlement and debt collection law. We can help you review all of your financial information to guide you through the bankruptcy process and protect your retirement funds in the process.

For more information, please contact us today.

How Filing for Bankruptcy Affects Social Security Income: What You Need to Know

How Filing for Bankruptcy Affects Social Security Income: What You Need to Know

Bankruptcy can provide a financial lifeline to people who find themselves in a bad debt position. It can be a way out, a fresh start from an economic standpoint if you find yourself in over your head with no apparent way out.

When you file for bankruptcy, certain debts can be discharged, which essentially eliminates them from your “balance sheet,” so to speak. Depending on what type of bankruptcy you file, and whether you qualify, this can erase debts that you are having trouble repaying.

At the same time, the bankruptcy court will analyze your ability to repay your debts using your income sources and other assets.

One major question that a lot of people have is whether Social Security benefits can be considered income in bankruptcy proceedings. Below, we will discuss this issue in more depth, as well as provide suggestions on how you can protect your assets in bankruptcy.

Understanding Social Security Benefits in Bankruptcy

Those who earn Social Security benefits know that this money is generally considered income. Every year, Social Security benefits have to be claimed as income on tax returns along with other typical income earned through a W-2 or 1099.

That being said, Social Security benefits are generally considered exempt assets. This means these benefits can’t be used in “means test” calculations when deciding how creditors will be repaid, if at all, in a bankruptcy case.

There is one major exception, though, which is important to understand. According to rules set up by the Social Security Administration, Social Security benefits will remain uncollectable from creditors as long as the funds aren’t commingled with other funds.

To protect your benefits, an experienced bankruptcy attorney will usually recommend setting up a dedicated bank account just for Social Security benefits. This ensures that they aren’t commingled with other funds and remain Uncollectable.

Bankruptcy Options and Social Security Income

There are two main types of bankruptcy that individuals typically file.

The first is called Chapter 7, and it’s known as a liquidation process. Through it, many unsecured debts such as credit card balances get discharged, with individuals being allowed to keep some assets that are determined exempt, such as vehicles and homes.

Social Security income is not included in the Chapter 7 means test, which makes it easier for individuals who receive it to qualify for Chapter 7 bankruptcy in some cases.  However, the Courts are split and do not treat Social Security income the same as some Courts consider it income for the purposes of what a Debtor can repay in the bankruptcy case, while others consider non-income for the purposes of bankruptcy.

Chapter 13, meanwhile, is known as a debt-repayment plan or restructuring. It’s a way to come up with how to repay creditors in a more beneficial way to the borrower. In these cases, the debtor is able to retain all their assets while making repayments according to a plan established and approved by the court.

Protecting Your Social Security Income

There are special protections that apply to Social Security income, whether you file for bankruptcy or not. For instance, as long as you can prove that the funds in question are income from Social Security benefits, then a creditor doesn’t have the ability to force a bank to withdraw that money in order to pay an outstanding debt.

The easiest way to do this is to create a separate bank account that’s dedicated solely to Social Security income. This will make it easy to prove the source of the funds and ensure they remain protected in bankruptcy proceedings.

While filing for bankruptcy gives you some added protections in relation to income and assets, it doesn’t provide any extra income protection for Social Security income, and in-fact in some courts may allow that social security income to be used to repay your creditors.

If you have received past disability payments and/or disability back pay and haven’t spent all the funds, that money may be considered property of your bankruptcy estate. As such, it could be subject to distribution to your credits in Chapter 7 bankruptcy cases if not properly exempted.

The Impact of Bankruptcy on Social Security

Social Security benefits were created by the federal government to ensure that people were able to live a financially secure life as they age and leave the workforce. To this point, these benefits are shielded from creditors’ claims, which reflects the agency’s commitment to protecting the financial well-being of all beneficiaries.

Regular Social Security benefits are specifically excluded from being garnished by creditors, per federal law. However, unspent past disability payments that are mixed with other money may be pursued by a Chapter 7 trustee as it may be difficult to ascertain if they were actually social security funds.

That’s why it’s very important to understand how bankruptcy affects funds you may receive from Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) back pay.

Working with an Attorney: Understanding the Attorney-Client Relationship

Understanding all the pertinent bankruptcy laws and what applies to you can be challenging. That’s why it’s typically a good idea to advise with a trusted local bankruptcy attorney who has experience working in your state.

When you’re working with an attorney, it’s essential that you understand how the attorney-client relationship works and how that will apply to your bankruptcy case. By law, you’re allowed to work with as many as three attorneys so you can find the best fit for your particular case.

The attorney you choose should help you properly navigate the process of bankruptcy and ensure that as much as your assets as possible can be protected, including any Social Security income you receive.

During meetings with your attorney, you should come prepared to share sensitive and/or confidential information about yourself and your financial situation. This will help your attorney fully understand your situation so they can best represent you in court.

If you are in debt, you may start receiving marketing messages from local attorneys who wish to represent you. As with anything, though, it’s important to be cautious and do your research before you select an attorney to represent you.

Next Steps: Filing for Bankruptcy with Confidence

If you’re considering filing for bankruptcy, it’s very important that you understand how it will affect every aspect of your finances and assets, including your Social Security income. Since this can be complicated to fully understand if you don’t have experience, it’s best to consult with an attorney you can trust to determine the best course of action based on your specific situation.

Your attorney should walk you through the debt relief options that are available to you, including Chapter 7 and Chapter 13 bankruptcy and what each entails. 

They will guide you through how separate trust funds are used to pay disability benefits and how that may affect your bankruptcy case. And they will also discuss how retirement benefits and other income may be impacted by bankruptcy.

By consulting with a trusted attorney like those at Babi Legal Group, you can ensure you understand all of these concepts before filing bankruptcy so you can put yourself in the best situation possible.

Our attorneys have more than 15 years of experience in bankruptcy, debt collection and debt settlement, and can provide you with the best advice that you can trust. For more information about how we can help you, contact us today.