Recent Posts in Chapter 7 Category

Starting today, June 1, 2010, HAMP Home Loan Modifications cannot be denied because you are in an active chapter 7 or 13 bankruptcy.

This is significant for many consumers. Many consumers facing foreclosure need both bankruptcy and a modification.

A bankruptcy filing will automatically stay a foreclosure on your home and a modification of the terms of the mortgage will make the home more affordable.

For more information about this important change please visit https://www.hmpadmin.com/portal/docs/hamp_servicer/sd1002.pdf

Bankruptcy can save your home from foreclosure!

The moment a bankruptcy case is filed with the bankruptcy court the automatic stay comes into effect. The automatic stay prevents creditors from taking certain actions against you including foreclosing on your property.

 Bankruptcy will even stop a foreclosure if filed minutes before the foreclosure sale.

Once the case is filed and the foreclosure stopped you may be able to catch-up missed mortgage payments during the course of a chapter 13 plan, eliminate second or third mortgages, or have time to work out a modification with the bank.

Individual debtors filing bankruptcy are required to complete both pre and post discharge counseling courses. Pre-filing counseling or “Credit Counseling” must be completed before the filing of bankruptcy.

After the filing of bankruptcy debtors must again complete a counseling course. The post filing course has several common names; including, “Debtor’s Education,” “Financial Management Course,” and “Pre-Discharge Education.”

The course must be completed in order to get a discharge of debts. If a debtor fails to complete the course then the debtor’s bankruptcy case will be dismissed and no discharge granted debtor. The course must be completed and the certificate filed with the Court no later than 45 days after the first scheduled date of the §341 meeting of creditors. However, it is my recommendation to complete the course before the meeting.

The course can be completed, on-line, over the phone or in person.  There are many agencies that provide pre-discharge education to bankruptcy debtors. These organizations must be non-for-profit corporations AND must be approved by the US Department of Justice; commonly debtors use the same company for both the pre-filing and post-filing course.

I provide all my clients with a referral to an approved counseling course, however, clients are free to use any agency they wish to complete the course.

For most debtors filing under chapter 7, 11, 12, or 13 you are able to keep your tax return without surrendering it over to the case trustee or the estate.

In bankruptcy you are able to exempt certain asset from your creditors and the bankruptcy estate. Although there is no specific exemption for tax returns, the federal exemptions allow for a “wild card” exemption for up to $11,200 per person or $22,400 for married debtors filing jointly.

Because of the large value of the wild card exemption it is rare that a debtor will lose their tax return in bankruptcy.

Also, individuals filing under chapter 11, 12, or 13 will simply factor their anticipated tax return into their monthly budget as to not lose their tax return over the course of the bankruptcy plan.

In order to protect an asset a person thinking about filing bankruptcy may transfer an asset out of her name and into the name of another. This can include a home, vacation home, car, boat, plan, motorcycle, or even cash in the bank.

This is a huge bankruptcy mistake.

This would be an attempt to defraud your creditors. It could result in, a denial of the bankruptcy discharge, loss of the asset, or even criminal actions.

The good news. The asset, would be bankruptcy debtors are trying to hide can typically be exempted in a chapter 7 bankruptcy or protected in chapter 13 filing. In short if you try to hide something from the Court you are risking a lot with no possible reward.

Before taking any action with your assets talk to a qualified attorney.

If you file bankruptcy you will keep your home; unless you want to surrender it to the bank.

In order to keep your home you will need to at a minimum be able to make the current monthly payment on the first mortgage.

If you are filing chapter 7 bankruptcy, you will need to be current with all mortgages on the home when you file and continue to be current after the case is over. This is just like it would be without the bankruptcy filing. As long as you are current with the mortgage payments the bank will not foreclose.

If you are behind on your mortgage, or have a second mortgage, worry not, you will still be able to keep your home. In chapter 13 you are given up to 5 years to catch-up the missed mortgage payments under a court approved plan. Your bank will legally be barred from foreclosing during your bankrutpcy.

Additionally, in chapter 13 you may be able to eliminate your second mortgage and keep your home. In order to eliminate the second mortgage you will have to prove to the Court that the value of your home is less than the value of your first mortgage.

Leave it there.

An individual filing a chapter 7 bankruptcy case you may be able to exempt up to $11,200 ($22,400 for a married couple) of cash and bank deposits.

If the money is exempt it will not be touched by the bankruptcy court, trustee, or your creditors. Simply put you can keep.

If you are filing a chapter 13 case there is no liquidation of your assets, unless you want there to be, so here again you can keep the money in your bank.

If you have cash and bank deposits that exceed the exemptions, fear not, you may be able to protect some of the non-exempt money by placing it into an IRA or putting a new roof on your home. I strongly encourage you to meet with a lawyer prior to planning any exemption.

If you filed bankruptcy under chapter 7 you will be able to obtain a new credit card very shortly after filing. Most banks will want your business, because (1) you have reduced your debt, (2) cannot get another bankruptcy discharge for 8 years, and (3) the bank will be able to charge you a high interest rate.

Most individuals are able to get unsecured credit cards, however, in some cases the bank my require you to get a secured credit card. A secured credit card is much like the traditional unsecured card, however you will be required to secure the card with a deposit. This is different than a prepaid card. With the secured card you will still need to pay the monthly bill.

If you are in chapter 11 or 13 you are not permitted to get a credit card or other loans until after the case is over.

In either chapter getting a new card and using it responsibly will increase your credit score and rehabilitate your credit score. Using your card responsibly should include paying your bill on time and never charging more than 30% of your credit limit.

If you are unable to afford your car loan you may chose to voluntarily surrender the car to the bank.  After the bank has the car they will sell the car at an auction. They will apply the proceeds of the sale to the outstanding balance you have on the loan. If the bank collects more than you owe on the loan they will send you a check. However, if they do not collect enough at the auction to pay off the entire loan the bank will send you a bill for the deficiency.

If you owe a deficiency, you have a few opinions. Of course you could pay the bill, work out a payment plan with the bank.

Bankruptcy may also be an option. Bankruptcy will discharge your legal obligation to pay the deficiency.

Also, you may be able to save the car and reduce your car payments in bankruptcy by redeeming in chapter 7 or cramming down in chapter 13.

The goal for most individuals in bankruptcy is to receive a discharge of their debts. A discharge is a release of your legal obligation to repay your debt. With limited exception the discharge will discharge all your debt including your car loan.

However, in order to keep the car post bankruptcy you MUST continue to make the payments to avoid repossession.

Reaffirmation is a process in which an agreement is filed with the Court which says that the debtor is again personally liable on the debt.

In Massachusetts this agreement is unnecessary. Under Massachusetts State Law a bank cannot repossess a car unless there is a default which must includes one or more missed payments (see MGL Chapter 255 §20A).

Therefore, as long as you remain current on your car loan, in Massachusetts, you are able to keep the car without threat of repossession.

Banks will often point to federal law to scare people in to reaffirming. The federal law states that if there is no reaffirmation agreement then the bank can repossess even if you are current on the payments. However, your bank is bound to repossess under state law. So do not fall for this scare tactic.

If you have any questions about reaffirmation please feel free to give me call.

The goal for most individuals in bankruptcy is to receive a discharge of their debts. A discharge is a release of your legal obligation to repay your debt. With limited exception the discharge will discharge all your debt including credit card bills, medical bills, auto loans, home mortgages, and some tax obligations.

Some debts do not typically get discharged in bankruptcy including student loans, some tax obligations, child support, alimony and government or court fines (such as a speeding tickets).

The discharge does not typically affect a lien held on property. Therefore in order to for the debtor to keep property that has been used as collateral to secure a loan, the debtor must continue to make payments.

Some liens can be removed in bankruptcy. Liens held by the second mortgage can be removed, in this case the debtor will be able to keep their home and never again have to pay the second mortgage.

Judicial liens can also be removed. These are liens that have come out of a court action. Typically these occur after a credit card company has sued you over a debt and then they put a lien on your home.  

Very often the value of your car is much lower than the amount of your outstanding loan. (Check the value of your car at Kelly Blue Book, www.KBB.com  ). If this is your case bankruptcy may be able to help you reduce the amount of your loan and/or reduce your payments.

Debtors filing chapter 7 have the ability to redeem their car. Redemption is a process during your bankruptcy case where you pay to the bank the current value of the car. The amount of the loan that exceeds the value of the car is discharged.

Most debtors do not have enough cash to pay the current value of their car. However, there are banks that have loan programs for redeeming (checkout www.722redemption.com ). Your new loan payment will be less than your current payments because the principle of the new loan will be much less.

Debtors filing chapter 13 are unable to redeem their car, however they are able to cram down. Cram down is much like redemption without having to get a new loan. Chapter 13 is a court ordered payment plan, which is reasonable based upon the debtor’s income.

Through the plan you can repay your bank the current value of the car and then be discharged from the remainder of the loan. In order to cram down in chapter 13 the car loan must have been incurred more than 910 days prior to filing bankruptcy. At the conclusion of the chapter 13 plan you will own the car free of the lien.

In an article from the Worcester Telegram and Gazette (http://www.telegram.com/article/20091230/NEWS/912309982/1002) it is reported that foreclosure petitions in Massachusetts remain high.

The good news is that the actual number of foreclosures that have been completed for 2009 has been less than 2008. However, the number of foreclosures started with the filing of a Petition to Foreclose has increased in 2009 from 2008.

Bankruptcy has several options that may help if you have facing foreclosure, in chapter 13 you may be able to eliminate your second mortgage forever, and catch up the missed payments with the first mortgage.

Additionally, you may be able to eliminate all your unsecured debt in either chapter 7 or 13 thus freeing up money to pay towards the mortgage.

If you are facing foreclosure, please give me a call and we can find a solution to the problem. Bankruptcy can stop the foreclosure and save your home BUT ONLY if you file before the foreclosure sale.

In all bankruptcy cases there will be a required meeting this is often called the “meeting of the creditors” or the “§341 meeting.” The Case Trustee will conduct the meeting. She represents the interests of all the creditors in the case and is also in charge of administering the debtor’s bankruptcy estate.

All of the Debtor’s creditors are invited to attend the meeting. However, it is very unlikely that a creditor will appear at the meeting in consumer cases. Almost all creditors are satisfied that the Case Trustee will properly examine the Debtor.

In consumer cases the meeting last only 5 – 15 minutes. Typically attendees of the meeting include the Debtor, Debtor’s attorney, and the Case Trustee. During the meeting the Case Trustee will ask the Debtor several questions regarding her financial affairs. The purpose of the examination is to ensure that the Debtor has fairly and honestly represented her assets, income, and debts in the bankruptcy filing.

Typical questions the Case Trustee may ask the Debtor include:

• “Did you review your bankruptcy filing with your lawyer prior to authorizing him to file it?”

• “Have you listed all your assets in your bankruptcy filing?”

• “Could you sue someone for any reason, including a personal injury claim?”

• “Have you given anything worth more than $1,000 to anyone in the last year?”

• “Have you bought or sold any property in the last year worth more than $1,000?”

• “Have you made any one single payment to a creditor of more than $600 in the last 90 days?”

·         “Do you expect to receive any inheritance?”

Currently in Massachusetts the meetings are not held in the Court House. A judge is never present, no one is called to a witness stand, and it is not adversarial in nature. The meetings are an informal and open process.

With the snow that fell this weekend I cannot help but think now may be a good time to mention what happens if a debtor cannot make their assigned time and date for their §341 meeting.

The §341 meeting is often the only meeting a debtor has to attend; they are not a formal Court process and are not held before a judge or even at the Court House. The §341 meeting gives the Case Trustee and others a chance to ask questions about the debtor’s financial affairs.

It is uncommon for anyone other than case trustee and the debtor’s lawyer to be present during the §341 meeting in consumer cases. The meetings are typically short lasting only 5 – 10 minutes for chapter 7 cases and about 15 minutes for chapter 13 cases.

When your bankruptcy case is filed, the Court will automatically assign your case a Case Trustee (who represents the creditors) and a time for the meeting.

If for some reason you are unable to make the scheduled meeting time then you can request that your case trustee reschedule the meeting. The case trustee will give you a new time and date. The debtor, typically through her lawyer, will have to send notice (a letter) to all the creditors stating the new time and date of the meeting. Of course the more notice you can give the case trustee about your need to reschedule the better, however, in the case of an emergency or inclement weather you may not be able to give the case trustee much notice at all.

Warm wishes.

Robert