Posted by Kevin on January 3, 2011 under Bankruptcy Blog | 
In this blog, I write about the bankruptcy law. The “law” is contained in the statute, court rules and case law. In case law, the courts apply the statute and rules.
The Bankruptcy Court is part of the federal court system. Federal courts are established by the Constitution of the United States. The Supreme Court, the Circuit Courts of Appeal and the District Court are called Article III courts since they were set up under Article III of the Constitution. Bankruptcy Courts were based on Article I, however. In 1978, there was a major change in the bankruptcy statute. One of the major changes was to bring bankruptcy judges under Article III. This meant that they served for life under good behavior and their salaries could not be reduced. It also gave them the powers of a federal district judge in shaping orders. Bankruptcy jurisdiction was still with the District Court which was an Article III Court but was required to be exercised by the Bankruptcy Court.
The Supreme Court knocked that down. Bankruptcy Judges went back to being Article I judges with a 14 year term of office. The District Court had the choice of referring bankruptcy issues to the bankruptcy courts or keeping jurisdiction. All District Courts have opted to refer jurisdiction to the bankruptcy courts. On a constitutional and perhaps academic level, this is a big change, but to the average person who files, it is of little or no consequence. You still file your Petition with the Bankruptcy Court.
In New Jersey, there is one “district” for the entire state. California has numerous districts. Although there is one district, the court has offices and is in session in 3 locations: Newark, Trenton and Camden. For example, if you reside in Bergen, Passaic or Hudson counties, your case is assigned to Newark. If you reside in Monmouth, Ocean or Mercer, your case is assigned to Trenton. If you reside in Cape May or Camden, your case is assigned to Camden.
Posted by Kevin on December 14, 2010 under Bankruptcy Blog |
Sometimes, I get prospective clients who meet with me to discuss a bankruptcy filing. During the course of our conversation, they mention a debt to a friend or a property outside the United States that they do not want to list. Unless I can convince them not to do this, those “prospective clients” never become clients.
I point out that the Bankruptcy Code is set up to give honest creditors a fresh start. Focus on “honest”. That means that you honestly disclose all your assets and liabilities, and all your income and expenses. The debtor actually signs a declaration under the penalty of perjury that the information contained in the Petition is true and complete.
Usually this Civics class approach (do they call it “Civics” anymore?) works and the client flies right. But some still push. Well, if being a good citizen is not enough for you, think of the consequences. You can go to jail.
Read more of this article »
Posted by Kevin on November 30, 2010 under Bankruptcy Blog |
Last week, the Wall Street Journal had an article about how second mortgage holders are putting the kabosh on short sales.
Hedge funds are buying out second mortgages for pennies on the dollar. The second mortgage is underwater. The homeowner can sell the property for less than the amount of the first mortgage. For example, the first mortgage is 300K. The second mortgage is 50K. The owner gets a contract for 275K. Owner contacts 1st mortgagee (lender) for short sale. 1st mortgagee agrees. Done deal? Not so fast.
In steps the second mortgagee. The second mortgage is a lien on the property. Unless that lien is taken care of, the new buyer cannot get title insurance and, therefore, cannot get a mortgage loan. Owner is SOL unless it can take care of the second mortgage.
Read more of this article »
Posted by Kevin on November 23, 2010 under Bankruptcy Blog |
Last week, Judge WIzmur came down with a written opinion in Kemp v Countrywide. In that case, Countrywide filed a Proof of Claim which was challenged by the debtor on the grounds that Countrywide lacked standing.
What happened was that Countrywide securitized Kemp’s loan, Bank of New York (BONY) was the trustee and should have possession of the note. But, Countrywide never transferred physical possession to BONY. The Court found that BONY could not be a holder under the UCC because it did not have possession of the note. BAC, the new Countrywide entity, was not a holder since it was the servicer. As servicer, it could file the proof of claim as the agent of BONY. However, since BONY never had possession of the note, it was not the holder and, therefore, could not delegate the task of filing the proof of claim to the servicer.
More of the case details will be posted later this week on my blog at fightforeclosurenj.com.
Posted by Kevin on November 10, 2010 under Bankruptcy Blog |
There has been a lot of press in the last month about so-called “robo-signers” and false affidavits being submitted in both bankruptcy and foreclosure matters. What are the courts doing to combat this?
Many commentators talk in terms of the courts’ right to impose sanctions (usually translated into monetary fines and payment of the non-offending party’s legal fees) but the fact of the matter is that courts are reluctant to impose sanctions.
In the case of In Re Butler, which was a Chapter 13 case in New Jersey, a credit union filed for relief from the automatic stay claiming that the debtors had missed 18 monthly payments on its SUV. The debtors provided proof to the court, by bank statements and wire transfer authorizations, that all payments but one were made. The hearing was postponed. During the interim, the credit union withdrew its motion.
Read more of this article »
Posted by Kevin on October 30, 2010 under Bankruptcy Blog |
You bought your house for $300,000 in 1997. By 2003, the value went up to $420,000. You refinanced at $380,000 with an adjustable rate mortgage The value of the house increased to $460,000 by 2005. You wanted to consolidate your credit card debt so you draw down $60,000 on a home equity line (HELOC) in 2006. Things are going all right but then your mortgage adjusts upward and you owe another $600 per month. The HELOC payment goes up too. Then, someone gets sick or loses a job, you miss a couple of mortgage payments. Before you know it, you are in financial trouble. You are thinking about bankruptcy.
If you do file bankruptcy, should it be under Chapter 7 or 13. A Chapter 7 will take care of credit cards and medical bills but can’t do much about the mortgages because they are what is called secured debt. A Chapter 13 can save your house but do you have to make payments on both mortgages? Maybe- Maybe not. Under certain circumstances a Chapter 13 debtor can eliminate that second mortgage.
Read more of this article »
Posted by Kevin on October 24, 2010 under Bankruptcy Blog |
Say you bought a car and financed it. The lender will have a lien on the car. You lose your job and file a Chapter 7 bankruptcy. What happens to the car?
Under the new Code, a debtor can elect to do one of three things: surrender the car to the lender; redeem the car for fair market value usually in one payment; or reaffirm the entire debt and continue making payments.
Here is an interesting case involving a surrender of a car. It took place in Maine. That is in a different circuit from New Jersey but the ruling is instructive- that means that the bankruptcy courts in NJ will take heed.
Read more of this article »
Posted by Kevin on October 11, 2010 under Bankruptcy Blog |
You are behind on your mortgage 6 months. Your monthly payment, including taxes and insurance, is $3,000 per month. Your lender has filed a foreclosure complaint. What to do? Can filing bankruptcy help? The answer, like most answers involving legal issues, is that it depends. First of all, the filing of any bankruptcy acts as an automatic stay on most efforts to collect a debt including foreclosure. So, if you are facing a sheriff’s sale, the automatic stay will halt that sale. But, for how long?
In a Chapter 7, the stay lasts until the Trustee abandons the property, a creditor obtains relief from the automatic stay from the court, or the earlier of the time that the case is closed or a discharge is granted or denied. A trustee will usually abandon property if he or she determines that there is no equity in the property. That means that the mortgage is greater than the value of the property. This will happen about the time of the first meeting of creditors which occurs about 4-6 weeks after the filing. The trustee sends out a notice of abandonment. If no one objects , then the abandonment is processed by the clerk and notice is sent out to creditors. The whole process takes about 8 weeks and the foreclosure marches on.
Read more of this article »
Posted by Kevin on November 3, 2009 under Bankruptcy Blog |
One of the first questions that a client asks is, can I keep my stuff? In a Chapter 13, you always keep the stuff you want to keep. In a Chapter 7, you have to understand the rules concerning exempt property to answer that question.
In New Jersey, we use the federal exemptions in about 99% of the cases because you get to keep more of your stuff. Note that if a husband and wife file a joint petition, the debtors get double the exemption.
The basic exemptions are as follows:
- for your residence, $21,625 (or $43,250 for married, joint filers);
- $3,450 in value for one motor vehicle ($6900 for 2 vehicles for married, joint filers);
- $11,525 ($23,050 for married, joint filers) in household furnishings, goods, wearing apparel, appliances, and the like;
- $1450 ($2900 for married, joint filers) in jewelry;
- $1,150plus up to $10,825 of any unused exemption on your residence (double for married couple) which can be applied to any property. This is known as the wild card exemption.
- most retirement accounts are exempt.
Besides exemptions, there are other rules which apply to motor vehicles subject to a loan and real property subject to a mortgage. It is well advised that you consult with an experienced bankruptcy lawyer to answer the questions, “Can I keep my car?“, “Can I keep my house?”
Posted by Kevin on under Bankruptcy Blog |
For most debtors, their car is the second most important asset after their home (for males under 30, it may be #1). Even in a densely populated State like New Jersey, you need your car to get to work, do your food shopping, and to take care of emergencies. If you are thinking about filing bankruptcy, it is only natural to worry about whether you can keep your car.
Well, the answer is that in a Chapter 13, the debtor chooses whether she wants to keep her car. In a Chapter 7, the debtor can usually keep her car.
Read more of this article »
Posted by Kevin on October 21, 2009 under Bankruptcy Blog |
http://ezinearticles.com/?id=2922768
If you’d like to receive more information, please click here for a free report.
Posted by Kevin on October 19, 2009 under Bankruptcy Blog |
Every advertisement or website concerning bankruptcy will include the following statements, “Stop foreclosure”, “Stop wage garnishment”. What stops the foreclosure or the garnishment is the automatic stay.
The filing of a bankruptcy petition, in and of itself, stops (or stays) most collection efforts automatically. This includes lawsuits, garnishment of wages, levies on bank accounts and foreclosure sales. It also includes harassing telephone calls, letters and emails. If a creditor continues collection efforts after the petition is filed, the Court may impose a fine on the creditor or order the creditor to pay damages to the debtor.
As soon as we are retained, we instruct our clients to refer all creditor calls to our offices. We deal with your creditors and get them to stop calling even before the bankruptcy is filed.
The automatic stay lasts until it is terminated by the court, the case is dismissed or a discharge is granted. In addition, in a Chapter 7 the stay as to a specific piece of property expires when the Trustee abandons that property on notice to creditors and the court.
As with most rules, there are exceptions to the automatic stay. The automatic stay does not apply to co-signers or guarantors in a Chapter 7. So if a husband and wife are on the debt and only the wife files under Chapter 7, the creditor can still go after the husband. The automatic stay does not stop a criminal proceeding, or the commencement or continuation of an action concerning paternity, divorce or domestic support obligations. The automatic stay does not apply to certain IRS actions.
If you would like to receive more information, please click here for a Free Report.
Posted by Kevin on September 21, 2009 under Bankruptcy Blog |
In a mortgage modification, the lender alters the terms of an existing mortgage loan to make it more affordable to the borrower.
In recent years, mortgage modifications have become a topic of much discussion because of the large number of mortgage defaults during the current recession. In April, 2009, the government announced the HAMP program whereby lenders and mortgage servicers were given incentives (meaning $) to modify mortgages. The problem is that, to date, the HAMP program has not worked. Less than 10% of borrowers get permanent modifications
As with other voluntary programs, it is up to the lender to offer you a mortgage modification. There is a ton of paperwork (which seems to get lost an awful lot) and the process drags on for months. Finally, what the lenders are offering is not meaningful relief. The typical modifications have been a lower fixed interest rate for a period of 3-5 years, or “forgiving” arrears by adding them to the principal. So, you get a slightly smaller monthly payment but you owe more than when you closed on the loan. No wonder so many modifications fail.
That being said, I encourage my clients to go through the mortgage mod process. Why? Because unless you file a Chapter 13 bankruptcy, eventually you are going to work out a mortgage modification or go into foreclosure. If you get foreclosed, it is important to show the New Jersey court that you took all reasonable steps to save your home.
At Kevin Hanly, Esq., LLC our goal is to keep you in your house, or put you in a better financial situation if you have walk away from your house. The strategy varies from client to client because no two clients have exactly the same situation. Go to www.FightForeclosureNJ.com for more information, and then contact us to set up a free consultation to analyze your mortgage situation.
Posted by Kevin on under Bankruptcy Blog |
In 1978, the Bankruptcy Code underwent a major overhaul. It gave bankruptcy judges more power. It established the Office of the United States Trustee. It allowed consumers to file for bankruptcy without proving insolvency. Moreover, a debtor could choose whether he or she wanted to file under Chapter 7 or Chapter 13 irrespective of his or her income. Almost from the beginning, creditors complained that the law, especially in consumer bankruptcies, was too pro-debtor.
Over the years, Congress amended the 1978 Code to make it less pro-debtor. But the outcry for a new law continued. Creditor groups argued that too many people were filing. More importantly, they argued that too many people who could afford to pay something to their creditors were filing under Chapter 7, and paid nothing.
Starting in the early 1990’s and continuing until 2005, the credit card and banking industries lobbied Congress for a new bankruptcy law. In October, 2005, Congress enacted BAPCPA. In the area of consumer bankruptcy, one of its main purposes was to make more people file under Chapter 13 so that payments could be made to creditors.
To accomplish this objective, BAPCPA puts restrictions on filing Chapter 7 based on the income of the debtor. To determine whether a prospective debtor qualified for Chapter 7, BAPCPA adopted the so-called means test. The means test was adapted from the test used by the IRS to determine whether a taxpayer could qualify for a payout plan and how much he or she could pay.
The means test is a three part test. The first part appears to be straightforward. The debtor must calculate his or her average income for the 6 months prior to the bankruptcy filing. Note that income does not include social security or unemployment. This average figure is multiplied by 12 to arrive at an annual income. The debtor’s annual income is compared to the median income for your State based on your household size. If the debtor’s income is below the median income, then he or she can qualify for Chapter 7. If not, then the debtor must proceed to the second part of the means test.
The second part of the means test tries to determine what money would be available for creditors after you deduct your expenses from your average income. This portion of the means test focuses on expenses- but not necessarily actual expenses. Remember, the means test is based on the IRS test for how much money should be available to pay back Uncle Sam. The IRS test has both National Standards (food, clothing) and Local Standards (housing, transportation). The means test incorporates the National Standard and Local Standards with some actual expenses. It also allows a debtor to deduct 1/60 of any secured debt (mortgages). If your net income (what’s left over after you subtract your means test expenses from your means test income) multiplied by 60 is less than $6575, you qualify for Chapter 7. If it’s greater than $10.950, then the debtor must file under Chapter 13. If it’s between, then you go to step 3.
In step 3, you compare your net income to your unsecured debt. If your net income is less than 25% of your unsecured debt, you may file under Chapter 7. If the income is above 25% of unsecured debt, then you are relegated to Chapter 13.
Sounds easy, right? Well, there are additional bumps in the road along the way of the means test. First, the Code does not define household size. Second, the line item expenses in the test are not fully explained. This has led to lots of litigation all over the country. If the statute is not clear and the parties cannot agree, then a judge must decide.
Now, for the last bump in the road. Even if you pass the means test and qualify for Chapter 7, the trustee can object to a Chapter 7 filing based on your actual income and expenses. But that’s for another lesson.
If you’d like to receive more information, please click here for a free report.
Posted by Kevin on under Bankruptcy Blog |
Debt consolidation is where you combine a number of debts, usually with high interest rates, into a single debt with a lower interest rate. The result is a lower, single payment. On its face, debt consolidation is a good idea.
But, you have to be aware of what you are getting into. First, if you are dealing with a counseling company, there is usually a fee attached to the service. Make sure that you are dealing with a reputable counseling company (see discussion on credit counselors), that the fee is reasonable, and is not paid, in full, up front.
Most offers from debt consolidation, however, do not come from credit counselors but from banks or other financial institutions. In most of these cases, the bank will offer to wrap your credit card debt into a lower interest, tax deductible second mortgage. Not usually a bad deal, but as said above, know what you are getting into.
Credit card debt is what is referred to as unsecured debt. That means there is no collateral to support the debt. If you do not pay unsecured debt, the creditor can sue you and get a judgment. The creditor can attach a bank account or garnish your wages, but will probably not be in a position to foreclose on your house.
When you consolidate your credit card debt into a second mortgage, you will pay less each month and probably have a tax write off. However, what you have done is turned “unsecured debt” into “secured debt”. Moreover, if the second mortgage is a home equity line of credit, it may very well be at an adjustable rate. So that low interest rate that you signed on for may be good for only a year.
If you default on secured debt, the second mortgage holder has the right to either sue on the Note or foreclose on your mortgage or do both. If your house has substantial equity, then the creditor will probably choose to foreclose and take out the first mortgage. Now, instead of a few nasty telephone calls and a possible wage garnishment, you could lose your home.
Go into any debt consolidation with open eyes. If your job is laying off workers, it may not be a good idea to consolidate. If your employment is stable and your health is good, consolidation may be a good idea.
One last caveat- never consolidate your debt into a second mortgage with the company that has your first mortgage. In many cases, the documents will state that a missed payment on the second constitutes a default on the first mortgage. Then your chances of being foreclosed on are that much better.
For further information, please refer to the following videos
Introduction to Bankruptcy
If you’d like to receive more information, please click here for a free report.
Posted by Kevin on under Bankruptcy Blog |
Credit counseling is an alternative to bankruptcy which can work for some people. A good credit counselor can teach you how to manage your money, help you establish a workable budget, and negotiate debt management plans with your creditors to reduce interest rates and spread out payments on your credit cards.
My experience has been that credit counseling works best for consumers who have relatively few credit cards, who do not have significant debt in relation to their income, and who can pay off the modified debt in 2-3 years. Repayment through a credit counselor is voluntary. So, each creditor has to agree to the proposal. If one or two do not agree, then effectively the consumer does not have a deal ( no reason to pay off 5 or 6 creditors when the other creditors get judgments against you and levy against your bank account or garnish your wages). Balking creditors, lots of creditors, substantial five figure debt- bankruptcy is probably the better option.
Well, how do you get information about credit counseling or find a reputable credit counselor?
- Check FTC website
- Make sure counselor is affiliated with National Foundation for Credit Counseling or accredited with Better Business Bureau
- Ask for a referral from local Legal Aid
- Watch for high up front fees.
Credit counseling will impact on your credit score but less than bankruptcy.
For further information, please refer to the following videos
Introduction to Bankruptcy
If you’d like to receive more information, please click here for a free report.
Posted by Kevin on under Bankruptcy Blog |
Usually during the initial consultation, a Chapter 7 debtor will ask, with some trepidation, if he or she is required to appear in court. The answer is that most Chapter 7 debtors will never see the inside of a court room. However, every Chapter 7 debtor must attend a 341(a) meeting.
Section 341(a) of the Bankruptcy Code states that within a reasonable time after the filing of the bankruptcy petition, the United States Trustee shall convene and preside at a meeting of creditors. In New Jersey, the Office of the United States Trustee has established a panel of trustees to administer Chapter 7 cases. Almost all of the so-called “panel” trustees are attorneys or accountants who are familiar with bankruptcy. The United States Trustee assigns upwards of 70 cases to each panel trustee in a given month. It is the job of the panel trustee to conduct the 341(a) meetings for each debtor.
Prior to the meeting the debtor must provide his tax return to the trustee. At the meeting, the debtor must produce a photo ID (usually a driver’s license) and a social security card. If the debtor does not bring these two items of identification, the 341(a) meeting is usually adjourned, and the debtor’s attorney is required to send a written notice to all creditors of the adjourned date (for which the debtor usually will be charged an additional fee).
The debtor is required to bring his latest pay stub (called a payment advice), and may be required to bring documentation to prove his expenses if requested by the trustee. In addition, the debtor is required to produce his latest bank statement(s) and brokerage statement(s) if any. Although not required, a debtor who owns real estate should provide a copy of a comparative market analysis and a mortgage payout statement. This will allow the trustee to determine whether any equity exists. If the debtor does not speak English well, it is advisable to bring a translator and to notify the trustee in advance.
Although called a meeting of creditors, it is rare for a creditor to attend a meeting, and even more rare for a creditor to question the debtor. In the cases that I have seen a creditor attend and question a debtor, it is usually because an unsophisticated creditor believes that he is required to appear, or a creditor is trying to find out the location of collateral. If the creditor is not represented by an attorney, the exchange between the debtor and creditor can get a bit unpleasant because they tend to know each other. Therefore, the trustee usually limits questioning and advices the creditor to retain counsel.
For the most part, the trustee conducts the questioning of the debtor. In most cases, the questioning lasts for less than 5 minutes. In all cases, the trustee confirms that the debtor signed the petition and other required documents, and reviewed them for accuracy. He asks about assets, income, expenses, possible lawsuits, domestic support obligations, transfers of property, and why the debtor got into financial trouble. More time will be spent if the debtor sold real property within 3 years of the filing, or if the debtor had his own business.
I have been involved in many 341(a) meetings both as a trustee and as debtor’s counsel. No matter what you say to a client, he is going to be nervous about the 341(a) meeting. The debtor is worried that he may freeze, that he may forget something important, that he will make a misstatement, that the trustee will say something that will embarrass him, that he will not get his discharge. Being questioned under oath by a trustee, who certainly is not your friend, is enough to make anyone nervous.
Besides preparing my clients with sample questions, I ask them to show up for the meeting early. As stated above, in today’s economic environment, panel trustees may have upwards of 70 cases per month for which they must conduct 341(a) meetings. Trustees will usually schedule 30-40 meetings for a single day beginning at 9 AM and going until 3 or 4 PM. If the debtor gets to the hearing room early, he can listen to the questions that the trustee is asking the other debtors. They tend to be the same questions. He can also see that the rest of the debtors in the room look like him, sound like him and are in the same boat. This tends to calm down the debtor. Finally, I stress to my clients that I am there to protect them- that’s my job.
Most 341(a) meetings are closed by the trustee at the end of questioning. In some cases, the debtor may be required to provide some additional documentation. It is advisable to meet all reasonable requests of the trustee as soon as possible. The quicker the 341(a) meeting is closed, the quicker the debtor will receive his discharge- and that is the goal.
For further information, please refer to the following video:
Meeting of Creditors in personal bankruptcy cases
If you’d like to receive more information, please click here for a free report.
Posted by Kevin on under Bankruptcy Blog |
A Chapter 13 bankruptcy may be filed by individuals with regular income. This includes a sole proprietor who runs a business but does not include a corporation, an LLC or a partnership. In a Chapter 13, the debtor pays all or a part of her debts over a period of 3-5 years under the supervision of the bankruptcy court.
A Chapter 13 bankruptcy is initiated by the filing of a Chapter 13 petition together with a Chapter 13 plan. The plan must provide for a fixed monthly payment to the Chapter 13 trustee. The debtor must begin making payments pursuant to the plan beginning the month after the filing. For example, if the filing is on April 10, then the first payment is due on May 1. Creditors and/or the Chapter 13 trustee may object to the plan. The debtor can either modify the plan to meet the objections or allow the bankruptcy judge to decide if the plan complies with the law and is, therefore, confirmable.
Read more of this article »
Posted by Kevin on under Bankruptcy Blog |
Chapter 11 bankruptcy basically deals with the reorganization and/or liquidation of businesses. However, an individual may file under Chapter 11. For consumers, Chapter 11 is available when a debtor wants to retain assets, like her home, but does not qualify for Chapter 13. A prospective debtor does not qualify for Chapter 13 if her unsecured debt exceeds $336,900 and/or secured debt exceeds $1,010,000.
For further information, please refer to the following videos
The different types of bankruptcy
If you’d like to receive more information, please click here for a free report.
Posted by Kevin on under Bankruptcy Blog |
Chapter 7 is known as a straight bankruptcy or liquidation. It is the most common consumer bankruptcy. The person who files a Chapter 7 petition is called a debtor. When the petition is filed, the case is assigned to a trustee. The trustee’s job is to collect all of the debtor’s non-exempt assets, turn them into cash, and distribute the proceeds to the debtor’s creditors according to the priority set up in the Bankruptcy Code.
In the vast majority of consumer Chapter 7 cases, however, all of a debtor’s assets are exempt so the debtor keeps them. Moreover, if the debtor complies with the requirements of the Bankruptcy Code, most, if not all, of his debts are discharged. This means that they are wiped out. This is called a no-asset case.
Read more of this article »
