Posted by Kevin on October 29, 2019 under Bankruptcy Blog | 
Both Chapter 7 and Chapter 13 will stop a foreclosure.
The Bankruptcy Code says that a bankruptcy “petition filed… operates as a stay, applicable to all entities, of—… any act to… enforce [any lien] against any property of the debtor… .” See Section 362(a)(4). This means that the mere filing of your bankruptcy case will immediately stop a foreclosure from happening.
But What if the Foreclosure Still Occurs?
But what if your bankruptcy case is filed just hours or even minutes before the foreclosure sale, but the foreclosing mortgage lender or its attorney can’t be contacted in time for them to be informed? Or what the lender is contacted in time but messes up on its instructions to its foreclosing attorney so that the foreclosure sale mistakenly still takes place? Or what if the lender refuses to acknowledge the effect of the bankruptcy filing and deliberately forecloses anyway?
As long as the bankruptcy is in fact filed at the bankruptcy court BEFORE the foreclosure is conducted, the foreclosure would not be legal. Or at least would very, very likely be immediately undone. It does not matter whether the foreclosure happened mistakenly or intentionally.
A Foreclosure by Mistake
If a foreclosure happens by mistake after a bankruptcy is filed, or because the lender didn’t find out in time, lenders are usually very cooperative in quickly undoing the effect of the foreclosure. It is usually not difficult to establish that the foreclosure occurred after the bankruptcy was filed, and that usually quickly resolves the issue. If a lender fails to undo such a foreclosure after being presented evidence that the bankruptcy was filed first, the lender would be in ongoing violation of the automatic stay. This would make the lender liable for significant financial penalties, so they usually undo the foreclosure right away.
A Foreclosure Purposely Conducted after Your Bankruptcy is Filed
This almost never happens. If you are harmed by a foreclosure intentionally done after your bankruptcy filing, you can “recover actual damages, including costs and attorneys’ fees, and in appropriate circumstances, may recover punitive damages.” See Section 362(k). Bankruptcy judges are not happy with creditors who purposely violate the law. Enough of them have been slapped that most creditors know better.
Chapter 7 vs. Chapter 13
For purposes of stopping a foreclosure that is about to happen, it does not matter whether you file a Chapter 7 or Chapter 13 case. The automatic stay is the same under both.
But how long the protection of the automatic stay lasts can most certainly depend on whether you file a Chapter 7 “straight bankruptcy” or a Chapter 13 “adjustment of debts.” That’s because even though you get the same automatic stay, each Chapter gives you very different tools for dealing with your mortgage. That’s why your mortgage lender will likely react differently depending on which Chapter you file under and how you propose to deal with the mortgage within each.
Posted by Kevin on October 3, 2019 under Bankruptcy Blog |
Powerful Chapter 13 gives you tools to solve your mortgage and other home lien problems from a number of different angles.
The Limits of Chapter 7 “Straight Bankruptcy”
In my last blog I described how a Chapter 7 case can under certain circumstances help you enough to save your home., or, at least, delay a foreclosure for a limited time.
The Extraordinary Tools of Chapter 13
Chapter 13, on the other hand, provides you a range of much more powerful and flexible tools for solving many, many debt issues so that you can keep your home.
Here are the first five of ten significant ways that Chapter 13 can save your home (with the other five to come in my next blog).
Under Chapter 13 case you can:
1. stretch out the amount of time for catching up on back mortgage payments for as long as 5 years. This is in contrast to the one year or so that most mortgage lenders will give you to catch up if you do a Chapter 7 case instead. This longer period can greatly lower your monthly catch-up payments, making more likely that you would succeed in actually catching up and keeping your home.
2. slash your other debt obligations so that you can afford your mortgage payments. The mortgage debt—especially your first mortgage—can’t be significantly changed under Chapter 13. So you are usually required to pay your full monthly mortgage payment, and to catch up any arrearage, but to accomplish this you are allowed to pay to most of your other debts.
3. permanently prevent income tax liens, and child and spousal support liens, and such from attaching to your home. The “automatic stay” preventing such liens under Chapter 7 last usually only about 3 months, and there’s no mechanism for dealing with these kinds of debts. Instead under Chapter 13, these liens are prevented throughout the three-to-five-year length of the case.
4. have the time to pay debts that can’t be discharged (legally written off) in bankruptcy, all the while being protected from those creditors attacking your home. So even if a tax or support lien is already in place before you file, you are given the opportunity to pay the debt while under the protection of the bankruptcy laws. That undercuts the leverage of those liens against your home. Then by the end of your case, the debts are paid and those liens are released.
5. discharge (write off) debts owed to creditors which could otherwise attack your home. For example, certain (generally older) income taxes can be discharged, leaving you owing nothing. But had you not filed the Chapter 13 case, or delayed doing so, a tax lien could have been recorded, which would have required you to pay some or all of the balance to free your home from that lien. Even most standard debts can turn into judgment liens against your house once you are sued and a judgment is entered. Depending on the facts, a judgment liens may or may not be able to be gotten rid of in bankruptcy. If instead you file a Chapter 13 case to prevent these liens from happening, at the end of your case the debt is gone, and no such liens attach to your home.
See my next blog post for the other five house-saving tools of Chapter 13.
Posted by Kevin on June 28, 2017 under Bankruptcy Blog |
Here are 3 scenarios where a debtor tries to save his or her home. When is Chapter 7 “straight bankruptcy” enough, and when do you need Chapter 13 “adjustment of debts”?
Scenario #1: Current on Your Home Mortgage(s), Behind on Other Debts
Chapter 7: Would likely discharge (legally write off) most if not all of your other debts, freeing up cash flow so that you can make your house payments. Stops those other debts from turning into judgments and liens against your home.
Chapter 13: Same benefits as Chapter 7, plus often a better way to deal with many other special debts, such as income taxes, back support payments, and vehicle loans. May be able to “strip” (permanently get rid of) a 2nd or 3rd mortgage, so that you would not have to make that monthly payment, and paying little or nothing on the balance during the case and then discharging any remaining balance at the successful completion of your case.
Scenario #2. Not Current on Home Mortgage(s) But Only a Few Payments Behind & No Pending Foreclosure
Chapter 7: May buy you enough time to get current on your mortgage, if you’ve slipped only two or three payments behind. Most mortgage companies and their servicers (the people you actually interact with) will agree to give you several months—generally up to a year—to catch up on your mortgage arrearages. Generally called a “forbearance agreement”—lender agrees to “forbear” from foreclosing as long as you make the agreed payments. Works only if you have an unusual source of money (a generous relative or a pending legal settlement that’s exempt from the other creditors), or if filing Chapter 7 will stop enough money going to other creditors so you will have enough monthly cash flow to pay off the mortgage arrearages quickly.
Chapter 13: Even if only a few thousand dollars behind on your mortgage, you may not have enough extra money each month after filing a Chapter 7 case to catch up quickly on that mortgage arrearages. If lender is inflexible about giving you more time to catch up, a Chapter 13 case forces them to accept a much longer period to do so—three to five years.
Scenario #3. Many Payments Behind on Your Mortgage(s):
Chapter 7: Not helpful here. Buys at best only two to three months or so. Also, no possibility of “stripping”a 2nd or 3rd mortgage.
Chapter 13: Assumes that you can at least make the regular mortgage payment consistently, along with the arrearages catch-up payments. As stated above, gives you up to five years to pay off the mortgage arrearages, Your home is protected from foreclosure as long as you maintain the agreed Chapter 13 Plan and mortgage payments. Does not enable you to reduce the first mortgage payment amount, although in some situations you may be able to “strip” your 2nd or 3rd mortgage.
In my 30+ years of experience as a bankruptcy attorney, have seen Scenario #1 only once (was a close friend and he is still in his home). Usually see Scenario #3 because most debtors do not seek counsel until they are really “in the hole”. Be smart. When things start to go south, call an experienced bankruptcy attorney to learn your options.
Posted by Kevin on August 7, 2013 under Bankruptcy Blog |
More answers about how Chapter 13 gives you up to 5 years to catch up on your past-due mortgage.
The last blog, and this one, answer questions about how Chapter 13 gives you time to “cure the arrearage.” Check out the last blog for answers to these questions:
- Can you give a simple example how this “curing the arrearage” works?
- If my Chapter 13 plan proposes to catch up my mortgage in 5 years, does my mortgage lender have to go along with this?
- What if, based on my income, I’m allowed to finish my plan in 3 years instead of 5?
Now on to today’s questions:
How are back property taxes handled?
If you are paying your home’s property taxes as part of your mortgage payment, and you’ve fallen significantly behind on those mortgage payments, the lender may well have paid the current year’s property taxes with its own money. If so, the lender will add the amount it advanced for your taxes into the total amount that you are behind. So through your Chapter 13 plan payments you will simply pay to your lender the amount that it paid for your taxes, as you pay the rest of your back mortgage payments.
If you are paying the property taxes directly (not as part of your regular mortgage payments) and have fallen behind on those taxes, your Chapter 13 plan will include payments to the county or other appropriate taxing authority.
What if the mortgage lender and I don’t agree on the amount of arrearage that’s owed?
Chapter 13 has a relatively efficient mechanism for determining the accurate amount of arrearage. Your creditors, including your mortgage lender, are required to file a document in bankruptcy court—a “proof of claim”—stating the total amount owned, the amount of arrearage and how it is calculated, as well as the amount of any additional fees. You as the debtor then have the opportunity to object to that proof of claim. The bankruptcy judge is a convenient and experienced decision-maker in these kinds of disputes.
This area has been a controversial one in the past 5-10 years, mostly because lenders have often been inaccurate and unclear in their accounting, and been simply unable to justify the amounts on their proofs of claim. This particularly became a problem when lenders added fees to the balance without telling the homeowners, so that the homeowners would think that they were current only to learn, often after the completion of their Chapter 13 case, that supposedly they were still behind. Bankruptcy Rule 3002.1 was put into place to solve this problem. This rule requires lenders to give timely notice of the amount owed and any changes to the amount, and provides for serious consequences if they fail to follow these rules.
What happens if my circumstances change and I decide not to keep the house after all during my Chapter 13 case?
One of the great features of Chapter 13 is its flexibility. So you CAN change your mind and surrender your house part-way through your case. Or you can sell it. And at that point you can either stay in the Chapter 13 case or get out of it.
You could stay in it if there were still worthwhile reasons to do so, reasons not related to your house. For example, you could continue the case if you had debts that were best handled in a Chapter 13 case—such as taxes, support obligations, or possibly student loans. Your attorney would work with you to amend your plan to stop payments going to the house and redirect them elsewhere.
But if you filed a Chapter 13 case solely because of your house and now no longer needed or wanted to catch up on the arrearage, your attorney could either “convert” your case into a Chapter 7 one or simply end the Chapter 13 case by “dismissing” it. More likely your case would be converted into a Chapter 7 one to finish taking care of your debts, including possibly debts related to your house.
A big caution comes with all this flexibility. Although it’s good to know when you start your Chapter 13 case that it does not HAVE to be completed as it was originally put together, it seldom makes practical sense to start a case that you don’t intend to finish. You need to have a reasonable chance to complete it. Consider very carefully whether you will be able to make the necessary payments over the whole 3-to-5-year length of your case. If you had trouble making your regular mortgage payment before filing bankruptcy, look at whether Chapter 13, with all of its benefits, will help your cash flow enough so that you will be able to do what the plan requires of you.
Posted by Kevin on July 22, 2013 under Bankruptcy Blog |
Filing bankruptcy can buy you a little time or a lot of time, enough time either to transition to a new home or else to save your present home.
The same bankruptcy power that stops a lawsuit or garnishment of your wages or bank account, also stops a home foreclosure. The practical question is: what happens to your home after the foreclosure is stopped?
Chapter 7: the Option that Buys You a Little Time
A Chapter 7 “straight bankruptcy,” is by far the most common type. It gives you protection against foreclosure for three months or so, or potentially for even less time if the mortgage lender is aggressive.
With such a short period of protection, a Chapter 7 would help you in two quite different situations:
1. if you have decided to surrender your home but need just a few weeks to move; or
2. if you want to keep the home, and can afford to catch up on the late payments within about a year of extra payments.
Filing a Chapter 7 is like hitting a pause button. If you’re letting your house go, it lets you catch your breath before you have to leave. If you’re hanging on to the house, a Chapter 7 gives us time to do a deal with the mortgage lender.
Chapter 13: the Option that Can Buy You Years of Time
Filing under Chapter 13 can potentially give you five years to pay off your back payments, and does so in a more flexible and powerful package.
Instead of negotiating with the mortgage lender and hoping that it will give you terms that you can live with, Chapter 13 generally gives you a set of rules to follow for catching up with that lender. It also gives you time to catch up on any back property taxes, can often get rid of a second mortgage or a judgment lien, and usually provides a practical way of dealing with other liens on your home, such as an income tax or child support lien.
A Chapter 13 case is flexible, so that if you have changes in your circumstances during your case your plan can be adjusted to account for the changes. That makes holding on to your real estate more feasible. It also means you can change your mind and decide to surrender it, months or even years after your case was filed.
The mortgage lender can always ask the bankruptcy court for permission to begin or restart a foreclosure. These kinds of creditors tend to do so either at the beginning of your case if they don’t like the Chapter 13 payment plan that you and your attorney are proposing, or later in the case if you’ve not made the payments that you said in your plan that you would make. The court balances your rights against those of the lender in deciding whether to give you the extra time you need.
Posted by Kevin on May 29, 2013 under Bankruptcy Blog |
If Chapter 7 strengthens your hand against your secured creditors, Chapter 13 turns you into Superman. It starts with a much more robust “automatic stay.”
The last blog explained how filing a Chapter 7 “straight bankruptcy” gives you certain leverage over secured creditors. In each of these areas, the Chapter 13 “payment plan” gives you many more powers to achieve your goals. Because there are so many Chapter 13 powers, these three areas will be covered in the next few blogs.
Stopping Creditors from Taking the Collateral
The “automatic stay,” which immediately stops your secured creditors from taking any action against the collateral under Chapter 7, gives you that same benefit under Chapter 13. But the “automatic stay” can be tremendously stronger in Chapter 13 for three reasons:
1. Lasts So Much Longer: Chapter 7’s “automatic stay” generally lasts only about 3 months, and sometimes not even that long if a creditor asks the court for “relief from stay” to get permission to go after the collateral. At best, Chapter 7 only pauses the action against you and the collateral. In contrast, a Chapter 13 case itself lasts usually 3 to 5 years, and the protection of the “automatic stay” is in effect that entire time, again unless a creditor is successful in getting “relief from stay.” (usually because the debtor fails to make make multiple payments to that creditor).
2. The “Co-Debtor Stay”: A Chapter 7 case does not stop a creditor from pursuing any co-signer you may have or that co-signer’s collateral. Chapter 13 does. There are limitations to this special kind of “stay,” so how much practical help it provides to you depends on the facts of each case. But at the very least the co-debtor stay immediately protects the co-signer, giving you a chance to get your Chapter 13 plan started and to see whether and/or how the creditor reacts.
As with the usual “automatic stay,” an affected creditor can ask for “relief from the co-debtor stay” to get permission to go after the co-signer or its collateral. Unless and until this motion is filed and the bankruptcy court decides to give this permission, your co-signer is protected.
3. Enables the Other Chapter 13 Powers to Work: Chapter 13 gives you many strong powers for dealing with secured creditors, many of which only work because of the long and continuous protection provided by the “automatic stay.” For example, unlike Chapter 7 which provides no mechanism for catching up on unpaid mortgage payments (other than whatever payment schedule the creditor voluntarily agrees to), Chapter 13 effectively gives you the entire length of the 3-to-5-year case to catch up. But this only works because throughout this time the mortgage holder is stopped from foreclosing by the ongoing “automatic stay.”
Another example illustrates well the crucial role of the “automatic stay” in Chapter 13. Most mortgage documents require the homeowner to pay the home’s property taxes either directly to the taxing authority or more often through an escrow account set up for that purpose. If the taxes are not paid by the homeowner, that is a separate violation of the mortgage agreement and separate grounds for the creditor to start a foreclosure against the homeowner. When the homeowner files a Chapter 13 case, this stops BOTH the mortgage creditor’s foreclosure AND any present or upcoming tax foreclosure by the county (or applicable taxing authority). The homeowner’s Chapter 13 plan shows how the back payments to both the creditor and the taxing authority will be paid. As long as you abide by the Plan, the automatic stays continues in effect, and the taxing authority cannot foreclose.
Posted by Kevin on August 2, 0201 under Bankruptcy Blog |
Chapter 13 gives you up to 5 years to catch up on your past-due mortgage. How does this actually work?
You get a bunch of tools to help you keep your home when you file a Chapter 13. But the most basic of those tools is this large chunk of time—up to 5 years—to “cure the arrearage.” If you are many thousands of dollars behind on your home mortgage, you need to fully understand how this tool works before investing a lot of time and money doing a Chapter 13 case. This blog, and the next one, should answer your most pressing questions about this.
Can you give a simple example how this works?
Let’s say your monthly mortgage payment is $1,500 and you’ve missed 10 payments, so you are $15,000 behind. If this $15,000 were paid over the full 60 months of a 5-year Chapter 13 plan, that would be $250 each month. ($15,000 divided by 60 = $250.)
If you filed a Chapter 7 case instead, you’d likely be given about 10 months or so to pay that arrearage—amounting to about an extra $1,500 per month. So you’d essentially have to pay double payments, impossible for most people. An extra $250 per month through Chapter 13 may seem hard enough, but this would almost always come with the elimination or significant reduction in what you are paying to other creditors.
(To keep the above calculation simple here, we’ve not included any other fees that could be added to the mortgage arrearage. In most cases the lender would be able to add some late charges, maybe its attorney fees, and perhaps some other costs. And the Chapter 13 trustee would also be entitled to a fee as well.)
If my Chapter 13 plan proposes to catch up my mortgage in 5 years does my mortgage lender have to go along with this?
Most of the time, yes. Although the lender may be able to attach conditions in its favor.
To use the above example, the lender would almost always have to accept the $250 per month arrangement, and give you an opportunity to make those payments under your Chapter 13 plan. But if the mortgage lender is aggressive, it may be able to impose some conditions, ones that are potentially dangerous for you. For example, the lender could require conditions stating what would happen if you failed to comply precisely with the plan’s payment terms—by not being on time with either the arrearage payment or the regular monthly mortgage payment. If you did not make these payments on time, you could be given a very short last chance to pay them or else the lender would be able to start (or re-start) foreclosure proceedings.
Another way of putting this—Chapter 13 gives you a relatively long time to catch up on your missed mortgage payments, but the system is not particularly patient with you if you are then not able to keep to that payment schedule.
What if, based on my income, I’m allowed to finish my plan in 3 years instead of 5?
You’re certainly not required to use the full 5 years, if you can pay off the arrearage and the rest of your Chapter 13 obligations (such as any taxes or back support) faster. Using the above example, $15,000 in missed mortgage payments spread over 36 months would require about $417 per month (again, excluding some likely extra fees), instead of $250. Generally, you would want to finish your Chapter 13 case faster if possible, but should keep your monthly payment low enough to make more likely that you will be able to complete it successfully. If your income qualifies you for a 3 year plan, you are generally allowed to have in a plan that lasts anywhere between 36 and 60 months, depending on what your budget allows.
The next blog will cover these remaining questions:
How are back property taxes handled?
What if the mortgage lender and I don’t agree on the amount of arrearage that’s owed?
What happens if my circumstances change and I decide not to keep the house after all during my Chapter 13 case?
