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 February 11, 2019 under Bankruptcy Blog |
Chapter 13 Is a Powerful Package
If you want to keep your home but are behind on your mortgage payments, a Chapter 13 “adjustment of debts” is often what you need. It comes with an impressive set of tools to address many home debt problems. It gives you more time to catch up on the mortgage, may enable you to “strip” a second or third mortgage off your title, and gives you very helpful ways for dealing with property taxes, income tax liens, judgment liens, and such.
When Chapter 7 is Enough
But what if you have managed to fall only a few months behind on your mortgage, and could afford the payments if you just got relief from your other debts?
Or what if you aren’t even keeping the house, but do need a little more time to find another place to live?
Then you may not need a Chapter 13 case, and could save the extra time and cost that it would take compared to Chapter 7.
Buying Just Enough Time for What You Need
The “automatic stay”—the bankruptcy provision that stops virtually all actions by creditors against you or your property—applies to Chapter 7 just as it does to Chapter 13. So the filing of a Chapter 7 case stops a foreclosure just as quickly as a Chapter 13 filing.
But Chapter 7 usually buys you much less time than a Chapter 13 could.
If you are not very far behind on your mortgage payment(s) and want to keep your home, when you file a Chapter 7 case your mortgage lenders will usually give you several months to catch up on your back payments. You must immediately start making your regular monthly payments, if you had not been making them, and must enter a strict schedule for catching up on the arrearage. In return the lender agrees to hold off foreclosing, as long as you make the payments as agreed.
Where do you get the money to make these extra payments? By discharging your pre-petition debt in the Chapter 7, it could free up hundreds of dollars per month. The key, then, is to make sure that you use that money to pay the mortgage arrearage and not spend it on other items.
If instead, you are not keeping the house but just need to have more time to save money for moving into a rental home, a well-timed Chapter 7 case will buy you more time in your house. During that time you don’t pay mortgage payments, enabling you to get together first and last month’s rent payment, any necessary security deposit and other moving costs.
The tough-to-answer question is how much extra time would a Chapter 7 filing give you. It mostly depends on how aggressive your mortgage company is about trying to start or restart the foreclosure efforts. A pushy lender could, soon after you file your case, ask the bankruptcy court for “relief from the stay”—permission to start or restart the foreclosure process. If so, then your bankruptcy filing would buy you only an extra month or so.
Or on the other extreme, a mortgage lender could potentially take no action during the 3-4 months or so until your Chapter 7 case is finished. At that point the “automatic stay” protection expires, and the lender can start or restart the foreclosure. Or it may sit on its hands even longer. Your bankruptcy attorney will likely have some experience in how aggressive your particular mortgage lender is under facts similar to yours.
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 April 3, 2017 under Bankruptcy Blog |
Same facts as previous blog.
- Without a bankruptcy, a couple would have to pay about $30,000 to the IRS for back taxes, plus about another $45,000 in medical bills and credit cards, a total of about $75,000.
- Under Chapter 13, this same couple would pay only about $18,000—36 months of $500 payments.
How Does Chapter 13 Work to Save So Much on Taxes and Other Debts?
- Tax debts that are old enough are grouped with the “general unsecured” debts—such as medical bills and credit cards. These are paid usually based on how much money there is left over after paying other more important debts. This means that often these older taxes are paid either nothing or only a few pennies on the dollar.
- The more recent “priority” taxes DO have to be paid in full in a Chapter 13 case, along with interest accrued until the filing of the case. However: 1) penalties—which can be a significant portion of the debt—are treated like “general unsecured” debts and thus paid little or nothing, and 2) usually interest or penalties stop when the Chapter 13 is filed.
- “Priority” taxes—those more recent ones that do have to be paid in full—are all paid before anything is paid to the “general unsecured” debts—the medical bills, credit cards, older income taxes and such. In many cases this means that having these “priority” taxes to pay simply reduces the amount of money which would otherwise have been paid to those “general unsecured” creditors. As a result, in these situations having tax debt does not increase the amount that would have to be paid in a Chapter 13 case, which is after all based on what the debtors can afford. In our example, the couple pays $500 per month because that is what their budget allows.
- The bankruptcy law that stops creditors from trying to collect their debts while a bankruptcy case is active—the “automatic stay”—is as effective stopping the IRS as any other creditor. The IRS can continue to do some very limited and sensible things like demand the filing of a tax return or conduct an audit, but it can’t use the aggressive collection tools that the law otherwise grants to it.
Deciding Between Chapter 7 and 13 for Income Taxes
If, unlike the example, all of the taxes were old enough to meet the conditions for discharging them under Chapter 7, there would be no need for a Chapter 13 case (but may require additional work in a Chapter 7). On the other hand if more “priority” tax debts had to be paid than in the example, the debtors would have to pay more into their Chapter 13 plan, either through larger monthly payments or for a longer period of time.
There are definitely situations where it is a close call choosing between Chapter 7 or Chapter 13. And sometimes preparing an offer in compromise with the IRS—either instead of or together with a bankruptcy filing—is the best route. To decide which of these is best for you, you need the advice of an experienced bankruptcy attorney to help you make an informed decision and then to execute on it.
Posted by on June 20, 2016 under Bankruptcy Blog |
The automatic stay goes into effect simultaneous with the filing of your bankruptcy petition. The “petition” is the document “commencing a case under [the Bankruptcy Code].” Sections 101(42) and 301(a). So the very act of filing the petition itself “operates as a stay.” Section 362(a).
The instantaneous effect of the automatic stay is amazing especially in comparison to most other court procedures. Most take weeks, or even in the case of emergencies at least days or hours. Usually some kind of request or motion needs to be filed to get the court’s attention, the other side is given some opportunity to respond, and then there may be a hearing of some sort, before finally a judge makes a decision.
But the automatic stay skips all that. It is, at least at the beginning, completely one-sided, in your favor. You “win” an immediate court order, without the creditors having any immediate say about it, without involving a judge at all.
So the automatic stay gives you an immediate breathing spell, freezing all collection efforts against you, whether your creditors like it or not.
Awesomely Broad Protection
This break from your creditors covers “any act to collect, assess, or recover” a debt—just about anything a creditor could do to.
Besides stopping all collection phone calls and bills, the automatic stay stops all court and administrative proceedings against you from starting, or from continuing. If your bankruptcy is filed right before a lawsuit is to be filed at court against you, the lawsuit can’t be filed. Same with a home foreclosure. A prior judgment against you can’t result in your paycheck or bank account being garnished. If you’re behind on your vehicle loan payments, the repo man can’t come looking for your vehicle. If you owe back income taxes to the IRS, it can’t record a tax lien against your home and vehicle.
The automatic stay is powerful stuff.
“Relief” from the Automatic Stay
Any creditor can ask the court to cancel the automatic stay so that the creditor can again take action against you, your assets, or the collateral in particular. The most common situation for this is a creditor asking for the right to take back the collateral securing the debt—to repossess a vehicle or to start or continue a home foreclosure. Whether or not the court will give it this right, or give “relief from stay” in any situation, depends on all the details of the case. It requires a careful analysis to be done by and discussed with your attorney.
Exceptions or Limitations to Automatic Stay
There are some, and we will address some of them in upcoming blog posts.
Posted by Kevin on November 23, 2012 under Bankruptcy Blog |
Bankruptcy protects your home. Both Chapter 7 and 13 do so, but which is better for you?
_________________________
When you are dealing with your home, you are usually dealing with a mortgage. So, if you are comtemplating bankruptcy, you need to consider both the bankruptcy trustee and your mortgage lender. Here are 5 key questions to ask to find out whether a Chapter 7 straight bankruptcy or a Chapter 13 payment plan is what you need.
_________________________
1. Is your home worth more or less than the amount of your mortgage?
In other words, do you have equity in your home? Many people who purchased their homes after 2000 do not have equity in their home. In that case, a Chapter 7 trustee will abandon his or her interest in your home. That means, the trustee is not going to sell your home to pay off your unsecured creditors. But, remember, you still have to deal with your mortgage lender.
But, if you have owned your home for a long time, and have significant equity (that means more than the mortgage $43,250 for a married couple), a Chapter 7 trustee will sell your house. To avoid this, you should look into Chapter 13 to protect that value.
2. Are you current on your mortgage and property tax payments, and if not will you be able to get current within a short time after filing a Chapter 7 bankruptcy?
If you are not behind on your home obligations (and there is not equity in the home), in a vast majority of cases, you can continue making payments and keep the home after you file bankruptcy, regardless whether your other circumstances point you to a Chapter 7 case or a Chapter 13 one.
And if you are not so far behind, so that you could both consistently pay the regular monthly payments and catch up on your mortgage and any property tax arrearage within a few months, your mortgage lender may enter into a forbearance agreement with you to allow you to catch up. In those circumstances, you may want to consider filing under Chapter 7 and keep your home. However, if you would not be able to catch up within a short of period of time, you will likely need the extra power of Chapter 13 to buy more time.
3. Do you have a second (or third) mortgage which is not covered by equity in the home?
IF you have a second mortgage and you owe more on your first mortgage than your home is worth, Chapter 13 allows you to “strip” that second mortgage from your home. This means that you would pay very little or perhaps even nothing on it during your 3-to-5-year case, and then the entire balance would be forever written off. This cannot be done in Chapter 7. So of course if you have a significant second mortgage, this is a huge reason to file under Chapter 13.
This also applies if you have a third mortgage, and you owe more on the combination of your first two mortgages than the home is worth, allowing you to “strip” the third mortgage.
4. Do you have any current liens against your home which are not going to be resolved by filing Chapter 7?
Some debts result in liens against your home. Some of those liens can be taken care of with a Chapter 7 filing, some cannot.
For example, if in the past you were sued by a credit card company, medical provider, or collection agency, that creditor likely has a judgment lien against your home. As long as your home has no more equity than allowed by your homestead exemption (without even considering that judgment lien), you will likely be able to have that judgment lien released in a Chapter 7 case.
But, to use another example, if instead you have a lien against your home for owing back child support, a Chapter 7 is not going help you with that lien. After you file and finish a Chapter 7 case, your ex-spouse or local/state support enforcement agency may be able to foreclose on your home to enforce that lien. In contrast, a Chapter 13 case would protect you from any such foreclosure threat, while providing you a mechanism for paying off that debt while under this protection.
5. Do you have any special debts which could threaten your home later after filing a Chapter 7 bankruptcy case?
Even if you do not currently have any known liens or similar threats against your home, you may have future problems if you have one or more special debts which will survive a straight bankruptcy. The prime examples are income taxes, child and spousal support obligations, construction and home repair debts, and homeowner association dues and assessments. In most states, these kinds of debts either are automatic liens against a home or can easily turn into liens. And most liens can eventually be foreclosed to pay the debt underlying the lien. Chapter 13 can either help avoid a lien from attaching to your home or can enable you to pay the underlying debt and get the lien released without it threatening your home.
