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8 months 2 weeks ago

Under New York bankruptcy law (In re Boodrow) a debtor does not have to sign a Reaffirmation Agreement for a mortgage on real estate. This is a good thing (especially when dealing with second or third mortgages), since a signed Reaffirmation Agreement causes you to remain personally liable for the mortgage debt after bankruptcy, and for any resulting deficiency judgment determined to be due after a foreclosure of the “reaffirmed” mortgage.
Is there any downside to not signing a Reaffirmation Agreement on your mortgage? Depending upon the policy of your mortgage holder (ie., how much do they want to “bust your chops”), the answer sometimes can be “Yes”. Some mortgage lenders take the position that since bankruptcy discharges your personal liability for debts, they no longer have to report your post-bankruptcy mortgage payments to the Credit Reporting Agencies (CRA’s) because the underlying debt is discharged. This can cause a problem if someone is examining your Credit Report for certain purposes, including future mortgage refinance efforts. If your post-bankruptcy mortgage payment history does not appear on the Credit Report it can certainly prejudice, and probably doom, your refinance efforts.
Fortunately there is a solution to this quandary, although it involves a two-step process:
Step 1: Pursuant to § 2605(e) of the Real Estate Settlement Procedures Act (“RESPA”), make a Qualified Written Request to your mortgage servicer that they provide to you an accounting of all mortgage payments that you have made. This accounting should establish that you have been making timely mortgage payments post-bankruptcy.
Step 2: File a dispute with the CRA complaining that the reported mortgage payment information is inaccurate, attaching thereto the accounting received pursuant to the Qualified Written Request. Assuming that you are in fact current on your mortgage payments, this should result in the Credit Report entries being corrected, pursuant to the procedures established in The Fair Credit Reporting Act ( 15 USC § 1681i ).
There is another way to correct inaccurate Credit Report entries concerning your mortgage payment history, but it is very labor intensive and involves much photocopying and record keeping (which is not always a bad idea). As soon as you file bankruptcy begin (1) making copies of every check or bank draft that you use to pay your mortgage, and (2) keeping copies of your bank statements showing that said mortgage payments were received and cashed by your mortgage lender or servicer. You then file your dispute with the CRA complaining that the reported mortgage payment history is inaccurate, and attach thereto all check photocopies and bank statements evidencing that the required payments were made by you and received by the lender. This should result in the Credit Report entries being corrected.
Wouldn’t it just be easier to sign a Reaffirmation Agreement concerning your mortgage, as this would result in your post-bankruptcy payments being correctly reported to the CRA? It might be easier, but the downside to signing one is so onerous, as above noted, that you would be crazy to do so. In addition, it is highly unlikely that a Bankruptcy Judge would ever approve such a Reaffirmation Agreement unless it resulted in the debtor was receiving a substantial, favorable modification of the mortgage terms, which rarely happens in the context of Reaffirmation Agreements.


5 years 1 month ago

fear of losing home to foreclosure, chapter 13 dismissed, We often have initial consultations with people who have already filed a previous Chapter 13 case. These folks are normally in a panic because they're afraid of losing their home again; the threat of foreclosure and repossession of their vehicle(s) is very real. If you filed Chapter 13 and there was a reasonable explanation as to why you were unable to fulfill your obligation of making your plan payment you do have the option of refiling your case.
Refiling does involve an extra Court Hearing (Motion to Continue the Stay) where you go along with your attorney to appear in front of the Judge. The objective of the bankruptcy attorney is to give the Judge an explanation as to why your previous case was dismissed and why this new Chapter 13 case will be different. The Judge will ask you a few simple questions and if all goes well you will be on your way to a successful second case. You will still be required to attend another First Meeting of Creditors. 
When considering a second filing it is important that you really think hard as to why the first case didn't work out, why you couldn't keep up your plan payments. Remember filing for bankruptcy is supposed to alleviate your financial stress which you've been under. If making your plan payment is too hard then maybe it's time to seriously consider surrendering your home or your vehicle. Unfortunately, sometimes these gut wrenching decisions have to be made. If you should fail to succeed in a second filing a third case is exetremely difficult to get.


5 years 1 month ago

The answer to this question may surprise you.  You actually do not have to be destitute to file bankruptcy. Ideally, my clients would come to me before the bottom drops out from under them, but many wait until they are almost a year behind on their mortgage payments or a car has already been repossessed before seeking counsel from a bankruptcy attorney.  In fact, you can even file a Chapter 7 case and have whatever non-exempt property (property that is not capable of being protected from the Chapter 7 trustee and our creditors) you own liquidated by the Chapter 7 trustee administering your case to pay your unsecured creditors. I have seen creditors get paid out at 100% in Chapter 7 cases, though this is rare. Most are “no-asset” cases in which creditors receive nothing.
In Chapter 13 cases, you will have the option to pay back some of your debts over a 3-5 year period.  In some cases, unsecured creditors will receive nothing, while in others, all of your creditors will receive 100% of what you owe them, only with no fees and interest accruing during the plan period.
Chapter 11 is another animal entirely, as businesses need sufficient cash reserves to be able to whether a reorganization effort through bankruptcy.  Individuals filing for Chapter 11 should take this same advice to heart, as Chapter 11 fees are much higher and cannot be paid out over the life of a plan like in a Chapter 13.
The bottom line is this: Seek the counsel of a bankruptcy attorney well before you receive a foreclosure notice on your home.  The earlier your problems can be addressed, the more likely bankruptcy can be avoided. If bankruptcy is still required, the less issues you have, the smoother your case will go through the system.


5 years 1 month ago

Check out 11 USC Section 523(a)(8) of the Bankruptcy Code.  In essence, it says that student loans cannot be discharged, except in situations of “undue hardship” on the debtor or debtor’s dependents.  That’s easy to say but hard to prove.  Why does 523(a)(8) even exist to except student loans from being discharged in bankruptcy?  Well,  Congress didn’t want crafty young college grads filing bankruptcy just to get rid of student loans, and that’s why 523(a)(8) is written into the Bankruptcy Code today.
Believe it or not there are 2 tests that are used to determine whether an undue hardship circumstance has been established.  The first is called the “Brunner Test” and the second is the “Totality of Circumstances Test.”  Since this is a Southern California blog, we will only discuss the application of the Brunner Test today.
The Brunner test says that the debtor must have tried to repay the student loans in good faith.  Furthermore, the debtor also has to be so impoverished that the debtor cannot even maintain a minimal standard of living, and this situation should be unlikely to change.  Additionally, in California, we look at In re Nys 446 F.3d 938 (9th Cir 2006) for further application of the Brunner test.  For example, a debtor’s age, mental state, physical health, quality of education, and current and future assets will all be factored into the analysis.  This list is not exhaustive and each particular lists of circumstances may dictate a different outcome for that particular case.
In short, the inability to make student loan payments must be real.  Courts will now allow debtors to discharge student loans simply where it is inconvenient for the debtor to do so.   For example, imagine the scenario where the single debtor without any dependents has the ability to make either car payments on the BMW or make student loan payments, but not both.  The Debtor will probably have to surrender that vehicle in bankruptcy in order to satisfy the student loan payments.   A debtor seeking to discharge student loans on the basis that it would be unfair for him or her to lose his/her singular vehicle would find that to be an unappealing argument in front of virtually any court.  There are options such as public transit or getting a much more affordable vehicle, in lieu of hefty car payments.  Even if the car payments were considered reasonable, it would still be unlikely to justify the discharge of student loans, without more.
Based on the laws and cases currently in place, student loans are only to be discharged in the most extreme cases in the context of bankruptcy.  That means the overwhelming majority of debtors filing bankruptcy do not qualify for a discharge of student loans pursuant to 523(a)(8) of the US Bankruptcy Code, at least for now.
 
 
 
 
 
 
 
 
 
 
 


5 years 1 month ago

Frequently I meet with people seeking Chapter 13 or Chapter 7 bankruptcy protection who are surprised that the actions they take prior to filing for bankruptcy can have a lasting impact on their bankruptcy. For instance, let’s say the debtor’s mother “helped her out” by loaning her money for several months. Later on the debtor comes into some money and repays the family member in full but then subsequently has to file for bankruptcy protection.
Two bankruptcy provisions come into play in this situation. First, Sec. 547 allows the Trustee to avoid any transfer of an interest of the debtor in property made within 90 days before the filing of the petition or up to one year prior to the filing if the transfer was made to an insider. So that means if Debtor wants to file Chapter 7 , the price of admission is that she understands the Trustee can and will recover that money from the mother for the benefit of the creditors she is trying to discharge. The law will not allow the debtor to pay off her mom in full when other unsecured creditors would receive nothing in Chapter 7, which brings me to the second provision which comes into play if the debtor files a Chapter 13. According to Sec. 1322, a Chapter 13 repayment plan cannot discriminate unfairly against any class of creditor, i.e., paying the mother in full while the other unsecureds get zip. Furthermore, Sec. 1325 states that a Chapter 13 plan cannot even be confirmed unless the unsecured creditors received at least what they would have received under a Ch. 7, in this case, that would have included the amount of the preferential transfer.
So, that seemingly harmless repayment can become a can of worms in a bankruptcy setting. Invariably the debtor asserts that they didn’t know they were going to file at the time of the payment, they don’t want their family member involved and that it’s “not fair”. Those may be valid points, however, they won’t get you out of the preferential transfer quagmire.  That doesn’t mean you won’t be able to file Chapter 13 or Chapter 7 if you have repaid loans to friends or family members, however, if you have and need to file bankruptcy, discuss the matter with your attorney.  An experienced bankruptcy attorney will know how to properly address the payments in your bankruptcy.


5 years 1 month ago

Frequently I meet with people seeking Chapter 13 or Chapter 7 bankruptcy protection who are surprised that the actions they take prior to filing for bankruptcy can have a lasting impact on their bankruptcy. For instance, let’s say the debtor’s mother “helped her out” by loaning her money for several months. Later on the debtor comes into some money and repays the family member in full but then subsequently has to file for bankruptcy protection.
Two bankruptcy provisions come into play in this situation. First, Sec. 547 allows the Trustee to avoid any transfer of an interest of the debtor in property made within 90 days before the filing of the petition or up to one year prior to the filing if the transfer was made to an insider. So that means if Debtor wants to file Chapter 7 , the price of admission is that she understands the Trustee can and will recover that money from the mother for the benefit of the creditors she is trying to discharge. The law will not allow the debtor to pay off her mom in full when other unsecured creditors would receive nothing in Chapter 7, which brings me to the second provision which comes into play if the debtor files a Chapter 13. According to Sec. 1322, a Chapter 13 repayment plan cannot discriminate unfairly against any class of creditor, i.e., paying the mother in full while the other unsecureds get zip. Furthermore, Sec. 1325 states that a Chapter 13 plan cannot even be confirmed unless the unsecured creditors received at least what they would have received under a Ch. 7, in this case, that would have included the amount of the preferential transfer.
So, that seemingly harmless repayment can become a can of worms in a bankruptcy setting. Invariably the debtor asserts that they didn’t know they were going to file at the time of the payment, they don’t want their family member involved and that it’s “not fair”. Those may be valid points, however, they won’t get you out of the preferential transfer quagmire.  That doesn’t mean you won’t be able to file Chapter 13 or Chapter 7 if you have repaid loans to friends or family members, however, if you have and need to file bankruptcy, discuss the matter with your attorney.  An experienced bankruptcy attorney will know how to properly address the payments in your bankruptcy.


5 years 1 month ago

Chapter 7 and Chapter 13 of the bankruptcy code have given millions of people the financial freedom they needed to get on with their lives without a crushing debt load. There seems to be a lot of confusion regarding which chapter is right for who, so I’ve written this post as a quick reference for anyone who cares to know.
Chapter 7
Chapter 7 is often referred to as a “complete liquidation”, but this is not entirely accurate. The bankruptcy code provides that debtors are able to save certain property according to certain state law exemptions. What this means is that Georgia state law allows you to prevent certain property from being liquidated to pay off yours creditors.  The Chapter 7 Trustee is the individual tasked with administering your case and liquidating whatever non-exempt assets you have to pay off your creditors.
The Chapter 7 Trustee makes money by receiving a percentage of whatever value of the property he or she distributes to your creditors, so there is definitely an incentive for him to sell your assets; however, the three things that trustees really looks for are cash or cash equivalents (stocks, gold, etc.), real estate, and luxury cars.  Jewelry is often worth much less than you think, and the liquidation value of your household goods, including that sofa you paid five grand for, is virtually nothing.  I have had clients making in excess of $200,000 per year able to exempt everything they owned from the reach of the trustee.
Chapter 7 will wipe out any unsecured debt, with the exception of a few non-dischargeable debts such as child support, criminal fines, and debt incurred through fraud,  just to name a few.  What Chapter 7 cannot do for you is save your home from a foreclosure or your car from repossession.  Your car lender and mortgage holder have what is called a “security interest” or “lien” on your property.  This means that if you fail to pay them, they can sell your property to recover some of the money you owe.  After you file bankruptcy, creditors can no longer collect against you personally for any amount you owe, though the lien that attaches to your house or car will survive bankruptcy.  If you file Chapter 7 to stop a foreclosure, the lender will simply ask the court to lift the automatic stay and foreclose on your home a few months down the road.
 If you make more than the median income for a family of your size in Georgia, you may not qualify to file a Chapter 7.  In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) that does “not a damn thing” to protect the consumer.  It is very creditor friendly, and one part of this act is the requirement that all consumer debtors pass the “Means Test” in order to file Chapter 7.  If you make more than the median income (around $50,000 for a family of two), you presumptively fail the Means Test, though this presumption can be overcome with the help of a bankruptcy attorney who can find the right deductions to help higher income individuals pass the means test.
Chapter 13
Chapter 13 is the chapter to file if you want to keep all of your assets without worrying about a trustee attemping to sell them.  In a Chapter 13 bankruptcy, you will be given the option to pay back a portion of your debts (based on several factors that go beyond the scope of this article) over a 3-5 year period. One of the biggest advantages to filing a Chapter 13 bankruptcy is the ability to “strip-off” a second mortgage on your property if the first mortgage is worth more than the value of your home.  For instance, if your residence is worth $100,000 and you owe $120,000 on your first mortgage, there is no equity, or value, for the second mortgage to attach.  As a result, the second mortgage is wiped out and treated the same as any other unsecured debt, such as your credit cards and medical bills.
Just like Chapter 7, most debts are wiped out, though you will receive your discharge at the end of your payment period rather than a few months down the road as in Chapter 7.

 


5 years 1 month ago

Dude, so like, wouldn’t it be totally sweet to get money for free? All you need is pre-approval for a credit card and swipe away! What are the eligibility requirements for pre-approval? Nothing! Too good to be true? Of course!
Check out Demitri Martin on the Daily Show and his tongue-in-cheeck mockery of the credit card “wealth” mentality.
Joking aside, credit card debt is increasingly common under the current economic environment and the temptation sometimes too much to bare. The most common type of consumer debt is unsecured credit card debt which is the most common factor leading to Chapter 7 consumer bankruptcy.
Mr. Martin humorously mocked credit card companies and their appeal towards recent graduates through marketing ploys. While more regulations and laws are currently being passed by Congress regarding deceptive credit card and banking practices, it is best to keep your wits about you and common sense with you at all times.


3 years 4 months ago

Dude, so like, wouldn’t it be totally sweet to get money for free? All you need is pre-approval for a credit card and swipe away! What are the eligibility requirements for pre-approval? Nothing! Too good to be true? Of course!
Check out Demitri Martin on the Daily Show and his tongue-in-cheeck mockery of the credit card “wealth” mentality.
Joking aside, credit card debt is increasingly common under the current economic environment and the temptation sometimes too much to bare. The most common type of consumer debt is unsecured credit card debt which is the most common factor leading to Chapter 7 consumer bankruptcy.
Mr. Martin humorously mocked credit card companies and their appeal towards recent graduates through marketing ploys. While more regulations and laws are currently being passed by Congress regarding deceptive credit card and banking practices, it is best to keep your wits about you and common sense with you at all times.


5 years 1 month ago

            Sorry about not posting in a while – the start of the fall semester and the submission of job applications has taken considerable time.
            I would like to discuss a topic that is, admittedly, not as common an issue for most debtors as those I have previously discussed, but still interesting in my view.  Broadly speaking, this is the ability to discharge a debt under section 523(a)(6), which is for “willful and malicious injury by the debtor to another entity or to the property of another entity.”  Narrowly speaking, I will be discussing this in the context of medical malpractice debts. 
            Speaking very generally, a debtor can discharge the equivalent of a negligent tort, but not something that would amount to an intentional tort.  A tort is, broadly speaking, a wrongdoing for which the law provides a remedy in a civil case.  To illustrate in a simple example, if I am driving my car, drop my cell phone on the floor, and I accidentally run over a person who later sues me, I can probably discharge this debt in bankruptcy.  I use this example rather than drunk driving, as that presents somewhat different rules under 523(a)(9) – I’ll write more on that in a later post.  If I am driving my car, see a person whom I dislike, put the pedal to the metal and purposely hit that person who later sues me, bankruptcy will not relieve me of this duty (as it shouldn’t).
            A special situation, then, arises for physicians and other medical professionals.  The leading case on this subject was issued by the Supreme Court in Kawaauhau v. Geiger, 523 U.S. 57 (1998).  In a unanimous opinion issued by Justice Ginsburg, the Court held that a debt arising from a medical malpractice judgment for negligent or reckless conduct was dischargeable in bankruptcy.  Despite its unanimity among the Court members, I recall feeling great skepticism the first time I read the case, and still find its reasoning somewhat questionable.  I have chosen to write about this case, in part, because when I was a staffer on an academic journal last year, I realized that I wanted to write about this subject at a point when it was too late to make such a decision.  But I digress. 
            In Geiger, the patient had a foot injury.  She sought treatment from Dr. Geiger, who prescribed her oral penicillin in order to reduce the risk of infection, despite his knowledge that intravenous penicillin would have been more effective.  Dr. Geiger then left for a trip, and upon his return, overruled the decision of other physicians to transfer the patient to an infectious disease specialist, as he believed the infection was less severe.  Dr. Geiger was wrong, and the patient eventually had to have her right leg amputated below the knee. 
            The patient then sued Dr. Geiger, and obtained a judgment for about $355,000.  Dr. Geiger, having had his wages garnished as a result of his lack of malpractice insurance, then filed for bankruptcy.  The Bankruptcy Court for the Eastern District of Missouri did not allow this debt to be discharged, holding that it Dr. Geiger’s actions were below prevailing medical standards, and so amounted to “willful and malicious” injury in 523(a)(6).  The District Court agreed. The U.S. Court of Appeals for the Eighth Circuit reversed, holding that the exemption from discharge is confined to actions amounting to an intentional tort, and allowed the discharge.
            The Supreme Court agreed to hear the case, and affirmed the Eighth Circuit’s decision to allow the discharge.  The Court interpreted 523(a)(6) to mean that the exception from discharge is limited to acts done with the intent to cause injury.  Applying the statute to mean that all acts done intentionally which cause injury was too broad of a standard for the Court.  It went on to say that intentional torts “generally require that the actor intend ‘the consequences of an act,’ not simply ‘the act itself.’”
            I don’t take issue with the reasoning in general.  The result in the case of medical malpractice debts in particular seems inequitable to me, though.  Why not hold professionals, such as physicians, to a higher standard?  Dr. Geiger, without malpractice insurance (which he probably should have had), decided to practice medicine in a manner that he knew was less effective.  The patient alleged that this was simply a cost-cutting measure.  The result for the patient was that she had a good portion of her leg amputated, and yet did not receive any compensation from her physician who was, by all accounts, negligent.  To me, a physician such as Dr. Geiger should have known better than to practice medicine in this manner, whether it was for cost-cutting or not.  Generally in tort law, physicians and other professionals are held to a higher standard of care than the average person.  To me, it only makes sense for this special standard of care to translate to a special exception for discharge in bankruptcy as well.  Otherwise, the higher standard of care may be reduced to a lack of meaning should the physician file for bankruptcy.
            The Court’s decision was well-reasoned.  The Bankruptcy Code, then as today, does not provide an exception of discharge for medical malpractice debts.  Near the end of the Court’s opinion, Justice Ginsburg writes that although the Court declines to make a policy exception for discharge for medical malpractice debts, “Congress, of course, may so decide.  But unless and until Congress makes such a decision, we must follow the current direction § 523(a)(6).”  It’s in Congress’s hands to fix what I perceive as an inequitable loophole.  I’m not getting my hopes up.
            I expect to write again next week on a topic which applies to (nearly) all individual debtors: state exemptions from the bankruptcy estate.  I’ll focus on my state of Virginia, as it has some interesting provisions.  Thanks for reading.
-JP


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