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By Gretchen Morgenson

Even as Wells Fargo was reeling from a major scandal in its consumer bank last year,
officials in the company’s mortgage business were putting through unauthorized
changes to home loans held by customers in bankruptcy, a new class action and
other lawsuits contend.

The changes, which surprised the customers, typically lowered their monthly
loan payments, which would seem to benefit borrowers, particularly those in
bankruptcy. But deep in the details was this fact: Wells Fargo’s changes would
extend the terms of borrowers’ loans by decades, meaning they would have monthly
payments for far longer and would ultimately owe the bank much more.

Any change to a payment plan for a person in bankruptcy is subject to approval
by the court and the other parties involved. But Wells Fargo put through big changes
to the home loans without such approval, according to the lawsuits.

The changes are part of a trial loan modification process from Wells Fargo. But
they put borrowers in bankruptcy at risk of defaulting on the commitments they
have made to the courts, and could make them vulnerable to foreclosure in the
future.

A spokesman for Wells Fargo, Tom Goyda, said the bank strongly denied the claims
made in the lawsuits and particularly disputed how the complaints characterized the
bank’s actions. Wells Fargo contends that the borrowers and the bankruptcy courts
were notified.

“Modifications help customers stay in their homes when they encounter
financial challenges,” Mr. Goyda said, “and we have used them to help more than
one million families since the beginning of 2009.”

According to court documents, Wells Fargo has been putting through
unrequested changes to borrowers’ loans since 2015. During this period, the bank
was under attack for its practice of opening unwanted bank and credit card accounts
for customers to meet sales quotas.

Outrage over that activity — which the bank admitted in September 2016, when
it was fined $185 million — cost John G. Stumpf, its former chief executive, his job
and damaged the bank’s reputation.

It is unclear how many unsolicited loan changes Wells Fargo has put through
nationwide, but seven cases describing the conduct have recently arisen in
Louisiana, New Jersey, North Carolina, Pennsylvania and Texas. In the North
Carolina court, Wells Fargo produced records showing it had submitted changes on
at least 25 borrowers’ loans since 2015.

Bankruptcy judges in North Carolina and Pennsylvania have admonished the
bank over the practice, according to the class-action lawsuit filed last week. One
judge called the practice “beyond the pale of due process.”

The lawsuits contend that Wells Fargo puts through changes on borrowers’
loans using a routine form that typically records new real estate taxes or
homeowners’ insurance costs that are folded into monthly mortgage payments.
Upon receiving these forms, bankruptcy court workers usually put the changes into
effect without questioning them.

It is unclear why the bank would put through such changes. On one hand, Wells
Fargo stood to profit from the new loan terms it set forth, and, under programs
designed to encourage loan modifications for troubled borrowers, the bank receives
as much as $1,600 from government programs for every such loan it adjusts, the
class-action lawsuit said. But submitting the changes without approval violates
bankruptcy rules and puts the bank at risk of court sanctions and federal scrutiny.

When a lawyer for a borrower has questioned the changes, Wells Fargo has reversed
them.

Abelardo Limon Jr., a lawyer in Brownsville, Tex., who represents some of the
plaintiffs, said he first thought Wells Fargo had made a clerical error. Then he saw
another case.

“When I realized it was a pattern of filing false documents with the federal court,
that was appalling to me,” Mr. Limon said in an interview. The unauthorized loan
modifications “really cause havoc to a debtor’s reorganization,” he said.

This is not the first time Wells Fargo has been accused of wrongdoing related to
payment change notices on mortgages it filed with the bankruptcy courts. Under a
settlement with the Justice Department in November 2015, the bank agreed to pay
$81.6 million to borrowers in bankruptcy whom it had failed to notify on time when
their monthly payments shifted to reflect different real estate taxes or insurance
costs.

That settlement — in which the bank also agreed to change its internal
procedures to prevent future violations — affected 68,000 homeowners.

Borrowers having financial difficulties often file for personal bankruptcy to save
their homes, working out payment plans with creditors and the courts to bring their
loans current in a set period. If the borrowers meet their obligations over that time,
they emerge from bankruptcy with clean slates and their homes intact.
Changing these payment plans without the approval of the judge and other
parties can imperil borrowers’ standing with the bankruptcy courts.

In the class-action lawsuit filed last week, the lead plaintiffs are a couple in
North Carolina who say that Wells Fargo submitted three changes to their payment
plan in 2016 without approval. The first time, Wells Fargo put through the changes
without alerting them, according to the couple, Christopher Dee Cotton and Allison
Hedrick Cotton.

The Cottons’ monthly payments declined with every change, dropping to $1,251
from $1,404.

Buried deep in the documents Wells Fargo filed — but did not get approved by
the borrowers, their lawyers or the court — was the news that the bank would extend
the Cottons’ loan to 40 years, increasing the amount of interest they would have to
pay. Before the changes, the Cottons owed roughly $145,000 on their mortgage and
were on schedule to pay off the loan in 14 years. Over that period, their interest
would total $55,593.

Under the new loan terms, the Cottons would have incurred $85,000 in interest
costs over the additional 26 years, on top of the $55,593 they would have paid under
the existing loan, their court filing shows.

Theodore O. Bartholow III, a lawyer for the Cottons, said Wells Fargo’s actions
contravened the intent of the bankruptcy system. “When it goes the right way, the
debtor and mortgage company agree to do a modification, go to court and say, ‘Hey
judge, modify or change the disbursement on my mortgage.’”

Instead, Wells Fargo did “a total end run” around the process, said Mr.
Bartholow, of Kellett & Bartholow in Dallas. The Cottons declined to comment.

Mr. Goyda, the Wells Fargo spokesman, denied that the bank had not notified
borrowers. “The terms of these modification offers were clearly outlined in letters
sent to the customers and/or to their attorneys, and as part of the Payment Change
Notices sent to the bankruptcy courts,” he wrote by email.

Mr. Goyda said that “such notices are not part of the loan modification package,
or part of the documentation required for the customer to accept or decline
modification offers.” He added, “We do not finalize a modification without receiving
signed documents from the customer and, where required, approval from the
bankruptcy court.”

Mr. Limon and other lawyers say that while the bank may wait for approval to
complete a modification, it has nevertheless put through unapproved changes to
borrowers’ payment plans. According to a complaint he filed on behalf of clients in
Texas, instead of going through the proper channels to try to modify a loan, Wells
Fargo filed the routine payment change notification.

The clients also accuse the bank of making false claims by contending that the
borrowers had requested or approved the loan modifications. In many cases, the
trustees who handle payments on behalf of consumers in bankruptcy would accept
the changes Wells Fargo had submitted on the assumption they had been properly
approved.

Mr. Limon represents Ignacio and Gabriela Perez of Brownsville, who say Wells
Fargo put through an improper change to their payment plan last year.

After experiencing financial difficulties, Mr. and Mrs. Perez filed for Chapter 13
bankruptcy protection in August 2016. They owed about $54,000 on their home at
the time, and had fallen behind on the mortgage by $2,177. The value of their home
was $95,317, records show, so they had substantial equity.

In September, the Perezes filed a payment plan with the bankruptcy court in
Brownsville; the trustee overseeing the process ordered a confirmation hearing on
the plan for early November.

But in a letter to the Perezes dated Oct. 10, Wells Fargo said their loan was
“seriously delinquent” and offered them a trial loan modification. “Time is of the
essence,” the letter stated. “Act now to avoid foreclosure.”

Because they were going through bankruptcy, the Perezes were not under any
threat of foreclosure. Mr. Perez said in an interview that the letter worried him, so he
asked his lawyer to investigate.

Then, on Oct. 28, 2016, DeMarcus Jones, identified in court papers as “VP Loan
Documentation” at Wells Fargo, filed a notice of mortgage payment change with the
bankruptcy court. It said the Perezes’ new monthly payment would be $663.15, down
from $1,019.03. In the notice, the bank explained that the reduction was a “Payment
change resulting from an approved trial modification agreement.”

The changes had not been approved by the Perezes, their lawyer or the
bankruptcy court, their complaint said.

Although the monthly payment Wells Fargo had listed for the Perezes was
lower, there was a catch — the same one that showed up in the Cottons’ loan. The
Perezes had been scheduled to pay off their mortgage in nine years, but the loan
terms from Wells Fargo extended it to 40 years. The Perezes would owe the bank an
extra $40,000 in interest, the legal filing said.

“I thought that I was totally crazy, or they were totally crazy,” Mr. Perez said. “I
am 58, in what mind could they think I would agree to extend my mortgage 40 years
more? I don’t understand much maybe, but it doesn’t sound legal to me.”
Mr. Limon quickly fought the changes.

If he had not, Mr. and Mrs. Perez could have faced further complications. The
new Wells Fargo payments were so much less than the payments the Perezes had
submitted to the bankruptcy court that if the trustee had started making the new
payments with no court approval, the Perezes would have emerged at the end of
their bankruptcy plan owing the difference between the amounts. The Perezes would
be unwittingly in arrears, and the bank could begin foreclosure proceedings if they
were unable to make up the difference.

© 2017 The New York Times Company.  All rights reserved.

If you are gainfully employed, the payment will most likely come directly from your wages in the form of a payroll control order. If you are self-employed or do not receive a regular pay check, then you will have to make the payment directly to the Chapter 13 Trustee. If you fall behind on your+ Read More
The post Paying The Chapter 13 Bankruptcy Trustee appeared first on David M. Siegel.

Unfortunately, it has become a common misconception that filing for bankruptcy will cause you to lose all of your property. Very seldom is this actually true. In most cases, the people who file bankruptcy in California – also known as “filers,” “debtors,” or “bankruptcy petitioners” – can keep much of their property and protect their assets by using bankruptcy exemptions. Chapter 7 exemptions can potentially protect your home, your car, and other valuable assets and belongings from sale or liquidation by the bankruptcy trustee. Keep reading to hear Sacramento bankruptcy attorneys explain how bankruptcy exemptions work, and see a comparison of the state exemption systems (System 1 and System 2) available to California debtors.

What is an Exempt Property or Asset?
When a debtor files bankruptcy with help from a Sacramento Chapter 7 lawyer, his or her assets and personal belongings become part of what is known as the “bankruptcy estate.” The bankruptcy court which is handling the filer’s case – that typically being the U.S. Bankruptcy Court for the Eastern District of California, Sacramento Division, for residents of the Sacramento area – will appoint a trustee to administer (manage) the bankruptcy estate. In Chapter 7, which is also called “liquidation bankruptcy,” the trustee’s role involves:

1. Assessing the value of the debtor’s assets, which must be itemized on the debtor’s bankruptcy forms.
2. Selling nonexempt assets to help certain creditors recoup their financial losses.
3. Distributing proceeds from the sale amongst creditors.

Nonexempt assets are assets which are not protected by bankruptcy exemptions, whereas exempt assets are assets which are protected by bankruptcy exemptions. A trustee cannot sell or liquidate exempt assets. Moreover, even if the asset is nonexempt, it may still be safe from liquidation if:

• The debtor is able to purchase the nonexempt property from the trustee, who may be amenable to an installment agreement.
• The trustee decides to abandon the nonexempt property. This may occur if the asset or property is upside-down (meaning the loan exceeds the property’s market value), or if proceeds from the sale would be so insubstantial as to render the sale process pointless.

Chapter 7 Federal Exemptions
Speaking broadly, there are two sets of exemptions in bankruptcy:

1. Federal bankruptcy exemptions
2. State bankruptcy exemptions

There can be wide variations in bankruptcy laws by state, including those pertaining to bankruptcy exemptions. For instance, only some states permit debtors to choose between (though not blend) state and federal exemptions. Unfortunately, California filers are somewhat limited in that California prohibits debtors from using the federal bankruptcy exemptions.
However, California filers still have a choice. Debtors in California may choose between two different sets of California bankruptcy exemptions:

1. System 1 Exemptions (also called “704 exemptions”)
2. System 2 Exemptions (also called “703 exemptions”)

Exemption amounts are uniform throughout the state of California. In other words, the California Chapter 7 exemptions which are available to Sacramento filers are the same as those available to Roseville filers, Folsom filers, and so on.
Additionally, exemption amounts are the same regardless of whether the debtor files Chapter 7 or Chapter 13, though exemptions play very different roles in each chapter of bankruptcy. While the main purpose of exemptions in Chapter 7 is to protect property from liquidation, the primary function of exemptions in Chapter 13 is determining how much money the debtor will need to pay back as part of his or her reorganization plan. When you contact The Bankruptcy Group for a free consultation, our California Chapter 13 attorneys can help you better understand the complex relationship between Chapter 13 exemptions and monthly payments in reorganization bankruptcy.
Continue reading to see a list of current System 1 and System 2 bankruptcy exemptions in California.

2017 Chapter 7 Exemptions in California: System 1 vs. System 2
Debtors should be advised that bankruptcy exemptions are periodically updated to account for inflation in the economy. The following California Chapter 7 bankruptcy exemptions are current as of 2017. The following list is non-exhaustive, and additional exemptions may be available depending on factors like:

• What types of possessions you own.
• What, if any, benefits you are receiving.
• Which types of insurance you have.

California System 1 Bankruptcy Exemptions

• Homestead Exemption
  • If single, not disabled – $75,000
  • If family, one member with no interest in homestead – $100,000
  • If age 65+ or physically/mentally disabled – $175,000

• Motor Vehicle Exemption – $3,050
• Tools of the Debtor’s Trade – $8,000 to $15,975
• Personal Property Exemptions
  • “Health aids reasonably necessary to enable the [filer] to work or sustain health,” including “prosthetic and orthopedic appliances” (California Code of Civil Procedure § 704.050)
  • “Household furnishings, appliances, provisions, wearing apparel, and other personal effects” (California Code of Civil Procedure § 704.020(a))
  • Home improvement materials – $3,200
  • Jewelry, artwork, family heirlooms – $8,000
• Other
  • Student financial aid (“[F]inancial aid for expenses while attending school provided to a student by an institution of higher education,” California Code of Civil Procedure § 704.190(b))
  • Worker’s compensation benefits (“[A] claim for workers’ compensation or workers’ compensation awarded or adjudged,” California Code of Civil Procedure § 704.160(a))

California System 2 Bankruptcy Exemptions

• Homestead Exemption – $26,800
• Motor Vehicle Exemption – $5,350
• Tools of the Debtor’s Trade – $8,000
• Personal Property Exemptions
  • “[H]ousehold furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor” (California Code of Civil Procedure § 703.140(b)(3)) – $675 per item
  • Health aids
  • Jewelry – $1,600
• Wildcard – $1,425

Contact Our Experienced Sacramento Bankruptcy Lawyers
Choosing the right set of exemptions is critical to ensuring that you will be able to keep the maximum amount of valuable or sentimental personal property when filing for bankruptcy. However, it isn’t always obvious which set of exemptions is the “right” choice. Some debtors are better served by System 1, while System 2 is the superior choice for others filing Chapter 7 bankruptcy in Sacramento. Critically, exemptions are unavailable in business bankruptcy, which is one reason it is especially important for business owners to have legal help from a Sacramento business bankruptcy lawyer.
Let the experienced California Chapter 7 attorneys of The Bankruptcy Group help you make an informed decision about which set of exemptions to use, which chapter of bankruptcy to file, when to file bankruptcy, and other crucial bankruptcy considerations. For a free and confidential legal consultation, contact our law offices at (800) 920-5351 today.
The post Exemptions in Chapter 7 Bankruptcy in California appeared first on The Bankruptcy Group, P.C..

What happens in a Chapter 13 bankruptcy case when a creditor files a proof of claim involving a debt for which the statute of limitations to collect the debt has run? More specifically, does the filing of such a claim violate the Fair Debt Collection Practices Act (the “Act”)? That’s the issue considered by the U.S. Supreme Court in its recent decision in the case of Midland Funding, LLC v. Johnson. 1 Read More ›
Tags: Chapter 13, U.S. Supreme Court