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When an individual files for Chapter 13 Bankruptcy they are able to rid themselves of their unsecured debt. Their secured debt is also eliminated if they choose to surrender their property. In most cases an individual who wants to keep the property that is securing their debt must agree to repay the secured creditor. However, in some instances individuals can utilize something called a “cram down.” A cram down is a technique used in a Chapter 13 Bankruptcy that allows an individual to reduce the balance of their secured debt to the value of the property. The remainder of their secured debt gets re-categorized as an unsecured debt and gets repaid for pennies on the dollar. The Debtor is often allowed to reduce the interest rate on these secured debts as well.
In order to qualify for a cram down the debtor must:
1) Not be attempting to alter a mortgage on their principle residence.
2) Not be attempting to alter a car loan that was taken out less than 2 1/2 years prior to the filing of the bankruptcy petition.
3) Be able to pay off the debt during the course of their Chapter 13 Plan.
4) Set up payment of the secured creditor through the Chapter 13 Trustee.
The use of a cram down can dramatically increase a debtor’s chances of success in their Chapter 13 Plan. However, you need to be sure that you hire an attorney with knowledge of this process. If the attorney fails to properly value the collateral, or time the filing of the bankruptcy properly. you may fail in your attempt to reduce your balance on these debts. Additionally, if you are unable to complete your Chapter 13 Plan, you will find yourself significantly behind on your payments to your creditor and unable to save your property.
When bankruptcy is filed, debtors are required to list assets and personal property as part of the bankruptcy estate. While common items such as saving accounts, jewelry, homes and vehicles are included, there are assets that some may forget to mention upon filing their petition. Debtors who realize they may have forgotten to list an [...]
The motion to abandon property of the estate is one of the most important parts of motion practice in bankruptcy. It is particularly important in chapter 7 bankruptcy, because the chapter 7 trustee takes control of all property of the estate. Additionally, it is important to understand how it works when you omit property from your bankruptcy schedules.
Let’s start with a few basics. In any bankruptcy, when you file the case the bankruptcy estate is created. The bankruptcy estate consists of all of your non-exempt property and interests in property that existed when the petition was filed. For most people, the bankruptcy estate is not a big deal because all of their property is exempt and the chapter 7 trustee will file a report of no distribution at the end of their case. Additionally, in a chapter 13 bankruptcy, the debtor remains in control of property of the estate. This means that there are only really three times when you might need to file a motion to abandon:
- The chapter 7 trustee has filed an asset report that you either disagree with or that is interfering with your exempt property.
- The chapter 7 trustee is trying to conduct a short sale on a piece of real property; and you want to stop the short sale.
- You omitted a piece of property from your original bankruptcy schedules.
Chapter 7 Trustee Files An Asset Report
The vast majority of cases are no- asset cases, meaning that the chapter 7 trustee will not do anything with your property. Your bankruptcy attorney is usually able to determine whether your case will be an asset case or a no-asset case before the case is filed. It is not possible to guarantee whether a case will be an asset or a no-asset case, but your attorney can usually make a strong educated guess.
When the trustee is administering assets in your bankruptcy, it can prevent you from selling, transferring, or disposing of your property. Most of the time, this isn’t a problem. You know which assets are being administered and you were prepared for it before you filed. If you need to do something with an asset that isn’t being administered, it’s as simple as informing the trustee in writing and making sure that you don’t need a court order to sell, transfer, or dispose of a piece of property.
If for some reason the trustee is administering property that you think should not be property of the estate, then you can file a motion to abandon that property. In order for the court to grant the motion to abandon, you must show that the property is of little or no value to the bankruptcy estate. Oftentimes, this type of motion arises over a disagreement over asset valuation. Your bankruptcy attorney can advise you as to when it makes sense to litigate against the trustee’s administration of assets and what kind of outcome to expect.
Stopping A Short Sale
A chapter 7 trustee can list real property – including your residence – for short sale. Generally, this is not a problem because the chapter 7 trustee can only do it if you are already in default and intend to surrender the property. In fact, many times it is beneficial to you because it prevents a foreclosure from going on your credit report and it may actually increase the time that you have before you have to move. However, this practice is controversial. There is no direct authority in the Bankruptcy Code for the chapter 7 trustee to short sell real property.
The bankruptcy judges in Seattle and Tacoma seem to agree that trustees can conduct short sales if certain requirements are met: 1) there is no equity in the house, 2) the debtor is in default, and 3) the debtor is unable to cure the default or obtain a modification. It has been my experience that if these three requirements are met, then the court will allow a short sale to go forward. I do not recommend that debtors fight the short sale process, because the short sale is usually beneficial and because the local judges are overruling objections. If you are adamant that the trustee cannot or should not be permitted to conduct a short sale and the three requirements are met, then you need to be prepared to litigate the issue in the bankruptcy court and be prepared to file an appeal.
Property Omitted From Your Original Schedules
Property omitted from the original bankruptcy schedules is the most common reason a chapter 7 debtor would need to file a motion to abandon. If property is omitted from a bankruptcy schedule it becomes trapped in the bankruptcy.
This is because all property becomes property of the estate once the bankruptcy is filed. When the trustee files either a no-asset report or a final report at the end of the case, only releases property was disclosed on the schedules. This means that if a piece of property is omitted from your bankruptcy schedules, it is still property of the estate even after your case is done.
The two most commonly omitted pieces of property are 1) personal injury cases, and 2) real property. You may not realize that you have omitted a piece of property until you try to bring the personal injury case or try to either sell or refinance the real property. It is very important that you correct any omission before you bring a personal injury case or try to either sell or refinance real property. If you do not deal with the omission beforehand, your personal injury case could be dismissed with prejudice. With real property, closing or refinancing could be delayed by weeks or months while you sort out the omission.
You can deal with the omission by bringing a motion to reopen your bankruptcy, amending the schedules, and then filing a motion to abandon the omitted property. The purpose of this three step process is to alert the court, the trustee, and your creditors to the omission and then resolve the omission by disclosing the property and affirmatively removing it from the bankruptcy estate.
In the Western District of Washington – encompassing Seattle, Tacoma, Vancouver, and Bellingham – it is fairly common for the chapter 7 trustee to conduct a short sale on a debtor’s real property, if a few conditions are met. The chapter 7 trustee might conduct a short sale on a debtor’s real property if:
- The debtor is in default on the mortgage;
- The debtor intends to surrender the real property; and,
- The debtor does not have any equity in the house.
This is confusing and concerning for some people, because they feel that they filed bankruptcy to protect themselves from a foreclosure. However, a chapter 7 bankruptcy can only delay a foreclosure. If you are behind on your mortgage and you want to save your house from foreclosure, you have to either file a chapter 13 bankruptcy or get a mortgage modification.
This is because a mortgage – like any other secured debt in bankruptcy – has two parts: 1) the debt, and 2) the lien. The debt is discharged in a chapter 7, meaning that you cannot be held personally liable for it. The lien – which is the creditor’s right to foreclose – cannot be discharged in a chapter 7 bankruptcy. This means that your mortgage company has the right to foreclose after they either 1) get relief from the automatic stay, or 2) the bankruptcy is completed.
Chapter 7 is very useful for delaying foreclosure, because the moment you file it the automatic stay prevents a foreclosure from going forward. However, the foreclosure process will eventually restart. A chapter 7 bankruptcy can give you anywhere from an additional 45 day to 180 days in your house, depending on where you are in the foreclosure process and how fast the bank moves. This is where the chapter 7 trustee comes in with a short sale.
If the trustee conducts a short sale, you will typically get as much, or more, time in your house as you would if you just let it go into foreclosure. In addition, you will not have a foreclosure on your credit report. In some cases, banks are very slow to foreclose and you are stuck with HOA or COA dues; and so, a trustee’s short sale can actually help you save money. The purpose of the short sale is for the bank to give the trustee a carve out – essentially a fee – for conducting the short sale. That carve out is used to provide some payment to your unsecured creditors.
There are some cases where a chapter 7 trustee’s short sale is a problem for a debtor. The court will not stop a short sale just because you want more time in the house or because you want to be control of te short sale process. This is a controversial area of bankruptcy law, where it is difficult to give a precise answer as to how the court will rule. In my opinion, chapter 7 trustees do not actually have the authority to conduct short sales without the debtor’s consent; however, for most people, the short sale is actually beneficial and it is not worth the effort to try to stop the short sale process.
Two areas where it is possible to get the court to stop a short sale: unreasonable delay or interference with the ability to modify. For example, the trustee may be taking too long to short sell the house and delaying the administration of your case. Alternatively, you may want to modify the mortgage on your house. If the trustee’s short sale is taking too long, then you can file a motion to abandon the house. If the court believes that the process is taking an unreasonably long amount of time, then the court can force the trustee to abandon the sale.
If you are in the process of modifying the mortgage, the trustee will generally hold off on listing the house once you have shown him the modification paperwork. Once the modification is completed and the court approves the modification, the trustee will abandon the house. If the trustee’s short sale efforts are interfering with your modification, then your attorney can file a motion to abandon the property and try to get the bankruptcy court to order the trustee house.
If you are considering bankruptcy and concerned about a short sale by the trustee, then discuss it with your bankruptcy attorney. Your bankruptcy attorney can explain the short sale process, the chances that the trustee will actually attempt a short sale, and whether you have grounds to object to a short sale.
I can often save a house and car under a Chapter 7 bankruptcy case if you do not have significant non-exempt equity in those properties and if you are current on your payments. If you have significant equity, you are going to lose that to a trustee and I’m going to have you sign a potential asset acknowledgment so you are not surprised when the trustee says you either need to turn over the item or you need to pay me X amount of dollars if you want to keep the item. That is how it works under Chapter 7.
Under Chapter 13, you are saving a home and a car effectively by agreeing to repay the amount that you fell behind on a mortgage or with regard to a vehicle, the entire amount that you owe or the market value at a certain interest rate over the next 3 to 5 years. The number one reason for filing a Chapter 13 bankruptcy case is to save a home. By filing Chapter 13, you are able to make your regular mortgage payment on time once again as well as make an additional payment to a Chapter 13 trustee over a 3 to 5 year period which effectively pays off the arrearage, the part that you fell behind.
With regard to a vehicle, if it’s a financed vehicle, you are not going to make that payment directly anymore. You would make a lease payment directly because a leased vehicle is not an owned vehicle; it’s a leased vehicle. You pay the trustee a certain dollar amount per month based on your income and expenses and provided it’s enough to pay off the arrearage over 60 months, or pay the vehicle over 60 months as well as your other debt, then your Chapter 13 is likely to be approved by the court which is known as confirmed, and you need to continue to make payments, timely, to avoid any kind of Motion to Dismiss or Motion to Modify the Automatic Stay.
So yes, I can help you save your house and vehicle, whether it is a Chapter 7 fresh start or Chapter 13 reorganization. Obviously, in a Chapter 13, we are going to go into greater detail on how much you are going to have to pay per month on the arrearage claim and on the financed vehicle claim. Under Chapter 7, I’m going to make sure that you don’t have nonexempt equity that could be taken by the trustee and sold and paid to your creditors on a pro rata basis.
If you are filing Chapter 7 bankruptcy, you must list all of your creditors including your mortgage and your auto finance company. The good news is you will have the ability to continue to make voluntary payments on your mortgage and you will have the ability to reaffirm the debt on your vehicle after your bankruptcy case is filed. The reason why you must list your house and car, even though you want to keep those items, is that the Bankruptcy Code requires that all of your assets and all of your liabilities be listed on your petition. Simply by listing your liability does not mean you are not going to keep that liability. In fact, you can decide to pay any creditor post filing if you would like to. For example, some people have a physician or a dentist that they really like and despite the fact that the debt has been discharged, and despite the fact that the creditor is not seeking a payment, the debtor wants to make a voluntary payment as a goodwill gesture so they can continue to see that medical provider. The fact that the creditor had to be listed, discharge the debt; and you can make voluntary payment if you would like.
The same applies for the mortgage. You do not have to reaffirm on a mortgage. You can make a voluntary payment since the Bankruptcy Code does not require that mortgages be referred. Vehicles, however, have to be either reaffirmed, redeemed or surrendered under the Bankruptcy Code.
Now, the Reaffirmation Agreement is a separate agreement that’s going to come from the lender which basically sets out the dollar amount, the interest rate and the terms of the agreement. If you want to keep your vehicle, you have to go back on the hook and sign up for it again through this Reaffirmation Agreement. Your attorney will advise you of the consequences of doing such, however in most cases, the vehicle is necessary for living. Therefore, the attorney and the court will not have a problem with you reaffirming the debt.
Just remember, everybody you owe money to, including family members, vehicles, mortgages, must be listed on your bankruptcy petition. You have the ability to make voluntary payments or reaffirm particular debts. Don’t make the mistake of not listing creditors as that is an absolute violation of the Bankruptcy Code.
Once your bankruptcy case is filed, you have the ability to apply for and acquire a credit card. Lenders have gotten pretty aggressive these days with soliciting people after filing a bankruptcy for credit. One of the reasons why creditors do this is that they know that you cannot file another fresh start Chapter 7 bankruptcy case for eight years from the date of filing your current case. Plus, the creditor is hoping that you will use the card, pay the annual fee, pay late fees, pay interest fees and basically go into the same bad habits that might have gotten you into debt in the first place. The creditors are not offering you credit because they want to help you. They are offering you credit because they want to make money from you, they want you to use their card because they make money whether or not you just use the card and pay off the balance or whether or not you incur additional fees, late fees and carry a balance. Obviously, they make more money with the latter; however, if they can just get you using the card, they get a certain percentage from the merchants. So you have the ability to apply for a card and acquire a card immediately after a Chapter 7 bankruptcy case.
Now, in some cases, you might want to get a secured credit card. That is where you are putting a certain dollar amount; say $250 or $500 in a bank account and that is what you have for charging privileges. You are basically not getting credit but you are using your own down payment security deposit or credit as your ability to charge. The good thing about a secured credit card is those cards can turn into unsecured credit cards shortly down the road, provided you continue to make current payments.
So yes, you can acquire a credit card immediately after filing and you will get offers for credit cards very shortly after filing.
A 341 Meeting is a meeting of creditors we acquired and mandated by the Bankruptcy Code whereby a debtor will be examined under oath by a Chapter 7 trustee regarding assets and liabilities. The Chapter 7 trustee has the duty to examine the debtor and determine whether or not there are any assets that can+ Read MoreThe post What is a 341 Meeting? appeared first on David M. Siegel.
Foreclosure Settlement Checks are Bouncing Some people just can’t catch a break. Homeowners who received settlement checks from some of the largest banks involved in the illegal foreclosures of 2009 and 2010 reported that they were denied due to “insufficient funds.” Having the foreclosure settlement checks bounce is just the most recent blow dealt to [...]The post Foreclosure Settlement Checks are Bouncing appeared first on National Bankruptcy Forum.
A Macon, Georgia doctor was indicted earlier this month on multiple bankruptcy fraud counts. Dr. George Robert Vito, a former podiatrist who practiced in the Macon area, was indicted on 4 counts of bankruptcy fraud that included making false statements in court and falsifying documents pertaining to his filing. When Vito filed Chapter 7 bankruptcy [...]
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