Posts Tagged ‘Chapter 13’

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Things I Won’t Do

Thursday, July 9th, 2009

Among the many reasons why I blog on this site is to give people a perspective of me that will help them decide whether I am the right attorney for them.  Sometimes the things I write about concern my legal expertise in bankruptcy, and other times, I blog about my observations about bankruptcy law in this peculiar economic climate.  And occasionally, I can write about real events that may, or may not, help readers understand why sort of an attorney they are getting if they pick up the phone and call.

This week, I received a call from a homeowner from an affluent Massachusetts suburb.  This homeowner was a real estate professional – and I probably do not need to mention that real estate professionals of all shapes and sizes are taking a beating in this economy (and have been for some time).  Like many in that industry, the income was sporadic, and at times nonexistent.  Other than commissions from closings, there is no other source of income.  The homeowner has not been gainfully employed with regular income since 2005.

The home mortgage has not been paid for almost a year and a foreclosure auction has been scheduled sometime next month.  Credit cards have not been paid for at least 18 months.  The homeowner has – like many – been consistently robbing Peter to pay Paul.

There is no equity in the property; the house is under water.  The house also has an estimate market value of more than $575,000.

As the mortgage has not been paid, the only bankruptcy alternative for this debtor would be a chapter 13 (the homeowners debt did not exceed the Section 109(e) cap).  However, for a chapter 13 to work, the homeowner needs income.  And a chapter 13 is not a quick, cheap and easy process – unlike most chapter 7 cases.  We could also explore requesting a modification of the mortgage, but a back-up plan – i.e., a chapter 13 filing – would be prudent if the modification was not approved, or if the lender refused to reschedule the auction pending the modification request.

I then asked an important question: “What do you have for cash on hand?  How much money do you have now?”

The question is important because the answer tells me much.  Since the mortgage has not been paid, I assume – or hope – that a homeowner has put some money aside to bring the mortgage current.  In other words, they have taken some money as a “housing payment” and segregated it – either in a separate account, or in the same account with the discipline to not spend it.  I also ask because it is important for me to gauge whether the homeowner will be able to afford chapter13 – not only in terms of fees and costs, but in terms of regular monthly payments to creditors and the chapter 13 trustee that in most cases, must begin shortly after the case is filed.

The debtor responded: about “$1,100.” Without missing a beat, the caller then offered assurances that money would come in the future, and that the homeowner could make it work.  I declined representation.  Here’s why.

(more…)

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Property Insurance and Chapter 13

Wednesday, July 8th, 2009

If you’re thinking about Chapter 13, it’s important for you to know that your real property (real estate) must be insured.  Increasingly, I am finding that homeowners are allowing their policies to lapse.  This poses a problem – especially for debtors who wait until the last minute to file.

If real estate is not insured, this will pose problems for any debtor hoping to reap the benefits of Chapter 13.  It’s also important to know that not only is insurance required, but a Massachusetts Local Bankruptcy Court rule mandates that evidence of insurance be filed with the Bankruptcy Court along with the petition.  If it is not filed, the Court can dismiss the case.

Sometimes, the mortgage payment also includes an amount that’s held in escrow for taxes and insurance.  When a homeowner stops making monthly mortgage payments, the lender may – or may not – continue paying taxes and insurance.  If the lender doesn’t pay the insurance, the lender will obtain Force Place insurance.  This policy protects the lender.  It does not protect the homeowner, the homeowner’s family, or the contents of the home and it is not acceptable for Chapter 13 purposes.

If you’re contemplating a Chapter 13 – check on the homeowner’s insurance. Be sure it is current and up to date.  Be sure that the premiums are paid.  Be sure that any special riders that you want are included, such as special protections for jewelry, electronics, and other items.  Keep those documents handy and in a safe place – because you will need them if you’re thinking about filing Chapter 13.  The time to do this is now, not on the eve of a foreclosure auction – which will only cause delay, increase anxiety and perhaps even be more expensive.

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‘20 Months Too Late’: Let’s Start Rethinking Mortgage Modifications in Chapter 13

Wednesday, June 24th, 2009

I’ve been thinking about yesterday’s blog entry.  When I first read the First Circuit decision, I wondered why the case was brought.  Here was a homeowner arguing that a mere technical violation of TILA would enable him to rescind a mortgage that he signed 20 months prior.   Based on the facts cited by the Court, it seemed a bit disingenuous.  But then, as I was thinking about it more, it occurred to me that what did not sit well with me was not what I knew from the court decision.  It was what I didn’t know.  I knew nothing about the homeowner.

I don’t know if the homeowner knew exactly what he was doing when he was at the closing.  I don’t know if the homeowner was honest when he was applying for the loan, but knew that he could not afford the mortgage unless he was able to refinance.  I don’t know if he was banking on rates going down, his property value going up, or both.

I don’t know if the mortgage broker lied, if the notary was drunk, or the closing agent fled to Columbia after the closing.  I don’t know if the homeowner was warned every step of the way, but heard and saw only what they wanted to.

I don’t know if the homeowner simply misgauged what the future might hold.  I don’t know if he was motivated by greed.  I don’t know if he was motivated by someone else’s greed, like family member’s, fueled further by his reluctance or his refusal to urge restraint.

I don’t know if his inability to afford the payments is based on what they could have controlled, but for whatever reason, did not.  I don’t know if he had the ability, the choice or the wherewithal to do everything he could to avoid heading into the financial minefield he now finds himself in.

I don’t know if it was a father trying to refinance their home because of a child – a new child to be born, an older child to be schooled or a sick child to be healed. I don’t know what was going through his mind.  I don’t know what was going through his heart.

I also don’t know if the homeowner himself or his spouse was ill.  Assuming they were, I don’t know if he was ill because of something he couldn’t control, or if his quart-of-gin-and-two-pack-a-day lifestyle was finally catching up with him.

I don’t know if the homeowner was employed, was under employed or was unemployed.  I don’t know if the homeowner one day went to work only to find the office doors locked or if he came home to find his spouse gone.

I don’t know if the homeowner refinanced to pay for a new roof, new wiring or a new septic system.  I don’t know if it was for a man-cave for him or an addition for his ailing mother.

Nor do I know if the homeowner was a scoundrel.  I don’t know if he overestimated his income to such a degree that it reflected a hope for a better, brighter and richer future than any rational person would think possible.  I don’t know if this is just one more thing he had already assumed he was going to get away with.

Regardless of the one or the combination of any of the above things that I do not know, I do know that the homeowner cannot go to bankruptcy court to modify the loan secured by the mortgage on their principal residence.  If you simple replace the words “I don’t know” with “What if you knew that…?” in each of the above situations or with a combination of any, and was able to consider what you did know, it would not change anything because the homeowner still could not modify the loan secured by the mortgage on their principal residence in bankruptcy.  But more simply stated: for the homeowner before the First Circuit Court of Appeals seeking to change the terms of a promise he made 20 months prior, I don’t know the reasons why.

Section 1322(b)(2) of the Bankruptcy Code of the United States won’t allow any homeowner in chapter 13 to seek modification of a loan secured by their principal residence regardless of the reason.  Congress has determined that the reason for the requested modification is irrelevant.  They have determined that no one, no judge, and indeed, not even me or my readers need ask why the modification is needed in chapter 13.  From the perspective of Congress (and frankly that of the Mortgage Bankers Association and their ilk), “why” is irrelevant.  (Actually, I’m not entirely correct on that point.  Lenders can choose to voluntarily modify the mortgages on a debtor’s principal residence.  They alone can consider the reasons “why.”)

Our country is embroiled in an economic crisis of historic proportions.  It’s bad out there, and for many may get worse.  If I’m eventually (i.e., within several months) proven wrong then you can all paint me crazy and I’ll find myself my own “Plan B.”  Until then, let’s all help each other find answers to the questions that start with “What if you did know…?”  And let’s start a meaningful discussion that may result with an amended Section 1322(b)(2) that will let homeowners prove in our forum of last resort (the Bankruptcy Court) the desperate financial situations they find themselves in, and will let judges consider and weigh the reasons why they should get a second chance to keep their family home.  If for no other reason because it defies logic that the same standards be applied to someone who has been dealt a bad hand versus someone who is gaming the system.

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Wondering What a Bankruptcy Attorney Really Does?

Sunday, June 21st, 2009

Thursday I was in Bankruptcy Court waiting for my client’s case to be called.  Before the judge took the bench, a gentleman sat behind me and tapped me on the shoulder.

“You a bankruptcy lawyer?” he asked.

“I am.”

“How easy is it for me to convert my case from Chapter 13 to Chapter 7?”

I asked if he had an attorney, and he replied that he did not.  He was representing himself (which is not a good idea in Chapter 13, by the way… I’ll talk about that another day).

I told him that the Bankruptcy Court had a Pro Se Law Clerk and that he should direct his questions to the law clerk, who can then either answer the question or direct him to a resource that can.

“Oh, I see,” he replied.  “You want to get paid, huh?.”

Imagine if you were walking down the street and you saw a person who you knew to be a dentist.  Would you go up to him or her, peel back your lips to show a molar and ask “excuse me, but do know how easy it would be to but a cap on this?  Or a porcelain veneer?”  No respectable dentist would give you an answer.  In fact, some might flee.  A disreputable dentist might say “it will be very easy, here’s my card, let’s make an appointment, and be sure to bring your insurance card or check book.”

As I said, while I sort of felt a bit insulted, that feeling was quickly quelled with the realization that this pro se debtor had no clue what it was I did, and why I could not answer his question.  So I told him:

“Actually, the reason why I cannot answer your question is because I do not know anything about your case, or about your circumstances.  I cannot begin to think about the your question and give you any answer you can rely on unless I do that.  Right now, I cannot.  The Pro Se Law Clerk however, can.”

The debtor thanked me, and left the courtroom. I do hope that he paid a visit to the Pro Se Law Clerk, and I do hope he got some better direction than I could have given him.

This all got me thinking: there are some people who believe that you don’t need a bankruptcy lawyer to get through the process.  There are also some people who believe that lawyers are only out to get paid, and don’t do anything but fill out forms and, on occasion, dress nicely.  There’s an assumption that I am a walking fount of information, and the only thing preventing me from sharing it is getting paid.

All of those assumptions make me feel dirty.

All of those assumptions are also completely unfounded.

There’s no way I could have answered this debtor’s question accurately.  I could have said “when the judge takes the bench, ask her to convert your case.”  That answer would have been the equivalent of the dentist saying “sure, make sure you use good glue and don’t drink hot liquids for 24 hours.”

But I had not reviewed the petition and schedules.  I don’t know what the exemptions are, and what issues might arise in a 7 that might not otherwise arise in 13.  I don’t know why the debtor is changing course and whether that might open up a whole host of issues.  I also don’t know whether the judge – who I bet knows the history of the case and why it’s on the docket that day – doesn’t have some assumptions or questions about the case.  In other words, I don’t know a lot.  I do know the law.

Yet merely knowing the law is not enough for me to do my job.  A good lawyer takes the facts of the client’s case, applies it to the law, and then proceeds while mindful of the client’s goals.  A good lawyer is not merely a resource of legal information available to answer questions at the drop of a hat knowing that people will rely on those answer and  make important decisions with significant legal consequences.  My job requires thought and analysis.

And on a good day, that actually is what I get paid for.  Keep this in mind if you’re thinking about filing bankruptcy with or without a bankruptcy attorney.

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The Handwriting on the Wall

Saturday, June 13th, 2009

Over the last two years or so, I’ve seen a particularly troubling trend with homeowners seeking bankruptcy protection.  It is making bankruptcies unnecessarily complicated and expensive.  It also puts them at a greater risk of failing – at least once (which at the very least, makes it more expensive).  It’s the trend for them to wait until the very last minute to actually consider bankruptcy as an option.  This is a bad, bad idea.

Years ago, I would hear from callers who had oppressive credit card debt, medical bills and had experienced some sort of major life event: job loss, medical crisis, death in the family, or divorce.  That debt was getting out of control, but their real estate was usually current….or perhaps was approaching default but not in foreclosure.  They could see the handwriting on the wall; they could see the storm clouds on the horizon.  They needed to prepare for what they thought was inevitable. Nowadays, it’s usually quite different.

Now I typically hear from callers who are facing foreclosure within 2-3 weeks, and if they (and I) are lucky, they have more than a month before the scheduled auction.  The reasons are essentially the same: many are losing jobs, wages and overtime is getting frozen or eliminated, mortgage payments and other debts have creeped up.  There is also the occasional debtor with a health care issue or some other extraordinary set of circumstances. The bankruptcy filing can delay the sale, and give the debtor an opportunity to reorganize finances or even secure a loan modification.  But think about this – if you Google “GM Bankruptcy” you will see that pundits were talking about GM’s bankruptcy last fall (look under archives).  I am willing to bet GM was at least thinking about it was well.  I’m also willing to venture that GM was preparing for the possibility of having to file bankruptcy.  For homeowners, there’s no good excuse to be waiting until the auction has been scheduled and the notice has been published to be at least considering and planning a bankruptcy filing.  Think of it as Plan B.

Unfortunately, to homeowners who are attempting to secure a modification of their loan, I have some bad news.  Lenders are not all that organized themselves: it’s not altogether uncommon for the foreclosure department who is handling the auction not to be speaking to the loss mitigation department who is handling the modification and vice-versa.  Perhaps this is what happens when we let companies get too big to fail.  I realize that this lack of communication protocol may seem strange if not completely asinine, but this has been my experience, and my colleagues who represent lenders have shared their frustrations with me on this issue as well.  Thus, your request for modification will not necessarily stall a foreclosure.

Of course, filing a properly prepared chapter 13 bankruptcy petition takes quite a bit of work.  And documents.  And information.  And good counsel.  Tax returns need to be filed.  Pay stubs or payment advices need to be gathered.  Property needs to be valued.  The Bankruptcy Code requires that documents be filed within a certain period of time after the case is filed. A typical bankruptcy petition – along with a chapter 13 plan – can exceed well over 45 pages.  And chapter 13 plans require some thought, strategy and expertise.

If a debtor seeks bankruptcy protection but does not have this information properly prepared when the case needs to be filed, an Order to Update will enter.  The Bankruptcy Court will order that the debtor file all documents by a date certain: anywhere from 3-14 days.  Need an extension?  You might get one.  You also might not.

I am increasingly finding that debtors simply do not have the information needed within the 3-14 day period.  Sometimes I can get an extension.  Sometimes I cannot.  Sometimes the pro se debtor cannot get one and that is the first time they pick up the phone and speak to a bankruptcy attorney.  The delay, the motions, and frankly, the hunt for this information under the pressure of a strict time deadline only adds to the expense and increases the risk for error.  It also does nothing to quell the anxiety of what is undeniably a stressful situation.  Sadly, this is all fueled by debtors who are considering bankruptcy only within weeks, days or in worse case scenarios hours before a foreclosure auction is scheduled to move forward.  And in many cases, their delays prove costly, and may also lead to their case imploding.

If you are a homeowner who is serious about saving their home and attempting to keep what you have worked hard for, then you must consider bankruptcy as an option at the earliest opportunity.  This way, you can start gathering information and be ready to go if the mortgage modification doesn’t come through.

Of course, there are others out there who I know are telling folks not to think about bankruptcy.  There are others who mislead with claims that bankruptcy protection is harder to get now.  If you rule it out the bankruptcy option without getting the facts, speaking with a bankruptcy attorney, and understanding process and what will be expected of you in that process, I promise you this: you will regret it.

Anyone that tells you differently is selling you something.

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Coming Soon: Chapter 13 in 13 Chapters

Friday, May 22nd, 2009

chapter13coverI’m pleased to announce the soon-to-be published consumer bankruptcy manual: Chapter 13 in 13 Chapters. The manual is available exclusively through the American Bankruptcy Institute.   Pre-publication orders are being accepted now.

This manual provides a comprehensive overview of the chapter 13 process from the perspective of both debtors and creditors. Everything from filing preparation and debtor education to the role of the chapter 13 trustee to the discharge of debts is covered, as well as things to consider before a case is converted and when to modify the terms of a payment plan. Written by William J. McLeod and edited by M. Regina Thomas (McCalla Raymer, LLC, Atlanta, GA), the manual provides sage advice for the chapter 13 attorney regarding the timing of the debtor’s tax filings, anticipating and addressing a debtor’s change in circumstances post-confirmation, enforcing the debtor’s rights against a creditor’s collection activity, and post-discharge actions. Heavily peppered with case citations and key excerpts from relevant sections of the Bankruptcy Code, Chapter 13 in 13 Chapters is the essential reference guide that chapter 13 attorneys should have at their fingertips to assist in their practice and to share with clients to help explain the bankruptcy process.

To pre-order, please click here.

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Mortgage Modification/Cramdown Bill Update

Tuesday, April 28th, 2009

From Today’s Washington Post:

Days before an expected vote, Senate leaders yesterday touted their version of a proposal to allow bankruptcy judges to modify mortgages, but have yet to secure the support of the financial services industry and face fierce opposition that could derail the proposal again.

The characterization of the opposition being “fierce” is unfortunate, but it appears to be accurate:

“I hope we can muster the courage and find the votes, although I know it will be hard,” (Senate Majority Whip) Durbin (D-Ill) said on the Senate floor yesterday. Durbin has been pushing the measure for more than two years. “It’s hard to imagine that today the mortgage bankers would have clout in this chamber, but they do.”

More here.

For more on the President’s Foreclosure Prevention Plan, click here.

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Knowledge is Power, Sort of

Tuesday, March 3rd, 2009

I find that many people who are thinking about it will want to investigate some facts about bankruptcy, and get some information about the process before they pick up the phone and speak with me.  And certainly, there’s much information and content on this website – and it’s here for just that reason.  But every lay person needs to maintain some perspective when researching, reviewing and digesting information about bankruptcy and the bankruptcy process.  Today, I had a conversation with a client that reminded me to remind you to keep that perspective.

The most important thing to remember is that research should not replace speaking with counsel and getting a full and fair opinion.  Nothing on this site is designed to be legal advice.  As a matter of fact, you’re unlikely to find anything that amounts to legal advice on the internet.

What you will find is information.  But sometimes, that information can lead to overload – and overload and can lead to confusion.  And today I encountered confusion.

I spoke with a client on the phone who “had done a lot of research” about bankruptcy.  He knew and understood terms like the “Means Test” and “Discharge.”  But he did not quite understand how the Means Test worked – or that the Means Test applied in not just Chapter 7, but that a different version of the form (with entirely different consequences) applied in Chapter 13.

He asked what most might think is a rather straightforward question: “In a Chapter 13, how will they determine how much I can afford to pay back?”  The problem with this seemingly straightforward question is that there is no straightforward answer.  There are many variables, including whether you are over the state’s median income, whether you have payments on secured debt and the status of the case law at the time (and because it is ever-evolving, I tend to view the case law as a moving target).  The other problem is that I cannot answer the question in a phone call or a short initial consult meeting.  It requires information, documents, and an assessment of all of the factors at the time of the filing.

The client is already frustrated, and I can understand why.  Struggling to make ends meet, the client is trying to determine what more will be expected of him and his family in the bankruptcy process.  Yet, there is no easy answer I (or for that matter anyone else) can provide.  At least not an honest one.  The fact I could not provide a quick answer only fed that frustration.

I would not think of going to WedMD to learn how to perform a medical procedure on myself.  I don’t call my dentist to explain why my mouth hurts (which is a good thing, because as I recently learned, it wasn’t what I thought it was).  So with that said, please know  I do not recommend using this site, or any others as a substitute for sitting down with a bankruptcy attorney and giving them all of the information they require.  Then, armed with the facts and sound legal counsel, you can then make the best decision to protect your family from the oppressive debt you find yourself struggling with.  After all, that is why you’re calling me.  And that is why you’re researching bankruptcy information on the internet.

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Tell Congress: It’s Now or Never

Wednesday, February 25th, 2009

Tomorrow (February 26) the House will vote on HR 1106, a housing package that includes the judicial modification provision of HR 200. That provision would let homeowners turn to the bankruptcy courts to allow them to modify the mortgages securing their principal residence. Currently, bankruptcy provides no remedy for homeowners who are trying to save their home from foreclosure.

While there are a number of complicated issues affecting our economy, the housing crisis continues to devolve.  The Washington Times reports that there is no relief in sight from foreclosures and the falling home values that help fueling it.  We can encourage Congress to do nothing, while the economy continues a downward spiral. Or we can tell them to pass this bill and give homeowners the chance they deserve in bankruptcy.

House approval is not guaranteed. The American Banks Association and the Financial Services Roundtable have sent letters to house leaders urging that the bankruptcy modification provisions be removed from the “Helping Families Save Their Homes Act of 2009.”  The “buzz” I am hearing is that the lender lobbyists are showing up in “packs” in Member offices urging opposition to the judicial loan modification proposals.  “Packs.”  What the hell are they so scared of that they have to travel in packs?  According to a report from CNN, two-thirds of mortgage servicers have agreed to the foreclosure mitigation plan outlined by the Secretary of the Treasury.

[T]he prospect of a law amending the bankruptcy code to allow judges to dictate new terms on mortgages in the event of an individual filing bankruptcy, was also likely a significant factor in the companies’ willingness to cooperate with the administration’s plans.

The House is working on legislation which would be aimed at helping people in bankruptcy to hang on to their primary residences. It could see bankruptcy judges compelling mortgage-servicing companies to accept new terms on an individual’s mortgage.

Other than Citigroup, other large banks remain opposed to the bankruptcy-law change, arguing that it would lead to borrowers to seek bankruptcy at the first sign of trouble, rather than consider other options that might be more costly.

I don’t buy that – mainly because when I meet with clients, they are the first to tell me that filing bankruptcy is the last thing they wanted to do.   So to the lenders and their servicers, I say this: if the remaining one-third of you do not want bankruptcy judges modifying their loans, modify the loans so that the homeowner doesn’t have to file bankruptcy.  And for those two-thirds who have expressed a willingness to modify the loans, do it.  Let’s cut the crap and just do it.

Will it increase bankruptcy filings?  The Congressional Budget Office says yes.  But they also say that more than 1 million homeowners facing foreclosure could benefit from this legislation.  I view that as 1 million less people who will lose their home if this bill fails.  These people are our neighbors, our friends and our colleagues.

So what can you do?  Contact your member of Congress by phone or fax.

Email your friends and family.  Ask them to contact their congressional representative by phone or fax.

What do you tell them?  Try something like this:

We cannot end the financial crisis without stemming the rising tide of foreclosures. Court-supervised loan modification is an essential component of an effective and comprehensive plan to meet that challenge.  And unlike every other solution being considered in Washington, it comes at no cost to U.S. taxpayers.

If we are successful tomorrow, we move over to the Senate.  If we are not, that is it.  No second chance.  So please don’t wait.  Support HR 1106.

And if you do not support it, I’ll remember.  I’ll remember it when my friend loses her home because she lost her job.  I’ll remember it when my house value plummets because the home next door is vacant and abandoned because the previous owner could not afford the payments.  I’ll remember it on election day.

Ok, so maybe that last bit is a little over the top, but you get my point.  It really is now or never.  And Congress really needs to know this now.

For more thoughts, check out Real Clear Politics:  Let Bankruptcy Courts Change Mortgages

Previous posts on the subject:

The President’s “Plan”

Mortgage Modification Legislation Update: Citigroup Supports the Bill

Keep the Bankruptcy Option On the Table

Changing Chapter 13: Some Facts on the Pandora’s Box

Mortgage Modification Update: Not So Hopeful

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As the Economy Turns…

Wednesday, January 28th, 2009

Today, my Bankruptcy Colleague and fellow-blogger Jonathan Ginsberg wrote about The Psychology of Debt Collection: Avoid the Manipulation.

The Boston Globe reports that the Massachusetts Attorney General has filed a bill to slow down foreclosures. But the legislation would only protect those in “risky” loans. And if people keep losing their jobs, homeowners with “risky” loans will not be the only ones facing the possibility of losing their home.

Meanwhile, in Washington, a bill that would let some homeowners in Chapter 13 modify the mortgage on their principal residence has cleared the House Judiciary Committee.

While homeowners might be getting a break, recent graduates are finding it tougher and tougher to pay off student loans. An opinion piece in the Minneapolis Star Tribune suggests that a good way to stimulate the economy may be to forgive student loan debt.

The Federal Reserve however, seems to have another idea, although I am not convinced it’s a better idea. From CNNMoney.com:

The Federal Reserve is getting ready to launch a new program that should make it easier for consumers to get credit-card and auto loans — though not necessarily at lower interest rates.

Yikes.

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