Monthly Archives: June 2012

How is My Automatic Stay Affected if I Filed For Bankruptcy More Than Once?

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The automatic stay is one of the most powerful tools in bankruptcy.  In fact, this is why most people file for bankruptcy protection.  The automatic stay stops all collection activity against you.  This means creditors can no longer call you, send you letters, sue you in court, enforce a judgment against you, garnish your wages, levy your bank account, and place a lien on your house, stop foreclosure proceedings and repossession of vehicles.  Basically, they cannot do anything to collect the debt against you unless they have a security interest in your property.  In the event there is a security interest in your property (like your house or car) the creditors would need to file a motion with the court to lift the automatic stay so they can start or continue the foreclosure or repossession procedures to protect their interest in your property.  Of course, it goes without saying that they can only foreclose or repossess your property if you have not been making payments each month on time.

The automatic stay will take effect as soon as you file for bankruptcy.  It is called the automatic stay because the stay goes into effect automatically – you do not need to do anything other than file your bankruptcy case.  Since this is such a powerful tool against your creditors you need to be sure that you do not abuse this tool.  If you file a second Chapter 7, 11, or 13 bankruptcy case after your first bankruptcy case was dismissed (due to not filing required paperwork, not paying your fees on time, not showing up for the mandatory meeting of creditors and other reasons) within a one year time period you only receive the automatic stay for the first 30 days of your second Chapter 7, 11, or 13 bankruptcy case.  After the 30 days are up you will no longer have protection of the automatic stay to.  In order to prevent the lapse of the automatic stay in your second bankruptcy case you would need to file a motion to extend the automatic stay.  Many of our clients have unfortunately been told by various entities or people to just file they bankruptcy case on their own to stop a foreclosure or eviction.  What they are not told are the consequences of filing multiple bankruptcy cases and how it effects the automatic stay.

If you file a third Chapter 7, 11, or 13 bankruptcy case within a one year period after the first two bankruptcy cases have been dismissed there will be no automatic stay in effect.  This rule was created to prevent people from abusing the automatic stay and continually filing bankruptcy cases to get the automatic stay with no intention of completing the bankruptcy petition or obtaining a discharge of their debts.  You would need to file a motion to impose the automatic stay in order to have the automatic stay imposed in your bankruptcy case.  If you have been advised to just file a bankruptcy case on your own you could be severely limiting your ability to protect your interests and ultimately discharge your debts when filing bankruptcy.

A Creditor Filed A Proof of Claim in My Chapter 13 Bankruptcy Case – What Do I Do?

By Ryan C. Wood

If you filed a bankruptcy case under Chapter 13 of the Bankruptcy Code creditors should file proof of their claims in your case.  Creditors may also file proof of claims in Chapter 7, 11, and 12 cases, but this article is limited to Chapter 13 bankruptcy cases.  Chapter 13 is the most common chapter a creditor will be filing a proof of claim in given chapter 13 is limited to people filing for protection.  A corporation or limited liability company cannot file for protection under chapter 13.  A proof of claim is exactly as it sounds – it is a written statement setting forth the creditor’s claim. See Federal Rules of Bankruptcy Procedure (“FRBP”) Rule 3001(a).  In order to receive any payments through the Chapter 13 Plan a creditor will need to file a proof of claim.  Filing a proof of claim does not mean the creditor automatically receives a payment from the bankruptcy estate.  The proof of claim can be objected to or be disallowed.  If the proof of claim is valid the creditor may receive a payment from the bankruptcy estate, but the percentage received through the plan will be based on each individual case.  Here are some things to look for if there is a proof of claim filed in your bankruptcy case.

Was the Claim Filed on Time?

When a claim is filed in your case, you need to review whether the claim was filed on time.  Creditors have up to 90 days after the first date set for the meeting of creditors to file a timely a claim.  Government units have a longer period of time to file a claim, normally up to 180 days after the bankruptcy petition was filed.  As with all rules, there are exceptions that apply.  For more detailed information I would highly advise that you speak with a bankruptcy attorney in your jurisdiction.

Is the Proof of Claim Valid?

Under FRBP 3001(c), the proof of claim needs to provide supporting documentation to back up the claim in order to be valid.  If the claim is based on a writing the creditor needs to file the original or a copy of the writing along with the claim.  If the writing is not provided there should be a statement about the circumstances regarding why the original or a copy cannot be provided.

In addition, if the amount of claim includes interest, fees, expenses or other charges, a statement needs to be included that itemizes all the additional charges or expenses.  If a creditor is filing a proof of claim for a security interest regarding property you own, the creditor needs to include evidence that the security interest was perfected against the property (such as a lien recorded against your property filed with the county recorder’s office).

Is the Proof of Claim Filed a Duplicate?

Sometimes different creditors file separate proof of claims for the same debt (this can happen with the debt was sold a collection agency).  You need to review the claims carefully to be sure there is only one creditor for each underlying debt.

Objecting to Proof of Claims

So what happens if the claim was not filed within the allotted period, if the claim is a duplicate or the claim is not a valid claim?  The Supreme Court of the United States held that it was okay for creditors to file claims in bankruptcy cases even though the statute of limitations has run on the enforceability of the claim under applicable state law.  SCOTUS held that because the chapter 13 trustee’s office should or would object to that claim a debtor does not have a claim for damages against the creditor under the Fair Debt Collection Practices Act.  Well, in your jurisdiction you chapter 13 trustee may not object to claims so it is on the debtor and their bankruptcy attorney to have expend the time and money to object to bad or improper claims.  Here in the Northern District of California there are chapter 13 trustees that have never objected to a claim filed by a creditor.  Also here in the Northern District of California our no look fees for objecting to a claim are only $400.  If there is even he slightest fight regarding objecting to the claim let alone an evidentiary hearing $400 is not even close to reasonable and and necessary compensation. 

You can file an objection to the proof of claim.  The judge may agree with you and disallow the proof of claim or they could still allow the proof of claim if the creditor has a reasonable explanation that the judge will accept.

The issues listed above are not the only objections to proof of claims available to you.  If you do not agree with some of the claims that are being filed in your case you should seek the advice of an experienced bankruptcy attorney.

 

Can I Modify My Mortgage in Bankruptcy?

By Ryan C. Wood

One of the most frequently asked questions during my consultations with clients is “Can I modify my mortgage in bankruptcy?”  This question is very reasonable given that most of our clients own houses with mortgages that exceed what their house is worth.  The answer depends on the circumstances.

As discussed in my previous articles, one of the major benefits of filing a Chapter 13 bankruptcy is the ability to get rid of junior liens recorded against a house if the senior lien is underwater.  Getting rid of junior liens has helped a lot of homeowners keep their homes.  However, sometimes filing bankruptcy and getting rid of a second mortgage still not enough to help some homeowners because their house is heavily underwater.  Consider the following example:  Your house is currently worth $180,000, first mortgage is $300,000 and there is a home equity line of credit for $150,000.  Yes, it is a huge advantage for a homeowner to get rid of the $150,000 home equity line in the Chapter 13 bankruptcy, but even without the $150,000 equity line of credit, the house is still underwater about $120,000.

Can anything be done about this?  Can the first mortgage be modified in a Chapter 13 bankruptcy case?  The ability to modify the first mortgage depends on whether the house is considered a primary residence or an investment property.  Pursuant to 11 U.S.C. §1322(b)(2), a Chapter 13 plan may “modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence…” This means that homeowners may modify their mortgages in a Chapter 13 bankruptcy case as long as the mortgage is not for their primary residence.  This is unfortunate since that is precisely what most homeowners need right now – the ability to modify the first mortgage of their primary residence.  There are currently no laws in place that would allow the modification of the first mortgage on a primary residence, but we can always hope that Congress will enact some laws in the future that will help homeowners with their underwater homes.

On a more positive note, 11 U.S.C. §1322(b)(2) of Bankruptcy Code indicates that mortgages on an investment property can be modified.  In the example above, the first mortgage of $300,000 can be decreased in a Chapter 13 bankruptcy case to the fair market value of the home: $180,000.  The only catch is that the homeowner would have to pay the entire $180,000 in the Chapter 13 plan in order to take advantage of the modification.  Chapter 13 plan cannot be stretched to more than 5 years (60 months).  Therefore, assuming a 5-year Chapter 13 plan, the minimum Chapter 13 monthly payment would need to be at least $3,000 ($180,000 / 60).  In some jurisdictions you can propose to pay interest only to the mortgage company and then make a balloon payment during the last six months of the chapter 13 plan.  Please keep in mind that this is a very simplistic calculation geared more towards understanding the concept rather than the actual calculation.  There is normally interest and other fees that would be added to this Chapter 13 monthly payment plan.  The ability to modify mortgages for investment property is unfortunately seldom used mainly due to the fact that homeowners would have to pay for the entire modified amount in their Chapter 13 plans under most circumstances.  Modifying a mortgage for an investment property would be great for people who own investment properties in areas with very depressed home values.

Information About Filing a Chapter 13 Bankruptcy Case

By Ryan C. Wood

When people think about Chapter 13 bankruptcy cases, most people think that it is the bankruptcy chapter under which they are forced to pay all their debts back and are stuck with the payment for the duration of the Chapter 13 plan.  It is information like this that sometimes prevents people from seeking the advice about bankruptcy.  This article was written to provide you with more information and insight into Chapter 13 bankruptcy cases.

Do I Have to Pay Back All My Creditors?

Many people do not seek the advice of bankruptcy attorneys because they think that they have to pay back all their debts in a Chapter 13 plan.  This is not always the case.  The amount you pay in a Chapter 13 plan depends on a variety of factors such as: your monthly disposable income, if there are any unprotected assets and the amount of missed secured debt payments (such as mortgage or car payments).  Some people pay back 0% of their unsecured debts while others must pay 100% of their unsecured debts.  It just depends on your financial circumstances.

Why Should I File a Chapter 13 Bankruptcy?

There are many reasons why people file a Chapter 13 bankruptcy.  One of the most common reasons to file for a Chapter 13 bankruptcy right now is the ability for consumers to strip, or get rid, of their junior liens from their real estate.  For this to be possible the value of your property must be worth less than what is owed on your first mortgage.  With the current economy there are a lot of underwater mortgages out there that can be removed forever.  Consumers can strip their home equity lines of credits or other junior liens that may range anywhere from $10,000 to $200,000+.  That is a substantial amount of savings.  Another reason to file a Chapter 13 bankruptcy is to save a home from foreclosure by paying back missed mortgage payments in the Chapter 13 plan.  This allows the missed mortgage payments to be spread out in the Chapter 13 plan over 3 to 5 years instead of having the entire amount payable immediately.  A third reason to file a Chapter 13 case is to repay priority tax debt in the Chapter 13 plan.  Generally taxes that are not more than three years old are not dischargeable in bankruptcy, a Chapter 13 plan allows them to spread out that payment for 3 to 5 years.  These are just a few of the reasons to file a Chapter 13 bankruptcy case.

Am I Stuck in a Chapter 13 Plan for the Duration of the Plan?

Circumstances can change at any time.  Fortunately, Chapter 13 bankruptcy cases are fairly flexible.  If your financial situation changes, such as loss of job, decrease in income, increase in expenses, or any other change, you can always modify your Chapter 13 plan to reflect the changes in your financial situation.  If the changes are significant enough you may even convert your Chapter 13 bankruptcy case to one under Chapter 7.

Can I Voluntarily Dismiss My Chapter 13 Plan?

There may be many reasons why you would want to dismiss your Chapter 13 plan.  Luckily, under 11 U.S.C. §1307, you can voluntarily dismiss your Chapter 13 plan at any time as long as you have not previously converted your case from a Chapter 7, 11, or 12.  Chapter 13 cases are usually fairly complicated and it is recommended that you seek the advice of an experienced attorney to help you navigate through your Chapter 13 case.

How Does My Potential Inheritance in a Will or Trust Affect My Bankruptcy Case?

By Ryan C. Wood

Are you listed as a beneficiary in a will or trust?  If so, will it be an issue when you are filing for bankruptcy?  You are not entitled to anything because your loved one is still alive and well.  Most potential clients believe this is not an issue that needs to be addressed when filing bankruptcy, but leaving out a potential inheritance (which is a “contingent interest”) in a bankruptcy petition could be a huge mistake.  Most bankruptcy lawyers have a question on their intake form asking if you are named in any wills or trusts as a beneficiary.

A contingent interest in a will or trust on the filing date of your bankruptcy petition is considered to be part of your bankruptcy estate.  This means if within 180 days of the filing of your bankruptcy petition your loved one passes away and leaves you an inheritance, the contingent interest becomes a vested interest.  Whatever you are entitled to in the will or trust will be counted as an asset in your bankruptcy case and part of the bankruptcy estate.  If this interest cannot be adequately protected because you do not have enough exemptions to cover the amount of the inheritance, then the unprotected portion of the inheritance may be subject to creditor’s claims.  If you have a 90 year old grandmother who is leaving your $5 million in her will or trust and you are thinking about filing bankruptcy, you should seek the counsel of an experienced bankruptcy lawyer to discuss timing and options.

Spendthrift Trust

Spendthrift trust provisions are sometimes included in a trust document to prevent a creditor from going after a beneficiary for the entire inheritance.  Spendthrift trust provisions are allowed under California law but there are certain restrictions.  Under California Probate Code Section 15306.5, “a creditor may obtain an order directing the trustee to satisfy all or part of the judgment out of the payment to which the beneficiary is entitled under the trust instrument…as long as it does not exceed 25% of the payment that would otherwise be made to the beneficiary.”  This means that 75% of your interest is protected with 25% potentially going to your creditors.

Necessary for Support

Although creditors could potentially go after a beneficiary’s interest in the spendthrift trust, creditors are still limited under California Probate Code Section 15306.5(c).  This section indicates that amounts which are “necessary for the support of the beneficiary and all the persons the beneficiary is required to support” are exempted.  This means that if you can prove that all the benefits of the inheritance are necessary for the support of you and your family, creditors will not be able to reach those benefits and the trustees of the trust will not be required to pay the creditors.  There are different ways of proving that the amounts are necessary for your support in your bankruptcy case.  You should consult with an experienced bankruptcy attorney to ensure your inheritance is protected as much as possible in your bankruptcy case.