Chapter 13 Bankruptcy Information

Your mortgage company will probably ask you to reaffirm your mortgage after you file Chapter 7 bankruptcy.

These days in our country, many homes with mortgages are underwater, worth less than what is owed on them.

If you file Chapter 7 bankruptcy, your home is worth $200,000, and you owe $#240,000 on it.

You can walk away from the house, you will most likely get a discharge in the Chapter 7 bankruptcy, and not have to pay anything on the note.  (Unless the mortgage companyfiles an adversary proceeding in bankruptcy court and proves you committed fraud in obtaining the mortgage)

Your mortgage company will probably ask you to reaffirm your mortgage after you file Chapter 7 bankruptcy.

These days in our country, many homes with mortgages are underwater, worth less than what is owed on them.

If you file Chapter 7 bankruptcy, your home is worth $200,000, and you owe $#240,000 on it.

You can walk away from the house, you will most likely get a discharge in the Chapter 7 bankruptcy, and not have to pay anything on the note.  (Unless the mortgage companyfiles an adversary proceeding in bankruptcy court and proves you committed fraud in obtaining the mortgage)

The Topeka-Capitol Journal Online reported today one Debtor’s bankruptcy fraud criminal conviction yesterday in the U.S. District Court in Topeka, Kansas. His wife’s trial is reported as scheduled for August 2d.  According to the article, James Moser:

• Concealed information about their option to purchase 16.5 acres of prime real estate at the location where they operated a fully equipped Arabian horse training facility.
• Concealed the fact they had $125,000 worth of gold and silver coins and collectible stamps. (Mr. Moser claimed the property had been transferred when it had only been pledged as collateral for a debt.)

At the same time the bankruptcy community is pondering the Lanning decision on what “projected disposable income” is in a Chapter 13, I read Judge Eugene Wedoff’s thoughts on whether Chapter 13 plans ought to require the payment of all of that disposable income to the trustee. *

His point was that requiring payment of 100% of the calculated disposable income was a disincentive to choose Chapter 13.  He likened it to a 100% tax on all income above the median income. (Of course it’s not 100% of “income”, but 100% of “disposable income”  as figured on the B-22 form.) We would find an income tax that took 100% of any measure of wealth to be reprehensible.  But that’s the Chapter 13 requirement.

The lead article in the Economy section of the June 18, 2010 New York Times offers revealing insight into the practices of “debt settlement” companies.   Debt settlement companies position themselves as alternatives to bankruptcy, suggesting that they have insight into “secrets that the credit card companies don’t want you to know.”   In fact, the business models used by debt settlement vendors is fairly simple.   As the Times article explains:

In the typical arrangement, the companies direct consumers to set up special accounts and stock them with monthly deposits while skipping their credit card payments. Once balances reach sufficient size, negotiators strike lump-sum settlements with credit card companies that can cut debts in half. The programs generally last two to three years.

The lead article in the Economy section of the June 18, 2010 New York Times offers revealing insight into the practices of “debt settlement” companies.   Debt settlement companies position themselves as alternatives to bankruptcy, suggesting that they have insight into “secrets that the credit card companies don’t want you to know.”   In fact, the business models used by debt settlement vendors is fairly simple.   As the Times article explains:

In the typical arrangement, the companies direct consumers to set up special accounts and stock them with monthly deposits while skipping their credit card payments. Once balances reach sufficient size, negotiators strike lump-sum settlements with credit card companies that can cut debts in half. The programs generally last two to three years.

Bankruptcy fraud is an important issue. And there’s no shortage of posts here at Bankruptcy Law Network warning of the evils of cheatin’ the bankruptcy system.

Craig Andresen, Bloomington, Minnesota bankruptcy attorney and BLN member, recently published an intriguing post entitled, “No, A Bankruptcy Lawyer Should Not Withdraw from the Case if the Client Won’t Tell the Truth.”  Craig argues that, despite the urge to withdraw when a client engages in a fraud, the bankruptcy lawyer should remain in the case to counsel the client to make the right choices.  In short, the “attorney and counselor at law” needs to put on her counselor hat.  As Craig explains:

A Georgia bankruptcy court has ruled that a chapter 7 debtor could not discharge $35,625.00 in fees owed to her divorce attorneys.  In re Bucchiarelli, 2010 WL 2033146 (Bky.N.D.Ga. Feb. 22, 2010), held that the debtor had planned on filing bankruptcy before hiring her divorce attorneys, and that she never intended to pay them for their services.

The debtor’s friend, who had testified on her behalf in the divorce trial, testified to the bankruptcy court that the debtor never had any intent to pay the divorce attorney fees.  She further testified that the debtor had formed a plan to file bankruptcy after her divorce, for the specific purpose of discharging her divorce attorney fees.

No, it is never too late.  However, waiting until after a judgment is entered may not be a good idea.

Once you file for bankruptcy protection, the automatic stay prohibits creditors from taking any action against you.  If you have been sued, this means that the creditor cannot pursue the matter to judgment without asking the bankruptcy court first.  So, if you have been sued but a judgment has not yet been entered, that creditor is treated just like any other unsecured creditor.

In re Brown, 2010 WL 1903771 (Bky.D.S.C. March 2, 2010), a recent South Carolina bankruptct court decision, held that the entire balance of a reverse mortgage could be paid off over the five year life of a chapter 13 plan.

In this case, the debtor and her daughter had lived in the home belonging to the debtor’s mother for forty years.  In 2007, the debtor’s mother died, leaving the home to the debtor.  The home was subject to a reverse mortgage upon which $29,524.44 was owed.  The reverse mortgage provided that the entire balance was due and payable immediately upon the mother’s death.