Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

Debts You Can’t Wipe Out In Bankruptcy

By

nondischargeable debts

 

Nineteen kinds of debt survive a bankruptcy discharge: but three stand out from the rest.

Those three exceptions to discharge look, not at the kind of debt such as taxes, or support or student loans.  Rather the exceptions look at  how the debt arose.

These exceptions prevent bad actors from escaping the consequences in bankruptcy.  Bankruptcy is supposed to help the honest but unfortunate person.

There’s another, significant difference:  a creditor who holds one of these claims has to act, promptly, to except his claim from discharge.

The creditor has to file a timely challenge to the discharge of its debt.

And then, carry the burden of proof at trial.  The debtor gets a presumption that the debt is dischargeable.

So, what kind of bad behavior may keep a debt from being discharged?

Fraud is first

Debts that are created as a result of fraud, misrepresentation or false pretenses aren’t subject to being wiped out.  That’s §523(a)(2).

Note that the exception looks at the transaction at its begining. The statute focuses on money, property, services to the extent obtained by fraud.

While the debtor may have behaved badly after a debt was created. that bad behavior doesn’t exclude the debt from discharge.

There’s another wrinkle. If the alleged false statement is one about the debtor’s financial condition, that statement must be in writing to preclude discharge.

Breach of fiduciary duty survives

The second clutch of bad behaviors that can’t be discharged involve breach of fiduciary duty, embezzlement and larceny. §523(a)(4).

Embezzlement and larceny, which is a kind of theft, are easy to understand.  But not so, fiduciary duty.  Bankruptcy law has a narrow definition of who is a fiduciary.

For breach of fiduciary duty to be nondischargeable, the duty must arise under an express trust.  So trusts that are created by law to further equity or prevent undue enrichment don’t fall under this subsection.

One of the first judges I practiced before used to say that under California law, everyone is a fiduciary for everyone else.  But not in his federal court.

Willful and malicious injury gets no discharge

Debts grounded in intentional injury to person or property live on after bankruptcy. Section 523(a)(6)makes non dischargeable debts for willful and malicious injury by the debtor to another entity or to the property of another entity;

There’s a huge body of law tussling with the meaning of “willful” and “malicious”.  And the plot thickens when you realize that the protections for creditors created by this subsection is greater in Chapter 13 than in Chapter 7.

In Chapter 13 a debt for damages for personal injury is non dischargeable if it results from either willfulness or malice!  Damage property willfully or maliciously and you’re OK in Chapter 13.

Timing is everything

There’s a timing issue for both creditors and debtors in these three discharge exception cases.

Debtors facing state court litigation may want to file bankruptcy before trial of the matter.  Findings of fact made in a state court trial will be entitled to finality in a  bankruptcy trial.

So,  suffer an adverse finding in state court and you’re stuck with that finding in bankruptcy.

But since the standards of what is fraud or false representations is slightly different in federal law than in state law, you may have a dispute about whether the finding is really on the same issue that the bankruptcy court is focused on.

It may be cheaper to try the issue once, in bankruptcy court, than risk having to defend yourself twice in state court, then bankruptcy court.

Creditors must be diligent once a bankruptcy case is filed, to meet the filing deadline for challenging the discharge of their debt.  Generally, the bankruptcy court sets a deadline 60 days after the date set for the first meeting of creditors by which challenges to dischargeability must be filed.

Miss that deadline for one of these kinds of debts and you’re out of luck.  The debt will be discharged regardless of the merits of the challenge you could have brought to exclude it from discharge.

More

How bankruptcy treats debts to the government

What happens to judgment liens in bankruptcy

Does a bankruptcy discharge last forever?

 

Which Bankruptcy Chapter Is Right For Me?

By

choose bankruptcy chapter

Seven or Thirteen?

13 or 7?

When you have a choice, how do you decide which chapter of bankruptcy works best?

Usually, the choice is driven by the scope of the discharge and the kind of debts you have.

More kinds of  debts are dischargeable in Chapter 13 and the automatic stay protects you for the 60 month duration of the case.

So why did the client this week choose to walk out of Chapter 7 with fewer debts discharged than if he’d chosen 13?

It’s all about his  future.  And who will get to share in his growing earning capacity.

Chapter 7 over Chapter 13

On the surface, this client seemed a great candidate for Chapter 13, which is my favorite  bankruptcy chapter.

Some of his debts were only dischargeable in Chapter 13;  in Chapter 7, he’d emerge still owing some debts from a divorce.

So why choose the smaller discharge?

Because his earnings were likely to double or triple over the life of a Chapter 13 case.

If that happened, we anticipated that a Chapter 13 trustee would move to modify his payment plan to pay more to general unsecured creditors.

Credit card debt, which would get nothing in a Chapter 7, might well get a substantial repayment from his increased earnings.

He’d pay fewer dollars paying  the non dischargeable debt that survives a Chapter 7  directly than he would paying in a larger slice of his paycheck  to all of his creditors in a Chapter 13 plan.

Chapter 13 after confirmation

Judges approve Chapter 13 plans based on the situation when the bankruptcy case is filed.  The means test looks at recent income.  The liquidation test looks at non exempt assets at filing.

For this client, each of those numbers was modest and a repayment plan would be relatively cheap.

But Chapter 13 involves committing your future income to the supervision of the Chapter 13 trustee.

Now, that supervision is pretty minimal:  it usually means the trustee monitors your tax returns to see in your income has increased.

If there’s a significant increase, the trustee can file a motion with the court proposing increased monthly payments going forward.

The debtor gets to respond with updated expense schedules, and if the parties can’t reach a deal, a judge decides whether payments change.

In the Bay Area, this happens very infrequently.  I’ve seen it less than a half dozen times in 20+ years of doing lots of 13’s.

But it can happen, and for this client, it seemed quite likely that a new job in his usual profession would dramatically increase his income.

Chapter 7 looks at today

If Chapter 13 is a years long process, Chapter 7 is a single event.

The rights of the debtor and the creditors are determined by the situation on the day the case is filed.

If the means test says that Chapter 7 is an option, then the creditors get only what the debtor owns at the filing of the case.

And what the creditors share in is only what’s left after the debtor chooses his exempt property.  Most Chapter 7 cases make no distribution to creditors.

Future income belongs to the debtor.  The Chapter 7 trustee can’t come back a year later and ask for a slice of a larger paycheck.

So, much to my surprise, when we looked at this client’s current situation and his prospects, the more limited discharge was a better deal than Chapter 13.

He’ll get to enjoy a larger share of his future earnings and a fresh start.

More

Cheat sheet for passing the means test

Figuring what you pay in Chapter 13

How to make your divorce bankruptcy-proof

When your ex files bankruptcy

Dividing debts in divorce

 

Your Right To Credit Reporting After Bankruptcy

By

 

credit report after bankruptcy

You’ve finished your Chapter 13 and emerged from bankruptcy with your home loan current.

But your credit report is a blank page as to your mortgage.

The mortgage servicer isn’t reporting your payments to the credit reporting agencies [CRA’s].  

Nothing. Nada.  Crickets.

So, even though you’re making regular payments, you’re not visibly rebuilding your credit.

Ask the servicer and they’ll tell you that they can’t report your payments “because of your bankruptcy discharge“.

But they are wrong:  a little-discussed provision of Chapter 13 says that long-term mortgage debt is not discharged in 13.

Yup.  The mortgage loan is not discharged as a personal obligation.

And therefore, there is no bar to the servicer reporting your payments, and every danger should they not report.

Servicer’s obligation to report

Put simply, if a creditor reported to credit reporting agencies  before the bankruptcy was filed, then there is an obligation to report after the bankruptcy.  The “furnisher”, the creditor who supplies information to the credit reporting agency, has an obligation to make the information on file fully accurate.

In contrast to an unsecured debt like a credit card, which should be reported as having a zero balance after the discharge, the mortgage loan after Chapter 13 has a balance.

Presumably, it is also current.  Both facts which should appear on your credit report.

Mortgages excluded from Chapter 13 discharge

I’m certain you will have to cite to bankruptcy law when you challenge the improper reporting on a mortgage loan after Chapter 13.

Here’s the part of the Bankruptcy Code that excludes long term debt like your mortgage.

Section 1328 says,

(a)… the court shall grant the debtor a discharge of all debts provided for by the plan …, except any debt—

(1)provided for under section 1322(b)(5); 

 Section 1322(b), that §1328 refers to,  says

(b)Subject to subsections (a) and (c) of this section, the plan may—

(5) … provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due;

Get mortgage payments reported

If you find that your post discharge payments on your home loan aren’t being reported, challenge the accuracy of what is on your report about that loan with the credit reporting agency.

It is the CRA’s responsibility to see that information in your credit file is accurate.  The CRA is supposed to ask the furnisher to reinvestigate the challenged tradeline.

The Consumer Financial Protection Bureau has a how-to, with a template letter, on how to dispute inaccurate information on your credit report.

Get the good information reported.

More

How to find and fix credit reporting errors

Your post bankruptcy to-do list

Can Your Creditor Get A Lien On You?

By

liens on your homeCan “they” put a lien on me?

If you have debts you can’t pay, that’s a critical question.

The man sitting across the desk from me owed a fistful of taxes.  He proposed to transfer his interest in the family home to save the house from the tax lien which was filed against him.

He thought that the lien on the house would vanish once the home wasn’t in his name any longer.

And that sort of follows from the idea that the lien is “on” the person.

But that’s not how liens work.

Liens are creatures of law:  whether you think about them as barnacles, leaches, or ticks, the idea is the same.

They attach to assets and and once attached, follow the asset wherever it goes.

Liens on property

Liens are interests in the property owned by a person against whom a lien has been filed.

The lienholder has rights in the property.  Those rights are different from the rights of the legal owner, but they are powerful still.

The lien operates to carve out a slice  out of the affected assets that are owned by the person who owes money in favor of the creditor.  The lien creates collateral for payment of the debt.

Using tax liens as an example, the lien attaches to all the property that the taxpayer owns at the time the lien was filed.  It attaches, as well, to everything the person acquires afterward, so long as the debt underlying the lien is unsatisfied.

Like being a barnacle, it attaches itself to the property and it stays with the property for the life of the debt.  It usually entitles the lien holder to take action to sell the asset for payment of the debt.

Liens after property transfer

My client with unpaid taxes didn’t understand that once the lien attached to the family home, it would stay with the home until the taxes were paid.  If he deeded the home to his wife, she would take the house subject to the lien.

The lien just rides along, unaffected by the transfer of title.

The lien holder, of course, wants to be paid.  So if a person who has a lien outstanding wants to sell liened property, the lien holder will often release the lien as to that property in exchange for payment, in full or in part, of the debt secured by the lien.

How liens are created

Liens are not created willy nilly. The law regulates just how someone else gets an interest in your property.

Liens can be created voluntarily.  When you grant a deed of trust or a mortgage on your home, you voluntarily give your creditor a lien on the property to secure repayment.

Liens can be created by judgments.  A judicial lien results from a judgment against you for money entered by a court .

Finally, liens can be created by statute.  For instance, the Internal Revenue Code authorizes the IRS to record a lien for unpaid taxes.  Neither consent nor judicial involvement is required.  It’s a statutory lien, created by the law.

Death of a lien

Liens usually become void when the debt they secure is paid or no longer enforceable.  Tax liens expire when the tax they secure reaches the statute of limitations on collections.

Some judgment liens are avoidable in bankruptcy.

But, to my client’s great regret,  just taking the liened property out of your name does not defeat the lien.

More on wiping out liens:

Eliminate judgment liens in bankruptcy

Avoid underwater mortgage liens

Wipe out taxes and liens in Chapter 13

Image: © mariusz szczygie – Fotolia.com

All You Need To Know About Bankruptcy Stay & Pending Litigation

By

bankruptcy during litigationWhen a trial date looms, bankruptcy may look better and better to  a defendant.

Bankruptcy can be the emergency exit from a bad situation that is about to get worse.

That’s because every bankruptcy case comes with an  automatic stay .  That’s  a federal court injunction automatically entered when a bankruptcy case is filed, protecting the debtor and his property.

What does that mean, really, when the stay is imposed while litigation is underway?

Stay halts suit against debtor

The stay stops all parties from continuing the lawsuit in any way against the person who has filed bankruptcy.

The stay is in force, whether or not anyone has received notice of the bankruptcy.

Debtor’s counsel usually wants to notify all parties of the filing, long ahead of any notice of the bankruptcy case that may go out from the bankruptcy court clerk.  Some courts have a form used to provide notice to the court of the stay.

If someone goes ahead with actions against the debtor in violation of the stay, those acts are void or voidable.   (In the 9th Circuit, it’s “void”) .  So if a foreclosure sale takes place after the stay is imposed, the sale is void and of no legal effect.

Deliberate actions in violation of the stay expose the actor to damages, including punitive damages and attorneys fees.

The debtor’s damages include attorneys fees to stop the violation and collect those fees and damages.

Stay in Chapter 13 protects co debtors 

If the lawsuit involves a consumer debt, anyone who is jointly liable with the debtor is protected by the stay when the debtor chooses Chapter 13.

A consumer debt is defined as  “debt incurred by an individual primarily for a personal, family, or household purpose.” § 101(8)

Even though the co debtor didn’t file bankruptcy themselves, they get this protection because it’s seen as protecting the debtor as well.

The co debtor stay can be lifted by a motion for relief from the stay if the Chapter 13 plan doesn’t propose to pay the debt in full.

Suit may continue against others

Other defendants in business cases often hope that the bankruptcy of one of the defendants will stop the suit all together.

Sometimes, a filing has that effect for a while, as the trial court and the parties try to sort out what to do next.  But the injunction created by the bankruptcy court actually protects only the debtor.

The suit in a non bankruptcy court may proceed against other defendants.  The debtor may be required to appear as a non party witness in the suit as it resumes, but absent relief from the stay, the debtor is shielded.

Most courts hold that non bankruptcy actions can continue against corporations or other artificial entities owned by the debtor, even though a successful case against the debtor’s corporation may impair the value of the debtor’s asset and therefore impact the debtor’s bankruptcy case.

Trying multi-party actions including the debtor

Strategically, those suing the debtor may want to avoid going forward with the suit, with the debtor’s chair at the defendant’s table empty.  After all, one of the first things we learned in law school was to fill up all the chairs with those potentially liable.

Two options are available.  Litigants can seek to remove the suit to bankruptcy court under 28 U.S.C. 1441 and try the claim in bankruptcy court or the district court.

Alternatively, litigants can seek relief from the automatic stay to try the case against the debtor and his codefendants, under the condition that any judgment obtained at trial be returned to bankruptcy court for enforcement.

Dischargeability not an exception to the stay

Even creditors whose claims are not dischargeable in bankruptcy must respect the automatic stay.  There is no exception just because you know, or hope, that your claim will survive the bankruptcy.

There is a long list of actions not within the scope of the stay, found in subsection b of 362, headed by carve-outs for criminal matters; family law actions for paternity and status; tax assessments (but not collection).

Discharge provides permanent injunction

 The automatic stay terminates when property is no longer “property of the estate”.  The protection of the debtor and his assets, current and future, is replaced by the discharge injunction.

So, unless the claim you are prosecuting before bankruptcy against the debtor is non dischargeable, you are not free to resume suit against the debtor once the discharge is entered.

How to proceed

Most state court judges have been conditioned to hold hard when there is a suggestion of bankruptcy.  Restarting a pending suit against remaining defendants is often facilitated by seeking an order granting relief from the automatic stay, or a “comfort order” that there is no stay that prevents continuation of litigation.

More

Chapter 13 rescues debtor

What to do when you’re sued

When bankruptcy is the right choice

 

Image courtesy of Geralt and Pixabay

In Debt? Plan For Holidays And A Better New Year

By

12 days of christmas-wikimedia

The countdown to the holidays is on.

It’s after the holidays that the desire to turn over a new financial leaf usually blossoms, when the bills from Christmas arrive in January.

What was a seed of an idea about getting out of debt, sprouts and grows after the holidays.

After the New Year, I see a surge of people who have explored bankruptcy with me months before.  They show up in the New Year, ready to file a bankruptcy case after the holidays.

And I end up saying, not now.

Why, when it was obvious to me from our initial meeting that bankruptcy was necessary and appropriate?

Because their holiday buying on credit may be tagged as fraudulent as to the card issuers.

Fraud not dischargeable in bankruptcy

It’s a bedrock principle of bankruptcy law that you cannot incur debt, knowing that you don’t intend to repay it.

That’s fraud, or it looks like fraud.

Debts incurred by fraud can’t be discharged in bankruptcy.

What happens if bank thinks you’ve committed fraud

The creditor  has to file a timely complaint and prove its case, that’s true. Sometimes, the creditor doesn’t bother.

But, many of them do.  Lose that trial and the debt survives the bankruptcy.

It doesn’t look good if you saw a bankruptcy lawyer in September, say, treated your family to a lovely Christmas in December by using your credit cards, then filed bankruptcy in February. Those facts make it look like you planned all along to shed the December spending in bankruptcy in the New Year.

In effect, the burden of proof in a bankruptcy trial shifts to you to prove that it wasn’t fraudulent. Not a good way to start your new financial life.

So my advice to someone with recent credit card use is usually, wait a couple of months.  Make some payments on that holiday debt.  Don’t invite a fight about your honesty in your holiday spending.

Start new now

Whether your financial fresh start next year  involves bankruptcy or just serious belt tightening, make it easier on yourself.

Start planning now how you can scale back some of the excesses of the holidays.  Don’t dig the hole deeper.

  • Apply time and thought to holiday making, rather than money.
  • Leave your credit cards at home.
  • Give gifts of your time and or skill.
  • Give one gift rather than several.
  • Engage your children in making gifts rather than buying them.
  • Entertain at home rather than at a restaurant.  Cut out the hard liquor.
  • Recycle or borrow decorations.

In short, focus on people rather than things.  That’s where the joy in the holidays is found, anyway.

More

Bankruptcy isn’t the last resort

Getting ready for bankruptcy

Look at the big financial picture

Image courtesy of Wikipedia and Xavier Romero-Frias

Bankruptcy Drives Credit Score Surprise

By

credit score increaseBefore bankruptcy, a miserable credit score was no surprise.  My client reported a 498 credit score before he filed.

What was surprising is that, three month after he filed bankruptcy, his score was 614!

That’s a 116 point increase in his score in three months. 

That’s while his bankruptcy case is still active, and long before he gets a Chapter 13 discharge.

So let’s hear no more about bankruptcy always trashing your credit score.

Setting worries about future credit issue aside allows you to  focus on the health of your balance sheet and the peace that comes with reduced debts.

What credit scores measure

Credit reports and credit scores explained

Credit scores are supposed to measure the likelihood that a borrower will repay future credit. Makes sense that lenders would want to measure that.

But credit scores are based on information found in credit reports.  And credit reports are notoriously inaccurate. Twenty five percent of credit reports contain material errors, according to government studies.

Isn’t it ironic that the oh-so-precise number in your credit score is based on bad information?  As we say in number-obsessed Silicon Valley:  garbage in, garbage out.

Misuse of credit scores

As if inaccuracy isn’t bad enough, credit scores are increasingly used for issues far removed from the extension of credit.  Auto insurance rates, utility service,  employers and even immigration decisions are influenced by credit scores.

So questionable information invades your life far beyond issues of consumer credit.

And, even worse, in my view is the commercial exploitation for profit of consumer’s focus on credit scoring.

Credit anxiety is profitable

The widening use of credit scores outside of finance created a entire industry of supplying credit scores, weekly or monthly, to consumers.

Originally credit scores were used by lenders, internally.  But these days, credit card companies, personal finance sites, and even my credit union, try to sell you access to your credit score.

And by the time they’ve convinced the public that their credit score is as vital a measure as blood pressure or body-mass index, lenders and debt collectors can use that belief to demonize bankruptcy.

But, as my client’s experience shows, it just isn’t so.

More

Credit reports heal

The most compelling reason to file bankruptcy

Life after bankruptcy

 

What You Think About Chapter 13 Is Dead Wrong

By

bankruptcy misunderstanding

The difference between bankruptcy’s Chapter 7 and Chapter 13 is often expressed this way:   

Liquidation: the process of turning assets into cash

Chapter 7 is a liquidation proceeding

Chapter 13 is a repayment plan

 

And therein lies the biggest misconception about Chapter 13: 

13 does not repay everything you owe.

It’s a repayment plan alright, but not necessarily a 100% repayment .

You may not pay much at all, to any creditor.  It depends.

How much you repay

The amount you repay to creditors through your plan is determined by comparing

Rough and dirty, you calculate the number for each of these factors, and your plan must pay the largest of the three tests.  That payment is spread over 3 to 5 years.

Which creditor gets 100%

Bankruptcy law gives special standing for repayment to two common kinds of creditors.

  • Family support (alimony, child support, or other Domestic Support Obligations)
  • Recent income taxes or payroll taxes

These creditors have a priority for payment,  ahead of all other unsecured creditors.  They get paid in full.  The interest that accrues on family support obligations even survives the Chapter 13 discharge.

Therefore, to get court approval of a plan, the plan payments must be sufficient to make these payments, along with any fees of the Chapter 13 trustee and any of your attorneys fees to be paid through the plan.

Unsecured creditors out of luck

The brutal truth is that general unsecured creditors holding medical bills, personal loans, judgments for money, and credit card debt may get nothing in Chapter 13.

That’s because the available money is paid first to priority claims and the costs of administration of the case.  So a debtor with little disposable income may propose a plan that pays only the costs of the plan and the priority creditors.

Chapter 13 makes creditors face reality

The strength of Chapter 13 is that it often forces unsecured creditors to accept that there simply isn’t enough money to pay their claim.

The bankruptcy schedules show it, and the bankruptcy judge enforces it.

It is that coercive effect that makes Chapter 13 so much more effective than debt settlement:  if the numbers support it, the plan can pay them little or nothing.

So, don’t be put off by the phrase “repayment plan”.

Chapter 13 pays creditors only what you can afford, over a limited period of time, in the order of the importance of the debt.

That’s why I love Chapter 13.

More

Debt settlement is a dud

How secured debt can scuttle a Chapter 13

What bankruptcy should cost

 

 

 

 

 

 

 

7 Keys To Keeping Your House: Chapter 13 After You File

By

keep the house

Filing Chapter 13 bankruptcy stops the foreclosure.  You’ve protected your home, for the moment.

Bankruptcy gets you a sheltered legal environment to address the problems with your mortgage.

You heave a sigh of relief.

But the fight to keep your house isn’t over, just because there’s a stay.  You’ve just gotten through the first round.

You need to stay on your toes for the balance of the match to emerge with your house safe at the end of your bankruptcy.

Here’s what you need to know.

Mortgage lenders get special consideration

In the bankruptcy context,  the mortgage lender gets privileged treatment.

Anglo Saxon law, from which US law is drawn, has long given particular protection to the claims of property owners.  After all, it was those who owned property who wrote the laws.

The mortgage lender gets that special treatment because the lender’s lien is a property interest in your home.

That lien entitles the lender to regular payments;  if payments aren’t made, the lender can ask for relief from stay to foreclose.

The exception is if the value of the collateral is less than the total of the liens ahead of the lien in question.  Think:  underwater second mortgage.

Follow these 7 keys for keeping your house AND getting a discharge in Chapter 13.

1.  Regular mortgage payments required

Most Chapter 13 plans provide that the trustee pays the arrears on your mortgage, while you make the payments that come due after filing.

Make the payments- that means property taxes and insurance as well.

Too often, homeowners get fixated on paying the arrearages on their mortgage that they overlook, or struggle, with the ongoing payments.

Court are intolerant of borrowers who want the protection of the bankruptcy stay, but don’t take seriously their obligation to pay the monthly payments that come due after filing.

That intolerance spills over into dismissal of  Chapter 13 cases without a discharge when debtors fail to make current payments.

2.  Look for other liens

Chapter 13 isn’t limited to fixing problems with mortgage liens.  Your plan can either avoid altogether or reduce the amount of tax or judgment liens,

Make sure that you check the public record to see if any avoidable liens have attached, unnoticed, to your home.

If you find liens, your plan can cut them down to size.

3.  Pursue modification

Your best bet may be to agree with the lender on a modification of your mortgage.  Nothing in Chapter 13 stops the parties from considering modification.

Northern California bankruptcy judges have decreed that negotiations for a modification do not violate the automatic stay

Frequently, the modified mortgage either folds the arrears into the loan balance, to be paid over the life of the loan. Or, modification designates a portion of the amount owed as not bearing interest, but payable at loan-end or sale.

A modification that cures the arrears may eliminate the mortgage arrears portion of a Chapter 13 monthly payment, thereby increasing the chances of success.

4.  Review the lender’s claim

In order to be paid in a Chapter 13, a creditor must file a proof of claim.  For mortgages secured by the debtor’s principal residence, a detailed attachment is required.

The mortgage attachment must account for payments and charges to the loan from the date of the first, uncured default.

The POC also contains an analysis of any escrowed taxes and insurance, and the adequacy of the monthly payment to pay those expenses.

Dig into these numbers and see if they match your payment records and whether they are otherwise complete.

There’s lots of data there, some of it correct and some woefully wrong.

5.  Keep records of  your payments

Too many mortgage servicers fail the fundamental task of accepting your payments and crediting them properly.

The method of accounting changes with bankruptcy:  payments made after filing are supposed to be credited to a separate accounting for your loan, while the pre bankruptcy record stands alone

Servicers don’t always do that.  Payments sometimes sit for months on someone’s desk, undeposited.

I tell clients to pay with paper checks on their accounts and send the payment by a method that gets you a receipt upon delivery to the servicer.

It’s a hassle, I know, but you end up with a record from your bank that the check was cashed, and you have proof that it was delivered.  The added expense is nothing to the cost of your attorney having to track down the facts showing you paid.

6.  Read payment change notices

If your monthly mortgage payment changes after you file bankruptcy, the servicer must send you a Notice Of Payment Change.

The change may be driven by an interest rate change or a change in the cost of escrowed taxes or insurance.

Even though it comes on a court form, and looks dense, you’ve got to read it and adjust your post filing payments on your mortgage accordingly.

If you’re uncertain, ask your lawyer.

7.  Exploit case-end rules

When you’ve made your last payment to the trustee, bankruptcy rules require a notice to the mortgage servicer about the state of your loan balance.

If the lender claims that either the pre-bankruptcy claim hasn’t been paid in full, OR, that there are unpaid amounts arising after you filed, they must file a reply.

This call-and-response procedure flushes out any difficulties that show in the lender’s books, and provides a mechanism and a judge to sort things out.

The goal is to exit bankruptcy knowing exactly where you stand on the home loan.

Make sure this happens in your case.

If you change your mind

Things change over time.  If you find that keeping the house no longer fits with your financial future, tell your lawyer immediately.

The confirmed Chapter 13 plan obligates you to make the payments you promised as well as obligating your creditors to stand down.

There’s nothing wrong with changing your mind, so long as you change your Chapter 13 plan to match.

Far too many debtors recently get to the end of the case and get their cases dismissed, without a discharge, because they stopped paying on the mortgage and didn’t alert their lawyer.

More

Make sure you don’t lose house and discharge

Monitoring your mortgage loan 

Before you list your house for sale

 

Can You Get A Car Loan After Bankruptcy?

By

car loan after bankruptcy

Wheels are essential for most of us to get to work.

And whatever you’re driving when you file bankruptcy will need to be replaced at some point.

So, how are you going to finance that next car if you’ve just filed bankruptcy and face 7-10 years with the bankruptcy on your credit report?

The credit industry tries to fan that worry;  after all, they want you to keep paying on impossible debt rather than get a fresh start.

They want you to believe that no credit is available for eons to those who have filed bankruptcy.

Hogwash.

Bankruptcy improves your credit score

Under the credit scoring system used by Fair Isaacs, your credit score improves after bankruptcy.  Upon entry of the discharge, your debt to income ratio improves dramatically.

When you sit down to pay your bills after bankruptcy, there are fewer creditors clamoring for a piece of your paycheck.

Now, granted, that’s just one element of the score.  But it makes the point that credit scores are not all about whether you paid your bills as agreed.

The negative impact of a bankruptcy fades over time, time that is far shorter than the 10 years that it may appear on your credit record.

People in bankruptcy get car loans

The most compelling evidence that credit for a car is available after bankruptcy is the fact that many debtors currently in Chapter 13  get loans to replace old cars.  They haven’t even gotten the discharge of their debts yet.

They pay a significantly higher interest rate for loans during bankruptcy.

But they are living proof that car loans are available.

The take away?  Bankruptcy affects the price you pay for credit but doesn’t usually bar you from credit.

Consider getting a replacement car before bankruptcy

I often send clients planning on filing bankruptcy who are driving cars on their last legs out to shop for a new car.

And lots of them report back that they got a loan even with all the nasty debt still on their credit report.

The auto industry can be counted on to see that you can get a loan to buy their product!

My only admonition to them is to tell the truth on the loan application.  To do otherwise creates problems far bigger than an unreliable car.

If you get a car loan on the eve of bankruptcy, you are also signing up to keep paying that loan through and after the bankruptcy.

Join a credit union

Credit unions are different than banks in lots of ways, but the most important one is that they are in business to make loans to their members.

Become a member.

Do your banking at the credit union.

Start creating a solid, post bankruptcy credit.  If your present car is paid off, start making a monthly “payment” to your  “replace the car” fund.

After all, you don’t have to finance all of the purchase price of the car.  Be ready to make a meaningful downpayment, making the size of the loan you need smaller.

Your budget will appreciate a smaller monthly car payment when the time comes to get a new car.

More

Reaffirming a car loan

Paring down a car loan in Chapter 13

Life after bankruptcy

 

643 Bair Island Road
Suite 403
Redwood City, CA 94063
Phone: (650) 694-4700

Categories