Congress is debating a change to Chapter 13 of the Bankruptcy Code to allow homeowners with “negative equity” in their homes to reduce the amount owed on their mortgages to the amount of their home’s value. This is the “cram down” legislation, which has failed on many occasions due to the the banking industry’s strong opposition.
However, the political and economic environment now gives it a fighting chance. Indeed, even Citigroup has signed on and supports the legislation.
Consequently, someone with negative equity who is facing foreclosure or just overwhelmed by debt might wonder if they should wait and see if the law passes before they file. The answer to this depends on need, of course. If help is needed now, then there may be little choice. The good news, however, is that for most people already in bankruptcy, if the new law passes they will be able to dismiss their pending Chapter 13 case and re-file a new one. There are two primary issues to be aware of when doing this.
1. When dismissing a Chapter 13 case, one must make sure that the 180-day bar to refiling does not go into effect. This bar can arise due to a willful failure to obey court orders, but it usually is implicated after a debtor seeks dismissal after a motion for relief from stay has been filed.
If a motion for relief has been filed, often the best way to deal with the problem is simply to wait for the trustee to make a motion to dismiss for failure to make plan payments. If the dismissal enters as result of the trustee’s request, not the debtor’s, there is no 180-day bar to re-filing.
2. The other main issue relates to the imposition and preservation of the automatic stay in the new case. If a new law passes, a debtor will usually have filed only their current case within the last year. If this case is dismissed and re-filed, the stay will only last 30 days in the new case. However, if the debtor’s attorney goes to court within 30 days of filing the new case and ask for a continuation of the automatic stay to show that it was filed “good faith as to the creditors to be stayed” the stay will be continued.
The focus of judges at these hearings tends to be simply to decide whether the new case will work. When a case is re-filed to take advantage of a new law, but is otherwise fundamentally sound, this test should be met. The standard gets much tougher when the new case is the third (or fourth, etc) in one year. In these circumstances, dismissing and re-filing is likely a bad idea.
The bottom line is that filing a case now will usually not deprive a debtor from taking advantage of whatever legislative changes may come in the future.
No related posts.
Comments on this entry are closed.