In most bankruptcy courts a Chapter 13 debtor is not allowed to borrow money without the court’s permission, based either on a court order or local rule.  This tradition has existed in most places for as long as anyone can remember.  Why?

It may come as a surprise to most people but the Bankruptcy Code does not have any prohibition on a Chapter 13 debtor borrowing money while in their case.  It does prevent any new non-tax creditor from filing a claim in the repayment plan unless it was incurred with either the court or trustee’s permission.  But most consumer lenders do not wish to be included in a reduced repayment plan that will eventually eliminate the balance of their debt so that provision is virtually a dead letter. Read the rest »

Remaining current on your mortgage payment after you file Chapter 13 is a requirement of your Chapter 13 confirmation order.  In many areas of the country your ongoing mortgage payments must be made through the Chapter 13 Trustee.  In the Northern District of New York courts, you generally make your mortgage payments directly to the mortgage company.  Of course, during the 3 to 5 years of your Chapter 13 many unexpected events may happen.  Income could decrease, expenses could increase, the American economy could collapse.  So what happens if you get behind on your mortgage payments?

 It will not take the mortgage company too long to react to your getting behind in payments.  They will either:

1)      Write your attorney a letter informing her/him of your missed payments.

2)      Make a motion to the bankruptcy court to lift the automatic stay.

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Save Wall Street . . . Forget Main Street. That is basically what Republicans and Democrats are doing this week as they decide to provide the biggest bailout in the history of the world.

The problem with this economy started with the housing crisis and continues to be the housing crisis. In July, 2007, I wrote an article predicting subprime lenders would eventually crash the stock market, but there were plenty others predicting this long before I did. At the time, I was responding to the Dow Jones Industrial Average eclipsing 14,000. Ahhhh, the good old days.

More than one year ago, my colleagues and I proposed the perfect solution to stop the economy from heading into the freefall it is experiencing today: Allow the re-amortization of mortgages in bankruptcy.

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Sometimes people forget that life in general still continues while you are in bankruptcy. This includes the fact that you must file your tax returns on time just like any other year. I am sure you have heard the phrase, there is nothing certain but death and taxes.

Do you have to file your tax returns when you file a bankruptcy? Bottom line, yes. Check here for the IRS publication of bankruptcy and your tax returns. You can read about such items as debt cancellation and how to file returns if you are in a Chapter 7 or Chapter 13
If you have questions about your taxes you can contact the IRS at 1—800—829—1040.

Written by Rachel Lynn Foley, Kansas City Bankruptcy Attorney.

When you propose a Chapter 13 plan for three or five years, your intent is to comply with the terms of the plan.  Three or five years can be a long time, though, and often there are changes that you did not anticipate.  One of the benefits about Chapter 13 is its flexiblity which can often accommodate the changes that occur to you and around you.  Of course any changes that affect your ability to complete your plan should be discussed with your lawyer.  

·        If you are unable to work and can’t make your Plan payments you should fully discuss all of your options with your attorney.  If the situation is permanent, one option you have is to convert your case to a Chapter 7 in which case your debts would usually be discharged with no further payments required.  Of course, if you had past due mortgage or car payments in your Plan that had not yet been fully paid, your mortgage or car creditors could make a motion to have the automatic stay lifted and begin foreclosure proceedings on your home or repossess your automobile.  If that were to happen, any monies you still owe on the home foreclosure or vehicle repossession would be discharged in your Chapter 7 bankruptcy.  It is also possible to keep your vehicle after a conversion .  You can sometimes work out a new arrangement with the car lender, and reaffirm the debt.  Or you can redeem the vehicle, which is to pay off it’s value without regard to the amount owed.

·        If your situation is short term and you will be back to work in the near future, your attorney can contact your Trustee and try to work out a solution that would enable you to stay in your Chapter 13 bankruptcy.  Often the solution is to wait until the Trustee or a creditor make a motion to dismiss your case due to your non-payment, and then you can make a motion to modify the plan.  In the modification, you can excuse the payments you missed and start up again with a payment to the trustee over the remaining months of the plan.

·        If you lose your job and you had automatic Plan payments deducted from your wages, the payments to the trustee, of course, will stop.  Generally, your obligation is to begin making the payments to the trustee on your own, but you should be sure to contact your attorney immediately to fully discuss the situation with him/her.  If you get another job, notify your attorney so that a Wage  Order can be filed with your new employer.

As a constituent and bankruptcy attorney working to help families in our community save their home from foreclosure, I urge you to include court-supervised mortgage restructuring for financially distressed American homeowners in any package you approve to bail out Wall Street.  Why do I support this approach?

• The rapid deterioration of the financial sector has been fueled by the steep rise in delinquencies and foreclosures of risky mortgages.

• These mortgages have been sliced up and sold in complex financial instruments that now sit as “toxic assets? on the balance sheets of our largest banks.

• Every financial expert, including Treasury Secretary Paulson and Federal Reserve Chairman Bernanke, agree that we will not stabilize our financial markets until we stabilize the housing markets.

• The housing market will not stabilize absent a solution to the tide of foreclosures.

• Simply giving a government entity the authority to purchase the “toxic assets? of troubled financial institutions will not result in fewer foreclosures.    This is complicated, but the basic problem is that the government will not be buying mortgages …those mortgages have been carved up and sold to investors all over the world.  The government essentially would have to put all the pieces back together to modify the loan, which just is unrealistic.

• Court-supervised mortgage modification in Chapter 13 bankruptcy is perhaps the most effective tool for ending the foreclosure crisis.

• Court -supervised mortgage modification will not cost the U.S. taxpayer one penny, but will keep families on Main Street in their homes.   It deserves your support as you consider a taxpayer funded bailout of Wall Street.

When a check bounces, making good on it is normally just paying off a debt owed.   If that happens during the 90-days before a bankruptcy is filed, it would be an avoidable preference. But if a lender plays its cards right, it may be able to protect itself after all.

In the normal scenario of a financial meltdown, bad checks are sometimes written.  If the bad check is the payoff on a secured debt — like a car loan or mortgage — some lenders have released their lien on the collateral when they receive the check.  Only to find out the check is no good.  Lenders are understandably upset when checks bounce and will often threaten to take back the collateral or even prosecute the debtor for writing a bad check.  So often debtors will rush to make good on those checks. Read the rest »

You are allowed to sell your home while you are in a Chapter 13. Be sure to contact your attorney and let him know what you want to do. You will be required to submit a signed Contract of Sale. Your attorney will then file a Motion to Sell with the court and put all creditors and the Trustee on notice.

Your Motion to Sell must specify the sale price, the value of the property (with some proof of value), and what your proposal is for the proceeds of the sale. Typically, you list the mortgage payoff amounts and all closing costs, including the realtor and legal fees.

Read the rest »

Sometimes when you are in a Chapter 13 you learn that you are going to get some extra, out of the ordinary money.  Sometimes it is from a bonus at work, or a lump sum settlement on a Social Security Disability or Workers Compensation case.  Or it could be an inheritance or a personal injury settlement.  Or you might get it from the sale of something you own, or as a gift.  Or in some areas of the country such as the Southern Tier of New York and the Northern Tier of Pennsylvania, you might be offered a large sum of money to sign an oil and gas lease involving your property.

Many Chapter 13 Debtors believe that if the money was exempt funds, such as from a lump sum settlement of a Disability case, that they do not have to turn it over to the Trustee.  This can be a big mistake.

Read the rest »

As an American Citizen and a Bankruptcy Attorney, I am torn on the bailout issue.

As am American Citizen, I am outraged that our Government let this happen and did nothing for the last year and a half, and now they are making the case of global disaster if something isn’t done immediately.

As a Bankruptcy Attorney, I am inclined to say let these financial giants file Chapter 11.  Plain and simple Bankruptcy works.  It gets the bad debts off the books and gives a fresh start.  The problem here is that bankruptcy would have a domino effect because of the way that Wall Street structured its financial transactions.

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President Bush is asking Congress for a blank check to bailout the financial industry.  Why?  Have any details been given to the American People?  How come all of the negotiations have been hush-hush?  Why wasn’t Lehman Brothers bailed out?  Why was Lehman Brothers allowed to file bankruptcy?  I haven’t reviewed anything in that case which explains the need for a bankruptcy on that specific day.  Although I am sure more information will come out as the Lehman case unfolds, the same is not happening with the bailout.

I ask again, what has the Government ever fixed by throwing money at it?  Simple answer, Nothing.  The same will hold true here today.  We are being intentionally kept in the dark, something the Bush Administration seems very adept at doing.  For the past year, the Bush Administration has been procrastinating on the housing crisis and down-playing the seriousness of the situation.  Now that the big banks and Wall Street are on the chopping block, Government intervention is absolutely necessary.  The Bush Administration is going to have to realize that the American citizens are sick and tired of having to bailout these financial companies while worrying about how they are going to pay their own mortgages.

I would like to hear the arguments in favor of the bailout.  So far all we have heard is that if we don’t bail them out quickly, there could be devastating consequences.  Well, that may be true, but it is a general statement without too much substance.  In the alternative, adding a trillion dollars on the backs of the American citizens could have devastating consequences as well, but our fearless leaders are willing to take that risk.  I would like to decide for myself after seeing all of the facts.

I want to see some specifics.  I want to know how much this is going to cost.  I want to know who is going to get what money and what they are going to provide as collateral.  I want to know why these criminals are not going to stand trial.  I want the government to explain why they haven’t done anything to help its citizens escape foreclosure for the last two years but now sees a crisis.  I would never hand a blank check to anyone, not even the President of the United States.  This thing stinks.

If I sound like I don’t trust our Leaders in Washington, you are correct.  In Part II, we will look at more arguments why this bailout is a bad idea.