Bankruptcy Blog by NY Attorney Daren A. Webber

NY homestead exemption generally requires actual physical occupancy of the residence or an intent to reside permanently

2013-11-30T12:28:00.001-08:00

Memorandum Decision signed on 11/15/2013 Granting Objection to Homestead Exemption and Denying Motion to Avoid Judicial Lien.

In Re: 13-35317-cgm Samye Issa 2013-11-15
Chief Judge Cecelia G. Morris

Bankruptcy Court Southern District of New York, Poughkeepsie Division Debtor’s former attorney and the holder of a judicial lien against real property that Debtor claims as her residence opposed Debtor’s motion to avoid his judicial lien and objected to Debtor’s use of the homestead exemption. Debtor is not residing in the property upon which she claimed a homestead exemption and evidence at trial showed that Debtor did not intend to reside at that property on the petition date. As such, the Court grants the objection to the homestead exemption and denies the motion to avoid the judicial lien.

If you owe a few years of income taxes, Chapter 13 lets you write off those that can be, while giving you time to pay those that must be.

2013-11-29T19:18:00.002-08:00

How Does Chapter 13 Work to Save So Much on Taxes and Other Debts?

Tax debts that are old enough are grouped with the “general unsecured” debts—such as medical bills and credit cards. These are paid usually based on how much money there is left over after paying other more important debts. This means that often these older taxes are paid either nothing or only a few pennies on the dollar.
The more recent “priority” taxes DO have to be paid in full in a Chapter 13 case, along with interest accrued until the filing of the case. However: 1) penalties—which can be a significant portion of the debt—are treated like “general unsecured” debts and thus paid little or nothing, and 2) usually interest or penalties stop when the Chapter 13 is filed. These can significantly reduce the total amount that has to be paid.
“Priority” taxes—those more recent ones that do have to be paid in full—are all paid before anything is paid to the “general unsecured” debts—the medical bills, credit cards, older income taxes and such. In many cases this means that having these “priority” taxes to pay simply reduces the amount of money which would otherwise have been paid to those “general unsecured” creditors. As a result, in these situations having tax debt does not increase the amount that would have to be paid in a Chapter 13 case, which is after all based on what the debtors can afford. In our example, the couple pays $500 per month because that is what their budget allows. That’s the same amount they would have to pay even if they owed nothing to the IRS! The couple meets their obligations under Chapter 13 by having most of their plan payments go to the IRS recent tax debts, and likely nothing to their other creditors or older IRS debts.
The bankruptcy law that stops creditors from trying to collect their debts while a bankruptcy case is active—the “automatic stay”—is as effective stopping the IRS as any other creditor. The IRS can continue to do some very limited and sensible things like demand the filing of a tax return or conduct an audit, but it can’t use the aggressive collection tools that the law otherwise grants to it. Gaining relief from collection pressure from the IRS AND all the rest of the creditors is one of the biggest benefits of Chapter 13.

Deciding Between Chapter 7 and 13 for Income Taxes

If, unlike the example, all of the taxes were old enough to meet the conditions for discharging them under Chapter 7, there would be no need for a Chapter 13 case. On the other hand if more “priority” tax debts had to be paid than in the example, the debtors would have to pay more into their Chapter 13 plan, either through larger monthly payments or for a longer period of time.

There are definitely situations where it is a close call choosing between Chapter 7 or Chapter 13. And sometimes preparing an offer in compromise with the IRS—either instead of or together with a bankruptcy filing—is the best route. To decide which of these is best for you, you need the advice of an experienced bankruptcy attorney to help you make an informed decision and then to execute on it.

Do I Still Owe Secured Debts (Mortgages, Car Loans) After Bankruptcy?

2010-11-26T17:37:00.001-08:00

Yes and No. The term ‘‘secured debt’’ applies when you give the lender a mortgage, deed of trust, or lien on property as collateral for a loan. The most common types of secured debts are home mortgages and car loans. The treatment of secured debts after bankruptcy can be confusing. Bankruptcy cancels your personal legal obligation to pay a debt, even a secured debt. This means the secured creditor can’t sue you after a bankruptcy to collect the money you owe. But, and this is a big ‘‘but,’’ the creditor can still take back their collateral if you don’t pay the debt. For example, if you are behind on a car loan or home mortgage, the creditor can ask the bankruptcy court for permission to repossess your car or foreclose on your home. Or the creditor can just wait until your bankruptcy is over and then do so. Although a secured creditor can’t sue you if you don’t pay, that creditor can usually take back the collateral. For this reason, if you want to keep property that is collateral for a secured debt, you will need to catch up on the payments and continue to make them during and after bankruptcy, keep any required insurance, and you may have to reaffirm the loan.

What Will Happen to My Home and Car If I File Bankruptcy?

2010-11-25T10:50:00.000-08:00

In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in chapter 13. However, some of your creditors may have a ‘‘security interest’’ in your home, automobile, or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not make these security interests go away. If you don’t make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.

In a chapter 13 case, you may be able to keep certain secured property by paying the creditor the value of the property rather than the full amount owed on the debt. Or you can use chapter 13 to catch up on back payments and get current on the loan.

There are also several ways that you can keep collateral or mortgaged property after you file a chapter 7 bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth.

In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. If you put up your household goods as collateral for a loan (other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt.

Government Intensifies Foreclosure Documentation Review

2010-11-24T15:42:00.000-08:00

According to the Wall Street Journal:

By EVAN PEREZ And DAMIAN PALETTA

WASHINGTON—The Justice Department and other federal agencies have intensified their review of the banking industry's foreclosure documentation problems, using their powers over bankruptcy proceedings to scrutinize the treatment of troubled mortgages.

A key part of the effort is the Justice Department Trustee Program, the federal watchdog overseeing bankruptcies, which has launched a broad review of Chapter 13 bankruptcy filings by homeowners trying to halt foreclosure proceedings.

A U.S. official said Wednesday that 17 offices around the nation have recently stepped up efforts to scrub Chapter 13 filing documents, looking for documentation errors or improper practices such as inflated fees. Under Chapter 13 bankruptcy, a borrower seeks to halt foreclosure and comes up with a plan to catch up with their mortgage debt within five years.

Leading the federal response is Associate Attorney General Thomas Perrelli, the Justice Department's No. 3 official, who has been tapped to coordinate the efforts of multiple federal agencies, including the Treasury Department and the Securities and Exchange Commission, and also share information with state attorneys general.

The increased federal scrutiny puts more pressure on the banking industry, which is already dealing with probes by 50 state attorneys general into allegations of the improper use of "robo-signers" to foreclose on homes. The industry is also bracing for the results of a separate probe by the Federal Housing Administration, which is scrutinizing the way banks process mortgage payments.

The reviews could lead to the government requiring banks to overhaul the way they modify mortgages and handle foreclosures, according to government officials involved in the discussions. Under agreements with the states, banks could also have to establish settlement funds to compensate homeowners who have been hurt by foreclosure errors, these people said.

No decisions have been made and the reviews are still in their early stages, the officials familiar with the matter said.

The new effort comes after criticism from homeowner-rights groups and others who have said the federal government wasn't doing enough to address the document problems.

There have been varying assessments of the foreclosure-documentation problems. Many in the banking industry acknowledge paperwork mistakes, but say they mostly concerned homeowners who were in default on their loans and would have lost their homes anyway. Critics say the errors show how the banking industry hasn't given homeowners a chance to rework the terms of their loan.

Federal officials hold weekly conference calls to discuss new developments and are beginning to challenge arguments from the banking industry that an intrusive investigation could damage the housing market's recovery.

Treasury Department Assistant Secretary Michael Barr said Tuesday the federal review of foreclosures found "widespread" and "inexcusable" breakdowns in the process. "These problems must be fixed," he told the Financial Stability Oversight Council, a consortium of regulators.

Scrutiny by federal Trustees is focusing on two common problems found in Chapter 13 filings, according to the U.S. official. In Chapter 13 filings, mortgage servicers are required to file a "proof of claim" to show how much they are owed by borrowers.

Trustees officials are scrutinizing documents for signs that lenders aren't inflating their claim or aren't improperly trying to resume foreclosure proceedings against borrowers. Homeowners are required to continue to make mortgage payments as the bankruptcy court considers the filing.

Similar problems were at the root of a Trustees settlement with the former Countrywide Financial Corp., announced in June. The agreement was part of a $108 million settlement between Countrywide and the Federal Trade Commission. The FTC and the Trustees alleged that Countrywide collected excessive fees from borrowers who were using Chapter 13 to try to keep their homes.

Cunsumer Bankruptcy Filings OnThe Rise - You Are Not Alone

2010-11-24T13:49:00.000-08:00

According to ConsumerAffairs.com:

James Limbach
ConsumerAffairs.com

November 3, 2010

U.S. consumer bankruptcy filings edged upward during October, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC).

The total of 132,173 filings nationwide was a 1.4 percent increase over the 130,329 total consumer filings recorded in September. At the same time, they represented a 2.75 percent decrease from the October 2009 total of 135,913.

Chapter 13 filings, which are available for an individual with regular income whose debts do not exceed specific amounts, constituted 29.7 percent of all consumer cases in October -- a slight decrease from September. This type of filing is typically used to budget some of the debtor's future earnings under a plan through which unsecured creditors are paid in whole or in part.

"As the issues of unemployment and economic stress weigh heavily on today's elections, consumers continue to seek the financial shelter of bankruptcy", said ABI Executive Director Samuel J. Gerdano. "We anticipate that there will be nearly 1.6 million consumer bankruptcy filings by year end."

Other types of filings include:

Chapter 7, which is available to both individual and business debtors. Its purpose is to achieve a fair distribution to creditors of the debtor's available non-exempt property. Unsecured debts not reaffirmed are discharged, providing a fresh financial start;
Chapter 11, the purpose of which is to rehabilitate a business as a going concern or reorganize an individual's finances through a court-approved reorganization plan; and
Chapter 12 of the Bankruptcy Code is designed to give special debt relief to a family farmer with regular income from farming.

What different types of bankruptcy should I consider

2010-11-21T14:57:00.000-08:00

There are four types of bankruptcy cases provided under the law:

Chapter 7 is known as ‘‘straight’’ bankruptcy or ‘‘liquidation.’’ It requires an individual to give up property which is not ‘‘exempt’’ under the law, so the property can be sold to pay creditors. Generally, those who file chapter 7 keep all of their property except property which is very valuable or which is subject to a lien which they cannot avoid or afford to pay.

Chapter 11, known as ‘‘reorganization,’’ is used by businesses and a few individuals whose debts are very large.

Chapter 12 is reserved for family farmers and fishermen.

Chapter 13 is a type of ‘‘reorganization’’ used by individuals to pay all or a portion of their debts over a period of years using their current income.

Most people filing bankruptcy will want to file under either chapter 7 or chapter 13. Either type of case may be filed individually or by a married couple filing jointly.

Chapter 7 (Straight Bankruptcy)

In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for ‘‘exempt’’ property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors.

If you want to keep property like a home or a car and are behind on the mortgage or car loan payments, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.

If your income is above the median family income in your state, you may have to file a chapter 13 case.

Chapter 13 (Reorganization)

In a chapter 13 case you file a ‘‘plan’’ showing how you will pay off some of your past-due and current debts over three to five years. The most important thing about a chapter 13 case is that it will allow you to keep valuable property -especially your home and car- which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind. You should consider filing a chapter 13 plan if you:

Own your home and are in danger of losing it because of money problems;

Are behind on debt payments, but can catch up if given some time;

Have valuable property which is not exempt, but you can afford to pay creditors from your income over time.

You will need to have enough income during your chapter 13 case to pay for your necessities and to keep up with the required payments as they come due.

What Can Bankruptcy Do for Me?

2010-11-17T13:22:00.001-08:00

Bankruptcy will eliminate the legal obligation to pay most or all of your debts. This is called a ‘‘discharge’’ of debts. It is designed to give you a fresh financial start.

Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments.(Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)

Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.

Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.

Restore or prevent termination of utility service.

Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.

What Is Bankruptcy?

2010-11-17T13:21:00.000-08:00

Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.

Building Credit After Bankruptcy

2010-11-16T13:56:00.000-08:00

QUESTION: How long will it take me to repair my credit after filing for bankruptcy?

ANSWER:

Although everyone’s situation varies, it may take as little as 24 months to re-establish your credit after filing bankruptcy.

However, you must be prepared to establish new lines of credit and pay timely. For most post bankruptcy filers, simply applying for secured credit cards and using them and paying them timely (no late payments!) will put them on track toward a good credit score within the 24 month period.

When considering whether to exercise your option to file under the U.S. Bankruptcy Code, assuming you qualify, consider the amount of debt you are carrying. For example, if you are carrying upwards of $30,000 of unsecured debt with only $200 dollars of disposable income to make monthly payments on said debt, it would take you 12.5 years to pay off the debt, assuming no interest and no settlement. Filing for bankruptcy would allow you to shed the debt and rebuild your credit over 24 months. The math is not too complicated here.

Avoid Your Second Mortgage in Bankruptcy

2010-11-16T12:24:00.000-08:00

Will bankruptcy get rid of my second mortgage?

Under Section 506 of the United States Bankruptcy Code, a Chapter 13 debtor may make a motion before the respective bankruptcy court to avoid the 2nd mortgage and reclassify it from secured to unsecured so long as the 2nd mortgage, in light of the current property value, is fully unsecured.

For example, imagine property owner has an existing 1st mortgage with a principal balance of $500,000 and a 2nd mortgage with a principal balance of $100,000. Imagine too that given market conditions, the property is now valued at $450,000. Under this example, the 1st mortgage is secured up to $450,000 and unsecured in the amount of $50,000. As for the 2nd mortgage, there is absolutely nothing left. The 2nd mortgage is indeed fully unsecured. Hence, the 2nd mortgage can be avoided under a Chapter 13 bankruptcy.

No doubt, given the collapse of the housing market, this provision of the bankruptcy code has proven to be a powerful tool in the hands of consumer bankruptcy attorneys in their effort to obtain financial relief for consumer debtors.