Don’t bother looking, there really isn’t a Chapter 20 in the Bankruptcy Code.  A Chapter 20, is negative term that Chapter 13 Trustees use when a debtor first files a Chapter 7 Bankruptcy, receives a Discharge of all his debts and then he turns around and files another bankruptcy case under Chapter 13 within weeks or months of the Chapter 7 Discharge.   Its simple math, Chapter 7 plus Chapter 13 = Chapter 20!  But wait, why would a debtor do that, since under Bankruptcy law, if he files a Chapter 13 case within 4 years of filing a Chapter 7 case, he is not eligible to receive a Chapter 13 discharge?

Why would someone want to file a Ch. 20 Bankruptcy?

There are many good reasons that a debtor may choose to file another bankruptcy case so soon after receiving a Chapter 7 discharge.  But, one major reason is to “Strip Off” an unsecured Junior Lien.  These Junior Liens are often referred to “underwater” liens because the value of the property is worth less than the amount that is due on the debtor’s “first” or primary mortgage.   There is no equity for the underwater lien to attach so they are removed and the debt is paid just like any other unsecured debt.  You cannot strip a lien in a Chapter 7 case, everyone knows that, but you can in a Chapter 13 case, and if the Chapter 13 case is completed, the lien is satisfied and the creditor has to take it off.

What do the Trustee’s think?

Chapter 13 Trustees will often object to Chapter 20 cases because they do not like Chapter 20 cases.  They think that they are nearly always a debtor’s attempt to abuse the bankruptcy code.   Debtor’s attorneys, on the other hand, say that it’s just good lawyering, and a creative use of the Bankruptcy Code.   Trustees argue that when a debtor files a Chapter 13 case filed within a 4 years of a Chapter 7 case, he is not eligible to receive a final discharge and without the final discharge, the case is not competed and the lien is not stripped.   But, in a opinion that brings very good news to consumer debtor’s facing crushing mortgage debt, the 4^th Circuit Court of Appeals stated that “we find nothing in the Act to suggest that Congress intended to bar lien-stripping of worthless liens in Chapter 20 proceedings.”

What does this mean for me?

This decision adds another tool to your consumer bankruptcy attorney’s toolbox. Resnick & Moss, P.C. will use all the tools it has to help you make the right choices and achieve the best outcomes.  The decision to file a Chapter 7, Chapter 13, or a Chapter 20 bankruptcy case is a complicated one.

For that reason, it is important to get the help that you need from the attorneys at Resnick & Moss, P.C.   Please call them at (248) 642-5400 for a free telephone consultation.

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How does bankruptcy stop home foreclosure?

Part 3 – Stripping Junior Mortgages and Home Equity Lines of Credit

Welcome to Part 3 in a 3 part series on how bankruptcy can stop home foreclosure.  In Part 1 we defined what foreclosure was and alternatives methods to stop a foreclosure.  In Part 2 We discussed the Automatic Stay, and how the filing of the bankruptcy case automatically stops all foreclosures.   In Part 3 we will talk about what to do if it is not your first mortgage that is causing problems.  It’s a second mortgage or a home equity line of credit that is in default and that creditor is threatening foreclosure or you simply cannot afford a 2^nd or 3^rd mortgage payment.  Sometimes it isn’t the primary or first mortgage that is the problem.   Increasingly, debtors have 2nd and 3rd mortgage payments, or lines of credit that are secured by the home.  If you are like many Americans, the value of the home that is pledged as collateral has fallen so low, that the total balance due on the first mortgage is more than the property is worth.  There is no equity in the house.   In this case, a Chapter 13 bankruptcy can permanently stop foreclosure on the second mortgage and can even eliminate the 2^nd, 3^rd or line of credit loans and mortgages altogether.

If the payoff balance on your first mortgage is greater than the value of your home, your Chapter 13 Plan can propose to “Strip Off” all other loans and their mortgages.  If you complete that 3 to 5 year plan, your 2^nd, 3^rd and equity line lender’s debts will be discharged, and they will have to remove the mortgage liens on your property.   You’ll only have the first mortgage to contend with and since you have been making regular payments to the first mortgage the balance will be lower and hopefully, the value of your home may have increased.   At the end of the case, you might find that you have equity in the home again.

The decision to file a bankruptcy or to pursue other alternatives to foreclosure is a complicated one.  For that reason, it is important to get the expert help that you need from the attorneys at Resnick & Moss, P.C. to help you make the right choices and achieve the best outcomes.   If you think that you may be facing foreclosure, or you have more than one mortgage on your home and cannot make your payments, please do not hesitate to call, Resnick & Moss, P.C.  (248) 642-5400 for a free telephone consultation or contact us using our contact form.

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How does bankruptcy stop home foreclosure?

Part 2 – The Automatic Stay: Delaying Foreclosure

Welcome to Part 2 in a 3 part series on how bankruptcy can stop home foreclosure.  Part 1 described what foreclosure is.  This installment will discuss how, at the time of the filing of a bankruptcy case, an “Automatic Stay” is created that stops all foreclosure activity.   At the very moment that you file a bankruptcy, whether or not it’s a Chapter 7, a Chapter 13 or any other type of bankruptcy, an “Automatic Stay” goes into effect.  What is that?    The Automatic Stay is legal term.  In common terms, it is a court order that stops and everyone from doing anything that might affect you, your property, or your income. The really great thing about the Automatic Stay is, that it goes into effect whether or not your creditors even know about it!

Think of it like this:  Consider a Dog and his master.  When the master wants the dog to sit, he yells, “Stay”!  That dog better sit down and be better do nothing, nothing at all, until the master says that it’s ok to move.  If the dog moves without the master’s approval, the dog gets in trouble.    The bankruptcy stay is just like that!   The Bankruptcy Court is the master and all creditors, everywhere, are the dogs.   Once your bankruptcy is filed, whether or not they know about it, the creditors are required to sit and to stay.  They are prevented from taking any action against you, against any cosigner or against your money, wages or property.  They cannot continue any court cases and they cannot continue with foreclosure proceedings unless the master allows them to “get up”.   If they do, if they violate the stay and disobey the master, hey can get in serious trouble.  Like the dog’s master, Bankruptcy Courts are not kind to those who violate the Automatic Stay.

So, if your home is scheduled for a foreclosure sale, the sale will have to be cancelled or postponed while the bankruptcy stay is pending.  The stay remains until the court terminates it or the case is closed.  There are two exceptions to this general rule.  While a dog who desperately wants to go dig up that bone cannot speak and cannot hire a lawyer to convince his master to release him,  (but, wouldn’t it be cool if they could?) a mortgage lender can, and often does, hire a lawyer to do that to ask the court to terminate the stay.  If they do, the debtor’s attorney has the ability to object to that motion and delay the process until the Bankruptcy Court can schedule a hearing on the Creditor’s motion.  That hearing can take a month to schedule, and often these motions take a month or several months to reach a final decision.

If the debtor files a Chapter 7, Liquidation case, the mortgage loan debt will be eventually be discharged.  Typically, the Chapter 7 discharge is received within 3 months or so.   The court’s discharge order will prevent the lender from ever collecting any money, but it does not prevent the foreclosure.   Once the discharge order is entered and the case is closed, the creditor can proceed with foreclosure, if it chooses.    If requested, the Bankruptcy Court will generally terminate the Stay within 1 to 3 months after the case is filed, if the lender doesn’t file the motion to terminate the stay, the stay could be lifted automatically within days of the discharge.

If the debtor files a Chapter 13 Reorganization case, the debtor can propose a “Plan” to repay his or her debts, catch up on or “cure” any delinquencies in the mortgage loan that led to the foreclosure in the first place and permanently halt the foreclosure process.   In a Chapter 13 case, if the debtor proposes to keep the collateral, and has proposed a plan to repay and cure in good faith, the automatic stay will remain in place until the case is fully completed.  Chapter 13 cases are generally 3 to 5 years long and if the debtor successfully completes the plan, the Note that cause the foreclosure will be deemed to be fully current and have no delinquencies.  At that point, the Note is no longer in “default” and the lender will not have lawful authority to foreclose anymore.  Come back next week, when we discuss how bankruptcy can help eliminate a 2^nd or 3^rd mortgage on your home.

The decision to file a bankruptcy or to pursue other alternatives to foreclosure is a complicated one.  For that reason, it is important to get the expert help that you need from the attorneys at Resnick & Moss, P.C. to help you make the right choices and achieve the best outcomes.   If you think that you may be facing foreclosure, or you have more than one mortgage on your home and cannot make your payments, please do not hesitate to call, Resnick & Moss, P.C.  (248) 642-5400 for a free telephone consultation or contact us now.

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How does bankruptcy stop home foreclosure?

Part 1 of a three part series – What is Foreclosure?

Welcome to Part 1 in a 3 part series on how bankruptcy can stop home foreclosure.  In order to understand how filing a bankruptcy can stop a foreclosure and can help a distressed homeowner save his or her house, its important to understand what foreclosure is.  When you borrow money from any lender to purchase a home, land or any kind of real property, or if you refinance an existing loan, whether it’s a bank, finance company, or credit union, you will sign many documents.  The two most important documents are 1) a “Note” or Promissory Note as its sometimes called and 2) a Mortgage or Deed in Trust.

First, the Note is a legally binding contract in which the lender promises to loan you money and, in return, you promise to repay the loan over a specific period of time.  If you do not make the monthly payments listed in the Note, you are said to be in “default” on the Note.

Next, the Mortgage or Deed in Trust is a legally binding contract wherein the borrower gives the lender the right to sell the property if the borrower is in default on the note.  By this Mortgage, the property becomes what we call “Collateral”.   The process that the lender uses to obtain legal authority to sell the collateral is the Foreclosure process.

The Foreclosure process is a highly regulated.  Every state has laws that control when, where and how the foreclosure process takes place.     Those laws vary widely, but all states will make specific rules and impose restrictions on a lender who wants to take the property.   Some states require the lender to go to court first, others, like Michigan, do not require any court proceedings.   Many states require the lender to notify the debtor that they intend on starting the foreclosure process and requires that the lender give certain information to the debtor to advise them of their rights, and inform the debtor of alternatives to foreclosure and the ways that the debtor can repay the debt and keep the home.

Some of these alternatives to foreclosure include, refinancing the loan with another lender, asking the current lender for a loan modification to lower the payment, selling the property to an unrelated buyer, and if the offers to purchase the home are too low to pay off the debt in full, negotiating a “Short Sale” with the lender, whereby the lender accepts less than the payoff balance on the loan.  Finally, another to alternative to foreclosure is to offer to give the property to the lender without going through the foreclosure process; this is called a “Deed in Lieu”.

If possible, you should first attempt these alternatives, before proceeding to bankruptcy.   If your lender denies these options, then bankruptcy can provide the answer.  But, how does bankruptcy do this?  In Part Two, I will discuss how filing for bankruptcy can help you.

It is important to get the expert help that you need from the attorneys at Resnick & Moss, P.C. to help you make the right choices and achieve the best outcomes.   If you think that you may be facing foreclosure, or you have more than one mortgage on your home and cannot make your payments, please do not hesitate to call, Resnick & Moss, P.C.  (248) 642-5400 for a free telephone consultation or use our contact form to get in touch.

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