December 15, 2017

Why You Must Pay Your Mortgage Directly After Filing Chapter 13

If you are behind on your mortgage, you can use Chapter 13 to stop a pending foreclosure and repay missed payments over the 5 year term of your Chapter 13 plan. However, filing your Chapter 13 case is only the first step in saving your home.

In Atlanta area Chapter 13 cases, your repayment plan will include a section which says that you agree to send in your regular mortgage payments as they come due during the term of your Chapter 13 plan. Your Chapter 13 trustee payment includes payments to the mortgage company to repay missed payment. Ongoing, future payments, must be paid directly to the mortgage company outside your plan.

Making your mortgage payments directly to your mortgage lender is part of your plan obligations.  Both your mortgage payment obligation and your obligation to pay your trustee start immediately after you file your case.  In fact, you will not be able to get your Chapter 13 case confirmed (approved) by the judge if your post-petition mortgage payments are not up to date. [Read more…]

What Happens After Your Chapter 13 Plan is Confirmed?

When your Chapter 13 plan is confirmed, it means that the bankruptcy judge assigned to your case has formally approved your plan of reorganization and all creditors are bound to the terms of your plan.

In the Northern District of Georgia, a hearing on the confirmation of your plan will be scheduled automatically a the time you file your case. Usually, these hearings are scheduled for about 2 to 3 months from the date you file your case. Therefore, you can think of the first 2 or 3 months of your plan as a kind of probation period.

While in this probationary period, you have all the benefits of bankruptcy – namely the automatic stay that protects you from creditor action – while the Chapter 13 trustee watches to see if you have the capacity to meet your plan obligations. This is also the time when creditor claims are filed and either creditors or the trustee can object to your proposed plan. [Read more…]

What is the Secret to Making Your Chapter 13 Plan Work?

 

After 25+ years representing hardworking but financially struggling men and women in the Atlanta area, I can report to you that the #1 secret to surviving Chapter 13 is living below your means. This can mean you have to make some difficult choices.

Chapter 13 Trustees are Increasingly Demanding

When you enter Chapter 13, you need to eliminate the “wants” in your life in exchange for the “needs.” I advise my clients that if you find yourself meeting with a bankruptcy lawyer, everything needs to be on the table. And this includes your cars, home, furniture, jewelry and just about any other type of property you are financing. You will also find that your Chapter 13 trustee likely has a much more restrictive view of what constitutes a true “need:”

  • if you find yourself paying more than $300 per month for a car or truck, you need to consider giving that vehicle back to the creditor and buying a car for cash or financing a vehicle and keeping the payment below $300 per month
  • if you are financing vehicles, furniture or jewelry for your children or other relatives, you should be prepared to surrender that property and let your relative work out a deal on his/her own
  • if your budget includes out of pocket payments for your children’s college expenses, expect push back from the trustee. The trustee’s position will generally be that your child needs to use loans and grants to finance his/her own higher education and that your child may need to seek a less expensive education. Trustees generally do not agree with including someone else’s education costs in your budget
  • if your budget includes private elementary or high school for a child, you will need to produce evidence that your child has special educational needs that make public school insufficient
  • do not plan on keeping time shares or other non-essentials when you file Chapter 13

[Read more…]

Relief From Your 72 Month Car Loan

cram downFinancial experts bemoan the “crisis” in student loan debt (over $1.2 trillion as of 2015) and the rising rates of credit card debt ($733 billion as of 2015) but no one seems to be talking about yet another debt bubble – the huge rise of auto loan debt.

In 2012, total auto loan debt in the United States passed $1 trillion. Currently, the average household owes over $27,000 to vehicle lenders. More problematic, many of these loans extend well beyond 3 or 4 years. According to Edmunds.com, as of 2014, over 60% of auto loans were for terms over 60 months, with nearly 20% of these loans using 72 to 84 month terms.

60 months, of course, equals 5 years. 72 months equals 6 years, and 84 months equals 7 years.

Why a Long Term Vehicle Loan Means Trouble

You may ask “why should I be concerned about signing a 60 or 72 month car loan if I can afford the payment?” The answer, in a word, is “depreciation.”

Cars and trucks are depreciating assets. This means that they go down in value with each day and each mile of wear and tear. When you sign off on a 5 year or longer loan, you won’t be break even on your loan for at least 3 years. All your payments through at least year 3 (and most likely longer) will be applied to interest only. And my experience has been that folks who pursue long term vehicle loans often have less than perfect credit such that their interest rates are 7%, 8% or even higher.

This means that if your vehicle breaks down, or if you want to replace your car or truck 3 or 4 years into the loan, you will have to come out of pocket to satisfy the loan. If your vehicle is totaled in a wreck before the break even point, you will have to come out of pocket to pay off the loan because insurance companies pay property damage settlement based on “low retail” value.

If the dealership offers to “roll your existing payment” into a new loan, you’ll end up paying even more, because the new loan will include the leftover finance costs from the original loan plus the unfavorable terms from the new loan.

In essence, a 5 year or longer car loan equals a long term rental, except that you bear all the risk of loss. In case I am not being clear, a 5 year or longer loan is a toxic loan, and almost never a good idea. Even 4 year loans are less than ideal. [Read more…]

How to Qualify for a Car Loan While in Chapter 13

car loan for chapter 13 debtorsDoes Chapter 13 law allow a debtor to purchase a new vehicle while in Chapter 13 and to finance this car or truck purchase?

This was the issue I faced recently while representing a client whose car was totaled in an accident. My client was in the middle of his Chapter 13 case, having paid into his plan for three years, with two years left to go.

Now, with no car to drive to work, my client was spending $20 per day on a rental car and needed to purchase a replacement. Here’s how we dealt with this problem.

First, my client had to find a replacement vehicle and a lender who would agree to finance a loan despite my client’s status as debtor in an active Chapter 13. Believe it or not, this task was not a problem – my client found a two year old vehicle in the $25,000 range and his dealership was able to arrange financing. [Read more…]

Live Longer After Filing Bankruptcy? Economists Say “Yes”

health after bankruptcyA recent study by economists suggests that Chapter 13 debtors whose cases were confirmed and completed through discharge derive significant economic and health benefits from their filings as compared to Chapter 13 debtors whose cases were dismissed.

This report, published on the National Bureau of Economic Research – a professional organization for economists – compared 500,000 bankruptcy records with tax records and foreclosure records.

The study compared Chapter 13 debtors whose cases were approved and completed successfully to discharge to Chapter 13 debtors whose cases were dismissed. Successful Chapter 13 debtors:

  • saw annual earnings 25% higher after bankruptcy – compared to their pre-bankruptcy earnings. Dismissed filers saw no increase in earnings
  • had a higher employment rate
  • had a 30% lower mortality rate compared to filers whose cases were dismissed
  • were 19% less likely than dismissed filers to lose a home to foreclosure

The study authors suggest that successful Chapter 13 filers have an increased incentive to work and increased economic stability following receipt of bankruptcy protection. [Read more…]

Why Must my Chapter 13 Include an Employer Payroll Deduction?

employer deduction order in chapter 13Have you made the decision to file a Chapter 13 bankruptcy?  If so, you should understand that Chapter 13 serves as a bankruptcy court approved and supervised payment plan.  The court approved and supervised part is important because the bankruptcy court will protect you from creditor actions as long as you stay current with your plan.  By contrast, non-court supervised payment plans offer no legal protection – even if you pay every month on time payment plans that are not Chapter 13 will not stop lawsuits, wage garnishments, bank levies, vehicle repossessions or foreclosures. [Read more…]

Your Decision to File Bankruptcy Should Reflect Business Considerations Only

bankruptcy filing considerationsJust over three years ago, I received a phone call from an old acquaintance who seemed extremely stressed out.   This gentleman had previously been in sales and I had done business with him over 20 years ago.   During our dealings we had discovered that we shared several mutual friends and over the years I had run into him several times on social occasions.

Now, he needed advice about some significant debt problems.  His small business was failing and he owed tens of thousands of dollars to multiple creditors.   After reviewing his paperwork I suggested that Chapter 7 would work and should be considered.   My friend agreed but did not want to file because he felt very guilty about not paying back his debts.

For the next two and a half years, I would talk to my old friend on the phone about his debt problems.   He was sued by several creditors but because he was unemployed there were no wages to garnish.   He had no bank account so the judgments just sat there waiting for his financial situation to improve.

Finally, about two months ago, my friend called to say that he was ready to file.   It turned out that he had a new job and his prospects were improving.  I ran the means test numbers and….determined that he no longer qualified for Chapter 7 because he had too much disposable income.

My friend’s situation is, unfortunately, all too common.   He did not want to file bankruptcy and avoided it successfully for over two years.   His concerns were somewhat vaguely stated misgivings as opposed to a firm moral conviction.  When his financial situation changed for the better, it was too late.   Now, he is faced with the prospect of losing 25% of his take home pay to a wage garnishment and, given that he owes well over $200,000, he’ll be paying for a long time.

I would submit to you that my friend made a poor financial decision.   I also do not think that he made a particularly good moral decision as he never articulated a thought out moral objection to filing bankruptcy (a fact he has acknowledged to me).   From a purely business standpoint, my friend has subjected himself and his family to a great deal of hardship.

Everyone has heard of Donald Trump.   A business tycoon, reality TV star and sometimes politician, the Donald has filed bankruptcy on corporate debt dozens of times over the past few years.   Mr. Trump structured his business deals to avoid personal liability and I’m sure that the interest rates he paid on borrowed funds reflected that.  I am equally certain that for every bad deal, Trump was successful on ten others and paid back his loans in full.

Trump recognizes that bankruptcy functions as a financial tool.   The banks that loaned his corporations money also understood that not every deal works and that there is a risk of default.   Banks are in the business of evaluating risk and charging fees and interest to reflect that risk.

When you are in financial distress you should make your decision about whether or not to file bankruptcy in the context of a business decision.  When your creditor made the decision to loan you money that decision was based on business calculations and you should keep the transaction in this same arena.  If you allow personal feelings of guilt to creep into your decision making you will almost certainly not make the best business decision for yourself.

As a bankruptcy attorney I help my clients evaluate their bankruptcy options as a good or not so good business choice.   My friend allowed non-business considerations to influence his decision making and he will pay the consequences.   Don’t you make the same mistake.

 

Objection to Chapter 13 Confirmation or Motion to Dismiss? Now the Hard Work Starts

Last week, I was reminded about the importance of taking care of Chapter 13 business early.  I got stuck in court for 4 hours waiting to have a 45 second conversation with the Chapter 13 trustee.

My case involved a trustee motion to dismiss.  My client had filed Chapter 13 about 2 years ago and earlier this year he lost his job and thus fell behind on his trustee payments.  The trustee filed a motion to dismiss, with a hearing scheduled for mid-May.  A couple of days before the hearing my client called to say that he had landed a new job and could I buy him some time.  I called and emailed the trustee and she agreed to reset the motion to dismiss hearing to last week’s calendar.

I notified my client of the reset and asked him for detailed information about his new job including a salary breakdown.  He provided me most of what I needed but did not yet have an actual paycheck.  He also sent the trustee 3 of the 5 missing payments.  Finally, the weekend before the hearing I decided to file my amended budget with an estimated budget.

On the Monday before the Wednesday hearing I started calling and emailing the trustee.  No response.  I checked the trustee’s web site – my client’s personal check had not yet posted (although he did have a registered mail receipt signed by someone in the trustee’s office).  The day before the hearing I emailed and called.  No response.

Having no other choice, I trekked down to court only to discover that the judge’s hearing calendar was 15o pages with hundreds and hundreds of cases.  It took 3 1/2 hours to read the calendar.  After the call of the calendar I was able to talk to the trustee and she agreed to a consent order assuming the funds posted within 10 days – a 45 second conversation.

What could my client and I have done differently?

  1. I should have insisted on a paycheck breakdown 10 days earlier, even if we were working with estimates.  My client wanted to be accurate but in this case timeliness was more important.
  2. My client should have brought the trustee certified funds by personal delivery and obtained a receipt for same.  This should have been done at least 7 days prior to the hearing.

The good news here is that we saved his case.  This is especially important because I had filed a lien strip early on in the case and eliminated a $30,000+ second mortgage.  If the case had been dismissed that 2nd mortgage would have reattached to my client’s house.

Sinbad Bankruptcy? News Reports Get it Wrong

According to news reportsSinbad does not file Chapter 13 coming from literally hundreds of outlets, comedian Sinbad has filed a Chapter 13 bankruptcy.  The source of this report is the web site TMZ.com – and news outlets from major news networks to gossip web sites are re-writing and re-reporting the TMZ story.

There’s only one problem with the TMZ story – it is not factually correct.  There is no way that Sinbad could qualify for Chapter 13 given the type of debts he owes.

If, as has been reported, Sinbad owes American Express $374,979 and Bank of America, $32,199, his unsecured debt exceeds the jurisdictional limits for Chapter 13.  If you consider IRS debt of more than $8 million, Sinbad far exceeds the jurisdictional limits for Chapter 13.1

I am guessing that Sinbad actually filed Chapter 7, which means that any hard assets or intellectual property he owns could be at risk.  This element of the story could be an interesting read but we may never know. [Read more…]

  1. Section 109(e) of the Bankruptcy Code provides that Chapter 13 debtors may have no more than $383,175 of unsecured debts.  Sinbad’s credit card debt alone totals more than $407,000.

Page optimized by WP Minify WordPress Plugin