November 25, 2017

Middle Class Debtors Often Victims of Falsehoods and Misrepresentations

Man shoutingLast week, a former client called and tried to refer me a new Chapter 13 client who was facing foreclosure.  While I appreciated the referral, I could not take the case because the potential client was calling from out of town at 5pm on the Monday before his house was schedule to be sold at a foreclosure sale on the courthouse steps.  The potential client did not have a credit counseling certificate and because he had filed before twice, the automatic stay would not go into effect even if he did file.

During our conversation, the potential client told me that he had been negotiating with his mortgage company and that until that Friday, he was led to believe that a modification and restructuring of his loan was likely.

I hear the same story from vehicle owners who have fallen behind by two or more payments but who are talking to the customer service reps at their lenders.  I remember one case involving a woman who had never had any credit problems before but was struggling to pay her car note because of a job layoff. [Read more…]

Are You Liable for Ongoing Homeowner’s Association Dues if You Surrender Your House in a Bankruptcy?

HOA lawsuitEarlier this month on my Atlanta-bankruptcy web site blog I discussed an interesting case involving mortgage loan deficiency claims that was issued by the Georgia Court of Appeals and Georgia Supreme Court.  In the River Farm vs. Suntrust case, the Georgia courts ruled that a mortgage lender could sue a defaulted borrower on the promissory note and thereby bypass the deficiency confirmation process associated with a foreclosure.  This ruling is important because property values in Georgia have been trending downward and more and more often I am seeing cases where the balance due on a mortgage exceeds the fair market value of my client’s home.

This court case should be of concern to you if you intend to walk away from your home because you are delinquent or if your are so “underwater” with your mortgage that it does not make sense to fight to keep a home that may never be worth what is owed on it.   If you do walk away (without filing bankruptcy), your lender may sue you on the mortgage loan contract instead of foreclosing.  The lender would refrain from foreclosing to avoid a legal requirement associated with foreclosure that would require the lender to appear before a judge to argue that the foreclosure sale price was reasonable.

In my article, I pointed out that this change in the law might encourage more people to file bankruptcies since a bankruptcy can discharge any deficiency claim.

However, there is another potential problem area that could arise if your lender holds off on foreclosing.  This problem area relates to homeowners’ association (HOA) dues.

Under Georgia law, homeowners’ associations enjoy special protections.  Unpaid dues can automatically can become liens that encumber your property.   As HOA lawyers read the law, if you file a bankruptcy and surrender your home, your delinquent HOA dues as of the date of filing will be discharged.  However, ongoing dues that accrue after the filing remain your obligation until title passes.  In other words, if your HOA dues are $100 per month and you file Chapter 7 bankruptcy on February 28, your dues begin accruing again on March 1.  If your lender does not foreclose until November, you would, in theory, be responsible for 8 months of dues, or $800, after your filing, even though you have stated  your intention to surrender your house in bankruptcy. [Read more…]

Repossession Threat Can Lead to Emergency Need for Bankruptcy Protection

Lost in the on-going debate about how tough bankruptcy ought to be are the voices of those who file for bankruptcy in emergency situations – to stop a vehicle repossession or a wage garnishment.  I think that repossession and garnishment are even more of an emergency than a home foreclosure.  In Georgia, at least, a homeowner has at least 30 days warning, certified letters announcing the foreclosure and dozens of flyers from real estate investors and bankruptcy lawyers.

Although some people do wait until the last minute to deal with their foreclosure problem, home foreclosure in Georgia should never be a surprise.

Repossession and wage garnishment are much more likely to sneak up on a consumer.  In this post, I want to discuss car repossession and answer a few questions that I hear frequently.  I'll address wage garnishment and its unique problem later this month.

In Georgia, a secured lender can use "self help" (i.e., repossession) to recover collateral if the purchaser goes into default of the promissory note and security agreement.  Secured debt is common – not only is your car considered secured collateral for the installment note you signed, but most furniture, jewelry or appliances you buy on installment is also considered secured debt.

Secured debt differs from  unsecured debt like credit cards or medical bills in that the collateral you bought (the car, the furniture, the jewelry) is tied directly to the installment note.  If you don't pay, the creditor can demand that you surrender the collateral in full or partial satisfaction of the debt.

Typically, you do not see repossession of furniture or jewelry because the secured creditor cannot get to the collateral without entering your house.  These creditors can, however, file a Complaint for Personal Property Foreclosure and obtain a Court Order requiring you to turn over the collateral.

Car or truck repossession can take place without any risk of disturbing the peace.  If you are in default of your note, a repo man hired by the lender can show up at your house in the middle of the night, or at the parking lot of your job or whereever he can find your car, and he can grab your car.

Your car is then towed to a storage lot, and the lender will send you a "10 day letter" advising you that you have 10 days to cure the default (usually this means pay off the car) or else the car will be sold at auction after the 10 days elapses. 

On more than one occasion, I have received a frantic phone call from a potential client who just found out that a repo man is looking for her car, or perhaps that the repo man is in the driveway right now about to tow that car away.

What exactly can a bankruptcy do?

Firstly, if your car has not yet been grabbed, the filing of a bankruptcy will stop any threat of repossession.  A repo after the filing will be void and the lender will be ordered (in most cases) to return your vehicle.  The automatic stay created by your bankruptcy filing suspends the right of the secured lender to use Georgia law's self help provisions.

Most lenders will honor a notice of bankruptcy, although some will grab the car anyway and then will hire a lawyer to argue before the bankruptcy judge.  In most cases, the judge will order the lender to return the car, and may award damages against the lender and/or the repo man.  The judge will not likely order an immediate release of the vehicle if you do not have valid insurance on your car or truck.

If you are two to three months behind and you sense that a repo is on the horizon a bankruptcy filing will stop the immediate threat.  However, if you do not maintain insurance on the vehicle or if you do not offer adequate protection to the lender in the form of a viable Chapter 13 plan or a proposal to pay off or refinance (redeem) the vehicle in Chapter 7, the secured lender will force the issue by filing a motion to lift the bankruptcy stay so that State law remedies may be enforced.

Is it appropriate to "hide" a vehicle while you contemplate or otherwise prepare for a bankruptcy filing?  This is a tougher question.  Hiding a vehicle from a secured creditor is improper and can give rise to civil or even criminal penalties.  On the other hand, is it reasonable if you need a couple of days to get your pre-filing certificate, put together the money to file a bankruptcy or otherwise prepare yourself for filing?

The loss of your car, even for just a few days, can yield catastrophic consequences – the loss of a job, trouble getting the kids to school, problems getting medical care, etc.  More than a few bankruptcies have and will be filed by debtors trying to stop repossessions.  Many of these debtors do not enter the bankruptcy "market" until the last minute and their focus is entirely upon saving their cars and not on "abusing" the bankruptcy system.

[tags] bankruptcy and vehicle repossession, car repo in Georgia, stopping vehicle repossessions [/tags]

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