The Phillips Law Offices

Since the fall last year, I read so many different articles about Attorney Generals of various states working with the US Attorneys to resolve litigation brought against mortgage companies.  The interesting part is that all the articles start out as a big splash of how the US Attorneys are fighting for the little guys and suing all these mortgages companies for their bad acts.  Then, the next story I read is that some settlement was reached and the Debtor is entitled to some sort of special relief.

I wrote a blog not to long back about one of the special relief opportunities offered to foreclosed property owners.  I wrote that article because I wanted to get the word out to Debtors who might have been harmed and simply could not understand the opportunity they might have.  I am writing this article for the same reason.

Another settlement has been agreed upon between the US Attorneys and mortgage companies.  I wanted to get the news out.  However, this new settlement offer is about reducing the principal amount owed by reducing the amount of monthly payments.  It is interesting because the first announcement makes a big splash by saying that the banks are to reduce the principle amounts by $100,000s.  What it does not tell you like the foreclosure sale settlement is that the Debtor will need to qualify for the settlement and that the principle reduction comes only by the reduction of the mortgage payments to 25 % of the Debtor’s income.

Ok—so what am I trying to say?  Is it just me or are these settlements really not true settlements?  Can they really help a Debtor that the banks screwed and let’s face it the Feds also screwed by allowing the bad behavior go on?  It is all a sham?

We really cannot know that answers to any of these questions until the banks and the Feds are required to disclose if and when the settlements actually worked.  However, I would like to bring to your attention to an article that outlined what an executive from a mortgage company has outlined as the requirements for this new settlement.

Executives say borrowers receiving the letters are eligible, but they still have to prove they qualify. In order to be eligible, a borrower must be 60 days late on the mortgage payment as of Jan. 31, 2012. The borrower has to owe more on the mortgage than the home is currently worth, commonly known as being “underwater” on the mortgage, and the borrower’s loan must either be owned by Bank of America or serviced by Bank of America for an investor who is allowing the modifications. In order to qualify for the modification, the borrower must answer the letter with full documentation of income, showing that under the terms of the modification they can still make the monthly payment. A borrower with no income would therefore not qualify. A borrower’s current monthly payment must be more than 25 percent of gross income, and the

borrower must show they are unable to afford that. “If you can afford to make your monthly payment and are choosing not to, you will not get this principal modification,”

says Sturzenegger ,bank executive.

If the borrower qualifies, Bank of America will bring the monthly mortgage payment down to 25 percent of the borrower’s gross income. That could mean principal forgiveness well over $100,000, as there is no limit to the amount of the mortgage. If enough borrowers respond, it could cost Bank of America far more than it committed to in the settlement.  See Bank of America Offers Principal Reductions to 200,000 Homeowners, By Diana Olick at http://finance.yahoo.com/news/bank-of-america-offers-principal-reductions-to-200-000-homeowners

All of these “terms and conditions”  really do not sound like the bank is doing anything different than they have promised in the last several years to help distressed home owners.  It does not sound like a settlement at all does it?  Instead, it sounds like a settlement in face value only and not intended as a real action to be taken by the bank.

So it begs the question of do settlements like this one the ones that occurred before actual provide any benefit to homeowners?  You read the articles and try out the system but it looks like this settlement may again be a splash for the bank and the government to ring the political card and save their butts leaving the Debtor’s butt hanging in the wind—AGAIN.

If you are a distress homeowner that needs help, I encourage you to seek out professional help from a consumer debt advocate and really learn your options.  If you wait for a settlement by your federal government, you might be waiting awhile.

Student Loans How To Deal When You Are Delinquent:  Three Options To Consider

I find it amazing how the higher educated institutions have managed to hoodwink both the Federal government as well as the rest of Americans with Student Loans.  The American Dream should include a good education not only K-12 but also a higher education.  The core concept of Student Loan program is good and of sound principles but like anything good greed and  people’s personal agendas have destroyed its core concept for the advancement of a few.  Meanwhile, the masses are left dealing with the result of the greed.

American Universities and Colleges are supposedly the best in the world.  I would hope that they are the best at something with all the money that they manage to ascertain yearly from Americans each year trying to better their circumstances.  One thing is for certain, Universities and Colleges are the best at legalize robbery.  They sell the hopeful on a good education from their institution will get you a job that will make you more if you did not come to their institution.  As a result, millions of Americans each year take Student Loans out from the Federal government on a representation that cannot quite be back up by Universities and Colleges.  In fact, these institutions can only promise one thing—if you need to take student loans out you can come to our institution and we will take your money.

I could go on and on about the wrongs of these legalize robbery that appears to be absolutely found with our government.  The issues Student Loans cause are that the payments being due and people simply not being able to pay back even the minimal monthly amount.  In my office, I have seen an increase of clients between the ages of 25-30 years old that are facing delinquencies with their Student Loans.  They come and see me because they have hit an age that they realize that they must do something to fix the problem and also because they want to have a family, home and the American dream.  As any of us in our youth, we ignore the situation and until we really need to do something about it.

Let us define delinquent Student Loans.  Delinquent Student Loans are loans that are not in deferment or forbearance, but are loans that the student is not paying whether because they cannot afford them or simply are not paying.  I will tell you that the most common scenarios is that it took my clients nearly 5-10 years to actually get a good enough or steady enough job to afford to make payments on student loans and still be able to live and eat.  So the point is that because they could not make payments, Student Loan companies accelerated the loan and are now expecting the entire amount to be paid.  There might be a judgment issued against the student and a garnishment order issued by the court and the student finally getting on track with a job is facing total disaster because the wage garnishment will eliminate their ability to financially survive.

So what are your options when you are delinquent?  There are three solid choices to consider:

1. Workout payment arrangements: If you are delinquent and the student loan provider has either filed a complaint or is threating to file a complaint against you for past due payments, you can reach out to the lawyer representing the student loan provider or you can contact the provider directly to try and work out a payment with your provider.  At this point, you still have an opportunity to try and get back on track with a payment arrangement.  The only problem with this option is that your student loan provider/attorney must want to agree to an arrangement.  The law is clear that once they accelerate the loan due to the student’s failure to make payments, the student loan provider can take actions against the student.

2. Fight the Complaint in Court:  If you are delinquent and a complaint is filed as a result of your delinquency, you do have the right to fight the complaint.  You will need to file an answer and go to court or you can hire an attorney to help you fight the complaint.  The only problem with this option is that you will need a little help from the court to either help prevent the student loan provider from accelerating the loan or to work out a payment arrangements.  Additionally, I want to be very clear here—if you signed up for the student loans and took courses and you know it—you are not getting rid of your student loans in one of these cases.  The best case scenario in this situation is to prevent the acceleration of the loan and workout a payment arrangement that you can afford.

3. File a Chapter 13 Bankruptcy Case:  A Chapter 13 Bankruptcy case is not just for people who fallen behind on their mortgages or car payments.  It is a reorganization case for consumers to reorganize their financial circumstances including dealing with delinquent student loans.  Now, I think most people know that student loans are non-dischargeable unsecured debt i.e. you can get rid of it!  However, the Chapter 13 Bankruptcy case gives you an option that can allow you to get a grip of the delinquent loans and the interest rates that are charged by student loan providers that can nearly doubt your loans owed.

How does it work?  In a Chapter 13 case, the interest being charged by your student loan provider is stayed which means there is no interest charged.  So, the amount that you enter into your bankruptcy case with remains the same amount throughout your case.  Once you establish the amount of your student loans, you can set forth a plan payment amount in your Chapter 13 that you can afford.  In other words, you are forcing the student loan provider to take a monthly payment from you even if they denied you before and demanded the full amount to be paid.  You are taking control of the situation.  Finally, only the student loan amount is non-dischargeable not the attorney’s fees or cost.  Therefore, you can file an objection to those fees and cost being tack on to your student loan amount as being non-dischargeable.

Generally, my clients that have finally gotten that job that is consistent and yield enough to make a plan payment each month after expenses have chosen the Chapter 13 route.  Often the clients find themselves at the end of their Chapter 13 plan completed paid in full and completely relieved of the ongoing curse known as student loans.  Additionally, the Chapter 13 case, unlike the first two choices, cleans up the student’s credit report.  Student loans will destroy a student’s credit irrespective of how current the student is on all of the other debts that they owe on.

Irrespective of the choice that is made on how to approach student loan issues, the result is that students must pay for student loans.  So, if you are one these students that are being threaten by past due student loans, you need to do something and these three options should be seriously considered.

I am writing this piece in response to an article entitled Americans: Too Broke To Go Bankrupt by Blake Ellis | CNNMoney.com published on Mon, May 7, 2012 6:55 AM EDT. See http://finance.yahoo.com/news/americans-too-broke-bankrupt-105500347.html.  In this article, Mr. Ellis suggests that the pricing for filing a bankruptcy case is too high and that Americans cannot afford the prices. Money is important whether it is one dollar or a million dollars.  However, the amount of money that a Debtor pays for a Bankruptcy case verses the benefits received from the case is clearly something that Mr. Ellis has failed to mention in his article.  Mr. Ellis also fails to mention that most jurisdictions placed limits on the amount of fees that an attorney can charge a Debtor to prepare and administer the case.

Nevertheless, let us really examine what Mr. Ellis is trying to say in his article.  He is suggesting that $1,500.00 is too much for Debtors to pay to get relief of debt that could range from $20,000.00 to more than $100,000.00.  Let us put a fee of $1,500.00 into perceptive for Debtors with $30,000.00 of debt owed to unsecured creditors.  I use $30,000.00 as example because this is the average amount of unsecured debt that our clients come into our office seeking relief from.  We find that the average monthly minimum payment that our clients are paying each month on this amount of debt adds up to nearly $1,100.00 a month.

If you take a step back from this debt you realize that, for the same price to pay on the minimum payments each month, a bankruptcy case can be filed.  This issue is very concerning for me because often our clients do not want to spend $1,500.00 for a fee to resolve their debt, however, they find it ok to continue to pay almost the same amount to their credit card companies while struggling each month to pay their basic utilities or put food on the table for their children.

Bankruptcy was designed to help Debtors deal with their debt so that they do not have to make the choice of paying for food or paying their credit cards.  Mr. Ellis’ article fails to address the value that a bankruptcy case can bring to a Debtor.  Instead, he wants us all to believe that it is too expensive for Debtors to even think about filing.  This is very dangerous.

The reason this is dangerous is because it gives Debtors the idea that they cannot file, which is simply inaccurate.  If Debtors do not file when they should, they could suffer a lifetime of creditors always coming to collect against them, court judgments, and bad credit.  Bankruptcy was designed to allow people who fall on hard times to protect themselves from collections, court judgments, and bad credit for life.  Debtors can turn their whole lives around in only three months in a Chapter 7 case or three to five years in a Chapter 13 case.

Our firm works with Debtors when it comes to fees.  We understand that Debtors may not be able to pay a full fee immediately.  We often set fees arrangements based upon what our client can pay each month.  Most of our clients realize that once they eliminate high monthly payments, which go mostly to interest on credit cards, they have the ability to live on their income without the need of credit cards and can afford the fee to pay for a bankruptcy case.

My major concern with Mr. Ellis’ article is that it misses the practical point of bankruptcy and the benefits that should never be overlooked.  Yes, it does cost some money to complete a bankruptcy cases with an attorney, but the amount is affordable and no one should use a price for services to deter people from getting a fresh start with a bankruptcy case.

Recently, there have been many discussions on various social media sites relative to an interesting bankruptcy topic: whether a Debtor should be able to keep a second home or investment property after filing for bankruptcy.  My position on this subject is that, as part of a bankruptcy filing, Debtors need to take responsibility for their finances and liabilities, especially those with secured debts.  However, in some cases a Debtor can afford to retain a vacation or investment home while in a Chapter 13.  Additionally, many of these homes may be in a prime position for a Motion to Determine the Unsecured Status of a Lien (Cramdown).  Taking advantage of the ability to cramdown a lien may be the main reason for a Debtor to file a Chapter 13.  This type of bankruptcy is designed to help reorganize one’s finances, and in many situations, those investment homes do produce more income then they incur though mortgage and upkeep.  As a result, the property adds to the Debtor’s disposable income and, therefore, it is in the creditor’s best interest for the Debtor to retain the property and make a higher plan payment.  I think that each case is unique, and any determination regarding a second property needs to be analyzed on a case-by-case basis.

Let’s break this question down in a bit more detail.  First off, why did a Debtor file for bankruptcy under Chapter 13?  Many Debtors file due to the need to discharge unsecured debt, but their income simply does not allow them to file a Chapter 7.  Other Debtors file to cure missed mortgage payments from a financial hiccup, which has since been cured.  Finally, due to the state of the real estate market, a new type of Debtor has started to appear, those who can pay their bills and have significant income, and also have vacation homes or investment properties that generate income, but have no equity or in many cases negative equity.

If the bankruptcy case was filed due to the third type of Debtor, then the case is simply trying to right a financial injustice and ensure that the loan being paid by the homeowner is in line with the real estate fair market value.  Here, the additional real estate is being used to generate income, and that income can be used to pay other bills and creditors.  However, without a Cramdown, the homeowners may simply walk away from the home, adding to the distressed real estate market by voluntarily putting another home into foreclosure.  The result of that action would only be to drag the fair market value price down for the whole neighborhood.

On the other hand, if a Debtor has a vacation home that is costing thousands of dollars each month and not generating any income, then a different analysis is needed.  In those cases, I would ask what caused the Debtor’s financial hardship?  If the second home was the main reason the Debtor can’t pay other creditors, then it very well may be time to walk away from the vacation house so that other debts can be resolved.

At the end of the day, it really does come down to a case-by-case analysis.  If you are in this position, you need to take a hard look at your finances and where your money is coming from and where it is going.

One of the most important benefits of filing for bankruptcy protection is the enforcement of the Automatic Stay, found in 11 USC § 362(A).   The Automatic Stay is so important that the provision against multiple and frequent filings does not always apply to this provision, see In Re Bateman, 341 B.R. 540 (Bankr. D. Md., 2006) where the Debtor actually filed a bankruptcy case for the protections of the automatic stay and not to discharge any unsecured debt.  What this legal term (“Automatic Stay”) means in plain and simple English is that, once a Debtor files for bankruptcy, no Creditor can continue to attempt to collect an old debt by contacting the Debtor, or by taking possession of anything that the Debtor owns.  In fact, the Automatic Stay will even cancel any court hearings and stop a foreclosure of the Debtor’s property.  I believe the Fifth Circuit articulated the purpose of the stay the best when it stated, “For the debtor, it provides a breathing spell by stopping all collection efforts, all harassment, and all foreclosure actions… the stay also serves the interest of creditors, insofar as it eliminates the impetus for a race of diligence by fast-acting creditors.” SEC v. First Financial Group, 645 F.2d 429, 439 (5th Cir.1981).

In Massachusetts, Maryland, and many other states, the Bankruptcy Court has been sharpening its teeth relative to violations of the Automatic Stay.   It is undisputed law in every state of the union that, should a Creditor such as a credit card company, lender, or anyone else owed money by the Debtor violate the Automatic Stay, the Court is authorized to compensate that Debtor for any actual damages.  The Court may also sanction the offending party to prevent future violations.
Notwithstanding the fact that these protections are well founded under Federal law, Creditors routinely violate the Automatic Stay.  There are ways to stop this incursion, such as sending demand letters to stop contacting the Debtor, or even just making a phone call.  However, if the violating conduct does not cease and desist, a Debtor can petition the Bankruptcy Court to fine the Creditor, and even provide emotional distress damages to the Debtor.  If, for example, the violation has caused significant emotional harm and the Debtor can show corroborating medical evidence or can present non-experts, such friends, family, or coworkers, to testify to “manifestations of mental anguish,” the Debtor may recover significant awards.  In re Rosa, 313 B.R. 1 (Bankr. D. Mass. 2004).

In some cases the violation of the Automatic Stay is much more egregious then simply continuing to contact the Debtor after a bankruptcy petition is filed.  There have been instances where a Creditor has taken possession of real or personal property of the Debtor.  For example, if a Debtor had a vehicle or boat repossessed after a case was filed or, even worse, if a home was foreclosed upon, the violating Creditor is responsible for paying actual damages as well.

An individual injured by any willful violation of the Automatic Stay shall recover actual damages, including costs and attorney’s fees, and, in appropriate circumstances, may recover punitive damages.  McMullen v. Sevigny 386 F.3d 320, 330 (2004) citing 11 USC §.362 (h).  A violation will be found “willful” if the Creditor’s conduct was intentional (as distinguished from inadvertent), and committed with knowledge of the pendency of the bankruptcy case. See Fleet Mortgage Group, Inc. v. Kaneb, 196 F.3d 265, 268-69 (1st Cir. 1999).   Even if the Creditor claims that its violation was unintentional, a Creditor that commits a technical violation of the Automatic Stay, due to lack of notice, has an affirmative duty to remedy the violation as soon as practicable after acquiring actual notice of the stay. See In re Will, 303 B.R. 357 (Bankr. N.D. Ill. 2003).

The bottom line in all of this is that the Automatic Stay is a very powerful law put in place to protect the Debtor, and if you believe you have been a victim of a violation of this law, you need to speak to your bankruptcy attorney right away.  If you do not have one, this is not the time to go it alone.

Wow, Suzie Orman really told an 81 year-old woman, who earns only a fixed $600 a month from social security, to make sure she protects her FICO score and continue to pay the minimum balances on her credit cards.   In the Oprah Magazine this month, Ms. Orman was asked, “After taking out cash advances on her credit cards, my 81-year-old mother is out $8,000. She lives on $600 a month from Social Security and cannot keep paying on this debt. Can you advise me on how to proceed? How do I get her out of credit card debt?”

In response to this question, where clearly the Debtor’s income was protected, and there was no reason to believe based upon the question that any assets would be attached, Ms. Orman responded: “It’s fruitless to try to talk your way out of this; the card issuer has every right to expect repayment.  To regain control of her debt, have your mom keep paying at least the minimum due on the monthly credit card bill. On-time installments are vital for protecting her FICO credit rating. That’s important because if her score is at least 700, she has a good chance of being able to transfer the entire balance to a new card with a lower interest rate. Many card issuers offer zero percent interest for the first year when you move your balance to their card. At CardTrak.com, click on Credit Cards, then choose Balance Transfer to find issuers offering the best deals. But only sign up for one card—multiple applications made at the same time can actually hurt her credit score.”

I would like to say that I cannot believe that Ms. Orman would give such bad advice, but in all honestly I can believe it.  I have watched her show on and off and read a few of her articles, many of which drive consumers to the same advice.  So Ms. Orman’s great advice is basically, try to make payments that you can’t afford at the expense of possibly not paying for medical bills or food, in the hopes that some other unsuspecting creditor will extend this woman more credit to transfer the balance and pay a lower interest rate for 6 months.  This is yet another example of why you should speak to a qualified consumer debt attorney who understands the legal ramifications of different courses of action, rather than a talk show host or even just friends.

Had this Debtor come to me, I would have reviewed her situation in a bit more detail before handing out any advice.  In all fairness, I understand Ms. Orman did not have that luxury, but even still if I believed the Debtor to be judgment proof, presuming she had no assets that could be liquidated by the Creditor, I would have advised her of several options, none of them though would have been to make minimum payments.  Trying to save your FICO score at 81 years old, just to abuse the system by taking out a new credit card, is absurd!

This woman could possibly file a Chapter 7 bankruptcy and discharge her debt.  If she did this, her income would be protected.  Another option would be to obtain third party funds and settle the debt for a small lump sum.  She may, frankly, stop paying and wait to go to Court and even be able to challenge the validity of the debt.  However, Ms. Orman did not feel it necessary to inform her reader of any of these options.

It just goes to show you why it is always better to speak to a licensed professional attorney who has an obligation to tell you about all of your options, then a talk show host or author who is more concerned with selling her books then looking out for the true interest of those who rely on her advice.

When people hear the word bankruptcy, they often say to themselves, “what is it?”   Many people believe that the concept of debt relief is a new or modern topic, and often times, people view the term as a dirty word or with a negative connotation.  The truth of the matter is simply the complete opposite.  In fact, the idea of filing bankruptcy is as old as the United States of  America itself and a very interesting historical topic when viewed in its full context.

Taking a broad look at this topic, debt has been an issue for centuries.  In the distant past, it was a crime to not repay creditors, and as a matter of fact, in England in the middle-ages there were debtor’s prisons for those who were found guilty. The standard procedure back then was; if you couldn’t pay your debts, the King would throw you into jail.  Debtors would then stay in jail until they were able to repay their creditors, which of course stopped them from being able to work to pay off the debts.

Luckily, things have changed a little bit over the past few hundred years, throughout England and everywhere else, including the United States of America.  Looking back to the beginning of our country, bankruptcy was such a hot button topic when the Revolutionary War ended, that the right to file for bankruptcy protection was incorporated into the Constitution.   In fact, it is first seen in Article I, Section 8, Clause 4 therefore, as early as 1801, we had bankruptcy laws in the United States of America.  The concept of bankruptcy was so important to our Founding Fathers that they gave congress the power to create bankruptcy courts and regulations in Article I and Article III of the United States Constitution, the earliest legal document in our country’s history.   The Founding Fathers thought the right to bankruptcy was so important that they provided for it at the beginning of the Constitution, rather than burying it in the end of the document.

Debt relief is something that our Founding Fathers knew was going to be part of the economy.  It has been a part of our economy for years, it is not just something new in the last few decades when people started getting and using credit cards, but rather it has been around since the inception of our country.  Had the idea of debt relief been so appalling to those drafting our very first set of laws, it would not have been made a part of the Constitution.  If it was not so important, the Federal Government would certainly have removed it from the laws and not sponsored it again and again.  Congress would certainly not have amended the rules in 1978, or again in 2005 to add more complexities and protections to the law of bankruptcy, under Title 11 of the United States Code.

Everywhere I go I hear someone complaining about their house being worth nothing at all.  They use the terms “underwater,” “worthless,” and “hopeless” to describe situations regarding their home.  It is a tough time right now for folks who purchase a home between the years of 2004-2007 and are trying to keep these homes.

Let us all face it; the prices at the time were just plain “CRAZY.” We all fell for it.  We did not care that the prices were ridiculous rather we only cared about getting a home.  Some of us, it was probably the only time we could get a home.  If traditional lending practices would have applied, a home loan simply would not be available to purchase a home.   The new trend home loan mortgage standards provided the opportunity to purchase a home for you to consider for the first time.

I do not blame anyone for taking advantage of purchasing a home during this period that would not have otherwise been able to do so.  However, the question is now I got this home and I want to keep it but with the increasing cost of fuel, energy and foods, “how do I do it?”  Maybe the question really is “is there anything I should consider to help me do so?”

Throughout the passing of time, the values of properties have gone up and gone down.  It is a trend that never changes.  We happen to be in a trend of downward values.  A downward value time does not need to be a bad time even for the homeowner who bought their house in an upward value time.  In fact, the part that you think is keeping you down is actually the answer to “how do I do it?”

The traditional home loans standards to purchase prior to 2004 would require a down payment on the purchase price of 10% or 20% by the buyer.  After 2004, the new trend was the 80/20 loan.  The Buyer no longer had to put up 10-20% of the purchase price instead the buyer used a 20 loan that second mortgage company would put up for the down payment.  First mortgage companies whether or not the second mortgage company accepted these 20 loans and provided a mortgage to the buyer.

It is these 20 loans that might be the main reason you are “underwater” on your home.  You might ask “why would they give me a 20 loan and drop the prices on this home?” Well, the reality is that the 20 loan gave you the ability to purchase a home when you were not able to because you did not have the cash to provide a deposit on the home.  So, the reason was to allow the buyer to get the home.

The question that we started our conversation on was to how to keep your home even if it might not be an ideal situation.  Also, we talk about what you should consider to help keep your home.  One possibility is a lien strip pursuant to 11 U. S. C §506.  What is a lien strip?  It is a process in a Chapter 13 bankruptcy case that will allow a homeowner to strip the second mortgage from their home.  In other words, the homeowner can get rid of the burden of paying on the 20 loan monthly as well as stripping the lien from the home.  So, if you have a $100,000.00 second mortgage aka 20 loan that you pay $250.00 a month on, you will not have to pay the $250.00 monthly payment nor the $100,000.00.

Yes, this is true.  Your federal government gave you the right to get rid of your second mortgage.  Many people do not know about this law or even consider it in 80/20 situation.  If you are struggling with your home that you purchase as a 80/20 loan combination, you should really take the time to look at your options at this time.  For as we know from the last couple of years, the property values that are down will go up eventually and an opportunity to lien strip could be lost.

There are numerous reasons why a person would file a Chapter 13 bankruptcy.  The most common reason, after earning too much money to qualify for a Chapter 7 case, is due to arrears on a homeowner’s mortgage.  If a homeowner has fallen behind on mortgage payments and needs to catch up, one option is to file a bankruptcy, stop a foreclosure sale, and be granted the opportunity to pay back the arrears.

After a Debtor files for bankruptcy, the Creditor (mortgage lender) has a duty to file a document called a “proof of claim,” which the Chapter 13 Trustee uses to determine who gets paid when, and how much each Creditor will be paid during the case.  One small problem that can arise in solving your arrears is that your secured creditor fails or simply forgets to file this proof of claim.  The good news is that you, as a Debtor, can file that claim for the Creditor too.  However, before you do that, it is a good idea to call the secured Creditor’s legal department and request they file a proof of claim within seven days.

Section 501(c) of the Bankruptcy Code also allows a Debtor to file a proof of claim on behalf of a secured Creditor who doesn’t timely file a proof of claim. “Timely” means within 90 days after the first date set for the Section 341 meeting of creditors, which itself is normally about 5 – 6 weeks after filing the case.   Additionally, Federal Rule of Bankruptcy Procedure 3004 gives the Debtor an additional 30 days beyond the claims deadline to file protective claims on behalf of Creditors.  However, it should be noted that the local bankruptcy rules often govern the deadline for filing proofs of claim, and can extend those deadlines.  Moreover, several districts do not apply the claims bar date to secured creditors at all.

If you have filed a bankruptcy on your own (”pro se”), and you are facing this type of situation, it would be wise to consult with an experienced bankruptcy lawyer who has handled Chapter 13 cases in the past, such as the Phillips Law Offices, or some other firm in your state.

You might have received or might not have received a notice in the mail from the OCC and Federal Reserve Board that suggest that you qualify for an Independent Foreclosure Review.  Then, you probably said to yourself, “What is this all about?”  Many of you probably think it is another shame from a company quickly formed to make a quick buck off your suffering.  The truth is—it is actually from your Federal Government and it is real.

In April 2011, the Federal Reserve Board issued enforcement action against four large mortgage servicers: GMAC Mortgage, HSBC Finance Corporation, SunTrust Mortgage and EMC Mortgage.  The enforcement action required that these four companies and their affiliates to hire independent consultants to review foreclosures that occurred between 2009 and 2010.

During the years of 2009 and 2010, foreclosure sales often occurred with electronic documents that were either not property signed.  Additionally, mortgages were transfer between mortgage companies without original signatures.  In other words, the banks did not have the appropriate documentation in order to legally foreclosure on a property as well sell a property at an auction.

As a result, the Federal Reserve Board is forcing these companies to complete this review to see if they caused any harm.  The servicers are required to compensate borrowers for financial injury resulting from deficiencies in their foreclosure processes.  It is possible that you could receive financial compensation even if your home has gone to foreclosure sale already.  So, if you were thinking that no one was looking out for you, the reality is that some is looking out for you.

The deadline for filing the review is July 31, 2012.  You will need to provide set of documents to determine if you were injured.  You can do the review on your own or seek help in submitting the documentation to ensure that your review is conducted.

If you faced a foreclosure during this period, you should take a chance and get your circumstances reviewed.

Many homeowners have found themselves in the position of owing money on a debt that they simply cannot repay.  As a result, the homeowner is sued by a Creditor and, shortly thereafter, a corresponding judgment enters against the homeowner. When this happens, the Plaintiff often will attempt to collect the money from the judgment by requesting an execution or judicial lien be issued against the homeowner and will then place the judicial lien on the homeowner’s house or car.

Many of my bankruptcy clients have come to me after this type of lien has been recorded against their property.  A possible solution to this problem arises after a homeowner’s unsecured debts have been discharged in bankruptcy.  The reason is simple; the homeowner has a lien against the property and intends to file a bankruptcy case in order to discharge the lien and other unsecured debts, so that the homeowner will not owe any money to any creditors.

After a Chapter 7 discharge, a Debtor may avoid a judicial lien by filing a motion with the Bankruptcy Court.  The legal theory pursuant to 11 U.S.C. § 522(f) is simple; to the extent a lien impairs an exemption to which the Debtor otherwise would have been entitled under the Bankruptcy laws, the Bankruptcy Court will grant a Chapter 7 Debtor’s motion seeking to avoid a judicial lien if the Debtor’s equity in the property is less than the amount protected under the applicable state and federal exemptions.  More specifically, under the Massachusetts Homestead Act, which currently allows protection of up to $500,000 in value for the land and buildings, where the Debtor recorded the declaration of homestead prior to the judgment lien attaching to the property (M.G.L. c. 188 § 1) and where the Creditor’s lien fully impaired the Debtor’s equity in the property.  In re Lyons, 355 B.R. 287 (2006).  Additionally, if a car has less then $3,450 in equity a judicial lien can also be stripped from that property.

By way of example, if a Debtor’s home was valued at $325,000 and a mortgage was owed with a payoff of $175,000, then, so long as the Debtor filed a Declaration of Homestead prior to a judicial lien of $50,000 being attached to the property and the Debtor filed a Chapter 7 bankruptcy, that Debtor would be entitled to protect all of the equity in the property and, as such, the judicial lien would impair that exemption.  Since the lien impairs the exemption, the Debtor could file a Motion with the Bankruptcy Court to strip the judicial lien in the Chapter 7 or Chapter 13 case and, upon the discharge of all unsecured debt, the lien would also be stripped.  Thereafter, the order could be filed and recorded at the appropriate registry of deeds, demonstrating that the lien has been discharged.

It should be noted that under Massachusetts Law, if you prepare and file a declaration of homestead at the registry of deeds in your county, you can get a half million dollars in protection against unsecured creditors.  However, as of March 2011, even if you never recorded the document you can still receive up to $125,000 in protection.

In summary, when your home or car has a judicial lien (as opposed to a mortgage or car loan) attached to it in order to collect on a judgment, you can ask the Bankruptcy Court to remove the lien if it impairs the exemption allowed under the Bankruptcy Code.

This article was drafted by Attorney Michael Goldstein