Chapter 13 Bankruptcy

Published on: October 12, 2011

PLEASE Support the NACBA Bankruptcy Principal Paydown Plan NOW!

Follow this link for a one page concise description of the Principal Paydown Plan we’ve written about in the past (to allow mortgage payments made during a Chapter 13 bankruptcy to go directly to principal thereby reducing the underwater portion of your mortgage). The idea is to encourage homeowners to keep their home because it will make good business sense to do so and help to reduce the volume of foreclosures. Please take a moment to show your support by signing a petition presently before the White House (remember the bankers have their PACS and lobbyists, while we have our clients’ support and grass roots campaigns to effect change!).

Follow these steps to sign the petition:

1) Click here to get to the petition.

Continue reading →

Published on: October 12, 2011

Tampa Division, Florida New Bankruptcy Court Mediation Opportunity

By Christie D. Arkovich, P.A.

The Bankruptcy Court for the Middle District of Florida, Tampa Division, has recently implemented a mediation program for homeowners wishing to modify their first mortgages. The Orlando Division has had a similar program in place for a year or more and reports a success rate of 70%, unlike the state foreclosure mediation program which has a success rate of less than 5%. Combined with a reduction of debt in a Chapter 7 or even a stripped second mortgage in a Chapter 13, you may find keeping the house to be affordable with a modification. HAMP for instance reduces the interest rate to as little as 2%, may extend the term or carry a portion of the principal without interest to the end of the loan. If you believe that you can afford a (PITI) payment that is approximately 31% of your gross income, you may want to take advantage of this program.

Many reasons exist for the higher rates of success for mediations in bankruptcy. First and foremost, a bankruptcy filing tends to eliminate credit card, medical bills or second mortgage payments allowing for more income to be directed toward the first mortgage. Lenders attorneys have pointed to the smaller, more experienced bankruptcy mediation departments at banks or servicers that allow for better outcomes.

The Tampa Division just approved a standard fee of $1800 for their mediation program this past week payable to the debtor’s attorney in a Chapter 13 Plan (spread out over 5 yrs is $30 monthly). The cost of the mediator will be $350 for two hours split between the mortgage company and the debtor. This is the only fee that will be payable up front at the mediation.

Published on: August 17, 2011

Why Lien Stripping of a Second Mortgage is Not Available under Chapter 7 Bankruptcy

By Christie D. Arkovich, P.A.

Our Florida clients sometimes ask me why they cannot strip off a second mortgage in a Chapter 7 like often done in a Chapter 13 bankruptcy nowadays. The limitation can be found in the United States Supreme Court’s decision in Dewsnup v. Timm, 502 U.S. 410, 417 (1992). The Court noted a distinction between the in rem and in personam claims created by a lien on a debtor’s property. The Court held that a Chapter 7 discharge of personal obligation leaves the in rem obligation intact against the property.

Even though a client might qualify to file a Chapter 7, sometimes the extra remedies available in a Chapter 13 make the more lengthy plan worthwhile. Under 11 U.S.C. 1322 a wholly unsecured second mortgage or HELOC can be stripped off a homestead. However, one other key difference exists between a Chapter 7 and 13. If a debtor retains a home in a Chapter 13, they are still personally liable for the first mortgage even if the second mortgage is stripped. Therefore, a Chapter 7 may still be best if the home is worth much less than the amount owed on a first mortgage and the debtor is uncertain about keeping the home long term.

Published on: August 14, 2011

Principal Paydown Approach Could Drastically Slow Florida Foreclosures

By Christie D. Arkovich, P.A.

NACBA (National Association of Consumer Bankruptcy Attorneys) responded this weekend to the government’s latest approach to the foreclosure crisis with what I call the Principal Paydown Plan.

Rather than turn us into a nation of renters under the recent suggestion that Freddie and Fannie rent their foreclosed properties or sell them as rentals, NACBA suggests again that a Chapter 13 bankruptcy can be modified to help families avoid foreclosure on massively underwater property. Without more focus on prevention, our housing market is certainly facing additional downturns.

The Principal Paydown Plan would require the reduction of interest on a primary mortgage to 0% during a Chapter 13 Plan thereby relegating the entire payment to principal (plus escrow). At the end of the bankruptcy, the debtor would have paid down their mortgage in many cases to the approximate fair market value of the property helping to slow the foreclosure numbers for those homeowners who would otherwise strategically default believing that their home value will take 10 or more years to recover.

Continue reading →

Published on: June 17, 2011

HAMP releases second mortgage HELOCs

By Christie D. Arkovich, P.A.

I have discussed the many second mortgages that can be removed or stripped off clients’ property in a Chapter 13 bankruptcy due to the low home values in Florida. Today, I’d like to discuss other possibilities to remove a second mortgage that we are seeing. Today for instance, I received a call from a client who filed a Chapter 7 with us awhile back. She now has received approval for a HAMP waiver of her second mortgage or home equity line of credit. A complete waiver, paid in full. She also has completed a modification under HAMP for her first mortgage. Now the home is affordable and it makes sense for her to keep it. Chase was the servicer this client was working with so it may be worth the time to continue to deal with large servicers to obtain these results.

We also are seeing clients being approached with offers to satisfy their second mortgages in full for about 10 cents on the dollar (i.e. $6,000 lump sum payment to satisfy a $60,000 2nd mortgage). Usually this happens after we file a Chapter 13 threatening to strip the second mortgage, but sometimes it may come out of the blue. For a client who qualifies for a Chapter 7, they then have the option of converting to a Chapter 7 to discharge other unsecured debt and not remaining in a lengthy 3-5 year Chapter 13 Plan. Another option is that the client could simply dismiss the Chapter 13 voluntarily if they have no other debt and are current in their first mortgage or able to obtain a modification.

Published on: June 15, 2011

Exemptions Calculus

By Christie D. Arkovich, P.A.

Bankruptcy clients who are new to Florida come to our office complaining about what I call the Exemptions Calculus Problem. Learning calculus seems simpler. Below are some useful sites and a brief explanation as to how exemptions work.

First, exemptions in bankruptcy are important because they decide what you get to keep in a bankruptcy. In Florida, we have very strong homestead exemptions and retirement asset exemptions for an IRA, 401k, 403(b) or annuities. Not so much for personal property unless you are surrendering your home and can claim a $4,000 wildcard exemption in addition to a $1,000 exemption. Vehicles are allotted a $1,000 equity exemption. Anything more, you have to pay to keep or give up.

However, the rules vary dramatically when you have lived in Florida for less than two years. Then we either use the state’s exemption where you moved from or the federal exemptions. Ironically, you cannot use the federal exemptions when you have lived here for two years or more, because Florida has opted out of the federal exemptions. Federal exemptions provide a very generous personal property exemption.

Continue reading →

Published on: June 4, 2011

Strip Your Second Mortgage – It’s Easier Than You Think.

By Christie D. Arkovich, P.A.

In an article recently about shedding second mortgages, I am reminded that many people still do not realize that they can often strip their second mortgage forever in a Chapter 13 Bankruptcy. Although this article addresses homeowners in California, the same is true for our Florida clients.

The key is that your bankruptcy attorney has to show that your home is worth less in today’s market than the balance of your first mortgage. You do not have to be behind in your payments. You do not need the permission of the second mortgage company. Your attorney simply files a motion with the court to determine secured status, attaches exhibits of valuation (which can vary from the most recent tax assessment, a BPO, an appraisal or even comps), and waits to see if the mortgage company objects. Often, they do not bother or they consent. If they do fight it, the court will set an evidentiary hearing to determine the value if the bank brings evidence that the value is higher. Then you get into the dueling appraisal war. None of our cases have gotten that far and we’ve probably stripped off 50 2nd mortgages in the last couple years.

This is one way to drop your principal balance if the banks won’t agree. It may be the only way to save an underwater home and get back to paying its real value. It doesn’t matter what the second mortgage was used for, whether it was an 80/20 loan, or used to fund start up costs for a business, or payoff credit card debt or cars.

Continue reading →

Published on: June 1, 2011

You cannot be fired for filing bankruptcy, but it may be used as a reason to deny new applicant

By Christie D. Arkovich, P.A.

The Eleventh Circuit Court of Appeals which governs the State of Florida, recently ruled on May 17, 2011 in the case of Myers v. TooJay’s Management Corp. that private employers can legally deny employment to applicants if they filed for bankruptcy. In doing so, our Circuit is now consistent with similar rulings in the 3rd and 5th Circuits.

However, anyone who is trying to decide whether to file bankruptcy when they are job hunting should keep in mind that prospective employers will pull credit reports. Many employers will rescind offers of employment or refuse to hire a person merely because of a bad payment history. Any delinquent payments could equally affect an employment decision. Refusal to hire someone due to his or her credit history is not by itself unlawful (there may be a limitation as to whether or not a credit report may be pulled if the prospect has not signed an authorization to do so).

In fact, some employers would prefer that a prospective employee has discharged their debts. Many employers would rather not deal with creditors calling its employees during work hours on the job and don’t want the administrative headaches associated with processing wage garnishments. These employers would rather hire someone who is debt-free, instead of someone who has debt problems.

Continue reading →

Published on: May 15, 2011

Principal Reduction down from $130,000 to $49,000!

By Christie D. Arkovich, P.A.

Elusive principal reductions are hard to come by, but we recently scored a very big win on behalf of one of our prior foreclosure clients turned Chapter 13 client. This week Ocwen agreed to a reduction in principal from $130,000 to $49,000 at 2.625% interest. This family’s principal and interest payment dropped to $224. Escrow is anticipated at another $200 for taxes and insurance.

This Bartow, Polk County, Florida family had lost their employment in 2008. By the time they obtained new employment nearly two years had passed and a foreclosure lawsuit was filed by MERS as nominee for Home 123 Corporation in 2008. A HAMP mod was denied during the foreclosure process. Prior to a foreclosure judgment being entered, the family filed a Chapter 13 in a final effort to keep their home. One of the problems was that the arrearage was $31,000 all of which had to be paid in the five year Chapter 13 plan. Moreover the home was valued now at $50,000 per the most recent tax assessment while $130,000 was owed on the home on a first mortgage. In bankruptcy, we as debtor’s counsel filed an objection to the Proof of Claim on the basis that proper documentation was not filed. Missing endorsements demonstrated a lack of standing on behalf of the mortgage company, among other problems.

A couple weeks before trial, we arranged a conciliation conference with opposing counsel and their client. Our clients were again considered for a HAMP modification which was denied a second time. We offered a new amortizing mortgage of $50,000 at 30 years at 5% interest. Ocwen came forward with an independent modification of something even better: $49,000 at 2.625 %. Payment $224 plus escrow. Hard to beat. Clients jumped at the offer needless to say.

To give credit where credit is due, I have no idea how much of this was because of Ocwen or because of our stellar legal wrangling 🙂 I have heard of Ocwen reducing principal elsewhere in the nation, but have seen no reports locally. In an article in DSNews.com a site for those in the mortgage default servicing industry, Ocwen has explained in their experience negative equity increases the likelihood of a re-default 1.5 to 2 times and that approximately 15 percent of all Ocwen loan modification involve some element of principal reduction.
Continue reading →

Published on: May 8, 2011

Door #1 or #2: Taking the Wildcard Exemption when Retaining your Home May Come with Surprises

By Christie D. Arkovich, P.A.

house on tide.jpg In Florida, our Tampa Bay area homeowners are faced with a dilemma whether to claim the homestead exemption for their underwater homes. Historically, Florida homeowners have been allowed to keep or exempt $1,000 of personal property in a Chapter 7 bankruptcy. This isn’t much, and many homeowners had to pay the bankruptcy trustee to keep anything in excess of $1,000 per debtor. However, in the past few years, the Florida legislature passed Florida Statute 222.25(4) what is referred to as the “wildcard” exemption which allows an additional $4,000 exemption for personal property when the homeowner is not claiming the homestead exemption. Florida judges have determined that the exemptions can be stacked and now homeowners who do not claim the homestead exemption can keep up to $5,000 in personal property.

This year, the Florida Supreme Court in Osbourne v. Dumoulin, No. SC09-751 ruled that a homeowner can claim the wildcard exemption even though they are keeping their home when it has no equity. Some judges were already ruling in this manner. As a result, many attorneys began to claim the $4,000 wildcard exemption and avoided claiming the home as exempt. Trustees were not interested in the home because it had no equity so there was no need to claim the homestead exemption.

Seeing the profit potential, some companies have begun to contact the Chapter 7 trustees in the Tampa Bay area and offering to buy the bankruptcy estate’s interest in the homes where no homestead exemption is claimed. Their goal is for the approximate $2,000 that they pay the trustee, the real estate firm will then put the house up for a short sale where they make a few bucks, and charge the homeowner rent in the meantime. The homeowner gets blindsided when they intended to keep the home all along.

Continue reading →