Chapter 13 Bankruptcy

Published on: March 21, 2011

Principal Reductions Through Bankruptcy?

Currently, the Bankruptcy Code does not allow a bankruptcy court to modify a bankruptcy debtor’s first mortgage on his or her primary home. It does not prevent a mortgage company from modifying a loan if it voluntary agrees, but nothing allows the bankruptcy judge the power to force a principal reduction for an underwater home.

It has been this Tampa Bay law firm’s opinion that eventually principal reductions will become more widespread. It has been reported that banks now hold only 15% of the nation’s home mortgages, and that the remainder are now owned by Freddie Mac, Fannie Mae and numerous securitized trusts. When this mess first began, banks held a much larger percentage of home loans which have now been transferred to Fannie and Freddie. I believe the banks should have been forced to eat the loans they made, but I digress. At least now the nation is in a position to permit principal reductions because it is much less likely to crash the five major banks.

NACBA (National Association of Consumer Bankruptcy Attorneys) has announced a proposal to address the dilemma of underwater homes. This new proposal, the Principal Paydown Plan, would provide:

1) Interest rate reductions to 0% for the first mortgage to allow the entire monthly mortgage loan payment to go directly to principal;

2) During a five year plan, the borrower’s minimum monthly housing payment would be calculated similar to a HAMP modification payment at 31% of gross income;

3) At the end of the five year period, the remaining principal balance would be amortized over 25 years at the Freddie Mac survey rate (running approximately 4.75% now);

4) The bankruptcy judge and Chapter 13 trustee would approve of the eligibility of the borrower and feasibility of the payments, something that they presently do in all Chapter 13 cases;

5) The borrower agrees to a general settlement of all claims against the lender and servicer and avoiding title and loan litigation.
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Published on: March 17, 2011

Florida bankruptcy debtors allowed greater exemption to keep personal property

By Christie D. Arkovich, P.A.

Finally, a win in the Florida Supreme Court for bankruptcy debtors. In February, the Osbourne v. Dumoulin decision puts to rest an issue in Florida where judges disagreed on how much personal property a debtor could keep when filing bankruptcy. Generally a debtor using Florida state exemptions can keep $1,000 in personal property. They can retain additional personal property, but they have to pay to keep anything above the exempt amount. However, if a Florida debtor is not claiming a homestead exemption, they can claim a larger $4,000 wildcard exemption to protect additional personal property such as bank accounts, equity in vehicles etc.

Even our four bankruptcy judges in Tampa, Florida disagreed on how to apply the wildcard exemptions in cases where the home was underwater. After Dumoulin, in cases where the debtors own a home that has negative equity, they can now claim an additional $4,000 wildcard exemption to keep additional personal property. This can be very valuable since Florida’s personal property exemptions are one of the lowest in the country. Most people haven’t minded too much because Florida’s homestead and IRA/401k exemptions are very favorable to debtors. But nowadays, many people have negative home equity and have cashed out or borrowed against their 401ks and don’t receive the benefit of those broad exemptions.

Application of exemptions can be complicated especially in cases where the debtor has recently moved from another state, please consult with an attorney regarding the proper use of exemptions. Arkovich Law

Published on: March 15, 2011

Freezes of Wells Fargo Bank Accounts for Bankruptcy Debtors

By Christie D. Arkovich, P.A.

wells fargo.jpg The Middle District of Florida, Tampa Division, upheld Wells Fargo’s practice of freezing bank accounts of Chapter 7 bankruptcy debtors. In re Young, 439 B.R. 211 (Bankr. M.D. Fla. 2010). In ruling that the administrative freeze was not a violation of the stay, the Court denied sanctions against Wells Fargo.

We are advising our bankruptcy clients to move their bank accounts (checking, savings, CDs etc.) to other banks when filing a Chapter 7 bankruptcy. To our knowledge, Wells Fargo (and Wachovia which was merged into Wells Fargo) is the only bank that has taken this position. This avoids panicked calls from our clients when their bank account is frozen and they learn that it may take 30 days for the trustee to abandon any non-exempt interest in the account.

For the time being, this ruling is only applicable to Chapter 7 cases. The Court in Young unequivocally stated that its holding should only apply to Chapter 7 cases and that it would view an administrative freeze on accounts in a Chapter 11 or 13 as a violation of the automatic stay. The Wells Fargo administrative policy may be limited to accounts of $5,000 or greater, but I wouldn’t trust that they won’t freeze an account with less. The reasoning behind them holding the money for the bankruptcy trustee to decide what to do with it applies when a bank account has less than $1,000 in it due to the low personal property exemptions in the State of Florida.

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Published on: February 28, 2011

Middle District of Florida Scores Second in the Nation for Bankruptcies

By Christie D. Arkovich, P.A.

Florida’s Middle District which covers Tampa, Orlando, Fort Myers and Jacksonville was second only to the Los Angeles district in bankruptcy filings from October 2009 to September 2010. The Florida Middle District recorded 66,861 bankruptcy filings including all chapters.

That translates to approximately one person out of 100 in these two districts declared bankruptcy last year, based upon a 2009 U.S. Census.

The downturn that began in 2007 has led to an increased number of bankruptcies. The decrease in home equity made people feel less wealthy and they are more apt to file bankruptcy when the credit card debt seems overwhelming. No longer is equity available in homes to tap in an effort to pay down unsecured debt such as credit cards. Realizing this, many people have come to the conclusion that bankruptcy is their way out. Also Americans are coming to realize that the social stigma of filing bankruptcy has nearly disappeared.

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Published on: February 19, 2011

Significant Negative Impact to Disposable Income Expected for Tampa, Florida Debtors under a New U.S. Supreme Court Ruling that a Debtor Cannot Claim an Ownership Expense for a Free and Clear Vehicle

By Christie D. Arkovich, P.A.

A January 11, 2011 opinion by the U.S. Supreme Court is expected to drastically increase potential disposable income in Chapter 7 and 13 bankruptcy cases in Tampa, Florida. This may cause someone who previously qualified for a Chapter 7 bankruptcy not to qualify, or to increase the Chapter 13 plan payment by $500.

You see prior to Ransom v. FIA Card Services, N.A., our local (often considered debtor friendly) Tampa Division would generally allow a $496 ownership credit toward a vehicle (two credits were allowed if debtors were married or had reason for an additional vehicle). This $496 credit would be allowed even if the car payment was less than $496 or if there was no car payment and it was owned free and clear. A debtor only needed to own or lease a vehicle to claim the ownership credit. A separate credit is used for vehicle operating expenses. The reasoning in the Tampa Bay area was in part if the debtor was driving an older paid off vehicle, at some point during a 3-5 year plan the debtor would have to purchase a replacement vehicle. Allowing the credit would permit the debtor to both save some money for the down payment as well as afford the payment when the replacement vehicle was purchased.

Following the 8-1 decision in Ransom, our local Chapter 13 Trustees and Judges can no longer allow a debtor to reduce disposable monthly income (DMI) by claiming a vehicle ownership expense when the debtor has no associated loan or lease payment for the vehicle. In some other areas of Florida or elsewhere around the country, debtors already were not allowed to claim the expense, so this won’t have any effect on them. But here in Tampa, this is a major disappointment.

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Published on: January 19, 2011

Tampa Florida Timelines to Surrender a Vehicle in Bankruptcy have been Dramatically Reduced After the Tampa Division of the Middle District of Florida Adopted a New Model Chapter 13 Plan in 2010

By Christie D. Arkovich, P.A.

Contrary to popular opinion, a bankruptcy debtor does not have to give up his or her vehicle immediately upon filing bankruptcy.

First, many debtors choose to keep their vehicles and can do so as long as they continue to make the regular monthly payment and sign a reaffirmation agreement to repay the debt.

Second, free and clear vehicles can be retained provided the values of the vehicles are within the permitted exemptions or provisions to pay to keep them is set forth in the Chapter 13 Plan.

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Published on: January 16, 2011

Bankruptcies Going Strong: CPI For December Not As Strong as First Appears

By Christie D. Arkovich, P.A.

Retail sales are up 7.9% from December 2009 to December 2010. Although retail sales increased only .6% in December from November and were lower than expected, retail sales are now above the pre-recession peak in November 2007. Initially this appears good right? Bankruptcy rates in Florida and elsewhere should start to decline as consumers spend more and more people get back to work.

Not so fast. Much of these gains were in energy and food prices. Furniture and home furnishings rose a mere 2.3% year over year. Electronics rose only 2.6% year over year. Clothing sales will almost certainly rise significantly during this upcoming year but not due to an increase of demand, but rather due to cotton prices being in the stratosphere.

What does this mean for the average Floridian consumer? Well the middle class is being squeezed even more with declining wages and increasing costs of living. This leads to more debt to service when paychecks aren’t enough to pay the bills any more. Chapter 7 or 13 bankruptcy is no longer reserved for the divorced, injured, ill or unemployed. Now increasing numbers are filing bankruptcy when they just can’t pay the bills like in the old days.