Chapter 7 Bankruptcy

Published on: February 8, 2012

Tampa Florida Channel 13 Interviews Christie Arkovich about the “Student Loan Debt Bomb”

student loan debt hat.jpg Tonight at 10:00 p.m. the lead story on Channel 13 inTampa is about the National Association of Consumer Bankruptcy Attorneys’ survey that came out today warning of an emerging student loan debt bomb. News Reporter Jeremy Campbell interviewed me about this study and the future impact of student loan debt.

It is very difficult to discharge a student loan in bankruptcy. A debtor has to show an undue hardship that will likely persist for the majority of the repayment period (which runs from 10 to 25 years). They have to show they have minimized their expenses and maximized their income. They also have to prove they have made a good faith effort to repay. Partial discharges of debt are possible and often a favored result for both parties.

The NACBA study shows that four out of five bankruptcy attorneys say that potential clients with student loan debt have increased significantly or somewhat over the last three-four years. Approximately 95 percent determine that few student loan debtors have any chance of obtaining a discharge as a result of an undue hardship.

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Published on: January 15, 2012

Avoid the Cancelled Debt and 1099-C Minefield

By Christie D. Arkovich, P.A.

I speak with many clients in the Tampa Bay, Florida area who have heard of cancelled debt and 1099-C forms but they do not really understand the impact of the taxable events that occur in a short sale. An understanding of how a 1099C works in a short sale is especially important at this time of the year.

Whenever a creditor cancels or forgives debt following a debt settlment, short sale or even a foreclosure, the creditor must report the amount of the cancelled debt to the IRS on a Form 1099-C. Under Section 108 of the IRS Code, the IRS imputes the cancelled debt as additional income to you. So if you make $50,000 in annual salary, but your house was sold at a short sale where the loss to the lender was $100,000 (not an uncommon fact pattern in Florida), you will be deemed to have earned $150,000 that year or the next – depending upon whatever year the lender files the 1099-C.

There are three exceptions to this rule. First, you file bankruptcy prior to the issuance of the 1099-C. If debt is discharged in bankruptcy, it is not attributable to you as income. Even if you receive a 1099-C, you can respond by filing your own Form 982 to remove its taxability because of the bankruptcy.

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Published on: October 19, 2011

Can Florida Homeowners Reduce Their Mortgage to What the House is Worth?

By Christie D. Arkovich, P.A.

Our Florida clients have recently been asking me if there is a new law allowing them to reduce their mortgage balance to the value of their home. This is not accurate and I am not sure where this is coming from. My guess it may be from somewhat misleading and overly optimistic advertisement flyers that are sent to people who have a foreclosure filed against them.

In bankruptcy, specifically a Chapter 13, we can strip a second mortgage. But the court cannot require a first mortgage company on a primary home to reduce the principal balance on their home. Implying otherwise, is simply misleading and inaccurate.

There is also no federal or state law that requires a first mortgage to be reduced to the value of the home.

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Published on: October 15, 2011

Mortgage Modification Success Often Determined by HAMP participation and TARP bailout funds

By Christie D. Arkovich, P.A.

Mortgage modifications are often determined by whether the owner (not servicer) is either a participant in HAMP or a recipient of TARP bailout funds.

Here’s how to check on your lenders:

First, use our Resource page on our website to look up who likely owns your loan by doing a Fannie, Freddie or MERS lookup search.

Second, see if the owner of your loan is a HAMP or other governmental program participant.

Third, see if the owner of your loan was a recipient of TARP funds in the 2008 bailout.

If your loan passes the above tests, your lender is required to run you through a HAMP analysis (even if they would prefer a short sale). You can qualify for a HAMP modification whether or not you file bankruptcy, although you might find the success rates are higher in a bankruptcy. The Tampa Division bankruptcy courts just established a formal mediation program in October 2011 for homeowners who have experienced difficulty in obtaining mortgage modifications.
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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: September 6, 2011

S&P Debt Downgrade Compared to an Ordinary Household

By Christie D. Arkovich, P.A.

debt downgrade.jpg Let’s put into perspective the recent S&P debt downgrade of the United States.

U.S. Tax Revenue: $2,170,000,000,000 Fed. Budget: $3,820,000,000,000 New Debt: $1,650,000,000,000 National Debt: $14,271,000,000,000 Recent Budget Cut: $38,500,000,000

Now let’s remove 8 zeros and compare this to an ordinary household:

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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: 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.

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Published on: June 13, 2011

Strategic Defaults – When it’s Time to Walk Away From Your Home

By Christie D. Arkovich, P.A.

underwater mortgage.jpg Have you been considering walking away from your house payments and mortgage? According to a recent CNN article, many homeowners are getting ruthless and voluntarily choosing to walk away. We are seeing this more and more among our foreclosure defense and short sale clients. Sometimes it is better to take the credit hit and save money on huge mortgage payments on an underwater asset. Home values have continued to slide another 11% in Florida in February when compared to the same month in 2010. CBS MoneyWatch reports that 47% of Florida homeowners are underwater.

Fannie Mae reports in a recent survey that the number of homeowners who would even consider walking away has increased from 15% to 27% this year. This is despite Fannie Mae’s threat to withhold Fannie Mae backed financing for strategic defaulters that it made over a year ago.

So what should you consider before you make such a decision? Well, first of all, if you have a good job, assets and a strong credit report, you can be a target for a deficiency lawsuit later down the road as Florida is a “recourse” state. Banks and other owners of mortgage debt have up to five years to pursue you to collect the unpaid balance. The question is will they? If you look good to them on paper, it is more likely you will be sued for a deficiency. If this is the case, or you think your finances will pick up over the next few years, you may want to consider a short sale to at least try to open negotiations for a full or partial deficiency waiver. Alternatively, many clients elect to file bankruptcy now while they qualify to order to obtain closure and gain the certain knowledge that they cannot be sued later.
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