Bankruptcy tips: cramming down a car

By doug | Published: July 13, 2011

If you are thinking of filing for bankruptcy, and still need basic transportation to get to work and tote your family, you could be helped by the notion of “cramming down a car.”

Don’t worry; it’s nothing like the picture at left! Actually, its the car loan that you want to cram down, not the car itself.

The idea is that in Chapter 13 bankruptcy, debtors can propose to restructure loans in their Chapter 13 plan. For example, if you have $10,000 outstanding on your car loan, but you’re sure the vehicle is only worth $5,000, a cram down could help.

Under the bankruptcy code, you would be allowed to pay off the loan through the plan by paying just $5,000 plus interest (cramming the loan down, in bankruptcy parlance) during the life of the plan, instead of the full $10,000 you owe.

If you were proposing a 60-month plan, you would have $83.33 (plus a little interest) of your plan payment go towards the car every month, and when you completed the plan, the car would be yours and the loan considered paid off.

Catches? Principally two. First, this only applies to chapter 13 bankruptcy, so you need to be able to qualify for that chapter. Second, you have to have bought (or financed) your vehicle more than 2 1/2 years before filing your case (910 days, to be exact). So you can’t just drive a car off the lot and then cram down the loan.

If you have questions on this, or any other aspect of bankruptcy law, you can call me in North Andover at (978) 975 – 2608, and we can discuss the situation.

 

By Doug Beaton

Posted in Chapter 13 | Comments closed

Student loans and bankruptcy: a sticky situation

By doug | Published: July 13, 2011

Recently I published an article over on AVVO about how debtors trying to get themselves out of student loans through a bankruptcy filing soon find themselves caught in a Catch-22 situation. You can read it here.

It wasn’t always this way; up to the mid 1990’s, student loans were dischargeable in bankruptcy seven years after graduation. It was a fair rule, and should be restored. Call your Congressman!

 

By Doug Beaton

Posted in Student loans | Comments closed

Presto, change-o! Converting a bankruptcy case

By doug | Published: July 12, 2011

When you file a bankruptcy case, the debtor must choose a particular chapter of the bankruptcy code (chapters 7, 11, 12 and 13 are the most common), and the rules of the chose chapter are then applied to the case.

The initial choice of chapter is not forever binding, however. Indeed, debtors have a great deal of latitude in converting an existing case from one chapter to another as need be.

Quite often, Chapter 13 cases are converted into Chapter 7’s, the usual reason being that the debtor is unable to make timely Chapter 13 plan payments to the trustee, often due to changed (i.e. worsening) financial conditions. There is a $25 fee for this conversion, representing the difference in fees between chapters ($299 for Ch. 7 vs. $274 for Ch 13).

Cases can go the other way too, although it is somewhat less common. There is no fee involved, since the debtor has already paid the full $299 on filing under Chapter 7.

On converting a case between chapters, a new trustee is appointed — once that handles the type of case for the new chapter.

One important consideration when changing to Chapter 7 from 13 is that any property acquired after the original filing date cannot be touched by the new Chapter 7 trustee — no matter what it’s value is. According to section 348 of the bankruptcy code, “property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion.” So after-acquired property is completely “exempt” from attachment in a converted case!

Posted in Chapter 13, Chapter 7, Practical tips | Comments closed

Bankruptcy court says MERS is alive and well and living in Massachusetts

By doug | Published: July 11, 2011

MERS is doing OK here in Massachusetts.

Just in case you are not obsessed with the lingo of real-estate banking, MERS stands for Mortgage Electronic Registration Systems, Inc., a corporation whose sole business is filing mortgage documents at county registry of deeds nationwide.

If you check your mortgage doen at the Northern Essex registry of deeds in Lawrence, or the registry in Salem, Mass., there’s a good chance you will see MERS stamped somewhere on it. In fact, a casual reading of the mortgage might give you the impression that MERS owms your home.

The real idea behind MERS is that a single company could record all the mortgage, deeds, notes, and releases necessary to do a home sale. After the original transaction, any sale or transfer of the mortgage could then be done privately, “off the books,” with MERS keeping a data base of who owned what.

This allowed banks and finance companies to buy, sell, and trade mortgages willy-nilly, without having to go back to the registry and record more documents each time. The downside (for consumers and regulators) is that it is practically impossible to track who actually hokld a mortgage through the deed system anymore.

But MERS was really only an enabler in the housing boom or the last decade that became a bust. MERS is listed as a “nominee” on Massachusetts mortgage documents, meaning the owner (or “holder”) of the mortgage is likely someone else, and of course the servicer of the mortgage is likely to be still another company. Nice, eh?

Around the country, some aggressive attorneys have had some luck going at MERS-registerd mortgages, principally using an argument that a mere nominee has no right to foreclose.

But that argument didn’t fly when debtors tried to use it in a Massachusetts bankruptcy court before bankruptcy judge Melvin Hoffman. In the Marron case, number 10-45395 in June, Judge Hoffman found that the Massachusetts mortgage laws do indeed give a “mere” nominee the right to be initialte a foreclosure.

So at least in Massachusetts, it looks like MERS is going to be around for a while.

Posted in Bankruptcy News, Foreclosure | Comments closed

The different kinds of bankruptcy trustees

By doug | Published: July 8, 2011

Russell DeMott is a bankruptcy attorney in South Carolina, and he has posted a hilarious article on the internet outlining the differences between Chapter 7 bankruptcy trustees and Chapter 13 bankruptcy trustees.

Attorney DeMott’s thesis is that Chapter 7 trustees act like voracious wolverines, chewing through all the debtors they come across in a desperate search for “food” — that is, assets that canbe sold.

Chapter 13 trustees on the other hand, are sort of like koala’s, sitting in one place content to eat the abundent food (leaves) found around them. For a Chapter 13 trustee, this means sitting around collecting the monthly plan payment checks that debtors send them.

In Massachusetts (and to some extent New Hampshire) on the whole, most debtors are likely to find that meeting a Chapter 7 trustee is nowhere near as painful as a bite from a wolverine. They will aggressively go after unquestionably unprotected assets, to be sure, but by and large they aren’t litigating close cases.

As for the koalas, the Chapter 13 trustees in Boston and Manchester, N.H. fit the profile nicely, but the 13 trustee in Worcester (which handles Lawrence, Methuen, and Haverhill bankruptcies among others) often takes an active role in trying to broom cases out of her court. What kind of koala stays healthy turning down a nice meal of leaves?

If you are not sure where your bankruptcy case would be filed (and which trustee gets assigned) you can find out here.

Posted in Chapter 13, Chapter 7 | Comments closed

The first three questions at the bankruptcy meeting of creditors

By doug | Published: July 7, 2011

Many debtors are frightened the night before they have to attend the meeting of creditors in their bankruptcy case. (A few are frightened for months before, but that’s a story for another day).

Most of this nervous energy is terribly misplaced. In the first place, “meeting of creditors” is usually a misnomer; “meeting with the trustee” is more like it.

Because getting off to a good start is usually more than half the battle in any venture, I thought you might like to know how a typical meeting starts off in Massachusetts (same basic routine in New Hampshire, too).

After checking the debtor’s ID and social security cards, and having the debtor swear to tell the truth, the trustee turns to the debtor and asks:

“Is that your signature on [the bankruptcy papers]?”

“Did you review your bankruptcy papers before you filed the case?”

“Are the forms and schedules an accurate listing of everything you own, and everything you owe?”

These leadoff questions are obviously intended to pin the debtor down to what has been declared on paper in the schedules. No blaming your bankruptcy attorney for problems or omissions — YOU checked the papers over before you filed. The third question is a graceful opening for any additions and “confessions” the debtor might like to make orally at the hearing. Attorneys are also sometimes asked if they are aware of any amendments that need to be made.

Now that you know how a meeting starts, you can develop a strategy for handling it. That strategy should be 1) READ all the papers before you sign and before you file your case (yes, I know there are often a lot of them), and 2) read them over again the night before or day of the meeting.

And then get ready to cruise through the bankruptcy process!

Posted in Practical tips | Comments closed

Where to file your bankruptcy case

By doug | Published: July 6, 2011

It’s an old joke in the legal profession: A new lawyer armed with an expensive diploma still has find his way to the courthouse before he can start practicing any law.

And if you are filing a bankruptcy case, you are in the same predicament. Bankruptcy cases are assigned to a division of the bankruptcy court system based on the address given by the debtor on his or her petition.

Bankruptcy debtors from Andover and North Andover file their cases in Worcester, Mass.

Bankruptcy debtors from Lawrence file their cases in Worcester, Mass.

Bankruptcy debtors from Methuen file their cases in Worcester, Mass.

Bankruptcy debtors from Haverhill file their cases in Worcester, Mass.

Debtors living to the west of these towns (Dracut, Lowell, Chelmsford, and so on), file in Worcester as well.

The address of the Bankruptcy Court in Worcester is 595 Main Street, in room 211 on the second floor. Meetings of creditors, however, are held in a different location: down the street aways on the first floor of the office tower at 446 Main Street.

Bankruptcy debtors from Merrimack file their cases in Boston, Mass.

Bankruptcy debtors from Georgetown file their cases in Boston, Mass.

Bankruptcy debtors from Middleton and Danvers file their cases in Boston, Mass.

The bankruptcy court and the rooms for creditor’s meeetings are in the same building: the old McCormack post office / courthouse building in Post Office Square. The official street address is 5 Post Office Square, Boston.

For bankruptcy debtors living “north of the border” in Salem, Derry, or Plaistow, New Hampshire, cases are filed with the bankruptcy court at 1000 Elm Street in Manchester (The Brady-Sullivan Plaza). The clerk’s office is on the 10th floor, the courtrooms are on the 11th floor, and the meetings of creditors are held on the 7th floor. In fact, this single location handles all bankruptcy filings for the entire state of New Hampshire, which at the present time is served by a single bankruptcy judge as well!

Posted in Practical tips | Comments closed

Super secret spontaneous mortgage relief?

By doug | Published: July 5, 2011

For several years now, the one thing the big banks have insisted on is that they are in no position to reduce the balances on underwater home mortgages.

Now it turns out that some of them are in fact, very quietly doing just that.

As reported by David Streitfeld in the New York Times and Boston Globe, “JPMorgan Chase and Bank of America, are quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk.”

And that’s the catch — you can’t apply for this type of aid, you just have to have it handed to you.

Huh?

What seems to be at issue are “pay option” adjustable rate mortgages, a type of exploding loan that was popular during the heyday of the housing bubble.

The pay-option makes it possible for the homeowner to skip making payments for a specified period of time. When homeowners take advantage of this feature, their balance owed tends to rise over time, instead of the loan being paid off.

Apparently, BOA and Chase and maybe others have decided that this type of loan is so risky that it warrants special pro-active attention — including the reduction of loan principal so the homeowner has some motivation to make a payment.

Streitfeld’s aticle outlines the experience of Miami condo owner Rulas Giosmas, who had her mortgage slashed in half, without asking, even though she was current on payments and had no intention of defaulting.

We now appear to be truly entering a twilight-world in the realm of debt and bankruptcy law. Those who need mortgage modifications can’t get them and must go through a tortorous application process and wait months to be told “no.” Those who don’t need a modification at all might get the best kind of modification possible, principal reduction, without applying or even asking. And the bankruptcy code still does not allow routine modification of first mortgages (seconds and home equity loans are a different matter).

I haven’t yet heard about this happening in the Merrimack Valley, but it stands to reason that it will. back in 2005 when the bankruptcy laws were changed I remember walking down Essex Street in Lawrence and marvelling at all the mortgage companies in operation there. Same here in the North Andover office parks. It stands to reason that a lot of these companies may have offered the “pay-option” plan to local residents.

Are you feeling lucky today?

Posted in Bankruptcy News, Foreclosure | Comments closed

If you’re considering bankruptcy, focus on the positives

By doug | Published: July 1, 2011

The folks at Filing Bankruptcy Now have a good message posted on their site: Focus your attention on positive action, despite your need to go through a bankruptcy case.

Their main point is that “with all this bad news out there it’s hard to find the silver lining if you are one of these that are suffering.”

But this is what bankruptcy was created for. Once a case is filed, the creditor is not even allowed to call, mail or even e-mail the debtor ever, unless the debtor reaffirms the debt to keep a piece of secured property and continue on paying for it. This is great news for an individual that is feeling hopeless with their debt. Contacting a bankruptcy attorney would be the first step to regaining control of your financial future.

Posted in Practical tips | Comments closed

Should bankrupt debtors be allowed to save money?

By doug | Published: June 30, 2011

Should people be encouraged to start saving money after they have filed a bankruptcy case?

Sounds like a no-brainer right?

Unfortunately, Chapter 13 of the bankruptcy code does not just discourage saving, but may actually prohibit it.

At issue is one line in Chapter 13 that requires debtors who file under that chapter (usually homeowners struggling to save a house from foreclosure) to pay all of the their monthly “disposable income” in to their Chapter 13 plan. Disposable income is what’s left over after the basic household bills are paid — in other words, they money that could otherwise fund a modest savings account or mutual fund.

Since a Chapter 13 plan must last anywhere from three to five years under the law, that current law forbids debtors from saving money while they are paying on their plan.

This gets bankruptcy attorney Carmen Dellutri up on his high horse, going so far as to call Chapter 13 the “new debtor’s prison.”

I’m not sure I’d go that far — I’ve seen Chapter 13 bankruptcy cases be financial lifesaver for many Merrimack Valley families — but it might be time to consider re writing the law to permit people to start at least building little nest eggs while their bankruptcy case is in progress.

After all, encouraging and helping people to learn how to save for a rainy day beats having them file repetitive bankruptcy cases.

Posted in Chapter 13 | Comments closed
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