The biggest impediment to relief under the Bankruptcy Code is what is called The Means Test ( see article at http://www.johnesmithlawoffice.com/the_means_test_in_bankruptcy ). If you fail the Means Test you can be required to file a Chapter 13 paying a larger amount to your creditors than you can really afford. Is there anything that can be done? In some cases, "Yes".
First, it needs to be determined whether your case can be classified as a "business" case. If so, the Means Test results do not apply in a Chapter 7. A case with majority of business-related debt can be filed as a Chapter 7 regardless of the Means Test. The business debt must be 50.1% of all debt, including the mortgage. Some cases fail to be classified as business because the mortgage is such a high percentage of the debt, and it is considered "consumer".
Second, if a 13 is necessary because it is not a business case,the Means Test disposable income result can be significantly higher than the client can realistically pay. In those cases, some Courts allow a Motion to Waive the Means Test results due to "special circumstances"- loss of job, reduced hours, or bonus that skewered the Test.
If a waiver is not possible, the best method is to attempt to reduce the debt amounts to equal a 100% payout to all creditors at a rate that is affordable,. Typically this involves reviewing all claims filed by unsecured creditors(usually credit cards) to see if there is a basis to object to the proof of claim filed by the creditor attempting to prove the debt. If the correct documentation proving the debt is not provided, the debt can be disallowed and not included in the distribution under the /chapter 13 Plan. It is effectively discharged without payment. I have been fairly successful in attacking claims in this manner. In several cases, I have reduced the amount to be paid back by over 90%.
Failing the Means Test does not preclude a bankruptcy filing. It simply calls for more creativity and knowledge to work through the application of the Law.
Wednesday, May 6, 2009
Friday, May 1, 2009
No Mortgage Relief From Congress
On April 29,2009 the Senate voted down Foreclosure relief that would allow Bankruptcy courts to modify existing home mortgages. This common sense solution to resolve distressed mortgages and help homeowners only received 45 votes. The bill is dead.
So, what can you do if you are behind on your mortgage and facing foreclosure?
First, you can try to work out a forbearance with your mortgage company. This is a voluntary workout that may increase your payment over a short term to cure arrears. The problem is that if you are in trouble with your mortgage, increasing the monthly payment is often the last thing you can afford.
Second, you can attempt a mortgage modification. In this situation, the mortgage company voluntarily agrees to change the terms of your mortgage by possibly dropping the interest rate, putting arrears on the back of the note, or redoing it for 30 years. The problem here is that it is voluntary. No one can force them to offer it.
Third, you can file a Chapter 13 bankruptcy reorganization.(http://www.johnesmithlawoffice.com/types_of_bankruptcies ) The law remains limited in what it can do. The regular monthly mortgage payment remains due each month. No change. The arrears and escrow shortage are spread over a 60 month period. Along with the restructuring of your other debt, this can sometime s afford enough relief to stay in the house.
Fourth, let the house go. The downside to this response is that you will have to move. You will also likely face a deficiency lawsuit to collect the balance of the mortgage not paid by the foreclosure process. Bankruptcy relief for that debt may also be necessary.
The law is currently limited in the relief offered. Unfortunately, unlike all of the fat cats on wall Street, Congress does not feel that individual homeowners are "too big to fail."
So, what can you do if you are behind on your mortgage and facing foreclosure?
First, you can try to work out a forbearance with your mortgage company. This is a voluntary workout that may increase your payment over a short term to cure arrears. The problem is that if you are in trouble with your mortgage, increasing the monthly payment is often the last thing you can afford.
Second, you can attempt a mortgage modification. In this situation, the mortgage company voluntarily agrees to change the terms of your mortgage by possibly dropping the interest rate, putting arrears on the back of the note, or redoing it for 30 years. The problem here is that it is voluntary. No one can force them to offer it.
Third, you can file a Chapter 13 bankruptcy reorganization.(http://www.johnesmithlawoffice.com/types_of_bankruptcies ) The law remains limited in what it can do. The regular monthly mortgage payment remains due each month. No change. The arrears and escrow shortage are spread over a 60 month period. Along with the restructuring of your other debt, this can sometime s afford enough relief to stay in the house.
Fourth, let the house go. The downside to this response is that you will have to move. You will also likely face a deficiency lawsuit to collect the balance of the mortgage not paid by the foreclosure process. Bankruptcy relief for that debt may also be necessary.
The law is currently limited in the relief offered. Unfortunately, unlike all of the fat cats on wall Street, Congress does not feel that individual homeowners are "too big to fail."
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