About Me
“ Craig D. Robins, Esq., has been a practicing Long Island bankruptcy attorney for over twenty-four years ”
Chapter 13 Bankruptcy
Filing bankruptcy without an attorney can be extremely difficult
Written by Craig D. Robins, Esq.
When Congress changed the bankruptcy laws in 2005, they made filing for bankruptcy extremely complex and complicated.
The fact is that is it is extremely difficult to file for bankruptcy without an attorney.
Recent figures indicate that about nine out of ten self-prepared bankruptcy petitions are dismissed because the “pro-se” debtors did not properly fulfill their obligations under the new bankruptcy laws. “Pro-se” is the Latin legal term for someone who is representing himself or herself without a lawyer.
Filing Bankruptcy on Long Island without an attorney is further complicated because in addition to attending to obligations under the federal bankruptcy laws, you must also adhere to the Local Bankruptcy Rules for the Eastern District of New York.
Representing Yourself in Bankruptcy is Often A Mistake
Filing for bankruptcy is much more involved than reading a “How to File Bankruptcy” book. It takes a keen understanding of federal and state law.
Many debtors who represent themselves are not aware of what assets they can protect, and what assets they cannot protect. I have seen many a case where the trustee has taken assets from a pro-se debtor because they were not exempt and protected.
The Means Test Can Be Very Complicated
Every person filing bankruptcy must complete the means test and must do so properly. If the means test is not prepared the right way, it can constitute grounds for the Bankruptcy Court to dismiss your case.
The means test is one of the most involved and controversial aspects of filing bankruptcy today. See: Deciphering the Plethora of Means Test Cases Across Many Bankruptcy Courts.
Click here to see a variety of articles about the bankruptcy means test.
Documents Must Be Filed with the Court and Provided to the Trustee
The new laws also require that a debtor provide a number of documents to the trustee in a timely fashion. I have observed that with a great number of pro-se Chapter 7 filings, the trustees have refused to examine the debtor because the debtor failed to provide the proper documents.
In addition, I have never, ever seen a Chapter 13 pro-se debtor who provided all of the necessary documents to the Chapter 13 trustee when they were required to do so.
Finally, if you do not file other mandatory documents with the court on a timely basis, the court will dismiss your case.
You Must Know What Information Must be Provided in the Bankruptcy Petition
The petition, itself, is rather complicated. With most of the cases we file, the petition is close to 50 pages long.
You must also understand what particulars about your financial situation to include. For example, What Income Has to be Disclosed in a Bankruptcy Petition?
Retaining an Experienced Bankruptcy Attorney is a Wise Investment
An experienced bankruptcy attorney will know how to quickly and efficiently put together your petition, file your case in the proper way, and then represent you in Court.
When it comes to seeking to eliminate a substantial amount of debt, it makes sense to do it the right way. Many experienced bankruptcy attorneys, such as my Long Island Bankruptcy Law Office, offer free consultations.
Please see the much more detailed article I wrote last year: Bankruptcy Attorney Representation — How Important Is It?
Written by Craig D. Robins, Esq.A person’s house is usually their most valuable asset. Understandably, one of the first questions my homeowner-clients ask me is “How will filing bankruptcy affect my home?”
Foreclosures and Collections Are Stopped Cold
The first thing you should know is that as soon as your petition is filed, the automatic bankruptcy stay kicks in.
This means that if you were behind with your mortgage, it now becomes against federal law for the mortgagee to continue any foreclosure proceeding.
If the House is Exempt, There Is No Problem Keeping It
Every state has a homestead exemption statute that sets forth how much equity you can keep in your home, while eliminating debts in a Chapter 7 bankruptcy case. In some states, the homestead exemption is based on federal law.
In New York, the homestead exemption is $50,000 per person. This is based on New York State law. See: Bankruptcy Exemptions in New York .
A husband and wife who file jointly can pool that homestead exemption and protect a total of $100,000 worth of equity. Sometimes Bankruptcy Exemptions Can Be Doubled .
If the House Has a Great Deal of Equity, You Can Still Keep It
Even if there is more than $50,000 of equity per person, then you can still keep you house if you file a Chapter 13 payment plan bankruptcy.
In such cases, the total amount you will have to pay back to your creditors through the plan, which is usually over a period of 60 months, must be at least equal to the amount of unprotected equity.
Sometimes deciding whether to keep a home or not can be a difficult decision.
If You Can’t Afford Your Mortgage or You Do Not Want to Continue Paying Your Mortgage You Can Walk Away (Eventually)
If you can no longer afford to keep your home and you have little or no equity in the home, then you may want to file for Chapter 7 bankruptcy in which case you can walk away from your obligation without any financial recourse from the lender. See: Strategic Mortgage Defaults Increasing .
In such cases, the lender still has the right to eventually foreclose on the home and take it back, but that can take an extended period of time during which you can continue to reside in the house without making any payments. Bankruptcy Can Provide Way Out of Bad, Highly-Leveraged Real Estate.
When the lender eventually does take the property back, it cannot pursue you for any deficiency amount. This is because the bankruptcy had the effect of discharging that debt. One-Fourth of All U.S. Homeowners Are Underwater. What Should These Homeowners Do?
Filing for Chapter 7 When There Is Substantial Unprotected Equity in the House
It is extremely rare that we recommend to a bankruptcy client that they file for Chapter 7 bankruptcy if they have a great deal of unprotected equity in their home. Usually we recommend that they try to sell their home first.
However, we do see situations in bankruptcy court where a homeowner with substantial equity files for bankruptcy. In such cases, the Chapter 7 trustee will seek to sell the home. However, the trustee must pay the debtor the amount of the homestead exemption from the proceeds, which would be $50,000 per person.
If You Have Real Estate and Need Bankruptcy Relief, You Should Consult With Experienced Bankruptcy Counsel
Protecting real estate in bankruptcy can be tricky and must be done the right way. When it comes to houses and homes, there are often many options when dealing with problematic debt situations.
It therefore makes sense to consult with a qualified and experienced Long Island bankruptcy attorney.
Written by Craig D. Robins, Esq.
I am currently in San Francisco where I just attended the annual convention of the National Association of Consumer Bankruptcy Attorneys (NACBA). I write this report from there on May 1, 2010.
[Note: this article was previously published in the May 2010 edition of the Suffolk Lawyer].
[I will soon post a number of photos that I took at the NACBA convention}
Many years ago I discovered how exciting it is to travel across the country to interact with fellow bankruptcy practitioners and learn the latest about strategies for protecting consumer bankruptcy debtors, and tips for running a bankruptcy law office.
Over the course of three days, some of the country’s leading bankruptcy attorneys as well as a number of bankruptcy judges, provide valuable insight at daily programs and seminars.
What I find just as important is trading notes and war stories with other bankruptcy attorneys from across the country and learning about new products and services at the accompanying trade show.
Here Are Some Highlights of the Bankruptcy Convention
New Trend in Interpreting the Means Test
In a half-day program which addressed the means test, the speakers concluded that both the United States Trustee and our country’s bankruptcy judges have become more lenient in interpreting the means test in Chapter 7 cases. There are three reasons for this trend.
Apparently, the current recessionary climate and sentiment against large banking institutions is resulting in the U.S. Trustee bringing fewer Section 707 motions alleging that the debtor filed an abusive case.
In addition, more and more debtors are providing information to the U.S. Trustee’s office in cases where there are means test issues. This enables the U.S. Trustee to evaluate the issue of abuse and reach a conclusion that the U.S. Trustee should not object.
Finally, there seems to be a greater number of experienced bankruptcy attorneys who know what red flags to look out for and consequently these experienced attorneys refrain from filing abusive cases.
Wide-Spread Concern Over Bankruptcy Judge Salaries
Judicial salaries are relatively low. It appears that we are losing a large number of bankruptcy judges because the level of judicial pay is so low. When there is a vacancy on the bench, this causes the bankruptcy court’s entire case load to slow down, which means unhappiness and dissatisfaction to litigants and all others involved.
This was indeed the case just two three years ago here, in the Eastern District of New York. Our Chief Bankruptcy Judge for the district, Hon. Melanie L. Cyganowski, left the bench to pursue a much more profitable position as a partner in a leading bankruptcy firm.
I interviewed Judge Cyganowski at that time and she clearly indicated that her reason for leaving the bench was because of her unreasonably low judicial salary. See: Chief Bankruptcy Judge Melanie Cyganowski Stepping Down.
HAMP Bankruptcy Update
There was ample discussion about President Obama’s Home Affordable Modification Program (HAMP) which seems to be rife with problems as an unusually small percentage of homeowners actually get permanent relief.
Here’s why:
a) there is a major lack of communication on the part of the lender;
b) lenders are continuing to threaten homeowners with foreclosure even as the lender is evaluating the homeowner for a modification, and even if the homeowner has been approved for a trial term; and
c) lenders are arbitrary in granting relief.
On a positive note, however, a new law is going into effect on June 1, 2010 that, among other things, makes it illegal for a lender to discriminate against a bankruptcy debtor because he or she is in the HAMP program.
The new law will also provide certain protections to Chapter 13 debtors as mortgagees will be precluded from objecting to discharge.
Lower Prices for Credit Counseling
When the 2005 Bankruptcy Amendment Act first went into effect in 2005, there were only four approved credit counseling agencies in our jurisdiction (E.D.N.Y.), and they all charged the same rate – $50 per credit counseling session.
There must have been about 20 credit counseling companies exhibiting at the trade show and many now charge fees as low as $15 per session.
In addition, they gave out so much shwag that my ten-year-old son, Max, will be delighted to receive from me upon my return a large number of squeeze toys, flashlights, keychains, fancy chocolates, playing cards, puzzles, T-shirts and what-not that I picked up from these exhibitors.
My hard-working office staff will also be the recipient of a good deal of this booty.
Emerging Technologies for Consumer Bankruptcy Practices
One of the most crowded exhibitor booths belonged to a OTB, an company that created BK Express, a comprehensive practice management system which is designed for consumer bankruptcy attorneys.
I actually just set up my office to use this software which is basically a special shell designed to work on top of LexisNexis’s Time Matters system.
Problems with MERS Mortgages and Foreclosure Defenses
In a very dynamic session, we were told that 50% of all residential mortgages in this country are nominally owned by MERS, which is Mortgage Electronic Registration Systems, a privately held company that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States.
The problem with MERS-recorded mortgages is that MERS really does not own the mortgage, thereby creating an interesting argument that MERS does not have any standing in bankruptcy court.
I previously wrote about special defenses that a homeowner can assert to defend a foreclosure action involving a MERS mortgage. See: A New Powerful Mortgage Foreclosure Defense — Compliments of MERS.
If your client has a MERS mortgage, consider looking at the pooling and service agreement to make sure that there was a true and valid assignment at every link of the chain, including delivery and acceptance of assignment documents. If there was not, you may have a good objection to a MERS proof of claim or motion to lift the stay.
Few Bankruptcy Attorneys From New York
I was rather surprised the very small turn-out from our state. Out of about 1,600 bankruptcy attorneys who attended the convention, there must have been fewer than 20 from New York, and only one other member, I believe, from the Suffolk County Bar Association. That was Allison Shields, who was actually one of the speakers – she spoke on managing a successful bankruptcy practice.
Written by Craig D. Robins, Esq.Most consumers who file for bankruptcy will likely never see who their bankruptcy court judge is.
Interaction with the bankruptcy judge is very limited in most cases.
Chapter 7 Cases
In a Chapter 7 case, the debtor meets with the Chapter 7 trustee, and it is the trustee who asks the debtor questions.
The debtor will not go before the actual judge unless there is some kind of motion or dispute that requires the debtor’s appearance, and in Chapter 7 cases, that is very unlikely.
Chapter 13 Cases
Chapter 13 trustees also examine debtors. Remember, it is the trustee who interviews the debtor and it is the bankruptcy judge who settles disputes between parties (the debtor, the creditors and the trustee).
A Chapter 13 debtor is more likely to appear before the judge, but typically, that is just for the confirmation hearing which is when the bankruptcy judge formally approves the debtor’s Chapter 13 payment plan.
Furthermore, if you’re fortunate, and you and your attorney do everything that the Chapter 13 trustee requires, then the trustee may waive your appearance at the confirmation hearing.
When Might You Meet Your Bankruptcy Judge?
If you fail to cooperate with the trustee by providing documents or information, then the trustee can bring a motion to dismiss the case, in which event you will probably end up having to go before the judge.
In a Chapter 13 case, if you fall behind with your obligations, such as making payments to the trustee or mortgagee, and one of them brings a motion to dismiss your case or lift the stay, then you will also probably have to go before the bankruptcy judge.
But one thing is certain, you will never meet your bankruptcy judge at the meeting of creditors because Bankruptcy Judges Are Barred by Law From Attending the Meeting of Creditors .
Written by Craig D. Robins, Esq.When you file for bankruptcy relief, a very powerful federal law immediately goes into effect, called the automatic stay. This is the law which makes it illegal for creditors to take any action of any kind to collect a debt. This is how you get debt relief when you file for bankruptcy.
It is against federal law for creditors to violate the stay. This means that any litigation comes to a grinding halt. However, in certain situations, creditors have the right to ask to bankruptcy court to “lift the stay” which is done in a “motion for relief” from the stay.
Under What Circumstances Do Creditors Bring Motions to Lift the Bankruptcy Stay?
Motions for relief are often brought by mortgage companies and lenders when a homeowner files for Chapter 7 bankruptcy relief and is behind on the mortgage.
Automobile lenders also bring such motions when debtors are in arrears on car loans.
In Chapter 13 bankruptcy cases, lenders bring such motions when the debtor fails to stay current with post-petition obligations.
If the Court grants a motion for relief, it enables the creditor to continue where it left off in its efforts to collect on a debt or foreclose on a house.
Creditors must bring a motion to lift the stay and be granted relief before engaging in any further collection activity. If they do not, then they can be severely penalized. See: What Are Your Rights If a Creditor Violates the Automatic Bankruptcy Stay?
When Are Motions For Relief Brought In Typical Consumer Bankruptcy Cases?
Although some creditors will rush to file a motion for relief from stay within days of the bankruptcy filing, most creditors do not act that fast.
In a typical Chapter 7 case, even if the debtor is extremely behind with mortgage or car loan payments, it will often take the lender 30 to 60 days before bringing such a motion.
How Long Does It Take for the Bankruptcy Court to Grant Relief from the Stay?
Once a motion for relief is brought, the debtor must be given the opportunity to defend the motion. Thus, the hearing on the motion will usually not occur until several weeks after the motion is brought.
If the debtor does not defend the motion, which is usually the case, the court will grant the motion. However, some bankruptcy court judges will not sign the order lifting the stay until the creditor serves (”settles”) a proposed copy of the order on the debtor and the debtor’s attorney.
Creditors Held to Strict Requirements When Bringing Motions for Relief from Stay
Most bankruptcy courts, including ours on Long Island, have stiff rules that creditors must adhere to when bringing a motion for relief. If they do not, the Court will either dismiss the motion or adjourn the hearing.
Up until recently, most creditors had a much easier time of bringing motions for relief, as many bankruptcy judges permitted them to do this on a “Notice of Presentment” — a method of getting the order granting the motion without having to show up in court if the debtor didn’t put in a defense.
However, most bankruptcy court judges in our jurisdiction have begun to require creditors to show up in court on motions for relief, and no longer permit them to seek relief through a Notice of Presentment.
Defending Motions for Relief from Stay
I wrote a lengthy article about this five years ago — Defending Motions to Lift the Stay . Almost all of the principals that I discussed in that article still apply.
Written by Craig D. Robins, Esq.
In my regular monthly column in the Suffolk Lawyer last month I discussed the difficulties that Congress created by enacting a means test statute that is poorly worded and confusing. (Deciphering the Plethora of Means Test Cases Across Many Bankruptcy Courts).
In this month’s column I will highlight some recent bankruptcy court decisions that shed light on interpreting what is “income” for means test purposes when a debtor receives bonuses, teachers’ salaries or unemployment insurance benefits.
Countering the Lopsided Results of the Means Test
The purpose of the means test is to create a projection of the debtor’s net income and expenses for a period of three to five years after the filing date to see if the debtor would have sufficient surplus funds to make some kind of payment to creditors. In doing so, the starting point is to ascertain what the debtor’s income was during the six-full-month pre-petition calendar period.
When you only look at a six-month period to project the next three to five years of income, you often get a lopsided result. For example, if the debtor received a bonus in the prior half-year, his means test would effectively double this income because the means test would assume that the bonus would be paid every six months.
Conversely, if the debtor waited more than six months after receiving the bonus, the debtor would not even have to count the bonus as income.
Because of this uneven result, bankruptcy attorneys would often have to engage in a strategy of timing the filing. However, it seems that some bankruptcy courts are becoming more logical in their approach to analyzing the statute to provide a more balanced result for all parties.
Annual Bonuses Shall be Pro-rated Over 12 Months for the Bankruptcy Means Test
A recent case from Virginia looked at a debtor who received an annual bonus in the six-month pre-petition means test period. The court held that the bonus should be pro-rated over a 12-month period to determine the amount necessary to calculate the debtor’s “current monthly income.” In re Meade, —— B.R. ——, 2009 WL 4456211 (Bankr. W.D. Va., Nov. 13, 2009).
The court concluded that the language “average monthly income,” which is found in Bankruptcy Code section 101(10A)(A) is susceptible to two interpretations. One of them is the mechanical example I gave above, which can result in either a harsh result to the debtor or a windfall.
However, the court adopted a different, more realistic “common sense” interpretation, which the court said was more in keeping with what appeared to be the overarching purpose of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, namely, to require debtors to make meaningful payments to their creditors if they have the funds to do so.
The court felt that Congress intended for there to be some connection between the compensation received and the period of time in which the applicable services for such compensation were rendered.
With regard to the concept that under any different interpretation, debtors’ attorneys would want to time the filing of their clients’ cases, the judge said, “It is difficult to believe that Congress intended such a result or desired to encourage such tactics.”
A Teacher’s Income Is Not Pro-rated for the Bankruptcy Means Test
The Meade case also addressed the wife’s income, who, as a public school teacher, received her annual salary over a ten-month period.
Here the court took a totally different approach by refusing to pro-rate the wife’s income. The court said that this situation was well within the framework provided by Congress of looking to the income actually received during the six month period prior to bankruptcy as the best measure of a debtor’s ability to pay creditors.
Unemployment Benefits Are Income for the Bankruptcy Means Test
The means test enables a debtor to exclude from income unemployment benefits that are received under the Social Security Act. A recent Illinois case held that unemployment benefits should not be included in this exception to income, and should thus be treated as income for the means test. In re Kucharz, 418 B.R. 635 (Bankr. C.D. Ill., Oct. 28, 2009).
To complicate matters, the court, after provided a highly detailed history of unemployment benefits in this country, cited two cases from 2007 that held to the contrary.
However, the court concluded that unemployment benefits are designed to replace wages, and since wages must be reported on the means test, then so to must unemployment benefits be reported. The court also highlighted the aim of the means test, which is to include income from all possible sources.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the MARCH 2010 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
Written by Craig D. Robins, Esq.At midnight, most people are getting ready for bed and watching Letterman. But sometimes not me. You see, it’s not all too uncommon for some of my staff and me to be at my Long Island bankruptcy office filing a client’s bankruptcy petition at the witching hour.
Why File a Bankruptcy Petition at Midnight?
Sometimes when we have a bankruptcy case to file for urgent reasons, we simply can’t go home until it’s a done deal.
There are clients who come to us at the very last minute when there may just be hours to spare before a foreclosure sale is scheduled for the next morning. In such cases, we rush to file a petition because the minute we file the petition, the “automatic bankruptcy stay” goes into effect, effectively preventing the sale from going forward.
Filing emergency bankruptcy cases is an important part of effective bankruptcy representation. Clients come to us with emergency filing needs for various reasons. Sometimes they are just too anxious to seek bankruptcy help until last minute.
Sometimes clients put too much faith in others believing that a mortgage broker will come through with financing at the last minute. Lately, I’ve seen clients who hoped that they would be able to get their mortgage company to modify the mortgage, only to find that the mortgage company was unwilling to cooperate, and instead pushed forward with the foreclosure sale.
How Do We File Bankruptcy Petitions at Midnight?
We file all of our petitions by E.C.F. — which stands for Electronic Case Filing. This is the process whereby we file bankruptcy documents by computer over the internet, directly into the bankruptcy court’s computer.
Thus, we can file petitions from our office 24 hours a day — not that we would ordinarily want to do so. The exception was in October of 2005. Two days before the 2005 Bankruptcy Amendment Act was to take effect, I enlisted the services of my wife and together we filed about 75 petitions between midnight and four in the morning.
What’s Involved with an Emergency Bankruptcy Filing on Long Island?
There are many aspects to filing a petition at the last minute. I dedicated an entire article that was published in the Suffolk Lawyer to this issue: Handling the Emergency Filing.
Ideally, filing bankruptcy should not be left to the last minute. After all, there is a Difference Between an Emergency Bankruptcy Filing and a Rush Bankruptcy Filing . However, when the situation arises, a midnight filing is just as good as any other time.
Written by Craig D. Robins, Esq.
This is the final part of a three-part series of articles about HAMP and bankruptcy that I wrote after attending a seminar of the National Association of Chapter 13 Trustees . Part One was: Bankruptcy Issues Involving HAMP (Home Affordable Modification Program) — Part One . The second part was: WARNING: HAMP Can Drive Homeowners Into Bankruptcy.
1. Can I Seek HAMP Relief If I am in Bankruptcy?
Debtors in active bankruptcies are eligible for HAMP but it is up to the discretion of the servicer. This is a significant concern because Chapter 13 debtors have no guarantee of getting their mortgage company to cooperate.
Some attorneys have reported instances in which the lender refused to cooperate with the debtor after the debtor filed for bankruptcy relief.
What can the homeowner do in such instances? Ask the servicer what their policy is. However, absent them putting it in writing (which is unlikely), the homeowner probably has little leverage against a lender that changes its mind or fails to follow through.
2. Can You Apply for HAMP in a Chapter 13 Bankruptcy Where the Plan has Already Been Confirmed?
If your plan was already confirmed, you would need to make a motion for a plan modification. Keep in mind that this would result in additional bankruptcy legal fees.
3. How Are Bankruptcy Debtor’s Attorneys Paid for HAMP Application Work?
This is a real problem because Chapter 13 debtor fees are governed by the Bankruptcy Code as well as local bankruptcy rules. These rules technically require counsel to bring an application before the bankruptcy court in order to be paid.
Hopefully some future regulations will make this aspect easier, especially considering that many of those homeowners who need HAMP assistance also need Chapter 13 bankruptcy relief.
4. What Can the Servicer Do if Homeowner Files for Bankruptcy During HAMP Application Process?
A mortgage servicer cannot withdraw a HAMP modification offer just because the borrower files for bankruptcy during the trial period.
The servicer must work with the borrower and borrower’s bankruptcy attorney to obtain any required court approvals.
5. How Do You Treat the Trial Period Payment in a Chapter 13 Plan?
A Chapter 13 debtor is ordinarily required remain current with post-petition mortgage obligations. However, a Chapter 13 plan can propose to treat the mortgage as current based on a trial period payment (TPP).
6. What Are Some Other Problems with HAMP, Bankruptcy Courts and Bankruptcy Law?
It appears that judges and trustees across the country are struggling to reach adequate solutions to balance bankruptcy statutory requirements with debtors who are seeking to obtain HAMP relief, and that right now, there is absolutely no uniformity whatsoever.
For example, many judges are unwilling to grant extreme and indefinite adjournments of the confirmation hearing while the debtor-homeowner is awaiting finality of the HAMP application.
In our jurisdiction of Long Island, we have not yet seen any standardized process for those debtor-homeowners who need HAMP relief.
It is also unclear whether a HAMP modification would have to be approved by the bankruptcy court. If it does, that could cause an additional delay and result in additional legal fees.
There is also an issue as to whether a HAMP modification that is already in place prior to filing for bankruptcy can be upset by the bankruptcy filing. It is possible that the bankruptcy filing could be deemed a violation of the modification plan. Again, there is no clear-cut guidance on this issue.
Not knowing exactly how the law should be interpreted in bankruptcy cases makes the entire situation confusing and perplexing for bankruptcy counsel, and frustrating for the debtor-client.
7. What Happens if the Debtor-Homeowner applies for HAMP and Is Turned Down?
Here’s a significant concern. The homeowner, who is a debtor in bankruptcy, receives a temporary trial period payment, and will pay a reduced mortgage payment. However, the debtor can subsequently turned down for a permanent modification.
If this happens, the lender will demand that the debtor come up with the difference. What should the debtor do in this situation?
It appears that the best way to handle this would be to modify the Chapter 13 plan and then provide for the arrears through the plan. However, this is not without its own set of complications as it would be incumbent upon the debtor to demonstrate that the he or she can make up the difference.
8. Can’t the Chapter 13 Trustee Argue that HAMP Savings Be Paid Instead to the Unsecured Creditors?
Here’s another significant issue that can result in potential litigation. The Chapter 13 Trustee can argue that the debtor, if he or she is successful in getting a permanent HAMP reduction in the monthly payment, should then pay the savings to the unsecured creditors if the plan provides for less than a 100% distribution.
The best solution is for the debtor to then revise his or her budget and increase their expenses, arguing that the debtor can now afford additional, reasonable expenses that they were unable to afford under the prior plan and budget.
Written by Craig D. Robins, Esq.I just attended a seminar last week offered through the National Association of Chapter 13 Trustees about HAMP. Here’s some useful information.
Today’s post is Part One. I will continue tomorrow with a detailed discussion of bankrutpcy issues.
What Is HAMP?
HAMP (Home Affordable Modification Program) is one of President Obama’s initiatives to make a dent in home affordability by using the economic bailout program.
It’s a quasi-voluntary program to modify home mortgages with the goal of getting the monthly payment to 31% of gross (pre-tax) income.
The program seeks to provide taxpayer-funded incentives to mortgage servicers and lenders to voluntarily modify mortgages. The program was created in March 2009. This government program earmarked $75 billion for this purpose.
HAMP will reduce a homeowner’s monthly mortgage payment on a TEMPORARY basis. However, the adjustment becomes permanent after the homeowner makes three on-time payments.
The incentive for mortgage lenders in doing this is that the Obama administration is offering big bucks in incentive payments to lenders.
Here is the official link to Home Affordable Modification Program.
Home Affordable Modification Program Has Not Worked Well So Far
To date, results for HAMP have been very disappointing. I wrote about this at length two months ago: Obama’s “Making Homes Affordable” Mortgage Modification Program Failing.
The program has only resulted in 116,000 permanent modifications in the entire country, in which each borrower is saving about $500 per month.
Incidentally, these homeowners typically went from paying 45% of their gross income towards their mortgage, down to 31%, which is the goal of the program.
To date, only 110 mortgage servicers have signed participation agreements. All Fannie Mae and Freddie Mac loans are automatically eligible.
Who Is Eligible for HAMP?
Here are the requirements:
1. You must be the owner and occupant of the home and utilize it as your primary residence
2. You must have a maximum principal balance of $729,750
3. You must have a monthly mortgage payment that is greater than 31% of pre-tax monthly income
4. You must be unable to afford your current payment
5. You must not have applied for HAMP before
Why Have Many Considered HAMP to be a Failure So Far?
Many homeowners applied for HAMP assistance because they thought it would help them avoid bankruptcy. However, a great many mortgage servicers were unprepared to handle HAMP applications and were not able to process the mortgage modification requests quickly enough to offer any real relief.
Some problems were highly publicized. For example, there have been lenders who refused to even acknowledge receipt of mortgage modification documents, and other lenders who lost these documents numerous times for the same homeowner.
To Be Continued This Week
Written by Craig D. Robins, Esq.In every consumer bankruptcy case, whether it is a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, there will be an initial hearing at the bankruptcy court about one month after the case is filed. If you filed for bankruptcy, you are required to attend.
What’s Happens at the Meeting of Creditors in Bankruptcy Court?
The purpose of the hearing is for the court-appointed trustee to ask you questions about your financial situation, the reason why you have debt problems, and whether you have any non-exempt assets.
This meeting is rather informal, as it is not in a courtroom, and it is not before a bankruptcy judge. Instead, it is in a hearing room, and it is before a trustee, who is a bankruptcy attorney, and not a judicial officer. See my post: Don’t Call the Bankruptcy Trustee, “Your Honor”.
As a matter of fact, the bankruptcy law even bars bankruptcy judges from attending the Meeting of Creditors. See: Bankruptcy Judges Are Barred by Law From Attending the Meeting of Creditors .
A bankruptcy trustee presides over the meeting by calling cases, one at a time. When your case is called, you sit at a table in the front of the room with your bankruptcy lawyer, and the trustee asks questions after you’ve been sworn in. To learn more about trustees, see What Is a Bankruptcy Trustee?
Most meetings are relatively short and uneventful. Although they will typically last just a matter of a few minutes, you may wait as much as 60 to 90 minutes for your hearing. The meetings are recorded by an electronic device, and there is a microphone on the table.
Since the meetings are somewhat informal, you do not have to get dressed up or wear a suit.
The Meeting of Creditors is also commonly referred to as the “341 Hearing” or “341 Meeting” because it is Bankruptcy Code section 341 that contains the law regarding such meetings.
Role of the Bankruptcy Trustee
The trustee is charged with several obligations which include making sure the bankruptcy petition is properly prepared, making sure any assets you intend to keep are protected by exemption statutes, ensuring that you properly completed the Means Test, and ascertaining whether you have any non-exempt assets that can be sold for the benefit of creditors.
It is usually rare, but not uncommon, that a trustee determines that there are non-exempt assets. The most common types of non-exempt assets include cars, tax refunds and personal injury law suits. In each case, if the asset is worth more than the exemption amount, the trustee can administer the asset. For more information about whether a trustee will pursue an asset, see: The Back-Door Politics Behind Trustees Pursuing Non-Exempt Assets.
If you live in New York, you can check some of the most common bankruptcy exemptions here: Bankruptcy Exemptions in New York.
If the trustee does try to sell an asset, he is entitled to be compensated for doing so. Information about this is in this post: How Does a Chapter 7 Bankruptcy Trustee Sell Assets .
Some clients primarily speak a second language like Spanish, and need the assistance of an interpreter. In the Central Islip Bankruptcy Court, the court now provides interpretation services at the Meeting of Creditors. See: Interpreters in Bankruptcy Court .
It is relatively rare that a creditor will show up. Generally speaking, credit card companies, which constitute the most common type of creditor, will never show up. I discussed this in my post: Will Creditors Show Up For My Hearing In Bankruptcy Court? However, If a Creditor Shows Up at the Meeting of Creditors in Bankruptcy Court, What Questions Can They Ask?
As far as questions at the Meeting of Creditors that the trustee asks you, it is very important to answer each question accurately and honestly, but you should not provide any additional information, other than simply answering the question. For more about how you should answer questions, see this post: How Much Should You Say at the Meeting of Creditors in Bankruptcy Court?
When Is the Meeting of Creditors?
This is the topic of an article I recently wrote: When Is My Meeting of Creditors in Bankruptcy Court?. Generally, the meeting is about one month after the date of filing. There is a lot of information on this post.
What Can Go Wrong at the Meeting of Creditors?
The vast majority of hearings at the Meeting of Creditors go very smoothly and last just a few minutes. If your bankruptcy attorney did a good job in drafting the bankruptcy petition and preparing you for the meeting, everything should go find.
Nevertheless, lots of things can happen at the Meeting of Creditors to complicate things. Several years go I wrote a lengthy series of articles for the Suffolk Lawyer about how to address unusual issues that may arise at the Meeting of Creditors in bankruptcy court.
If you have a Meeting of Creditors coming up, this series of articles should be extremely useful:
Preparation for the Meeting of Creditors is Key
I cannot stress how important it is to have your bankruptcy attorney prepare you for the meeting of creditors.
In my Long Island bankruptcy practice, we review with each client the various questions the trustee will most likely ask, as well as our client’s responses, to ensure that the meeting will go smoothly. We usually do this a few days prior to the meeting.
Are You Curious About Your Bankruptcy Trustee?
If your hearing is in the Central Islip Bankruptcy Court, which is in the Eastern District of New York, you can read profiles about each trustee and see their picture, most of which I took. Here is the link: Bankruptcy Trustee Profiles .
Can the Trustee Decline to Grant You Bankruptcy Relief at the Meeting of Creditors?
The answer is “absolutely not.” The purpose of the meeting is for the trustee to obtain information about your case. The trustee does not have the ability to take any action against you or decide whether or not you are entitled to a discharge.
Only a bankruptcy court judge can do such things. Also, every debtor is entitled to a discharge unless a proceeding is brought challenging discharge — and these are very rare.
Directions to the Central Islip Bankruptcy Court on Long Island
If your meeting of creditors is in Central Islip, here’s how to get to the court: Directions to Central Islip Bankruptcy Court - Long Island .