Creditors, Let’s Talk about Bankruptcy!

     Bankruptcy! This is not a topic that most creditors wish to discuss! However, with Judges still “reacting” to the economic downturn of the last few years, with bankruptcy filings on the rise, with the conversion of many Chapter 13 cases to Chapter 7, with the aggressive lawsuits filed by counsel for debtors for violations of consumer laws, with increasingly detrimental provisions in Chapter 13 plans, and, with the strict review of proofs of claim and the requirements for the same, we should talk! 

     In regard to proofs of claim, our local bankruptcy courts require that if you are alleging a security interest in the debtor’s principal residence, in addition to the proof of claim form, you must also file a completed form B 10 (Attachment A) setting out the principal due, interest due, late fees, returned check fees, attorney’s fees, escrow shortage, amount due to bring loan current, etc. In addition, each time the debtor becomes delinquent on their mortgage during the bankruptcy, you must file form B 10 (Supplement 2), setting out late charges and other expenses charged to the debt. In the event the debtor’s mortgage payment amount changes due to increase or decrease in interest rate, insurance premiums or real estate taxes, form B Supplement (1) will need to be filed. 

     Obviously, this is a more complex and detailed filing, and, certainly, will be closely scrutinized. While you can file your own proofs of claim, we can also do it for you. 

     Creditors must be very careful to fully redact ALL “identifying data” (this includes procedure codes and/or other identifying treatment references for healthcare providers) on court filings to help protect debtors’ vital information from identity theft. Failure to do so will result in a court award of sanctions and attorney’s fees. Several local bankruptcy attorneys are reviewing all proofs of claim in their cases to spot possible violations. I have already had clients who have filed their own proofs of claim and been sued for violations. This is a very expensive problem. 

     Accordingly, I am still offering a “flat rate” fee for filing your proofs of claim and ask that you consider taking advantage of the same. In the end, I think that this will be a less costly and better alternative for you. I will file your first proof of claim in a case for a charge of $250.00. Second and subsequent pleadings for the same case will be billed at one half hour, and one quarter hour respectively. 

     I invite you to please call me so that we can discuss your questions. 

Eddie

Creditors, let's talk about bankruptcy.

     Bankruptcy! This is not a topic that most creditors wish to discuss! However, with Judges still “reacting” to the economic downturn of the last few years, with bankruptcy filings on the rise, with the conversion of many Chapter 13 cases to Chapter 7, with the aggressive lawsuits filed by counsel for debtors for violations of consumer laws, with increasingly detrimental provisions in Chapter 13 plans, and, with the strict review of proofs of claim and the requirements for the same, we should talk! 

     In regard to proofs of claim, our local bankruptcy courts require that if you are alleging a security interest in the debtor’s principal residence, in addition to the proof of claim form, you must also file a completed form B 10 (Attachment A) setting out the principal due, interest due, late fees, returned check fees, attorney’s fees, escrow shortage, amount due to bring loan current, etc. In addition, each time the debtor becomes delinquent on their mortgage during the bankruptcy, you must file form B 10 (Supplement 2), setting out late charges and other expenses charged to the debt. In the event the debtor’s mortgage payment amount changes due to increase or decrease in interest rate, insurance premiums or real estate taxes, form B Supplement (1) will need to be filed. 

     Obviously, this is a more complex and detailed filing, and, certainly, will be closely scrutinized. While you can file your own proofs of claim, we can also do it for you. 

     Creditors must be very careful to fully redact ALL “identifying data” (this includes procedure codes and/or other identifying treatment references for healthcare providers) on court filings to help protect debtors’ vital information from identity theft. Failure to do so will result in a court award of sanctions and attorney’s fees. Several local bankruptcy attorneys are reviewing all proofs of claim in their cases to spot possible violations. I have already had clients who have filed their own proofs of claim and been sued for violations. This is a very expensive problem. 

     Accordingly, I am still offering a “flat rate” fee for filing your proofs of claim and ask that you consider taking advantage of the same. In the end, I think that this will be a less costly and better alternative for you. I will file your first proof of claim in a case for a charge of $250.00. Second and subsequent pleadings for the same case will be billed at one half hour, and one quarter hour respectively. 

     I invite you to please call me so that we can discuss your questions. 

Eddie

Creditors, Let’s Talk about Bankruptcy!

     Bankruptcy! This is not a topic that most creditors wish to discuss! However, with Judges still “reacting” to the economic downturn of the last few years, with bankruptcy filings on the rise, with the conversion of many Chapter 13 cases to Chapter 7, with the aggressive lawsuits filed by counsel for debtors for violations of consumer laws, with increasingly detrimental provisions in Chapter 13 plans, and, with the strict review of proofs of claim and the requirements for the same, we should talk!

     In regard to proofs of claim, our local bankruptcy courts require that if you are alleging a security interest in the debtor’s principal residence, in addition to the proof of claim form, you must also file a completed form B 10 (Attachment A) setting out the principal due, interest due, late fees, returned check fees, attorney’s fees, escrow shortage, amount due to bring loan current, etc. In addition, each time the debtor becomes delinquent on their mortgage during the bankruptcy, you must file form B 10 (Supplement 2), setting out late charges and other expenses charged to the debt. In the event the debtor’s mortgage payment amount changes due to increase or decrease in interest rate, insurance premiums or real estate taxes, form B Supplement (1) will need to be filed.
     Obviously, this is a more complex and detailed filing, and, certainly, will be closely scrutinized. While you can file your own proofs of claim, we can also do it for you.
     Creditors must be very careful to fully redact ALL “identifying data” (this includes procedure codes and/or other identifying treatment references for healthcare providers) on court filings to help protect debtors’ vital information from identity theft. Failure to do so will result in a court award of sanctions and attorney’s fees. Several local bankruptcy attorneys are reviewing all proofs of claim in their cases to spot possible violations. I have already had clients who have filed their own proofs of claim and been sued for violations. This is a very expensive problem.
     Accordingly, I am still offering a “flat rate” fee for filing your proofs of claim and ask that you consider taking advantage of the same. In the end, I think that this will be a less costly and better alternative for you. I will file your first proof of claim in a case for a charge of $250.00. Second and subsequent pleadings for the same case will be billed at one half hour, and one quarter hour respectively.
     I invite you to please call me so that we can discuss your questions.

Eddie

Real Estate: Using Deeds to Secure Your First, Second, Equity Line or Refinance Home Loans

     In prior blogs, we began a discussion of the benefits of using real estate to improve creditors’ positions. As I have emphasized, properly securing debts through real estate could make the difference between collecting the funds and incurring a loss. In this edition, we will review the benefits of securing your first, second, equity line or refinance home loans with a deed of trust.

     Real estate liens provide important security for your debt. Since real estate is the largest investment and asset for most individuals, they will usually make every effort to pay debts secured by their real estate first. However, you need to know the chain of title in order to make an informed decision about your loan.
     Specifically, in what position will your lien be? Are there any “clouds” on the title? You will not know the answer to these questions without a proper title search and review.
     Once you know your position you will need to examine the available equity to cover your loan. What is the value? What are the balances due on the liens ahead of your anticipated position? Beyond the business decision of determining when the equity is sufficient for your risk tolerance, in order to take advantage of the “$1.00 rule” in the bankruptcy code for Chapter 13 cases (should your debtor decide to later file bankruptcy), you need to ensure that there is at least $1.00 in equity to cover the loan. You should take into consideration that property values may go down (e.g., 2008 to present).
     If the deal is made and the real estate closing occurs, immediate and proper recording of your deed of trust is essential to preserve your position. If the debtor defaults, foreclosure on the property can occur. If the debtor seeks reorganization of his debt in Chapter 13, you can seek full payment of the debt.
     We have experienced attorneys and staff who can examine title and properly represent your interests in real estate closings.

Bankruptcy: IRA Funds are not disposable income in Chapter 13

       The case of Solomon v. Cosby, decided by the United States District Court in Baltimore, Maryland, served as a good review (although bad outcome) of how Individual Retirement Account funds are treated in a Chapter 13 bankruptcy.

     The Appeals Court reversed the Bankruptcy Court's decision that IRA funds are disposable income, and that the debtor's Chapter 13 plan should be rejected as not paying "all of the debtor's projected disposable income".
     In Solomon, the debtor, a retired physician, had proposed a Chapter 13 plan excluding approximately $1.4 million invested in an IRA. The debtor was facing tort claims of sexual misconduct from several former medical patients who sought damages of $160 million at the time he filed his Chapter 13. The plan provided for only $45,000.00 over five years.
     The Appeals Court held that under the clear terms of Bankruptcy Code §1325(b)(2), the debtor's IRA funds are not "income". Both the statutory definition of "disposable income" as income that is received by the debtor, as well as the requirement that projected income must be calculated over the life of the plan, contemplate income that a debtor is actually receiving at the time of the confirmation hearing, the debtor was not actually receiving any disbursements from his IRAs. The debtor also insisted that he had no intentions of withdrawing funds from the IRAs during the life of the plan.

Bankruptcy: Chapter 13 Plan Confirmation - Valuation of a Car

     Two bankruptcy cases help clarify the value that Bankruptcy Courts should place upon a vehicle when considering a Chapter 13 plan confirmation.

     In the case of In Re Mays, the United States Bankruptcy Court, Western District of Virginia, refused to confirm a plan which did not value a Ford pickup, which the debtors proposed to keep, at the truck's retail value as reflected in the NADA Used Car Guide. The Court found that Bankruptcy Code §325(a)(5) provides that if a debtor in Chapter 13 intends to retain property subject to a lien, then the secured creditor must receive the present value of its allowed secured claim. The Court further found that the retail price, as opposed to the acceptable wholesale price, was the most commercially reasonable price.
     In the case of In Re Dews, the United States Bankruptcy Court, Eastern District of Virginia, reached a similar conclusion that retail value is the appropriate value. In doing so, the Court recognized that this valuation was a change to the standard set forth in the case of In Re Jones, which held that the open market between private parties was the appropriate reference point to establish value. The standard was worked out in practice to generally mean somewhere around the average of the wholesale and retail values.
     The lesson of these two cases is that Chapter 13 plans should be reviewed to ensure that value is properly assessed. The end result will be, of course, a higher return on creditor claims.

Bankruptcy: Chapter 13 Plan Confirmation - Good Faith

     Two cases decided by Judge Tice of the United States Bankruptcy Court, Eastern District of Virginia, demonstrate a lack of good faith in the debtors' proposed Chapter 13 bankruptcy plans.

     In the case of In Re Oliver, Judge Tice denied plan confirmation for several reasons: the low percentage of the repayment of debt (about ten percent to unsecureds), the length of the plan (only three years), the "peculiar nature" of the unsecured claims, and the fact that the petition was filed after another court concluded that a major debt listed in this plan was nondischargeable under the debtors' prior Chapter 7 petition. Each of these reasons went against a finding that the plan was "proposed in good faith" under Bankruptcy Code §1325(a)(3). The matter was brought before Judge Tice upon an objection by a bank, whose claim comprised 80% of the total unsecured debt.
     In the case of In Re Kasun, Judge Tice denied plan confirmation for two reasons: a lack of good faith (since the plan discriminated against the debtors' unsecured creditors) and the payment of a nonessential luxury item. The debtors, proceeding in bankruptcy without an attorney, purposed that they retain a sailboat, on which a secured creditor had a $32,000.00 lien, with a $600.00 per month payment, and for which the debtors paid a boat-slip charge of $172.00 per month, while the plan proposed paying unsecured creditors only 34.9% of their claims. The Bankruptcy Trustee filed the objection.
     The lesson of Oliver and Kasun - read Chapter 13 plans carefully, do not take proposals for granted and seek competent legal advice when necessary.

Creditors, Let’s Talk about Bankruptcy!

     Bankruptcy! This is not a topic that most creditors wish to discuss! However, with Judges still “reacting” to the economic downturn of the last few years, with bankruptcy filings on the rise, with the conversion of many Chapter 13 cases to Chapter 7, with the aggressive lawsuits filed by counsel for debtors for violations of consumer laws, with increasingly detrimental provisions in Chapter 13 plans, and, with the strict review of proofs of claim and the requirements for the same, we should talk!

     In regard to proofs of claim, our local bankruptcy courts require that if you are alleging a security interest in the debtor’s principal residence, in addition to the proof of claim form, you must also file a completed form B 10 (Attachment A) setting out the principal due, interest due, late fees, returned check fees, attorney’s fees, escrow shortage, amount due to bring loan current, etc. In addition, each time the debtor becomes delinquent on their mortgage during the bankruptcy, you must file form B 10 (Supplement 2), setting out late charges and other expenses charged to the debt. In the event the debtor’s mortgage payment amount changes due to increase or decrease in interest rate, insurance premiums or real estate taxes, form B Supplement (1) will need to be filed.
     Obviously, this is a more complex and detailed filing, and, certainly, will be closely scrutinized. While you can file your own proofs of claim, we can also do it for you.
     Creditors must be very careful to fully redact ALL “identifying data” (this includes procedure codes and/or other identifying treatment references for healthcare providers) on court filings to help protect debtors’ vital information from identity theft. Failure to do so will result in a court award of sanctions and attorney’s fees. Several local bankruptcy attorneys are reviewing all proofs of claim in their cases to spot possible violations. I have already had clients who have filed their own proofs of claim and been sued for violations. This is a very expensive problem.
     Accordingly, I am still offering a “flat rate” fee for filing your proofs of claim and ask that you consider taking advantage of the same. In the end, I think that this will be a less costly and better alternative for you. I will file your first proof of claim in a case for a charge of one normal one hour billing rate ($250.00). Second and subsequent pleadings for the same case will be billed at one half hour, and one quarter hour respectively.
     I invite you to please call me so that we can discuss your questions.
Eddie

Bankruptcy: Bankruptcy Filings: Chapter 7 and 13

     Although there are other Chapters under which debtors may seek relief, Chapters 7 and 13 are the most frequently encountered.
Chapter 7

     Chapter 7 involves a discharge of debt by court order. While secured debts may be routinely "reaffirmed", unsecured debts normally are not. Traditionally, debts have been reaffirmed through a Reaffirmation Agreement. The Courts of the Eastern District of Virginia have held, however, that creditors cannot force debtors to execute reaffirmation agreements if they were not in default at the time of the bankruptcy filing.
     Why would a debtor want to pay a debt when he has filed for Chapter 7 relief? The answer is future credit. The possibility of future credit can be sufficient incentive to encourage voluntary repayment for at least two (2) reasons:
     1. Debtors want and need future credit after bankruptcy discharge, and

     2. Reasonable credit after bankruptcy is very difficult to obtain as bankruptcy carries a stigma. Absent special circumstances, the only credit card a debtor may obtain after bankruptcy is a "secured" credit card. These cards are tantamount to a line of credit drawn upon account deposits pledged as security. There are also user fees and high interest rates.
     How do you encourage debtors to voluntarily pay their pre-bankruptcy petition debts? Consider adopting the following written policies:
     1. Post-bankruptcy credit may be extended to debtors who voluntarily pay their dischargeable debts ("the carrot").
     2. No future credit or services, other than those required by law, will be extended to debtors who have caused you a loss by bankruptcy or otherwise, unless the debt is voluntarily repaid (“the stick").
     How do creditors inform their debtors of this policy once a petition of bankruptcy is filed? Consider sending a letter directly to the debtors’ counsel asking that counsel advise their client of the policy.

Chapter 13
     Chapter 13 involves a "reorganization" of the debtor's finances. The debtor is required to devise a plan for repayment: 100% for secured debts and a court-approved percentage for unsecured debts. Creditors are paid in the order of priority - preferred (taxes), secured, and finally, unsecured. Creditors are required to file proofs of claim with the Bankruptcy Court to protect their place in the plan. Plans can take up to five (5) years to complete.

Co-Makers
     When can you proceed against co-makers? In Chapter 7 you can proceed immediately. In Chapter 13, you have to either wait until the plan pays out, or petition the Bankruptcy Court to lift the automatic stay against the co-maker. Once this is granted you can proceed against the co-maker for the percentage not paid by the plan. Although you are required to file the motion to lift the stay, the court is required to grant your relief.

Planning Summary
     Regardless of the Chapter, the best way to minimize your bankruptcy loss is to be secured. In Chapter 13 cases, security can mean the difference between payment at 100% rather than at a nominal percentage. In Chapter 7 cases, security can mean the difference between reaffirmation or no payment at all. In either Chapter, collateral is the key.
     The second best protection from bankruptcy loss is having a solvent co-signer. The old saying "two heads are better than one" can mean much in bankruptcy, especially when your co-signer is not a spouse. Generally, spouses do not make good co-signers because they can file a joint petition for bankruptcy and, in fact, often do because family finances are inter-related. It should be noted, however, that in a case of jointly owned real estate, a spouse's signature is necessary in order to perfect a lien against any real property.

 

Real Estate: Using Deeds of Trust to Secure Your First, Second, Equity Line or Refinance Home Loans

     In the last edition of Creditor News we began a discussion of the benefits of using real estate to improve creditors’ positions. As I have emphasized, properly securing debts through real estate could make the difference between collecting the funds and incurring a loss. In this edition, we will review the benefits of securing your first, second, equity line or refinance home loans with a deed of trust.
     Real estate liens provide important security for your debt. Since real estate is the largest investment and asset for most individuals, they will usually make every effort to pay debts secured by their real estate first. However, you need to know the chain of title in order to make an informed decision about your loan. Specifically, in what position will your lien be? Are there any “clouds” on the title? You will not know the answer to these questions without a proper title search and review.
     Once you know your position you will need to examine the available equity to cover your loan. What is the value? What are the balances due on the liens ahead of your anticipated position? Beyond the business decision of determining when the equity is sufficient for your risk tolerance, in order to take advantage of the “$1.00 rule” in the bankruptcy code for chapter 13 cases (should your debtor decide to later file bankruptcy), you need to ensure that there is at least $1.00 in equity to cover the loan. You should take into consideration that property values may go down (e.g., 2008 to present).
     If the deal is made and the real estate closing occurs, immediate and proper recording of your deed of trust is essential to preserve your position. If the debtor defaults, foreclosure on the property can occur. If the debtor seeks reorganization of his debt in chapter 13, you can seek full payment of the debt.
     We have experienced attorneys and staff who can examine title and properly represent your interests in real estate closings.

Bankruptcy: What can we do for you

     Creditors need to know that having aggressive representation in bankruptcy cases is just as important as having a good plan.  We can help.  We have aggressive counsel and trained support staff.  We would be pleased to meet with you to review your representation needs.  Our work can be done on a flat fee basis, an hourly fee basis, or pursuant to a retainer agreement.

     In Chapter 7 cases, even in supposedly "no asset" cases, there are concerns about security interests, homestead deeds, fraud and abuse, and reaffirmation agreements.  Our "second opinion" and review of your cases could result in new hope for otherwise hopeless cases.

     In Chapter 13 cases there are concerns about amount of assets, manner of funding, percentage payments for unsecured debts and allowable expenses.  Do not assume that the debtor's first plan is set in stone - let us assert your interest.

Bankruptcy: Amended Proof of Claim for Added Interest and Fees Disallowed in a Chapter 13 Case

     In the case of In re: Michael K. Hedrick, the United States Bankruptcy Court at Alexandria held that in a Chapter 13 case, converted from a Chapter 7 case, a credit union may not amend its proof of claim for a debt from an auto loan.

     Prior to filing for bankruptcy, the debtors defaulted on their auto loan.  The vehicle was repossessed and sold.  There was a deficiency balance due after the sale.  The credit union filed a proof of claim for the joint deficiency claim of $5,693.00, as of the date the case was filed.  Three months after the confirmation of the debtor’s modified chapter 13 plan, the credit union filed an amended proof of claim, increasing its claim by $2,430.00, for post petition interest and attorney’s fees.

     The credit union argued that a Chapter 13 plan must pay unsecured creditors at least as much as under the Chapter 13 plan as they would receive if the case were under Chapter 7.  If this case had been under Chapter 7, joint unsecured creditors - but not individual unsecured creditors - would be paid in full together with interest because of the equity in the jointly owned house.  The credit union used the contract rate of interest.  It treated its post petition attorney’s fees the same as post petition interest.

     The Court noted that even though the proper allowed claim is the original claim filed by the credit union, the credit union may actually be paid more than its allowed claim if the estate is a solvent estate.  The Court “shall confirm” a Chapter 13 plan if all of the requirements of Bankruptcy Code Section 1325(a) are satisfied.  One requirement is that the distribution to unsecured creditors must be at least as much as they would have received had the case been a Chapter 7 case.  The provision for interest on allowed claims in solvent estates is a part of this calculation.

     The Court ruled, though, that the interest rate is the federal judgment rate, not the contract rate or the applicable state rate.  There is no similar statutory provision for attorney’s fees or for other reasonable fees, costs or charges provided for under the agreement which the claim arose.

     The Court ruled that the credit union’s first proof of claim is the proper proof of claim.  The allowed claim of an unsecured creditor in a solvent estate is the same as in an insolvent estate.  It is determined as of the date of the filing of the petition and does not include post petition interest, attorney’s fees costs or other contractual charges.

     The Court ruled that if the terms of a confirmed Chapter 13 plan include post petition interest, the Chapter 13 trustee will pay that interest as provided in the plan.  If the plan does not provide for post petition interest, the trustee may not pay post petition interest.  In this case, the confirmed plan contains no such provision.

     The Court concluded that the proper construction of the Chapter 13 plan was that the allowed joint unsecured claims would be paid 100 percent of the amount allowed joint unsecured claim without interest.  Had the matter been brought to the Court’s attention at the confirmation hearing, the plan would not have been confirmed without a provision for payment of post petition interest on allowed joint unsecured claims.  It was not and the plan was confirmed.

     The lesson of Hedrick: read Chapter 13 plans very carefully and object timely.