1.  The Automatic Stay of a Foreclosure:  The filing of a bankruptcy case, whether Chapter 7, 11 or 13, gives rise to an automatic stay that will put a stop to a pending foreclosure or any other collection efforts, with some exceptions.

 

2.  Lien Stripping:  This is a commonly used term to describe when a bankruptcy court values real property for the purpose of determining if the first is partially undersecured and the second or third wholly undersecured.  If the value of the residential property is less than the amount owing on the first, any other liens recorded against the real property will be “stripped” or removed from title when the debtor gets a discharge.  This remedy is only available in a Chapter 11 or 13 case.

 

3.  Short Sales:  A short sale may be done in a Chapter 13 or 11 case with the consent of the lenders (the first and second and any other junior liens), and if there is no consent through a more complex proceeding prescribed by the bankruptcy code.  In a Chapter 7 case, a short sale is accomplished after the discharge has been issued and the Chapter 7 trustee has issued a no asset report and preferably after the case has closed.  If the debtor’s income exceeds the Means Test median income, a short sale may be best accomplished after the case is filed, rather than before.  If a short sale is done before a Chapter 7, it may preclude the filing of a Chapter 7 because there are no mortgage payments to reduce the annualized monthly income.

 

4.   Court Ordered Loan Modification:  The court has no authority to modify the terms of a first secured only by the residence; i.e., the court has no authority to do a loan modification without the lenders consent.  If a loan modification is negotiated during the course of a Chapter 13, the court will need to approve it as part of the Chapter 13 plan.  If a trial modification is approved and pending, a bankruptcy case must wait, as the filing would likely terminate the trial modification.  A court may, however, through a Chapter 11 plan modify the terms of a loan secured other than by the residence.  This is called a “cramdown.”

 

5.  Bankruptcy Case Choices:  Of the 3 bankruptcy cases that individuals may file, Chapters 7, 11 or 13, which one is chosen will depend upon a myriad of facts, circumstances, priorities, and strategies.  Which one to choose from will also be dictated on whether there is the need to retain property while restructuring debt secured by the property and the amount of secured and unsecured debt.  Generally, an individual filing for reorganization will be forced into a Chapter 11 case if the secured debt exceeds $1,080,000 or unsecured exceeds $360,000.  The twist is that a determination of value finding a second to be wholly undersecured can push a debtor into Chapter 11, rather than Chapter 13, when you add the second to credit card debt, taxes and student loans, such that the total amount of unsecured debt will be over $360,000.

 

6.  The Right Attorney:  Choosing the right bankruptcy attorney should be based upon experience, reputation and knowledge of the complexities of filing and how each of the bankruptcy Chapters related to one another and the facts.  Just as you would not retain a doctor to perform heart surgery based upon the fees charged, but rather upon the number of surgeries performed or reputation of the doctor, so too, where a person or couple are facing the equivalent of open heart financial surgery, they should focus on the same criteria.  A California State Bar Certified Bankruptcy Specialist is an attorney recognized as having these qualifications.  When experience counts, count on experience!

 

Five Questions every Client, Friends or Family Should Ask a lawyer offering Bankruptcy Services: 1. Is the Lawyer Certified by the California State Bar as a Specialist? 2. Has the Lawyer been practicing for 25 years? 4. Has the Lawyer practiced before the 2005 Amendments and each year after? 3. Has the Lawyer been published in Appellate Decisions, Treatises or books on Bankruptcy? 5. Has the Lawyer served as the President of the largest bar association of local consumer bankruptcy lawyers?

 

If not, and most are not, please have your friends and family give us a call.  Remember, making the right referrals to the right professionals is the most important referral you can give family and friends.

 

Louis J. Esbin, Esq.

Law Offices of Louis J. Esbin

25129 The Old Road, Suite 114

Stevenson Ranch. CA 91381

Tel: 661-254-5050 | Fax: 661-254-5252

Email:  Esbinlaw@sbcglobal.net |  Web: www.esbinlaw.com

Back in February 2009, Congress had the opportunity to pass sweeping bankruptcy reform that would have allowed judges to modify the terms of mortgages on home residences.  The House passed the legislation, but the Senate never took up the debate and the amendments died!  At the same time, the financial industry was bailed out, along with the insurance and auto industries; all in the name of too big to fail.  But, millions of Americans have seen their lives and families destroyed in the interim.  All in the name of preserving the financial industry.

Jefferson’s words are as true today as they were in 1802: “I believe that banking institutions are more dangerous to our liberties than standing armies.  If the American people even allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.”  Thomas Jefferson, 1802.

They are that much more prophetic as it relates to the power of banks today upon our elected officials through lobbying and political contribution, and when coupled with those of the Founding Fathers in the Declaration of Independence, should give each of us cause to be concerned that: “Governments are instituted among Men, deriving their just powers from the consent of the governed, – That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shown, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.”

There is a Constitutional mandate that Congress enact uniform laws on Bankruptcy (and Immigration).  The first bankruptcy laws were enacted in 1800 and repealed in 1803, coincidentally during Jefferson’s term in office.  Several other enactments followed in response to interim economic panics prior to the enactment of the 1898 Act, followed by the 1978 Code, and the 2005 BAPCPA.

Now that the financial industry seems to be bouncing back nicely, is it time to revisit bankruptcy reform to give the average American family an equal break?

A recent published decision by the Bankruptcy Appellate Panel for the Ninth Circuit affirmed a lower court decision that sends Chapter 13 Debtors out into the cold.  In this decision (in which I represented the debtor trying to save their home) the BAP held that on the date of filing the Debtor knows with certainty that as a result of a “lien strip” they will have more than the amount allowed to file for relief under Chapter 13.

Now, when the wholly unsecured second mortgage is added to the other unsecured debt (credit cards, student loans, taxes, other claims, etc.), if the amount exceeds the $380,990 limit, a person or couple will not qualify for relief under Chapter 13.  Their alternative, if they want to save their home and must be relieved of all other debt, is to file for relief under the more costly and burdensome Chapter 11.

Remember, for those of you who are seeing “short sale” stars, if a short sale comes before a bankruptcy, and as a result their is no secured debt to reduce the Means Test income, the post short sale debt may not qualify for relief under Chapter 7, because they fail the Means Test.  So, as if things were not complicated enough before yesterday, they have just gotten more complicated.  Closing on a short sale without the client actually having sought bankruptcy advice (beyond just giving them the CAR (or equivalent) standard disclosure) should be discouraged.

We are one of the few boutique bankruptcy firms that specializes in Individual Chapter 11 cases, obtaining for our clients the results of relief from debt, stripping of the second lien, and negotiating loan modifications as part of the reorganization process.  These cases are done efficiently, effectively, and within reason as compared to others and the relief from debt obtained.

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