Archive for the ‘Bankruptcy’ Category

Why are we protecting home lenders?

August 21, 2015

The more I research the provision of §1321(b)(2) in the Bankruptcy code that prohibits modification of mortgages on primary homes, the more I think it should be changed.  The justification that is keeps the supply of money for home loans available seems to me to be part of the problem.  Lenders have no incentive to really know what the value of the homes they are lending on because they are protected.   This little know part of the law played a big part in the housing bubble, but it is getting almost no attention.  If you want to clean up the foreclosure crises in a hurry and prevent another one from coming along, then changing this provision should  be item one.

August 12, 2015

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Just getting back into this now that the posting is a bit easier.  It has been 18 years since I last had a Chapter 11 case in the office. I have two going right now.  Motions under §506 have not changed all that much.  They are still a powerful tool and can be very helpful for debtors.  In my next few posts, I hope to look at some of the issues with this type of motion and how debtors can use them to write down secured debt or to divide claims in to secured and unsecured portions.

I am also going to make this blog a bit more personal and talk about some issues that are not legal in nature.   Right now I am trying to figure out what to do with the 18 pounds of tomatoes the garden produced yesterday and the several more pounds it will produce today.

What does Chapter 7 (or 13, 11, etc.) mean?

September 14, 2010

When I sit down with a potential new bankruptcy client, one of the first issues that we need to address is what chapter of the code to file under.   Because of news reports and maybe internet research most consumers are aware of Chapter 11 and Chapter 7.  They really do not understand what the different chapters mean or understand the impact on them of the different chapters. 

First off, the ‘Chapter’ refers to parts of the Bankruptcy Code.  The Bankruptcy Code is part of the United States Code (Federal Statues).  The total United States Code runs to hundreds of volumes and takes ups yards of book shelf space.  Almost all parts of the U.S. Code dealing with bankruptcy matters are in Title 11.  Title 11 of the U.S. Code is further divided into ‘chapters[1]’ that deal with different bankruptcy subjects.  There are general and administrative provisions that apply to all cases (Chapter 1, 3 and 5).  Then there are chapters dealing with specific types of cases depending on the debtors’ situation.  Chapter 7 is a liquidation case and can be business or individual.  Chapter 11 is business reorganization; Chapter 13 is an individual reorganization.  Chapter 7, 11 and 13 are the ones that most people hear about and the vast majority of cases are filed under one of these three chapters of the code.  There are some other chapters that come up once in a while.  In Western Maryland we sometimes see a Chapter 12 case, which is a reorganization of a family farm or fisherman with regular annual income.  There is also a chapter for local government bankruptcy in Chapter 9.

What is important to keep in mind, is that each chapter has slightly different qualification provisions.  Each chapter may also have different treatment of creditors.  For instance, liens may be treated differently.  Last week I blogged about stripping a 2nd mortgage liens in Chapter 13.  Those provisions are not available in Chapter 7.  Broader lien stripping powers exist under Chapter 12, but the jurisdictional requirements make is difficult to take advantage of them.  See 11 U.S.C. §101(18) – (21A).

This discussion is by no means complete, but I hope I have given you a feel for some of the terms that are thrown around and maybe made them a bit more understandable.

Dan Carroll

danc@carrollandferguson.com
Carroll & Ferguson
9438 Woodsboro Pike
Walkersville, MD 21793
301-845-0470

[1] There are also subchapters, but let’s keep it simple for this discussion.

Stripping Second Mortgages in Chapter 13 Bankruptcy Cases in Maryland

September 10, 2010

A couple of months back I was in line on ‘Chapter 13 Day’  waiting to talk to the Trustee with all the other counsel.  While waiting we got to discussing ‘shop’.  The topic of stripping 2nd mortgage liens came up and the consensus was that while the law had allowed it for years in the District of Maryland, it has only been in the couple of last years or so that we have had the facts to really make use of the provision.  “Stripping” is a term used to describe judicially voiding a lien (security interest).    In this discussion it refers to a second mortgage lien on real property, but it can refer to other types of security interests.

The key facts necessary to strip the 2nd mortgage lien is that the balance on the first mortgage has to be greater than the value of the property.   With falling real estate values, this is now frequently the case.  This can only be done in a Chapter 13 wage earning reorganization case.   One issue is that the lien stripping is only effective upon the completion of the Chapter 13 Plan and the entry of a discharge order in favor of the debtor.  

 The motion to strip the lien should be filed at the outset of the case.  The motion is filed under §506 of the Bankruptcy Code.  Local Rule 3012-1 and Local Rule 3012-2 for the U.S. Bankruptcy Court for the District of Maryland govern the procedure and there is also in Appendix A of the Local Rules a form for the motion (Local Bankruptcy Form G). 

One issue that I see arising in the years to come in that the new prevalence of these motions to strip liens will lead to title problems in the years to come.   Most title companies and real estate practices are not all that informed about bankruptcy practice.  There is no requirement that the order granting the stripping of the lien be recorded in the land records of the county where the property is situated.  My practice is to put recording information for the lien being stripped in the Order the Bankruptcy Court signs.  The idea is to make it possible to record certified copies of the two orders (Lien Stripping Order and Discharge Order) side by side in the local land records and have it indexed against the property so that a future title search will not show an unreleased mortgage that will cause marketability problems.

Dan Carroll
www.carrollandferguson.com
danc@carrollandferguson.com
September 10, 2010
 

How to use the Bankruptcy Q and A

August 25, 2009

Under the resources section of www.carrollandferguson.com is a question and answer format document that provides bankruptcy information.  (http://carrollandferguson.com/BankrQ&A.pdf)  It is several pages long and might seem to answer all your quesitons.  It does not and can not answer all your questions about bankruptcy law.  It does provide some basic informaiton and will point you in the right direction.    After reading the Q&A, it would not be surprising if you had new questions that you need to ask one of our lawyers.  An example of this occured the other day when a client, after reading the section on earned but unpaid wages and vacation leave was concerned that sick leave was treated the same way.   Sick leave is in fact treated differently and it is uselly exempt.   If after going through the Questions and Answers, you have more questions, contact use at info@carrollandferguson.com and we will try to get back to you.  You can also make an appointment to come in and discuss your case in greater detail.

  Daniel Carroll

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Treatment of Creditors in Bankruptcy —

August 18, 2009

When I first talk with new bankruptcy clients one of the questions I hear over and over is, “do I have to go bankrupt on this debt?   Can I leave this debt out of the bankruptcy?”   It is often a debt for their car, or to a friend that they owe money to and almost always they are current with the payments.   Credit card companies that are calling and driving them to distraction are not usually in the mix.

The short answer is that you have to ‘file’ or list all your debts/creditors.  The Bankruptcy law is based on a couple of basic concepts.  One of these concepts is to treat all the creditors of the debtor(s) fairly.  Not all creditors are treated the same because there are different kinds of creditors.  But all the creditors should be before the court and treated fairly.

The exact treatment of an individual creditor is determined by what ‘class’ they fall in according to the bankruptcy code.    Example of the some of the different classes of creditors are;  ‘Secured’ which means they have some kind of lien or security interest in property of the debtor.  Mortgage debts and car loans are just two types of secured creditors.  ‘Priority’ creditors, fall into one of several groups defined by the bankruptcy statute.  Some examples of priority creditors are debts for domestic support obligations, taxes obligations or wages owed by the debtor to someone else.

To get back to the question, a debtor has to file and disclose all their debts, but that does not mean all their creditors will be treated the same.   Depending on the exact situation of the debtor, it might be okay to treat the car loan differently and keep the car by reaffirming the debt.  However, the debtor’s ‘fresh start’ should not be endangered, and that is a topic for another day.

Dan Carroll
Carroll & Ferguson, Attorneys at Law
www.carrollandferguson.com

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