ABC’s of Chapter 13 Lien Stripping

APRIL 9, 2014 

By Christopher C. Carr Esq., Chester County Bankruptcy Attorney (Contact info. Below)

OVERVIEW: The once obscure practice of lien stripping has more recently enabled thousands of homeowners to remove the liens of second and third mortgages forever, while paying only a small percentage of their face value. The result has been to grant a “new lease on life” to many homeowners which is after all the ultimate goal of bankruptcy.

WHAT IS A LIEN STRIP?

Lien Stripping refers to the practice permitted by 11 USC 1322(b), which provides that “wholly undersecured” (don’t worry, this term is explained below) liens against real property may be removed or “stripped,” and the debt to which they relate treated as unsecured in a Chapter 13 Plan of Reorganization. Liens may not be stripped in Chapter 7 cases. Lien stripping however has two distinct, and very desirable, benefits for qualifying Chapter 13 debtors:

(1) At the conclusion of the lien strip the underlying property is no longer be encumbered by the undersecured lien and that creditor cannot prevent the sale or refinancing of the real estate nor deduct anything from the proceeds payable to the seller; and

(2) Instead of having to pay the debt secured by that stripped lien in full, the debtor need only pay the same percentage of the claim as it plans to pay all unsecured creditors – often 10% or less plus applicable trustee fees.

FIRST MORTGAGES ONLY NEED APPLY. 

Lien stripping is permissible only for claims secured by the Debtor’s principal residence because a lien strip modifies the “total package of rights for which the claim holder bargained.”

 

CAN A PARTIAL LIEN STRIP WORK?

No. There is no such thing as a partial lien strip. Bankruptcy Courts everywhere, including the Eastern District of Pennsylvania where Chester County Bankruptcy Attorney Christopher C. Carr, Esq. primarily practices, will only allow a lien to be stripped if it is wholly “undersecured”: that is, the equity remaining after the first mortgage and all other liens on the property that are prior in interest is zero or negative. Since the majority view among the Federal circuits is that the term “undersecured” means that there is some equity to secure the lien, in order to be stripped liens must be wholly unsecured.

QUALIFYING FOR A LIEN STRIP

A lien strip can only be accomplished in the course of a confirmed Chapter 13 plan of reorganization. The practice of lien stripping refers to the splitting  of a secured interest in real or personal property into a secured and unsecured portion. The calculations behind lien stripping are simple:

V – D[- JD] ≤ $0

V: market value of a property

D: debt(s) encumbering that property

JD: Junior debt/TARGET debt (i.e. Second mortgage)

Repeat for each lien, adding “strippable” debt amounts to D. For example, add mortgage debt 2 and mortgage debt 1 to see if a lien strip for mortgage debt 3 is available.

In other words, for a lien to be stripped and the lien holder’s interest treated as unsecured, such that it receives far less than all its money plus interest, the value of the debtor’s property at the time of filing, less the fully-secured non-target debts, must be less than or equal to $0. In a rising real estate market, meeting these requirements used to be challenging, if not downright impossible. However, in market conditions such as those prevailing today where many homeowners are “underwater” as to their first mortgage and have a HELOC or second mortgage and/or even an additional mortgage in third position on top of that, the conditions necessary for a lien strip to take place are relatively straightforward and can sometimes be met without much resistance from the affected creditor, especially if there is a wide disparity between market price and first mortgage debt. [1]

STRIPPING THE LIEN – WHEN, WHERE, HOW, WHAT RESULT?

Federal Appellate circuits follow different approaches when it comes to lien stripping. Some Bankruptcy Courts, for instance, require no more than a listing in the debtor’s bankruptcy petition that bifurcates the creditor’s interest into secured and unsecured portions. Should the creditor fail to timely object, their lien is stripped virtually automatically.

On the other hand, other Courts, such as the Eastern District of Pennsylvania where Chester County Bankruptcy Attorney Christopher C. Carr, Esq. primarily practices, require that the debtor bring a motion to strip the lien. Again, if the creditor fails to respond its lien is stripped. Still other circuits, the most conservative ones, require the debtor to bring a separate adversary case against the creditor whose lien is to be stripped. Often the latter 2 kinds of situations – motions and adversary actions – become fiercely contested and require incredible amounts of preparation as well as costly expert testimony. This kind of attention and resources are required because it is the value of the underlying property that is typically in dispute. This suggests that prudent bankruptcy attorney not counsel his/her client to do a lien strip where there is a lack of solid evidence of a disparity in value vs. debt as this will only lead to litigating disputes over collateral valuation in the bankruptcy court which the bankruptcy client, already hard pressed can ill afford.  See for example: In re Heritage Highgate, Inc.,  Case No. 11-1889, 2012 U.S. App. LEXIS 9698 (3d Cir., May 14, 2012).

 

WHAT ABOUT TAXES?  Can they ALSO be stripped OR UTILISED?

Neither Federal nor State taxes can typically be discharged in bankruptcy and if real estate is sold or transferred following a Bankruptcy filing the taxes must still be paid – regardless of any lien strip action. So, no you cannot strip such taxes. But if properly engineered, the additional lien of unpaid property taxes can be used to create a viable lien strip where none would otherwise exist since they reduce the amount of equity in the debtor’s property.  With the addition of one additional variable the above formula above then becomes:

V – (D+PT)[-JD] ≤ $0   Where PT = property tax lien(s) value.

DO NOT TRY THIS AT HOME:

Since lien stripping can be a contentious area with minefields aplenty the reader is advised to consult an experienced lawyer such as Chester County Bankruptcy Attorney, Christopher C. Carr, Esq.

CONCLUSIONS

While not unrestricted and often misunderstood, lien strips can, and ought to be used to the great advantage of Chapter 13 debtors in the proper circumstances. This will be the case so long as property values continue to be depressed and debtors find themselves squeezed between escalating obligations and dwindling home values.

cCc

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified legal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

©Christopher C. Carr, Attorney at Law 2009, 2014, All Rights Reserved.

---

[1] As with so many other bankruptcy concepts, it seems counterintuitive but our Debtor may ultimately be unable to strip the lien of a second mortgage debt because he/she thought they were doing the right thing by conscientiously paying their first mortgage every month. Maybe had they instead spent that money in Aruba or Vegas (LOL) and let the mortgage go into arrears status and the interest, unpaid escrows and penalties build up over time, the increase would perhaps have been sufficient to absorb a higher market price.

Chapter 13 Lien Strip A to Z

By Christopher C. Carr Esq., Chester County Bankruptcy Attorney (Contact info. Below)

OVERVIEW: The once obscure practice of lien stripping has more recently enabled thousands of homeowners to remove the liens of second and third mortgages forever, while paying only a small percentage of their face value. The result has been to grant a “new lease on life” to many homeowners which is after all the ultimate goal of bankruptcy.

WHAT IS A LIEN STRIP?

Lien Stripping refers to the practice permitted by 11 USC 1322(b), which provides that “wholly undersecured” (don’t worry, this term is explained below) liens against real property may be removed or “stripped,” and the debt to which they relate treated as unsecured in a Chapter 13 Plan of Reorganization. Liens may not be stripped in Chapter 7 cases. Lien stripping however has two distinct, and very desirable, benefits for qualifying Chapter 13 debtors:

(1) At the conclusion of the lien strip the underlying property is no longer be encumbered by the undersecured lien and that creditor cannot prevent the sale or refinancing of the real estate nor deduct anything from the proceeds payable to the seller; and

(2) Instead of having to pay the debt secured by that stripped lien in full, the debtor need only pay the same percentage of the claim as it plans to pay all unsecured creditors – often 10% or less plus applicable trustee fees.

FIRST MORTGAGES ONLY NEED APPLY. 

Lien stripping is permissible only for claims secured by the Debtor’s principal residence because a lien strip modifies the “total package of rights for which the claim holder bargained.”

 

CAN A PARTIAL LIEN STRIP WORK?

No. There is no such thing as a partial lien strip. Bankruptcy Courts everywhere, including the Eastern District of Pennsylvania where Chester County Bankruptcy Attorney Christopher C. Carr, Esq. primarily practices, will only allow a lien to be stripped if it is wholly “undersecured”: that is, the equity remaining after the first mortgage and all other liens on the property that are prior in interest is zero or negative. Since the majority view among the Federal circuits is that the term “undersecured” means that there is some equity to secure the lien, in order to be stripped liens must be wholly unsecured.

QUALIFYING FOR A LIEN STRIP

A lien strip can only be accomplished in the course of a confirmed Chapter 13 plan of reorganization. The practice of lien stripping refers to bifurcation of a secured interest in real or personal property into a secured and unsecured portion. The calculations behind lien stripping are simple:

V – D[- JD] ≤ $0

V: market value of a property

D: debt(s) encumbering that property

JD: Junior debt/TARGET debt (i.e. Second mortgage)

Repeat for each lien, adding “strippable” debt amounts to D. For example, add mortgage debt 2 and mortgage debt 1 to see if a lien strip for mortgage debt 3 is available.

In other words, for a lien to be stripped and the lien holder’s interest treated as unsecured, such that it receives far less than all its money plus interest, the value of the debtor’s property at the time of filing, less the fully-secured non-target debts, must be less than or equal to $0. In a rising real estate market, meeting these requirements used to be challenging, if not downright impossible. However, in market conditions such as those prevailing today where many homeowners are “underwater” as to their first mortgage and have a HELOC or second mortgage and/or even an additional mortgage in third position on top of that, the conditions necessary for a lien strip to take place are relatively straightforward and can sometimes be met without much resistance from the affected creditor, especially if there is a wide disparity between market price and first mortgage debt. [1]

STRIPPING THE LIEN – WHEN, WHERE, HOW, WHAT RESULT?

Federal Appellate circuits follow different approaches when it comes to lien stripping. Some Bankruptcy Courts, for instance, require no more than a listing in the debtor’s bankruptcy petition that bifurcates the creditor’s interest into secured and unsecured portions. Should the creditor fail to timely object, their lien is stripped virtually automatically.

On the other hand, other Courts, such as the Eastern District of Pennsylvania where Chester County Bankruptcy Attorney Christopher C. Carr, Esq. primarily practices, require that the debtor bring a motion to strip the lien. Again, if the creditor fails to respond its lien is stripped. Still other circuits, the most conservative ones, require the debtor to bring a separate adversary case against the creditor whose lien is to be stripped. Often the latter 2 kinds of situations – motions and adversary actions – become fiercely contested and require incredible amounts of preparation as well as costly expert testimony. This kind of attention and resources are required because it is the value of the underlying property that is typically in dispute. This suggests that prudent bankruptcy attorney not counsel his/her client to do a lien strip where there is a lack of solid evidence of a disparity in value vs. debt as this will only lead to litigating disputes over collateral valuation in the bankruptcy court which the bankruptcy client, already hard pressed can ill afford.  See for example: In re Heritage Highgate, Inc.,  Case No. 11-1889, 2012 U.S. App. LEXIS 9698 (3d Cir., May 14, 2012).

 

WHAT ABOUT TAXES?  Can they ALSO be stripped OR UTILISED?

Neither Federal nor State taxes can typically be discharged in bankruptcy and if real estate is sold or transferred following a Bankruptcy filing the taxes must still be paid – regardless of any lien strip action. So, no you cannot strip such taxes. But if properly engineered, the additional lien of unpaid property taxes can be used to create a viable lien strip where none would otherwise exist since they reduce the amount of equity in the debtor’s property.  With the addition of one additional variable the above formula above then becomes:

V – (D+PT)[-JD] ≤ $0   Where PT = property tax lien(s) value.

DO NOT TRY THIS AT HOME:

Since lien stripping can be a contentious area with minefields aplenty the reader is advised to consult an experienced lawyer such as Chester County Bankruptcy Attorney, Christopher C. Carr, Esq.

CONCLUSIONS

While not unrestricted and often misunderstood, lien strips can, and ought to be used to the great advantage of Chapter 13 debtors in the proper circumstances. This will be the case so long as property values continue to be depressed and debtors find themselves squeezed between escalating obligations and dwindling home values.

cCc

Law Offices of Christopher C. Carr, MBA,  P.C., a quality Chester County Bankruptcy Practice, is located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Carr concentrates his practice on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield, Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Oxford, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester, Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!

 

©Christopher C. Carr, Attorney at Law 2009, 2014, All Rights Reserved.

---

[1] As with so many other bankruptcy concepts, it seems counterintuitive but our Debtor may ultimately be unable to strip the lien of a second mortgage debt because he/she thought they were doing the right thing by conscientiously paying their first mortgage every month. Maybe had they instead spent that money in Aruba or Vegas (LOL) and let the mortgage go into arrears status and the interest, unpaid escrows and penalties build up over time, the increase would perhaps have been sufficient to absorb a higher market price.

By Christopher C. Carr Esq., Chester County Bankruptcy Attorney (Contact info. Below)

OVERVIEW: The once obscure practice of lien stripping has more recently enabled thousands of homeowners to remove the liens of second and third mortgages forever, while paying only a small percentage of their face value. The result has been to grant a “new lease on life” to many homeowners which is after all the ultimate goal of bankruptcy.

WHAT IS A LIEN STRIP?

Lien Stripping refers to the practice permitted by 11 USC 1322(b), which provides that “wholly undersecured” (don’t worry, this term is explained below) liens against real property may be removed or “stripped,” and the debt to which they relate treated as unsecured in a Chapter 13 Plan of Reorganization. Liens may not be stripped in Chapter 7 cases. Lien stripping however has two distinct, and very desirable, benefits for qualifying Chapter 13 debtors:

(1) At the conclusion of the lien strip the underlying property is no longer be encumbered by the undersecured lien and that creditor cannot prevent the sale or refinancing of the real estate nor deduct anything from the proceeds payable to the seller; and

(2) Instead of having to pay the debt secured by that stripped lien in full, the debtor need only pay the same percentage of the claim as it plans to pay all unsecured creditors – often 10% or less plus applicable trustee fees.

FIRST MORTGAGES ONLY NEED APPLY. 

Lien stripping is permissible only for claims secured by the Debtor’s principal residence because a lien strip modifies the “total package of rights for which the claim holder bargained.”

 

CAN A PARTIAL LIEN STRIP WORK?

No. There is no such thing as a partial lien strip. Bankruptcy Courts everywhere, including the Eastern District of Pennsylvania where Chester County Bankruptcy Attorney Christopher C. Carr, Esq. primarily practices, will only allow a lien to be stripped if it is wholly “undersecured”: that is, the equity remaining after the first mortgage and all other liens on the property that are prior in interest is zero or negative. Since the majority view among the Federal circuits is that the term “undersecured” means that there is some equity to secure the lien, in order to be stripped liens must be wholly unsecured.

QUALIFYING FOR A LIEN STRIP

A lien strip can only be accomplished in the course of a confirmed Chapter 13 plan of reorganization. The practice of lien stripping refers to bifurcation of a secured interest in real or personal property into a secured and unsecured portion. The calculations behind lien stripping are simple:

V – D[- JD] ≤ $0

V: market value of a property

D: debt(s) encumbering that property

JD: Junior debt/TARGET debt (i.e. Second mortgage)

Repeat for each lien, adding “strippable” debt amounts to D. For example, add mortgage debt 2 and mortgage debt 1 to see if a lien strip for mortgage debt 3 is available.

In other words, for a lien to be stripped and the lien holder’s interest treated as unsecured, such that it receives far less than all its money plus interest, the value of the debtor’s property at the time of filing, less the fully-secured non-target debts, must be less than or equal to $0. In a rising real estate market, meeting these requirements used to be challenging, if not downright impossible. However, in market conditions such as those prevailing today where many homeowners are “underwater” as to their first mortgage and have a HELOC or second mortgage and/or even an additional mortgage in third position on top of that, the conditions necessary for a lien strip to take place are relatively straightforward and can sometimes be met without much resistance from the affected creditor, especially if there is a wide disparity between market price and first mortgage debt. [1]

STRIPPING THE LIEN – WHEN, WHERE, HOW, WHAT RESULT?

Federal Appellate circuits follow different approaches when it comes to lien stripping. Some Bankruptcy Courts, for instance, require no more than a listing in the debtor’s bankruptcy petition that bifurcates the creditor’s interest into secured and unsecured portions. Should the creditor fail to timely object, their lien is stripped virtually automatically.

On the other hand, other Courts, such as the Eastern District of Pennsylvania where Chester County Bankruptcy Attorney Christopher C. Carr, Esq. primarily practices, require that the debtor bring a motion to strip the lien. Again, if the creditor fails to respond its lien is stripped. Still other circuits, the most conservative ones, require the debtor to bring a separate adversary case against the creditor whose lien is to be stripped. Often the latter 2 kinds of situations – motions and adversary actions – become fiercely contested and require incredible amounts of preparation as well as costly expert testimony. This kind of attention and resources are required because it is the value of the underlying property that is typically in dispute. This suggests that prudent bankruptcy attorney not counsel his/her client to do a lien strip where there is a lack of solid evidence of a disparity in value vs. debt as this will only lead to litigating disputes over collateral valuation in the bankruptcy court which the bankruptcy client, already hard pressed can ill afford.  See for example: In re Heritage Highgate, Inc.,  Case No. 11-1889, 2012 U.S. App. LEXIS 9698 (3d Cir., May 14, 2012).

 

WHAT ABOUT TAXES?  Can they ALSO be stripped OR UTILISED?

Neither Federal nor State taxes can typically be discharged in bankruptcy and if real estate is sold or transferred following a Bankruptcy filing the taxes must still be paid – regardless of any lien strip action. So, no you cannot strip such taxes. But if properly engineered, the additional lien of unpaid property taxes can be used to create a viable lien strip where none would otherwise exist since they reduce the amount of equity in the debtor’s property.  With the addition of one additional variable the above formula above then becomes:

V – (D+PT)[-JD] ≤ $0   Where PT = property tax lien(s) value.

DO NOT TRY THIS AT HOME:

Since lien stripping can be a contentious area with minefields aplenty the reader is advised to consult an experienced lawyer such as Chester County Bankruptcy Attorney, Christopher C. Carr, Esq.

CONCLUSIONS

While not unrestricted and often misunderstood, lien strips can, and ought to be used to the great advantage of Chapter 13 debtors in the proper circumstances. This will be the case so long as property values continue to be depressed and debtors find themselves squeezed between escalating obligations and dwindling home values.

cCc

Law Offices of Christopher C. Carr, MBA,  P.C., a quality Chester County Bankruptcy Practice, is located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Carr concentrates his practice on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield, Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Oxford, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester, Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!

 

©Christopher C. Carr, Attorney at Law 2009, 2014, All Rights Reserved.

---

[1] As with so many other bankruptcy concepts, it seems counterintuitive but our Debtor may ultimately be unable to strip the lien of a second mortgage debt because he/she thought they were doing the right thing by conscientiously paying their first mortgage every month. Maybe had they instead spent that money in Aruba or Vegas (LOL) and let the mortgage go into arrears status and the interest, unpaid escrows and penalties build up over time, the increase would perhaps have been sufficient to absorb a higher market price.

When Should You Talk To A Bankruptcy Lawyer?

Attorney Christopher Carr, a Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com

In Chancery

Maybe the best approach to the question is to talk about when is not the best time to talk to a bankruptcy lawyer.  You were served with the foreclosure notice 6 months ago and the mortgage company has been refusing your payments and now your home is to be sold at a sheriff’s sale tomorrow.  Your car has just been repossessed and your job is now in jeopardy since you do not have transportation to work. These are bad times to be talking with a bankruptcy attorney.  Not because a bankruptcy attorney can’t still help you.  An “emergency” bankruptcy filing can still possibly help you save your home or maybe your car can be returned to you.  It is a bad time because had you consulted with a bankruptcy attorney sooner, a different plan to help you deal with your debt issues may have been available.  That is, while we may still be able to save your home in the short term, your bankruptcy may fail over the longer term whereas had you taken action earlier, a plan could have been devised to save it long term. So when should you talk to a bankruptcy lawyer?  HERE ARE SOME bASIC GUIDES: You know your finances are not what they should be.  You know that you are falling behind on your bills or are struggling to make ends meet each month.  You are juggling, you often have to choose between putting food on the table and paying your credit cards in full. You pay one card one month but not the next so you can pay another.   Or maybe you know that, even though you are current on your bills, there will be a  disruption in your income coming:  Maybe an operation that will require you or your spouse to be out of work for a time or a coming labor union strike. These are better times to be exploring options. Talk to an a compassionate, experienced, knowledgeable attorney who can look at your particular situation before absolute disaster strikes, before you are about to lose your home, car or possessions on the morrow! And it is important to recognize that ironically you must have money to file bankruptcy. If you wait till the axe has fallen, you likely will not have the funds to file:  As Max Gardner, Esq., a keen observer of trends in bankruptcy recently noted regarding the recent fall off in bankruptcy filings: A substantial number of consumers who need to file are simply too broke to file. And, those consumers who have lost homes to foreclosure during the Great Recession simply no longer care.  Simply stated, as many consumers who have lost hope for finding new employment have also lost the need for bankruptcy relief. A skilled bankruptcy lawyer can help you plan for a future filing before you reach this point of despair.  He or she can help you prioritize to help you keep things that are important to you. If the house is most important, then in order to afford the house, perhaps a vehicle can be surrendered and a less expensive vehicle obtained.  Or, the bankruptcy lawyer may tell you to stop paying your credit card or pre-Obamacare medical bills and use the money to make sure that your house payment is made.  This can ensure that you are current on your house for a bankruptcy filing so that you do not have to pay more money for mortgage arrears or that you can file a chapter 7 with a “walk through”. Forewarned is forearmed, as they say!  Merely talking to a bankruptcy lawyer does not commit you to a bankruptcy filing and many will talk to you initially for free or at a reduced charge What do you have to lose other than your current lack of knowledge?  It is not infrequently the case that we will either decide the timing is not yet ripe for a bankruptcy or that some other tool at our disposal is a better option for your particular situation.  While every case is unique, the bankruptcy lawyer will have had experience with cases like yours in the past that will have shown him or her pitfalls of various approaches both within and outside bankruptcy. For example, certain types of debt and liens which cannot be wiped out in a Chapter 7 can be discharged or removed as the case may be in a Chapter 13. Or perhaps he will guide you in the direction of combining bankruptcy with a mortgage modification to drive down your monthly payment to the mortgage company outside the bankruptcy perhaps even to the point where you ultimately can leave bankruptcy early. The alternatives to bankruptcy could include debt settlement; debt consolidation or even debt litigation. The debt settlement company (DSC) may promise over the radio that they can knock 50% off your debt but they cannot litigate or file a bankruptcy case for you. And they will not defend you if one or more of your creditors brings suit while you are in the settlement process.  A debt consolidation company may say that their solution is the most efficient  but they cannot litigate or file a bankruptcy case for you nor generally speaking can they even reduce your debt as can the DSC.  An attorney who litigates but does not file bankruptcy cases and does not have a financial background as do I may be extraordinarily skilled in the courtroom but is ill equipped to see your bigger debt picture and likely will say litigating a single debt (a costly alternative) is best when the debt could have been wiped out with a lot of other debt in bankruptcy.  An unbiased bankruptcy attorney will be part financial analyst and advisor and can lay out all avenues and recommend a path according to your needs. So, when should you talk to a bankruptcy attorney?  Many will hide their head in the sand but the early bird gets the worm…The clear answer is sooner as opposed to later.  Bankruptcy is not for everyone nor is it intended to be.  But if you have debts, and they seem out of hand, a thorough analysis of your finances should include a visit with an experienced bankruptcy attorney.

Law Offices of Christopher C. Carr, MBA,  P.C., owned and managed by Attorney Carr since 1997, a quality Chester County Bankruptcy Atttorney, with his practice located in  Valley Township, west of Coatesville, Pennsylvania, where Carr, who has over 30 years of diversified legal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!
Not Legal Advice.

©Christopher C. Carr, Attorney at Law 2013, All Rights Reserved.

 

More On Yo Yo Auto Sales (Auto Fraud)

By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

Tel: 610-380-7969 Email: cccarresq@aol.com

Website:

westchesterbankruptcyattorney.org

I  work in autofraud relief for consumers and have posted previously here on YoYo’s.  Recently I answered the following question for AVVO:

Q: I bought a new car and 3 days later they said they made a mistake on the contract and need me to come back.

3 days after the contract has been signed with me giving them $10,500 as down payment with a 780 credit score. They said they made a mistake by stating the price of $31,129.00 . They said that was supposed to have been including $2,000.00 in rebates. On the contract is states $31,129.00 and then subtracting my down payment plus $2,000.00 in rebates. Do I have to give them more money and resign a new contract. It states on the contract that once both parties have signed it is binding. Hayden, Idaho

A: It sounds like you are facing a variant of what is called a yo yo sale, also called a “Spot Delivery”, which simply refers to the dealer putting a consumer into a car “on the spot”, to get the sale and take the buyer off the market, only to “yo-yo” them back at a later date to extract additional funds. This then is a variety of the old bait and switch. Played to perfection, a dealer can pocket thousands of extra dollars in unearned fraudulent gain out of a single unsuspecting buyer.

However, because your credit is virtually spotless the dealer cannot employ the usual tactic of stating that your credit was not approved to lure you back in to sign new papers.  (Your credit was good or the dealer would not have delivered the car to you at the price you agreed to pay.) That is, I believe that the dealer is doing more than simply trying to cheat you out of a rebate that was extended under a legally binding non conditional contract of sale, he is “yo yoing” you back to the dealership to pressure you to rescind the contract and adopt a new one undoubtedly with a much higher rate of interest. The “basis” would be that the contract has to be revised anyway to remove the supposedly erroneous rebate calculation.  This is of course illegal since you already have a binding contract but most buyers don’t know it, assume the dealer is right and go along with everything.

You do not need to stand for any of this because you already have you have signed papers and own the car, subject to making payments only, regardless of whether the vehicle has been financed or the dealer misstated the purchase price.  A finance document showing payments, rebates, deposit, interest rate and other financial items is a binding contract, giving you specific legal rights under the laws of your state. The dealer cannot change any of this legally once you have taken possession.

Yoyo sales are a national problem, involving dealer fraud. The usual fraud is making the consumer think the sale was complete, while at the same time the dealer sets it up so that the dealer can call it off, seize the car, and sell it to another purchaser or insist on dealer enhanced terms in a revised contract. A few states already prohibit conditional auto transactions outright, Idaho not being one of them as far as I can see, but even in the ones that have not taken that step, state contract law still protects the vigilant buyer.  In your case you were never told that the rebate was conditional, subject to being rescinded or the contract rewritten to change the price.  That is, you signed purchase documents and, I assume a registration application; obtained insurance; had a new license plate put on the car and/or had your old plate transferred, so the car belongs to you and the dealer is stuck with the deal they initially made. (The dealer may try the legal argument that the contract was formed based on a mutual mistake but I do not think that will work for reasons that are beyond the scope of this answer.)

Now you state that you have been called back to the dealership to sign certain papers; best not to go at all or if you do, do so in a car other than the one you bought, bring a friend with you if possible and be prepared to resist a browbeating. If the finance manager asks for your papers at any time for any reason, refuse! Keep these documents in a safe place, not in the car.  If you leave the papers they will also get them if they get the car. That leads me to my final point. You likely will need to retain a local lawyer with a good understanding of the laws of Idaho pertaining to auto sales to assist you.  I say this because your best strategy is to have counsel at the ready to take steps to enforce your legal rights against threats of repossession of the automobile or other dubious tactics to try and get the car back if you do not appear.  Best of luck to you and enjoy your new car.

 

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

 

HOME SURRENDER: CAN THE MORTGAGE COMPANY BE FORCED TO TAKE BACK MY HOME IN A BANKRUPTCY (or why dispossession is not nine tenths of the law)

 

By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

Tel: 610-380-7969 Email: cccarresq@aol.com Web: westchesterbankruptcyattorney.org

Using bankruptcy to rid oneself of a home that has become unaffordable and/or is now worth far less than it once was is called “surrender” in bankruptcy parlance and is governed by the US Bankruptcy Code.  This procedure is nearly as commonly used as is bankruptcy to stop a foreclosure so that a home can be retained.  We practitioners are using it much more frequently since the housing market is in decline.  Why is that?

Well, the question whether to keep a home when filing bankruptcy is usually answered by comparing the amount of the home’s monthly mortgage payments with the income the debtor is able to devote to housing payments.  Also key in today’s real estate market place is a comparison of the home’s appraised value[1] as compared with the amount still owed by the home owner. Where the home is worth significantly less than the amount owed, the home is said to be “under water”.  If the payments are no longer affordable and/or the property is under water, the debtor will likely choose to surrender the home as part of either a Chapter 7 or Chapter 13 bankruptcy filing.

However, in practice property “surrender” is often more problematic for the homeowner[2] than it would at first blush seem.  Foreclosure means the involuntary transfer of a property in a public sale or what is commonly called in Pennsylvania and many other states a “Sheriff’s Sale” because the County Sherriff will typically sell properties by the hundreds at public auctions held in the Pennsylvania counties following advance notice of the sales published by these officials. The requirements for these notices are very precisely defined in the relevant state statutes. These sales are usually conducted monthly and the sale ENDS the legal ownership and responsibility of the debtor.  Sounds pretty straightforward does is not?  However, in reality, mortgage companies are often slow to foreclose on homes that are surrendered to the lender in bankruptcy, leaving the home vacant, and yet still technically under the ownership of the bankruptcy debtor, for months or even years after the bankruptcy was filed.  It is often said that “Banks are not in the business of owning homes” but like most generalizations this statement is not always true.  The mortgage company may prefer to retain the home in its “inventory” rather than to sell it and take a huge loss that it must report to its shareholders in its public filings, perhaps hoping for a “better day” when the housing market starts to show improvement and it can then sell at at least a breakeven. Not only that but during the hiatus it does not need to legally bear these costs and liabilities.  Rather the mortgage company or its serviather the mortgage company or its servicer can keep the unsuspecting homeowner paying long after he/she has moved on simply by “sitting on” the property virtually indefinitely.

Many homeowners (and even some bankruptcy lawyers, unfortunately) will intuitively believe that their real estate is now legally the property of the bank because it has been “repossessed” (and they have been disposed) even though no actual sale has yet occurred. They may drop or reduce important coverage’s or fail to insure the property at all and find themselves liable in a slip and fall case for example for the full amount of the damages with no insurance coverage at all.

The purpose of any bankruptcy is to provide to the debtor a fresh start but the slow-to-foreclose mortgage company will routinely create fresh liability for the homeowner/ debtor, who will be held liable for post-bankruptcy homeowners association fees, property assessments, other ownership related financial obligations (but not the monthly mortgage payments, the personal obligation for which the debtor was discharged in the bankruptcy), if and as applicable.  The debtor may even be cited and fined repeatedly by the municipality and/or other governmental agencies if the grass is not cut, there becomes an accumulation of junk or hazardous materials on the property (albeit without any participation by the debor), and so forth.

However, a ruling handed down by a Hawaii bankruptcy court this month approved one strikingly clever resolution to the problem.  This Chapter 13 decision, In re Rosa, No. 13-00630 (Bky. Hawaii July 8, 2013), approved over the objections of the trustee a Chapter 13 plan which contained a provision designed to force play the situation by in effect arranging to convey the home back to the first mortgage holder. That is, In the Rosa case, the debtor’s Chapter 13 plan ingeniously stated that title to the real estate “shall vest in City National Bank/OCWEN Loan Service upon confirmation, and the Confirmation Order shall constitute a deed of conveyance of the property when recorded at the Bureau of Conveyances.”    The Chapter 13 trustee objected, arguing that“surrender” under the bankruptcy law did not transfer ownership of the surrendered property until the lender actually foreclosed.

The court disagreed with the trustee and pointed out that here, the debtor had gone beyond merely “surrendering” the property in the Chapter 13 plan.  Rather, the Plan unequivocally stated that confirmation of the Plan by the court would automatically transfer ownership to the lender, and that the order confirming the plan could be recorded like any other deed or conveyance.  While the Plan was drafted by the debtor (or more likely his/her attorney), the lender had been properly served with this plan and it had the opportunity to and had not objected to the Plan in court.  The Plan was therefore confirmed giving effect to this provision.

The result of this strategy for this particular debtor was the complete avoidance of the ills caused by the foot dragging Mortgage Company and its servicer, noted above.  One would think that a majority of the bankruptcy courts and jurisdictions, when presented with this issue, will adopt the new Hawaii precedent as it tends to remedy such evils without placing any undue burden upon or depriving the lender of any of its due process rights, in the eyes of this commenter at least. Perhaps we will even see the Eastern District of Pennsylvania or one of its 3 subdivisions adopting the new rule.

©Christopher C. Carr, Attorney at Law 2012, All Rights ReservedLaw Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

I also provide Mortgage Modification Services.

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[1] There are several on line services such as Zillow.com for example that purport to provide property values.

[2] Note that this term used in this context is not inaccurate or imprecise…these persons are still in the eyes of the law owners of the properties they once occupied.

Gamblers & Bankruptcy

By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

Why do some people already in dire economic shape gamble?  Prudence suggests that they should not do so but gamblers are notoriously imprudent. Well ironically they often do so because they foolishly believe that they can gamble their way out of debt.  Other gamblers think they can win enough money to pay back their gambling debts– debts they may have rung up on their credit cards, money owed to casinos or riverboats, loan debt, and even home equity debt all associated with gambling problems–but quite the opposite happens. You only end up creating more gambling debt to repay. And even if you actually did win enough money to pay off your debt, you would most likely gamble that money away too, thinking if you won once you could win again. GA and other organizations can help to cure the addiction but the debt that persists is a slippery slope tempting the gambler to return to the game of choice and chance.  So oftentimes it is necessary to cure the debt problem to alleviate the addiction. And there is only one way to effectively do so, a Chapter 7 (or 13) bankruptcy, which if successful can wipe the slate clean in one fell swoop.  Thus, Bankruptcy may be the only option for dealing with gambling debt.

If you owe bookies or loan sharks, you may be forced to borrow money from a friend or family member to pay the gambling debt, especially if you’re being threatened with reprisals if you do not pay up . But borrowing money from a loved one, while perhaps better than having your legs broken, may not be such a good idea because all such debts will be discharged in a Chapter 7 bankruptcy leaving them high and dry.

I tell such clients that they should pay some of the money they are gambling away to me instead.  Gambling is risky and the “odds are stacked in favor of the house” but I am a sure thing, or nearly so.  What stands in the way of a fresh start in Bankruptcy for the gambler?

1. Fraud: Gambling debt, including debt incurred from casinos or charged on credit cards and loans, can be discharged in bankruptcy. It’s important to know that any creditor can object to the bankruptcy filing by claiming you incurred the debt under false pretenses or through fraud. For example, if you took out a credit card cash advance knowing you didn’t have the money to repay the advance when you borrowed it, the creditor can ask the court not to discharge the debt. Creditors owed gambling debts may file “adversary proceedings” to challenge the dischargeability of their debts under Bankruptcy Code section 523(a)(2)(A) provides an exception to discharge for debts obtained by “false pretenses, a false representation, or actual fraud.”  These suits, historically filed by casinos, are rare today. They are expensive, cast the casino and its entire industry in a bad light and with the rise of legalized gambling, are no longer favored by the courts.  The gambler’s creditor has the burden to prove that the gambler actually committed fraud, in other words that you had the intent not to repay the debt when incurred and that is barring some lucky (or more likely stupid) admission, very difficult to do.
2. Reporting Requirement: All gambling losses within the previous year must be reported on the Statement of Financial Affairs which is part of every bankruptcy filing.  This is required so the bankruptcy trustee and court can determine whether any fraud was involved in the bankruptcy filing.  Bankruptcy trustees have broad powers to avoid transfers which appear fraudulent because they are transfers for which the debtor received “less than reasonably equivalent value,” which is the basic benchmark for determining fraud under the Bankruptcy Code. This requirement may pose obvious difficulty for the gambler who has been dealing with loan sharks who may act aggressively to keep from having their names become a matter of public record.
3. Luxury Debts: However unlikely it is that the casino will win an adversary action, there is another bar standing in the way of clearing very recent gambling debt. Bankruptcy Code section 523(a)(2)(C) makes a debt non-dischargeable if the debts was for a “luxury good or service” over $1,225 and purchased within 60 days of the filing of the bankruptcy.  That section also precludes discharge of cash advances over $1,225 obtained within 60 days of the filing of the bankruptcy.  In most cases, the exception can be avoided by simply waiting the requisite 60 day period of time
   to file the bankruptcy.  However, this may not be as easy as it sounds for the compulsive gambler. Often the lawyer must demand a turnover of all credit cards, etc. so that the problem is cut off at the source.
4. Chapter 13: Impossibility of fulfilling the plan because of compulsive gambling:  oftentimes a gambler who is behind in house or car payments because of money diverted to gambling will have no choice but to file a Chapter 13.  This requires a 3-5 year plan wherein the gambler promises to repay some of his debts.  But the plan must be funded by the gambler’s income and little threatens income as effectively as compulsive gambling.  Thus, may trustees and courts (tipped off by the required gambling disclosures…see above) will closely scrutinize such a plan and may demand that the gambler be under the treatment of a psychiatrist and/or regularly attending GA meetings before they will give it the go ahead. A clean recent bank and/or credit card statement(s), not showing large withdrawals, can also be very helpful in showing that the gambler has the self control needed to suceed with a plan in a Chapter 13.

It is clear that the cure of the gambling addiction and its economic fallout go hand in hand.  One cannot easily be repaired without the other. We are experienced in dealing with the problems of and in counseling gamblers and would be happy to discuss the issues facing you or a loved one challenged by this affliction.

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified legal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

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Now that you Have Your Bankruptcy Discharge: 10 (actually 11) Things to Do to Make the most of it!

 

By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

So You Finally Got that Bankruptcy Discharge
Congratulations! You’re on your way to a fresh start.
Now you’ve got more to do? See why below:
1. Check debts that didn’t get discharged: Child or spousal support, student loans, or taxes for years for which you did not file a return (unless the IRS exceptions are met) are not dischargeable in bankruptcy. The discharge order will not tell you which debts survive and which do not, nor will the Court provide this information so you may continue to require the services of a knowledgeable bankruptcy lawyer to help you to assess this.
2. Verify lien balances: The discharge eliminates your personal liability for dischargeable debts; liens survive. If you plan to keep a house or car encumbered with liens, find out what you owe and resume payments. Otherwise, the creditor can enforce its lien by foreclosure or repossession.
3. Reset Banking Priveleges: Online banking and automatic bill pay may have been disabled while you were in bankruptcy but can be restarted at your request now..
4. Do Some Record Keeping: Save your bankruptcy papers and keep a copy of your discharge paper handy: You’re likely to encounter efforts by buyers of to collect debts that have been discharged in your case, or so called “zombie debt”. You need to be able to show that the debt was discharged in your case. Creditors with notice of the bankruptcy, and likewise those who buy up their worthless accounts and try to collect on them, were discharged (unless they fall within Rule #1 above). The services of a knowledgeable bankruptcy lawyer may be necessary to stop these collectors, or even under some circumstances to sue them for unfair practices and potentially turn the tables by collecting from them, including your legal fees.
6. Join a credit union: Credit unions are owned by their members. They are in the business of extending credit to members (hence the name, “Credit Union’: “Credit” stands for what they do and “Union” for the members they lend to) and the profits from such loans flow to members. Rates are almost always lower and terms better than the commercial banks, savings and loans and private lenders. Start out with a savings or checking account. Sooner or later you will probably need a car loan or even a home loan. Joining now will give you the longevity that adds credibility to a credit union.
7. Maintain insurance coverage: Even though you may have elected to surrender property through the bankruptcy that still stands in your name, make sure that you are insured for liability. Liability insurance covers you for claims of anyone injured on your property. Electing to surrender property doesn’t take you off title until someone else goes on title. Post bankruptcy claims arising from property you’re trying to offload can potentially ruin the fresh start.
8. Get a credit report: Several months after your discharge, check your credit report to make sure all discharged debts reflect a zero balance. The bankruptcy history can properly remain on your credit for up to 10 years, but you are entitled to a showing that you now owe nothing on all discharged accounts (but see Factor #1 above) This is crucial because your debt to income ratio (“DTI”),one of the primary if not THE primary factor lenders look to in extending credit. Getting erroneous entries corrected may be facilitated using the services of a knowledgeable bankruptcy lawyer. You are entitled to a truly free credit report annually from each of the 3 major credit bureaus which you can get by clicking here and credit experts recommend that you check it at least once a year.
9. Budget and Learn to Spend Within Your Means: Studies have shown that people who go bankrupt only do so ONCE in their lives. WHY? Well debt relief is only one side of the coin. On the flip side are the lessons people take from bankruptcy. So, like these now money wise people, take advantage of the fresh start that bankruptcy has provided, and make lifestyle changes so that it does not happen again. Follow Rule # 10 below and stop using trade credit (AKA: Credit Cards). Get a debit card instead and be you own bank, there is no interest that way!
10. Use credit Wisely. Once Lenders see that you have received a discharge, they may well start sending you “preauthorized” credit card applications. However, if you start to load up on credit again, you will soon be right back where you started. So the rule of thumb is to have just one credit card that you keep in a drawer somewhere for emergencies; If you do use it, make it “free credit”, that is: plan to pay it all back in the same month as incurred so that you are not left carrying a balance ant interest. That way you are living within your means. See Rule # 9 above. The only other credit to use generally speaking is for major purchases such as car or home loans.
11. Build up a reserve for emergencies and start saving again. Set up automatic savings Bankruptcy probably brought home to you how little net worth you have and how thin the safety net is. Arrange for automatic savings for both an emergency fund and for retirement.
Since you no longer have trade credit, it will be easier to devote some of your income to savings…follow the rule “Pay yourself first”. Experts recommend a reserve of 6 months salary and at least a 10% savings rate. Contributions toward your IRA or 401K at work count as you can withdraw these funds (with penalty if applicable) in an emergency.
If you follow these rules, you are more likely to take full advantage of your fresh start and not ever be back to see your friendly local bankruptcy lawyer!

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

“CAN I GET MY CAR BACK AFTER REPOSSESSION BY FILING BANKRUPTCY”? (THE LETTER “Y” IS FOR YO-YO AUTO SALES}

By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

Tel: 610-380-7969 Email: cccarresq@aol.com

Website:

westchesterbankruptcyattorney.org

A yo-yo sale is a consumer vehicle purchase under a valid signed agreement of installment sale which is followed, days or weeks later, by a phone call from a sales person at the agency that sold the vehicle who states that the consumer must return the vehicle, get a co-signer for the loan or sign new paperwork typically because, “the financing fell through.” Of course, this is impossible because the financing was locked in before the car was ever delivered but even so the befuddled consumer will fall for this line and present himself and his vehicle at the dealership for a new round of negotiations.

The way this scheme plays out the dishonest dealer will either negotiate more favorable terms after the fact or to repossess the car and resell it.   With touch ups to the paint and an (illegal) odometer rollback, he may be able to  pass it off as brand new. While yoyo sales are actually quite illegal under various federal and also state laws, they are quite prevalent especially in economic downturns. And they can result in the loss of your vehicle to repossession and oftentimes with it all the valuable property you left within it.

With the help of a skilled attorney, Yoyo’s can often be prevented especially if reported right away so they can be documented while in progress. However, you must still at least pay according to the original terms of the installment agreement or the vehicle can legitimately be repossessed by the dealer or the creditor.

Oftentimes, the Yo-yo victim, not knowing what to do or where to turn will simply stop paying his or her car payment entirely.  This is a very bad idea because they will have then not complied with the terms of the original agreement and have lost most if not all of the ammunition needed to fight the Yo-yo legally but also will ultimately lose the vehicle as well to the repo man. What remedies may be left to help you to get your car back in such a situation? Well, bankruptcy may still help, to a greater or lesser degree, depending on whether you elect to proceed under a chapter 13 or a 7.

SO, CAN I GET MY CAR BACK AFTER REPOSSESSION BY FILING A CHAPTER 13 BANKRUPTCY?

If your car has already been taken out of your driveway, and if it has not yet been sold, you can get the car back in a Chapter 13. See Note 1 below. You will not need to come current (as you do in a Chapter 7, see below), but will just have to be able to make regular Chapter 13 car payments, which will almost always be smaller than the payments that you were making before filing. See Note 2 below for an example of how the car payments can be reduced.  You usually also have to pay a reasonable repossession fee, these range in the hundreds of dollars, and wait anywhere from one week to a couple of months before getting it back.

Most vehicle lenders  will return a car voluntarily once you file a chapter 13 (provided the car is not already sold) if you show adequate insurance. This policy generally must include collision and name the finance company as a loss payee, i.e. the policy must mention the loan companyby name as the entity which gets paid first in the event of a loss or claim.

But why deal with the delay, inconvenience, added expense and potential damage to your car and/or loss of personal property involved in a typical repossession? A Chapter 13 filed before the repo man does his dirty work is your best bet.

CALL ME IF YOU ARE BEHIND IN PAYMENTS AND WE CAN AVOID THIS NASTY SCENARIO AND LOWER YOUR PAYMENTS TO BOOT. See Note 2 below.

BUT, CAN I ALSO GET MY CAR BACK AFTER REPOSSESSION BY FILING A CHAPTER 7 BANKRUPTCY:

In a Chapter 7, no, you cannot get the car back without the creditor’s permission because chapter 7 involves liquidation of the debtor’s non-exempt property. The only way that most creditors are going to agree to return your car to you is if you are able to catch up on the payments right away and sometimes the creditor will not even accept this but will accelerate the note and demand the entire balance due and owing on the vehicle. So, there is virtually no difference between this and not filing at all in terms of what you have to pay.

A Chapter 7 filed before repossession will stop the repo man temporarily, but it won’t take long for the creditor to get the court’s permission for relief from the stay and take the car anyway. The only sure way to save a car is in a Chapter 13, unless you can find a way to pay the value of the car in one lump sum but if you can chances are you probably aren’t thinking about bankruptcy.

Note 1:   In Pennsylvania where I practice, you can stop the repo man from coming on your property to take your car if you are watchful enough to spot him in the act.  That is trespass.  It is however suggested that if you meet with resistance, you call 911 and summon the local constabulary rather than attempt to defend the property yourself. This of course is not true for a sheriff who enters upon real properly with a valid writ of execution or if your car is parked on a public thoroughfare or in the parking area of your apartment building, since you do not own it.

Note 2:   For instance, let’s say you have a car that is worth $15,000.00, on which you still owe $20,000, and are paying $519.00 per month at 19% interest on a 60 month note. (This is only an example…every situation will vary.) I can always lower the interest rate down to 2 or 3 points above the prime rate and in many cases, assuming you have owned the vehicle long enough; we can set the payments based on the $15,000 valuation, rather than the $20,000 debt.

In this example, the monthly payments would be reduced to roughly $380.00, for a savings of $139 per month or a whopping $8,325 over the life of the loan, (based on the WSJ prime rate quote for 11/8/2012 of 3.25 plus 2% Risk Factor or 5.25% total.) If we are able to drop the loan down to $15,000 the payment would be only about $285 per month, for a savings of $234 per month. The same thing applies to boats, RV’s, motorcycles, motor homes, appliances, furniture, electronics, and any other secured property, except for primary residences.

©Christopher C. Carr, Attorney at Law 2009, 2012. All Rights Reserved

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

I also provide Mortgage Modification Services.

Other lawyers asking “Y” include:

Photo by takomabiblilot

Z is for “Zealous”, How far can your Lawyer go in representing you in Bankruptcy?

By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

Tel: 610-380-7969 Email: cccarresq@aol.com Web: westchesterbankruptcyattorney.org

“Have Gun, Will travel”

Richard Boone as Paladin

Z is for Zealous.

Subsection 2 of the preamble to the Pennsylvania Rules of Professional Conduct: (“RPC”) “A Lawyer’s Responsibilities” states thatas advocate for his/her clients, “a lawyer zealously asserts the client’s position under the rules of the adversary system”.

Sounds simple enough but of course, the RPC nowhere gives any guidance as to the meaning of the word “Zealous”. Encarta defines the term simply as: “actively and unreservedly enthusiastic”. It is a sort of “boundary” term in the law in that we come to understand what it means more by understanding what we as lawyers serving bankruptcy clients can and cannot do in its name.  So let’s approach it from that angle.

A prerequisite for zealous representation is competence: RPC Rule 1.1 states that a lawyer shall provide competent representation to a client. Competent representation requires the legal expertise, skill, thoroughness and preparation reasonably necessary for the representation. In the bankruptcy context this means that a lawyer must have studied and understood the aspects of the Bankruptcy Code that are implicated in any representation.  Even if this requirement is met in general, should he or she not be well versed in a particular sub-area, there is a duty to seek the assistance and mentoring of another attorney who has the requisite skill set. For example, the implications of divorce for bankruptcy are so complex and localized/varied to the laws of each of the several United State as to be beyond the ken of most bankruptcy lawyers and equally so for most divorce specialists…cross disciplinary expertise must often be sought to answer these questions.

However, it is clear that the lawyer who is competent is not thereby necessarily zealous.  Zealous representation, which is not defined in the RPC, serves for most as the benchmark for excellence. Perry Mason may not have had all it its legal points correct but it does stand in the eyes of the public as the more dinified epitome of this attribute. For those who consider law practice more a profession than a business, it evokes the image of a crusader for justice. To others, however it suggests a fanatical, “no-holds-barred” advocate, willing to do anything for a client (for a fee). A hired gun… Have gun, will travel. 

Thus, being overly “zealous” clearly can land a lawyer in deep trouble.  Some attorneys have attempted to use it to justify unacceptable conduct even though it may have disciplinary or malpractice liability consequences (or both).  For example, we bankruptcy lawyers frequently are asked clients for advice on what might be called “pre-bankruptcy asset protection planning.”  While the ethical dangers associated with advice in this area are very real [See, for example, Ohio Rules of Professional Conduct (“ORPC”) Section 8.4(c), prohibiting a lawyer from engaging in conduct involving fraud], the consequences can reach beyond the realm of ethics and involve actual criminal liability for both transgressing client and counsel. This will reach to knowingly assisting a client who wishes to perpetrate a fraud on the bankruptcy court.  See my blog on the topic of Bankruptcy Fraud for more information. For example, in a recent West Virginia case a bankruptcy lawyer was criminally indicted for advising his clients to transfer a mobile home to a relative before bankruptcy so as to attempt to “remove” the asset from the reach of the Trustee in Bankruptcy.

Thus while lawyers clearly have an obligation to advance their clients’ cases with competence and enthusiasm, they also have an obligation as officers of the bankruptcy court they serve to refrain from knowingly counseling or assisting a client to commit a crime or fraud. RCP 1.2 (d).

Picture credit: Wikpedia:  http://en.wikipedia.org/wiki/Have_Gun_%E2%80%93_Will_Travel

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

I also provide Mortgage Modification Services.

©Christopher C. Carr, Attorney at Law 2012, All Rights Reserved

Picture credit: Wikpedia:  http://en.wikipedia.org/wiki/Have_Gun_%E2%80%93_Will_Travel

M is for Matrimonial Property Obligations and the Discharge in Bankruptcy

By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

Tel: 610-380-7969 Email: cccarresq@aol.com Web: westchesterbankruptcyattorney.org

                        There are two main types of domestic support obligations (‘DSO”) defined in the bankruptcy code. The first kind of DSO encompasses things such as child support payments and alimony. (To simplify, let’s just call this type: “support“). The second type of DSO comes from the distribution of property in divorce; in Pennsylvania the statutes refer to this as “equitable distribution“, which is the terminology I will use here. The latter usually consists of the spouse’s equitable share of the equity — as adjudicated by the courts or agreed to in a property settlement agreement, which also must be court approved in Pennsylvania — in the marital residence but can also include joint bank accounts and other valuable items.

In the general definitions within the Bankruptcy code 11 USC Sect.. 101(14 a-c), both support and equitable distribution appear as DSO’s, misleading one to think that perhaps the two will be treated identically in bankruptcy. However, while this is true of a Chapter 7, it is otherwise for a Chapter 13. The difference in treatment as between the two different kinds of domestic support obligations only become apparent when one looks at how they are treated those portions of the Bankruptcy Code dealing specifically with the discharge of these specific categories of debt.

At first glance in 11 USC Sect. 523(a)(5) and 11 USC Sect. 523(a)(15), the sections of the Code dealing with equitable distribution, it appears that these two subsets of domestic support obligations are treated the same. That is to say, neither support nor equitable distribution obligations appear to be discharged in bankruptcy, meaning specifically that in both a Chapter 7 bankruptcy these debts survive the bankruptcy and remain obligations of the debtor and alternately in a Chapter 13, they both must be paid in the plan and/or any amount left over so survives.

However, 11 USC Sect. 1328(a)(2) changes the picture radically, at least insofar as discharge after completion of a Chapter 13 Plan is concerned. (Note that virtually anyone who has a regular income can elect a Chapter 13 filing as versus a Chapter 7.) This provision essentially states that once all the plan payments are made and the debtor complies with its other requirements, the DSO types not listed in the statute will be discharged: one of the provisions so listed is 11 USC Sect. 523(a)(5), which again deals with with support debts. However, whether by design or inadvertence, Congress conspicuously excluded from that list 11 USC Sect. 523(a)(15), which again pertains to equitable distribution obligations.

Thus, unlike support, which cannot be discharged either in a Chapter 7 or a Chapter 13, the proceeds of an equitable distribution can be discharged to the extent that the ex-spouse still owes same once the Chapter 13 plan payments have been otherwise completed. A clever bankruptcy lawyer, knowing this, will to the extent possible, draft a plan which, perhaps by favoring secured and other priority unsecured debt in order and amount of payment, provides for less than all of the equitable debt to be discharged, which has the effect of excusing the debtor spouse from his or her remaining equitable obligations, even though ironically these were awarded to the creditor spouse by a court of law. The (alas little appreciated) lesson for the family lawyer representing the creditor spouse is to require all equitable debt to be paid up before the property settlement agreement is authorized, so as to avoid eventual loss of some or all of their equity in a potential Chapter 13 bankruptcy.

©Christopher C. Carr, Attorney at Law 2009, All Rights Reserved

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

I also provide Mortgage Modification Services.

Others blogging on M include:

• Bill Balena,      CLevand Bankruptcy lawyer tells us that M      is for Mistakes .
• Omaha and Lincoln,      Nebraska Bankruptcy Attorney, Ryan D. Caldwell says M is for Means Test.
• Marin County      Bankruptcy Lawyer, Cate Eranthe blogs M is for Means Test, a popular topic.
• New York Bankruptcy      Lawyer, Jay S. Fleischman agrees M is for Means Test too.
• Colorado Springs bankruptcy      Attorney Bob Doig says M is for Meeting of Creditors.
• Northern California      Bankruptcy Lawyer, Cathy Moran believes M is for Modify & also for Monthly Income.
• Hawaii Bankruptcy      Lawyer, Stuart T. Ing says M is for Mortgage Arrears.

Picture credit: Bigbluemeanie

WHAT YOU NEED TO KNOW ABOUT CHAPTER 7 BANKRUPTCY

By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

Tel: 610-380-7969 Email: cccarresq@aol.com Web: westchesterbankruptcyattorney.org

WHAT IS CHAPTER 7 BANKRUPTCY?

The avowed goal of bankruptcy is to give debtors a “fresh start.” What is a Chapter 7 bankruptcy and how does it go about accomplishing this? The “automatic stay” in bankruptcy applies immediately once a Chapter 7 case is filed and generally halts all collection activities, foreclosures, repossessions, sheriffs’ sales, and etc. while in effect. Let’s first look at the different types of bankruptcy proceedings.

The United States Bankruptcy Code offers two primary paths for consumers:

• A Chapter 7 Bankruptcy: In a so called “straight” bankruptcy, the Trustee in bankruptcy seeks to liquidate the debtor’s non exempt property and distribute the proceeds to the creditors in order of priority, in exchange for discharge of all eligible debt. (Exemptions for various property classifications are set out in federal and state law.) However, certain debts such as guaranteed student loans and domestic support obligations are non-dischargeable in bankruptcy. Most 7’s are “no asset” bankruptcies.

Certain higher income debtors who do not meet the new Means Test must instead file a Chapter 13 Bankruptcy. If you think you might be a candidate for a 13, you might wish to visit my article on the topic.

• A Chapter 13 “debtor in possession” Bankruptcy: Here, unlike in Chapter 7 proceedings, the debtor retains possession of the assets (hence its nickname). In order to be confirmed by the court, the debtor must prove sufficient income to support a 3-5 year plan wherein payments on secured debt such as mortgages and auto loans (including arrears) and non-dischargeable items continue and unsecured creditors typically get paid a small portion of their debts. For debtors facing mortgage foreclosure, Chapter 13 may be the only choice to halt the process while seeking other remedies within or outside of bankruptcy. However, recent statistics indicate that only about 35% of all 13 plans are ever completed.

There are overall limits as to how much unsecured and/or secured debt a debtor may have and still utilize Chapter 7 or 13.  For those who do not qualify, there is only one option:

• Chapter 11, a third type of Bankruptcy, is primarily used to help in debt businesses restructure. An example is the bankruptcy from which GM has successfully emerged with the help of a massive US bailout. It is much more complex, time consuming and expensive than Chapter 7 or 13, but is the sole resort for individual debtors with debt which exceeds the limits mentioned above.

Other than consumer perceptions that bankruptcy is somehow unethical or “wrong”, the primary issue with filing bankruptcy is that it remains on the debtor’s credit for up to 7 (Chapter 17) or 10 years (Chapter 13) from filing and may interfere with efforts to obtain credit, purchase or refinance a home or even obtain employment. However, it should be noted that most who seek this relief already have impaired credit and, more importantly, in reality new credit is generally extended to debtors who keep their payments current for a year or two following discharge. So, in effect bankruptcy can work to “repair” credit.

In summary, the automatic stay provides an effective if temporary refuge from foreclosure and other debt collection activities and many debtors ultimately do obtain the permanent solution to their debt problems, the “fresh start” which is the ultimate objective of the US bankruptcy laws.

©Christopher C. Carr, Attorney at Law 2009, All Rights Reserved

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

I also provide Mortgage Mod Services.

Photo by ganesha.isis