HOW TO ESTIMATE YOUR CHAPTER 13 PLAN PAYMENT:

May3

By Christopher C. Carr, Esquire, Chester County Bankruptcy Attorney: Call (610)380-7969 or write him at cccarresq@aol.com today!

Introduction. What does this matter?

This exercise can be crucial to complete if you are a self filer (not recommended especially for a Chapter 13) but it is a very good idea to complete this exercise even if you have hired or plan to hire a bankruptcy attorney, because in this way you will be able to understand the general Chapter 13 process and strategy; double check his or her work-in a general sense at least – and also because it will make you aware of expenses and other offsets you might not otherwise focus upon, which could end up saving you money in the long run. This can also be useful to help you determine whether a Chapter 13 will be advantageous for you given your particular circumstances BEFORE you retain an attorney and then file, only to find out for example that you cannot afford the monthly payment and the arrears amortization! Bankruptcy will affect your credit and ability to borrow for at least 2 years, even if it is dismissed. Knowledge is power.

In general, it will help to remember that Part 1 of the analysis deals with repayment of secured debt (like car and home loans), whereas Parts 2 and 3 deal with unsecured debt (like credit cards, medical bills, etc) and to remember the “liquidation test” which says that the unsecured creditors cannot receive less in a Chapter 13 bankruptcy than they would have received in a Chapter 7 liquidation.

Part 1: Figuring Your Minimum Monthly Payment

Certain debts must be paid back in full through your repayment plan. This means that that the Debtor must propose a plan that pays off all of these debts within 36 months (if below the median income) or 60 months (if above the median income) regardless of income and expenses. These debts include:

Priority Debts

Congress has decided that certain obligations, called priority debts, cannot be discharged in bankruptcy. Some examples of priority debts include back child support, alimony, and certain taxes. If you file for Chapter 13 bankruptcy, you must pay off these debts in full through your repayment plan. Enter the amount of all your priority debts in the Model[1] where indicated.

Mortgage Arrears

If you are behind on your mortgage and want to keep your house, you must pay off all your arrears (existing at the time of your filing) through your repayment plan within the applicable plan period (see above) . Enter all applicable mortgage arrears in the Model where indicated.

If you plan to surrender your house, you don’t have to pay back the arrears in your bankruptcy. In addition, if you are only behind on your second mortgage (or other junior lien) and you intend to eliminate that lien in your Chapter 13 through lien stripping, don’t include those arrears in your payment calculation.

Be aware that certain jurisdictions require you to make your regular mortgage payment through your Chapter 13 bankruptcy. In these jurisdictions, your plan payment may be very large but you would not have to make a separate mortgage payment directly to the lender.

Car Loans or Other Secured Debts You Want to Pay Off Through Your Plan

In most jurisdictions, if you are behind on your car loan (or another secured debt other than your mortgage) and want to catch up on your missed payments, you typically have to pay off the entire loan (not just the arrears) through your plan. Keep in mind that in certain jurisdictions, you may be required to pay off your car loans through your Chapter 13 plan regardless of whether you are behind on your payments or not. This is not the case in the EDPA where I practice.

Unless you intend to surrender the property or pay off these secured debts outside of bankruptcy (and your jurisdiction allows you to do so), enter the amount of your car loans and other secured debts in the calculator where indicated.

If you qualify to “cram down: your car loan or other secured debt, you only need to pay the lender the replacement value of the property through your repayment plan (not the entire loan balance). So include only the value of the vehicle (or other property) in the Model for all secured debts you intend to cram down.

Administrative Fees and Interest Charges

Fees: Chapter 13 trustees get paid by taking a percentage of all amounts they distribute to creditors through your repayment plan. This percentage varies depending on where you live but can be up to 10% as it is in the Eastern District of Pennsylvania where I practice.

Interest: In addition, you typically have to pay interest on secured claims you are paying off through your plan. The required interest rate can vary depending on the type of claim and the rules in your jurisdiction. But in general, you can expect to pay the national prime rate plus 1% to 3%.

Making Regular Monthly Payments on Loans. Keep in mind that if you want to keep your home, car, or other items securing debts, you’ll have to keep making your regular monthly payments during your plan period, unless the court requires you to pay off the entire balance through your plan. As mentioned above, some courts might require you to make these monthly payments through your plan. However, this is NOT the case in the EDPA, where generally speaking, the debtor pays arrears through the plan but is allowed to pay the monthly mortgage “outside” the bankruptcy, g. directly to the lender/servicer.

THE ABOVE COMPUTATION YIELDS JUST THE MINIMUM PLAN PAYMENT: “EXCESS” DISPOSABLE INCOME (PART 2): AND NONEXEMPT PROPERTY VALUE (PART 3) MUST BE ADDED:

So far we have only considered debts you are required to pay off in your repayment plan regardless of your income, expenses, and nonexempt property. The debts discussed above are used in calculating your minimum Chapter 13 plan payment. However, if you have disposable income or nonexempt assets, you will also have to pay back some or all of your nonpriority unsecured debts such as credit cards and medical bills. Depending on how much you have to pay your nonpriority unsecured creditors, your monthly plan payment can be much higher than the minimum payment calculated above. In fact many high income or equity rich debtors will end up with 100% plans…why would anyone file bankruptcy then you may ask well and there are several reasons:

To take advantage of the automatic stay in bankruptcy and thus save the family home and/or other valuable assets from the auctioneers gavel.
to avoid garnishments (which can be very embarrassing and even cause job loss) or repossession of autos, boats, RV’s, etc.
To avoid liens arising in their property because of lawsuits, tax liens and the like.
To force mediation and a mortgage modification (in some jurisdictions)
To avoid creditor dunning
Because instead of having to pay back all the debt at once, they can schedule it, and,
to avoid losing a drivers license, professional privileges (e.g. inability to practice medicine, law, dentistry, etc.) or even going to jail for nonpayment of alimony, support , etc.

Part 2: Calculate Your Disposable Income and enter the excess:

As part of your Chapter 13 computations, you must complete Form 22C — Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income. This form is also referred to as the Chapter 13 means test and is used to determine how long your plan will last and how much you must pay nonpriority unsecured creditors in your bankruptcy. Visit the U.S. Court’s website at www.uscourts.gov to find the most recent version of Form 22C.

If your average income for the six months preceding your bankruptcy is less than the median income for a similar household in your state, you are not required to fill out the entire form and will typically pay little or nothing to nonpriority unsecured creditors in your plan. However, if your income is above median, you must follow the instructions on the form to determine whether you have enough disposable income to pay back some of your nonpriority unsecured debts.

After completing the Chapter 13 means test, if you end up with a positive monthly disposable income figure, add that to your minimum plan payment calculated above because you must pay this amount towards your nonpriority unsecured debts each month.

Note: Why the means test result can vary significantly from the Petition, Schedule J. The concepts of income and expenses for the Means Test differ from the income and expenses reported on Schedules I and J. Schedule I lists the debtor’s current income, while the Means Test requires an average from the last six months with Social Security Benefits excluded. Likewise, on the expense side, expense categories are different on the Means Test and Schedule J. Schedule J lists the debtor’s actual current expenses while the Means Test uses IRS standards (which are often much lower than the actual expenditures) for some expenses, and actual for others. Moreover, Schedule J allows the attorney more discretion in listing other types of expenses, whereas the Means Test doesn’t allow you to fill in unlimited “other” expenses.

Part 3: Finally, Add the Value of your Nonexempt Property

Chapter 13 bankruptcy requires you to pay your nonpriority unsecured creditors at least as much as they would have received if you had filed a Chapter 7 bankruptcy. This is known as the “liquidation test” but essentially means that you must pay an amount equal to the value of your nonexempt property. If you can’t exempt all of your property, divide the value of the nonexempt portion by the number of months in your repayment plan and add it to the minimum monthly payment calculated above.

Nonexempt Property Example: Say for example that you have equity in your home of $100,000 (a rarity in this day and age but quite common few years ago). Your state allows you to take the federal homestead exemption and it is higher than the state version, if a choice is allowed in your state. you can currently exempt $22,975 (or $45,950 if you are married and jointly filing bankruptcy) under the federal homestead exemption. Husband and wife, using the federal exemption, are then left with $54,050 in nonexempt debt and have a 60 month plan. They then must add $900.83 to the plan payment computed above.

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!

[1] This article assumes that you are using a Bankruptcy Plan Model (Model) that calculates the minimum plan payment for you. Some Models will also compute the Means Test for you. For an easy to use estimator go to http://www.alllaw.com/articles/nolo/bankruptcy/chapter-13-plan-payment-calculator.html. However, remember that this will just yield the Minimum payment. To this you must add Your Excess Disposable Income and Nonexempt Property Value Parts 2 and 3 below, if applicable.

ABC’s of Chapter 13 Lien Stripping

Apr15

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 secondand thirdmortgages 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. Secondmortgage)

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 secondmortgage 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!

[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

APRIL 9, 2014 / CARRLAWO / COMMENTS OFF

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

WHAT IS A LIEN STRIP?

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?

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. Secondmortgage)

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.

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

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

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

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!

APRIL 9, 2014 / CARRLAWO / COMMENTS OFF

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

WHAT IS A LIEN STRIP?

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?

QUALIFYING FOR A LIEN STRIP

V – D[- JD] ≤ $0

V: market value of a property

D: debt(s) encumbering that property

JD: Junior debt/TARGET debt (i.e. Secondmortgage)

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.

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

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

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

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!

When Should You Talk To A Bankruptcy Lawyer?

Jan1

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.

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

Mar19

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!

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

Oct13

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.

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

K is for “Knight in Shining Armor”

Apr18

By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: westchesterbankruptcyattorney.org

It is simply AMAZING what a good bankruptcy lawyer can accomplish for you. In perhaps no other sector of the law are we attorneys handed a SWORD with which we can in a single blow, release the chains that bind our clients to the downward spiral of debt and a SHIELD with which to protect our clients against their predators (oops, I meant creditors).

Just look at what this mighty power we weild allows competent and compassionate counsel to do for you:

Eliminate Debt:

Retain Assets:

Stop/Prevent:

Foreclosure/Repossession

Wage Garnishments

Creditor Harassment

Utility Shut Offs

Loss of Rental Unit

Reduce/Restructure/Strip Off:

Second & Beyond Mortgages

Late Model Vehicle Loans

& even retain for you or restore to you your very liberty, they even sometimes can keep you out of jail.

But BEWARE: of the novice, unskilled lawyer or the cut rate lawyer who “only does Chapter 7 bankruptcies”. These types, through ignorance or lack of concern, will simply not be equipped to wield that sword and shield to fashion the relief that you need. You need an EXPERIENCED FULL SERVICE CONSUMER BANKRUPTCY EXPERT to advise you and most importantly what your OPTIONS are and to help you to plan so that you can optimize your bankruptcy.

And where does this incredible power that we wield come from? Well, our forefathers, many of whom who had seen or even experienced firsthand the evils of the European debtor’s prisons, considered it a fundamental underlayment of the freedoms that we all enjoy that in times of need a “fresh start” could be obtained. So they instituted for all of the people of our great nation within the United States Constitution[1] the rights and protections of the bankruptcy clause!

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 Attorneys Blogging on the Letter K Include: See Comments Below.

[1] Article 1, Section 8, Clause 4

“R” in Bankruptcy is for Rental vs. Chapter 13 Home Retention: A Tax Benefit Analysis

Apr3

is for Rental vs. Home Retention

By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: westchesterbankruptcyattorney.org

Deciding whether to keep your home or not is not always a simple “Rent/bankruptcy vs. “Keep/no bankruptcy” decision: if you have regular income and otherwise are eligible to file a Chapter 13 Bankruptcy you should also consider keeping the property in a 13. In a 13 you still have to pay principal and interest and escrows, if any but the 13 Plan, once confirmed by the Court, will allow you to hang on to this most precious of assets and pay the arrears in the plan over a 3-5 year period instead of selling at a loss and in many cases owing the deficiency to the lender.

The decision is not an easy one and there are almost always emotional ties to a home as well. But one thing is for certain: you have to pay taxes and anything that saves you a dollar in taxes is like a dollar in your pocket right?

Some lawyers and others will, in “knee jerk” fashion, tell you that since your house is under water you should short sell and “find another place to rent”. However, any analysis which does not “add back” into the equation the net present value of the tax advantages of home ownership at your marginal tax rate is telling you only half the story. Renting has little or no tax advantage, mortgage payments do. (Same for state and local taxes that you pay or are escrowed by your lender) Let’s say your mortgage is $950 a month you are in the 25% bracket for example and your property taxes are $3,600 a year or $300 a month, then the ownership “savings” is computed as follows: ($950 + $300) x .25 or $312.50. Another way to say it is that the government is subsidizing 25% of your ownership cost under these assumptions (not quite because as I explain below, we also have to consider insurance in the computation).

The pragmatic way to analyze this as they taught us in MBA School, is to compute your net after tax cost of home ownership and ask yourself the question: CAN YOU REALLY FIND EQUIVALENT RENTAL HOUSING FOR A PRICE AS GOOD or BETTER THAN YOU ARE PAYING NOW? Let’s look again at the example I have been exploring above. To get the full cost of ownership you have to add in home insurance (which is not tax deductible). Let’s say that is another $75 a month. So your fully loaded cost (assuming you live in a place with no association fees) is (950 + 300 + 75)-312.50 = $1012.50. Note when you figure in the tax savings in it brings the overall cost of home ownership down to only a few dollars more than the amount of your mortgage payment. So ask yourself, using your actual costs and tax bracket instead, can I find adequate rental housing for that net figure (in my example $1012.50 a month)? If not, you might want to consider a Chapter 13 to allow you to keep your current residence.

Of course, the above analysis while a good starting point, it is just one of the factors to be considered. A couple of examples: if you can strip out your second mortgage in a Chapter 13 because your home is completely under water as to the second (meaning that there is not enough equity coverage for the second and any homestead or other exemptions that are applicable in your jurisdiction), that will further reduce your ownership costs by the amount of the monthly payment you make on the second now. And if you can get rid of your credit card debt to boot, you are that much more ahead (assuming you are still paying on them). In a 13 keep decision, these things also have to be weighed against the rental advantages. Also consider any costs of sale and the effects of the deficiency judgment (see above) that you might incur! See my article in this series called: J is for “Judgment” Lien and its Impact upon Homeowners for more information.

One factor that may seem to favor renting is the negative impact that a decision to go bankrupt will have on your credit. Financial advisers warn that foreclosure will leave a “strong negative” on a credit report for as long as seven years from the date of discharge (which can be longer than 5 years from the date of filing in a Chapter 13), though the impact on a borrower’s rating declines over time. But remember that if you are far behind on you payments and/or your credit cards your credit has already been affected… and, a good bankruptcy lawyer can show you ways to rebuild credit even while in a Chapter 13 bankruptcy plan period (3-5 years).

Whatever your decision may be, I wish you luck.

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 Attorneys Blogging on the Letter R Include: .

New York Bankruptcy Lawyer, Jay S. Fleischman on R is for Redemptions.
Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell on R is for Reaffirmation Agreements
Bay Area Bankruptcy Lawyer Cathy Moran on Retirement.
Colorado Springs Bankruptcy Lawyer Bob Doig on Repossession.
Kona Bankruptcy Lawyer, Stuart T. Ing also on Repossession

Photo by mag3737.

P is for Property of the estate: The key to when a lien can be stripped by the bankruptcy court.

Mar21

By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: westchesterbankruptcyattorney.org

When you inherited that property from your father who died in Texas, it had a second lien which was completely under water and impairs an exemption but you had no liability for the underlying home equity loan so it can’t be stripped in your Chapter 13 bankruptcy, right? Wrong. Let’s see why.

To be “strip eligible”, a secured claim has to be an “allowed claim”. Section 506(a)(1) of the US Bankruptcy Code provides:

An allowed claim of a creditor secured by a lien on property in which the estate has an interest … is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property…”,

The relevant inquiry then for lien stripping is not does the “debtor” owe the debt but does the estate have an interest in the property to which the lien attaches? For that to happen all that is required is that the subject property be in the estate created when the debtor declares bankruptcy. Here are 3 examples to better illustrate the point:

Simple Inheritance Scenario. Suppose the debtor inherited a parcel of real property from her deceased father subject to a lien in favor of his creditors. In the debtor’s bankruptcy case, a lien securing the father’s promise to pay the Bank of Armadillo is just as strip eligible as if the debtor rather than her deceased father were herself the borrower. As long as the property which is collateral for the debt is properly before the court, the lien is subject to stripping.
Co-Beneficiary Scenario. Take the same case but now we have two debtors, each a co tenant and heir with a sibling in the same inherited house (a duplex). Both halves of the house are subject to the BOA lien. If only one debtor files bankruptcy, only that co-tenant’s interest in the house is property of the estate, and the court can only strip the lien from the half of the property because only half is in the bankruptcy estate.
Husband & Wife (certain states only) Scenario. Somewhat the reverse fact pattern is a very common one in Pennsylvania, where I primarily practice law. This can happen for example because the original owner, say the wife, upon marriage deeds the property into husband and wife form, which under Pennsylvania is called “tenancy by the entireties” and serves to protect the marital property from the creditors of the individual marriage partners. The husband is now on title to the property while the wife, the original owner, remains the only one liable on the note. If both spouses file for bankruptcy,, the real estate comes into the bankruptcy estate. Once again, it’s strippable simply because the collateral is property of the estate without reference to the locus of the debt.

Because bankruptcy is essentially “all about the debtor and his or her debts”, it is a common mistake to overlook liens that could have been stripped because the debts do not happen to “belong” to the debtor. This then is another illustration of how competent counsel, by properly identifying and claiming this benefit for you, can save you far more than any legal fee you might have to pay.

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 Attorneys Blogging on the Letter P Include:

Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell: P is for Plan.
New York Bankruptcy Lawyer, Jay S. Fleischman: P is for Pay Advice.
Colorado Springs Bankruptcy Attorney Bob Doig: P is for Preferences.
Maui Bankruptcy Attorney, Stuart Ing: P is for Preference.
Southgate, Michigan Bankruptcy Lawyer, Christopher McAvoy: P is for Pride.
Cleveland Bankruptcy Attorney, Bill Balena: P is for Phone Call
Wisconsin Bankruptcy Lawyer, Bret Nason: P is for Property of the Estate
San Mateo Bankruptcy Lawyer, Jeff Curl: P is for Priority Debt
Metro Richmond Consumer and Bankruptcy Attorney, Mitchell Goldstein: P is for Privacy
Jacksonville Bankruptcy Attorney, J. Dinkins G. Grange: P is for Payment

Photo by Too Far North

J is for “Judgment” Lien and its Impact upon Homeowners.

Jan1

By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

1. What Is a Judgment vs. a Lien and how do they arise in Real Estate?

When you owe money and are unable to pay, the creditor, unless it is the IRS, must take you to court before levying upon your back accounts or garnishing your wages. Typically the creditor will sue you in municipal court or in common pleas court in Pennsylvania if the amount of the claim is larger than $12,000 (up to 15,000 for Philadelphia County real estate matters). When a lawsuit is initiated against you, you will be served with a Complaint. If you do not respond (by answer or other responsive pleading) within a set period of time or appear at the hearing set for your case, a default judgment will be issued against you. This judgment will be recorded by the court.

In Pennsylvania, a judgment is an automatic lien on real property owned by the defendant in the county in which the judgment is located. The lien of a judgment lasts for 5 years, 42 Pa. C.S.A. Sec. 5526, and execution must be issued against personal property within 20 years after entry of the judgment, 42 Pa. C.S.A. Sec. 5529. In addition, via a mechanism called a writ of execution liens can be transferred to other counties in Pennsylvania where the debtor owns property. A lien on real property means that the debtor cannot sell the property until all liens are paid. However, a judgment lien can only be arise in real property. If the debtor does not own real property within the applicable jurisdictional limits, the judgment lien cannot attach to anything and all the creditor has is a recorded judgment. What is the use of this? Well, the creditor can then use this judgment to pursue garnishment where available or levy upon your Pennsylvania bank accounts. However, wage garnishment is prohibited in Pennsylvania except for certain obligations such as support. It is critical for homeowners to respond to all lawsuits by bringing them immediately to the attention of their attorney as in this way an ordinary unsecured debt such as a unpaid credit card debt can become a lien against your home. (See final comment below.)

The filing of a bankruptcy will stay a foreclosure and the underlying debt can be discharged in a bankruptcy except for certain obligations such as domestic support obligations (DSO’s) which are non-dischargeable under Section 11 USC. 523(a) (5) of the Bankruptcy Code. (But see my blog on the effects of a Chapter 13 bankruptcy on DSO’s for further valuable information for homeowners facing support issues.) Even if these steps are taken the lien of the prior judgment will typically continue (in some some cases they can however be completely or partially removed as discussed below) and may cause difficulties for homeowners. To avoid the continuing negative financial consequences they can create, the judgment will need to be removed where possible.

2. REASONS TO HAVE A LIEN/JUDGMENT REMOVED:

When a creditor who has obtained a judgment but the debtor subsequently files a bankruptcy, the debt underlying the judgment is discharged through the bankruptcy. However, the lien of the judgment itself will remain and will be effective against any real property in the county and will interfere with the sale of the property. A lien on real property means that the debtor cannot sell the property until all liens are paid. Understandably, a title company will refuse to clear the title for a home when the property has a judgment lien against it until the title insurer receives proof that the lien has been satisfied or discharged and this can defeat or delay a sale of the property. A lien can of course be satisfied through payment but a typical homeowner files bankruptcy precisely because they can no longer pay their mortgage.

Even if you do not own real estate, while no creditor can collect upon the judgment, it will still continue to exist on the county record. The judgment will be reported to credit bureaus as active, thus continuing to impair your credit for up to 7 years, which is the length of time a judgment can remain on your credit.

3. WHICH JUDGEMENTS AND LIENS IN REAL ESTATE MAY/MAY NOT BE DISCHARGED BY BANKRUPTCY AND HOW IS THIS DONE?

Certain types of debt cannot be discharged through a bankruptcy. For example, back child support cannot be discharged through a bankruptcy.

The lien of a judgment which was entered before the bankruptcy was filed will appertain against real property of the debtor for at least 5 years after entry of the judgment in the county. (See above). However, to the extent the lien impairs an exemption the lien will be subject to removal once the debt has been discharged.

The homestead exemption in bankruptcy applies to property used as your residence. As of early 2012, the federal homestead exemption is $21,625 (if both spouses file, this is doubled). State homestead exemptions vary a great deal. In some states, like Florida, there’s no limit, while in other states, like New York, the limit is $50,000 to $150,000, depending on where in the Empire State you reside. In Pennsylvania, for example, the federal exemption may be elected. So, if you have a house with $50,000 worth of equity you are entitled to a federal exemption with your spouse of $43,250.00. If you only owe $50,000 on the property, you can petition the court and have the judicial lien removed up to the exemption amount. The lien for the remaining $6,750 will remain on the books. Unfortunately however, few homeowners in this day and age of declining home values have sufficient equity in their homes to claim equity impairment sufficient to remove liens following bankruptcy. (See final comment below.)

This process only works when you have claimed a valid exemption relating to your principal residence in the bankruptcy proceeding and the underlying debt has been discharged. If these conditions are met, the bankruptcy court will, upon motion made by your attorney, remove the lien to the extent it impairs your homestead exemption.

A debt must have however been included in the bankruptcy for it to have been discharged. If the creditor was not listed and the debt existed before the case was filed, the case may need to be reopened and the creditor added. (This topic will be treated in greater detail in my blog under construction with the working title: “U is for the Unlisted Creditor in the Bankruptcy Alphabet”.)

If you are involved in a Chapter 13 bankruptcy, which is the usual case for homeowners, you cannot receive a discharge until your plan has been completed which can take up to 60 months. A judgment cannot be removed if a discharge has not been issued. You will have to wait until your plan is completed before you will be able to remove any judgments issued against you and begin to clear your credit.

Once the discharge has been obtained, clearing a listed judgment (but not the judicial lien if you have non-exempt real estate in the county: see above) may be as simple as having your lawyer send a notice of discharge in bankruptcy to the clerk of the court of the county in which the judgment was recorded with a copy to the creditor.

Clearing debt off your credit report however can require the additional help of a credit specialist. Certain lawyers can assist you with credit repair.

4. CONCLUSION: DO NOT HIDE YOUR HEAD IN THE SAND:

Obviously these rules are very complicated and, while I have illustrated with examples drawn mainly from Pennsylvania where I practice, vary from state to state and even within state boundaries. There is however one sure fire way to keep a lien from arising on your real property in Pennsylvania and elsewhere. Never allow a judgment to be entered against you before you have the oportunity to file bankruptcy. Instead, seek the advice of a competent bankruptcy lawyer as soon as you see the first sign of a law suit looming on your horizon and start planning for a bankruptcy filing to preempt the filing of a judgment.

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 bankruptcy attorneys discussing the Letter “J” include:

Joint Filing Marin County Bankruptcy Attorney, Catherine Eranthe http://marin-bankruptcy-law.com/2011/11/27/bankruptcy-a-to-z-j-is-for-joint-filing/
Judgment Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell http://bankruptcyblog.caldwell-lawfirm.com/2011/11/09/bankruptcy-alphabet-j-is-for-judgment.aspx
Your Personal Finance Lawyer New York Bankruptcy Lawyer, Jay S. Fleischman http://www.consumerhelpcentral.com/jay-fleischman-personal-finance-lawyer/
Justify Northern California Bankruptcy Lawyer, Cathy Moran http://moranlaw.net/blog/bankruptcy-alphabet-j-for-justify/
Judgment Liens Colorado Springs Bankruptcy Attorney Bob Doig http://springsbankruptcylaw.com/?p=1165
Joint Debts Hawaii Bankruptcy Attorney, Stuart T. Ing http://www.bankruptcyhi.com/2011/12/j-is-for-joint-debts/
Judicial Lien Cleveland Area Bankruptcy Lawyer, Bill Balena http://ohiobankruptcysource.com/?p=2325

The H in the Bankruptcy Alphabet is for “Honesty” and Fraud Avoidance.

Dec20

is for Honesty

By Christopher C. Carr, Esq. Chester County bankruptcy* attorney.* Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

Every potential bankruptcy client needs to understand that it is in his/her best interest to be entirely honest in their dealings with their lawyer, the trustee and the courts. Not only may the debtor harm themself by failing to disclose material information but they may also potentially face severe criminal penalties.[1] The United States bankruptcy laws require the debtor to disclose all income and assets to the bankruptcy court and the court is empowered under applicable federal statutes to uphold the integrity of the system and the participants in it. The theory and practice of these disclosures, is that if accurate and complete, the bankruptcy trustee and the court are able to determine what, if anything, the debtor can afford to repay to the creditors.

The bankruptcy disclosure form which every debtor is required to sign WARNS as follows:

Bankruptcy Crimes and Availability of Bankruptcy Papers to Law Enforcement Officials

A person who knowingly and fraudulently conceals assets or makes a false oath or statement under penalty of perjury, either orally or in writing, in connection with a bankruptcy case is subject to a fine, imprisonment, or both. All information supplied by a debtor in connection with a bankruptcy case is subject to examination by the Attorney General acting through the Office of the United States Trustee, the Office of the United States Attorney, and other components and employees of the Department of Justice.

WARNING: Section 521(a)(1) of the Bankruptcy Code requires that you promptly file detailed information regarding your creditors, assets, liabilities, income, expenses and general financial condition. Your bankruptcy case may be dismissed if this information is not filed with the court within the time deadlines set by the Bankruptcy Code, the Bankruptcy Rules, and the local rules of the court. [2]

Oftentimes the debtor will unintentionally hurt their case by “shading” the truth based upon an inaccurate understanding of the bankruptcy laws. For example, a debt may not be listed on the petition because the debtor does not wish to reveal it. However, a debt that is not disclosed cannot be discharged in bankruptcy.

One of the great unfounded fears in all of bankruptcy is that the debtor will “lose all their assets in bankruptcy”. Thus, a debtor may fail to reveal an asset which might have been partially or completely exempt and thus unnecessarily face the complete loss of the asset (see below). There are generous exemptions available for many assets especially under the federal statutes and the laws of states like Pennsylvania where I practice law allow debtors to elect these, instead of the far less generous state exemptions. Other states like Florida have homestead exemptions which allow a debtor domiciled in Florida to completely shield their primary residence.

One article provides the following example of this temptation in action and how the result of yielding to it easily can be detected:

“Because cash is difficult to track down, it may be tempting to pile up as much cash as you can before bankruptcy and then “forget” to include the cash on your financial statement that you file with the bankruptcy court. Be forewarned that the bankruptcy code imposes significant civil and criminal penalties on debtor’s who intentionally provide false information to the bankruptcy court. Because the bankruptcy trustee will have access to all your recent history of earnings, bank statements and other financial records, there is a strong likelihood that the trustee will be able to tell if you have attempted to siphon off cash before filing your bankruptcy petition.”

It is thus essential that the debtor reveal all debts, assets and income sources to the lawyer who can then properly advise the debtor on legal protections and issues. If there is any question for example as to whether an item is an asset, the debtor should disclose it and let the lawyer decide how to properly treat it in the petition. Some writers have indicated that such proactivity can help to show that the debtor did not have the requisite intent to commit bankruptcy fraud.

One consequence of failing to disclose income or assets is that the debtor may be denied a bankruptcy discharge and remain liable for all debts under Section 727 of the Bankruptcy Code. Its provisions permit the court to dismiss the debtor’s case for dishonesty on the bankruptcy schedules, hiding assets, failing to maintain financial records, refusing to turn over records, or refusing to cooperate with the trustee. Not only may the court deny the dishonest or uncooperative debtor a discharge under Section 727 but any assets turned over during the case will still be sold by the bankruptcy trustee so that the debtor loses the property without any concomitant bankruptcy benefits.

As is indicated above, the most serious consequence for the debtor of dubious honesty is the prospect of being charged with criminal bankruptcy fraud. Most bankruptcy fraud first comes to the attention of the bankruptcy trustee during the course of the bankruptcy or as a result of “whistle blowing” by neighbors, creditors, or ex-spouses. The IRS under the Internal Revenue Service Criminal Investigation’s Bankruptcy Fraud Program and the US Trustee are the most active in investigating fraud. The Department of Justice Trustee Program encourages individuals to report bankruptcy fraud to the US Department of Justice for further potentially criminal action. The IRS also maintains a whistle blower award program.

The IRS appears to use the Bankruptcy Fraud Program to make examples of egregious miscreants, especially where a case also involves tax fraud or evasion, and consequently has an extremely high conviction rate. For example in 2011, 83% of those who had been charged with bankruptcy fraud are now serving time. In virtually all these cases, the individual was also required to make substantial financial restitution and also were required to serve a period of supervised release.

In addition, just because your bankruptcy is discharged, don’t think that you are off the hook. Individuals who file for relief under Chapter 7
or Chapter 13 of the Bankruptcy Code are subject to audits by the U.S. Trustee. For further information visit the U.S. Trustee site.

The moral of the story? You are filing bankruptcy to get a fresh start. You have little to fear and everything to gain from the process if you are honest and adopt a policy of full disclosure.

Law Offices of Christopher C. Carr, MBA, P.C., is a quality Chester County Bankruptcy Practice, located in Valley Township, west of Coatesville, Pennsylvania, where Attorney Carr, who has over 30 years if diversified experience as an attorney, 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, 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!

[1] The criminal sanctions can include sentence of up to five years in prison and fines up to $250,000.

[2] Source

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.

For other articles in the nationwide bankruptcy ABC’s series check out these attorneys:

Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell: H is for Hearing.
New York Bankruptcy Lawyer, Jay S. Fleischman: H is for Household.
Northern California Bankruptcy Lawyer, Cathy Moran: H is for House, no not the doctor.
Colorado Springs Bankruptcy Lawyer Bob Doig: H is for Homestead.
Los Angeles Bankruptcy Attorney, Mark J. Markus: H is for House
Hilo Bankruptcy Attorney, Stuart T. Ing: H is for Household Size.
Cleveland and Lorain Count Bankruptcy Attorney, Bill Balena: H is for Honesty

Photo by Arenamountanus

Christopher Carr, Esq. on Debt Relief

A Frank Discussion of Debtor's Rights & Consumer Bankruptcy

Tag Archives: exemption

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Chapter 13 Lien Strip A to Z

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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

I also provide Mortgage Modification Services.

K is for “Knight in Shining Armor”

“R” in Bankruptcy is for Rental vs. Chapter 13 Home Retention: A Tax Benefit Analysis

P is for Property of the estate: The key to when a lien can be stripped by the bankruptcy court.

J is for “Judgment” Lien and its Impact upon Homeowners.

The H in the Bankruptcy Alphabet is for “Honesty” and Fraud Avoidance.

is for Honesty

By Christopher C. Carr, Esq. Chester County bankruptcy* attorney.* Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

For other articles in the nationwide bankruptcy ABC’s series check out these attorneys:

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

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

I also provide Mortgage Modification Services.

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is for Honesty

By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

For other articles in the nationwide bankruptcy ABC’s series check out these attorneys:

Rate this:

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

By Christopher C. Carr, Esq. Chester County bankruptcy* attorney.* Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com