Articles Posted in Chapter 13

It’s a little known, but extremely valuable, technique employed by experienced bankruptcy lawyers: Using the “automatic stay” feature of bankruptcy to get a repossessed car back into the hands of its owner.

Our DC-based bankruptcy law firm used it the other day to get a car back for a young man who needed his car to get around and commute to his job.

When a car is repossessed, physically it comes under the control of the lender. However, legal title does not pass, and remains with the owner, until a legally-valid auction has been conducted and title then conveyed to the winning bidder, which oftentimes is the lender.

Undoubtedly, as tax day approaches, there are people right now who are struggling with the question: “I haven’t filed in [fill in the blank]____ years. Should I file this year?” As a tax and bankruptcy lawyer serving individuals and businesses in Maryland and DC, this law firm is very familiar with this taxpayer’s quandary.

On the whole, it’s better to file — even if you can’t pay — for a number of reasons:

• IRS, and the state tax authority, make a distinction when it comes to charging you with civil tax infractions. There are a separate set of penalties added to your tax bill for “failure to file” and “failure to pay.” Go ahead and file, at least. You’ll save yourself some money in penalties.

Here are the facts:

  1. All bankruptcy attorneys filing in a specific court charge within a few hundred dollars of each other. This goes for the bankruptcy courts in DC, suburban Maryland. The reason: Bankruptcy fees are disclosed in all cases and they are easily available for viewing on-line by attorneys e-filing in that court. Any attorney wanting to see what the other guy or gal is charging? Go to the court’s website, a few clicks and voila, you know! Everybody charges within that range.
  2. Lawyers are not stupid. (OK, no jokes!) They have to run a business and earn a profit to make a living. The guys or gals who charge low-ball prices and tout inexpensive bankruptcy make up for the lower margins by running more cases through the office in less time. It’s what’s known as a “mill.” Expect less attention and time answering your questions and concerns. You get what you pay for. We get way too many calls from disappointed customers who got no service from such firms.

I’m looking at the news reports coming out about the House-approved version of the bill giving debtors the opportunity to modify mortgages in Chapter 13 that happened only a few hours ago, and it feels like deja vu — all over again. It’s like “BAPCA (the 2005 bankruptcy reform bill) Redux.”

The attitude I’m feeling from the bank-inserted provisions indicates they think people go into bankruptcy willy-nilly, as if the process is a joy ride.

To whit, one of the major provisions: That debtors seeking modification in bankruptcy have to have attempted a modification previously outside of bankruptcy.

Here it comes. At long last. Tomorrow (Thursday, March 5, 2009) is the first major vote on the Obama-backed change in the law to permit forced modification of homeowner mortgages in Chapter 13 bankruptcy. We bankruptcy lawyers in suburban Maryland and DC, have been operating for the past three years of the real estate crisis with our hands tied. We could discharge most unsecured debt (credit cards, etc.). We could eliminate second mortgages when the home value had dropped so that the second mortgage was unsecured. We could even modify mortgages on vacation homes, but we could not touch the mortgage on the collateral the debtor most dearly wanted to keep — the primary residence. Sad and highly frustrating when you are trying to do your very best for the client.

Let’s keep our fingers crossed. Better yet, don’t be shy to lobby. Call your US representative and senator. Tell them it’s important. They must pass this bill, especially in a form that maximizes a homeowner’s power to make that mortgage affordable. They put you into a phony exploding interest rate (better known as a “subprime mortgage.”) Let’s make it real this time.

A change in the law to permit home owners to FORCE a modification on mortgage lenders in Chapter 13 bankruptcy has begun its journey in Congress. Last week a committee in the House of Representatives voted the bill out and moved it to the full body for consideration.

HR 200 would substantially expand the powers of a debtor in Chapter 13 and give him or her the ability to do something that, up until now, has been sorely needed, but unavailable: Modify the terms of a mortgage secured by a primary residence over the objection of the lender. Presently this has been barred by a clause in the law (Section 1322(b)(2) of the federal Bankruptcy Code, for the legally-inclined), which was written into the law by lenders years ago. Given the current crisis, legislators see the necessity of removing it, in its current form.

With the change in the law — which is backed by President Obama and the Democratic majority — a home owner, in Chapter 13 could: 1) Reduce the interest rate on his or her loan to approximately the prevailing rate plus one, 2) Change the loan from a negative amortization or interest-only loan to one with positive amortization, 3) Possibly extend the term to as much as 40 years, and — most importantly — 4) Reduce the principal balance TO THE CURRENT VALUE OF THE HOME.

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