2nd Mortgage Reattaches After Foreclosure and Bankruptcy

Lots of people are still facing home foreclosure in Los Angeles.

This week I was reminded that a “sold out” 2nd mortgage reattaches after foreclosure, and is revived, where the borrower, or “trustor”, comes on title to the property after the foreclosure sale.

This often happens where a family member of the person who owns the property that is being foreclosed purchases the property at the foreclosure sale in their name for the benefit of the owner. Later, the family member transfers title to the property back to the owner. While this may sound like a good idea, by doing so the …

2nd Mortgage Reattaches After Foreclosure

In California, liens recorded first in time are first in right. California is a “race notice” state. This means the first one to get to the Los Angeles Recorder’s Office and record wins. This is important because liens are paid in order of their priority.

Foreclosure wipes out all liens that are junior to the lien being foreclosed. However, any liens that are senior to the lien being foreclosed survive, and the buyer at the foreclosure sale takes the property subject to the senior liens.

As is often the case, the senior lien holder will foreclose first, wiping out all junior liens behind it. Following a foreclosure sale in California these junior liens are sometimes referred to as “sold out” junior lien holders because the property that once “secured” their lien is no longer there, leaving them with only an unsecured claim for payment.

Depending on the nature of the loan at the time it was made, the “sold out” junior lien holder may or may not be allowed to pursue the borrower for payment of the loan after foreclosure.

However, California Civil Code section 2930 states that, “[t]itle acquired by the mortgagor subsequent to the execution of the mortgage, inures to the mortgagee as security for the debt in like manner as if acquired before the execution.”

This means that a “sold out” junior lien reattaches to the property following a foreclosure sale if the original borrower later comes back on title to the property.

This is what happened in the California Supreme Court case of Barberi v. Rothchild, 7 Cal.2d 537 (1936). In Barberi the owners of the property obtained two loans secured by deeds of trust against their property. The holder of the 1st deed of trust foreclosed the property when the borrowers failed to make the payments on the loan, thereby wiping out the 2nd trust deed. However, the borrowers later purchased the property from the foreclosing lien holder. The court found that upon the borrowers taking title to the property the 2nd trust deed was revived and attached to the property citing California Civil Code section 2930.

Before you transfer title to real property talk to an experienced real estate lawyer in Los Angeles.

Debt Collector Keeps Calling After Bankruptcy Discharge

I Filed Bankruptcy To Get Out Of Debt, But Debt Collectors Keep Calling After Bankruptcy Discharge

Recently there have been reports of fake debt collectors demanding money for payment of debts discharged in bankruptcy, often under threat of arrest.

The National Association of Consumer Bankruptcy Attorneys issued a warning that “Under no circumstances would a bankruptcy attorney or staff member telephone a client and ask for a wire transfer immediately to satisfy a debt. Nor would the bankruptcy attorney and staff ever threaten arrest if a debt isn’t paid.”

Don’t fall for this scam. A bankruptcy discharge is an injunction prohibiting creditors from collecting discharged debts. An “injunction” is a fancy word for a court order that either prohibits or requires some action. If debt collector keeps calling after bankruptcy discharge they are violating the discharge injunction.

Section 523 of the Bankruptcy Code contains a list of debts that are not dischargeable in bankruptcy. Some examples of nondischargeable debt include domestic support obligations, recent income tax debt, and student loans. But debts like credit cards, personal loans, and medical bills are discharged in bankruptcy. Your attorney should have told you if you had any nondischargeable debt at the time you filed bankruptcy.

If you filed bankruptcy and were granted a discharge, and debt collectors keep calling you, they may be violating the discharge injunction, and you may be able to recover damages against them. If debt collectors willfully continue to contact you knowing the debt has been discharged, the bankruptcy court may find them in contempt of the discharge order. Never give out personal information over the telephone, and never wire money to a creditor unless you are absolutely sure who the person is and the debt to which the payment relates.

If you need a bankruptcy attorney in Los Angeles and Long Beach, California, contact us today!

New Bankruptcy Means Test Figures November 15, 2015

Do I qualify for bankruptcy?

To figure out if you qualify for bankruptcy you have to take and pass a means test.  To pass the chapter 7 means test your average gross monthly income, minus “reasonable and necessary” living expenses, must be below a certain threshold.  If you have too much “disposable monthly income” the law says you have to repay some of your debts in chapter 13 bankruptcy.

A few things about the means test.  Many of the so-called reasonable and necessary living expenses are fixed by law using census bureau and IRS living standard figures.  If you actually spend more, tough luck.  You only get a deduction for the fixed amount.

In addition, the means test favors people with car loans and mortgages, because the means test allows you deduct payments on secured debts like these.  So, two people can earn the same amount of money, and have the same household size, and one may pass the chapter 7 means test, and the other may not. 

Get help with the chapter 7 bankruptcy means test today (562) 479-0939.

Filing Bankruptcy In Los Angeles Just Got A Little More Expensive – Los Angeles Bankruptcy Lawyer

Filing bankruptcy in Los Angeles can be expensive. And, as of June 1, 2014, it will be a little more expensive.

That’s because the court fees for filing bankruptcy in Los Angeles (and the rest of the country) are increasing $29.00 as of June 1st. The filing fee for chapter 7 will now be $335.00, and the filing fee for chapter 13 is increasing to $310.00.

These fee increase will indeed hurt those who are already struggling to meet the costs associated with filing bankruptcy in Los Angeles. Those who qualify may be able to pay the filing fee in installments, or have the fee waived by the court. Here’s more information about installment payments or fee waivers.

If you are considering filing bankruptcy in Los Angeles hire an experienced Los Angeles bankruptcy attorney to represent you. The Law Office of David P. Farrell represents individuals in chapter 7 and chapter 13 bankruptcy in Los Angeles. Contact us today for a free, no-obligation consultation.

Can I Get A Hardship Discharge In Chapter 13 Bankruptcy

What Is A Hardship Discharge In Chapter 13 Bankruptcy?

To put it simply, chapter 13 bankruptcy is a repayment plan that allows you to get out of debt by paying your creditors as much as you can afford to over a period of time.

Chapter 13 bankruptcy contemplates the debtor completing her plan by making all of the payments before receiving a discharge.

However, Congress provided an escape hatch where circumstances beyond a debtor’s control prevent them from completing their plan.

This escape hatch is known as the chapter 13 hardship discharge which provides in relevant part that:

“[A]t any time after the confirmation of the plan and after notice and a hearing, the court may grant a discharge to a debtor that has not completed payments under the plan only if—

(1) the debtor’s failure to complete such payments is due to circumstances for which the debtor should not justly be held accountable;

(2) the value, as of the effective date of the plan, of property actually distributed under the plan on account of each allowed unsecured claim is not less than the amount that would have been paid on such claim if the estate of the debtor had been liquidated under chapter 7 of this title on such date; and

(3) modification of the plan under section 1329 of this title is not practicable.

The Circumstances Have To Be Beyond The Debtor’s Control

In order to even qualify for a hardship discharge the debtor’s circumstances must be beyond her control.

I recently had a case where the debtor’s kidney’s began failing two years into her 5 year plan. She went from being an energetic healthcare professional to a patient, seemingly overnight. Her treatment required that she undergo dialysis treatment three times a week for four hours per session. In time she lost her job, her disability payments ran out, and she could no longer afford her plan payments.

If you ask the court for a hardship discharge the first question the judge is going to ask is: did the debtor create the circumstances giving rise to the hardship? Or are they circumstances beyond her control for which she should not justly be held accountable?

Unsecured Creditors Must Receive At Least As Much As They Would Have Had The Debtor Filed Chapter 7 Bankruptcy Instead Of Chapter 13

This is the same “liquidation test” that is used by the court to determine whether a debtor’s chapter 13 plan should be confirmed.

The liquidation test is a tool to measure the fairness of chapter 13 plans in relation to unsecured creditors. If unsecured creditors would receive greater value in chapter 7 than than they would under the debtor’s proposed chapter 13 plan, then confirmation of the plan will be denied. Unsecured creditors have to receive in chapter 13 at least as much as they would if the debtor filed chapter 7.

The same is true in the context of a request for hardship discharge. Because much of bankruptcy law is geared toward creditor fairness the court doesn’t want debtors gaining an advantage over their creditors using the hardship discharge.

Suppose a debtor files chapter 13 and proposes a plan that pays 20 cents on the dollar to her unsecured creditors. The plan pays 20 percent because under the liquidation test if debtor filed chapter 7 her unsecured would realize as much upon the sale of her non-exempt assets. Under the liquidation test the debtor will be unable to receive a hardship discharge unless she can demonstrate to the court that her unsecured creditors have received 20 cents on the dollar under her plan.

The debtor may be able to do so, but close attention must be paid to the liquidation test both before the case is ever filed and in seeking hardship discharge relief.

Hardship Discharge In Chapter 13 Has To Be The Last Available Option

If the debtor could modify her plan to cure the problem, she will be denied a hardship discharge.

This makes practical sense. Congress and the courts want debtors to complete their chapter 13 plans if it is practicable for them to do so. After all, the whole point of chapter 13 is to pay creditors something. If the debtor can fix the problem or circumstance she finds herself in by asking the court to modify her plan, then she will be unable to meet the third requirement for a hardship discharge in chapter 13 bankruptcy and her request will be denied.

What Debts Does A Hardship Discharge In Chapter 13 Bankruptcy Get Rid Of?

The hardship discharge in chapter 13 bankruptcy is not as broad as where the debtor fully complies with her plan and completes all of her payments.

The bankruptcy code at 11 U.S.C. 1328(c) sets the limitation and provides that:

“A discharge granted under subsection (b) of this section discharges the debtor from all unsecured debts provided for by the plan or disallowed under section 502 of this title, except any debt—

(1) provided for under section 1322(b)(5) of this title; or

(2) of a kind specified in section 523(a) of this title.”

When the debtor in chapter 13 bankruptcy completes all of her payments she gets what is sometimes referred to as a “super discharge.” It is called a “super discharge” because it discharges many of the debts excepted from discharge under 11 U.S.C. 523(a).

The hardship discharge isn’t as broad. If the debtor has any debts of the kind listed in section 523(a), those debts will remain her personal liability after a hardship discharge.

The Law Office of David P. Farrell represents people in chapter 13 bankruptcy throughout Southern California. Contact us today for a free, no-obligation consultation and find out today if chapter 13 bankruptcy is right for you.

Bankruptcy Exemptions In Chapter 7

What Bankruptcy Exemptions Apply In California?

California asset protection law provides two sets of bankruptcy exemptions for people filing chapter 7 bankruptcy, namely, the “703” and “704” exemptions. The debtor must choose one set or the other, she cannot mix them. Moreover, married persons must collectively choose one set of exemptions.

So what is an exemption? An exemption is a law that protects property from creditors. It allows the debtor to place property out of reach of creditors by claiming it exempt. Once exempt, the property cannot be used to satisfy the debt.

In bankruptcy (which is federal law), the court looks to state law to determine what property of the debtor’s is exempt. However, it is the debtor’s job to claim the bankruptcy exemption. (There are also federal exemptions, but California has opted out of the federal exemption scheme.)

California’s Wildcard Bankruptcy Exemption

The 703 exemptions are commonly used by debtors who don’t own a residence, or where their residence is worth less than the amount owed on it.

Under 703 there is a “wildcard” provision that allows the debtor to claim as exempt any property up to a specific dollar amount. This this “wildcard” exemption is in addition to other specific exemptions under 703.

California’s Homestead Bankruptcy Exemption

The 704 exemptions on the other hand are commonly used by debtors who own a home that has equity in it. “Equity” is the fancy term for “value,” and generally is equal to the difference between the value of the asset and the amount owed on it. So, for example, if the debtor owns a home that is worth $300,000 with a mortgage of $200,000, there is $100,000 of equity in the property.

The amount of the 704 homestead bankruptcy exemption is either $75,000, $100,000 or $175,000 depending on a variety of factors including the debtor’s age, family and financial circumstances. Moreover, the homestead bankruptcy exemption is automatic; it is no longer necessary to record a declaration of homestead in order to claim the exemption.

So, if the homeowner in the above-example were to file chapter 7 bankruptcy she would want to claim a homestead exemption under 704, not 703. By doing so she would be able exempt at least $75,000 of the $100,000 equity in her home. The remaining $25,000 in non-exempt equity would be available to the trustee. However, because the cost of selling the property (estimated at 8%) would most likely eat up the non-exempt equity, the trustee would most likely decide not to sell the property since there would be no money realized for the benefit of creditors after the mortgage ($200,000), transaction costs ($24,000), and debtor’s exemption ($75,000) had been paid.

Exemption planning is vitally important part of a successful chapter 7 bankruptcy because in chapter 7 the bankruptcy trustee’s job is to sell non-exempt property to pay creditors. Accordingly, make sure you fully understand how California bankruptcy exemptions work before you file chapter 7. None of the information in this article is intended to be, nor is it, legal advice.

The law office of David P. Farrell is a bankruptcy law firm in Long Beach, California representing individuals in personal chapter 7 and chapter 13 bankruptcy. Contact us today for a free, no-obligation consultation.

Exemptions

Home Equity In Chapter 13 Bankruptcy: Long Beach Bankruptcy Law Firm

Home Equity And The ‘Best Interest Of Creditors Test’

In chapter 13, the value of your non-exempt assets is the amount you must pay unsecured creditors. This is referred to as the ‘best interest of creditors’ or ‘liquidation’ test and requires that unsecured creditors receive at least as much in chapter 13 as they would if the estate were liquidated in chapter 7.

With residential housing prices on the rise in Southern California, passing the best interest of creditors test and maximizing the benefits of chapter 13 is becoming more difficult.

Let’s say your home is worth $450,000, you have a mortgage of $250,000, and you are entitled to claim the $100,000 automatic California homestead exemption. In this example you have $100,000 in non-exempt equity.

If you were to file chapter 7 under such circumstances the trustee would sell the property, pay you the exempt amount, and distribute the balance of the sale proceeds to your unsecured creditors.

But in chapter 13 the trustee doesn’t sell your stuff. Instead, the debtor proposes a plan to repay his creditors.

Transaction Costs May Be Deducted In Determining Best Interest of Creditors

It costs money to sell something – i.e. storage fees, marketing costs, commissions, etc.

If property is sold by the trustee in chapter 7, the transaction costs are paid by the bankruptcy estate before the sale proceeds are distributed to creditors.

So, in determining whether a chapter 13 plan meet the best interest of creditors test, the debtor is entitled to deduct the transaction costs of a hypothetical chapter 7.

Sticking with the above example, if the debtor files chapter 13 the amount required to be paid to unsecured creditors under the best interests of creditors test would be $64,000, as follows:

$450,000 – value of the propery
-$250,000 – mortgage
-$36,000 – transaction costs (8%)
-$100,000 – homestead exemption
=$64,000 – available to unsecured creditors in chapter 7

Rising Home Prices Makes Avoiding Liens More Difficult

In addition to increasing the amount paid to unsecured creditors in chapter 13 under the best interests of creditors test, rising real estate prices makes it more difficult to avoid mortgages in bankruptcy.

This is because in order to avoid a junior mortgage in bankruptcy you have to prove that the current fair market value of the property is less than the amount owed on the 1st mortgage. That is, the junior lien has to be completely unsecured by the property in order to be avoided in bankruptcy.

If the junior mortgage is even partially secured by the property, it cannot be avoided.

Contact us today to speak to a chapter 13 bankruptcy attorney in Long Beach, California.

Rising Housing Prices May Affect Your Bankruptcy

Rising housing prices can affect your bankruptcy in a number of ways. Generally, increased housing prices means increased equity, and in bankruptcy equity is everything.

“Equity” or “value” impacts how much you have to pay creditors in chapter 13 bankruptcy, and whether your property will be sold by the trustee in chapter 7 bankruptcy.

Non-Exempt Home Equity In Chapter 7 Bankruptcy

In chapter 7 bankruptcy, non-exempt property is sold to pay creditors. So, with housing prices on the rise, exemption planning in chapter 7 bankruptcy is now more important than ever.

The California homestead exemption is $75,000, $100,000 or $175,000 depending on the debtor’s age, familial and financial circumstances. The homestead exemption allows a debtor to protect equity in their homestead in the event the property is involuntarily sold. Filing bankruptcy is treated as an involuntary sale for purposes of the homestead exemption.

If the equity in the debtor’s home exceeds the available exemption, the bankruptcy trustee may sell the property, payoff the mortgages and other liens, pay the debtor his exempt amount, and pay the debtor’s creditors, and himself, with the remaining sale proceeds.

Obviously, if you have non-exempt property in your home, and you want to keep the property, you may think twice about filing chapter 7 bankruptcy.

Rising Housing Prices In Chapter 13 Bankruptcy

In chapter 13, the debtor keeps his property while making payments under a repayment plan confirmed by the bankruptcy court.

In order for a chapter 13 plan to be confirmed, unsecured creditors must receive at least as much under debtor’s chapter 13 plan as they would if the debtor filed chapter. This is sometimes referred to as the best interest of creditors test.

Rising housing prices can make it more difficult for homeowners to satisfy the best interest of creditors test and confirm a chapter 13 plan.

For example, assume husband and wife own a home with $200,000 in equity. The available homestead exemption allows them to exempt $175,000, leaving $25,000 of non-exempt equity. Under the best interest of creditors test, debtors will have to propose a plan that pays unsecured creditors at least $25,000, the amount they would receive if debtors’ estate were liquidated in chapter 7.

Lien Stripping in Chapter 13

Rising housing prices also affect a debtor’s ability to avoid junior liens like 2nd mortgages in chapter 13 bankruptcy.

In order to avoid a 2nd mortgage in chapter 13, the debt must demonstrate that the property is worth less than the amount of the 1st mortgage, and that the 2nd mortgage or junior lien is wholly unsecured by the property.

If the second mortgage or lien is secured by the property, even a little bit, the junior lien cannot be avoided under 11 U.S.C. 506(d). The junior lien has to be completely unsecured!

These days, with housing prices on the rise, lenders are beginning to challenge debtors who attempt to avoid junior liens on real property in chapter 13. If you are considering filing bankruptcy, speak to an experienced bankruptcy attorney today.

Bankruptcy Protection

Help! I Need Bankruptcy Protection

Bankruptcy protection is one reason people file bankruptcy. But what is bankruptcy protection really?

Creditors employ a sorts of different tactics in collecting debt – relentless phone calls, letters, lawsuits, debtor examinations, wage garnishments, bank levies, etc.

These collection methods are intrusive and can make someone who has never considered filing bankruptcy reconsider. In such instances, bankruptcy offers instant relief and protection from creditors.

So, how does bankruptcy protection work?

Bankruptcy Protection and The Automatic Bankruptcy Stay

The source of bankruptcy protection is the automatic stay.

Found in 11 U.S.C. 362(a), the automatic stay halts most actions against the debtor and the debtor’s property. The “stay” gives the debtor a breathing spell and a much needed refuge from his creditors.

Bankruptcy Protection Offers Immediate Relief

One of the great things about bankruptcy protection is that relief is immediate!

The automatic bankruptcy stay is a congressional stay, which means it goes into effect the moment the bankruptcy case is filed. No notice is required and any action taken in violation of the stay is void.

So, while it is not advisable, you could file bankruptcy a minute before your house is sold in foreclosure, and that sale would be void.

How Long Does Bankruptcy Protection and the Automatic Stay Last?

The length of the automatic bankruptcy stay varies depending on the type of bankruptcy case filed, and the nature of the debt involved.

Generally speaking, the automatic bankruptcy stay against property lasts until the property ceases to be property of the bankruptcy estate. This usually occurs when the property is abandoned by the bankruptcy trustee, or the case is closed.

However, it is possible for creditors to ask the bankruptcy court for relief from the automatic stay. Once granted relief from stay, creditors are free to pursue their state law remedies against the debtor without fear of violating the automatic bankruptcy stay.

In addition, if the debtor has filed bankruptcy in the past the stay may be limited, or not go into effect at all.

Are There Alternatives To Filing For Bankruptcy Protection?

Of course there are. You almost always have alternatives.

You can try to settle the debt by making a lump sum payment for an amount less than what is owed, or reach a consensual repayment plan on the balance. Doing so avoids drastic collection methods like wage garnishment and bank levy.

Remember though that such arrangements must be agreed to by both parties. The creditor does not have to accept payments once they have a judgment. They may simply pursue collection of the judgment by any available legal means.

Can I Keep My Home If I File For Bankruptcy?

There is something about home that is wonderful and worth fighting for. For most people losing their home in foreclosure is incomprehensible.

As a bankruptcy attorney in Long Beach CA one question I am often asked is: can I keep my home if I file for bankruptcy?

The answer depends on several factors, but here are a few things to keep in mind.

How Much Value Is In Your Property?

One of my professors in law school would always say, “everything in the practice of law is about money,” rubbing his thumb and index fingers together.

Fortunately or unfortunately, he was right.

Bankruptcy is no different. Chapter 7 bankruptcy is about value. In particular, determining whether there is any non-exempt assets in the debtor’s property (i.e. bankruptcy estate) to pay creditors.

So, the answer to the question, “can I keep my home if I file for bankruptcy?” depends on whether there is non-exempt equity in the property sufficient to make it worth the trustee’s time and effort to sell the property.

California’s Homestead Exemption Is Generous!

If the property is worth less than the amount owed on it, then there is no value and the bankruptcy trustee will have no interest in selling the property.

Remember, the bankruptcy trustee only cares about money!

For people who do have home equity, one of the benefits to filing chapter 7 bankruptcy in California is the generous homestead exemption which ranges from $75,000 to $175,000 depending on the debtor’s age, dependents and health.

If the debtor’s equity interest in the property falls within the applicable exemption amount, the property is protected from creditors, including the bankruptcy trustee, and the debtor can answer “yes” to the question: can I keep my home if I file for bankruptcy?

If You Have Non-Exempt Home Equity, Filing Chapter 13 Bankruptcy.

For people who do have home equity that exceeds the exemption amount, filing chapter 7 bankruptcy in California could be a disaster.

In chapter 7, the bankruptcy trustee’s job is to liquidate non-exempt property and use the money to pay creditors. One filed, a chapter 7 case cannot be dismissed or converted to another chapter without court permission.

So, if you file chapter 7 bankruptcy in California and you have non-exempt home equity, the chapter 7 trustee may sell your property to get the non-exempt funds.

Avoid this by filing chapter 13 bankruptcy.

Chapter 13 bankruptcy is a repayment plan, but unlike chapter 7, the debtor keeps all of his property in chapter 13.

In chapter 13 only certain creditors have to be paid, all other creditors only get paid if there is any money left over. At the end of the chapter 13 plan any remaining unsecured debts are discharged.

If you’re considering bankruptcy and asking “can I keep my home if I file for bankruptcy” contact us today for a free no-obligation consultation.