“Chapter 20″ Lien Stripping Allowed by Fourth Circuit Appeals Court

The U.S. Court of Appeals, Fourth Circuit, has become the first U.S. Court of Appeals to approve “chapter 20″ lien stripping.  Although virtually all U.S. bankruptcy courts allow the “stripping” (vacating and eliminating) of completely unsecured junior mortgages on homestead real estate, the Fourth Circuit is the first circuit-level appeals court to approve lien stripping in a chapter 13 which follows closely on the heels of a chapter 7 bankruptcy filing.  In re Davis (Branigan v. Davis), No. 12-1184 (4th Cir. May 10, 2013).

“Chapter 20″ is a colloquial term for a chapter 13 bankruptcy filed within four years of a chapter 7 case.

A junior mortgage is the second, third, or any other mortgage which is junior to the first mortgage upon homestead real estate.  Although junior mortgages cannot be stripped or otherwise modified in a chapter 7 bankruptcy (although the Eleventh Circuit has allowed this practice in an unpublished opinion), junior mortgages can indeed be stripped off in a chapter 13 bankruptcy, if the junior mortgage is entirely unsecured.

An example of an entirely secured junior mortgage would be where the home’s value is $200,000 and the first mortgage has a balance of $250,000; if the home is also subject to a second mortgage in the amount of $50,000 the second mortgage is not secured by any actual value of the real estate.  To think of this example in another way, if a foreclosure sale were to occur on this underwater home, the first mortgage would receive only $200,000 (the home’s value) and the second mortgage would get absolutely nothing.  This is what the bankruptcy code means when it categorizes a junior mortgage as entirely unsecured.

“Chapter 20 junior mortgage lien stripping” means stripping an entirely unsecured junior home mortgage in a chapter 13 bankruptcy case which is filed within four years after a chapter 7 filing by the same debtor.  The question whether this is permissible arises because the debtor is not eligible for a discharge of debts in a chapter 13 filed within four years of a chapter 7 discharge.

Many are surprised that someone can file chapter 13 bankruptcy within four years of filing chapter 7 — isn’t there a mandatory eight year waiting period between bankruptcy filings?  The answer is no.  A debtor can file chapter 13 at any time, it’s just that a chapter 13 debtor cannot receive a discharge, in the new chapter 13 case, if the case is filed within four years of a previous chapter 7 case.

Mortgage banks have raised the argument that even if junior mortgage lien stripping is allowed in chapter 13 bankruptcy cases, it should not be allowed in a no-discharge chapter 20 case.  If the debtor cannot receive a discharge of debts, the argument goes, then how can the chapter 13 filing strip off a junior mortgage?
In In re Davis, the appeals court noted that lower courts have been split on the question of chapter 20 lien stripping, although one Bankruptcy Appellate Panel had approved this practice in In re Fisette, 455 B.R. 177 (8th Cir. BAP 2011).

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Who gets Lower Rates? Wall Street Banks or Student Loans?

Wall Street Banks Get Lower Rates Than Student Loans AND Can Bankrupt Their Loans From The Government

…Fair?

 

Bankruptcy remains a source of financial relief for most borrowers.  Most debts are discharged in bankruptcy and folks receive a “fresh start”. However, there is one huge exception that is not discharged automatically in any bankruptcy - student loans.

 

Both government and private loans are not discharged in bankruptcy. Student loans are dischargeable in bankruptcy cases only if the student can prove that the loans cannot be repaid without undue hardship, now or at any time in the future.   Providing undue currently hardship would seem to be easy — after all, bankruptcy means broke, right?   The difficult part is proving that the hardship will continue indefinitely into the future.  Absent a permanent disability, this standard is seldom met. So, the practical consequence is that student loans are largely considered “non-dischargable.”

There may be some relief in the future – at least with private student loans. 

A meaningful push to revamp the current loan is being made by Elizabth Warren, a former Democratic Senator from Massechusetts. 

There, Elizabeth Warren served as the interim potential head of the Consumer Financial Protection Bureau, but her permanent appointment was blocked by partisan politics. Undeterred, Elizabeth Warren ran for Senate shortly thereafter. Warren now serves on the Senate Banking Committee, where she has introduced her first piece of legislation:  “The Bank on Students Loan Fairness Act.” Ms. Warren proposes a radical change:   to give individuals the same interest rate that the big Wall Street banks obtain, an interest rate of about .75% on loans they obtain from the government. The interest rate for Stafford (government backed) student loans is currently set at 3.4% and is set to double to 6.8 percent in July.

As Warren explains, this student loan problem is a quiet but growing problem.  She explains that taxpayers are investing in the big banks and that taxpayers should invest in our students.    America should not be “drowning our students in debt while we give a great deal to the banks.”  She points out that economists have stated that defaulted student debt poises a problem and barrier to the recovery of our economy.    She concluded with a call to action and a reminder that students have only their voices, not lobbyists, to ask Congress for equal treatment.

Why should our government make it so easy for Wall Street to skip out on debt while requiring students, our future, to jump hurdles and hire attorneys to obtain financial relief?

Ms. Warren, a former Harvard law professor, understands the financial pressure faced by most Americans as she came from a working-class background, becoming a waitress at age 13 (after beginning as a babysitter at age 9).  Ms. Warren has authored 9 books, including two best sellers.  Let’s hope her efforts produce some meaning change.

If you are struggling with student loan debt, call us today to schedule a free consultation with attorney David L. Speckman.

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Biggest Tax Time Mistake Is Not To File You Return

There are a lot of mistakes one can make at tax time. One of the leading mistakes, in fact it is absolutely the biggest, is to fail to file a tax return on time. That particular mistake can also cost a person plenty, especially if the person is in bankruptcy or needs to file bankruptcy.

The temptation not to file a return is sometimes great.  One may know that s/he owes taxes, but is faced with a situation in which the money to pay the taxes is simply not available.  This common situation may leave one confused as to how to best proceed.  Unfortunately, the option often selected is to not file the return at all.  This is in fact exactly the wrong way to proceed.

You see, the IRS penalizes you TEN TIMES as much for not filing a return as it does for just failing to pay the taxes owing! Ten times. The penalty for failure to file a return is 5% of the amount you owe; if you file the return but can’t pay the tax, the penalty is 1/2 of 1%.

Now, that this little fact impact a bankruptcy? Well, if you are considering a bankruptcy filing  your bankruptcy attorney and bankruptcy trustee will require a copy of your most recently filed tax return.  Delay in filing a tax return can (and usually does) result in delay in obtaining a bankruptcy discharge and may case a dismissal of the bankruptcy altogether.  Moreover, a bankruptcy may actually help address the unpaid taxes.  For instance, a Chapter 13 case will give the taxpayer up to five years to pay off the taxes, usually with no interest or penalties. 

So, file those tax returns – even if you do not not have all of the money to pay the taxes.  If you have any questions and need help, call us to arrange a free consultation.

Considering Filing Bankruptcy? Maybe You’re A Popular Celebrity

In the mid 80′s to early 90′s, a television show, “Lifestyles of the Rich and Famous” was one fo the most popular television shows, with its host, Robin Leach.  The show trumped the everyday American how the rich and famous lived - often on exotic vacations. The “Rich” and Celebrities are often admired, imitated and fawned over in our society. But when you look closely, at those individuals, they are not any different from the average  person on the street.  Just like the average person, celebrities often find it beneficial to file for bankruptcy relief. While the celebrity lifestyle may be quite different then yours or mine, financial distress has the same effect on everyone. And everyone is entitled to a fresh start, no matter how many parapazzi stalk them.  Listed below are a few (but certainly not all) bankruptcies of film and television stars as well as a partial list of other celebrities who have filed for bankruptcy protection..

Film and Television Industry

Real Housewives of New Jersey: Terese and Joe Giudice, Danielle Staub, Chris Manzo (his company)

Real Housewives of New York: Sonja Morgan

Real Housewives of Orange County: Alexis and Jim Bellino, Simon Barney, Tammy Knickerbocker, Lynne and Frank Curtin

Real Housewives of Atlanta: Lisa Wu Hartwell

Real Housewives of Beverly Hills: Taylor and Russell Armstrong

Real Housewives of D.C.: Michaele and Tareq Salahi

Stephen Baldwin, one of the Baldwin brothers/acting family, featured in an article by Carmen Dellutri,.

Gary Busey

Kim Basinger, who bought a town for $20 million right before she was sued for more than $8 million (breach of contract case)

Lorraine Bracco, who admitted when interviewed that bankruptcy is a humbling experience.

Tia Carrere, who was accused of filing bankruptcy to get out of her contract with ABC.

Gary Coleman, now deceased, but who was once the highest paid child actor in his era.

Francis Ford Coppola, who had many box office successes, also had failures that put his studio at risk.

Walt Disney, who created Mickey Mouse AFTER his bankruptcy and went on to fantastic success as explained by Rachel Foley, our Kansas attorney

Burt Reynolds, whose bad investments caused his financial distress.

Zsa Zsa Gabor, who filed bankruptcy after losing a libel suit filed by Elke Sommer

Mickey Rooney, who also became a victim of elder financial abuse after his bankruptcy

Corey Haim, now deceased, filed for Chapter 11 bankruptcy. Haim was best known for his roles in Lost Boys and Lucas, both 80s films.

Don Johnson, another actor who rose to success in the 80s.

Margot Kidder, actress, whose illness amplified the financial turmoil in her life in the late 80s and early 90s.

Randy Quaid, another 80s star, who filed for bankruptcy in 2010s.

Debbie Reynolds, who liquidated some of her memorabilia during the bankruptcy process.

John Wayne,

Brett Weiss.

Famous for being Famous Celebrities

Nadya Shuleman (who ended up dismissing her bankruptcy as explained by our Georgia member, Jonathan Ginsberg)

Heidi Fleiss, aka the Hollywood Madam.

John Wayne Bobbitt, whose angry wife dismembered him, filed for bankruptcy, went on to become a adult film star.

Casey Anthony, who was found not guilty for the murder of her child while most of America believes that the wrong verdict was reached.

Anna Nicole Smith, whose real name was “Vicki Lynn Marshall”, rose to fame as the 1993 Playboy Bunny of the Year. In 1994, she married J. Howard Marshall, a wealthy 89 year old. In 1995, Marshall died.

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Got your bankruptcy discharge?

Great! You’re on your way to a fresh start.

Now you’ve got work to do.

◊ List the debts that didn’t get discharged.  Family support, recent taxes, student loans, or taxes for years for which you haven’t filed bankruptcy are not dischargeable in bankruptcy. The discharge order does not say which debts survive the process – or ask your attorney.

◊ 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.

◊ Rearrange banking Online banking and automatic bill pay may have been disabled while you were in bankruptcy.

◊ 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.

◊ Save your bankruptcy papers- You’re nearly certain to encounter efforts by buyers of zombie debts to collect debts that have been discharged in your case. You need to be able to show that the debt was scheduled in your case. Creditors with notice, and those they sell their worthless accounts to without notice, were discharged.

◊ Join a credit union Credit unions are owned by their members. They are in business to make loans to members. Rates are usually better than the banks, and the profits flow to members. About the only kinds of credit I’m enthusiastic about are car loans and home loans. Plan to be eligible to apply for a loan by joining now.

◊ Check insurance coverage If you elected to surrender property through the bankruptcy that still stands in your name, make sure that you are insured for liability. Liaibility insurance covers you for claims of anyone injured on your property. Electing to surrender property doesn’t take you off title til someone else goes on title. Don’t let post bankruptcy claims arising from property you’re trying to get rid of spoil your fresh start.

◊ Pull a credit report Several months after your discharge, check your credit report to make sure all discharged debts reflect a zero balance. The ugly history can properly remain, but you are entitled to a showing that you now owe nothing.
Take advantage of the opportunity that bankruptcy has provided, and go forth and prosper.