North Carolina Housing Coalition
Bankruptcy Basics for Housing
Counselors
presented by:
Hon. Catherine R. Aron, U.S. Bankruptcy Judge for the Middle District of N.C.
John F. Logan, Standing Chapter 13 Trustee, E.D.N.C., Raleigh Division
Edward Boltz, National Assoc. of Consumer Bankruptcy Attorneys, Durham N.C.
What is Bankruptcy?
• An excellent, affordable tool (one of many) to fix
financial problems.
• Good debtor’s attorneys will help the debtor consider
options other than filing bankruptcy and help the debtor
make the choice which is right for them.
• A court of equity – doing (and requiring) what is fair
and reasonable.
• Highly organized, regulated, and overseen from all
angles by judges, trustees (neutral administrators), and
attorneys for both debtor and creditors.
Overview of types of bankruptcy:
• Chapter 11: business reorganization;
• Chapter 12: family farmer reorganization;
• Chapter 7: liquidation (for all; individual debtors keep
only property exempt under state law); or
• Chapter 13: individual reorganization (the focus of this
seminar session) – most often used to save houses,
vehicles, and to get unpaid unsecured debt discharged.
What is Required of the Chapter 13
Bankruptcy Debtor
• Must list all creditors and disclose all financial details
(required of debtors in all chapters of bankruptcy);
• Regular Income (many things can qualify);
• Plan must be Feasible (something debtor realistically can do
– bankruptcy is not a magic wand). This requires planning,
wise choices, difficult decisions and lifestyle changes, and
distinguishing between wants and needs;
• Must make payments every month to chapter 13 trustee;
What is Required of the Chapter 13
Bankruptcy Debtor
(continued)
• Domestic Support Obligations (alimony & child support);
•
can catch up arrearages during plan (must be completely
current at end to get discharge);
•
Must stay current with all obligations post-petition; payroll
deduction can continue; and
• Stay current with filing tax returns and paying taxes when
due after filing;
• Debtors’ Financial Management Education Course.
Costs of Filing Bankruptcy
• Filing Fees to the Banklruptcy Court :
• Amount:
– Ch. 13: $274.00
– Ch. 7: $299.00
• Alternatives:
– In Forma Pauperis
– Installments
Costs of Filing Bankruptcy
– Attorneys’ Fees:
• Initial Consultations: Often no or minimal charge for
straight-forward cases
• Up-front fees Chapter 13:
» Usually between $200.00-$500.00 in advance, but can be
more or less; remainder paid through plan as part of
monthly plan payment to chapter 13 trustee.
» Presumptive fees are set by the Courts:
• EDNC: $3,000.00
• MDNC: $3,000.00
• WDNC: $3,250.00
How to find an Attorney:
• Let your client know how to find a local attorney who is
experienced in the practice of consumer bankruptcy law,
and encourage them to act soon. (Financial problems are
like problems with children – the older they get, the bigger
they get.)
• If your client is planning to meet with a bankruptcy
attorney, encourage them to meet with more than one and
to get more than one opinion; this is very wise, particularly
since initial consultations are usually done without charge.
• Let your client know that the bankruptcy option may be
more affordable than they think – upfront fees are not very
high and most of the fees can be paid over time in chapter
13.
How to find an Attorney:
– The North Carolina Bar Find A Legal Specialist
– North Carolina Bar Association Find-A-Lawyer
– The American Board of Certification
– The National Association of Consumer Bankruptcy
Attorneys (NACBA) Attorney Finder
– The National Association of Consumer Advocates
(NACA)
Filing without an Attorney
(known as Pro Se):
– Dangers, Pitfalls, and Mine fields (cases seldom
succeed – bankruptcy law, particularly chapter 13,
has become very complicated), and
– Much harder for an attorney to later fix the case.
How Can Bankruptcy Help Your
Clients?
The Automatic Stay
• Benefits of the Automatic Stay;
– Stops Foreclosure, Repossession, and Eviction;
– Continuance of such actions only with permission
of the bankruptcy court; and,
– Allows debtor breathing space to plan and make
wise, well-considered choices.
Benefits of the Co-Debtor Stay
• Stops collection or other action against others
obligated with debtor on consumer debts (e.g.
guaranty of debt to purchase a car) as long as
the debtors plan provides to pay the debtor in
full.
Surrender of Collateral & Rejection or
Assumption of Leases:
– Delays of Foreclosure, Repossession and Eviction
– Allows for Homeowner to remain in the property
for several months to save for relocation costs and
rental deposits
– Allows for Homeowner to break lease without
further obligation
– Allows for Homeowner to discharge any mortgage
deficiency
Cure of Mortgage Delinquencies:
– Allows mortgage arrearage to be repaid over a period
of up to 60 months;
– Allows lease arrearages to be cured in 12 – 18 months;
– Allows debtor’s attorney, Chapter 13 Trustee and
bankruptcy court to review and contest alleged
mortgage arrearage; and
– RESPA Qualified Written Requests coupled with
Motions to Declare Mortgage Current allow the
Homeowner to emerge from bankruptcy with a clear
and clean mortgage history and balance.
Sale of Property:
– Bankruptcy allows the sale of property at a more
controlled pace than foreclosure, hopefully
resulting in a higher sales price that maximizes
equity for the homeowner.
– The Homeowner can keep up to $35,000.00 per
person ($60,000.00 for some homeowners over 65years old) of equity after payment of mortgages
and tax liens.
Modification of Mortgages:
– Mobile Homes: Liens against Mobile homes that
are not attached to land owned by the homeowner
can often re-written in bankruptcy to pay what the
mobile home is worth, usually substantially less
than what is owed. This is also often possible even
where there is land as collateral;
Modification of Mortgages:
(continued)
– Lien Stripping of Junior Mortgages: 2nd or 3rd
mortgages can often be eliminated in Chapter 13,
if the property is worth less than what is owed on
the 1st mortgage.
– Example: If the house is worth $100,000, but the
balance owed on the 1st mortgage is $120,000, the
Homeowner can eliminate the 2nd (and even 3rd)
mortgage.
Modification of Mortgages:
(continued)
– Mortgage with Additional Collateral: If the
mortgage is secured by liens against property in
addition to just the Homeowner’s principal
residence, the terms of that mortgage can often be
modified.
Modification of Mortgages:
(continued)
• HAMP Modifications: As of June 1, 2010, mortgage
servicers, pursuant to Treasury Directive 10-02,
“must consider borrowers in active bankruptcy for
HAMP if a request is received from the borrower,
borrower’s counsel, or bankruptcy trustee.” This puts
homeowners that file bankruptcy in the same position
for voluntary modifications as those outside of
bankruptcy.
Impact on Entire Financial Situation:
• By reorganizing their other debts, homeowners
are often able to afford their mortgage
payments.
Impact on Entire Financial Situation:
(continued)
• Secured Debts: In addition to surrendering
property, debtors can reduce their payments
on vehicles and other secured debts, by
lowering the interest rate, stretching the
payments out over up to 60-months, and
occasionally reducing the amount owed on
secured claims.
Impact on Entire Financial Situation:
(continued)
• Tax Debts: Debtors can repay tax debts in
bankruptcy on terms that are usually far
better that outside of bankruptcy, discharging
some (older) tax debt completely, and
avoiding further interest and penalties for
others.
Impact on Entire Financial Situation:
(continued)
• Unsecured Debts: Homeowners who complete
their plans and receive a discharge are usually
able to eliminate unpaid unsecured debts
(e.g., credit cards, medical bills, personal and
payday loans, etc.). Some debtors pay a small
dividend over the course of their Chapter 13
plan, others pay nothing, depending upon the
facts in each case.
Impact on Entire Financial Situation:
(continued)
What’s at the End of the Rainbow? –
Bankruptcy Discharge
A Fresh Start for the Honest but Unfortunate Debtor.
How and When Can Housing
Counselors Help?
• Steer your clients to local opportunities and internet
resources (see the list attached to the outline) for
education about how to handle their finances wisely so
they can learn to live within their means.
• Refer your clients to other community services
(whether government supported of church-based)
(e.g.: GED programs, public health or mental health
services – particularly for mental health, physical
health, or substance abuse problems); If you don’t
know what’s available in your community, go find out.
How and When Can Housing
Counselors Help?
(continued)
• Ask questions which will help determine
whether the filing of a bankruptcy petition
might help them (knowing that even if they do
go to a bankruptcy attorney, the filing of a
bankruptcy may be not be the end result):
How and When Can Housing
Counselors Help?
(continued)
• Is there a foreclosure pending?
• If so, has the initial hearing already been held,
or has a sale date been set, or has the sale
already happened?
• If the sale has already happened, fast action is
critical… to save the house a bankruptcy
petition must be filed within 10 days’ after the
sale.
How and When Can Housing
Counselors Help?
(continued)
• Have you talked to your mortgage lender
about whether you might qualify for
modification of your mortgage loan?
• Is a foreclosure continuing to go forward,
despite the requested modification?
How and When Can Housing
Counselors Help?
(continued)
• Do you (or if a married couple, at least one of
you) have regular income (remember even
unemployment compensation may suffice in
the short term)?
• Do you have equity in your house you would
like to protect?
How and When Can Housing
Counselors Help?
(continued)
• Considering all loans secured on your house, is
your house worth less than what you owe on
it?
• If a 2nd mortgage could be eliminated, would
this help?
How and When Can Housing
Counselors Help?
(continued)
• If you could get some breathing space from
creditors pursuing you, would you be willing to
make lifestyle changes, difficult as they might be,
if it meant you could learn how to live within your
means?
• Are you in a lease you cannot afford and, if you
were able to get out of that lease without owing
anything on it, do you have other, less expensive
housing options?
How and When Can Housing
Counselors Help?
(continued)
• If you could get rid of your unsecured debt,
would you then be able to cover your everyday
living expenses and pay your monthly housing
costs going forward?
• Give your clients HOPE. Let them know that if
they are willing to commit themselves to what
they must do, and if they seek and follow the
advice of experienced professionals, they can
make positive, permanent changes and they can
succeed.
How Housing Counselors can help the
Bankruptcy Courts:
• Willie Sutton once was asked why he robbed
banks and answered “Because that’s where
the money is.”
• Why should housing counselors get involved
with the bankruptcy courts? Because that’s
where broke people are.
How Housing Counselors can help the
Bankruptcy Courts:
• Let Consumer Debtor’s Attorneys know about
housing programs
• Let Chapter 13 Trustees know about housing
programs
• Let the Bankruptcy Courts know about
housing programs