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What is a Redemption of Property in Chapter 7

By Jonathan on March 19, 2011

If you are purchasing a vehicle and you file Chapter 7, your options are (1) surrender the vehicle, (2) reaffirm the existing loan, or (3) redeem the vehicle by paying the lender fair market value. Redemption, which is described at Section 722 of the Bankruptcy Code used to be an uncommon choice. More recently, however, several lenders have entered the market to finance Section 722 redemptions. In this video, I discuss how redemptions work and how to know if a Motion for Redemption under Section 722 is a good idea.

[mc src=”http://www.youtube.com/watch?v=3ebX9zlCskU” type=”youtube”]Redemption of Collateral in Chapter 7[/mc]

Are You Liable for Ongoing Homeowner’s Association Dues if You Surrender Your House in a Bankruptcy?

By Jonathan on February 27, 2011

Earlier this month on my Atlanta-bankruptcy web site blog I discussed an interesting case involving mortgage loan deficiency claims that was issued by the Georgia Court of Appeals and Georgia Supreme Court. In the River Farm vs. Suntrust case, the Georgia courts ruled that a mortgage lender could sue a defaulted borrower on the promissory note and thereby bypass the deficiency confirmation process associated with a foreclosure. This ruling is important because property values in Georgia have been trending downward and more and more often I am seeing cases where the balance due on a mortgage exceeds the fair market value of my client’s home.

This court case should be of concern to you if you intend to walk away from your home because you are delinquent or if your are so “underwater” with your mortgage that it does not make sense to fight to keep a home that may never be worth what is owed on it. If you do walk away (without filing bankruptcy), your lender may sue you on the mortgage loan contract instead of foreclosing. The lender would refrain from foreclosing to avoid a legal requirement associated with foreclosure that would require the lender to appear before a judge to argue that the foreclosure sale price was reasonable.

In my article, I pointed out that this change in the law might encourage more people to file bankruptcies since a bankruptcy can discharge any deficiency claim.

However, there is another potential problem area that could arise if your lender holds off on foreclosing. This problem area relates to homeowners’ association (HOA) dues.

Under Georgia law, homeowners’ associations enjoy special protections. Unpaid dues can automatically can become liens that encumber your property. As HOA lawyers read the law, if you file a bankruptcy and surrender your home, your delinquent HOA dues as of the date of filing will be discharged. However, ongoing dues that accrue after the filing remain your obligation until title passes. In other words, if your HOA dues are $100 per month and you file Chapter 7 bankruptcy on February 28, your dues begin accruing again on March 1. If your lender does not foreclose until November, you would, in theory, be responsible for 8 months of dues, or $800, after your filing, even though you have stated your intention to surrender your house in bankruptcy. [Read more…] about Are You Liable for Ongoing Homeowner’s Association Dues if You Surrender Your House in a Bankruptcy?

Georgia Appellate Court Decisions Make it Easier for Mortgage Lenders to Pursue Deficiency Claims

By Jonathan on February 15, 2011

A few weeks ago, I wrote on this blog a post entitled “More Homeowners Facing Foreclosure Turn to Chapter 7 Instead of Chapter 13.” In this post, I argued that you should think carefully about whether you want to save a home from foreclosure, especially if the value of that home is less than the debt, or if paying the mortgage and associated costs of home ownership are straining your budget.

Just a few days after publishing this post, the Georgia Supreme Court issued a decision that provides yet another reason to consider Chapter 7 when you are facing a mortgage delinquency. Specifically, the Georgia Supreme Court (and the Georgia Court of Appeals in a prior decision) have ruled that lenders do not necessarily have to go through a court hearing to pursue a deficiency claim when the fair market value of a home is less than the outstanding mortgage balance.

This ruling is bad news for Georgia homeowners for many reasons.

First, you should note that Georgia law provides for “non-judicial” foreclosures. This means that your lender does not have to go to court prior to selling your home on the courthouse steps. In our state the lender need only follow specific notice procedures – such as sending you a letter advising you of the pending foreclosure, and advertising the pending sale date in the official county newspaper where the property is located.

In judicial foreclosure states like Florida, the average foreclosure will take 9 months to a year, start to finish. In Georgia, the foreclosure process can take as little as 37 days. [Read more…] about Georgia Appellate Court Decisions Make it Easier for Mortgage Lenders to Pursue Deficiency Claims

More Homeowners Facing Foreclosure Turn to Chapter 7 Instead of Chapter 13

By Jonathan on January 29, 2011

Over the past few months, I have noticed a definite trend in the Atlanta bankruptcy environment. Banks are continuing to initiate foreclosure proceedings against homeowners, but more and more north Georgia residents are opting for Chapter 7 rather than Chapter 13.

Traditionally, Chapter 13 has been the choice of a mortgage borrower facing foreclosure because Chapter 13 payment plans allow the homeowner to save his home by paying back his missed payments over a five year period. However, in situations where homes are worth tens of thousands of dollars less than the mortgage balances, it may not make sense to save one’s home.

When I meet with a potential client who is facing foreclosure, I always say something like this: “if you are meeting with me (a bankruptcy lawyer) everything needs to be on the table. No house, car or other possession is worth more than your peace of mind or the health of you and your family. If it does not make economic sense to keep this house, let it go, rent for a while then in a few years, find another house to buy.”

[Read more…] about More Homeowners Facing Foreclosure Turn to Chapter 7 Instead of Chapter 13

Creative Responses to a Chapter 13 Trustee Motion to Dismiss

By Jonathan on January 22, 2011

It seems that in almost every Chapter 13 case I file, the trustee will file a Motion to Dismiss. As discussed in the FAQ section of this blog (see the link above), your trustee will file a Motion to Dismiss if you fall behind with your payments or if your plan runs longer than 60 months (i.e., a “terms” problem).

Why are so many cases resulting in motions to dismiss and is there anything you and your lawyer can do about this problem?

First, my (unscientific) observations suggest that motions to dismiss are filed in a higher percentage of Chapter 13 cases that was true 10 or 15 years ago. I think that this is the case because under current law, debtor’s attorneys like me have much less leeway when it comes to creating budgets that will work over a five year period.

As you may know the means testing required by the Bankruptcy Code serves qualify a debtor for Chapter 7 or Chapter 13. If the means test budget shows more than $100 of “disposable income,” then Chapter 7 will not fly and Chapter 13 is required. [Read more…] about Creative Responses to a Chapter 13 Trustee Motion to Dismiss

Supreme Court Hands Credit Card Companies a Big Win

By Jonathan on January 12, 2011

Yesterday, the U.S. Supreme Court issued a creditor friendly decision in the case of Ransom v. Fia Card Services. At issues was the “ownership expense” deduction in the means test.

The means test is a calculation used to determine whether a debtor has enough “disposable income” to afford a Chapter 13 repayment plan.

In the Ransom case, the debtor (Jason Ransom) claimed a means test deduction for both operation of a vehicle ($338 per month) and for ownership ($471 per month). The problem – Mr. Ransom owned his vehicle free and clear.

In an 8-1 decision written by Obama appointee Elena Kagan (the lone dissent issued by conservative Justice Scalia), the Supreme Court held that a debtor who owns his vehicle free and clear can only claim a deduction for vehicle operation but not a deduction for ownership. [Read more…] about Supreme Court Hands Credit Card Companies a Big Win