Bankruptcy — Chapter 13

CHAPTER 13 is a bankruptcy designed for individual debtors who have some regular flow of income seeking an adjustment of debt. Chapter 13 is used primarily for people with mortgage and maintenance debt or other secured debt who wish to keep their assets, yet need time to stretch out these arrears or back payments in a Plan to deal with their creditors. The time frame is generally 36 to 60 months. Chapter 13 will stop a foreclosure up until the day and time of a sale. Depending upon your equity in the house, some payments to unsecured creditors, credit card and personal loan debt, may also be necessary. Chapter 13 may also be utilized to handle debts which are not dischargeable in a Chapter 7. This may include back taxes, student loans, child support, and debts that involve some type of fraud or misrepresentation on the debtor’s part, assuming there is good faith on the debtor’s part. Chapter 13 may also be used to handle situations in which individuals may wish to retain their assets, especially real estate (house, condo, co-op, land, time share), yet pay back their creditors in a more favorable treatment than allowed by their creditors outside of bankruptcy. Also, Chapter 13 may be used by individuals having a cash flow problem, whereby there is some disposable income available to pay back creditors in whole or in part, but not a sufficient amount to satisfy creditors outside of the bankruptcy process. The debt ceiling for unsecured debt in a Chapter 13 is $360,475.00 and for secured debt is $1,081,400.00 (as adjusted for cost of living on April 1, 2010).

A Chapter 13 is also available for those individuals whose income is too high to pass the means test and may still wish to file for bankruptcy that will provide some debt relief. However, some or all of the debt may be required to be paid back in this situation. A complete office consultation by competent legal counsel will be necessary to make that determination.

As of January 22, 2011 New Yorkers have the option of choosing between two sets of exemptions to protect your personal property and real property (house, co-op, condo, land). These choices are important to analyze and consultation with a competent attorney is critical. You either choose all of the New York State exemptions or all of the Federal exemptions. The New York State changes for real property are listed below:

Under New York exemptions, you may protect $150,000 of any equity in your PRIMARY RESIDENCE if you either live in the 5 boroughs of New York or in any of the following counties: Westchester, Rockland, Putnam, Nassau and Suffolk.

The exemption decreases to $125,000 if you live in the following counties: Dutchess, Albany, Columbia, Orange, Saratoga and Ulster.

The exemption decreases further to $75,000 if you live in any other county not specified above.

The following will contrast just some of the major exemptions allowable under federal and state law: (CAUTION: this information needs to be interpreted by competent legal counsel)

Qualified Pension, 401(k), Profit Sharing, IRA or other similar Plans; Also, benefits under an Annuity Contract, and benefits under an Insurance Contract are generally exempt. Any recent contributions to an annuity will need specific legal advice.

(Exempt under both federal and state law)

CHAPTER 13 is a powerful tool to assist someone in financial distress. Depending upon your specific circumstances, the following tools and procedures may be utilized and more than one of the following may be appropriate. These tools and procedures are not necessarily mutually exclusive.

Traditional Cure & Maintain

If you are behind with your mortgage and/or maintenance, you will be able to repay the full amount of the mortgage and/or maintenance obligation over a period of five (5) years. However, you will need to resume your regular monthly payments subsequent to the filing of the bankruptcy.

Loss Mitigation / Loan Modification

The United States Bankruptcy Court provides the unique opportunity to seek the loan modification under the supervision and monitoring of the court system. There is no guarantee that you meet the eligibility requirements to apply for a loan modification nor is there a guarantee that your application will necessarily be approved. The court acts only as a facilitator. However, these efforts can be quite helpful in getting a decision.

Cramdown-strip Off Junior Mortgages On Your Primary And Nonprimary Residence

You may be able to strip off a second and/or third mortgage if your house is totally underwater. That is, if you owe more money on your first mortgage than the fair market value of the property (as evidence by a licensed appraisal) a separate proceeding may enable you to modify a secured mortgage into one that is treated as unsecured with the result that no further lien would continue on your property, provided you finished all of your obligations under the Chapter 13 Plan.

Cramdown-strip Down But Maintain Underwater Mixed Use Or Nonprimary Residence Mortgage

You may be able to reduce or strip down the mortgage balance of an investment property to the fair market value of the property (as evidenced by a licensed appraisal). That is, if you owe more money that the property is worth, only the fair market value of the property would ultimately be required to be paid back. The result could be savings of tens of thousands of dollars. (Not all courts agree with this analysis).

Objection To Lender’s Proof Of Claim

If the Lender submits paperwork that is faulty, defective, incomplete or outright fraudulent, an objection may be made in court, challenging the right of the bank to collect on your mortgage, resulting in potential benefit to you. Banks may offer loan modifications on favorable terms to avoid litigation with questionable paperwork or standing (the legal ability to enforce its claim through its note and mortgage).

DOCUMENTATION & FEE STRUCTURE: You will need to bring in two months of current pay stubs, if working; tax returns or tax transcripts for the past two years, if available; your bills, (one for each credit card, store card, personal loan, medical bill, car loan, mortgage loan, student loan, IRS & NYS Department of Tax bill(s), and other assorted bills); your driver’s license or non-driver’s photo identification; your social security card; your bank statements for the past sixty days, a copy of all deeds, and all mortgage payoff statements; and a $100.00 retainer. It is required for you to sort and organize your bills by eliminating for us all envelopes and attachments, and duplicates. We do want to see any collection letters, attorney letters, and legal notices.

It would be quite helpful if you are able to sort and organize your bills by eliminating for us all envelopes and attachments. If you do not have a complete list of creditors, see information below for generating a free credit report. The fee for a Chapter 13 varies depending on the complexity of the case. The fee is payable over a six (6) month period, if necessary. However, the petition cannot be filed until payment is made in full. However, we will deal with your creditors during this period (see next paragraph). You will receive monthly bills, providing a payment schedule so that full payment may be made by the due date. If you have been making good faith payments and run into a problem, call our office.

CREDITOR RELIEF: After you have retained our office, you may direct creditors who call you to contact our office to confirm or verify that we have been retained to file a Chapter 13 bankruptcy on your behalf. Please provide to your creditors your own personalized office file number for easy identification. You are only required to give our name and telephone number and pursuant to the Fair Debt Collection & Practices Act creditors are prohibited from calling you at home or work after you have retained an attorney.

LISTING OF CREDITORS: The first major task after meeting with you and explaining to you your alternatives is the filing of a Chapter 13 Petition. All creditors must be listed in your Petition. Failure to list a creditor will result in the inability or litigation with regard to receiving a discharge from that debt. The unlisted creditor will eventually seek to collect on that debt. Consequently, it is vital that all creditors with their proper correspondence addresses be ascertained and listed. Failure to list a creditor can also be a double whammy. You not only will have to fight off that creditor, but you will have your credit card privileges canceled.

OBTAINING A CREDIT REPORT: The fastest and easiest way to get a free credit report is to go to www.annualcreditreport.com. Once you’re there, select your state, and click on “Request Report”. Fill out the form with the required information then click on “Continue”. You should choose the “Experian”, “Equifax”, and “Transunion” credit reports. You are entitled to one free credit report from each of the three reporting agencies. You must go to this site to obtain the free report. In the alternative, print the application form by clicking on the following link and mail to the directed address.

Click here for your Free Credit Report by Mail or Phone.

HEARING: Within approximately thirty days from the date that our office has filed your Chapter 13 Petition, you will be required to attend a hearing concerning your Petition. The hearing is conducted by a Trustee. The Trustee is not a judge but an attorney whose job it is among other things to review your Petition for its truth and accuracy. The Trustee will recommend to the Bankruptcy Judge handling your case whether you have complied with the bankruptcy law and are ready for confirmation. An attorney from our office or representing our office will be there to assist you with the hearing process which is generally non-confrontational.

CONFIRMATION: Approximately 1 month after this hearing, you will be required to attend a Chapter 13 confirmation hearing in front of a judge or a Trustee. This hearing date is on the original Notice sent to you by the court. Once again, call our office three (3) days prior to the Hearing. In order for your Plan to be confirmed, pay careful attention to the following:

MORTGAGE PAYMENTS: Once a Chapter 13 Bankruptcy Petition is filed on your behalf, you are required to make your next regularly scheduled monthly mortgage and/or maintenance (if you own a co-op or condo) payment(s). For example, if we file your petition on the 20th of January, then you will have to resume your mortgage and/or maintenance payments that would be due on the first of February, assuming your payment obligation falls on the first of the month. If you are delinquent with what we now call the post-petition payments (those payments due after we have filed your petition), then your secured creditor(s), the bank and or co-op/condo board, will through its attorneys request from the Court to Lift the Automatic Stay which is protecting you from legal action, to commence or resume a foreclosure action. If you want to have a successful reorganization of your debts through a Chapter 13 Plan, post- petition payments to secured creditors must continue or resume and must be made on time. If you are having difficulty with those payments, you must contact our office immediately.

TRUSTEE PAYMENTS: Additionally, (this paragraph applies to all Chapter 13 petitioners), in order to demonstrate your good faith and the feasibility of the Chapter 13 Plan, starting no later than 30 days after your Plan has been filed (generally the same date your petition has been filed), you need to make monthly payments to the Trustee. This payment is in addition to any payments you may be making for your mortgage or maintenance post-petition. These payments must be made by MONEY ORDER or CERTIFIED CHECK only. The Case Number and/or File Number must be on all payments. Payments should be made out to Jeffrey Sapir, Trustee and mailed to 399 Knollwood Road, Suite 102, White Plains, New York 10603. Until Confirmation and only until Confirmation, copies of all payments made to the Trustee must be made to our office. Do not send actual payments to our office. We only want to see a copy of the payments. This is the only way our office can adequately monitor your progress. Thus, for a four (4) month period, every time you make out your money order or certified check, you will send a copy of it to our office. Your cooperation is greatly appreciated. When a payment is due right near the time of the Confirmation, call our office for further instructions.

You need to make the payments to the Trustee each month. For example, if you file on January 10th, your next regular payment is due no later than February 10th and the 10th day of every month thereafter until your Plan payments have been completed which is usually 36 or 60 payments, that is 3 years or 5 years. Your Plan cannot be confirmed unless you are current with your payments to the Trustee. Failure to make these payments will result in a Motion by the Trustee to dismiss your case and which if granted would place you out of the legal protection of the Bankruptcy Court and subject you once again to your creditors foreclosing if you own a house, condo or co-op or the commencement or the resumption by your creditors of any other legal action that they were previously taking against you.

CREDIT REPAIR: If you would like to assist in repairing your credit history, one (1) way is to obtain secured credit cards. You generally place a minimum of $100.00-$300.00 in a savings account and receive a credit line up to the value of the account, or even 150% of the value of the account, in some cases. Timely payments of minimums or timely paying off the entire balance each month will demonstrate a new history that will enable you to better obtain future credit. If, and only if, secured credit cards are used wisely, they may be of great benefit to you. Remember, while in a Chapter 13, utilizing credit for more than $600.00 requires the approval of the Trustee.

EXPECTED OUTCOMES: Assuming no special circumstances, if you are making your post-petition payments for your mortgage or maintenance, if any are required, and your are making your regularly scheduled monthly payments to the Trustee pursuant to your Plan, and you have provided our office with all requested documents, you will be ready for Confirmation and you will be on your own to make payments to the Trustee for the generally 3 or 5 year period of your Plan in a basic Chapter 13 proceeding. If you are involved in a loan modification, cramming down a mortgage, avoiding a lien, or objecting to proof of claims, additional time will be necessary to conclude your case. Once the Plan is confirmed, you will still get no monthly bills from the Trustee. It is your responsibility to make those monthly payments. Once a year you will receive a printout indicating how your payments were made to your creditors. You will also be obligated to provide the Trustee with a copy of your tax returns, each year that you are still within the Plan. If you get substantially delinquent, the Trustee will petition the Court to dismiss your case and no payments made post-confirmation shall be returned to you and you will be back where you started with respect to your creditors, less a credit for any distributions made. At the conclusion of your Plan period, generally 36 or 60 months, you will receive a legal discharge of your listed debts.

DIRECTIONS: 2525 Eastchester Road, private house, white brick with white awning, diagonally opposite Met Food near Eastchester Road & Mace Avenue. TRAIN: #5 to Gunhill Road: Seven blocks from station; BUS: #26 bus to Allerton Avenue, walk south (towards Pelham Parkway direction) but go only on long block. #31 to Eastchester Road & Mace Avenue; CAR: Bronx River Parkway, take Pelham Parkway to Eastchester Road, left on Eastchester Road, go three blocks and proceed slowly past Mace Avenue, 8th private house on left hand. If coming from Hutchinson River Parkway, exit on Pelham Parkway West. Right on Eastchester Road, go slowly past Mace Avenue.