Lesson for the Week of May 18, 2009
Every week attorneys from almost every state send me their Chapter 13 petitions for review. Normally, I am called in after the petition has been filed and the Trustee has objected to the Plan. It is a well known fact that I love Chapter 13s and word gets around fast. That is why attorneys call me almost on a daily basis; and this is the material I use to help train you.
Lesson of the Week
For the lesson this week I chose a petition that was probably the worst case I have encountered in quite awhile. The attorney had already attended the 341 Meeting and the Trustee had objected to it for several reasons. The attorney sent me the Amended Chapter 13 Plan and the Trustee’s Objection. I had nothing else to go on.
The first thing I did was login to PACER and review Schedule I and J of the petition. I immediately noticed that the debtors had an income of $5,567.23 on Schedule I and monthly expenditures of $6,913.00 on Schedule J. Immediately, I saw this petition should have been a Chapter 7 because there was no money left over to make a Chapter 13 Plan payment, which was one of the objections made by the Trustee.
Secondly, I did a search on PACER under the LAST NAME of the debtors. The reason I searched by LAST NAME instead of the CASE NUMBER was because I wanted to see if there were any Adversary Proceedings against them. To my surprise, the debtors had filed TWO Chapter 7 petitions since January. How is this possible? Because the cases were dismissed for non-payment of filing fees. In most bankruptcy courts, they allow debtors an opportunity to file or reopen a case within 30 days of filing if it is dismissed solely due to the non-payment of filing fees. Note: Bankruptcy courts are normally very lenient in trying to give debtors the benefit of the doubt unless the attorney or debtors have abused their leniency.
In this case, the debtors had proposed one payment of $89.00 (which was paid when they filed their petition) and $70.00 a week for 3 additional weeks. They did not fulfill the promise they made. Instead, they made the $89.00 payment and did nothing else.
To make matters even worse, these debtors did not even use an attorney to file their Chapter 7 petition. They tried to do the job by themselves which is the worst thing they could have done. Not only did they get their case dismissed, but they demonstrated a reputation of non-payment to the court. These types of actions can have great impact on a case and the way the debtors are treated by the bankruptcy court.
Repeating the same mistake, the debtors filed another Application to Pay Filing Fee in Installments and made one payment of $89.00 when they filed their second bankruptcy petition. Again, they did not fulfill their promise to make payments of $70.00 per week so they got their second Chapter 7 dismissed.
Finally the debtors decided they needed to pay an attorney to file their bankruptcy for them. The attorney discovered the debtors were 12 months behind in their mortgage. With the average monthly mortgage payment being $4,500 per month, this means the debtors had almost $60,000 in arrears, fees and interest to pay back in addition to making their mortgage payment. In an effort to save their home, the attorney placed the debtors into a Chapter 13 (although they could not afford it.) This is common practice in many law firms but it only temporarily fixes the problem. If the Chapter 13 Plan is lucky enough to get confirmed, the debtors normally cannot afford the Plan payment so they get their case dismissed for non-payment anyway.
Possible Scenarios
Debtors who are behind in their mortgage payments have several options available to them today. One option is the government Work-Out Plan that avoids bankruptcy entirely. But a debtor must be willing to make adjustments to their personal finances and take the responsibility to fulfill their agreements in the Work-Out Plan. Plus, they cannot wait a year and then try to do something. This shows a pattern of neglect and irresponsibility and some law firms and debt work-out programs will not accept them.
Unfortunately, the majority of people I encounter are not responsible and are simply looking for a way to get free housing. These of the types of debtors I deal with every day. Unfortunately, this is why the bankruptcy court is filled with fraudulent attempts by debtors, which is why attorneys need to filter out these cases and only accept cases from debtors who are willing to take the necessary steps to save their home. Below are some suggestions I have for attorneys as well as VBAs to pass on to their attorneys:
A Simple Test to See if the Debtors Can Afford a Chapter 13
Find out how much money the debtors have after taxes and insurance is deducted (see Schedule I of the bankruptcy petition). Find out how much they debtors spend in monthly expenditures (see Schedule J of the bankruptcy petition). Subtract the monthly expenses from the income. If you have a negative figure, the debtors do not have enough money to fund a Chapter 13 Plan and they certainly do not have enough money left over to pay the arrearages on their mortgage.
How About a Cram-Down on the Mortgage?
In some circumstances, the appraised value of the primary residence has been used as the CLAIM amount instead of the actual CLAIM amount. For example: If a debtor owes $350,000 on their mortgage but they had their home appraised within the last year and it is only worth $200,000; the mortgage may be crammed down to only $200,000, thus saving the debtors $150,000.
By reducing the mortgage balance, the interest rate is lowered as well as the monthly payments. When this happens, it gives the debtors a Chapter 13 Plan payment they may be able to afford and stay in their home. However, the attorney risks an Objection being filed by the mortgage company. But, in reality, if the mortgage company foreclosed on the home, they would only get $200,000 (or less) anyway. By proposing to pay back the full $200,000 without any lapse in monthly payments, most mortgage companies will accept the cram down, especially if the debtors are in a hardship situation.
How About Stripping a Mortgage?
Many attorneys will also strip a second mortgage, thereby either eliminating the second mortgage entirely or paying the second mortgage on Schedule F as an unsecured, non-priority debt. The reasoning behind this is that if the home were foreclosed, the second mortgage would not be paid anyway. For example: The debtors owe $200,000 on a first mortgage and $50,000 on a second mortgage. The home was recently appraised at $150,000. If the home was foreclosed on, the $150,000 (or less) would be paid to the first mortgage company. The second mortgage company would receive nothing. Therefore, if the attorney proposes to pay the second mortgage company a percentage, they are normally very happy with what they can get.
However, if the debtor’s cannot afford to add the second mortgage as an unsecured, non-priority debt, the attorney will normally strip the second mortgage and eliminate it completely in the Chapter 13 Plan. This often occurs if the debtors are not into a 100% Chapter 13 Plan and adding in the second mortgage would adversely affect the other priority creditors or reduce the Plan down to 1% or less. Note: Never attempt a cram down or strip down unless you are working under the direction of an attorney. If this is not done properly, it could cause many unnecessary problems for the debtor and your job is to protect them, not cause them irritable harm.
Summary
Always remember that every bankruptcy petition is different. Every debtor has a unique set of circumstances and there are a variety of different options the attorney has open to them to work with. Many people who order my training materials believe they are going to get a cookie cutter training course. They want step by step direction that they can follow without any variance. I am thankful to report that the world of law is NOT like that. If you want cookie cutter methods in working a job, McDonalds and Wendys are hiring. But if you are a person that is tired of cutter cutter. If you are a person that enjoys thinking outside the box and using your brain in a logical manner, working as a virtual bankruptcy assistant may be the perfect field for you.
I hope this article helped many of the attorneys and virtual bankruptcy assistants working in debtor bankruptcy law to do a better job with their petitions. If you are new to the field and have questions about the virtual bankruptcy assistant industry, I urge you to download the free eBook: What is a VBA? which is available at: http://www.713training.com/getstarted.pdf
Do You Know an Attorney That Needs Help With Chapter 13s?
If you are an attorney (or know of an attorney) who needs help with Chapter 13s, please refer them to me. Also, drop me an email with the attorneys name and your contact information after you refer them. If I end up obtaining work from the attorney I will send you a 10% commission check. Also, if the attorney needs a VBA, I will refer them to you so you can have the petition work. It is a win/win situation for both of us, so keep me in mind if you run into attorneys who need assistance. I am probably only 1% of the population that loves Chapter 13 bankruptcy; so utilize my knowledge to your benefit so we both can prosper in our businesses.
Victoria Ring
http://www.713attorney.com
Certified Paralegal and Bankruptcy Specialist
I am located in Colorado Springs, Colorado
The main office located in Frankfort, Kentucky
Office: 614-323-8131
Fax: 614-355-0184
