Keeping the Homestead Safe in Bankruptcy: Chapter 13
Bankruptcy continues to evoke this notion of getting something for nothing. For some,that results in feeling a bit of judgment or disdain towards the whole idea of filing bankruptcy or the people who end up there. To that I say, “There, only by the grace of God go I”. Others see it with a bit of a glimmer in their eye as a great way to get free stuff. Both views are askew. Bankruptcy is a tough process to go through that is humbling and often anxiety provoking which is why people prefer to hire a lawyer than attempt it pro se. Few people actually abuse the system; most who file have tried everything they could think of to avoid it, but life’s curve balls and the accumulation of mistakes here and there just prove too daunting without assistance. For those hard working folks who end up in a bad spot, I do what I can to make the process smooth and effective so they can get on rebuilding their lives financially.
One of the things I do to ease the way is to stress the imperative in Chapter 13 bankruptcies that if you want to keep it, you must pay for it. This applies to bigger ticket items with a loan secured against it like a house or a car. Many people opt for a Chapter 13 because they fell behind in their house payments or their car payments but they do not want to lose that property. Well, a Chapter 13 can certainly make that happen, but they must still pay for the house or the car. There are NO free houses out there – and the only free cars are ones your would not want to drive.
Chapter 13 only halts the secured lenders collection process (and helps reduce interest costs in certain ways). That means that foreclosure proceedings for a house are stopped and repossession of a car is nixed. Then, the arrears that had accumulated must still be paid through the Chapter 13 plan payments as well as each ongoing payment as it comes due. Unfortunately, many home owners had the pre-bankruptcy experience of months going by without making house payments before the bank took legal action. That will NOT be the experience in the bankruptcy. The secured lenders are much quicker to file a Motion for Relief from the Stay (the automatic collection halting part of a bankruptcy). This motion allows them to then resume the foreclosure in state court if it is granted.
Often, this motion is filed by the lender quickly after a payment or two is missed as a wake-up call to the debtor. They really just want the debtor to get caught up on their payments and so they typically will enter into an agreed order with the debtor to do just that over the next few months rather than force their motion through. However, this is an exceedingly expensive process. The lenders insist on getting reimbursed for the hundreds of dollars they spent on an attorney and filing fees for that motion. So, you may have used that $1,000.00 house payment or two to buy Christmas gifts or cover an unexpected medical bill, but you will end up eating around $600 or $700 on top of catching up those missed payments.
To make it through your Chapter 13 smoothly and retain your house and car, those payment simply have to be a non-negotiable. There is no wiggle room on secured debt payments in a Chapter 13. If you want to keep it, you must pay for it.
I filed a prior bankruptcy but I never got a discharge, when can I file again?
c there is no time limit on filing with regard to receiving a discharge. The problem this does create, though, is with the automatic stay.
If the first bankruptcy was pending and dismissed during the year preceding the filing of the next bankruptcy, then the automatic stay of the bankruptcy terminates automatically on the thirtieth (30th) day after the subsequent case was filed. See 11 USC Sect. 362(c)(3). This is not the end of things, but it does require careful pre-filing planning after a case has been dismissed.
Yet another reason to consider Chapter 13 over Chapter 7
In either chapter 13 or chapter 7 bankruptcy there is an automatic stay with broad protection that stops creditors from attempting to collect debts. This stay is found in 11 USC Sect. 362 of the bankruptcy code. There is an additional “stay” afforded debtors who file chapter 13 and it is found in 11 USC Sect. 1301.
Upon first glance at Section 1301 it appears to be a protection given to non-filing co-debtors such as mom or dad who co-signed on the car loan. However, the intent is actually to expand the protection given to debtors. In other words, if the provisions are violated, it is the debtor who would file the action against the creditor. The co-debtor can join in that action, but it does not give standing to the co-debtor to pursue the action unilaterally (or at least that is what some courts have decided). See In Re: Marlon Durone Stacker (Bankr. S.D. Ill., 2011). This explains why there is no provision for the awarding of attorney fees for a violation of Section 1301 whereas there is such an award under Section 362.
The idea is that during the protracted chapter 13, a creditor would take action against the co-debtor and in so doing, would coerce the debtor into paying more to that creditor than the plan allowed. Congress wanted to prevent such an end run around the automatic stay by crafting this more limited provision.
Section 1301 is also limited in that if the co-debtor received consideration (something of value) from co-signing on the loan, then then stay does not protect them to that extent. So, if a non-debtor business partner co-signed a loan and the consideration (value) came into the business to both his and the debtor’s benefit, then action against that co-debtor is not prevented. Or, perhaps a friend co-signed a loan for $1,000.00 and received $200.00 of it, then the creditor can pursue him or her for that $200.00, but no more than that. Another limitation is that if the chapter 13 plan only provides for a certain amount of the loan to be repaid, then the amount in excess of the plan is not protected. So, if the plan provides for $9,000.00 of a $10,000.00 debt to be repaid, then the creditor can still pursue the co-signor for the extra $1,000.00.
There are some other, non-enumerated limitations to Section 1301. For example, the creditor may still be able to report a delinquency on the co-debtor’s credit report. One could say that this constitutes a false report because the terms of the agreement have been altered by the chapter 13 plan. But, the plan only altered the relationship between the creditor and the debtor, not the creditor and co-debtor. However, such an action could constitute a violation of both Section 362 and Section 1301 if one can show that there was intentional action by the creditor likely to coerce the debtor into paying beyond the plan. See In re Singley, 233 B.R. 170 (Bankr. S.D. Ga., 1999). If you look at the Singley case, be aware that the court there said the intent of the creditor had to be shown to be one of coercing the collection of the debt, but other courts say the intent only has to be that the act of violation was intended to occur regardless of the result.
Despite the limitations of Section 1301, non-filing co-debtors being protected from lawsuits, garnishments and the like may make the extra work of a chapter 13 worthwhile.
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Recent
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- “I Can’t Make My Plan Payments Right Now”: These Policy and Procedure Changes Might Help
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- New Deadlines for Filing Tax Returns as Required by Section 1308
- Late Secured Claim Disallowed Under 12/01/2017 Amended Rules
- Increases in Prime Rate of Interest and in EDKY Trustee’s Fee
- Delinquent Property Taxes and the EDKY Chapter 13 Plan
- Chapter 7 and Student Loans
- Bitcoin and Bankruptcy
- The New Chapter 13 Plan in Operation: The Good, The Bad, and The Ugly
- Prime Rate; Bar Dates; & Other New Plan-Related Topics
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