Kentucky Bankruptcy Law

Counsel with Care

Chapter 13 lasts awhile, but stay in touch

Chapter 13s last either three (3) years or five (5) years depending on a households income at the inception. That is quite a long time and it can be easy to let it fade into the background of one’s mind after settling into the rhythm of monthly payments to a Chapter 13 trustee. A debtor in a Chapter 13 likely had considerable contact with their attorney at the very beginning of the case, but this becomes less and less frequent after the plan is confirmed and all the claims have come in. After a couple of years, some old habits can creep back in, and the debtor may never think to contact their lawyer when faced with certain financial decisions.

Many of my Chapter 13 clients come to me to help save their home from foreclosure. A Chapter 13 is a grand tool for just such a thing. Most of these clients got to the point of facing a foreclosure action in State court because they made choices between paying a house payment and getting needed car repairs or paying for a necessary medical procedure. That first time of missing the payment, they likely started getting some calls, but nothing earth shattering happened. Next thing they knew, several missed payments have racked up, they are served with a civil summons, and the only way to catch them up is through a five-year Chapter 13.

Then Christmas rolls around that second year into the Chapter 13 and the belt-tightening budget worked out with the trustee really only left room for macrame’ gifts for the children or perhaps a Chia pet or two. It is heartbreaking for a parent when their children’s friends are getting the newest iPhone or PlayStation 4. Perhaps the car broke down again or the refrigerator they had been nursing along for an extra 10 year lifespan finally goes out. Well, that old pattern kicks in and it seems pretty harmless to miss a house payment. After all, nothing bad happened before until a good six months down the line. Well, bankruptcy is a different world.

Most home loan creditors will file a motion for relief from the automatic stay (the law that precludes them from going ahead with the foreclosure once bankruptcy is filed) with just one or two missed payments post-petition. Being in Chapter 13 basically puts them on high alert and they are much quicker to pull the trigger.

This is not the end of the world – yet. Their attorney can object to the motion and almost always work out an Agreed Order to get caught back up again in about six (6) months. However, there is a hefty price to be paid. The creditor will add in their own attorney fees and they will also likely insist on a drop-dead provision where if those payments do not roll in on time, the stay will be lifted without filing another motion and they can then proceed with the foreclosure.

The better course of action is to call one’s bankruptcy attorney to do some problem solving when an unforeseen expense comes about. In the Eastern District of Kentucky, the Chapter 13 Trustee typically does not oppose a motion to suspend plan payments for a month or three if there is a good reason. That is often enough to get past some unexpected expense and get back on track making up the payments. The upside to this is that the debtor will not get hit with hundreds more in attorney fees or end up on a probation sort of situation. So, even if it has been a long time since you talked to your bankruptcy attorney, if things go awry, call them first and get help.

Advertisements

January 15, 2015 Posted by | Additional Debt, Automatic Stay, Bankruptcy, Chapter 13, Disposable Income / Budget, Foreclosure, Plan, Plan payments, Planning, Pre-filing planning, Secured loan arrears | , , , , , , , , , , , , , | Leave a comment

Forget Foreclosure: Save your home

Chapter 13 is an extremely effective legal mechanism for saving one’s house if it is being threatened with foreclosure. The trend these days is for home loan lenders to refuse to accept payments while “modifications” are being “reviewed”. This means arrears mount higher and higher. I have known of an extremely few home loan modifications actually coming to fruition. However, I have heard person after person recount to me how the lenders “lost” paperwork submitted for modifications multiple times, countless delays, requests for more information, and ultimately refusal to modify. This whole process can destroy the chances of a Chapter 13 to save your home.

In a Chapter 13, the entire arrears on a house have to be paid in full during the 60 months of the plan duration. The arrears can include certain fees, penalties, and other costs prior to the filing, but gets zero (0%) percent interest in the plan in the Eastern District of Kentucky.  So, if the arrears mount too high prior to filing the Chapter 13, then the plan payment can end up being so high that the plan is not feasible. On top of the plan payments, one has to resume making the ongoing regular monthly payment.

I strongly recommend that you consult a bankruptcy attorney about a Chapter 13 early in the process because modification efforts are usually unsuccessful. I do not know why lenders are taking the approach they are to home owners because it does not seem economically logical, but then we are talking about huge, mindless organizations. But, in a Chapter 13, the lenders HAVE to play by the rules.

Debtors also must play by the rules and they MUST make those monthly payment to the lender and their Chapter 13 plan payments for the whole thing to work. So, their budget must support both payments. This means taking action early.

September 16, 2013 Posted by | Bankruptcy, Chapter 13, Foreclosure, Home Loan Modification, Home loan modifications, Pre-filing planning | , , , , , , , , , | Leave a comment

Letting go is hard to do (or Home loan arrears)

We grow very attached to our homes. There is such a long heritage of home ownership being part of the American dream. Many who immigrated here long ago could have never attained to being a land owner and the new life in America created the opportunity and hunger for this hallmark of the gentry in the old country. This latest recession took a huge swipe at that American dream and one of the hardest parts of my job is helping a debtor realize when they just cannot hang onto their land.

The most common way this plays out is when a home owner has done all they can to stay on top of debts in the face of dwindling resources. They seek out a home loan modification to stave off financial devastation. Most lenders, though they are not required to do so, insist that the home owner stop making payments while they “process” the paperwork. This creates a bind, though, because almost no one sets that money aside to cure the arrears in the event the modification fails. And, once that payment is missed, then lender has the right to accelerate the mortgage and foreclose.

Chapter 13 is a great tool to save a home because it forces the lender to allow arrears to be paid, without additional interest, over 60 months. But, they home owner debtor must show they can afford the payments needed to pay the ongoing loan obligation PLUS pay enough plan payments to cure the arrears. There comes a point for each debtor where the arrears simply surpass their ability to catch them up in that 5 year window. When this point is reached, I am forced to give them the news that they cannot revive their home; it is too late. Some receive the news and surrender to the inevitable and others refuse to believe they are out of options.

The important thing to do if you have arrears mounting on your home loan debt, is to get solid bankruptcy counsel early on. When you allow time for planning, the chances of saving the home are maximized.

June 26, 2013 Posted by | Bankruptcy, Chapter 13, Foreclosure, Home Loan Modification, Property (exempt | , , , , , , , , , | 1 Comment

Miracles HAMPen

I met with a new client recently and listened as they described their fifteen month attempt at getting a home loan modification. This time, though, the client had retained a national law firm to negotiated the modification. Did I mention they had been at this for fifteen months with professional assistance? The arrears now extended into the tens of thousands of dollars. They want to save their home!

My heart went out to them and I ended up feeling bad for being so negative about their prospects for finally getting the modification in place. They showed me a correspondence asking for just two more documents. So close….oh, why can I not encourage them on and give them some hope that these last two documents really would be the last two? What if they really are that close and here I am discouraging them? I am sure I mentioned the fifteen months invested so far…Sorry, I really want to be hopeful for them and I just keep being negative.

I want this home loan modification to work, but the best I can muster is this: I absolutely believe that miracles happen every day. Truly I do. I know this may sound like sarcasm and to a certain extent it is because I find it easier to believe the lame walking and the blind seeing than I do a bank modifying a loan voluntarily. But, I do believe in miracles and so I believe that home loan modifications happen. In fact, I have personal knowledge of one. I just ask that folks consider where their hope is springing from. If your hope is based solely in the representations made by the bank, then it is time to get a back up plan and start preparing along other lines. If you have hired an agency or law firm to do a modification, they need to be able to show you if your income, expenses and home loan debt fall within the ranges where you should qualify. Otherwise, take your business elsewhere.

September 25, 2012 Posted by | Bankruptcy, Chapter 13, Debt solution centers, Foreclosure, Home loan modifications, Plan, Pre-filing planning, Property (exempt, Security interests | , , , , , , , , , , | 1 Comment

Saving your home in Chapter 13

Chapter 13 is an extremely effective legal mechanism for saving one’s house if it is being threatened with foreclosure. The trend these days is for home loan lenders to refuse to accept payments while “modifications” are being “reviewed”. This means arrears mount higher and higher. I have known of an extremely few home loan modifications actually coming to fruition. However, I have heard person after person recount to me how the lenders “lost” paperwork submitted for modifications multiple times, countless delays, requests for more information, and ultimately refusal to modify. This whole process can destroy the chances of a Chapter 13 to save your home.

In a Chapter 13, the entire arrears on a house have to be paid in full during the 60 months of the plan duration. The arrears can include certain fees, penalties, and other costs prior to the filing, but gets zero (0%) percent interest in the plan in the Eastern District of Kentucky.  So, if the arrears mount too high prior to filing the Chapter 13, then the plan payment can end up being so high that the plan is not feasible. On top of the plan payments, one has to resume making the ongoing regular monthly payment.

I strongly recommend that you consult a bankruptcy attorney about a Chapter 13 early in the process because modification efforts are usually unsuccessful. I do not know why lenders are taking the approach they are to home owners because it does not seem economically logical, but then we are talking about huge, mindless organizations. But, in a Chapter 13, the lenders HAVE to play by the rules.

Debtors also must play by the rules and they MUST make those monthly payment to the lender and their Chapter 13 plan payments for the whole thing to work. So, their budget must support both payments. This means taking action early.

July 23, 2012 Posted by | Bankruptcy, Chapter 13, Plan, Planning, Pre-filing planning, Property (exempt | , , , , , , , , , , , , | 1 Comment

Foreclosure Defenses: Round 2

So, you have now challenged the party that is prosecuting the foreclosure on your home to produce the original promissory note (loan agreement) to prove they are the holder and thus entitled to enforce the note. And, sure enough, a note is either produced, or they claim it cannot be produced and so move for a copy to be admitted pursuant to Kentucky Rule of Evidence 1003.

Let us take a quick look at Rule 1003. This rule does say it is okay for a copy to be admitted EXCEPT when it would be unfair to admit a duplicate. This unfair language is what you need to focus on here. Remember that a promissory note is a negotiable instrument, just like the checks you write. Would a bank think it is fair for a copy of a check to be used to prove up an obligation? Heck no. So, let us look at a few reasons it would be unfair beyond the fact that they are a bank with virtually unlimited resources and you are so broke you can barely make ends meet.

One way a copy would be unfair is that an endorsement (indorsement in Kentucky statutes) magically appears on the copy and there is now way to tell when it got there. Or, there may be an endorsement in blank (allowing whomever holds the note to enforce it), but one cannot tell if it is a copy of the original or a copy of a copy. When a copy is allowed, magically appearing endorsements are possible and this is unfair to the defendant – you.

Perhaps they do produce the original note, but there is no endorsement on the note itself. Rather, there is an extra piece of paper attached where the alleged endorsement appears. This paper is known as an allonge. However, an allonge is only supposed to be used when there is no way to endorse on the note itself. So, you need to examine that endorsement page and if there is plenty of room for a new endorsement to be added, the allonge becomes suspect. Lastly, an allonge is supposed to be so firmly affixed to the original note so as to make it like part of the original document. Here, you should start checking how many staple marks there are in the note as opposed to the allonge and see if there is reason to question when this allonge appeared.

Do not just give up if a promissory note appears upon your demand. Be sure to examine it carefully and compare it to any prior copies of the note that had been attached to the pleadings or otherwise produced. Check to make sure it is an original and challenge admission of a copy as unfair. See if endorsements have magically appeared or if there is an allonge attached under suspicious circumstances. Again, this is not about getting away with something you are not entitled to; it is about making sure a big creditor does not get away with something they are not entitled to.

April 2, 2012 Posted by | Foreclosure | , , , , , , , , | 1 Comment

Foreclosure Defenses: Round 1

First, a shout out to Ben Carter, a former classmate of mine and one fine presenter with a flair for fashion. Thanks Ben for helping make sense out of foreclosure mayhem.

So much has been written about the dilemma of massive numbers of foreclosure actions that I am hesitant to dive into the fray. However, even though many would like us to perceive the economy issues as having resolved, I think the foreclose crisis will continue with us for some time. Ordinarily, if someone has fallen behind on payments on their residence, a Chapter 13 works because payments on those arrears are stretched over five years with zero interest. Sometimes a Chapter 13 just is not a great idea because the non-exempt assets are so high that the plan payments cannot be met due to the monthly budget limitations of the debtor.

When a Chapter 13 is not the best approach and you really are determined to keep the home, then the drop back and punt position is to fight the foreclosure action. Step one in fighting back is to make sure the party bringing the foreclosure action actually has the right to prosecute it. This “right” is referred to as standing. Under Kentucky Revised Statutes (KRS 355.3-301) only certain parties have the right to enforce the promissory note; the right to pursue a lawsuit.

I need to go on a slight tangent here to make sure we are on the same page. Most people focus on the mortgage (real estate lien) in their defense efforts because often the mortgage does not have the name of the company filing the foreclosure on its face. However, the document most pertinent to the issue of standing is the promissory note (loan agreement). The promissory note is a negotiable instrument which means that it usually can be transferred. However, the way it gets transferred is very important (KRS 355.3-201).

Let’s think about a common, ordinary check. A check is a negotiable instrument. You can transfer a check written to you by indorsing your signature on the back of it. If all you do is sign your name, then whoever has that check in their possession can cash it. If you sign your name followed by “to John Quincy Adams”, then only John Quincy Adams can cash it. The former indorsement is “payable to bearer”, but whether it is a payable to bearer or to John Q., they can only cash the original check; they would go to jail for trying to cash a photocopy of a check.

A promissory note for a home loan is exactly the same as a check: 1) to transfer it then it must be indorsed, and 2) it can only be “cashed” or enforced by the party who has physical possession of the original note (see the caveat below). So, if the party bringing the lawsuit cannot produce a properly indorsed original promissory note, then they cannot show they have standing. Challenging standing is the first crucial defense to a foreclosure. At best, the suit will go away because they discover they actually do not bear (hold) the promissory note. At least, it will slow down the case while they dig through tons of documents to locate the original promissory note.

CAVEAT: There are some responses to this defense as described in the Uniform Commercial Code, but they are beyond the scope of this particular article and it is the burden of the party pursuing the bankruptcy to assert them.

March 21, 2012 Posted by | Bankruptcy, Chapter 13, Foreclosure | , , , , , , , , , , , , | 3 Comments