Use It or Lose It: The Automatic Stay in a Third Bankruptcy Case

1_2_3ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I need to file a bankruptcy case to stop the foreclosure of my home. But there’s a catch. I already filed two Chapter 13 bankruptcy cases in the past ten months and both were dismissed. The first because of some bad advice I got. The second because I

found out too late that I needed to file a motion to continue the protection of the automatic stay within 30 days. 

The foreclosure is back on track and I need to stop it so that I can save my home. I’m handling the bankruptcy on my own.

So here’s my question. Since I didn’t use up my right to file a motion to continue the stay in the second bankruptcy, can I file another Chapter 13 case and also file the motion? It seems to me that my right to file the motion is preserved because I haven’t exercised it yet. 

Sincerely,

Grace

Dear Grace,

You don’t preserve your right to ask the court to continue the automatic stay by not using it. It’s a “use it or lose it” right during bankruptcy case number two. However, you may be able to get the court to impose a stay as to your lender in the third bankruptcy. Whether this will work depends on how much time you have before your home is foreclosed.

Here’s a bit more about repeat bankruptcy filings and the automatic stay.

The Automatic Stay in Your First Bankruptcy Case

As you correctly understand, only the filing of your first bankruptcy case created an automatic stay. Under the automatic stay, most creditors must stop collection activities during your bankruptcy. That automatic stay encompasses foreclosures – so your lender had to stop the foreclosure proceedings when you filed the first case. (To learn more, see Nolo’s article Bankruptcy’s Automatic Stay.)

The Automatic Stay in Your Second Bankruptcy Case

If you file a second bankruptcy case within one year from the filing of the first, the automatic stay only lasts 30 days. The court can extend the 30 days, but you have to file a motion asking the court to do so. In order to get the extension, you have to convince the court that you filed your second case in good faith as to creditors you are trying to encompass under the extension.

The court will only grant such an order during the first 30 days of case number two. This doesn’t leave you much time (as you found out). Experienced bankruptcy lawyers normally file an emergency motion to extend the stay on the same day as the second case is filed. Doing that provides the best chance of having the court consider the motion before expiration of the deadline.

The Automatic Stay in Your Third Bankruptcy Case

If you file for bankruptcy a third time within one year, the automatic stay doesn’t kick in at all. You can, however, ask the court to impose the automatic stay. Again, you’ll have to do this by motion and you’ll only have 30 days to get the order.

If you haven’t yet filed your third bankruptcy case, consider talking to a bankruptcy lawyer. An experienced lawyer may be able to file the motion requesting the automatic stay along with your bankruptcy case, and get the motion heard before 30 days have passed.  You’ll have to convince the court that you haven’t filed your third case in bad faith. (Learn more about the automatic stay in repeat bankruptcy filings.)

Whether this strategy will work depends on when the foreclosure sale is scheduled.  If the sale is scheduled to take place in less than 30 days, you’ll be out of luck.

-Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Find Leon on Google+

Bankruptcy Filing Fees Will Increase on June 1, 2014

Bankruptcy_Petition_iStock_000008359066XSmallStarting on June 1, 2014, the fees required to file for bankruptcy will increase. Here are the new amounts:

Chapter 7 bankruptcy:  $335 (up from $ 306)

Chapter 13 bankruptcy:  $310 (up from $281)

Chapter 12 bankruptcy:  $275 (up from $246)

In addition to these fees, you’ll also have to pay a small amount to participate in pre-bankruptcy credit counseling and pre-discharge debtor education.  The cost for each of these services usually ranges from free to $50. (Learn more about the procedures to file for bankruptcy.)

Filing Your Income Taxes & Bankruptcy: What You Need to Know

Tax Return 1040The April 15th deadline is looming — it’s almost time to file your 2013 tax return. If you are struggling with debt and thinking about filing for bankruptcy, you may have some questions about how your tax return and bankruptcy will affect each other. For example:

  • Should you file your tax return if you are considering bankruptcy?
  • If you owe taxes this year, can you get rid of the debt in bankruptcy?
  • Will you get to keep your tax refund if you file for Chapter 7 bankruptcy?

Here are answers to some common questions about tax filing time and bankruptcy.

Should I File a Tax Return If I am Thinking About Bankruptcy?

Yep. When you file for Chapter 7 or Chapter 13 bankruptcy, you are supposed to provide the bankruptcy trustee with copies of your tax returns for the previous two years. If you don’t have a good reason for not filing those returns, the trustee will likely require that you file them before your bankruptcy gets under way. (To learn more, see Nolo’s article Gathering Your Documents for Bankruptcy.) So you might as well do it now. If you have a good reason why you can’t file your tax return this year, talk to a bankruptcy attorney.

If you file for Chapter 13 bankruptcy, the trustee will probably require that you provide him or her with your tax return for each year that you remain in the bankruptcy case.

If I Owe Taxes This Year and Can’t Pay Them, Can I Wipe Them Out in Chapter 7 Bankruptcy?

Wouldn’t that be great? But no, you cannot discharge (eliminate) recent tax income tax debts in bankruptcy. So if you owe a bundle this year and don’t pay up, that debt to the IRS will survive your bankruptcy. You can, however, discharge older income tax debts if they meet certain criteria. (For details, see Nolo’s article Eliminating Tax Debts in Bankruptcy.)

Most people know that credit card debt is discharged in Chapter 7 bankruptcy (with a few exceptions). But if you’re thinking about getting rid of tax debt by paying your tax bill with your credit card, think again. Bankruptcy laws specifically state that if you put nondischargeable income tax debt on your credit card, that part of your credit card debt won’t be wiped out in bankruptcy. (See Can I discharge credit card charges used to pay off income tax debt?)

What Happens to My Tax Debts in Chapter 13 Bankruptcy?

If you file for Chapter 13 bankruptcy, you pay tax debts through your plan (which lasts from three to five years). You repay nonpriority tax debts at a discount, and the remainder is discharged at the end of your case. You have to repay priority tax debts in full, but you often pay them at 0% interest and because you pay them over the life of your plan, this gives you more time for repayment. (To learn more, including which tax debts are priority and which are nonpriority, see Nolo’s article Tax Debts in Chapter 13 Bankruptcy.)

If I Get a Tax Refund This Year, Will I Lose It if I File for Chapter 7 Bankruptcy?

If your concern is not tax debt, but your tax refund, then a little planning is in order. Here’s why.

When you file for Chapter 7 bankruptcy, all of your property and assets become part of the bankruptcy estate. Unless your property is protected by law (the laws that allow you to keep certain property in bankruptcy are called exemptions), the bankruptcy trustee can sell it and use the proceeds to repay your creditors. (You can learn how this works in Nolo’s article Exemptions in Chapter 7 Bankruptcy.)

If you get a tax refund this year and then file for bankruptcy, that refund becomes part of the bankruptcy estate. You may be able to protect the money by using an exemption. Most states don’t have a specific exemption that covers tax returns, but some allow you to exempt a certain amount of cash. And many states have a wildcard exemption that you can use to protect any type of property. (You can find your state’s exemptions in Bankruptcy Exemptions by State – choose the link for your state.)

But if you stand to lose your tax refund in bankruptcy, you could use another strategy to keep the money – delaying your bankruptcy filing. After you get your tax refund, spend it on necessities (like your rent or food). Once it’s gone, then file for bankruptcy. If you plan to do this, however, speak with a local bankruptcy attorney first. Bankruptcy courts vary as to what types of expenses count as “necessities.” And some attorneys may advise you to keep your tax refund in a separate account. (To learn more, see Nolo’s article How to Spend Down Tax Refunds in Chapter 7 Bankruptcy.)

Michigan Bankruptcy Exemptions to Increase on April 1, 2014

iStock_000013926497Small (2)If you are planning to file for bankruptcy in Michigan, you might want to wait a few weeks. On April 1, 2014, the dollar amounts for some of the bankruptcy exemptions will increase. This means if you wait to file for bankruptcy until on or after April 1st, you can keep more property in Chapter 7 bankruptcy.

What Are Bankruptcy Exemptions?

If you file for Chapter 7 bankruptcy, your property becomes part of the bankruptcy estate. The bankruptcy trustee can sell your property and use the proceeds to repay your unsecured creditors. Some property, however, is safe from the trustee – this is called exempt property. (Learn more about the role of exemptions in Chapter 7 bankruptcy.) Each state has a list of property you can exempt in that state, usually up to certain dollar amounts.

In Chapter 13 bankruptcy, your exempt property plays a role in how much you must repay unsecured creditors over the life of your plan. So even though you keep your property in Chapter 13, being able to exempt most or all of your property is still advantageous to your case. (Learn more about the role of exemptions in Chapter 13 bankruptcy.)

Michigan Bankruptcy Exemptions

Like other states, Michigan law sets forth a list of property that you can protect if creditors are trying to collect from you. You can use these exemptions in bankruptcy as well. For a full list of Michigan bankruptcy exemptions (not all of them changed), see Nolo’s article Michigan Bankruptcy Exemptions.

Every three years the Michigan state treasurer adjusts the exemption dollar amounts to take into account inflation. The latest adjustment will go into effect on April 1, 2014. If you file for bankruptcy on or after April 1, 2014, the following exemption amounts will apply to your case:

  • Household goods, furniture, utensils, books, appliance, and jewelry, up to $600 per item, but not to exceed a total of $3,775 for all items. (The previous amounts were $550 and $3,525 respectively.)
  • Pew in a place of worship, up to $650 (previously it was $600).
  • Crops, farm animals, and feed for the animals, up to $2,525 total (previously it was $2,350).
  • Pets, up to $650 (previously it was $600).
  • Motor vehicle, up to $3,475 (previously it was $3,250). (Learn more about the Michigan motor vehicle exemption.)
  • Computer and accessories, up to $650 (previously it was $600).
  • Tools of the trade, up to $2, 525 (previously it was $2,350).
  • Homestead exemption to $37,775 (previously it was $35,300) or to $56,650 if you are 65 years old or disabled (previously it was $52, 925). (Learn more about the Michigan homestead exemption.)

You can find these exemption laws in the Michigan Compiled Laws Annotated §600.5451(1). However, the statutes do not reflect the adjusted amounts. You can find the Michigan bankruptcy exemptions adjusted for inflation on the Michigan Department of Treasury’s website.

Can Student Loans Help You Qualify for Chapter 7 Bankruptcy?

StudentLoans_iStockIf you plan to file for bankruptcy and have a bundle of student loan debt, those loans might make it easier for you to be eligible for Chapter 7 bankruptcy.  A Texas bankruptcy court recently ruled that because a bankruptcy debtor’s substantial dentistry school loans were not consumer debts, he did not have to take the means test in order to file for Chapter 7 bankruptcy.

What Is the Chapter 7 Means Test?

In order to qualify for Chapter 7 bankruptcy, you must pass the means test. The Chapter 7 means test looks at your income and expenses and determines if you have enough money left over to repay your unsecured creditors a portion of what you owe.

The means test often prevents high earners from filing for Chapter 7 bankruptcy. For many debtors, Chapter 7 is preferable to Chapter 13 because it allows you to discharge most or all of your debts, and you don’t have to make payments to a plan for three to five years. (Of course, there are many situations when Chapter 13 is better than Chapter 7.)

Exceptions to the Means Test Requirement

There are several situations when debtors do not have to pass the means test in order to file for Chapter 7 bankruptcy. One of those is referred to as the business debt exception:  If the majority of your debts are not consumer debts, you don’t have to take the means test.

Texas Court:  Dentist School Loans Are Not Consumer Debts

In In re De Cunae, No. 12-37424 (Bkcy S.D. TX 2013), Mr. De Cunae, a dentist, filed for bankruptcy. He lost his dental practice after a difficult divorce, was a single father, and couldn’t work for a time because of a stroke. At the time of his bankruptcy filing, he was once again working as a dentist on a contract basis. He filed for Chapter 7 bankruptcy.

Mr. De Cunae argued that he did not have to pass the means test (his income was high enough that if he did have to pass it, he would have failed) because his student loans from dentistry school were nonconsumer debts, and therefore the majority of his debts were nonconsumer.  The Texas bankruptcy judge agreed, ruling that the portion of his dentist school loans (about $200,000) that was used for tuition, books, and fees, was not a consumer debt. On the other hand, the portion of the student loans that he used for household expenses (about $30,000) was consumer debt.

Loans Incurred With an “Eye Towards Profit” Are Not Consumer Debts

Bankruptcy courts often struggle to distinguish consumer and nonconsumer debts. The Fifth Circuit Court of Appeals (Texas is in this circuit) has come up with the following definition: A nonconsumer debt is one that the debtor takes out “with an eye toward profit.”

The Texas bankruptcy court found that Mr. De Cunae did not attend dentist school, nor incur loans to attend dentist school, only for self-improvement or self-esteem, as the United States Trustee argued. Instead, the court found that Mr. Cunae’s intent was to enhance his ability to earn a future living.  To the court, that seemed to fit squarely within the profit motive category — and therefore they were not consumer debts. The portion of student loans that Mr. De Cunae used for household expenses, however, were consumer debts.

Because he could classify most of his dentist school student loans as nonconsumer debt, Mr. De Cunea’s  total nonconsumer debt load outweighed his consumer debt load – and he was allowed to file for Chapter 7 bankruptcy without passing the means test.

Can a Credit Card Debt Be Reported on a Child’s Credit Report?

Real bank or piggy-bank?ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I got a Chapter 7 discharge about a year ago. Long before filing bankruptcy I got an extra credit card for my daughter to use. At that time the bank assured me that I would be the only person liable for charges on the card. My daughter just got her credit report and the credit card account appears as a charge off. 

How did the company get her social security number? And didn’t it violate the agreement it made with me? My daughter is now 17 years old, and I’m sick over the thought that I ruined her credit. 

Yours truly, 

Marjorie

Dear Marjorie,

I suggest that your daughter dispute the debt on her credit report. It’s not hard to do. You can learn how in Nolo’s article How to Dispute Errors on Your Credit Report.

In her dispute, she should state two things:

  • that the credit card account is not hers, and
  • that even if it was, she is under age 18 and is now voiding the contract, so does not owe the credit card company anything

I think this credit dispute will be quickly resolved in her favor. If it is, that annoying item will disappear from her credit report.

Here is a little background on each of these arguments.

The Credit Card Account Is Not Hers

The credit card company told you that you would be the only one liable for the charges, so the account never belonged to your daughter. Your daughter should state these facts in her dispute.

What If the Agreement Did Hold Your Daughter Liable?

But what if the credit card agreement did hold your daughter liable?  It’s likely you no longer have documents proving the contrary. And credit card companies do issue extra cards to authorized users and hold the user liable. In this case, because the bank has her social security number, is it possible the agreement said she would be liable?

A Minor Can Void a Contract

Even if the credit card agreement did hold your daughter liable for the credit card debt, she can void the contract before she turns 18.

Because the law says that minors lack the capacity to enter into a contract, it gives minors the option to either (1) honor the contract, or (2) void the contract before he or she turns 18.  (There are a few exceptions: Minors cannot void contracts for necessities, like food and shelter.)

Your daughter should immediately notify the credit card company and the credit repair agency that she is voiding the contract.  She can do this by stating:

“While I believe that I never had a contract with [credit card company], if I did, I am now voiding the contract.  I am under the age of 18.”

At that point, since there is no contract in place, your daughter does not owe the credit card company anything, and she can dispute the entry on her credit report.

A Novel Argument?

And if you want to try something new, consider this. Last July, the new Children’s Online Privacy Protection Act Rule (COPPA Rule) took effect in California. If you use the above tactics and still cannot get the item removed, you could hit the credit card company with a demand to remove the item on the ground that it is violating COPPA by publishing information pertaining to the identity of a minor.  It might be a stretch to say that a credit report (which has a limited viewing audience) is “publishing” information about a minor and therefore violating COPPA, but it doesn’t hurt to make the argument. Rather than test new legal waters, perhaps the credit card company (or the credit reporting agency) will back down and remove the item.

-Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Find Leon on Google+

Law v. Siegel: Did the U.S. Supreme Court Let a Conniving Bankruptcy Debtor Off the Hook?

US Supreme CourtIn a recent case, Law v. Siegel, the U.S. Supreme Court said that a bankruptcy trustee cannot “surcharge” (redirect funds from) a bankruptcy debtor’s exempt property to pay for the trustee’s attorney’s fees — even if the debtor defrauded the court. The decision was a blow to bankruptcy trustees. But it certainly doesn’t mean that debtors who lie and cheat will get off without penalty.

The Facts of Law v. Siegel

In 2004 Mr. Law filed for Chapter 7 bankruptcy in California.  His home was worth $363,348 and he claimed the full $75,000 of California’s homestead exemption. He also listed two liens against his home that, taken together, exceeded the value of his home. Because these three liens meant that he had no equity in his home, there was nothing left for creditors and he proposed to keep his home in the bankruptcy.

The bankruptcy trustee, Mr. Siegel, questioned the existence of one of the junior liens – that of Lin’s Mortgage and Associates. Long story short: After five years of litigation, the bankruptcy court ruled that the Lin’s Mortgage loan was fictitious. Law had made it up just so he could keep his home. The bankruptcy court ruled that Mr. Law defrauded his creditors and the court.

At this point, Mr. Siegel was in the hole for attorney’s fees to the tune of a whopping $500,000. Bankruptcy law allowed Mr. Siegel to take his fees out of the proceeds of the home sale, after paying off Mr. Law’s first mortgage. But that amount didn’t make a dent in Mr. Siegel’s fees. So, Mr. Siegel asked the court to “surcharge” Mr. Law’s $75,000 homestead exemption. Essentially, he asked the court deny the exemption, and allow Mr. Siegel to use the $75,000 to defray his attorney’s fees.

Needless to say, Mr. Law was not a sympathetic character and the bankruptcy court did not have a problem giving the $75,000 to Mr. Siegel. When Mr. Siegel appealed to the Bankruptcy Appellate Panel of the Ninth Circuit, those judges agreed with the bankruptcy court. He then appealed to the Ninth Circuit, which also agreed with the bankruptcy court.

Split in the Circuit Courts Over Surcharging

Although the bankruptcy court’s ruling seems like a no-brainer, there has been a split between the circuit courts over surcharging – and for good reason. The federal bankruptcy law (§522) which allowed Mr. Law to exempt $75,000 in his home specifically states that the exempted amount “is not liable for” administrative expenses, including attorney’s fees.  And that’s exactly what Mr. Siegel proposed – to use the $75,000 to pay his attorney’s fees.

But here’s the rub. The Ninth Circuit and a few others have ruled over the years that surcharging is allowed because:

  • §105(a) of the bankruptcy code gives the bankruptcy court the authority to do what is necessary to carry out the provisions of the bankruptcy code, and
  • the bankruptcy court has “inherent power”  to sanction litigation practices.

Enter the Supreme Court

The bankruptcy bar awaited the result with baited breath. On the one hand was the group of lawyers who serve as bankruptcy trustees. They were hoping the U.S. Supreme Court would allow the surcharge.

On the other side was the group of lawyers who regularly represent debtors. Those lawyers didn’t want a decision which gave bankruptcy courts more power to take away debtors’ exemptions. And this case was worrisome because “bad facts often make bad law.”

The Supreme Court Says No to the Surcharge

In the end, the Supreme Court held its nose and ruled for Mr. Law.

Its reasoning was fairly simple: A bankruptcy court cannot take an action that is specifically prohibited by another section of the bankruptcy code.

The Supreme Court said that while the bankruptcy court does have inherent power to sanction fraudulent debtors, and §105(a) does give it power to make orders to carry out the code, nonetheless, the bankruptcy court cannot do so if it contravenes another provision of the code. Here, the bankruptcy court’s actions overrode §522, which allows a debtor to exempt certain property. To be sure, §522 does allow a bankruptcy court to deny an exemption, but only for a reason specifically outlined in that section. To that end, §522 lists quite an array of exceptions and limitations to a debtor’s use of exemptions. In what has quickly become a popular quote among bankruptcy attorneys, the Supremes said:

“The Code’s meticulous – not to say mind-numbingly detailed – enumeration of exemptions and exceptions to those exemptions confirms that courts are not authorized to created additional exceptions.”

(Anyone who has dealt with bankruptcy exemptions, both attorneys and debtors alike, will agree that they are mind-numbing. It was nice to have that fact recognized by the highest court in the country.)

What Does This Mean for Bankruptcy Trustees?

The decision is not a good one for bankruptcy trustees. Mr. Siegel labored for five years to prove that Mr. Law had defrauded the court and his creditors. And now he can’t even touch the $75,000 exemption. Yes, there are consequences for Mr. Law (see below), but they don’t necessarily help Mr. Siegel recover his attorney’s fees.

What Does This Mean for Debtors?

This decision certainly doesn’t give free reign to debtors to play fast and loose with the bankruptcy code, or worse, to defraud the court.

The U.S. Supreme Court was very careful to point out the many sanctions that are available to deal with debtors like Mr. Law.

  • The bankruptcy court can deny Mr. Law’s discharge, so that he’d still be on the hook for his debts. (The Court recognized that in this case, because of a settlement, Mr. Law didn’t have any debts to discharge. In most bankruptcy cases, however, this would be a big stick.)
  • The bankruptcy court can impose sanctions on a debtor for bad faith litigation tactics. It won’t take much to put Mr. Law in this category.
  • A debtor who commits fraud can be subject to criminal prosecution, and possibly go to jail for up to five years.

Can a Lender Take Your Mortgage Statements Hostage to Force You to Reaffirm?

HASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I filed Chapter 7 bankruptcy in California the spring of 2013. I have a first and second mortgage on my home. Although it was, and still is, underwater, I want to keep it. My lawyer said I didn’t need to do anything in the bankruptcy other than continue making payments on both loans. 

My mortgage payments have not been appearing on my credit report. And my mortgage lender recently stopped sending monthly mortgage statements. When I called, the lender told me that because I didn’t reaffirm the debt in my bankruptcy, it cannot send mortgage statements or report my payments to the credit bureaus. 

The lender said that the only way to remedy this is to reopen my bankruptcy and reaffirm the loan. Did my lawyer mess up? 

Carol  

Dear Carol,

Your lawyer did nothing wrong. Here’s why.

Courts Don’t Like Home Loan Reaffirmations in Bankruptcy 

When you sign a reaffirmation agreement in bankruptcy, you agree to resume personal liability on a debt that the bankruptcy would have otherwise wiped out.

In California, most bankruptcy judges routinely refuse to approve the reaffirmation of mortgages. Bankruptcy judges don’t want people to saddle themselves with debt loads that were set to be discharged in bankruptcy. Most judges believe that it’s not in anyone’s best interest to reaffirm a mortgage. For the most part, reaffirmation agreements are unnecessary if you want to keep your home – if you keep paying your loan on time, you can keep the home.

If you don’t reaffirm, your payments won’t appear on your credit report. But the courts are more concerned with keeping everyone out of future debt trouble than with helping them get back into it.

Why It’s Usually Not a Good Idea to Reaffirm Your Mortgage

The danger of reaffirming is that if you later change your mind about keeping the house, or fall behind on payments and lose your home to foreclosure, you’ll be on the hook for a deficiency.

What’s a deficiency? If your home is underwater and you lose it to foreclosure, the difference between the sale proceeds from the foreclosure and what you still owe on your mortgages is called the deficiency. (Get details on how deficiencies work.)

In most situations, California law does not allow a mortgage lender to come after you for a deficiency on a first mortgage of your residence (but there are exceptions). Not so for the second mortgage. The mortgage lender can sue you to recover the deficiency and then once it gets a judgment, garnish your wages, levy your bank account, and more. (Learn more in Deficiency Judgments After Foreclosure in California.)

Your bankruptcy wiped out your personal liability on both the first and second mortgages – so the lender cannot come after you for a deficiency if you later lose the home to foreclosure. It would not have been in your best interest to reaffirm those loans in the bankruptcy, because then you would be liable for a deficiency. Of course, it would have been in your mortgage company’s best interest for you to reaffirm.

Your Lender Is Holding Your Mortgage Statements Hostage to Force You to Reaffirm

You say your mortgage company recently stopped sending you statements. If it couldn’t send statements because you didn’t reaffirm the mortgage, then why was it able to send statements from the spring or 2013 up until now? Obviously, your lender can send statements, if it chooses to.

And thanks to a new federal law, your mortgage lender might be required to send you periodical mortgage statements. There are exceptions to this new rule though.  (To learn more, see Nolo’s article The Periodic Statement Rule: Monthly Mortgage Statement Requirements.)

What Can You Do?

Your mortgage company has stopped sending statements in order to coerce you into reaffirming your loan. Nice people, huh?

I suggest you send a letter to your mortgage company referring to the periodic statement rule and requesting that it comply with the rule and start sending mortgage statements. You can tell the company that if it doesn’t comply with the rule, you’ll submit a complaint with the Consumer Financial Protection Bureau.

If that fails, talk to a lawyer.

-Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Find Leon on Google+

Real Housewives of New Jersey’s Teresa and Joe Giudice Commit Bankruptcy Fraud

Serious male judgeTeresa and Joe Giudice, cast members of The Real Housewives of New Jersey, clearly did not read Nolo’s bankruptcy articles before they filed for Chapter 7 bankruptcy in 2009. Last week in federal court, the Giudices admitted to committing bankruptcy fraud by failing to list income and assets.  (They also admitted to conspiracy to defraud banks through mortgage and loan fraud — but that’s another blog.)

Never, Ever, Hide Income and Assets in Bankruptcy

When you file for bankruptcy, you complete a packet of papers where you list your income, assets, and debts.  You must sign your bankruptcy petition and schedules under penalty of perjury, so if you lie, you are committing perjury (a crime). For this reason, you should never deliberately fail to list assets or income on your bankruptcy schedules.  (See Nolo’s article Filing Bankruptcy? Disclose Everything, Hide Nothing.)

How Did Real Housewives Stars Teresa and Joe Commit Bankruptcy Fraud?

According to news reports, Teresa and Joe failed to list an array of income sources and assets, including:

  • Teresa’s true income from “Real Housewives”
  • income and speaking fees from personal and magazine appearances
  • businesses they owned, and
  • rental income.

You Will Get Caught

Teresa and Joe Giudice may be dippy, but they must have known that lying on their bankruptcy schedules was a no-no. But they did it anyway, probably thinking they wouldn’t get caught. Bad idea. Listen to what bankruptcy lawyers say — you will get caught. Bankruptcy trustees have the power to do a bunch of asking and digging. And bankruptcy trustees are good at spotting red flags that might inspire them to do some digging.

And even if you’ve already gotten your discharge, you are still not home free. The bankruptcy trustee might find fraud after your bankruptcy is over – which is what happened with Teresa and Joe. They filed for bankruptcy in 2009 and for a while probably thought that they had gotten away with their fraud. Ha.

Bankruptcy Fraud = Big Trouble

So what can happen if the bankruptcy court finds out that you’ve hidden assets and income or otherwise lied on your petition and schedules?  A lot.

  • The court can deny your discharge. The court can deny your discharge. Which means all of those debts you wanted to get rid of in bankruptcy will now be yours again.
  • The court can revoke your discharge. If your bankruptcy case is closed, the trustee can ask the court to revoke (take away) your discharge up to one year after closure.
  • No discharge in later bankruptcies. Don’t think you can just refile and discharge the debts the second time around. If the court denied the discharge of your debts because you hid assets, you won’t be able to discharge them in bankruptcy again, ever.
  • You could face criminal charges. Here’s the worst case scenario – criminal charges. You sign your bankruptcy schedules listing your assets under penalty of perjury, representing that they are true and accurate.  The penalty for making a false statement or concealing property is a fine of up to $500,000 or imprisonment for up to five years, or both. (Learn more about the consequences of hiding income and assets in bankruptcy.)

Jail Time for the Real Housewives’ Stars?

Teresa Giudice could face up to two years and three months in prison, and Joe could face three to four years of prison time for the bankruptcy and mortgage fraud.

How to Complete Bankruptcy’s Schedule F: Untangling the Morass of Creditors and Debt Collectors

File Stack and Magnifying GlassASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I’m trying to fill out a set of Chapter 7 bankruptcy schedules for myself.

I am going crazy over how to list my creditors on Schedule F. I have my credit reports for the past few years, and some of the collection agencies that used to be on the reports don’t show up on my latest report. 

Also, my reports list some collection agencies but don’t show who the original creditor was. To top it off, the dates and amounts don’t all match and the account numbers used by some collection agencies don’t match those of the original creditors. What the heck should I do?  This is so confusing. 

Sincerely, 

Sara

Dear Sara,

Welcome to my world.

On Schedule F of your bankruptcy paperwork, you must list all of your unsecured, nonpriority debts. (Learn what an unsecured, nonpriority creditor is and what information is required in Schedule F in Nolo’s article How to Fill Out Schedule F.) But, as you have discovered, figuring out who all those creditors are can be a nightmare.

Here’s how to fill out Schedule F when you are confronted with a big jumble of intimidating information.

Develop a System

First, list each one of your original creditors. If you know that a collection agency is collecting a particular debt right now, you still should list the original creditor, and then separately list the collection agency.

How to Write a Description for Each Debt

When you list an agency, you can note that it is collecting for a particular original creditor. For example, list your credit card debt at the Bank of Boot Hill, and then list the Hired Gun Collection Agency, noting it as the “assignee for the Bank of Boot Hill”.

How to List Debts From Your Credit Report That You Don’t Recognize

If you have some collection agencies that you can’t match up to an original creditor, list them anyway. When you don’t know for whom or what an agency is collecting for, you are still allowed to schedule it. List the debt as “possible claim” or “collector for an original creditor not identified.”

When in Doubt, List It

You won’t get in trouble for over listing. When in doubt, list it and include whatever you know about it.

If you list a collection agency that no longer has the debt, no harm is done to you. But doing so protects you, just in case you are wrong.

Don’t Rely Solely on Your Credit Reports

The key to hammering out a successful Schedule F list of bankruptcy creditors is to list ‘em all, with a name and address. Dig deep in all your old papers, looking for creditors.

Your credit reports are a great source of information. But do not rely solely on your credit reports. You might have debts that never made it onto your reports. For example, old landlords, magazine subscriptions, vet bills, medical bills, bounced checks, and home repair services.

-Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

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