Tag Archives: Chapter 13

The National Mortgage Settlement and Lien Strip Poker

poker chipsASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I am in Chapter 13 bankruptcy with a confirmed plan, and I did a lien strip to remove my second mortgage (it is a second deed of trust with Bank of America). I just got a letter from BofA saying they are forgiving my second mortgage, they will send documents showing the loan is forgiven, and there is more nothing I need to do. My bankruptcy lawyer says that I’m not supposed to get the lien strip until I complete my five year Chapter 13 plan and get a discharge, and that therefore I must finish my Chapter 13 case in order to gain the benefit of the lien strip.  Is the bank writing this off now rather than waiting the five years? 

I just want to get a second opinion because it’s confusing.  

Thanks, 

Molly

Why BofA Forgave Your Loan

Good Golly Miss Molly!

You’ve lucked out. And I get to answer a fun question.

Of course, I have not seen the actual letter you received. However, it sounds exactly like letters many of my own clients have received. If it is, your second mortgage lender has indeed decided to give up now, instead of waiting the five years. Assuming I’m right, I’ll explain why this happened. I’ll also explain where it puts you. (But you should still take all the paperwork to a lawyer who is familiar with this.)

The National Mortgage Settlement: Banks Must Pay Owe $10 Billion for Mortgage Reduction

The Bank of America, along with Ally, Wells Fargo and several other banks are parties to the National Mortgage Settlement (NMS), a legal settlement requiring them to forgive a certain amount of home mortgage debt, including second mortgages. The settlement allows the banks to decide which loans to forgive, but the loans must total $10 billion. (You can learn more about the NMS at http://nationalmortgagesettlement.com/.)

Think about this settlement as if it were a debt that the banks owe to the public. They pay the debt by forgiving loans totaling $10 billion. After they do that, the debt is paid. Sounds like a good deal for consumers, doesn’t it?

Did Government Lawyers Get a Good Deal for Homeowners?

In agreeing to this settlement, the banks (but maybe not the government) realized that they could get full credit towards paying the $10 billion they owed by forgiving loans that were uncollectable anyway. Think about your loan. You’re not making payments on your loan. Throughyour bankruptcy, you are on track to discharge your personal liability for the loan. And your loan is already subject to a lien strip order. From the bank’s point of view, their chances of collecting money on your loan are slim to none.

Forgiving an uncollectable loan, just like yours is, makes good sense for the banks. It is similar to you giving a bag of old clothes to charity and getting a tax deduction for worthless stuff you were about to put in the trash.

If You Were a Bank, Which Loans Would You Forgive?

You would certainly keep loans that customers pay on time. That improves your balance sheet and keeps the bank healthy.

Because you must forgive some loans, you would probably choose loans that are in default. Even better, you would look for defaulted loans that are already involved in bankruptcy with a lien strip.

Small wonder why the bank picked your loan to forgive. For them, using your loan to pay off a bet was like drawing four aces in poker. Forgiving your loan (and the loans of others) makes the public think they are swell guys, but in your case (and many others), it doesn’t really cost them anything. They weren’t going to get paid on that bag of old loans anyway. But forgiving uncollectable loans pays off the settlement.

All in all, your bank is likely very happy with this deal. It gets to pay the settlement with a big bag of trash, instead of paying with real money. It also gets a tax deduction, just like you do for donating a bag of old clothes.

Here’s Where This Leaves You

Do you still need your Chapter 13 bankruptcy?  If the only reason you filed for Chapter 13 bankruptcy was to strip off your second mortgage, then perhaps you can dismiss the case and get out of bankruptcy right now. (But don’t do that until the lender records a full reconveyance of the deed of trust and a bankruptcy lawyer gives you the OK to dismiss.)

If you still have other debts to discharge, you may be able to convert your Chapter 13 to a Chapter 7 case.

A good reason to stay in your Chapter 13 is to cure arrearages that you might owe on your first mortgage. The forgiveness of your second mortgage does not alter what you owe on your first mortgage. Your Chapter 13 bankruptcy might also be managing debts that are nondischargeable, like taxes.

A knowledgeable bankruptcy expert can guide you on making the best choices.

– 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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Fourth Circuit Allows Lien Stripping in Chapter 20 Bankrutpcy

On May 10, 2013 the U.S. Court of Appeals for the Fourth Circuit ruled that a debtor can strip off (eliminate) second mortgages and other junior liens in a Chapter 20 bankruptcy under certain circumstances. (In re Davis, No. 12-1184 (May 10, 2013).)

This means that if you file a Chapter 13 bankruptcy soon after a Chapter 7 bankruptcy, you may be able to get rid of second mortgages, liens, and HELOCs in the bankruptcy (if you live in the Fourth Circuit — Maryland, North Carolina, South Carolina, Virginia, and West Virginia).

Here’s how this works.

What Is Lien Stripping?

In Chapter 13 bankruptcy, if you have a second mortgage, junior lien, or any mortgage or lien other than your first mortgage that is “wholly unsecured,” you can get rid of it. The amount of the mortgage or lien becomes part of your unsecured debt — which most people pay off through their Chapter 13 plan at a rate of pennies on the dollar.

“Wholly unsecured” means that your equity in your home, after subtracting the balance on your first mortgage, won’t cover any of the balance on the junior mortgage. Here’s an example: Your home is worth $400,000 and the unpaid balance on your first mortgage is $450,000. You have a second mortgage for $50,000. Because your home equity is not enough to cover your first mortgage, your second mortgage is wholly unsecured, and eligible for lien stripping.

Lien stripping is allowed in Chapter 13 bankruptcy, but not in Chapter 7 (although you might be able to strip liens in Chapter 7 in the Eleventh Circuit.)

(Learn more about lien stripping in Chapter 13 bankruptcy.)

What Is a Chapter 20 Bankruptcy?

Chapter 20 bankruptcy is an informal way of referring to the practice of filing for Chapter 7 bankruptcy, and then following with a Chapter 13 bankruptcy.  Some debtors do this because the Chapter 7 does not get rid of all their debts (for example, child support arrears, tax debts, and other priority debts). The Chapter 13 allows the debtor to pay off these debts in a three to five-year payment plan.

The debtor cannot get a discharge in Chapter 13 if it falls too close upon the heels of the Chapter 7 — but often that doesn’t matter.  (Learn the rules about multiple bankruptcy filings.) The debtor can still get the protection of the bankruptcy court during the plan payment period, and in this way can make more reasonable payments towards the remaining debts.

Lien Stripping in Chapter 20 Bankruptcy

What remains an unresolved question in many circuits is this:  Can a debtor strip off junior liens in a Chapter 13 bankruptcy even though there is no discharge available (because of the previous Chapter 7)?

The Court of Appeals in the Fourth Circuit, in In re Davis, No. 12-1184 (May 10, 2013) said yes. This is good news for bankruptcy debtors living in Maryland, North Carolina, South Carolina, Virginia, and West Virginia.

When Chapter 13 Bankruptcy Is a Bad Deal

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Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

Should I file bankruptcy? I started debt consolidation almost five years ago. I pay $400 per month. My remaining balance is $3,500. My condo is under water. My home is worth $300,000. I owe $325,000 on my first mortgage. I owe $58,000 on my second mortgage line of credit. I am seriously thinking about some sort of a bankruptcy to get rid of my second mortgage, which has a monthly payment of $600 (I am current).

I am single, and try to live frugally because I learned my lesson about living in credit card hell. I make about $100,000 a year. What do you think I should do? I went to two different lawyers – both recommended Chapter 13 as the best option for me.

— Jay

Dear Jay,

First off, you are a winner! You win my Question of the Year award. I have never received any other question with such complete, clear, succinct information. You have given me everything I need to give you back a complete answer.

Now for the answer (drum roll, please)…I see absolutely no point in you pursuing a bankruptcy case.

(Yes, a bankruptcy lawyer is really telling you that.)

Here’s why.

If you file for Chapter 13 bankruptcy, you will be able to strip off (get rid of) your second mortgage and make it an unsecured claim. But you will also have to pay what you can afford into a Chapter 13 repayment plan for 60 months. Based on what you are paying now ($600 for your second mortgage and $400 for your consolidation loan), you will be able to afford a monthly Chapter 13 payment of at least $1000 per month. You may be able to pay more into your plan since you live frugally.

Over the life of your Chapter 13 case, you will probably pay enough into your plan to pay off your debts in full, including that stripped off second mortgage (which will be treated like an unsecured debt in your plan).

The only advantage in filing for Chapter 13: You can repay the remaining debt, including your second mortgage, without paying more interest.

But here are the disadvantages that await you. A typical Chapter 13 filer in the San Fernando Valley of California on average pays the following:

  • $4,000 in attorney fees for the basic 13 case
  • $1,500 in attorney fees to strip the lien off
  • a court filing fee of $281
  • a real estate appraisal cost of around $200
  • Chapter 13 trustee fees of around $6,000, and
  • mandatory credit counseling cost of around $25.

This means your total cost of filing for Chapter 13 will be approximately $12,000. That should pretty much outweigh any possible savings you would see by eliminating interest on the debts under Chapter 13.

Delay in rebuilding good credit. There is another thing to consider. You are just now coming out of a five- year debt plan. Entering another five-year plan means five more years of delay in reestablishing your good credit.

Pay Off Your Debt on Your Own

My advice? Get the remainder of your consolidation program paid off as fast as you can. If you have some savings available, use it right now to get the old plan finished. As soon as the old plan is finished, devote that monthly consolidation payment to paying extra loan principal each month on your second mortgage.

The lawyers who recommend Chapter 13 are putting their own financial gain ahead of your best interests, which is unethical, to say the least.

For the benefit of other readers, please don’t get me wrong. Chapter 13 is not a good option for Jay in this situation because he can afford to pay his debts. If his disposable income for debt payments was $200 monthly instead of $1000, a Chapter 13 would be a very good deal for Jay.

— 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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Filing Chapter 13 to Stop an Eviction

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Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon,

I filed a face sheet Chapter 13 bankruptcy a few days ago in Los Angeles. Now I need a lawyer to take over my case and file the rest of my paperwork.

I filed for bankruptcy to stop my landlord from going ahead with an eviction trial. When the landlord served me with an eviction notice, I offered to pay up (I had just gotten money that my employer owed me). The landlord refused to take my rent money unless I paid an extra $800 to cover lawyer fees. I offered to pay late fees, but not the lawyer fees because I don’t think the lawyer did any work.

Also my car payment is two months behind and I want to keep it. I did a Chapter 7 bankruptcy three years ago. Now I need a to file a plan and make them take my money and save my car. Am I out of luck here?

Thanks,

Katrina

Dear Katrina,

I really wish I could have heard from you earlier, and you will too when you read this.

Most bankruptcy attorneys in Los Angeles  charge around $4,000 for a Chapter 13 bankruptcy.  Whether the landlord’s lawyer did any work or not, it would have been far cheaper for you to pay the landlord the extra $800 than to pay $4,000 to a lawyer for your own Chapter 13.

If You Continue With the Chapter 13 Case

If you proceed in Chapter 13, you can  force reinstatement of a defaulted lease. The drawback is that you will have to pay what you owe, in full. You will also have to pay the landlord’s court costs and whatever attorney fees are called for in your lease. You can also use  Chapter 13 to catch up on your car payments. But remember, you’ll have to fork over $4,000 in attorney fees to get legal help.

If you are considering representing yourself in the Chapter 13, think again. If you file Chapter 13 bankruptcy without a lawyer in the Los Angeles Bankruptcy Court, your chances of having a Chapter 13 case approved are less than 1% (even if you use self-help services from a bankruptcy petition preparer). These findings are contained in a recent study issued by Angeles Bankruptcy Court, Access to Justice in Crisis: Self-Represented Parties and the Court.

Solving Your Troubles Outside of Bankruptcy

Here is my suggestion. Try to make peace with the landlord. If you have been a good tenant up to now, most landlords would rather let you pay up and stay. The landlord knows there is very little chance of collecting from you after an eviction. A landlord also knows he or she is likely to lose  additional rent money while searching for a new tenant. Those are powerful reasons to convince any landlord that you should be allowed to stay.

You can also use the money you now have to catch up on your car payments.

You Cannot Discharge Debt in Your Chapter 13

If you do have debt you want to discharge (and maybe you don’t), be aware that you won’t be able to do so in your Chapter 13 bankruptcy. Because you got a discharge in a Chapter 7 bankruptcy case three years ago, you are not entitled to discharge any debt in your Chapter 13. To be able to discharge debt in Chapter 13, your Chapter 13 had to be filed more than four years after the date you filed your previous Chapter 7 case. However, you are not prohibited from filing for Chapter 13 and making payments under a repayment plan.  (To learn more, see Multiple Bankruptcy Filings: When Can You File Again?)

What you are now going through is a good example of why people need legal advice. Almost all Chapter 13 lawyers in Los Angeles will provide a free consultation. I am confidant that any veteran bankruptcy lawyer would have given you the same advice that I have. I hope things will work for you.

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+

 

 

Can I Reduce Chapter 13 Bankruptcy Payments if I Increase My Mortgage Payment?

Leon Bayer PhotoASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon,

I like this blog. I find it interesting and helpful.  I could use some help. I filed Chapter 13 bankruptcy in December 2009. I have a five-year repayment plan. 

Here’s my problem. I have not been able to live very well on my Chapter 13 budget. I always come up short by around $500 per month. To make up for the shortage I have not been paying my property taxes, and I now am about $20,000 behind.

I spoke to my mortgage company. They will probably be willing to modify my loan to advance enough money to bring my taxes current. But that will make my house payment go up. My Chapter 13 will be done in December, 2014.  If I get a loan modification that increases my house payment, do you anticipate that the trustee will reduce the amount I pay into my plan by the amount that my mortgage payment increased?

I really do like my house and would like to keep it. I have a way to make and extra $400 to $500 per month but it will take about one year for it to get it to the point where I have money coming in.

Any suggestions or thoughts?  Thanks again,

Marjorie

Dear Marjorie,

Thank you for the kind words about the blog. Your question is about seeking to reduce your Chapter 13 monthly payments.

Your property taxes were probably included in your original Chapter 13 budget for normal living expenses. If so, that money was already deducted from your monthly income and included in the money that you are supposed to spend on normal anticipated living expenses, such as your property taxes.

It may be possible to reduce Chapter 13 monthly payments if an extraordinary expense comes along that was never budgeted for. However, in your case the property taxes standing alone are not anything new or unexpected. Do you have some other unusual expense that was not budgeted for (for example, supporting another family member)? If so, maybe you can get your payments reduced for some other reason.

Unless you can prove some new unexpected and necessary expense, a trustee will probably oppose your effort to reduce your Chapter 13 plan payments. I expect the trustee will tell the court that you wound up spending your tax money on something that the money was not intended for; and thus the creditors should not be penalized. (You can learn more in Nolo’s article Modifying Your Chapter 13 Plan Payments.)

I do think you should find a way to generate some extra income immediately. It sounds like you are approaching a “fiscal cliff.” You may be running out of time to get your income and expenses under control.

-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+

 

California Bankruptcy Exemption Amounts Increase

Changes to California bankruptcy exemption laws, effective January 1, 2013, have increased some of the exemption amounts available to people filing for bankruptcy in California.

What Are Bankruptcy Exemptions?

Most people who file for Chapter 7 bankruptcy in California are able to discharge most or all of their debts. In return, they must turn over certain property to the bankruptcy trustee, which the trustee will use to repay creditors. However, California law allows you to protect certain types of property in bankruptcy — meaning you don’t have to give the property to the bankruptcy trustee. These laws are called exemptions. Exemptions play a role in Chapter 13 bankruptcy as well.

To learn more about how exemptions work in bankruptcy and the exemption amounts in each of the 50 states, visit Nolo’s  Bankruptcy Exemptions topic area.

2013 Changes to California Bankruptcy Exemptions

California Assembly Bill 929, which took effect on January 1, 2013, made some changes to California bankruptcy exemptions.  Here are some of the highlights of those changes:

  • the motor vehicle exemption increased to $4,800 and you can now exempt more than one vehicle (previously you could only exempt the equity in one vehicle)
  • the homestead exemption amount increased to $24,060
  • the tools of the trade exemption amount increased to $7,175
  • the wildcard exemption increased to $1,280, and
  • you can now exempt personal injury recoveries for pain, suffering, and actual pecuniary loss (before these types of damages were excluded from the personal injury recovery exemption) and the total exemption amount increased to $24, 060.

To learn more about the California bankruptcy exemptions, as well as a list of other common exemption amounts, see Nolo’s article California Bankruptcy Exemptions.

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No 401(k) Contributions During Chapter 13 Bankruptcy, Says the 9th Circuit

In recent years, bankruptcy courts around the country have been divided over whether a Chapter 13 bankruptcy filer can continue to make payroll contributions to a retirement plan during the Chapter 13 repayment period. In a recent case, the Bankruptcy Appellate Panel of the 9th Circuit ruled that Chapter 13 debtors cannot continue such voluntary contributions during Chapter 13 bankruptcy.  In re Parks, No. 11-1366 (9th Cir. BAP, Aug. 6, 2012).

No Voluntary Retirement Plan Contributions During Chapter 13

The court ruled that when you file for Chapter 13 bankruptcy you cannot make voluntary contributions to a retirement plan (such as a 401(k) plan) through payroll deductions. Instead, you must devote that money to your Chapter 13 plan.  (Learn more about the Chapter 13 Repayment Plan.)

Some courts in other areas of the country have allowed Chapter 13 debtors to continue retirement plan contributions, especially if the debtor is near retirement age.

Retirement Account Loan Payments Can Continue in Chapter 13

The 9th Circuit BAP did, however, say that if you are making payments on a retirement account loan(you withdraw money from your retirement account as a loan, and then pay it back over time), those payments may continue during your Chapter 13 repayment period. This confirms with how other bankruptcy courts across the nation treat this issue.

Existing Retirement Funds Are Safe

For the most part, in both Chapter 7 and Chapter 13 bankruptcy, the money that is already in your retirement account when you file for bankruptcy is safe.  For details, see Your Retirement Plan in Bankruptcy.

To learn more about Chapter 13 and the repayment plan, visit Nolo’s Chapter 13 Bankruptcy topic.

What Are the Chances That an Unsecured Creditor Will Collect Anything From a Chapter 13 Bankruptcy Debtor?

ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Hello Mr. Bayer, 

Recently someone who owes me money filed for Chapter 13 bankruptcy in Connecticut. I filed a proof of claim for $2,000 with the bankruptcy court. What are the odds of recovering this money? Would it be worth my while to follow this to the end? 

Thanks in advance for your help.

James

Dear James,

The odds are not good for an unsecured creditor to recover any meaningful amount in Chapter 13 bankruptcy. Based on my personal practices and observations, I would guess that the average unsecured creditor generally receives a few pennies on the dollar. Most of the money in Chapter 13 cases is paid to secured creditors.

You have probably received a copy of the debtor’s Chapter 13 repayment plan, and it should say what percentage on the dollar unsecured claims like yours may receive. (Learn more about what gets paid through the debtor’s Chapter 13 repayment plan.)

I think you have adequately covered your bases if you have correctly filed a proof of claim. Of course, there are other things you might be able to do, but it will be difficult without an experienced bankruptcy lawyer helping you. Usually, bringing  a lawyer into a small case is not cost efficient.

However, here’s a valuable insider’s tip that might save you money and let you benefit from someone else’s work. If you have solid information that may be detrimental to the debtor, share it with the trustee immediately. For example, a trustee will be very interested to know about income, assets, and transfers of assets that the debtor has not disclosed in the bankruptcy schedules.

Every Chapter 13 case is administered by a Chapter 13 trustee, and a trustee will object to confirmation of a plan where the trustee feels that the debtor is ineligible, the plan is proposed in bad faith, or that the proposed plan fails to meet any of the other requirements of the law. (Learn what a bankruptcy trustee does.)

-Leon

Guest blogger Leon Bayer practices bankruptcy law in Los Angeles, California.  He is a partner at Bayer, Wishman & Leotta.  

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.

Student Loan Debt & Chapter 13 Bankruptcy

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Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon: I received a discharge in a Chapter 7 bankruptcy in 2009 (three years ago). I have a large delinquent private student loan – the outstanding balance is $44,000.  The student loan holder will settle only if (1) I agree to allow it to enter a judgment against me, or (2) I agree to high payments, which, quite frankly, I can’t afford. 

Can I file a Chapter 13 bankruptcy and get into a better payment plan? Would this reduce or stop the interest from accruing? If this will work, how long will the Chapter 13 plan allow me to repay the debt?

Thank you in advance for your assistance.

Erin

Dear Erin,

Dealing with student loan debt is tough because there is rarely a perfect remedy. To begin with, I am going to assume that an “undue hardship discharge” of your student loan is not an option. (To learn more about discharging student loans in bankruptcy because of undue hardship, see Nolo’s article Student Loan Debt in Bankruptcy.)

Paying Student Loan Debt Through Your Chapter 13 Plan

If you are eligible for Chapter 13 bankruptcy and can confirm a Chapter 13 plan, you can manage any type of student loan, whether private or public, through the plan for up to five years. (To learn how a Chapter 13 plan works, see Nolo’s Chapter 13 Repayment Plan area.)

Your Student Loan Will Not Be Discharged and Interest Will Accrue

However, you cannot discharge (wipe out) the student loan debt, so if you cannot pay it in full during your Chapter 13 case, the remaining balance will remain when your case is over.

In addition, in your case, because you received a Chapter 7 discharge less than four years ago, none of your debts would be discharged at the end of your Chapter 13 case. (To learn more, see Multiple Bankruptcy Filings.)

If a debt is not dischargeable in bankruptcy, the interest owed on the debt will continue to accrue during the bankruptcy.

Advantages of Using Chapter 13 to Repay Your Student Loan

I do think filing for Chapter 13 bankruptcy may offer some advantages in your situation. Some or all of these might not apply to every situation, so you should seek advice from an experienced bankruptcy attorney before you decide what to do.

  • With Chapter 13, your monthly payments (which you make for up to five years) may be much less than those the creditor is demanding. At the same time, you’ll get temporary relief from aggressive debt collection for the duration of the Chapter 13 case.
  • After you file for bankruptcy, you might be able to reach a better agreement with the creditor than what it previously offered. This is because, when faced with the prospect of small payments for the next five years, your student loan creditor might prefer to rehabilitate the debt and restore it to normal monthly payments.
  • Filing a Chapter 13 bankruptcy can give you the time and peace of mind to improve your finances.
  • After you complete your case, some lenders may be willing to rehabilitate the loan and restore the normal contractual payment.
  • Even if nothing better is accomplished, you have bought up to five years of peace of mind before everything “hits the fan” again.

I hope this insight is helpful.

– Leon

Guest blogger Leon Bayer practices bankruptcy law in Los Angeles, California.  He is a partner at Bayer, Wishman & Leotta.  

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.

Stripping Off Home Mortgages: Proving Property Value

In a previous post, I discussed when a homeowner can “strip off” (remove) from a home a lien secured by a second mortgage in Chapter 13 bankruptcy. See Stripping Off Home Mortgages: An Introduction.

The debtor can only strip off the second mortgage if the property’s current value does not cover any amount of the second mortgage (or HELOC). The homeowner must provide evidence of the home’s value, especially if the lender opposes the lien strip off. In order to get the ball rolling, the homeowner may present an appraisal that was done for some other purpose (for example, to get a loan), the opinion of a local real estate broker, or a current property tax assessment.

Evidence of Property Value

However, ideally, the debtor should get more persuasive evidence before proposing the Chapter 13 plan or making a motion to strip the lien. Such evidence usually comes in the form of a recent appraisal. When you get the appraisal, make sure the appraiser will be willing to testify in court in support of his or her opinion, in case it comes to that.

Date of Appraisal

Courts differ as to what valuation date applies to mortgage lien strip offs. Some courts use the date of filing; others use the effective date of the Chapter 13 plan. Find out which valuation date your court uses, and then make sure the appraiser values your home as of that date.