Tag Archives: Chapter 13 bankruptcy

Using Bankruptcy to Get Rid of Judgment Liens on Your Property

Closed houseASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

My mother filed bankruptcy a few years ago. After that, she transferred a house to me because she couldn’t afford the payments and I was willing to take it over. The property had no equity and was upside down. Since then, the home has increased in value and I could sell it for a profit. However, I just found out that there are five judgment liens against my mother that had attached to the property. Those liens add up to more than $50,000. My real estate agent says I will have to pay off those liens if I sell the property. I didn’t know about the liens when she transferred title to me. 

I’ve heard that I can file for bankruptcy to clear the liens. But this seems pretty extreme. I made all of the delinquent house payments and have paid the mortgage and the taxes for several years. But with those liens on the property I can’t sell the place and get my money out. 

What do you think? 

Sincerely, 

Ted 

Dear Ted,

The law allows an individual in bankruptcy to remove judicial liens from property to the extent that each lien impairs an exemption the person is entitled to have in that property. Your mother may have been able to avoid the judgment liens in her bankruptcy case. What a shame that she didn’t do that. But if she couldn’t afford the house, she probably didn’t want to spend the time and money getting rid of the liens. You might be able to remove them if you file for bankruptcy. But the better news is this: Your mother can reopen her bankruptcy and remove the liens at this later date.

Why Didn’t Your Mother Avoid the Liens in Her Bankruptcy?

Often people in bankruptcy have the option of exercising legal rights like lien avoidance, but they don’t bother to. Especially when it looks like they can’t afford to keep the asset anyway. In order to avoid the liens your mother and her attorney would have had to file a motion and attend one or more court hearings. She would have had to pay attorney’s fees and maybe pay for a professional real estate appraisal. There was no point in doing all that if your mother believed she was going to lose the property anyway.

You Might Be Able to Get Rid of the Liens in Your Own Bankruptcy

You may be able to avoid those liens if you file bankruptcy. You acquired title subject to her judicial liens, but courts have ruled that a transferee like yourself can avoid a lien if you meet the same requirements that your mother would have had to meet in her bankruptcy. That’s fine – but only if you need to file for bankruptcy anyway.

Your Mother Can Reopen Her Bankruptcy Case

It sounds like you don’t need, or want, to file for bankruptcy. So here’s another solution:

Your mother can reopen her bankruptcy case. A debtor is allowed to reopen a closed bankruptcy case in order to seek relief that she could have sought during her case. She’ll have to file two motions: a motion to reopen the case, and then after the case is open, another motion seeking the lien avoidance. She may also need to amend her claims for exemptions, if she has not already claimed the correct exemption to accomplish lien avoidance.

-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 Bankruptcy on the Eve of a Foreclosure Sale

Bankruptcy_Petition_iStock_000008359066XSmallASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I filed a Chapter 13 bankruptcy petition yesterday, late in the afternoon. I filed in California on my own, without an attorney. A foreclosure sale is set for tomorrow. After I got my bankruptcy case number I tried to contact the parties involved in the foreclosure to give them notice of my bankruptcy filing. I couldn’t reach anyone in the lender’s foreclosure office, nor can I find an email address or a fax number to notify anyone to stop the foreclosure. What should I do? 

Trista  

Dear Trista,

If you act quickly, you might be able to prevent the sale from going through. Even if the sale occurs, it’s possible you can void it (but it won’t be easy). Here’s what to do.

(Learn how Chapter 13 bankruptcy can help you save your home from foreclosure.)

Go to the Foreclosure Sale

You should attend the actual foreclosure sale, or send a reliable person to the sale. Get there early and provide proof of the bankruptcy filing to the auctioneer before the sale starts.

If You Can’t Attend, Record a Bankruptcy Notice

If you can’t attend the foreclosure sale, immediately record a Notice of Bankruptcy in the county recorder’s office. Do this in the county where the real estate is located.

Will the Bankruptcy Stop the Foreclosure?

The filing of a bankruptcy (assuming there are no prior bankruptcy filings), creates an automatic stay which prohibits most collection efforts, including a foreclosure. Courts have held that a foreclosure sale is void or voidable, when done in violation of the automatic stay. (Learn more about how the automatic stay stops foreclosure.)

Even so, it can get awfully tricky. Doubly so if the sale is conducted and the property gets purchased by an innocent buyer – what we lawyers call a BFP (“bona fide purchaser for value”).

There is at least one key court decision stating that the foreclosure sale is still voidable even if the property is bought by a BFP. However, it can be a litigation mess for a debtor who is trying to get a foreclosure sale rescinded. (In fact, I was the lawyer for the successful homeowner in that case. See Walker v. California Mortgage Service, 861 F.2d 597.)

If the Sale Has Occurred: Record the Bankruptcy Notice Before the Recordation of the Trustee’s Deed

Even if the sale has already been held, it is very helpful to record a bankruptcy notice before a trustee’s deed is recorded. The trustee’s deed upon sale is typically not issued to the successful bidder until a few days after the sale.

The recorded notice imposes what we lawyers call “constructive notice” upon all the parties involved. Constructive notice of the sale should remove any defenses that a BFP would raise if you have to bring a legal action seeking to void the sale.

Of course, you should continue efforts to notify the lenders and the foreclosure agents.

— 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+

How to Buy a New Car While in Chapter 13 Bankruptcy

car loan photoASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

We have been in a Chapter 13 bankruptcy case for three years – we are on a five year repayment plan. Our car caught on fire and the insurance company declared it to be a total loss. The company offered us $13,000. 

What do we need to do in order to buy a new car while in bankruptcy? 

Sincerely, 

Tony and Lisa

Dear Tony and Lisa,

I’m sorry to hear about your car. Life on a Chapter 13 bankruptcy budget is hard even when things go according to plan. When the unexpected happens, it can be very difficult to stay on track. I hope you are able to do so, and finish out your case.

I will assume you didn’t owe anything on your car. If that’s the case, it’ll be easier for you. If you did owe money, you will have to pay your lender the balance due before you get any of the insurance money.

The next step depends on whether you will buy a car with cash, or you need financing.

Buying a Car With Cash in Chapter 13 Bankruptcy

If you are going to buy a car without financing, go right ahead and do it. You don’t need anyone’s permission. I assume you would buy a used car that will cost about the same as you received for the old one. But, if you have the resources to buy a brand new car, or a newer and more reliable car, I see nothing to prevent you from doing that.

Getting a Loan to Buy a Car in Chapter 13 Bankruptcy

If you need financing to buy another car, it’s more complicated. You will need bankruptcy court approval before getting a loan, and of course, you need a willing lender.

Getting Court Approval

I suggest you begin by seeking court approval before you try to buy anything.  It will take about one month in order for the court to process the paperwork giving you permission to get financing. A car dealer won’t hold a car for you for that long. Avoid that problem by getting permission first.

To get permission, you must file a written motion with the court. Your motion should tell the court:

  • what happened to your old car
  • how much you plan to spend on the new car
  • how much you will finance
  • the approximate amount of the monthly payments, and
  • whether your proposal will affect your Chapter 13 plan.

In the motion, you will ask the court to make an order allowing you to proceed with the purchase and financing of a replacement vehicle based on those terms.

A word of warning — be reasonable. Don’t ask the court for permission to buy a luxury car. Your chances of approval are better if you are seeking a newer model in the same class of vehicle as what your old car was.

Shopping for a Car

After you get the court order, you can go car shopping.

Be up front with car dealers. Let them know the challenges you face regarding financing. Of course, by getting the court order first, you make things easier for everyone.

Negotiating With the Dealer

Even with an ongoing bankruptcy case and bad credit, you still have leverage when negotiating with the dealer – the dealer knows that you can walk away and buy a car elsewhere.

Keep in mind that you can negotiate not only the price of the car, but also the interest rate of the car loan. There is almost always room left in the dealer’s first offer to give you better terms. The first offer a dealer gives you is probably not its best offer.  (Learn more about negotiating with car dealers.)

 Do You Need to Modify Your Chapter 13 Plan?

Next, how will the car payments affect your Chapter 13 plan? Is there money in your budget for the car payment? If not, it may be necessary to seek a court order modifying your plan. Perhaps you will seek to reduce the amount paid to unsecured creditors so that you can free up money that you will need for a car payment. Be mindful that sometimes the amounts paid to creditors cannot be reduced. The same factors that were considered when your plan was originally confirmed will still apply. (Your creditors then, as now, are entitled to receive at least as much money from you as they would have received from your non exempt assets had this been a case under Chapter 7. To learn more see Nolo’s article Unsecured Debt in Chapter 13: How Much Must You Pay?)

 Do You Have to Amend Your Bankruptcy Schedules?

The last consideration is whether or not you need to amend your bankruptcy schedules to disclose what happened to your old car, the receipt of the insurance proceeds, and the purchase of a new car. I reviewed the Bankruptcy and the official Bankruptcy Rules. It makes sense that you should be required to update your schedules to disclose any material change to your financial affairs.

Although it would make sense that you should have to update your schedules to disclose changes in your financial affairs, I see nothing in the Bankruptcy Code and Rules that requires you to amend the bankruptcy schedules in this situation. However, old timers like me (I have been handling bankruptcy cases for 34 years) believe that when in doubt, disclosure is the best rule. You can file a simple amendment to your original schedules to disclose everything. If you like you can add a statement that you believe none of the new information is material to the legal rights of any other party, but you want to make such disclosure solely from an abundance of caution.

Sincerely,

– 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+

Selling Your Home While in Chapter 13 Bankruptcy: What Do You Need for Escrow?

escrowASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I am a real estate agent in Los Angeles. I have a client listing his home for sale with me and he is in Chapter 13 bankruptcy. We have a buyer and are in escrow.  What do I need from the bankruptcy judge in order to complete the sale? My client’s bankruptcy lawyer won’t return my calls. 

Sincerely, 

Ricardo 

Dear Ricardo,

In order for escrow to close, you need a court order from the bankruptcy judge authorizing the sale of your client’s home.

How to Get the Court Order?

Your client’s attorney must file a written motion with the court. After that, you can expect to wait at least 17 days before the court issues the order.

If the bankruptcy lawyer is MIA, then your client should hire another lawyer to handle the motion for permission to sell real property. That lawyer will need you to provide a copy of the escrow instructions and an estimated closing statement.

Does Your Client Need Another Chapter 13 Bankruptcy Lawyer?

The sale of your client’s home might affect certain aspects of his bankruptcy case, and he might need additional help from a bankruptcy lawyer. For example, perhaps the sale proceeds can be used to pay the client’s creditors in full and end the bankruptcy case early. Or he might need to modify his Chapter 13 plan payments. An experienced Chapter 13 lawyer will know what to do.

-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+


 

Ninth Circuit Sticks It to Higher Income Chapter 13 Debtors

Serious male judgeThis summer, the Ninth Circuit Court of Appeals dealt a blow to Chapter 13 bankruptcy filers who earn more than the average person. In In re Flores, the court ruled that above-median income Chapter 13 bankruptcy filers who have no disposable income, and therefore are paying nothing to unsecured creditors, cannot use a three-year repayment plan, but instead must be in bankruptcy for a full five years.  In re Flores, _ F.3d_ (9th Cir. Aug. 29, 2013). In so ruling, the Ninth Circuit reversed its previous decision on this issue in In re Kagenveama, which had been good law since 2008. In re Kagenveama, 541 F.3d 868, 875 (9th Cir.2008)

What does all of this mean?

How Long Does a Chapter 13 Plan Last?

The simple answer to this is – it depends on whether your household income is greater or less than that of a similar sized household in your state.

  • For those with incomes below the state median, their plans can be as short as three years.
  • For those with incomes above the state median, their plans must usually be five years.

(To learn more, see Nolo’s article How Long Will My Chapter 13 Plan Last?)

There are a few exceptions to this rule. For example, if you are below median income, you can opt for a longer plan. And if you are above median income, you can opt for a shorter plan if you can pay off all of your unsecured debt before the full five years.

In some circuits, there is one more exception:  Above median debtors can propose a three-year plan if their disposable income is zero or negative.

How Does Disposable Income Factor Into the Equation?

In Chapter 13 bankruptcy, you must put all of your disposable income towards your repayment plan. Disposable income is your income from most sources, reduced by certain allowed expenses. Even if you are a high-income wage earner, your allowed expenses might bring your disposable income to zero, or a negative number. (See Nolo’s article The Best Effort Requirement in Chapter 13.)

Some courts, including the Ninth Circuit during the past five years, have allowed above median Chapter 13 debtors with no disposable income to propose a three year plan. The idea being this – if you aren’t paying anything to unsecured creditors, then why make the debtor stay in bankruptcy for five years.

The Ninth Circuit, Joining Other Circuits, Sticks it to Higher Income Debtors

In In re Flores, the Ninth Circuit ruled that above income Chapter 13 debtors must propose a five year repayment plan, even if their disposable income is zero or a negative number. This ruling puts the Ninth Circuit in company with the Sixth, Eighth, and Eleventh Circuits on this issue.

What does this mean for you?  If you live in Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, or Washington, and your income is above the state median, be prepared to be in bankruptcy for five solid years.

If you want to read a good recap of the Ninth Circuit’s past decisions on this issue, and its reasoning in the In re Flores case, check out the recent Bankruptcy Law Network blog by Karen Oakes.

For more on the Chapter 13 repayment plan, including what it is, what debts must be paid through the plan, and more, visit Nolo’s Chapter 13 Repayment Plan topic area.

Fourth Circuit: Social Security May Be Excluded From Disposable Income in Chapter 13 Bankruptcy

People filing for Chapter 13 bankruptcy in Maryland, Virginia, West Virginia, North Carolina, and South Carolina, won a significant victory this month. On July 1, 2013, the Fourth Circuit ruled that bankruptcy filers do not have to include social security as part of their disposable income when calculating plan payments.  In re Ranta,  2013 WL 3286252 (4th Cir. 2013).

This means that people receiving Social Security income in the Fourth Circuit may keep social security income, even if it means having a surplus of income after paying expenses and the plan payment.

Social Security and Disposable Income

The law on whether social security must be included as part of a Chapter 13 debtor’s disposable income is unsettled throughout the country.  (To learn about the role your disposable income plays in your Chapter 13 case, see The Best Effort Requirement in Chapter 13 Bankruptcy.)

Even though the bankruptcy code specifically states that social security should not be included as part of the disposable income calculation, many bankruptcy courts have ruled that if a debtor’s plan does not devote social security income to the payments, then the plan is proposed in “bad faith.”  For all practical purposes, these courts require a debtor to include social security income in disposable income.

(To learn more about this issue, see Can I Keep My Social Security Income in Chapter 13 Bankruptcy?)

The Fourth Circuit’s Decision

The Fourth Circuit, in In re Ranta, has settled this issue for those filing for bankruptcy in Maryland, Virginia, West Virginia, North Carolina, and South Carolina.  In the Ranta case, the court ruled that the bankruptcy code’s exclusion of social security in the disposable income calculation means what it says – that disposable income does not have to be included in plan payments. If a debtor chooses to exclude social security income from plan payments, he or she may do so, even if this means having surplus income each month.  The Fourth Circuit joins several other Circuits in ruling this way, including the Fifth, Sixth, Eighth, and Tenth Circuits.

You Have the Option to Devote Social Security to Your Plan

Of course, a debtor in the Fourth Circuit may choose to include social security income as part of plan payments. This would make sense if the debtor could not otherwise propose a confirmable plan (for example, because payments would not cover the minimum amount that the debtor must pay to unsecured creditors).

Can I Get Title to Building When Owner-Lender Dies?

ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon,

Six years ago I bought an 11-unit apartment building in Los Angeles, California. The seller carried a note for most of the purchase price. The seller died a month after I bought the property, which was six years ago. I don’t know who to pay and no one has contacted me for the note payments. I have paid nothing on the note for these past six years.

Can I file a quiet title lawsuit or adverse possession or some other kind of lawsuit to get free and clear title to my building?

Thank you.

Sheila

Dear Sheila,

The Los Angeles County Public Guardian is the branch of government that deals with unclaimed property when the owner has died. You need to notify them. They can open a probate case to administer the mortgage for the rightful heirs. If no heirs are found then the mortgage “escheats” to the State of California for the public treasury.

The bottom line:  You still owe the mortgage note to somebody, and you also owe the six years of mortgage arrears. A Chapter 13 bankruptcy case may help if you are serious about keeping the building, but do not have enough money to bring the loan current all at once. A Chapter 13 may stop any foreclosure, and give you up to five years to get current on the note. (Learn more about how you can use Chapter 13 to catch up on mortgage arrears.)

-Leon

Guest blogger 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+