Posted on August 05, 2016 in Chapter 7

If you have an “asset” Chapter 7 case, some or all of your debts are partially paid, with most or all of the remaining amounts written off.

Our last blog post was about what happens to “general unsecured” debts in a straightforward Chapter 7 “straight bankruptcy” case. This type of debts is usually “discharged”—legally permanently written off—without you needing to pay anything on them.

But under some circumstances a PORTION of those run-of-the-mill debts DO need to be paid in a Chapter 7 case. Understanding how this works will help you decide between doing a Chapter 7 case or instead a Chapter 13 “adjustment of debts” one.

Property Exemptions and Chapter 7 “Asset Cases”

When consumers file a Chapter 7 case, most of the time they get to keep everything they own. That’s especially true when they are represented by an experienced bankruptcy lawyer. The reason they can keep everything is that everything they own is protected by property exemptions.

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 Posted on August 03, 2016 in Chapter 7

In most straightforward Chapter 7 cases all debts not secured by any collateral are discharged--forever written off. You pay nothing on them.

Most of our blog posts of the past couple months have been about how bankruptcy deals with secured debts. These are debts that are secured by a lien on some asset(s) of yours. We especially focused on debts secured by a vehicle or home because of their importance.

But how about unsecured debts? How are they treated?

“Priority” and “General Unsecured” Debts

How an unsecured debt is treated depends on which kind it is. There are two kinds of unsecured debts, “priority” and “general unsecured” ones. All unsecured debts are either one or the other of these.

Like the name implies, “priority” debts are special. They are categories of debts that Congress has decided are to be treated specially.

The “priority” debts are all on a list in the Bankruptcy Code. If a debt is not one of the kinds on that list, then it’s a “general unsecured” debt.

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 Posted on July 27, 2016 in Chapter 13

Both Chapter 7 and Chapter 13 can wipe away judgment liens. But doing so under Chapter 13 can be better when used with its other benefits.

In our July 1 blog post we gave a list of 10 ways that a Chapter 13 case can help you keep your home. Today we cover the 9^th of those 10 ways. Here’s how we introduced this earlier.

9. Judgment Lien "Avoidance"

A judgment lien is put on your home by a creditor who sues and gets a judgment against you. It then records that judgment in the county where your home is located. (Or the creditor uses whatever procedure creates a judgment lien in your state).

In bankruptcy, a judgment lien can be removed from your home under certain circumstances. Essentially, the equity in your home that’s encumbered by the judgment lien must be covered by the applicable homestead exemption. In other words, the judgment lien must "impair" the homestead exemption. If it does, the judgment lien can be removed, or "avoided," from the title of your home.

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 Posted on July 25, 2016 in Chapter 13

Chapter 7 doesn’t wipe away “statutory liens.” But Chapter 13 gives you a safe and flexible way to deal with them.

In our July 1 blog post we gave a list of 10 ways that a Chapter 13 “adjustment of debts” can help you keep your home. Today we get into the 8^th of those 10 ways. Here’s how we introduced this earlier.

8. “Statutory Liens”: Utility, Contractors, Municipal/Local and Other Involuntary Liens

A “statutory lien” on your home continues in effect after a Chapter 7 “straight bankruptcy” is completed.

A “lien” is a “charge against or interest in [your home] to secure payment of a debt or performance of an obligation.” See Section 101(37) of the Bankruptcy Code. As you’d expect, “statutory liens” are those which arise automatically because of a statute (a written law). Here are some examples.

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 Posted on July 22, 2016 in Chapter 13

Bankruptcy can’t write off certain kinds of debts. Chapter 13 enables you to prevent liens hitting your home from those debts.

Our last blog post was about how Chapter 7 “straight bankruptcy” helps prevent liens on your home arising from special debts. These are debts that can’t be discharged—written off in bankruptcy. Examples of these special debts include recent income taxes and unpaid child or spousal support.

But Chapter 7 has serious practical limitations on how much it can prevent those liens on your home. Chapter 13 “adjustment of debts” is often a much better tool for dealing with income taxes and support. Here’s how we introduced this earlier, focusing now on the Chapter 13 side of this.

Preventing Liens on Your Home from Debts that Can’t Be Discharged

A Chapter 13 case protects your home from liens much better than Chapter 7. It doesn’t leave you on your own to deal with any remaining debts. Chapter 13 protects you and your home throughout the time that you are paying off those debts through a flexible 3-to-5-year payment plan.

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 Posted on July 20, 2016 in Chapter 7

Bankruptcy can’t write off certain kinds of debts. Chapter 7 may give you enough help to avoid liens on your home from those debts

In our July 1 blog post we gave a list of 10 ways that a Chapter 13 “adjustment of debts” can help you keep your home. Today we get into the 6^th of those 10 ways, starting with how Chapter 7 “straight bankruptcy” helps and doesn’t help. Here’s how we introduced this earlier, focusing first today on the Chapter 7 side of this.

7. Debts Which Cannot Be Discharged Such as Income Taxes & Back Child/Spousal Support

Some special debts cannot be discharged (written off) in bankruptcy. So those creditors can start chasing you on those as soon as you finish a Chapter 7 case. And that’s usually only about three or four months after you start a case. Sometimes sooner. Those creditors generally include the IRS, the state taxing authority, your ex-spouse, and the state or local support enforcement agencies.

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 Posted on July 15, 2016 in Income Taxes

Chapter 7 sometimes doesn’t give much help with tax liens. But Chapter 13 hugely helps with tax liens already recorded, and stops new liens.

Today we cover the 5^th of the 10 ways that Chapter 13 helps you keep your home, which we listed in a recent blog post. Here’s how we had introduced this one:

5. Protection from Both Previously Recorded and Future Income Tax Liens

Chapter 7 usually does nothing to address income tax liens that have already been recorded on your home. It also doesn’t prevent future tax liens on income taxes you continue to owe after the bankruptcy case is completed. In contrast, Chapter 13 provides an efficient and effective procedure for valuing, paying off, and securing release of tax liens. Plus, the IRS/state cannot record a tax lien on income taxes during the years while the Chapter 13 case is active.

Let’s show how this works in practice.

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 Posted on July 13, 2016 in Income Taxes

If you are behind on property taxes on your home, Chapter 7 often doesn’t give you enough time to catch up. But Chapter 13 likely would.

Today we cover the 4^th one of the 10 ways we listed recently that Chapter 13 helps you keep your home. When we gave the list we wrote:

4. Get Current on Past Due Property Taxes

Filing a Chapter 7 case doesn’t protect you from property tax foreclosure—beyond the four months that a case lasts. However, Chapter 13 does protect you and your home while you gradually catch up on those taxes. You do so through a court-approved payment plan that also incorporates your mortgage(s) and all other debts.

Here’s an example to show how this works in practice.

The Example

Assume that you own a home worth $225,000, with a mortgage loan balance of $200,000. Your property taxes are $1,850 per year, paid directly to your county tax assessor instead of through your mortgage holder.

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 Posted on July 11, 2016 in Selling Your Home

If you are behind on your mortgage and want to sell, you may be able to delay the home sale for years and pay the arrearage out of the sale.

In a recent blog post we listed 10 ways Chapter 13 helps you keep your home. Here’s the third one of those ways:

3. Much Greater Flexibility in Selling Home

If you want to sell your home while in the midst of a lot of financial pressure, Chapter 7 “straight bankruptcy” does not buy you much time. It protects you and your home from your mortgage lender for at most only about three or four months. In contrast, a Chapter 13 “adjustment of debts” potentially protects you for years until you’re ready to sell.

You may need to sell your home for financial or personal reasons, but want to delay doing so. For example, you may want to wait until a kid finishes high school or you reach an anticipated retirement date before you’re ready to move. Even if you’re behind on your mortgage, Chapter 13 can often enable you to delay selling until you’re ready.

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 Posted on July 08, 2016 in Mortgage

“Stripping” off a second mortgage has major immediate and long-term benefits.

In a blog post last week we listed 10 ways Chapter 13 helps you keep your home. Here’s the second one of those:

2. Stripping Second or Third Mortgage

Under Chapter 7 you simply have to pay any second (and third) mortgages on your home or lose the home. However, Chapter 13 gives you the possibility of “stripping” that junior mortgage lien off your home’s title. This could potentially save you hundreds of dollars monthly. You could also end up paying just a fraction of the entire balance, or sometimes paying none of it all. That could save you many thousands or even tens of thousands of dollars in the long run.

How do you qualify for this junior mortgage lien “stripping”? The key factor is your home’s value. The second mortgage can be “stripped” from the home’s title if the entire value of the home is fully encumbered by liens legally superior to the second mortgage lien. “Legally superior” liens are those liens ahead of the second mortgage lien on the title. All of the home’s equity is fully absorbed by liens ahead of it on the title. So the second mortgage debt is declared to be an unsecured debt, and is treated accordingly.

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