Bankruptcy Lawyer Indiana

What obligations does a bankruptcy discharge cover?  During the past 20 years, the common practice among bankruptcy lawyers has been to assure debtors in no asset bankruptcy cases–cases in which there are not any non-exempt assets available for distribution to creditors–that even if the debtor failed to list a creditor on his schedules, the obligation will be discharged. This practice arose from a no harm, no foul reading of Bankruptcy Code section 523.

The federal bankruptcy rules permit a bankruptcy court in no asset cases to choose not to fix a bar date in which proofs of claim must be filed. Thus, courts adopting the no harm, no foul reasoning found that there was no date in which to timely file the proof of claim and therefore no triggering of Bankruptcy Code section 523(a)(3)(A). See, e.g., In re Beezley, 994 F.2d 1433, 1435-37 (9th Cir. 1993).

Recently, however, the First Circuit Court of Appeals rejected this reasoning, and held that even in a no asset case, if a debt or claim is not scheduled, then the debt is not discharged absent a reopening of the bankruptcy case.

The court’s reasoning in Colonial Surety Co. v. Weizman, 564 F.3d 526 (1st Cir. 2009), is based upon the equities of the situation. Providing notice, even in a no asset case, allows creditors to participate in the case and to argue that there may be assets available. An honest debtor can still have the debt discharged if he asks the bankruptcy court to reopen the case to list the creditor who was inadvertantly omitted and who would have received no benefit from the initial notice. This properly leaves the burden squarely on the debtor’s shoulders to disclose the debt or to explain why it was omitted.

The court appears to protect the institutional integrity of the bankruptcy court so that debtors can not argue that it doesn’t make any difference anyway. Creditors and parties in interest, by this decision, are being afforded a modicum of due process and an opportunity to be heard even in no asset bankruptcy cases.

The lesson to learn from Weizman is to include every possible claim or debt against a debtor on the bankruptcy schedules. We always advise clients to err on the side of over disclosure. Even if a debtor isn’t sure whether a particular debt has been paid or is still owed, we advise the debtor to list the claim. The debtor can always list the creditor as holding a disputed claim. However, by the Colonial Surety case, if a debtor inadvertantly omits a creditor from his bankruptcy filng, it becomes expensive later to move to reopen the case and amend the debtor’s schedules.

Claims that are omitted from the schedules may later be discharged but only after the debtor pays to reopen the case and only provided that the debtor can prove the omission was inadvertant and otherwise innocent.

Every layperson will tell you the same thing: the administration’s Making Home Affordable program is failing to stem the tide of foreclosures. Not only are voluntary mortgage modifications lagging in the face of ever-rising foreclosure figures, but the modifications offered by lenders fail to meet the program’s own requirements, not to mention the needs of the borrowers. The program itself introduces new barriers to the already burdensome process of obtaining a loan modification. Unfortunately, this program represents government at its worst: cumbersome, tedious, expensive and, as it is turning out, useless.

At a recent hearing before the House Financial Services Committee Subcommittee on Housing and Community Opportunity, Congressman Barney Frank of Massachusetts fired a warning shot across the bow of mortgage servicers everywhere: shape up, or watch us pass cramdown legislation, Frank said. Legislation that would allow bankruptcy judgtes to modify mortgages on primary residences is becoming increasingly relevant as reported problems with the program surface.

Tongue in cheek, Congressman Frank said, “The best lobbyists we have for getting bankruptcy legislation passed are the servicers who are not doing a good job of modifying mortgages. And if they do not improve their performance, they improve the chances of that legislation.”

Representatives from the administration testified, however, that while there is room for improvement, the program is on track to meet its goal of assisting 3 million to 4 million borrowers over a period of three years–and a ramp-up period was expected. Forty-eight servicers representing more than 85 percent of the market have signed contracts with the administration. Through August 2009, servicers have extended more than 571,000 loan modification offers, and 360,000 modifications are in the trial period required before the modification becomes permanent.

The problem, however, is that even when operating at full capacity, the program will address no more than one-third of all foreclusres. Consequently, between 2009 and 2012, more than nine million families are expected to lose their homes to foreclosure.

The legislation is failing miserably. This is the reason we advocate the prompt passage of Chapter 13 mortgage cramdown legislation so that the homeowner can finally obtain some meaningful assistance.

Senate Majority Whip, Dick Durbin (D-Ill.), has renewed a pledge to again introduce legislation affording bankruptcy judges the power to modify and otherwise restructure home mortgage loans.  The senator’s last effort failed by 15 votes last April. Durbin’s bill, which is opposed by the mortgage lending industry, would be a welcome tool by debtors who need to restructure their home loans.

Durbin’s new bill might contain ”bank sweeteners” such as affording homeowners extra time to stay in their homes by letting them pay lenders reduced installment payments pending foreclosure.  Presently, in Indiana and many other states nationwide, it’s taking eight months or longer for lenders to foreclose mortgages. Generally, after a lender accelerates and makes demand on a note, the lender will no longer accept installment payments. Consequently, Debtors have been able to stay in their homes without paying their mortgage debt until the sheriff’s sale is completed. Apparently, Durbin may seek to change this practice with his new legislation.

Senator Durbin believes there should be federal funds for cities that implement mandatory mediation between parties to foreclosure proceedings. Further, Durbin posits that those banks failing to significantly contribute to the administration’s goal of 500,000 loan modifications by November 1, 2009 should be penalized. One of those penalties could be a cramdown option, in which judges would lower a loan amount to the fair value of the debtor’s home.

We will be following this legislation closely as it affects many of our clients and prospective clients..

Often, the first thing a prospective client says in a client meeting is that “I don’t want to be here and filing for bankruptcy relief is the last thing I ever wanted to do.” I’m sympathetic always. My response is usually words to the effect : “Yet, here you are so let’s analyze the problem.”

Depite the fact that a client may have little or no equity in his home (if he owns one), and despite the fact that the client does not have any assets that can be marshalled by a trustee in bankruptcy, the client still has a negative opinion about the word “bankruptcy.”

What I usually say is that bankruptcy makes more sense than decimating retirement accounts and depleting other assets otherwise protected under the bankruptcy laws. The federal bankruptcy laws enacted by Congress are uniform throughout the United States. Consequently, wherever you exercise your rights under the laws, the same statute applies subject to certain state law exemptions.

Unfortunately, when people are in real trouble, they often wait too long to get the relief they need. Bankruptcy is designed to afford folks with a fresh start when no other reasonable alternative exists.

Discharging debts and moving on with your life is often the smartest move a burdened consumer can choose. To those who qualify, Chapter 7 relief discharges most debts. A Chapter 7 discharge generally discharges credit card debts, medical bills, personal loans, and other unsecured debts.

For those who need to stop a foreclosure proceeding or sheriff’s sale, Chapter 13 enables the consumer to pay some or all of his debts through a payment plan but still being afforded protection under the automatic stay provisions of the Code.

Some prospective clients say they need to avoid bankruptcy because they think they have perfect credit. These folks, respectfully, are usually fooling themselves. When one has overwhelming debt, one’s credit isn’t perfect at all. In fact, one may be making timely minimum monthly payments on credit card and other debts, but I explain, if one now applies to a lender for additional loans, one’s application will be rejected based upon the amount of the prospective borrower’s existing debt compared to his income.

The first step to moving towards a debt free future is meeting with an experienced bankruptcy attorney. Our offices provide free, confidential consultations.

When any bankruptcy petition is filed, a powerful federal law immediately cloaks the debtor with protection from creditors. The protection is a federal injunction known as the automatic stay. The automatic stay is a stay of all collection actions against the debtor including, but not limited to, phone calls, dunning by letter or any other communication, collection lawsuits, foreclosures, repossessions, and other types of litigation. In other words, the stay prohibits any creditor from taking any action to collect a debt.

The minute your petition is filed, the law requires that debt collectors stop calling you. It could take a few days for creditors to receive notice of the filing which is mailed by the bankruptcy court.

If a creditor or creditor’s representative calls you after the bankruptcy petition is filed, you need to tell him that you filed for bankruptcy relief and give him the bankruptcy court case number and location.

Once clients retain our law firm, we direct them to tell their creditors they have retained our law firm.  Clients should give the creditors our telephone number. After that information is provided, the creditors are not permitted by law to contact the debtor again, unless the attorney/client arrangement dissolves, or if the debtor does not file for bankruptcy relief within a few months. If a creditor continues to contact the debtor, after the creditor learns that an attorney has been involved, the creditor violates the federal Fair Debt Collections Practices Act.  Consequently, the debtor has remedies against the creditor.

Once creditors know that their customer has retained counsel, they do not continue to call. Thus, once you retain our law firm, you will receive certain important and valuable protections immediately.

In May of this year, Congress got it wrong.  This time it was the Senate. 

In a stunning 59-41 vote,  the Senate rejected the Durbin Amendment to the Helping Families Save Their Homes Act which would have sent much needed relief to American homeowners.

While Congress and the president are doling out billions of dollars to bail out, among others,  the banks, and the insurance and automotive industries, American consumers have taken the shaft.  And this legislation, which promised incredible amounts of relief to homeowners, would not have cost taxpayers a penny.

The legislation had significant bipartisan appeal.  It had the ingredients of a populist victory.  Only the Senate could grab defeat from the jaws of victory.  One of the most powerful lobby groups in America–the American Bankers Association–opposed the legislation which is what sounded its death knell.

By the Durbin amendment, 1.7 million mortgages would have been prevented from being foreclosed.  Over $300 billion in home equity for neighboring homeowners, who have made each of their own mortgage payments on time, would have been preserved.  The Durbin Amendment would have created the necessary lender incentives so that consumers could have modified home mortgage loans either outide or within the bankruptcy court.

The objective of the amendment was to encourage mortgage servicers to offer aggressive loan modification to homeowners unable to  pay their mortgage loans.  Compared to the foreclosure alternative, these modifications would be more profitable for the banks, more secure for the families, and more stable for the surrounding neighborhoods.  Borrowers at risk would have received assistance from the bankruptcy courts to restructure loans, but only if the servicer had not first offered to modify the loan outside of court.

If a mortgage servicer provided either a modification offer that reduced the family’s monthly payment to 31 percent or less of their income, or a refinancing offer at conventional rates, the offer would have precluded a borrower from trying to rewrite the terms of his mortgage loan in Chapter 13 of the Bankruptcy Code.  In addition, only first mortgages originated before 2009, with outstanding principal less than $729,750, that are at least 60 days delinquent, and for which a foreclosure notice has been sent, would have qualified for modification under Chapter 13.

For those borrowers who did not receive a modification offer from their servicer, the bankruptcy court would have been able to reduce the loan principal to the fair market value of the home, reduce the interest rate to a conventional rate plus a reasonable premium for risk (which currently would be approximately 5.5 percent), and lengthen the term of the loan.

Furthermore, the debtor would have been required to evenly split any price appreciation with the lender to the original principal amount if the home was sold during the term of the Chapter 13 plan.  After all, if we expect the banks to share the downside with the consumer, it’s only fair that that they share in the upside as well.

So, why is a post mortem so important?  We need to know what’s happening on Capitol Hill.  This time the Senate failed.  The next time these issues are raised, we need consumer lobyists, as well as lobbyists for the National Association of Consumer Bankruptcy Attorneys, to swing into action and persuade our reps in the senate to vote for this common-sense proposal.

Late payments on real estate mortgages increased to a record high in the second quarter of this year. Almost one in eight homeowners were delinquent in their note payments secured by mortgages.

The rise in the amount of mortgage foreclosures is attributed to unemployment nationwide and especially here in Indiana. The unfortunate reality is that higher unemployment rates propel more mortgage delinquenies and foreclosures over the rest of the year.

Hopefully, our representatives in Congress are taking heed of these disturbing statistics.

Now is the time for Chapter 13 revisions so that “upsidedown homeowners” that elect to file Chapter 13 can cram down the balance owed on their mortgage notes to the value of the collateral.

For more information on Chapter 13, check out our website and an article on the cramdown subject I wrote entitled, “Bankruptcy Change holds Foreclosure Fix” that was published on February 19, 2009 in the Indianapolis Star.