Whether you are filing a Chapter 7 or a Chapter 13 bankruptcy, the thing you are ultimately looking for is your discharge or what is officially termed as an Order of Discharge. This document means that that your case is over and the bankruptcy proceeding is closed. This is an important document and should be kept along with other similarly important papers. I would suggest you retain a copy of this document for ten (10) years along with a copy of your bankruptcy petition which should have been provided to you by your attorney shortly following the time of your filing.
If you have filed a chapter 7 bankruptcy, you should expect to receive your Order of Discharge somewhere between 65-75 days following your 341A hearing (also referred to as a 341A Meeting of Creditors). You will receive a copy of the order via regular mail. If for any reason you require a copy of the Order of Discharge earlier, you can contact your attorney’s office who will have received the order several days earlier by way of email from the Bankruptcy Court Clerk.
If you have filed a chapter 13 bankruptcy, you may not receive your Order of Discharge for up to several months following your last chapter 13 plan payment. The reason for this delay, versus what happens within a chapter 7 bankruptcy noted above, is the chapter 13 bankruptcy trustee has to perform a final accounting and wait for all disbursed checks issued to creditors to clear. In most instances, the Order of Discharge can be expected within approximately four (4) months following the date of the final trustee payment being made.
A copy of the Order of Discharge will also be mailed to all of the creditors listed within the petition itself. As such, its purpose is to put all parties of interest on notice that the terms of the bankruptcy filing have been completed and the bankruptcy proceeding is now closed.
For those who file or are contemplating filing a Chapter 7 Bankruptcy and own a home, it is important to know about a document which is termed a “Proposed Order of Abandonment.” For some reason, many bankruptcy practitioners fail to explain it and in some cases, even address this most important document. It is especially important for those filing who own a home and wish to keep or protect their home from the reaches of the bankruptcy trustee.
At the 341A hearing (also referred to as a 341A Meeting of Creditors) the assigned trustee will ask the debtor (the person(s) named in the filed petition) about their assets and liabilities which will include one’s home or other real property. Following the hearing, the trustee will determine if there are any assets which cannot be fully protected and thus be sold by the trustee. The proceeds of any such sale would then be distributed to the filing party’s creditors. This can and does include the potential forced sale of one’s home. Most, people, however do not wish to lose their home.
While many trustees will advise the individual(s) of their intent to “abandon” their interest in the home at the hearing, most will not. If the trustee does, in fact, wish to abandon his interest in the home, the trustee must file with the court a “Proposed Order of Abandonment.” This document is usually filed within a few weeks of the hearing date, up to as long as two months after the hearing date. A copy of this document will be mailed to all parties of interest including the individual(s) named in the petition.
The document will note the value of the property, the amount of all liens/mortgages against the property along with the amount of the bankruptcy exemption taken. Anyone who disagrees with the position of the trustee must file a written objection with the Clerk of the United States Bankruptcy Court at least seven (7) days before the scheduled hearing date. All abandonment notices will contain a specific hearing date/time on it in the event any objection is filed. In my twenty-plus years of bankruptcy practice, I have had only one (1) objection ever filed and the creditor objection went nowhere.
Accordingly, when one received such a notice in the mail it should be met with joy and happiness. Put another way, the trustee is walking away from any interest in the house and the home will once again be yours. Many people who have not been advised of this by their counsel interpret this document as the trustee advising them to abandon or leave their home. This, of course, could not be further from the truth.
Once the objection bar date passes the court clerk will author a Certification of No Objection. Your home is officially no longer “in play” and you can continue to live in it without fear of loss……. as long as you continue pay for it. There are no free rides in bankruptcy or in life.
For some people, filing a bankruptcy is simply not an option, whether it is due to personal beliefs or something else. What then is someone to do to clear away their unwanted debt? The answer for some is to consider what I term a “workout”.
As the name may imply, a workout is where one attempts to settle their debt at a (hopefully) far lesser amount than what is otherwise owed to the creditor. This can be done on one’s own or with the aid of legal counsel. This is done outside of any type of court proceeding and in most instances can be completed in only a few months. There are, however, a few things one must be aware of prior to beginning this process.
First off, a creditor is not going to significantly reduce one’s balance amount to then agree on accepting monthly payments towards the reduced balance amount. Rather, any agreed upon reduced balance amount will need to be paid in full, normally within fifteen (15) days or so of the settlement date. This means that one must have a “pool” of money to draw from in order to successfully “workout” the debt in question. Put another way, you’ll need to be able to pay before you begin to play with the creditor. In most instances, a debt will be able to be settled for between 40-60% of the actual debt amount.
Secondly, assuming one is able to resolve their debt with the creditor in this manner, there is the possibility that the creditor will issue a 1099-C for the amount of forgiven portion of the debt. Any debt forgiveness in excess of $600.00 will afford the forgiver of the debt (the creditor) the ability to issue a 1099-C. The 1099-C will indicate the amount of the debt that is being forgiven. In the eyes of the federal government, the forgiven debt amount is the equivalent of income that someone has received but has failed to pay any taxes towards. As such, the greater the amount of the debt forgiven, the larger one’s tax exposure will be. For many, this may not be an issue, but for others this could cause a significant tax obligation in the near future. It is important one is aware of this potential tax exposure prior to commencing a workout.
Like most things in life, workouts are not for everyone. However, for those who can obtain a pool of money, a workout can be a cheaper and quicker alternative to filing bankruptcy. Moreover, resolving a debt through a workout does not impact one’s credit score to the degree that a bankruptcy filing will. It is important to explore all suitable options when you begin experience financial money problems.
The majority of my blogs concern bankruptcy and the nuances pertaining to its system, function or procedures. This blog, however, will discuss the possible ramifications of one losing their home to foreclosure without ever having filed for bankruptcy protection. Let’s face it, some people would do anything to avoid a bankruptcy filing for whatever the reason.
In this scenario, a homeowner in New Jersey has lost their home as a result of a Sheriff’s Sale and never filed for bankruptcy protection or relief. What can happen next?
The first that can happen is the lender files a lawsuit against you with what is referred to as a deficiency suit or deficiency action. Frankly, it is simply a breach of contract action. The defaulting homeowner failed to abide by the terms of the contract (IE: the note and mortgage) and the lender is now seeking to recover all of the damages/ money they were due under the note and mortgage. This would include legal fees, inspection fees, insurance costs and the balance due under the note and mortgage. This type of lawsuit can be filed years after the foreclosure has been completed so there may be quite a bit of time with you looking over your shoulder until you know you are in the clear.
Another thing a lender can do is to send you a 1099C form. This item is sent to both yourself and the IRS. A 1099C is debt forgiveness which in eyes of the federal government is the equivalent of money you have been given to which you paid no taxes on. A 1099C would be sent if the lender has chosen not to bring the deficiency suit against the defaulting homeowner. Any debt forgiveness in excess of $600.00 by any creditor towards another can give rise to the 1099C. Assuming the lender was owed $50,000.00 at the conclusion of the foreclosure and authored a 1099C in this amount to the former homeowner, one could be looking at tax exposure which can run into the thousands of dollars.
Of course, the lender could decide to do nothing following the completion of the foreclosure. Over the past few years I have seen fewer and fewer lenders doing nothing. They are in the business of making money, not losing money.
In the event, however, the homeowner simply filed for bankruptcy protection, the lender would have no ability to either file a deficiency suit or send the homeowner a 1099C. Additionally, the filing of bankruptcy would have afforded the homeowner more time in their home. Learn of your rights before it’s too late. Most attorneys offer free bankruptcy consultations. Get off of the sidelines and get the facts so you can make the best decision of yourself and your future.
The following is a true story. I have changed names and the like to protect the privacy of the parties. That being said, this story is true and reflects how the use of both a bankruptcy and loan modification can be used to save one’s home from a pending foreclosure sale.
Ms. X came into our office with a considerable amount of credit card debt and a looming Sheriff’s Sale. She has just been rejected by her lender for a loan modification which she had attempted on her own. Losing the home was not an option for Ms. X as she has no other place to live and her credit was bad. Her credit card balances exceeded $50,000.00 and hadn’t been paid in months.
I sat down with Ms. X and we went thru a bankruptcy petition. Based on her facts and circumstances, we determined it was best for her to begin with the filing of a Chapter 7 Bankruptcy for several reasons:
- First, this filing would halt the Sheriff’s Sale due to the Automatic Stay provision of the bankruptcy code.
- Secondly, the Chapter 7 bankruptcy would discharge her credit card debt and help balance out her debt-to-income ratio which would likely help with any future loan modification attempt.
- Thirdly, the bankruptcy would help protect the client from any deficiency suit or 1099C exposure in the event the home was ultimately lost to foreclosure.
- Lastly, there are times that a bankruptcy filing will bring the lender back to the loan modification “table” for a number of different reasons.
The Chapter 7 bankruptcy was filed for Ms. X. We decided that we would begin a new loan modification for her a few weeks after her 341A hearing. As I have noted in an earlier blog, most Chapter 7 341A hearings are scheduled approximately one (1) month after their petition is filed. At the 341A hearing, the trustee was advised of our intentions to pursue the loan modification and we asked the trustee to abandon his interest in the property as soon as reasonably possible.
The 341A hearing went according to plan and a few weeks later Ms. X appeared in my office to tackle the loan modification. As you can imagine, Ms. X was apprehensive about attempting another loan modification after receiving a denial a few months earlier from this very same lender. Despite her trepidation, we completed all of the necessary forms and submitted them along with all of her supporting documentation.
I am happy to report that after two (2) months of going back and forth with the lender, Ms. X was offered a trail loan modification. After making her three (3) month’s of trial payments, she was offered a permitted modification by the lender. Years later she is still living in and enjoying her home. This proves that good things happen to good people. I was glad to help.
Chapter 13 bankruptcy is a type of bankruptcy filed solely by individuals. It is a type of bankruptcy filing where the individual is paying some of his creditors back something. A Chapter 13 sets forth a “plan” which specifies who will be paid what per month and over what period of time. A Chapter 13 plan may last as little as three (3) years but many not exceed five (5) years in length.
A Chapter 13 can be used by an individual to pay back mortgage arrears, automobile arrears and even past due taxes. In fact, all of these and more can be taken care of within one’s Chapter 13 plan. While you are in a Chapter 13 bankruptcy no interest, fees or penalties will accrue. Assuming one were to pay their mortgage arrears in their plan, the individual would resume paying their customary mortgage payment on the first day of the month following their actual month of filing.
A Chapter 13 Standing Trustee is appointed to the case shortly following the time of the bankruptcy filing. It is the trustee’s jobs to both collect and disburse the monies paid into his office to the respective creditors pursuant to the terms of the plan. One would begin making their trustee payment on the first day of the month which follows their month of filing. Accordingly, if one filed on April 15th the first trustee payment would be due on May 1st. There are three (3) trustees in New Jersey and one (1) Chapter 13 Trustee is assigned to each of the 3 vicinages in New Jersey. The three (3) vicinages are Trenton, Camden and Newark. Trustee payments can be made either online or by mail. If you decide to pay by mail you must be aware the Chapter 13 Trustee will not accept personal checks or cash payments. Payments must be made in the form of either a money order, bank check or with certified funds.
Some people who meet with me wish to file a Chapter 13 to repay mortgage arrears and the like while others can be forced to file this more timely and costly bankruptcy. This would be someone who on paper shows surplus income when comparing their petition schedules “I” and ”J”. If one is found to have extra money left in their budget (budget calculation does not include payments to unsecured debts such as with credit cards, etc.) this surplus amount must be paid to creditors. Also, under the bankruptcy code revisions which took effect on October 17, 2005, the median income now can play a factor with a Chapter 13 case. The median income means the average that people in your state with your family size earn yearly. If you are above this income amount you will have to file a Chapter 13 plan for five (5) years unless you can pay all debts off in a shorter amount of time.
I have filed Chapter 13 plans which have paid thousands per month for five (5) years. I have also filed Chapter 13 plans which paid $100.00 per month for three (3) years. It is important you speak with a law firm that is willing to take the time to carefully and personally go through your income and expenses and formulate the best possible plan which will ultimately meet with success. At Reinheimer & Reinheimer we take the necessary time to form the best plan for you and your household.
On October 17, 2005 the United States Bankruptcy Code underwent massive revisions. One of the changes concerned the new requirement of having to take two (2) courses as part of any bankruptcy filing.
Section 109(h) of the United States Bankruptcy Code makes one ineligible to file for bankruptcy unless within the 180 days prior to filing for bankruptcy the individual(s) takes and receives a credit counseling class from a non-profit credit counseling agency that has been approved by the United States Trustee. The lists of such approved agencies vary from state to state. This first course, which we refer to as the “credit counseling course”, can be completed either by phone or online. Most agencies are open at least six (6) days per week.
The first class will generally take between forty-five (45) and sixty (60) minutes to complete. Usually within thirty (30) minutes of completing the first class, a certification will be created. Most agencies will mail and/or email the certification to both the individual taking the course and their attorney. The purpose of this first course is for the agency to try and help the individual reign in or adjust their monthly budget. The certification must be filed along with the individual’s bankruptcy petition. Failure to do so will lead to a dismissal of the bankruptcy petition by the court.
A second course must also be taken. I refer to this as the “Personal Financial Management Course.” This second course must be completed after the time of filing but before the bankruptcy case closes. Bankruptcy code sections 727(a) and 1328(g) are what mandates the completion of this second course. The purpose of the second course is to help the individual strengthen their future budgeting and planning skills. It is meant to help people avoid future financial problems due to issues with operating within a household budget. Failure to complete this course will mean that a discharge will not be granted. This would cause any of your debts that were not paid within the bankruptcy to remain your legal obligation to pay.
The Personal Financial Management course is taken after the time of filing but prior to the bankruptcy case closing. A Chapter 7 bankruptcy will usually remain open for no more than four (4) months. A Chapter 13 bankruptcy, however, can remain open for between three (3) and five (5) years. In both types of cases, I strongly urge the client to complete the second (2nd) course within the first month or two of filing. This way, there is no concern with the client receiving his/her discharge at the conclusion of the case. A discharge is a document which means one is no longer legally responsible to pay certain debts. The primary reason most people file for bankruptcy is to obtain relief for some or even all of their underlying debts.
Many law firms briefly address these two (2) classes and don’t explain the importance and nuances of each. At the firm of Reinheimer & Reinheimer we take the time to go over and explain the importance of each class requirement and what can be expected with each.
You have scheduled an appointment to meet with an attorney to discuss your financial situation along with a possible bankruptcy filing. What should you expect to bring in for the meeting? For some unexplainable reason, many law offices simply schedule an appointment for you with no documents being requested. I consider this to be a complete waste of time for all parties. Proper legal advice cannot be provided without the benefit of reviewing certain items of information. Below I have addressed some of the items that my office will request to be brought in at the time of the initial meeting. The more of these items that can be brought in for the meeting, the more comprehensive the legal advice will be.
If you own a house, whether you wish to keep or surrender the house, counsel should be provided with proof of the house value, copy of the filed deed along with a statement which notes how much is owed on the mortgage(s). If you have more than one (1) mortgage on the property, a statement should be provided for each mortgage. A house is generally the largest purchase in one’s life. The value of a house can greatly impact a bankruptcy filing and this asset must be closely explored by counsel. Without this house information, many times counsel is doing nothing more than making an educated guess.
Proof of income or paychecks of all working adults in the household are also very important to bring in for the initial meeting. My office will generally request between one (1) to two (2) months worth of paychecks from all working adults in the household. Even if one spouse is not filing, their income must be calculated and noted within the petition. Any other sources of monthly income such as social security and disability must also be provided and ultimately verified by legal counsel.
I normally ask a client to also bring in at least one bank account statement. Ultimately, my office will collect two (2) or three (3) months of bank account statements. Most trustees will formally request that recent bank statements be provided to them for review shortly after the bankruptcy petition is filed. At the initial meeting, bank statements can be used to verify income and monthly expenses. Sometimes these statements reveal other sources of income that were not otherwise divulged by the client at the meeting.
I also like to see at least one (1) state and federal tax return at the initial meeting. If you are only bringing in one (1) tax return, it should be the most recently filed tax return. By the time of any bankruptcy filing, my office will have no less than two (2) years of tax returns- assuming one is legally required to file a tax return. A close review of tax returns can give the attorney a good idea of the yearly household income. It can also reveal any business interests that may exist along with other financial information such as dividend income and the like.
Any statements concerning retirement accounts should also be brought into the meeting. While these types of assets, even if significant in amount, can easily be protected within the bankruptcy petition, they must still be divulged with specificity. Additionally, if you can have any term or whole life insurance, the actually policy should be reviewed by counsel. If you own a whole life policy, try to obtain a recent statement which notes the amount of cash surrender value presently contained within the policy.
A recent credit report is also helpful at the initial meeting. My office recommends Annualcreditreport.com. Through this site you may obtain a free credit from each of the credit reporting agencies. Please be sure to obtain a printable version of the credit report and not a summary. This site will not provide you with a credit score but your score will never be needed by the attorney. This is a secure and reliable source for anyone to obtain a complete and accurate credit report. Many times I identify otherwise unknown creditors for my clients by reviewing their credit report(s).
In many instances I will conduct initial meetings without a lot in the way of supporting documents. What I have found is the best advice and game plans are formulated when the potential clients comes with as much in the way of the items noted herein. Upon calling my office, information is obtained. It is based upon the information provided that we are able to advise you what items to bring in. As noted, previously, this list is not exhaustive by any means. Your time is valuable. To make the best use of your time, come prepared for your initial meeting. It’s always better to bring in too much versus to little.
Within a few days of your Chapter 13 bankruptcy petition being filed a 341A hearing will be scheduled. This hearing is also referred as a 341A Meeting of Creditors. The United States Bankruptcy Code 11 USC § 341 is what authorizes this hearing. As the name suggests, creditors may attend this hearing and ask questions of you during this proceeding. In a vast majority of cases, however, no creditors attend. In a Chapter 13 hearing, secured creditors such as mortgage companies and the IRS are the most likely parties to appear on the creditor side.
Much like with a Chapter 7 341A hearing, the Chapter 13 341A hearing is usually scheduled approximately (1) month from the date of filing. Each of the 3 Bankruptcy venues in New Jersey (Newark, Camden & Trenton) only have one Chapter 13 Trustee. They are referred to as a Chapter 13 Standing Trustee. Each of the three trustees will conduct their 341A hearings on one particular day each week. For example, the trustee for Trenton only conducts his 341A hearings on Thursday. Hearings can be scheduled for as early as 9:00 a.m. and most case lists will end with a start time no later than 2:00 p.m.
You will receive notice of this hearing date/time within approximately one week from the date of your filing. Your attorney should receive the hearing notice within two days of your petition filing. Despite receiving your notice directly from the court, your attorney should also be providing you with the date and time of your hearing.
Your hearing will not be conducted in a courtroom setting. Rather, Chapter 13 341A hearings are conducted in the private office of the trustee. You will need to have both a photo ID and proof of Social Security number at the time of your hearing.
Chapter 13 hearings tend to take longer than its counterpart, the Chapter 7 341A hearing. While most hearings will take far less, it is fair to estimate a hearing taking close to 15 minutes or so to complete. If one has filed a joint petition, both parties must attend the hearing and both will be expected to answer each question posed during the hearing. Your attorney will be seated directly to your side throughout the entire proceeding. Notwithstanding this, you will be the one expected to answer the questions. Be sure you have closely reviewed your entire petition and Chapter 13 plan prior to the actual hearing. This is not an open book test.
Outside of the hearing room(s) there will be an area to be seated. This is where you will be able to meet with your attorney and discuss any remaining issues. You may attend your hearing with your friends or family but they will not be permitted inside of the hearing room itself. The room will be designated for the trustee, yourself, your attorney and any creditors that might appear.
The questions that can be posed during the hearing can vary greatly. I generally will go over a likely “skeleton” of questions with my client in my office to see how they do. From there I will go over any of the issues contained within the client’s petition and formulate questions concerning any such issues.
Good eye contact throughout the hearing is needed. If you don’t understand the questions asked, you should request the trustee to clarify the question. Never guess! This is likely your only appearance in the case so prepare for it accordingly. You never get a second chance to make a first impression. A good law firm will closely go over all of this and more with you. Be prepared, stay relaxed and your hearing will be over before you know it.
Many people in New Jersey who are facing a foreclosure have turned to a loan modification in an attempt to save their home. The loan modification can be done on your own or with the aid of a third party, such as an attorney. You do not need to have anyone do this for you. However, if you do choose to have a third party attempt the loan modification on your behalf, be sure to use someone from your home state or within a reasonable driving distance from your home. I have personally witnessed my client’s horror stories of them paying a company on the other side of the country thousands of dollars only to have absolutely nothing done for them. By nothing, I mean not even submitting a loan modification package on their behalf.
Some lenders will initiate the process by sending a cover letter along with a loan modification package to the client before a request has been made. In most instances, however, you must start the process. You may do so by either calling the lender directly and asking them to mail the package to you or you may go online and download the modification package directly from the lender’s website.
It is very important that you fully complete the entire package. I have seen loan modifications returned by a lender due to a single box failing to be checked off. If you are unsure of something found within the loan modification package and you are completing it on your own, call the lender and ask them about it. While it may be difficult to get the lender on the phone, it will ultimately save you a great deal of time.
Be sure your loan modification package contains a Dodd-Frank Certification and a 4506-T form. If your package does not include them, it is very easy to locate both forms via an online search. For example if you typed either documents name while doing a “Google” search, you will immediately locate them.
Once the loan modification package is completed, you must submit it to the lender along with the number of other documents. Generally, any loan modification package that I submit on behalf of a client will also include the following in addition to the several page loan modification form itself. They are as follows:
- Two (2) months of bank account statements;
- 60 days proofs of income;
- Last two (2) years of tax returns (signed and dated);
- Recent Mortgage statement;
- Hardship letter (signed and dated);
- Two (2) utility bills and
- Credit card statements which have outstanding account balances.
After you have submitted all of the supporting documents along with the loan modification package, you will need to follow up with the lender no less than once per week. You need to be sure the lender has all of the needed items. You will also want to monitor the overall status of your submission. While each call into the lender can be both timely and frustrating, it needs to be done.
The initial goal is to have your loan modification sent to underwriting. Once in underwriting, the lender’s underwriter will closely scrutinize all submitted documents. Your papers may remain in underwriting for as long as thirty (30) days. Once your package leaves underwriting you could be given a denial, a trial loan modification or a request for additional items to be provided.
If a denial is given, you may either accept the denial or appeal the denial. The appeal would need to be based upon an error on the part of the lender. The time within which to appeal a denial is usually limited to thirty (30) days from the date of denial. Successful appeals are few and far between.
If you are approved, you will be offered a three (3) month trial. Once you have successfully completed the three (3) months of trial mortgage payments you will be offered your permanent loan modification. Upon signing and returning the final loan modification package to the lender, your foreclosure will be dismissed.
A loan modification can be sought before a foreclosure complaint is filed. Most lenders, however, will not consider a modification unless the mortgage account is at least two (2) months or more behind. A loan modification application can proceed to the three (3) month trial payment stage in a matter of weeks or it may take as long as several months to get to this stage. It all depends on the lender in question and how quickly you can get all of the necessary items over to the lender.
Patience and constant communication with the lender is needed in order to put yourself in a position to receive a loan modification. If you have been denied a modification in the past, you may seek a loan modification again. However, some lenders will not entertain a loan modification if you have previously received one on the same property. Other lenders have a policy which dictates how much time must pass between loan modifications. Don’t be afraid to ask you lender about their loan modification policies before you begin what can be an exhaustive and frustrating process.