Questions About Mortgage & Bankruptcy

Questions About Mortgage & Bankruptcy

FAQ On Bankruptcy By Attorney Chad Hayward: Questions About Mortgage & Bankruptcy

This Article On Questions About Mortgage & Bankruptcy By Attorney Chad Hayward Are Excerpts From Author Chad M. Hayward Book On Bankruptcy

Chad M. Hayward is a prominent bankruptcy and real estate attorney in Chicago and a writer for Gustan Cho Associates Mortgage Resource Center and is an author of Bankruptcy & Real Estate books and articles. Chad M. Hayward is the founder and owner of The Law Offices of Chad M. Hayward and is the real estate attorney of choice for most real estate agents, mortgage loan officers, home buyers, and home sellers. Attorney Chad Hayward is also a licensed mortgage loan originator for The Gustan Cho Team at The Money Store Orland Park Branch NMLS 1191430.

Here is the quotes of Attorney Chad M. Hayward on his expertise advice for those real estate and mortgage professionals as well as consumers who have questions about Mortgage & Bankruptcy:

This material on Gustan Cho Mortgage Informational Center should be useful to reduce your stress and anxiety so that you understand what is going on when you receive a motion to modify the stay on your mortgage or car. Or, you receive a “Notice of Mortgage Payment Change” through the mail from your home lender.

I understand that much of this can be confusing or overwhelming. So, the following

First Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Do I Have To Make My Mortgage Payments?

That depends on your intentions. If you plan to keep your real estate, then yes. If you were current with your mortgage payments at the time of filing, then you simply keep making your payments regardless of which chapter you filed. However, if delinquent mortgage payments were the reason for filing bankruptcy, then you likely filed a Chapter 13 Bankruptcy. After filing Chapter 13 Bankruptcy, your mortgage payments will resume and become due during the following month as though you were current and never missed a payment. All of your previously missed mortgage payments are then put into your plan payment, possible along with some percentage of other debt and vehicles loans. You will then begin making payments to a chapter 13 bankruptcy trustee who will take your monthly payments and disburse them to your creditors, such as your mortgage company, automobile lender, credit card companies, etc.

Second Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Filing Bankruptcy And Being Able To Keep Your House

It is perfectly acceptable to file a chapter 7 bankruptcy and keep your house. Assuming your income does not disqualify you from filing a Chapter 7 Bankruptcy, you need to ensure that you do not have any equity in your home that exceeds your homestead exemption and the cost of potentially selling your house. What does “the cost of selling your house” have to do with anything? The bankruptcy trustee assigned to your case is looking for property that can be sold to pay your creditors. Therefore, if you hypothetically have real estate worth $200,000, the trustee is going to factor in about ten percent of that value towards closing costs such as realtor commissions, tax prorations, title fees, transfer stamps, etc. So, if you have an existing mortgage with a $180,000 balance, then it would not be worth it for the trustee to sell your property, because there would not be any funds left to distribute to your creditors after paying off the mortgage and the closing costs. Furthermore, if you reside in the property, then you can claim a homestead exemption of $15,000 for a single person or $30,000 for a married couple. This means that a bankruptcy trustee would likely not attempt to sell your home worth $200,000 unless you owed under $150,000 on your mortgage.

Third Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Can I File Chapter 7 Bankruptcy And Still Make My Mortgage Payments?

So you could file a Chapter 7 Bankruptcy, continue to make mortgage payments and keep your property while discharging your other debt. Likewise, the same analysis is used to determine how much money you will have to pay to your unsecured creditors in a Chapter 13 bankruptcy petition. Whatever amount of non-exempt equity exists after closing costs is what you will you have to pay to your general unsecured creditors.

Under this situation, the bank will generally want you to reaffirm your debt which means that you get to keep your house and make the mortgage payments. Although, if you default on mortgage payments after reaffirming such debt, you could be personally liable for any future deficiency judgments. There are pros and cons to reaffirming debt, whether it is for a mortgage or car loan, so you should make sure to discuss your decision with an attorney before signing a reaffirmation agreement. If you plan to surrender your property, whether through a Chapter 7 or a Chapter 13 bankruptcy laws, then you would simply stop making mortgage payments and let your creditor go through the foreclosure process to obtain possession of the property. If this your intention, do not be alarmed when you receive a motion to modify the automatic stay or a motion to lift the automatic stay. These are formalities that your lender must go through so that they can obtain possession of the real estate you intend to surrender. This will be discussed a little further later on.

Fourth Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

How Do My Creditors Receive Notice?

Your attorney is required to list all of your creditors you owe money to on your bankruptcy petition. Often times your attorney will list other possible debtors such as the IRS, county treasurer for real estate taxes, water providers, or municipalities for purposes of tickets and other violations. Once all of your creditors are listed and your bankruptcy petition is filed, the bankruptcy court uploads the creditors listed on your petition electronically and mails notice to your creditors. Your attorney does not initially send notice of your filing directly to your creditors. However, if a creditor is omitted during the initial filing, then your attorney will have to amend your schedules and manually mail notice of filing to that particular creditor. The court charges a fee to amend schedules for omitting creditors.

Fifth Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

What Happens If I Forget To List A Creditor In My Bankruptcy Petition?

Omission of a creditor from your petition does not necessarily mean that the debt is not discharged. In fact, almost always such debt is discharged as long as it does not fall into a category of non-dischargeable debt. Some types of non-dischargeable debts are student loans, child support, alimony, intentional torts, government fines, certain income taxes, fraudulent debt etc. This can get complicated because some non-dischargeable creditors must file an objection to discharge or a complaint to determine dischargeability to have their debt deemed non-dischargeable. This is often the case with creditors arising out of intentional torts such as, battery, assault, false imprisonment, etc. The omission of this type of debt from your bankruptcy petition could result in the debt not being discharged. However, if the creditor that was omitted from your petition was a simple credit card that does not contain recent cash advances or luxury purchases, then it is likely discharged regardless of whether, or not, notice was sent to such creditor. However, if the debt falls under an intentional tort, then it is important to amend your petition and send notice of the filing to that particular creditor so that he or she has an opportunity to object to the discharge.
Our office encountered such a scenario when we filed a case for a client who failed to list a pending lawsuit on her petition. Upon discovering this discrepancy, notice was sent to the opposing attorney who failed to object to the dischargeability of the debt. Although the underlying debt was an intentional tort, the debt was ultimately discharged due to the opposing party’s failure to file a timely objection or complaint.

Sixth Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

How Does The Lender Know Not To Foreclose?

Your mortgage lender will get notice of the bankruptcy petition from the court as stated above. In some circumstances it is advisable to call or fax notice to certain creditors if you are trying to prevent the sheriff from evicting you, stop a creditor from garnishing your wages, obtaining your car from repossession or impound, or reinstating your driver’s license. However, more often than not, immediate notice is not required as the “automatic stay” negates any actions, such as an auction of real estate through foreclosure or entry of judgment in a lawsuit, which occurred after the filing. Although I do not recommend waiting until the last minute, I have stopped many foreclosures simply by filing minutes before a foreclosure auction occurs. Even under those circumstances when the auction takes place due to lack of notice, the sale is over-turned and all judgments are vacated or reversed.

Seventh Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

How Long Does It Take To File Bankruptcy?

Often that depends on the individual. You are required by the bankruptcy code to complete a credit counseling course and provide paycheck stubs and tax returns for the past two to four years. Once the course is completed and you have provided the necessary tax returns and paycheck stubs, you can file your petition. If someone comes to our office with a completed credit counseling course and the required documentation, we have been able to complete a petition and file it within minutes. In addition, if you are under strict time constraints, an emergency petition can be filed and you can finish the rest of your petition at a later time and file the remaining documents. There are time requirements when the remaining schedules and documents must be filed, so do not miss those dates or you could risk having your case dismissed.

Eighth Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

What Does Motion For Relief From Stay Mean?

A motion for relief from the automatic stay is what a creditor will file to get permission from the bankruptcy court to either commence or reinstate foreclosure proceedings or proceed with repossession of a vehicle. In the case for a Chapter 7, if you are surrendering your house or car, the bank will still file a motion for relief from the automatic stay so that they can proceed with the foreclosure or repossession. They have to go through the formality of the foreclosure so that they can get possession of the property. This does not mean you owe the debt, it just means that the bank can now go into state court and proceed with the matter so that they can take possession of the property. If you know that you are surrendering such property and you receive this notice in the mail, you do not need to do anything. If, on the other hand, you are in a Chapter 13 and your intent was to cure delinquent payments on such loan, you would want to contact your attorney immediately to see what the amount of the default is and how you can go about curing such default.

Nineth Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

How Long Does Bankruptcy Stay On My Credit?

Up to 10 years. Late payments stay on up to 7 to 8 years and foreclosures up to 10. Usually the first 6-24 months is the worst but with bankruptcy your credit starts to improve sometime after that point. Some lenders will give home mortgages two years after filing for bankruptcy. And, credit card companies often send offers immediately after entry of a discharge order. I do not recommend building up more debt after filing bankruptcy and one must always keep in mind that you can only file a chapter 7 bankruptcy every eight years. However, getting a secured credit card and making timely payments on such card can help re-establish credit. Furthermore, if you have a mortgage or car loan, make sure to make your payments timely as this too will help re-establish credit. In most situations, any damage filing for relief under the U.S. Bankruptcy Code will not be much worse than the accumulation of late payments already recorded on one’s credit report. And, once an individual files for bankruptcy, those creditors cannot report anymore late payments or they could violate the automatic stay and be subject to severe court sanctions and fines.

Tenth Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Can I Eliminate Or Reduce IRS Debt Or State Income Taxes Through Bankruptcy?

Yes, depending on how old it is. Federal income tax or state income tax that is more than 3 years old from the due date, is dischargeable in bankruptcy as long as the taxes were filed timely. And this is determined by looking when the taxes were due. An example would be for 2014 income taxes that were due on April 15th 2015, could be discharged after April 15, 2018. And, although your income taxes may not be dischargeable, the penalties and interest incurred as a result of unpaid taxes may be dischargeable. Furthermore, even if an individual does not qualify for Chapter 7 Bankruptcy, assuming that taxes are dischargeable, such person can possibly decrease their income tax liability to 10% of the amount owed. Moreover, chapter 13 bankruptcy is a great tool that can be used to set up a payment plan with the IRS or state agency without the need to deal directly with such entities.

Eleventh Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Can I Lower My Mortgage Payments?

That depends on whether it is your primary residence and whether it is a multiple unit dwelling or single family home. If it is your primary residence and a single family home, you cannot modify your mortgage payments which is to say you cannot lower payments, interest rates or the principle balance. If it is rental property, investment property or mixed use property, which would include a 2 unit building, then yes, you can modify your mortgage payments. This can still be a tricky feat because you can only lower the mortgage down to the value of the real estate and the mortgage payments are generally required to be spread out in equal installments over the term of the plan. This is to say, if the value of the income generating property is $100,000 then you can lower the mortgage down to $100,000, but it must be paid out in equal installments over 60 months. Unless your lender agrees, you cannot have a balloon payment at the end and keep your monthly mortgage payments lower throughout the plan. They have to be equal monthly installments. In addition, the unsecured portion of the loan balance – anything in excess of the real estate’s value – is generally required to be paid out at 10%.

Twelth Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Income Property And Bankruptcy

Another component that can derail an attempt to modify investment property is whether it is cash flow positive after the modification. Essentially, Chapter 13 trustees will not recommend confirmation of a plan if the investment property is not earning the debtor money. So, if the rental income does not exceed the amount of the payment in the bankruptcy along with real estate taxes, insurance and upkeep expenses, then the trustee is not going to recommend our plan. However, someone may be able to bet by this if they are proposing to pay their unsecured creditors one-hundred percent of their claims. I cannot reiterate enough that this is a complicated process and anyone hoping to modify the mortgage of investment property, should consult an experienced attorney. I have been successful modifying mortgage payments for many clients and in one particular situation, I was able to “cram down” the balance of a mortgage on a two-flat property where the debtor lived in one unit and rented out the other. This particular situation was unique because the debtor filed a Chapter 7 bankruptcy previous to filing a Chapter 13 with me. In the previous Chapter 7 case, the debtor did not reaffirm the debt, so it was discharged. Due to the previous discharge, I proposed a plan that allowed the debtor to pay the mortgage off over the term of the plan and not pay anything on the unsecured portion. This was significant because the unsecured portion was about $90,000.00 and I was thus, able to save my client $9,000.00 because he did not have to pay anything, even the common requirement of 10%, on such unsecured portion. Every situation is different and even judges do not always agree on how such situations should be handled.

Thirteeth Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Can I Refinance My Mortgage Or Obtain A Loan Modification While In Chapter 13 Bankruptcy?

It is possible to refinance your mortgage while in an active Chapter 13 bankruptcy. However, there is no law governing this and it is entirely up to the individual(s) to find a willing lender. Generally, lenders want to see one year of timely mortgage payments before considering a refinance. Similarly, lenders often offer loan modifications to individuals while in a Chapter 13 bankruptcy. In some circumstances, filing for relief under the bankruptcy code helps individuals obtain a loan modification due to the decrease in monthly expenses thereby allowing them to meet the lender’s debt to income requirements.

People often get loan modifications while in bankruptcy. As I previously stated, once you file bankruptcy, it usually frees up some of your income and it might make it more feasible to get a loan modification. Sometimes lenders will require court approval before entering into a loan modification. However, at least in the jurisdiction where I practice, this is not necessary and many judges will deny as unnecessary any motion brought to approve a loan modification. However, most judges recognize that lenders want court approval so that they do not run afoul of the automatic stay, and will usually grant such motions.

Forteenth Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Can My Mortgage Payment Change While I’m In Bankruptcy?

Yes, but only within the terms of your original mortgage. If you had an adjustable rate mortgage when you filed for bankruptcy, then your mortgage rate can change according to the terms of your mortgage. Conversely, if an individual had a fixed rate mortgage before filing for bankruptcy, then their mortgage would be locked in at such rate. The filing of bankruptcy will have no bearing on the terms of your mortgage. When you are in an active Chapter 13 bankruptcy and your mortgage payment changes due to an adjustment in your interest rate or escrow payment, your lender will generally send you a “Notice of Mortgage Payment Change.” This is just a notice of your new payment amount and it will usually explain why there is an adjustment. Keep in mind that even though you may have a fixed interest rate, if your real estate taxes are paid through your mortgage and your taxes increase, this will result in an increased mortgage payments just like it would if you were not in bankruptcy.

Fifteenth Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Will My Employer Know That I Am In Bankruptcy?

If an individual enrolls in payroll control in a Chapter 13 bankruptcy, then their employer would know they filed for bankruptcy because the employer will be required to send in the monthly trustee payments. Payroll control is when a court order is sent to your employer, instructing your employer to withhold your bankruptcy payments. If an individual files a Chapter 7 bankruptcy petition or an individual does not sign up for payroll control, then their employer would only find out if that individual told them or if they did extensive research.

Sixteenth Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

How Long Does It Take To Re-Establish Credit?

That depends on what someone does after filing for bankruptcy. If you make all of your payments on debt that is not being discharged such as, a car loan, student loans or mortgages, your credit score will go down when you file but will generally start to come up shortly thereafter. Obtaining a secured credit card where someone deposits money into a bank account and receives a line of credit up to the amount of the deposit is also a good way to help re-establish credit. I once received an email from a client of mind letting me know that less than two years after receiving a discharge in Chapter 7 they received an automobile loan with 0% interest and no money down. Keep in mind that the three credit reporting bureaus often differ in their method of calculating credit scores, so there is no sure way to guarantee an improved credit score. But, if an individual takes advantage of the fresh start and makes all future payments timely and does not over-extend their credit, they will generally see an improvement in their credit score shortly after filing. Also, if, prior to filing bankruptcy, someone has numerous late payments and generally poor credit ratings, filing bankruptcy may help improve your score faster than one could imagine because after filing for bankruptcy, creditors can longer report you late on pre-filing debt due to the automatic stay.

Seventeenth Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Can I Buy A Car While In Bankruptcy?

Yes, but you have to get permission from the court if you are in an active Chapter 13 case. If you file for Chapter 7, simply wait until you receive your discharge, usually three months after filing, and see what you qualify for. While in a Chapter 13, you must present the proposed terms of the car loan such as the purchase price and interest rate to your attorney so that he or she can file a motion to incur debt with the court. The court will then review such documents and balance that with the need for you to obtain a new vehicle and make a decision. Usually, as long as it is not a luxury car, the court will enter an order allowing an individual to incur debt to obtain a loan. The courts understand that people need vehicles to get to and from work, pick up children from school, go to the grocery store, etc.

Eighteenth Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

What Can I Do If I Miss Or Fall Behind On My Chapter 13 Plan Payments?

First, if your case has not been confirmed, it is imperative that you stay current on your payments. Trustees will not recommend, nor will a judge confirm, a case that is not current with plan payments. Following confirmation, most trustees will not file a motion to dismiss your case until you are about three months behind on payments. You should contact your attorney if this happens, because he or she can either file a motion to defer the debt to the end, if there is room in your plan and such deferment will not cause your plan to run beyond 60 months; or you can increase your payments for the remaining term of the plan to cure the default. Keep in mind that, although almost all trustees will allow this, some will not allow you to defer a default more than once.

Nineteenth Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Threat Of Your Chapter 13 Bankruptcy Dismissed Due To Late Payments

If you’re late on Chapter 13 payments, generally it does not result in anything. If you fall 2-3 months behind, the bankruptcy trustee will file a motion to dismiss your case for non-payment, at which time you will either have to become current with your payments or modify your plan to increase the payments so that you can get caught up over the remaining term of your plan. In some situations, a change in income or expenses may warrant a decrease in your plan payment, but we recommend an attorney review your situation as a decrease in income or increase in expenses does not alone guarantee a lower plan payment. There are other factors that can come into play such as the balance on your vehicle, the amount of debt, the amount of mortgage arrearage being paid through your plan, the amount of priority debt, etc.

Twentieth Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

What Happens If My case Is Dismissed?

When your case is dismissed, you will receive notice form your attorney and also an order of dismissal from the court through the mail. Depending on what it is dismissed for, you could correct the deficiency with the case, such as non-payment or failure to provide requested documents and possible vacate the dismissal. The motion must be filed within 14 days of the dismissal. However, if you cannot cure your default, or more than 14 days have passed since dismissal of your case, then you can always re-file your case as long as the has not barred you from re-filing due to excessive bankruptcy filing in the past. Always remember that a subsequent bankruptcy filing may require a motion to extend the automatic stay or impose the automatic stay depending on how many cases you have had pending over the prior year.

21st Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

If My car Is Paid Off In Bankruptcy, When Will I Receive Title?

Your automobile lender is required to send the title to you. If they do not, you have to contact your lender and tell them to send you the title.

22nd Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

How Long Will It Take For Payroll Control To Begin?

That is up to your employer. It should begin the next pay date after they receive notice of the order. Some employers are quicker than others to get started on this. But, even though you have signed up for payroll control, you are still obligated to make payments even if your employer is not withholding the funds pursuant to such payroll control order. If you are having problems with your employer withholding the payment, then you should notify your attorney. Most studies show a stronger likelihood of success for a Chapter 13 case when the individual(s) enter into payroll control. However, some people may find that they do not want their employer to know that they have filed for bankruptcy, so they opt not to enroll.

23rd Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

How Long Will It Take Me To Get My License Reinstated If It Is Suspended?

Often it only takes three to five business days. Sometimes unforeseen circumstances arise that can delay this, but if your license is suspended due to parking tickets, red light violations or tollway violations without any other problems, then it should not exceed three to five business days.

What if my license is suspended for non-payment of child support or can I even pay child support arrearage through bankruptcy?
Just like a suspended license due to parking tickets, you can file a chapter 13 petition for unpaid child support and get your license reinstated. And, you can use Chapter 13 to catch up on unpaid child support. However, you cannot discharge child support through bankruptcy and to receive a discharge of your other debt, you must be current with all child support payments that you owed before filing and all child support payments that became due during the time you were in Chapter 13 Bankruptcy.

23rd Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Will Bankruptcy Discharge Alimony Or Maintenance Obligations?

Alimony or maintenance is not dischargeable in bankruptcy, although you can cure any default through a chapter 13 plan. Moreover, marital debts that you are ordered to pay by a divorce judgment may be dischargeable as to the creditor, but your obligation to your ex-spouse would not be. For example, if you and your ex-spouse had a joint credit card debt and your divorce judge ordered you to pay the debt, or if your marital settlement agreement calls for you to pay the debt, and you filed bankruptcy to discharge the credit card debt, you could still end up being liable to your ex-spouse for the debt if he or she is required to make payments to that particular creditor unless your ex-spouse also files bankruptcy and discharges his or her obligation to that creditor. Therefore, if a couple knows they are going to get a divorce, it is often advisable to file for bankruptcy before a divorce judgment is entered because you can avoid the cost of two separate bankruptcies.

Another area issue that arises with joint debt following a divorce is when a judge awards real estate to one party but orders he or she to refinance within a certain amount of time to remove the other party. This sounds great at the time the divorce is finalized and a judgment is entered, but what happens when the ex-spouse does not qualify for a mortgage to refinance the property? The answer to that is the spouse that was not awarded the property is still responsible for the loan payments if their ex-spouse defaults. Creditors do not care that there is a divorce judgment ordering your ex-spouse to refinance the house. As long as they still possess a promissory note with your name on it, you are responsible to them and the divorce decree does not supercede the obligations of such promissory note. Filing for bankruptcy is one way to eliminate your responsibility to the mortgage company and any negative credit reporting for missed payments due to your ex-spouse.

24th Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Can I Put Personal Loan I Received From Family Member Or Friend In Bankruptcy Or Can I Repay A Family Member Or Friend Even Though I Filed Bankruptcy?

The answer to both questions is yes. The debt is dischargeable unless it was obtained through fraud. And, after you receive your discharge you can still repay such loan if you feel a sense of obligation to such person due to your relationship with him or her. People often ask me if they can pay a doctor’s bill or dentist’s bill because they want to continue to treat with such doctor or dentist. Again, my answer to that is, yes, you can pay them. There is, however, one caveat to repaying debts to family members, friends, doctors, dentists, etc. If you repay such debt before you file, it may be considered a “preference” which is to say that you preferred to repay someone close to you before your other creditors. In such situations, the bankruptcy trustee can go back to that person and force them to turn the money over to your bankruptcy estate so that it can be paid to your other creditors on a prorata basis. I once had a client that was ordered to turn over funds he received from his brother-in-law for a loan he had made. I was able to negotiate a lesser amount, but my client had to turn over such funds nonetheless. I always tell my clients not to repay such loans before we file unless you intend to discharge the debt regardless of the impact it may have on the person you repaid the loan to.

25th Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Can I Keep Any Of My Credit Cards After I File?

The quick response to this is, no. Furthermore, and this is definitely applies to people in Chapter 13, you are not allowed to incur additional debt without court approval However, if, after filing a Chapter 7, your creditor continues to extend credit then you could continue to use such card. Keep in mind that you will be responsible for any post-petition debt you incur in such a situation. In reality, I do not see credit card companies continue to extend credit after someone files for bankruptcy. However, I have seen clients get new credit cards within three to six months of filing a Chapter 7. Generally, all creditors will close the accounts down once they know you’ve filed. After a Chapter 13 is either discharged, dismissed, or closed you can do whatever you want.

26th Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

What Does It Mean If I Receive An Objection To My Chapter 13 From My Creditors?

A Creditor will file an objection to a proposed Chapter 13 plan because they did not like or agree with the way the plan treats their debt. So if you are behind on mortgage payments and we propose a plan that does not pay back the total amount of mortgage arrearage you owe, your creditor will file an objection letting us know the correct amount of arrearage that needs to be paid back through the plan. This involves your attorney filing or amending the plan to provide for the correct arrearage. Similarly, if you change the terms of a car loan in an impermissible way and your auto lender does not agree with the interest rate, balance of the loan, or value provided for the vehicle in your schedules, your creditor may file an objection so that they are not bound by such negative treatment. The relief requested in the objection often states to not confirm the plan or dismiss the case. Again, this is easily fixed and your attorney will get notice of it and make the necessary corrections, or contact you to discuss the possible correction or modification to your plan so that the objection can be resolved. The value of your car is important in situations where you obtained the loan more than 910 days before filing your case because under those circumstances, you can lower the amount of the debt to the value of your car. So, if you owe $20,000 on your car loan, the car is only worth $15,000 and you obtained the loan more than 910 days before you filed, you can lower the balance of the loan to $15,000. The remaining $5,000 would be paid at the same percentage as your other unsecured creditors which may be as low as 10%. Even if you cannot lower the balance of the loan because you purchased the vehicle within the 910 days immediately preceding the filling of your petition, you can almost always lower the interest rate.

Moreover, in a Chapter 7 case you can always “redeem” a vehicle for the fair market value. This generally involves a lump sum payment to the original vehicle lender. So, under the situation provided above, if you owe $20,000 and the car is only worth $15,000, you can “redeem” the car for $15,000. There are lenders that will loan you the money to redeem such vehicles if the condition and mileage of the car meets their requirements. Usually, however, these loans involve higher interest rates, so the amount of the loan and payments should be balanced with any possible increase in interest rates. My office has a lender that we refer our clients to if they desire to attempt a “redemption” of their vehicle.

27th Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Can I Discharge Student Loans In Bankruptcy?

Not usually. Under certain circumstances, if someone can show that they have a condition or circumstances that will prevent them from ever repaying such debt, it is possible to discharge student loans. This requires an adversary proceeding and the basic requirement is to prove to the judge that you will never be able to earn the income to repay your student loans maybe due to some type of physical or mental disability. There is a Supreme Court of the United States decision that states you can modify the terms of a non-dischargeable student loan, but this should be done with caution as proposing a plan in bad faith is sanctionable.
However, even if you cannot discharge or modify your student loans, filing a Chapter 13 can be used to defer your student loan payments and keep such lenders from harassing you or attempting to collect from you. An individual can also chose to pay a portion of their student loans through a Chapter 13 plan so that the balance is more manageable with they come out of bankruptcy.

28th Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

What If My Income Goes Up Or Down After I File Bankruptcy?

After receiving a discharge in Chapter 7 an increase in income would probably not matter. However, there could be an argument that you failed to disclose such increase if you knew about it at the time of filing and thus, you could have gone into a Chapter 13. I have never seen this situation arise and do not think it would be a great argument because most of the tests look at the income during the six months preceding the filing of bankruptcy information or the income at the time of filing or, maybe at the time of the 341 meeting.
Chapter 13 cases are not so simple. In fact, income often does change during the term of a Chapter 13 plan. This is not always an easy question. If your income goes down, you may be able to lower your plan payments provided you can still cure your mortgage default, car loans or priority debt without extending the plan past 60 months. If your income increases, your trustee may file a motion to increase your plan payments or extend the term of your plan up to sixty months.

29th Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

What If I Lose My Job?

If you think that the loss of income is only temporary, you can file a motion to suspend your payments temporarily. Or, you seek the help of a family member or friend that can assist with payments. It is important to understand that as long as payments are made, no one will seek to dismiss your case due to the loss of income. In some situations it is advisable to let the trustee dismiss your case for non-payment and re-file a new case once you obtain new employment.

30th Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Can I Pay Certain Bills To Some Of My Creditors Without Going Through The Bankruptcy Trustee?

You have options to pay your post-petition mortgage payments outside of your business bankruptcy questions plan and I usually recommend that individuals do so. Although I rarely recommend paying your automobile loan outside of our plan, it is an option. However, usually paying a car loan through the plan allows you to lower your payments and free up funds that can go towards curing your mortgage default or other debt, such as non-dischargeable debt. In addition, you could continue to pay someone such as a family member or family doctor outside of your plan if you have the means to do so and under certain situations this may be permissible by the court. However, you are required to commit all of your disposable income to your plan payments, so every situation needs to be evaluated on a case by case basis.

31st Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Does My Spouse Have To File, Or Will My Filing Affect My Non-Filing Spouse?

I often get this question and no, your spouse does not need to file. Furthermore, if your spouse does not file, there would be no impact on his or her credit score or credit worthiness provided that you do not possess joint debt. In fact, even if you do possess joint debt, as long as the non-filing spouse continues to make payments on such joint debt, there should be no negative impact on that spouse’s credit score.

32nd Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

What Happens If I Have A Cosigner And I File For Bankruptcy?

The co-signer, just like in a situation of a non-filing spouse, would be responsible for the debt. There is co-debtor stay that protects a co-borrower from collection efforts when the other co-debtor files for bankruptcy. However, once the bankruptcy is completed, whether it is a Chapter 7 or Chapter 13, the creditor can come after the non-filing co-borrower. Furthermore, there may be some negative impact on the credit score of the non-filing borrower if they do not make the requisite payments. One other unique situation that I have had presented to me is the situation where the filing of bankruptcy by one co-borrower triggers an automatic default of the note as to the other co-borrower and thereby causes the note to be accelerated. Although there may be a co-borrower automatic stay that protects the non-filing borrower, the impact can be adverse. It is important to review such loan documents prior to filing and discuss any possible implications with the non-filing borrower.

33rd Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

How Does Bankruptcy Effect My Residential Or Vehicle Lease?

When you file for bankruptcy you are required to file a statement of intention regarding all leases you are involved in. This applies to whether you are the landlord or tenant or whether it applies to real estate or an automobile. You can either assume or reject each lease. If you assume the lease, then you would continue to make payments pursuant to the terms of that lease. If you reject the lease, you would surrender possession of the residence, or in cases of a car lease, you would surrender the car back to the lessor. If you assume the lease and later default on payment, then the lessor could seek whatever applicable remedies they may have in a court of law and thus, you could be liable for unpaid lease payments.

34th Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Can I Enter Into A Lease While In A Chapter 13 Bankruptcy?

Yes, but be mindful that this is now a post-petition debt and you are responsible for any unpaid rent without protection from the automatic stay. Although it is uncommon or maybe even non-existent, you would likely have to get court approval to enter into an automobile lease while in a Chapter 13 bankruptcy.

35th Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Can I Pay Back Rent In A Bankruptcy And Not Be Evicted?

Yes, but generally the default must be paid within a reasonable amount of time. Furthermore, you must maintain future rent payments while in the bankruptcy. Nonetheless, a landlord still must bring a motion to modify the automatic stay to proceed with an eviction after a bankruptcy petition is commenced.

36th Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

Can I Be Refused Employment Or Have My Employment Terminated Because If File For Bankruptcy?

The answer to both questions is no. The bankruptcy information code specifically prohibits employers from discriminating against someone who has filed bankruptcy for the sole reason of the bankruptcy filing. This prohibition applies to private and government employers alike.

37th Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

What Do I Do If I Receive A Motion To Dismiss While In A Chapter 13 Bankruptcy?

Often a motion to dismiss is filed by the Chapter 13 trustee and such motions are usually for failure to make plan payments or unreasonable delay in confirming your plan. There may be other reasons a motion to dismiss your case is filed, but these are generally the most common reasons. The good news is that these motions are generally easy to resolve. If you receive a motion to dismiss for failure to make plan payments, you should make the necessary payments to cure the default. If the motion is filed before your plan is confirmed it is imperative that you get current as was previously stated. If it is filed after confirmation, if possible, you should get current or speak with your attorney about modifying your plan to defer the default. If the motion to dismiss is filed for unreasonable delay, it is usually the trustee’s way of telling you and/or your attorney what issues need to be resolved before the trustee and recommend confirmation of your plan. These motions are very common and should not trigger a panic attack, but it is also important that you work with your attorney to resolve such motions because they often require you to provide certain documents to your trustee through your attorney.
Other types of motions that may be of more complexity are motions to dismiss for term of plan issues or feasibility issues. If you receive a motion to dismiss for term of plan this means that at the amount of your current plan payment, your plan cannot complete within sixty months. The way to fix this is to file a motion to amend your plan usually to increase the payment over the remaining term so that it can complete within sixty months. This often happens when creditors file claims after the case has been confirmed. If you receive a motion to dismiss due to feasibility this means that your current budget does not provide enough income to make your plan payments. You will often see these when the mortgage arrearage is much higher than initially anticipated or a large priority claim is filed. There are a few ways to cure this: 1) decrease your monthly expenses if possible so that you can afford a higher plan payment, or 2) see if you can object to the large claim that is making the plan unfeasible. I often see this with IRS proof of claims when they do not have tax returns and file a proof of claim estimating what the debtor may owe. I usually have my clients refile their tax returns for the year in question and then object to the proof of claim.

38th Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

If My Case Is Dismissed, Do I Get Back The Money I Paid To The Trustee?

It depends on why your case was dismissed and whether the case was confirmed, or not. If your case was dismissed through no fault of your attorney, the judge may award attorney’s fees which will be paid through funds held by the trustee. In addition, if you are paying a car loan through your plan, the trustee is likely making adequate protection payments during the time before confirmation of your plan. If your plan was confirmed before dismissal, then creditors would have received distributions according to the terms of the Chapter 13 Bankruptcy questions plan and no funds will be refunded. Also, the trustee gets paid according to the amount of money paid out during the time your plan was active.

39th Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

What Is A Reaffirmation Agreement?

This is an agreement between you and your lender entered into after you file your bankruptcy petition. It is generally only used in Chapter 7 cases. This agreement allows you to retain your property, such as a house or automobile, which secures a debt you owe to your creditor. What usually happens and what should happen is your lender receives notice of your bankruptcy filing and they prepare the agreement detailing the loan balance, maturity date, monthly payments, interest rate, etc. This agreement is sent to your attorney who fills out information regarding your monthly expenses and income as indicated on your bankruptcy schedules. The agreement is then sent to you for your signature and then returned to your lender who will file it with the court. If your budget does not show enough income to pay for the debt, you may be required to go to court and explain to the judge how you can afford to keep the property and pay for the debt. I always keep this in mind when preparing your schedules to attempt to avoid such a hearing.

Whether, or not, you should enter into agreement is something to discuss with your attorney. If you enter into a reaffirmation agreement, you are responsible for the debt and if you default later, you can be sued on the debt. Conversely, if you do not enter into a reaffirmation agreement and you later default on payments, your lender can only repossess the property or foreclose on the property. They would not be able to sue you for the unpaid portion of the debt because you discharged it with the filing of your petition. However, entering into a reaffirmation agreement allows your creditor to report your payments to the credit bureaus. This can help you reestablish your credit after filing for bankruptcy if you make your post-petition payments timely.

Generally, if you do not enter into an agreement, many lenders will allow you to keep the collateral securing such debt as long as you make your payments. They will not, however, report the debt to the credit reporting agencies. Some creditors, may repossess the property whether you make such payments, or not, if you do not enter into the agreement. If you do not properly enter into a reaffirmation agreement before your bankruptcy petition is closed, you may be required to reopen your case to file the agreement which generally is going to require a filing fee to the court.

40th Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

If My Case Is Dismissed, Can I Refile?

Yes, unless the court bars you from re-filing due to excessive bankruptcy filings. However, depending on how many cases you had pending within the last year, you may be required to extend or impose the automatic stay. If you had two Chapter 13 cases pending within the last year, the automatic stay expires 30 days after filing. You, or your attorney, must file a motion to extend the automatic stay and explain to the court why your current case will work when your last one did not. Similarly, if you had three or more cases pending within the last year, there is no automatic stay when your case is filed. You then must file a motion to impose the automatic stay. Under these circumstances, there is a presumption that the case was not filed in good faith and you must overcome this presumption and convince the court that your there are changes or valid reasons why your previous case failed and why this one will work.

I have filed many motions to extend and/or impose the automatic stay and generally, as long as there are good reasons for the previous dismissals, judges will give you the benefit of the doubt. However, this should not be taken lightly, because if the judge does not believe that your subsequent case is filed in good faith, he or she may not extend or impose the stay and you will not have protection against collections, repossessions or foreclosure.

41st Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

What Does It Mean To “REDEEM” Property After Filing For Bankruptcy?

You are permitted to redeem certain property, such as an automobile, for the value of the property regardless of the amount owed on such property. Therefore, if you owe $20,000 on your automobile, but the car is only worth $15,000, you can redeem the property for $15,000. You are required to pay the entire $15,000 in one payment which means you would likely have to get a loan from a friend or family member, or refinance it through another lender to pay such amount. There are redemption companies that will make such loans, but it I usually at a higher interest rate. We give the lender information to our clients upon request so they can look into whether it makes financial sense to obtain a new loan at the higher interest rate. A motion with the court is required If you choose to redeem your property, and you must come to terms on the value of such property with your current lender, or have a hearing in front of the judge to determine the value.

42nd Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

What If I Am Behind On Real Estate Taxes?

Chapter 13 bankruptcy can be used to catch up on delinquent real estate taxes. As long as a tax deed has not been issues, delinquent taxes can be added to your chapter 13 plan and paid over the term of your plan. Therefore, even if a third party has purchased the taxes, but a tax deed has not been issued because the redemption date has not expired, then you can cure those taxes. Notice must be given to both, the county treasurer and the entity that purchased your delinquent taxes. Some counties refuse to accept monthly payment of the delinquent taxes and require one lump sum payment. This requires careful construction and wording of your chapter 13 plan.

43rd Questions About Mortgage & Bankruptcy And Answers By Attorney Chad Hayward

How Long After I Receive A Discharge Can I File Again?

Generally, you are only allowed to receive a discharge in Chapter 7 once every eight years. However, there is not such limit on Chapter 13 filings. In fact, theoretically you could file a Chapter 13 one minute, or even one second, after receiving your discharge in Chapter 7. At times I use the strategy of filing a Chapter 7 to eliminate the debt from a second mortgage, then turn around and file a chapter 13 to strip the second mortgage off of the residence without having to pay 10 percent of the mortgage. In the bankruptcy world we often refer to this as a Chapter 20 case which is a chapter 7 plus a Chapter 13. Moreover, someone may receive a discharge in a Chapter 7 or a Chapter 13 but find themselves needing reorganization to save a home, stop collections or reinstate a driver’s license. Under such circumstances, it is perfectly acceptable to file a Chapter 13 even though you are not eligible to receive a discharge.

One of my close friends from law school was having financial difficulty and could not make the required payments on his law school student loans. His student loans started to garnish his wages, so he sought my advice. He lived in another state, so I could not represent him, but I recommended that he file a Chapter 13. He did not think he could do this due to his previous Chapter 7 which was filed less than four years prior. I explained to him that he could use a Chapter 13 to reorganize his debt and provide for an affordable debt payment plan despite not qualifying for a discharge. He took my advice and soon taught the creditor’s attorney a lesson as he did not believe that my friend could file a Chapter 13 for the same reasons. My friend got his plan confirmed and prevented his student loan lender from garnishing his wages. If you have any foreclosure questions or bankrupcy questions please contact me or Gustan Cho using the contact form or the phone number below. We will be more than happy to help.

It is my goal that this information and my upcoming book that will soon to be published can help guide you through the filing of bankruptcy questions and help alleviate some of the stress you may be feeling during difficult financial times. I am certainly available to assist you if you feel that you need assistance with debt issues, whether it is foreclosure, collections, repossessions, suspended licenses or simply creditor harassment. Although no one ever wants to be in the position where they need to file bankruptcy, it is important to understand that it does not have to be scary or painful and further, that it is not the end of the world and you will recover. If you find that you could use my assistance within bankruptcy, please do not hesitate to contact me at 844.529.2423 or go to my website at

Thank You

Chad M. Hayward, Attorney At Law

Law Offices Of Chad M. Hayward

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