Chapter 13 Attorneys, Nassau & Suffolk Counties, Long Island
A Chapter 13 Case allows individuals with regular income to save their homes from foreclosure and to reorganize their debts.
Chapter 13 is a very effective type of bankruptcy case and is used by individuals in various situations to reorganize and reduce debt. A Chapter 13 bankruptcy case is often used by persons in foreclosure to stop the foreclosure process, including foreclosure sales, so as to cure mortgage arrears and other debt over a five (5) year Chapter 13 plan, or alternatively to seek a mortgage modification under a “loss mitigation” Chapter 13 plan, which incorporates the modification effort and potential agreement into Chapter 13 practice. Chapter 13 is also used by individuals who do not qualify for Chapter 7 relief because they have incomes that exceed the means test based on their household size. Chapter 13 is also used by individuals who have filed for Chapter 7 less than eight years ago and therefore cannot file again in Chapter 7, but could file under Chapter 13, which does not have the same kind of bar to repeat filings. Finally, Chapter 13 is used by debtors who have potential assets that would be potentially sold in Chapter 7, but would not cause the same issues in Chapter 13, where such assets would not be liquidated. Debt other than mortgage arrears, such as credit cards, is also cured under the Chapter 13 plan, often without interest and often according to a reduced pro rata percentage of principal.
- Initiating a Chapter 13 Case and the “Automatic Stay”
- The “Traditional” or “Catch-up” Chapter 13 Plan
- Loss Mitigation in a Chapter 13 Case
- A “Traditional”/ “Catch-up” Chapter 13 Plan Compared to a Loss Mitigation Chapter 13 Plan
- Chapter 13 Case Compared to a Chapter 7 Case
- A “Traditional” Chapter 13 Case Compared to a Mortgage Modification Negotiation
- A “Loss Mitigation” Chapter 13 Case Compared to a Mortgage Modification Negotiation
- Repeat Chapter 13’s
- Cram down” Motions to Reduce Second Mortgages
- Objections to Claims
- Student Loans in Chapter 13
- How Has Covid-19 Affected Chapter 13 Law and Practice?
- Concluding a Chapter 13 Case and the Bankruptcy “Discharge”
- The Potential Benefits of Chapter 13 and the Role of Our Law Office
Initiating a Chapter 13 Case and the “Automatic Stay” –
Because under a Chapter 13 case, monthly payments under a plan are intended to cure and reorganize all of the client’s debts, a client’s income and expenses must be carefully calculated for a monthly budget that must allow for payments to satisfy the monthly amount required under the Chapter 13 plan. Documentation for such income in terms of pay stubs, bank statements, and affidavits of contribution need to be obtained to demonstrate that the client can potentially sustain the payments required in the case. If the case is not the client’s first Chapter 13 bankruptcy case, the client may need to file an affidavit of changed circumstances and potentially file a motion to extend the stay past the initial 30 days of the case. The plan must account for the curing of a client’s mortgage arrears, car loan arrears, credit cards, taxes and student loans over a five (5) year plan that is binding on the client’s creditors. The filing of a Chapter 13 case will instantly cause an “automatic stay” to go into effect which will stop all creditor activity including imminent foreclosure sales or repossessions. However, while the Chapter 13 case allows a 5 year or 60 month period of time to catch-up on pre-petition mortgage arrears under a “traditional” plan (see below), the debtor is required to remain current with post-petition payments for secured debt such as mortgages and car loans. A secured creditor not getting regular post-petition payments, such as mortgage payments or car loan payments, can move for relief from the automatic stay, which in a Chapter 13 case would usually be contested, with the debtor seeking to quickly cure the post-petition amount in arrears.
The “Traditional” or “Catch-up” Chapter 13 Plan
The “traditional” or “catch-up” chapter 13 plan that has been available since the enactment of the modern Bankruptcy Code in 1978 is a plan where the client will on a monthly basis go back to making post-petition mortgage payments and, in addition, the client will make Chapter 13 plan payments on pre-petition mortgager arrears and debt to a court-appointed trustee. The combination of such payments will allow the client not to fall further behind in mortgage arrears while at the same time catching up and curing the pre-petition arrears that existed before the filing of the case. A budget, a Chapter 13 plan and bankruptcy schedules, as well as significant other documentation, need to be submitted to the Chapter 13 trustee and Bankruptcy Court as part of the process necessary to confirm the Chapter 13 plan. While secured debt, such as mortgage arrears, and priority debt, such as taxes, need to be paid in full over the plan, unsecured credit card debt could be paid at a percentage on the dollar. Plans that pay unsecured creditors in full, do not necessarily have to offer interest, and are more easily confirmed as “100% plans”, while plans that do not pay unsecured creditors in full are considered to be “percentage plans” and are usually more difficult to confirm.
Loss Mitigation in a Chapter 13 Case
In a Chapter 13 cases, often the debt that requires reorganization is a mortgage that is in arrears. One way of dealing with mortgage arrears is to offer a plan where the debtor will “catch up” or cure mortgage arrears under a traditional five (5) year plan. However, now that many foreclosures are based on arrears of many years, and therefore the arrears are very high, a “catch up” plan would not always work, since in some cases it would be too expensive on a monthly basis for many debtors to pay both the post-petition monthly mortgage payment directly to the Lender and a separate “catch-up” payment, designed to cure all debts and secured debt arrears, to a Chapter 13 Trustee. Therefore, in recent years seeking a mortgage loan modification, through Loss Mitigation programs adopted by most Bankruptcy Courts and Judges, has become a standard way to proceed for individual debtors in Chapter 13. Loss Mitigation is the pursuit of a mortgage modification by the debtor overseen and encouraged by the Bankruptcy Court so that the Court is able to pressure both the debtor’s and lender’s attorneys to coordinate over documents and information in order to determine if the debtor qualifies and should get a modification of their mortgage.
The sequence, in terms of seeking Loss Mitigation, is that the debtor in the initial part of the Chapter 13 case makes a motion in front of the Bankruptcy Court for Loss Mitigation where it tries to show that it has the financial ability to sustain a potential modification of the the defaulted mortgage loan, if a hypothetical modification was offered. The Lender’s attorneys have the right to oppose that motion and to try to show that the debtor would not be able to sustain a modification economically or that the Lender has otherwise already decided to deny the debtor for other factors. Assuming that the motion for Loss Mitigation is granted, the debtor and the lenders attorney’s are required to attend regular Loss Mitigation conferences to determine if the the efforts to obtain a modification are still viable. During this time, while applying for Loss Mitigation, the Chapter 13 debtor pays the hypothetical modification payment under the Chapter 13 plan to the Chapter 13 trustee to demonstrate an ability to pay the monthly estimated amount if the modification was approved.
If the the Loss Mitigation efforts are still viable, and have hope of a modification agreement being ultimately realized, the Bankruptcy Court will keep adjourning the Loss Mitigation conferences. But if the Loss Mitigation efforts look like they are failing, and if reapplication or appeal options on the modification are not realistic, the Bankruptcy Court will end Loss Mitigation and eventually ask the Chapter 13 Trustee overseeing the case to move for dismissal of the Chapter 13 case. On the other hand, if the opposite happens and the Loss Mitigation efforts result in a trial modification that the debtor accepts and pays regularly directly to the Lender, from anywhere from three (3) months to a year, the Lender will eventually offer the debtor a permanent modification agreement. Assuming the debtor wishes to accept the permanent modification agreement, it is subject to Bankruptcy Court approval, after a motion to the Court. Once the permanent modification agreement is approved by the Court, the loan modification may be part of an overall Chapter 13 Plan under which the debtor can now seek to reorganize all of their debts and needs to be confirmed by the Court. Although the confirmed Chapter 13 plan only lasts five (5) years, and mortgage modifications are usually from thirty (30) to forty (40) years in duration, the modification will continue past the five (5) year Chapter 13 plan, with the majority of the modification continuing past the end of the Chapter 13 plan.
A “Traditional”/ “Catch-up” Chapter 13 Plan Compared to a “Loss Mitigation” Chapter 13 Plan
In addition to the “traditional”/”catch-up” plan that has always been part of Chapter 13 practice, more recently Bankruptcy Courts through local bankruptcy court rules and specific bankruptcy judge’s rules have allowed “loss mitigation” Chapter 13 plans where the debtor is seeking to modify their mortgage. These “loss mitigation” plans became necessary because many Chapter 13 filers had mortgage arrears that accumulated over many years and were now too high to be practically cured over a 5 year plan. A much longer, 40 year modification, was necessary to save such a distressed mortgages and a “loss mitigation” Chapter 13 plan which allowed for the debtor to resolve their mortgage arrears by seeking a mortgage loan modification became a new practice that most bankruptcy courts would now allow. The differences between the “traditional” plan and the “loss mitigation” plan are stark in that the traditional plan is more expensive but generally safer in that it requires two (2) payments: the catch-up payment to the trustee, which cures mortgage arrears and debts over a maximum of 5 years or 60 months and the regular monthly post-petition mortgage payment to the lender. The combination of the two payments if made over the 5 year life of the plan is more expensive in a traditional plan but also gives the debtor more assurance of being able to resolve their mortgage issues, since the success of such a plan depends on payments and not approval of a modification. By contrast, the “loss mitigation” plan is less expensive in terms of regular payments but also not “guaranteed” in that it depends on the lender approving the debtor’s modification application. During a loss mitigation case the debtor’s attorney has to first make a “loss mitigation” motion which is served on the lender and trustee and heard by the court, to first determine if the debtor should be given the opportunity, based on their finances, to seek a modification. The debtor needs to make one (1) monthly payment in a loss mitigation plan which is calculated to approximate the ultimate payment that a 40 year loan modification would require after amortizing the payoff amount owed to the lender over a new 40 year amortization loan schedule at the low prevailing floor interest rate for modifications. The debtor’s counsel needs to attend regular status conferences on the loss mitigation effort where the court determines whether to allow continued modification efforts or whether to terminate such efforts if they appear to be futile. The advantage of the loss mitigation hearings before the bankruptcy court is that the lender usually is more amenable to a modification given that it needs to justify its decisions to a bankruptcy judge and is therefore is generally more responsive to the modification effort.
A Chapter 13 Case Compared to a Chapter 7 Case –
A Chapter 13 does not usually expose the debtor to the same risks, in terms of potential asset or income issues, as a Chapter 7 case. A Chapter 13 requires some level of repayment or cure over a 5 year plan, while Chapter 7 simply eliminates the debt, Chapter 7 is not available to many debtors. If a debtor potentially has income that exceeds the means test, or assets or transfers that may be potentially be pursued by a Chapter 7 trustee, the client may often need to or prefer to file under Chapter 13. While a Chapter 13 case, if successful, Chapter 13 usually lasts 5 years; a Chapter 7 case is quicker (it takes 3 1/2 months to complete most cases), but Chapter 7 case has more risks in terms of eligibility and potential problems. Chapter 13’s main risk is whether the debtor can sustain the plan payments in order to pay their debt in 5 years.
A “Traditional” Chapter 13 Case Compared to a Mortgage Modification Negotiation
A mortgage modification negotiation seeks to lower a client’s monthly payment, restructure the mortgage, and spread mortgage arrears over the term of a restructured, longer mortgage loan, with advantageous terms: a longer term (often up to 40 years) and a lower interest and a possible deferment of some arrears. While a modification seeks goals, that if obtained exceed the goals in a “traditional” Chapter 13 case, modifications are not always obtainable because they are voluntary. Some lenders are difficult to negotiate with and some repeatedly deny a homeowner a modification or take a positions that make it much more difficult to engage in modification negotiations. By contrast the 5 year “traditional” Chapter 13 plan is imposed on the lender, who has no choice with accepting regular post-petition mortgage payments, as long as the debtor continues to stay current in Chapter 13 by paying both the lender, with post-petition mortgage payments, and the Chapter 13 trustee, with monthly payments due under the Chapter 13 plan that are calculated to cure all arrears over the 60 month plan.
A “Loss Mitigation” Chapter 13 Case Compared to a Mortgage Modification Negotiation
A “loss mitigation” chapter 13 plan is similar to a mortgage modification negotiation in that both seek a modification, but the “loss mitigation” chapter 13 plan does it inside a chapter 13 case, where there are some advantages and disadvantages for the debtor. The advantages in a Chapter 13 “loss mitigation” case is the protection of the bankruptcy stay, “loss mitigation” hearings, the oversight by the bankruptcy court and the opportunity by the debtor to demonstrate its ability to sustain a modification with its regular monthly trustee payments. These advantages add formality, process, verification, safety and supervision to the modification process which can be helpful in advanced foreclosure matters on the edge of a foreclosure sale where the debtor has tried and failed to get a modification. However, in simpler or less risky situations, where the foreclosure case is not so advanced, and where direct modification negotiations appear to be feasible and sustainable, the direct modification negotiation effort without the super-structure of a Chapter 13 case with its additional administrative requirements and payment requirements, can be preferable.
Repeat Chapter 13’s
If you have had two (2) or more chapter 13 cases pending before the Bankruptcy Court in the last year a Chapter 13 case may not be able to stay a foreclosure sale against your property. To obtain a stay in such situation (of two or more pending bankruptcies in the last year) you will need to retain a bankruptcy attorney to quickly move by Emergency Order to Show Cause in front of the Bankruptcy Court and demonstrate strong financial “changes in circumstances” that positively affect your chances of success in another Chapter 13 case. However, if you have had only one (1) chapter 13 case pending within the last year or a chapter 7 case pending within the last year, it is possible to file another chapter 13 case, as long as you have a verifiable “change in circumstances” or an increase in income necessary to sustain the case. Where the one (1) previous case was a chapter 13 case, a motion, proving the change in circumstances, is necessary to be made and granted within 30 days after the bankruptcy filing to extend the stay.
“Cram down” Motions to Reduce Second Mortgages
Secondary loan “cram downs” (or “strip downs”) are a possibility in Chapter 13. If you have a secondary mortgage or home equity loan which is totally unsecured, in a Chapter 13 case it can be deemed to be an unsecured debt and paid at a vastly reduced amount. To accomplish this we need to file a motion in the Chapter 13 case and show the Court the complete lack of equity in the property to support the secondary mortgage. Assuming the motion is granted, the client needs to stay in Chapter 13 for the full duration of the plan for this form of relief to have permanent effect. If you believe you quality for such a motion and believe that you can stay long term in your Chapter 13 case until its completion, than a secondary loan cram down is potentially a powerful method of reorganization and should be discussed with us.
Objections to Claims
Amounts listed in a Chapter 13 plan need to be based on the proofs of claim filed by the debtor’s creditors. To the extent that a creditor files a proof of claim that significantly exceeds the amount scheduled by the debtor, and the debtor disagrees with such amount and has proof that such amount is incorrect, an objection to the claim can be filed, which if successful would reduce or completely expunge the claim.
Student Loans in Chapter 13
Because a Chapter 13 plan can potentially allow a client to pay only a relatively small percentage of their unsecured debt, student loans which are not dischargeable in bankruptcy, can at least have relief in the form of a reduced payment for the 5 years of the plan. Although this debt, unlike virtually all other debts, would still be owed in terms of the portion of the debt that was not paid under the 5 year plan, the client if they can not negotiate a better deal, can refile another Chapter 13 case after concluding the initial case. Thus, a client, through successive Chapter 13 cases, may potentially obtain a long term ability to stretch out and slowly pay down an overwhelmingly large student loan.
How Has Covid-19 Affected Chapter 13 Law and Practice?
The Coronavirus Aid, Relief and Economic Security (“CARES”) Act which was passed in by the United States Congress in the early part of the 2020 Coronavirus pandemic and signed into law by the President, on March 27, 2020, included not only emergency assistance to families and businesses affected by the pandemic but also some substantive changes to the Bankruptcy Laws, as follows:
CHAPTER 13 and COVID-19 – The Cares Act has allowed a confirmed chapter 13 plan can be extended by up to 2 years based on Covid-19 related hardships. Effectively the extension of a chapter 13 plan from 5years (60 months) to up to 7 years (84 months) allows a debtor’s payments to be effectively lowered on a monthly basis and greater flexibility during periods of Increased financial hardship for the debtor.
Concluding a Chapter 13 Case and the Bankruptcy “Discharge”
At the end of the Chapter 13 plan which is usually five (5) years or sixty months (60) in duration, but can be paid earlier, the client’s debt is usually “discharged” or legally forgiven. Prior to the issuance of the discharge order the Chapter 13 trustee needs to acknowledge that the debt was paid in full pursuant to the terms of the plan and that all recognized claims in the case were paid. The client needs to do the 2nd round of credit counseling, which needs to be filed prior to obtaining a discharge order. Most Chapter 13 cases are highly effective in giving clients an opportunity to reorganize and reduce debt over a protracted time while being protected from their creditors.
The Potential Benefits of Chapter 13 and the Role of Our Law Office
The Law Office of Ronald D. Weiss, P.C. regularly represents its clients before the United States Bankruptcy Court in Chapter 13 cases, including in the filing and amending of numerous documents and the plan needed to proceed in Chapter 13. The Law Office of Ronald D. Weiss, P.C. represents Chapter 13 bankruptcy clients in the Eastern District of New York (which has jurisdiction over Suffolk County, Nassau County, Queens County, Brooklyn, and Staten Island, NY) and in the Southern District of New York (which has jurisdiction over Manhattan, Bronx and Westchester County, NY). Chapter 13 cases, like other types of bankruptcy cases can effectively help a client deal with its debt, however, a Chapter 13 case can be complex, and to effectively proceed in a Chapter 13 case an individual should be represented by an experienced bankruptcy attorney. The Law Office of Ronald D. Weiss, P.C. can discuss and advise you about Chapter 13 bankruptcy and how and whether it can help your particular circumstances.
A Chapter 13 reorganization is an involved and potentially lengthy bankruptcy case and requires special knowledge and expertise. The Law Office of Ronald D. Weiss, P.C. regularly represents its Long Island and New York clients in Chapter 13 cases before the United States Bankruptcy Court and can review with you issues relevant to a potential Chapter 13 case.
Our consultations are free, the advice may be invaluable.
Please call us at (631) 271-3737, or e-mail us at firstname.lastname@example.org for a free consultation with an attorney, at our Melville, Long Island law office to discuss Chapter 13 bankruptcy options in greater detail.