North Carolina Housing Coalition Bankruptcy Basics for Housing Counselors presented by: Hon. Catherine R. Aron, U.S. Bankruptcy Judge for the Middle District of N.C. John F. Logan, Standing Chapter 13 Trustee, E.D.N.C., Raleigh Division Edward Boltz, National Assoc. of Consumer Bankruptcy Attorneys, Durham N.C.

What is Bankruptcy? An excellent, affordable tool (one of many) to fix financial problems. Good debtor’s attorneys will help the debtor consider options other than filing bankruptcy and help the debtor make the choice which is right for them. A court of equity – doing (and requiring) what is fair and reasonable. Highly organized, regulated, and overseen from all angles by judges, trustees (neutral administrators), and attorneys for both debtor and creditors.

Overview of types of bankruptcy: Chapter 11: business reorganization; Chapter 12: family farmer reorganization; Chapter 7: liquidation (for all; individual debtors keep only property exempt under state law); or Chapter 13: individual reorganization (the focus of this seminar session) – most often used to save houses, vehicles, and to get unpaid unsecured debt discharged.

What is Required of the Chapter 13 Bankruptcy Debtor Must list all creditors and disclose all financial details (required of debtors in all chapters of bankruptcy); Regular Income (many things can qualify); Plan must be Feasible (something debtor realistically can do – bankruptcy is not a magic wand). This requires planning, wise choices, difficult decisions and lifestyle changes, and distinguishing between wants and needs; Must make payments every month to chapter 13 trustee;

What is Required of the Chapter 13 Bankruptcy Debtor (continued) Domestic Support Obligations (alimony & child support); can catch up arrearages during plan (must be completely current at end to get discharge); Must stay current with all obligations post-petition; payroll deduction can continue; and Stay current with filing tax returns and paying taxes when due after filing; Debtors’ Financial Management Education Course.

Costs of Filing Bankruptcy Filing Fees to the Banklruptcy Court : Amount: – Ch. 13: $ – Ch. 7: $ Alternatives: – In Forma Pauperis – Installments

Costs of Filing Bankruptcy – Attorneys’ Fees: Initial Consultations: Often no or minimal charge for straight-forward cases Up-front fees Chapter 13: » Usually between $ $ in advance, but can be more or less; remainder paid through plan as part of monthly plan payment to chapter 13 trustee. » Presumptive fees are set by the Courts: EDNC: $3, MDNC: $3, WDNC: $3,250.00

How to find an Attorney: Let your client know how to find a local attorney who is experienced in the practice of consumer bankruptcy law, and encourage them to act soon. (Financial problems are like problems with children – the older they get, the bigger they get.) If your client is planning to meet with a bankruptcy attorney, encourage them to meet with more than one and to get more than one opinion; this is very wise, particularly since initial consultations are usually done without charge. Let your client know that the bankruptcy option may be more affordable than they think – upfront fees are not very high and most of the fees can be paid over time in chapter 13.

How to find an Attorney: – The North Carolina Bar Find A Legal Specialist – North Carolina Bar Association Find-A-Lawyer – The American Board of Certification – The National Association of Consumer Bankruptcy Attorneys (NACBA) Attorney Finder – The National Association of Consumer Advocates (NACA)

Filing without an Attorney (known as Pro Se): – Dangers, Pitfalls, and Mine fields (cases seldom succeed – bankruptcy law, particularly chapter 13, has become very complicated), and – Much harder for an attorney to later fix the case.

How Can Bankruptcy Help Your Clients?

The Automatic Stay Benefits of the Automatic Stay; – Stops Foreclosure, Repossession, and Eviction; – Continuance of such actions only with permission of the bankruptcy court; and, – Allows debtor breathing space to plan and make wise, well-considered choices.

Benefits of the Co-Debtor Stay Stops collection or other action against others obligated with debtor on consumer debts (e.g. guaranty of debt to purchase a car) as long as the debtors plan provides to pay the debtor in full.

Surrender of Collateral & Rejection or Assumption of Leases: – Delays of Foreclosure, Repossession and Eviction – Allows for Homeowner to remain in the property for several months to save for relocation costs and rental deposits – Allows for Homeowner to break lease without further obligation – Allows for Homeowner to discharge any mortgage deficiency

Cure of Mortgage Delinquencies: – Allows mortgage arrearage to be repaid over a period of up to 60 months; – Allows lease arrearages to be cured in 12 – 18 months; – Allows debtor’s attorney, Chapter 13 Trustee and bankruptcy court to review and contest alleged mortgage arrearage; and – RESPA Qualified Written Requests coupled with Motions to Declare Mortgage Current allow the Homeowner to emerge from bankruptcy with a clear and clean mortgage history and balance.

Sale of Property: – Bankruptcy allows the sale of property at a more controlled pace than foreclosure, hopefully resulting in a higher sales price that maximizes equity for the homeowner. – The Homeowner can keep up to $35, per person ($60, for some homeowners over 65- years old) of equity after payment of mortgages and tax liens.

Modification of Mortgages: – Mobile Homes: Liens against Mobile homes that are not attached to land owned by the homeowner can often re-written in bankruptcy to pay what the mobile home is worth, usually substantially less than what is owed. This is also often possible even where there is land as collateral;

Modification of Mortgages: (continued) – Lien Stripping of Junior Mortgages: 2 nd or 3 rd mortgages can often be eliminated in Chapter 13, if the property is worth less than what is owed on the 1 st mortgage. – Example: If the house is worth $100,000, but the balance owed on the 1 st mortgage is $120,000, the Homeowner can eliminate the 2 nd (and even 3 rd ) mortgage.

Modification of Mortgages: (continued) – Mortgage with Additional Collateral: If the mortgage is secured by liens against property in addition to just the Homeowner’s principal residence, the terms of that mortgage can often be modified.

Modification of Mortgages: (continued) HAMP Modifications: As of June 1, 2010, mortgage servicers, pursuant to Treasury Directive 10-02, “must consider borrowers in active bankruptcy for HAMP if a request is received from the borrower, borrower’s counsel, or bankruptcy trustee.” This puts homeowners that file bankruptcy in the same position for voluntary modifications as those outside of bankruptcy.

Impact on Entire Financial Situation: By reorganizing their other debts, homeowners are often able to afford their mortgage payments.

Impact on Entire Financial Situation: (continued) Secured Debts: In addition to surrendering property, debtors can reduce their payments on vehicles and other secured debts, by lowering the interest rate, stretching the payments out over up to 60-months, and occasionally reducing the amount owed on secured claims.

Impact on Entire Financial Situation: (continued) Tax Debts: Debtors can repay tax debts in bankruptcy on terms that are usually far better that outside of bankruptcy, discharging some (older) tax debt completely, and avoiding further interest and penalties for others.

Impact on Entire Financial Situation: (continued) Unsecured Debts: Homeowners who complete their plans and receive a discharge are usually able to eliminate unpaid unsecured debts (e.g., credit cards, medical bills, personal and payday loans, etc.). Some debtors pay a small dividend over the course of their Chapter 13 plan, others pay nothing, depending upon the facts in each case.

Impact on Entire Financial Situation: (continued) What’s at the End of the Rainbow? – Bankruptcy Discharge A Fresh Start for the Honest but Unfortunate Debtor.

How and When Can Housing Counselors Help? Steer your clients to local opportunities and internet resources (see the list attached to the outline) for education about how to handle their finances wisely so they can learn to live within their means. Refer your clients to other community services (whether government supported of church-based) (e.g.: GED programs, public health or mental health services – particularly for mental health, physical health, or substance abuse problems); If you don’t know what’s available in your community, go find out.

How and When Can Housing Counselors Help? (continued) Ask questions which will help determine whether the filing of a bankruptcy petition might help them (knowing that even if they do go to a bankruptcy attorney, the filing of a bankruptcy may be not be the end result):

How and When Can Housing Counselors Help? (continued) Is there a foreclosure pending? If so, has the initial hearing already been held, or has a sale date been set, or has the sale already happened? If the sale has already happened, fast action is critical… to save the house a bankruptcy petition must be filed within 10 days’ after the sale.

How and When Can Housing Counselors Help? (continued) Have you talked to your mortgage lender about whether you might qualify for modification of your mortgage loan? Is a foreclosure continuing to go forward, despite the requested modification?

How and When Can Housing Counselors Help? (continued) Do you (or if a married couple, at least one of you) have regular income (remember even unemployment compensation may suffice in the short term)? Do you have equity in your house you would like to protect?

How and When Can Housing Counselors Help? (continued) Considering all loans secured on your house, is your house worth less than what you owe on it? If a 2 nd mortgage could be eliminated, would this help?

How and When Can Housing Counselors Help? (continued) If you could get some breathing space from creditors pursuing you, would you be willing to make lifestyle changes, difficult as they might be, if it meant you could learn how to live within your means? Are you in a lease you cannot afford and, if you were able to get out of that lease without owing anything on it, do you have other, less expensive housing options?

How and When Can Housing Counselors Help? (continued) If you could get rid of your unsecured debt, would you then be able to cover your everyday living expenses and pay your monthly housing costs going forward? Give your clients HOPE. Let them know that if they are willing to commit themselves to what they must do, and if they seek and follow the advice of experienced professionals, they can make positive, permanent changes and they can succeed.

How Housing Counselors can help the Bankruptcy Courts: Willie Sutton once was asked why he robbed banks and answered “Because that’s where the money is.” Why should housing counselors get involved with the bankruptcy courts? Because that’s where broke people are.

How Housing Counselors can help the Bankruptcy Courts: Let Consumer Debtor’s Attorneys know about housing programs Let Chapter 13 Trustees know about housing programs Let the Bankruptcy Courts know about housing programs