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Chapter 7 - How Chapter 7 Works, Overview of Lien Stripping After Chapter 7.Lien Stripping After Filing A Chapter 7 Bankruptcy & Chapter 20(California exempt assets- click here) |
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How You Can Strip a Second Lien After Filing A Chapter 7 Bankruptcy? Many Attorneys Call This a Chapter 20.First, I want to point out all cases are not created equal. This article applies to most bankruptcy filings however, there are always circumstances that may make your case different from the norm. That is why it is so important you have an attorney who fully understands the bankruptcy code. Chapter 7 is complex but a Chapter 13 is even more so. What is called a Chapter 20 is a Chapter 7 filed first then after that case has completed, then a Chapter 13 is filed to take care of issues that could not be taken care under the Chapter 7. Most of the time, this involves lien stripping. The bankruptcy code allows you to file a subsequent Chapter 13 even a day after the discharge order of the Chapter 7.Possible Bad Faith Problem:One of the problems this might bring up is a “bad faith” issue. As long as the Chapter 13 plan is proposed in good faith, your goal of stripping the lien can work. Even though the bankruptcy court or the trustee may scrutinize the Chapter 20, again, as long as it is accomplished in good faith, the law is on your side.After the discharge order of Chapter 7, you still must qualify for Chapter 13!
So in order to have a successful “so-called” Chapter 20 (which again is a Chapter 7 followed by a Chapter 13). You still must first qualify for a Chapter 13 after the Chapter 7 discharge order is entered and secondly, the relief you request must qualify to have the lien stripped. The good news is most will meet the legal requirement after filing Chapter 7. If the lien is unsecured you are heading in the right direction.
Why Wouldn’t I Just File A Chapter 13 In The First Place?This is a fair question. There can be many good reasons. Here are a just a few:
1. Some may not qualify for Chapter 13 because they owe too much in unsecured debt, so filing a Chapter 7 to get rid of the debt would allow the person to file Chapter 13 after the discharge.
2. Some also may not qualify due to too many secured assets. In other words, they are over the debt limit of a Chapter 13 and the Chapter 7 will reduce it to a level that is allowable.
3. Chapter 7 offers debtors some relief that may be more beneficial to the debtor.
4. Your income may not be enough to file a Chapter 13, but after the Chapter 7, it may be.
5. Your house value has decreased and the lien is no longer secured and can now be stripped. Can I Strip My First Mortgage or Do a “Cram” down? At this time the answer is NO. Lien stripping only applies to seconds or what may be called junior mortgages on the personal residence.
What Are Some Of The Requirements? In order to strip a second or a junior lien (mortgage) the lien must be totally unsecured. What this means is that amount you owe on the first mortgage is more than the value of the lien.
Example: On the first mortgage, you owe $300,000 and the current market value at the time of filing the Chapter 13 is $275,000, this means you owe more than what is worth. Thus the second or any other junior liens would be worthless.
Are There Any Other Bad Faith Problems? What the creditors may try to show is that you filed one way (Chapter 7) to take advantage of the discharge of all of your unsecured debts then now you want to reduce your debt load by stripping the second.
However, lets say you didn’t qualify for Chapter 13 to start off but after your Chapter 7, you do. This may not be considered as acting in bad faith. Many times this is very slight.
Let’s say even after the Chapter 7 you still don’t have enough money to pay your bills due to the lien remaining in effect and you have made a good faith effort. The court might no consider your action as a good faith one.
Since good faith can only be determined by the totality of circumstances, the courts have developed a list of factors to consider: Some or all of the factors the court will consider when looking at the totality of the circumstances. One item alone normally does not produce a bad faith action but a combination of facts can. In some cases you may only need a couple or you could have some parts of all of these and still the court may find good faith on the debtor. (See Pioneer Bank v. Rasmussen (In re Rasmussen), 888 F.2d 703, 704 (10th Cir. 1989)); In re Cushman, 217 B.R. 470, 475-76 (Bankr. E.D. Va. 1998).
Hear are some areas the court may look at. There are general areas of concerns: A non-exclusive list of factors includes:
1. The proximity in time of the Chapter 13 filing to the Chapter 7 filing.
2. The percentage of proposed repayment.
3. The debtor's past bankruptcy filings.
4. The debtor's honesty in representing facts.
5. Any unusual or exceptional problems facing the debtor.
6. The nature and amount of unsecured claims.
7. Whether a major portion of the claims sought to be discharged arises out of re-petition fraud or other wrongful conduct and the debtor proposes only minimal repayment of those claims.
8. Whether, despite the most egregious pre-filing conduct, the plan represents a good faith effort to satisfy creditors’ claims.
9. Whether the debtor has incurred some change in circumstances between the filings that suggests a second filing was appropriate and that the debtor will be able to comply with the terms of a Chapter 13 plan.
10. Whether the two filings accomplish a result that is not permitted in either Chapter standing alone.
11. Whether the two filings are an attempt to manipulate the bankruptcy system or are an abuse of the purpose and spirit of the Bankruptcy Code.
Will I Have To Make Payments if the Junior Lien is Stripped? Right now, most courts would say no you don’t. The reason for this is that the debt has already been discharged. In other words, the debt stripped is void.
How Long Does My Chapter 13 Plan Last? In order to get a discharge in a Chapter 13, the plan must end after the four years of discharge of a Chapter 7. Do I have to wait until after four years to be safe for my lien to be discharged? Probably not, since the lien is no longer secured and the debt was discharged in the Chapter 7, you are no longer personally responsible for the debt. This also applies when the plan lasts less than three years. Another point I want to make is that there currently is no provision of the Bankruptcy Code that requires the lien strip to be discharged under a Chapter 13.
There are many more bankruptcy issues I am more that happy to discuss with you after reviewing your pre-bankruptcy documents. This is one reason we do a pre-bankruptcy review to determine what your best options are and then present them to you for your discussion.
Bankruptcy is complex and my goal is to provide my clients with their best debt relief options as the code will allow and at a reasonable price.
Author: Attorney David A. Casey Copyright ©2010 by Attorney David A. Casey
San Diego CA. Bankruptcy Chapter 7. Free Bankruptcy Consultation. Looking to file a Chapter 7 bankruptcy. Not sure if you qualify for a Chapter 7. Free bankruptcy consultation & Pre-filing Bankruptcy. San Diego, CA 619 447-6780 Chapter 7 San Diego. Bankruptcy Code provides for liquidation & discharge debtor's debts and nonexempt property. Exempt property you can keep. San Diego, Chapter 20 |
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San Diego Bankruptcy, Lien Stripping, Chapter 7 San Diego, Chapter 20 Free Chapter 7 & Chapter 13 consultation just minutes away from San Diego, CA |
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