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Statement of intention chapter 7

Statement of intention for chapter 7

Every Chapter 7 liquidation bankruptcy has a statement of intention that must be filled out.  The statement of intent applies only to secured debts.  For example a mortgage, a car payment, or even furniture purchased on store credit.  The basic premise of any secured debt is that if a debtor wants to keep the asset he or she must continue to pay for it; otherwise the collateral (home, car, or furniture) must be surrendered.

The terminology under the bankruptcy code can seem very religious at times and often hard to understand.  For example, suppose you purchased a Kia Soul from Satan Motors and then filed for bankruptcy.  You essentially have three choices in regards to your Soul.  You can: (1) Surrender your Soul to Satan Motors, (2) Reaffirm your Soul with Satan Motors, or (3) Redeem your Soul.  All jokes aside, these three terms: (1) Surrender; (2) Reaffirm; and (3) Redeem are the main choices on any statement of intent.   So let’s dive in and go through what all three terms actually mean in regards to your bankruptcy.

Surrender is the simplest to understand.  Upon completion of your bankruptcy you intend to return the collateral that you no longer want or can no longer afford.  The secured lender will make arrangements to pick up the vehicle or furniture.  In the case of real estate, the lender will proceed with foreclosure proceedings under California law.  However, under no circumstances will you be liable for any kind of deficiency post bankruptcy on any items that you surrendered.

Reaffirmation or as they are otherwise known as reaffirmation agreements allow the debtor to make a new contract with the secured lender.  By signing the reaffirmation agreement the debtor agrees to continue to pay the secured lender at the agreed terms and the lender promises not to take the collateral post bankruptcy.  The upside to the debtor is that this new debt will help rebuild his or her credit post bankruptcy and sometimes allow for the negotiation of even interest or even principal reduction.  The downside is that the debtor has a new debt post bankruptcy and in the event of a post bankruptcy default is still liable for the debt regardless of the bankruptcy.  And in the case of vehicle repossession the debtor would be liable for any deficiency if the lender sells the vehicle at auction for less than what is owed on the note.

Redemption allows the debtor to buy the collateral in question for fair market value and own the collateral free and clear.  Redemption can only be applied consumer debts for personal and household use.  Real estate and business items cannot be redeemed.  Redemption is effective when you owe substantially more than your collateral is worth.  However, the biggest down side of redemption is the lump sum requirement.  Despite the large savings that are possible with redemption, few debtors have the necessary cash to buy their collateral at fair market value.  But those who are fortunate enough to have it or are able to borrow it from a friend or family member the reward is well worth it.  Recently, commercial banks, granted at high interest rates have also gotten into the redemption business.  For example at a commercial bank will provide the funds necessary to pay for redemption but will now be in the new secured lender post bankruptcy.  Even with their high rates, the reduction in the principal balance might still be worth it.

Regardless of what choice you make on the statement of intent it always recommended to sit down with a competent bankruptcy attorney and to weigh the pros and cons of how to handle each secured debt you may have, because the simple choice of surrender, reaffirm, and redeem can have long lasting consequence well beyond the bankruptcy case.

Bankruptcy Exemptions

Every bankruptcy exemptions petition has three key elements: income, assets, and debts.  The amount and the type of income, assets, and debts will dictate in which direction any given case will go.  Today we are going to focus on assets and more importantly debunking the myth that a debtor who files for bankruptcy will lose all of his or her assets.

One of the main purposes of bankruptcy is to provide a debtor in bankruptcy a fresh start upon exiting bankruptcy with a discharge.  Therefore, leaving someone with no assets would derail that purpose.  Thus each state in America has either accepted the federal exemptions or have crafted their own.  Exemptions are the items you get to keep and cannot be sold to satisfy a creditor’s claim.

The state of California has chosen to create its own set of exemptions and created two separate schemes which a debtor can use to protect his or her assets when filing.  The schemes are codified as §703 and §704 relating to the California Code of Civil Procedure.

The major difference in the exemption sets is whether or not the debtor has any equity in their primary residence.  Under §704 a single debtor can protect $75,000 of equity, a married debtor or a debtor with dependents can protect $100,000 and last lastly a debtor over the age of 65, or a low income debtor over the age of 55, or a disabled debtor of any age can protect $175,000.00 of home equity.  However, when a debtor elects the homestead exemption he or she is limited to a $2,900 automobile exemption and not much of anything else.  In contrast, §703 exemptions provide for a $26,925.00 wild card exemption (meaning anything you want) and a $5,100.00 vehicle exemption.  So for a debtor without any equity in a home, he or she can essentially protect over $32,000 worth assets.  For a majority of debtors that is more than sufficient to protect all of their assets.  Also keep in mind that both sets of exemptions likewise have a modest protection for household goods, bank accounts, tools of the trade, personal injury, social security funds, and workers compensation claims.

However, all debtors must understand that only the net equity in any given asset must be protected.  Therefore if you have a mortgage payment, a car payment, or any other type of secured debt, the amount you owe on the debt must first be subtracted and the transactional cost of sale must be computed to figure out the actual amount that needs to be exempted (protected).  In other words your creditors aren’t always interested in taking your home or car.  The attorneys at OneDayBK are well versed in not only California Exemptions but can help you pick the correct exemption set to maximize the assets that we can protect.  And if you are considering filing and you are over on assets do not panic.  The amount of your unexempt assets can always be paid back to your creditors to allow you keep 100% of your assets whether you do it under Chapter 13 or Chapter 7 without having to surrender anything.

Lien Stripping for Chapter 13

One of the most powerful tools available to consumers under Chapter 13 bankruptcy is the ability to lien strip a junior mortgage off their property.  In order to lien strip a junior mortgage the lien must be “wholly unsecured”.  The best way to explain what a wholly unsecured mortgage is by example.  Let’s say you have a home valued at $200,000 with a $300,000 first mortgage and a $100,000 second mortgage.  In this example the second mortgage is completely under secured because the home is worth less than you owe on the first mortgage.  In other words, if your home was foreclosed at auction no monies would be available to the second mortgage, because the first mortgage is greater than the value of the home.

So what exactly happens to your junior mortgage during a Chapter 13?  The mortgage because it has no equity to which to attach to is treated no differently than a credit card or any other unsecured debt.  Then upon completion of your Chapter 13 plan the lender will send a full reconveyance releasing the lien on your property.

If we recall that during the housing boom prices on real estate grew at astronomical rates and banks were lending money and handing out junior mortgages for thousands and hundreds of thousands of dollars based purely on the high value of the borrower’s property.  Once the housing market bubble popped, real estate values fell at unprecedented rates opening up the window to lien stripping.  However, since 2012 prices on real estate have again began to grow but not nearly at the rate seen during the housing boom.  Nevertheless, as property values slowly recover the lien stripping door may soon be closing.

Keep in mind that most mortgages take thirty years to pay back and with interest the amount paid back can easily be triple the original obligation.  The biggest mistakes most consumer and my clients make is waiting too long.  Waiting too long in this case may end up costing you hundreds of thousands dollars and up to thirty years of payments.  So don’t delay and call OneDayBK to get your lien stripped off today before it’s too late.

Automatic Stay

One of the most powerful provisions in the bankruptcy code is the automatic stay.  Prior to declaring for bankruptcy, creditors or collection agencies will continually contact the debtor until the balances are collected.  Besides collection letters in the mail and non-stop harassing phone calls, secured creditors are able repossesses automobiles and finalize the foreclosure of real property.  Likewise, a judgment creditor can garnish up to 25% of net wages from each paycheck, levy bank accounts which freezes the assets until the debts are paid, and even order that a sheriff collect the daily proceeds from a store front if the debtor is a business owner.

Once a bankruptcy has been filed, there is a powerful all encompassing injunction called an automatic stay.  This is a provision that is afforded to the debtor which stops all actions by creditors under penalty of legal action. Even the taxing agencies such as the Franchise Tax Board and the Internal Revenue Service must stop.  This stay becomes a permanent stay after the debt is discharged by the bankruptcy court, which is why it is so necessary to list all debts and assets in the bankruptcy petition.  Otherwise, once the process is over, the debts that have not been discharged can still be collected by creditors.

The automatic stay stops all collection calls, letters, garnishments, levies, and all foreclosure actions even if the case is filed just minutes from the foreclosure sale.  Under Chapter 13, a debtor is even able to recover an automobile that has been repossessed as long as the bankruptcy is filed prior to the auction of the car, which occurs two weeks after the car is repossessed.

There are of course certain debts that are not affected by the automatic stay.  Domestic support creditors such as child support and alimony.  Evictions, but only if the landlord got a court to approve the eviction (called a judgment for possession) before the tenant filed for bankruptcy.  Lastly, criminal cases will proceed in spite of a bankruptcy filing.

Finally, a creditor can petition the court for relief from the automatic stay if the debt involves a secured asset such as car or house payment and the debtor has failed to make monthly payments, failed to abide by their Chapter 13 plan of reorganization, or and property has no equity under a Chapter 7 liquidation.  The stay can also be limited in its effect if multiple bankruptcies are filed within a twelve month period.  A second case in twelve months receives only a 30 day stay, and no automatic stay is afforded in a third case in twelve months.  Competent counsel of course can file a motion to extended the automatic stay under Chapter 13 in these circumstances but only if good cause can be shown as to why the case will be successful this time around.

Bankruptcy Abuse Prevention and Consumer Protection Act

October 17, 2013 marks the eight year anniversary of the passage and implementation of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).    The law marked a dramatic change in how bankruptcies are filed.  As a result consumers seeking bankruptcy relief saw increases in the obstacles, barriers, and burdens in filing for bankruptcy which ultimately trickled down debtors’ attorneys who had no choice but to raise the costs of filing for bankruptcy.

Prior to the passage of the law, over 2 million bankruptcies were filed in 2005.  It was also the highest percentage of consumer filings in relation to total filings.  Bankruptcy filings have likewise seen a steady decline over the last two years, hitting the lowest numbers in fifteen years.

Many of those consumers who lined up in the days leading to October 17, 2005 to file under the new law have once again taken on debt and are struggling with creditor calls.  After the major filing spree, the economy took a major slide during the Great Recession of 2008.  Many consumers lost their jobs, homes, and took on a lot of debt in order to get by.  A long with job loss came the loss of health insurance which for some meant astronomical medical bills.

Many consumers do not realize what length of time that must pass before one can file for bankruptcy again.  The 2005 law states that eight years must pass between two Chapter 7 filings.  Only four years has to pass after a Chapter 7 filing before a Chapter 13 case can be filed.  Therefore, if you are one of those consumers who filed on the eve of the law change your once again eligible to file.  If you are one of those consumers who filed at the start of the economic collapse in 2008, but have since taken on new debt during this shaky recovery you too are also eligible for immediate relief under Chapter 13.

Here at One Day BK, our office has worked for many years under the new law and have developed relationships with the Bankruptcy Judge’s and Trustees.  Our office has an overwhelming experience in dealing with the changes under the new law to guide you through your case to a successful discharge and to get you the relief you need.