Author Archives: Admin

Harassing Creditor Calls Stressing You Out? You Can Do Something About It!

By Kitty J. Lin, Attorney at Law

As the economy worsens, the number of people that are defaulting on their debt is unfortunately increasing every day.    Once you are behind on your credit card payments or other debts, your phone starts to ring, most likely often and at inconvenient times.  The good news is that there are laws that can protect you, the consumer.

The Fair Debt Collection Practices Act (FDCPA) was enacted in 1978 to combat increasingly abusive and harassing practices of creditors.  Under section 1692(c), the FDCPA prohibits debt collectors from certain abusive and deceptive acts when attempting to collect a debt.  Some of the prohibited actions include: misrepresenting the debt or using deceptive practices to collect a debt, calling consumers outside normal business hours, which is from 8 am to 9 pm local time, using profane or abusive language when talking to consumers, continually calling and harassing consumers, threatening arrest or legal action when it is not permitted or even considered, talking to a third party (not including your spouse) regarding your debt, calling consumers at work when the creditor has been informed that it was prohibited or unacceptable by the employer, and contacting consumers after they have been informed that the consumer has retained an attorney.  The above list is only a partial list of the prohibited acts.  For a complete list, please contact us at 877-9NEW-LIFE or 877-963-9543.

One of the downsides of the FDCPA is that it only applies to debt collectors or third party debt collectors.  Under 11 U.S.C. 1692(a), a debt collector is defined as “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”  This means that your original creditor (for example: Chase calling you regarding your Chase credit card debt) is not subject to the FDCPA.  If you live in California, however, you are in luck.  The Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) mirrors the FDCPA, and the Rosenthal Act regulates both original creditors and third party debt collectors.

Not all kinds of debts and debt collection practices are regulated by the FDCPA and the Rosenthal Act, so you should contact one of our experienced bankruptcy lawyers or our best bankruptcy lawyer if you believe you are a victim of the prohibited acts by creditors or debt collectors.  You do not have to continue to be harassed day after day.  You do not have to dread looking at your phone when it rings.  If you are continually being harassed by a creditor, give us a call today at 877-9NEW-LIFE or 877-963-9543. 

Oakland Bankruptcy Lawyer: Did Oakland Almost File Bankruptcy In 2009?

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The answer is yes.  But how is it possible for a government entity to file for bankruptcy protection?  There is a specific chapter of the Bankruptcy Code that allows a city or county to file for bankruptcy protection just like an individual or corporation, Chapter 9. Chapter 9 is for municipalities to file for protection from their creditors.  A state, such as California, cannot file for bankruptcy protection though. The United States Constitution does not allow a state to file for bankruptcy. The Federal Government likewise cannot file for bankruptcy. A state and federal government would just default on their debts.  Contact our local bankruptcy lawyers for more information about Chapter 9 bankruptcy cases.

Oakland’s problems are all too well known in California these days.  After years of cuts in funding from the State of California, reductions in Alameda County tax assessments, generous pay and retirement packages to employees and their families combined with the overall increase in the cost of providing citizens the services we depend on Oakland found itself with a multi-million dollar budget deficit.  The State of California itself has over a ten billion dollar budget shortfall.  The budget deficit of the State of California is more than the total budget for most states in the United States.  Schedule a free consultation today with our bankruptcy attorneys and find out if bankruptcy is right for you.

Orange County filed the single largest municipal bankruptcy when it filed in 1994 and lost $1.6 billion.  The Orange County bankruptcy is notable given the scale of the financial meltdown and what led to the county having to file for bankruptcy protection.  The treasurer is an elected official and had held the position for over twenty years.  Unfortunately the treasurer was investing the pooled funds of Orange County in risky investments and generating high returns to fund their general fund.  Eventually the house of cards fell apart and the largest single municipal bankruptcy was filed.

What is the Meeting of Creditors When Filing for Bankruptcy Protection?

By Kitty J. Lin, Attorney at Law

One of the most frequently asked questions from our clients deal with the “meeting of creditors.”  Most clients want to know what it is and what to expect from this meeting.  Every person or business that files for bankruptcy relief is required to attend a meeting of creditors.  The meeting of creditors is sometimes called the “341” meeting because it is required under Section 341 of the Bankruptcy Code.  This meeting is presided over by the bankruptcy trustee assigned to administer the bankruptcy estate.  In a Chapter 7 bankruptcy case in the Bay Area the meeting of the creditors will usually be scheduled 30-45 days after the petition for bankruptcy protection is filed by your bankruptcy lawyer with the Court.  In a Chapter 13 bankruptcy it depends upon which jurisdiction the case is filed in, but the meeting of creditors is usually scheduled around 45-60 days after the case is filed.

The meeting of the creditors is the first opportunity for a creditor and the trustee to ask questions of the bankruptcy filer under oath and penalty of perjury.  Contrary to its name, creditors rarely attend the meeting of the creditors to ask questions.  In most bankruptcy cases there are no issues for creditors to investigate, so why take the time and expense to pay a bankruptcy lawyer to ask questions?  Creditors or their attorneys usually only show up at the meeting of creditors if they believe there are grounds to object to the discharge of the money they are owed.  There are various grounds under which a creditor can object to the discharge of their debt, but most involve some sort of fraud or improper conduct by the bankruptcy filer prior to filing their petition for bankruptcy protection.  A creditor is limited in the time they have to ask questions.  The trustee will usually give a creditor around ten minutes to ask questions.

The meeting of the creditors is not held in a courtroom or before the Bankruptcy Judge assigned to the case.  The meeting of creditors is administered by the trustee assigned to the case.  In a Chapter 7 bankruptcy case there is a Bankruptcy Information Sheet that each bankruptcy filer must read and understand prior to the meeting.  It is recommended that you arrive early so that your attorney can discuss your case with you and basically touch on many of the items discussed in this article.

The trustee will call out the case number and the name of the bankruptcy filer.  It is now time to step forward and complete the meeting of the creditors.  The trustee will ask for your valid identification and proof of your social security number.  If you do not have your social security card, a W-2 or 1099 will be acceptable.  If you do not have these two things with you, the trustee will continue your meeting to another date until and give you another chance to have both forms of identification.

Most people are nervous prior to the meeting of creditors, but there usually is no need to be.  YOU ALREADY KNOW ALL OF THE ANSWERS.  Just tell the truth.  Also, the only people in the room are other bankruptcy filers and their attorneys doing exactly the same thing you are doing.  After you show your identification to the trustee, the trustee will then ask you 2 to 5 minutes worth of “yes” or “no” questions with some specific questions about your case.  Some of the more general questions they ask are, “Did you review the petition before signing it? Did you personally sign the petition?  Is everything true and correct? Did you list all of your assets and all of your debts? Are there any errors or omissions on the petition?  Are you aware that if you receive an inheritance within 180 days of filing your bankruptcy petition, you are obligated to tell your attorney? Have you ever filed bankruptcy before?” After the trustee finishes asking questions, the trustee will then ask if there are any creditors present, if not, the meeting is concluded and you are done. 

What is the Backbone of Bankruptcy? The Answer is the Automatic Stay 11 U.S.C. Section 362

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The backbone and largest grant of authority to the Bankruptcy Court is the automatic stay.  As soon as a voluntary petition for bankruptcy protection is filed with the Bankruptcy Court the automatic stay is in effect.  The automatic stay stops any and all collection actions against the person or business that files bankruptcy.  The automatic stay is the single most important concept when filing for bankruptcy.

The automatic stay is a temporary injunction that stops lawsuits, foreclosure, repossessions, set-off of debt, any act to perfect a security interest, obtain possession of property, the commencement or continuation of a proceeding before the United States Tax Court and all types of actions taken to enforce a debt against a person or business that files for bankruptcy protection.  The automatic stay becomes permanent by order of the Bankruptcy Court when the bankruptcy case completed successfully. If a creditor violates the automatic stay most bankruptcy lawyers will file a motion for sanctions with the Bankruptcy Court against the creditor.

The automatic stay gives a person or business seeking protection from the Bankruptcy Court breathing room from their creditors to reorganize, actually start picking up the phone again, and in most Chapter 7 no assets cases just make all the annoying harassment and debt go away forever upon discharge.

So why is the automatic stay so powerful?  As soon as the automatic stay is in place all creditors must seek the Bankruptcy Court’s approval to continue to pursue assets owned or held by the person or business filing for bankruptcy protection.  This means if a creditor has a merit less claim or is doing something that is not allowed by applicable state or federal law, in theory the Bankruptcy Court will not allow the creditor to proceed.  A creditor will have to seek relief from the automatic stay or approval from the Bankruptcy Court to continue their state court lawsuit, foreclosure or repossession of your real or personal property.  Your bankruptcy lawyer at West Coast Bankruptcy Attorneys will represent your interests and make sure that a creditor is not violating the automatic stay and protect your property from unscrupulous creditors.

Also, if the automatic stay is violated by a creditor West Coast Bankruptcy Attorneys can seek sanctions against the creditor.  The automatic stay is violated when a creditor continues to seek collection of a debt by levying on a bank account, foreclosure of real property, or repossession of personal property.  A creditor may even sue a person or business after the automatic stay is in effect.  All of these actions are potentially sanctionable by the Bankruptcy Court.  Unfortunately, a motion for the violation of the automatic stay must be filed with the Bankruptcy Court and sanctions requested.

What Happens if I Pay a Creditor a Large Payment Prior to Filing Bankruptcy? Preferential Payments Defined

By Kitty J. Lin, Attorney at Law

If you borrowed money from a relative or business and you pay them back within one year of filing your bankruptcy petition, then you may have done them a great disservice.  Instead of thanking you for paying them back they may potentially be sued by your bankruptcy trustee to put the money back into the bankruptcy estate.  If you make a large payment to a credit card company or other unsecured debt 90 days prior to the filing of your bankruptcy petition the trustee assigned to your case may seek to have that money brought back into the bankruptcy estate to pay all of your creditors also.

If you have any questions regarding any preferential payments you made to creditors or relatives/insiders it is a good idea to consult with an experienced bankruptcy lawyer to determine the best course of action. Many bankruptcy lawyers in the Bay Area have no experience dealing with preferential payments. That is not true of The Law Offices of Lin and Wood. My partner, Ryan Wood, has both defended and assisted in lawsuits to recovery preferential payments in bankruptcy cases.

Under 11 U.S.C. §547(b), the bankruptcy trustee may avoid any transfer of an interest of the debtor in property to or for the benefit of a creditor for a debt that was owed by the debtor while the debtor was insolvent made within 90 days prior to filing the bankruptcy petition to a creditor (think credit card lenders and banks) or 1 year if the transfer is to an “insider.”  The trustee may avoid the transfer if it allows the creditor to receive more than they would receive if the debtor filed a Chapter 7 case, if the transfer was not made, and the creditor received the payment of the debt.

According to 11 U.S.C. §101(31)(A), if the debtor is an individual, the term “insider” includes–

(i) relative of the debtor or of a general partner of the debtor;

(ii) partnership in which the debtor is a general partner;

(iii) general partner of the debtor; or

(iv) corporation of which the debtor is a director, officer, or person in control.

The reason the bankruptcy trustee may avoid any preferential payments to creditors or an insider is based on the concept of equality.  All of your creditors should be treated equally, whether the creditor is your mother or a huge national bank.  Essentially, you cannot pay one creditor to the detriment of another creditor.

For example, if your relative lent you money, let’s say $20,000, and you paid them back $1,000 per month for 8 months ($8,000 total) prior to filing your bankruptcy petition, the trustee won’t be going after you to repay that money – they will go directly to the creditor that has received the funds – in this case, your relative.  They will sue your relative to get the $8,000 back into the bankruptcy estate so that all your creditors can be paid equally.  Your relative will be included in the list of creditors, and be allotted whatever percentage creditors are entitled to receive in your bankruptcy case.

You may contact us at 1-877-9NEW-LIFE for a bankruptcy attorney in our office for a free consultation. We have offices in Redwood City, Oakland, San Francisco, and San Jose for your convenience.

What Happens if I Receive an Inheritance After Filing for Bankruptcy?

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Well, first, sorry for your loss.  The issues are: 1) when did you become entitled to the inheritance; and 2) what chapter of the Bankruptcy Code did you file under, Chapter 7 or Chapter 13?

If you are having financial trouble and have a sick relative you will inherit money from, it is an issue that needs to be discussed with your bankruptcy lawyer before filing for bankruptcy protection or after you already filed your petition for relief. If the amount of inheritance is very small, in most cases, your bankruptcy lawyer can protect the inheritance from your creditors that are owed money by applying your state’s exemptions to protect the inheritance.

Section 541(a)(5)(A) of the Bankruptcy Code provides: Any interest in property that would have been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date – by bequest, devise, or inheritance.

So, if your loved one passes away within 180 days, or six months, of the date your bankruptcy petition was filed, the inheritance will become property of the bankruptcy estate and you must notify your attorney and the trustee assigned to your case.  If your loved one passes away 181 days from the date the petition is filed you will keep each and every penny inherited.  Why 180 days or six months after the case is filed?  The idea is to try and prevent people from anticipating the death of a loved one and filing bankruptcy to discharge their debt right before their loved one passes away.

Chapter 7 Bankruptcy and Inheritance

In a Chapter 7 bankruptcy any inheritance is property of the bankruptcy estate if the property was received within 180 days of the date the bankruptcy petition was filed.  If you filed a Chapter 7 bankruptcy and then received a significant inheritance, the inheritance will become property of the bankruptcy estate and used to pay the creditors listed in your petition.

Once the Chapter 7 Trustee is notified of the inheritance the trustee will then send out notice to all the creditors listed in your bankruptcy petition that a distribution of funds will be made in the bankruptcy case due to the receipt of the inheritance.  Creditors have a limited period of time to file a proof of claim detailing how much the creditor is owed and why the creditor is owed money.  Sometimes creditors inflate the amount of money that is actually owed to them to receive a higher payment from the bankruptcy estate.  The Chapter 7 Trustee may object to a claims, basically saying your claim is not supported by the documentation you have provided or there is a procedural deficiency with the claim.  A creditor may amend the claim to fix the problem, but ultimately the Court may have to hold a hearing regarding the validity of the claim and whether the creditor should be paid.  Once the Chapter 7 Trustee collects their fee for administering the bankruptcy estate and all of the creditors have been paid in full, if there is any of the inheritance left, you will receive it.

Chapter 13 Bankruptcy and Inheritance

In a Chapter 13 bankruptcy any inheritance is property of the bankruptcy estate and the 180 day rule does not apply.  The difference in a Chapter 13 bankruptcy case is a Chapter 13 Plan of reorganization is filed to pay creditors back a certain percentage of what they are owed.  Generally, if a significant inheritance is received during the Chapter 13 bankruptcy case, then the Chapter 13 Plan payment will increase accordingly.  For example, if prior to receiving the inheritance your Chapter 13 Plan required you to pay back 10% of your unsecured debt, after receiving the inheritance your ability to repay your creditors in the Chapter 13 Plan has increased.  You may now be required to pay back 50% of your unsecured debt in the Chapter 13 Plan rather than only 10%.

How Can Making your Mortgage Payment Actually Hurt the Economy??

By Kitty J. Lin, Attorney at Law

In this economy, many homeowners are hurting from the downturn of the housing market and subsequent reduction in the value of their home.  Many homeowners have bought their homes when the real estate market was at an all-time high, believing they have made a good investment.  Instead of realizing the American Dream, they find themselves making payments for a property that is worth significantly less than what they now owe the lenders.  It may be a hard pill to swallow for some because they could be living next door to a neighbor that purchased a foreclosed home for several hundred thousand dollars less than their current home, even though the houses are almost identical in size and amenities.

Unfortunately some of these homeowners have been unable to keep up the monthly mortgage payments on their properties, and have had their dream home foreclosed on.  Other homeowners find they are still able to afford their mortgage payments, even though their houses are not worth what they owe.  Is this good or bad for the economy though?

Most of the stay and pay homeowners are stuck between a rock and a hard place.  These homeowners cannot get a loan modification because they are still able to afford their mortgage payments. They cannot sell their home, unless it is a short-sale (short-sale is when a home is sold for less than what is owed on the mortgage(s)), there is no equity and the homeowners would end up owing the mortgage holder if they sell their homes.  Finally, although the current housing rates are at an all-time low, they cannot refinance their homes for a lower interest rate because there is no equity, or the credit scores are not high enough to take advantage of any offers.  Whichever the cause, homeowners are left with the choices of either walking away from their home or continue to make their mortgage payments and hope the value of their house increases $100k plus in the next ten years.

Some experts and bankruptcy attorneys believe the stay and pay homeowners that are actually paying their mortgage payments on time even though their houses are worth hundreds of thousands of dollars less than what they paid actually is hurting the economy.  How can this be true?

The stay and pay homeowner may be worse off than those that walk away from their homes to start fresh.  The homeowners that continue to pay the high mortgages are arguably spending a higher percentage of their pay on their mortgage than on other consumer goods.  They are most likely paying a higher percentage of interest on their loans, and may be paying a higher amount on their property taxes.  These higher costs mean that they have less money to spend on other items, like fixing up their property, or buying consumer items for themselves or their children.

While this theory makes a lot of assumptions, it may hold some water.  If these homeowners were paying less for their mortgages or renting somewhere, they would theoretically have more money to spend on other goods or services.  Is that not always true though?  If the government did not tax us so much, then people would have more money to spend on other items and services and the economy would be better.  Over time we all spend a certain amount on a home or a vehicle.  Depending upon the timing, it may be a good deal or it may not be.  At the end of the day, it all should balance out in our supply and demand economy. Unfortunately it appears more and more people will seek the counsel of bankruptcy lawyers due to increases in tax debt due to increased taxes.

Unfortunately, with the economy stagnant at best, it will be a long time for real estate prices to rise, which means the stay and pay homeowners have a longer period of time to reach before their house has equity.  However, homeowners may stay because their homes have special memories that cannot be replaced.  For those that wish to stay in their homes that are underwater, it may be possible in a Chapter 13 Bankruptcy to at least get rid of the second and third mortgages or line of credit.  See our lien stripping article here.

What Can be Repoed or Repossessed? Repossession Explained

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Repossession of a vehicle or other personal property is never something anyone plans for.  Unfortunately it does happen.  The following is a detailed explanation about what can be repossessed when payments are missed.

Repossession is possible when a creditor has a security interest to secure payment of a debt.  The most common occurrence of repossession is of vehicles.  Foreclosure of a home is also a common instance of repossession.  Not as common is when a creditor repossesses something like a refrigerator or television.  If you miss payments, the entity that issued the loan has the right to repossess the collateral securing the payment of the debt. Contact bankruptcy lawyers in your area to find out how bankruptcy can stop repossession or get your stuff back. Usually, but not always, if you are two or more payments behind, you are at risk to have the collateral repossessed.  See Chapter 7 Basics or Chapter 13 Basics at www.WestCoastBK.com for information about how bankruptcy can stop foreclosure and repossession.

Home Foreclosure

The repossession of a home or property is commonly called foreclosure.  In California, a non-judicial foreclosure allows a mortgage company to foreclosure on a home without going to court to obtain permission. The foreclosure process in California starts with the mortgage lender filing a Notice of Default with the county recorders office.  See California Non-Judicial Foreclosure Time Line for more information.

Vehicle Repossession

If you leased or financed the purchase of a vehicle and are making payments to a bank or the dealer you purchased the vehicle from, you gave them the right to repossess the vehicle if you miss payments. A creditor may also repossess a vehicle if insurance for the vehicle is not maintained.  The repossessing party may give you notice that they intend to repossess the vehicle, but they do not have to.  The personal items found in the repossessed vehicle cannot be sold.  The party that repossesses the vehicle should provide a list of the items found in the vehicle and how you can get them back.

Once the vehicle is repossessed the repossessing party will then try and sell the vehicle to satisfy the loan on the vehicle.  The problem is that new vehicles lose their value quickly after purchase.  Usually when the vehicle is repossessed it is worth less than what the loan balance is.  If this is true, you will be responsible for the difference between what is owed on the loan and what the repossessing party sells the vehicle for. As bankruptcy attorneys in your area should know, the deficiency balance or amount you owe should be dischargeable when filing bankruptcy.  Unfortunately the difference, or deficiency, could be thousands of dollars.  This debt will now be an unsecured debt though because there is no collateral to secure payment any longer.  Like a credit card or medical debt, the deficiency is dischargeable as an unsecured debt when filing a Chapter 7 bankruptcy or Chapter 13 bankruptcy.

Rent-To-Own Purchases

When you obtain an item by making payments in a rent-to-own arrangement the item you purchased is collateral to ensure repayment.  If you miss payments on a television, refrigerator or bedroom set the collateral could be repossessed just like a vehicle.

What Cannot be Repossessed

Items that can be repossessed have to be specifically named as collateral in the purchase agreement.  Most credit cards and personal loans do not specifically name collateral to secure the extension of credit.  So, when making a credit card purchase or purchases with a personal loan, the items purchased cannot generally be repossessed.

Why Sign a Reaffirmation Agreement?

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Generally, if you have secured debt when you file for bankruptcy, you have three options: 1) surrender, 2) redeem, or 3) reaffirm the debt. The 2005 bankruptcy reforms have made it difficult for bankruptcy lawyers to provide advice regarding reaffirmation agreements. Prior to the 2005 bankruptcy reforms you could just keep making your normal car payment if you were current on the payments and wanted to keep the vehicle. Now bankruptcy attorneys are asked to sign off on a reaffirmation agreement as to whether it is in the best interest of a client or not.

The first option is self explanatory; you can surrender your property to your lender and not be liable for any deficiency relating to the surrender of the property in your bankruptcy case.

The second option is to redeem your property for the fair market value of the property.  This is advantageous if your debt is significantly higher than the fair market value of the debt.  You would only have to pay what your property is worth, not what you owe to the lender.  However, the only catch is that you have to pay the lender the fair market value of the property in one lump sum payment. Most people don’t have that amount of cash readily available; however, there are companies out there that specifically help with redemption of properties after the filing of a bankruptcy petition.

The third option is to reaffirm your debt.  After the filing of your petition, if you have secured debt, such as debt for your house or vehicles, chances are, you may receive a reaffirmation agreement from your lender to reaffirm your debt.  A reaffirmation agreement is a new contract that you sign after you have filed your petition that essentially indicates that you promise to continue making payments on your property.  Although it is the current law that you must indicate your intention to either surrender or reaffirm your debt, it is normally not advisable to sign a reaffirmation agreement because you never know what the future holds.  However, sometimes the lender makes the contract more attractive by either significantly lowering the interest rate or balance due on the remaining balance.  If that occurs, it is up to you to weigh the pros and cons of signing a reaffirmation agreement.  Better terms on the reaffirmation agreement is a great incentive to sign the reaffirmation agreement, but only do so if it does not present an undue hardship for you to pay that amount every month.  One of the disadvantages of signing a reaffirmation agreement is if at any time in the future, you are unable to continue making the promised payments, the lender can repossess your property and still pursue you for any deficiencies even though you had filed for bankruptcy.  Bankruptcy does not protect you from any debts relating to post-petition contracts signed, which is what a reaffirmation agreement is.

An unspoken fourth option is to continue making payments on your property without signing a reaffirmation agreement.  You may make prompt monthly payments to your lender and continue to keep your property.  If, at any time in the future, your finances suffer and you are unable to continue making payments, you can surrender your property, and the lender would not be able to pursue you for the deficiency since the debt was discharged along with all your other debts in your bankruptcy petition.  Although the current law indicates that you need to indicate your intention to either: surrender, redeem, or reaffirm your debt, chances are, if you are making prompt payments on your property, it would not make good business sense for the lender to repossess your property.  However, there are certain companies that will repossess your property regardless of whether you are current on your debt if you did not sign a reaffirmation agreement.  Thus, there is a risk if you do not sign the reaffirmation agreement that your property may be repossessed.

How to Get Rid of Your Second or Third Mortgage and Line of Credit in a Bay Area Bankruptcy

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One of the few benefits of the recent foreclosure meltdown for homeowners is how second or third mortgages and lines of credit can be treated in a Chapter 13 bankruptcy when the value of their house is less than what is owed on the first mortgage.   When the value of a house is below what is owed on the first mortgage, then the second or third mortgages or a line of credit are not secured by any value in the house. Unfortunately, this means that your house has decreased in value significantly.   The good news is that you can get rid of the second mortgage, third mortgage or line of credit when filing a Chapter 13 bankruptcy.

Value of House =                                          $700,000 at time of purchase
Amount Owed on First Mortgage =               $550,000 at time of purchase
Amount Owed on Second Mortgage =           $100,000 at time of purchase
Amount Owed on Third Mortgage =              $50,000 at the time of Purchase

Total owed on all mortgages at time of purchase is $700,000

After four years of decreasing home values the same house purchased for $700,000 is now only worth $500,000.  This means if the house were sold or foreclosed on today the second and third mortgages listed above would get nothing given the house is only worth $500,000 and the amount owed on the first mortgage is more than that, $550,000.

So, when the circumstances above exist, and a Chapter 13 bankruptcy is filed, the second and third mortgages or a line of credit can be valued at zero and the liens securing the payment of the second and third mortgages or line of credit can be stripped from the property and can be treated as unsecured debts.  Instead of having to pay the second and third mortgages or lines of credit in full as secured debts, these debts are treated like all the other unsecured debts in the case such as credit cards or medical debts.  Once the Chapter 13 bankruptcy case is filed, the filer will only be required to pay the first mortgage and their other living expenses along with the Chapter 13 Plan payment.  If the Chapter 13 Plan calls for only paying 5% of the unsecured debts, than the other 95% of the unsecured debt is discharged at the end of the Chapter 13 Plan, including the second and third mortgages or line of credit.

In short, when filing a Chapter 13 bankruptcy case, and the value of your house is less than what you owe to the first mortgage holder, you will not have to pay the second or third mortgage or line of credit if your Bankruptcy Attorney correctly files your case.