I seem to write some of these posts out of frustration. Recently I had a client who needed to file bankruptcy due to a pending garnishment, but was behind on their home loan with Wells Fargo bank. The client could borrow money from his 401(k) plan to catch up, but the plan administrator would not release funds without proof that the foreclosure really was imminent.
We filed the case to stop the garnishment, and I wrote the law firm which regularly represents Wells Fargo and asked if they would provide a "hostile-gram" for the purpose of showing it to the 401(k) plan administrator to enable the client to borrow money to catch up.
Well, the law firm did that just fine, but about ten days later also filed a motion to lift stay, for which they demanded payment of $800.00 for their attorneys fees and costs.
The motion is pretty much pointless -- the client would have been discharged in 90 days, so the motion for relief from stay "released" Wells Fargo from the bankruptcy by a whole 30 days or so.
Because the client wants to keep their home, and has always wanted to keep his home, he may well be stuck with what amounts to an $800 late fee.
I'm not sure what the moral of the story may be (obviously, one is to not bank with Wells Fargo, but it was too late to change mortgage companies when the client came to see me) -- so maybe this is just a cautionary tale to try your very best to be current with y our mortgage company if you file a chapter 7 and wish to keep your home.
Tuesday, January 11, 2011
Saturday, January 1, 2011
Chapter 7 or Chapter 13
There are six types of bankruptcy, chapter 7, chapter 9, chapter 11, chapter 12, chapter 13, and chapter 15. Chapter 9 is for cities; chapter 11 is a business reorganization; chapter 12 is for farmers, and chapter 15 is for foreign businesses. So, for most people, the choice is between chapter 7 and chapter 13.
A chapter 7 case allows an individual to wipe out most ordinary debts while keeping "exempt" assets. There are two sets of exemption laws, which are the state exemptions and the federal exemptions. Minnesota atate exemptions allow you to keep $330,000 of equity in your home, $4,400 of equity in your car, and about $9,000 worth of household goods. Federal exemptions let you keep $10,100 of equity in your home, $3,450.00 of equity in your car, about $9,000 of equity in household goods, and provide a wild card exemption of $11,875.00. In 2005 Congress enacted a "means test", which was intended to force more people into chapter 13 bankruptcies.
Generally speaking, in a chapter 7 you are "in and out" in about 90 days from the day we file the case with the trustee.
If you are behind on your house or car payments, although chapter 7 will temporarily stop a foreclosure or repossession, you will have to catch up on your house payments or car payments on your own.
A chapter 13 is put together much like a chapter 7, but instead of being "in and out" in 90 days, you make payments to a trustee for a period of three to five years.
A chapter 13 can be used to catch up on a home mortgage. Typically you have to pay those payments that come due after the case is filed with the court, but the payments which were behind when you filed can be stretched out over a three to five year period. For example, if your house payments are $1,000 a month and you are behind $9,000.00 when the case is filed on February 10th, you would pay the $1,000 regular payment directly to the mortgage company starting March 1st, and you would pay the chapter 13 trustee $200 a month starting March 15th. The trustee would take the $200.00 and deduct a commission and send it to the mortgage company to apply to the missed payments.
(The above is a very simplified version, by the way!).
A chapter 7 case allows an individual to wipe out most ordinary debts while keeping "exempt" assets. There are two sets of exemption laws, which are the state exemptions and the federal exemptions. Minnesota atate exemptions allow you to keep $330,000 of equity in your home, $4,400 of equity in your car, and about $9,000 worth of household goods. Federal exemptions let you keep $10,100 of equity in your home, $3,450.00 of equity in your car, about $9,000 of equity in household goods, and provide a wild card exemption of $11,875.00. In 2005 Congress enacted a "means test", which was intended to force more people into chapter 13 bankruptcies.
Generally speaking, in a chapter 7 you are "in and out" in about 90 days from the day we file the case with the trustee.
If you are behind on your house or car payments, although chapter 7 will temporarily stop a foreclosure or repossession, you will have to catch up on your house payments or car payments on your own.
A chapter 13 is put together much like a chapter 7, but instead of being "in and out" in 90 days, you make payments to a trustee for a period of three to five years.
A chapter 13 can be used to catch up on a home mortgage. Typically you have to pay those payments that come due after the case is filed with the court, but the payments which were behind when you filed can be stretched out over a three to five year period. For example, if your house payments are $1,000 a month and you are behind $9,000.00 when the case is filed on February 10th, you would pay the $1,000 regular payment directly to the mortgage company starting March 1st, and you would pay the chapter 13 trustee $200 a month starting March 15th. The trustee would take the $200.00 and deduct a commission and send it to the mortgage company to apply to the missed payments.
(The above is a very simplified version, by the way!).
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