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chapter 13 bankruptcy

April 13, 2020 by Todd Murphy

Making Chapter 13 Plan Payments

Chapter 13 Plan Payments Are Due

It’s the first of the month immediately following the day your chapter 13 case was filed and it’s time to start making chapter 13 plan payments. Your chapter 13 plan payments are due to the trustee AND your monthly mortgage payment is due to your mortgage servicer. It is very important to make both the mortgage payment and the chapter 13 plan payments on time every month for the life of your chapter 13 bankruptcy case.

If for some reason, and it happens from time-to-time, you are unable to make either or both payments this month, please call me to discuss before you make any decisions. There are certain things to consider if you find yourself in a situation where you have a temporary loss of, or reduction in, income or if you had an unexpected expense recently.

Missing payments can have serious long-term effects on your chapter 13 plan so please avoid this if at all possible. Again, call me to discuss if this comes up for you.

The difference between missing payments before your case is confirmed and after your case is confirmed.

When your case is first filed, the chapter 13 plan that we submit is a “proposed” plan and will be reviewed by your creditors and the trustee before it is accepted and confirmed. During that process, there may be some back and forth between we as your lawyers and the trustee and creditors before the plan is in its final form for confirmation. This back and forth is usually done at confirmation hearings in court. There may be a number of confirmation hearings before the case is confirmed which can take place over a period of three to six months or sometimes more.

Before the case is confirmed and a few days prior to each confirmation hearing, the trustee checks to see that you are up-to-date on your chapter 13 plan payments. If you have not made one or more payments as of the day of the confirmation hearing, the trustee will move to dismiss your case right then and there. There is no separate motion – the case will just be dismissed. This differs significantly from the procedure for a missed payment after confirmation.

What Happens If You Have To Miss A Chapter 13 Plan Payment or a Mortgage Payment Once Your Case is Confirmed?

A missed payment to either the mortgage company or the chapter 13 trustee can have significant negative impacts. If a trustee payment is missed, the trustee may file a motion to dismiss the case. If a mortgage payment is missed, the lender’s counsel may file a motion to lift the automatic stay (which prevents the lender from proceeding with foreclosure) and could lead to a sheriff sale of your home,

In both cases, a formal written response must be filed by us on your behalf and a court appearance is required (lawyers only). The matter is usually resolved at the court appearance where an arrangement is agreed to by the trustee or lender to catch up on payments. Such an arrangement can take many forms but always involves you coming up with some lump sum of money to bring the default current. Adding missed payments to the remaining chapter 13 plan payments is sometimes possible at the discretion of the trustee or lender (or both) and sometimes requires updated documentation on your income and expenses.

Resolution of missed payments often, if not always, includes a 30-day default clause which gives the trustee or lender a great deal of power the next time you miss a payment.

Also, you will be required to pay attorney fees for the lender’s counsel as well as fees to us to file the written response and appear in court on your behalf so this tends to be an expensive event.

Links to Chapter 13 Trustee Websites

Below are links to the bankruptcy trustee website. Each website contains instructions and information for setting up and making monthly trustee payments as well as other important information.

Newark – Marie-Ann Greenberg

Trenton – Albert Russo

Camden – Isabel Balboa

Making Chapter 13 Plan Payments and Mortgage Payments is the Single Most Important Thing During the Chapter 13 Bankruptcy Case.

Both the trustee and the mortgage lender monitor your payments every month and are quick to take action if payments are missed. Sometimes the trustee or counsel for the lender will reach out to me before filing a formal motion, and sometimes they will not. Sometimes, they will overlook one missed payment and sometimes, they will not.

The best strategy for you, of course, is to avoid missing payments but sometimes, we know, it just isn’t possible.

Filed Under: Uncategorized Tagged With: Bankruptcy Lawyer, Chapter 13, chapter 13 bankruptcy, chapter 13 plan payments, New Jersey

April 10, 2020 by Todd Murphy

How to Get a Mortgage Forbearance in Chapter 13 Bankruptcy

Updated information on how to get a mortgage forbearance in Chapter 13 bankruptcy if you are suffering financial hardship due to COVID-19

By now you have heard about mortgage lenders offering a forbearance if you are having a financial hardship due to COVID-19 related loss or reduction of income. But, what can you do if you need a mortgage forbearance in chapter 13 bankruptcy?

Maybe you already tried calling your mortgage lender and haven’t had any luck. At first, there was a severe lack of information on whether or not a person in active bankruptcy could take advantage of this relief. This week, services and lenders clarified their position on getting a forbearance even if you are in active chapter 13 bankruptcy.

This relief is only for mortgage loans that are backed by the Federal Government Fannie Mae or Freddie Mac. This covers about 90% of home loans in existence today. However, there are some loans that are not backed by the Federal Government.

What If My Loan is Not Backed By Fannie or Freddie?

Many lenders are honoring this relief program even if your loan is not backed by Fannie or Freddie so try anyway.

How to Find Out if Your Loan is Backed by the Federal Government.

Go to Fannie Mae’s website or Freddie Mac’s website to look up your loan.

What Is Forbearance?

The first question most people have is: what is a forbearance. A forbearance is a temporary suspension of the requirement to make monthly mortgage payments. Under the CARES Act passed last week, a 180-day forbearance is available if you are having a financial hardship due to COVID-19 related loss of income. And, that 180-day forbearance can be extended one time for another 180 days if your financial hardship continues so long as you apply for the extension prior to the end of the first 180 days.

Mortgage loan servicers have set up applications on their websites to apply for the forbearance. The process is simple and streamlined without the need for documentation.

How to apply for the forbearance.

  • Don’t call your servicer. Call volumes are high and hold times are unbearably long.
  • Go to the website of your loan servicer. Servicers have set up applications on their websites streamlining the process.
  • In your application, state that you are having a financial hardship due to COVID-19 related loss of or reduction of income.
  • No documentation is required to apply for a forbearance (but documentation is required to determine the re-payment agreement).
  • Your servicer may ask you for an authorization from your bankruptcy attorney to allow them to speak directly with you which is normal but most are waiving that requirement temporarily. If you need an authorization, contact me and we will send you one.

How Do I Pay Back The Missed Payments?

During the 180-day period, lenders are required to reach an agreement with you on how to pay back the suspended mortgage payments.

How Do I Reach An Agreement To Repay the Suspended Payments?

Servicers are required to enter into a re-payment agreement with you prior to the end of the forbearance period (which may be extended for another 180 days if your financial hardship persists). Your servicer will contact you with a re-payment agreement.

Typical re-payment agreements might look something like:

  • Defer the missed payments to the end of the loan in either a balloon payment or by adding months to the loan term.
  • Enter into a loan modification agreement.
  • Payback the missed payments over some number of months by adding additional monies to your regular payment.
  • Add the suspended amount to a chapter 13 plan by formatting amending the chapter 13 plan.

Do I have to do anything formal with the Bankruptcy Court?

No, your servicer will file a notice with the Bankruptcy Court notifying the court of the suspended payments. When the re-payment agreement is executed, your servicer will again notify the Bankruptcy Court of the re-payment terms.

What Do I Do If I Can’t Make My Chapter 13 Plan Payments to the Bankruptcy Trustee?

Unfortunately, as of right now, there is no simple answer to this question. Typically, when chapter 13 plan payments are missed, a trustee files a motion to dismiss you entire bankruptcy case. This requires a formal written response by your attorney and a court appearance. Usually, missed chapter 13 plan payments are resolved by making a lump sum payment to catch up all or a portion of the missed payments and sometimes a the remaining portion of the missed payments may be added to the remainder of the chapter 13 plan at the trustee’s discretion.

After talking to trustees this past week, the trustees in New Jersey are informally not taking action to dismiss a case if chapter plan payments are missed. However, at some point in the future, any payments that are missed will have to be made up.

What Next?

If you are in need of a Mortgage Forbearance in Chapter 13 Bankruptcy, follow these steps and good luck.

For More Information on any COVID-19 related relief, see our special coronavirus resource page

For more information on relief programs and other important updates about the coronavirus COVOID-19, go to our Coronavirus Resource page.

Filed Under: Uncategorized Tagged With: CARES Act, chapter 13 bankruptcy, coronavirus, COVID-19, Mortgage forbearance, New Jersey bankruptcy lawyer

June 25, 2016 by Todd Murphy

Jerry, 48 and Mary, 44: Made Lemonade Out Of Lemons: A foreclosure case study

After 20 years at the same company making more than $100,000 with a nice home and money in the bank, Jerry found himself broke and facing the possibility of losing his wife, his home, and everything he had worked so hard for his entire life. He was broken and didn’t know where to turn.

 

bankruptcy lawyer new jerseyMISTAKE: After Losing His Job, He Assumed He Would Quickly Find Another

Jerry worked for the same local bank for over 20 years and felt secure in his job. But, one day in the spring of 2009, Jerry’s boss told him he was being laid off. “Jerry, we have really valued all your hard work and dedication over the years, but, the way we do business has changed so we are going to have to let you go.” Jerry was beside himself; he had no idea how he was going to tell his wife the news he himself could barely stomach. But, he considered himself well qualified and with 20 years of experience in IT, he was confident he would quickly find a new job with the same pay.

Jerry dedicated all of his time to hunting for another job. Pouring through the newspapers, calling old contacts, scouring the Internet, and sending out thousands of resumes. Nothing. But, he wasn’t discouraged. He kept on. The unemployment benefits Jerry was receiving weren’t enough to cover all of the family expenses and not wanting his family’s life style to change at all; he used credit cards and money from his savings to pay his bills. Eventually his credit cards were maxed out and his savings were depleted.

At this point, Jerry started to become concerned he wasn’t going to find employment like he had before. Now, still not wanting to change his family’s lifestyle, his only option was to take an early distribution from his 401K. First, he took out $25,000, which after taxes and penalties got him only $15,000 in cash. Jerry and his wife, Mary, blew through this money quickly, with mortgage payments and living expenses just as high as they were when he had a job. He continued taking out more early distributions from his 401K, until it was finally gone and at age 48, he realized he was never going to replace the retirement savings he worked for 20 years to build.

Pro Tip: It’s never a good idea to start using money from your savings and 401K. Early distributions from retirement savings come with huge costs will be protected if yo ever need to file bankruptcy. And, retirement savings can be difficult, if not impossible to replace altering your life retirement permanently.

Hitting Bottom: The Incentive To Take Action

All of his dreams of retirement turned to dust. Jerry was down in the dumps, he felt like he had failed Mary and his family, not to mention himself. To make matters worse, Jerry argued with Mary every day about money. She berated him for not being able to find a job and for spending all of their savings. Now, there was no money to pay the mortgage.

Pro Tip: It’s crucial not to let your financial troubles, no matter how heavy they may feel, get in the way of your relationships with loved ones. It’s important to work as a team and get through the bad times together. Communicate often and develop a strategy early.

Jerry soon realized that he wasn’t going to find another high paying IT job any time soon, but he had sons who depended on him; “I’m not letting my kids quit hockey.” Jerry was resolute in that statement, making his sons quit hockey because he couldn’t provide would’ve been the most heartbreaking thing to him, so he took a job selling used cars.

Pro Tip: Don’t keep trying something that you are not getting any success with. The work world has changed; it’s not always the smartest assumption to make that you will regain employment in the same industry or at the same rate of pay again. Evaluate your skills immediately after losing employment and consider: are there jobs out there in your area of work and have you been on interviews and not getting hired? The business world has changed drastically and many people over 45 don’t have the skills for the current marketplace.

Jerry was an introvert and no salesman but he tried really hard to meet his monthly sale goals. Not making enough to cover his monthly expenses and not having any savings to draw from, he stopped paying the mortgages and when he missed his third payment the loan went into default and the bank would no longer accept payments.

Jerry’s first thought was “What am I going to do? Am I going to be kicked out of my home tomorrow?” My family is going to be on the street.

Pro Tip: While it is best to act ASAP, don’t panic after your loan goes into default. Even after you’re served with foreclosure papers, the overall foreclosure process in NJ typically takes many months. But, it is best to act fast to get the best possible outcome given your situation.

He frantically searched Google to find some help and get some answers to his many questions. Jerry’s wife took a small part-time job which kept their car on the road and helped toward the food bill.

Things were bad.

The Call For Help

Knowledge is Power

Eventually, Jerry felt like he had reached the end of the rope, and he starting calling around for help. He thought  a foreclosure lawyer might help and her sought the help Todd Murphy who had been recommended by a friend. Together, they did a complete analysis of his situation.

Pro Tip: Assess the situation. There are certain things that a lawyer who understands real estate and foreclosure law can look at in order to assess a particular situation. I examined the value of his home, the projected value of his home, the amount he owed on the home, monthly expenses and his income, to determine what strategy would be best for him.

Slouched deep in his chair, Jerry clearly didn’t want to be telling his sad story but it was a common one to Todd Murphy.

They reviewed his situation together. Jerry had two mortgages on his home with combined principal balances far exceeding the value of his home. The most glaring thing that stood out to Mr. Murphy was that just for Jerry to pay the minimums on his credit cards was going to cost him more than $1000 per month. That was interest only and nothing going toward the principal balance. Jerry had two cars, the family mini van, which they made payments on, and Jerry’s car he owned that was on its last legs. They ran a credit report and saw his credit scores were in the mid to high 500s which is just about as bad as they could be.

Pro Tip: Usually best course of action is to apply for a loan modification in which all of the missed mortgage payments are added to the principal balance and a new payment with a good interest rate is calculated. But, loan modification doesn’t work for everyone. Jerry’s income was too low and his debt and expenses were too high to qualify. If you’ve determined that you can’t qualify for a loan mod, begin looking into bankruptcy.

After determining that Jerry wouldn’t qualify for a loan modification, they looked at the possibility of a chapter 13 bankruptcy. This would act as a measure to catch-up on the missed payments over a period of 60 months and at the same time start making regular monthly mortgage payments at the existing rate of interest that in Jerry’s case was 6.1% (high by today’s standards).

Jerry had heard a lot of bad things about bankruptcy and the stigma it carried, but he could see he was in a pretty deep hole at this point so he listened.

Pro Tip: Don’t discount the idea of a bankruptcy right off the bat, educate yourself and find out how it may be a good solution to your problem.

They began the chapter 13 bankruptcy analysis by looking at the principal balance on Jerry’s first mortgage. It exceeded the value of the property.

Pro Tip: Sometimes, if you qualify for a chapter 13, you can strip off the second mortgage lien and convert the second mortgage to unsecured debt (like a credit card). Given Jerry’s income, very little of the funds he would pay each month into the chapter 13 bankruptcy repayment plan would go to pay his unsecured debts, so that would significantly reduce both the second mortgage loan and the credit card debt saving him hundreds every month and at the end of the 60 month repayment plan, the remaining amount on those debts would be discharged. This was a very big benefit and had the possibility of perhaps setting Jerry up to qualify for a loan modification due to the reduced debt load he would be carrying.

They continued the analysis by projecting out the value of this home in five years as well as what the principal balance would be at that time and we saw that the property was likely to still be underwater. That was an important consideration because Jerry would not be able to sell his home if he still owed more than it was worth – even in five years. Finally, they looked at Jerry’s monthly income and expenses and even though he wouldn’t have to make payments to the credit cards and the second mortgage loan, he still didn’t have enough cash each month to pay all of his living expenses, the first mortgage and the bankruptcy repayment plan. The chapter 13 bankruptcy wouldn’t work.

Pro Tip: You can find your home’s value on sites like Zillow. In Jerry’s chapter 13 bankruptcy analysis, one of the major factors that determined whether or not a bankruptcy made sense for him was the projected value of his home.

Jerry was disappointed to say the least.

The Strategy

Making The Best Of Your Situation

They then discussed another strategy. One that could put all of this debt behind him, allow him to save some money each month and rebuild his credit rating so that in the near future, Jerry could walk away from this home and buy a new home. Mr. Murphy explained that in New Jersey, it takes many months to foreclose on a property. He explained to Jerry that a chapter 7 bankruptcy would instantly wipe out his credit card debt saving him of $1000 per month in payments that were never going to pay down the balance. The chapter 7 would also discharge Jerry and his wife’s obligation to pay the mortgage loans without accelerating the foreclosure timeline at all. Debt-free, Jerry could start rebuilding his credit right away while living rent-free and even saving money every month. So, they arrived at a strategy that starts by discharging all of Jerry’s debts which cuts his monthly expenses and gets him started on rebuilding his credit immediately. Because it takes in excess of 12 months and usually in excess of 18 or even 24 months to fully foreclose on a property in New Jersey, Jerry would have the time he needed to get back on his feet.

Pro Tip: It takes about 12 months to rebuild credit to 680/690 and 24 months to rebuild to 750. 680/690 is sufficient to get a car loan or lease at a good rate and 750 is the minimum to be able to apply for a mortgage loan. This means Jerry, after 2 years, would be in the admirable position of having great credit and money in the bank and ready to consider buying a new home again.

Transformation in Thinking

By the end of the meeting, Jerry finally felt like a weight was lifted from his shoulders. He raced home to tell Mary. When he explained the chapter 7 recommendation Mr. Murphy had made, she said, “A bankruptcy Jerry?! We’ll never be able to buy another home again, let alone rent, we won’t be able to get jobs, and everyone will look at us differently.” Soon, they were back in the Mr. Murphy’s office together so he could explain the details to Mary and assure her after 12 to 24 months, they would be in very good financial condition. After some careful thought, she was ready to take action. Mary saw Jerry light up in a way he hadn’t in a long time; she finally saw a gleam of hope in his eyes.

The Light At The End Of The Tunnel

Now, about 18 months later, Jerry found himself a new job that he likes and is making decent income and he and his wife are putting money aside for the future while they both rebuild their credit ratings. Although they chose not to save this home and ultimately will have to move, he regained his self-respect, was able to engage with people and was more positive. Jerry and Mary’s marriage started to improve once they began working towards a common goal; they were finally able to communicate in a constructive and loving way.

Pro Tip Summary:

  1.  Be honest with yourself from day one.

  2. Assess your situation and understand all of your options, so you can make better decisions. 

  3. Set realistic goals and develop a strategy.

  4. Things only begin looking up once you begin working together.

Filed Under: Case Stories, Foreclosure, Home Loan Modification Tagged With: chapter 13 bankruptcy, foreclosure, lawyer, loan modification, New Jersey

June 22, 2016 by Todd Murphy

What If I Don’t Qualify For A Chapter 13 Bankruptcy But Still Want to Save My Home?

don't qualify for a chapter 13 bankruptcy but still want to save your home lawyer new jersey foreclosure loan modification Don’t Qualify For A Chapter 13 Bankruptcy But Still Want To Save Your home From Foreclosure? There is still hope.

It is possible that you tried and failed to get a loan mod, and then also discovered that a chapter 13 bankruptcy was not a good option for you. But, there may still be one more option left if you want to save your home from foreclosure.

The main factor that would hold you back from being eligible for a chapter 13 bankruptcy is having too much consumer debt. Certain qualifiers stipulate the amounts of secured and unsecured debt that you’d have to pay if you want to enter into a chapter 13 bankruptcy. If you have too much unsecured debt, i.e. medical debts, payday loans, credit card debts, then you may still be able to get a chapter 13 bankruptcy, and here’s how…

First You File For A Chapter 7 Bankruptcy, Then You File For A Chapter 13 Bankruptcy

This tactic is called the “chapter 20 bankruptcy”. By filing for a chapter 7 bankruptcy first, you can eliminate 100% of your unsecured debts, which were holding you back from making a chapter 13 bankruptcy work for you.

To learn more about when a chapter 7 bankruptcy is used, read our post: When Is A Chapter 7 Bankruptcy Useful?

Once the chapter 7 case is completed, you can file for a chapter 13 bankruptcy which will then allow you to catch up on missed mortgage payments through a repayment plan.

This repayment plan will take place over a 60 month period during which you will make 60 equal payments to pay back all of your arrears (missed payments). While paying back your missed payments, you are also paying your normal monthly mortgage payments.

Once your in a chapter 13 bankruptcy plan, you may also then be eligible for a loan modification to reduce your monthly payments. A loan modification could lower your interest rate and adjust your term.

To learn about how a chapter 13 bankruptcy could save your home, read our post, How Does Bankruptcy Help Save My Home In Foreclosure In New Jersey?

All Of Your Problems Solved With A Chapter 20 Bankruptcy

So… you started out not qualifying for a loan modification, nor a chapter 13 bankruptcy, but by doing a chapter 20 bankruptcy, you have solved all of your debt problems and saved your home!

Filed Under: Bankruptcy as an Option, Foreclosure, Home Loan Modification Tagged With: chapter 13 bankruptcy, chapter 20 bankruptcy, chapter 7 bankruptcy, foreclosure, lawyer, loan modification, New Jersey

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