Now Easier to Refinance or Modify a Home Mortgage after Discharge
Until recently, many homeowners who filed for relief under the US Bankruptcy Code and received a discharge found themselves unable to refinance or modify the mortgage on their homestead properties. An individual who files for relief under the US Bankruptcy Code receives a discharge of all debts they do not agree to continue paying (reaffirmation agreement), and this discharge serves as an injunction against creditors, preventing them from collecting on the debt.
However, these creditors can accept payments voluntarily made by the debtor. The normal practice in these bankruptcy cases is for the debtor that wishes to retain his residential property to continue making payments to the creditor without the need for a reaffirmation agreement to be executed by the parties and approved by the court.
What does this mean for the debtor?
The effect of this was that the debtor would no longer be personally liable for the mortgage debt but the creditor would not foreclose on the property because the debtor was voluntarily making payments. This worked well, until debtors tried to take advantage of the lower mortgage rates by refinancing or modifying the debt (use the FHA reverse mortgage calculator to double-check) and get know what are the mortgage rates in Minnesota; for when they contacted their mortgage lender, they were informed that the lender could not modify/refinance the debt because the same was discharged in the Bankruptcy case, and the discharge injunction prevented the lender from negotiating with the debtor.
In order to allow these debtors to modify/refinance their debts, the US Bankruptcy Court, Middle District of Florida issued Administrative Order No. FLMB-2015-9 on November 16, 2015. This Administrative Order grants relief from the discharge injunction to a secured creditor for the purpose of negotiating and entering into a refinance or modification agreement. This order only applies to mortgages regarding homestead properties, and when the request for the refinance or modification was initiated by the Debtor.
What happens after you reaffirm or modify a mortgage agreement?
If the debtor and the creditor enter into a reaffirmation or modification agreement, the debtor may become personally liable for the entire amount owed under the new (refinanced or modified) loan, regardless of the discharge previously received.
This Administrative Order grants the debtors the benefit of taking advantage of lower interest rates by refinancing or modifying their mortgage debts, however it also eliminates the discharge of the debtor’s personal liability. Therefore, it is important that before signing any refinance or modification agreements, debtors consult with an attorney and weigh the pros and cons of their decision to modify or refinance their mortgage debt.
Do you have questions about your home and bankruptcy? A qualified bankruptcy attorney can be very helpful with this process. If you need additional information or assistance contact Attorney Evelyn J. Pabon Figueroa at (407) 647-7887. You can view the Bankruptcy services CPLSA, P.A. offers here.
Chapter 7 Bankruptcy: How Does it Work?
If you are feeling overwhelmed by your inability to pay your debts or catch up on bills, a possible solution is to file for bankruptcy. In a Chapter 7 bankruptcy, also called liquidation or straight bankruptcy, the main goal is to give the debtor a fresh start. This is achieved by filing a petition to get rid of the debtor’s debt. The debt is wiped out by a court order called a Discharge. The Discharge gets rid of most if not all of your debt, by preventing the creditor from collecting against you.
How does Chapter 7 Bankruptcy work? Imagine a file with an account of everything you own: all your assets/property (including personal property) and all your debt/liabilities. This is called your estate. Once a bankruptcy petition is filed a trustee, is assigned to your case. The trustee has the job of paying the creditors whatever they can from your assets, and informing them when there is no money to pay the debt owed.
What can you keep from your estate? Currently, the court allows you to keep your homestead property, and the equivalent of $2,000.00 worth of personal property (the equivalent of $1,000.00 value to put towards your car and $1,000.00 value to put towards your other personal property). If you are giving up your homestead property (giving it back to the bank), then you are allowed an additional $4,000.00 value to put towards your personal property in the file/estate. So if you are not keeping your house, you have $6,000.00 in total to put towards your personal property.
Example: Let us say that you have a car that is worth $10,000.00 and you still owe $8,000.00 on your car loan, the value/equity of the car in the estate is $2,000.00. You can put the court’s car allowance, $1,000.00, towards the car and take another $1000.00 from the homestead allowance of $4,000.00 (that you get for the home that you are not keeping). That leaves $4,000.00 to put towards the remaining personal property that is still in the estate (the court allowance of $1,000.00 for personal property and the remaining $3,000.00 from your homestead allowance.)
What happens if your remaining property is worth more than $4,000.00? If your remaining property is worth more than $4,000.00 you may have to buy back the remaining equity or worth of that property which is over the remaining 4,000.00 allowance from the estate ($3,000.00 remaining from the surrender of homestead and $1,000.00 that you are allowed for personal property).
Let us say you have no car. That $1,000.00 allowance can be put towards your personal property (jewelry, furniture, etc.)
Let us say you have a second car that has a value of $5,000.00. You can put whatever remains after you have “bought back” the value of your other personal possessions (furniture, clothing, jewelry, etc.). Whatever is over the court allowance can be bought from the estate by you or it will be sold to pay your creditors for part or all of your debts.
For this reason it is always advised that you discuss your situation with counsel so that you can begin pre-bankruptcy planning or active planning to reduce the amount of equity that you may have to buy-back.
What is an example of pre-bankruptcy planning? If your child’s car is titled in your name because he/she could not get a loan at the time of purchase (because of age, no credit, etc.), that car is listed as your personal property and could affect your bankruptcy status. If that child is now working or has credit, you would be advised to put that car in your child’s name and keep all the evidence to show that your child is and has always been the true owner of the car, the one who was paying the car loan, driving the car, etc
While filing for bankruptcy is not always the best solution for an inability to pay debt or catch up on outstanding debt, it is important to know if it is the right solution for you. At the very least, a consultation should inform you of what you can and cannot do to better your outcome if the need to file a Chapter 7 bankruptcy should arise.
Next week we will share some examples of debts that can be discharged, and those that cannot be discharged.
• Call us at (407) 647-7887 to schedule a free consultation to find out if this is the right solution for you.
• Be prepared to discuss your situation. Compile a list of all your debt (credit cards, medical bills etc.) and all of your assets and bring that list to the consultation.
• At the end of the consultation, among other things, you should have a clear picture of whether bankruptcy is the best solution for you, which pre-petition debts can be discharged, and how filing would affect you in the future. If you do decide that it is the right option for you, you will understand how to manage your assets and debts in preparation for filing.
Debts That Survive Bankruptcy: Immigration’s Affidavit of Support
You meet someone, fall in love, and get married. Your new spouse is not authorized to permanently live and work in the United States; therefore, you file a petition with the U.S. Citizenship & Immigration Services. The petition is approved and your spouse becomes a permanent resident after adjusting status from within the U.S. or getting his visa abroad. Unfortunately, after several years, the marriage ends in divorce. During the divorce proceedings, your spouse brings up the Affidavit of Support that you signed when you filed the family petition. The judge orders you to support your now ex-spouse pursuant to the terms of the Affidavit of Support.
Sometime after the divorce, as a result of your obligation to provide financial support to your ex-spouse and other debts, you find yourself in a precarious financial situation and decide to file for bankruptcy relief. You think that after the bankruptcy, all your debts, including the one to your ex-spouse, will be eliminated, allowing for a fresh start. Your ex-spouse disagrees and files a complaint in your bankruptcy case asking the court to determine that the debt to him is not dischargeable.
What is the Court’s decision? That your ex-spouse is correct and the debt owed to him pursuant to the Affidavit of Support is a non-dischargeable domestic support obligation and the same will survive the bankruptcy. You will continue to be responsible for the support of your ex-spouse even after receiving your bankruptcy discharge and will only be able to eliminate your obligation under the terms of the Affidavit of Support if one of the following situations occurs:
1. You die;
2. Your ex-spouse dies;
3. Your ex-spouse becomes a US citizen;
4. Your ex-spouse permanently departs the US; or,
5. Your ex-spouse is credited with 40 qualifying quarters of work.
If you would like to learn more about bankruptcy and immigration, please contact Evelyn J. Pabon Figueroa, Esq., at epabonfigueroa@cplspa.com or (407) 647-7887.
Chapter 7 Bankruptcy: Benefits of Filing
The benefits that result from filing a Chapter 7 Bankruptcy are many and varied and depend on your particular circumstances. Once a bankruptcy petition is filed, there is an automatic stay on all proceedings (stopping the processes of collecting) against you, including attempts to collect debt that is dischargeable.
1 Stop a Foreclosure on a Home
If you are behind on your mortgage (say because of unemployment or illness for a period of time) or if you are now working and need time to cure the default on your mortgage, filing a bankruptcy could stop the foreclosure for a period of time. This may give you time to negotiate a loan modification.
2 Lower Some Monthly Payments
This may apply to a loan for a car or personal property if a loan modification is being sought. The lender is not compelled to offer a lower payment, but often they will review your information and offer a better interest rate or a lower principal on the loan to make it more affordable for you to keep your property.
3 Prevent Termination of Utility Services
Once a petition is filed, the utility service cannot be cut off, and if it has been cut, your utility provider would have to reconnect these services.
4 Prevent Repossession of Personal Property
Once a petition is filed, your creditor is prevented from attempting to repossess your personal property such as your car, furniture, or equipment. If your personal property is already repossessed, your creditor can be forced to return it.
5 Prevent Garnishment of Wages (even if there is an order)
Once the petition is filed, the automatic stay prevents debt collectors from garnishing your wages.
6 Prevent Harassment from Debt Collectors by Telephone and Mail
Once a petition is filed, debt collectors can no longer send you mail or call your home requesting payment of the debt. If they do, this a violation of the automatic stay and they can be sanctioned. Even after the case is closed and the debt has been discharged, debt collectors can be sanctioned if they continue to harass you with telephone calls or mail requesting payment of the debt that has been discharged.
7 Erase Debt
If your debt falls in the dischargeable category, this debt can be erased/discharged so that you can get a fresh start.
If one or more of the above listed situations applies to you then you may be able to wipe out your debt, prevent debt collectors from harassing you, and get a fresh start. Call us at (407) 647-7887 to schedule a free consultation to find out if this is the right solution for you. Be prepared to discuss your situation. Compile a list of all your debt (credit cards, medical bills etc.) and all of your assets and bring that list to the consultation. At the end of the consultation, among other things, you should have a clear picture of whether bankruptcy is the best solution for you, which debts can be discharged, how filing would affect you in the future, and if you do decide that it is the option, how to manage your assets and debts in preparation for filing.
