Chapter 13 Bankruptcy

Published on: June 1, 2011

You cannot be fired for filing bankruptcy, but it may be used as a reason to deny new applicant

The Eleventh Circuit Court of Appeals which governs the State of Florida, recently ruled on May 17, 2011 in the case of Myers v. TooJay’s Management Corp. that private employers can legally deny employment to applicants if they filed for bankruptcy. In doing so, our Circuit is now consistent with similar rulings in the 3rd and 5th Circuits.

However, anyone who is trying to decide whether to file bankruptcy when they are job hunting should keep in mind that prospective employers will pull credit reports. Many employers will rescind offers of employment or refuse to hire a person merely because of a bad payment history. Any delinquent payments could equally affect an employment decision. Refusal to hire someone due to his or her credit history is not by itself unlawful (there may be a limitation as to whether or not a credit report may be pulled if the prospect has not signed an authorization to do so).

In fact, some employers would prefer that a prospective employee has discharged their debts. Many employers would rather not deal with creditors calling its employees during work hours on the job and don’t want the administrative headaches associated with processing wage garnishments. These employers would rather hire someone who is debt-free, instead of someone who has debt problems.

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Published on: May 15, 2011

Principal Reduction down from $130,000 to $49,000!

By Christie D. Arkovich, P.A.

Elusive principal reductions are hard to come by, but we recently scored a very big win on behalf of one of our prior foreclosure clients turned Chapter 13 client. This week Ocwen agreed to a reduction in principal from $130,000 to $49,000 at 2.625% interest. This family’s principal and interest payment dropped to $224. Escrow is anticipated at another $200 for taxes and insurance.

This Bartow, Polk County, Florida family had lost their employment in 2008. By the time they obtained new employment nearly two years had passed and a foreclosure lawsuit was filed by MERS as nominee for Home 123 Corporation in 2008. A HAMP mod was denied during the foreclosure process. Prior to a foreclosure judgment being entered, the family filed a Chapter 13 in a final effort to keep their home. One of the problems was that the arrearage was $31,000 all of which had to be paid in the five year Chapter 13 plan. Moreover the home was valued now at $50,000 per the most recent tax assessment while $130,000 was owed on the home on a first mortgage. In bankruptcy, we as debtor’s counsel filed an objection to the Proof of Claim on the basis that proper documentation was not filed. Missing endorsements demonstrated a lack of standing on behalf of the mortgage company, among other problems.

A couple weeks before trial, we arranged a conciliation conference with opposing counsel and their client. Our clients were again considered for a HAMP modification which was denied a second time. We offered a new amortizing mortgage of $50,000 at 30 years at 5% interest. Ocwen came forward with an independent modification of something even better: $49,000 at 2.625 %. Payment $224 plus escrow. Hard to beat. Clients jumped at the offer needless to say.

To give credit where credit is due, I have no idea how much of this was because of Ocwen or because of our stellar legal wrangling 🙂 I have heard of Ocwen reducing principal elsewhere in the nation, but have seen no reports locally. In an article in DSNews.com a site for those in the mortgage default servicing industry, Ocwen has explained in their experience negative equity increases the likelihood of a re-default 1.5 to 2 times and that approximately 15 percent of all Ocwen loan modification involve some element of principal reduction.
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Published on: May 8, 2011

Door #1 or #2: Taking the Wildcard Exemption when Retaining your Home May Come with Surprises

By Christie D. Arkovich, P.A.

house on tide.jpg In Florida, our Tampa Bay area homeowners are faced with a dilemma whether to claim the homestead exemption for their underwater homes. Historically, Florida homeowners have been allowed to keep or exempt $1,000 of personal property in a Chapter 7 bankruptcy. This isn’t much, and many homeowners had to pay the bankruptcy trustee to keep anything in excess of $1,000 per debtor. However, in the past few years, the Florida legislature passed Florida Statute 222.25(4) what is referred to as the “wildcard” exemption which allows an additional $4,000 exemption for personal property when the homeowner is not claiming the homestead exemption. Florida judges have determined that the exemptions can be stacked and now homeowners who do not claim the homestead exemption can keep up to $5,000 in personal property.

This year, the Florida Supreme Court in Osbourne v. Dumoulin, No. SC09-751 ruled that a homeowner can claim the wildcard exemption even though they are keeping their home when it has no equity. Some judges were already ruling in this manner. As a result, many attorneys began to claim the $4,000 wildcard exemption and avoided claiming the home as exempt. Trustees were not interested in the home because it had no equity so there was no need to claim the homestead exemption.

Seeing the profit potential, some companies have begun to contact the Chapter 7 trustees in the Tampa Bay area and offering to buy the bankruptcy estate’s interest in the homes where no homestead exemption is claimed. Their goal is for the approximate $2,000 that they pay the trustee, the real estate firm will then put the house up for a short sale where they make a few bucks, and charge the homeowner rent in the meantime. The homeowner gets blindsided when they intended to keep the home all along.

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Published on: March 21, 2011

Principal Reductions Through Bankruptcy?

By Christie D. Arkovich, P.A.

Currently, the Bankruptcy Code does not allow a bankruptcy court to modify a bankruptcy debtor’s first mortgage on his or her primary home. It does not prevent a mortgage company from modifying a loan if it voluntary agrees, but nothing allows the bankruptcy judge the power to force a principal reduction for an underwater home.

It has been this Tampa Bay law firm’s opinion that eventually principal reductions will become more widespread. It has been reported that banks now hold only 15% of the nation’s home mortgages, and that the remainder are now owned by Freddie Mac, Fannie Mae and numerous securitized trusts. When this mess first began, banks held a much larger percentage of home loans which have now been transferred to Fannie and Freddie. I believe the banks should have been forced to eat the loans they made, but I digress. At least now the nation is in a position to permit principal reductions because it is much less likely to crash the five major banks.

NACBA (National Association of Consumer Bankruptcy Attorneys) has announced a proposal to address the dilemma of underwater homes. This new proposal, the Principal Paydown Plan, would provide:

1) Interest rate reductions to 0% for the first mortgage to allow the entire monthly mortgage loan payment to go directly to principal;

2) During a five year plan, the borrower’s minimum monthly housing payment would be calculated similar to a HAMP modification payment at 31% of gross income;

3) At the end of the five year period, the remaining principal balance would be amortized over 25 years at the Freddie Mac survey rate (running approximately 4.75% now);

4) The bankruptcy judge and Chapter 13 trustee would approve of the eligibility of the borrower and feasibility of the payments, something that they presently do in all Chapter 13 cases;

5) The borrower agrees to a general settlement of all claims against the lender and servicer and avoiding title and loan litigation.
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Published on: March 17, 2011

Florida bankruptcy debtors allowed greater exemption to keep personal property

By Christie D. Arkovich, P.A.

Finally, a win in the Florida Supreme Court for bankruptcy debtors. In February, the Osbourne v. Dumoulin decision puts to rest an issue in Florida where judges disagreed on how much personal property a debtor could keep when filing bankruptcy. Generally a debtor using Florida state exemptions can keep $1,000 in personal property. They can retain additional personal property, but they have to pay to keep anything above the exempt amount. However, if a Florida debtor is not claiming a homestead exemption, they can claim a larger $4,000 wildcard exemption to protect additional personal property such as bank accounts, equity in vehicles etc.

Even our four bankruptcy judges in Tampa, Florida disagreed on how to apply the wildcard exemptions in cases where the home was underwater. After Dumoulin, in cases where the debtors own a home that has negative equity, they can now claim an additional $4,000 wildcard exemption to keep additional personal property. This can be very valuable since Florida’s personal property exemptions are one of the lowest in the country. Most people haven’t minded too much because Florida’s homestead and IRA/401k exemptions are very favorable to debtors. But nowadays, many people have negative home equity and have cashed out or borrowed against their 401ks and don’t receive the benefit of those broad exemptions.

Application of exemptions can be complicated especially in cases where the debtor has recently moved from another state, please consult with an attorney regarding the proper use of exemptions. Arkovich Law

Published on: March 15, 2011

Freezes of Wells Fargo Bank Accounts for Bankruptcy Debtors

By Christie D. Arkovich, P.A.

wells fargo.jpg The Middle District of Florida, Tampa Division, upheld Wells Fargo’s practice of freezing bank accounts of Chapter 7 bankruptcy debtors. In re Young, 439 B.R. 211 (Bankr. M.D. Fla. 2010). In ruling that the administrative freeze was not a violation of the stay, the Court denied sanctions against Wells Fargo.

We are advising our bankruptcy clients to move their bank accounts (checking, savings, CDs etc.) to other banks when filing a Chapter 7 bankruptcy. To our knowledge, Wells Fargo (and Wachovia which was merged into Wells Fargo) is the only bank that has taken this position. This avoids panicked calls from our clients when their bank account is frozen and they learn that it may take 30 days for the trustee to abandon any non-exempt interest in the account.

For the time being, this ruling is only applicable to Chapter 7 cases. The Court in Young unequivocally stated that its holding should only apply to Chapter 7 cases and that it would view an administrative freeze on accounts in a Chapter 11 or 13 as a violation of the automatic stay. The Wells Fargo administrative policy may be limited to accounts of $5,000 or greater, but I wouldn’t trust that they won’t freeze an account with less. The reasoning behind them holding the money for the bankruptcy trustee to decide what to do with it applies when a bank account has less than $1,000 in it due to the low personal property exemptions in the State of Florida.

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Published on: February 28, 2011

Middle District of Florida Scores Second in the Nation for Bankruptcies

By Christie D. Arkovich, P.A.

Florida’s Middle District which covers Tampa, Orlando, Fort Myers and Jacksonville was second only to the Los Angeles district in bankruptcy filings from October 2009 to September 2010. The Florida Middle District recorded 66,861 bankruptcy filings including all chapters.

That translates to approximately one person out of 100 in these two districts declared bankruptcy last year, based upon a 2009 U.S. Census.

The downturn that began in 2007 has led to an increased number of bankruptcies. The decrease in home equity made people feel less wealthy and they are more apt to file bankruptcy when the credit card debt seems overwhelming. No longer is equity available in homes to tap in an effort to pay down unsecured debt such as credit cards. Realizing this, many people have come to the conclusion that bankruptcy is their way out. Also Americans are coming to realize that the social stigma of filing bankruptcy has nearly disappeared.

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Published on: February 19, 2011

Significant Negative Impact to Disposable Income Expected for Tampa, Florida Debtors under a New U.S. Supreme Court Ruling that a Debtor Cannot Claim an Ownership Expense for a Free and Clear Vehicle

By Christie D. Arkovich, P.A.

A January 11, 2011 opinion by the U.S. Supreme Court is expected to drastically increase potential disposable income in Chapter 7 and 13 bankruptcy cases in Tampa, Florida. This may cause someone who previously qualified for a Chapter 7 bankruptcy not to qualify, or to increase the Chapter 13 plan payment by $500.

You see prior to Ransom v. FIA Card Services, N.A., our local (often considered debtor friendly) Tampa Division would generally allow a $496 ownership credit toward a vehicle (two credits were allowed if debtors were married or had reason for an additional vehicle). This $496 credit would be allowed even if the car payment was less than $496 or if there was no car payment and it was owned free and clear. A debtor only needed to own or lease a vehicle to claim the ownership credit. A separate credit is used for vehicle operating expenses. The reasoning in the Tampa Bay area was in part if the debtor was driving an older paid off vehicle, at some point during a 3-5 year plan the debtor would have to purchase a replacement vehicle. Allowing the credit would permit the debtor to both save some money for the down payment as well as afford the payment when the replacement vehicle was purchased.

Following the 8-1 decision in Ransom, our local Chapter 13 Trustees and Judges can no longer allow a debtor to reduce disposable monthly income (DMI) by claiming a vehicle ownership expense when the debtor has no associated loan or lease payment for the vehicle. In some other areas of Florida or elsewhere around the country, debtors already were not allowed to claim the expense, so this won’t have any effect on them. But here in Tampa, this is a major disappointment.

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Published on: January 19, 2011

Tampa Florida Timelines to Surrender a Vehicle in Bankruptcy have been Dramatically Reduced After the Tampa Division of the Middle District of Florida Adopted a New Model Chapter 13 Plan in 2010

By Christie D. Arkovich, P.A.

Contrary to popular opinion, a bankruptcy debtor does not have to give up his or her vehicle immediately upon filing bankruptcy.

First, many debtors choose to keep their vehicles and can do so as long as they continue to make the regular monthly payment and sign a reaffirmation agreement to repay the debt.

Second, free and clear vehicles can be retained provided the values of the vehicles are within the permitted exemptions or provisions to pay to keep them is set forth in the Chapter 13 Plan.

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Published on: January 16, 2011

Bankruptcies Going Strong: CPI For December Not As Strong as First Appears

By Christie D. Arkovich, P.A.

Retail sales are up 7.9% from December 2009 to December 2010. Although retail sales increased only .6% in December from November and were lower than expected, retail sales are now above the pre-recession peak in November 2007. Initially this appears good right? Bankruptcy rates in Florida and elsewhere should start to decline as consumers spend more and more people get back to work.

Not so fast. Much of these gains were in energy and food prices. Furniture and home furnishings rose a mere 2.3% year over year. Electronics rose only 2.6% year over year. Clothing sales will almost certainly rise significantly during this upcoming year but not due to an increase of demand, but rather due to cotton prices being in the stratosphere.

What does this mean for the average Floridian consumer? Well the middle class is being squeezed even more with declining wages and increasing costs of living. This leads to more debt to service when paychecks aren’t enough to pay the bills any more. Chapter 7 or 13 bankruptcy is no longer reserved for the divorced, injured, ill or unemployed. Now increasing numbers are filing bankruptcy when they just can’t pay the bills like in the old days.