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ch 7.jpgMany more bankrupt debtors will be able to keep their house in a Chapter 7 now!

In a surprising decision by a court of appeals not noted for its sympathy for debtors’ positions, the Eleventh Circuit Court of Appeals, held in a unanimous decision that a Chapter 7 debtor may strip off a second mortgage. Prior to this O’Neal decision on May 11, 2012, debtors could only do this in a Chapter 13 case. The Eleventh Circuit is the federal appellate court for the Middle District of Florida which includes the Tampabay area.

Twenty-three years earlier, the Court of Appeals had reached this conclusion in Matter of Folendore, 862 F.2d 1537 (11th Cir. 1989), and the present court reasoned that the decision in Folendore survived the Supreme Court’s decision in Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992), which held that a Chapter 7 debtor may not cram down an undersecured claim to the value of the collateral. Here, the Court of Appeals reasoned, the creditor’s junior mortgage lien was both allowed under Code § 502 and wholly unsecured under § 506(a), and the lien was therefore voidable under the plain language of § 506(d). In re McNeal, Case No. 11-11352 (11th Cir., May 11, 2012).

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mousetrap.jpgOur Tampa, Florida bankruptcy law firm is small enough that we are able to help time our clients’ bankruptcy case for maximum results. Without proper timing, a bankruptcy can feel more like a trap than a remedy for financial ills. We are often able to save our clients several hundred dollars a month by simply correctly timing their case. A high volume mill firm won’t do this, their business model is based upon touching their clients’ files a minimum number of times and getting it filed asap.

However, the timing can be critical. Both in terms of assets that our clients can keep and the type of case or relief they qualify for. Most of our clients have something to lose. Our goal is to help ensure they come out ahead when their bankruptcy is filed.

Simple things to keep in mind. It is not wise to file a bankruptcy if you anticipate large expenses in the future, such as an upcoming surgery where there could be uninsured medical costs. It will be another 8 years before you can file Chapter 7 again so choose your timing wisely.

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chained to house.jpgMany bankruptcy debtors in Florida are understandably confused when they surrender their home in the bankruptcy, but are still receiving various dunning letters.

First, it is important to understand that the Bankruptcy Code does not have a mechanism in place to provide for the actual transfer of the real estate to the mortgage company, at least not in a lien theory state like Florida. So in order for the home ownership to transfer legally to the mortgage company, one of three things must occur; 1) a foreclosure sale; 2) a short sale; 3) a deed in lieu is signed by the debtor and accepted by the mortgage company; or 4) a quit claim to another party which is recorded.

So a homeowner may still receive letters and remain liable for certain things even after a bankruptcy is filed:

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Here in Florida, our foreclosure defense clients have seen two more excellent principal reduction offers in the past month – both from Ocwen. Both reductions were to the fair market value, maybe even below, and both were reduced over $100,000. Additionally, the interest rates were reduced to 4% for the remaining balance.

As I’ve reported in the past, Ocwen is buying the servicing rights for many mortgage loans, including Litton and Saxon, so when you open your mail and find your loan has been transferred once again, don’t fret if its Ocwen, as it may be a blessing in disguise.

Both of the above cases were involved in litigation with our law firm so that may also have been a relevant fact, but we really don’t know. All I can say on behalf of my clients is: Thank you Ocwen. Kudos.

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underwater house.jpgThe recent AG settlement among the states’ Attorneys General and the five largest mortgage servicers is expected to be filed any day now. Hopefully then more light will be shed on what exactly the terms are and how they will help Florida homeowners.

The Wall Street Journal reported today that Bank of America also made a side deal to avoid penalties and will be doing more principal reductions. Under the terms of the settlement, the five servicers are required to make more than $10 billion in principal reductions. There is a lot more info in the article at the link above.

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1099c.jpgCreditors are busily sending out more 1099C’s then ever before according to a story by Jeremy Campbell of Channel 13 in Tampa, Florida this week. The news story “How the IRS taxes debt” explains that debt settlements while good, come with a penalty. Consumers are taxed on the forgiven debt sometimes months or years after the settlement. More than 6 million consumers are expected to receive 1099C’s this year, double last year.

One important point that the story did not address. Cancelled debt is not taxed in a bankruptcy. Just saying.

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occupy tampa.jpgUSF and Occupy Tampa is holding a Foreclosure Teach-In this Saturday March 10, 2012 1:30-4:30. There is no charge and you can also attend via the Internet live feed.

Senior Staff Attorney from Jacksonville Area Legal Aid April Charney will be speaking. April has been traveling around the State of Florida for the past several years educating attorneys on the nuances of foreclosure defense. I have personally attended two of her all day seminars and she is a very spirited and knowledgeable fighter of foreclosures! It was time well spent.

Do not miss this opportunity. This seminar is designed to help participants become familiar with the foreclosure process and what they can do when faced with foreclosure. If your schedule does not permit you to attend, the seminar will be archived on the site as well.

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pros_cons.gifI often sit with my clients in Tampa, Florida and perform a simple test: I make two columns on a piece of paper and list the pros and cons of filing bankruptcy versus trying to settle their debt.

More often than not, the bankruptcy column has many more pros, while the debt settlement column has more cons. For instance, in a Chapter 13, the monthly payment is usually much less. In a Chapter 7, the monthly payment is zero if there is no disposable income.

Debt settlement on the other hand usually requires the client have lump sum amounts available to offer to get any kind of substantial reduction. So they have to save up. The client has to reach satisfactory agreements with each creditor, or they still have leftover debt. Finally, in debt settlements the cancelled debt is taxable by the IRS. Not so in bankruptcy.

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nacba.jpgThe Federal Housing Finance Agency (FHFA) that recently approved of HAMP principal reduction for Freddie and Fannie loans has rejected a proposal by the National Association of Consumer Bankruptcy Attorneys (NACBA). The Principal Paydown Plan is designed to amend the bankruptcy code to allow for payments during a Chapter 13 to go towards principal to substantially reduce the balance owed on an underwater home.

According to an email update by NACBA, many members of Congress have endorsed the Principal Payback Plan. However, despite FHFA Director DeMarco’s initial positive comments about the Principal Paydown Plan, which he said struck him as “being responsible,” and a “credible way to address the crisis while recognizing various interests mortgaged properties,” he recently wrote to Congress informing them that the agency would not be implementing the Principal Paydown Plan. FHFA concluded that few GSE borrowers have filed for chapter 13 bankruptcy and are underwater and therefore the proposal would not be all that helpful. They did, however, commit to doing what they can to help eligible borrowers in bankruptcy get the HAMP modifications they qualify for.

Personally, I see a lot of homeowners that would qualify for the Principal Paydown Plan. Moreover, until something is done about the conflict of interest of servicers, we are not going to see any widespread adoption of principal reduction for Fannie and Freddie loans.

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The Home Affordable Modification Program (HAMP) is being extended and expanded to reach more borrowers- will it be enough to help or an example of “too little too late”?

On January 27, 2012, the Treasury department announced the revisions.

First, to encourage principal reduction, the Treasury is tripling incentives and paying 18 to 63 cents on the dollar depending upon the change in the loan-to-value ratio. In the past, the Federal Housing Finance Agency (FHFA) prohibited Freddie and Fannie from using HAMP to reduce principal. Treasury now allows the incentives for Freddie and Fannie if they allow servicers to forgive principal in a HAMP modification. So if your servicer previously denied your HAMP modification, check to see if your loans are owned by Freddie or Fannie because the rules may be different now. Here’s how to do that.

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