Commonly Asked Questions About Chapter 13 Bankruptcy

1. Maybe surprisingly, one of the most discouraging developments in our continuous foreclosure crisis has to do with home mortgage lenders' obstinate resistance to execute with a foreclosure in a timely way. Many frequently, this situation develops in a Chapter 7 Bankruptcy in which the debtor has actually identified that it remains in his/her benefit to give up a home. As we all understand, mention anti-deficiency laws determine whether a home loan lender might look for a shortage judgment after a foreclosure. We also know that a Bankruptcy Discharge will protect that property owner from such liability despite what the debtor's state statutes have to say worrying whether a mortgage lender might seek a deficiency judgment. While defense from post-foreclosure liability to the home mortgage lending institution remains a powerful advantage used by the Personal bankruptcy Discharge, a reasonably new source of post-bankruptcy petition liability has actually emerged in the last couple of years. One that our customers are all too frequently surprised by if we disregard to offer progressively detailed advice prior to, during, and after the filing of a bankruptcy petition. What I am speaking about, of course, are Homeowners Association fees, and to a lesser extent, local water and trash costs. As all of us need to understand well, such recurring charges collect post-petition, and exactly because they recur post-petition, they constitute new financial obligation-- and as brand-new financial obligation, the Personal bankruptcy Discharge has no effect whatsoever upon them. The typical case involves a Chapter 7 insolvency debtor who decides that he or she can not potentially manage to keep a house. Perhaps this debtor is a year or more in arrears on the very first home loan. Possibly the debtor is today (as is common here in California) $100,000 or more undersea on the residential or commercial property, and the lending institution has declined to use a loan modification in spite of months of effort by the homeowner. The home in all probability will not deserve the protected amounts owed on it for years to come. The regular monthly payment has adapted to an installation that is now sixty or seventy percent of the debtor's household income. This house should be given up. The problem, obviously, is that surrender in bankruptcy does not relate to a timely foreclosure by the lending institution. In days past, say 3 or even just two years earlier, it would. However today, mortgage lending institutions merely don't want the home on their books. I often think of an analyst deep within the bowels of the mortgage lender's foreclosure department looking at a screen showing all the bank-owned homes in a provided postal code. This would be another one, and the bank does not want another bank-owned home that it can not cost half the quantity it lent simply four years back. We could continue about the recklessness of the bank's decision in having made that initial loan, however that is another short article. Today the home is a hot potato, and there is absolutely nothing the debtor or the debtor's personal bankruptcy attorney can do to force the home mortgage lending institution to take title to the property. Thus the conundrum. There are other parties included here-- most notably, homeowners associations. HOAs have in numerous locations seen their monthly charges drop as a growing number of of their members have defaulted.

2. Their capability to gather on delinquent association fees was long thought to be secured by their ability to lien the residential or commercial property https://centurylawfirm.com and foreclose. Even if their lien was subordinate to an initially, or perhaps a second mortgage lien, in the days of house gratitude there was almost constantly sufficient equity in realty to make the HOA whole. But no more. Today HOAs typically have no hope of recovering overdue from the equity in a foreclosed home. So, where does this all leave the bankruptcy debtor who must surrender his/her property? In between the proverbial rock and a hard location. The loan provider may not foreclose and take the title for months, if not a year after the bankruptcy is filed. The HOAs charges-- in addition to water, garbage, and other local services-- continue to accumulate on a regular monthly basis. The debtor has actually frequently moved along and can not lease the residential or commercial property. But be ensured, the owner's liability for these recurring fees are not discharged by the insolvency as they occur post-petition. And he or she will remain on the hook for brand-new, recurring costs until the bank lastly takes control of the title to the home. HOAs will typically take legal action against the homeowner post-discharge, and they'll strongly look for attorneys' charges, interest, costs, and whatever else they can consider to recover their losses. This can in some cases cause tens of countless dollars of brand-new debt that the just recently bankrupt debtor will have no hope of discharging for another eight years, must she or he submit insolvency again. This problem would not arise if home loan lenders would foreclose promptly in the context of an insolvency debtor who surrenders a home. We as personal bankruptcy attorneys can literally beg that lending institution to foreclose currently-- or, better yet, accept a deed-in-lieu of foreclosure, but to no avail. They merely don't want the property. What recommendations, then, should we provide to debtors in this situation? The alternatives are couple of. If the debtor can hang on until the residential or commercial property really forecloses prior to filing insolvency, this would remove the issue. However such a delay is not a luxury most debtors can manage. If this option is not readily available, the debtor ought to either live in the residential or commercial property and continue to pay his or her HOA charges and community services or if the property is a 2nd home, for example, an attempt to lease the property to cover these ongoing costs. In the final analysis, the Insolvency Code never considered this situation. Nor did most states' statutes governing house owners' associations. A remedy under the Personal bankruptcy Code to force home loan loan providers to take title to surrendered real property would be ideal, however offered the problems facing this Congress and its political orientation, we can conveniently state that the possibility of such a legal solution is beyond remote.