Second Mortgages and Bankruptcy

With the real estate market decline in recent years and resulting depreciation in home values, many people have been inquiring about what happens to a second mortgage on your home if you file for Chapter 7 or Chapter 13 bankruptcy.  Many people now have second mortgages that are no longer secured by their home's value.  For instance, if your home is now worth $300,000 and you owe $300,000 on a first mortgage and $50,000 on a second mortgage, the value of your home will secure your first mortgage but there is not enough equity in your home to secure any of the amount owed on the second mortgage.

If you file for Chapter 7 bankruptcy in Kansas City, the bankruptcy discharge will eliminate your personal liability and any lien on the first mortgage if you are surrenduring your home.  However, on the second mortgage the bankrupty discharge will only eliminate your personal liability, and not the lien.

If you file for Chapter 13 bankruptcy in Kansas City you can eliminate your personal liability and the lien on a second mortgage under a procedure called "lien stripping".  "Lien stripping" allows you to eliminate a lien that has no security in the home.  However, the lien cannot be eliminated if it is at least partially secured by a portion of your home's current value.  So, if your home is worth $300,000 and you owe $275,000 on a first mortgage and $50,000 on a second mortgage you cannot "strip" the second lien because it is secured in part by a portion of your home's value.

Even if you cannot "strip" a lien, it will still likely have very little effect on your financial future.  Due to the Chapter 7 discharge of your personal liability for the second mortgage you cannot be sued for any money owed on it.  Additionally, without value in the home securing the second mortgage, the second mortgage holder would not benefit from a foreclosure since all of the value of the home would go to the first mortgage holder in a foreclosure sale.  Therefore, it is unlikely there will be any negative consequences from the second mortgage lien remaining on your home after bankruptcy unless the home's value rises enought to allow you to sell the home or to support foreclosure by the second mortgage holder.

In summary, a Chapter 13 bankruptcy will allow you to "lien strip" but Chapter 7 may suit the debtor just as well if they are severly underwater in the second mortgage (meaning they owe more on the first mortgage than the home is worth).  For more information please see the attached article on bankrate.com  http://www.bankrate.com/finance/mortgages/bankruptcy-may-end-second-mortgage-woes.aspx.  As always, also please feel free to check out my website for additional bankruptcy information  http://www.thesmalleylawfirm.com

Emergency Bankruptcies for Repossession or Foreclosure

Many people are faced with an imminent threat of a car repossession or home foreclosure before seriously considering bankruptcy.  Filing a typical Chapter 7 or Chapter 13 bankruptcy in Kansas City often requires working with your attorney to prepare over 50 pages of paperwork for filing.  It often can take quite a bit of work and time for the filer to compile the required information and documents and provide it to their attorney and it then requires additional time and work by the attorney to organize this information and prepare the proper paperwork.

So what happens if you are faced with immediate repossession or foreclosure and need the protection of bankruptcy to prevent repossession or foreclosure?  In such a case the Bankruptcy Code allows you to file an "emergency" skeletal Petition consisting of only the first two pages of the Petition along with your credit counseling certificate.  You will then have 15 days to file the remainder of the paperwork with the Court.  Filing the "emergency" petition can prevent immediate foreclosure, repossesion or wage garnishment, along with creditor harassment.

However, I do not ever recommend or would I agree to file an "emergency" Petition without proof of an imminent (within the next few days) foreclosure or repossesion because if the remainder of the paperwork is not filed within the next 15 days the Court will dismiss the bankruptcy case.  Therefore, save for the case of a true "emergency", a client should always be prepared to compile all required information and documentation prior to filing the bankruptcy Petition.  Please be aware that it can often take at least a week to provide the required information and documentation.  For more information about bankruptcy in Kansas City please visit my firm's website at http://www.thesmalleylawfirm.com

Credit Counseling and Debtor Education

Many people are not aware that prior to filing bankruptcy in Kansas City you are required to complete a credit counseling course.  Additionally, after filing, but prior to discharge, you are required to complete a debtor education class.  Both of these classes can be completed online, over the phone or even in person.

The credit counseling class generally costs $25 to $35 online and lasts 60 to 90 minutes.  The debtor education class generally costs $15 to $25 online and lasts about two hours.  Generally, the classes are more expensive if you choose to do them via telephone or in person. 

Before signing up for a class be sure to make sure that the agency is approved by the U.S. Trustee's office for the judicial district (court) you plan to file your case in.  Here is a link to the U.S. Trustee's office for the pre-filing credit counseling course:  http://www.justice.gov/ust/eo/bapcpa/ccde/cc_approved.htm and here is a link to the U.S. Trustee's office for the post-filing debtor education class:  http://www.justice.gov/ust/eo/bapcpa/ccde/de_approved.htm  Once you click on the link just select your judicial district (for example "Kansas" or "Western Missouri") and click "go".  You will then be provided with an up-to-date list of approved counseling agencies for your judicial district.

As always, feel free to check out my website at http://www.thesmalleylawfirm.com for more information on bankruptcy in Kansas City.  You can also contact me, Kansas City bankruptcy attorney Cary Smalley, at (913) 601-3549.  Have a great week!

Bankruptcy Filing Fees Increased As Of November 1, 2011

As of November 1, 2011 all bankruptcy court filing fees increased.  The fee to file a Chapter 7 bankruptcy in Kansas City is now $306 and the fee to file a Chapter 13 is now $281.  For businesses, the filing fee for a Chapter 11 is now $1046.  Check out this link http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyResources/BankruptcyFilingFees.aspx for a list of updated filing fees for all Chapters.

Please visit my website at http://www.thesmalleylawfirm.com or contact me, Kansas City bankruptcy lawyer Cary Smalley, at (913) 601-3549 for more information.

What to Expect at the 341 Meeting of Creditors

Many people who are filing for bankruptcy ask me what kind of questions that they can expect at the 341(a) Meeting, also known as the Meeting of Creditors.  Here is the list of questions your trustee is required to ask you and a list of sample questions your trustee may ask you, depending on the facts of your case. The hearing isn't a test or interrogation, it is a fact finding meeting.  If you have any questions about answering any of these questions, you should discuss them with your Kansas City bankruptcy attorney prior to your 341 hearing.  For additional information, here is a great resource:  http://www.bankruptcylawnetwork.com/

QUESTIONS THE TRUSTEE IS REQUIRED TO ASK YOU AT YOUR BANKRUPTCY HEARING (341(a) MEETING OF CREDITORS)

1. State your name and current address for the record.

2. Please provide your picture ID and Social Security number card for review.

3. Did you sign the petition, schedules, statements, and related documents and is the signature your own? Did you read the petition, schedules, statements, and related documents before you signed them?

4. Are you personally familiar with the information contained in the petition, schedules, statements and related documents? To the best of your knowledge, is the information contained in the petition, schedules, statements, and related documents true and correct? Are there any errors or omissions to bring to my attention at this time?

5. Are all of your assets identified on the schedules? Have you listed all of your creditors on the schedules?

6. Have you previously filed bankruptcy? (provide trustee with case number and the discharge information to determine discharge eligibility in this case)

7. What is the address of your current employer?

8. Is the copy of the tax return you provided a true copy of the most recent tax return you filed?

9. Do you have a domestic support obligation? To whom? Please provide the claimant’s address and telephone number, but do not state it on the record. Are you current on your post-petition domestic support obligations?

10. Have you filed all required tax returns for the past four years?

SAMPLE QUESTIONS THE TRUSTEE MAY ASK YOU

1. Do you own or have any interest whatsoever in any real estate? If owned: When did you purchase the property? How much did the property cost? What are the mortgages encumbering it? What do you estimate the present value ofthe property to be? Is that the whole value or your share? How did you arrive at that value? If renting: Have you ever owned the property in which you live and/or is its owner in any way related to you?

2. Have you made any transfers of any property or given any property away within the last one year period (or such longer period as applicable under state law)? If yes: What did you transfer? To whom was it transferred? What did you receive in exchange? What did you do with the funds?

3. Does anyone hold property belonging to you? If yes: Who holds the property and what is it? What is its value?

4. Do you have a claim against anyone or any business? If there are large medical debts, are the medical bills from injury? Are you the plaintiff in any lawsuit? What is the status of each case and who is representing you?

5. Are you entitled to life insurance proceeds or an inheritance as a result of someone’s death? If yes: PIease explain the detaiI s. If you become a beneficiary of any one’s estate within six months of the date your bankruptcy petition was filed, the trustee must be advised within ten days through your counsel of the nature and extent of the property you will receive. FRBP 1007(h)

6. Does anyone owe you money? If yes: Is the money collectible? Why haven’t you collected it? Who owes the money and where are they?

7. Have you made any large payments, over $600, to anyone in the past year?

8. Were federal income tax returns filed on a timely basis? When was the last return filed? Do you have copies ofthe federal income tax returns? At the time of the filing of your petition, were you entitled to a tax refund from the federal or state government ? If yes: Inquire as to amounts.

9. Do you have a bank account, either checking or savings? If yes: In what banks and what were the balances as of the date you filed your petition?

10. When you filed your petition, did you have:

a. any cash on hand?
b. any U.S. savings bonds?
c. any other stocks or bonds?
d. any certificates of deposit?
e. a safe deposit box in your name or in anyone else’s name?

11. Do you own an automobile? If yes: What is the year, make, and value? Do you owe any money on it? Is it insured?

12. Are you the owner of any cash value life insurance policies? If yes: State the name ofthe company, face amount of the policy, cash surrender value, if any, and the beneficiaries.

13. Do you have any winning lottery tickets?

14. Do you anticipate that you might realize any property, cash or otherwise, as a result of a divorce or separation proceeding?

15. Have you been engaged in any business during the last six years? If yes: Where and when? What happened to the assets of the business?

Source: Executive Office of U.S. Trustee, Handbook for Standing Trustees, Effective 03/01/06 App C-2

For more information about filing for bankruptcy please contact Kansas City bankruptcy attorney Cary Smalley at The Smalley Law Firm at (913) 601-3549.