USING BANKRUPTCY TO STOP A FORECLOSURE

Chapter 13 Bankruptcy is often used to stop foreclosure one one’s home. Assuming your were eligible for Chapter 13, you would need to file your bankruptcy petition before the sale date of your property by the lender, i.e. the date of the foreclosure sale.

With your bankruptcy petition, you propose a plan to repay the amount you fell behind on the mortgage. Basically, you force a loan modification upon the lender. Bankruptcy law does not let you discharge a debt and keep the property that secures the debt. The filing of a Chapter 13 bankruptcy stops ALL collection activity though something called the automatic stay. The automatic stay remains in effect during the life of the case unless the court orders otherwise.

Under a typical plan, you make monthly payments to a court appointed bankruptcy trustee for generally three to five years. The amount of your monthly payment is determined by several factors such as the amount of debt you have, your ability to repay and the extent that you have assets. The bankruptcy trustee distributes the money to your creditors.

To be eligible to file a Chapter 13, you need (1) stable and regular income; (2) disposable income, from which to make monthly plan payments, determined from the excess moneys after paying for basic human needs; (3) secured debt—e.g., home and car loans— that does not exceed $1,081,400; and (4) unsecured debt—e.g., credit card debt, medical and legal bills, student loans—that does not exceed $360,475.

While in bankruptcy, in addition to the plan payment, one is responsible for making regular mortgage payments, car loan payments, food, utilities and other basic needs expenses.

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WHO OWNS MY MORTGAGE?

After someone takes out a home loan, the originator of the loan often turns around and sells the loan to a third-party. So even though you signed a promissory note where you have promised to make payments to a particular lender for a prolonged period, you may end up making all of your payments to another company that you have never dealt with. This may or may not be the actual owner of the note. Often when the loan is sold, it is serviced by a third party.

If you need to find out who owns your mortgage the first step is to locate the note and the deed of trust. These two documents indicate who you borrowed from initially.

On the deed of trust, there may be a MERS number. If there is a MERS number you can go to https://www.mers­servicerid.org/sis/ and type in the number. This may tell you who owns your loan and who services it. If that does not work you may also try the Fannie Mae and Freddie Mac websites respectively at www.fanniemae.com/homeaffordable and www.freddiemac.com/avoidforeclosure

If you are not certain who you should make your mortgage payments to, then you may make a written request to any purported assignee for proof of the assignment. If you do not receive a response, you may continue to discharge the debt by paying the original assignor per 8.9a-406(c) of the Code of Virginia. Obviously, this assumes Virginia law is applicable. Also don’t misunderstand this statute. The statute does not let one out of the debt obligation. It basically just protects someone from default should someone pay the wrong person due to no fault of their own.

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New Bankruptcy Forms – December 2015

From the U.S. Court’s website:

Most Official Bankruptcy Forms were replaced on December 1, 2015, with substantially revised, reformatted, and renumbered versions. The 2015 forms are part of a forms modernization project that was begun by the Advisory Committee on Bankruptcy Rules in 2008. Among other things, the 2015 forms introduce different versions of case opening forms for individual debtors and non-individual debtors. Links to the instruction booklets for individual debtors, for non-individual debtors, and to a forms number conversion chart can be found below.

The revised forms are easier for debtors to understand and complete, and are designed to work with scheduled enhancements to the federal courts’ case opening and electronic case management system.

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WHAT IS IN A CHAPTER 7 BANKRUPTCY PETITION?

Besides personal identification information, miscellaneous certifications, residency information, debt classification as consumer or non-consumer, there are the bankruptcy schedules in each bankruptcy petition. These make up the real substance of each petition. The schedules include:

1) Schedule A. It identifies real property that they debtor may own. This often does not apply to Chapter 7 filers.

2) Schedule B. It identifies personal property that the debtor owns. On this schedule, the debtor identifies everything that is not real property that he or she owns or has an ownership interest in, e.g. cash on hand, bank accounts, household furnishings, clothing, jewelry, firearms, insurance policies, securities, annuities, etc.

3) Schedule C. It identifies property that the debtor wants to claim as exempt. On this schedule the debtor identifies property that he or she wants to keep after the bankruptcy. For a Chapter 7 to work for you, you either have to have minimal non-exempt property or you have to be willing to give up your non-exempt property. Schedule C requires identifying the legal exemptions that will enable you to protect as much property as you can.

4) Schedule D: It identifies creditors holding secured claims, the debts, and the collateral securing the debts.

5) Schedule E. It identifies creditors holding unsecured priority claims. There are numerous unsecured priority claims, but the most commons ones are child support and taxes.

6) Schedule F: It identifies creditors holding unsecured non-priority claims.

7) Schedule G: It identifies executory contracts and current leases. Basically, here you identify any contract to which you are a party where there are still unperformed obligations.

8) Schedule H: It identifies any other people or entities that may be jointly liable for your debts. Frequently, this is a spouse, but not necessarily so.

9) Schedule I: It identifies your current monthly income, e.g. wages, retirement, disability, social security, investment income, tax deductions, alimony, etc.

10) Schedule J: It identifies your current monthly expenditures, e.g. rent, utilities, taxes, food, clothing, health expenses, recreation, insurance, vehicle expenses, etc.

And finally due to the passage of BPCPA in 2005, the debtor must also sign off on a statement of current monthly income and a means test calculation. Basically, the means test looks at your personal situation and tells you whether or not you are presumed to be abusing the bankruptcy process. If your income is low enough, you will not need to deal with this test in much detail.

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Bankruptcy and Credit Reports

Though it should go without saying that bankruptcy is not good got your credit, you can begin to rebuild your credit immediately after filing bankruptcy by being prudent in your borrowing and by repaying bills timely. Generally, one can get a conventional home loan within 4 years of a Chapter 7 discharge, less in the case of Chapter 13 discharges and less in the case of some federally subsidized home loans.

The Fair Credit Report Act, at 15 USC 1681c, sets out the basic parameters of how long certain information can remain on one’s credit report. There are exceptions, but the basic rule is that bankruptcy can remain on your report for up to ten years and everything else can remain for up to seven years.

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WHAT IS FRAUD AND HOW DO I PROVE FRAUD?

In common lexicon, the understanding and usage of ‘fraud’ is exceptionally broad. Most fundamentally, ‘fraud’ is an intentional deception. This is pretty simple. Under Virginia law though, fraud is anything but simple. Proving common law fraud is particularly difficult. Though there are sometimes ways around these issues, here are a few of the common obstacles.

1. If you’ve contracted with the person you think has defrauded you, you probably don’t have a fraud claim. Virginia recognizes something called the economic loss rule. The economic loss rule is intended to maintain the difference between a cause of action sounding in tort and cause of action sounding in contract. It provides that where the plaintiff is a party to a contract and has suffered only economic loss, such as damages for inadequate value, the cost to repair a defective product, or lost profits, his remedy sounds in contract and not tort.

2. Contracts also have merger provisions typically, so if you enter into a contract based off of a misrepresentation, the misrepresentation will need to be very clear. Otherwise, the purported wrongdoer is going to say the misrepresentation is not a basis of the bargain, i.e. you waived it when you went and signed the contract.

3. Representations with regards to future acts are probably not going to be fraud because Courts generally do not consider such representations as relating to ‘material facts.’

4. Fraud needs to be pled with particularity. This means you are going to need more detail about the offense than is standard in a civil case.

5. Fraud needs to be proven with clear and convincing evidence. This is not as high of a standard as “beyond a reasonable doubt” but it is higher than “preponderance of the evidence” which is the typical standard in a civil case.

6. You need to prove someone’s intent. People rarely disclose why they are actually doing something.

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TIPS FOR IMPROVING YOUR CREDIT SCORE

Credit scores are a bit like black boxes. There is not a single credit score. The FICO score is the most well known, but the algorithm is not public. Accordingly, the tips and suggestions that follow are general, but if followed, should help improve your credit score.

  1. Understand your credit reports, particularly the big three, TransUnion, Experian and Equifax. If an investigative consumer report is causing you problems, you need to see that report and understand that report. By understanding a report, you need to understand everything on it. Once you do so, you need to address all inaccuracies with the agencies to get them removed, explained or supplemented. Sometimes missing information can be damaging. If you have a credit card with a $2,000 balance on it and a $10,000 credit line, but the Credit Reporting Agency (“CRA”) is only reporting a $2,000 credit line, this is hurting your score. You are appearing over extended.
  2. Keep low balances on your accounts. Generally 10% to 15% is ideal. Anything above 50% is probably hurting your score.
  3. Don’t use a credit repair organization. Do it yourself or use an attorney. There is a reason why Congress passed the Credit Repair Organization Act and Virginia has the Virginia Credit Services Business Act. The industry has lots of problems.
  4. If you settle debts with a creditor have the creditor stop reporting the debt to the CRA’s. If there is a judgment against you, have the judgment creditor vacate the judgment in return for paying off the judgment or a portion of it.
  5. Paying on delinquent debts can actually hurt one’s score by making the debt appear more recent.
  6. Get rid of delinquencies. Bring accounts current.
  7. Keep in mind that the two most important things affecting your credit score are probably your payment history and the amount of credit that you are actually utilizing. If you are overextended, i.e. you are borrowing a lot relative to what you are allowed to borrow, this hurts you. Don’t borrow maximum amounts extended to you.
  8. A single 30 day late payment can drop a FICO score by as much as 100 points. This is the difference between having excellent credit and having average credit.
  9. If you are looking for good interest rates, do your shopping in as short of a period as possible. Multiple inquires over the course of week is fine. Multiple inquires over the course of a couple of months will hurt you.
  10. Consider getting yourself added as an authorized user on someone else’s account who has good credit, for example a spouse or a parent.
  11. Make sure joint accounts are listed as such.
  12. If accounts are showing up multiple times on your report, get the duplicates removed.
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