Paying Your Mortgage with Money Order is a Bad Idea

Posted by Robert Weed / in After Bankruptcy, Blog, Chapter 13, Weekly Posts /

Paying Your Mortgage with Money Orders is a Bad Idea

Handing somebody a money order to buy a car or something–that’s sometimes safer than cash.  But mailing a money order to pay your mortgage–that’s almost always a bad idea.

Let me tell you about Norman.  Norman filed Chapter 13 bankruptcy with different lawyer.  He later came to see me in a panic. Selene, his mortgage company, has started to foreclose. “So have you paid on time for the fifteen month since the bankruptcy was over?” I asked.  “Absolutely,” he replied.  That was Friday.  Sunday afternoon, he sent proof.  Eleven cancelled checks and four sets of Western Union money orders.

We need to move quickly to stop that foreclosure but I don’t really have proof he made the payments. The cancelled checks–they show Selene got them.  But the money orders; who knows where they actually went.

Getting Proof from Western Union

We are sure glad Norman kept his receipts.  Western Union money orders have form on the back he can mail in–with $15.00–to track if the money orders were cashed.  And by whom.  That will be a total of $240 to track sixteen money orders.  (Western Union money orders are limited to $500; so Norman needed four money orders for each mortgage payment.)

If they haven’t been cashed, he can get his money back. If Selene cashed them, we can prove the mortgage is current. Meanwhile, the clock is ticking toward foreclosure.  Because Virginia foreclosure law was changed a few years ago, we do have enough time to work with. But no time to spare. 

Selene Violates Regulation Z and Makes This Problem Worse

When Norman filed for Chapter 13 bankruptcy, Selene stopped sending monthly to him. As far as I can tell, that’s their national policy. (I’m suing Selene because of that.) Regulation Z requires mortgage companies to send periodic statements. And expressly says that bankruptcy is NOT an excuse to stop sending statements.

If Selene had sent monthly statements, Norman could have seen right away if the money orders weren’t being properly credited.  When the case was over and Selene started sending statements, Norman couldn’t figure out what was going on.  We went to the Selene website to download the past monthly statements.  But they would only give us six months of past statements.

 

 

 

Once Up an Time: A Chapter 13 Story

Posted by Robert Weed / in Chapter 13, Chapter 13 Bankruptcy /

Once up a time: Widow Anna saves her house and clears her debt with Chapter 13.

Once up a time, an elderly widow named Anna needed to replace the HVAC in her townhouse. Her air conditioning broke down and she needed to fix it.

Anna was poor.  She had $1404 monthly from her retirement and $1232 from social security.  Her credit score was dragged down by the $33,000 she had on credit cards—even though the cards were all still current.

Mean Boys LLC offered to install and finance her HVAC—they put her in a seven-year lease for the HVAC at $146.00 month. It was a lease, not a purchase. At the end of the seven years (after paying $12,264) it would still NOT be paid for.

Anna didn’t have much choice—she needs to have AC in the summer and heat in the winter. But when she started to pay Mean Boys, her credit cards fell behind.

No wonder Anna’s credit cards fell behind! Her minimum payment on the credit cards was $991.

After paying her mortgage, her condo fee, and Mean Boys, she only had $967 left over.  She had to eat and pay utilities and car insurance, before trying to pay those credit cards.

That’s why Anna came to talk to Nice Bob, a bankruptcy lawyer.

Anna’s Chapter 13 payment plan $891 a month

Nice Bob, the bankruptcy lawyer, put Anna in a chapter 13 payment plan.  (Virginia law is NOT favorable to widows—or other single people—who want to file Chapter 7 bankruptcy and keep their house. That’s why Anna chose Chapter 13.) Chapter 13 is a payment plan. Nice Bob was able to get Anna approved for a Chapter 13 payment of $100 for 36 months.  That was $3600 to clear $33,000 in debts.

Nice Bob also set a trap for the Mean Boys, LLC.  Chapter 13 does NOT help a consumer who needs to reduce the payment on a lease.  (And Mean Boys LLC had very good lawyers—their HVAC lease was a very strong lease.)

Mean Boys LLC fall into Nice Bob’s trap

Mean Boys—sure enough—fell into the trap that Nice Bob set. They made a mistake and violated the “automatic stay.”  They could end up owing Nice Bob a couple thousand dollars in legal fees.

Nice Bob didn’t want those legal fees. Instead, he wanted to pressure Mean Boys to help Anna.  And that worked! Mean Boys agreed to cut their payment in half—from $146 a month down to $73. (That saved Anna $4234 over the remaining months of the lease.) 

Now Anna, our elderly widow, can keep her house, and her AC and heating. And live happily ever after.

PS This is a once upon a time. Any similarity to any living person or business is purely coincidental. 

 

(PPS.  Homeadvisor.com says the average cost of installing an HVAC system is $5845.  Anna’s condo is quite small, so a fair price might have been less than that average.) 

 

 

 

Chapter 13 and Tax Relief for Seniors Save Marian’s House

Posted by Robert Weed / in Chapter 13, Chapter 13 Bankruptcy, Weekly Posts /

Marian Saves Her House from Reverse Mortgage Foreclosure: She Filed Chapter 13 and Got Fairfax Senior Citizen Tax Relief

Before her husband died, Marian had taken out a reverse mortgage on her home. That way, they hoped, she wouldn’t have a house payment and she’d never have to worry about having a place to live.

But after a couple years, Marian got a reverse mortgage foreclosure notice.

In a Reverse Mortgage, You Don’t Have a Mortgage Payment But You Still Have the Tax Payment

Having a reverse mortgage does NOT mean you have a free place to live. You don’t have to pay the bank, but you still have to pay real estate taxes and insurance. Marion’s monthly tax was $390.00–lots cheaper than rent but not free.  

The reverse mortgage company paid the real estate taxes–but Marian was required to pay reverse mortgage company back. She didn’t understand (and didn’t have much money) and so she didn’t do it. For three years. That gave the reserve mortgage company the reason to foreclose her.

Chapter 13 in the Nick of Time

Marion’s house was scheduled to be sold out from under her on July 28. We filed Chapter 13 on July 27.  That stopped the foreclosure and the Chapter 13 plan gave her five years to pay the mortgage company back for those taxes.  Wew!

But Marion now has to make the chapter 13 payment. It’s $280 a month.

                                                  

Tax Relief for Seniors Saves the Day

On top of that $280 a month Chapter 13 payment, how can Marion pay next year’s real estate taxes?  Good news. Fairfax County–like most of the counties in Northern Virginia–has tax relief for low income seniors. (Here’s the info for Loudoun. And Prince William.) She applied and got approved. No more real estate taxes. Her budget is very tight, but she will save her house.  

PS  For More Info on Danger of Reverse Mortgage Foreclosure

What happened to Marian happens a lot. And not everybody moves fast enough to stop it. The Naples Daily News had this great article in 2019 about senior citizens in reverse mortgages who end up losing their homes in foreclosure.    

 

We knock out Dyck-O’Neal, Save Lonnie’s Clearance and his Family Home Place

Posted by Robert Weed / in Blog, Chapter 13, Chapter 13 Bankruptcy, Weekly Posts /

We knock out Dyck-O’Neal, Save Lonnie’s Clearance and his Family Home Place

Lonnie was about to lose his federal job. His clearance review showed he owed Dyck-O’Neal $127,153 from a foreclosure deficiency. He needed to take care of that. Or he’ll lose his clearance and his job.

Obviously he didn’t have $127,153.  And when we looked at it, he couldn’t file Chapter 7 bankruptcy either.  When his parents died, Lonnie had inherited a share of their home place. The parents’ home place was paid for. A Chapter 7 bankruptcy trustee would take and sell it.

Chapter 13 Bankruptcy Payment Plan–How Can He Afford it?

He needed to do a Chapter 13 bankruptcy.  To protect his clearance by paying his debts.  And protect the family home place–by paying his debts.  But, in a Chapter 13 payment plan, how much would Lonnie has to pay?

The Chapter 13 trustee demanded a payment Lonnie couldn’t afford. The trustee didn’t want the whole $127,153.  But he wanted most of that to be paid.

We solved that problem by knocking out the Dyck-O’Neal $127,153 claim. We knocked them out under the statute of limitations.

What’s the Statute of Limitations

The statute of limitations is a law that says if a creditor leaves you alone too long, they are too late. More than five years after the mortgage company accelerated the loan (starting the foreclosure process) was too late.  (That’s five years under Virginia law. Each state sets their own rules on this.)

Based on the records we had, it looked like the five years was up. Dyke-O’Neal had more complete records than us–at least they should have. But they didn’t fight.  So, we won.

Now all Lonnie has to pay are the smaller debts he was paying anyway.

 

Don’t put it off

Foreclosure or repossession? Talk to a bankruptcy lawyer right away. You probably have eligibility now–you need to find out of course.  And in three or four years when they come after you, you might not.  (Lonnie could have filed Chapter 7 when the house foreclosed; after his parents died, then he couldn’t.) Usually relying on good luck doesn’t work real well. 

 

 

 

Linda Pays through Beyond Finance and Gets Garnished

Posted by Robert Weed / in Alternatives to bankruptcy, Chapter 13, Weekly Posts /

Linda Pays Mariner $6113 through Beyond Finance. Then She Gets Garnished

Linda Cash (not her real name) wanted to clear her debts without filing bankruptcy. As an alternative to bankruptcy, she signed up for Beyond Finance.

Linda needed Beyond Finance to help her with Mariner. (She originally borrowed $5383, got behind, and now owed Mariner $6113.65.) 

Beyond contacted Mariner and then told Linda “Congratulations–we’ve settled Mariner for $6113.65.”  In 29 installments, they told her.

Now, Linda thought $6113 was all she had to pay. She paid $213 per month; $213 was what Mariner told her to pay. At the end of 28 payments, she thought she had only $150.00 to go.

Bad surprise. Mariner wanted $6113.65 at 36% interest. Mariner had agreed to $213 a month until paid in full. It would take 66 months–not the 29 Beyond told her–to pay Mariner with interest.

How bad was it? Linda had paid $5964 and she still owed $4808.  (Of the $5964 she paid, $4681 had gone to interest.)

Linda complained to Beyond. Beyond didn’t explain.

She argued with Mariner. Mariner garnished her. That’s when Linda called me.

Bankruptcy Would Have Been Better

Linda is eligible for two kinds of personal bankruptcy.  Chapter 7 bankruptcy says “sorry I can’t pay this debt.”  Chapter 13 is a court approved payment plan.

Chapter 13 would have done what Linda wanted.

If Linda had signed up for chapter 13, the bankruptcy court would have made Mariner accepts payments at no interest. (The Chapter 13 trustee does charge a handling fee on each payment–so it would have taken 32 payments at $213 to pay off Mariner. Not the 29 payments Beyond promised her.  But way better than the 66 payment settlement from Mariner.)

Chapter 7 is Even Better

As a single person in Virginia making less than $67,815, Linda is eligible to file Chapter 7 bankruptcy. Chapter 7 discharges–clears–her finance company loans, like the one she had with Mariner. If she had filed Chapter 7 in the spring of 2019, instead of going to Beyond, she’d be back to good credit today.  She could get a car loan at a good rate, or even qualify for a mortgage and buy a house.

And she would have saved the $5964 she paid through Beyond to Mariner.

Beyond This Screwup

I don’t think Beyond was intentionally tricking Linda–they just screwed up. But I do say these debt settlement outfits are rarely a good idea.

Why Not Debt Settlement? Actually They Warn You

Here’s what it says in small print on the Beyond website.  “The use of debt consolidation services will likely adversely affect your credit. You may be subject to collections or lawsuits by creditors or collectors.”  In other words, if you sign up for their program, you will wreck your credit; then expect to get sued.  Probably not the best idea.

For people who really, really want to pay their debts, and need only a little help, I often recommend debt managment programs. They can usually get each payment down a little off the regular minimum monthly and still pay everybody off in five years.  Debt management plans have to be licensed in most states, including Virginia. 

Most legit debt managements programs (they are sometimes called credit counselling) won’t BS you. If they can’t make your budget work, they will tell you so, and suggest bankruptcy.

Other alternatives to bankruptcy

For other alternatives to bankruptcy, you can disappear. Or just don’t pay.

 

 

 

PS Why Does it Take So Long to Pay off a loan at 36%.  Here’s the chart:

 

Debt Settlement or Chapter 13 Bankruptcy Which is Better?

Posted by Robert Weed / in Chapter 13, Weekly Posts /

Debt Settlement or Chapter 13 Bankruptcy: Which is Better?

My friend Roberta knew she was in financial trouble, but she wanted to try pay her debts. Rather than file Chapter 13 bankruptcy, she signed up for a debt settlement company, who promised her a “customized reduction plan.”  Over 18 months she paid $23,673.00.  And the debt settlement company settled two of her credit cards:  A Chase card for $10,496; and another Chase card for $9719.  With their fees and overhead, Roberta’s payments to debt settlement totaled $3458 more than the total of the debts they settled.

That debt settlement company promises “you will settle your debts for less than you owe.” Settling for less than you owe doesn’t necessarily save you money.  It depends on how much less they settle for.  That’s because most debt settlement companies charge you a 25% fee.  (Plus a monthly account fee, usually $10.00) That fee isn’t 25% of what they save you–it’s 25% of the whole debt.  So if the creditor is only willing to settle for 75% of what’s due, you have no savings at all.  

Spending that extra $3458 wasn’t the worst of it.  

While she was settling the two Chase cards, her other creditors weren’t getting paid. Two Bank of America cards, two Citibank cards, and a Target card were all reporting her to the credit bureaus every month as late.  She had nineteen months of being reported as late–and of those 13 months were reported as “charged off.”  

Finally, after being ignored for 19 months, Bank of America sued.  (I say finally because Roberta was lucky–or unlucky–that she didn’t have Discover or Capital One. Both of those companies are much quicker to sue than Bank of America.)  That’s when she realized debt settlement was not working for her.

I See Debt Settlement a Lot

Since I’m a bankruptcy lawyer, I see a lot of people who get sued while they are paying their debts through debt settlement. The two debt settlement outfits I see most often are the biggest, Freedom Debt Relief and National Debt Relief.   (Freedom Debt Relief calls what they do “debt resolution.” National Debt Relief says they do “debt relief.”) 

Roberta’s experience is typical of what I see.  She kept really good records, so I could understand exactly how it worked out for her.

The big debt settlement companies have thousands of happy customers. Maybe you’ll be one of them.  To help you decide, I put the advantages of debt settlement compared to Chapter 13 for you to read and think about.  (I’ve written on this twice before, but not in much detail.) 

Debt Settlement vs Chapter 13: What are the Advantages?

Settlement Fees

Debt Settlement: 25% of the total debt (NOT just 25% of what you save.) On $45,000 in credit cards, that’s $11,250. Plus $9.95 a month, another $597.00.  That comes to $11,847.

Chapter 13: 10% of each payment, plus $5485 in legal fees.  Total $9,985. 

Advantage Chapter 13.

 

Tax Consequences

Debt Settlement:  You get a debt forgiveness 1099 when the credit card company settles for less than the entire amount.  If the Debt Settlement Company reduces your debt by $22,500, you get a 1099-C for that and you likely owe $6,243.60 in federal and Virginia income taxes.

Chapter 13.  There are no taxes on debt discharged in Chapter 13 or Chapter 7 bankruptcy.

Advantage Chapter 13.

 

Total You Have to Pay

Debt Settlement companies try to get creditors to settle for 50 cents on the dollar.  But while you are paying off your first few settlements, the other creditors continue to add interest (often at 29%) and late fees.  (Usually, after six months, the credit card companies stop adding interest.)  

Chapter 13 freezes the balances on your credit cards and unsecured loans.  In Chapter 13 you have to pay “all you can afford” according to a formula written in the law and applied by the bankruptcy court, but never more than the total of the debt, sometimes far less.

Advantage: It depends. Debt Settlement is definitely better if the creditors all settle quickly and if the bankruptcy court would decide you can “afford” to pay your debts in full.  Otherwise Chapter 13 can be better.

 

Do All Credit Card Companies Participate?

Debt Settlement:  Some major credit cards refuse to participate in debt settlement programs.  Participation is voluntary.

Chapter 13:  Chapter 13 is a federal law. Creditors can apply to the bankruptcy court to get paid. Or if they don’t apply, the debt is discharged (cleared) even though they get nothing.

Advantage:  Chapter 13

 

Court Cases

Debt Settlement: National Debt Relief posts this warning in bold.  “If you don’t repay or settle the debt, the debt collector can sue you.” Unless you have enough money to settle with all your debts quickly (and pay the settlement fees) the creditors NOT getting paid are likely to sue.

Chapter 13: Chapter 13 is a court order for the creditors to leave you alone. They can’t garnish, they can’t sue, and all pending court cases are stopped.

Advantage:  Chapter 13

 

Is Debt Settlement Legal?

Debt Settlement: While still operating legally in Virginia, Freedom Debt Relief has been shut down in Connecticut, Georgia, Hawaii, Illinois, Kansas, Maine, Mississippi, New Hampshire, New Jersey, North Dakota, Oregon, Rhode Island, South Carolina, Vermont, Washington, West Virginia and Wyoming.  The Consumer Finance Protection Bureau sued them in 2017 and in 2019 Freedom Debt Relief agreed to pay a fine of $25 million.

Chapter 13 is established by law. When you file Chapter 13 you have a law on your side.

Advantage: Chapter 13

 

Credit Reporting

Debt Settlement:  When you stop paying your credit card in a debt settlement program, the credit cards show on your credit report as late. When they are 180 days late, they show on your credit report as “charged off.”  As you settle some accounts, those are updated to show “Paid in settlement” (Code AU). Meanwhile, the accounts not settled keep reporting 180 days past due and “charged off” every month.

Chapter 13: In Chapter 13, your accounts are noted as Chapter 13. (Code D). When the Chapter 13 is completed, they are notes as Discharged through Chapter 13. (Code H)

Advantage: Chapter 13.

 

Security Clearance

Debt Settlement tells you to stop paying all your bills–and some admit they do NOT start to negotiate until you’ve been making monthly payments to them for six to twelve months.  That’s six months or more when none of your creditors are getting paid anything. And after that, the debts are settled usually one at a time, while other continue to go later. Just not paying your debts looks irresponsible.  

Chapter 13 proposes a payment plan to a judge. That shows your security clearance officer that you have taken responsibility for your problem and are working out a solution.

Advantage: Chapter 13.  

 

Conclusion Debt Settlement or Chapter 13

When they work, Debt Settlement programs can save you about 25%–which after taxes would be more like 15%–of the total you owe and they spread your payments out over three years or so. That savings can be substantial.  But, if some of the credit cards get tired of waiting while you settle with others, then you have a year or two of terrible damage to your credit, followed by the sheriff bringing court papers to your door. You end up where you didn’t want to be, talking to a bankruptcy lawyer about Chapter 13. Or maybe Chapter 7.

PS On Roberta.

I told you at the top that Roberta paid $23,673.00 on her debt settlement plan. Where did she get that money?

Through most of the last 19 months, Roberta was able to get a COVID forbearance on her mortgage payment.  She was able to pay the debt settlement company by NOT paying her mortgage, and putting the missed payment on the end.  Of course that means she really could NOT afford debt settlement at all. It also means that she would have been able to propose a very low payment in Chapter 13, because in Chapter 13 the court allows you to budget the money you need to pay your mortgage.  That $23,673.00 was money down the drain.

 

 

 

The Wells Fargo Home Projects Card and Chapter 13

Posted by Robert Weed / in Chapter 13, Weekly Posts /

The Wells Fargo Home Projects Card and Chapter 13 Bankruptcy

The Wells Fargo Home Projects Card is issued differently than most credit cards. As far as I can tell, they don’t market it directly to consumers. Instead, they get home improvement businesses to sign people up. That way Wells Fargo finances the home improvement and the business gets paid.  Makes sense to me.

What doesn’t make sense to me is this:  Wells Fargo uses that card to butt in line ahead of other credit card creditors in Chapter 13 bankruptcy.  That’s because Wells Fargo claims to be a secured creditor.  Secured creditors have to be paid ahead of regular credit cards in a Chapter 13 bankruptcy payment plan. 

What’s a Secured Creditor?

What’s a secured creditor?  A secured creditor is a creditor with a “security interest.” UCC § 9-102(a)(73).  The Wells Fargo Home Projects card agreement claims they have a security interest:  “You grant us a purchase-money security interest under the Uniform Commercial Code in the goods purchased on your Account.”

What’s a security interest?  Your car finance company has a security interest in your car.  The car finance company has a lien attached to the title of your car.  If you don’t pay; they can come get it.  (Bankruptcy clears your personal liability–you don’t have to pay. But the car still has to pay.)

Consumer goods–something like a washing machine–don’t have a title.  But the people who finance them are still have a security interest.  They are secured automatically.  UCC § 9-309(1). Automatically, as long as you sign a paper with a description of the washing machine, so it can be reasonably identified.

Years ago Sears was very aggressive asserting their right to payment after bankruptcy on things like washing machines.  So aggressive that they ended up getting hit with multi-million dollar sanctions by the bankruptcy court in Massachusetts.  Conley v Sears 222 BR 181. D Mass 1998.  A few years later, Sears got out of the business of issuing their own credit cards.

Wells Fargo though isn’t claiming a security interest in a car, or in a washing machine.  In the cases I’ve seen, they claim a security interest in “trim,” in “replacement,” in “remodeling,” and most often in “items purchased.”

I call BS on the Wells Fargo Home Projects Card

I call BS on Wells Fargo.  These come nowhere near the legal requirement that the consumer sign an agreement that provides a description of the collateral. UCC § 9-203(b)(3)(A).  “Items purchased” could be anything. That’s not a description. By law, it’s not a description unless it “reasonably identifies what is described.” UCC § 9-108(a).

Second, a security interest does not exist in “ordinary building materials” once they become part of the building.  Trim obviously becomes part of the building. UCC § 9-334(a).

On their website, Wells Fargo tells home improvement businesses what kinds of things they finance. Here’s the list.

Flooring       Siding     Windows/Doors   

Remodeling   Roofing    HVAC

Doors and HVAC are a gray area.  Are they part of the building, or not?  Could go either way.  But Wells Fargo can never be secured in flooring (once it’s installed, of course.) Or siding. Or windows, or remodeling, or roofing.   

It looked to me like Wells Fargo always claims a legal right that they hardly ever actually have.

Wells Fargo Caved In

In the case of Merida Mejicanos, 21-10600-KHK, Wells Fargo Home Projects claimed a security interest in “trim” and “door replacement.”  I objected, and privately dared them to come in and fight.  They caved.  Without admitting they were wrong, they dropped their claim. They said they wanted to avoid “the risk of further litigation.”

The big risk of course is that the judge would write that they were wrong–and other lawyers and judges would read it.

 

 

 

 

 

 

 

New Law Helps Disabled Veterans in Chapter 13 Plans

Posted by Robert Weed / in Chapter 13, Weekly Posts /

New Law Helps Disabled Veterans in Chapter 13 Plans

Disabled veterans facing bankruptcy, got a big boost yesterday when the HAVEN Act became law.

From now on, disabled veterans can’t be forced to use their veterans disability payment to fund debt repayment plans.  Here in Northern Virginia, there are many disabled veterans, who are also working. Those veteran families had been considered high income and forced into very high payment plans under bankruptcy Chapter 13. 

Now the bankruptcy court is not allowed to consider the disability pay, in calculating what these veterans can “afford” to pay their creditors.

Senator Tammy Baldwin was the chief sponsor of this bill in the US Senate.   

(I was one of the members of NACBA who lobbied for this bill on Capitol Hill earlier this year.)

I participated in a class on this new law, September 5, 2019, and kept some notes.

Here’s some detail that shows exactly what benefits are covered. 5 HAVEN Act TPM Addendum 6 Haven_Act_Faqs From USTP   And where to go to find out what benefits exactly are being HAVEN Ebenefits Mypay.

How a cheap car payment can help you on the bankruptcy means test.

Posted by Robert Weed / in Before Bankruptcy, Chapter 13 /

How a cheap car payment can help you on the bankruptcy means test.

Chapter 13 in Virginia–A New Nightmare

Posted by Robert Weed / in Chapter 13, Chapter 13 Bankruptcy, Weekly Posts /

Chapter 13 in Virginia–A New Nightmare

The Bankruptcy Judge in Norfolk just made chapter 13 in Virginia even more dangerous.  And last night one bankruptcy judge in Alexandria hinted that he agrees.

 

The issue came up the the case of In re Marlene Evans.  Ms Evans made her bankruptcy payments to the Chapter 13 Trustee for five years.  According to her plan, she had paid about $4500 toward $23,000 in debts, and the rest of it was supposed to be discharged–gone.

Not so fast, said the Chapter 13 Trustee, Clint Stackhouse.  The Trustee said, you paid me, but you are behind with your mortgage payments. And sure enough, Ms. Evans admitted she was about ten months behind on the mortgage.

That means, argued the Chapter 13 Trustee, you didn’t keep all your promises–you paid me, but not the mortgage.  And you promised to do both.

The Judge, Stephen St John, agreed.  Even though she had paid what she promised toward the $23,000–mostly credit cards, personal loans and payday loans–they are allowed to start chasing her again, when the bankruptcy was over. Why, because she fell behind with the mortgage payments.

This doesn’t seem fair.

It doesn’t seem fair.  Ms. Evans paid what the credit cards were promised–why does she have to pay them again?  Since she admits she’s behind on the mortgage–well, everybody has always agreed that the mortgage company can come after her for that.  And if she can’t work it out, she’ll lose her house.  But why do the credit cards get to hide behind the mortgage company?

And it happens a lot in Chapter 13

People often finish Chapter 13 a few months behind on their mortgage.  That’s because Chapter 13 budgets are very tight.  In Northern Virginia, where the cost of living is real high, they are very, very tight.  So after four years of the Chapter 13 trustee draining every available cent from your budget, towards the end, you may need a $2500 car repair.  And skipping the last couple mortgage payments seems like the only way to do that. Figuring when the Chapter 13 payment is done, then there’s money to catch up the mortgage.

That strategy is now officially a disaster, at least in Tidewater, and maybe in all of Virginia.

The Judges in Alexandria

Last night was the annual dinner of the Bankruptcy Judges and the bankruptcy lawyers.  The Judges got to talk for an hour, and Judge Robert Mayer brought this up.  He didn’t say he agreed (Judges are not supposed to tell you what they think–except when you are in court in front of them.) But he did say that “most courts around the country” that have decide this, have all decided the same way.  

UPDATE: Ms. Evans Loses Her Appeal

A US District Court Judge in Norfolk, today on January 13, 2017, agreed with the bankruptcy judge. (You can read it here. Evans v Stackhouse.)  It’s now the law in Virginia. If you finish your Chapter 13, and pay the credit cards all your promised, but fell behind on your mortgage, your bankruptcy is tossed out. The credit cards are allowed to start chasing you all over again.

What’s the lesson? Avoid Chapter 13

Here are some disadvantages of Chapter 13, compared to Chapter 7.  

1.  If your income increases after you start paying, the Chapter 13 trustee will want more.

2.  If you inherit money while you are in Chapter 13,  that money goes to the Chapter 13 trustee.

3. In many cases, the bankruptcy trustee takes your refund.

4. It’s worse on your credit than Chapter 7.

5. Less than half of Chapter 13 filings succeed.

6.  And now, you can complete your payments and still not get a discharge, if you slip behind on your mortgage payments.  

 

If there’s any way, you want to avoid Chapter 13.   

Hank Hildebrand, Chapter 13 Trustee in the Middle District of Tennessee, and one of the nation’s most frequent speakers on Chapter 13 issues describes Chapter 13 as a “complex, expensive and unproductive system.”  

One more darn thing.

Just had a ruling from the 11th Circuit.  Suppose during the Chapter 13, you are injured in a car accident.   If you go ahead and sue for your injury, without first telling the bankruptcy court, you forfeit your right to sue for that injury.  

Chapter 13 is Anti-family

Client, two years into Chapter 13, asked me today if getting married will affect his Chapter 13 plan.  Well, it might. If the spouse is working, too, the trustee can claim that the increased family income is a substantial, unforeseen change, and ask that the payments be increase.

The members of Congress of the Judiciary Committee, who care about family values, could support a change in the law that blocks the trustee from arguing that.