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06

Feb 2011

Before bankruptcy: Virginia law is fast track for foreclosure

Posted by / in Virginia Bankruptcy / 3 comments

Many people file bankruptcy right before foreclosure.  Sometimes the timing of the bankruptcy is to get more time to get a loan modification approved.  Sometimes the timing of the bankruptcy is to get more time to move.   Sometimes it’s because people are out of work and have no where they can go.

As a Virginia bankruptcy lawyer, I see a lot of that.  Because foreclosure is faster in Virginia than almost anywhere.  (And while other states are adding protection for homeowners, Virginia is not.  So reports the Washington Post.)

Now most people who are being foreclosed in Virginia are in fact behind on the mortgage payments.  And they do owe a payment to somebody.  But, it’s not always the company who is trying to foreclose them.

Just last week, I met with a couple filing bankruptcy on the eve of foreclosure.   They had letters in December from two different companies, both saying they owned the loan.

Does that matter? Well, some.  Now in this era of falling housing values, banks will consider loan modifications and work outs, rather than just foreclose.  But you can’t apply for a loan mod, if you don’t know who has your loan.

So, it’s no surprise that several members of the Virginia General Assembly have introduced bills to give homeowners more protection.  One of those was Del Bob Marshall from Manassas.

If anybody can get the attention of the General Assembly for a consumer bill, Del Marshall would be the one.  He’s a member of the majority party–a Republican.  He’s been there twenty years.  He’s a well known right-winger.  His bill has support from both parties.

Virginia Del. Bob Marshall introduces a foreclosure bill

Del Bob Marshall

(Del Marshall also said his bill would help the state collect a tax that the banks already owe and don’t pay. That was an appeal to law and order and fiscal conservative types.)

The General Assembly is in session right now.  Are they doing anything about this?  No so far.

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13

Dec 2010

Right after filing bankruptcy: A Motion for relief from stay.

Posted by / in Virginia Bankruptcy / 15 comments

Before the housing crisis, I warned all my Chapter 7 bankruptcy clients, “make sure you are current on your house the day we file your case.”  If you went into Chapter 7 bankruptcy even one payment behind, the mortgage company would get relief from the automatic stay, and they’d start to foreclose.  Once that train left the station, it was hard to stop.

That’s still a good plan if you can do it; but not everybody can.  If you file Chapter 7 bankruptcy while the house is behind, the motion for relief from stay is important, but it’s not time to panic.

What to do when you get a motion for relief from the automatic stay?

Robert Weed

1.  If you can afford the house payment, and you want to be certain you will keep the house, then you need to get caught up.  In fact, you really should be caught up when the bankruptcy is filed.  Everybody knows, if you really want to keep your house, you need to get current and stay current.  That applies before bankruptcy, during, and after.

2.  If you don’t want to, or can’t afford to keep the house, make plans to move out.  See my blog on how long do I have.    (Remember to pay the home owners association!)   I suggest to many people that they file bankruptcy right before a foreclosure, to stop the foreclosure and get a little more time to live for free (except for the association) and save money for movers and the rent deposit.

3.  What if you need a loan modification?  Then it’s more complicated.  If you catch up (assuming you can), then you won’t get the mod.  You’ll never get a loan modification if you keep catching up.  At the same time, you don’t want to get foreclosed.  Trying to stay at least two, but no more than three payments behind is the safest place to get a loan modification.

Filing a motion for relief does not mean they have decided to foreclose you.   It may simply be their lawyers generating legal fees.  (Those fees will get put at the end of the mortgage if you get the mod.  If you don’t get it, the bankruptcy will wipe out what you owe so it doesn’t matter to you.)

The old rule was once they got relief from the stay, they went straight to foreclosure: that doesn’t apply any more.  Sometimes they do; sometimes they come with a mod offer much better than before; sometimes they wait for you to request a mod (again).  Really there’s no telling.

Once they get relief from stay, is there anything else I can do to stop them?

First, like I say, keep trying to apply for a loan modification.

Second, if your income has improved in a big way, you can file a Chapter 13 bankruptcy.  Under Chapter 13 , you would make your current payment, and make a monthly payment to the court to catch the house up.  Before the crisis, we did that a lot.  Now usually, if your income shows you can catch up, they will agree to that voluntarily.  So we don’t do that much any more.

Third, you can file against them in circuit court in your county, and make them prove they have the right to foreclose.  This is the Virginia approach to these foreclosure challenges in the news.  (In some states, they have to go to court against you to foreclose; in Virginia you have to go to court against them.)

There is one law firm I know of in Northern Virginia that does this.  Compliance Counsel. As far as I know, they have not gotten anyone a paid for house.  But they have, at least some of the time, gotten the mortgage companies to make a new mod offer, rather than fight it out.

Now, I got through all that strategy without explaining what a motion for relief from the automatic stay is.   If you are interested, that’s next.

Two bankruptcy protections.

People file bankruptcy to get protection from their creditors.   You get two kinds of protection.  You get long term protection from your debts.  That’s the bankruptcy discharge.   The discharge is your “new opportunity in life and clear field for future effort.”

Shorthand that’s your “fresh start.”   The Supreme Court said that your “fresh start” is the principal purpose of the bankruptcy code.

The bankruptcy discharge, about three months and two weeks after we file your Chapter 7 bankruptcy case, gets you your fresh start.  The discharge forbids anyone from taking any action to collect your discharged debts from you.

You get that discharge when your bankruptcy is approved.

The second protection, right when you file your chapter 7 bankruptcy case, is the automatic stay.  The automatic stay prevents your creditors from taking action against you–and it also prevents them from taking action against your property.  The automatic stay is sometimes called your “breathing spell.”

The automatic stay is temporary.  Why?  Because, when your bankruptcy is discharged–in about three months and two weeks–if you haven’t made your car payment, they are going to repossess your car.  And if you are not making your house payment, the mortgage company–at least the first mortgage company (maybe not the second)–will eventually foreclose on your house.

Unlike the automatic stay, the discharge does not stop people who are on the title or deed to your property from claiming the property, if you don’t pay.

Relief from the stay. Sometimes the creditors don’t want to wait that three months and two weeks, for the automatic stay to be replaced by the discharge.   They want it sooner.  The car creditors don’t want the car wrecked.  The mortgage companies–well who knows what they are thinking these days.

Anyway, they file a motion for relief from the automatic stay.  The judge will give them relief from the stay unless you are completely current.

As I said before, staying completely current, if you can afford the house, and want to keep it, is your best plan.  As I also said, if you need or want a mod, getting completely current means you won’t get the mod.  You need to go back to your strategy.

(One more thing to keep in mind.  Cash is king.  If you have the ability to catch up but want the mod, hang on to the money and see what happens.  You can always catch up later in the foreclosure process–you will need to cover the late fees.  Draining all your cash now, and then not being able to pay later, may not be smart.)

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11

Oct 2010

Don't file bankruptcy until March if you get a big refund.

Posted by / in Virginia Bankruptcy / 11 comments

This time of year, you need to be very careful about filing bankruptcy in Virginia if you get big tax refunds.  Why?

Virginia law has a lifetime $5000.00 limit on how much cash you can have when you file bankruptcy, and your refund counts against that.  If you file bankruptcy in October, November, or December, the bankruptcy trustee is going to look at last year’s tax return and see how much money you got back.  Hummm.  If it’s any where near $5000.00, he’ll hold your case open and ask to see the 2010 return.

If that refund puts you over the cash limit, he’ll grab it.  Another reason this is a big problem is because Virginia only allows you equity in your car up to $2000.00.  That’s right, the Virginia General Assembly thinks the bankruptcy court should take your paid for car if its worth $2000.00.    (When I graduated from high school a brand new Volkswagen cost $1995.  But that was a LONG time ago.)

You can use your cash limit to protect a car that’s worth a little more, but that leaves the tax refund hanging out.

Darden Hutson and Mitch Goldstein, two excellent bankruptcy lawyers in Richmond, Virginia, are spearheading an effort to raise these limits.   But for now, they are what they are.

Now, there are two reason people get big tax refunds.  Some people get a big refund, because they pay big taxes–they over withhold.  If you are one of those people and you want to go ahead with your bankruptcy now, you should contact your payroll office and increase your exemptions to twelve.   Right, like you have twelve children.  (Both state and federal.)

That will cut to almost nothing the taxes you pay for the rest of the year–and we hope it sopps up enough of the refund that you stay under the cash limits.

Other people get a big refund because of the earned income credit.   The earned income credit is basically a boost that the federal government gives to families with children where the parents are working but not making much.   This was originally put in by Richard Nixon and increased several times over the years, including by Ronald Reagan.

Increasing your depedents to 12 won’t help people who get a big refund because of the earned income credit.  That’s because the refund is based on the number of children and the income–its not really based on what taxes were actually paid.

Unless there’s some real emergency, people who get an earned income credit should not file bankruptcy in Virginia after August.  Otherwise the money the federal government is giving to help your children will end up in the hands of the bankruptcy trustee.

Why am I saying file bankruptcy in March?  File your taxes as soon as you can in February and get that money in and spend it.  Don’t just throw it away–and you can’t bury it in your backyard or give it to your brother–but spend it on things the kids have been needing, probably since last year.

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NORTHERN VIRGINIA BANKRUPTCY LAW OFFICES