Bankruptcy Statistics

801,840 Americans declared bankruptcy in 2007, up nearly 40 percent from the previous year -- in spite of tougher new bankruptcy laws.

76,120 more filed for bankruptcy in February 2008.


Foreclosures are on the rise....economy is slowing down, all contributing to these figures.

Quick fire questions and answers

Here are some quickfire bankruptcy questions and answers I've been getting lately. Many of them are about tax refunds, and what to do to finish a bankruptcy. Read up and enjoy!

Here is an updated bankruptcy question and answer session. As you can see there are many bankruptcy issues that can sway a case one way or another. Hold tight, here we go.

Chapter 7 and Lump sum SSDI payment

Question
My daughter applied for SSDI over 2 1/2 years ago. Her husband left her 2 years ago. Their divorce comes up in March. She just received a lump sum payment from Social Security for her disability. She has not paid any of her credit cards, etc. for the past two years however I have been paying her car payment; titled jointly. I have been paying all her expenses the past two years with the agreement she pay me back when she got her settlement. She is planning on filing Chapter 7. Does she have to disclose the lump sum payment of social security disability? She owes me $8k of the $15k she received. What effect will that have on her filing? Also what happens to the car since it is in her husband's name also? She would like to keep it. Thank you.

Answer
Yes, she would disclose it. Her attorney will use state exemptions to protect it. She should not pay you, as the trustee in the case can then come after you for the funds.
For a cosigned debt, she can choose to reaffirm the debt so she can keep the car, and should continue to make the regular payments on it.
She should talk to a local bankruptcy attorney to get state specific advice.

Subject: Motion for Deficiency

Question
I live in Ohio. Filed Ch.7. Surrendered our condo to the trustee, he abandoned the property,it went into foreclose and sold at auction. I recently received a notice for motion of deficiency filed by the condo association, which by the way was listed in the original filing. Do I owe this money? What happens if I don't go to the hearing?
Thank you
Answer
If you listed the debt in bankruptcy, then the bankruptcy discharged your obligation for this debt. I assume this is a state court motion, where they may be asking for $ from the lender, as they usually have a condo association lien on the property.
IF it is a bankruptcy motion, you should speak to your attorney.

Subject: chapter 7 and tax refund

Question
i live in wisconsin a few years back i was involved in a car accident. the womens attorneys sued for 85,000 and it was granted. i want to file chapter 7 since i really have no assets at all to get rid of this judgement.i still desperately need my tax refund which should be significant w/2 children.is it better for me to file my taxes before or after i file for bankruptcy?should i anticipate them taking a portion or all?i am extremely stressed about this due to having to pay for child care. thank you very much.
Answer
Each state has exemptions to protect assets. You should meet with a local bankruptcy attorney to advise you how to protect your assets and when is the best time to file a case. Car accident debts are normally dischargeable, unless there was DUI/DWI or intentional injury.

Subject: Filing taxes post bankruputcy discharge

Question
I have completed a Chapter 7 bankruptcy during 2007. I am unsure how, or if, I am required to report that to the IRS. I owe no back taxes, and taxes were not apart of my bankruptcy. All of the debt that was discharged was consumer credit debt. I maintained my home,car and personal belongings.
Answer
As far as I know, there are no special deductions or exemptions to list when filing your taxes in regards to your bankruptcy. You should mention it to your tax preparer just in case, since I am not a tax expert, and the tax code is as big as the bankruptcy code!

Subject: Getting out of Bankruptcy

Question
I need to know how can refinance my home loan and get out of bankruptcy.
Answer
I assume you are in chapter 13 bankruptcy. You will need to seek out a lender and get a proposed refinance contract. Then get that to your attorney to draft a motion to permit you to refinance. You should also order a payoff statement from the trustee. Once the motion is granted, (court will look to see if it is reasonable and necessary, comparing costs before and after etc.) then you can close on the loan and turn the proceeds over to the trustee to distribute to your creditors. You should allow about 30 days for the motion to be heard and granted.

Subject: chapter 7 questions

Question
My wife and I recently filed chapter 7(with an atty).I would like to know if I can talk to a lender about the terms of my loan.To be more specific,We own an RV and wish to keep it.However,I/we are not going to "reaffirm".The main reason is I know that the bank doesn't want it and I don't want to be responsible in the future if I cant continue to pay.At the present time we are current on our payments and are continuing to pay.Is it reasonable to ask them to reduce the loan amount or interest rate to help us as long as we continue to pay?.............more important,........Is it legal?

Thank you in advance for your time and help.Please be advised that your answer may generate more questions.I/we ahve talked with our attorney about alot,however he is on his honeymoon at this time and unavailable.
Answer
If you do not reaffirm, then there is no negotiation with the lender. The reaf may have better terms for you. if not reaffirmed, the lender has the right to the items back. IF you pay for them, it would be up to the lender if they will agree to let you keep the items if you are current. Since the RV may have some resale value, you need to speak to them directly about the options available if you do not want to reaffirm. They are under no obligation to let you keep the RV, even if you are current, if you don't sign the reaffirmation.

Subject: Chapter 7

Question
Went in for a consultation for chapter 7 but new questions arise after the consultation.
1. Been in SC for a year now planning on moving back to GA in a couple of months. Should I go ahead and file it now in SC or wait?
2. The lawyer told me to list my assets. Do I have to list my furniture/TV(I do not want to lose it)?
3. The lawyer also told me something about Chapter 722(something about car loan) do you know what kind of car I can get?
4. Should I file taxes before or after I file?
5. If I do list assets will a trustee actually come out to see it?
Answer
1. You would need to still file in SC for 90 days after you move.
2. List all assets, and your attorney will use the state exemptions to protect your assets so that you can keep them.
3. 722 is where you can buy your car for fair market value as opposed to paying off the balance of the loan. They can help you finance something after bankruptcy too.
4. Check with your attorney to see what portion of the refund may be protected.
5. Rarely does a trustee investigate assets. You sign the papers under oath, so be sure to list all of your assets.

Subject: chapter 13

Question
I have about 22,000 in unsecured debt. All very high interest rates (cc's and 3 personal loans). I tried consolidating part of my debt into a personal loan of 10,000 6 months ago. The consolidated loan is 24% revolving and in 6 months i only managed to bring down the total 100.00 dollars, and now I am even farther in debt and can't make ends meet. My minimum payments are 700 dollars monthly. I make 37,000 a year and own my home and don't want to lose it. I will need a care within 3-5 years. If I take the chapter 13 route, what would I expect to lower my payments too monthly and will the recent 10,000 unsecured loan (it was deposited in my account, however no luxuries were purchased with it, it was used for repayment of personal debt), affect my filing. I can't go on like this, I can not even barely make these payments of 700.00. I live in PA.
Answer
With Chapter 13, you would pay back anywhere from 10-100% depending on your income, and depending on your assets. You would pay this debt back with little to no interest. Speak with a local PA bankruptcy attorney to find out the exact percentage of repayment based on your individual situation.

Subject: Chapter 7

Question
Hello,

I have filed Chapter 7 and included my home (in Georgia). The mortgage attorney has a court date of January 31, 2008 for a motion of relief from stay. Will I be notified as to how soon I need to vacate the property or approximately how long will I have left to remain on property? I asked my attorney and was told 2-3 months after filing date. I just wanted to see if I could get a more definite time frame. Thank you in advance.
Answer
Once the stay is modified, the lender will start the foreclosure process. Foreclosures can be up to 9 months, depending on the case and the jurisdiction you live in. You would have a bit of time to stay in the property and to find alternate living arrangements. The bankruptcy will eliminate the balance owed on the mortgage.

ARM's and Conversions in Chapter 13

Here is a question I received the other day about conversions in relation to Adjustable rate mortgages.

Question
I am in Chapter 13 now and have a ARM that is going up, can I file Chapter 7 now?

Answer
Hi Gary.

A short answer is tricky. It would depend on the reason you filed chapter 13 in the first place. I assume also that your chapter case is still pending and are asking if you should convert to chapter 7. If you are in an asset driven chapter 13 (to protect an asset with a large value greater than your allowable exemption) the court would liquidate the asset. So, if you had a lot of equity in the home lets say, then the court would sell your home to pay the debt. If you filed ch7 less than 8 years before the chapter 13, you cannot convert. If you have disposable income or do not otherwise pass the means test, then you shouldn't convert the case. You should convert the case only if you have no equity in assets, you are current on the home, or were looking to surrender the home. You also have the option to modify your bankruptcy payments if your expenses have increased drastically. There are some limitations, so you should contact your lawyer about your intentions either way to help decide your best plan of attack. Sorry about the vague answer, but there are many scenarios to account for!
Thanks
Terry Leeders

Getting a loan while in chapter 13 bankruptcy

I was recently asked by someone who is currently in a chapter 13 bankruptcy case 13 for 1 year, and who has 2 years remaining on her plan if it possible for her to get some type of loan. She stated she was "in a bind."

Well, it can be possible to acquire debt during a chapter 13 bankruptcy. However, one would need to bring a motion in bankruptcy court and explain why this loan is both necessary and reasonable. Therefore it is a tough standard to meet. She will have to show how she can afford it, when all of her disposable income is going to her chapter 13 plan. Basically, needs to show a raise, a second job, or reduced monthly expenses. The bigger hurdle is to show that it is necessary. The court's position is that they are trying to prevent debtors from getting right back in the same traps that may have brought them here....huge interest rates for unnecessary things!!

The court is most likely to grant permission to obtain additional credit if there is a need to finance a car when one has died or was totalled in an accident and there is no other means of transportation to and from work. The other most common reason is where the debtor is looking to refinance real estate for a better interest rate or to pay off the bankruptcy with the proceeds.

Getting a cash loan approved would be very difficult, and absent an extreme reason why it is both reasonable and necessary, the courts usually deny it. Always consult your attorney to best advise you on these types of issues!
Thanks
Terry

Chapter 13 Plan cannot run more than 60 months

I received an email on a discussion board, and received the same motion from a current client of mine this week. She writes: I received a motion to dismiss my Chapter 13 case from the trustee because my case is running more than 60 months. I am current on my payments, whats up?

What happened is that the chapter 13 trustee's office audited the creditor claims that came in. Your creditors send in proof of the balances owed on each of your debts. Your claims must have come in higher than you had estimated when you filed the case, or else you may have missed one.

Anyways, your plan must complete in 60 months, otherwise your plan is not 'feasible' under the bankruptcy code. You should contact your attorney to review the claims, make sure none are 'doubled up' and have the lawyer prepare a modified plan. If all of the claims are accurate, you would need to increase your plan to allow the case to complete in 60 months. The alternative is to make a lump sum payment to cover the overage. That is often difficult because the chapter 13 uses all of your monthly disposable income.

Sub-Prime lending: great candidates for Chapter 13

The following article recently appeared on Bloomberg.netregarding the recent trend in sub-prime mortgage lending, and its dire consequences. We have definitely seen a surge in Chapter 13 bankruptcies due to this practice. Take caution when biting off more than you can chew!

Foreclosures May Hit 1.5 Million in U.S. Housing Bust

By Bob Ivry

March 12 (Bloomberg) -- Hold on to your assets. The deepest housing decline in 16 years is about to get worse.

As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage default worries.

The spring buying season, when more than half of all U.S. home sales are made, has been so disappointing that the National Association of Home Builders in Washington now expects purchases to fall for the sixth consecutive quarter after it predicted a gain just last month.

``The correction will last another year,'' said Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania. ``Fewer people qualifying for mortgages means there will be less borrowers, and that will weigh on demand.''

A five-year housing boom that ended in 2006 expanded home- ownership to a record number of U.S. households. Now it has given way to mounting defaults, failing subprime mortgage companies and an increasing number of unsold homes.

Last Housing Slump

If this slump follows the same pattern as the last one, in 1991, it will persist for at least another year and may fuel a recession. New-home sales declined 45 percent from July 1989 to January 1991 and about 1 percent of all U.S. jobs, or 1.1 million, were lost in that recession, said Robert Kleinhenz, deputy chief economist of the California Association of Realtors.

This time around, new-home sales have declined 28 percent since September 2005, hitting a low in January, the last month for which data is available. And though the national jobless rate is near a five-year low this month, mortgage-related jobs fell by almost 2,000 in January alone. At least two dozen of the more than 8,000 mortgage lenders have been forced to close or sell operations since the start of 2006.

Subprime lenders Ameriquest Mortgage Co. in Irvine, California; Ownit Mortgage Solutions LLC and WMC Mortgage Corp., a subsidiary of General Electric Co., in Woodland Hills, California; Mortgage Lenders Network USA Inc. in Middletown, Connecticut and Fremont General Corp. together have fired more than 5,600 workers in the past year.

New Century

New Century Financial Corp., the second-largest subprime lender, said today it ran out of cash to pay back creditors who are demanding their money now. The Irvine, California-based company has lost 90 percent of its market value this year and stopped making new subprime loans, prompting speculation it will seek bankruptcy protection. New Century already has cut 300 jobs and its 7,000 remaining employees are waiting to see if the company will survive.

Fremont General, the Brea, California-based lender that is trying to sell its residential-mortgage unit, was ordered to stop making subprime loans by the U.S. Federal Deposit Insurance Corp. last week. Fremont was marketing and extending loans ``in a way that substantially increased the likelihood of borrower default or other loss to the bank,'' the FDIC said last week.

Doug Duncan, chief economist of the Washington-based Mortgage Bankers Association, predicted in January that more than 100 home lenders may fail this year.

The subprime crisis ``has taken the fuel out of the real estate market,'' said Edward Leamer, director of the UCLA Anderson Forecast in Los Angeles. ``The market needs new money in order to appreciate, and all of that money is gone for a very long time. The regulators are not going to allow it to happen again.''

Higher Rates

Subprime mortgages are given to people who wouldn't qualify for standard home loans and typically have rates at least 2 or 3 percentage points above safer prime loans. The portion of subprime loans that financed new mortgages rose to 20 percent last year from 5 percent in 2001, according to the Mortgage Bankers Association.

Subprime loans contributed to a home-ownership rate that reached a record 69.3 percent of U.S. households in the second quarter of 2004, up 5.4 percentage points from the same period in 1991, according to the U.S. Census Bureau.

``Probably the gain in home ownership over the last four, five years, is almost entirely due to looser lending standards,'' said James Fielding, a homebuilding credit analyst at Standard & Poor's in New York.

Refinancing Option

As home prices steadily gained from 2001 to 2006, homeowners who fell behind on mortgage payments could sell their homes and pay off their loans or get better refinancing terms based on the higher value of their property. Now that home values are declining, many borrowers won't be able to refinance because they would have to come up with the difference between their new mortgage and what their home is now worth.

Defaults may dump more than 500,000 homes on a housing market already saturated with leftover inventory built during boom times, New York-based bond research firm CreditSights Inc. said in a March 1 report.

Mortgage defaults may climb to $225 billion over the next two years, compared with about $40 billion annually in 2005 and 2006, according to debt strategists at Lehman Brothers Holdings Inc.

Seven-Year High

The portion of subprime loans more than 60 days delinquent or in foreclosure rose to 10 percent as of Dec. 31, from 5.4 percent in May 2005, the highest in seven years, according to data compiled by Friedman Billings Ramsey Group Inc. of Arlington, Virginia.

Many of the delinquencies came from loans where borrowers didn't have to provide tax returns or other evidence of income, or where they financed 100 percent or more of the home's value, CreditSights analyst David Hendler wrote in a March 5 report. Other defaults came on adjustable-rate mortgages with artificially low introductory ``teaser'' rates, sometimes with ``option'' payment plans that allowed borrowers to defer interest.

Banks ought to be concerned about such loans and are likely to see more missed payments and foreclosures as consumers with weak credit histories begin to face higher monthly mortgage payments, Federal Reserve Governor Susan Bies said last week.

``What we're seeing in this narrow segment is the beginning of the wave,'' Bies said. ``This is not the end, this is the beginning.''

About 1.5 million U.S. homeowners out of a total of 80 million will lose their homes through foreclosure, University of California-Berkeley economist Ken Rosen said last week.

``The subprime borrowers paid too much for their homes, and all of a sudden, they'll see their house value drop by 10 to 15 percent,'' Rosen said.

Borrowers at Risk

The Center for Responsible Lending in Durham, North Carolina, said in a December study that as many as 2.2 million borrowers are at risk of losing their homes, at a potential cost of $164 billion, from subprime mortgages originated from 1998 through 2006.

The number of U.S. foreclosures rose 42 percent to 1.2 million last year from 2005, according to Irvine, California-based RealtyTrac, while delinquencies in the last three months of 2006 rose to the highest level in four years, the Federal Reserve said.

Housing and related industries, which account for about 23 percent of the U.S. economy -- including makers of everything from copper pipes to kitchen cabinets -- fired about 100,000 workers last year. The total will be higher this year, according to Amal Bendimerad of the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts.

Job Cuts

By the end of this year, job cuts at companies including Benton Harbor, Michigan-based Whirlpool Corp., Masco Corp. of Taylor, Michigan, and St. Louis-based Emerson Electric Co. may exceed the fallout from the 1991 housing slump, said Paul Puryear, managing director at St. Petersburg, Florida-based Raymond James & Associates. The Bureau of Labor Statistics doesn't give data for housing-related job losses.

``The fallout in the early 1990s was much worse than what we've seen so far, but this downturn is not over,'' Puryear said. ``The full impact hasn't hit yet.''

U.S. House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said he may propose legislation to reign in ``inappropriate'' lending, and a House subcommittee is scheduled to consider subprime lending and foreclosures March 27.

``The standards got loosened so much, and there's always the pressure to make money that there was pressure to maybe make the questionable loans that shouldn't have been made,'' said Ohio Representative Paul Gillmor, the subcommittee's top Republican, in a March 9 interview. ``The major problem has been the overall deterioration in credit standards by lenders that's exacerbated by those who are unscrupulous.''

Fraud `Pervasive and Growing'

The Federal Bureau of Investigation says mortgage fraud is ``pervasive and growing'' and the incidence of such fraud has almost doubled in the past three years.

``There has been an increase in unscrupulous individuals in the market,'' said Arthur Prieston, chairman of the Prieston Group, a San Francisco-based company that investigates mortgage fraud. ``There's an unfair assumption of a connection between subprime failure and fraud. But there is a connection between early default and fraud.''

Mortgage fraud is committed when a borrower misrepresents himself or his finances to a lender. Some of that fraud involved speculators. They drove up prices during the boom by ordering new homes with the intent of selling them immediately after taking possession.

That ``flipping'' inflated demand and put the speculators in competition with the homebuilders, propelling the median U.S. home price to $276,000 last June from $177,000 in February 2001.

Housing Bubble

``A lot of the housing bubble was speculation,'' said Mike Inselmann of the Houston-based research firm Metrostudy.

When home prices got so high that speculators could no longer turn a profit, they canceled their contracts and walked away from their down payments.

Cancellation rates for new homes have surged to almost 40 percent of home contracts, Margaret Whelan, a New York-based analyst at UBS AG, said in a report on March 2.

That forced the top five U.S. homebuilders -- D.R. Horton Inc., Pulte Homes Inc., Lennar Corp., Centex Corp. and Toll Brothers Inc. -- to write off a combined $1.47 billion on abandoned land in the fourth quarter of 2006.

On top of that, new home sales plunged 17 percent last year from 2005, the biggest decline since 1990, according to the Chicago-based National Association of Home Builders. Existing home sales fell 8.4 percent in 2006 from a record in 2005, according to the National Association of Realtors.

`All 12 Months'

Donald Tomnitz, D.R. Horton's chief executive officer, said last week that his Fort Worth, Texas-based company would miss its projections for this year and that ``2007 is going to suck, all 12 months of the calendar year.''

A Standard and Poor's index of 16 homebuilders tumbled 4.1 percent today, its biggest decline since August, on concerns over increasing inventory and subprime defaults. The index has fallen 12 percent since Jan. 1.

D.R. Horton shares fell 5.1 percent today in New York Stock Exchange composite trading. Bloomfield Hills, Michigan-based Pulte dropped 4.8 percent; Lennar, based in Miami, dropped 4.9 percent; Dallas-based Centex lost 3.7 percent and Toll, based in Horsham, Pennsylvania, fell 3 percent.

Concern that the housing slump and defaults in the subprime mortgage industry will affect earnings at the largest banks and lenders has hurt financial stocks. They are the worst performers in the Standard & Poor's 500 Index since the benchmark reached a six- year high on Feb. 20. The group lost 5.6 percent, outpacing the broader index's 3.9 percent drop.

Investment banks including Merrill Lynch & Co., Deutsche Bank AG and Morgan Stanley have spent more than $4 billion over the past year to buy home-loan companies as add-ons to their mortgage-bond trading businesses. They needed loans to repackage into securities to sell to investors. Demand for higher yields led them into the subprime market. As that business flourished, financial firms either invested in subprime lenders of bought them.

`Too Early to Tell'

The number of U.S. financial institutions in the mortgage business jumped 16 percent to 8,848 in the past four years, according to the Federal Financial Institutions Examination Council.

``It's a little too early to tell how it shakes out for investment banks,'' said Andrew Davidson, president of New York- based Andrew Davidson & Co., which advises fixed-income investors on mortgage bonds. ``If it turns out that they have large losses, the investment banks tend not to be very forgiving and usually terminate businesses that haven't worked for them.''

Dale Westhoff, a senior managing director at New York-based Bear Stearns Cos., the largest underwriter of mortgage bonds, said last week that failing subprime lenders ``are going to be absorbed very quickly.''

``Hedge funds and private equity are going to play a very important role in buying distressed assets,'' Westhoff said.

Optimists

In contrast to the 1991 housing skid, worker productivity is increasing, consumer confidence is expanding, interest rates remain within 1 percentage point of the 40-year low and the jobless rate fell to a five-year low last month. Last month, 7.4 million new and existing homes were sold at an annualized pace, more than twice the 1991 bottom.

And real estate people tend to be the world's most optimistic, said Bryce Bowman, director of development for Randolph Equities LLC in Chicago.

``There's a lot of capital chasing real estate and that has not ceased with this bust,'' Bowman said. ``Developers have stopped building crazy speculative housing developments and are burning off their inventory, so we're excited about the end of '07, and we want to be ready to go when business picks up in '08.''

To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net .
Last Updated: March 12, 2007 16:37 EDT

Deficiency balance allowed as an unsecured claim in Chapter 13 in Northern District of Illinois

Northern District of Illinois - Eastern Division Chicago Bankruptcy Judge Squires recently ruled in the chapter 13 case of Linda J. Blanco, 06B 13223, where debtor tried to surrender a vehicle in full satisfaction of the claim owed. Judge Squires

The Court held that "the Debtor may not surrender the collateral in full satisfaction of the debt to the Creditor. The Creditor is entitled to seek its available state law remedies, including its right to an unsecured deficiency claim after liquidation of its collateral."

Judge Squires follows the minority argument in other jurisdictions, but it is also supported by fellow Chicago Bankruptcy Judge Schmetterer. This argument states that that when the collateral is surrendered, "the bankruptcy estate no longer has an interest in the collateral for purposes of § 506." Wherefore, the “hanging paragraph” does not preclude the creditor from claiming an allowed unsecured deficiency claim under § 502.

Judge Squires continued:
"Judge Schmetterer in the Morales case followed Judge Shefferly’s logic in Particka, and he aptly explained the interplay between § 506(a) and § 1325(a)(5)(C):

if a debtor surrenders the vehicle, the interests of parties in the collateral and the impact of § 506 changes. Section 506(a) applies only to “an allowed claim of a creditor secured by a lien on property in which the estate has an interest. . . .” 11 U.S.C. § 506(a). If a confirmed Chapter 13 plan provides for surrender of a vehicle under § 1325(a)(5)(C), the estate no longer has an interest in the vehicle. . . . When . . . . the debtor surrenders the vehicle and the estate no longer has an interest in the property that secures a claim, there is no reason to use the valuation process provided in § 506 to determine the amount of the allowed secured claim. Rather, once the vehicle is surrendered to the creditor pursuant to § 1325(a)(5)(C), the value of the creditor’s secured claim is determined under state law, Illinois U.C.C., 810 ILCS 5/9-610-624. "