One of the most common mortgages was an 80/20 mortgage.  You would be given a first mortgage which would cover 80 percent of the cost of the home and then a second mortgage that would cover the remaining 20 percent of the loan.  The 80% mortgage would be in put in first position and the 20% mortgage would be put in second position.  You had this second mortgage to avoid paying PMI payments each month.

You would put no money down, so essentially you went from renting to paying a mortgage without any pain in the pocket, in fact, a lot of these mortgage payments were less than what a person could rent for.

Very few thought about the chances of these homes going down in value (I did, but I make Murphy look like an optimist).  The idea was that the house would increase in value in a few years and there was no risk in there being a lack of equity in the home because real estate always went up.

There were a few who did think about the chance of property losing value and a few of them were mortgage lenders.  Some of these lenders made the 20% mortgage the mortgage in first position and this is why:

A secondary mortgage can be considered completely unsecured if the value of the property is less than that of the first mortgage.  For example, suppose a borrower has a first mortgage balance of $200,000 and a second mortgage balance of $40,000.  Now in our example, the house is worth $180,000.  The house is worth less than the balance of the first mortgage and that makes the second mortgage completely unsecured.

There is an option inside a Chapter 13 bankruptcy to have that second mortgage treated as unsecured.  In the Eastern District of Pennsylvania, where I practice, you need to have a motion to value the real property and then file an adversarial matter to have the mortgage treated as completely unsecured.

The only way to have the mortgage treated this way is if it were COMPLETELY unsecured.  That means if the property is worth $200,000.01, the second mortgage is not completely unsecured and you cannot treat any of it as unsecured.

What a few unscrupulous lenders did during the housing boom was to put the 20% mortgage in first position.  Now when the borrower finds themselves in financial straits and files Chapter 13 bankruptcy, the option to claim the second mortgage is completely unsecured is off the table because the documents were filed incorrectly, deliberately or not.  The 20% mortgage is considered the first mortgage and unless your property has really taken a dive in value, the 80% mortgage is not going to be completely unsecured.

This is an area that is ripe for another class-action lawsuit, even if you are not planning to file Chapter 13 bankruptcy, because bank malfeasance has taken this option off the table.  If you find yourself struggling to keep up with your debts, please call 610-400-3093 or email me at jim@padebt911.com for a free consultation or a referral to an attorney in your area.

Dear Senator Specter/Representative Dent:

In 2005, you voted with credit card companies and against the American consumer by voting for BACPA (Bankruptcy Abuse and Consumer Protection Act).

BACPA doubled the cost of filing bankruptcy in the United States.  BACPA chased otherwise qualified attorneys out of the field because of its stringent and unfair requirements that put the lawyers who practice in this field at risk.

This bill further injures those who practice in this field by lumping them in with debt settlement companies and various other non-professional groups by requiring them to call themselves “debt relief agencies.”

A solo attorney is no more a debt relief agency than a chicken farmer is a Kentucky Fried Chicken franchisee.  Both operate in similar arenas but have different functions.

This is the worst economy I have seen in my lifetime, and it is probably the worst you have seen as well.  Real unemployment is somewhere around 18% and people are hurting.

While Congress and the President have spent the last year and a half arguing about National Health Care, the economy has gotten worse.  Like with BACPA, Congress is listening to the special interests with deep pockets, not the people who elect them.  This is a mistake.

While Congress and the President have spent $1.4 trillion ($700 billion TARP, $700 billion stimulus) bailing out banks and stimulating government labor, the economy has worsened.

That $1.4 trillion is gone.  Like toilet paper, it cannot be reused, so pointing out that you could have given every man, woman and child a check for $4700 on a debit card with a 90 day expiration date and jump started our economy much more effectively, is pointless.  Aggravating but pointless.

One thing Congress can do right now is to repeal BACPA.  BACPA was bought and paid for by credit card companies and banks, the same banks that took bailout money from the taxpayers who are suffering under BACPA.

Another thing Congress can do is to allow mortgages to be modified inside of Chapter 13 bankruptcy.  Yes the courts would need some more staff, maybe even a special modification master, but it would alleviate some of the pressure on this economy.

This is how modification inside of a Chapter 13 would work.  Lets take Joe Taxpayer (the guy who is probably going to vote for none of the above in 2010).  Joe has a mortgage of $200,000 at a 9% interest rate.  His payment (not including taxes) is $1609.25.  The total interest paid on the loan would be $379,328.28.  On the date the mortgage was closed, banks were borrowing from the fed at a rate of 2.2%.

The bank can still turn a profit on 2% interest, so the bankruptcy special master would lower the interest rate to 4.4%

Joe Taxpayer’s payment would drop to $1000 per month.  The term of the mortgage would be extended out to 42 years.  The total interest paid on this term would be $238,999.36, but the extra 12 years of principle payments of $1000 would be $144,000.00.

Now Joe Taxpayer can afford his mortgage, and the bank gets what they bargained for, albeit on a delayed basis.

The banks will complain about the time value of money, but the reality is that the average mortgage is paid off in about 5.8 years, meaning mortgages are refinanced or sold, so most banks will not be waiting 44 years to get their money, and when the mortgage is paid off the bank is getting what it bargained for anyway.

So how about it Congressman?  Why don’t we put HAMP and BACPA in the circular file where they belong and do something for the American people?

So there it is, I will follow up on this with a response from my Representatives.  Feel free to cut and paste a copy of this text and email it to your Congressman or Congresswoman and see what happens as well.

The answer is probably.

There are only a few reasons why you could not file your case again and most of them revolve around abuse of the system.  If your case has been dismissed with prejudice, you may not file bankruptcy again for 6 months without leave (permission) from the court.

Your case may also be dismissed with a bench order barring you from filing again for a year or longer.  I did have a man in my office who had a lifetime bar from filing bankruptcy.  I’m uncertain the Constitutionality of that, but if anyone deserved it, he did (he filed 8 cases in four year and literally held off foreclosure on his home for 5 1/2 years).

Also if you file a motion to dismiss (ask for your case to be dismissed) and it is granted, then you may not file again for six months without permission from the court.

Other than for the above mentioned reasons, you can (and sometimes should) file a new Chapter 13 bankruptcy case.  I’ve even had trustees recommend to me to recommend to a few of my clients that they let the case get dismissed and refile so they can get another swing at the bat.

If you are using a bankruptcy to stop a sheriff sale, the sale will be stayed (stopped), but there are other issues to be resolved in a second bankruptcy case filed within a year.

In the second bankruptcy case filed within a year, the automatic stay only lasts for 30 days.  Your attorney must file (and do it quickly) a motion to extend the automatic stay beyond 30 days.  The rules for this motion can be found at 11 U.S.C.  § 362(c)(3)(b).

Essentially this is a motion to ask the court to keep the automatic stay in place (stop the bank from foreclosing) as if this was the first case.  The standard the court has to see is if this case is more likely to succeed than the previous case.

This is a high standard, after all if everything were going well your first case probably would not have been dismissed.  I have filed four such motions, and in all the motions that have been filed, they have been granted, but not without some serious discussions with the bankruptcy judge.

Yes Virginia, you can file Chapter 13 bankruptcy after your first case is dismissed, but the road to confirmation is longer.

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This is a slimy tactic tried by debt settlement companies to steal from you.  That’s right, other lawyers and professionals will call debt settlement a poor product, a bad decision, or a lousy product.  I call them crooks, and here’s why.

Debt settlement companies use misleading advertising (that is being kind) to get people to call them.

Every day on the radio I hear about a government bailout of credit card companies.

They have the nerve to claim that the government is requiring them to clear their books in order to qualify for this bailout.

Baloney!

There is no credit card bailout, there is no government bailout, there is no Obama plan for credit cards.  There just isn’t.

Why would a credit card company need a bailout?  The average interest rate on a credit card is around 20%.  If you owe $1000 on your credit card, that company makes $200 per year on you interest alone.  Multiply that by a couple of million and you can see why credit card companies own the big buildings.

You are better off lighting your own money on fire than working with a debt settlement company.

The first $2500 from debt settlement goes right into their coffers so they can run more radio ads to steal from more people.

If you burned your money, at the very least you wouldn’t be helping them pay to defraud others.

Now I’m not suggesting that you should light hundred dollar bills on fire (and if you truly have money to burn, feel free to drop it off), especially if you are struggling with debt.

If you are under a mountain of credit card debt and don’t know where to go, don’t trust the debt settlement companies.  If you are in trouble with credit card debt, you need a lawyer.

One of my favorite clubs is Objecting to a Proof of Claim. 

There are a lot of creditors out there that just cannot or will not file a proof of claim correctly.

When a creditor fails to file an appropriate proof of claim, they leave themselves open for an objection, and when you hire an attorney like me, an objection is what you are going to get.

There are a lot of clients who are required to pay all of their excess income into the Chapter 13 plan for the benefit of unsecured creditors.  However if the income exceeds that of the unsecured debt, then you get to keep that money.

To simplify matters, think of your debt as going into one of two trash cans.  In one trash can your past due secured debt such as past due mortgage and car payments go.  That trash can is paid first.

The second trash can is where your unsecured debt, such as credit cards, personal loans and collection accounts go.

Those are the creditors who tend to foul up their proof of claim.

The creditors who really stink at this are the zombie debt buyers.  A zombie debt buyer normally pays a cent or two on the dollar for your debt and tries to collect it.  They pay so little for it because these are old debts that are unlikely to be collected and they have very little supporting documents, if any.

These creditors also like to inflate the numbers on the debt they claim you owe.  For example, I had one creditor who purchased an account that was charged off in 1989 (Bush was still in office, the first one!) and it had a balance of $4300.  That debt buyer calculated interest on the debt and filed a proof of claim for $11,280.

The debt buyer is allowed to do this, but I filed an objection on the grounds that the statute of limitation on debt in Pennsylvania is four years, not four Presidents, and that they did not provide documentation for their debt.

At this point you might be saying “So what?”.  Think about it like this, every $6000 worth of debt that is paid off in a Chapter13 plan is $100 per month.  By killing off this proof of claim, I saved my client $11,280, or $190 per month!

The creditor realized I wasn’t playing games and I had every intention of showing up in Reading and demanding proof of the debt and proof that the statute of limitations did not apply.

The creditor quickly withdrew its proof of claim (12 hours actually) and now my client is off the hook for $11,280 in debt.

This is why you should not file Chapter 13 bankruptcy pro se.  Nearly every one of my clients has a proof of claim that needs to be objected too.  For nearly every one of my clients, the debt I wipe out with objections is more than my fee.

Using a competent, aggressive attorney with a competitive desire to win and beat the daylights out of unscrupulous debtors nearly always pays for itself.

Imagine a classroom full of desks.  At each of those desks there is a child, which represents one of your creditors.  A proof of claim is simply when one of these children raises their hand and says you owe them money.

That is essentially what a proof of claim is.

Creditors don’t just get to raise their hands though, and they can’t call the trustee either, they have to submit a proof of claim in writing.

Click here to see what a proof of claim looks like

A proof of claim should also have proof of the debt (hence the term proof), but most of the time creditors just include a summary page of the debt.

The proof of claim is one of the most important documents in bankruptcy.  It can make or break a bankruptcy case.  It is important to review all proofs of claim for accuracy, or you might wind up paying a lot more than you should in your Chapter 13 case.