Learn How My Office May Be Able To Can Strip a Second Lien After
Filing A Chapter 7 Bankruptcy?
Many Attorneys Call This a Chapter 20.
First, I want to point out all cases are not created equal. This article
applies to most bankruptcy filings however, there are always circumstances
that may make your case different from the norm. That is why it is so
important you have an attorney who fully understands the bankruptcy code.
Chapter 7 is complex but a Chapter 13 is even more so. What is called a
Chapter 20 is a Chapter 7 filed first then after that case has completed,
then a Chapter 13 is filed to take care of issues that could not be taken
care under the Chapter 7. Most of the time, this involves lien stripping.
The bankruptcy code allows you to file a subsequent Chapter 13 in some
cases even a day
after the discharge order of the Chapter 7. However, in most cases
you have to wait 4 years.
Possible Bad Faith Problem:
One of the problems this might bring up is a “bad faith” issue. As long as
the Chapter 13 plan is proposed in good faith, your goal of stripping the
lien can work. Even though the bankruptcy court or the trustee may
scrutinize the Chapter 20, again, as long as it is accomplished in good
faith, the law is on your side.
After the discharge order of Chapter 7, you still must qualify for Chapter
13!
So in order to have a successful “so-called” Chapter 20 (which again is a
Chapter 7 followed by a Chapter 13). You still must first qualify for a
Chapter 13 after the Chapter 7 discharge order is entered and secondly,
the relief you request must qualify to have the lien stripped. The good
news is most will meet the legal requirement after filing Chapter 7. If
the lien is unsecured you are heading in the right direction.
Why Wouldn’t I Just File A
Chapter 13 In The First Place?
This is a fair question. There can be many good reasons. Here are a just
a few:
1. Some may not qualify for Chapter 13 because they owe too much in
unsecured debt, so filing a Chapter 7 to get rid of the debt would allow
the person to file Chapter 13 after the discharge.
2. Some also may not qualify due to too many secured assets. In other
words, they are over the debt limit of a Chapter 13 and the Chapter 7 will
reduce it to a level that is allowable.
3. Chapter 7 offers debtors some relief that may be more beneficial to the
debtor.
4. Your income may not be enough to file a Chapter 13, but after
the Chapter 7, it may be.
5. Your house value has decreased and the lien is no longer
secured and can now be stripped.
Can I Strip My First Mortgage or Do a “Cram” down?
At this time the
answer is NO. Lien stripping only applies to seconds or what may be
called junior mortgages on the personal residence.
What Are Some Of The Requirements?
In order to strip a
second or a junior lien (mortgage) the lien must be totally unsecured.
What this means is that amount you owe on the first mortgage is more than
the value of the lien.
Example: On the
first mortgage, you owe $300,000 and the current market value at the time
of filing the Chapter 13 is $275,000, this means you owe more than what
is worth. Thus the second or any other junior liens would be worthless.
Are There Any Other Bad Faith Problems?
What the creditors
may try to show is that you filed one way (Chapter 7) to take advantage of
the discharge of all of your unsecured debts then now you want to reduce
your debt load by stripping the second.
However, lets say
you didn’t qualify for Chapter 13 to start off but after your Chapter 7,
you do. This may not be considered as acting in bad faith. Many times
this is very slight.
Let’s say even after
the Chapter 7 you still don’t have enough money to pay your bills due to
the lien remaining in effect and you have made a good faith effort. The
court might no consider your action as a good faith one.
Since good faith can only be determined by
the totality of circumstances, the courts have developed a list of
factors to consider:
Some or all of the
factors the court will consider when looking at the totality of the
circumstances. One item alone normally does not produce a bad faith action
but a combination of facts can. In some cases you may only need a couple
or you could have some parts of all of these and still the court may find
good faith on the debtor.
(See Pioneer Bank v. Rasmussen (In re Rasmussen),
888 F.2d 703, 704 (10th Cir. 1989));
In re Cushman, 217 B.R. 470, 475-76 (Bankr. E.D. Va. 1998).
Hear are some areas
the court may look at. There are general areas of concerns:
A non-exclusive list
of factors includes:
1. The proximity in
time of the Chapter 13 filing to the Chapter 7 filing.
2. The percentage of
proposed repayment.
3. The debtor's past
bankruptcy filings.
4. The debtor's
honesty in representing facts.
5. Any unusual or
exceptional problems facing the debtor.
6. The nature and
amount of unsecured claims.
7. Whether a major
portion of the claims sought to be discharged arises out of re-petition
fraud or other wrongful conduct and the debtor proposes only minimal
repayment of those
claims.
8. Whether, despite
the most egregious pre-filing conduct, the plan represents a good faith
effort to satisfy creditors’ claims.
9. Whether the
debtor has incurred some change in circumstances between the filings that
suggests a second filing was appropriate and that the debtor will be able
to comply with the terms of a Chapter 13 plan.
10. Whether the two
filings accomplish a result that is not permitted in either Chapter
standing alone.
11. Whether the two
filings are an attempt to manipulate the bankruptcy system or are an abuse
of the purpose and spirit of the Bankruptcy Code.
Will I Have To Make Payments if the Junior Lien is Stripped?
Right now, most
courts would say no you don’t. The reason for this is that the debt has
already been discharged. In other words, the debt stripped is void.
How Long Does My Chapter 13 Plan Last?
In order to get a
discharge in a Chapter 13, the plan must end after the four years of
discharge of a Chapter 7. Do I have to wait until after four years to be
safe for my lien to be discharged? Probably not, since the lien is no
longer secured and the debt was discharged in the Chapter 7, you are no
longer personally responsible for the debt. This also applies when the
plan lasts less than three years. Another point I want to make is that
there currently is no provision of the Bankruptcy Code that requires the
lien strip to be discharged under a Chapter 13.
There are many more
bankruptcy issues I am more that happy to discuss with you after reviewing
your pre-bankruptcy documents. This is one reason we do a pre-bankruptcy
review to determine what your best options are and then present them to
you for your discussion.
Bankruptcy is
complex and my goal is to provide my clients with their best debt relief
options as the code will allow and at a reasonable price.
____________________________________________________________________
Prior
Bankruptcy Filing under 2005 BAPCPA - When you can file
another bankruptcy.
1. If you received a
chapter 7 discharge, you cannot file another chapter 7 for eight years
after discharge.
2. If you received a
chapter 7 discharge, you cannot file a chapter 13 bankruptcy for 4 years
after discharge.
3. If you received a
chapter 13 discharge, you cannot file a chapter 7 for 6 years after
discharge of chapter 13.
4. If you received a
chapter 13 discharge, you can not file a chapter 13 for 2 years after
chapter 13 discharge.
Author: Attorney
David A. Casey
Copyright ©2011 by
Attorney David A. Casey
Lien Stripping, Chapter 7, Chapter 13 & Chapter 20 San Diego
My office may be able to strip lien after a Chapter 7 bankruptcy? San
Diego bankruptcy attorney explains second lien, junior lien, chapter 20,
lien stripping & crams downs.
Whether you need relief from garnishments, liens,
foreclosures, credit card debts, medical bills or from the constant
harassment by your creditors, Bankruptcy can help you get a fresh
financial start.
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San Diego County!
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447-6780
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San Diego Bankruptcy Attorney Explains second lien, Junior lien,
filing Chapter 7 Bankruptcy in San Diego . Attorney explains chapter
20, lien stripping, crams downs, bad faith filing.
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