AP for a large PMSI loan

[DebtMan2020]

Hello all,

Been browsing the forum for a while and can't seem to find anything quite similar to my case. I wanted to see if anyone had any knowledge or experience with a situation like mine.

I filed for Chapter 13 late last year and am awaiting confirmation soon. My payments have been $600 a month but I have an adversary proceeding case that seems to be scheduled after the confirmation hearing.

First, I was wondering if it is normal for a case to be confirmed before an AP is completed because how can I know what the final monthly payment amount will be if the AP is not completed?

Second, the AP is for one of my large loans. The loan was a Purchase Money Security Interest loan for a swimming pool. My lawyer rejected their claim saying there is no equity in my home, which was proven by an appraisal I had done. The defendant had their own appraisal done but I have not yet heard back the results of that despite it having been over two months.

My assumptions are: they find equity in my home, I have to pay that amount in full as part of my chapter 13. or they find no equity in the home and the debt gets converted to unsecured and they get what they get from my payments.

Just looking for some guidance on this and wanted to see if anyone had any experience with PMSI APs before.

Thank you all.

[justbroke]

There is a process to modify confirmed plans, so don't worry about the affects of an adversary proceeding (AP).

As for the AP itself, this seems to be a lien stripping via complaint (AP). In Florida we can do lien stripping by motion (as a contested matter), without all the trimmings of the AP process. Lien stripping, however, is a very common process and procedure within Chapter 13s. Think of most mortgages as PMSIs and almost every single car loan -- used to initially purchase the vehicle -- as a PMSI. That doesn't change the nature of the lien strip motion.

You should not need to pay the balance of the loan if the loan's terms extended beyond the life of your Chapter 13. Otherwise those in Chapter 13s, with a mortgage, would need to payoff their homes (first, second, HELOC, etc) within 3-5 years and that would be impossible. The same goes for vehicles where the terms of the loan exceed the length of the Chapter 13 plan.

As for the creditor, who has a secured lien on your home, I understand why they'd want to fight or at least appear as though they are fighting. They need to do their due diligence and make sure that the balance on your first (or senior) mortgages exceed the appraised value of the home. Whether or not they would concede this early in an AP is anyone's guess.

But, the fact that they ordered an appraisal themselves speaks volumes. When I did my two strips, the creditor never ordered another appraisal after seeing my appraisal (submitted with the motion/complaint). I would say that a professional appraisal, that was done through a thorough inspection of the home, by a license appraiser, who has decades of experience, and provides that on a URAR (uniform residential appraisal report), signed, with their license included, is powerful. Only where the values are very close (within 1-5%) should a creditor order their own appraisal... or if they simply don't trust the appraisal in the motion/complaint.

[DebtMan2020]

There is a process to modify confirmed plans, so don't worry about the affects of an adversary proceeding (AP).

As for the AP itself, this seems to be a lien stripping via complaint (AP). In Florida we can do lien stripping by motion (as a contested matter), without all the trimmings of the AP process. Lien stripping, however, is a very common process and procedure within Chapter 13s. Think of most mortgages as PMSIs and almost every single car loan -- used to initially purchase the vehicle -- as a PMSI. That doesn't change the nature of the lien strip motion.

You should not need to pay the balance of the loan if the loan's terms extended beyond the life of your Chapter 13. Otherwise those in Chapter 13s, with a mortgage, would need to payoff their homes (first, second, HELOC, etc) within 3-5 years and that would be impossible. The same goes for vehicles where the terms of the loan exceed the length of the Chapter 13 plan.

As for the creditor, who has a secured lien on your home, I understand why they'd want to fight or at least appear as though they are fighting. They need to do their due diligence and make sure that the balance on your first (or senior) mortgages exceed the appraised value of the home. Whether or not they would concede this early in an AP is anyone's guess.

But, the fact that they ordered an appraisal themselves speaks volumes. When I did my two strips, the creditor never ordered another appraisal after seeing my appraisal (submitted with the motion/complaint). I would say that a professional appraisal, that was done through a thorough inspection of the home, by a license appraiser, who has decades of experience, and provides that on a URAR (uniform residential appraisal report), signed, with their license included, is powerful. Only where the values are very close (within 1-5%) should a creditor order their own appraisal... or if they simply don't trust the appraisal in the motion/complaint.

Yes, my lawyer filed the motion to strip the lien. I believe you other point is correct too, as the values are quite close. I have around 370k in mortgages (NOT including this PMSI loan) and my appraisal came in at 340k. The defendant (loan company) hired a professional firm to act as their agent so I am sure this firm is trying everything possible, as due diligence to their client (the loan company). I am assuming they went this route as I only made around 6 months of payments on a 15 year loan so they stand to lose quite a bit in the process if they simply gave in.

I am decently confident in the value not coming in with any equity, even with their own appraisal, but the one thing I am worried about is the timing of this loan. It closed earlier last year and I filed bankruptcy in the Fall. I am hoping they don't deduce this is some kind of fraud. I have heard of how you aren't allowed to run out and max credit cards buying jewelry before filing bankruptcy for example. The loan was more so the icing on the cake to my financial mistakes. I kept having to add more and more on to the pool loan because the project ran into all sorts of issues and it basically crippled me financially when it was all said and done.

If there is no equity in my home, do you think that means the defendant has no other option but to be included in the plan as unsecured? I have seen other posts about APs saying people "worked something out" with the defendant but I am not sure if that applies here.

Appreciate the help.

[justbroke]

If there is no equity in my home, do you think that means the defendant has no other option but to be included in the plan as unsecured? I have seen other posts about APs saying people "worked something out" with the defendant but I am not sure if that applies here.

Based on what you wrote, they may be taking the time to look at whether filing a cross-complaint based on a theory that you never intended to pay the loan. But proving actual fraud, which they would need to do, is a lot more difficult than it appears and they could stand to lose their court costs on top of the balance of the loan.

As for the appraised value versus your balance on your mortgage, that seems to be way outside the 1-5% that I would say is reasonable to question. There's no way to tell what your adversary -- the pool loan creditor -- is thinking until they make a move. Since APs are very procedural and are mini-lawsuits, it will really be up to what is on the calendar for this AP. Usually there are several fixed dates that are set for the AP and periodic case management hearings. I'm sure your attorney is on top of that and is just waiting for the next case-management. At that time the attorneys and the court could consider whether to move forward with a summary judgement on the motion.

[DebtMan2020]

Based on what you wrote, they may be taking the time to look at whether filing a cross-complaint based on a theory that you never intended to pay the loan. But proving actual fraud, which they would need to do, is a lot more difficult than it appears and they could stand to lose their court costs on top of the balance of the loan.

As for the appraised value versus your balance on your mortgage, that seems to be way outside the 1-5% that I would say is reasonable to question. There's no way to tell what your adversary -- the pool loan creditor -- is thinking until they make a move. Since APs are very procedural and are mini-lawsuits, it will really be up to what is on the calendar for this AP. Usually there are several fixed dates that are set for the AP and periodic case management hearings. I'm sure your attorney is on top of that and is just waiting for the next case-management. At that time the attorneys and the court could consider whether to move forward with a summary judgement on the motion.

You are most likely right. The next meeting for the AP isn't until October. My plan's confirmation hearing is in 2 days so that is my next step. Thanks for the insights.

[DebtMan2020]

Hello,

Just wanted to provide an update in case anyone has a similar situation. My adversary proceeding seems to be pretty much wrapped up and the confirmation hearing was moved to December. From what I can find in PACER and talking to my lawyer it seems that they've agreed the pools secured value is $15k and that amount will be added to the remainder of my Chapter 13 payments. This will add around $250 to my payment each month but I consider it a win because the pool loan itself was almost 65k. 15k with no interest vs. 65k with high interest is a no brainer to me.

This month marks 1 year since I filed so if anyone reading has a complicated adversary proceeding just know in my example I am one year into paying and the plan is still not confirmed, so these things can add quite a bit of time.

Thanks all.

[justbroke]

Interesting, so rather than completely stripping this junior mortgage (for the pool), you -- by and through your attorney -- agreed to a settlement of sorts. You agreed to settle the controversy (the adversary complaint) by allowing a $15K secured claim to survive and that claim would be paid 100% during the bankruptcy.

That's probably not a bad deal at all.

[shipo]

Thanks for the update.

This kind of scenario makes me glad I sold literally all of my disposable assets (in an attempt to stay solvent) before I ultimately filed for Chapter 13. My case took a relatively short six weeks to confirm.

[DebtMan2020]

Interesting, so rather than completely stripping this junior mortgage (for the pool), you -- by and through your attorney -- agreed to a settlement of sorts. You agreed to settle the controversy (the adversary complaint) by allowing a $15K secured claim to survive and that claim would be paid 100% during the bankruptcy.

That's probably not a bad deal at all.

Yeah I'm not sure how the details worked out but I consider it more than fair. I am assuming they found "some" equity in my house and used that number.

The loan is barely a year old. I was paying nearly $800 just on this loan itself so considering my entire Chapter 13 payment including this loan plus my plethora of unsecured debt is only slightly more I am actually in a pretty good spot. Not to mention the interest and term (15 years for the pool loan). I have 4 years left in the plan at this point. If I amortized my loans and credit cards out using minimum payments I estimate the Chapter 13 plan will save me $250k and a decade or more of payments.

I am assuming I am in a rare case where I had so much debt that by virtue of filing Chapter 13 I am actually saving money each month because of how high my minimum payments were vs. the calculation for my plan payment.

In 4 years I should be in a really good place financially. No more convincing myself I need things vs. want them!

[shipo]

DebtMan2020, not that rare, there are any number of us here whom were in similar or worse shape. In my case, I had something north of $200,000 in unsecured debt resulting from the failure of my wife's business and fraud (oddly enough with the best of intentions) on the part of my former business partner. Had I tried to stick with it, I probably wouldn't have gotten out of debt this lifetime.

[flashoflight]

Not only do a number of us have a plan payment that is a small fraction of the old minimum payments, we also have secured debt and arrearages on secured debt that makes up most or all of the plan payment. In effect, the plan payment pays me back in home equity with a small cut to the lawyer and the trustee. Another way to interpret the plan payment is that it's an extra mortgage payment rather than a payment to Visa.

[justbroke]

The home equity deal is probably the "best" part of a Chapter 13. Of course there can be other redeeming values (learning to budget, paying off all unsecured debt in 36-60 months, etc, etc, etc), but paying off your car and putting a dent -- even if it is small -- in the principal amount of your mortgage, is a true benefit.

In some cases, for those that buy a new car just before filing, the benefits are alarmingly pro-debtor... in my humble opinion.