Relief from Stay in a Chapter 13

[RobGee]

I am curious to know if filing a Chapter 13 AFTER filing a Chapter 7 (Filed approx. 6 months ago) was discharge AND the mortgage company was granted relief from automatic stay in that 7. Now the mortgage company has a foreclosure sale and the client wishes to reorganize his debts. Will filing a Chapter 13 stop the foreclosure? Does the client have adequate protection against the mortgage company? The clients intentions are not to delay but to reorganize. Any thoughts on this? I have been researching but haven't found anything.

[Pandora]

reorganize what debts exactly? A Ch. 7 discharge was granted.... so what debts are there?

[RobGee]

I stated above that there is a foreclosure sale. If he wants to keep his home he needs to pay the mortgage and the arrears and also there are taxes. You don't get to file a chapter 7 and expect to stay in the home free and clear. My questions was answered by an attorney and the answer to this is that there will be an automatic stay prohibiting the mortgage company from foreclosing in the new case because (a) there was not a dismissed case within the previous year, (b) he has not filed multiple cases to delay collection, (c) the case WAS discharged.

[HHM]

Assuming the person can afford both the underlying, regular, mortgage payment (chapter 13 provides no mechanism to modify the payment) and the chapter 13 payment to cure the arrears and pay any other priority debt; yes, a chapter 13 can be filed (even though the 13 is not eligible for discharge) to stop the foreclosure. However, if the mortgage, on its own, is not affordable or if the house is 15% or more under water, time to have a heart to heart with this person and have them walk away from the house.

Honestly, I have yet to see any of these type of cases actually close, usually about 6-18 months in the debtor comes to their senses and decides to walk.

[RobGee]

Assuming the person can afford both the underlying, regular, mortgage payment (chapter 13 provides no mechanism to modify the payment) and the chapter 13 payment to cure the arrears and pay any other priority debt; yes, a chapter 13 can be filed (even though the 13 is not eligible for discharge) to stop the foreclosure. However, if the mortgage, on its own, is not affordable or if the house is 15% or more under water, time to have a heart to heart with this person and have them walk away from the house.

Honestly, I have yet to see any of these type of cases actually close, usually about 6-18 months in the debtor comes to their senses and decides to walk.

Yes, the plan is feasible and the client was already directed the route of walking away. The client has an emotional distress with walking away as with many do. But in the end the client is the boss and if they want to file a 13 and save the home then that is what we will do. They may not be eligible for a discharge, but we are not seeking one here. I haven't seen any close either so I don't know what the outcome will be. The question now is can we lien strip without getting a discharge. The judges seem to have very mixed opinions. That is something that is currently going on in our district. (Eastern District of California)

[HHM]

Can't speak for E.D. CA, but the greater weight of opinion appears to be that you CANNOT strip a second in a non-dischargeable 13. So, set client's expectations accordingly, and that fact alone may be enough to get them to walk. Granted, if the home is very upside down, the client need not pay the 2nd mortgage and assume the risk of a possible foreclosure by second (not likely). However, walk client through that scenario. 2nd mortgage was discharged in chap 7, you are not paying 2nd mortgage during 13 and you cannot strip, but the deed of trust sit there accumulating interest. Maybe the debtor can settle (actually, if she has some cash, she should try to settle with 2nd prior to filing the 13), but at the end of the 13, she will not have gained any equity in the house and will have to deal with the 2nd mortgage at that time.

Financially, in this Market (especially in CA), the client is much much better off walking away and rebuying in 3 years vs trying to dig out an impossible negative equity position.

My metric for this sort of plan, the mortgage payment must be 27% or less of the persons gross monthly income, and the chapter 13 payment combined with the mortgage payment needs to be less than 35%, otherwise, I simply won't do it. Keep in mind, with no unsecured creditors, you rolling your fees into the plan makes the plan payment higher so the very act of taking on the case makes the plan even more risky. At the end of the day, unless the case matches the above metric, the case is not worth it, you will put in tons of time, probably not get paid the full amount and end up modifying the case half a dozen times or dismissing and the client will lose or walk away from the house in a year or so anyway.

[RobGee]

Can't speak for E.D. CA, but the greater weight of opinion appears to be that you CANNOT strip a second in a non-dischargeable 13. So, set client's expectations accordingly, and that fact alone may be enough to get them to walk. Granted, if the home is very upside down, the client need not pay the 2nd mortgage and assume the risk of a possible foreclosure by second (not likely). However, walk client through that scenario. 2nd mortgage was discharged in chap 7, you are not paying 2nd mortgage during 13 and you cannot strip, but the deed of trust sit there accumulating interest. Maybe the debtor can settle (actually, if she has some cash, she should try to settle with 2nd prior to filing the 13), but at the end of the 13, she will not have gained any equity in the house and will have to deal with the 2nd mortgage at that time.

Financially, in this Market (especially in CA), the client is much much better off walking away and rebuying in 3 years vs trying to dig out an impossible negative equity position.

Well we have two judges in our district handling these matter and one judge is saying you CAN lien strip in a chapter 20 and the other is saying that you CANNOT. We haven't filed yet and the client is aware. Keep in mind, the attorney I work for has a very good reputation in California and has been practicing for over 32 years. He is a California Legal Specialist. What I'm saying is he knows his S***. We don't keep anything from the clients as we are a honest bankruptcy firm unlike some firms that are in it for volume and high $$$$. Yes, the client may also negotiate something with the 2nd mortgage because it was discharged BUT there is nothing that they can do about the 40,000 in arrears on the 1st mortgage. If a client is telling us that they want to save their home and not listen to us then that is up to them. If we say no then they may just hire an incompetent attorney to screw them up. Loan modification is not working for them. Property is appraised at 188,000. 1st is 210,000 and a second of 70k. Keep in mind there is a trustee sale tomorrow.

[HHM]

No problem...knock yourself out?

If at all possible, have client pull together about $7,000 to settle with the 2nd mortgage (settlements average in that 5-15% range depending on how upside down the property value).

But to answer what I think the original question was...No, there is no waiting time between discharge and refiling. You needn't worry about the serial filer provisions that terminate the automatic stay early.

[RobGee]

No problem...knock yourself out?

If at all possible, have client pull together about $7,000 to settle with the 2nd mortgage (settlements average in that 5-15% range depending on how upside down the property value).

But to answer what I think the original question was...No, there is no waiting time between discharge and refiling. You needn't worry about the serial filer provisions that terminates the automatic stay early.

Thanks, I didn't want to come off rude and I apologize if I did. We may have got a little off topic with Chapter 20 and lien stripping. But, I appreciate the comments it's nice to see people who actually care about the clients interest. I worked for a bankruptcy mill a while ago and you can only imagine how negligent the attorneys were. Thanks!

[helpme2010]

I discharged a 7 a couple months ago and filed a 13 to stop the trustee sale of my house. When I asked for a loan mod after the chapter 7, they said no because it was only a couple weeks from the trustee sale. However, now that I filed the 13, it stopped the trustee sale, buying me 2 or 3 more months of time and during this time, the mortgage company called me asking if I was interested in doing a loan mod and I said yes. They sent me a loan mod package a couple weeks ago and I just completed it.

I doubt they will give me another 6 month forbearance plan, but maybe they will. I would like to continue on this plan, living in the house longer, knowing that I will eventually walk away or be foreclosed on.

If your clients goal is to buy more time and try to find a strategy for a loan mod or something, I think filing the 13 is a good idea. In my case, I don't have a job and all the time I can buy to stay in this home and hopefully get a loan mod as my ultimate goal and find a job soon, that extra time is critical to me.