is lien strip separate from repayment plan, and question about zero payment plan

[Moneypenny]

This forum saved my life with lots of patient answers to my ch7 questions-- now I have to ask your patience for ch13

Specifically: is the lien stripped forever right after the court meeting, while other debts are then repaid according to schedule until discharge 3-5 years later?

Or, is the lien only stripped at the end of the discharge?

I am wondering this because I don't have any debts, all have been discharged in ch7-- so I don't even know what the 3-5 years would be for.

Is it possible to get a 13 that just strips the lien and then no repayment period? What does it mean to have a zero repayment plan? I would likely emerge with a zero repayment plan since I could show no disposable income, but what would it mean if I had no debt to repay on a zero payment plan? Is it possible that I could be on a 5 year plan of no payments on no debt?

Why are people on zero payment plans anyway? Is it just a hold on them in case they come into some money or an increase in income? Is that what would happen to me? And how is it decided that it will be three years or five years?

I am really beginning to regret not filing 13 in the first place...

thanks!

[Moneypenny]

Can you comment on this ch13 lien stripping position after ch7 I just read (pasted)

What do you think of 1) my reading of this position and 2) the position itself?

Here is my interpretation of what it seems to be saying, regardless of whether it is generally correct:

Lien stripping is immediate and permanent, regardless of whether you complete your plan.

It is not bad faith if, due to post ch7 fall in market, liens that were not possible to strip under 13 at the time of doing 7, become possible to strip later.

And maybe, here I am not sure what it is saying, you don't have to complete the 13 to strip the lien.



Here is the position:


"As with all legal questions, the answer is it depends. While the Supreme Court has ruled that you can not strip a second mortgage in a Chapter 7 proceeding, you still may be able to file a subsequent Chapter 13 case to achieve the goal.

So the issue really depends upon whether you can qualify for Chapter 13 relief and whether such plan is proposed in good faith.

This �double bankruptcy� is often referred to as a Chapter 20, which essentially is a Chapter 7 followed by a Chapter 13. Unfortunately, a Chapter 20 usually brings up issues of bad faith and Bankruptcy Courts highly scrutinize these filings. Lien stripping in the subsequent Chapter 13 case entails both qualifying for Chapter 13 relief and qualifying for lien stripping within that chapter.

To strip a second or junior mortgage on the personal residence in the subsequent Chapter 13 requires proving Chapter 13 eligibility (you have income and are within the debt limitations) and that the lien is totally unsecured (the value of the house is less than the first mortgage debt). For more information on the specific qualifications of lien stripping, please click my blog here.

Most issues arise over whether the subsequent filing was done in good faith or not. Bad Faith frequently arises when individuals attempt to take advantage of both chapters where such advantages are not typically available in either chapter. For instance, filing a Chapter 7 to remove the unsecured debt for a later Chapter 13 solely in an attempt to reduce the Chapter 13 payments due to the lower debt load, is often viewed as bad faith.

On the other hand, reducing the unsecured debt in a prior chapter 7 case in an effort to qualify under the debt limits in the later Chapter 13 case, thus saving the fees, costs, and requirements in avoiding a Chapter 11 case, is generally considered not bad faith. Its a very fine line, but very important distinction between reducing monthly payments and reducing debt to qualify.

By the same token, the sudden drop in real estate values after the filing of a chapter 7(wherein one would not have qualified for lien stripping with previous values), which makes lien stripping a possibility now, would also be considered in good faith.

So what then gets paid in the subsequent Chapter 13 since all debt was previously discharged? Courts continue to struggle with this dilemma in Chapter 20 cases. On the one hand, there is no longer any unsecured debt due to the previous discharge under 11 USC 524. So technically, when the Chapter 13 is filed, the only debts that might remain are secured debts, taxes, student loans, non-dischargeable debt, other priority debt, and post chapter 7 debt. But assuming none of this other debt remains and the only purpose of the Chapter 13 is to strip the lien, does anything get paid?

The majority of Courts are now holding that while the secured lien is now voided and the debtor no longer personally owes any of the debt, a new unsecured debt is still created. Even though the prior Chapter 7 discharged this debt as a personal liability of the debtor and it can not be collected against the debtor personally, it is an unsecured debt that can be collected against the Chapter 13 estate. As such, most Bankruptcy Courts are now allowing these unsecured claims to be paid over a 3 to 5 year plan, even though the debtor no longer personally owes it.

So what then happens on discharge? Since under the new bankruptcy laws, a chapter 13 will not receive any discharge if filed within 4 years of a chapter 7, does the debtor now personally owe a huge unsecured debt upon completion of their chapter 13? No, as previously stated, since the debt has already been discharged in the previous chapter 7, the debtor no longer personally owes the new unsecured debt, even though there will be no discharge of this new unsecured debt in the subsequent chapter 13 case.

Finally, there is also no Code provision that requires that a lien may be stripped only upon Chapter 13 discharge. In fact, the Code provisions that are used, 11 USC 506(d) and 11 USC 1322, each provide that the lien stripping is immediate, even if no discharge and even prior to completion of all chapter 13 payments. Moreover, since the new Bankruptcy Laws under 11 USC 348 and 11 USC 349 provide remedies in the event of dismissal or conversion, new arguments can be made for immediate recording of the avoided lien.

In short, a prior chapter 7 should not be an obstacle for a subsequent chapter 13 that is filed to strip a junior mortgage, provided the requirements for lien stripping exists and there is no bad faith in that chapter 13 filing. Always check with an experienced Bankruptcy Attorney if you think you might qualify for this relief.

[AngelinaCat]

Hi Moneypenny, since these are questions on what is essentially the same subject, I have combined both into one thread.

[momofthree]

I'm not sure where you got that quote from, so I don't know if it is a reputable source, but the answer to your question is already listed here:

From your post:

"The majority of Courts are now holding that while the secured lien is now voided and the debtor no longer personally owes any of the debt, a new unsecured debt is still created. Even though the prior Chapter 7 discharged this debt as a personal liability of the debtor and it can not be collected against the debtor personally, it is an unsecured debt that can be collected against the Chapter 13 estate. As such, most Bankruptcy Courts are now allowing these unsecured claims to be paid over a 3 to 5 year plan, even though the debtor no longer personally owes it."

If this position is correct, then your 2nd mortgage would become new unsecured debt and as such, would receive payment. Also, you will have new attorney fees (a 13 usually costs $3k-$5 to file) that will be paid thru the plan, as well as trustee fees.

Lien stripping does not occur until after the repayment plan is complete. The court order for my lien strip confirms this.

You cannot file a ch13 if you cannot support a payment. Your dmi will determine your payment, and the trustee can object to your list of expenses. If you truly do not have dmi, then you have to adjust your expenses to show some dmi (we were negative over $1000 a month, but had to adjust our numbers to show dmi so that we could qualify to file).

[Pandora]

...

Lien stripping does not occur until after the repayment plan is complete. The court order for my lien strip confirms this.

Just to add to mom's post above and clarify - a lien strip cannot be done unless you can obtain a discharge after completing your Ch. 13 plan; thats my understanding of it, and what it states on our confirmation order.

[Moneypenny]

Here is what I found out about this:

No, it's definitely not necessary to get a discharge for a lien strip in many districts in the country now-- lookup so-called "chapter 20" for more details.
In most of these districts, you must complete some kind of payment plan even though you won't be eligible for a discharge because you filed ch 13 too soon after the 7 (you have to wait 4 years after ch7 to be eligible for a discharge in 13, however you may file 13 earlier to receive other protections like lien strips and cease and desist, stop a FC, etc.). Many people are aware of this, but many others are doing ch 13 only, not on the heels of 7, where the whole business is concluded as you say on discharge. Not all successful 13's end in discharge, as in the so-called ch20 case.

In some other districts, probably not many, you may not have to even have a payment plan that requires a payment, and the strip is fully accomplished at confirmation. Not many know that this is happening.

The latter case seems like I would not be able to pull it off in my district.

[Pandora]

I stand corrected - apparently you can do it in your district, however still believe you're going to have a fight on your hands - discharge or no. From what I'm reading since you no longer have any debts (since all were discharged) ....why would you want to create debt and therefore..a Ch. 13 payment? I get you want to strip the 2nd...but -

Maybe one of the legal eagles can answer the question:

If successful on getting the motion to strip 2nd - one essentially then creates new unsecured debt in a Ch. 13 which could be collected upon - so.. why on earth would someone want to do that when their obligation was already removed in the 7 discharge? I understand the desire to "force" the 2nd to play into your hand, but really....it would seem that the person filing is on the losing end of that game. ??? Getting a 0% payback in a Ch. 13 is far and few unless you have secureds you must pay (non-discharged in your Ch. 7) and / or other items non-discharged.

you gotta pay something in a Ch. 13....for a minimum of 3 years..max of 5. So...???

Am I the only one who see's it that way? LOL

[momofthree]

Depending on DMI, it may cost less to just settle with the 2nd mortgage co. Have you attempted that yet?

[Moneypenny]

No, like I said actually probably can't do the 13 with no payment and with lien strip in MY district, but you can in some. Bad faith becomes an issue though so it looks like there have to be a lot of other things going on to get the "instant lien strip"-- it is premised on the idea that you do not create a new unsecured debt from the lien strip because the debt itself does not exist (wiped in ch 7) so only the lien is dissolved, which is not contingent on a payment plan because there is nothing to pay.

This reasoning is sound and fair to me and is being used now-- but its probably not going to work in my district.

I would LOVE to settle, but on forums dedicated to settling it does not appear the BofA is settling these underwater 2nds very often. Certainly not when someone is current-- I would need to take right to the brink of FC, with no turning back and penalties and interest doubling the amount owed, so it's a big decision to try for the settle. Scary!