Personal Chapter 11?

[NEWBIE911]

Hi All -

My attorney is giving me bad advice - I suspect. He is dead set against filing an 11 , mainly for the scrutiny that will come with it. I'm trying to lien strip and with the strip, my unsec debt will be approx $470k. He is saying to leave about 130k off the petition, to leave it under the 13 threshold. He says afterwards, i can file a 7 for the remaining debt. (some business CC debt that I am personally responsible for and some personal CC debt) Everything i read says this is a no no!
Anyone have an opinion, and more importantly, has anyone been through a personal chap 11?

[HHM]

Well, your attorney is correct in that a chapter 11 should be avoided at all costs. It is expensive, and most end up as chapter 7's anyway.

But, the idea of "leaving off" debt in a chapter 13 is wrong. You simply can't (should not do that).

Reasons not to do an 11
On average, they end up costing around $40,000
Monthly reporting requirements. You will need to provide monthly report of income and expenses.
Creditors get a vote on your plan (and realize, they actually must vote, the courts do not accept a non-vote as a yes vote).
This is just a few reasons.

You need to answer this question, if you lien strip,
1. Can you afford the mortgage,
2. Will it bring you at least to break even value on the residence.

If you answer no, then you should probably file a 7 and walk. In the long run, that is probably the better option (assuming you qualify for a 7).

[justbroke]

Let me interject here, as I thought I had an 11 USC 109(e) problem. (Section 109(e) deals with debt limits.) Those debt limits are for liquidated, undisputed and non-contingent debt. If the "stripping" of a mortgage/lien causes you to exceed the unsecured debt limits, then that amount does not count in your debt limits.

The reason why... the "potential" lien strip is "contingent", "disputed" and "unliquidated". Until you actually go through the process and motions (or complaint) to determine secured status, it's just as though the lien is still unsecured, for purposes of the 109(e) test.

As for everything else, HHM provides a good summary on self-evaluation of whether keeping the property is worth it.

(I also don't understand how your lawyer says to just file Chapter 7 "afterwards", as it is not that simple. There are pretty restrictive conditions for filing a Chapter 7 after a Chapter 13.)

[NEWBIE911]

Let me interject here, as I thought I had an 11 USC 109(e) problem. (Section 109(e) deals with debt limits.) Those debt limits are for liquidated, undisputed and non-contingent debt. If the "stripping" of a mortgage/lien causes you to exceed the unsecured debt limits, then that amount does not count in your debt limits.

The reason why... the "potential" lien strip is "contingent", "disputed" and "unliquidated". Until you actually go through the process and motions (or complaint) to determine secured status, it's just as though the lien is still unsecured, for purposes of the 109(e) test.

As for everything else, HHM provides a good summary on self-evaluation of whether keeping the property is worth it.

(I also don't understand how your lawyer says to just file Chapter 7 "afterwards", as it is not that simple. There are pretty restrictive conditions for filing a Chapter 7 after a Chapter 13.)

Thank you both. That can't be - that the now unsecured second mortgage does not count against the 13 limits. I mean, my attorney would have had to known this as I've been talking about this for a year with him and I am already on my second filing (first one dismissed due to disagreement on payment amount) Does the 109 limit rule vary by state. I'm a bit in shock right now - if that is true. Is there a source? Thanks again

[HHM]

Let me interject here, as I thought I had an 11 USC 109(e) problem. (Section 109(e) deals with debt limits.) Those debt limits are for liquidated, undisputed and non-contingent debt. If the "stripping" of a mortgage/lien causes you to exceed the unsecured debt limits, then that amount does not count in your debt limits.

That is not true in every district. Many districts hold that the debt is established by your petition at the outset. To do a lien strip, you must value the property and bifricate the 2nd mortgage claim in your list of debt. Thus, what ever amount you say is unsecured is what gets counted toward the 109 debt limits.

[NEWBIE911]

Well, your attorney is correct in that a chapter 11 should be avoided at all costs. It is expensive, and most end up as chapter 7's anyway.

But, the idea of "leaving off" debt in a chapter 13 is wrong. You simply can't (should not do that).

Reasons not to do an 11
On average, they end up costing around $40,000
Monthly reporting requirements. You will need to provide monthly report of income and expenses.
Creditors get a vote on your plan (and realize, they actually must vote, the courts do not accept a non-vote as a yes vote).
This is just a few reasons.

You need to answer this question, if you lien strip,
1. Can you afford the mortgage,
2. Will it bring you at least to break even value on the residence.

If you answer no, then you should probably file a 7 and walk. In the long run, that is probably the better option (assuming you qualify for a 7).

Thanks. The 1st loan's POC just breaches the market value enabling me to strip. The POC included anticipated interest, so I will be in very good shape to strip. It will bring instant equity.

[NEWBIE911]

That is not true in every district. Many districts hold that the debt is established by your petition at the outset. To do a lien strip, you must value the property and bifricate the 2nd mortgage claim in your list of debt. Thus, what ever amount you say is unsecured is what gets counted toward the 109 debt limits.

That's what I thought.

[justbroke]

That is not true in every district. Many districts hold that the debt is established by your petition at the outset.

Absolutely agree... by the petition.

The precedence in most Districts is that the Schedules are controlling. Usually, Judges don't look beyond what's scheduled. My District does allow the Judge to look beyond the schedules to make a determination. They usually go by what is scheduled, but can, and have in limited circumstances, gone by what's actual. In some of the cases where the Judge has gone beyond the schedules, they only looked to what was already adjudicated at the time of the hearing. In many cases, they determined that Rule 9001 was specifically meant to increase the speed and process, and thereby, a Chapter 13 Debtor finding out 4 months into the process, that their case was over the 109(e) limit, was absurd and contra to 9001.

To do a lien strip, you must value the property and bifricate the 2nd mortgage claim in your list of debt. Thus, what ever amount you say is unsecured is what gets counted toward the 109 debt limits.

I didn't do this, and we aren't required to bifurcate the debt on our Schedules. I still think the proper thing to do is to list the debt as secured and mark it as "contingent", "disputed" or "unliquidated". Either way, even if you did mark it as unsecured, but checked the "contingent", "disputed" or "unliquidated" box, it would not count in the 109(e) calculations anyhow. This has been the case history I have seen across the several Districts, but it can be different in others. I remember I was panicked on the 109(e) problem, and I went though a lot of cases across the country to find a defense if it was brought up.

I've noticed that some of the Bankruptcy software that attorneys use will actually do the bifurcation on the Schedule A when you mark the property as a lien strip. This was the first time I saw my 109(e) issue. That's why I went into panic mode.

I think the key is that the bifurcated debt is "disputed", "contingent" and "unliquidated", so doesn't count in the 109(e) calculation, regardless of whether you schedule the debt bifurcated or not.

The 9th Circuit, certainly doesn't work the way I wrote. You don't even need to bifurcate or lien strip to get into the 109(e) issue there. So, that's another story.

[NEWBIE911]

Absolutely agree... by the petition.

The precedence in most Districts is that the Schedules are controlling. Usually, Judges don't look beyond what's scheduled. My District does allow the Judge to look beyond the schedules to make a determination. They usually go by what is scheduled, but can, and have in limited circumstances, gone by what's actual. In some of the cases where the Judge has gone beyond the schedules, they only looked to what was already adjudicated at the time of the hearing. In many cases, they determined that Rule 9001 was specifically meant to increase the speed and process, and thereby, a Chapter 13 Debtor finding out 4 months into the process, that their case was over the 109(e) limit, was absurd and contra to 9001.

I didn't do this, and we aren't required to bifurcate the debt on our Schedules. I still think the proper thing to do is to list the debt as secured and mark it as "contingent", "disputed" or "unliquidated". Either way, even if you did mark it as unsecured, but checked the "contingent", "disputed" or "unliquidated" box, it would not count in the 109(e) calculations anyhow. This has been the case history I have seen across the several Districts, but it can be different in others. I remember I was panicked on the 109(e) problem, and I went though a lot of cases across the country to find a defense if it was brought up.

I've noticed that some of the Bankruptcy software that attorneys use will actually do the bifurcation on the Schedule A when you mark the property as a lien strip. This was the first time I saw my 109(e) issue. That's why I went into panic mode.

I think the key is that the bifurcated debt is "disputed", "contingent" and "unliquidated", so doesn't count in the 109(e) calculation, regardless of whether you schedule the debt bifurcated or not.

The 9th Circuit, certainly doesn't work the way I wrote. You don't even need to bifurcate or lien strip to get into the 109(e) issue there. So, that's another story.

Thanks - How can I find out for sure how the NJ trustee views this?

[justbroke]

Thanks - How can I find out for sure how the NJ trustee views this?

Not so much the Trustees, but the District, Circuit and Judges themselves. You would need to do some case searches, or review some cases that were near the 109(e) limit. I'll tell you from experience, it's hard to find the cases.

[NEWBIE911]

Not so much the Trustees, but the District, Circuit and Judges themselves. You would need to do some case searches, or review some cases that were near the 109(e) limit. I'll tell you from experience, it's hard to find the cases.

Thanks for your input!