Why Do Over 2/3’s Of All Chapter 13 Bankruptcy’s Fail? By Robert Weed, Esq.
We know a lot–including knowing enough to avoid Chapter 13 unless there’s some good reason to be there.
Why? One reason is most of them fail. In the last six weeks, we filed 200 –and 120 were dismissed by the courts. That works out to a failure rate of 60%.
Second, they are unpredictable.
Under the 2005 bankruptcy law, you are required to send your tax forms to the trustee every year. If there’s an “unforeseen” increase in your income, the trustee can ask the judge to increase your payments. You can get your case approved paying a couple hundred dollars a month–and end up paying over a thousand.
Third, it’s worse for your credit. You start getting back to good credit when you get your bankruptcy discharge. In a Chapter 7, that’s about four months. In Chapter 13, it’s sometimes three and usually five years.
(About half the creditors keep reporting you as late every month of your payment plan–piling on five more years of bad credit.
Christine Wolk, a NACBA member out of Wisconsin, got her judge there to say that’s illegal. You can download that Judge’s ruling
here. I’ve tried challenge to that unfair credit reporting here, too, but these judges did not see it my way.)
Chapter 13′s often fail. Your payment is unpredictable. They are worse for your credit.
What happens to the loan modification or short sale if the seller files for bankruptcy?
The Bank/Servicer can review a loan modification or short sale offer while the loan is in an active bankruptcy. However, to complete a short sale and issue the approval letter, the bankruptcy documents must be filed and approved by the court. Any final agreement will require bankruptcy court approval. In the State of California, you CANNOT have a Loan Modification Request and a Short Sale Request process at the same time, and in the State of California, Bankruptcy Court DO NOT “cram down” or force a Bank to modify a loan. If the seller has a Loan Modification in process, “active”, the Modification will be put on “hold” which means it is no longer “active” so foreclosure proceeding may proceed.
• Homeowners should consult with their bankruptcy counsel about how short sale programs could
affect their mortgage and their bankruptcy case.
• When a loan is in bankruptcy, there is an automatic stay, also known as a “hold,” of any collection
activity placed on all debts that are included in the bankruptcy filing. Before the short sale specialist
can discuss loss mitigation options, including a short sale, with the homeowner, the Bank
must have written authorization from the homeowner's bankruptcy attorney on the law firm’s
letterhead. This is in addition to the Bank’s Third-Party Authorization Form, which gives
the bank permission to speak to the homeowner's bankruptcy attorney and Realtor/Listing Agent.
If homeowners are currently in a bankruptcy proceeding, or they have previously obtained a
discharge of their mortgage debt under applicable bankruptcy law, all communication and notices
from the Bank are for information purposes only. They are not an attempt to collect the debt,
a demand for payment, or an attempt to impose personal liability for that debt.
Homeowners are not obligated to discuss their home loans with the Bank or enter into a short
sale agreement or other loan-assistance program. Customers should consult with their bankruptcy
attorney or other advisor about their legal rights and options.
To complete a short sale for a loan in bankruptcy, The Bank must receive one of the following
releases issued by the bankruptcy court:
• Granted Motion to Sell*
• Granted Motion for Relief from Automatic Stay with noted short sale negotiation*
• Dismissal
• Discharge with Abandonment, Closing Order, Final Decree, Trustee No Asset Review
If homeowners receive a discharge under a Chapter 7 bankruptcy proceeding,
discharge releases the homeowners from personal liability for certain specified types of
debts. The homeowners are no longer legally required to pay any unsecured debts that are discharged.
The discharge is a permanent order prohibiting creditors from taking any form of collection
action on discharged debts, including legal action and communications such as telephone calls,
letters, and personal contacts.
Although homeowners are not personally liable for discharged debts (unsecured debts), a valid lien (a charge upon specific property to secure payment of a debt-your mortgage) that has not been made unenforceable (mortgage fraud) in the bankruptcy case will remain on the property after the bankruptcy case. Therefore, a secured creditor (Your Bank) may enforce the lien to recover the property secured by the lien, i.e. Foreclose on your home anyway.
Short Sales Can Offer You Between $3,000.00 to $8,000.00 in Relocation Assistance.
Send me an e-mail at
cjohnson@prucalhomes.com. I will contact you for a free consultation.
When we talk, I will explain how the process works in detail and answer any questions you may have. Or, if you prefer, you can call me at 805-208-0823.
Discover how other sellers successfully completed a short sale and request a free consultation by
clicking here.
Thinking about a loan modification? Our Moorpark loan modification kit has the instructions you will need to get a loan modification approved with your bank.
Click here to request a copy.
Thanks for reading this,
Phone: 805-208-0823.
