Bankruptcy has a long and honorable history in American jurisprudence having been included in Article 1, Section 8, Clause 4 of the U.S. Constitution by our founding fathers. There was a commitment that debtors would not suffer the imprisonment and destruction of spirit experienced in Europe. Brand and Associates takes pride in the enforcement of the U.S. Bankruptcy Code and in providing bankruptcy legal services to protect and preserve the rights of both creditors and debtors before the Bankruptcy Court for the District of Arizona. The firm has a history before this Court exclusively for the last 12 years and we look forward to enforcing your rights in Bankruptcy.
The Bankruptcy Code sets forth four separate chapters which are intended to protect the bankruptcy rights of the great bulk of individuals and entities in the U.S. They are Chapters 7, 13, 11, and 12. Brand and Associates’ practice includes all of these chapters. Another, Chapter 9, used in municipality bankruptcy seen in the news now, is a chapter of the future.
The most commonly known chapter to most people is Chapter 7 which is sometimes called the “fresh start.” It ordinarily takes any assets which are not exempt, and you either use other exempt funds after failing to purchase the assets back, or you obtain loans from family or friends and purchase them. Whether you buy them, or they are sold at a forced sale, they furnish the funds to pay all or part of what you owe to unsecured creditors. Your unsecured creditors usually include credit cards in most cases, medical bills, personal loans, or even secured creditors to the extent that the value of their security is exceeded by the secured debt. This is not uncommon in this economy. Today some of the largest unsecured creditors are those secured creditors only partially secured.
Although Chapter 7 takes assets, it can be the Chapter of choice if: (1) all of what you have is exempt, or you are prepared to surrender it; (2) because your fresh start can start virtually the day after you file; (3) it is the least costly; and (4) your discharge of debt is granted in months, not years. Unfortunately, since 2005 this chapter is not available to everyone for asking. Talk to your Brand and Associates attorney to see if you qualify for Chapter 7.
Chapters 11 and 13 are both reorganizations requiring years of payments into plans to accomplish their goals. Chapter 11 is often thought of as the business reorganization because corporations and other business entities use it to reorganize their business or to provide for an orderly liquidation for the benefit of all creditors, and not just the first to judgment. In many cases, however, Chapter 11 is also the most beneficial for individuals because it offers the greatest opportunity for modification of loan terms including the principal amount of the loan, and those modifications can be much more practical for the individual than can modifications available in a Chapter 13 plan. It is the most costly however of the alternatives available to most people because it is the most structured of the chapters requiring frequent requests to the court for permission to do acts, the most preparation before filing, and frequent negotiation with creditors and counsel to reach a confirmation of a plan.
Chapter 13 plans are limited to individuals and only those with limited secured debt and unsecured debt. If those limits are exceeded, which can happen with just one residence. Chapter 13 is unavailable. Also, the plan must be 3 to 5 years in duration by people with regular income. When a loan such as a residential mortgage is modified the new principal balance must be repaid in no more than 5 years. The monthly payments are ordinarily too costly for the typical Chapter 13 debtor. Nevertheless, Chapter 13 can be very helpful in stripping “unsecured” junior liens on real estate and saving thousands for debtors. Also, Chapter 13 can permit the retention of assets that are important to the debtor by payments into the plan to replace the value. Taxes can be repaid without further interest and penalties.
Lastly, Chapter 12 is for farmers or ranchers and fishermen. This Chapter 12 has most of the benefits of Chapter 13 and Chapter 11 and can be the best of all worlds. You must not have over a limit in debt but this limit is more reasonable than Chapter 13. Loans can be amortized consistent with the rules of Chapter 11 far over the maximum of the 5 year limit in Chapter 13. Consequently, real estate loans can be reduced and the new payments are more realistic. Farmers, ranchers, and fishermen have the advantage of Chapter 11 without the cost.
You now have enough information to demonstrate for you that regardless of your debt there is hope, and you need to review your facts with a licensed attorney from Brand and Associates, PLLC. to learn what is available.
Debt Reconciliation and Negotiations.
For the last several years real estate values have steadily increased, and in many cases, consumers have equities in their property and home equities exceeding the $150,000 Homestead effective in Arizona. Under such circumstances, a chapter 7 bankruptcy can lead to the liquidation sale of a family home, or other real estates, at prices that may realize full value. Even assuming full value upon sale could force the family to relocate against their will. A chapter 13 reorganization might be considered as an alternative.
Debtors are designated “liquid” under the Bankruptcy Code when equities exceed liabilities.
Not only does that generally result in treatment without debt discharge (often with full debt repayment) but it also can result in liability and ultimate payment of other contractual obligations, including interest and contractual penalties. Even a chapter 13 consumer debtor secures no relief if the total of all obligations is exceeded by property equity because all of the obligations which would be liquidated in short order in a disposition of non-exempt assets under a chapter 7 are likewise paid in full over the 60 months of a chapter 13 plan. The difference between chapter 7 and 13 in a “liquid” debtor circumstance is that in a plan there is an opportunity to pay the entire debt over 60 months rather than upon immediate asset liquidation.
Consumers must be cognizant of the unfortunate circumstance where the equity in the property (particularly the family home) is sizeable but the current income produces little “disposable income” exceeding the monthly necessities of life. Given a maximum of 60 months to pay debts, the obligation may be far too large to permit the payment of basic necessities along with the debt total over the payoff period. In these instances, the only alternative may be refinancing the asset so you can retain it while using the proceeds to pay the debt obligation. With the long-term payoff of a home loan, the debtor can retain the important asset and still pay the debt. Such an arrangement is often more manageable within a debtor’s budget. Brand and Associates, PLLC, would be happy to counsel you about such an arrangement.
Modification Of Mortgages Within And Outside Bankruptcy. Since the real estate crash of 2008, almost every client requiring a chapter 13 bankruptcy would benefit by curing of a default in the payments upon a residential mortgage in order to save the home from foreclosure. Most chapter 13 plans included payment to accomplish the curing. On occasion, clients have been encouraged to also apply for a modification with the servicer collecting payments upon the residential real estate loan notwithstanding a prior history of denials of modification. It has appeared that servicers more often accept a need for a modification once a petition in bankruptcy had been filed.
The standard procedure, where there has been a cure accomplished in a plan, was to amend the plan to reduce the payment made to the trustee in the amount of a cure payment outside the plan since the modification included in most instances the sum in default. Many attorneys, including Brand and Associates, PLLC, have avoided getting involved in applications for modifications because of the unnecessary delay, repetition of acts, and repeated communications seemingly brought about to discourage requesting a modification. It became prohibitive to pay an attorney’s fee for such delay tactics. It would seem that those days are now over and Brand and Associates, PLLC, will once again assist in seeking a justifiable modification. A new program adopted by the United States Bankruptcy Court, District of Arizona, effective February 1, 2017, promises to make it financially feasible to seek the assistance of counsel, and accordingly Brand and Associates, PLLC, will participate in filing for a modification of mortgages, both within and outside the bankruptcy program.
The new program facilitates modification by the inclusion of willing services, assisting in preparing all necessary documentation, providing a complete package for modification, providing an appeal process, and managing communication with servicers and mediators. The new program provides a “portal” to be used for communication, verbal and written, between the mediator, the debtor and his attorney, and the creditor servicing agent and its attorney. It does not require that servicers cooperate and grant a modification, but the number of services supporting the program demonstrates their wish to be cooperative and not appear obstructive. The “Document” software ensures that the required documents are gathered in one complete package to assist the debtor and counsel efficiently. The mediator can at least provide encouragement of a modification where it appears appropriate and timely, and provide a forum to discuss the application for modification.
All of this simplifies the process and provides order, which encourages counsel in assisting clients. For these reasons Brand and Associates, PLLC, will now assist its clients in seeking modifications at a cost that is reasonable and fair to clients and counsel. In fact, these fees are set by the court in its Rules. In those cases where the client does not require bankruptcy, the software itself will help reduce cost and prevent delays. We can use that same software to prepare your modification package for submission but without the option of using the “portal” to communicate. We will submit the materials at the same cost as applies in bankruptcy. Call Brand and Associate, PLLC, for a free discussion to explore whether you are a candidate for modification within or outside of bankruptcy.