Tag Archive for 'Section 109 of title 11'

Eligibility For Relief in Chapter 13: Debt Limits — Proposed Legislation

Published
by
Monette Cope
on February 21, 2009
in Chapter 13 and Real Estate
. 1 Comment

Section 109 of title 11, United States Code, is amended–

(1) by adding at the end of subsection (e) the following: `For purposes of this subsection, the computation of debts shall not include the secured or unsecured portions of–
`(1) debts secured by the debtor’s principal residence if the current value of that residence is less than the secured debt limit; or
`(2) debts secured or formerly secured by real property that was the debtor’s principal residence that was sold in foreclosure or that the debtor surrendered to the creditor if the current value of such real property is less than the secured debt limit.’; and
(2) by adding at the end of subsection (h) the following:

This means that many more individuals will be eligible for Chapter 13 relief.  Currently, individuals with more than $336,900 in unsecured debt and more than $1,010,650 in secured debt are not permitted to proceed under Chapter 13.

The secured and unsecured portions of a principal residence will not used to calculate Chapter 13 debt limits if the debtor’s home:

  • Is undersecured;
  • Was sold at a foreclosure sale; or
  • Was surrendered

Example
Joe Wannaberich owns and lives in a $2.2 million dollar home and has 3 mortgages totaling $3.1 million on that home.  Currently, Joe’s debt exceeds the Chapter 13 debt limits, and Joe may not file for Chapter 13 relief. However, under the proposed legislation, that debt is not counted, and if his other unsecured debts are less than $336,900, and his other secured debts are less than $1,010,65, he can file a Chapter 13 case.

Issues
What if the debtor claims her residence is undersecured, when it arguably is not? And what if she is over the debt limits if the secured and unsecured portions of her residence are included? The creditor may bring a motion to dismiss for ineligibility for Chapter 13, and a valuation hearing may be held in conjunction with the motion.

What is the “current” value of a residence and when is it calculated? At the time of filing? Confirmation?  Other? This is sure to be litigated unless Congress defines the valuation period.

Eligibility For Relief in Chapter 13: Pre-Filing Credit Counseling May Be Waived

Published
by
Monette Cope
on February 20, 2009
in Chapter 13, Chapter 7 and Real Estate
. 0 Comments

Section 109 of title 11, United States Code, is amended–

(2) by adding at the end of subsection (h) the following:

`(5) The requirements of paragraph (1) shall not apply in a case under chapter 13 with respect to a debtor who submits to the court a certification that the debtor has received notice that the holder of a claim secured by the debtor’s principal residence may commence a foreclosure on the debtor’s principal residence.’.

One of the hallmarks of the 2005 BAPCPA amendments is that all potential Chapter 7 and Chapter 13 debtors are required to receive credit counseling before they file for bankruptcy. Failure to do so results in an automatic dismissal of the case if they received a notice a lender may foreclose on their home.

However, with this amendment, debtors who receive a notice of foreclosure do not have to take the pre-bankruptcy credit counseling.

Issues

  • What is a “notice” that a home may be foreclosed upon?  There is no requirement in the statute that the notice be in writing.  Is a phone call a notice? The certification required by the court may be as simple as a debtor’s affidavit that a lender might commence foreclosure.
  • It is anticipated that the courts will be liberal in the interpretation of a “notice.”
  • What about states that have non-judicial foreclosures? – the letter of default may be the commencement of foreclosure.
  • The effect of this is to remove the cost of the counseling from the cost of filing bankruptcy, and eliminate a step, thereby hastening the filing of a bankruptcy case.