Tag Archive for 'unsecured debt'

Obama’s Homeowner Affordability and Stability Plan: A Breakdown Part II

Published
by
Beth Schenz
on February 27, 2009
in Bankruptcy Act 2009 and Homeowner Affordability & Stability Plan
. 0 Comments

Bankruptcy Modifications

The Administration will continue to influence change in the bankruptcy rules to allow individuals to pay the fair market value under Court order.  Currently, the Administration is in talks with Congress and predicts a swift enactment of the reformed bankruptcy law.  Such reformation includes the following:

  • Debtors’ mortgage loans will be crammed down to the current value of the property (with the remaining balance being treated as unsecured)
  • Bankruptcy Judges will have the power to, “develop an affordable plan for the homeowners to continue making payments”
  • Debtors who have existing mortgages under Fannie Mae and Freddie Mac conforming loan limits must ask their servicers/lenders for a modification first before seeking a modification in bankruptcy.  Also, the debtor requesting the modification must certify that he or she, “complied with reasonable requests from the servicer to provide essential information.”  (The reason behind this requirement is to not allow millionaire homes in bankruptcy.  However the program as worded would require an extra step for non-millionaire homes but not for millionaire homes.)
  • FHA and VA will provide partial claims in the event of bankruptcy or voluntary modification, “so holders of loans guaranteed by the FHA and VA are not disadvantaged”

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.