While on our trip to Cincinnati, we had a chance to sit with Tony and chat it up with him. We thought we'd do a quick overview of bankruptcies since that is his specialty.
What are the types of BKs that an individual can file and what do they mean?
In a very boiled down explanation, you see most individuals filing either a chapter 7 or chapter 13 bankruptcy. In a chapter 7 bankruptcy, a bankruptcy trustee looks to see if the debtor has an asset of value to liquidate and provide a distribution to creditors. The vast majority of chapter 7 bankruptcies are “no-asset” cases and end after 4-5 months with a debtor receiving a discharge of their debts. A chapter 13 bankruptcy is for a debtor who doesn’t qualify for a chapter 7 due to excess income or for a debtor who is behind on an asset they would like to keep and need to reorganize their debts. A chapter 13 bankruptcy takes 3 to 5 years to complete and at the end of the case, the debtor receives a discharge of their unsecured debts, but long term debts they retained in their bankruptcy (like a mortgage), survive the discharge. The debtor makes payments to a bankruptcy trustee who distributes those payments pursuant to a debtor’s chapter 13 plan.
How does a BK impact a first lien?
In a chapter 7 bankruptcy, unless the debtor files a reaffirmation agreement PRIOR to discharge, the debtor’s liability on that debt is extinguished by the bankruptcy discharge. Reaffirmation agreements are very important to make sure the debtor still has personal liability on that debt post-discharge. In a chapter 13, you need to look to the use of the property – if the first lien is on the debtor’s principal residence, they cannot do anything to that lien. It does not matter if the debtor owes more on that lien than the property is worth. If the property is not the debtor’s primary residence, then the first lien can be crammed down to the value of the property.
How does a BK impact a 2nd lien?
The same rules apply in a chapter 7 as they do for a first lien, for the most part – so let’s focus on chapter 13 primary residential properties. If the value of the property is less than the first lien, then the second lien can be stripped off the property upon the successful discharge of the case. This is another big reason why a debtor may choose to file a chapter 13 bankruptcy. This is not allowed in chapter 7 cases. If there is even a dollar’s worth of equity in the property above what is owed on the first lien, then the second lien cannot be stripped. It all comes down to value. Your appraisal versus the debtor’s appraisal. Some jurisdictions allow this lien strip to be done in the chapter 13 plan and others force the debtor to file an adversary complaint. It is VERY important to review the debtor’s plan and object if you are treated improperly. Once that plan confirms, you are bound by the terms.
How long does it take on average before payments are started?
If the debtor is making payments directly to you, there should be no delay in receiving them. If the Trustee is making the on-going payments, you generally have to wait until about 45-60 days after confirmation to receive payment unless you are able to get adequate protection payments. Leaving adequate protection payments for another day, assuming the Trustee is the disbursing agent and the time it takes to normally get a case confirmed, you could easily be looking at 6 months before seeing any on-going payments. This could be delayed – extensively even – if there are issues affecting the confirmation of the case. In any case, it is important to note, you need to have a Proof of Claim (POC) on file before the claims bar date, which is 70 days after the case is filed. For payments on arrears, you could be looking at over a year from the petition filing date.
How much does it cost on average to handle a BK?
That’s a tricky question to answer and not as easy as an estimate for a foreclosure because it will depend on what is going on in the case. Also, this is assuming your attorneys follow the standard Fannie Mae Attorney Fee Guidelines, like our firm, which utilizes a “flat fee” billing process for most actions within a bankruptcy case. For a standard chapter 13 you will need to file a POC and review the plan. Generally, this is an attorney task and that is $650.00. If there are arrears on the property, form 410A needs to be completed which is a broken down history from the first day of default; this is an additional $250.00. If the plan needs to be objected to, that is $500.00. Along the way, you may need to change the payment. In order to do that, you will have to file a notice of payment change which is $125.00. If you are able to collect attorney fees from the borrower in that particular jurisdiction, you have to file a Notice of Post-Petition Fee, Expense or Charge and you have 180 days to do that from the date the charge was made. That is $150.00. If the debtor stops making payments and you need to seek relief from stay, which for a chapter 13 has an attorney fee of $850.00 plus a filing fee of $181.00. At the end of the case, when the Trustee has made the final cure payment and issues his/her Notice of Final Cure, you must respond to that. Assuming you agree with the Trustee’s assessment, that is a $75.00 fee. If you do not agree and you can support your position as to why you don’t agree, that is $500.00.
What states does your office cover?
Our office handles full bankruptcy legal representation in Ohio, Kentucky, Indiana, Michigan, Illinois, Wisconsin, Colorado and Washington D.C. We are able to handle “limited filer” matters – such as proofs of claim, plan reviews, transfers of claim, reaffirmation agreements, notices of payment change, etc. in all bankruptcy jurisdictions in the United States. For state court collection and foreclosure matters, our firm covers Ohio, Kentucky, Indiana and Michigan. We may be adding Illinois in the coming months, but that is not certain as of now.
How often would you say BK is used to stall a FC?
Excellent question! Obviously, there can be no way to truly count how often that happens, but my answer is… A LOT. It is a very common tactic for a borrower to file on the eve of a foreclosure sale, or beforehand at some point, to stop the foreclosure. This is where a bankruptcy may be able to assist, especially when the debtor is represented by counsel and can get into a confirmed bankruptcy plan. You may start getting payments from a borrower whom you haven’t gotten payments from in MONTHS if not YEARS! When a debtor files to frustrate the creditor, that’s when you have some potential ability to dismiss a case or prevent the debtor from filing again for a certain amount of time. This is not easy to prove, but there are instances where it can be done with a high likelihood of success and your local attorney will be the best person to go to for that advice. A debtor filing multiple cases, only to have them dismissed without payment, etc., a debtor who isn’t following other rules and gets their case dismissed – there are many ways an argument can be made that the debtor is just filing to frustrate the collection of the account or the foreclosure sale on the property.
Need to get in touch with Tony Sottile? He can be reached through the offices of Sottile and Barile.
Main Corporate Office:
Strongsville, OH 44136
Southern Ohio Office:
Loveland, OH 45140