The answer to this depends upon several factors including how the 8th Circuit Court of Appeals rules on a pending appeal in the case of In Re Fissette, 11-6012 (B.A.P., 8th Circuit, August 29, 2011). Currently a majority of decisions have found that a debtor should be allowed to strip off a wholly unsecured 2nd, 3rd, 4th, or 5th (junior liens) mortgages in a chapter 13 bankruptcy. This has significant ramifications for the debtor, it may make it feasible for him or her to stay in their home, if they are able to remove those mortgages. In most cases this allows the 2nd mortgage payment to be included as part of the chapter 13 plan to be distributed equally to all of a debtors unsecured creditors. At the end of the plan the debtor will no longer have the 2nd mortgage on the property, since it was discharged as part of the bankruptcy.
As of the writing of this biog. the 8th Circuit Court of Appeals has not decided this issue for Minnesota, if they allow debtors to strip off the 2nd mortgages it will be a huge victory for people looking to keep their homes and in a chapter 13 bankruptcy. I can tell that from first hand experience that allowing debtors to strip off junior liens would allow many of my clients to stay in their homes, instead of facing foreclosure. I am hopeful that the 8th Circuit will allow debtors the option to save their homes by stripping off junior lien holders in a bankruptcy. The bankruptcy courts in Minnesota have determined on a number of occasions that a debtor may not strip off junior liens. This could all change with the 8th Circuits ruling. We will just have to wait for the decision regarding this issue of junior lien holders and chapter 13 bankruptcy.
Can I Strip Off A Second Mortgage In A Minnesota Chapter 13 Bankruptcy?
Preference Lawsuit in Minnesota
If you have been sued by a Minnesota bankruptcy trustee you are not alone. It is common for trustees to send out demand letters and lawsuits regarding bankruptcy preference actions. These types of actions are fairly common and mean the trustee thinks that you have received money from an insolvent debtor before a bankruptcy was filed. You may have defenses available to you and you should consult with our office before you decide how to proceed. If you have been sued it is important to remember that you have a limited amount of time to answer the complaint. In some cases settling with the bankruptcy trustee may be your best option, but in other cases you may have a valid defense to the preference suit, and may want to defend the action in front of the Minnesota Bankruptcy Court.
Bankruptcy Adversary Proceedings in Minnesota
If you filed for bankruptcy and the creditor does not agree with you getting rid of their debt, they have the option to file an adversary proceeding with the bankruptcy court. This basically starts a lawsuit in bankruptcy court to determine whether the debt is discharged, or stays with the debtor forever until paid off. The most common grounds for this type of proceeding are fraud. The creditor must show that but for the debtors fraudulent activity they would not have entered into an agreement with the debtor. This is a difficult standard to meet in bankruptcy court, since if the creditor wins the adversary proceeding the debt must be paid back and the creditor can get a judgement in state court.
If a creditor has filed an adversary proceeding against you in Minnesota give our office a call. We may be able to help you settle with the creditor or help you with the adversary proceeding in court. It is important to have representation in this type of proceeding since the creditor will probably be represented by an attorney.
Top Reasons for Filing A Chapter 13 Bankruptcy
1. The most common reason for filing a chapter 13 bankruptcy under the law change of 2005 is that the clients income exceeds the median income for where they live. This is in reference to the means test portion of the bankruptcy petition. This determines what type of bankruptcy you will be eligible for. The advantage of this type of bankruptcy is that it allows a repayment schedule with one monthly payment to take care of all of your unsecured debt, and can also include car payments.
2. Chapter 13 bankruptcy allows a person to discharge all of their remaining debt after they repay the debt for three or five years. This means that you make a set payment each month, and unless you are doing a 100% plan you will only pay back a portion of your debt. This amount is determined by your budget, and you are required to put all of your disposable income towards the plan.
3. Chapter 13 bankruptcy can allow an individual to keep their home from going into foreclosure. If you are behind on your house payments in Minnesota a chapter 13 may allow you to catch up on your past due house payments and prevent a sheriffs sale. The catch is that you need to be able to make your full mortgage payment, and pay something to catch up on the past due payments.
4. It may be possible to strip off 2nd mortgages that are totally unsecured. This never used to be the case in Minnesota, but a recent court decision makes this option a possibility for the many Minnesotans who have houses with a 2nd mortgage that they cannot afford. This decision was recent and could still be appealed to the 8th Circuit Court of Appeals.
5. If your car loan is over 910 days old you may be able to cram down the value of the car to what the vehicle is actually worth. This allows you to make a smaller car payment and have the vehicle paid off at the end of your chapter 13 plan. It also allows you to make a larger payments to your unsecured creditors.
6. You can schedule certain debts as priority. If you have certain debts that would not be dischargeable in a chapter 7 bankruptcy, you can make payments on those debts in a chapter 13 bankruptcy. This allows you to set up a fair payment plan and pay your priority debts, and at the end of the three or five your repayment term, also get rid of your unsecured debt. This is a huge advantage if you owned a business in Minnesota and owe sales or use taxes, or other priority government debt.
7. If you are working and can contribute to a 401k you are allowed to do this in a chapter 13 bankruptcy. This means that you are saving for your retirement and paying off your debt at the same time. This is a great option for clients, since they can exit bankruptcy with more money for their long term retirement needs.
8. The above list does not include all the possible benefits of filing a chapter 13 bankruptcy. If you have more questions you can give our office a call at 952-294-0144 and we would be happy to see if chapter 13 bankruptcy in Minnesota is a good option for you.
Initial Default Notices for Home Foreclosure Increase
The national trend is that foreclosure notices to homeowners behind on their mortgage increased by 14% according to a recent article in the Wall Street Journal http://finance.yahoo.com/news/Foreclosures-continue-to-cnnm-1597432038.html?x=0&sec=topStories&pos=2&asset=&ccode=. This trend seems to indicate that banks are getting through the backlog of paperwork and beginning to work on all the foreclosures in the system. What this means for Minnesota residents is that if you are behind on your home, you need to look at your options, to determine how you can keep your home. If you have received a foreclosure or sheriffs sale notice in Minnesota, our office may be able to help you figure a way out of the default. If you are facing this situation you may want to look at a chapter 13 bankruptcy or working with your lenders to negotiate on your first or second mortgage.
The Good, Bad and the Ugly of 2nd Mortgages in Minnesota
If you are one of the thousands of Minnesota homeowners who took out a 2nd mortgage a few years ago during the real estate boom in order to avoid private mortgage insurance, that decision could end up costing you if you lose your home in foreclosure. The issue is that a few years ago lenders in Minnesota seldom pursued homeowners for the deficiency owed on a 2nd mortgage when a home went into foreclosure. That is not the case anymore, lenders are aggressively pursuing individuals and obtaining judgements for most 2nd mortgages in Minnesota. I have seen numerous clients who owe a lot of money for the 2nd mortgage that was taken out to avoid PMI because they did not have a 20% down payment. In some cases these clients owe very little other debt, besides the 2nd mortgage. In the end the homeowner was able to buy a home without paying for PMI with the 2nd mortgage, the bad is that the housing market crashed leaving many homeowners underwater on their homes, and the ugly is that if you get a judgement, your only way out of the debt may be a bankruptcy. If you are being sued on a 2nd mortgage you need to speak with an attorney to advise you regarding your rights.
Minnesota Statue of Limitations for Debt Collection
If you have been contacted regarding credit card debt that is over 6 years from the date of your last payment, that credit card debt is probably past the statute of limitations. In Minnesota creditors have six years to attempt to collect a debt from you from the date of your last payment. If you think the debt may be over six years old and you are contacted by a debt collector, make sure you figure out the applicable statute of limitation before you make a payment on the account. If you make a payment you will start the statute of limitation over, that will give the debt collector another six years to attempt to collect the debt. If you are struggling with this type of debt, give our office a call, we may be able to help you with a bankruptcy or debt settlement options.
Importance of Accuracy in Bankruptcy Schedules
When you are filing for bankruptcy it is important to make sure you review your bankruptcy petition carefully to make sure you have included all of your debts and assets. If you have questions about what should be included on the bankruptcy petition you need to ask the attorney. It is of the utmost importance that you list all your bank accounts, any transfers made to families or friends, any land transfers, any legal entities that you have an ownership interest in, cash on hand, and all other information required on the bankruptcy schedules. If you are filing a Minnesota bankruptcy the burden is on the client to fully disclose all assets. The problem becomes if a client does not disclose all possible assets, the bankruptcy trustee may begin to think that they are intentionally concealing assets from the bankruptcy estate. If this is the case it can lead to a 727 non dischargeability action initiated by the trustee. In most cases by the time a client has reached the 341 meeting they have had a chance to review their bankruptcy petition at least four times. In most cases this is sufficient to ensure an accurate bankruptcy petition. The moral of the story is be honest and list all of your assets. If you are unsure whether an item needs to be listed, you should ask your attorney.
How Chapter 13 Bankruptcy is Better Than Debt Consolidation
If you are thinking about debt consolidation you may also want to look at chapter 13 bankruptcy. In a chapter 13 bankruptcy you create a budget based on your expenses and income. This budget allows you to cover your living expenses, but also allows you to pay back your creditors an amount that you can afford. The premise of a chapter 13 plan is that it allows a repayment of your debt, in an amount that you can afford. This plan lasts for 3-5 years depending upon your families income and family size. The advantages of a chapter 13 plan is that it is a more effective way to reorganize your finances than debt consolidation. The statistics prove that chapter 13 bankruptcy is more effective than debt consolidation, in that a much higher percentage of people successfully complete their chapter 13 plan, than complete debt consolidation.
Chapter 13 bankruptcy can also be effective to save your house or car if you are behind on payments. Part of the plan you create allows you to pay the arrears on your house or car, as well as cover any priority tax debt, or other non dischargeable debt. Recent case law in Minnesota also indicates that you may be able to cram down your 2nd mortgage as part of the bankruptcy. In order to cram down your mortgage you will need to talk to a Minnesota bankruptcy lawyer, since the law in this area is still developing.
Minnesota Mortgage Cramdown in Chapter 13
A new case indicates that you may be able to get rid of a 2nd mortgage in bankruptcy. The key is that the 2nd mortgage must be completely unsecured, meaning it cannot have any equity in your property. At this point the most recent decision from the Bankruptcy Appellate Panel seems to indicate a willingness to strip off unsecured 2nd mortgage. This would obviously be a big advantage for our clients who have 2nd and 3rd mortgages on their properties. This process has still not been approved by the Minnesota Bankruptcy Judges. If you have questions about a mortgage cramdown in Minnesota give our office a call.
