Saturday, July 4, 2015

"Lien Stripping" - Still Available in Chapter 13

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"Lien stripping" of underwater mortgages or other junior lien is still available under chapter 13 bankruptcy.  The much publicized U.S. Supreme Court ruling in the Bank of America cases only held that lien stripping cannot be done in chapter 7 bankrupty cases.

In order to lien strip, in some cases the mortgage or other junior must be wholly underwater and in some case it need not.  The lien stripping would be provided for in a chapter 13 debtor's proposed chapter 13 plan.

Wednesday, July 1, 2015

Chapter 13 Bankruptcy Plan

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In chapter 13 bankruptcy, only the chapter 13 debtor is allowed to file a chapter 13 plan. That is, creditors are not allowed to propose a plan as they are in chapter 11.

Chapter 13 plans generally are designed to adjust payment of debts under a flexible repayment plan. Usually these payments are made from future wages or income. There are some mandatory provisions for a chapter 13 plan, but most are permissive.

A chapter 13 plan is usually three to five years in length. Not all secured creditors - such as an up-to-date car loan - are required to be paid as part of the chapter 13 plan. Priority claims, such as child support and alimony arrearages, may be paid through the plan. Defaults in mortgage payments may be cured in a chapter 13 plan.

Introduction to Chapter 13

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A chapter 13 case is started by filing a petition with the Bankruptcy Court along with the schedules and statements that explain the person's financial situation. Under chapter 13, the debtor must submit a plan or reorganization to provide for his various classes of debt - priority, secured, and unsecured. A chapter 13 debtor is generally required to devote all of his "projected disposable income" to repay a percentage of unsecured debt over a period of three to five years.

A chapter 13 case is overseen by a chapter 13 trustee. The main duties of a chapter 13 trustee is to receive the monthly chapter 13 plan payments and to distribute them to the creditors pursuant to the chapter 13 plan.

A chapter 13 debtor receives a discharge after all payments required under the chapter 13 plan have been completed.

Tuesday, June 30, 2015

Choice of Law in a Bankruptcy Case

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When a person files for bankruptcy in Florida and owes a gambling debt in Nevada, which state's law apply in determining the various issues about the claim for gambling debt? In the bankruptcy case there may be issues as to the allowability of the claim or whether the claim should be dischargeable or nondischargeable?  A 2006 Florida bankruptcy ruling dealt with this issue.

The Bankruptcy Court reviewed that normally a federal court hearing a matter pursuant to diversity jurisdiction must apply the law of the state in which it sits, but that such rule does not apply to a bankruptcy court as it is not sitting as a federal court with jurisdiction based on diversity. The bankruptcy court reviewed that the choice of which state's law applies should in part be based on which state's law more logically relates to the claim and the "significant relationship" test.

Chapter 13 Bankruptcy Discharge

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A chapter 13 debtor receives his "discharge" of debt in a chapter 13 case after a person completes making his payments under his chapter 13 plan. Chapter 13 plan are generally three to five years in length. Generally the types of debt that are dischargeable in a chapter 13 case are the same as those in a chapter 7 case, but there are certain debts that are dischargeable in a chapter 13 case that are not dischargeable in a chapter 7 case.

Hardship Discharge
A chapter 13 debtor that is unable to complete his chapter 13 plan payment for reasons beyond his control may be eligible for a "hardship discharge." In order to obtain a hardship discharge, certain requirements must be met such as to the amount paid under the plan and the circumstances of the debtor's situation.