Modifying Your Mortgage in Chapter 13 Bankruptcy

Mortgage modification rules make it easier to combine a mortgage modification, including under HAMP  with a Chapter 13 Bankruptcy. Combining a HAMP mortgage modification may be beneficial to many homeowners.

The filing of a chapter 13 bankruptcy generally stays all foreclosure and collection actions by mortgage companies and other creditors. This allows a person to formulate a chapter 13 plan to reorganize their financial situation.

A typical homeowner who owes more on their home than it is valued at will propose a chapter 13 plan to avoid their second mortgage lien and categorize it with other unsecured claims, such as credit cards. The homeowner will also file a HAMP mortgage modification request if they haven't already file it. The chapter 13 plan will provide for payment of the estimated and anticipated HAMP modified mortgage payment. The chapter 13 plan provides also provides for a percentage dividend to unsecured creditors.

Filing for a HAMP modification together with a chapter 13 bankruptcy may increase the likelihood of obtaining a HAMP modification for various reasons, including the increased feasibility of making the new payment for the first mortgage, as the second mortgage is avoided and categorized as an unsecured creditor. Also, as the HAMP is being filed in the context of the chapter 13 case, it may receive more prompt review by the mortgage company.

A typical HAMP modified mortgage payment is calculated as 31% of the homeowner's gross income. The 31% amount would cover principal, interest, taxes, insurance and associations.

Indictment for Bankruptcy Crime in Palm Beach County

An indictment was filed a few days ago against former chapter 7 debtors in Palm Beach County. It provides an occasion to review the bankruptcy crimes provisions of title 18 of the United States Code.  

Recent Indictment

The indictment for a bankruptcy crime against the former chapter 7 debtors alleged that they "did knowingly and fraudulently conceal and cause to be concealed property belonging to the bankruptcy estate" in violation of 18 U.S.C §152.  First on the list of undisclosed property - a Rolex watch.

18 U.S.C. §152

Section 152 of 18 U.S.C. provides 

A person who—(1) knowingly and fraudulently conceals from a custodian, trustee, marshal, or other officer of the court charged with the control or custody of property, or, in connection with a case under title 11, from creditors or the United States Trustee, any property belonging to the estate of a debtor; (2) knowingly and fraudulently makes a false oath or account in or in relation to any case under title 11; . . .shall be fined under this title, imprisoned not more than 5 years, or both.

Elements

The U.S. Attorney Manual  explains that the elements of the proof for the offense of "concealment" under 18 U.S.C. § 152(1) are

1. the bankruptcy proceeding was in existence
2. the defendant fraudulently concealed the property from the custodian (such as the bankruptcy trustee)
3. the property belong to the estate

The manual makes reference to the cases of United States v. Guiliano, 644 F.2nd 85, 87 (2nd Cir., 1981). 

Jury Determination 

The U.S. Attorney's manual sets forth that it is a question for a jury to determine whether the assets are property of the debtor and belong to the bankruptcy estate.   It appears that the determination of whether the asset is part of the "estate" under the "technical rules" of the Bankruptcy Code, is not co-determinative of whether it is property of the estate for purposes of this criminal bankruptcy statute. (See footnote 10 in law review  article on bankruptcy crimes was written by Nevin M. Gewertz.) One commentator states that Interestingly enough, the manual makes reference to the bankuptcy judge testifying in the criminal case, but that the bankruptcy judges testimony "that property is an asset of the estate is inadmissible to prove that the assets in question belong to the bankruptcy estate."

"Might Be" Property of the Estate

The U.S. Attorney's  refers to the case of United States v. Cherek, 734 F.2d 1248, 1254 (7th Cir. 1984), cert. denied,  and takes the position that the all-encompassing definition of "estate" in section 541 of the Bankruptcy Code, even requires the debtor to disclose information about all property that "might be" property of the bankruptcy estate and to disclose "the existence of assets whose immediate status is uncertain."  The manual takes the position that even if the asset is not ultimately determined to be property of the estate under the Bankruptcy Code, section 152 of title 11 "properly imposes sanctions on those who pre-empt a court's determination by failing to report the asset."

Concealment  

The U.S. Attorney's manual also sets forth its position on the definition of "concealment." It states that conceal "does not mean merely to secrete or hide away" but concealment also means to "prevent the discovery of the asset or to withhold knowledge of the asset."   United States v. Schireson, 116 F.2d 881, 884 (3d Cir. 1941); Burchinal v. United States, 342 F.2d 982, 985 (10th Cir.).  It further explains that the concealment may take prior to the filing of the bankruptcy as well as after the filing of the bankruptcy. Concealment prior to the filing of a bankruptcy constitutes a single offense as there is only a single duty to disclose the existence of all assets but that each asset concealed after the filing of the bankruptcy petition constitutes a separate offense because each concealment represents a separate act with intent.

Further References

Outlines on the topic of bankruptcy and related crimes is available here  and here. 

Finality and its Three Exceptions

A recent decision from the 11th Circuit Court of Appeals gives occasion to review the finality rule and its three exceptions. The 11th Circuit Court of Appeals decision in In re Donald J. Donovan, 532 F. 3rd 1134 (11th Cir. 2008) dealt with an appeal of the Bankruptcy Court's denial of an unsecured creditor's motion to dismiss a chapter 7 case as being "abusive".  The Circuit Court held that it lacked jurisdiction to hear the appeal as the order denying the motion to dismiss was not a "final" order and no exception applied.

Finality

The Court also reviewed the general requirement that an order must be "final" in order to be appealed. In general, to be "final"  under 28 U.S.C. §158(d) and §1291, an order must "end the litigation on the merits, leaving nothing to be done but execute the judgment."  The Court explained that in the bankruptcy context, the finality requirement is applied to "discrete controversies within the administration of the estate."

Three Exceptions

In prior cases, the 11th Circuit explained that there are three exceptions to the "finality" requirement as follows:

1. collateral order doctrine
2. doctrine of practical finality
3. intermediate resolution of issues fundamental to the merits of the case

The Court in Donovan explained that in a bankruptcy context "finality" is given a more "flexible interpretation" as bankruptcy is an "aggregation of controversies and suits".  It gave the example that it is "generally the particular adversary proceeding or controversy that must have have been finally resolved rather than the entire bankruptcy litigation."

1. Collateral Order Doctrine

The 11th Circuit explained in the case of In re F.D.R. Hickory House, Inc., 60 F. 3rd 724 (11th Cir. 1995) explained that the collateral order doctrine applies to orders that  (1) finally determine a claim separate and independent from the other claims in the action, (2) cannot be reviewed after the final judgment because by then effective review will be precluded and that the rights conferred will be lost and (3) are too important to be denied review because they present a significant and unresolved question of law.

2. Practical Finality

The "practical finality" rule, which is referred to as the Fogay-Conrad rule, permits a circuit court to review an interlocutory order that

decides the right to the property in contest, and directs it to be delivered up by the defendant to the complainant, or directs it to be sold, or directs the defendant to pay a certain sum of money to the complainant, and the complainant is entitled to have such decree carried immediately into execution

in Walker, the 11th Circuit explained that this  exception is applied "where practical considerations require it" and that "judicial economy" would be "turned on its head" if the appellate court could not review the case.

3. Fundamental Issues

"Fundamental Issues" is the third exception to the finality rule. The 11th Circuit explains that this exception is the “most extreme” exception to the final judgment rule, applicable “even [to] an order of marginal finality [is] if the question presented is fundamental to further conduct of the case.”

Further References

Further material is available in this article in the Florida Bar Journal, an article on practice tips,  a blog post on Weil Gotshal's "Bankruptcy Blog", and an article "Bankruptcy Appeals - Useful Reminders."

Constitutional for Bankruptcy Judges to Issue "Findings of Fact and Conclusions of Law" in Stern Type Cases

On  January 9, 2014, the U.S. Supreme Court delivered its decision in the case of  Executive Benefits Insurance Agency v. Arkison (In re: Bellingham Ins. Agency, Inc.)  573 U.S. ___ (2014)  in which it held that bankruptcy judges do have the authority under the Constitution in Stern type cases, to submit "findings of fact and conclusions of law" to the district court for its de novo review even though the bankruptcy court is constitutionally barred from entering a final judgment on such a claim that is only "related" to a bankruptcy case.  This was a question left unanswered in the Supreme Court's prior decision in Stern v. Marshall. The claim in Stern was a counterclaim for tortious interference that arose under state law. 

The Court though left Bellingham  unanswered the question  the question of whether the Constitution permits bankruptcy judges to, despite its holding, enter a final judgment based on the actual or implied consent of the parties in a Sterm claim. A more lengthly review of the case is available here.