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Many people including most lawyers are confused about the relationship of chapter 7 and chapter 13 of the bankruptcy code. They both provide for and discharge of debts. Unsecured debts are rare paid in full in either chapter. The principal difference resides in how secured debts are treated. This usually means how the house and/or the car creditor are paid.

A chapter 7 filing technically involves a liquidation of the filing individual’s assets; however every individual is entitled to what are called exemptions. Congress granted the individual States the right to set exemptions with some restrictions where you live determines what property is exempt form the claims of your creditors. In New York the Bankruptcy exemptions are set forth in sections 282 and 283 of the Debtor and Creditor Law.

Every state has a homestead exemption in New York this is $50,000 (or $100,000 per married couple). In Florida it is 100% of the homestead value. The way you apply the homestead exemption is to deduct the amount from the home equity. For example if a home is worth $200,000 and has a $150,000 mortgage then the home is fully exempt because the equity is the same as the $50,000 exemption.

The true difference between chapter 7 and chapter 13 arises when the mortgage is in default ( mortgage payments are over due). Technically the chapter 7 filing cannot be used to cure the default. The chapter 13 filing allows the back mortgage payments to be paid over a period of time up to 60 months. So a $6,000 default would be paid in sixty $100 payments. This is how the law was meant to work, but many courts allow the home owner a brief period to cure the default in chapter 7. The only way to determine what the court will do is to look at what has gone before. Accordingly, experience counts in picking attorneys and particularly when the default is a serious one. Fortunately the Bankruptcy Court sets the fee which often results in a standard flat fee arrangement in all cases.

Recently I have been getting asked how long the foreclosure process takes. There is no standard answer to that question. I work in New York which has what is referred to as a judicial foreclosure process. To foreclose the bank must commence a law suit. The cases often take a year or more. Right now the Courts are imposing mandatory conferences which delay the process and bankruptcy will delay the process further. It is not always necessary to win if you can simply not lose.

Just had my first success today in a post modification foreclosure action. Client had a temporary modification of his mortgage made all the payments and at the end got a summons for foreclosure. I filed an answer saying there was no actual default and today the attorney for the mortgage bank withdrew the action.

I will be on Channel 13 tomorrow morning May 22, 2010 sometime after 7:30 am to talk about foreclosures.
As a preview foreclosures are up this year in New York State about 11% and they are up in the Capital Region, but still well below the national average. The problem is that default rates are not running so far below the national figures. So expect foreclosure to go up locally even if they come down on a national basis.

I keep hearing commercials for mortgage loan modifications. I am wondering if there is anyone who has used one of these firms or companies who would share their experience with me. I have had some success with these modifications, but they are very unpredictable so I wonder how these firms can advertize that they can get results.

On NBC this morning they had a segment on property taxes. Later in the morning someone emailed me with a question that actually was on the same subject. This is the time you need to consider the objection to your assessment. It is the most certain way to lower your home payment. I have done this myself and it works.

Currently I am seeing two factors at work in the modification process:

1. Trial modifications that are now being denied permanent status by the lender.

2. Great uncertainty as to what the current rules are.

My feeling is we are building toward a crisis of some kind.

The credit industry has lately sent out misinformation about what effect bankruptcy has on student loans and employment. Title 11 section 525 prohibits lenders from considering prior bankruptcy filings in regard to loans which are part of the goverment student loan program, and it also prohibits private employers from considering bankruptcy in regard to employment. Nevertheless the NBC Today show experts warned about the effect of bankruptcy in both regards without mentioning the legal prohibition against such discrimination.

I have seen quite a few loan mods under HAMP that is the government supported program. They all have one thing in common the refusal of the borrower to take no for an answer.