New Jersey Bankruptcy Blog

When Can A Mortgage Be Modified Or Eliminated in a New Jersey Bankruptcy Case.

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Lawyer In New Jersey Explains When Mortgages Can Be Modified In Bankruptcy Case

The bankruptcy code section permitting a mortgage modification in a chapter 13 is as follows:
11 U.S.C. Section 1322 (b)(2)
“…modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims;”
The bankruptcy laws permit a mortgage modification in a 13, under certain circumstance. The interpretation of  section 1322 (b)(2) is different when dealing with real estate that is not the debtor’s principal residence. A mortgage in connection with a non principal residence may be modified and reduced to the value of the real property. The following example explains this application. A debtor has a rental home and resides in a separate property. The value of the rental home is $100,000. The payoff of the first and second mortgage is $80,000.00 and $60,000.00, respectively.  The first mortgage may not be modified under any scenario because the house’s value is more than the first mortgage’s payoff amount. However, the bankruptcy code permits the reduction of the second mortgage to $40,000.00, which is the amount available after the first and second mortgage payoff is subtracted from the house’s value. In this scenario, the $40,000.00 must be paid through the bankruptcy plan. If the previous example related to the debtor’s principal residence, and not a rental property, the bankruptcy law would not permit any modification of the second mortgage.
The bankruptcy law permitting a mortgage modification in a chapter 13, specifically excludes the modification of any mortgage that is deemed a secured claim, in which the mortgage is limited to a security interest only in the debtor’s principal residence. The judicial case law interpreting this bankruptcy law, determined that any mortgage that attaches to any equity in the debtor’s principal residence may not be modified. This means that if any value of any principal residence is less than the payoff of the first mortgage payoff, than all junior mortgages may be completely stripped and removed from the real estate. However, if the value of the debtor’s principal residence is more than the first mortgage payoff amount, even by $1.00, than no junior mortgage may be modified, to any extent.
An example of the law’s application to a principal residence is as follows. A house with a value of $100,000.00 and a first mortgage payoff of $101,00.00, permits the debtor to strip away, completely, any junior mortgage from the house, no matter the amount of the junior mortgage payoff. However, if their is any equity available in the principal residence after subtracting the payoff of the prior mortgage, than the second mortgage may not be reduced, to any extent. For example, if the value of a principal residence is $100,000.00 and first mortgage’s payoff is $99,990.00, than the second mortgage may not be modified, to any extend. However, if the debtor’s principal residence has a $100,000.00 value and the first mortgage has a payoff of $101,000.00, than the second mortgage may be completely stripped from the house. In other words, when dealing with a mortgage modification in connection with a principal residence, it is all or nothing.
Typically, the main issue regarding such cases is the house’s value. If the mortgage company contests the value, than the debtor and mortgage company must provide an expert real estate appraisal. Please note that there are exceptions to the above law that is not explained above. Also, in certain circumstances, the debtor may be required to pay a portion or all of the part of the mortgage balance that may be “eliminated” as explained above.

Bankruptcy Lawyer Discusses How A New Jersey Bankruptcy Trustee Avoids a Transfer as a Preference

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New Jersey Attorney Explains How Bankruptcy Trustee Avoids A Transfer As A Preference

As I explained in a separate blog, a New Jersey Bankruptcy Trustee has seven Avoidance Powers that provide the right to avoid (cancel) specific types of transfers made by the debtor.  The bankruptcy code, 11 U.S.C. § 547, permits the trustee to avoid (cancel) any transfer of interest in the debtor’s property that was made: to or for the benefit of a creditor; for or on account of an antecedent debt owed by the debtor before such transfer was made; while the debtor was insolvent; and within the ninety (90) days prior to the bankruptcy filing; and the transfer enables the creditor to received more than such creditor would have received if the transfer had not been made.
A transfer may not necessarily mean that the debtor transferred property to a creditor. A transfer may also mean that a creditor obtains a better interest in the debtor’s property, such as converting an unsecured interest into a secured interest. An example of a transfer is a creditor gaining a benefit by filing a lien against the debtor’s property, in connection with a prior debt owed to the creditor.
The following is an explanation of the criteria. “for or on account of an antecedent debt owed by the debtor before such transfer was made” means that the debtor previously owed a debt to the creditor prior to the time of the transfer. If the debtor sold property and received money for the property, the transfer is not avoidable, as no previous debt was owed to the creditor. The following example meets the criteria of a transfer that relates to an antecedent (prior) debt. A bank account levy and removal of funds, in connection with a debt that was previously due to the creditor, prior to the filing of the levy. In this scenario, the transfer is the filing of the levy.
All of the above listed criteria must occur simultaneously. Therefore, at the time of the transfer, the debtor must have been insolvent. Insolvent means that the debtor’s aggregate debts are greater than the total value of all of the debtor’s assets. With regard to the last criteria, if the transfer does not entitle the creditor to receive more money or an improved interest in property, than the transfer is not avoidable as a preference.
Most chapter 7 bankruptcy cases do not involve the sale of assets or the distribution of funds. In a chapter 7, the trustee will not pursue the avoidance of a transfer, if there is no asset to liquidate or money to disburse to creditors.  Typically, a chapter 7 trustee will not permit a debtor to use his power, strictly for his own benefit. Therefore, even if all of the criteria is met, but there is no distribution to creditors in the chapter 7, the trustee will not pursue the avoidance action.
In a chapter 13, the avoidance of a transfer may benefit the debtor, by reducing the amount that the debtor must pay to such creditor, if the transfer was avoided. However, this power is strictly limited to the trustee and not the debtor. Typically, the chapter 13 standing trustee will avoid a transfer if the avoidance results in a substantial benefit to creditors other than the creditor who participated in the transfer. For example, if the result of the transfer results in a substantially higher payout to numerous other creditors, the trustee will likely pursue the action. Each trustee may not permit the avoidance of a transfer that solely benefits the debtor and no other creditors by reducing his payments to the trustee.
As always, there are a number of exceptions to the ability to avoid a transfer as a preference, assuming all of the criteria are met. There are a number of exceptions to consider. One exception is the business exception. The business exception does not permit an avoidance of a transfer made in the ordinary course of business or financial affairs of the debtor, which was made according to ordinary business terms. In addition to the business exception there are many more. I would be happy to discuss how they can individually apply to your personal circumstances.
Robert Manchel, an expert NJ Bankruptcy Lawyer, may be contacted at 866 503 5655 to discuss your bankruptcy protection questions.
 

Bankruptcy Attorney Discusses the Facts About Bankruptcy in NJ

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Below Is A List of Facts About New Jersey Bankruptcy

  1. Bankruptcy stops debt collection and protects property.
  1. All assets and debts must listed on the petition.
  1. Husband and wife may file together or separately.
  1. Even though the husband may file without wife, or vise versa, both of their income must be included on the petition. This assumes that they are not separated.
  1. The bankruptcy code does not set forth a minimum amount of debt that is required for filing.
  1. Typically, a chapter 7 case requires one hearing and a chapter 13 case requires two hearings.
  1. The Trustee’s “Notice of Abandonment” means that the trustee is abandoning his right to property and does not mean that the debtor must abandon the property. In other words, “Notice of Abandonment” is a good thing, not bad.
  1. A chapter 7 will stop a foreclosure action, but not permit someone to permanently save a house with mortgage arrears.
  1. A chapter 13 will stop a foreclosure action, and may permit someone to permanently save a house with mortgage arrears.
  1. Typically, the chapter 7 process is about four months and the chapter 13 process is about thirty six to sixty months.
  1. Chapter 7 does not require any payments to be made.
  1. Chapter 13 bankruptcy requires monthly trustee payments.
  1. Although the filing of a chapter 7 bankruptcy petition stops an auto repossession, a chapter 7 does not allow a person to permanently save their auto, if there are payment arrears.
  1. Typically, a chapter 7 allows someone to eliminate unsecured debt, such as credit card debt.
  1. There are three bankruptcy courthouses in New Jersey, which are Newark, Trenton and Camden.
  1. The bankruptcy code lists certain debt that cannot be discharged or eliminated.
  1. Certain types of debt must be paid in a chapter 13.
  1. Even though a bankruptcy filing is included on one’s credit report, does not mean that the person cannot restore their credit and credit report.
  1. There are three New Jersey chapter 13 standing trustees, with one trustee handling all cases that are filed in each particular courthouse, as explained above
  1. There are numerous chapter 7 trustees that handle cases in each courthouse.

Robert Manchel is an experienced New Jersey Bankruptcy Lawyer. His telephone number is (866) 503-5655. Please call to discuss your bankruptcy protection options.

How A Trustee Uses His Avoidance Power For A Fraudulent Transfer Explained By a New Jersey Bankruptcy Lawyer

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New Jersey Lawyer Explains Bankruptcy Trustee’s Fraudulent Avoidance Power

A New Jersey bankruptcy trustee has seven powers that are called avoidance powers. Avoidance means to cancel or undue some type of transaction or obligation. In certain situations, a trustee may cancel a transaction for the benefit of creditors that were not involved with the transfer. In general, the avoidance laws were established to cancel a transaction based on wrongful intentions or to prevent the negative effect the transaction has on other creditors. The same transfer or obligation may be avoided by more than one specific bankruptcy avoidance law.
The first type of avoidance power relates to a fraudulent transfer. The trustee may avoid (cancel) the debtor’s transfer or obligation if the following criteria are met:
1. The transfer or obligation occurred within the 2 years, immediately preceding the bankruptcy filing; and
2. The transfer or obligation was made with an intent to hinder, delay, or defraud any past or future creditor; or
3. The debtor received less than fair market value for the sale of property; and
4. The debtor was insolvent or became insolvent at the time of the transfer; or
5. The debtor was engaged in business or about to engage in a business, or a transaction, with unreasonably small capital; or
6. The debtor intended to incur or believed he would incur debts beyond his ability to pay; or
7. The debtor made a transfer to an insider, which is typically a relative.
The best manner in which is to explain the above elements of the trustee’s bankruptcy avoidance powers, is as follows. In every situation, the transfer or obligation must have occurred within 2 years of the bankruptcy filing. The preference action is established, if the criteria of paragraphs numbers one and two, above, have been met. The preference action is established, if the criteria of paragraphs numbers one, three, in addition to any of paragraphs numbers four, five, six or seven.
In general, this power permits the New Jersey bankruptcy trustee to cancel transfers that are made to defraud creditors. An example of a transfer may be the debtor’s sale of real estate for an amount that is substantially less than the fair market value. A transfer may also include the debtor obtaining a substantial mortgage loan on a house, which was previously unencumbered. The trustee may enforce this power by filing an adversary complaint (lawsuit), within the bankruptcy case, against the entity that was involved in the debtor’s transaction. However, for the trustee to prevail, he must meet the necessary criteria listed above.
An example of a fraudulent transfer in a bankruptcy case is a debtor gifting property or money to his father, within 2 years prior to the bankruptcy filing. In this scenario, the trustee may wish to file an adversary complaint against the father to retrieve the funds. The trustee would be required to prove the elements as explained above.
Another example of a fraudulent transfer, is the sale of a house to a person, who is not a relative, within the 2 years prior to the bankruptcy filing, for an amount that is substantially less than the fair market value. In this scenario, the trustee would be required to prove the following criteria, in connection with a lawsuit against the purchaser of the house:
1 The intent of the sale was to hinder, delay or defraud creditors; or
2 The debtor received less than the fair market value of the house; and/or
3 The debtor was insolvent or became insolvent at the time of the transfer; and/or
4 The debtor intended to incur or believed he would incur debts beyond his ability to pay, and/or
5 The transfer involved the debtor’s business or a transaction, at the time when the debtor had unreasonably small capital.
Please note that the trustee may also use the New Jersey state fraudulent transfer laws which permit the trustee to avoid a transfer that occurred more than two years prior to the bankruptcy filing. Furthermore, the person who is sued by the trustee may possibly successfully defend an avoidance action lawsuit, even though all criteria was met, under certain situations, such as a person who purchased the property in good faith, without certain knowledge of the debtor’s circumstances.
Robert Manchel, New Jersey lawyer, may be contacted at (866) 503-5655 to discuss your options for receiving bankruptcy protection.

New Jersey Bankruptcy Attorney Discusses Law Changes For A Modified Plan

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NJ Law Changes For Modified Plans in Bankruptcy Explained

The explanation below relates to the handling of certain debt related to a New Jersey chapter 13 modified bankruptcy plan. The specific type of debt effected by the new law is connected to collateral, which includes auto financing, auto lease, house mortgage, and residential lease.  The explanation below refers to all types of the above listed debt as “certain debt”. Also, the explanation below works the same for all types of collateral related to “certain debt”.
A  chapter 13 plan may surrender an auto or house and eliminate the mortgage and/or auto finance and/or lease debt.  Also, a chapter 13 plan can reject a residential lease and eliminate the lease debt. All of the above may be accomplished by way of an original plan that has never been modified.  Until recently, a debtor could file a modified plan and eliminate “certain debt” by filing a modified plan, without issue. However, recently, a New Jersey bankruptcy judge determined that if a prior confirmed plan reflected that a debtor is keeping property associated with “certain debt”, and then files a modified plan to surrender the collateral, the debtor may be required to pay some money to the creditor.
For example, a debtor filed a plan which reflects that he is keeping his auto by paying the regular monthly payments to the auto lease company. The plan is confirmed by a bankruptcy court order. Thereafter, he wishes to surrender the auto through a modified plan. Previously, any auto payment arrears after the confirmed plan would not affect the debtor’s ability to file a modified plan and eliminate all of the debt.
However, recently, a New Jersey bankruptcy judge determined that, under certain circumstances, the subsequent modified plan would require the debtor to pay the total amount of the default to the creditor though the subsequent modified plan. The total amount that must be paid is the amount of the payment default after the confirmation of the first plan, through the date of the vehicle return /repossession,  or confirmation date of the subsequent plan. Also, the above explained amount must be paid through the modified plan only if the creditor files the appropriate documents with the court after the debtor provides the proper notice to the creditor. Although this law, in theory, applies to mortgages, it is very unlikely that the law will apply to mortgages, as the mortgage company will be unable to file the proper documents with the court.
The analysis below explains why a determination of one New Jersey bankruptcy judge may not apply to any other bankruptcy judges. A New Jersey bankruptcy court published or non published decision is not binding on any other bankruptcy court judge. This means that if a bankruptcy court judge makes a determination based on his interpretation of the bankruptcy code, no other bankruptcy judge is required to comply with such a determination. Each bankruptcy judge  is permitted to interpret the bankruptcy code differently, with a different result, unless the same law and legal application had been decided by  a higher court. An example is when the same situation had been decided by an appellate court in the same federal circuit.
Robert Manchel, the bankruptcy attorney in New Jersey, may be contacted at (866) 503-5655.

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