Law Offices of David P. Leibowitz LLC
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The Supreme Court has finally told us how to figure out how much you need to pay in a chapter 13 plan..
The first question we hear after mentioning the basics of how a Chapter 13 works is “how much will I have to pay?” We need to know your “projected disposable income.” Until now, we really didn’t know how to figure this out. The Supreme Court has cleared up a lot of uncertainty about this, particularly when your income over the past few months includes large payments which you won’t be getting in the future. Until now, large one-time payments, like severance pay, could distort your income for “means test” purposes and therefore for purposes of figuring out how much you need to pay under a chapter 13 plan. Unfortunately, without sitting down, completing a full “means test”, a budget, and checking for equity in property, we couldn’t say for sure. We can try to give a good estimate. It’s completely unfair to expect someone to pay money based on income from the last six months if there was an unusually high amount of money, something that won’t be repeated going forward.
Now the Supreme Court has given us guidance we can rely upon in advising you in Chapter 13 cases. Here’s what happened. Ms. Lanning filed a bankruptcy after she lost her job and started a new job. During the six months before her filing, she received a severance over two months. That severance made her look like she was a wealthy woman and put her above the median income level for a single woman in Kansas. Although her budget showed she had about $144 per month to pay to a Chapter 13 plan, her “means test” told the courts she should really be paying much more – $756 per month – over $600 more than she could afford!
Ms. Lanning proved that a one-time event that is certain not to happen again was the cause of this inflated amount. The Supreme Court sided with her and said that her “projected disposable income” – the amount she needed to pay every month into her bankruptcy plan – was more accurately reflected by her budget.
This case can cut both for or against people who may file chapter 13. But at least we can tell you what to expect with a high degree of certainty. The most important thing you can do to determine what you should be paying to a Chapter 13 plan is to speak with a qualified attorney to review your case completely and let them fight for you.
Lakelaw files Chapter 13 Bankruptcies in Wisconsin and Illinois and can help you understand how plan payments work in Chapter 13 in compliance with the Supreme Court’s Lanning decision. Call 262-694-7300 in Wisconsin or 1-866-LAKELAW in Illinois today so that we can help you get out of debt for good.
These days, many people find that their home is worth a lot less than the balance due on their mortgages. Worse, people are out of jobs, in debt and facing foreclosure. Everyone wants to keep their home. Can you afford to keep your home? Under what circumstances? How do you make that decision?
The first thing to figure out is your income and expenses. It’s a good idea to limit your housing expenses to about 1/3 of what’s left over after payroll deductions. If you are paying too much for housing, you will have a hard time with food, clothing, transportation and other necessary expenses in your life. And if something unexpected comes up, you’re in trouble again.
Own or Rent?
Compare the cost of ownership of your house to the cost of renting something else in your neighborhood. If you are reaffirming a mortgage debt or two, it’s like buying your house all over again at the current price. I would advise against that unless your alternatives are not any better.
Wait for Chapter 13 Reform?
If Congress amends the Bankruptcy Code by adopting HR 200, now passed in the House Judiciary Committee, you’ll have the chance to file a chapter 13 case if your loan is more than your home value, if you are in default, tried to get a loan modification and mortgage foreclosure is threatened. If you did commit any fraud while getting your loan, you’ll have a chance to have the court rewrite your loan, lower the interest rate, stretch out the term, cure the defaults, eliminate the adjustable mortgage feature and prepayment penalties. You’ll have to pay all your income after expenses to your creditors for three to five years under the supervision of a trustee. It may be worth it to you. But this opportunity is still in the future. It may be worth waiting for in your case.
What does this mean?
You have a difficult decision. We’ve helped our clients to make good decisions for 35 years. We can certainly help you.
If you live in Wisconsin, listen up! You cannot ignore a mortgage foreclosure complaint. If you get served with a summons, you will have 20 days to do something about it. You need to file an answer or a motion on before those 20 days are up. You probably need a lawyer like Lakelaw to help you. If you don’t answer within 20 days, Wisconsin Courts rarely will give you a break. You will face a judgment of foreclosure right away. You will lose your house in a matter of months.
These days, there are many defenses available to foreclosure. Not only that, Lakelaw can help you file a chapter 13 case to protect your house. And if Congress enacts legislation to amend Chapter 13, you’ll be able to reduce your mortgage to the current value of your house, stretch out the loan for up to 40 years, and possibly reduce the interest rate of your loan to an affordable rate.
So be alert! If you get served with a summons or a mortgage foreclosure complaint, don’t be scared. Don’t ignore it. Don’t delay. Call Lakelaw at 262.694.7300 and ask for help right away.
Senate Bill 61, introduced by Dick Durbin (D. IL), is entitled Helping Families Save their Homes. This bill, if enacted, would allow borrowers to use chapter 13 to modify their mortgages, even if they couldn’t cut a deal with their lender outside of bankruptcy. Mortgages could be marked down to the present value of the house. The rest of the loan would be paid under a chapter 13 plan over a period of five years – and not necessarily at 100% either. Interest rates could be cut. Prepayment penalties would be out. Consumer protection claims would be preserved. No more flim-flam junk charges on mortgages would be allowed either.
Sounds good? Well not to most mortgage lenders. They are geared up to fight this tooth and nail. The American Bankers Association still opposes using Chapter 13 to modify home loans.
BUT – In a stunning turn of events, Citibank now supports this legislation. How did this happen? Here’s the deal. The new law would apply only to mortgages in existence at the time the legislation was passed. And the borrower would have to first show that he or she tried to get a loan modification before going into chapter 13 bankruptcy. There are other points too – but these are the main ones.
Remember, making laws in Congress is a lot like making sausage – the end product may taste good but the manufacturing process isn’t pretty. Stand by – we’ll keep you informed.
Too many homeowners are facing foreclosure in Illinois and Wisconsin. Chapter 7 bankruptcy won’t help you save your home if you can’t keep up your mortgage payments. Even Chapter 13 wage earner plans are not so great, especially if your house is worth much less than what you owe. But help is on the way. Congress is planning to amend chapter 13 of the Bankruptcy Code. And President-Elect Obama supports this legislation. This change will allow a homeowner to lower the amount due on your home mortgage to no more than the current value of your home. Any excess would be treated as an unsecured claim.
What does this mean? Suppose you have a house worth $200,000 today with a $150,000 first mortgage and a $100,000 second mortgage. As things stand now, in a Chapter 13 bankruptcy case, you’d have to pay the entire $150,000 first mortgage and the entire $100,000 second mortgage plus any arrearages to keep your house. You couldn’t do anything about the interest rates either.
Under the proposed law, you could reduce the second mortgage to $50,000. You might be able to reduce the interest rates on both mortgages. And the remaining $50,000 unsecured balance could be paid off under your chapter 13 plan over a period of up to 5 years. You probably would not have to pay the whole $50,000, but perhaps only a small percentage.
This is a very important change in the law. It would treat you just like any other property owner. So PLEASE, contact your Congressman and Senators TODAY. Tell them you want Chapter 13 amended to protect you and thousands of American homeowners just like you.