Basics of Bankruptcy & Foreclosure: An Overview of Topics

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1 Basics of Bankruptcy & Foreclosure: An Overview of Topics By: Tina Adams, Esq. Sharanya Gururajan,, Esq. Guest Speaker: Glenn B. Stearns, Chapter 13 Trustee

2 BASICS OF FORECLOSURE Timeline involved in an uncontested residential mortgage foreclosure suit filed in Illinois ( (See handout) Timeline involved in a contested residential mortgage foreclosure suit filed in Illinois ( (see handout)

3 Some of the Main Players in a Bankruptcy Case.. Debtor- The party commencing a case or against whom a case has been commenced. Creditor- An entity that has a claim against the debtor that arose prior to or at the time of the filing of the bankruptcy petition. Creditor holding a secured claim A creditor having a lien (including a judgment lien), in debtor s s personal property, fixtures, or real property (ex: mortgage, car notes, furniture notes, mechanic s s lien and certain companies that finance electronics and appliances.

4 Some of the Main Players Creditor holding an unsecured claim - A creditor that has no secured interest in any property belonging to the debtor. Examples include, credit cards, medical bills, personal loans, and utilities.

5 Free Mortgage Modification Help NACA-Neighborhood Neighborhood Assistance Corporation of America Lake County Housing Authority

6 What is a Chapter 7 Bankruptcy? Liquidation of assets: a. Role of Chapter 7 Trustee in investigating and liquidating assets b. Liquidation of assets to pay unsecured creditors c. Ex: Sale of real estate, vehicles, stock, tax refunds etc.

7 CHAPTER 7 BANKRUPTCY Who can file for Chapter 7 Bankruptcy? a. Need to qualify under the Means Test b. Need to analyze personal and real property owned by Debtor c. Need to review available Exemptions under IL law What documents do you need to file for Chapter 7 Bankruptcy? a. 60 days paystubs (6 months upon request) b. 3 years tax returns (4 years for Chapter 13) c. Know who your creditors are and who is collecting on the debts Eg: : Obtain a recent credit report

8 What events occur once you file for Chapter 7 Bankruptcy? a. Meeting with your case trustee b. Reaffirmation of secured debt, if applicable c. Potential adversary actions by creditors d. Discharge of certain debts

9 What is the means test? Means testing "refers generally to the eligibility for relief for debtors who have sufficient financial means to pay a portion of their debts. Thus, the means test is "a formula designed to keep filers with higher incomes from filing for Chapter 7 bankruptcy.

10 Means Test Income for Illinois One person household =$45,607 Two people =$59,104 Three people =$68,782 Four people =$79,788 Add $7,500 for each individual in excess of 4

11 What is a Chapter 13 Bankruptcy? 1. Repayment Plan over 3 to 5 years. a. Role of Chapter 13 Trustee in investigating assets; b. gate keeper of income and expenses; c. recommends cases for court approval; and d. collects and disburses funds to creditors

12 CHAPTER 13 BANKRUPTCY Who can file for Chapter 13 Bankruptcy? a. Individual with regular income b. Debt limits applicable for secured and unsecured debt c. Individuals with regular income who do not pass the Means Test Repayment of Debts over years a. How much will you be expected to pay through your Chapter 13 Plan? b. How does your Chapter 13 Plan work? c. Role of the Chapter 13 Trustee

13 Cram Down Cram-down is a term used in bankruptcy law to refer to the Chapter 13 provision that allows debtors to retain collateral as long as they offer repayment of the secured portion or fair market value of the collateral in their repayment plan. * Congress did not give the power to cram down first mortgages for consumers But, in some cases cram down is available to cars loans, 2 nd mortgages, home equity loans, and furniture loans.

14 Example The home is appraised at $150,000 The first mortgage balance is $175,000 The second mortgage balances is $25,000 The second mortgage is unsecured, and in a Chapter 13 the mortgage will be paid at the same percentage as unsecured creditors.

15 BENEFITS OF FILING BANKRUPTCY The automatic stay stay on collection efforts by your mortgage company, credit card companies and other creditors-stops stops credit card % Ability to cure the arrears on your residential mortgage over years without incurring interest (Chapter 13) Ability to surrender certain real and personal property (eg( eg: : residences with no equity, vehicles, time shares etc.) and discharge personal liability on deficiency claims Time and money saved in dealing with all creditors in one sweep rather than attempting to negotiate with individual creditors. Discharge of certain taxes owed to the federal, state and local governments (Note: Needs to meet very specific standards enumerated under the Bankruptcy Code)

16 ON THE FLIP SIDE Negative impact on your credit Viewed as a credit risk by future creditors May face higher interest rates on certain loans If you filed a Chapter 7 Bankruptcy and obtained a discharge, you may not file another one for 8 years

17 Some common questions involving Bankruptcy & Foreclosure.. I am behind on my mortgage payments, I have a considerable amount of credit card debt and I have just been served with a summons for foreclosure. Should I file for bankruptcy, if so, when should I file for bankruptcy? a. For individuals considering walking away from their residence b. For individuals considering catching up with their mortgage ge payments. A judgment of foreclosure has been entered against me. Should I still try and attempt a short sale or a loan modification with the t Bank? What happens to my house in a Chapter 7 Bankruptcy? Can I continue to negotiate a loan modification with the Bank if I file e a Chapter 7? Can I continue to negotiate with the Bank regarding a loan modification in a Chapter 13 bankruptcy?

18 Contact Sharanya Gururajan of Ralph, Schwab & Schiever, Chtd. 175 E Hawthorn Pkwy, #345 Vernon Hills, IL (p) (e) sgururajan@rss-chtd.com Tina Adams of Robert J. Adams & Associates 228 N. Genesee Waukegan, IL (Also, 220 Barron, Grayslake) (p) Glenn Stearns Chapter 13 Trustee