BAPCPA- 10 YEARS LATER

Believe it or not, it has been 10 years since the Bankruptcy Abuse and Consumer Protection Act was passed in 2005.  The law made it more difficult for people to file bankruptcy and added hurdles to the filing of a regular bankruptcy case.  It added a component called the "means test" to a bankruptcy filing that uses a Debtor's past six months of income to determine whether they qualify for bankruptcy.  A credit counseling requirement was added and other requirements and restrictions were imposed that made it more difficult for debtors and attorneys to prepare a bankruptcy petition.  Some of the changes included:

• ​A mandatory credit counseling requirement
• ​Stricter eligibility for Chapter 7 filings
• ​Tax returns and proof of income required
• ​More people filing Chapter 13 instead of Chapter 7
• ​Fewer automatic stay protection for filers
• New priority for unpaid child support and alimony
• Mandatory financial management education

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Despite a significant reduction in filings after BAPCPA, bankruptcy remains a viable option for many people who find themselves overwhelmed by debt.  An experienced bankruptcy attorney can help you navigate the intricacies of the bankruptcy laws and help you decide if bankruptcy is a good option for you.

BANK OF AMERICA, N. A. v. CAULKETT

Let's talk about today's Supreme Court decision in Bank of America, N.A. v. Caulkett.  First of all, it's pretty rare that the US Supreme Court actually talks about a real consumer bankruptcy case that affects consumer bankruptcy attorneys and their clients.  But this one actually discusses important issues that everyone who practices bankruptcy law should know. 

The facts of the case involved two Debtors who filed Chapter 7 and tried to void their second mortgage liens through bankruptcy.  Basically their homes were underwater and they had wholly unsecured second mortgages that they were looking to cancel in a Chapter 7.  In this jurisdiction everyone knows that you can't do that and I would never try.  But in other places like the Eleventh Circuit apparently, it had been allowed.  

This means that you would be allowed to file Chapter 7 bankruptcy and completely eliminate your second mortgage if the house was underwater!  I imagine I would be filing 10 bankruptcy cases a day if I had the power to do this in this jurisdiction!  

In this case, the Supreme Court held once and for all that:

"A debtor in a Chapter 7 bankruptcy proceeding may not void a junior mortgage lien under §506(d) when the debt owed on a senior mortgage lien exceeds the current value of the collateral if the creditor’s claim is both secured by a lien and allowed under §502 of the Bankruptcy Code." 

Most bankruptcy attorneys already knew this and it doesn't really cause much reaction in this jurisdiction. 

However, did you know that you can completely void a second mortgage in a Chapter 13 Bankruptcy? If your home is underwater and you owe more than the house is worth, you can file Chapter 13 and repay some of your unsecured debt for a period of 3-5 years.  If your second mortgage is wholly unsecured you can throw it in with the rest of your unsecured creditors and pay as little as 10% to your second mortgage.  At the end of your Chapter 13 plan the mortgage company is required to remove the lien!

This means that if you owe $50,000 on a second mortgage and your income and assets are low enough, you can potentially repay only $5,000 of that mortgage through your bankruptcy and eliminate the rest!

To qualify generally for a Chapter 13 to lien strip your second mortgage there are some rules: 

• You have to have income of some kind. 
• Your home must be underwater and the second mortgage has to be completely unsecured. 
• You have to have some sort of Comparative Market Analysis or proof of the property's value. 
• You have to qualify under the "means test" as a Debtor with no disposable income or very little disposable income. 
• You cannot have assets that exceed your exemptions. 

Call me today for a free consultation if you want to discuss a Chapter 7 or Chapter 13.  

You can read the entire Supreme Court Case here.