Mortgage lien stripA very recent opinion from the Bankruptcy Appellate Panel for the Ninth Circuit (“BAP”) establishes the legitimacy of something I have been doing in Chapter 20 cases.  It’s nice to know I was right all along.  This post brings you up to speed on the good news for debtors in the BAP case.  A bit of background will help to put the case into its proper perspective.

If you are new to bankruptcy practice, and have given the Bankruptcy Code a cursory glance, you might think I am out of my mind referring to a Chapter 20 bankruptcy in the tile to this post.  After all, the Code doesn’t even have a Chapter 20.  (Whether or not I am out of my mind is best left to the many voices in my head to determine.  What did you say?  Are you calling my dog a liar?)  The term, “Chapter 20” is used by bankruptcy attorneys to refer to a Chapter 7 followed by a Chapter 13.  Since 7 + 13 = 20, Chapter 20 is used as a short hand.

I.  Reasons For Doing A Chapter 20

Since Chapter 7 discharges most debts without the debtor having to make any payments to creditors, why would anyone want to do a Chapter 20?  One reason lies in 11 U.S.C. § 109(e)’s debt ceilings (I have corrected the dollar amounts, which haven’t been updated at the linked site for quite some time.):

Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $383,175 and noncontingent, liquidated, secured debts of less than $1,149,525, or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $383,175 and noncontingent, liquidated, secured debts of less than $1,149,525 may be a debtor under chapter 13 of this title.

Based on this Code section, if a debtor has more than $383,175 in noncontingent (i.e., doesn’t depend on a triggering event for its validity), liquidated (i.e., the dollar amount of the debt is certain), unsecured (i.e., there is no collateral securing the debt) debt, then Chapter 13 is unavailable.

Since Chapter 7 has no debt ceilings (though it does have income ceilings, which can be made precise using 11 U.S.C. § 707(b)), the debtor can first do a Chapter 7 to get rid of as much unsecured debt as possible, and then do a Chapter 13 to deal with debts that weren’t discharged in the prior Chapter 7, or to catch up on a delinquent mortgage.
Continue Reading

Ocwen is familiar to bankruptcy attorneys because it is the name of a dark force in real estate predation.  (At the end of this post I’ll tell you an Ocwen war story from my own practice that gives a little taste of what my clients have faced with them.)  It is also a name that has been in several recent articles in the Los Angeles Times.  The articles chronicle the fall of Ocwen in California, leading up to California’s move to deport Ocwen from the Golden State.  It couldn’t happen to a more deserving entity.

I.  Insurance Fraud

I’ll start with the September 17, 2014, L.A. Times article, which is really beginning near the end of California’s Ocwen story, because one can only take just so much wallowing in a cesspool of moral and financial degradation.  In that article, E. Scott Reckard reported:

Tyesha Hansborough and her husband, Christley Paton, had paid the property insurance on their Inglewood home along with their mortgage, putting the money in escrow like most homeowners.  Trouble is, the couple said, their mortgage servicer — Ocwen Financial Corp. — didn’t pass that money on to the insurance company for this year’s premiums.  They battled unsuccessfully for months to reinstate the lapsed policy without additional costs, the couple said.  Ocwen instead imposed so-called force-placed insurance — expensive coverage that protects the lender’s interest but doesn’t shield the homeowners from loss.

Isn’t that a cute trick?  Collect insurance premiums from the homeowner and then charge them again, for Rolls-Royce priced insurance.  That’s how to turn a real profit.  Don’t waste time with honest business practices:  That’s for suckers.

Picking up on the same insurance fraud theme, in the September 21, 2014, L.A. Times Lew Sichelman reported:
Continue Reading

Chapter 13 bankruptcy has an important limitation.  If the debtor’s debts are too large, Chapter 13 is unavailable:

Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $383,175 and noncontingent, liquidated, secured debts of less than $1,149,525, or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $383,175  and noncontingent, liquidated, secured debts of less than $1,149,525 may be a debtor under chapter 13 of this title.

11 U.S.C. § 109(e).

By the way, the numbers at the Cornell Law School site to which this links haven’t been updated for some time.  I corrected them in the quote above.  The modified quote is correct as of September 2014.

If either debt ceiling — either the secured, or unsecured — is exceeded, the debtor is ineligible for Chapter 13 protection, and must consider Chapter 11 bankruptcy.  This leads to the following question that was posed by a fellow bankruptcy attorney:

Question:

Suppose a debtor has a mortgage — for simplicity let’s say a first mortgage — that is undersecured, i.e., the value of the house is less than the current balance on the mortgage.  Does the unsecured portion of the mortgage count toward the $383,175 unsecured debt ceiling?

My answer was:  It depends on whether or not the house is the debtor’s principal residence.  But it’s a bit more complicated than you might imagine.  Let’s start with the simpler “nonprincipal residence” scenario.
Continue Reading