Tom Scott Law Indy

Bankruptcy Attorneys in Indianapolis Since 1980

Archives for October 2016

Car Loan Payments in a Chapter 13 Bankruptcy

by

If you will be filing for bankruptcy protection, you have a few options regarding the best way to pay off a car loan or to buy a new vehicle before or during the period of a Chapter 13 bankruptcy.

How Much?
    FEES    

Our Locations?
3 INDY OFFICES

Need Help?
CONTACT US

Key Points of This Article:

  • If your vehicle loan is over two-and-a-half years old and the remaining loan balance is greater than the car or truck’s current value, Chapter 13 could provide an opportunity to lower the remaining loan amount and interest rate, and then pay the loan off as part of your approved bankruptcy plan monthly payment. The amount you ultimately pay for your vehicle could then be significantly less than your current total loan amount—and you would own the car or truck outright when the case is successfully discharged.
  • If your vehicle loan is less than two-and-a-half years old and the interest rate is already 5% or less, to keep the car or truck you would need to continue to pay off the loan on your vehicle outside of a bankruptcy plan.
  • A sudden need to acquire a new vehicle during an approved bankruptcy plan presents a potential need to submit a request to modify the plan. The trustee of the plan would need to approve that new additional debt as part of your monthly plan payments.
  • A bankruptcy plan trustee’s job is to retrieve money for creditors, so they may consider a monthly vehicle loan payment above a certain amount inappropriate as part of a Chapter 13 bankruptcy plan. If you file for bankruptcy, you may need to switch from an expensive luxury vehicle to a model with lower monthly payments.
  • In addition to your transportation costs, a Chapter 13 trustee will use established federal standards to determine what they consider as your reasonable monthly “cost of living” expenses, including housing, utilities, food, clothing, and out-of-pocket health care expenses.

We recently discussed some aspects of bankruptcy with Christopher Holmes and Jess M. Smith, III, partners at Tom Scott & Associates, P.C. The discussion covered several topics, including the affect of paying off a car loan during a Chapter 13 bankruptcy, buying a new vehicle before or during a bankruptcy, what is a “cram-down,” modifying a bankruptcy payment plan, and means testing. Below is the transcript of that conversation.

 

Q: Does the fact that a debtor who is planning on filing for bankruptcy protection is currently making car loan payments, but the loan will be paid off within a year or two, affect the plan you propose to the bankruptcy court?
Chris Holmes: When I meet with clients in that situation, in a Chapter 13 case where the plan life is anywhere from 3 to 5 years, we weigh the pros and the cons of them either paying for the car directly outside the bankruptcy court versus throwing it into the plan and paying for it over the life of the plan. What we’ll look at is how old is the vehicle loan. If a car loan is more than two-and-a-half years old on the day of filing, and if the payoff on that loan exceeds the fair-market value of the vehicle by a significant amount, then we do this thing we call a “cram-down.” We take the higher payoff and reduce it—cram it down—to what the vehicle is worth. The debtor pays that amount, saving all of that extra principal. Often times, these loans have a very high rate of interest, so we can effectively cram that interest rate down, within the plan, from the high rate to the prime rate plus 1.5%.
As an example, if someone owes $20,000 on a car only worth $15,000, and that loan is supposed to be paid at 21% interest, what we say to the car creditor is that we’re only going to pay the value, $15,000, at perhaps 5% interest through the plan, saving the extra principal and extra interest on that loan. That’s a clear win for the debtor.
If the car loan is less than two-and-a-half years old. we can’t cram the payoff down in value. In that situation, the only thing we can do is reduce the interest rate, so a debtor would payoff the loan through the plan at perhaps 5% interest, to save a considerable amount of interest.
If the loan is less than two-and-a-half years old and the interest rate is already 5% or less, there’s no real advantage to paying it off through the plan, so then we would make arrangements for that debtor to continue to pay on that vehicle outside of the bankruptcy court.
If the bankruptcy plan life is 60 months, but the car loan is going to be paid off in, for example, 36 months, that scenario creates a potential problem. Previously, we would tell the trustee that, when the car was paid in full, the car loan payment would be used to purchase a replacement for that car or maybe a second car for the debtors. The trustees used to accept that at face value, but evidently they have recently learned of too many circumstances, after the car loan was paid in full, in which debtors weren’t using that monthly car payment for the purchase of a replacement or second vehicle. Now trustees don’t trust debtors anymore, so we’re compelled to sign agreements whereby the monthly bankruptcy plan payments increase, for the remaining months of the plan, by the amount that was being paid monthly for the car loan.
In those types of cases, we will go back to the bankruptcy court and ask the judge to allow the debtor to renege on that pledge when the debtor presents to the judge a tentative car loan for a replacement or needed second vehicle. We have the burden to go back into court to request permission to modify the plan back to what we intended, so we can use that extra money for the purchase of another vehicle.
Q: What happens to an individual who has (1) already filed bankruptcy, (2) set-up a plan, (3) their income is such that they are just able to take care of their current bills and monthly payment to the trustee, (4) they haven’t had a car payment during the plan, and then (5) all of a sudden their car breaks down beyond repair and they need to buy a replacement vehicle? Can you modify their bankruptcy plan mid-stream to account for their need to take on a new monthly car payment they did not have before the plan started?
CH: That creates another dilemma, because when we filed the case we submitted a budget that showed all of the debtor’s different monthly living expenses. If the debtor doesn’t have any money allocated for a regular monthly car payment at the start of the plan, the trustee will not approve a loan for that car unless we amend their budget to show the debtor now has the money available for the vehicle loan payment.
What we might have to do is go through the other budgetary items to determine if possibly the debtor is no longer paying so much for child care or perhaps their rent went down. We try to find cuts in their budget. Sometimes, if we don’t find cuts in their monthly budget that equal the amount of the proposed monthly vehicle loan payment, we’ll look at their paycheck to see if they’ve received a cost-of-living adjustment or maybe the withholding for medical insurance has gone down a little bit.
Between a little more disposable monthly income and a few less monthly expenses we night find the extra income needed to pay for the car loan. We’ll then put that amount in an amended budget, submit that to the court along with a copy to the trustee. Then, when the debtor goes to the trustee for permission to the car, the trustee can look at the amended schedule, see that the necessary funds are available each month to pay for the vehicle, and approve the loan.
Q: Would it be in the best interest of someone who was planning on filing for bankruptcy to buy a new car or reliable used car before filing.
Jess Smith III: The bankruptcy code states that we cannot counsel a client to incur new debt on the eve of bankruptcy.
Q: What period of time constitutes “the eve of bankruptcy?” In other words, how much time does someone need to wait between buying a new vehicle and filing for bankruptcy?
CH: I don’t advise clients about that type of activity. What I tell people is that I’ll put $350 in the monthly budget, even though they’re not currently spending that for a car loan, but that they’ll have to go out immediately after filing the case and start shopping around for a vehicle. If the trustee doesn’t receive that request he or she is going to want that $350 each month to give to the creditors.
JS: I told a client to dump his big fancy truck and its $750-a-month payment, which the trustee would think is excessive, and to go get a $350-per-month replacement. The trustee is now demanding proof of that $350 monthly payment, otherwise he is going to want that money for the creditors. We recently met with the creditors, who asked if my client had bought the replacement truck yet. The client said, “No, I need to save my previous monthly payments to accumulate enough money for a down-payment on a replacement.” The creditors stated that unless he does that by the claim bar date, they’re going to ask for that money to go into the plan.
CH: The trustee’s job is to squeeze as much money out of a debtor as possible for the benefit of the creditors.  That’s why they look at projected income and projected expenses. Sometimes they will scrutinize the budget and find there’s some “fat” in it. Maybe we put too much money in there for food or clothes or some other expense—and the trustee will say that’s excessive. We then have to reduce that number to free up some money for the plan payment, which will increase by the amount of “fat” we cut out.
Q: Is there a schedule or chart published by the State of Indiana that shows the average household expenses for a single person, a married couple, and families of different sizes?
JS: There are federal standards (Dept. of Justice Means Testing) that are loosely based on if the IRS is considering going into an installment arrangement with you to pay federal taxes. The IRS publishes amounts they consider to be reasonable for the cost of housing, utilities, transportation, food, clothing, and out-of-pocket health care expenses. The trustees have adopted those figures, but on occasion they’ll take a harder line on a case-by-case basis.
CH: The computer program we use to determine a client’s budget has those regular monthly living expenses built right into it.
Q: Is the IRS standard different for each state?
JS: There are housing allowances listed for each county in every state. For median incomes, the allowances are listed state-by-state, and there are national allowances for food, clothing, transportation, etc.

 

Protecting Your House From Liquidation in a Bankruptcy

by

If you own a home, Indiana law allows you to protect a portion of the equity in that home. A liquidation analysis determines what would be available for creditors after you deduct the cost of sale and other expenses.
We recently discussed several aspects of bankruptcy with Christopher Holmes and Jess M. Smith, III, partners at Tom Scott & Associates, P.C. The discussion covered several topics, including being “judgment proof,” protecting your house from liquidation in a bankruptcy, home equity exemptions, some benefits of filing a Chapter 13 “100% plan,” common reasons people file for bankruptcy, a deficiency balance on a debt, an example of how an ex-spouse can impact a bankruptcy, and conduit mortgage payments. Below is Part 1 of 2 of the transcript of that conversation.

Q: In regard to a person’s financial situation, what does it mean to be “judgment proof?”
Chris Holmes: Some people have too much debt and maybe they’re on Social Security or they have no income. Those individuals are what we call “judgment proof” because creditors can’t make them pay if they don’t have wages to garnish. A person’s take-home pay must exceed $217.50 per week before they can be garnished. In addition, some sources of income, like Social Security and veteran’s benefits, are exempt—off-limits—from garnishment. If those individuals don’t have any real estate or they have less than $10,250 in tangible personal property, there’s nothing a creditor can take from them to liquidate, to pay on the debt. Sometimes I tell people that they don’t even need me, if they have a strong enough stomach to withstand the calls, the letters, and being dragged into court periodically.
Jess Smith, III: On the other hand, I had a woman come in to see me recently and she hardly has any income, but her name is on the deed of an ex-boyfriend’s piece of lien-free real estate that is worth $90,000. Therefore, she had to pay 100% of her debts to protect that property. She said, “Well, I better go out and find a job first.” She was behind on her residence and thought she could get rid of her other debt and just keep her residence, but she found out her name is on this other piece of property.
CH: Sometimes people come to us, creditors are hounding them, and they don’t have the ability to pay them back. Most people would prefer to file a Chapter 7 bankruptcy and just wipe the slate clean, but we have to evaluate their home and compare it to what’s owed on it. If you own a house in your name only, Indiana law allows you to protect $19,300 of equity in that home. So let’s say you have an $80,000 house and you only owe $30,000 on it, so there’s $50,000 of equity. You can only protect $19,300, which leaves just under $30,700 of non-exempt equity. In a Chapter 7 bankruptcy, the trustee has the power to take that house, sell that house, pay the commission for the sale, give you your $19,300 equitable interest that’s protected, and use what’s left over to pay back some of your debt.
Q: So how do you avoid that?
CH: For those people, if they want to protect their house, I ask them if they have a rich relative or a retirement account or some resources to tap. We do what’s called a liquidation analysis to determine what would really be leftover for the creditors once you factor in the cost of sale and some other things. I had a case where a woman couldn’t afford to come up with money herself, but she had a rich uncle who stepped in and gave her a sum of money equivalent to what the trustee wanted to prevent him from taking and selling her house. Otherwise, what most people have to do is file a Chapter 13 bankruptcy plan to pay back to their creditors, over a three- to five-year period, as much or more money than they would have received had the house been taken and liquidated.
Q: Are they paying the full amount of the equity or a certain percentage on the dollar?
CH: What we can do is factor in not only the mortgage and the exemption, along with the cost of sale. We figure out how much would the trustee in a Chapter 7 have received for doing all of that work and liquidating—the trustee gets a percentage of every dollar they collect for the creditors—so we can subtract that amount out. What’s left over is a reduced amount that has to be paid or distributed amongst all of the creditors during that three- to five-year period.
Q: Are those all of the factors that go into the liquidation assessment?
CH: Sometimes there are some other things, like certain taxes that have to be paid first in a Chapter 7, so we factor that in, which reduces the amount even further that somebody would have to pay to protect their home from liquidation.
Q: In a general sense, would you say it’s better to file for Chapter 13 bankruptcy and keep your house rather than to file a Chapter 7 and lose your house?
CH: It depends on the debtor. Maybe they don’t even care. They might live in a terrible neighborhood and don’t like their neighbors, or they’re tired of raking the leaves and mowing the grass. It’s rare, but I’ve had a client who said, “Fine. Mr. Trustee, take my house, sell my house, and give me a check for my equity amount.”
Q: Tell me a little more of the specifics about this woman who had her name on the deed of her ex-boyfriend’s house.
JS: Her first issue is that, because she is between jobs, she is behind on the regular mortgage payments for her residence. She owned her own home and had a half-interest on this other house, so she was going to have to file a Chapter 13 to catch up on the overdue payments on her home. Then, when she lost her job, her car got repossessed, because she couldn’t pay for it. I don’t know which came first, the job loss or the repossession, but she just had the car repossessed and she thought she had a citable deficiency of about $15,000. In other words, after the car was repossessed and sold, they’re coming after her for that $15,000. I explained to her that because of the equity she has in the non-residential real estate, she would likely have to pay the deficiency on the car she just lost. So she said, “I understand that and I knew that, so I’ve got to get a job to make this all work.”
Q: Who owns the other half of that non-residential property?
JS: An ex-boyfriend that put her name and his name on the deed about 20 years ago when she had loaned him some money.
Q: So your recommendation to her was to not file for bankruptcy?
JS: Not until she has some cash flow that can fund a Chapter 13.
Q: Why did she want to protect the ex-boyfriend?
JS: I’m not sure, but she was very adamant that he should not lose that real estate because of her.
Q: Could she have taken a different, less-friendly approach regarding that other property?
JS: She could have filed a Chapter 7, but it wouldn’t help her cure the arrearage on her residence. We’ve agreed she’s going to eventually file a Chapter 13.
Q: Would you have to meet the best-interest-of-the-creditors test if she didn’t care if that other property was taken and sold?
JS: Yes, because a Chapter 13 trustee is not going to liquidate it. I have the same issue in another case I have in which a woman is in what’s called a “100% plan.” She has to pay everyone back, because she has $50,000 to $60,000 equity in a residence. In addition to that equity, she was also try to cure the arrears on it, because she had one health issue after another after another. The ongoing mortgage payments were being paid by the trustee, but she wasn’t making enough to do that and pay for the car she wanted to drive. She had visions that she was going to refinance the mortgage outside of the bankruptcy. So, I filed an amended plan that says we surrender our interest in the house, but we now want to pay for the car and pay the balance of the attorney fees, and chop the payment way down from about $1500 a month to $400 a month. I now have an objection from the trustee saying we haven’t met the liquidation test on the equity of the house.
Q: Even though she’s surrendering the house?
JS: We haven’t fought it out yet, but it drew an objection.
Q: What is the objection based on?
JS: Because she could sell her real estate and pay off the mortgage and there would still be money for other creditors creditors. That’s what the trustee said. At least on paper, there’s a ton of equity here. She has a son and his fiancé who’ve said they want to refinance it, but the trustee wants money for the creditors.
Q: For clarification, what exactly is a 100% plan?
JS: Every creditor that files a claim will get paid in full.
CH: So, in that Chapter 7 liquidation, there would have been enough money to pay back every single penny of all of the debt. In a Chapter 13, to prevent the sale of the house, you have to make sure that every single penny of that debt gets paid, to protect the equitable interest in the real estate. The benefit of the Chapter 13 then could be—because I’ve had people ask, “What benefit is it for me to file Chapter 13 bankruptcy if I have to pay back everybody in full?”—first of all, once they’re under the protection of the Chapter 13 bankruptcy creditors can’t call, can’t write, can’t sue, can’t garnish. Also, as soon as we file the case, no more interest can accumulate, no more late charges can be imposed or attorney fees assessed. And, those creditors have a window of opportunity—about four months from the date of the filing of the case—to file what’s called a Proof of Claim. So if somebody wants to get paid, they have to file a claim with the bankruptcy court before what’s called the bankruptcy Bar Date. If they don’t file a claim by that date, they don’t get any money.
Q: So, it puts the onus on the creditors to do something to get paid?
CH: Right. We had an extraordinary Chapter 13 case not too long in which we had a high-income dentist making enough money to pay everyone in-full. The total of her unsecured debt to be paid through the plan was around $106,000. So we came up with a plan payment that over 60 months she would pay every single penny of that debt, without any interest or late charges. But—and it’s the only time I’ve ever seen it happen—not one single creditor filed a claim. So, whereas she would have had to pay the entire $106,000 through this plan, she got out of the plan with a discharge on all $106,000 of debt and didn’t have to pay one penny on any of that debt, because not one of those creditors was on-the-ball enough or smart enough to file a claim.
Q: If there were no payments to be made, did the discharge come immediately?
JS: Actually, after payment of attorney fees and trustee fees; after the claims deadline.
CH: I had a Chapter 7 case in which the trustee decided the debtor had an asset that legally could not be protected, so the trustee wanted to take and liquidate it. The trustee sent out a notice to all of the creditors to file a claim, because there would be money available for them. Not one single creditor filed a claim, so the trustee sent out a second notice that said, “I’m going to have money for you if you file a claim.” Again, not a singular creditor filed a claim, so the trustee had no one for whom to collect some money, so he could not and did not take the property that had been subject to liquidation. The debtor got to keep the property, because for whatever reason, creditors did not file a claim. Those are anomalies, but when you do as many cases as we do, you see more and more of those kinds of unusual situations.
Part 2 of Conversation: Common Reasons People File for Bankruptcy

Common Reasons People File for Bankruptcy

by

Uninsured medical bills resulting in lawsuits and threats of legal action or garnishment are common reasons for bankruptcy these days. Divorce is also a reason for many bankruptcies—a high percentage of the people who file for bankruptcy protection are single mothers. In a Chapter 13 bankruptcy, a conduit case refers to making mortgage payments through the trustee.

We recently discussed several aspects of bankruptcy with Christopher Holmes and Jess M. Smith, III, partners at Tom Scott & Associates, P.C. The discussion covered several topics, including being "judgment proof," protecting your house from liquidation in a bankruptcy, home equity exemptions, some benefits of filing a Chapter 13 “100% plan,” common reasons people file for bankruptcy, a deficiency balance on a debt, an example of how an ex-spouse can impact a bankruptcy, and conduit mortgage payments. Below is Part 2 of 2 of the transcript of that conversation.

Q: With the economy turning around and the rate of bankruptcies dropping, what are the most common reasons people file for bankruptcy these days? Why are people getting into financial trouble?

Chris Holmes: It’s still uninsured medical bills resulting in lawsuits and threats of legal action or garnishment. The biggest percentage of people I see these days are single mothers on a limited income with children to support. They’re on a razor-thin budget and threatened with garnishment, while they’re barely getting by on 100% of their take-home pay, They can’t afford to lose 25% of their take-home pay through a garnishment, so they come in and seek protection from creditors through the bankruptcy court.

Q: Is credit card debt what’s causing their problems?

CH: I would say uninsured medical issues or an old cell phone bill or maybe a car got repossessed and there is a deficiency balance that the creditor is suing them for. Maybe the economy is better in the sense that the unemployment rate is relatively low, but all the jobs people are getting are such low-paying jobs that they aren’t being paid a living wage to really make ends meet. Then they’re on that razor-thin line with a budget that is just barely enough to survive on. If something unexpected happens there’s a threat of garnishment. If they let the garnishment happen, maybe they’ll be evicted or lose their car and can’t get to work. They’re just desperate to file bankruptcy.

Q: So it’s mostly people in a single-income-with-kids situation?

CH: It seems that way in many cases. Of course, divorce is always a big reason that people file for bankruptcy. People go their separate ways and somebody has been ordered to pay certain marital debt, but they can’t afford to do that, so they have to seek refuge in the bankruptcy court. Job loss is still a big cause of financial problems. I’m sure there are going to be some bankruptcies on the horizon when all of those Carrier employees get laid off.

Q: Have you seen any unusual circumstances in recent cases?

Jess Smith, III: I have a nasty hearing coming up soon. A woman received an offer to sell real estate. She had a divorce decree in which she owned the real estate only in her name and only her name was on the mortgage. But the divorce decree stated that if she were to sell the house, she would keep the first $60,000 and anything over and above that first $60,000 would be split between her and the ex-husband. In the interim, she filed for bankruptcy because she had other debt. He hasn’t paid child support to her in months. The house goes into foreclosure. I hire a Realtor and get permission to sell it—and we get an offer. By the way, we listed the ex-husband as a creditor in the bankruptcy, which basically states, “Speak up or forever hold your peace.” He never filed a claim. Instead, he hired a couple of lawyers and eventually his objection to the bankruptcy plan is overruled. He said, “If we get anything over and above $60,000, you can have that,” knowing that we’re not going to get there. So we had an offer to buy the house. The debtor would get to keep her exemption of $17,600 and as things stand there is presently around $15,000 that would go to the creditors who filed a claim. We had a motion out to approve the sale, but the ex-husband has objected to the sale—even though his name is not on the mortgage and he didn’t file a claim. I have to go before the judge next week.

CH: And the sale will not bear proceeds big enough for him to even get a half.

JS: Right. His objection is, “You should list the house for more money," even though there is a foreclosure pending and he is not current with his child support. I don’t know what kind of patience the judge will have for this gentleman, but I’ve got to bring the debtor into court and also have the Realtor state there will need to be $10,000 thrown into the house, to deal with radon and other things, and that this is the best offer we’re going to get. In the meantime, the foreclosure is actively proceeding to Sheriff’s sale.

CH: So, the payoff on the mortgage is constantly getting bigger.

JS: If we wait, it’s going to take money out of the hands of the other creditors who filed claims.

Q: Have you thought about throwing some his way to make his objection go away?

JS: Our client is an attorney, so when the case originally started we contemplated amending the divorce decree to bump up his position; to give him $5000 or $10,000, but her ex-husband wanted nothing of it. So, he started first with attorney John W. I call John, whom he never paid to file an appearance, but we had discussions and I said, “We’ll move you up the ladder and give you a secured position and give you some money. It wouldn’t be a lot, but it would be something as opposed to nothing.” He never paid John W. a retainer. Then, after we filed our second plan, the ex-husband hired attorney Jim Y. and after a couple of hearings I amended the plan and said, “We’ll give you one-half of anything over $60,000.” He didn’t pay Jim Y., but now on the day of the objection on the motion to sell, he paid attorney Eric R. some money and Eric filed an objection and handed off the files to attorney Keith G. So now I’m dealing with Keith. Then, my client, who is mad as heck, sent me an email saying that her ex-husband was at the house having someone service the air conditioner—and he doesn’t even own the house or have his name on the mortgage or deed. And she still lives there.

Q: He’s paying someone to service the air conditioner at her house?

JS: Yes. And then he asked, through Keith G., for permission to show the house to other people—despite the fact that I have a Realtor with an exclusive listing and a sale pending.

CH: So, he seems to think that she accepted a low-ball offer to move the property and deny him his fair share of the net proceeds.

JS: Yet, he hasn’t paid child support for seven months.

Q: What is the assessed value of the property compared to the sale price? Is it in the ballpark?

JS: The price offered is about $30,000 less than the assessed value, but here’s where it starts to get tricky: When the case started, they had a rental property. In addition, she fell behind in the mortgage payments on their house, because the husband moved out. I explained to her that if she didn’t get current on the mortgage payments for the house, it would have to be a conduit case. In the interim, the rental property went into foreclosure and a judgment lien was placed on that. So, we had to value the rental property low to get the lien avoided—and we got that lien avoided. But now the sale price is higher than what I initially scheduled the value of the property for, which is neither here nor there because the judgment lien holder from the rental property had their opportunity to object and they disclaimed any interest in the real estate and the foreclosure.

Q: You used the phrase “conduit.” Can you explain what that is in relation to a mortgage and bankruptcy?

JS: Conduit means if you file a Chapter 13 and you want to keep your house, and you’re behind on the mortgage payments when you file the case, the ongoing future mortgage payments get made through the trustee, who then disperses it to the mortgage company. Not only the ongoing payments, but the pre-filing arrearage also goes through the trustee.

CH: In the past, you would just cure the arrearage on the mortgage in the plan, then people would resume their regular mortgage payments outside of the plan, directly to the creditor, starting the month after the date of filing. But now the judges have decided that if the debtor is more than one month behind, then they have to make those regular monthly mortgage payments through the Chapter 13 trustee, which debtors and debtors’ counsel don’t really like.

JS: The reason for that is because for years we used to have arguments with the mortgage company about ongoing mortgage payments and whether they were made on time or not. Huge amounts of time were spent accounting and keeping track of payments. I guess the theory is that if the debtor is more than one month behind then they were going to miss some payments along the way.

CH: At the end of the old plan, invariably the mortgage companies would say, “You didn’t pay every single penny and you’re not current on the mortgage.” Now there is either a hearing or the trustee files a notice stating that a debtor is current, which gives the mortgage company an opportunity to say, “Yes, they’re current,” or “No, they’re not current.” The judge would then decide whether or not they really are behind, based on all of those payments that should have been made through the plan.

JS: Typically, the trustee, as the neutral party, has a record of dispersing three to five years of payments to the mortgage company.

CH: With variable interest rates, or the changes in taxes and escrow, those mortgage payments are fluctuating. Every six months, or 12 months, debtors receive an escrow analysis stating that the property owner’s taxes went up, so the mortgage company would have to bump up the mortgage payments a little bit to make up for that additional that would have to be paid in taxes. Or the homeowner’s insurance rate goes up and the mortgage company would have to escrow a little bit more for that increased insurance premium. We don’t see variable or adjustable interest rates much anymore.

Part 1 of Conversation: Protecting Your House From Liquidation in a Bankruptcy