Tom Scott Law Indy

Bankruptcy Attorneys in Indianapolis Since 1980

Personal Bankruptcy in Indiana

$20,000 Contempt Penalty Because Mother Hurt Father’s Credit Should Be Dischargeable In Bankruptcy

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*Disclosure required by 11 U.S.C. § 528(a)(3): We, the law office of Tom Scott & Associates, P.C., are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
Q: A state court judge orders the mother to pay the father $20,000.00 following a contempt hearing as a penalty for actual costs of petitioner’s attorney fee. The award is a contempt penalty following the Judge’s determination that the mother has not been paying student loans in a timely manner thus harming the father’s credit and that the mother has not complied with a parenting time order. Is that penalty dischargeable in Bankruptcy?
A: Bankruptcy Code Section 523 provides a list of debts that are not dischargeable in bankruptcy. Specifically 523(a)(7) states: A bankruptcy discharge “does not discharge an individual debtor from any debt – … (7) to the extent that such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss…”
Under section 523(a)(7), civil contempt sanctions are generally non-dischargeable where, they are imposed to uphold the dignity and authority of the court. For example see U.S. Sprint Communications Co. v. Buscher, 89 B.R. 154, 156 (D.Kan.1988); PRP Wine Int’l, Inc. v. Allison (In re Allison), 176 B.R. 60, 63-64 (Bankr.S.D.Fla.1994). In these cases, the dischargeability of a prior fine was at issue in a subsequent bankruptcy.
A “debtor seeking to discharge a pre-petition sanction faces an uphill battle. While he has the ability under Bankruptcy Rule 4007 to seek a determination of the dischargeability of the sanction in that subsequent proceeding, the bankruptcy court will evaluate and adjudicate the prior debt’s dischargeability guided at least in part by § 523(a)(7). It is for this reason that a representative of a corporate debtor, like Mr. Hansbrough, is not free flatly to ignore the bankruptcy court’s orders, absorb any sanction the court can muster, and then simply file a personal bankruptcy petition before a different court and obtain a discharge as a matter of course.” In Re Hercules Enterprises, Inc., d/b/a JP’s Health Club, Debtor. James Hansbrough, Appellant, v. David Birdsell, Chapter 7 Trustee of Hercules Enterprises, Inc.’s Bankruptcy Estate, Appellee, 387 F.3d 1024 (9th Cir, 2004).
Accordingly, my reading of the Bankruptcy Code is that Section 523(a)(7) creates a two prong test to determine whether a civil contempt action is dischargeable in bankruptcy:
1) The debt cannot be discharged if the penalty is payable to and for the benefit of a governmental unit; AND
2) The debt cannot be discharged if the penalty is not compensation for actual pecuniary loss [a “pecuniary loss” is defined as “a loss that can be evaluated in money terms” (Black’s Law Dictionary)].

If mother files a Chapter 7 bankruptcy and receives a discharge, even if the current $20,000.00 penalty is dischargeable, the underlying order to remain current on student loans is not dischargeable. The mother should file a Chapter 13 bankruptcy to attempt a discharge of both the civil contempt penalty as well as the property settlement order.

In the facts presented, the state court order was that the money be paid directly to the father and not payable to or for the benefit of the any governmental unit. Therefore, the first prong is not met and the debt can be discharged in bankruptcy. The second prong is that the debt cannot be discharged if the debt is not compensation for actual pecuniary loss. Conversely then, the debt is dischargeable in bankruptcy if the penalty is for actual pecuniary loss. In this case, the court order does specifically state that penalty is for actual compensation so it should be dischargeable in bankruptcy.
More importantly, however, is that the divorce decree directed the mother to remain current on student loans and hold the father harmless as a co-debtor. Through issuance of this divorce decree order, the state court has created another potential debt for the mother; that is, the father can collect money for damages if the mother does not remain current on student loans. This potential debt to father will remain in effect until either the student loan is timely paid or the divorce decree order is discharged. A Chapter 7 bankruptcy will NOT discharge any debt to a former spouse that was incurred by the debtor in the course of a divorce. Therefore, if mother files a Chapter 7 bankruptcy and receives a discharge, even if the current $20,000.00 penalty is dischargeable, the underlying order to remain current on student loans is not dischargeable. Accordingly, if the mother ever falls behind on student loans in the future, the father could simply seek another post-discharge contempt order and the mother would have to appear again before an already unhappy judge. Therefore, I would recommend that the mother file a Chapter 13 bankruptcy to attempt a discharge of both the civil contempt penalty as well as the property settlement order.

Discharging Property Settlements in Divorce Cases: Chapter 13 and Why to File – Overview of Bankruptcy, Part 8

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Series: #13 0f 13
The previous article in this Overview of Bankruptcy series discussed how stripping off wholly unsecured mortgages is a valuable option in a Chapter 13 case, giving a debtor the opportunity to modify a wholly undersecured second or other junior mortgage. In this last article of the series, we will take a brief look at discharging property settlements during a divorce.

Discharging Property Settlements to Spouse, Ex-Spouse, or Children

Pursuant to 11 U.S.C. § 523*(a)(15), a Chapter 7 filing will not discharge any debt to a spouse, former spouse, or child of the debtor (and not child support) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record.
Certainly an argument can be made that a divorce decree that orders the debtor to pay debts of the marriage or attorney fees incurred in a divorce (which are not in the nature of alimony, maintenance or child support) may not be dischargeable in a Chapter 7 filing. The filing, completion and discharge of a Chapter 13 allow the discharge of such debts and protect the debtor from an angry ex-spouse and/or state court judge.
Oftentimes, the ex-spouse has already filed his or her own Chapter 7 in which case, the debtor may be able to file a Chapter 7. A careful review of the divorce decree and the ex-spouses filing (to determine what debts have been listed and discharged) should be taken before making any determination as to the appropriate chapter.
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As we mentioned at the beginning of this series, there are many reasons in which a debtor may find as much or more “stress-relief” in a Chapter 13 reorganization. The attorney must be careful to analyze all the benefits and risks (as required by 11 U.S.C. § 526(a)(3)(B) and rules of professional responsibility) before making such a determination as to which chapter is appropriate. If a Chapter 13 is appropriate, then the attorney needs to carefully determine whether such a plan is feasible and offered in good faith to the court. If all of these factors are met, confirmation of the plan is likely to follow.

* Source: Cornell University Law School Legal Information Institute

Stripping Off Wholly Unsecured Mortgages: Chapter 13 and Why to File – Overview of Bankruptcy, Part 7

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Series: #12 0f 13
Our last post took a brief look at how to protect a co-debtor in a Chapter 13 bankruptcy. This article will discuss stripping off wholly unsecured mortgages.

Stripping: A Tool to Modify Unsecured Mortgages

One of the most valuable options to a debtor in a Chapter 13 case is the opportunity to modify a wholly undersecured second or other junior mortgage pursuant to 11 USC § 1322 – Contents of plan*(b)(2) which allows a Chapter 13 plan to modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or holders of unsecured claims, or leave unaffected the rights of holders of any class of claims (emphasis added).
In conjunction with 11 USC § 506 – Determination of secured status*(a), a second or other junior mortgage can be avoided in its entirety, be given a value of zero and treated as an unsecured claim. See In Re Goda, Case No. 99-80983 (January 10, 2000), In Re Twyman, Case No. 00-4437-FJO-13 (July 31, 2000), In Re Gyger, Case No. 00-14683-AJM-13 (May 2, 2001) In Re Bailey, Case No. 02-01074-AJM-13.
In order to avoid a second or other junior mortgage, it cannot be supported by any equity whatsoever. The decision rendered by the Court in Kelly vs. Countrywide Home Loans, Inc., Case No. 01-14607, Adv. Pro. 01-572 (June 17, 2002), however, reaffirms earlier decisions that completely unsecured mortgages may not be stripped in chapter 7 cases.
In order to attempt to strip the wholly unsecured junior mortgage, the debtor must know the exact date of filing payoff balance on the first mortgage (including any arrears) as well as at least one walk through appraisal from an expert willing to travel to testify as an expert if there lien strip draws an objection. The lien strip language must be included the plan filed with the court (located in Paragraph 11 of the model plan used in the Indianapolis Division) and the attorney needs to file either a separate motion to strip the second mortgage (if you believe the issue deals with valuation only) or an adversary proceeding (if you believe the issue is to determine the validity, priority or extent of a lien).
An adversary proceeding is likely the best course to choose; however, attorneys in the Indianapolis Division have a general belief that they are not arguing the validity of the debt (conceding that it is a valid debt), but are instead only arguing about the fair market value of the real estate which can be determine without an adversary proceeding.
In order to protect the debtor from potential problems with future transfers of the real estate, the attorney should be vigilant in obtaining proper service, should always make sure that an order avoiding a second mortgage contains the full and exact legal description, and that the order is properly recorded. The debt is not officially discharged until the Chapter 13 plan has been discharged.
Accordingly, large notes should be made on the file that the case cannot be converted to Chapter 7; otherwise the second mortgage is no longer avoided.
Next: Discharging Property Settlements in Divorce or Separation

* Source: Cornell University Law School Legal Information Institute

Protecting a Consumer Co-debtor: Overview of Bankruptcy: Chapter 13 and Why to File, Part 6

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Series: #11 0f 13
In our previous article, we discussed ways to avoid liquidating non-exempt assets in a Chapter 13 bankruptcy. This post will briefly discuss protecting a consumer co-debtor from liability.
Pursuant to 11 U.S.C. § 1301  – Stay of action against codebtor*, after filing a Chapter 13 bankruptcy, a creditor may not take any action to collect all or part of a consumer debt of the debtor from any individual that is liable on such debt with the debtor unless the debtor incurred the debt in the ordinary course of the individual’s business or the case is dismissed or converted to Chapter 7.
In addition, 11 USC § 1322 – Contents of plan*(b)(1) allows a plan to treat discriminate (and pay in full) claims for consumer a consumer debt of the debtor if an individual is liable on such consumer debt with the debtor differently than other unsecured claims.
Note that the debt is a consumer debt meaning that the debt was incurred for the personal use of the debtor or the debtor’s family and that it was the debtor who received the benefit of the debt. In order to fully protect that co-borrower from liability, it would also be wise to pay the claim in full with the contractual rate of interest so that the creditor will not attempt to collect any deficiency balance from the co-debtor once the debtor’s debts are discharged and the co-debtor stay has been lifted.
Next: Stripping Off Wholly Unsecured Mortgages

* Source: Cornell University Law School Legal Information Institute

Avoiding Liquidation of Non-exempt Assets: Overview of Bankruptcy – Chapter 13 and Why to File, Part 5

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Series: #10 0f 13
In our last article, we took a look at ways to liquidate large tax and other priority obligations in a Chapter 13 bankruptcy, as it sometimes provides the debtor with more time than a non-bankruptcy setting would allow. Another reason to choose to file Chapter 13 rather than Chapter 7 is to help avoid liquidating a debtor’s non-exempt assets.

How to Avoid Liquidation of Non-exempt Assets

As discussed in an earlier article in this series, a Chapter 7 bankruptcy attempts to obtain funds for unsecured creditors by liquidating debtor assets. A debtor who has non-exempt assets (and wishes to retain those assets) may do so through the filing of a Chapter 13 bankruptcy.
11 USC § 1325*(a)(4) states that the court shall confirm a plan if (among other things) “the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date.” This section is referred to, in the Indianapolis district at least, as the “Best Interest of Creditors Test” or “BIT” for short.
Note carefully that the plan language of the Code states that creditors must receive as much as they would have in a hypothetical Chapter 7. It does not state that creditors must receive all funds over and above the debtor’s allowable exemptions.
Accordingly, in the hypothetical Chapter 7 the costs of sale and Chapter 7 trustee fees (as well as exemptions and underlying liens) would all be deducted before paying any money to the unsecured creditor pool.
In addition, the statute is clear that the BIT test can also be used to pay down priority unsecured taxes. For example, a debtor has $20,000 of personal property (including a $10,000.00 lien free auto). In addition the debtor owes $5,000.00 to the IRS for income taxes owed from 2009. Subtracting the $9,350.00 exemption from the $20,000.00 personal property leaves $10,650.00. However, hypothetical trustee fees of $1,815.00 and roughly $1,000.00 cost of sale would provide only $7,835.00 that would be paid to the unsecured creditor pool. Of that amount $5,000 would be paid to the IRS and $2,835.00 would be left for the general unsecured creditors.
Next: Protecting a Consumer Co-debtor

* Source: Cornell University Law School Legal Information Institute

Liquidating Tax Debt: Overview of Bankruptcy – Chapter 13 and Why to File, Part 4

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Series: #9 0f 13
In our last article, we took a look at “cramming,” a way to protect an automobile or other personal property in a Chapter 13 bankruptcy. Another primary reason to choose to file Chapter 13 rather than Chapter 7 is to help reduce a debtor’s tax load.

Chapter 13 can Help Reduce Taxes

Liquidating tax debts.
A chapter 13 is a very effective tool for liquidating large tax and other priority obligations, as it sometimes provides the debtor with more time than a non-bankruptcy setting would allow. If the debtor is self-employed, part of the confirmation order may include the requirement that the debtor make regular ongoing monthly estimated tax payments to the IRS. If this becomes part of a confirmation order and is later breached, the IRS can move for dismissal for breach of the order.

  1. Secured tax claims
    A tax liability is secured to the extent that the debtor has equity in property if the taxing agency has filed a lien in the debtor’s county of residence. One should always verify that the lien was recorded in the correct county. In determining the amount of the secured claim, the equity that the debtor lists in schedules A and B is totaled.
    Special note: the IRS asserts that their claims are also secured to the extent that the debtor has any interest in a retirement fund or a 401k, even though this is an asset that is generally excluded from, or exempted out of the bankruptcy estate. See In re Wesche, 193 B.R. 76 (Bankr. M.D. Fla. 1996) stating that federal tax lien attaches to all interests in pension, not just current benefits. This is very important because if the debtor has a retirement fund, the IRS secured claim that may have appeared to be minimal based on the equity in personal property can become unmanageable, even in a Chapter 13.
    To the extent that the secured claim extends beyond the equity available to support it, the balance will fall to priority or general unsecured under 11 USC § 507 – Priorities*(a)(8) analysis.
    Also remember, that the equity is applied to oldest liabilities first. This means that if the debtor has priority tax liability and general unsecured tax liability (and the tax authority has a lien) the lien will attach to the general unsecured portion first thus increasing the overall amount that must be repaid.
    Secured real estate taxes are also paid through the plan. Generally only the pre-petition amount due is paid, but if the next semi-annual installment is due shortly, and the taxing agency agrees, that post-petition obligation may also be included. Real estate taxes are paid with interest of 8%.
  2. Priority tax claims
    Again, taxes are prioritized in §507(a)(8), but briefly they include income taxes, trust fund taxes and some property taxes.One thing to be aware of in determining the priority afforded personal income tax liabilities is the term of art “tolling”, which has now been codified at the end of §507(a)(8).
    Tolling is a rule that provides that any time previously spent in a bankruptcy (any chapter) or when the government unit was prohibited from collecting a tax under applicable non-bankruptcy law will extend the reach back period for pulling tax years into priority status; an additional 90 days is added to time period. Tolling applies only to pre-petition debt, but you need to be aware of any previous bankruptcies, as it can be a rude surprise to find that taxes due in 2002 retain their priority status in a 2008 filing.
    For example, the debtor previously filed a chapter 13 bankruptcy in March, 2004. In this bankruptcy, 2002 taxes are priority under §507(a)(8)(A)(i) due three years before the date of the filing of the petition. The 2004 bankruptcy was dismissed in December, 2006. Thus the debtor was in the bankruptcy for 34 months. Taxes originally due April 15, 2003 plus three years is April 15, 2006 plus an additional 37 months is May 15, 2009!!
    So, a bankruptcy filed anytime before May 16, 2009 will pull the 2001 debt into priority status.Other priority taxes that must be fully paid inside the plan include trust fund taxes (that portion that the employer withheld but did not remit to the taxing agency), and personal property taxes due within one year prior to the current bankruptcy filing. A word about trust fund taxes — they are attributable to the responsible party of the employer. This determination is made by the IRS.
  3. General unsecured taxes
    ”Stale taxes”, those that are older than three years, and the penalty portion of priority taxes are general unsecured liabilities and are paid with the pro rata distribution afforded to other general creditors.

Next: Avoiding Liquidation of Non-exempt Assets

* Source: Cornell University Law School Legal Information Institute

Cramming: Overview of Bankruptcy – Chapter 13 and Why to File, Part 3

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Series: #8 0f 13
Last time, we discussed curing a mortgage, one of the reasons a debtor would want to file a Chapter 13 bankruptcy rather a Chapter 7. Next, we look at “cramming.”

What does “Cramming” Mean in Reference to Bankruptcy?

“Cram” is a word of art in bankruptcy practice. It literally means reducing a secured debt to the fair market value of the subject collateral. It is most often used with regard to automobiles, but it may also be used for household goods or even mobile homes.
When cramming in a plan, the debtor offers the fair market value of the collateral with interest; the balance of the debt is treated as an unsecured claim.
Cramming a car.
In the past when cramming a car in a plan, it was advisable to include language that required that the title be released upon payment of the value offer. However, pursuant to the revised 11 USC §1325*(a)(d)(B), a secured creditor may object and the plan can not be confirmed unless the secured claim holder retains their lien until the debt is paid in full or the case is discharged.
However, because paragraph (5) gives three options (acceptance, satisfaction of enumerated terms, or surrender), arguably, if the plan specifies that title will be released upon payment of the secured portion of the claim, and the creditor fails to object, upon confirmation the creditor is deemed to have accepted the plan and is bound by the terms of the plan.
11 U.S.C. § §506*(a)(2) codifies Associates Financial Corp. v. Rash, 117 S.Ct. 1879 (1997) and mandates that the “allowed secured claim shall be determined based on the replacement value” and not the liquidation value. If there is still a dispute regarding the replacement value, courts have generally favored concrete evidence of the value, but have recently indicated a willingness to look at “book” values, preferring the NADA guide.
In addition to the collateral itself, oftentimes, the original financing agreement includes credit-like insurance and/or a warranty of some sorts. It has been our experience that debtors generally surrender those policies and/or warranties in reaching a value offer. See In re Sharon, 200 B.R. 281 (Bankr. D. Or. 1995), holding that the value of an extended service contract is not included in the allowed secured claim. Of course, the debtor is free to reaffirm those contracts and add those costs to the fair market value offer.
The ability to cram a recently purchased vehicle (or other personal property) has been limited by the BAPCPA amendments (referred to as the 910-Rule). The unnumbered paragraph at the end of §1325(a) excludes any vehicle acquired for personal use or any other personal property purchased within 910 days of filing from the application of §506. In short, this means that the claim may not be bifurcated and treated as only partially secured.
In re Till, 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004) is still assumed to be the appropriate standard for establishing the interest rate to be offered on secured claims. Till, using the formula approach, established that the interest rate should be the national prime rate plus a risk factor (between 1 and 3%) depending on the circumstances of the particular debtor. A recent decision out of the Southern District of Illinois by Judge Coachys of the Indianapolis Division, In re Rushing (05-37004), applied Till to both cram downs and 910 vehicles.
Finally, keep in mind that cramming any car into a plan limits that debtor’s ability to convert to Chapter 7 later on and keep that vehicle as the payments will not be current based upon the underlying contract. Signing a reaffirmation agreement following a conversion to Chapter 7 may automatically subject your client to the default provisions.
It may also not be advantageous financially to file a Chapter 13 solely for the purpose of cramming a vehicle after the debtor has paid the Till rate of interest and the attorney fees.
Cramming other personal property.
Subject to only a one-year limitation (similar to the 910 rule addressed above) debtors may offer the fair market value on virtually any piece of personal property, including furniture, appliances and boats. If no objections are received, the trustee will pay the value offer with interest, and will treat the remaining balance of the claim as unsecured. Interest should be offered as §1325(a)(5) requires that the creditor must receive “present value” of the collateral. However, it would seem that if interest were not offered and the creditor failed to object, the value could be paid at a flat rate (no interest).
Use caution when “cramming” the debtor’s personal property in a plan however, as the Best Efforts test will have some bearing. That is, if the debtors are attempting to retain collateral that is not “reasonable and necessary” as contemplated by §1325(b), the trustee may raise an objection to the utilization of estate funds to retain an unnecessary item. This objection may be resolved by either a surrender of the collateral in question, or by a modification of the plan that will increase the amount offered to general creditors by the amount of funds necessary to retain the property. Some items that may merit a trustee’s “BEF” objection include additional or luxury cars, a big screen TV, a boat, or a baby grand piano.
Next: Liquidating Tax Debt

* Source: Cornell University Law School Legal Information Institute

Curing a Mortgage: Overview of Bankruptcy – Chapter 13 and Why to File, Part 2

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Series: #7 0f 13
Previously, we took a look at reasons why a debtor might be disqualified from filing Chapter 7, and have to file for bankruptcy under Chapter 13. Now, we will begin to discuss reason why a debtor would want to file a Chapter 13 instead of Chapter 7, the first being curing a mortgage.

What does Curing a Mortgage Mean? How does it Affect My Bankruptcy?

Put simply, a mortgage is cured by paying all outstanding payments currently in arrears, along with any fines, late fees, attorney’s fees, and any penalties that may be due and owing.
Mortgage creditors are afforded special protection in Chapter 13; a debt secured by a principal residence of the debtor cannot be modified through the filing of a bankruptcy. See 11 U.S.C. §1322*(b)(5) and Nobleman v. American Savings Bank, 113 S. Ct. 2106 (1993)*, holding that home mortgages secured only by the debtor’s personal residences cannot be modified to discharge any unsecured portion of the claim.
With the few exceptions discussed below, a Chapter 13 is useful for curing mortgage arrears, as it provides up to five years to accomplish the cure.
In Indiana, a sheriffs’ sale is not final until the gavel falls, and many Chapter 13’s are filed on the eve of the sale to save the family home.
When curing a mortgage in a plan, the cure runs through the month that the petition is filed and the current mortgage payments begin the following month.
When setting up a mortgage cure in a plan, it is important to estimate the amount of the arrears as closely as you can. Note that pursuant to Southern District of Indiana General Order 09-0005, for all cases filed on or after August 1, 2009, if there is a pre-petition arrearage claim on a mortgage secured by the debtor’s residential real property, then both pre-petition arrears and post-petition mortgage installments shall be made through the trustee.
Keep in mind then that the mortgage installment is also subject to the trustee percentage fee (currently anywhere from 6.5-10% in the Indianapolis division).

Exceptions to Curing a Mortgage

  1. Balloon mortgages.
    Plans can also propose to “cure” a balloon payment. If the balloon payment became due before the Chapter 13 was filed, and can be paid in full over the life of the plan, several cases hold that this is a proper use of a Chapter 13. See In re Nepil, 206 B.R. 72 (Bankr. D.N.J. 1997) and In re Chang, 185 B.R. 50 (Bankr. N.D. Ill. 1995), interpreting §1322(c)(2) to allow the payment of a balloon mortgage that matured pre-petition.
    It is not as clear whether an unmatured balloon payment (unmatured at the date of filing) can be cured in a Chapter 13 plan. Arguably, if the balloon payment becomes due during life of the plan, it is proper to provide for the full payment in the plan. Again, it is important to provide both the amount of the balloon and the interest factor.
  2. Cramming a mortgage – cross-collateralization.
    In some limited instances, case law has provided circumstances in which a residential mortgage can be crammed.First, if the mortgage is cross-collateralized with any other collateral, it loses the protection afforded under the Code. §1322(b)(2) provides that secured claim holders may be modified “other than a claim secured only by a security interest in real property that is the debtor’s principal residence.”
    Case law has interpreted that to mean if the real estate is income-producing (rental income), if the mortgage includes the residence and commercial property, or if the mortgage includes the residence and equipment, other acreage or anything other than the personal residence, the mortgage can be “crammed” to the fair market value.
    If you have a mortgage that you wish to cram, valuation becomes the primary issue, and value agreements become more difficult to orchestrate. If you are attempting a mortgage cram, it would be in your best interests to have a recent appraisal of the property available to the creditor to substantiate your offer.
    Also, remember that you need to deduct the value of the other pledged collateral, and the other pledged collateral must also be provided for in the plan – either with a payment offer or to surrender.
  3. Cramming an undersecured junior mortgage.
    Additionally, there have been some decisions that allow the debtor to cram a junior mortgage if there is absolutely no equity to support the note. For more about this issue, see:

    1. Matter of Sanders, 202 B.R. 986 (Bankr. D. Neb. 1996), holding that the “creditor must have a secured claim in both the literal and Code sense to have its rights protected by the anti-modification clause.”
    2. In re Geyer, 203 B.R. 726 (Bankr. S.D. Cal. 1996), “where the estate’s interest in property is zero, the claim under §506(a) is completely unsecured and thus not entitled to §1322(b)(2) protection.”

    In determining the amount of equity available to support a mortgage, you may not deduct any exemptions to which the debtor may be entitled. Again, an appraisal is vital in attempting this type of cram.

  4. Tax Sale Redemption.
    A Chapter 13 plan may be proposed to allow for the redemption of a property from a tax sale.In Indiana, a debtor has one year from the date of the tax sale to redeem the subject real estate.
    The trustee is often reluctant to take on the responsibility of redeeming tax sale properties due to the changing redemption amount and deadline for making the redemption. As a result, the trustee will usually require the redemption to be accomplished outside the plan by the debtor prior to the payment of any mortgage arrears by the Trustee.
    Another possibility is that the mortgage creditor may redeem the property, and then include the redemption amount in their arrears claim. This is probably the best method because the mortgage company is assured that the property has been redeemed, and they are often in a position to redeem it much more quickly than is the debtor.

Next: Cramming

* Source: Cornell University Law School Legal Information Institute