A recent published decision by the Bankruptcy Appellate Panel for the Ninth Circuit affirmed a lower court decision that sends Chapter 13 Debtors out into the cold. In this decision (in which I represented the debtor trying to save their home) the BAP held that on the date of filing the Debtor knows with certainty that as a result of a “lien strip” they will have more than the amount allowed to file for relief under Chapter 13.
Now, when the wholly unsecured second mortgage is added to the other unsecured debt (credit cards, student loans, taxes, other claims, etc.), if the amount exceeds the $380,990 limit, a person or couple will not qualify for relief under Chapter 13. Their alternative, if they want to save their home and must be relieved of all other debt, is to file for relief under the more costly and burdensome Chapter 11.
Remember, for those of you who are seeing “short sale” stars, if a short sale comes before a bankruptcy, and as a result their is no secured debt to reduce the Means Test income, the post short sale debt may not qualify for relief under Chapter 7, because they fail the Means Test. So, as if things were not complicated enough before yesterday, they have just gotten more complicated. Closing on a short sale without the client actually having sought bankruptcy advice (beyond just giving them the CAR (or equivalent) standard disclosure) should be discouraged.
We are one of the few boutique bankruptcy firms that specializes in Individual Chapter 11 cases, obtaining for our clients the results of relief from debt, stripping of the second lien, and negotiating loan modifications as part of the reorganization process. These cases are done efficiently, effectively, and within reason as compared to others and the relief from debt obtained.
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