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If second mortgage creditor intends to f/c.....

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  • If second mortgage creditor intends to f/c.....

    I believe it is arguable that a second mortgage, which has not been liquidated and the unsecured portion of which is contingent upon the results of a foreclosure sale does not count as "noncontingent" or "liquidated."

    Anyone?

  • #2
    To what end? What are you trying to accomplish?

    Comment


    • #3
      Originally posted by HHM View Post
      To what end? What are you trying to accomplish?
      Hi HHM --
      My second mortgage lien strip pushes my unsecured debt above the 109(e) limits. I am trying to structure the petition to avoid the potential lien strip being applied to that limit.

      Comment


      • #4
        This is a difficult issue. I know justbroke's take is to simply check the box as contingent/un-liquidated box on the petition. With unsecured debts, this analysis is fairly straightforward. But for secured debts, like a mortgage, not everyone agrees on how 109(e) applies.

        The problem, most (not all) districts take the view that debt limits are established by what is contained in the debtor's petition.
        contingent / non-contingent
        A 2nd mortgage is not a contingent debt. The claim exists against you as of the date of filing regardless of the value. Contingent debts are debts that only come into existence upon some triggering event. For example, if you took advantage of the $8,000 new home buyers credit in 2009, one of the stipulations of that program is you must live in the home for 3 years. If you sell that house before then, you suddenly owe the IRS $8,000. The IRS's claim in contingent, it doesn't actually exist, unless and until you sell the home within that 3 year period.
        The unsecured portion of a 2nd mortgage is not contingent on anything, you personally guaranteed the mortgage when you took it out. A mortgage is 2 liabilities in 1, (1) security interest in the real estate, and (2) personal guarantee of the borrower. The house is merely collateral, YOU are making payments, that is YOU fulfilling your promise to repay the debt.
        The other line of thought on this is that the unsecured portion of the 2nd mortgage is, in fact contingent, but the bankruptcy is the contingent event. There mere act of filing the case triggers, so the outcome is the same, the debt exists for purposes of 109(e) calculations.

        Liquid vs. non-liquid
        Liquidity of a claim merely goes to whether the amount is known. Easy example, if the debtor has been sued, and some of the claims include tort or common law claims, the amount of damages that may be awarded is unknown. Thus, the claim holder (the plaintiff) has a non-liquid claim until judgment is entered. They have a claim, but we just don't know the full amount. The key with liquidity is not whether their is a dispute as to the amount or whether there needs to be some minor calculating. (note, in the lawsuit scenario, the claim is not contingent, the event that gave rise to claim, e.g. car accident, occurred prior to the BK, so a lawsuit is typically a non-contingent, but non-liquid claim.)

        I think you are in a catch 22 here. Chapter 13 lien strips are all or nothing. And you know the balance of the mortgage. Thus, if you are going to do a lien strip, on your schedule of assets, you must assign a value of the property that is less than the 1st mortgage. What this does, automatically in the petition, is create two entries on your other schedules.
        Schedule of Secured Debt. It would show the 2nd mortgage claim, with a value of ZERO.
        Schedule of Unsecured Debt, It would show the 2nd mortgage claim, with a value of the full balance owed to the 2nd mortgage.
        And keep in mind, 109(e) only says, "owes...non-contingent, liquidated, claims" Note, it does not say "undisputed".

        Despite this analysis, you (almost) have nothing to lose by filing the chapter 13, and checking the "disputed, contingent, non-liquid" box. Someone would have to object, the BK Trustee, US Trustee (most likely), and sometimes the Judge will bring their own motion to dismiss.

        I know justbroke was able to get around this in his case, so I am sure he will chime in. But the analysis tends to be district specific.
        Last edited by HHM; 11-29-2009, 02:08 PM.

        Comment


        • #5
          My other thought on this, (although I don't think it has been tried)...

          Most people who do chapter 13 lien strips have already defaulted on the 2nd mortgage. Thus, the US Trustee has a pretty good argument, on 109(e) grounds, that the personal guarantee has been triggered. However, it would be interesting to see if someone went into a chapter 13 current on their 2nd mortgage. In that circumstances, you have at least a viable argument that the debt is contingent on default of payments and you weren't in default at the time of filing.

          Believe it or not, the courts are not into technicalities, they will find the simplest form of analysis, (most of the time). Big picture, in BK, all values and claims are established at the time your file your petition (regardless if you do subsequent amendments). Thus, to do a lien trip, you MUST assert a value of your property that is less than the 1st mortgage. Given the way the BK code bifurcates claims (automatically), the 2nd mortgage is entirely unsecured, at the time you filed your petition, and so that balance counts toward 109(e) limits.
          Last edited by HHM; 11-29-2009, 06:45 PM.

          Comment


          • #6
            Originally posted by HHM View Post
            This is a difficult issue. I know justbroke's take is to simply check the box as contingent/un-liquidated box on the petition. With unsecured debts, this analysis is fairly straightforward. But for secured debts, like a mortgage, not everyone agrees on how 109(e) applies.

            The problem, most (not all) districts take the view that debt limits are established by what is contained in the debtor's petition.
            contingent / non-contingent
            A 2nd mortgage is not a contingent debt. The claim exists against you as of the date of filing regardless of the value. Contingent debts are debts that only come into existence upon some triggering event. For example, if you took advantage of the $8,000 new home buyers credit in 2009, one of the stipulations of that program is you must live in the home for 3 years. If you sell that house before then, you suddenly owe the IRS $8,000. The IRS's claim in contingent, it doesn't actually exist, unless and until you sell the home within that 3 year period.
            The unsecured portion of a 2nd mortgage is not contingent on anything, you personally guaranteed the mortgage when you took it out. A mortgage is 2 liabilities in 1, (1) security interest in the real estate, and (2) personal guarantee of the borrower.
            The other line of thought on this is that the unsecured portion of the 2nd mortgage is, in fact contingent, but the bankruptcy is the contingent event. There mere act of filing the case triggers, so the outcome is the same, the debt exists for purposes of 109(e) calculations.

            Liquid vs. non-liquid
            Liquidity of a claim merely goes to whether the amount is known. Easy example, if the debtor has been sued, and some of the claims include tort or common law claims, the amount of damages that may be awarded is unknown. Thus, the claim holder (the plaintiff) has a non-liquid claim until judgment is entered. They have a claim, but we just don't know the full amount. The key with liquidity is not whether their is a dispute as to the amount or whether there needs to be some minor. (note, in the lawsuit scenario, the claim is not contingent, the event that gave rise to claim, e.g. car accident, occurred prior to the BK, so a lawsuit is typically a non-contingent, but non-liquid claim.)

            I think you are in a catch 22 here. Chapter 13 lien strips are all or nothing. And you know the balance of the mortgage. Thus, if you are going to do a lien strip, on your schedule of assets, you must assign a value of the property that is less than the 1st mortgage. What this does, automatically in the petition, is create two entries on your other schedules.
            Schedule of Secured Debt. It would show the 2nd mortgage claim, with a value of ZERO.
            Schedule of Unsecured Debt, It would show the 2nd mortgage claim, with a value of the full balance owed to the 2nd mortgage.
            And keep in mind, 109(e) only says, "owes...non-contingent, liquidated, claims" Note, it does not say "undisputed".

            Despite this analysis, you (almost) have nothing to lose by filing the chapter 13, and checking the "disputed, contingent, non-liquid" box. Someone would have to object, the BK Trustee, US Trustee (most likely), and sometimes the Judge will bring their own motion to dismiss.

            I know justbroke was able to get around this in his case, so I am sure he will chime in. But the analysis tends to be district specific.
            Thanks HHM . I am in a catch 22. I am not sure if I should stay the current course and not list all my debts - which is what my attorney advised - so that my unsecured debt , which includes the second mortgage remains below the limit. Or, if I should include all the debt and see if it goes through. My attorney thinks we have a good shot with the first option, and plans to file a 7 with the remaining debt declaring it was business debt (i did have a corporation in my name but the debt was personally obtain) - that's the angle -- which path is the path of least resistance. My only concern with the first is that these creditors that were not included will surface sometime in the future and 'mess up' a possible successful lien strip by. If the case is 2,3,6 or even a year old and these creditors realize they were not included, can my lien strip and case be all for nothing ?

            Comment


            • #7
              Do you still have the business?

              The only way I can think your lawyers strategy works is this...

              1. You still have and operate the business
              2. The business is a separate legal entity (corp or LLC)
              3. The debts are at least in the business name to some degree (even though you are personally guaranteed.)
              4. Somehow, the business will continue paying on this business debts outside the chapter 13 plan.

              Even then, I think that strategy is risky. It is not clear the BK Trustee would even let the business continue to pay these business debts.

              The thing is, claims are claims. It doesn't matter if they were used for business, personally, whatever, they go into the BK when you file.

              Comment


              • #8
                Originally posted by HHM View Post
                Do you still have the business?

                The only way I can think your lawyers strategy works is this...

                1. You still have and operate the business
                2. The business is a separate legal entity (corp or LLC)
                3. The debts are at least in the business name to some degree (even though you are personally guaranteed.)
                4. Somehow, the business will continue paying on this business debts outside the chapter 13 plan.

                Even then, I think that strategy is risky. It is not clear the BK Trustee would even let the business continue to pay these business debts.

                The thing is, claims are claims. It doesn't matter if they were used for business, personally, whatever, they go into the BK when you file.
                The business is not producing any income. It may even be closed at this point (it was / is a C corp). The only credit I have in my company name (name on the card reflected my company name - but i was personally liable for) - was AMEX business cards. AMEX put claims in already. Oddly enough, they are really the only claims that came in. My case was dismissed last time around - so most of the creditors are not even claiming.

                Comment


                • #9
                  Then I am at a loss for why the attorney is advising what he is. After all, when you sign the BK petition, you are stating under penalty of perjury that you have disclosed all known claims against you. You really don't have the option to "leave some out." Plus, if you already had 1 chapter 13 dismissed, and you suddenly file another one, and "poof" there are fewer creditors on the this attempt, that is going to be very bad for you.

                  We may have already talked about this in another thread, but why not just do a chapter 7, discharge what you can. If the house really is that underwater, the 2nd mortgage is most likely not going to foreclose, and simply settle with the 2nd mortgage at some point in the future.

                  Comment


                  • #10
                    Originally posted by HHM View Post
                    Then I am at a loss for why the attorney is advising what he is. After all, when you sign the BK petition, you are stating under penalty of perjury that you have disclosed all known claims against you. You really don't have the option to "leave some out." Plus, if you already had 1 chapter 13 dismissed, and you suddenly file another one, and "poof" there are fewer creditors on the this attempt, that is going to be very bad for you.

                    We may have already talked about this in another thread, but why not just do a chapter 7, discharge what you can. If the house really is that underwater, the 2nd mortgage is most likely not going to foreclose, and simply settle with the 2nd mortgage at some point in the future.
                    Not a bad idea. I know there are tax implications on settling. the first petition was joint, but most of the debts are in name. Frustrating case to say the least. I really do appreciate the time from you and JB on this.

                    Comment


                    • #11
                      Originally posted by NEWBIE911 View Post
                      Not a bad idea. I know there are tax implications on settling. the first petition was joint, but most of the debts are in name. Frustrating case to say the least. I really do appreciate the time from you and JB on this.
                      Well, if you filed BK-7, you would discharge your underlying personal liability on the 2nd mortgage. Thus, if/when you settled with them, there would be no tax consequences.

                      Comment


                      • #12
                        Originally posted by HHM View Post
                        Well, if you filed BK-7, you would discharge your underlying personal liability on the 2nd mortgage. Thus, if/when you settled with them, there would be no tax consequences.
                        Our HHI Is on the cusp of 200k. A 7 will be extremely difficult. I do have a lot of expenses and can show a negative amount on my CMI, but my attorney still says no go on a 7

                        Comment


                        • #13
                          FYI, these are the case cites for cases that follow the above analysis for 109(e) issues

                          IN MATTER OF GRENCHIK (N.D.Ga. 2007)

                          386 B.R. 915

                          Comment


                          • #14
                            Originally posted by HHM View Post
                            I know justbroke was able to get around this in his case, so I am sure he will chime in. But the analysis tends to be district specific.
                            Sorry, I missed this thread completely!

                            I certainly see why many courts, and the entire 9th Circuit by precedent, has established why the 109(e) limits apply to even under-secured debt. However, I got around the limit, but it may have been that I'm in the 11th Circuit and/or because Florida is in the minority on this. I did not check any of the boxes on my Schedules (un-liquidated, contingent, disputed).

                            As HHM wrote, the question for most of these is... if no one complains (object) then it gets by! But even in Scovis (In Scovis v.Henrichsen, 249 F.3d 975 (9th Cir. 2001)) the court held that Chapter 13 eligibility should normally be determined by reviewing the filed schedules, checking only to see if they were filed in good faith. There is also plenty of caselaw in Florida which indicates that Judges can go beyond what's scheduled too and look at the actual numbers. The landmark case was Newman (In re Newman, 259 B.R. 914, 917 (Bkrtcy.M.D.Fla. 2001)) where the court held that even when there has been no showing of lack of good faith, it can look beyond the schedules in determining Chapter 13 debtor eligibility. I don't think California's Scovis is any different from Florida's Newman.

                            So, that really has set the precedence for the 11th Circuit and Florida. That is, the Court will look to the Schedules, as filed, unless they do so sua sponte (on it's own initiative) or on objection from a party in interest (Trustee, creditor). In my case, they looked only to what was scheduled and as to what was actually claimed.

                            It really sounds like a toss-up, unless you're in a nicer District that just looks at your schedules unless there's an objection.

                            I think you need to do what I did. Pray for the best, but prepare for the worse. I was lining my ducks up to file Chapter 11... since I was trying to preserve property. Otherwise, it would have been Chapter 7 for me.
                            Last edited by justbroke; 11-29-2009, 06:47 PM.
                            Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                            Status: (Auto) Discharged and Closed! 5/10
                            Visit My BKForum Blog: justbroke's Blog


                            I am not an attorney. Any advice provided is not legal advice.

                            Comment


                            • #15
                              Originally posted by justbroke View Post
                              Sorry, I missed this thread completely!

                              I certainly see why many courts, and the entire 9th Circuit by precedent, has established why the 109(e) limits apply to even under-secured debt. However, I got around the limit, but it may have been that I'm in the 11th Circuit and/or because Florida is in the minority on this. I did not check any of the boxes on my Schedules (un-liquidated, contingent, disputed).

                              As HHM wrote, the question for most of these is... if no one complains (object) then it gets by! But even in Scovis (In Scovis v.Henrichsen, 249 F.3d 975 (9th Cir. 2001)) the court held that Chapter 13 eligibility should normally be determined by reviewing the filed schedules, checking only to see if they were filed in good faith. There is also plenty of caselaw in Florida which indicates that Judges can go beyond what's scheduled too and look at the actual numbers. The landmark case was Newman (In re Newman, 259 B.R. 914, 917 (Bkrtcy.M.D.Fla. 2001)) where the court held that even when there has been no showing of lack of good faith, it can look beyond the schedules in determining Chapter 13 debtor eligibility. I don't think California's Scovis is any different from Florida's Newman.

                              So, that really has set the precedence for the 11th Circuit and Florida. That is, the Court will look to the Schedules, as filed, unless they do so sua sponte (on it's own initiative) or on objection from a party in interest (Trustee, creditor). In my case, they looked only to what was scheduled and as to what was actually claimed.

                              It really sounds like a toss-up, unless you're in a nicer District that just looks at your schedules unless there's an objection.

                              I think you need to do what I did. Pray for the best, but prepare for the worse. I was lining my ducks up to file Chapter 11... since I was trying to preserve property. Otherwise, it would have been Chapter 7 for me.
                              Thanks folks. i think I will include all debt, and see what happens. It will show $450,000 in unsecured debt - half of it a second mortgage so hopefully, it will get by. I don't think the creditor will object

                              Comment

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