Northern California Bankruptcy Lawyer Blog

Chapter 7 and 13 bankruptcies in Northern California and elsewhere require debtors to complete Official Form 22A Statement of Current Monthly Income and Means-Test Calculation (Means Test). The Means Test allows debtors to use the IRS transportation standards www.usdoj.gov/ust/ to claim an ownership or lease expense on up to two vehicles based on the average monthly payments for any debts or leases secured by a vehicle. There have been different interpretations by Courts regarding when this expense can be taken.

The issue has recently been resolved by the United States Supreme Court in Ransom v. FIA Card Services, N.A.No. 09-907. WL 66438 (January 11, 2011) (Kagan). Citing the Oxford English Dictionary, the Supreme Court held that to be "applicable" an expense must be "capable of being applied: having relevance" or "fit, suitable, or right to be applied: appropriate." Applying this definition, the court found that the debtor in a Chapter 13 case could claim a deduction only if "that deduction is appropriate for him. And a deduction is so appropriate only if the debtor has costs corresponding to the category covered by the table - that is, only if the debtor will incur that kind of expense during the life of the plan."

In the Ransom case the debtor did not have a car loan or a lease, but took the expense anyway. The Supreme Court determined that the debtor was artificially increasing the funds that were protected from distribution to creditors by asserting the IRS allowance without the related expense. "Because Congress intended the means test to approximate the debtor's reasonable expenditures on essential items, a debtor should be required to qualify for a deduction by actually incurring an expense in the relevant category." This interpretation is consistent with the stated Congressional purpose of BAPCPA: " (Bankruptcy Abuse Prevention and Consumer Protection Act-To insure that [debtors] repay creditors the maximum they can afford." The Supreme Court did not rule on whether an expense which is less than the allowance would be entitled to the full allowance.

The decision makes it clear that Chapter 13 debtors that do not have a loan or lease expense for an automobile cannot claim the expense. Although the case is a Chapter 13 case, the decision references Chapter 7 cases from the Fifth and Seventh Circuits, therefore, it would be reasonable to assume that the case is applicable to Chapter 7 cases. In his dissent, Justice Scalia observed the following: "[A] debtor entering bankruptcy might purchase a junkyard car for a song plus a $10 promissory note payable over several years. He would get the full ownership expense deduction." As stated, debtors should consider whether they would be better served by having some form of automobile debt before filing a bankruptcy petition.

Continue reading "IRA Transportation Ownership Allowance Clarified by U.S. Supreme Court" »

Many Northern Californians have been unable to modify loans on properties that have lost value and where the owners have lost income as a result of the national recession. Banks have resisted modifying the loans choosing instead to take the properties in foreclosures. Numerous attempts to create legislation to empower bankruptcy courts to modify loans have failed as a result of pressure by the banks.

A lawsuit is currently pending against Bank of America to address their failure to work with borrowers to modify loans. The lawsuit, In re Bank of America Home Affordable Modification Program (HAMP) Contract Litigation, 10-md-02193, U.S. District Court, District of Massachusetts (Boston) accuses Bank of America Corp., of violating obligations to homeowners seeking to modify mortgage loans and avoid foreclosure. The lawsuit alleges that Bank of America isn't complying with obligations for evaluating borrowers and modifying loans. The lawsuit cites unidentified former employees for some of its allegations. The complaint accuses Bank of America of breaching HAMP requirements, misleading homeowners and putting processes in place to avoid modifying loans because it has financial incentives to do so. The lawsuit alleges that the bank "systematically failed" to comply with a U.S. government program aimed at stemming foreclosures and violated contracts for modifying loans. The complaint consolidates 26 lawsuits from around the country with another 10 to be added, according to Gary Klein, a lawyer for the plaintiffs.

The plaintiffs in the lawsuit claim Bank of America customer service workers regularly tell homeowners that modification documents weren't received by the bank when in fact they were. Bank of America also encourages borrowers to default and fails to properly credit payments under trial modifications, treating homeowners as delinquent, according to the plaintiffs. One former Bank of America employee who isn't named recalled seeing homeowners' financial records manipulated in the bank's computer system, according to the complaint. The complaint alleges, "BOA's general practice and culture is to string homeowners along with no intention of providing actual and permanent modifications." "Instead, BOA has put processes in place that are designed to foster delay, mislead homeowners and avoid modifying mortgage loans," according to the complaint.

According to Bank of America, a majority of the plaintiffs in the lawsuit received trial modification plans, known as trial period plans, or TPPs. Those are part of the application process and not enforceable contracts, the bank claims. They also don't guarantee a permanent modification unless many conditions are met. "Not one of the plaintiffs seeking to recover under the TPPs has alleged that he or she met the basic eligibility requirements and/or qualified for the offer of a permanent modification," the bank said in court papers.

Bank of America, the biggest U.S. lender by assets, has asked U.S. District Judge Rya Zobel to dismiss the complaint. Bank of America argues that not all homeowners are eligible for inclusion in the government's Home Affordable Modification Program, or HAMP, and that it isn't required to permanently modify all loans that are eligible. If Judge Zobel dismisses the complaint, all the lawsuits would be thrown out.

If you are having problems with a loan modification and your bank has instituted foreclosure proceedings because there are arrearages on the loan resulting from the modification, you can stop the foreclosure in a Chapter 13 bankruptcy. You can also create a payment plan over three to five years to pay back any arrearages or delinquent property taxes which could save your home from foreclosure. If you are facing a foreclosure, you should get legal advice from an attorney.

If you are in Northern California, contact us and we will provide a free legal consultation on the telephone or at one of our convenient locations.

Continue reading "Bank of America Sued for Failing to Modify Loans" »

Homeowners in Northern California and elsewhere have suffered from declining home prices in the past several years as a result of the national recession. There was hope that the decline would end in 2010. Unfortunately, housing prices continued to drop in most of California and the nation at the end of 2010 according to Standard & Poor's Home Price Index.

This drop pushed the housing market back to its lowest levels since the housing crisis began. At this gloomy point, there is no consensus on what the future will bring. Some economists and analysts say that the damage has been done, and there is nowhere to go but up. Others argue that the market has still not finished falling. Some claim that things are about to get a whole lot worse. In an interview with the New York Times, Robert J. Shiller, the Yale economist said he saw "a substantial risk of the market falling another 15, 20 or even 25 percent." According to Mr. Shiller, average home prices in Atlanta, Cleveland, Las Vegas and Detroit are below the levels of 11 years ago creating a lost decade for housing in much of the country even before the effects of inflation. Mr. Shiller told the NY Times that several political trends indicated a dreary future, including the uncertainty over the mortgage holding companies Fannie Mae and Freddie Mac and proposals to reduce the mortgage tax deduction.

According to the S.& P./Case-Shiller index of 20 large metropolitan areas, prices fell 1 percent in December of 2010. Eleven cities in the index posted their lowest levels in December since home price peaks in 2006 and 2007, up from nine cities in November. Phoenix and New York joined a list that includes Atlanta, Chicago and Seattle.

The Case-Shiller quarterly index that covers all homes in the country for the last quarter of 2010 showed prices fell 3.9 percent in the fourth quarter and 4.1 percent for all of 2010. Prices are now less than 3 percent above the low recorded in the spring of 2009, when there was widespread hope that the market was starting to recover. According to experts, every place is pretty much getting hit a second time for essentially the same reasons, slow economic recovery, little job growth, still-tight credit, no more government stimulus, a pervasive and gnawing sense that prices could fall more, too few people getting jobs and too many worrying about losing the one they have. As a result, many potential sellers are opting out until they feel like they can get what they think they deserve.

The stagnation of home sales and the economy continues to put strains on Northern Californians especially those that purchased properties before the 2006 and 2007 peaks. The property values have dropped significantly and owners that have lost their jobs or have reduced income are unable to sell their properties to relieve themselves of debt. In many cases, purchasers used more than one loan to finance the purchase price. While homeowners have tried to obtain modifications of the loans, the lenders have for the most part been uncooperative. Lenders often require the homeowner to stop paying the loan before they will consider a loan modification. Then months later when the loan modification is denied, the lender forecloses because the loan is in arrears and the homeowner does not have the ability to cure the arrearage.

If this is a problem that you are faced with, Chapter 13 bankruptcy may assist you since you can prevent a foreclosure and spread the arrearage out over three to five years. If prices have fallen below the first loan on the property, you can strip or remove any equity, home improvement or second loans from the property. This may allow a homeowner to hang on to a property that would otherwise be lost in foreclosure.

Continue reading "Housing Prices Continue to Decline in California and the U.S. at the end of 2010." »