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Friday, February 19, 2010

Record Mortgage Delinquency Rates

From News Services as reported in the 2/17/10 edition of the Minneapolis Star Tribune

The last quarter of 2009 saw a record percentage of homeowners 60 days or more behind on their mortgages...an astonishing 6.89% according to credit reporting agency TransUnion. That is following on the heels of 6.25% for the third quarter of 2009. The year prior--which would be the last quarter of 2008 it stood at 4.58%. With large numbers of variable rate/adjustable mortgages still set to adjust in the coming 2 years one can only assume that the numbers will be climbing higher and higher.

Tuesday, February 16, 2010

Bankruptcy filings on the rise--AGAIN

The American Bankruptcy Institute (ABI) reported that January 2010 personal bankruptcy cases filed have increased by 15% over January of 2009. The number of cases filed in January 2010 was 102,254. Interestingly that was a decrease from the month before. However, as a practioner I recognize that December is always a slow month for bankrupcy filings and therefore that number is practically meaningless if we are just comparing December - January in sequence. The salient issue is that filings are definitely up and it is projected that consumer filings will exceed the 1.4 MILLION filings there were in 2009.

Tuesday, February 9, 2010

Bad Faith attempted reaffirmation on investment rela estate leads to dismissal

Friends...this is a recent case decided in Illinois. I've had more than a few clients over the past couple of years who've wanted to do the same thing. Bottom line is that there are more interested parties involved in a bankruptcy case than just the debtors who file the case. Plus, while they are somewhat limited...creditors have certain rights too. Trying to hang on to a real estate investment that isn't contributing to cash flow and is actually a detriment simply is not something that works in a bankruptcy situation. No reason why these folks should have thought they could subsidize an investment property on the backs of their creditors. That money should have gone into paying back the debt they accrued. I don't know if they had an attorney but if they had I don't know what he/she was thinking if they were involved in any proposed reaffirmation agreement of this sort. If you want to keep property....it's got to be income producing and adding to your bottom line...it can't be a drag on your resources.

In re Lorenca,(Bkrtcy.N.D.Ill.)

Debtors' attempt/intention to reaffirm debt on investment property on which they were losing money warranted dismissal of their Chapter 7 Bankruptcy case.

These folks were, as many others have found themselves of late...caught in a falling real estate market. The were unable to sell their old home profitably. As a consequence they rented it for $482 less than what they were paying as expenses associated with the mortgage(s) and other costs of maintaining the property. With the proposed reaffirmation they attempted to retain this old home at unsecured creditors' expense in the hopes that the real estate market would bounce back and that they could sell the property at profit should the market turn around. All the while they were also paying $5,132.79 per month as a mortgage, property taxes and insurance expense associated with their new home. Their failure to allow this former residence to go into foreclosure which would have allowed $482.00 monthly for payment to unsecured creditors led the court to dismiss their Chapter 7 case as abusive based on the totality of circumstances.

Sunday, February 7, 2010

Short sales, Foreclosures, income tax issues regarding the same

Friends

Generally speaking anytime there is a cancellation of debt it is viewed by the IRS as a taxable income event and most lenders will issue the 1099. Even sometimes in bankruptcy proceedings when it is definitely not correct. I had a client walk in with one from Chase the other day and Chase darn well knows how this works...sometimes I think that creditors do it just to be jerks. At any rate...an exception these days is short sales on primary residences....that has been the rule for some time now and was recently extended until I don't know when. I'm always a little leery of the application of that exception....I have lots of clients that are pressured by realtors to do the short sales and my take on it is if a person is going to file a bankruptcy regardless then just surrender the property. There are just too many little twists, turns and exceptions in the tax code and if for any reason the exception wouldn't apply to a short sale and that sale was done prior to the bankruptcy filing then it is a priority income tax debt that is not going to be dischargeable for at least 3 years.

Back to the topic (almost...as you all aware I take a bankruptcy practitioner's slant on everything). Relative to foreclosures specifically and whether they will pursue a deficiency on a mortgage will depend on two things. The lender and how they want to proceed and also the law in the jurisdiction where the real estate is located as foreclosure is a creature of state law. In Minnesota a lender can foreclose by one of two methods. By "action" where a formal lawsuit is commenced by service of summons and complaint. Regular lawsuit and they will attempt to get an order of judgment for the deficiency to collect from the debtor. The other is by "publication" which is far and away the most common foreclosure method in this state. It is generally cheaper and is a faster for the lender to foreclosure. There are probably a half a dozen law firms in Minnesota that handle 95% of the home foreclosures...busy boys they are these days! If that method is used a deficiency is not allowed for the foreclosing lender...they get their security back and that is the extent of their recovery. Usually the chances of recovering from a homeowner if they are losing their home is quite small. Most properties these days though has second and sometimes third and fourth mortgages on them. They aren't going to step in and satisfy the first senior lender typically as the equity is just not there. Those junior lien holders will sue on the promissory notes signed by the debtors/homeowners that established the personal liability for those transactions as that is not wiped out by the foreclosure of the senior lien holders. We do a lot of bankruptcy cases to discharge that liability for those folks.



David D. Kingsbury
Attorney at Law-Bankruptcy Lawyer
Kingsbury Law Office
14827 Energy Way
Apple Valley, MN 55124
Tel. (952) 432-4388
Fax. (952) 432-4969
www.kingsburylawoffice.com

Friday, February 5, 2010

Exemptions in bankruptcy cases

Chapter 7 “Can I keep my property”

Exemptions are statutory provisions (rules) found in either the United States Bankruptcy Code or the Minnesota State Statutes. They are the real "work horses" in the array of rules that govern how bankruptcy works. Exemptions are the rules that allow people filing bankruptcy to keep their property. Most cases end up being what people involved in the bankruptcy business term a "no asset" case. Which means....all the property a debtor owns is protected and they don't lose anything...but debt. In the typical case you can protect your primary residence, tools of the trade, vehicles, your household goods and furnishings, your paycheck, money on deposit in bank accounts, pensions, tax refunds you may be entitled to but may not have received yet, potential personal injury claims (all up to a particular amount) plus other kinds of property that may not be specifically covered by a particular exemption depending on what you have an ownership interest at the time you file your case and what it's worth. For those assets that don't have a specific exemption that applies to it there's what is known as a "wild card" exemption under the Federal exemptions. How exemptions work and which ones to apply are part of the "art" of practicing bankruptcy law. There is a great deal of interplay between what assets you have and what exemptions should be applied and how to reap their maximum benefit. Everyone brings a little something different to the table and there are actually a lot of variables to consider in a bankruptcy case filing. We look at income, expenses and the household income and reasonable/necessary living expenses. We also do a thorough asset analysis. We'll make sure that we protect your property to the fullest extent of the law. Sometimes we'll go through some strategies to do some pre-bankruptcy filing exemption planning too if that makes sense. Back to the ultimate questions of "Can I keep my property"? Answer....usually not an issue as most people don't lose anything in a bankruptcy filing.