The motion for relief from stay in bankruptcy – it even sounds scary.  And it can be.

When you file for bankruptcy, you are protected by the “automatic stay”.  This prohibits creditors from taking any action to collect debts or from taking property which may be secured by the creditor’s loan.

A motion for relief from stay (MFRS) is the creditor’s request to the court to get permission to continue its collection of the debt.

This is most often done when you are behind in mortgage payments and most likely surrendering your home.  It can also be used by a car lender when you are behind on the car loan payments.

Most motions for relief from stay are done by negative notice.  This means if no one objects to the motion, the court grants the lender’s request after about 21 days.

Once the order is entered by your judge, then the creditor can proceed with securing the property or car.

In most cases, if you are surrendering the home or car, this means the creditor can only continue its process as to the property.  Since you are trying to discharge the debt, the creditor can not make collection attempts against you personally.

In the case of a surrendered car, the creditor will most likely pick up the car rather quickly.  In the case of a home, the lender will now continue with the foreclosure process.

Remember, you are still the owner of the home up to the moment that the house is sold at public auction.  Just because the lender won the motion for relief from stay, does not mean that you have to immediately leave your home.  A foreclosure defense may be appropriate, depending on your circumstances.

One of the most important issues with a motion for relief from stay is that the creditor’s attorney is now entitled to fees for bringing the motion in bankruptcy court.  It is my opinion, that motions for relief from stay related to homes are merely a way to attach more fees to the account that most likely will not be paid since you are discharging your debts.  If the lender had just waited a few more weeks, or months, the discharge will likely have been entered and no motion for relief from stay is required at that point.  This is different in the case of cars, since these depreciate quicker and are more likely to suffer some sort of accident, theft, or being hard to locate.

Most important, since lender’s attorneys are looking for ways to make more money at your expense, is to make sure you are completely honest and accurate as to what loans are current and which loans are not the moment before filing.

Some clients have not been truthful as to the current status of their loans.  While they think it means they will lose the property, they are wrong.  All it did was tack unnecessary costs on to a loan that they wanted to keep – and now have to pay these fees.

With accurate knowledge, I will be able to better handle your situation to delay filing, or even suggest a different bankruptcy approach.

Always keep me informed of everything that could affect your bankruptcy case.

CNBC issued a report in May 2010 on the U.S. Cities With The Most Underwater Mortgages. Not surprisingly, Florida appeared on the list more than once.

Orlando ranked #2 in the nation for the highest percentage of underwater mortgages – about 75%. Only 1 in 4 households with mortgages in Orlando have at least $1.00 in equity, and that might be disappearing fast.

So what can you do if you fall into the “wrong” percentage? I have 5 options below, some I like, some I don’t:

1) Do Nothing. Some people would tell you that an underwater mortgage is just a state of mind. If you are in your Orlando home for the long haul, have no problem paying your mortgage, and/or don’t need to sell anytime soon, then sit tight and Do Nothing.

2) Loan Modification/Short Sale. I lump these together because they generate the most interest in people who are in trouble, but I think they produce the least amount of results. Most loan modifications are scams – just an attempt for the lender to get as much money out of you before you default anyway and they foreclose anyway. Band aid on a large wound. Short sales are even worse. Everyone wants to do one. But don’t even bother wasting your time unless you have listed the home for sale at a high price, then dropped, then dropped again, and then found a buyer. The bank doesn’t want to talk to you until you actually have a buyer. That is the key, and it takes too much time.

3) Walk Away. If you can’t pay, then don’t pay. I hope you don’t have any assets and don’t plan to have any assets for the next 20 years. The lender may be able to pursue you for a deficiency when they finally foreclose and sell the property. I almost guarantee that you will get a 1099 reported to the IRS for forgiven debt. Whether you have to pay tax on the 1099 is a different issue for your tax professional.

4) Rent It Out. Are you able to get someone to pay enough that it covers the mortgage payment? If so, you move into something less expensive and the renter is covering your mortgage. But I consider this pretty risky. You are now on the hook for a rental, so what do you do if the renter stops paying? Or the home sits empty in between renters. Too much uncertainty if you ask me.

5) File for Bankruptcy in Orlando. Chapter 13 or Chapter 7 bankruptcy has the most options within an option. You can surrender your Orlando home in either chapter of bankruptcy. Or you may be able save your home in Chapter 13 bankruptcy if you are behind in payments. Or the best result possible is that you may be able to rescue your underwater mortgage by getting rid of your second mortgage in Chapter 13.

Yes, that is right. Try to get your underwater mortgage dry again through chapter 13 bankruptcy. While working to rescue your home, you may also get the added benefit of wiping out credit card debt, medical bills, and other types of debt.

The Florida foreclosure process has a very standard timeline that you need to understand if you’re looking to keep your home.

First, let’s look at how filing for bankruptcy in Florida may affect the foreclosure process.  If you are interested in saving your home from foreclosure, filing for bankruptcy may be a good way to do it.  A Chapter 7 or Chapter 13 bankruptcy can be filed seconds before your foreclosure auction is scheduled to take place, and automatically stops the auction.

Practically though, you need to start working on a bankruptcy well in advance of the auction in order to maximize the chances that the foreclosure process is handled properly.  Florida bankruptcy cases are highly technical, especially in light of the growing foreclosure crisis.

A typical foreclosure in Florida follows this order:

Once clients understand that this is normal, then the next response is:  should I file something with the court?

Chapter 13 bankruptcy filers in Florida have yet another way to press for mortgage modification.

If you filed for Chapter 13 bankruptcy in Florida you may qualify if you:

• want to keep your home;
• cannot afford current mortgage payments; and
• can afford to pay 31% of net income to a modified mortgage.

This new Mortgage Modification Mediation program give give you and your mortgage lender an opportunity to discuss whether modifying your mortgage loan is feasible.

If your process is successful then you may be able to use Chapter 13 bankruptcy to lower your monthly payment amount and keep your home.

Mediation is an informal meeting conducted by a neutral mediator (selected by you and your lender) who acts as a discussion facilitator. The mediator cannot force a lender to modify your mortgage but can help you and your lender reach an agreement. The process is simply a way for you and your lender to discuss whether modifying the mortgage on your home is possible.

If you qualify for and want to use this mediation program, please complete and file a Motion for Referral to Mortgage Modification Mediation.

Note: You will need to pay a $275 mediation fee to your Chapter 13 Trustee before you attend the scheduled mediation.

After you file the motion, the Court will enter an order requiring the mediation.

Please read the order so you are familiar with the requirements. For example, your lender may request additional financial information from you so that they can decide whether they can agree to modify your mortgage loan. If you are represented, your attorney can answer your questions. If you are not represented, you can call the office of the Chapter 13 Trustee at 407-648-8841.

MINIMUM QUALIFICATIONS FOR THE PROGRAM

• Only Chapter 13 Debtors can request the program
• Program is limited to the debtor’s primary residence (investment properties and a second home do not qualify)
• Debtor can afford to contribute up to 31% of net income to the modified mortgage payment
• Debtor must pay a $275 fee to the Chapter 13 Trustee before attending the scheduled meeting

Florida Chapter 13 bankruptcy cases often involve people with two mortgages. Can Chapter 13 help alleviate the pain and stress?

This is one of the most powerful tools in a Chapter 13 bankruptcy case.

With the real estate boom, many Florida residents bought homes with two mortgages. Other people refinanced their homes in Florida and took out either a second mortgage or an equity line of credit.

That was before the real estate meltdown that robbed many Florida homeowners of their equity.

With the real estate meltdown, now many people have homes that are worth much less than what they owe on the total of the mortgages.

In situations where someone owes more on their first mortgage than the value of the property, the second is considered unsecured. This means there is not even $1 of equity in the property securing the second mortgage.

Let’s look at an example.  You buy a house for $300,000 and take out a first mortgage for $240,000.  You also get a home equity line of credit or second lien for $60,000.

But then the value of the house plummets to $225,000.  You own $300,000 on a $225,000 home.  All of the equity is eaten up by Bank 1, leaving Bank 2 in basically the same position as any other credit card company.

So how will Chapter 13 help?  In this case, we could file a motion or an adversary proceeding in the bankruptcy case to have Bank 2′s loan to be determined to be unsecured.  Once the judge agrees that there’s not enough equity to cover the first-place mortgage, the money owed to Bank 2 is paid as if it were a credit card.

In other words, they get table scraps.

As long as you finish your Chapter 13 bankruptcy plan, the mortgage will be wiped away and removed as a lien from your property in the public records.

Even if the lender does respond to this motion, you still have the opportunity to present evidence as to the value of the property, and let your judge decide whether your second mortgage is unsecured.

Due to the nature of how your Chapter 13 plan payment is determined, in most Florida cases you will be paying very little towards your unsecured debt (which now includes your second mortgage).

It’s a nice feeling to no longer have to write checks for the second mortgage payment.  As anyone in Florida knows, this is a huge weight off your shoulders.

As of right now in the Middle District of Florida, this tool appears to only be available in a Chapter 13 bankruptcy. But there is motion pending right now in a Chapter 7 bankruptcy. All debtors attorneys are hopeful for a favorable ruling to allow debtors to strip a second mortgage in chapter 7 and be able to avoid the monthly Chapter 13 plan payment.

Photo courtesy of mringlein.

Florida bankruptcy cases often involve the question of tax refunds. Will the trustee take the money?

Yes, the trustee will take your tax refund. It does not matter if it is a Chapter 7 or a Chapter 13 filed in Florida.

If you file a Chapter 7 case in Florida then you need to plan your bankruptcy filing before the case goes to court. Florida consumers may be able to exempt the refund in some situations. Others may need to purchase necessities or get medical work done; both can be properly explained and spent before filing.

As to Chapter 13 cases in Florida – bankruptcy cases that may last for 3-5 years - each year you need to submit your tax return to see if your income has gone up. Up enough for the trustee to require a change in your payment plan.

Tax refunds received while in a Chapter 13 are considered disposable income in the eyes of the bankruptcy judges in Florida.  Those funds should be turned over to the creditors.

It may be a wise idea to consider changing your withholdings so you pay just a little bit to the IRS going forward in Chapter 13. This is because your monthly payment isn’t going to be easy. You have to work hard for the positive end result. So every penny you can keep from each paycheck is a penny that helps you stay current on your plan payments.

But generally speaking, if your income does not increase more than $7500 from one year to the next, then there should be no increase in plan payments.

You can ask trustee to keep refund, if you have a good reason. Maybe some unforeseen medical expenses have arisen? Did the car break down and needs repairs to make it through the rest of your plan payments? Refrigerator on the skids?

The trustees are very helpful when it comes to requests to keep your tax refund. But make sure you give me a copy of your tax return each year you are in chapter 13. It is hard for me to help you keep a tax refund when your income went up too much and I did not know.

if you are paying your unsecured creditors in full in a Chapter 13, then you do not have to turnover your tax refunds.

Photo courtesy of swanksalot.

Chapter 7 bankruptcy requires you to tell the court what you intend to do with property that has a loan as security. The most common are mortgages and car loans.

Home or apartment leases and car leases also fit into this category, as well as others.

When you file for Chapter 7 bankruptcy in Florida and want to keep your car or home, you may be able reaffirm the debt. This means you are signing a new contract to personally obligate yourself to make all the payments in the future.

In other word, reaffirmation is a new binding legal contract that survives the Chapter 7 bankruptcy.

the reaffirmation agreement is part of your Chapter 7 bankruptcy, so you will need to sign it. Once you’ve signed, I will review the document and send it to the creditor. The creditor also signs and submits it to the court. The court reviews the reaffirmation agreement and either approves it, rejects it, or sets the matter for a hearing.

Reaffirmation agreements are rejected or set for a hearing when the judge believes the payment or terms may not be in your best interests.

Many times clients want to reaffirm a high payment vehicle, yet do not have enough income to support the payment. In this situation, the judge would likely deny the reaffirmation so that you don’t get into financial trouble again, right after getting your discharge.

Sometimes clients want to sign a reaffirmation agreement thinking they cannot get another loan. When they find out this might be easier than they think, they may have the opportunity to revoke the reaffirmation agreement.

Timing is important, if you wait too long, you may not be able to revoke a reaffirmation agreement.

In most cases, to keep a car, you must sign a reaffirmation agreement, or the car lender might pick up the vehicle – even if you are current with your payments. There are a few lenders who do not repossess if you keep making timely payments, but there is no guarantee. So for car loans, this can be risky.

As to reaffirming a mortgage loan on your home, there may be other options. Please read more regarding retain and pay.

Signing a reaffirmation agreement should not be done as a routine matter. Each loan should be carefully considered to make sure it is in your best interests to obligate yourself on the debt for all payments in the future.

This photo of the Daytona Carnival courtesy of zman z28.

Filing for bankruptcy in Florida is a difficult decision, be it Chapter 7 or Chapter 13. Regardless of the type of bankruptcy you file, you will need to appear for a meeting of creditors (“MOC”).

The Meeting of Creditors, or 341 meeting, is the “hearing” where your assigned trustee, and any creditors, are allowed to ask you questions related to the bankruptcy.

This sit-down usually takes place about 30-45 days after your bankruptcy has been filed.

The meeting is not in court and there is no judge at the meeting. This is not Perry Mason.

You, and if it is a joint filing, your spouse, must attend. It is extremely rare for a debtor to be excused from attendance at this meeting. If the meeting conflicts with a long standing commitment, the trustees are very generous in granting a second date to attend the meeting.

Some trustees are performing a telephone conference prior to date of the 341, which helps the process move along more quickly and smoothly.  Of course, most Florida bankruptcy lawyers will prepare you in advance and attend with you.

All debtors must bring a driver’s license and social security card to verify identity to the information on the bankruptcy petition.

Usually by the time your name is called, you have seen and heard of few of the people in front of you answering questions.

In Florida bankruptcy cases, the following questions are routinely asked:

1. State your name, address, and daytime phone number.
2. Do you currently reside in Florida?
3. Did you list all of your assets?
4. Did you list all of your debts?
5. Are your bankruptcy schedules accurate?
6. Have you sold or disposed of any assets in the last 2 years?
7. Do you expect to inherit anything in the near future?
8. What circumstances led to you filing bankruptcy?

There are other questions the trustee may ask, but the key is in preparation.  Again, any competent Florida bankruptcy lawyer will prepare you to minimize any surprises.

It is extremely rare for creditors to show up, at least in Florida. The vast majority of bankruptcies involve no issues with the creditors that would impair your ability to discharge your debt. The creditors also know this and realize it is a waste of their time and money to appear.

Even if your bankruptcy has problems, there is no decision made at the meeting that affects your discharge. If any party had a right to object, it is done after the MOC and ultimately determined by the judge assigned to your case. Again, these instances are extremely rare.

The last misconception about the MOC is that I, as your lawyer, am supposed to “fight for your rights”. Or I have heard others say “my lawyer didn’t say anything at all”. Again, the MOC is not a trial, and we are not in the courtroom.

There is very little, if anything at all, for the lawyer to say, other than enter their name into the record, at the MOC. It is you who is under oath and must answer the questions.

Unless something abusive is happening, which I have never seen, there really is no reason for the attorney to interfere in the short MOC.

I know that some people can get nervous or anxious regarding having to apper before a trustee or their creditors. But by the time you are sitting in front of the trustee, the MOC will be over before you even realize it got started.

The photo of the Ponce Inlet is courtesy of jremsikjr.