Stopping Foreclosure with Bankruptcy

If you fall behind on your mortgage payments, and the lender has accelerated the loan and begun foreclosure proceedings, a Chapter 13 bankruptcy is often the only realistic way to save your home from foreclosure.

Unless you can come up with all the unpaid mortgage payments, late fees, legal fees, and other costs right away, your lender will often proceed with foreclosure while offering loan modification options under HAMP and other programs, which may or may not halt the foreclosure. People often rely exclusively on the loan modification programs until it is too late and they are on the eve of a foreclosure sale.

A key point to keep in mind is that until the lender agrees to stop the foreclosure by entering into a loan modification, the law firm handling the foreclosure will be proceeding full speed ahead. This confuses many people. The bottom line is that it is good to know about Chapter 13 bankruptcy, which can be a clear solution for some people, even if you want to give the loan modification a chance.

Chapter 13 bankruptcy is the only way to immediately stop the foreclosure process and force a lender take payments of arrears over time (3-5 years).

Besides saving your home, Chapter 13 often provides the substantial added
benefit of discharging unsecured debt (like credit cards), resolving tax problems, and reducing the amounts owed on debts like car loans.

You can get more detail here: Chapter 13 bankruptcy.

Dyck O’Neal Lawsuits in Massachusetts

Throughout 2014 we have been dealing with a flood of lawsuits from a debt collection firm called Dyck O’Neal. The
lawsuits are mostly from Florida, and they arise out of mortgage foreclosure deficiencies judgments purchased by Dyck O’Neal.

Former homeowners who left homes or second properties in Florida and moved to Massachusetts are now (as of mid 2014) being served here in Massachusetts for lawsuits in Florida.

You have a few options when served with such a lawsuit.

  • Find and pay a lawyer in Florida to fight the judgment in court there;
  • File bankruptcy in Massachusetts if you qualify to discharge the debt. You can contact us for that if you live in Massachusetts.
  • Negotiate with Dyck O’Neal, either yourself or through a Florida or Massachusetts lawyer. You can also contact us to retain us to help with this option.

We are Massachusetts lawyers, not Florida lawyers, but we can help with Massachusetts matters related to Dyck O’Neal.

Chart of Time Between Bankruptcy Cases

If you have filed a bankruptcy in the past and want to file again and get a discharge, what are the waiting periods that apply? This simple chart will tell you based on bankruptcy type.

* Time between bankruptcy cases is computed from filing date to filing date.
* These limitations only apply when you’ve received a discharge in the previous case.

Remainder Interest not Eligible for Massachusetts Homestead

Judge Boroff of the Massachusetts Bankruptcy Court has held that an owner of a remainder interest in a home could not claim a homestead exemption. The case is on re Gordon, Case No. 11-44524 (Bankr.D.Mass August 28, 2012).

In Gordon, the debtor held a remainder interest in her home. All first-year law students learn about remainder interests during their first weeks of property class. A remainder interest exists when someone owns a life estate (i.e. owns a property just during their lifetime without the power to sell or devise the entire “fee simple” interest in the property – also called a “life tenant”) and another person is entitled to the property after the death of the life tenant. Thus was the case here. The debtor owned a 1/4 remainder interest in her home. To be entitled to a homestead, as the Court put it: “‘the Debtor (1) must be an “owner'”; and (2) must “‘occupy or intend to occupy the home as [her] principal residence.'” It was undisputed that the debtor occupied the home as her principal residence, but the case turned on whether she was a “owner.” The court said no.

The Massachusetts Homestead Statute defines “owner” as “a natural person who is a sole owner, joint tenant, tenant by the entirety, tenant in common, life estate holder or holder of a beneficial interest in a trust.” Mass. Gen. Laws ch. 188, ยง1. Because the debtor did not hold one of the enumerated interests in property, the court held that the debtor wasn’t an “owner” and, consequently, could not claim the protection of the homestead exemption.

Massachusetts Bankruptcy Court Rules on Homestead Proceeds Exemption

Judge Hillman of the Massachusetts Bankruptcy Court days ago issued an opinion holding that a debtor could not extend his homestead to the surplus proceeds of a foreclosure sale. The court read the language of the statute quite literally:

If a home that is subject to an estate of homestead is sold, whether voluntarily or involuntarily, taken or damaged by fire or other casualty, then the proceeds received on account of any such sale, taking or damage shall be entitled to the protection of this chapter during the following periods.

MGL c 188, sec. 11

The key was the word “received.” The debtor in this case had his home foreclosed on, and there was a surplus from the sale. He filed bankruptcy to claim a homestead exemption in the proceeds of the foreclosure (in the amount after the mortgage was paid) as against other creditors who would have a right to this money. The court held that because the debtor never “received” the proceeds, so the statute, read literally, prevented a claim of homestead in the proceeds. The court further stated:

If I were to guess, and assuming that the legislature considered the problem at all, I would opine that it was not a literal meaning intended, but rather something like “the proceeds to which the person benefitted by the homestead is entitled on account of such sale”, but I do not think that I have the authority to revise the language to accomplish that end.

If other courts follow this decision, it will create a situation in which debtors with home equity facing foreclosure must make absolutely sure they file bankruptcy before a foreclosure sale so that they can receive and control the proceeds of sale themselves.

Who Will Know I Filed Bankruptcy?

A lot of people are nervous, frightened, terrified–you pick the word–about who will find out that they filed bankruptcy? We get asked this quite often, and here’s the answer:

Bankruptcy is a court proceeding and, therefore, creates a public record. The fact that a person filed bankruptcy will be available to anyone at the bankruptcy court or anyone who has access to bankruptcy information online. However–and this is key point–this information is not free. You must have a PACER account to obtain bankruptcy information. And you must pay for it. Bankruptcy attorneys like us have access to the system in order to check on our cases and get other information, but other people rarely pay for access to this system. It is highly improbable that your landlord, employer, neighbors or friends spend their time searching and paying for bankruptcy information through PACER, and it’s even more improbable that they visit the courthouse to check bankruptcy records.

Basic bankruptcy information is also available on credit reports. The fact that someone filed bankruptcy will appear on a credit report for 10 years after a Chapter 7 case and for seven years after a Chapter 13 case. So, every time you apply for credit during these time periods, the lender will find out about your bankruptcy. This is not as bad as you think because many, many people have filed for bankruptcy, and bankruptcies diminish in importance as time goes on during the reporting periods. As an example of how bankruptcy doesn’t destroy your credit, here’s what one former client wrote me in June, 2012:

Hi Nick,

I just wanted to let you know that as of 4:30 this afternoon, Frankie and I are homeowners again! We have worked out butts off, and built our credit back up to scores of 770+ and we were able to make it happen again, just shy of the 5 year anniversary of our filing.

I know I have said it before but again, thank you!
[Name withheld here]

Who else will find out about a bankruptcy? Well, notice of a bankruptcy also goes out to every person or company you owe money to. (Note: it will not go out to your employer just because you have a 401(k) loan. A 401(k) “loan” is not really a debt: it’s the withdrawal of your own money from a tax-deferred account).

Information about consumer bankruptcies is also not published in the newspaper. Here in Massachusetts, Banker and Tradesman publishes information about corporate bankruptcy filings, but no paper anywhere that we’ve ever seen of heard of publishes information about individual consumer bankruptcies.

So, what’s the bottom line? Who will know about my bankruptcy? Past and future creditors are usually the only people and companies that will ever know about your bankruptcy.