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Bankruptcy Law Blog

Disability benefits and Chapter 13

In Florida and elsewhere across the country, some individuals who are looking to reorganize their obligations through a Chapter 13 bankruptcy may want to know if Social Security Disability benefits must be considered income that is available to repay creditors under the plan. It is a somewhat complex issue, but there are two federal laws that support excluding SSD from disposable income.

Amendments to the Social Security Act made in 1983 and the Bank Abuse Prevention and Consumer Protection Act of 2005 both state that Social Security Disability income will not be included in a petitioner's bankruptcy estate. Rulings from some federal appellate courts that have jurisdiction over 19 states could also be cited to support arguments to exclude SSD income from a Chapter 13 plan.

Does the bank have the right to take my home?

If you are behind on your mortgage payments, it is possible for the bank to foreclose on your home. When you signed your mortgage agreement and promissory note, your house was put up as collateral in the event that you were unable to make your mortgage payments. That means the bank can force the sale of your home in order to collect the money it is owed on the property.

That does not mean, however, that you have no choice but to hand over the keys. There are specific steps involved in the foreclosure process, and actions you can take to protect your own interests. Now may be the right time to contact an attorney to discuss your situation and see what options are available to save your home.

Signs it's time to file for bankruptcy

Even as the economy improves, there are many Florida residents that struggle to pay the bills each month. With no other option, some cash-strapped people are forced to use credit cards to pay for basic things like gas, food and utility bills. Using credit for necessary expenses is one sign that a person's finances are out of control, and it may be time to file for bankruptcy.

Filing for bankruptcy is not the right choice for everyone, but it may be the only way that some people can get out of a debt cycle. If a person is using a credit card to pay for necessary expenses at the end of the month and then continuing to make only the minimum monthly payment, the unpaid credit card debt will get higher each month. Breaking this cycle by applying for bankruptcy may allow a person to get a fresh financial start.

Automatic stay buys time for consumers to manage debts

When a Florida resident files for bankruptcy protection, the court creates an injunction against creditors called an automatic stay. With a few exceptions for debts like taxes and child support, the stay blocks lawsuits filed by creditors, individuals, collection agencies or government agencies. The stay could grant the person time to negotiate new terms for the payment of debts.

This legal protection might allow a person to delay the shut off of utilities or an eviction. The prevention of wage garnishment could also be achieved with a stay. When successful, this action would allow a person to collect a full salary while the bankruptcy proceedings continue.

When is the right time to contact a lawyer about foreclosure?

By the time the lender contacts you to inform you of its intent to foreclose on your home, there has almost certainly been communication between you and the bank regarding past due mortgage payments. Whether through late fees on your mortgage statements, demand letters or collection calls, lenders take specific steps to collect past due amounts before initiating a foreclosure action.

So, at what point should you contact an attorney regarding a possible foreclosure?

The answer to this question is largely dependent on your personal circumstances. If you know the first time you miss a payment that you are going to have a difficult time making it up -- due to job loss, for example -- and that future payments are going to be equally as difficult, you may want to contact an attorney immediately.

The Chapter 13 repayment plan

Filing for Chapter 13 bankruptcy may allow Florida debtors to retain more property than they would otherwise be able to keep in a Chapter 7 bankruptcy. Unlike Chapter 7 bankruptcy, Chapter 13 cases do not involve liquidating assets. Instead, debtors are required to repay a portion of their debts over a period lasting from 3 to 5 years.

When a petition for Chapter 13 bankruptcy is filed, the debtor must also submit a proposed repayment plan. It is important that a debtor is careful when preparing plan because it must be confirmed by the bankruptcy court. If the court does not approve the plan, then the case may be dismissed or converted to a Chapter 7 bankruptcy proceeding instead.

How does foreclosure work?

It All Starts With A Single Missed Payment

Foreclosure actions start with a single missed payment. If you miss a payment, your lender will likely assess a late fee and your next mortgage statement will show two payments due plus the late fee. If you miss a second -- or, at most, a third -- payment, you can expect to start receiving collection calls.

The Breach Letter

If you are not able to make up the missed payments, the next step is typically for the lender to send you a letter stating that you have defaulted on your loan and demands repayment of the past due amount. Often referred to as a breach letter, this is the first formal step in the foreclosure process. If you have not already done so, now is the time to seek the advice of an attorney.

Court takes common sense approach to homestead exemption

Florida residents who have a regular and reliable source of income and file for Chapter 13 bankruptcy are generally able to retain their property while obtaining debt relief. The homestead exemption protects the equity that debtors have accumulated in their primary residences from creditors, but the courts have been inconsistent in determining how this exemption should be applied in situations where the property concerned is jointly owned.

The problem becomes a particularly thorny one when courts are tasked with deciding how judicial liens will be treated when a Chapter 13 petitioner owns a primary residence jointly or in common with a non-debtor. The U.S. Bankruptcy Code provides a formula to assist judges in this situation, but a number of federal courts have eschewed strict adherence to this formula when following it would result in a windfall for debtors. This is because the federal formula calls for the entire mortgage balance to be deducted from the debtor's share of the property.

Can bankruptcy stop a foreclosure?

There may be no experience that you will ever face that is more concerning than the prospect of losing your home. When you receive the notice from the bank informing you that it intends to initiate foreclosure proceedings, it can be difficult to know where to turn for help. What happens next? What should you do?

At Nowack & Olson, we focus our entire practice on helping people resolve complex debt issues. We are committed to providing people with the information they need to overcome their challenges and regain their financial freedom. This is the first post in a series about stopping foreclosure through bankruptcy, other options that may be available and information that you will find useful as you work to save your home.

Court holds that FDCPA and bankruptcy laws don't conflict

Debtors in Florida may be interested in a recent ruling by the U.S. Court of Appeals for the 11th Circuit, the federal circuit that has jurisdiction over federal claims brought in the state. The case involved debtors who had filed for Chapter 13 bankruptcy. The debtors had creditors holding claims that were time-barred by the applicable statute of limitations. Despite the fact that they were, the creditors still filed proofs of claim with the bankruptcy court anyway.

After the creditors filed proofs of claim, both debtors then filed suits against them under the Fair Debt Collections Practices Act. In an earlier case, the district court had held that the FDCPA was preempted by the Bankruptcy Act, interpreting it as precluding a debtor's ability to file claims against collectors who had filed proofs of claim for time-barred debts.

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