No, it’s still your home and your equity. The only thing that reaffirmation does is keep it on your credit.
I had a client contact me today because Wells Fargo never filed the reaffirmation agreement that we signed 6 months ago. She was worried, because it sounds like a big deal. Thankfully, it’s really not (and probably for the best).
I know that they’ll get back to you next week, but this is going to be stewing in your mind all weekend.
When we filed the bk, we filed a Statement of Intention stating clearly that you wanted to reaffirm. After we file that, they are supposed to prepare a reaffirmation, send it to us, we sign it, send it to them, they sign it, and then they file it.
So what happens if they do NOT file it?
The mortgage will not report on your credit, which is bad. But, you can refinance with another lender if you want the credit reporting.
Otherwise, it’s still your home. Every payment you make pays down the mortgage, and you do get credit for it. If you pay off the home, you get the title. If you sell the home, you keep the equity because you are on title.
The only problem with no reaffirmation is the credit reporting. https://robertspaynelaw.com/myutahbankruptcyblog/2014/02/12/what-are-the-pros-and-cons-of-reaffirming-my-mortgage-in-bankruptcy/
And no, this is not really how my client asked the question. To quote as best I can, he called me and said,
Man, I got your email and text and totally forgot to take that class. Am I screwed? The court letter says it was due last week and I don’t have $260 to pay those bastards.
For a little explanation, you have to take two online classes as part of your bankrutptcy. Before you file bankruptcy, you have to take an online class and receive a Certificate of Credit Counseling. At the end of your case, you have to take a second class which issues a Certificate of Completion for your second Financial Management Course.
When your case is about to close out, the court will send you a reminder letter. The letter says “Notice to Debtor of Deficiency Concerning Discharge and Requirement to Complete Debtor Education.” The letter also warns that if you miss the deadline, your case will close out with NO DISCHARGE. This means that you still owe all of your creditors in full. Finally, the letter threatens that if your case closes without discharge, it will cost you a reopening fee of $260 to reopen your case and file that certificate. This is in addition to whatever your attorney charges to file a Motion to Vacate Dismissal and notify all of your creditors.
Today one of my clients called me saying that he missed the deadline. I looked up his case, and it was still open, but poised to close out at any moment. He promised to take the class this weekend. I quickly drafted up a very shoddy motion, which I’ll include below:
MOTION TO EXTEND DEADLINE TO FILE FORM 423
On July 15, 2020, this Court issued a Notice to Debtor(s) of Deficiency Concerning Discharge and Requirement to Complete Debtor Education, giving a deadline of July 27, 2020 to file Form 423. Debtors have not taken the Personal Financial Management Course yet. However, Debtors will be taking the course over this coming weekend and will be able to have the Form 423 filed no later than August 4, 2020. THEREFORE, Debtors request that this Court extend their deadline to file Form 423 until August 4, 2020.
Apparently this happens more than I thought. When I went to file the Motion, the court’s filing system (CM/ECF) actually has a dropbox choice under “Motions/Applications” for a “Motion to Extend Time to File Financial management Course Cert (Form 423).”
From a practice standpoint for other attorneys reading this, I did NOT file a certificate of service. I did NOT set it for hearing. I know that the court clerk will see this and give me the week before calling me and asking if I want to set it for hearing.
Hopefully my client will take that second class this weekend. I can file his certificate (along with the accompanying Form 423) on Monday, and he’ll receive a discharge of his debts.
On the day you file bankruptcy, the bankruptcy estate is created. This estate is comprised of everything you own on that day: equity in your home, furniture, 401k, and money in your bank account.
The bk trustee looks at your bankruptcy estate to see if you have any non-exempt (unprotected) assets that she can use to sell off and pay your creditors. Normally, we can exempt (or protect) your various assets under state laws. Some states even have wildcard exemptions that let you protect a certain amount (like $25,000) of anything, even a pile of cash sitting on your kitchen table.
However, Utah (and most states) don’t have a wildcard. If you have cash in your bank account on the date of filing, you will lose it. In a chapter 13, the bk trustee will ask you to pay that balance to your creditors over your 5 year plan. In a chapter 7, the bk trustee will demand that you turn over your bank account balances to pay your creditors.
Now remember, it’s only the balance on the day of filing. That means that if your payday is on a Friday, then we file the bankruptcy on a Thursday when your balances are too low to be enticing to a bk trustee.
More often than you’d think, I have clients who argue with me, saying that they like to keep a savings built up for emergencies. The trustee won’t care. She’ll take that savings when you file. You can always build up a new savings after we file the case. And as for emergencies, i would say that bankruptcy is a pretty huge emergency.
So if you have a savings built up, I will recommend that you spend it on exempt items like food storage, clothing, and new tires for your car. It never hurts to use some of that to pay your bankruptcy attorney as well!
I filed bankruptcy for a client who had just been approved for unemployment, and she had received a check for about $3,200. Unfortunately, she received and deposited this check one day before filing bankruptcy.
Normally, when we file bankruptcy, we try to keep your combined bank balances below about $300. The bankruptcy trustee can take whatever money you have on hand on the date of filing and use it to pay your creditors. So here we are, ready to file, with a nice, tempting wad of cash ($3,200) sitting in the bank account.
Thankfully, this is not the kind of money that a trustee can take. Unemployment compensation, both state and the federal pandemic unemployment) are protected from creditors, and from the bankruptcy trustee.
We filed the case, exempted the money in the bank account, and client was very happy.
(4) Except as provided for in Subsection (5): (a) any assignment, pledge, or encumbrance of any right to benefits that are or may become due or payable under this chapter is void; (b) rights to benefits are exempt from levy, execution, attachment, or any other remedy provided for the collection of debt;
(1) (a) An individual is entitled to exemption of the following property: (i) a burial plot for the individual and the individual’s family; (ii) health aids reasonably necessary to enable the individual or a dependent to work or sustain health; (iii) benefits that the individual or the individual’s dependent have received or are entitled to receive from any source because of: (A) disability; (B) illness; or (C) unemployment;
Technically, on the day we file bankruptcy, it stops any kind of collections, including garnishment, repossession, foreclosure, and even the remote “shutting off” of your leased car through Green Light Auto Solutions.
If they shut off your car after we file the bk, I can call them to turn it back on. I actually had to do that this afternoon for client who found herself stranded in California. She was a few days behind on her lease payment, and they activated the remote shutoff. Unfortunately, she was on a road trip, in California, in the middle of nowhere. She frantically called me, I called them, and they turned it back on.
However, if they have shut off your car before we file the bk, I can only force them to turn it back on if you either:
in a Chapter 7, only if you catch up on payments and are planning on keeping it, or
in a chapter 13, if you file your chapter 13 plan proposing to catch up on payments.
What this means is that if it’s shut off after we file, bankruptcy can get it turned back on. If it’s shut off before we file, you have to propose some kind of way to catch it up, or it will stay off.
MAY 11, 2020 UPDATE: You will not lose it. The Chapter 7 Trustees in Utah have been quietly ignoring it. Three of them have actually been stating on the record that they will not take it from you.
Plan on losing it, but nothing is guaranteed right now.
April 1, 2020 update: In Utah (and most states), the Chapter 13 Trustees have stated that they will not be taking the stimulus money. (See email at bottom of blog entry) At least one Chapter 7 Trustee has already stated that she will definitely take the stimulus checks.
In 2001, President Bush sent out economic stimulus checks of about $300 a person to try to jump start the economy after the .com bubble burst.
In 2008, President Bush sent out economic stimulus checks of about $600 a person to try to help the economy with the sub-prime lending/housing crash.
Today in 2020, there is very strong talk of a stimulus check of at least $1,000 to each adult to help stimulate the economy after the recession effects of the NOVID-19/coronavirus hit.
Throwing bankruptcy into the mix complicates matters. On the day you file bankruptcy, your bankruptcy estate is created. This estate includes all of your personal and real property and your tax refunds. Normally, we can exempt (protect) most of it from the bk trustee. Unfortunately, here in Utah, your tax refund is not safe from a bk trustee, so you need to receive and spend the refund before you go bankrupt, or the trustee can take it and use it to pay your creditors. That stimulus check may (or may not) be part of your bankruptcy estate.
All I know for certain is that if you receive and spend the stimulus before you file bankruptcy, it is gone, and it is not part of your bankruptcy estate.
If you file bankruptcy first, there is a good chance that you will lose the stimulus money to your trustee. It comes down to when your receive the right to receive the stimulus and what the stimulus is tied to. That being said, the only Utah case I found was actually positive for the debtors. In that case, Debtors filed bankruptcy in 2007. The Economic Stimulus Act passed in 2008, and their chapter 7 trustee tried to take that stimulus money when the checks came in. One of our current judges, Judge William T. Thurman, found in favor of the debtors (letting them keep the money). He found that since their right to receive the stimulus money didn’t arise until after their bk was filed, it was not part of the bankruptcy estate. See In Re Andrews, 386. B.R. 871 (Bankr. D. Utah 2008).
This sounds great, because it sounds like the court is saying: if the stimulus package isn’t passed until after you file bk, then you get to keep the money.
However, we have another case out of Kansas (which is admittedly NOT Utah), which forced debtors who had filed bankruptcy in March of 2008 to turn over their stimulus payment from the May 2008 Economic Stimulus Act because the triggering act to receive that stimulus was the filing of their 2007 tax returns. They lost the stimulus because the stimulus money was tied to their 2007 taxes (which occurred before the bk). See In Re Schwinn, 08-10528 (Bankr. D. Kansas 2008).
This doesn’t sound great, because the bk trustee took the money after arguing that it was tied to their taxes from the previous year.
I don’t know how the 2020 stimulus will be worded, but I fear that bk trustees will be salivating and sharpening their knives when those checks go out. Plan on losing it for now, and it you end up getting to keep the check, it’ll seem all the sweeter.
April 2, 2020 update: Here is the email from the Chapter 13 Trustee for Utah:
A number of you have inquired whether the Chapter 13 office will be requiring turnover of stimulus checks received by debtors. For your reference, attached is a copy of the new law as it relates to the Bankruptcy Code amendments. In short, the stimulus payments to debtors are excluded from Current Monthly Income in the same manner as social security payments under the amendments to section 101(10A)(B)(ii). In addition, the stimulus payments are excluded from disposable income under the amendments to section 1325(b)(2). We will not be requiring turnover of stimulus payments received by debtors. Thank you.