Is my mortgage secured or unsecured debt? How does this effect Chapter 13 debt limits?

A mortgage is a legal instrument typically securing a debt against real property, such as your residence. It would seem obvious, therefore, that a mortgage is a secured debt. But this is not always true.

In our current real estate market, many homes are underwater. Not in the literal sense (although this is also true for many homeowners in Massachusetts after the storm this past week). Figuratively, when a home is described as "underwater" it refers to the mortgages on said home having a value greater than the current fair market value of the home.

When filing a Chapter 13 bankruptcy, a wholly unsecured second mortgage or even the unsecured portion of an undersecured first mortgage should be listed as unsecured debt. Depending on other circumstances you may or not be able to to discharge this "unsecured" debt, however that doesn't change the fact that the Court will consider it unsecured.

Why does this matter?

When filing a Chapter 13 bankruptcy, there are debt limits defined by 11 U.S.C. §§ 109(e). Said debt limits were recently raised, effective April 1, 2010. Under the current limits, a Chapter 13 bankruptcy will be dismissed if the debtor has unsecured debt greater than $336,900 and/or secured debt greater than $1,010,650. As of April 1, 2010, those figures rise to $360,475 and $1,081,400 respectively.

Consider the following scenario:
A debtor owns a $600,000 home but has $900,000 in mortgages. The debtor has a car with a lien of $20,000 (secured debt) and credit card (unsecured debt) of $100,000.

If the entire mortgage debt was considered secured then the debtor would be under the debt limits with a total secured debt of $920,000 and a total unsecured debt of $100,000. Unfortunately, because the Court considers the $300,000 of "underwater" mortgages unsecured, the debtor has a total unsecured debt of $400,000, which is above the debt limits. This debtor would, therefore, be ineligible to file for relief under Chapter 13 and be forced to seek other relief (possibly filing for bankruptcy under Chapter 11).

This is the exact scenario articulated by a California Court in an unpublished decision: In re Estrada.

Estrada refers to a Ninth Circuit decision: In re Scovis, 249 F.3d 975, 982 (9 th Cir. 2001). In Scovis, the Court stated that a "vast majority of courts, and all circuit courts that have considered the issue, have held that the unsecured portion of undersecured debt is counted as unsecured for 13 § 109(e) eligibility purposes."

It appears that this is also the law in Massachusetts. In re Marrama, 345 B.R. 458, 472 n.23 (Bkrtcy.D.Mass. 2006) In Marrama the court referenced Scovis and noted that the debtors failed to list the unseured portion of an undersecured mortgage as unsecured debt, which would have resulted in a greater unsecured debt.

This also indicates the importance of completing your bankruptcy schedules correctly. To consult with an attorney regarding filing for bankruptcy, click here.

Your Bankruptcy Could Complicate Your Personal Injury Settlement

Filing for bankruptcy as a California personal injury victim can greatly complicate your situation. Even worse, a number of injury victims neglect to tell their personal injury attorney that they are filing for bankruptcy. When going through the bankruptcy process it is important to make sure your bankruptcy attorney and personal injury lawyer are in good communication with one another. This can help to avoid any confusion later.

Your personal injury settlement is viewed as an asset. Payment you receive from your settlement could be distributed to your creditors. To receive an optimal recovery you need to strategically put yourself in the best position. Working with your attorneys can help to protect your assets and receive a maximum settlement for your injuries.

No matter what your situation, it is important to be ethical when making your decisions. Do not make any harsh decisions which you will regret later. If you have any questions or concerns it is advised to consult with your attorney.

Finding A Skilled Personal Injury Lawyer

If you or a loved one has suffered from a personal injury accident please contact an experienced lawyer. The best personal injury lawyers will offer free consultations to all injured accident victims. Some personal injury attorneys work as no win no fee lawyers. This means that if they don't win your case you don't pay.

- Guest Blog - posted by Bisnar Chase, Los Angeles personal injury lawyers.

New Median Income Figures Released for all Bankruptcy Cases Filed after March 15, 2010

The United States Trustee Program has released new Census Bureau, IRS Data and Administrative Expenses Multipliers which are used for means testing calculations regarding Chapter 7 and Chapter 13 bankruptcy petitions. Due to the updated IRS Data, the various standards for the expenses in the "means test" form will change for all bankruptcy cases filed on or after March 15, 2010.

In Massachusetts, the new Median Family Income figures are as follows:

Family Size of 1: $53,315
Family Size of 2: $69,204
Family Size of 3: $82,297
Family Size of 4: $99,239

For cases filed on or before March 31, 2010, add $6,900 for each individual in excess of 4. For cases filed on or after April 1, 2010, add $7,500 for each individual in excess of 4.

For a list of the updated median family income figures for other states, a complete list is provided here.

In addition, the Kelsey & Trask, P.C. bankruptcy website has been updated to reflect the new figures, including updates to theKelsey & Trask P.C. Means Test Calculator, and also our Mobile Means Test Calculator, optimized for use on smartphones. We will also be making the same updates to our Means Test Calculator iPhone App in the near future, so be sure to update your App.

Massachusetts Bankruptcy Court Releases New Figures for 28 U.S.C. and 11 U.S.C. For All Cases Filed After April 1, 2010

Pursuant to Title 11 U.S.C. § 104(b), certain dollars amounts in the Bankruptcy Code will be adjusted for cases filed on or after April 1, 2010. Please see the chart below for details.

28 U.S.C.	Dollar Amount to be Adjusted	New (Adjusted) Dollar Amount
1409(b) - a trustee may commence a proceeding arising in or related to a case to recover (1) - money judgment of or property worth less than (2) - a consumer debt less than (2) - a non consumer debt against a non insider less than	$1,100 $16,425 $10,950	$1,175 $17,575 $11,725
11 U.S.C.
101 (3) - definition of assisted person	$164,250	$175,750
101(18)(A) & (B)(ii) - definition of family farmer	$3,544,525 (each time it appears)	<$3,792,650 (each time it appears)
101(l9A)(A)(i) & (b)(ii)(II) - definition of family fisherman	$1,642,500 (each time it appears)	$1,757,475 (each time it appears)
101(51D) (A) & (B)- definition of small business debtor	$2,190,000 (each time it appears)	$2,343,300 (each time it appears)
109(e) - allowable debt limits for individual filing bankruptcy under chapter 13	$336,900 (each time it appears) $1,010,650 (each time it appears)	$360,475 (each time it appears) $1,081,400 (each time it appears)
303(b) - minimum aggregate claims needed for the commencement of involuntary chapter 7 or chapter 11 bankruptcy (1) - in paragraph (1) (2) - in paragraph (2)	$13,475 $13,475	$14,425 $14,425
507(a) - priority expenses and claims (1) - in paragraph (4) (2) - in paragraph (5) (3) - in paragraph (6) (4) - in paragraph (7)	$10,950 $10,950 $5,400 $2,425	$11,725 $11,725 $5,775 $2,600
522( d) - value of property exemptions allowed to the debtor (l) - in paragraph (1) (2) - in paragraph (2) (3) - in paragraph (3) (4) - in paragraph (4) (5) - in paragraph (5) (6) - in paragraph (6) (7) - in paragraph (8) (8) - in paragraph (11 )(D)	$20,200 $3,225 $525 $10,775 $1,350 $1,075 $10,125 $2,025 $10,775 $20,200	$21,625 $3,450 $550 $11,525 $1,450 $1,150 $10,825 $2,175 $11,525 $21,625
522(f)(3)(B) - exception to lien avoidance under certain state laws	$5,475	$5,850
522(f)(4)(B)- items excluded from definition of household goods for lien avoidance purposes	$550 (each time it appears)	$600 (each time it appears)
522(n) - maximum aggregate value of assets in individual retirement accounts exempted	$1,095,000	$1,171,650
522(p)(1) - qualified homestead exemption	$136,875	$146,450
522(q)(l) - state homestead exemption	$136,875	$146,450
523(a)(2)(C) - exceptions to discharge in sub clause (i)(I) - consumer debts, incurred	$550 $825	$600 $875
541 (b)- property of the estate exclusions (1) - in paragraph (5)( C) – education IRA funds in the aggregate (2) - in paragraph (6)( C) – prepurchased tuition credits in the aggregate	$5,475 $5,475	$5,850 $5,850
547(c)(9) - preferences, trustee may not avoid a transfer if, in a case filed by a debtor whose debts are not primarily consumer debts, the aggregate value of property is less than	$5,475	$5,850
707(b) - dismissal of a case or conversion to a case under chapter 11 or 13 (means test) (1) - in paragraph (2)(A)(i)(I) (2) - in paragraph (2)(A)(i)(II) (3) - in paragraph (2)(A)(ii)(IV) (4) - in paragraph (2)(B)(iv)(I) (5) - in paragraph (2)(B)(iv)(II) (6) - in paragraph (5)(B) (7) - in paragraph 6(C) (8) - in paragraph 7(A)(iii)	$6,575 $10,950 $1,650 $6,575 $10,950 $1,100 $625 $575	$7,025 $11,725 $1,775 $7,025 $11,725 $1,175 $625 $625
1322(d)(l)(c) & (2)(c) - contents of chapter 13 plan, monthly income	$575 (each time it appears)	$625 (each time it appears)
1325(b)(3) & (b)(4) - chapter 13 confirmation of plan, disposable income	$575 (each time it appears)	$625 (each time it appears)
1326(b)(3)(B)- payments to former chapter 7 trustee	$25	$25

Terms in Loan Modifications that Waive Automatic Stay Protection Void

On March 2, 2010, the Massachusetts Bankruptcy Court issued "Emergency Standing Order 10-2" addressing certain provisions of Loan Modification and Forbearance Agreements.

Emergency Standing Order 10-2 effectively voids any provision of any loan modification or forbearance agreement which states that upon default of the lender, the benefits of the automatic stay are waived. Prior to Emergency Standing Order 10-2, if a modification included such a waiver, the bank or mortgage lender could proceed with a foreclosure or other collection actions despite the filing of a Chapter 7 or Chapter 13 bankruptcy. Any individual considering a loan modification should be very careful when considering the terms offered by the lender in any loan modification. Nevertheless, Emergency Standing Order 10-2 effectively extends the protection of 11 U.S.C. s. 362(a) to cases where lenders have attempted to circumvent automatic stay protections through prior modifications, forbearance agreements or other loan workouts by voiding any provision in any agreement which attempts to waive automatic stay protection.

The full text of the order is available here.