Homeowner files last-minute Chapter 13 without credit counseling as loan modification is denied 

“So why even assume this kind of risk by filing an incomplete petition?”

THE client is 59 and single. He has a decent job where he makes $4,000 a month gross. He doesn’t owe any credit card debt. He only owes three secured debts. He owes a mortgage on his house for $400,000 plus he has arrears of $83,000 on this mortgage. His mortgage payment is $2,000 a month, which means that he has not paid his mortgage for 41 months or 3 ½ years. 

He tells me that he has been working with a non-profit consumer advocacy group (whatever that means) to get the bank to give him a loan modification on his mortgage. Apparently, he’s been trying to get the loan modified since four years ago and received multiple prior denials. This explains why he hasn’t paid his mortgage for four years. Finally, the bank sets the foreclosure sale date for July 6, 2016. 

Whoever he is talking to at the non-profit consumer advocacy group tells him that he has to file a Chapter 13 to stop the foreclosure on July 6. Unfortunately, he is not told that he has to do credit counseling first before he can file for Chapter 13. On July 1, without a lawyer, he files his incomplete emergency Chapter 13 petition.  The clerk looks for the credit counseling certificate and he says he doesn’t have one. Nevertheless, the clerk accepts the incomplete petition, which doesn’t have credit counseling, and has no schedules and gives him a list of deficiencies that have to be filed within 14 days otherwise his case will be dismissed.

So, he ended up in my office and asks me to take over the case as his lawyer. Although I agreed to help him out, I had to explain to him that he has to give a satisfactory explanation to the court why he did not do credit counseling before he filed his case. If the court believes that the facts he alleges amount to exigent circumstances, the court may let him proceed with the case. Otherwise, his case will be dismissed for lack of pre-filing credit counseling. 

On the other hand, if the client had a disability that prevents him from taking credit counseling, he would be exempt from the requirement. Although the client is legally blind, that may not qualify as a disability to exempt him from the requirement to take the course because this course is also given over the phone. To be sure, many judges do not consider a foreclosure an exigent circumstance because the foreclosure process takes at least four months to complete before the house can be auctioned off in a non-judicial foreclosure proceeding. 

In any event, aside from explaining why he did not do credit counseling within 14 days from filing date, the client still has to do credit counseling within 30 days from filing date assuming the court agrees that he was faced with exigent circumstances that prevented him from doing credit- counseling pre-filing. As you can see, you have to go through a lot of hoops if you don’t do credit counseling pre-filing so why even get into this dire situation in the first place. 

Therefore, make sure you do credit counseling first before you file for bankruptcy, any kind of bankruptcy so you don’t have this kind of problem to deal with. And avoid filing incomplete petitions. If you fail to file in one missing document, your case will be dismissed on the 15th day. So why even assume this kind of risk by filing an incomplete petition?

Senior files Chapter 7 to discharge $35K in credit cards

The other client is 70. He owes $35,000 of credit card debt. According to him, he is “sick” of paying for these cards. He has been paying for 20 years. He has been paying $1,000 a month for 20 years. He has paid only $240,000 in the last 20 years! But he still owes the same $35,000! 

But he is now 70 and living on social security, which is less than half of what his salary was. I told him that he should have filed at least ten years ago and saved $120,000. And he would still have perfect credit now at 70. I mean, file at 60, the 670 credit score will be 730 and on year 10, at 70, the credit bureaus remove the fact of filing from their credit reports as required by law; but better late than never. 

With Chapter 7, the client will have peace of mind at 70, because all of his $35,000 credit cards will be discharged. Who wants to have credit card debt when you now rely on social security? With social security income, credit card payments are a big drain on your budget. Getting rid of credit card debt with Chapter 7 is like surgery to remove a cancerous growth. It has to be done as soon as possible. Otherwise, you lose the capacity to save money every month.  

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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California.  Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave, Mailstop 58, Building A-1 Suite 1125, Alhambra, CA 91803.

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