In some Chapter 13 cases, people fall behind on their payments to the Chapter 13 trustee due to cutbacks in hours at work, loss of job, medical reasons and so forth. When this happens, the Chapter 13 trustee will file a motion to dismiss the case.

Most of the time, we can work out a deal with trustee to either increase the payments to make up for lost time and/or agree to a strict compliance period for the case. Strict compliance means you can’t miss anymore payments to the Chapter 13 trustee or your case will be dismissed without a hearing before the judge. In some cases, the client gets so far behind they cannot afford an increase in payments and the case gets dismissed. Another example is when someone has lost their job and has not found a new one before the motion to dismiss is heard before the judge.

When the client has recovered from the cause of the dismissal of the Chapter 13, we can refile the case. We have to sit down and review the entire petition just like we did for the first case. Once the documents for the new case have been signed, we refile the case so that the client has bankruptcy protection once again. However, in the second case, we must file a Motion to Extend the Stay. A hearing on this motion must be held within 30 days of the filing of the second case. If no hearing takes place, the bankruptcy protection ends.

In the motion, we must explain to the judge what went wrong in the last case and why this new case is different. For example, if hours were decreased in the last case but work has now picked back up, the judge will likely grant the motion. If the last case was dismissed because the client lost their job and the new case is filed before the client finds a new job, the motion will not be granted.  The cause of dismissal in the last case has not been rectified. I will not ever refile a Chapter 13 unless I am confident the client is going to be able to make the second case work.

Having two Chapter 13 cases dismissed within the last year puts a person in a bad spot.  Anyone who has had two Chapter 13 cases dismissed within the last year will not have any bankruptcy protection at all in the third case until a motion is filed with the court and an order is entered granting protection. As a general rule, I don’t take Chapter 13 cases when someone has already had two cases dismissed within the last year.

I recently spoke with a client who surrendered their house in Chapter 13 last year.  About six months into their Chapter 13 case, they converted to a Chapter 7   This past week, they received a 1099A from their mortgage company showing that the debt was forgiven and suggested that they would be taxed by the IRS.

Despite what they letter from the mortgage company may have said, my clients will not be taxed on their foreclosure of their house.  Click here to read the IRS publication 4681 which clearly states that this is not a taxable event.  I cannot imagine how frustrated they must have felt thinking they were going to be taxed on something they gave back to their creditor.  Good thing they were able to contact their bankruptcy attorney and got a quick response.

Here is what you need to do if you have had a house foreclosed during the course of your bankruptcy.  The IRS says “to show that your debt was canceled in a bankruptcy case and is excluded from income, attach Form 982 to your federal income tax return and check the box on line 1a.  Lines 1b through 1f do not apply to a cancellation that occurs in a title 11 bankruptcy case on line 2.”  If you do not feel comfortable working with IRS forms, get a professional accountant to do the work for you.  Don’t mess up your tax return.

Even if my clients had not been in bankruptcy, the foreclosure of their house most likely would not have been a taxable event.  Under the Mortgage Forgiveness and Debt Relief Act, taxpayers can “exclude income from the discharge of debt on their principal residence.  Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with  a foreclosure, qualifies for the relief.”

Also, if a person is insolvent (as defined by the IRS) at the time the debt is forgiven, they will not be taxed on the debt forgiveness.  Insolvent means that the amount you owe on all of your debts exceeds the amount of everything you own.

The best way to protect your assets in either a Chapter 13 or a Chapter 7 is to tell your attorney everything you own before you file the case. When your bankruptcy attorney has a complete list of all of your assets, he will be able to match your assets to state exemptions to ensure your assets are protected.

Before your first meeting with your attorney, write out a list of all of your assets. List everything that comes to mind. Read through your check book for the past year to make sure you have not missed anything. Walk through your house with your list. Last but not least, check your financial records and make sure you list all checking accounts, all savings account and all retirement accounts.

At least a few times each year, I will meet with a client for two hours going over the petition. They will have already taken the class. Just when I’m ready to write out a receipt for the filing fee, the husband will say to the wife, “I think we should tell him.” “Tell me what!” I reply. “I am on your side. I can’t protect you if I don’t know all of the facts. Tell me everything.” Then……..it comes out. “We received a large sum of money from a stock investment and we did not want to tell you about it because we gave the money to our children so that they can get a good start in life.” Once I explained to the client that if they filed a Chapter 7, the trustee would be able to take back that money that was paid to their children, they decided not to file.

Nothing is more frustrating for a bankruptcy attorney than for his client to hold back factual information. Bombshells always seem to come right before we have finished reviewing all the documents. Don’t hide facts from your attorney! She is on your side.

If you have an asset this is not listed on your court papers in a Chapter 7 or a Chapter 13, that asset is not protected from your creditors unless your attorney is able to amend the petition and claim an exemption.

Getting all the facts out on the table is an absolute must. For this reason, I like to spend at least two hours reviewing the petition with my clients so that I have ample time to ask questions so that we can identify any potential problems.

I was so disappointed this past week to learn about a new scam that will cost my Chapter 13 client money they cannot afford to lose.

I have some clients who received a solicitation in the mail from a company in Florida that “guarantees” that they get their mortgage payment lowered through a loan modification. All my client had to do to take advantage of this great offer was to send this company $600. This would be bad enough if the story stopped there. Unfortunately, it does not.

My clients then called this company to find out the next step.  This scam company told my clients that they need to quit making their mortgage payments so that the mortgage company would be motivated to enter into a loan modification. My client accepted this bad advice even though I tell all of my chapter 13 clients that they must make all future mortgage payments on their house if they want to keep it. In addition, I make them sign three different documents stating they understand that they must keep their future mortgage payments current.

I asked my client who mailed the 600 to the scammers and quit making their mortgage payments, “Why did you do this after I told you that you must keep your mortgage payments current and even made you sign documents stating that you understood that all future mortgage payments must be paid directly to the mortgage company?” They responded with, “but their offer was guaranteed.”

After missing three months of mortgage payments, the mortgage company has responded by filing a Motion for Relief from the Automatic Stay so that they could get permission from the court to start foreclosure proceedings. In our district, even though we will be able to work out a consent order with the mortgage company, the creditor can charge my client $850 for having to file the Motion for Relief. In addition, there will be late fees.

Any person who is in Chapter 13 and receives an offer in the mail that sounds to good to be true should schedule an appointment with their bankruptcy attorney. Let your attorney review the offer so that she can forward the information to the United State Trustee.

Yes. Chapter 13 stops the foreclosure of your house. We don’t need the permission of your mortgage company to stop the foreclosure of your house. Also, Chapter 7 may stop temporarily stop the foreclosure of your house while the Chapter 7 trustee evaluates the value of your house. I encourage anyone who is facing foreclosure to read every article on this website that relates to foreclosure of your home. Listed on the left hand side of your screen is search box which will allow to search various topics. After you have read everything, call me at 706-295-0030 to set up your free case evaluation.

I think anyone who might be interested in keeping their house should explore Chapter 13 as an option before deciding to do a short sale or let the house foreclose. In a Chapter 13, we can take the payments that you are behind on and put them into a payment plan that will work for you. If you are in a position not able to make the future mortgage payments on your house, Chapter 13 may not be the best answer.

A short sale is when the lender agrees to take a lower price for a house than the amount owed to the lender.  The main advantage of a short sale is that it protects your credit score from the damage of a foreclosure   A short sale might be a good option for someone whose only debt problem is a house that can’t be sold for the amount owed.  People who owe credit card debt, medical debt, car debt, and other types of debt should explore Chapter 13 and Chapter 7 before making a decision to short sale.

Amy Cochran, a short sale specialist from Cartersville, says that one of the most common mistakes she sees people make after they fall behind on house payments is that they move out of the house before the mortgage company takes any action against the house.  When a house is empty, it is much more difficult to get a short sale completed.

It can’t hurt to explore all options.  Weigh the pros and cons of each option before making your decision.

As I looked through the number of foreclosure advertisements in various local papers this month, I have noticed a twenty five percent drop from January 2010 to February 2010 in some counties.  I don’t know if this is just a local trend or a national trend.  The number of foreclosures in January 2010 was unusually high which may contribute to this huge drop.  The current trend in most cases is that mortgage companies are working with people to try to make the loans work.  When the mortgage company refuses to be reasonable Chapter 13, is a great tool for stopping foreclosures

Here is a summery of the numbers.

• Gordon – 72 in Jan. and 72 in Feb.
• Bartow – 152 in Jan. and 125 in Feb.
• Catoosa – 69 in Jan. and 59 in Feb.
• Polk – 29 in Jan. and 39 in Feb.
• Paulding 354 in Jan. and 264 in Feb.
• Whitfield – 111 in Jan. and 84 in Feb.
• Floyd – 84 in Jan. and 47 in Feb.
• Walker 7 in Jan. and 7 in Feb.
• Rome
• Walker

You should tell your bankruptcy attorney every detail of your financial situation before any Chapter 13 or Chapter 7 is filed. Everything you tell your attorney is protected by the attorney client privilege. Don’t try to hide anything from your attorney! Your attorney is on your side. It is always in your best interest to disclose everything in your Chapter 13 or Chapter 7 petition.

Every now and then, I will meet with a client who after having paid all of their filing fees and after having spent two hours signing the petition will say, “There is something I want to get off my chest before we file the case.” Usually, it is something that either changes the entire case or changes the client’s mind about filing once I explain the consequences.

For example, I have met with a few people this year who inherited a significant amount of money within the past year. In one situation, a good portion of the inheritance was used to pay back a loan to a relative. Once I explained that a Chapter 7 trustee has the power to sue that relative and take back the money that was paid, the client no longer wanted to file Chapter 7 .  Another example was an elderly grandmother who signed her house over to her granddaughter last year because she was afraid her creditors would go after her house. Again, this client was shocked when I explained to her that a Chapter 7 trustee has the power to take back the house, sell it, and use the proceeds to pay her creditors. It is a good thing these clients were honest with me so that we did not file any Chapter 13 or Chapter 7 for them and put them in a bad situation. Your attorney cannot explain to you all of the ramifications of filing bankruptcy if the you try to hide important financial details.

People who intentionally lie to their attorney and try to pull a fast one over the Chapter 7 or Chapter 13 trustee can end up being prosecuted by the United States Attorney. Its not worth it. Tell your attorney everything so that they can protect you from bad results.

Editor’s Note:  This post was written by Atlanta Bankruptcy Attorney Susan Blum and Jonathan Ginsberg and reprinted with his permission.

Once you file a Chapter 13 bankruptcy and begin contributing monthly to the payment plan, you may wonder where your money is going, who’s being paid and how much money you still owe until you get your Chapter 13 discharge.  As a Chapter 13 debtor, you can have access to much of the same information that the Trustee and your attorney have.

The National Data Center allows Chapter 13 debtors to access their case at no charge through its website: www.13datacenter.com.  In order to view your case on-line, you must first register for a user name and password.  Just go to the www.13datacenter.com website and locate the box that asks for User Name and password.  If you are a new user, click the link “New Debtor Access – CLICK HERE” to register for a user name and password.

Step 1: You will be asked a series of questions to verify your identity.  Make sure to enter your name exactly as it appears on your petition, your social security number and your case number.

Step 2:  Once the second screen is submitted, you’ll be taken to the third screen.  Here you will be able to choose your own username and password, as well as enter your email address.

Once you’ve completed Steps 1-3 of the registration process, you will receive an email with your username/password and will be automatically re-directed to the National Data Center homepage.  Log-in using your username and password and freely navigate the National Data Center website to view your case on-line and keep tabs on where the money is going.