Help with Checklist for BK 13 Filing

OP

Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes

@Mike Hartzog Thanks for the input!

My checklist is in the sequence that things should be done, in my opinion. You get a couple of months to file your POC so that's why it's listed later. Depending on where the case goes, you might not even have to file one. We recently had an egregious, bad faith filing and got our Order for Relief within 1 month. We went to trustee sale the next week. No POC needed.

I love your comments on some of the specifics of filling out forms. We have attorneys draft all our docs for us and have our servicer verify that everything is correct. I'll make sure to look out for the things you mentioned.

It's funny, we have a TX loan and our attorney mentioned an Agreed Order Terminating the Stay and I had never encountered this. We've been operating under an assumption that a couple of servicers have told us: you can't file an MFR until the borrower is 60+ days late on their regular payment. If it's a "trustee pays all" case, you're better off waiting 90 days+

Jerel Ehlert

Attorney · Austin, TX · Member since 2014 · 890 posts · 759 votes

Most of what you posted is worked out with your *bankruptcy* attorney. Lenders should understand and be aware, but it is your attorney that does this, not you. Your attorney argues bad faith filing and the court determines this. Your attorney files the proof of claim, motions, and attends the creditor's meeting. Unless you have a JD and bar license, the court room is not where you should play. Federal judges have a DGAF attitude to interlopers.

OP

Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes

@Jerel Ehlert Playing devil's advocate here: couldn't a creditor represent themselves in BK court as well? I've seen debtors file pro se petitions and the courts bend over backwards for them. As an analogy, there are plenty of landlords that file their own evictions. Personally, I want a competent attorney representing me in either case.

The main point of my post is that the creditor should understand and participate in the process in order to get a better outcome. "No one cares more about an asset more than the owner." I view my attorney as a partner in accomplishing a common goal. When I'm working with an attorney for the first time, I'm not sure if he'll do the deep dive on the BK like a concerned investor like myself will. I've dug up facts from previous BKs that I know affected the outcomes of the MFRs that we've filed.

And if that first time attorney is not doing a great job, I want to know what the process is like so I can do a proper evaluation and replace him, if needed.

OP

Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes

@Jerel Ehlert I've always obtained relief by filing a MFR. Have you had success getting a bad faith BK dismissed at a creditor's meeting or by objecting to the plan?

Jerel Ehlert

Attorney · Austin, TX · Member since 2014 · 890 posts · 759 votes

By all means! I *wish* my clients understood more about the legal aspects (black letter law) of real estate. Understanding would save them money and me headaches (nothing but love for my clients past/present/future). So I applaud your attempt!
Self-help, to the extent they can and won't harm their case, is also encouraged. In TX, I offer my lender clients the ability to send out their own NoD because I charge for that.
As for representing yourself (as a lender), that only works if you lend in your personal name. If the lender is an LLC or corporation, an attorney is mandatory because otherwise is unlawful practice of law. Anything goes in JP court because it is a "trial de novo" (a "do over") in County Court. Only for evictions in TX, that restriction on needing an attorney was removed last year, but you still need to follow all the rules of evidence and procedure as a licensed attorney.
To be honest, I see so much bad, I too am writing an REI Legal Desk Reference.

OP

Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes

@Jerel Ehlert I love that your writing a reference! When I googled "bankuptcy," I only saw material for Debtors, nothing for Creditors. When it comes to bankruptcy courts, Creditors need all the help we can get!

Account Closed

Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes

Originally posted by @Andy Mirza:

I'm looking for help from the crowd on this one.

I'm putting together a blog post with a checklist that a creditor/lender should follow in case their borrower files a Chapter 13 bankruptcy petition. The purpose is to provide some guidance to investors that aren't familiar with that situation and are looking for help on what to do. If you google "bankruptcy," the things that pop up are for debtors and debtor attorneys. It's hard to find info for creditors.

I've got some experience with BK's but I'm sure there are a lot of folks out there with more experience than me. Also, there are so many different variations, especially in how BK judges rule, that I'm sure others out there will have helpful experiences.

So far, here's my Chapter 13 Bankruptcy Checklist:

1. Monitor the BK in PACER (Not checking PACER is like flying blind; you need to see what's been filed and when the relevant dates are)

2. Postpone or Cancel the Trustee or Sheriff's Sale

3. Find an Attorney to Represent You

4. Wait to see what the debtor files (is the Debtor making a genuine or a bad faith filing?)

5. Determine your strategy (are you trying to liquidate ASAP like I typically do? Or maybe it's the same to you whether you liquidate or collect payments over time)

6. File a Proof of Claim

7. Take Action if your strategy dictates:

a. Object to Plan (has anyone objected to a plan and had the BK dismissed? I haven't)

b. Motion for Relief

c. Attend the Meeting of Creditors (has this worked for anyone?)

8. Continue to Monitor the BK in PACER at least once a month

Please provide comments, constructive criticism, additions, suggestions :)

That's pretty good so far. There are two common types of bankruptcy 1. Chapt 7 which runs about 6 months and is designed to get rid of all debt. You can continue to work with the debtor (through your attorney) and if they start making or haven't missed any payments you can keep things as they are. The debtor is no longer responsible for the debt and you can immediately take it to foreclosure if they miss payments, but you don't have to. The borrower is in a better position to pay now that his other debt is gone and it may make sense just to continue as before the bankruptcy. 2. Chapt 13 - which is what we are dealing with here - can run up to 60 months. The intent is to allow the debtor time to pay back missed payments over the course of the Chapt 13 Plan. The arrears and such are divided by the number of months of the Plan and added to the monthly payment.

Some things to add are 1. Do NOT contact the debtor directly. 2. Check to see if there were any previous filings (you'd be surprised) If there were, there is a possibility of "bad faith" in the filing. 3. With an Objection to the Plan the court allows the debtor to refile a plan to make the plan work. If the numbers work, then the numbers work. Not much you can do about that. If the Trustee and Judge agree that the numbers don't work then they refile the plan or dismiss. If the debtor starts missing post-filing payments contact your attorney immediately. 4. Attending the Meeting of Creditors is for your attorney to do. I wouldn't bother. 5. Most people stop making payments at some point. The court allows for a plan to run up to 60 months. It gets complex here but basically a good attorney will set a debtor up for 48 months or less if possible so that if a bump in the road comes along, they can redo the plan for a longer period to cover the missed payments. 6. The debtor can sell the property and pay off debts and close the bankruptcy with Trustee and Court permission. If the debtor has substantial equity they may choose to do that. 7. The payment to you comes from the court, not the debtor. (They pay the court, the court (Trustee) pays you. 8. You can't receive preferential treatment. 9. Your first Court payment is months down the road, but the debtor is supposed to start paying you again as normal once the plan is approved. 10. It's important to be aware that only one of the people on the Title or on the Loan need file for the property to become part of the bankruptcy estate. If one person files, it stops the foreclosure sale for a period of time. Once that gets sorted out and dismissed and a new foreclosure sale date is near the other person can file and stop the sale again. Tricky, eh? 11. Although the bankruptcy laws are Federal and monitored, each bankruptcy Court has a fair amount of discretion. Keep in mind that the attorneys and the judges went to the same colleges, golf at the same golf courses, have lunch together and see each other in Court almost daily. They know how the system works and your attorney should be able to advise you on what to expect from a given Judge.

OP

Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes

@Account Closed Lots of great info there, thanks for responding...

I cover "not contacting the debtor directly" in the section about postponing the sale because it falls under the same category of not violating the automatic stay. I'll need to make that more prominent.

I don't have experience with Objecting to the Plan. It seems like the only way for this to be a useful strategy is in an effort to get the judge and trustee to dismiss this case if the numbers don't add up and can't be fixed.

Just wanted to clarify something you said: the borrower is responsible for making the regular ongoing P&I payments to the creditor in addition to the arrearage, which is included in the payment to the trustee. Generally, the plans call for these P&I payments to start 1-3 months after the petition is filed. The ongoing P&I payments may be made directly to the creditor or to the trustee as a conduit payment, depending on the plan. In the latter case, the trustee makes the P&I payments to the creditor.

Judges have extraordinary discretion, in my opinion. If you get a bad one, you're stuck. If you get a bad trustee, you're stuck, too, as the judges will usually follow their lead.

Account Closed

Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes

Originally posted by @Andy Mirza:

@Account Closed Lots of great info there, thanks for responding...

I cover "not contacting the debtor directly" in the section about postponing the sale because it falls under the same category of not violating the automatic stay. I'll need to make that more prominent.

I don't have experience with Objecting to the Plan. It seems like the only way for this to be a useful strategy is in an effort to get the judge and trustee to dismiss this case if the numbers don't add up and can't be fixed.

Just wanted to clarify something you said: the borrower is responsible for making the regular ongoing P&I payments to the creditor in addition to the arrearage, which is included in the payment to the trustee. Generally, the plans call for these P&I payments to start 1-3 months after the petition is filed. The ongoing P&I payments may be made directly to the creditor or to the trustee as a conduit payment, depending on the plan. In the latter case, the trustee makes the P&I payments to the creditor.

Judges have extraordinary discretion, in my opinion. If you get a bad one, you're stuck. If you get a bad trustee, you're stuck, too, as the judges will usually follow their lead.

Yep. Looks good.

One thing to be aware of is that different states have different ways of handling foreclosure when affected by bankruptcy.

As an example, in Washington state (where I bought a Lot of properties in foreclosure and in bankruptcy) there is a 120 day rule for completing a foreclosure sale. If the borrower can postpone the sale past the 120 day period by filing bankruptcy, (or some other delay) the foreclosure has to be started all over again. It takes about 60 days to repost and 90 days after that for a sale date giving the borrower an additional 6 months or so. If the borrower can come up with the amount to reinstate within 10 days of the sale, the lender is required to accept the reinstatement and cancel the foreclosure. It's a bit more complex than stated but you get the idea.

I would suspect that various states have various rules. The West coast tends to be Deeds of Trust and the East coast seems to be Mortgages. Then whatever foreclosure laws apply in each particular state.

If I was doing lending (which I don't) I would want to know the foreclosure laws and tricks of the trade for every state and county I lend in.

OP

Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes

Here's the blog post on BP that I ended up writing: A Creditor's Chapter 13 Bankruptcy Checklist