In 2005 Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act also known as BABCPA.  At the heart BABCPA’s consumer bankruptcy reforms was that it created a “Means Test” and other income restrictions in order to qualify for Chapter 7 bankruptcy.  If a debtor’s current monthly income exceeds a certain threshold amount, than the United States Trustee can try to file a motion to dismiss the case as an abuse under Section 707(b) of the bankruptcy code.   707(b) outlines two tests a court should consider in determining if a Chapter 7 proceeding is appropriate.  The first is known as the Means Test which is an objective measure used to determine whether the Court “shall presume” that the case is abusive under the Code.   If the presumption does not arise, the second step of the 707(b) process permits the Court to consider whether the case is nevertheless abusive because of the “totality of the circumstances” test.

The Means Test is a mechanical formula for establishing a presumptive bar to obtaining relief under Chapter 7.  In short, the means test is a formula in which the debtor takes various deductions from their current monthly income.   If after taking these deductions the debtor is below a threshold level then the presumption of abuse does not arise  The deductions that an above-median income debtor is allowed to use are outlined in Section 707(b)(2) of the  bankruptcy code.

In most cases the largest deduction would be the deduction for the monthly payment on the Debtor’s mortgage.   An issue that has arisen in many cases is whether the debtor can still take the mortgage deduction in the Means Test on property that they intend to surrender in the bankruptcy.  A bankruptcy court in the Middle District Florida recently answered this question in the affirmative.  The Court’s reasoning was that the Chapter 7 Means Test calculation is based on a “snapshot” of a Debtor’s financial situation on the date the petition is filed.  If the Debtor is contractually obligated to make the mortgage payment on the date the petition is filed, then the debtor can deduct the mortgage payment in the Means Test even if the debtor intends to surrender the property or is no longer currently making the payments.   However, the Court cautioned that although the Chapter 7 Debtor can still deduct the mortgage payment on the Means Test even if they are surrendering the property, the second step in the 707(b) process permits the court to consider whether the case is still abusive based on the totality of the circumstances test.  Nevertheless the Bankruptcy Judge held that the case was not an abuse under either 707(b)(2) or 707(b)(3).  The Case is In Re: Rivers, 11-2440.

Jonathan Bierfeld is an attorney with Martin Law Firm, P.L., whose practice focuses in Bankruptcy Law and Civil Litigation.  He is admitted to practice law in the State of Florida and the Federal Court for the Middle District of Florida.  He primarily practices in Lee County Florida in Cape Coral and Fort Myers, Florida.

Eviana Martin, an attorney at the Martin Law Firm, P.L. has recently attended the 20th Annual Bankruptcy Law Convention organized by the National Association of Consumer Bankruptcy Attorneys in San Antonio, Texas.

One of the topics discussed at the conference was “The Big Freeze” referring to Wells Fargo a/k/a/ Wachovia Bank putting a hold on the individual’s bank account if that individual files for bankruptcy protection. The bank is fast at putting a hold on the bank account even if the individual filing for bankruptcy protection does NOT owe any money to the bank and even if the funds are claimed as exempt in bankruptcy. It does not matter if you are filing Chapter 7 or Chapter 13 bankruptcy, just the fact of having any funds in the Wells Fargo bank account is enough for the bank to “freeze” the account.  The bank “preserves” the money in the account for the bankruptcy trustee. An individual can prevent this from happening by withdrawing the funds from the bank account before filing the bankruptcy case. Eventually the funds will be released back to the debtor and the hold will be lifted, but this process might take several weeks and if the money in the account were intended to be used to pay the utilities bill or mortgage, by losing access to these funds an individual’s payments might be jeopardized.

Another hot topic discussed at the conference was the recent state and federal foreclosure settlement with five of the U.S. largest mortgage servicers including Bank of America, Citi, JPMorgan Chase, Ally/GMAC, and Wells Fargo banks. The settlement applies to the homeowners in the State of Florida whose loans were serviced by the above mentioned loan providers and who were harmed by the bank’s unfair mortgage servicing practices and foreclosure abuses. The logistics of the settlement awards and the application procedures and requirements are still in the workouts.  The settlement is intended to provide mortgage relief and direct payments to the Florida borrowers. The settlement consists of two segments- one is the federal settlement in the amount of approximately $25 billion dollars and second is a portion of the settlement in the amount of estimated $8.4 billion dollars available to Florida residents who meet the application criteria and have mortgages with one of the five servicers listed above.

Homeowners who are current on their mortgages but who owe more than the property is worth, will also be evaluated for possible eligibility for mortgage modifications and principal reductions to the first and second mortgages. Qualifying homeowners who lost their homes in foreclosure lawsuits from January 1, 2008 to December 31, 2011 might also be eligible to receive cash payments. The settlement will also address the future loan servicing practices and will require the loan servicers to comply with a stricter mortgage servicing standards. The settlement does not release the banks from the criminal liability or individual claims from the borrowers or class action lawsuits.

The settlement Monitoring Committee, consisting of  numerous State Attorney Generals, is currently looking to select a settlement administration companies that will be in charge of receiving and reviewing the claims for the settlement benefits. The Committee will also overview the bank’s compliance with the settlement provisions and deadlines, imposing penalties and fines for non-compliance. The Committee estimates that the review of the claims will start as early as June 2012 and will continue for the next six to nine months.

Since the duration of this agreement is limited to three years, homeowners are encouraged to contact their lenders directly to inquire about the application process and the qualifications for the mortgage modification programs or monetary awards. Listed below is contact information that will help you to further inquire into the workouts of the settlement agreement:

For the further information regarding the financial restitution for the borrowers who lost their home in foreclosure between January 1, 2008 and December 31, 2011, contact the Attorney General’s Office at www.myfloridalegal.com.

For the loan modifications and refinancing options for borrowers who are current but underwater on their homes, contact the banks directly:

Ally/GMAC: 800-766-4622

Bank of America: 877-488-7814

Citi: 866-272-4749

JPMorgan Chase: 866-372-6901

Wells Fargo:800-288-3212

However, if your loan is owned by Fannie Mae or Freddie Mac, you are not affected by this settlement. If you are not sure whether your loan is owned by one of these servicers, check their websites:

Fannie Mae at http://www.fanniemae.com/loanlookup

Freddie Mac at http://freddiemac/mymortgage

More information could be found on www.nationalmortgagesettlement.com or www.myfloridalegal.com.

Eviana Martin is an attorney with the Martin Law Firm, P.L. Her practice focuses on Bankruptcy and Consumer Law. She is admitted to practice law in the State of Florida and the Federal Court for the Middle District of Florida. She represents clients from Lee, Charlotte and Collier Counties at the firm’s offices in Fort Myers, Cape Cora, North Fort Myers, and Naples, Florida.

One of the advantages of filing for Chapter 13 bankruptcy was that it allowed for a homeowner to “strip” their second mortgage.  If the homeowners were underwater on their first priority mortgage, meaning they owed more on that loan than the home is worth, chapter 13 bankruptcy provided a process for those homeowners to remove their second loan.  The homeowners would propose a chapter 13 payment plan and then file a motion to eliminate the second mortgage as part of the plan.  Upon completion of their chapter 13 plan, the second mortgage would be discharged along with their unsecured debt.

Until now Courts have not allowed a debtor to strip a second mortgage in Chapter 7 Bankruptcy.  The Eleventh Circuit Appeals Court, which controls the law in Florida bankruptcy courts, just issued a decision permitting a debtor to remove their second mortgage in Chapter 7 bankruptcy.  The case is In Re: Mcneal, 11-11352

There are several advantages to being able to strip a second mortgage in Chapter 7 bankruptcy rather than Chapter 13.  Usually, a debtor can receive a discharge in Chapter 7 in only a few months while most Chapter 13 payment plans take 3 or 5 years.  A debtor also pays less money in Chapter 7 than they would in Chapter 13.  Not all debtors though can qualify for Chapter 7 though as there is a “means test” in order to be eligible.  Chapter 13 is also a better option than Chapter 7 if the Debtor has a lot of non-exempt assets which might need to be surrendered in a Chapter 7.

Jonathan Bierfeld is an attorney with Martin Law Firm, P.L., whose practice focuses in Bankruptcy Law and Civil Litigation.  He is admitted to practice law in the State of Florida and the Federal Court for the Middle District of Florida.  He primarily practices in Lee County Florida in Cape Coral and Fort Myers, Florida.

If you decide to seek bankruptcy relief, you can represent yourself, you can hire an attorney to represent you, or you can get help in some localities from a bankruptcy petition preparer who is not an attorney.

The law requires an attorney or bankruptcy petition preparer to give you a written contract specifying what the attorney or bankruptcy petition preparer will do for you and how much it will cost.

Ask to see the contract before you hire anyone.

The following information helps you understand what must be done in a routine bankruptcy case to help you evaluate how much service you need. Although bankruptcy can be complex, many cases are routine.

Before filing a bankruptcy case, either you or your attorney should analyze your eligibility for different forms of debt relief available under the Bankruptcy Code and determine which form of relief is most likely to be beneficial for you. Be sure you understand the relief you can obtain and its limitations. To file a bankruptcy case, documents need to be prepared correctly and filed with the bankruptcy court; these include a Petition, Schedules, a Statement of Financial Affairs, as well as in some cases a Statement of Intention. You will have to pay a filing fee to the bankruptcy court. Once your case starts, you must attend the required first meeting of creditors where you may be questioned by a court official called a “trustee” and/or by your creditors.

If you choose to file a chapter 7 case, you may be asked by a creditor to reaffirm a debt. You may want help deciding whether to do so. No creditor is permitted to coerce you into reaffirming your debts.

If you choose to file a chapter 13 case you may also want help preparing your chapter 13 plan and also with the confirmation hearing on your plan which will be before a bankruptcy judge.

If you select another type of relief under the Bankruptcy Code other than chapter 7 or chapter 13, you will want to find out what should be done from someone familiar with that type of relief.

Your bankruptcy case may also involve litigation. You are generally permitted to represent yourself in litigation in bankruptcy court, but only attorneys, not bankruptcy petition preparers, can give you legal advice.