Make Sure a Claim is a Claim in Your Southern California Chapter 13 Bankruptcy & Save Money.

Posted by on Aug 20, 2013 in Chapter 13 Bankruptcy Issues | 0 comments

If you are thinking about filing Southern California Chapter 13 Bankruptcy, then make sure you know how much you owe your creditors.   Most potential debtors typically focus on how much they must repay based on their disposable income, but many fail to really take a close look at what they owe.

For example, oftentimes, creditors might not hold legitimate claims in bankruptcy.  Claims are controlled under Section 502 of the bankruptcy code, Because allowance or disallowance of claims against the estate are core proceedings under 28 USC Section 157(b)(2)(A), which may be heard and determined by bankruptcy judges, it is in the Debtor’s best interest to ensure that the claim is actually owed.

Under 11 USC Sction 101(5)(A), a claim is a right to payment or a right to an equitable remedy for breach of performance if such breach gives rise to payment.   Thus, make sure your creditor actually holds a claim.  If there is no right to payment, then your creditor is not actually a creditor, but a third party with no direct interest in your case as it relates to recovery.

For example, under CCP 580(b), purchase money mortgages pursuant to 80/20 residential loans are typically non-recourse pursuant to anti-deficiency laws in California for residential properties meeting such criteria.   The lender is typically limited to in rem relief under California law.  Thus, if the bank holding the first and second purchase money mortgage forecloses with respect to the first mortgage, it generally is not entitled to further right to payment under the second mortgage.

I once had a client whose income required a 100% repayment in a chapter 13.   I was not the first bankruptcy this client visited for a free consultation, but I didn’t know that when I met with the client.   This client wanted to know if the repayment was really going to be 100% no matter what.   Well, I immediately could tell this was indeed going to be a 100% plan.   But the issue, for me, was whether or not the client had to repay a purchase money second mortgage on foreclosed property.   So when I estimated this person’s plan payments to be around $100,000.00 less than the client was told by other attorneys, this prospective client simply was besides himself.

The client first questioned if I had miscalculated the payment, and I assured him while it was a projection, that my estimates were reasonable.  Then I explained to the client that a claim is a right to payment and under California law, the bank had no right to pursue repayment on a purchase money second mortgage pursuant to CCP Section 580(b).

So we still had a 100% plan, but the end result was that this client had a chapter 13 plan  that was approved by the trustee without objection by any party, including the bank holding the extinguished purchase money second mortgage.  It was confirmed for almost $100,000.00 less than what my client had been told by other bankruptcy attorneys.   The client was happy knowing his attorney reviewed the status of the claims instead of simply assuming the claims were payable in bankruptcy.

The anti-deficiency law example is just one example of many when it comes to helping clients in chapter 13.   Debtor’s attorneys must not only be well versed with bankruptcy law but also nonbankruptcy law as well.   These tools, combined together, can comb through claims and potential claims wherein such practice will ensure the debtor’s chapter13 plan payment is as reasonable and accurate as possible.












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