In a bankruptcy proceeding, it’s essential to disclose all real estate owned by the debtor and to know the current state of the debtor’s mortgage payments. This information is listed on Schedule A and includes all real property owned by the debtor, where it’s located, and what it’s worth.
In determining property value, it is generally best if you obtain an appraisal. This will provide the current value, which is important if the amount owed is more than the property is worth. There may be other legal options available to the debtor.
Tip: Be sure to question the debtor about all types of possible ownership he or she may have in property. If a property was gifted to them, they only own a small percentage, or they inherited it, they may not think it’s worth mentioning.
Side Note: If mortgage payments are in arrears, there are a few options to consider paying the claim through the plan. One option is called a conduit case.
In some states trustees are setting up what’s called a conduit case, where the mortgage payment, arrears, and any other late fees are rolled into the plan payment. These payments are set up right away, not like most claims that are set up and paid only after confirmation. The trustee pays the mortgage through the plan until the debtor is discharged and can take over their payments. Once the case is discharged, the mortgage should be current.
These conduit cases are generally more complex and little tolerance if a debtor misses a payment. These cases are also easier to dismiss and can require a lot of work on the part of the attorney.
Conduit cases are unique and not every trustee does them. Most cases pay their arrears and late fees in the plan, but continue to pay their mortgage outside. In rare cases, debtors pay off their entire mortgage in the plan.
Tip: If you’re regularly getting into Chapter 13 bankruptcies that deal with delinquent mortgage issues, it’s a good idea to be informed and seek expertise familiar with those situations. The laws can be tricky and these situations usually lead to litigation.
Description and Location of Property
It’s common to put the number of bedrooms, type of house (ranch, etc.), and size of land on which the home is located.
Tip: Be sure to give an accurate description of the property, this is most important if the debtor is listing multiple properties. It’s helpful to the trustee to put in the full property address for clarification.
Nature of Debtor’s Interest in Property
This clarifies how much of an asset the property is to the debtor’s estate.
Tip: Don’t overuse abbreviations. This is especially true for real estate attorneys who seem to like them a lot. It is best to provide a full description upon first use and abbreviate thereafter.
Current Value of Interest in Property
An appraisal will provide an objective figure here.
Tip: Make sure to review the appraisal to see that the home was fairly compared to similar ones in its area. Most of the time the appraisal will be done well, but it never hurts to double-check. The value of the home compared to the secured claim from the mortgage lender is a possible adversary proceeding.
Amount of Secured Claim
This is the claim filed by the mortgage company. The secured claim is typically the amount left to pay on the mortgage plus any fees.
Tip: A creditor isn’t required to file a secured claim, so you need to request this documentation from them. Creditors aren’t always quick to respond and may give as little information as possible, causing repeated requests for information and unnecessary delays.
Tip: When you gather all of the information, review it carefully. Make sure the creditor provides a list of all fees. If a fee is listed, and it isn’t specific, ask for an itemized accounting. There’s a lot of debate over the issues of arrears, attorney fees, and miscellaneous fees that come with bankruptcy claims. If something doesn’t look right, ask for documentation to clarify it.
Virtual Paralegal Services assists law firms with bankruptcy proceedings and petition preparation. Let our experienced team of paralegals assist you with your bankruptcy proceedings so that you can do more. Contact us today to learn more.
VPS provides paralegal and legal support services and is not engaged in any way with the rendering of legal advice. VPS encourages readers to obtain the advice of competent, licensed legal counsel as required. Any information provided by VPS is not a substitute for legal advice or assistance.