Just Filed My Chapter 7 Case – Now What?

Richard AvatarWith many clients, once the attorney and client have reviewed the bankruptcy petition, schedules, statements, worksheets and calculations, and their case is ready to file, I am often met with a perplexed look and a question:  ”So what happens next?”What happens next is a flurry of deadlines and court control dates, some of which require the client’s participation (such as responding to the Trustee’s requests for additional information), some do not require the client’s participation, and others may require the attorney’s participation, depending on how the case progresses.

Often, the client is overwhelmed with the detail and the numerous dates, and simply wants to know that they will get their discharge in “about four months”. However, some clients with more complex cases appreciate the added detail, which is why we have added a convenient Chapter 7 Timeline to our website.

The new addition allows a client or prospective client to input their Chapter 7 Filing Date and Section 341(a) hearing date (if known), and will output a scaled timeline with the important dates. Links to the relevant portions of the U.S. Bankruptcy Code and the Federal Rules of Bankruptcy Procedure are also included for cross reference at the bottom of the timeline page.

We hope this tool will help clients, prospective clients and attorneys alike better understand and navigate the meticulous and often trap-ridden world of bankruptcy law.

Richard Simpson

770-623-6341 Desk

404-788-4420 Cell

rsimpson05@bellsouth.net

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– More than 1 million American households are likely to lose their homes to foreclosure this year, as lenders work their way through a huge backlog of borrowers who have fallen behind on their loans.

Nearly 528,000 homes were taken over by lenders in the first six months of the year, a rate that is on track to eclipse the more than 900,000 homes repossessed in 2009, according to data released Thursday by RealtyTrac Inc., a foreclosure listing service.

“That would be unprecedented,” said Rick Sharga, a senior vice president at RealtyTrac.

By comparison, lenders have historically taken over about 100,000 homes a year, Sharga said.

The surge in home repossessions reflects the dynamic of a foreclosure crisis that has shown signs of leveling off in recent months, but remains a crippling drag on the housing market.

The pace at which new homes falling behind in payments and entering the foreclosure process has slowed as banks continue to let delinquent borrowers stay longer in their homes rather than adding to the glut of foreclosed properties on the market. At the same time, lenders have stepped up repossessions in an effort to clear out the backlog of distressed inventory on their books.

The number of households facing foreclosure in the first half of the year climbed 8 percent versus the same period last year, but dropped 5 percent from the last six months of 2009, according to RealtyTrac, which tracks notices for defaults, scheduled home auctions and home repossessions.

In all, about 1.7 million homeowners received a foreclosure-related warning between January and June. That translates to one in 78 U.S. homes.

Foreclosure notices posted monthly declines in April, May and June, but Sharga said one shouldn’t read too much into that.

“The banks are really sort of controlling or managing the dial on how fast these things get processed so they can ultimately manage the inventory of distressed assets on the market,” he said.

On average, it takes about 15 months for a home loan to go from being 30 days late to the property being foreclosed and sold, according to Lender Processing Services Inc., which tracks mortgages.

Assuming the U.S. economy doesn’t worsen, aggravating the foreclosure crisis, Sharga projects it will take lenders through 2013 to resolve the backlog of distressed properties that have on their books right now.

And a new wave of foreclosures could be coming in the second half of the year, especially if the unemployment rate remains high, mortgage-assistance programs fail, and the economy doesn’t improve fast enough to lift home sales.

The prospect of lenders taking over more than a million homes this year is likely to push housing values down, experts say.

Foreclosed homes are typically sold at steep discounts, lowering the value of surrounding properties.

“The downward pressure from foreclosures will persist and prices will be very weak well into 2012,” said Celia Chen, senior director of Moody’s Economy.com.

She projects home prices will fall as much as 6 percent over the next 12 months from where they were in the first-quarter.

Economic woes, such as unemployment or reduced income, continue to be the main catalysts for foreclosures this year. Initially, lax lending standards were the culprit. Now, homeowners with good credit who took out conventional, fixed-rate loans are the fastest growing group of foreclosures.

There are more than 7.3 million home loans in some stage of delinquency, according to Lender Processing Services.

Lenders are offering to help some homeowners modify their loans. But many borrowers can’t qualify or they are falling back into default. The Obama administration’s $75 billion foreclosure prevention effort has made only a small dent in the problem.

More than a third of the 1.2 million borrowers who have enrolled in the mortgage modification program have dropped out. That compares with about 27 percent who have received permanent loan modifications and are making payments on time.

Among states, Nevada posted the highest foreclosure rate in the first half of the year. One in every 17 households there received a foreclosure notice. However, foreclosures there are down 6 percent from a year earlier.

Arizona, Florida, California and Utah were next among states with the highest foreclosure rates. Rounding out the top 10 were Georgia, Michigan, Idaho, Illinois and Colorado.

Biggest Defaulters on Mortgages Are the Rich

The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.

Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

Five properties here in Los Altos were scheduled for foreclosure auctions in a recent issue of The Los Altos Town Crier, the weekly newspaper where local legal notices are posted. Four have unpaid mortgage debt of more than $1 million, with the highest amount $2.8 million.

Not so long ago, said Chris Redden, the paper’s advertising services director, “it was a surprise if we had one foreclosure a month.”

The sheriff in Cook County, Ill., is increasingly in demand to evict foreclosed owners in the upscale suburbs to the north and west of Chicago — like Wilmette, La Grange and Glencoe. The occupants are always gone by the time a deputy gets there, a spokesman said, but just barely.

In Las Vegas, Ken Lowman, a longtime agent for luxury properties, said four of the 11 sales he brokered in June were distressed properties.

“I’ve never seen the wealthy hit like this before,” Mr. Lowman said. “They made their plans based on the best of all possible scenarios — that their incomes would continue to grow, that real estate would never drop. Not many had a plan B.”

The defaulting owners, he said, often remain as long as they can. “They’re in denial,” he said.

Here in Los Altos, where the median home price of $1.5 million makes it one of the most exclusive towns in the country, several houses scheduled for auction were still occupied this week. The people who answered the door were reluctant to explain their circumstances in any detail.

At one house, where the lender was owed $1.3 million, there was a couch out front wrapped in plastic. A woman said she and her husband had lost their jobs and were moving in with relatives. At another house, the family said they were renters. A third family, whose mortgage is $1.6 million, said they would be moving this weekend.

At a vacant house with a pool, where the lender was seeking $1.27 million, a raft and a water gun lay abandoned on the entryway floor.

Lenders are fearful that many of the 11 million or so homeowners who owe more than their house is worth will walk away from them, especially if the real estate market begins to weaken again. The so-called strategic defaults have become a matter of intense debate in recent months.

Fannie Mae and Freddie Mac, the two quasi-governmental mortgage finance companies that own most of the mortgages in America with a value of less than $500,000, are alternately pleading with distressed homeowners not to be bad citizens and brandishing a stick at them.

In a recent column on Freddie Mac’s Web site, the company’s executive vice president, Don Bisenius, acknowledged that walking away “might well be a good decision for certain borrowers” but argues that those who do it are trashing their communities.

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When Uruguay striker Luis Suarez raised his hands to block a sure goal from the opposing Ghana side, he committed a foul and paid the penalty — but Uruguay won the game and Ghana’s World Cup team packed its bags.

Suarez got a red card that removed him from the game and suspended him from the semifinal that Uruguay got to play thanks to his unsportsmanlike conduct. There is no goaltending rule in soccer, and Ghana failed to make the ensuing penalty kick and then lost the overtime penalty shootout.

Suarez and Uruguay earned universal opprobrium, but, hey, all the rules were applied and they won the game. “Truth is, it was worth it,” a grinning Suarez said after the game.

Richard AvatarIn thwarting the extension of unemployment benefits, Senate Republicans are playing with Uruguayan tactics, manipulating the rules in a brazenly unsportsmanlike attempt to win the game at any cost.
AM Report: Jobless benefits spark fierce debate

Jobless benefits are leading to a fierce debate: Do they prompt jobless workers to be pickier in their searches? Or is employment insurance a prudent response to the worst recession in decades?

Using the pernicious filibuster rule, the minority party is breaking with a long tradition of automatically providing federal support in times of high unemployment, imposing further hardships on thousands of families.

It is bad politics, bad economics, and just plain nasty, but Republicans are clearly intent on sabotaging the Obama administration no matter what the cost to individual Americans.

The Republican objections about not wanting to extend unemployment unless it is “funded” because they don’t want enlarge the federal deficit are bogus and hypocritical. They never hesitated to add to the deficit when it was a question of tax cuts for the wealthy, estimated to have cost $2 trillion over six years. The $35.5 billion for the unemployment benefits is negligible compared to that figure.

Sacrificing such a relatively small expenditure on the altar of fiscal rectitude really does turn deficit hawks into deficit terrorists, to use economist Bill Mitchell’s phrase. To insist on this sacrifice when unemployment is at nearly 10% and Treasury yields are at historic lows is truly foul play.

No less an authority than Mark Zandi, the Moody’s economist who was one of John McCain’s economic advisers during his presidential campaign, said it is vital to extend the benefits regardless of the deficit. The risk of a double-dip recession by not extending them more than outweighs any harm done through a short-term blip in the deficit, Zandi said in congressional testimony last week.

The denial of unemployment benefits to hard-pressed Americans is just the latest tactic in the Republican’s scorched earth strategy.

“Paying for it…should not be a precondition for Congress to provide more financial help to unemployed workers, strapped states and municipalities, and small businesses looking to expand,” Zandi told the House Budget Committee. “A larger near-term federal deficit is not an economic problem.”

Congress can offset the expenditure a couple of years from now, “when the economy is in full swing,” said this economist, whom no one has ever accused of pandering to the left.

But the unprecedented denial of unemployment benefits to hard-pressed Americans — make no mistake, children are going hungry as a result — is just the latest tactic in Republicans’ scorched earth strategy designed to maximize their political gain in the November midterm elections.

It’s a cruel and cynical strategy that could well backfire, even though it victimizes some of the weakest and most disenfranchised sectors of the electorate.

The Republicans are evidently counting on the rage of voters hurt by the economy to be targeted at the Democratic majority, but people aren’t that stupid. They know that the Senate Republicans — and the unfathomable Nebraska Democrat Ben Nelson — are the ones who blocked the aid.

Matthew Kaminski of The Wall Street Journal cited the Suarez incident as well as some of the big refereeing gaffes in the World Cup competition as the reason why Americans don’t like soccer — it violates our sense of fair play.

And yet the Republican strategy of winning at any cost — any cost to the American people, any cost to the common weal — is a much greater violation of any sense of fair play, with much graver consequences.

The Netherlands handily defeated Uruguay in the semifinal and his red card was the last action Suarez saw in the contest. If the American sense of fair play kicks in this November, a number of Republicans may be looking at their own red cards

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People Helping People

Bank of America (BAC: 15.81 -0.50%) is starting to forgive principal when modifying underwater mortgages eligible for the National Homeownership Retention Program (NHRP).

BofA servicers will forgive principal for homeowners who owe “considerably more” on their mortgage than the current value of the home while being considered for the Home Affordable Modification Program (HAMP). BofA announced NHRP in March 2010.

The bank will attempt a principal reduction as the first step in the servicer waterfall to reach the 31% debt-to-income ratio target – the amount of the borrower monthly income that goes toward the mortgage. Loans eligible for the NHRP include subprime, pay-option adjustable rate mortgages (ARM) and prime-quality two-year hybrid ARMs originated by Countrywide before Jan. 1, 2009. The amount of principal owed must exceed the property value by 20%, and the loan must be delinquent by 60 or more days.

Through the five-year NHRP, BofA sets up an interest-free forbearance account for the amount of principal owed above the current value of the home. For instance, if the borrower owes $250,000 on a home worth $200,000 and qualifies for the program, BofA will set up a separate account of $50,000 that will sit alone without collecting interest while the borrower makes payments on the $200,000 at the current market interest rate. There are no required payments on the $50,000 non-interest bearing mortgage account.

For the first three years of the NHRP, BofA reduces the separate account – the $50,000 in the example above – by 20% each year if the borrower remains current. Meaning after three years, $30,000 would be forgiven in the example. If, by then, house prices have gone up and the borrower is once again at a 100% loan-to-value ratio, BofA will no longer reduce the principal. If the borrower remains above 100% LTV, BofA will continue reducing payments for an additional two years.

BofA will not reduce the principal on the non-interest bearing mortgage account if the sum of both mortgages achieves 100% LTV.

“We believe the loss [through NHRP] will be smaller compared to foreclosure,” said Jack Schakett, credit loss mitigation executive for BofA Home Loans.

The Treasury Department announced a similar earned principal forgiveness program for HAMP that will go into effect later in the year. But it ends after three years, opposed to the five-year possibility offered by BofA. Schakett said about 80% of the borrowers in the NHRP will not need to receive principal forgiveness after three years.

Schakett added that of the BofA borrowers currently moving through the HAMP process, 45% had an LTV of more than 120%.

“Our tests have shown that many homeowners who are severely underwater on their mortgages will respond positively to a modification offer that includes reduction of their principal balance, increasing the rates of acceptance of HAMP trial modification offers, conversion to permanent modifications and long-term success of the homeowner,” Schakett said.

Schakett said the amount of borrowers who have strategically defaulted is more than they’ve ever experienced before. To meet the demand for modifications, BofA more than doubled its staff in the loss-mitigation department to reach out to these borrowers. The bank also opened the first of three “outreach” centers in Nevada, joining similar centers in California and Florida.

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UNDERWATER HOMEOWNERS AND THE ECONOMY
In a recent report, Mustafa Akcay, of Moody’s Economy.com masterfully outlined the delicate relation between underwater homeowners and the recovery of the US economy.
Moody’s expect about 4 million homeowners to enter foreclosure in 2010 with failed loan modifications further depressing home prices. This drives their call for additional housing rescue programs.
Here are their four reasons why underwater homeowners pose a risk to the US recovery:
1. Negative equity has become an important driver to foreclosures.

2. The number of underwater homeowners, though declining, is still critically high.

3. The Loss of home equity undermines consumer spending and depresses house prices.

4. The US economic expansion will remain fragile as long as the housing market remains vulnerable.

Moody’s Economy.com estimates:
� 14.9 million homeowners, one-third of all mortgage borrowers, owed more than the market value of their homes at the end of 2009.

� This is 1.2 million lower than the peak in Q2 2009.

� More than 9 million homeowners� loan-to-value was above 120% by the end of last year.

� Mortgage outstanding in negative equity at the end of 2009 totaled $2.5 trillion nationwide.

� More than of mortgages outstanding might be at risk of defaulting.

� Total amount of negative equity was $900 billion at the end of last year.

� States with once-hot housing markets have the largest volume of negative equity.

� Underwater homeowners owe $254 billion in negative equity in California and $88 billion in Florida.

� In Nevada, 80% of mortgage loans were under water at the end of 2009, with Arizona and California following close behind.

� By the end of 2009 1.6 million homeowners in California had loan-to-value ratios above 120%, followed by Florida with 1.1 million and Michigan with 560,000.

� Michigan is the only hard hit state that did not experience a housing bubble, job losses brought values down.

Mustafa Akcay summarizes, “Home prices will remain depressed at least until 2012, with some tentative decline in the second half of 2010 and in 2011, keeping the number of negative equity homeowners high for some time.”
“The downside risk for strategic defaults is that lenders more aggressively seek repayment. In that case, underwater borrowers who are able to service their mortgage debt would be discouraged from defaulting, and strategic defaults would constitute a smaller share of all foreclosures.�”

Key Economic Reports Released This Week

RELEASE
DATE
ECONOMIC
INDICATORS
RELEASED
BY
CONSENSUS Wt. INFLUENCE ON
INTEREST RATES
Tue 06/01
10:00 am et
ISM (NAPM) Mfg
for May ‘10
National Association of Purchasing Mgt. 60.0%
** �If above consensus
�If below consensus
Tue 06/01
10:00 am et
Construction Spending
for April ‘10
Bureau of the Census
Dept. of Commerce
-0.8%
** �If above consensus
�If below consensus
Wed 06/02
7:00 am et
MBA Mtg Apps Survey
for week ending 05/28
Mortgage Bankers Association of America N/A
* Undetermined
Wed 06/02
10:00 am et
Pending Home Sales
for April ‘10
National Association
of Realtors
8.0%
** If above consensus
If below consensus
Wed 06/02
Motor Vehicle Sales
for May ‘10
Automobile Manufacturers Vechiles 11.4M
** Undetermined
Thu 06/03
8:15 am et
ADP Employment Report
for May ‘10
Automatic Data Proc &
Macroeconomic Advisors
100K
** If above consensus
If below consensus
Thu 06/03
8:30 am et
Jobless Claims
for week ending 05/29
Bur. of Labor Statistics
Department of Labor
445K
* �If above consensus
�If below consensus
Thu 06/03
8:30 am et
Productivity & Costs
Q1 ‘10 revised
Labor Department Prod 4.2%
Costs -2.2%
** �If above consensus
�If below consensus
Thu 06/03
10:00 am et
Factory Orders
for April ‘10
Bureau of the Census
Dept. of Commerce
1.5%
* �If above consensus
�If below consensus
Thu 06/03
10:00 am et
ISM Index (Non-Mfg)
for May ‘10
National Association of Purchasing Mgt. 56.0%
** �If above consensus
�If below consensus
Fri 06/04
8:30 am et
Employment Situation
for May ‘10
Bur. of Labor Statistics
Department of Labor
Payrolls 600k
Umemp 9.8%
**** �If above consensus
�If below consensus

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