Gillman & Gillman | Experienced New Jersey Bankruptcy Lawyers

Frequently Asked Question About the Bankruptcy Act of 2005 & Divorce, Support, Marital Property & Debt.

Allen Gillman — Wed, 28 Jul 2010 19:55:07 +0000

Frequently Asked Questions About the Bankruptcy Act of 2005 (BAPCPA) & Divorce, Support, Marital Property and Debt.

The General Information Provided Is NOT Legal Advice. A Petition Filed in the United States Bankruptcy May Substantially Affect Proceedings Before the Superior Court of New Jersey – Family Part. If You Have Specific Concerns and Questions About Your Rights and Duties You Should Seek the Advice of Experienced Bankruptcy Counsel.

Q. What Information Must Be Provided About Support Obligations When Filing Bankruptcy?

A. Current Child Support and Alimony – Under the Act, support and alimony payments can not be discharged and a written notice at the time of filing a bankruptcy petition and a second notice at the time of discharge must be provided to the party to whom payments are made. In the notice, the United States Trustee must provide contact information for the bankruptcy debtor’s State Child Support Enforcement Agency. If you are filing a Bankruptcy Petition and have a Domestic Support Obligation, you must provide complete information about your obligation. This includes the name and contact information of the person who is receiving the support and confirm, in a document filed with the Court or provided to the Trustee, that the Court-ordered payments are current. If you are receiving support payments, current support debts survive a bankruptcy without the need for you to have to go to Bankruptcy Court. However, it is sometimes not clear whether or not a payment is in the nature of support. What constitutes alimony, maintenance, or support, will be determined under the bankruptcy laws, not State law.

Q. Who Decides Whether the Payments I Am Receiving or Which I Am Required to Pay Are Alimony or Support?

A. Whether or Not Payments Received Are For Alimony and/or Support Is A Question of Federal Law and is Therefore Decided By the Bankruptcy Court.

Most alimony and support payments are not subject to question and are entitled to the protections of Bankruptcy Code. However, payments which are “in the nature of support or alimony” have been the subject of considerable litigation. ” Two examples of when this question arises has been presented to the Bankruptcy Court are discussed below. These examples are for illustrative purposes only.

Example No. 1: Payment of Attorney Fees Incurred During Divorce Proceeding

“The divorce court awarded to the wife counsel fees in the amount of $85,000 to be paid by her former husband to the law firm that represented the wife, a sum that is calculated to level the playing field in the context of this unnecessarily prolonged litigation. This sum shall be paid directly to [Ms. Prensky's] counsel in three equal installments, the first of which shall be paid on or before April 1, 2008. The two subsequent payments shall be made on July 1, 2008 and September 1, 2008 … The obligation to pay the $85,000 in legal fees (“Law Firm Indebtedness”) was separate from, and in addition to, orders to pay child support, maintenance, martial debt, and an additional sum of $185,850.”

Thereafter, the husband filed a Bankruptcy Petition and sought to discharge his obligation of payment to the law firm.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) amended 11 U.S.C. §§ 523(a)(5) and (a)(15) of the Bankruptcy Code. Sections 523(a)(15)(A) and (B) were eliminated; these sections previously allowed debtors to render dischargeable non-support obligations that were incurred in the course of a divorce or separation if the debtor did not have the ability to pay the debt, or if discharging the debt would have resulted in a benefit to the debtor that outweighed the detrimental consequences to the spouse, former spouse, or child. The debtor’s ability to pay is no longer a factor and bankruptcy courts do not engage in any balancing test of whether a debtor would gain more than his or her domestic relations creditors if the debtor were granted a discharge

Under the New Code Sections 523 (a)(15) debt to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a government

Therefore the Bankruptcy Court found the the counsel fees that the Debtor was required to pay the the wife’s law firm to be a “divorce-related debt incurred by [Debtor] in the course . . . of the divorce proceedings between [Debtor and Ms. Prensky] and [is] non-dischargeable pursuant to 11 U.S.C. § 523(a)(15).” Prensky, 416 B.R. at 410-11. The judgment of the Bankruptcy Court was affirmed on appeal to the United States District Court Prensky v. Clair Greifer LLP, 2010 U.S. Dist. LEXIS 66181 (D.N.J. June 30, 2010).

Example No. 2: The Distribution of Marital Property In the Nature of Support

In DeHart v. Miller (In re Miller), 424 B.R. 171, the Bankruptcy Court was required to decide whether payments which were being made were support payments or payments for a party’s share of marital property.

The Debtor declared bankruptcy in April, 2009, and claimed that the $88,500 she was owed by her husband was not part of her bankruptcy estate under 11 U.S.C.S. § 522(d)(10)(D) because it was “alimony, support, or separate maintenance.

“Debtor’s marriage of ten years was dissolved by a divorce decree entered by the Court of Common Pleas of York County, Pennsylvania…The master’s report made recommendations for the resolution of economic issues concomitant to the dissolution of the marriage. In a section of the Report entitled “Recommendations with Respect to Equitable Distribution,” the divorce master recommended that 67% of the marital property be distributed to Debtor and the remaining 33% to Miller … After distributing specific property to each party, the divorce master determined that a “cash adjustment” of $85,500.00 was required to effectuate this 67%/33% division of assets. Miller was given the option of paying the $88,500.00 in a lump sum or in monthly installments of $982.53 over nine years at 6%. … ” If a state court designates an award as something other than alimony, support or maintenance, this label does not control a bankruptcy court’s finding as to its true function. Smith v. Pritchett (In re Smith), 398 B.R. 715, 721 (B.A.P. 1st Cir. 2008).

The bankruptcy court agreed with the Debtor and held that the $88, 500.00 was exempt. “Although the master made that award in a section of his report labeled “Discussion and Conclusions of Law with respect to Equitable Distribution,” the language and substance of the report made it clear that the award was not just related to the debtor’s need for support; instead, it was founded on that need. In reaching its decision, the Court compared 11 U.S.C.S. §§ 522(d)(10)(D) and 523(a)(5) and found that it was appropriate to apply concepts used in both sections in a consistent manner.

Caution: The Question of Whether Payments Are Support or Alimony is fact sensitive and therefore requires a full analysis of all the facts and circumstance of the litigants, including but not limited to their income, assets, liabilities and obligations. Therefore, if there is any doubt about the how a debt arising out of a matrimonial proceeding is classified, you should seek the opinion of an attorney who practices in this area of the law.

Q. Does the Filing of a Bankruptcy Petition During a Divorce Proceeding Stay Equitable Distribution of Marital Property by the New Jersey Superior Court-Family Part.

The equitable distribution of marital assets is stayed [put on hold] by the filing of a bankruptcy petition. However the Bankruptcy Court may grant a request to allow the State Court to proceed. “This Court recognizes the special expertise of the Family Part in dealing with issues of alimony, support, custody, and equitable distribution. Under the facts herein, that expertise should be allowed to function. In addition, notions of judicial economy predominate this Court’s decision to lift the automatic stay and permit the parties to proceed in the State Action … the State Court is intimately familiar with the parties’ conditions as they pertain to the divorce proceeding and stands ready to try the case … With respect to issues of equitable distribution, the State Court shall determine and fix the equitable distribution award while this Court shall retain jurisdiction to apportion assets set by the State Court as part of the Debtor’s continuing reorganization process.

In re Mattera, 2006 Bankr. LEXIS 4083 (Bankr. D.N.J. Feb. 6, 2006)

Caution: It is important to understand that under the Law of New Jersey, the right of equitable distribution does not arise until a judgment of divorce is entered. This can create a very serious problem during a divorce proceeding. One of many examples arises where property is titled in the name of one of the parties and that party filed a Bankruptcy Petition. Although the other party may have a claim to the property under New Jersey Law, the claim can be defeated by the United States Trustee who represents the creditors in the bankruptcy proceeding.

” … , at the moment of filing a bankruptcy petition the trustee is given superior rights as a hypothetical lien judgment creditor under § 544(a)(1). In order for a claim to survive the trustee’s strong arm powers, the moving party must show a right to the property before commencement of the bankruptcy case. In New Jersey, pursuant to N.J.S.A. § 2A:34-23, the right to equitable distribution does not arise until the entry of the judgment of divorce. In re Howell, 311 B.R. 173, 176 (Bankr.D.N.J. 2004), citing In re Berlingeri, 246 B.R. 196 (Bankr.D.N.J.2000); Carr v. Carr, 120 N.J. 336, 576 A.2d 872 (1990). The prospective right[*7] to equitable distribution is not an interest that can defeat the superior rights of a trustee in bankruptcy.” Buccolo v. Buccolo (In re Buccolo), 2006 Bankr. LEXIS 4078, 11-12 (Bankr. D.N.J. Jan. 11, 2006)

Q. Can a Debt that Arises from a Divorce Proceeding ever be Discharged in a Bankruptcy Case?

A. Yes. Although, as discussed above, debts which are in the nature of “alimony, maintenance, and support” (“Domestic Support Obligations”) cannot be discharged in any bankruptcy case, other debts arise out of a divorce from a bankruptcy case. Specifically, debts which are owed “to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit”. 11 USCS § 523(a)(15). Although these debts are not dischargeable in a Chapter 7 Bankruptcy Case, they may be dischargeable in a Chapter 13 Bankruptcy case.

Chapter 13 Bankruptcy cases involve a reorganization – a debt repayment plan – in which the Debtor is required to commit his or her income to creditors for a period of between 36 and 60 months. In such a case, a debt which is owed “to a spouse, former spouse, or child of the debtor and not” in the nature of “alimony, maintenance, and support” (“Domestic Support Obligation”), may be discharged. Bankruptcy Code Section 1328(a)(2) clarifies that certain debts, which would otherwise not be discharged in a Chapter 7 bankruptcy case, can be discharged in a Chapter 13. This is often referred to as the “Super-Discharge” available in Chapter 13 cases.

Therefore, when considering the effect of a bankruptcy filing (by either spouse), it is also important to review options regarding the Chapters of bankruptcy available.

EXTREME CAUTION: The Legal Questions posed by whether a “debt” owed is in the nature of “alimony, maintenance, and support” is fact sensitive and therefore requires a full analysis of all the facts and circumstance of the litigants, including but not limited to their income, assets, liabilities and obligations. The determination of whether any person should file a bankruptcy, and what chapter of bankruptcy is appropriate, should also be reviewed with experienced legal counsel.

Marital Debt to Third Parties

Any debts resulting from an agreement by the debtor to hold the debtor’s spouse harmless on joint debts, to the extent that the agreement is in payment of alimony, maintenance, or support of the spouse, as determined under bankruptcy law considerations that are similar to considerations of whether a particular agreement to pay money to a spouse is actually alimony or a property settlement are non dischargeable-.

EXTREME CAUTION: Unfortunately parties in a divorce proceeding sometime seek to use the filing a a bankruptcy petition as a litigation strategy or simply to express their vindictive feelings toward their spouse. The result can be extremely detrimental to one or both of the parties. If you owe or are owed non support obligations arising from a property settlement or a Final Judgment of Divorce, you need the advice and counsel of an attorney who practices in this area of the law . It has been our experience those who do not very promptly seek legal representation are substantially and negatively affected.

Who Will Find Out If I File Bankruptcy ?

Allen Gillman — Wed, 28 Jul 2010 18:06:36 +0000

Q. Will My Friends, Neighbors, Employer or Others Find Out I Filled Bankruptcy ?

A. Although petitions filed in the United States Bankruptcy Court are public records, the answer to that question is almost certainly NO, unless your are a celebrity or a mega corporation.

We are frequently asked this question by those who consult us because they are experiencing serious debt problems and are considering filing a bankruptcy petition. Understandably they do no want their debt problems to affect their personal or business relationships. However, unless a bankruptcy petition is filed by an important business entity or a well-known person, it is very, very doubtful that the filing of a bankruptcy petition will attract any attention, especially given the flood of bankruptcy petitions filed because of the violent economic contraction and persistently high unemployment rate

For the 12 month period ending May 31 2010, a total of 38,000 736 petitions were filed in the the United States Bankruptcy Court of New Jersey. The overwhelming majority of these were consumer bankruptcies filed to either discharge debt under Chapter 7 or Chapter 13. See Below:

12 Month Period Ending May 31, 2010
New Jersey Chapter Consumer Bankruptcies 28734
New Jersey Chapter 13 Consumer Bankruptcies 8412

Source: http://www.njb.uscourts.gov/stats/data/2010_05_year.pdf

Celebrity bankruptcies of well-known sports figures and entertainers are frequently highly publicized as are the bankruptcies of large corporations. Recent example are the Bankruptcy Petition filed by General Motors. the one of the “Real Housewives of New Jersey” Among other celebrity bankruptcies are those of Kim Basinger, Burt Reynolds,
Mike Tyson, Debbie Reynolds, and the late Michael Jackson.
Perhaps the most frequently publicized bankruptcies have been those of the New Jersey Casinos associated with Donald Trump. Trump is listed as a party in the Bankruptcy five Bankruptcy Case filed between 1989 and 2009, the last of which is still pending.

89-10119-RG Resorts International, Inc. filed 11/12/89
90-01005-RG Resorts International, Inc. et al v. Lowenschuss et al
04-46898-JHW THCR/LP Corporation filed 11/21/04 closed 03/17/09
09-02120-JHW Coastal Marina, LLC et al v. Trump Marina Associates, LLC et
09-13654-JHW TCI 2 Holdings, LLC

The Bankruptcy filings do not seem to have affected either Mr. Trump’s reputation for his high self-esteem.

Wage Garnishments Are Enforced On First Come First Serve Basis

Allen Gillman — Tue, 29 Jun 2010 22:02:54 +0000

We are sometime asked by debtors whose whose earning are being garnished and whose employer receives a second wage garnishment whether both garnishments will be enforced at the same time. The Courts of the State of New Jersey have explained wage garnishments are enforced sequentially. As a result creditors are benefited from ‘being first in line’.

“Two wage executions may not be satisfied at the same time but instead are satisfied sequentially in order of priority. N.J.S.A. 2A:17-52. Thus, it is critical that the judgment debtor who is first in time should have his or execution placed in effect, upon proof of the debt and the income, with no delay. See Family Finance Corp. v. Jenkins, 131 N.J. Super. 336, 329 A.2d 604 (Cty. Ct. 1974) (holding that where a judgment creditor has accepted voluntary payments in lieu of enforcing [***6] his execution, a junior creditor with a later execution is entitled to satisfaction first.) Once in effect, that execution retains priority over other, later executions although it may be modified to accommodate the aims of justice. N.J.S.A. 2A:17-55. This is the policy reason behind the mandatory language in N.J.S.A. 2A:17-50. The mandatory scheme was created to avoid a situation in which one judge denies a wage execution and another judge thereafter grants one to a less diligent junior [*305] creditor. That is the evil which flows when the discretionary view of an initial grant of an execution is adopted.

Although this protects a debtor being garnished for more than the amount allowed under the provisions of N.J. Stat. § 2A:17-56 which limits the amount which may be garnished, each garnishment may be enforced in turn and as a result the wages of those who have experienced serious debt problems may be garnished for many years.

Loan Modifications and Foreclosure

Justin Gillman — Mon, 20 Jul 2009 13:40:02 +0000

In the continuing series in the New York Times on loan modifications and the foreclosure crisis, the reporter details the strange and disturbing links between the mortgage brokers who were involved in brokering the sub-prime mortgages which have threatened foreclosure of many New Jersey homeowners and the “loan modification” companies who now promise to negotiate better payments or avoid the loss of the same homes in foreclosure.

See the article at: http://www.nytimes.com/2009/07/20/business/20modify.html?_r=1&hp

News: New York Times Article Highlights Problems of Foreclosure and Loan Modification

Justin Gillman — Mon, 29 Jun 2009 15:02:41 +0000

An article in the New York Times published on June 29, 2009, highlights the confusion, difficulty and frustrations in attempting to modify your mortgage and avoid the loss of your home in a foreclosure. See the article at http://www.nytimes.com/2009/06/29/business/29loanmod.html?ref=us.

Some Receipts Not Counted as Income in Chapter 7 or Chapter 13 Bankruptcy Cases

Justin Gillman — Fri, 26 Jun 2009 13:23:41 +0000

A main issue in any Chapter 7 or Chapter 13 Bankruptcy case is the calculation of what is known as “current monthly income”. This issue is the often the most important one in determining whether a debtor qualifies for a chapter 7 bankruptcy or is required to pay their creditors in a chapter 13 bankruptcy.

In some cases, even though a debtor has received money, it is not counted as “income” for purposes of determining qualification for a chapter 7 bankruptcy case. Funds received from the following are not included:

(1) money received from the sale of property, such as stocks, bonds, a house, or a car (unless the person is engaged in the business of selling such property);

(2) withdrawals of bank deposits;

(3) money borrowed;

(4) tax refunds;

(5) gifts; and

(6) lump-sum inheritances of insurance payments.

See U.S. Census at http://www.bls.census.gov/cps/ads/1995/sglosary.htm.

Thus it is important to review these issues with an experienced bankruptcy attorney in determining qualification for a chapter 7 or chapter 7 bankruptcy case.

Fifth Circuit Allows Deduction for Transportation Ownership for Debtor with No Loan Payment

Justin Gillman — Wed, 24 Jun 2009 18:14:13 +0000

A continuing issue in consumer bankruptcy cases in Chapter 7, 11 and 13, is the manner in which automobile expenses are treated in the calculation of “current monthly income”. As with many aspects of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), practitioners and Courts have struggled with the question of determining the treatment of automobile expenses under the Code. This is a particularly important issue in some cases in which the deduction is crucial to determining whether a debtor can file a Chapter 7 Bankruptcy case without the “presumption of abuse”.

On June 10, 2009, the Fifth Circuit Court of Appeals ruled that a Chapter 7 Debtor could claim the deduction and expense for transportation even if the Debtor used vehicles which were not subject to loans or leases. See Opinion at http://www.ca5.uscourts.gov/opinions%5Cpub%5C08/08-60953-CV0.wpd.pdf

The Fifth Circuit noted the two basic approaches courts have followed: (1) the “plain language approach”, which allows the vehicle ownership deduction even if the debtors have no monthly payment associated with the vehicle, and (2) the “IRM approach,” which does not. Adopting the “plain language” approach, the Court followed the lead and opinion of the Seventh Circuit on this issue. See Ross-Tousey v. Neary (In re Ross-Tousey), 549 F.3d 1148 (7th Cir. 2008).

The Fifth and Seventh Circuits are the only two Circuit Courts to rule on this issue. At the present time, there is no opinion in the Third Circuit which addresses this issue for bankruptcy cases in New Jersey.

Where is a Bankruptcy Case filed in New Jersey?

Justin Gillman — Fri, 19 Jun 2009 12:38:49 +0000

A common question we get is “where will my case be filed”? Bankruptcy cases arise from the Federal Bankruptcy Code and therefore are heard and prosecuted in Federal Courts. In legal terms, this is called “jurisdiction”.

“Venue” is the legally proper place where a particular case should be filed or heard. The Federal Code provides that a Bankruptcy Case (or as it states in the Code, “a case under Title 11″), under any of the Chapters, may be commenced in the district “in which the domicile, residence, principal place of business in the United States, or principal assets in the United States” of the individual or corporate debtor has been located during the 180 days immediately proceeding the bankruptcy filing. There are other provisions in the Federal Code that give a debtor latitude in certain circumstances to file a case in other locations, if, for example, a new case is to be filed by an affiliate of a corporate debtor who has already filed in a particular district.

Cases which are filed in New Jersey, are filed in the venue of the U.S. Bankruptcy Court for the District of New Jersey. The New Jersey Bankruptcy Courts are is divided into three (3) units or vicinages. These vicinages are located in the federal courthouses in Newark, Trenton, and Camden.

New Jersey Local Bankruptcy Rules govern the assignment of cases. Although a debtor has a right to file a bankruptcy case in any of these vicinages, the Court can transfer a case if it finds that the matter is more properly heard in another vicinage. Generally though, the assignment of a case is based on the county in which the debtor resides (if the debtor is an individual or married couple) or the address where a corporate debtor has its principal place of business in New Jersey. The Local Rules divide the assignment of cases as follows:

1. The Newark vicinage consists of Bergen, Essex, Hudson, Morris, Passaic, Sussex and Union Counties.

2. The Trenton vicinage consists of part of Burlington (except for the townships of Cinnaminson, Delran, Edgewater Park, Evesham (Marlton), Maple Shade, Moorestown, Mount Laurel, Palmyra, Riverside and Riverton), Hunterdon, Mercer, Middlesex, Monmouth, Ocean, Somerset and Warren counties.

3. The Camden vicinage consists of Atlantic, part of Burlington (the townships of Cinnaminson, Delran, Edgewater Park, Evesham (Marlton), Maple Shade, Moorestown, Mount Laurel, Palmyra, Riverside and Riverton), Camden, Cape May, Cumberland, Gloucester and Salem counties.

Over the years, the Courts in the District have changed the assignment of cases by modifying the Local Rules.

Thus, even in what would appear to be a simple matter as the location of the filing of a bankruptcy petition, an individual, married couple, or corporation, should review the location (venue and assignment) of a potential bankruptcy filing with an attorney experienced in these matters. This blog and site provide information about the law designed to help users educate themselves about their own legal needs. But legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation.

Checklist: Tax Planning for Individuals filing Chapter 7, Chapter 13, or Chapter 11 Bankruptcy

Justin Gillman — Wed, 17 Jun 2009 14:17:32 +0000

The following is a short checklist of Tax Planning and Practice Strategies which may be followed by an attorney for an Individual considering the filing of a Chapter 7, Chapter 13, or Chapter 11 Bankruptcy.

1. Whether to File a Bankruptcy Case?

The first question to be reviewed is whether a bankruptcy filing of any kind is best for the individual. (Note: When discussing individuals, this is meant to include one person or a married couple filing a joint bankruptcy case.). Issues such as the treatment of outstanding taxes in the case, whether an individual is able to repay the necessary amounts through the case, and whether the cost associated with the case is worth the benefit to be received. For example, if an individual is unable to payoff a tax obligation in a Chapter 13 bankruptcy case in the required time, they may be better served with an Offer in Compromise with the IRS.

2. When to File?

The timing of the filing of a Bankruptcy Petition can be crucial in tax issues. One of many examples is the ability of a bankruptcy debtor to discharge certain unsecured taxes. Unsecured income taxes that were first due more than three (3) years before the bankruptcy case was filed, for which a timely and non-fraudulent return was filed, can be discharged in full in any chapter of bankruptcy. Therefore, before filing such a case, the individual and attorney should review whether the return was timely filed and whether the tax has been “due and owing” for more than three years.

3. Where to File?

Although it is rare for individuals to have choices in New Jersey as to where their case is filed, in some limited examples, individuals may have the ability to file in more than one jurisdiction and should review the relative benefits of filing in each venue.

4. Which Chapter of the Bankruptcy Code Under Which to File?

This is often the most important decision for individuals and often involves reviewing all of the financial circumstances, past, present, and future, with counsel.

5. What must be accomplished before filing a Bankruptcy Case?

Since the bankruptcy code generally requires that tax returns which are due be filed prior to the filing of the Petition, individuals should review their past tax filings and confirm that all returns are filed. If returns remain due, there should be immediate planning to have the returns filed as soon as possible.

This blog and site provide information about the law designed to help users educate themselves about their own legal needs. But legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation.

Update and Comment: New Jersey Foreclosure Mediation and Bankruptcy

Justin Gillman — Tue, 16 Jun 2009 22:05:44 +0000

Yesterday, we posted information on the press release issued by the New Jersey Bankruptcy Court regarding the New Jersey Foreclosure Mediation Program and Bankruptcy Debtors which was posted online at http://www.njb.uscourts.gov/notice/2009_02_04_foreclosure.pdf. In that post, there was reference to a General Order of the United States Bankruptcy Court District of New Jersey regarding Negotiations between Debtor(s) and Mortgage Servicers to Consider Loan Modifications. The post failed to include the link to the General Order of the Court. See http://www.njb.uscourts.gov/notice/2009_05_20_JHW-GenOrder_Re_Loan_Modification-05-19-09_signed.pdf

By way of comment, there are many practical problem that currently exist in Debtors efforts to engage in such discussions with their mortgage companies or servicers. First, despite this General Order, many servicers continue to advise bankruptcy debtors that loan modification is not available while they are “in bankruptcy”. As is clear by the information provided by the New Jersey Foreclosure Mediation Program and that of the New Jersey Bankruptcy Court, this is not accurate. As there is no forum in Bankruptcy Court to address this issue, Debtors are forced to submit to the New Jersey Foreclosure Mediation Program and still proceed with their bankruptcy case. This causes confusion for both the homeowner and the mortgage servicer.

Although there are many other practical problems, another major issue is the inability of homeowners to point to any clear standard of whether they “qualify” for a modification. President Obama has announced a program which contains details regarding whether a homeowner may qualify for modification. See http://www.whitehouse.gov/blog/09/02/18/help-for-homeowners/. However, what is a New Jersey homeowner to do if they feel they qualify based on all of the stated guidelines and their lender refuses to propose or accept a modification? These are the questions which give New Jersey homeowners facing foreclosure and bankruptcy the most difficulty and those which are currently not addressed in either state or federal law.

Under any circumstances, we continue to advise our clients to attempt to obtain modifications and to consult with their attorney prior to and during this process. In some cases, a Chapter 7 bankruptcy case may be filed to address the unsecured credit card debt of a homeowner and reduce their “debt-to-income ratio”. However, in all cases, debtors should consult with experienced counsel regarding the particular circumstances of their case.