For those homeowners facing foreclosure, one of the best and most effective ways to keep your home is to declare bankruptcy. When you declare bankruptcy, you receive an automatic stay from all creditors, including the “lender”.
For those living in California and other Non-Judicial States, bankruptcy is often the only real option to keeping your home from being stolen by servicers who often have no real standing to foreclose…and are taking advantage of the letter of the law, not the spirit of the law for the State’s Civil Code governing foreclosures.
The Bankruptcy Automatic Stay Method
Be warned. Bankruptcy is not for the weak hearted. Do not enter bankruptcy lightly.
You will need to declare all your assets, income and financial details. It is like having a permanent anal probe of your financial details. It is not pleasant.
Never ever lie, especially in bankruptcy court. You will go to jail. As great as it is the temptation to hide the precious little money you have from your creditors, don’t do it.
The other down side of bankruptcy is that it is a mark in your public credit score. But frankly, having a bankruptcy or a foreclosure these days is not as big a deal as it once was. Almost half the country has been through it. It’s like being a leper in a leper colony. It’s not as big a deal anymore.
The other thing about bankruptcy is that in our experience, I have found that most of the wins come from the bankruptcy courts. The thing about bankruptcy is that it has the nice Rule 3001(d).
Federal Rules of Bankruptcy 3001 (d) Evidence of perfection of security interest.
If a security interest in property of the debtor is claimed, the proof of claim shall be accompanied by evidence that the security interest has been perfected.
It requires the lender to provide proof of claim.
This means that the table is suddenly turned. It is now the “lender” who has to come up with the proof of claim. And if you know how their fraud is being perpetrated, then you know how to object and deflect their deception.
What many people do after they file for bankruptcy is to the file an “adversary proceeding”. As a debtor, this is absolutely free. An adversary proceeding is like a normal civil action, but done under bankruptcy court, and under bankruptcy rules. It allows the debtor to challenge the bank to provide proof of standing.
The other thing many homeowners do is to file their house as an unsecured debt. This will then prompt the lender to complain. But in doing so, they are then required to provide proof of claim, which they often are unable to.
Navigating the bankruptcy process is not for the weak hearted. Even for someone who has a lot of experience in legal procedures. I highly (seriously, HIGHLY) recommend that you get competent help. Look, I am here to save you money. If I HIGHLY recommend something, I mean it. Some things, you can cut corners with, bankruptcy is something I don’t recommend that you do on your own. Trust me when I tell you that I tried to do it myself. It was a disaster. I wished I had professional help.
Important Strategy Using the Bankruptcy Method
Here are the steps in the bankruptcy procedure you need to understand.
Once you file your initial paperwork for bankruptcy, you will need to complete the rest of the paperwork/schedules/declarations within 14 days. After these are filed, you will need to then go to what’s called a “creditor’s meeting”. Invariably, no creditor ever show up…in the rare instance some do…but very rarely. Here the US Bankruptcy Trustee will ask you about your assets, how much you make, etc to get clarity about your proposed bankruptcy.
Next, your creditors…including your lender/servicer will submit what’s called a Proof of Claim to the Bankruptcy court.
Here, you have the opportunity to submit an objection to the proof of claim if you a) feel that the proof of claim submitted is bogus b) if you have evidence to the contrary (such as a securitization audit). If you do not object…then it is assumed that you accept their submitted proof of claim.
This is where most people go wrong. Most attorneys don’t even know about this step.
You MUST ALWAYS object to the proof of claim…and require that they absolutely provide proof that they are in fact the true party of interest.
Remember, in bankruptcy, you are protected. The creditor has the burden of proof. They must prove to the court beyond a doubt that:
a) They are the creditor
b) The amount is correct
If you are working with an attorney, be sure to insist that they file an objection to the proof of claim if the proof submitted is bogus.
If you are a member of the Foreclosure Defense Program and are considering going the bankruptcy route, be sure to go to Module 1, and download the Documents file. Within the Documents file, there is a directory called “BK Method”. This contains a number of documents you will need to file your bankruptcy, objections to the lift of automatic stay and objections to their proof of claim.
We have a sample objection to the proof of claim in the “BK Method” folder called: “ObjectiontoProofofClaim.doc”
Customize this file and submit it to the court. Obviously, if you are working with an attorney, then work with them and/or give this template to them.
The strategy here is to put up a wall. You will not include them in the bankruptcy (this means you will not pay them a single red cent) until such times as they can provide proof of claim. In other words, in your Chapter 13, you put down zero as part of your payment plan towards the mortgage. This will prompt them to object to the plan.
You will then respond to their objection by objecting to their standing to file an objection. Only a real party of interest may file an objection to a Chapter 13, and the servicer has not properly submitted sufficient proof of claim under US Bankruptcy Code Rule 3001(d).
The Confirmation Hearing
After all proofs of claims are settled, then and only then can a Confirmation hearing take place. A confirmation hearing for a Chapter 7 means the Trustee approves of your proposed debt discharge and asks the Judge to approve the discharge. In a Chapter 13, this means the Judge will put an order requiring you to stick with the proposed repayment schedule for the duration of the plan.
The Lift of Automatic Stay
A standard procedure for these banks once you file for bankruptcy is to seek to get a lift of the automatic stay. They will file a Motion for the Lift of the Automatic Stay. Unless you object to this lift…this will almost aways be granted. Be careful.
The strategy to counter this of course is to stop them at the proof of claim stage. If they can not provide proof of claim, then they have no standing to lift the automatic stay.
In our Documents (in Module 1), you will find several templates and sample objections filed against Motions of Lift of Automatic Stay.
If you find yourself in this situation, then take a look at these templates..customize them…and then file your objection to the lift of automatic stay into court. Again, if you are working with an attorney, then give these to them to file/prepare on your behalf as many of them are not familiar with how to properly object.
Warnings about Bankruptcy:
1) BK IS A PAIN IN THE ASS. It was never designed to be fun. Filing BK means you have to declare everything. What you eat, how many times you poop and all the gory details (not quite but you get the point). NEVER LIE in BK. You WILL GO TO JAIL. I will release more info about the process of filing for BK as soon as I get a chance, in the mean time, come check out this site:
http://www.legalconsumer.com/ << VERY GOOD SITE!! BOOK MARK THIS ONE.
This site walks you through everything you need to know about doing BK yourself.
2) You *SHOULD* not do this if you’ve previously filed BK in the last 7 yrs. I think 10yrs in Chapt 7.
3) You *SHOULD* only file for BK protection (and then dismiss) every 180 days. The court does not want you to abuse this system.
4) Many homeowners list the bank as an UNSECURED NON CONSUMER DEBT. It is up to them to prove it. This is the key.
5) This is gut wrenching stuff. Make sure you have a good support network so you can get help. If you haven’t done so, hook up with someone in the Local Meet up directory. REACH OUT. HELP OTHERS! We need each other. You don’t have to do this alone.
6) Most important. You can only do this Adversary Proceeding process in Chapter 13. ie. YOU CAN NOT DO ADVERSARY PROCEEDING IN CHAPTER 7.