Articles Posted in Bankruptcy

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signature-962364__340-300x225Representing parties negotiating contracts and litigating over breach of contracts are some of our attorneys’ main practice areas.  New Jersey contract law recognizes both contracts and “quasi-contracts.”  This post examines what these are and the differences between them.

Contracts

New Jersey contract law defines a contract as a voluntary agreement for mutual obligations based on a common understanding resulting from “offer and acceptance.”   New Jersey’s Model Civil Jury Charges have laid out the required elements to create a binding contract: (1) a meeting of the minds between the parties to the contract, (2) offer and acceptance, (3) valid consideration, ie., mutuality of obligations,  and (4) certainty — clear and definite terms.

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worried-30148__340-217x300In the case of In re Linear Electric Company, Inc., the Third Circuit was presented with whether construction liens filed by a supplier under New Jersey law were valid and enforceable against a contractor who filed a petition for Chapter 11 bankruptcy protection prior to when the construction liens were filed.

New Jersey’s Construction Lien Law, N.J.S.A. §2A:44A, et seq., provides contractors, subcontractors, and suppliers with the right of filing a lien for work, services, or materials provided pursuant to a written contract.   These protections are limited based on several factors including but not limited to whether the person or entity filing the construction lien is defined as a “claimant” under New Jersey’s Construction Lien law, what the unpaid portions of the contract price is, and compliance with strict time restrictions for filing the lien itself and a subsequent lawsuit based on the lien.

Under the Federal Bankruptcy Code, a debtor who files for bankruptcy is afforded the relief of an automatic stay that prevents most collection actions from continuing including acts to create, perfect, or enforce liens against property.  The protections of an automatic stay are broad and expansive but do include several expectations and limitations for certain debts.

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Our bankruptcy attorneys represent debtors and creditors in New Jersey in Chapter 7, 11, or 13 bankruptcies.   Recently, a Bankruptcy Court within the Third Circuit had the opportunity to clarify the cap placed on landlords’ bankruptcy claims under 11 U.S.C. 502(b)(6).

In the case of In re Filene’s Basement, LLC, the Bankruptcy Court reviewed the reach and application of 11 U.S.C. 502(b)(6) on a landlord’s potential claims.  The Code section provides a cap to a landlord’s claim for “rent reserved” as a result of a debtor’s termination of a lease.  The claim for “rent reserved” is capped at the greater amount of either one year of rent or fifteen percent of the remaining term of the lease – not to exceed three years.  The time to calculate this claim for damages is from the earlier date, either the date of the filing of the petition or the date on which the landlord repossesses the property and/or the tenant surrenders the property.  The landlord also retains a claim for unpaid rent prior to the earlier of those two dates.

This cap does not apply to all landlord claims as a result of a breach of a lease.  In fact, courts are typically faced with determining whether landlord claims should be subject to the cap.  The Bankruptcy Court in In re Filene’s Basement, LLC was faced with deciding whether the additional claims asserted by the landlord should be considered outside of the cap.  The claims were for: (1) the cost to remove furniture left by the tenant; and (2) the cost to remove a mechanic’s lien as a result of the tenant’s nonpayment to a contractor.  In reviewing these claims, the Court adopted the Ninth Circuit’s narrow interpretation of the 11 U.S.C. 506(b)(6) in In re El Toro Materials Co., Inc., which asked: “Assuming all other conditions remain constant, would the landlord have the same claim against the tenant if the tenant were to assume the lease rather than rejecting it?”

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town-sign-96612__340-300x225Bankruptcy provides relief to a debtor who may be struggling to keep a house, keep the lights on, or pay credit card or medical bills.  The relief provided is in the form of an automatic stay, exemptions to protect your most essential assets, and a discharge of a portion of the debtor’s debts.  It is important to determine to understand the benefits and limitations of the relief that bankruptcy provides before you make the decision to file for bankruptcy.

  1. Benefits of an Automatic Stay.

The automatic stay is the first form of  relief provided after a debtor files for bankruptcy.  The stay stops almost all collection actions by creditors to allow the debtor time to reorganize, rehabilitate, and prepare for the fresh start that bankruptcy provides.  The following are examples of the actions which a debtor’s creditors must cease as a result of the automatic stay:

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debt-1157824__340In a Chapter 7 bankruptcy, a trustee will be appointed to liquidate the assets of a debtor’s estate to satisfy the creditors of the debtor.  Therefore, it is important to understand that if you file a Chapter 7 bankruptcy, all of your assets including your house may sold to satisfy your creditors.  However, the Federal Bankruptcy Code, U.S. Code Title 11, provides ways for debtors to protect their most important and essential assets through a variety of exemptions.  Our New Jersey bankruptcy attorneys use these exemptions to the full extent of the law to protect your assets while helping you lift the crushing burden of debt.

The Federal Bankruptcy exemptions are referenced in 11 U.S.C. 522(d)(1)-(11).  These exemptions cover a variety of assets which you may own and want to protect from being sold by the trustee, ranging from your home to life insurance payments.  However, these exemptions do not provide an absolute protection to your assets and are limited in their use.

Probably the most important asset and the one that people are most concerned with is their home.  The Federal Bankruptcy Code provides for an exemption for your primary residence under 11 U.S.C. 522(d)(1), (5).  The exemption provides protection up to $23,675 in New Jersey.  This amount is doubled if you are filing jointly with your spouse for a total of $47,350.  This exemption can be used to exempt a portion of the equity in your home.

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stock-photo-19975411-underwater-home-mortgage-house-for-sale.jpgIf you have been served with a foreclosure complaint for failing to make payments on your mortgage, and you would like to keep your home, there are several options available to you: loan modifications, NJ HomeKeeper program, foreclosure mediation, and Chapter 13 bankruptcy. All these programs are available to New Jersey Homeowners, and our attorneys can help you pursue each.


Loan Modification

The Home Affordable Modification Program is a federal program which can lower your monthly mortgage payments and/or wrap arrearages into your loan enabling you to retain ownership of your home. It typically extends the length of your mortgage to forty year mortgage and lowers your interest rate. In order to be considered for a modification, you must submit an application to your lender accompanied by all required back up documentation. This includes a hardship affidavit, tax returns, pay stubs, bank statements, statement of expense, and a recent utility bill.

This can be a difficult process; the lender often requests the same documentation multiple times, or requests minor changes to the documents which have been submitted. Additionally, if time passes after the documents have been submitted without the lender’s review, the lender may require updated current documents be resubmitted. This can be frustrating for the homeowner who is concerned about losing their home. However, persistence can pay off.

NJ Homekeeper

The New Jersey HomeKeeper Program is a New Jersey program which provides financial assistance to homeowners who are unemployed or underemployed and are therefore at risk of losing their homes. To be eligible, you must demonstrate that you were making your mortgage payments until the time you became unemployed (or underemployed) and that the unemployment occurred not more than 36 months before the date of the Homekeeper application. If eligible, NJ Homekeepers can provide up to $48,000 over a period of 24 months which can be used to help make current payments or pay arrearages. The funds provided by NJ Homekeepers are a loan which must be paid back if the homeowner sells, refinances, transfers ownership or no longer occupies the property within 10 years.
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helpme.jpgFamilies across New Jersey are facing difficulties paying their home mortgages and facing foreclosure. There are many steps that can be taken to avoid foreclosure and keep the home. The important thing is to do something.

Homeowners facing foreclosure should seek counsel from an experienced New Jersey real estate attorney who can ensure that your rights are protected. For example, before banks can foreclose on a home they must follow a step by step procedure. Banks must first send a notice to the mortgagee (the person who owes the money) and advise of the intent to foreclose. Foreclosure notices must allow at least thirty days to cure defaults and must have certain information which is required by law. For example, the notice must conspicuously identify the real estate which is the collateral for the loan, describe the default, and advise the homeowner of the right to cure. The foreclosures notices must also provide the amount necessary to cure as well as the name, address, and telephone number of the person to whom payment should be made. Banks which fail to provide this required notice will not be permitted to foreclose.

In New Jersey, banks are permitted to file a lawsuit to foreclose on a residential home thirty days after a homeowner has been served with a foreclosure notice. Time becomes critical once a homeowner is served with a complaint. Answers to complaints must be filed within thirty-five days after receipt of the summons and complaint. Failure to file an answer will result in default and the case will being deemed uncontested – in other words, the foreclosure will be treated as unopposed.

Banks may obtain a judgment for foreclosure very quickly once a matter is deemed uncontested. Banks are only required to mail a notice to the homeowner and advise that she has fourteen days to cure default and that upon entry of a foreclosure order the mortgagee will forever lose the right to cure the default.
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cramdownNew Jersey homeowners who file for chapter 13 bankruptcy protection may be able to cease paying their second mortgages if their homes are “underwater.”

When the amount that a homeowner owes on her mortgages is more than the home is worth it is considered “underwater.” Relief is available to New Jersey “underwater” homeowners through a Chapter 13 bankruptcy “cram-down” or “strip-off.” New Jersey homeowners can petition the United States Bankruptcy Court and request that their mortgages be cram-downed to the equity in the homes and the remainder of the loans stripped-off.

This means that homeowners who have multiple mortgages on their primary residence can take their mortgages and make them unsecured debt, thereby stripping-off all junior liens. This process applies to all subsequent mortgages as well. Therefore, second and third mortgages, and so on, would no longer operate as a lien on homes. Since it is then unsecured debt only a fraction will be repaid, and the remainder will be eliminated altogether.