1.Bankruptcy 101 De-Mystifying Bankruptcy for Note Buyers1

2. Objectives for this Session Introduction to Bankruptcy Chapter 13s and Chapter 7s, a Primer Strategies and Tactics Case Study of a Chapter 13 Bankruptcy Schedules The Plan Motions and Orders Relief from Stay2 3. Introduction to Irv Berg, Chapter 7 BK Attorney Bankruptcy attorney with over 30 years of experience Practices in the San Francisco Bay Area Represents Debtors (borrowers), primarily in Chapter 7 cases Focuses on Fair Debt Collection Practices Act (California and Federal)3 4. On Bankruptcy[Bankruptcy] gives to the honest but unfortunate debtora new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt. Supreme Court, Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)4 5. Chapter 7: the BasicsChapter 7 Liquidation An orderly, court-supervised procedure by which a trustee takes over the assets of the debtor's estate, reduces them to cash, and makes distributions to creditors, subject to the debtor's right to retain certain exempt property and the rights of secured creditors. Because there is usually little or no nonexempt property in most chapter 7 cases, there may not be an actual liquidation of the debtor's assets. These cases are called quot;no-asset cases.quot;http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/process.html5 6. Chapter 13: the BasicsChapter 13 Adjustments of Debts Officially called Adjustment of Debts of an Individual With Regular Income Designed for an individual debtor who has a regular source of income. Chapter 13 is often preferable to chapter 7 because it enables the debtor to keep a valuable asset, such as a house, and because it allows the debtor to propose a quot;planquot; to repay creditors over time usually three to five years. Chapter 13 is also used by consumer debtors who do not qualify for chapter 7 relief under the means test. http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/process.html6 7. Chapter 13: the BasicsDebtor must compile the following information: 1. A list of all creditors and the amounts and nature oftheir claims; 2. The source, amount, and frequency of the debtor'sincome; 3. A list of all of the debtor's property; and 4. A detailed list of the debtor's monthly living expenses,i.e., food, clothing, shelter, utilities, taxes,transportation, medicine, etc.http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/process.html7 8. Chapter 13: the TrusteeWhat does a Trustee do? 1. When an individual files a chapter 13 petition, animpartial trustee is appointed to administer the case. 2. The chapter 13 trustee both evaluates the case andserves as a disbursing agent, collecting paymentsfrom the debtor and making distributions to creditors,i.e., food, clothing, shelter, utilities, taxes,transportation, medicine, etc. http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/process.html8 9. Chapter 13: the Automatic StayWhat happens once the Debtor files? 1. Filing the petition under chapter 13 quot;automaticallystaysquot; (stops) most collection actions against thedebtor or the debtor's property 2. The stay arises by operation of law and requires nojudicial action 3. As long as the stay is in effect, creditors generallymay not initiate or continue lawsuits, wagegarnishments, or even make telephone callsdemanding paymentshttp://www.uscourts.gov/bankruptcycourts/bankruptcybasics/process.html9 10. Chapter 13: the Automatic StayHow does a BK affect a foreclosure proceeding? 1. Individuals may use a chapter 13 proceeding to savetheir home from foreclosure. 2. The automatic stay stops the foreclosure proceedingas soon as the individual files the chapter 13 petition. 3. The individual may then bring the past-due paymentscurrent over a reasonable period of time. 4. The debtor may lose the home if he or she fails tomake the regular mortgage payments that come dueafter the chapter 13 filing. http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/process.html10 11. Chapter 13: the Process FC Sale NOD NOT / NTSBK95% + of all Bankruptcies to prevent a foreclosure are filed within 48 hours of the Sale11 12. Chapter 13: the Process3-5 Yrs20-50 daysBK TBD days filing 15 days$274 feePlan341PlanMeetingApproval / Dismissal SchedulesProposal to Debtor Ordered bypay 3 types must the Judge Statementofattend of financialcreditors: affairsPriority CertificateSecured of credit counselingUnsecured 12 13. Chapter 13: Plan ComponentsThe Key Components Include: 1. Confirmation of Priority Creditors (taxes, bankruptcyfees) 2. Confirmation of Secured Creditors and amount ofarrearage (e.g. pay history reviews). 3. Unsecured Creditors who shows up? 4. Unsecured Creditors how much gets paid out? 5. Time Period of Plan (usually 36-50 months) http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/process.html13 14. Chapter 13: an Example Plan 15. Chapter 13: an Example Plan 16. Chapter 13: an Example Plan 17. Bankruptcy Strategies Collect payments Refinance Foreclose in case of non-payment Sell your Note and Mortgage17 18. Bankruptcy Strategies Collecting payments a note on FDCPA Be careful of your wording used in any communication with the borrower, inside OR outside of bankruptcy Remember that you can not communicate with your borrower IN bankruptcy18 19. Bankruptcy Strategies Refinance You need to pay out Unsecured per Plan,and can approach Debtors attorney withthis option $100,000 mortgage $75,000 home $40,000 purchase price of mortgage Borrower has $10,000 of unsecured debt 5% payout on Unsecured, per Plan19 20. Bankruptcy Strategies Refinance: The Numbers $40,000 mortgage cost $500 unsecured creditors (payout of $10,000 @ 5%) $40,500 total debt $75,000 house value 65% LTV loan (e.g. hard money) $48,750 new 1st mortgage 82% annualized - 5% in fees or $2,440yield $46,000 net out of Refi $5,500 profit, or 13.8% (in 60 days?) 20 21. Bankruptcy Strategies Hold performing bankruptcy What is your effective yield? $100,000 mortgage $580 payment (~7% interest) $6,000 in arrears, Plan is 60 months, so$100/month to Trustee $680 / month payments or $8,160/yr $40,000 purchase price 20.40% yield 21 22. Chapter 13: A Case Study Part of a pool we recently evaluated Looking for color whats happening? Whats our risk? Will this last? Looking for closure drawingconclusions22 23. Chapter 13 Case Study Linda and Arturo Fierro Track the timeline here Take notes on each step in the process See what you can learn from the Schedules Watch what happens in terms of the Plan Notice how it ends23 24. Q&A with Dean and Irv Ask away this is YOUR time24 25. Next Session: May 135pm PT / 8pm ETLicensing reviewed what does it take to buynotes?Overview of the current marketDue diligence basics25