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Voluntary lien releases by junior lienholders during Chapter 13 cases
One of my clients just received a similar letter. I believe it is part of the lender's settlement with the federal government and I suspect it is discretionary with the lender which debtors receive loan waivers, but I'm not sure.
I'm considering challenging the release because the debtor already avoided the lien and is likely to finish the plan.
I don't want my client to end up with COD income and resulting tax liability if he isn't eligible for the IRC 108 balance sheet insolvency exception due to retirement savings. My understanding is that the 1099c is issued during the tax year of the transaction (waiver), so that the IRC 108 exception for title 11 cases will not apply unless the bankruptcy discharge happens in the same year.
Peter M. Lively, J.D., M.B.A.
Law Office of Peter M. Lively * Personal Financial Law Center I
11268 Washington Boulevard, Suite 203, Culver City, California 90230-4647
Telephone: (310) 391-2400 * Toll Free: (800) 307-3328 * Fax: (310) 391-2462
On Thursday, November 6, 2014 10:24 AM, "Jim Selth jim@wsrlaw.net [cdcbaa]" wrote:
In the past week, I have had two junior lienholders voluntarily release their lien in a pending Chapter 13 case.
In one case in which the Motion to Avoid Lien had been granted but the Debtor has 3 more years to go on his Plan, Chase wrote a letter to the Debtor (and copied me) saying that Were releasing the lien on your property. You dont need to sign or return anything to us. be recorded, but they will still retain their unsecured claim in the Chapter 13 case.
In the other case, I had recently substituted into a 2012 Chapter 13 case filed by our late colleague John Greifendorff. He had stated in the Debtore never filed the Motion to Avoid Lien, and I was in the process of preparing it to file next week. Yesterday, a letter sent by Wells Fargo to the Chapter 13 Trustee was filed on the case docket as a Withdrawal of Claim. The letter states that We have evaluated the aforementioned account. Upon review of our records, a business decision has been made to release the lien and consider the account satisfied. Consequently, your office may consider this proof of claim for Wells Fargo Bank, N.A. as successor by merger to Wachovia Bank, N.A. effectively withdrawn. It was only a 1% Plan, but I assume the Trustee will not pay Wells Fargo anything as an unsecured creditor based on this letter.
Several years ago around the time of the big settlement between the USA and the big mortgage lenders, I had at least half a dozen clients with underwater second TDs receive voluntary lien release/debt forgiveness letters, which I assumed was the lenders way of complying with the settlement requirements that they forgive a certain amount of mortgage debt by writing off these junior loans which had no (or little) equity anyway.
Is anyone seeing these letters in their Chapter 13 cases? Does anyone know why this is happening now?
Jim
James R. Selth
Certified Bankruptcy Specialist*
Weintraub & Selth, APC
11766 Wilshire Boulevard, Suite 1170
Los Angeles, California 90025
Telephone: (310) 207-1494
Facsimile: (310) 442-0660
E-Mail: jim@wsrlaw.net
*Certified by State Bar of California as Certified Legal Specialist in Bankruptcy Law
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