When doing due dil on notes, if borrower has a history of a BK, what areas of PACER should you search through to get the most info on the borrower including their wages and if they have any 401K's? Docket search? Additionally, if I want to check on motions to strip the second, where do I go to search for that?
BK is one of the "must check" items before you buy and while you own a note. Particularly if its a second lien as the borrower could seek to strip or cram down the debt (reduce it without the owner's consent) as part of the BK process.
When searching Pacer, you want to start with the widest possible net. You want to see if the borrower has filed BK anywhere in the US (not just the state where the subject property is located). So....
1. Account: Open an account on pacer.gov
2. Find the BK tab: Go to "find a case" then click on the "PACER case locator" link....then on the "Bankruptcy" tab
3. Find the Borrower: Enter the borrower name and their SS# and click search (if you don't have the BK docket number). This will give you a list of their past BK's and any current activities. If you don't have a SS number, you should request it from the seller. If they won't give it, you can still search....hopefully the borrower doesn't have a very common name like "Joe Smith" or you have a quite a lot of reading ahead of you.
4. No results: the borrower hasn't filed BK
5. Any result: The borrower name appears along with a case number. The borrower has filed BK and its either active, dismissed (by the trustee/judge) or discharged (the plan was executed and the borrower is free from all unsecured debts - some exceptions in some cases but for our purposes lets say he/she is in the clear).
6. Read the plan: When you click on the link to the docket, Pacer takes you to the history of the BK case. If the case has been ongoing for 2-3 years, there could be 70-100 documents involved. You are interested in a few key things:
a. The BK plan: (usually the 3-4th item on the list). What does the debtor intend to do? Is it a BK 7 (liquidation - I won't deal with that here - but in summary, it does not remove the lien) or a BK 13 (re-arrangement - which can remove the lien)?
This is where it gets complicated...... It could be that the borrower were sick and can't afford the hospital bills....they are declaring BK to avoid the debt. So, they file 13, devise a plan to make payments, file the plan and execute the plan. At the end of the BK process they have avoided the medical debt.
They may also seek to remove/reduce a second lien if the home is in negative equity. Sometimes its easy to find....in the filing it will be clear that they are seeking to avoid the debt and have it stripped. Sometimes, its very difficult to find: there is no explicit language on the matter. The borrower may list the debt in the filing at the beginning of the plan and then include it on one of the schedules toward the back of the plan that deals with unsecured creditors. You need to be very careful here....get your lawyer to help you. If in doubt...treat it as unsecured.
b. Motion to Value: An application by the borrower to have the subject property valued (typically to show that there is no equity to cover the second lien - a key step in stripping the lien)
c. Motion to strip: obvious!
d. Any submission by the creditor to challenge the motion to strip, motion to value or challenge the BK plan. The borrower may have tried and failed to get the lien stripped
In summary, you need to read the BK plan very carefully indeed. As you know an unsecured lien is worth very little....so make sure you don't end up with one by accident! I suggest you read 20 bk plans as practice before you deal with any that you are going to buy. Until its second nature, assume you don't know what you are doing and get legal advice.
.....I learned this the hard way!
In reality the majority of BK 13's do not get completed...but you need to check them very thoroughly
One of the best documents to look at is the Voluntary petition. Just don't abuse it since at 3$ a pop it adds quick if you were to pull it for every BK note you look at.