Florida Bankruptcy Law Blog

Chapter 13 To Stop Foreclosure After Prior Chapter 7 Discharge

received an email question from someone who filed a Chapter 7 bankruptcy two years ago and is now facing foreclosure on his home mortgage. He asked me whether a Chapter 13 bankruptcy could save his house. In the old days, this person could file a Chapter 13 bankruptcy to stop the foreclosure. Under the new bankruptcy law, once you complete a Chapter 7 bankruptcy you are not allowed to seek relief under a new Chapter 13 bankruptcy for several years regardless of whether your current problems, in this instance a mortgage foreclosure, arose after the Chapter 7. More particularly, you cannot file a Chapter 13 case if your eceived a discharge in a prior Chapter 7 that was filed within the past four years. I told this person that the new bankruptcy law prevented him from filing a Chapter 13 to stop the foreclosure.

Interesting Fact Situation For Recent Florida Residents

I new client with a complex fact situation illustrates in one case some interesting issues for Florida bankruptcy under the new bankruptcy law. The situation is described to help educate debtors with similar histories. Here is a summary (not a precise account) of some of the important facts. A husband a wife moved to Florida from New York six months ago and bought a house. They put down $75,000 on the house which has since appreciated. They own an investment rental property jointly in North Carolina with equity. Each is employed with high paying jobs in Florida. The husband has over $200,000 of unsecured debts including about $20,000 joint debts with his wife. This couple has other non-exempt property including two fully paid automobiles. They asked what would happen if they filed Chapter 7 bankruptcy.

The first issue is what law applies to this bankruptcy. Because they are currently Florida residents they should file bankruptcy in Florida. But, since they have been in Florida less than two years their Florida bankruptcy will proceed under New York’s exemptions. I think New York has a $50,000 homestead exemption. If the couple files jointly they can double the $50,000 exemption, claiming a total $100,000 exemption, under recent court decisions allowing each joint creditor to take a full homestead exemption. The $75,000 down payment used to acquire the homestead will be exempt in a joint filing. If the husband files alone, he should be able to still exempt his share (½ of $75,000) of the homestead under New York’s $50,000 exemption..

The treatment of the North Carolina property depends on its status as tenants by entireties property and whether one or both spouses file bankruptcy. New York does not recognize an exemption for tenants by entireties property. In jurisdictions that recognize a tenants by entireties ownership, the T by E property is exempt if one spouse files, except that the amount of any joint debt with the debtor’s spouse can be assessed against the couple’s T by E assets.

If the husband alone files the T by E status of the N.C. property is an issue; if both spouses file, there is no T by E exemption. North Carolina and Florida do recognize T by E exemptions. Florida’s T by E exemption does not apply because this case is under New York law. However, the general rule is that exemptions as to real property are the exemptions in the state where the property is situated. Even though this case is under New York’s exemptions generally, I think that North Carolina’s T by E exemption would apply to the husband’s individual bankruptcy.

One option discussed was sequential filings. The husband might file individually so that the T by E exemption would apply to the N.C. rental property. After the husband gets his discharge the wife could file. Secondly, the wife proposed selling her expensive car to pay off their joint debts prior to the husband’s filing in order to eliminate joint unsecured debt that could cause a problem for the N.C. property in the husband’s case. The wife would have wait long enough to eliminate issues of preference in her case following payoff of the unsecured debts. I don’t have first hand experience about trustees view of sequential filings by spouses to take advantage of entireties exemptions.

These people are considering all these issues before deciding whether to file bankruptcy. The new bankruptcy law has made filing bankruptcy more complex. You don’t know what kind of legal issues apply in your situation until you consult a bankruptcy attorney. In most cases, bankruptcy is not a do-it-yourself project.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida