Florida Bankruptcy Law Blog

Florida Bar Homeowner Assistance Article

A recent blog post described a voluntary program initiated by the Florida Bar to help homeowners negotiate with mortgage lenders. An article about this program appears in the current issue of the Florida Bar News. Link: Fighting against foreclosure. The Bar News is a trade publication distributed every other week to attorney members of the Florida Bar.

Draft of Financial Recovery Act Promises Foreclosure Relief

The current draft of the governments’ financial recovery act, formally the "Emergency Economic Stabilization Act of 2008", being referred to in the media as "the bailout bill," contains several provisions designed to help homeowner prevent foreclosure. The terms of the Act are drafted in general, unspecific terms, and certainly there will be many government regulations needed to implement the new law before any agency can actually provide foreclosure relief. The foreclosure relief provisions are found in Sections 109 and 110 of the recovery package.

Section 109 of the bailout plan states that the Secretary of Treasury shall implement a plan that seeks to maximize assistance for homeowners and to encourage mortgage servicers to take advantage of the HOPE Program under the National Housing Act or other available programs to minimize foreclosures. In addition, the Secretary may use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures. The new law directs the Treasury Department to coordinate with out government agencies to identify opportunities for the acquisition of classes of troubled assets that will improve the ability of the Secretary to improve the loan modification and restructuring process and to permit bona fide tenants to remain in their homes under the terms of their leases.

Section 110 of the bailout bill states that Federal managers of mortgages on residential real estate, including multi-family housing, shall implement a plan that seeks to maximize assistance for homeowners and to encourage mortgage services to minimize foreclosures.

The financial recovery law leaves the details of implementation to be worked out in future federal regulations. Considering the time it normally takes to implement federal regulations, the new law does not deliver immediate relief to people facing foreclosure today. The mortgage lending industry will see relief long before benefits reach homeowners. It will be difficult to find regulations that fairly provide foreclosure relief to deserving homeowners without creating new avenues for abuse through manipulation of benefits provided by this law.

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

Using Chapter 7 Bankrputcy To Battle Mortgage Lender Seeking Foreclosure

I probably get one or more calls and emails each day from someone who wants to file Chapter 7 bankruptcy because they are facing a mortgage foreclosure. People believe they should file bankruptcy to avoid a deficiency judgment that they believe will come with foreclosure. My advice is always the samd: Don’t Do It. There are several reasons. First, as previously stated on this Blog, most mortgage lenders have not been pursuing deficiency judgments. How this policy will change with the Economic Rescue Bill is uncertain. A Chapter 7 bankruptcy will not stop the foreclosure. (Chapter 13 can prevent foreclosure). If the mortgage lender does pursue a deficiency judgment the borrower usually can file a Chapter 7 bankruptcy at that time

I think borrowers will get better result for legal fees spent if they hire an attorney to defend the foreclosure, and by doing so, gain leverage to negotiate a release from personal liability in a way that will not result in imputed taxable income. I also do not recommend bankruptcy solely to escape income tax liability from foreclosure because people considering bankruptcy are likely to qualify under IRS definitions of insolvency without bankruptcy. Chapter 7 bankruptcy should be the last tool people use to battle a mortgage lender that is threatening foreclosure in the unlikely event of a deficiency judgment. .

Modification Of Chapter 13 Plans For Debtors In Financial Distress

I attended a meeting of local bankruptcy attorneys where the Chapter 13 Trustee spoke about current developments. She stated that the real estate recession in Florida, and job losses in many related industries is causing more and more Chapter 13 debtors to fall behind in their plan payments. The Trustee encouraged attorneys to educate Chapter 13 debtors experiencing financial difficulty about the opportunity to modify Chapter 13 plans to defer payments. When good cause is shown, the Chapter 13 Trustee will support plan modification request. The Chapter 13 Trustee also raised the possibility that bankruptcy judges may permit more lenient modifications as the Florida economy deteriorates further.

If you are a debtor in Chapter 13 who experiences a pay reduction, temporary job loss, or a family illness please contact your attorney about seeking a modification of your Chapter 13 plan prior to defaulting in plan payments. It is easier to modify a Chapter 13 plan when your payments are current than after you are months behind in your payments.

For another discussion about what to do if you fall behind in Chapter 13 payments, you may want to read this article by attorney Peter Orville. Link: What Happens In A Chapter 13 If I Get Sick Or Lose My Job And Can’t Afford To Make My Plan Payments? : Bankruptcy Law Network.

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

Joint Tax Refund Not Protected As Entireties Asset

There have been several cases in recent years, after 2001, dealing with exemption in bankruptcy of joint tax refunds where only one spouse has filed bankruptcy. The general rule is that property owned jointly by husband and wife is exempt in the bankruptcy of either spouse individually so long as the filing spouse and then non-filing spouse do not have any joint unsecured debts (joint mortgages don’t count because they are secured debts). The tax issue is whether a joint tax refund is exempt as tenants by entireties property.

The court found in this case the joint tax refund was part of the bankruptcy estate of the filing spouse because the refund was attributable solely to the debtor’s income and not to the non-filing spouse. The court also referred to prior decisions which apportioned ownership of tax refunds based on taxes withheld and paid by respective spouses. The court noted a prior ruling of another Florida bankruptcy court where a joint tax refund check was deposited into a joint bank account a significant time prior to the bankruptcy filing and where the judge exempted the money in the joint account as tenants by entireties money. (Case No. 07-bk-8726)

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

Can Chapter 13 Help Debtor With $ 1 Million Plus Mortgage

Here’s a question I received last week about using Chapter 13 bankruptcy to save an investment property and a primary residence from foreclosure.

"I'm in the midst of having two homes foreclosed on. One in an investment propert with a loan of 1.65 million and the other is my primary residence that was used as colalteral to get the loan (I do have a second mortgage for 250k on my primary home)....Would I be a candidate for Chapter 13?"

Chapter 13 bankruptcy is used mainly (but not exclusively) to stop foreclosures and to give the homeowner an opportunity to cure arrearage through a Chapter 13 plan. In this case, Chapter 13 may not work. Chapter 13 bankruptcy had debt ceilings. Debtors with secured debts greater than approximately $1 million are not eligible to file Chapter 13. There is also a debt ceiling for unsecured debts of approximately $300,000. People, like this debtor, who have secured debts exceeding the Chapter 13 ceiling may have to file an individual Chapter 11 bankruptcy to impose a repayment plan on the mortgage lenders. Chapter 11 bankruptcies are much more expensive and complicated than Chapter 13.

I do not think this debtor is a candidate for Chapter 13 because his secured debts far exceed the Chapter 13 ceiling. Disputed debt does not count in the debt amounts subject to the debt ceilings. Some attorneys have told me they have successfully filed Chapter 13 cases by disputing some of the filer’s debts in order to fit under secured or unsecured debt ceiling amounts.

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

Question About Income Taxes In Chapter 7 Bankruptcy

Treatment of income tax debt in Chapter 7 bankruptcy is a complicated subject. There are many rules and exceptions to the rules applicable to determine if past due taxes can be discharged. I received the following question by email:

"I was planning on filing bankruptcy next month and just went through an IRS audit for the tax year 2005. I owe $10,000 now to the IRS for mistakes made on my 2005 tax return. This includes interest and penalties. I was told that I could include this amount owed to the IRS in bankruptcy as long as I waited 240 days from the time I was assessed the tax since the return is 3 years old. But, there seems to be conflicting opinions on this as I was also told by my tax attorney that it can't be discharged at all, or maybe it can if I wait 3 more years. "

The general rule is that income taxes are not dischargeable if they relate to a tax return due to be filed less than three years prior to the bankruptcy petition or if the taxes were assessed within 240 days of the petition. There are additional exceptions when returns were filed late or when there is tax fraud.

Assuming this debtor received no filing extensions his tax return for the tax year 2005 was due on April, 15, 2006. If so, his income taxes cannot be discharged by a bankruptcy filed prior to April, 2009. If the debtor used an automatic filing extension to October, 2006, the three year period would end in October, 2009. The point is that the three year runs from the due date for the tax return and not the end of the tax year.

If the taxes were assessed today, bankruptcy would have to wait until 240 days from today’s date of assessment which would fall in May, 2009. Absent a filing extension, this debtor could discharge 2005 taxes (assuming no applicable exception) by filing Chapter 7 bankruptcy in May, 2009, given my assumed facts.

Taxation in bankruptcy is a sub-specialty of bankruptcy law. I am not particularly expert in this speciality. I refer my income tax/bankruptcy issues to Larry Heinkel in St. Petersburg, Florida. larryheinkel@lawyer.com

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

Stay Of Residential Evictions Under New Bankruptcy Law

I received the following email from a landlord (creditor) concerning a tenant who filed bankruptcy on the eve of eviction.

"I got my final judgment for possession count 1 only Sept. 4 my tenant went to file bankruptcy September 5 to avoid the eviction. I got a call from the West Palm sheriff telling me there was a stay on them serving him the 24 hour they were to do that day Sept. 5. I was in disbelief that this guy could not pay rent just because he was now protected because of this bankrupt. "

Under the facts presented the bankruptcy probably will not stop the eviction.

The new bankruptcy law made it much harder for a tenant who has not paid rent to stop an eviction by filing bankruptcy. In many cases residential evictions are an exception from the bankruptcy stay. The general rule under the new law is that the eviction of a debtor from his residence is not stayed by bankruptcy is the lessor has obtained a judgment for possession prior to the bankruptcy filing. There are exceptions. The stay exception (no stay applies) is limited to actions seeking possession of the property or to exert control over the property. A landlord’s action to seeking a money judgment against the debtor is stayed by bankruptcy. Also, notwithstanding the general stay exception, a debtor may obtain a automatic 30 day stay by filing a "certification" that the debtor has a right to cure the monetary default under the lease and the debtor has deposited past due rent with the bankruptcy court.

Residential evictions are complicated under the new bankruptcy law. Landlords should make sure their real estate attorneys understand and fully explain the new law so they do not inadvertently violate a bankruptcy stay.

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