The Florida Bankruptcy Law Blog

Bill Introduced To Permit Chapter 13 Debtors To Modify "Upside Down" Home Mortgages

Democratic congressman introduced this week a bill (H.B. 7307) to change Chapter 13 bankruptcy law to permit homeowners to modify the terms and principal balance of their home mortgages. This change in the law would mean that people whose mortgages are "upside down" can by filing Chapter 13 bankruptcy cram down the principal balance to their home’s current market value. The bill would also permit reduction of some relatively high interest rates. Obama expressed his support of this change in bankruptcy law during the campaign.

Why Home Loans Should Not Be Reaffirmed

I saw a good blog entry written by San Diego attorney Miachael Doan about reaffirmation of home mortgages.Why Home Loans are not Reaffirmed : Bankruptcy Law Network. I have tried over the years to discourage my bankruptcy clients from reaffirming home mortgages. The problem is that some of the prominent mortgage companies, including Chase Home Mortgage for example, send letters to bankruptcy clients telling them to reaffirm. Some clients report that their mortgage company will not send monthly statements or payoff numbers if the borrower does not reaffirm. Mr. Doan's blog entry explains why reaffirmation of home mortgages is legally not required. If you reaffirm your mortgage after bankruptcy and subsequently are unable to make the mortgage payments you will be personally liable under the mortgage note if you signed a reaffirmation agreement. If you refuse to sign a reaffirmation agreement Chapter 7 bankruptcy eliminates personal liability in the event of future foreclosure.

When Is Chapter 13 Better Than Chapter 7 Bankruptcy

The following post is submitted by attorney Kelly Kilpatrick:

It’s a tough position to find yourself in – you’re way over your head in debt and there seems to be no way out, except to resort to declaring bankruptcy. It’s not an easy decision to make, but when you find yourself staring down the barrel of a gun, the choice is out of your hands, and you may want to start with a clean slate by filing under Chapter 7. This kind of bankruptcy allows you to erase all your debts – your assets, if you have any, are sold and the proceeds used to pay off your lenders. But there are certain circumstances under which you may not be allowed to file for bankruptcy using Chapter 7.

Can Debtor Avoid Judgment Lien Existing Prior To Homestead Purchase?

A judgment lien automatically and immediately attaches to any real property the debtor owns in any county where the creditor records a certified copy of the lien. If a debtor owns investment property where a judgment lien is recorded the lien attaches to that property. If the debtor subsequently moves into the property as his primary residence the debtor cannot thereafter strip the judgment lien from what is now the debtor's homestead. A lien that has attached to property prior to that property becoming the debtor's homestead defeats the homestead exemption. A recent Florida bankruptcy case considered a different situation where a debtor acquired a property in a county where a judgment lien was previously recorded, and the debtor moved into the property at time of purchase.

Interesting Question About Homestead Exemption In Bankruptcy

I enjoy getting challenging questions for readers, especially from other attorneys. I write my blog entries for "people" as opposed to attorneys, so I am flattered that any attorney would find my comments interesting. Here’s an interesting email from a Florida attorney:

I also have a fact pattern that I would like your opinion on. Assume that an individual refinanced a homestead property over three years ago and took the cash from the refinance and used it to purchase and renovate another property. He owns the second property as tenants in common with another unrelated individual. Following the completion of the renovation, the individual moves into the second property and makes it his homestead. He then rents out the original property to cover the costs of the mortgage.

Three years have now passed. He is no longer able to make the adjustable rate payments on the original property that is now rented. He also has other credit card debt that he would like to discharge and he is considering filing for Chapter 13. He would like to discharge the credit card debt as well as to surrender the original property (now $100,000 underwater) to the lender in the 13. He is concerned about protecting the equity in his homestead (approximately $50,000) from creditors in the 13.

Based upon my knowledge (and what I have learned from your analysis in the blog), I would assume that the trustee or the judge would need to find that he intended to file at the time of the transfer and that he knew the asset would not be exempt in the bankruptcy. If the potential debtor had no intention of filing and the asset was exempt at the time of the transfer (a homestead to homestead transfer), the equity would be safe from attack.

Make Sure Your The Value Of Your Automobile On Your Bankruptcy Petition Reflects The Depressed Used Car Market

Bankruptcy trustees have in the past determined the value of a debtor’s car by using the average of the wholesale and retail value in the NADA car book (the yellow book). In the past few months car values have plummeted because of the credit problems in the economy and the overall recession. The NADA book has not kept pace with the decline in car values. This week I discovered that some bankruptcy trustees in our division are encouraging debtors to get trade-in appraisals from national car companies such as Carmax. The Trustees are accepting these appraisals in lieu of the NADA values.

Is There A "Hardship Exemption" Under Florida Law?

Florida law has many laws protecting the debtor’s ability to provide for his family. Creditors cannot take a family homestead, and creditors cannot garnish the wages of a debtor who supports a spouse or children. A debtor may own a car to get to work provided the car is worth less than $1,000, and there is no prohibition about debtors using cars owned by their spouses. Other than the generous exemptions of Florida’s asset protection law there are no laws which exempt assets necessary for the debtor to maintain his current lifestyle or his job. Most debtors who are unable to support themselves or their families as a result of a creditor’s successful collection effort are eligible to file bankruptcy and discharge all their debts. After bankruptcy, a creditor cannot attack the bankruptcy debtor’s future wages or any assets the debtor acquires in the future.

Interesting Homestead Issue In Bankruptcy Court

While waiting my turn in a bankruptcy courtroom I heard a debtor’s attorney and a bankruptcy trustee argue an interesting homestead case. The debtor purchased a single family townhouse as his principal residence. After the moved in he created a separate living quarters for his mother-in-law by erecting drywall partitions and building a small kitchen area for the mother-in-law. He transformed the house into two separate living units. The debtor claimed the entire property as his homestead in his Chapter 7 bankruptcy. The Trustee argued that the homestead exemption did not apply to that portion of the property occupied by the debtor’s mother-in-law and that a proportionate amount of property value was non-exempt and could be taken by the Trustee. The Trustee said that only the debtor’s portion qualified as homestead because it was the only area occupied by the debtor and his family.

Is Motor Home Exempt Homestead In Chapter 7?

An asset protection client described the following homestead dilemma. The client lived in a mobile home on a lot he and his family rented in a trailer home park. The mobile home had a motor and was drive able, but the family had attached the home to utilities service on the lot and had not driven the home off the lot for several years. The family wanted to travel to Minnesota and live there temporarily in the motor home during a job assignment. The client assured me that the family would return to Florida as soon as he completed the temporary job assignment. He asked whether the mobile home would be exempt homestead property if he filed for bankruptcy soon after returning to Florida and living in the mobile home on the same rented lot.