Florida Bankruptcy Law Blog

Social Security Income in Chapter 13

I received an email about the treatment in Chapter 13 bankruptcy of money received for basic social security and for social security disability. Social security payments do not count as income for computation of means test eligibility under the new bankruptcy law.. Yet, once someone wants to, or is forced into, a Chapter 13 bankruptcy instead of a Chapter 7 there is a separate income issue. The issue in a Chapter 13 is the amount of the debtor’s disposable income. Debtor’s must pay all disposable income to the Chapter 13 trustee. If the social security payments count as disposable income then the debtor would have to pay more money to his creditors and the trustee during the Chapter 13. I had thought that social security disability money counted for disposable income but that basic social security receipts did not count as income because it was not part of the income definition under the means test.

I posed the question to the Chapter 13 trustee at a recent meeting of creditors. The Trustee stated that in the Orlando Division both basic social security money and disability are taken into account in computing the debtor’s disposable income. He said that there were court rulings in this Division sustaining his position. Interestingly, he said that the law of this question is different in different bankruptcy Divisions around the country. Florida debtors considering Chapter 13 need to check on the rules in their particular bankruptcy court.

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

Simultaneous Chapter 13 Bankruptcies?

I received an email from someone currently involved in a Chapter 13 bankruptcy somewhere in Florida. The debtor stated that he filed bankruptcy two years ago, and he states that at the time he filed his Plan his home mortgage was current. Now his home mortgage is in arrears; he says the mortgage company got a relief from stay; and he wants to know if a debtor can file a new Chapter 13 case just to take care of the mortgage during the time when the debtor is paying on a Plan from an existing Chapter 13 case. The short answer is "no." The bankruptcy law does not provide for simultaneous bankruptcies, nor does the law contemplate bankruptcies filed with respect to selected assets.

The question does not make sense. The initial Chapter 13 bankruptcy should have included all debts and required current mortgage payments. I don’t see how this debtor fell behind on the home mortgage without defaulting in Plan payments under the initial Chapter 13, assuming the existing 13 including the current mortgage payments. It may be that the debtor failed to list his mortgage in his initial bankruptcy so that the Plan payments did not include current mortgage payments. If that’s the case, his mortgage problems are self-created and he will lose his house to foreclosure.

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

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.

Chapter 13 Bankruptcy and Secured Creditors

I received an email from a creditor asking when he could take back secured property from a debtor who file Chapter 13 when he has not received current payments. . Even if a creditor is secured by the Debtor’s property the secured creditor is prohibited by the bankruptcy stay from enforcing his security interest and taking the property. The debtor’s normal payments for secured debt is paid to the Chapter 13 trustee after the bankruptcy filing. It often takes a few months for the Trustee to disburse payments received to the secured creditors. That the Trustee is paying late does not mean the debtor is not making their payments on time to the Trustee. If the debtor is late in payments, the Trustee and the Bankruptcy Court will quickly dismiss the bankruptcy for non-payment in which event the stay will be lifted and the secured debtor can enforce their security interest.

A chapter 13 bankruptcy is not a bad thing for secured creditors. The bankruptcy trustee is enforcing payment collection on behalf of the secured creditors, and if the bankruptcy proceeds the secured creditor will get their payments. Neither a Chapter 13 or a Chapter 7 bankruptcy impairs the security rights of a secured creditor.

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

Does Second Chapter 13 Bankruptcy Stop Foreclosure?

Today I had my first hearing on a motion to extend the automatic stay in a Chapter 13 bankruptcy. In this instance, the debtor filed a Chapter 13 early this year, and the Court dismissed his bankruptcy for non-payment of his plan payments after the client lost his job. The bank started foreclosure after the dismissal. The client found a new, higher paying job. A few days before the sale date I helped the client file a new Chapter 13 plan. Under the old bankruptcy law the new filing would automatically stay the foreclosure and stop the sale so long as the new bankruptcy remained active and plan payments current. Under the new bankruptcy law, upon filing a repetitive bankruptcy ( that is , a bankruptcy within a few months of an earlier case) the new automatic stay is short lived.

The automatic stay triggered by my client’s second bankruptcy lasts only 30 days unless the debtor proves that he filed the second bankruptcy in good faith. The debtor has to show the court there are changed circumstances which explain why the second bankruptcy is feasible after the initial bankruptcy failed. Absent a showing that a second bankruptcy is filed in good faith bankruptcy protection terminates in 30 days, and the lender can restart foreclosure. In this instance the court found that the debtor’s new job was a sufficient financial improvement to warrant extension of the bankruptcy stay protection against foreclosure.

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

Debtor Education and Last Minute Chapter 13 Filing

A new client hired me today to stop a foreclosure sale of his principal residence. For the first time since the new bankruptcy law, I examined the issue of getting a debtor education certificate on an expedited basis in time to save a house from foreclosure. Many courts around the country have refused to waive debtor education requirements of the new law prior to filing even if the result of dismissing a bankruptcy without the education certificate is the loss of the debtor’s principal residence. Courts have said that if a debtor tries to complete an education course and after five days is unable to find an eligible course that the debtor can file a certificate to that effect and may obtain a waiver. But, this procedure still requires initial attempts to take an education course at least five days before the Chapter 13 case is filed. People who consider bankruptcy less than five days before foreclosure may find it too late to either take the debtor education class or file a certificate in time to save their homes.

The Orlando Chapter 13 office stated that they may themselves be a certified provider of pre-filing debtor education. If this were the case, local debtors may find it easier to quickly obtain an education certificate prior to filing a last-minute Chapter 13 case. When my secretary checked today and found that the local trustee has not yet been certified as a provider of debtor education. For the time being, debtors will have to seek certification from private providers.

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

Rejecting Contracts in Chapter 13

Most Chapter 13 bankruptcies in Florida are filed by people trying to save their home from foreclosure. Another use of Chapter 13 bankruptcy is to void contracts. Chapter 13 rules permit debtors to reject an executory contract. An "executory contract" is any contract where each side has duties remaining to perform. An example is a contract to sell real estate, a lease, or an employment contract.

I am currently involved in a case where the debtor is seeking to reject a contract to sell her homestead because, for various reasons, she feels it is better to keep her family in the house rather than sell the house in move. If a debtor rejects a contract the debtor is liable to the other contractual party for actual damages. The other party is an unsecured creditor who has to file a claim in the bankruptcy case and prove breach of contract and the amount of actual damages due to the debtor’s rejection of the contract.

This particular case has an interesting legal issue. The debtor and her spouse owned the house as tenants by the entireties. Debtor and spouse signed a contract to sell their house. The debtor filed bankruptcy without her spouse and sought to reject the sales contract. The bankruptcy judge held that where there is a contract to sell real estate owned by both spouses, one spouse cannot reject the sales contract in Chapter 13 without the other spouse also filing bankruptcy and joining in the contract rejection.

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

Credit Ratings During Chapter 13 Plan

People file Chapter 13 bankruptcy in Florida most often to stop foreclosure of their home. The debtors file a Chapter 13 plan including normal monthly mortgage payments and a small part of the arrearage each month. Some clients complain that even though they are current in their payments to the Trustee under the Chapter 13 plan their mortgage company still reports to the credit bureau that the debtors are 120 days or more behind on their payments. Clients don’t understand why their credit continues to be adversely affected even though they are paying what they are supposed to pay.

I think that these mortgage companies are not doing anything illegal. My understanding is that mortgage companies are not required to report to credit bureaus that the account is current until the bankruptcy court issues a discharge order declaring the mortgage debt to be current. However, this is not an issue of bankruptcy law and is instead a question of banking laws and fair credit reporting.

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

New Barriers to "Eleventh Hour" Chapter 13 to Stop Foreclosure

The new bankruptcy law requires all debtors to take a credit counseling course before filing bankruptcy. This requirement is particularly troublesome for people who need to file Chapter 13 at the last minute to stop a foreclosure on their house. In many foreclosure cases, debtors try to work out repayment arrangements with their mortgage company until the last day or two prior to the foreclosure sale. If negotiations fail to bring about a reasonable repayment plan to save the house a Chapter 13 bankruptcy on or just before the sale date becomes the homeowners last defense. In such instances, the homeowner may not have time to complete a credit counseling course and also prepare an emergency bankruptcy petition.

The new bankruptcy law provides that debtors can complete their credit counseling after they file their petition if they can demonstrate to the court "exigent circumstances." There are at least three cases decisions issued by bankruptcy judges involving debtors who sought to complete the debtor counseling education after filing bankruptcy to stop an immanent foreclosure or eviction.

In each case the court dismissed the bankruptcy because the debtor did not certify that they had tried unsuccessfully to obtain debt counseling within the 5 days immediately preceding the filing of their petition as required by the new bankruptcy law. As soon as someone first considers bankruptcy as a possible defense to foreclosure or eviction they should complete a credit counseling course so they will be eligible to file bankruptcy in the event they cannot otherwise save their homes.

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