Bankruptcy and Foreclosure Attorney Blog

Can a Chapter 11 be converted?

Fri, 18 May 2012 11:54:29 -0500

Chapter 11 can be a complex chapter in bankruptcy. However, they are also very expensive. That is why there are fewer chapter 11 cases filed as opposed to chapter 7 and 13 cases. Chapter 11s are reserved for higher net worth individuals or those who have more properties to manage or the chapter is reserved for corporations and businesses trying to reorganize. As a practicing bankruptcy attorney in Northeast Florida, it is important to know the consequences for the debtor failing to do certain things.

For example, if the debtor does not keep personal liability coverage and/or property insurance on buildings; or if the debtor has failed to file a cash collateral motion at the outset of the case; or if the debtor fails to timely provide monthly operating reports and and pay quarterly fees, the US Trustee can either dismiss the case OR convert it to a chapter 7. The chapter 11 cannot be "dismissed" by the debtor unless it is in the best interests of the creditors to do so. This is very rare and the same rule applies in a chapter 7 case.

If the Trustee converts the case to a chapter 7, the debtor may lose properties and be forced to surrender assets that he or she did not wish to lose. This can certainly cause friction between the attorney and the client/debtor. Therefore, it is imperative for the debtor to keep these things up to date and to timely submit reports which are due. The debtor does have the right to convert the case to a chapter 7 unless the case was instituted involuntary by creditors or if the debtor has already converted from a chapter 7 to a chapter 11.

Can I strip a 2nd Mortgage in a Chapter 7?

Wed, 16 May 2012 16:25:33 -0500

This is a hot topic right now and as a practicing bankruptcy attorney in Northeast Florida, this part of bankruptcy law is always changing. Recently, the 11th Circuit Court of Appeals handed down a decision that allows chapter 7 debtors to strip 2nd mortgages and liens on their primary residences. It is unclear whether or not this case will apply to investment properties. Until this case was handed down, this feature was only available in chapter 13 cases. This issue will more than likely be heard by the United States Supreme Court and they will be the ones to decide and interpret the bankruptcy code. It may take a revision to the code before they render a decision that conflicts with the code verbage. If the ruling stands, it will be a great benefit for debtors thinking about filing for chapter 7 bankruptcy.

For those currently in chapter 13s, who have had a lien stripped off or crammed down, typically those court orders only allow the stripping of the lien if the debtor gets the discharge in a chapter 7. Now, with this recent decision, it will be interesting to see if these debtors will be able to convert to a 7 but have the lien stripping remain in effect. Apparently, this decision does not apply to loans that are partially secured. What does that mean? It means if the home value is more than the balance owed on the first mortgage, the 2nd mortgage cannot be stripped.

To be honest, I find that most of my clients who have home equity lines or 2nd mortgages tend to make more money and would not qualify for chapter 7 anyway. However, there are a few that they only file chapter 13 to strip off a second mortgage. Whether or not this decision will stand, I think it is a good practice and will help debtors have a chance to actually stay and afford their homes. It should help bring down the number of foreclosures in the area and cut down on chapter 13 filings.

Who Reports Judgments to the Credit Bureaus?

Mon, 14 May 2012 15:28:08 -0500

Many times creditors have judgments entered against Defendants and are unsure of what the next step is in order to collect on the judgment. Sometimes judgments are sold because they are valuable assets but a collection company can do a better job enforcing the judgment than the original creditor. Sometimes the judgment isn't worth the paper its written or typed on. Some Defendants (including businesses and individuals) are collection proof, meaning they have no assets or the assets they do have are protected under state law. Many times, attorneys will try and conduct post judgment discovery. This can be done through depositions, interrogatories, fact information sheets, etc. Failure to comply could result in the Defendant being in contempt of court.

If a creditor wants a particular judgment reported on the Defendant's credit report, what should be done? The three main credit reporting bureaus (Experien, Transunion, and Equifax) routinely collect data from the courts and apply those findings accordingly without the Plaintiff ever having to do anything. However, with such a large volume of cases, mistakes are made and judgments are missed. The creditor could then get a copy of the judgment and send it to one or all of the credit reporting agencies and inform them that you would like for this debt to be reported. The bureau will do its own investigation and ensure the judgment is accurate and active.

How long are judgments valid for? That depends on what state the judgment was entered. In Florida, the judgment is valid for twenty years and liens are enforceable for ten but can be renewed if need be. Judgments from other states may be domesticated in Florida but there are procedural issues involved with that also which will be saved for another date and blog.

What is a Motion for Summary Judgment in a Florida Foreclosure case?

Thu, 10 May 2012 10:52:09 -0500

Many homeowners in foreclosure have or will most likely face a summary judgment motion from the bank's attorney. But what does that mean to the every day person? If that has been filed, will I lose my case? The answer depends on many things. Does the homeowner have an attorney? If not, does the homeowner plan to attend the hearing? If so, what arguments can be made why the bank should not be allowed to continue to foreclose on the home? The standard the courts must abide by is the "genuine issues of material fact." Are there any?

What does this mean? If the facts of the case are undisputed by all parties, then there is no reason to continue litigating. Whatever side the law falls on based on the facts is the party who is going to win. If there is an issue with that, then the motion should be denied. Summary judgment motions are heard in almost every type of civil law area. The procedure is available to both Plaintiffs and Defendants. However, if the motion is made frivolously or without merit, the Court can award the party who prevails attorney fees and costs.

Why would a court deny the banks' attorneys' motion? Sometimes there are discovery requests that have not been fulfilled even though a defendant or defendant's attorney has requested documents or an opportunity to depose representatives, etc. If the defendant can show that they have done everything possible to be in compliance, it should be noted and the banks failure to respond to requests should be detrimental to the bank. Furthermore, if the defendant can show legitimate issues with the case and that there are "genuine issues of material fact" then the motion should be denied.

What if the motion is denied? What happens next? The case should then be set for trial. The odds of defeating the bank increase slightly for the homeowner because defeating the summary judgment stage is a win in and of itself in most cases. At trial, witnesses and evidence can be introduced and the Court will take it all into consideration before making a ruling.

Can I be taxed for the difference if I short sale my Florida home?

Tue, 08 May 2012 10:13:42 -0500

Many homeowners look for alternatives to foreclosure before the actual case is filed or even during the pending case. The banks typically will require the homeowner to fill out a financial packet before they agree to any alternatives to foreclosure or loan modification.

The paperwork can be exhaustive and comprehensive. Furthermore, the homeowner will be divulging personal, financial information, in addition, to asset information. This can be risky considering the bank may look for a deficiency judgment against the borrower. If the bank discovers several unencumbered assets, it may tempt the bank to pursue the deficiency aggressively.

If a borrower short sales his or her primary residence, then the borrower should not be responsible for the tax liability (on the difference). If the borrower short sales an investment property, the borrower will most likely receive a tax bill for the difference, if any. Typically, the bank releases borrowers from personal liability on any deficiencies, but the tax liability probably will remain.

For more on alternatives to foreclosure, you should contact an experienced attorney.

If only One Spouse files for Bankruptcy, what property is Protected from the Trustee?

Fri, 04 May 2012 08:08:51 -0500

This question can become complicated but it happens all the time. What joint property is exempt under Florida law if only one spouse files for bankruptcy relief? As a Northeast Florida Bankruptcy attorney, it is important to properly apply exemptions and know the law on this issue if you are going to be able to zealously advocate and serve your client's best interests. Property categorized as being held "tenancy by the entirety" (only available to married couples) is protected from attachment by the bankruptcy Trustee and most other creditors as well.

What does that mean? It means the property was acquired during the marriage and is usually specified on the property that is being held by the entirety. If there is no specific label, there is a presumption that the property is held tenancy by the entirety (assuming it was acquired during the marriage). What are the most common types of property where this is an issue? The most common property are joint bank accounts with money sitting in those accounts and where there are contributions from both spouses. Sometimes real property with and without structures is held as tenants by the entirety. Vehicles and household items are also common properties held by the entirety. These properties should be exempt from Trustee attachment in a Florida bankruptcy.

Are there other ways property can be held by a married couple? Yes. Property can be held or specifically identified as being held as joint tenancies. If property is held by a married couple, but it is specifically designated as being held as a joint tenancy, Trustee and creditor attachment is possible at least for the debtor's interest. So, this is something to really watch for before filing for bankruptcy if a married couple owns property together. Check and doublecheck that it is being held as tenants by the entirety or else be prepared to explain to the debtor that he or she could lose their interest in the property by filing for chapter 7 bankruptcy relief.

What is a Motion for Relief from Stay in a Florida Bankruptcy Case

Wed, 02 May 2012 16:02:26 -0500

Many times, creditors file motions for relief from stay in chapter 7 and chapter 13 bankruptcy cases. What they are essentially asking for is permission from the bankruptcy court to move forward with state court remedies to foreclose on property. Therefore, secured lenders are the creditors permitted to do this. Homeowners Associations are even allowed to file the motion because when the debtor signed to purchase the home, the covenants and restrictions of the homeowner's association permit the association to foreclose if payment assessments are not paid on time.

Creditors are not entitled to this type of relief if the debtor is current on the payments, the chapter 13 plan provides for payment to the creditor, or if the property has equity. Many times, the bankruptcy court will makde the debtor show proof that the collateral is properly insured or it can grant the creditor adequate protection payments in the interim until discharge or the 13 plan is confirmed.

Adequate protection payments usually involve the debtor making the same payments to the creditor had the bankruptcy not been filed. If the creditor receives relief from the automatic stay, the creditor can look to record liens on the property or foreclose on the collateral if the payments are not current. Many times, this may be a non-issue especially if the debtor is looking to surrender the collateral anyway.

Octomom Files for Bankruptcy Relief

Mon, 30 Apr 2012 08:14:03 -0500

Nadya Suleman, also known as "Octomom," has recently filed for chapter 7 bankruptcy relief. The house she was renting was in foreclosure and the sale date was scheduled on the day she filed. It is reported and estimated that she is in as much as one million dollars in debt. She has lived off of food stamps and social security disability before and since the birth of her children. She is estimated to have about $50,000.00 worth in assets and the bankruptcy Trustee may be able to liquidate some of those assets in an effort to pay back creditors. Because she was behind almost $30k in rent, the landlord fell behind on payments and ultimately the house went into foreclosure. The Associated Press is reporting that the house sale date will be rescheduled in about a week.

Why did she choose to file now? If bankruptcy relief is filed and sought prior to a sale date in a foreclosure, it temporarily stops the sale date because the federal bankruptcy code protection goes in place. The debtor will not necessarily be able to save the home but at least it buys some additional time to make the transition out of the home. However, debtors need to be careful in that if the primary purpose for filing the bankruptcy is to delay, this may be a red flag to the Court and the Trustee. The case could be dismissed or the discharge denied if this type of intent is suspected

What will happen after bankruptcy for Octomom? Well, she will be relieved from a lot of her debt and will get somewhat of a fresh start. She may have a tough time getting any financing in the near future, but if her employment status changes, it may help her chances. Many of the debt collection calls and letters she received prior to bankruptcy, will or should cease.

Can the Bank Contact me During My Pending Florida Foreclosure case if I Have Hired an Attorney?

Fri, 27 Apr 2012 08:14:16 -0500

This question comes up all the time and the banks and their attorneys violate this rule more often than they should. What rule you ask? Florida law provides once an attorney or a party has learned that the opposing party has hired an attorney, all correspondence should go through the attorney and all communication should cease with the attorney's client. What kind of proof can one provide to show that the opposing party received notice? Well, it would be nice to have phone logs or return receipts for certified mail. But, many times an affidavit by the attorney or the client may be sufficient to put the other side on notice. What if that does not work and the bank or attorney continue to contact the client being represented by counsel.

There may be a Florida Fair Debt Collection Practices violation. If there is a potential claim, generally, it should be brought in small claims court unless you believe the value of the claim is worth more than $5,000.00. This figure is not inclusive of costs or attorneys fees. Only when there are actual damages, is it easier to show an actual figure one is shooting for. Many times, the banks will try and work out a settlement and avoid a judgment. Many times, packages and information/materials are sent to the borrower unbeknownest to the borrower's attorney. This should not go unnoticed.

How many times can I file for Bankruptcy in My Lifetime?

Thu, 26 Apr 2012 14:42:11 -0500

One of the many changes to the 2005 Bankruptcy laws were the added restrictions to the frequency of bankruptcy filings. If a debtor receives a discharge in a chapter 7, that debtor must wait 8 years between filing dates before the debtor can file again. Is there are a restriction on the number of times one can file in a lifetime? The only restriction is the 8 year waiting period between chapter 7 filings. Again, this waiting period is only relevant if the debtor received a discharge. If the debtor did no receive a discharge, and assuming the case was not dismissed for fraud or because the debtor did not qualify for any other reason, the debtor should be able to refile.

What about the wait time between chapter 7 and chapter 13 filings? The debtor has to wait 4 years between a chapter 7 and 13 filing dates. Again this is assuming a discharge is reached. Many times, chapter 13 cases are dismissed because the debtor fails to make payments or the debtors failed to cooperate in getting the Trustee everything that was needed to compete the bankruptcy (i.e. tax returns, pay stubs, etc). Are the debtors prohibited from now filing a chapter 7. It depends on the order dismissing the case and if they are otherwise eligible from a mean's test and eight year eligibility standpoint.

Do married couples of have to file together? No, they do not. One spouse may file separate and not include the other spouse. One spouses ineligibility does not necessarily preclude the other spouse from filing. Can engaged or dating couples file bankruptcy together? No, they may not. It has to be two separate filings or wait until they are married. There are many nuances to filing for bankruptcy.If you are thinking about bankruptcy you should consult with an experienced attorney.

What debts are not dischargeable in a chapter 7?

Mon, 23 Apr 2012 16:45:07 -0500

I realize I have blogged on this before but it is so important for debtors to understand this. Whether a debt is or is not dischargeable could be the deciding factor on whether or not to file bankruptcy or at least file it with someone who knows what they are doing. As a practicing bankruptcy attorney in Northeast Florida this is key information one needs to give when consulting someone about bankruptcy.

What debts are not dischargeable? Surprisingly, most debts are dischargeble. There are actually very few that are not. If a creditor believes they are not dischargeable, they should file an objection or an adversary proceeding. Some creditors are not required to do this under the bankruptcy code, but some are. If a creditor fails to file an objection to the discharge, it may be waived. If a creditor fails to file a proof of claim, the creditor will not be paid. Recent tax debt, sales taxes, employee taxes, student loans (in most cases), driving under the influence charges, criminal and traffic fines, claims for fraud or will and malicious injury, and domestic support obligations are the primary and most common debts that are not dischargeable.

Is that all? No, there are a few others such as recent incurred debt, post filing debts, debts where the debtor has no intention of ever repaying the debt, and personal injury claims where there is a willful intent to hurt the victim. It is important to note that student loans are not dischargeable unless the debtor files an adversary complaint and shows there is a substantial hardship. This can rarely be done and is usually reserved for people who are permanently disabled and can no longer work.

Do I need a Florida Bankruptcy Attorney to File my Case?

Fri, 20 Apr 2012 12:40:26 -0500

Many bankruptcy cases are filed pro se (without an attorney; or representing oneself). Many choose to go this route because they feel they can do just as good a job or they lack the financial resources to hire an attorney and do not qualify for legal aid. Filing for bankruptcy can be expensive. However, filing a bankruptcy and not getting the job done correctly can be even more expensive especially when you have to start over. I have had many clients try and file themselves and they schedule a consultation with me a few months later and have to start over. There are many documents that the trustee requires, the forms are very complex and the average layman does not know bankruptcy law. It is more than filling in blanks and showing up for court. Lawyers do not attend that extra schooling and are forced to pass very difficult exam because the law is easy.

Is one chapter more complicated than the other? First and foremost, the average layman does not need to try and file chapter 11 bankruptcy, ever. It is very difficult and there is a reason why attorneys who handle these cases charge higher fees. Chapter 7 may be the lesser of the complex chapters to file, but again there can be very complex chapter 7 cases. Chapter 13 is and can be very difficult even for attorneys. The chapter 13 plans, nuances of the trustees, and procedure can be very complex. Tracking proof of claims, incorporating those into plans, amending and modifying plans, calculating disposable income, determining exemptions, etc. are just a few of the complex duties in filing and sustaining a chapter 13 plan.

If you are not a good organizer or planner, trying to file bankruptcy on your own will be near impossible. The paperwork is tedious and requires a good bit of effort to have the case filed correctly. There is a reason why their are professionals available to do this. If it is something the professional does everyday, then why wouldn't you trust someone with that experience and knowledge?

Can I Short sale or deed in lieu my Property to the Bank after a Florida Foreclosure has been filed?

Wed, 18 Apr 2012 08:19:33 -0500

This question comes up quite frequently in the foreclosure arena. The answer really depends on a number of factors. As a practicing Florida foreclosure attorney in Jacksonville, I have this question come up quite often. Although the bank is willing to offer loss mitigation packages to borrowers, it may not be in the borrower's best interests to accept some of these alternative to a foreclosure. Borrowers assume that because a foreclosure has been filed, there is nothing that can be done to either save the home or mitigate the damage. However, many lenders will offer borrowers alternatives such as short selling the property or having the borrower sign the deed over in lieu instead of continuing the foreclosure. The bank has to approve the short sale offer (price, buyer, etc) and this can be difficult at times, especially in Florida's market. Assuming the property is the borrowers primary residence and a short sale goes through, the seller should not have to worry about deficiencies or tax liability. That is not always the case when investment property is involved.

There may be tax liabilities for agreeing to these foreclosure alternatives on investment properties. Does the borrower have multiple loans/mortgages on the property? Assuming the lien with priority is filing for foreclosure, those next in line do not have to agree to the short sale or deed in lieu. Therefore, these 2nd lien lenders may choose to sue directly on the note. They would be permitted to do so if the borrower is in default on that note. Because properties have little to no equity in most cases, the 2nd and third lienholders have no desire to foreclose on the property because the proceeds would go directly to the first lienholder. There are too many costs and fees involved to do something like this. So, what recourse do they have? They can sue directly on the note.

This is a big decision to give away or short sell a home. You should really consult with an experienced attorney before making any big decisions. You need to be fully informed of all consequences and expectations.

Post-Bankruptcy: What should I be doing?

Tue, 17 Apr 2012 17:04:42 -0500

Many times, debtors are concerned with what they should be doing after their bankruptcy. Debtors should do whatever they can to get bills in their name in order to rebuild credit. This must be done in a reasonable capacity, but it will help the debtor get financing and other lines of credit in the future.

Debtors should frequently check their credit report to ensure that past debts that were included in the bankruptcy and discharged are not being reported inaccurately on the report. If this does happen, this may be a discharge injunction violation and the debtor may have legal remedies. Another post-filing tip: read every document you sign for! Many times, debtors are forced into a bankruptcy because they signed bad deals and were forced into the bankruptcy. Read and comprehend everything you sign for.

If your creditors are continuing to contact you after a debt has been properly discharged or if something is showing on your credit report wrongfully, you should consult with an experienced bankruptcy attorney.

Will Filing for Bankruptcy Hurt my Chances for a Loan Modification?

Fri, 13 Apr 2012 08:13:50 -0500

This question does come up quite often especially in the state of Florida where the volume of delinquent borrowers on home loans is near the highest in the country. As a practicing Northeast Florida bankruptcy attorney, I can only share my experiences and personal knowledge of what happens with my clients. Many times, borrowers are forced into bankruptcy because the bank denied the borrower's modification requests in the first place. Again, chapter 13 is the consumer chapter reserved for debtors who do not qualify for chapter 7, who may have several paid off assets they do not want to lose, or they are trying to catch up payments on their home. With the new mortgage modification mediation program in the Middle District of Florida Bankruptcy Court, this obviously increases a debtor's chances in trying to secure a modification, or principal/interest rate reduction. Of course, there are no guarantees with this program, but it seems to give some a fighting, realistic chance at assisting struggling homeowner.

What about chapter 7 debtors? In the debtor's bankruptcy petition and schedules, the debtor is asked whether he or she plans to keep the property or surrender his or her interest. In both instances, I have seen banks contact me and ask if my client is interested in a modification or a loss mitigation package. A loss mitigation package may allow a debtor to short sale the property or sign over the deed in lieu of foreclosure. You may be wondering what benefits could possible come from these options. Well, if the debtor has a homeowner's or condo association, the post petition arrears on assessments could be relinquished and the debtor avoid further liability as soon as title is transferred from the debtor's name. It may be quicker than waiting on the bank to foreclose (which could take years) and getting this property out of the way and moving on with your life. Modifications and loss mitigation packages are not offered in every case so filing the bankruptcy may have no effect on your account status.

What if the debtor is already in a modification and then files bankruptcy? If the debtor is filing a chapter 7,the bank must continue to honor the agreement unless there is a clause prohibiting the filing of a bankruptcy during the modification. It may be a good idea to inform the mortgage company you are contemplating filing for bankruptcy relief to avoid any surprises. If the debtor plans to file for chapter 13 relief, the debtor can keep the mortgage out of the bankruptcy and save some cash by not having to pay a higher Trustee percentage. The mortgage company will receive notification that the debtor has filed but as long as the debtor continues to make the trial or permanent modification payments on time, the bankruptcy should have no effect on the agreement.