Chapter 13 Bankruptcy Discharge

A chapter 13 bankruptcy debtor receives his "discharge" of debt in a chapter 13 case after a person completes making his payments under his chapter 13 plan. Chapter 13 plan are generally three to five years in length. Generally the types of debt that are dischargeable in a chapter 13 case are the same as those in a chapter 7 case, but there are certain debts that are dischargeable in a chapter 13 case that are not dischargeable in a chapter 7 case.

Hardship Discharge
A chapter 13 debtor that is unable to complete his chapter 13 plan payment for reasons beyond his control may be eligible for a "hardship discharge." In order to obtain a hardship discharge, certain requirements must be met such as to the amount paid under the plan and the circumstances of the debtor's situation.

"Foreclosure Defense" - Time to Review Assumptions?

The issuance by the Floirda Third District Court of Appeals in Miami of the recent decision in Deutsche Bank Trust Company Americas, etc. v. Harry Beauvais, et al., Case No. 3D14-575, may be an appropriate time to review what actions a Miami homeowner that seeks to save their home from foreclosure.  If upheld, the Court's decision may indicate that some notions of "foreclosure defense" may need to be reviewed.  

A homeowner seeking to save their home from foreclosure may be better served on directing his or her efforts towards the modification of their mortgage instead of  "winning" a foreclosure case.   For example, it appears that in many or most cases, arguments regarding statute of limitations issues may not result in a "quiet title" judgment.

Present Modification Opportunities

If a homeowner seeks to save their home from foreclosure, focusing primarily on "foreclosure defense" is not likely to be the solution.   The federal government, the mortgage lenders, and the general economic climate, present good opportunities to modify your mortgage that may not exist in years to come.  For many, the after-tax benefit cost of paying a modified mortgage payment may not be significantly more than paying for a "foreclosure defense"

Chapter 13 Bankruptcy

A person may pursue a mortgage modification on their own or with the assistance of an attorney. In some cases, it may be appropriate to file for the mortgage modification as part of the Bankruptcy Court' Mortgage Modification Mediation ("MMM") program. If the second mortgage is wholly "underwater," the homeowner would often be able "lien strip" or avoid it as part of his chapter 13 plan.  

Possible Rising Real Estate Price and Interest Rates 

A homeowner may be making a error in not taking the opportunity to modify their mortgage based on present real estate values and interest rates. Real estate prices and interest rates may be rise,  causing the new modification payment to be higher the longer a person waits to pursue a modification.

Also, if a person who has a first and second mortgage, it would be better to address their situation before there is a rise is in real estate prices. If the second mortgage is wholly "underwater", it may be avoidable in a bankruptcy case.  If real estate prices go up enough that the second mortgage is not wholly "underwater," the second mortgage could not be avoided at all.

"Winning" Foreclosure

There may not exist much of a thing as "winning" a foreclosure case. For many, simply getting a foreclosure case dismissed, "with" or "without" prejudice may not be much of a "win".  In most instances, a new foreclosure action may be filed on a new default almost immediately.

For example,  "winning" a foreclosure case by getting the case dismissed may not be much of a "win" - it may only mean that the lender can simply file another case.

Statute of Limitations

Even if the statute of limitations has run to bring a foreclosure action on the mortgage note, generally the mortgage note remains valid and the mortgage and its liens remains valid. The continued validity of the mortgage and its lien is governed by the time period set forth in the statute of repose - which is different than the statute of limitations.

Transfers Before a Bankruptcy

There are several provisions of law that address transfers before a bankruptcy case - federal bankruptcy statutes, state statutes, and state common law. Transfers that violate these rules may be subject to avoidance and the parties may face other serious penalties, including their denial of a bankruptcy discharge.

Solvency

Solvency relates to the ability of a person to pay debts are they mature or in the ordinary course of business. One key item looked to as to whether the transfer was fraudulent is the "solvency" of the transferor - the person who made the transfer. Solvency is often referred to as a balance sheet test - the value of a person's assets of all types are compared to the amount of his liabilities.

Discharge of Malpractice Judgment in Bankruptcy

A recent bankruptcy case in Miami involved the issue of whether a certain dental malpractice claim was dischargeable in bankruptcy.  All debt, with certain exceptions, is generally dischargeable in a chapter 7 bankruptcy case.

In this case, the former patient sought to except the dental malpractice claim from the chapter 7 discharge on the allegation that the dentist obtained his fee under "false pretenses, a false representation, or actual fraud..." as set forth in section 523(a)(2)(A) of the bankruptcy code. In this case, the former dental patient alleged that there was a "false representation" or "fraud" by claiming that the dentist did not disclose his drug dependency and lapse in malpractice insurance.

 False Representation

In this case, the bankruptcy court did not find a "false representation." The bankruptcy court explained that to establish a "false representation" under 11 U.S.C. § 523(a)(2)(A) requires proof of a false or misleading statement with the intent to deceive, inducing a person to turn over money or property.  The court stated that the establishment of a  "false representation" requires an "expressed misrepresentation - oral or written"  and that "[s]ilence, or lack of communication, cannot deliver proof by a preponderance of the evidence."  In this case, the court did not find that the dentist had made any misrepresentations that were intended to deceive the former patient and cause her to turn over money or property.

Actual Fraud

The court also found that there was a lack of "actual fraud." The court reviewed that the establishment of "actual fraud" under this section "refers to common law fraud, and requires" the proof by a preponderance of the evidence that 1. there was a false representation made with the purpose and intent of deception, 2. that the representation was relied upon, 3. that the reliance was justifiably founded, and 4. that the person was damaged as a result of the false statement.   The court noted that "actual fraud" may be proven by a misrepresentation that is express or implied, but proof of actual fraud is required and not fraud merely implied in law.  The court found that the former patient did not prove express or implied "actual fraud" was committed.

Eligibility for Chapter 13 Bankruptcy

Only individuals are eligible to file for Chapter 13 Bankruptcy.   A husband and wife can file a joint chapter 13 case. Corporations, partnerships, estates, and trusts are not eligible to file for chapter 13.  But individual operating their own business as a sole proprietorship (unincorporated) are eligible to file chapter 13 to deal with their personal and business debt.

Regular Source of Income

In order to qualify for chapter 13 bankruptcy,  an individual must have a source of "regular income." "Regular income" means a source of money sufficient to fund a chapter 13 plan. the type of "income" necessary is not defined by the Bankruptcy Code, but the courts have held that Congress intended a broad definition of income for purposes of eligibility for chapter 13.Typical sources of regular income are wages, social security income, and retirement benefits.

Options for the Distressed Florida Homeowner

Summary
In recent days, some distressed homeowner have started to receive offers for mortgage modifications from their mortgage companies. These appear to be prompted by the new guidelines under the Treasury Department's "Making Home Affordable Program." The proposed modifications appear to reduce the monthly payment on a first mortgage to about 37% of the family's gross monthly income. The proposed modifications do not appear to propose to reduce the principal balance which usually greatly exceed the value of the home. A further amount may also be due on a second mortgage. Distressed homeowners may contact their mortgage servicer if they desire to review options for refinancing or modification.

One approach which may be considered where appropriate, is to "piggy-back" or combine a first mortgage modification with avoidance of a wholly "underwater" second mortgage while in a chapter 13 bankruptcy reorganization. The goal would be to avoid a wholly underwater second mortgage and modify a first mortgage. The modification of the first mortgage would either under the Treasury Department's "Making Home Affordable Program" or possibly a even better modification terms upon any appropriate review of "defects" of the first mortgage (such as a "lost note", unfair terms, etc.) during the chapter 13 case. Proposed changes to the chapter 13 laws are pending in Congress and may be adopted in the near futures. These changes are expected to be retroactive to pending chapter 13 cases and may offer modification of first mortgages by reducing the principal balance down to the present value and a reduction in interest rate.


1. Present Real Estate Crisis
Many homeowners owe more on their home mortgages than their present value (are “underwater”) and many are unable to pay their monthly payments. Many South Florida homeowners are in a situation where the amounts owed on their first and second mortgages substantially exceed the value of his or her home. Many of the comparable sales are short sales or sales of foreclosed homes. Many first mortgages may be adjustable rate mortgages. Property taxes may be high as they are based on pre-decline assessments. Condominium and association fees may have risen dramatically due to the default of other unit owner’s default.

2. Non-Bankruptcy Refinancing or Modification - the Treasury Department's New Guidelines for the “Making Home Affordable Program”
Most distressed homeowners should immediately contact their mortgage servicers or lenders to attempt refinancing or modifications. Patience may be required as the new provisions of the “Making Home Affordable Program” are now being implemented. Efforts should be made even if you were previously turned down.

Last week the federal government announced updated information on its “Making Home Affordable Program.” This program provides for the refinancing or modification of a mortgage on owner occupied principal residences (1-4 units) under certain circumstances. More information is available from the federal government’s “Homeowner’s HOPE Hotline” at (888) 995-HOPE. Borrowers in bankruptcy are not apparently excluded from consideration for modification. There is "no requirement to use principal reduction" under this program but "servicers may forgive principal to achieve" a certain monthly debt service to gross monthly income target.


3. Participate in Florida Circuit Court Foreclosure Actions
A person who has been served with a mortgage foreclosure action should appropriately address foreclosure actions filed in the the Circuit Court. There may be opportunities to mediate a modification with the mortgage company. The participation should begin by “answering” the foreclosure complaint within the time period set forth in the summons attached to the foreclosure complaint.

4. Chapter 13 Bankruptcy for Mortgages on Principal Residences
In the past (before the general decrease in South Florida real estate prices), Chapter 13 bankruptcy plans typically provided to reinstate first and second mortgages on a principal residence over a five year plan while at the same time paying the ongoing regular monthly mortgage payments. This was due to the fact that mortgages secured only by a principal residence are generally not “modifiable” under chapter 13 bankruptcy laws. Second mortgages though that are wholly “underwater” may be avoided and deemed as “unsecured” claims and put in the same category as credit cards.

5. Negotiation of First Mortgage Modification in Chapter 13 for Principal Residences
Although under the present provisions of chapter 13, a debtor cannot force the modification of his or her first mortgage on his or her principal residence, he or she may be able to obtain an agreed modification while under chapter 13. The debtor may pursue modification under President Obama's “Making Home Affordable Program” or on any other voluntary basis. As mortgage companies usually appoint a bankruptcy attorney to represent their claim in the chapter 13 process, there is usually an increased ability to communicate with the mortgage company. While in chapter 13, the debtor is able to explore any defenses to or defects in the mortgage which may provide more leverage to negotiate a mortgage modification.

Furthermore, the homeowner may yet be able to obtain modification of his or her first mortgage if the proposed changes to chapter 13 bankruptcy are passed as in their present form, they are retroactive to pending cases. The proposed bill allows certain mortgage modification by way of reduction of the principal balance down to the value of the home and a change in interest rate. Adjustable rate mortgages may be modified to be fixed.

6. Chapter 13 Bankruptcy for Investment Property
The rules as to modification of mortgages on non-principal residences in chapter 13 bankruptcy are actually be more liberal although prior to the recent steep declines in property values, modifications of mortgages on non-principal residences was not very common. Modification may include reduction in principal amount and interest rate. The ability to modify may be limited by a need to payoff or refinance the reduced principal amount during the five year chapter 13 plan. There may be arguments available or an ability to negotiate a payoff that continues after the chapter 13 plan is over. Since the recent declines in property values, many mortgage companies have agreed to reduce the principal balance upon the filing of a motion to value during the chapter 13 process.

7. Chapter 12 Bankruptcy for Family Farmers
Chapter 12 also provides for more extensive mortgage modification for family farmers.

8. Other Chapter 13 Considerations
a. Automatic Stay – With certain exceptions, the filing of a chapter 13 bankruptcy stays or stops much creditor collection actions, including mortgage foreclosure. The automatic stay provides a homeowner a “breathing spell” in order to allow him or her an opportunity to reorganize their debt while under the protection of the U.S. Bankruptcy Court.

b. Timing – Generally, a chapter 13 bankruptcy must be filed before a foreclosure sale if a person desires to attempt to save their home under a chapter 13 bankruptcy plan. A foreclosure sale is normally set by the Florida Circuit Court a number of weeks after the entry of the final judgment of foreclosure.

Cancellation or Rescission

Cancellation or rescission generally refers to a process by which a court terminates or cancels a contract or other instrument. Cancellation and rescission is distinguished from reformation, which is a generally a relief by a court to modify an agreement to express the true agreement or intentions of the parties.

The remedy of rescission is an ancient remedy provided by court of equity. The prime objective is to undo the transaction and restore the parties to their former status. The right of cancellation or rescission is not available as a matter of right, but lies within the strict discretion of the court in accordance with what is reasonable and proper under the circumstances of the particular case.

The grounds for a cancellation or rescission are often fraud, accident, or mistake. Types of fraud include fraudulent deception, concealment, or false representation. Duress and undue influence may also be the basis for cancellation or rescission. Duress may include moral compulsion, threats, or actual violence.

Action Against Medical Debt Collector

The federal Consumer Financial Protection Bureau (the "CFPB") announced today that it has taken action against a medical debt collection company in regard to the manner it handled consumer credit reporting disputes and consumer debt collection rights. The CFPB reports that the collection company's practices potentially affected the credit scores of thousands of individuals. The CFPB is ordering the company to correct its business practices and to provide over $5.4 million in relief to harmed consumers.

The CFPB notes that companies that "collect medical debt and supply this information to credit reporting agencies have a significant impact on consumers' credit scores." It reports that more than 43 million American have medical debt that adversely affects their credit reports.

The CFPB found that this company mishandled consumer credit reporting disputes by "failing to investigate and respond to consumers within the 30-day timeframe required under the law." The CFPB order charged the company with violating the Fair Debt Collection Practices Act and the Fair Credit Reporting Act.

The Bankruptcy Automatic Stay

With certain exceptions, the filing of a bankruptcy petition immediately and automatically puts into place a court order of a stay of collection action applicable to all entities against actions by creditors against the person who filed for bankruptcy relief as well as his property. The bankruptcy stay remain in effect until it is terminated by the bankruptcy court or as otherwise provided by the Bankruptcy Code.

Chapter 13 Co-Debtor Stay
In a chapter 13 case, the automatic stay is also effective against a person who is a co-signer on consumer debt.

Violations of the Automatic Stay
Most court hold that actions taken in violation of the automatic stay are void.

Lien Stripping Remains in Chapter 13 Bankruptcy

In a much awaited decision, the United States Supreme Court  ruled in favor of Bank of America and held that "underwater" mortgages are not avoidable in a chapter 7 liquidation case. Noteably, the ruling did not involve a chapter 13 situation.

This ruling reversed the decision of the 11th Circuit Court of Appeals located in Atlanta, which covers an area in the southeastern United States. Since many other Courts in other parts of the United States already held that "underwater" mortgages are not avoidable in chapter 7 cases for many years, this new decision does not change the practice in many parts of the country.

Underwater Mortgage

A mortgage is called "underwater" in a situation where the balance due on the first priority mortgage exceeds the value of the property. For example, if $150,000 is owed on the first mortgage and $50,000 is owed on the second mortgage, the second mortgage would be wholly "underwater" if the value of the home is $150,000 or less.

Lien Stripping in Chapter 13 

It should be noted though that the Supreme Court's decision was not directed at the avoidability ie. "lien stripping" of wholly underwater second or other junior mortgages or liens in a chapter 13 plan of reorganization.

Chapter 13 Plan

A chapter 13 case is often used to save a home from foreclosure. A typical plan would avoid or "lien strip" a second mortgage and provide for the first priority mortgage with a modification or reinstatement of the arrearages.

Totten Trusts in Florida

In a Totten trust bank account a person deposits his money into an account in his own name as trustee for another.  A Totten trust account is also known as a "payable upon death" account. The Totten trust doctrine has been accepted in Florida.

A Totten trust account is a tentative trust that is revocable at will until the depositor completes the gift during his lifetime by some unequivocal act or declaration or subsequently dies.  The depositor is still regarded as the owner as he retains complete control over the funds during his lifetime.

Totten trusts may be revoked. There are no specific formalities required to evidence the revocation of a Totten trust. Any decisive act or declaration of disaffirmance during the lifetime of the owner will generally suffice.

Florida Bankruptcy Exemptions

Real Property

Homestead - unlimited in value, l/2 acre in municipality, 160 acres outside municipality, Art. X, Section 4, Florida Constitution

Personal Property 

Generally - to extent of $1,000, Art. X, Section 4, Florida Constitution and a further $4,000 in certain circumstances

Motor Vehicles - to extent of $1,000

Property Held as Tenants by Entireties for debts of only one spouse

Health Aides Professionally Prescribed

Earnings of Head of Family

Proceeds of Life Insurance on Florida Resident

Cash Surrender Value of Life Insurance on Life of Florida Resident

Annuity Contracts

Disability Income Benefits

Workers' Compensation Benefits

Qualified Tuition Programs, Prepaid College Trust Funds

Health or Medical Savings Accounts

Educational IRA

Annuity Contract Purchased to Effecuate Structured Settlement Held Exempt

Bankruptcy Lawyer - Chapter 13 Bankruptcy Lawyer Jordan E. Bublick has an office in Miami and has over 25 years of experience in filing chapter 13 and chapter 7 bankruptcy cases. His office is located in Miami at 1221 Brickell Ave., 9th Fl., Miami and may be reached at (305) 891-4055. www.bublicklaw.com  


Florida statute §222.14 provides that the proceeds of annuity contracts issued to citizens or residents of Florida are exempt from a beneficiary’s creditors unless the annuity was effectuated for the benefit of the creditor. §222.14, Florida Statutes. In the case of Mc Collam v. LeCroy, 612 So. 2d 572 (1993), the Florida Supreme Court held that an annuity contract awarded to the debtor by a defendant to fund a structured settlement of a personal injury case was exempt. The creditor argued that the annuity contract did not qualify as an exempt annuity contract as being in substance a nonexempt structured settlement. The court noted that the statute does not define “annuity contracts” and hence it did not find the exemption limited to any particular types of annuity contracts, such as those based on the insurance of human lives.

The court in In re Dillon, 166 B.R. 766 (Bankr. S.D. Fla. 1994) illustrated the distinction between an exempt annuity contract purchased to fund a structured settlement and a mere structured settlement. In Dillon the judgment creditor agreed to make annual payments and did not purchase an annuity contract to effectuate the annual payments. The court held that the annual payments were not exempt proceeds of an “annuity contract” pursuant to §222.14, Florida Statutes.

Forida Statutory $4,000 Personal Property Exemption

Since the enactment of section 222.25(4), Florida Statutes (effective July 1, 2007) there has arisen the issue of whether this section's new $4,000.00 personal property exemption (which is available to those that do not "claim or receive the benefits of a homestead exemption" under Art. X, Sec. 4 of the Florida Constitution) is in addition to the $1,000.00 personal property exemption of Art. X, Sec. 4(a)(2) or whether it includes it. The case of In re Bezares, Case No. 07-12820 (Bankr.M.D.Fla. October 23, 2007)(Paskay, J.) addressed this issue and concluded that the new $4,000.00 of personal property exemption provided by section 222.25(4), Florida Statues is in addition to the $l,000.00 constitutional personal property exemption.

In this case, the chapter 7 trustee argued that the maximum allowable personal property exemption claim is $4,000.00. The trustee cited the legislative history of section 222.25(4), Fla.Stat. which supported the trustee's position The debtor argued that the the $4,000.00 exemption was in addition to the $1,000.00 constitutional personal property exemption based on the well established principle that the legislature has no power to abrogate, alter or amend any provision of the Constitution.

The Court agreed with the argument of the Debtor and stated that the only method by which the Florida Constitution can be altered or amended is by virtue of Article XI, Section 5 of the Florida Constitution. A statutory amendment of the constitutional $1,000.00 personal property exemption would be a violation of the Florida Constitution. Based on this argument, the Court held that section 222.25(4), Fla. Stat. added $4,000.00 to the previous $1,000.00 exemption to make a total of $5,000.00 of personal property exemption for those who not "claim or receive the benefits of a homestead exemption."

Bankruptcy Schedules Require Disclosure of All Property

When you file for chapter 7 or chapter 13 bankruptcy, you are required to disclose and list all of your property. his includes all types of property, whether tangible or intangible.  This includes property wherever located - (even if it is in another state or country) or that another person may be holding for you. 

Certain property acquired within 180 days after you file for bankruptcy are also included. These items generally are: (a) inheritances, (b), property from a marital settlement agreement or divorce decree, and (c) life insurance policy proceeds.

Rights to Sue/Causes of Action

All actual or potential causes of action you hold at the time of the filing of the bankruptcy case  (i.e. your right to sue someone for damages, etc. including personal injury claims and employment cases.) must be disclosed as an asset in the bankruptcy schedules. This includes cases presently pending and cases you have not yet filed, but may decide to bring in the future.  If you fail to schedule such causes of action, in addition to the above‑mentioned penalties, you may entirely lose the right to bring and lose your recovery for ("judicial estoppel") the cause of action against the other party.

Florida Spendthrift Trusts

Florida common law and statutes recognize the validity of spendthrift trusts. A spendthrift trust is a type of trust that is created with the intention of providing a fund for the maintenance of another and at the same time securing it against the person's own improvidence or incapacity for self-protection.

A valid spendthrift clause prevents the beneficiary of the trust from transferring his interest in the trust as well as prevents creditors from reaching any of the trust's funds until they are dispersed to the trust beneficiary.

Florida Bankruptcy Exemptions

Under the federal bankruptcy laws, each state is allowed to choose which type of exemptions will be available to those who file for bankruptcy in its state.  Generally the choice is between allowing the use of the federal bankruptcy exemptions and the state's own bankruptcy exemptions.

The question of which exemptions apply is complicated when a person has recently moved from a different state. The determination of which state's exemptions apply is based on the place of the person's domicile during the 730 days prior to filing and sometime also to the 180 days prior to such 730 days.

If you were domiciled in Florida for the entire 730 days before the date of the bankruptcy filing, you are allowed to use the Florida exemptions. If you were not domiciled in the Florida for the entire 730 day period,  you must use the exemptions allowed for the state in which were domiciled for the 180 day period (or greatest part of the 180 day period) prior to the 730 day period.

Tenants by Entireties Exemption in Florida

The Bankruptcy Code provides in section 522(b)(3)(B) in general for the exemption of property held as a tenant by the entirety or joint tenant to the extent that it is exempt from process under state law.Tenancy by the entireties is certain property held between a husband and a wife.

The Havoco case reviewed that property held in a tenancy by the entireties is generally exempt from the claim of individual creditors under Florida common law but is not exempt to the extent of joint debts of both spouses or to the extent of a fraudulent conveyance into the property.

Tenants by the Entireties

Under Florida law, property held by a husband and wife as tenants by the entireties belongs to neither individual spouse, but to a separate entity referred to as the "unity" or "the marriage." Florida law recognizes that entireties estates can exist in both real and personal property. Property held as tenancy by the entireties generally possesses six characteristics:

1. unity of possession - unity of joint ownership and control  
2. unity of interest, 
3. unity of title - the interests must have originated in the same  
4. unity of time - the interests must have commenced simultaneously  
5. survivorship
6. unity of marriage - the parties must be married at the time they took joint title (unity of marriage).

Tenants by the Entireties and Real Estate 

Florida law provides that real property held by a husband and wife in joint names is held in a tenancy by the entireties absent some express indication to the contrary. Beal Bank, SSB v. Almand and Associates, 780 So. 2d 45 (Fla. 2001). Florida law also provides a presumption that a bank account titled in the names of both spouses is held as a tenancy by the entireties as long as the unities of possession, interest, title, and time are met. Various court decisions extend the presumption in favor of a tenancy by the entireties to personal property in various manners. Some courts extend the presumption to all personal property.

Tenants by the Entireties and Personal Property

Household furnishing acquired during a marriage may also be found to be held in tenancy by the entireties. In the In re Kossow case, the Court allowed the tenancy by the entireties exemption of certain household furnishings acquired during the marriage as there was no evidence to rebut the presumption. The Court also allowed the tenancy by the entireties exemption of other household furnished acquired prior to the marriage as it found that it was subsequently assigned to the marriage. The Court further found the joint federal income tax refund as exempt tenancy by the entireties property.

Long-Term Leasehold Interest as Homestead

In a case decided by a Florida Court of Appeals in 2012, the issue presented was whether a person's long-term leasehold interest in his condominium could qualify as a "homestead" exempt from forced sale under article X, section 4 of the Florida Constitution.  The Court held that such a condominium may qualify as a homestead.

The Court explained that article X, section 4 of the Florida Constitution does not distinguish between the different kinds of ownership interests that are entitled to the homestead exemption against forced sale. The Court reviewed that the Florida Supreme Court "has long since adopted the general rule that a fee simple estate is not necessary to this exemption."  In determining a homestead, the Court noted that a court must instead focus on the debtor's intent to make the property his homestead and his actual use of the property as his principal and primary residence.

The Court held that when a lessee's interest in a leasehold estate includes the right to use and occupy the premises for a long-term and the lessee uses the property as his principal and exclusive residence, such an interest is entitled to the Florida homestead exemption from forced sale.

Timetimeble of a Chapter 13 Bankruptcy Case

Filing of the Case - Automatic Stay 

Upon the filing of your chapter 13 bankruptcy case, you are immediately protected from most collection actions against you and your property. The automatic stay is an injunction against thereditors from proceeding wit heir collection actions.

Creditors Meeting

About 6 weeks after the bankruptcy case is filed, a "creditors' meeting" (34l meeting) is held. This is normally just a short meeting among you, your bankruptcy lawyer, the bankruptcy trustee, and any creditors who choose to attend.  In most cases, no creditors bother to attend. 

Length of Chapter 13 Plan

Chapter 13 plan are usually for a period of 3 to 5 years. This length of the plan depends on various facts, including, whether your income is below or above median income, the amount of your non-exempt property, and what you are trying to achieve in chapter 13 plan.

Discharge Order

After you complete your chapter 13 plan, the trustee will issue a report of your plan completion. Shortly thereafter, your chapter 13 discharge will be entered and your case closed.

Enforcement of Lost Mortgage Notes

Miami bankruptcy lawyer Jordan E. Bublick has over 25 years of experience in filing chapter 13 and chapter 7 bankruptcy case and mortgage modifications. Office: 1221 Brickell Ave., 9th Fl., Miami, Florida. Tel.: (305) 891-4055 - www.bublicklaw.com


The Florida Fourth District Court of Appeals decided an issue regarding the enforcement of lost mortgage notes in the case of StateStreetBank and Trust Co., Trustee for Holders of Bear Stearns Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 1993-12 v. Harley Lord, et al., 851 So.2d 790 (Fla. 4th DCA 2003). The Court held that StateStreet could not maintain a cause of action to enforce a missing promissory note or to foreclose on the related mortgage in the absence of proof that it or its assignor ever held possession of the promissory note. Section 673.3091, Florida Statutes (2002).

StateStreet filed an action in the Circuit Court under section 71.011, Florida Statutes to reestablish the lost promissory note. The Court of Appeals upheld the lower court's decision and held that the right to enforce the lost instrument was not properly assigned to StateStreet where it was found that neither StateStreet nor its predecessor in interest possessed the note and StateStreet did not otherwise satisfy the requirements of section 673.3091, Florida Statutes (2002) which is Florida's version of the UCC's article on negotiable instruments. The court noted that it was undisputed that the note was lost before the assignment to StateStreet was made.

In footnote one, the Court noted that the enforcement of lost promissory notes, which are negotiable instruments, is actually governed by section 673.3091, Florida Statutes and not section 71.011 which governs enforcement of lost papers. It should be noted that the case of Mason v. Rubin, 727 So.2d 2883 (Fla. 4th DCA 1999) previously held that the reestablishment of a lost promissory note which is a negotiable instrument is controlled by section 673.3091, Florida Statutes (1993) and not section 71.011, Florida Statutes (1995). The court explained that section 71.011, Florida Statutes (1995) provides for establishing lost documents "except when otherwise provided" -- the implication being that section 673.3091, Florida Statutes (1993) otherwise provides. The court also characterized the provisions of section 673.3091, Florida Statutes (1993) as "more stringent requirements" than section 71.011, Florida Statutes (1995).

The Court explained that pursuant to section 90.953, Florida Statutes, (2002), Florida's code of evidence, the plaintiff in a mortgage foreclosure must present the original promissory note as a duplicate of a note is not admissible. Otherwise, the plaintiff must meet the requirements of section 673.3091, Florida Statutes to pursue enforcement. W.H. Dwoning v. First Na'tl Bank of Lake City, 81 So.2d 486 (Fla.1955), Nat'l Loan Investors, L.P. v. Joymar Assocs., 767 So.2d 549, 551 (Fla. 3d DCA 2000).

The Court further explained that although it and the Third District Court of Appeals have held that the right or enforcement of a lost note can be assigned, here there was no evidence as to who possessed the note when it was lost. See Slizyk v. Smilack, 825 So.2d 428, 430 (Fla. 4th DCA 2002), Deakter v. Menendez, 830 So.2d 124 (Fla. 3d DCA 2002). In Slizyk, the Court allowed the assignee of the note and mortgage to foreclose as the assignor of the note was in possession of the note at the time of the assignment and therefore the right to enforce the instruments was assigned to the assignee as well. In contrast, here the undisputed evidence was that the assignor never held possession of the note and therefore could not enforce the note under section 673.3091, Florida Statutes (2002). As the assignor could not enforce the lost note under section 673.3091, it had no power of enforcement which it could assign to StateStreet.

The court noted that it did not reach the question of whether Slizyk and National Loan could be applied to allow enforcement of a note if there was proof of possession by an assignor earlier than the most immediate assignor.

It should be noted that in 2004, section 673.3091(1)(a), Florida Statutes was amended to allow enforcement of an instrument if the "person seeking to enforce the instrument was entitled to enforce the instrument when loss of possession occurred, or has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred." It is not clear that this amendment would have changed the court's decision in StateStreet.

StateStreet was later cited with approval by Dasma Investments, LLC v. Realty Associates Fund III, L.P., 459 F.Supp.2d 1294(S.D.Fla.2006) where the court held that if a party is not in possession of the original note and cannot reestablish it, the party cannot prevail in an action on the note. In Dasma, the court explained that in Florida a promissory note is a negotiable instrument and that a party suing on a promissory note, whether just on the note itself or together with a foreclose on a mortgage securing the note, must be in possession of the original of the note or reestablish the note pursuant to Fla. Stat. § 673.3091. See, Shelter Dev. Group, Inc. v. Mma of Georgia, Inc., 50 B.R. 588, 590 (Bkrtcy.S.D.Fla.1985).

StateStreet was also cited with approval in the case of In re American Equity Corporation of Pinellas, 332 B.R. 645 (M.D.Fla.2005)(Paskay, J.) where the court held that a party must comply with section 673.3091, Florida Statues in order to enforce a lost, destroyed or stolen negotiable instrument. It is noteworthy that the court found that the creditors' affidavits merely stated that the creditors had searched for the original promissory notes but were unable to find them and failed to state that the creditors ever received possession of the original promissory note.

Abandonment of Florida Homestead

A Florida homestead exemption may be lost by "abandonment". Various types of conduct may constitute "abandonment." Courts generally hold that once a property is established as a homestead, it does not lose that status until it is "abandoned."  Generally, a homestead is considered abandoned when it is no longer a bona fide home and place of permanent residence.

Owner's Intent 

The main consideration in the determination of whether a homestead has been abandoned is the owner's subjective "intent" and the physical absence from the property is not determinative. Placing a property on the market for sale or signing a contract for the sale of property may be relevant unless the homeowner can show a good faith intention to reinvest the proceeds in another homestead within a reasonable period of time.

Although Florida courts liberally construe the scope of the homestead exemption, they also "take care to prevent it from being an instrument of fraud."

Exemptions of Earnings and Wages in Florida

"Disposable earnings," such as wages, earned by the  head of a family are exempt from creditors in Florida. This exemption includes protection from garnishment.  If a garnishment is filed on exempt earnings, a person may file an affidavit with the court and request an order stopping the garnishment.

"Head of a Family"

This statute protects the wages or disposable earnings of the "head of a family." Courts make the determination of who is the "head of family" based on the totality of the circumstances. Sometimes, the person earning the highest wages is considered the head of the family.

"Earnings"

Florida statutes provides that "earnings" includes compensation for personal services or labor whether denominated as wages, salary, commission, or bonus.

Commissions and bonuses may constitute earnings even if the person is labeled an independent contractor if his activities are essentially a job, he is supervised, and not in the nature of running a business. But commissions have been held not to constitute earnings if the person is free to make his own business decisions and solely responsible for expenses incurred in the operation of his business. A return on an equity investment is not earnings.

Miami Bankruptcy Lawyer - Jordan E. Bublick

Chapter 7 personal bankruptcy is generally used to discharge your dischargeable debt including credit cards, medical bills, and unsecured loans.

Chapter 13 bankruptcy is generally used to propose a plan to reorganize your financial affairs while under the protection of the Bankruptcy Court. Chapter 13 bankruptcy is often used to stop a mortgage foreclosure and to catch the payments up-to-date.

Florida Homestead - Three Contexts

The concept of a Florida "homestead" arises in three different contexts:

1. Taxation exemption per Art. VII, Section 6, Fla. Constit.
2. Forced sale exemption before and at death - per Art. X, Section 4(a)-(b), Fla. Const. and 
3. Restrictions on devise and alienation, Art. X, Section 4(c), Fla. Const.

The definition of "homestead" property for Article VII, section 6 purposes (taxation) is not the same as Article X, section 4 (forced sale and devise and alienation).

Neither the Florida Legislature nor the Florida Constitution provide a definition of what is homestead property for purposes of Art. X, Section 4 (a)(forced sale and devise and alienation). Florida courts generally hold that the following requirements must be satisfied for property to be determined as homestead property:

• the property must be owned by a "natural person"
• the person claiming the exemption must be a Florida resident who establishes that he intends to make the real property his permanent residence
• the person claiming the exemption must establish that he is the owner of the property and 
• the property claimed as the homestead must satisfy the size and contiguity requirements of the constitution. 

The Florida Constitution does not limit the types of estates that are eligible for homestead status. Therefore, the exemption may generally attach to any estate in land whether it is a freehold or lesser estate. A life estate has been found to be among the property interests eligible for homestead status. Florida court have held that real property held in trust can be impressed with the character of homestead, including revocable and irrevocable trusts.

Florida Homestead Exemption

Article X, Section 4 (a) of the Florida Constitution provides for the Florida "homestead" exemption. This homestead exemption is in most cases available to those who file for bankruptcy relief in Florida.

The homestead exemption allows for a maximum size of the land of 1/2 acre if located within a municipality and 160 acres if located outside a municipality. A homestead is generally limited to your actual residence or the residence of your family and may not generally include any portion used for commercial purposes.

The maximum dollar value of a "homestead" is unlimited , unless an exception applies.  One bankruptcy code exception applies if you have acquired you interest in your homestead during the 1215 days prior to the filing of the bankruptcy case, you are limited to $155,675.00 in acquired value. 11 USC Section 522 (p).

Battle: Florida Opt-Out Statute Not Applicable to Non-Resident

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. Tel: (305) 891-4055.  www.bublicklaw.com


In the case of In re Battle, ___ B.R. ___, 2006 WL 3702734 (Bkrtcy.W.D.Tex.)(Lief, J.), the debtor filed for chapter 13 relief in Texas. Since she had lived in more than one state during the 730 day period preceding the bankruptcy filing, per section 522(b)(3)(A) the applicable exemption law is that of state where the debtor was domiciled longest for the 180 day period prior to the 730 day period. The court held that since the debtor had "resided" [sic] in Florida for the entire 180 day period, the exemption laws of Florida apply.

The issue before the court was whether the debtor must use Florida exemption laws or may elect to use the federal exemptions of section 522(d). The trustee aruged that since Florida is an opt-out state, the debtor was not allowed to use the federal exemptions.

The court held that the debtor was allowed to claim the federal exemptions since the Florida opt-out statute by its own terms applies only to Florida "residents." The court reasoned that since the debtor was not a resident of Florida on the filing date, the Florida opt-out statute did not bar the debtor from claiming the federal exemptions. Section 222.20, Florida Statutes (the opt-out statute) provides that "residents of this state shall not be entitled to the federal exemptions provided in s. 522(d) of the Bankruptcy Code of 1978.." The court noted the holding in In re Schulz, 101 B.R. 301 (Bankr.N.D.Florida1989).

There is a line of cases that would appear to give strength to the position opposite to that of the Court's ruling. See e.g. In re Arrol, 207.B.R. 662 (Bankr.N.D.Calif.1997), In re Drentell, 403 F.3d 611 (8th Cir. 2005).

Furthermore, the court may not have given sufficient emphasis to the structure of section 522(b) and given a misplaced position to the Florida opt-out statute in the stautory scheme and structure of 522(b). It is also unclear why section 222.20, Florida Statutes refers to "residents of this state" as section 522(b) only refers to "domicile" which is a similar but different concept. The court's logic may be puzzling, as section 522(b)(3) directed the debtor to use the applicable law of the particular 180 day state. Section 522(b)(3) inherently contemplates that the debtor will not be a domicile of that state any longer, but nonetheless directs the debtor to use its law. Furthermore, if the Florida legislature had properly used the word "domiciles" instead of "residents" in section 222.20, it is unclear whether the court could have reached the same result.

Stop Foreclosure and Modify Your Mortgage During Chapter 13 Bankruptcy Case

Chapter 13 is widely used to stop a home mortgage foreclosure and propose a Chapter 13 plan to reinstate one's home mortgage. This involves catching one's mortgage up-to-date over a period of up to five years while maintaining further monthly payments. Chapter 13 is also widely used to avoid an "unsecured" second or other junior mortgage if there is no equity to support the second or junior mortgage.

What can be done for the many homeowners in South Florida whose home values have fallen vastly below the amounts due on their first mortgage? For example, if the value of the home has fallen to $200,000.00 and $300,000.00 is owed on the mortgage. Generally, one is not allowed to force a mortgage company to modify one's mortgage on his principal residence. This means, one cannot force the mortgage company to reduce the amount owed, lower the interest rate, or stretch out the term of the mortgage on one's principal residence.

Due to the continuing deterioration of the mortgage foreclosure situation in South Florida, it appears that section 1325 (a)(5) of the Bankruptcy Code may be a provision whose time has come. Section 1325 (a)(5) provides that a Chapter 13 plan should be approved by the Bankruptcy Court if the holder of a secured claim, such as a home mortgage, has accepted the Chapter 13 plan. That is, Chapter 13 of the Bankruptcy Code contemplates approval of a Chapter 13 plan if the mortgage company accepts the Chapter 13 plan even if the Chapter 13 plan proposes to modify a home mortgage.

In normal times, it would be beyond contemplation that a mortgage company would voluntarily accept the modification of a home mortgage. But these are not normal times in South Florida and in many parts of the United States. In fact, public policy and indeed economic self-interest seems to be growing that a mortgage company should accept and even seek the modification of a home mortgage. The serious campaign begun a few weeks ago by the FDIC as the receiver of Indymac is one example of this policy being put into effect in earnest.

It would seem that in today's economy, the use of Chapter 13 should be considered to seek a mortgage companies acceptance of the modification of a home mortgage as proposed under a Chapter 13 plan. While the Bankruptcy Court may not be able to force a mortgage company to modify a secured mortgage on one's principal residence, section 1325 (a)(5) would appear to indicate that one is at least able to request the mortgage company to voluntarily modify one's mortgage.

In fact, one of the largest complaints of homeowners is that they are is unable to reach anyone at the mortgage company and that they only get the runaround when they attempt to reach a mortgage company to attempt to workout or modify their home mortgage. It is widely reported that many mortgage companies appear to be overwhelmed, understaffed, and unable to handle the volume of telephone calls. The benefit of Chapter 13 is that once the bankruptcy case is filed, the mortgage company retains a bankruptcy attorney who the Chapter 13 debtor is at least able to communicate with and request a voluntary mortgage modification.