Jacksonville Bankruptcy Lawyer Blog

Nearly half of Florida homes that have mortgages are worth less than the mortgage debt on the home. This, combined with the nation-wide decrease in incomes has lead to one of the greatest recessions our country has seen.
A home mortgage is essentially a contract. You promise to make payments according to the contract's terms, and the lender promises to transfer the home's title to you when you finish making your payments. The government regulates these contracts by creating laws that set out procedures for things like foreclosures. Of course, there is still an element of free contract which allows lenders and borrowers to negotiate the terms of their agreement at any time. The government is limited in how much they are allowed to interfere with contracts so instead of trying to force banks to offer mortgage modifications, they make programs like HAMP, which offers lenders tax deductions or other benefits to make deals with borrowers. Personally, I think that the government isn't offering the lenders enough in benefits because banks aren't particularly helpful in getting borrowers into the program. HAMP mods are done in-house by the banks and "can" lower a borrowers mortgage payments to 31% of their gross income if you qualify. But what if you don't qualify, and what if your payments are already below 31% of your gross income?
This is where lenders will begin the foreclosure process. They may offer you a so called, "in house modification", but offer or no, the foreclosure process will continue until either you are somehow successful in obtaining an in-house modification or your home is sold on the courthouse steps. This is because the judiciary can't force a bank to modify your loan. Honestly negotiated terms that were created in accordance with the laws can't usually be modified by the government due to our rights to free contract as citizens. That being said, a recent program out of Orlando creates an opportunity for people facing Jacksonville bankruptcies and foreclosures.
As previously stated, our government can't force lenders to modify contracts, but our Judges can order those lenders to attend mediation with the client. The primary excuses used by banks to justify to forbearance of a mortgage modifications are that the paperwork was not received, that it was outdated or that no one with modification decision making authority was available to review it. Now the judges in the Middle District Bankruptcy Court of Florida's Jacksonville Division are accepting motions on behalf of those who are bankrupt in Chapter 13 cases to order that lenders with decision making authority attend mediation with borrowers, and require that all up to date papers required to effectuate a modification be provided to both parties prior to the mediation. This method, although new, is reported to have greatly increased the success rate of borrowers obtaining modifications. This more direct approach should give borrowers a more direct approach when dealing with lenders by having a judge order them to mediation and gives lenders a bargaining chip they don't always have- if the bank refuses to propose a good modification, the borrower can simply surrender the property in the bankruptcy. Since banks have more houses right now than they know what to do with, this proposition should make them far more likely to want to strike a deal.
If you have questions about how to get a mortgage modification in the bankruptcy arena, contact a Jacksonville Bankruptcy Lawyer or call us at (904) 685-1200 for a free initial consultation.

I admit that the title of this blog, "Jacksonville Debtors Stripping Second Mortgages with Chapter 7" is technically inaccurate. An older post addresses how lien stripping and cram-downs actually work. This blog post is going to tell you how we can get an effect similar to "lien stripping" but in a Chapter 7 case instead of a Chapter 13.

When a person files Chapter 7 bankruptcy, they have the opportunity to keep their debt on a secured loan in a Chapter 7 as long as their current on payments. This, along with the Florida Constitution allow people to keep their financed homes through a bankruptcy.

The problem most people have these days is that their home is under water and their second mortgage is no longer secured by equity. To make things easier, let's use the following example:

Home Value	Mortgage Amount	Secured Amount
$110,000	1st Mortgage $120,000	$110,000
	2nd Mortgage $80,000	$0

In this example, the debtor owes $120,000 + $80,000 or $200,000 on their home, but the home is now only worth $110,000. This means that the debtor is underwater $90,000. A smart debtor might choose to give up their home in a bankruptcy because it's horribly underwater. After all, no one in their right mind would knowingly agree to pay $90,000 more than something is worth. Back to the example: If the debtor did surrender the home in bankruptcy, the first mortgage holder would get the whole $110,000 from the sale (first mortgage holders always get paid first) and the second mortgage holder would get $0.

The second mortgage holder knows that they will get zero if the debtor bankrupts as it happens all of the time. They also know that the debtor is likely to go bankrupt if they're under water because it makes financial sense to do so. What we do is negotiate with the second mortgage holder. We tell them that they can either lose their entire interest in a bankruptcy, or we will offer to settle their lien for a paltry sum. If they accept, the bank can still write off the remaining unpaid amount on their taxes and get cash in the meantime. The debtor can then wait 90 days to avoid the transaction being classified as a "Preferential Payment" and then file a Chapter 7, reaffirming the up to date first mortgage, discharging their other unsecured debts and going on with their life.

If you think you might be a candidate for the "stripping" of a Chapter 7 mortgage contact a Jacksonville Bankruptcy Attorney or call us at (904) 685-1200 for a free consultation.

"Chapter 20" is the informal name given to the unique situation that occurs when a debtor files a Chapter 7 bankruptcy to discharge their unsecured debts and follows up that bankruptcy with a Chapter 13 (7+13=20) to deal with other debt issues.

A debtor cannot receive a discharge under Chapter 13 if they received a discharge in a Chapter 7 in the last four years per 11 U.S.C. 1328(f)(1). However since discharge is obtained at the end of a case, rather than at the beginning, a Chapter 13 case can be filed the day after the debtor receives a Chapter 7 discharge so long as the Chapter 13 is going to last at least the next four years.

Many people know that a Chapter 7 can usually only be achieved by passing the "means test", but not a lot of people are aware that one must "qualify" for a Chapter 13 as well.

Under 11 U.S.C. 109(e) a debtor wanting to file a Chapter 13 must show that their secure debts are less than *$250,000, and that their unsecured debts are less than *$750,000 to file under Chapter 13.

If someone's debt exceeds the limits for Chapter 13, but they make too much money to pass the means test and file a Chapter 7, they are often forced to file a far more expensive Chapter 11. One of the purported benefits of the "Chapter 20" is the ability to discharge some of the secured and/or unsecured debt in a Chapter 7, then follow that up with the desired Chapter 13.

An opportunity unique to Florida is the filing of a Chapter 7 to discharge secured/unsecured debts, but retaining the homestead. Then, the debtor files a Chapter 13 and uses lien stripping to remove the second mortgage. As long as the case is proposed in good faith they will leave the Chapter 13 free of their unsecured debts and will only have to pay their first mortgage to keep their house. This can save the debtor tens of thousands of dollars and give them a better chance of making it through their Chapter 13 plan.

Continue reading "Stripping Mortgages in "Chapter 20" Bankruptcy" »

There are four Chapters in bankruptcy available to individuals, they are Chapters 7, 11, 12, and 13. Chapter 11 is usually associated with big businesses, like Winn Dixie did a few years ago. Chapter 12 rarely used and is specially formulated for "Farmers and Fishermen". So it's Chapters 7 and 13 that people usually think of when they think of bankruptcy.

Many people coming into my office have done some research and because they've discovered that there are payments required in a Chapter 13, they instantly decided that Chapter 7 is best for them. Chapter 7 may be a quicker and less expensive bankruptcy, but it often means liquidating your unexempt assets and surrendering any secured assets whose payments are behind.

Chapter 13 offers some forms of relief that aren't available in Chapter 7. The Chapter 13 gives a debtor the opportunity to "catch up" on any mortgage arrears they have by spreading the amount owed over a five-year period.

There is also the opportunity of re-classifying "secured" second and third mortgages as "unsecured" debts in a process called, "Lien Stripping". This would mean that after making five years of payments toward your unsecured creditors, the remainder of that second mortgage is discharged in the same way a credit card debt would be. This can be a huge advantage for some people.

Another valuable option in a Chapter 13 is the "Cram-Down" option under 11 USC § 506, which allows debtors to "cram down" the secured amount of a debt on a vehicle or other property under the right circumstances. This has been hugely advantageous to some truck drivers who have very large "secured" notes on trucks whose values have diminished over the years faster than the amounts owed on them.

Continue reading "Chapter 13 "Cram-Down"" »

In a Chapter 13 bankruptcy, a Jacksonville Bankruptcy Attorney might be able to strip a lien for you. This means that the lien would be considered unsecured, so that a creditor cannot take your collateral if you do not pay it. Most often, this is done with a second mortgage. If you owe more on your first mortgage than the house is worth, you can strip the second mortgage in a Chapter 13 bankruptcy. Then, the debt becomes unsecured. The amount of money you must pay to unsecured creditors is determined by your means test and the amount of unexempt property that you have. So any amount that you owe to unsecured creditors beyond this amount simply gets discharged in the bankruptcy and you do not owe it anymore. In saying, the amount you must pay to unsecured creditors through your Chapter 13 bankruptcy is not dependent on the amount of money you owe to unsecured creditors or the amount of any unsecured claims in your case. So it is of great value to you if you can strip the second mortgage in your bankruptcy and no longer owe this debt. If you would like to learn if you are eligible for your second mortgage to be stripped, contact a Jacksonville Bankruptcy Attorney today to discuss your particular situation.

During the prime years of the housing boom (i.e., before 2007), many people took out a second mortgage. Some were using the cash from these mortgages to pay for things like tuition or medical bills, while others were buying vacations and new cars. No matter what these homeowners used the cash for, many of them now have something in common: 38% of borrowers with more than one mortgage are now underwater on their loans.

This is largely due to the enormous loss of equity that resulted from the housing crises that has rocked the economy for the past two years. Home prices have fallen 34% since the height of the housing bubble in 2006, which not only has an enormous weight on the recovering economy, but negatively affects underwater homeowners' abilities to secure lines of credit.

Overall, there are about 10.9 million homeowners currently underwater. This is down from 11.1 million in 2010, but this is due primarily to completed foreclosures. Fortunately, there is a way to eliminate certain second mortgages; however, it requires filing bankruptcy to do so. In what is referred to as "lien stripping", a Chapter 13 Bankruptcy can allow you to "strip" away additional mortgages (or possibly other liens) if your home is worth less than your primary mortgage. Though it requires filing bankruptcy, this may make sense in many situations. You should contact a Jacksonville Bankruptcy Lawyer to determine if filing bankruptcy is right for you. Alternatively, if you are not interested in filing bankruptcy or are otherwise facing foreclosure, you should contact a Florida Foreclosure Defense Lawyer.