The US Bankruptcy Court for the Middle District of Florida recently held that, at a minimum, surrender under Bankruptcy Code sect; sect; 521 and 1325 suggests a debtor can not take an overt act that impedes a secured creditor from foreclosing its interest in protected building.
In so holding, the Court discovered that actively contesting a post-bankruptcy foreclosure case is irregular with a surrender of the property.
A copy of the opinion is readily available at: LinkConnect to Viewpoint.
The Court addressed 2 separate bankruptcy cases. The first was a Chapter 7 bankruptcy case, where the mortgagee set up a repossession action 5 years before the bankruptcy case, however the foreclosure case had not concluded by the time the debtor submitted bankruptcy.
In the Chapter 7 bankruptcy case, the debtor mistakenly believed she did not possess the home at problem. Accordingly, although she listed the home mortgage financial obligation on her bankruptcy schedules, she did not state that she owned the home. Since of the debtors mistake about ownership of the property, she never ever filed a statement of objective concerning the home and never elected to surrender the home.
After the debtor got her Chapter 7 discharge, the mortgagee started prosecuting the foreclosure suit again. A lawyer began defending that repossession fit. The Courts viewpoint indicates that it believed the debtor was not aware that the lawyer had actually been contesting the repossession match on her behalf.
The mortgagee relocated to resume the Chapter 7 bankruptcy case and compel the debtor to surrender the property, as the debtor had neither reaffirmed the home mortgage financial obligation nor redeemed the home.
The second case was a Chapter 13 bankruptcy with more uncomplicated facts. Prior to the debtors submitting the Chapter 13 case, the mortgagee had actually also instituted a repossession case versus the property at concern.
In the Chapter 13 bankruptcy case, the debtor submitted a strategy which the court confirmed where she mentioned an intent to surrender the home at problem. In spite of this, the debtor contested the state-court foreclosure action the mortgagee began prosecuting post-confirmation.
The Courts legal analysis began with a discussion of the actions Chapter 7 and Chapter 13 debtors should take relating to secured home.
For protected building, actual or otherwise, Chapter 7 debtors must file a statement of objective. This statement states whether a borrower will (1) redeem ie, pay the present value for the building, (2) reaffirm the financial obligation, or (3) give up the home. The debtor should then perform her mentioned intention, typically within 30 days after the date first set for the conference of lenders. The Eleventh Circuit has actually analyzed these demands to imply that a debtor can not maintain security unless she or he redeems it or reaffirms the financial obligation it secures. See, eg, Taylor v. AGE Fed. Cooperative credit union (In re Taylor), 3 F. 3d 1512 (11th Cir. 1993).
A Chapter 13 debtor does not requirehave to file a statement of intentions. Nevertheless, the debtor should submit a plan of reorganization that attends to how the debtor would likewants to deal with protected property. A Chapter 13 debtor can (1) get the safe creditors consent to the strategy, (2) pack down the secured financial obligation ie, pay the overall present value of the enabled secured claim over the life of the strategy, or (3) give up the protected home. Missing authorization from a secured creditor, a Chapter 13 debtor can not maintain collateral without spending for it.
Although the realities of each case differ, at problem in both the Chapter 7 and Chapter 13 cases was the result of a debtors surrender of the secured genuine homereal estate, when the debtor still contested the post-bankruptcy repossession proceedings.
The Bankruptcy Code does not specify the term surrender. For guidance, the Court aimed to opinions from the First and Fourth Circuits, which held that a debtor required to relinquish all rights in the collateral, including the right to possess the collateral, to surrender it.
Using that logic to the foreclosure context, the Court held that, to surrender a building, a debtor should not tak [e] a visible act to prevent the secured creditor from foreclosing its interest in the secured property. Put another way, a debtor can not contest a repossession after giving up a building in bankruptcy.
Simply Dissolving AutomaticStay Does Not Mean Surrender
In making this ruling, the Court rejected the debtors argument that surrendering a property just indicated permitting the Bankruptcy Codes automatic stay to liquefy. The Court discovered that adopting the debtors reasoning would lead to a windfall to debtors.
The Court held that simply dissolving the automatic stay can not be exactly what lsquo; surrender means due to the fact that it would effectively permit the kind of lsquo; trip through that the Eleventh Circuit held was impermissible in In re Taylor.
The concern in Taylor was whether a Chapter 7 debtor could retain property of collateral home by staying current on his/her commitment to the secured lender, but without declaring or redeeming the underlying financial obligation what in bankruptcy is understoodcalled a trip through. The Eleventh Circuit held that the plain language of 11 USC. sect; 521 did not offer for a ride-through choice, and besides, permitting a trip through would offer the debtor a head startnot a new beginning. The Eleventh Circuit also reasoned that if a ride-through choice existed, it would render the other alternatives in 11 USC. sect; 521 nugatory.
In addition, under the debtors theory, a debtor might do precisely what the debtor did here: surrender a building then delay the state-court repossession process, all while staying in the homeyour home for totally freefree of charge.
The Court found that both the Chapter 7 and Chapter 13 debtors had actually failed to surrender the respective buildings at concern. Not remarkably, the Court discovered that the Chapter 7 debtors actions were forgivable, given the Courts conclusion that the lawyer had acted without the Chapter 7 debtors authorization.
In concluding, the Court held that, to surrender a home, a debtor needs to relinquish [the] secured home and make it readily available to the protected lender by avoiding taking any overt act that hampers a safe lenders ability to foreclose its interest in secured building.