We all know someone, or at least have heard stories about someone, that filed bankruptcy, got rid of their mortgage debt, but managed to live in their home for free for a long time. You may be wondering how they could manage to pull this off. It doesn’t seem fair, does it? Why should you pay your mortgage on time, month in and month out, only to watch someone stay in their home, rent free, for years and years? How does this even happen?
Bankruptcy Court vs. Foreclosure Court
For starters, it is important to know that bankruptcy cases are part of the federal court system while foreclosure cases are heard in state court. Anyone considering bankruptcy in the Tampa Bay area will have their case heard in the Middle District of Florida, Tampa Division. Whether you live in Clearwater, St. Petersburg, Bradenton, Largo etc…., you will be filing your case in the same court as everyone else. Your foreclosure case, however, would take place in the county where the property is located. For example, if you have a foreclosure in St. Petersburg, your case will be heard in the Pinellas Circuit Courthouse in either Clearwater or St. Petersburg. If you have a Bradenton foreclosure, your case will be heard in the Manatee Circuit Courthouse in Bradenton.
This is important because when you have different courts, different judges, and different procedures at play, you will have cases wrapping up on different timelines. Just because your bankruptcy case might be over does not have any bearing on your foreclosure case. The bankruptcy will take care of your responsibility to pay the mortgage debt, but the bank still has to complete the foreclosure process to take the home back from you. Ever since the Great Recession of 2007, it had been a popular tactic to file bankruptcy, get rid of your personal responsibility to pay your mortgage, but then hire a foreclosure defense attorney to fight your foreclosure case in state court. I’ve seen cases linger through the court system for 6 or 7 years before they are concluded! Do the math. That’s 6 or 7 years of no mortgage or rent payments. That’s quite a windfall for those that opted to go this route. But now the gravy train seems to have ended.
Recent Case Law
When you file bankruptcy, you have to state your intentions with respect to any secured debts (1). A secured debt is one attached to property. For example, a mortgage note is attached to a piece of real estate. A car loan is attached to a car. A boat loan is attached to a boat. These are “secured” debts. A medical bill, credit card debt, or student loan, would be considered “unsecured” debts. So back to this statement of intentions. With respect to secured debts, you have options. You can either surrender the property (or get out of the debt), reaffirm the debt (and keep the property), or redeem the property (2). Until recently, you could let the bankruptcy court know your intention to surrender your home, and still fight the foreclosure. However, as Attorney Scott Riddle (Atlanta Bankruptcy Attorney) accurately stated in his recent article, “Don’t take that statement of intention so light in a bankruptcy case!” (3).
In re Woide has change everything (4). On June 22, 2016, Judge Briskman, in the Middle District Court of Florida decided that he was going to interpret the term “surrender” to mean more than just getting out from under a mortgage debt. The Court found that “surrender means a debtor must relinquish secured property and make it available to the secured creditor by refraining from taking any overt act that impedes a secured creditor’s ability to foreclose its interest in secured property.” The judge went on to rule that failure to truly “surrender” the home could result in revocation of your bankruptcy discharge. That would put you back on the hook for the debt!
So what does this mean for me?
With case law this new, we haven’t had an opportunity to see how serious the local judges will be about forcing true “surrenders” or about revocation of discharges. My years as a lawyer have taught me many things, not the least of which is that judges rarely bluff. If I were you, I’d take Judge Brinkman at his word. But none of this eliminates the benefits a bankruptcy can have when trying to save your home! Refer to my recent article on this very topic, http://berkmyer.com/can-bankruptcy-stop-foreclosure/.
With new case law being decided just about every day, lawyers have to remain up to speed and be ready to adapt. Fortunately, your lawyers at Berkowitz & Myer stay on top of the ever changing nature of the law. That way, when bombshell orders like the one from Judge Brinkman are handed down, we do our research and get prepared to help guide you through the court system. We have helped countless people in your shoes, wondering how they might hold onto their homes. You can do this, but you cannot do it alone. Call Berkowitz & Myer today to learn more. We are ready to help you.
(1) 11 U.S. Code § 521
(4) 7 No. 6:10-bk-22841, 2016 WL 3537468(Bankr. M.D. Fla. June 22, 2016).