In an opinion just issued by the Honorable Karen Jennemann, Orlando Division U.S. Bankruptcy Judge, stripping off second mortgages in Chapter 7 cases is not allowed.

This is unfortunate for people needing Chapter 7 relief who want to keep their home but are reluctant to do so because of a second mortgage in relation to the value of their home.

The case explains the 1992 U.S. Supreme Court case that many believed controlled; however, there has been a split of authority around the country and your truly informed local members of the Bankruptcy Bar about a case that went the other way in New York last fall.

The good news is that stripping off that unsecured (no equity) second mortgage in a Chapter 13 case is still the law of the 11th Circuit (Florida, Georgia and Alabama federal appeals circuit). 

Where the value of your home is less than the amount owed on the first mortgage, we can "strip" the lien, turning that mortgage into an unsecured debt, like a credit card.  In most cases, people will pay pennies on the dollar on this second "stripped off" mortgage and at the end of the case, the mortgage is gone forever!  A huge factor when deciding whether keeping the home is a wise move.  By lien stripping the second mortgage, the property will have more equity when the real estate market finally recovers.  A reason to not give up your home!

By: Consumer Bankruptcy Attorney Rick Baker www.legalquestion.com  

Elderly Mother, Son Found Dead In Their Burned, Foreclosed Family Homehttp://shos.it/cwmGrM #bankruptcy  

This is a sad story.  A Mother and her Son blocked their front door with boxes of tiles as the Sheriff came to evict them from their foreclosed home.  They chose to die and burn their home over leaving their home of many years.

It does not have to come to this.  Although things may appear desperate, I always remind myclients that at the end of the day, this is just material stuff (money and property) and life is more important!

There are options.  You can't give up!  If you get knocked down you must get back up and keep trying to find a solution, even when it feels like there is no hope.  There is always hope.  Seek professional legal help, keep fighting and figure out Plan B.

How much do I have to pay unsecured creditors in my Chapter 13?

A less experienced Bankruptcy Lawyer I know recently asked me about his Chapter 13 Bankruptcy client who owned a rental property that actually had some equity in it; very rare these days.

He wanted to know whether it would have to be liquidated (sold) to pay unsecured (usually credit card) debts in the case? 

The real question is not whether it has to be sold, as Chapter 7 is liquidation whereas Chapter 13 is an individual reorganization and no liquidation occurs.  The real question is if he keeps the rental property and it has non-exempt equity, what does that mean?

The answer is that the non-exempt equity in the rental house establishes the “floor” or minimum amount required to be paid pro rata to all allowed unsecured claims but no liquidation occurs.

My less experienced Bankruptcy Attorney friend forgot or did not realize that there are actually two (2) tests to determine how much gets paid to the unsecureds in a Chapter 13 bankruptcy case. 

The above example of non-exempt equity establishing the minimum payout to the unsecureds is called the liquidity test.  The other test is whether there is any excess disposable income left for the unsecureds after payment of priority and secured debts in the Plan.

A new third test may result soon based on the recent U.S. Supreme Court decision of Hamilton v. Lanning; more to come on that one.

This issue points out an advantage to filing Chapter 13 Bankruptcy.  The Debtor remains in control of assets and can keep them.  They may have to repay some portion of their debts but it could be pennies on the dollar relative to what they gain in keeping assets. I call these cases “Liquidity 13s.” 

The rule is that the unsecured creditors have to come out as well in Chapter 13 as they would in a Chapter 7 case where assets are liquidated to pay unsecureds.  The advantage of the 13 is control over the asset is not in the hands of a Chapter 7 Trustee.  By Consumer Bankruptcy Attorney Richard R. Baker at BAKER LAW, PLLC. www. LegalQuestion.com

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Offices in Winter Park, Florida.

The Court System’s Latest Headache: Debt-Collection Suits - Law Blog WSJ:http://bit.ly/bOe1E1 

As Pete Barry said at NACBA in San Francisco in May, Debt Collectors in a recession are like dogs you don't feed...they start chewing on the furniture.  Who's the furniture?  Consumers!  My Clients!  Due to the increased number of debt buyers, the lawsuits are now coming in greater numbers, putting even more pressure on cash strapped consumers trying their best to keep current.

As Dick Rubin states in this article (a longtime expert just like Pete Barry from Minnesota), it is a factory approach to practicing law.  Note the NY firm mentioned files 80,000 lawsuits a year!

So what does this mean?  It means that if you are behind on debts and can't catch up, a debt collector lawsuit is more likely than ever.  With more debt collectors suing first and asking questions later, get PROACTIVE!  Explore your options and speak with an experienced Consumer Bankruptcy Attorney.

At BAKER LAW, I serve, counsel and represent clients in Greater Central Florida, including counties of Orange, Seminole, Osceola, Lake, Brevard, Volusia and Polk.  We serve many cities including, Winter Springs, Winter Park, Maitland, Altamonte Springs, Sanford, Oviedo, Orlando, Fern Park.  

As a federal debt relief agency law firm, we help people solve debt problems so visit us at www.legalquestion.com and read some of my blogs that may help you.  You can also follow me on Twitter at twitter.com/BakerLawFL for the latest information on these issues.

Judge Finds “Fraud” in Foreclosure Mess « Foreclosure Fraud –http://bit.ly/aFu0f8 

It is a practice that has gone on for years...only now are Florida Judges starting to realize that banks and their attorneys lie for a living.

Former Kiss Guitarist Loses Bankruptcy Appeal - Bankruptcy Beat WSJ: http://bit.ly/a0jvtw 

The sad reality of being the side man..why didn't Dr. Love just pay this guy his royalties? Answer: Greed!

Three Reasons Why Upside Down Homeowners Should Consider Bankruptcy http://bit.ly/9fXgln 

Another good blog that ties in with a recent blog I wrote on this very issue.

Three Personal Finance Mistakes That Lead To Bankruptcy http://bit.ly/9u2fAC  

Great post from Reed Allmand in Texas.  Bankruptcy “Alternatives” Could Cause More Financial Pain http://bit.ly/9xfmlM