Bankruptcy Law Blog

Tuesday, November 15, 2016

11th Circuit Decides - Bankruptcy Homeowners Cannot Surrender Residence in Bankruptcy and Later Fight Lender’s Foreclosure

What are your options when faced with losing your home in bankruptcy?

The 11th Circuit Court for the Southern District of Florida decided this past month that debtors who surrender their residence in bankruptcy under 11 U.S.C. Section 521(a)(2)(A) cannot then oppose the foreclosure action.

David Failla, et al. v. Citibank NA

The Failla’s owned a home in Boca Raton, Florida that they financed with a $500,000 mortgage. They defaulted on their mortgage in 2009, at which time Citibank, owner of the mortgage initiated a foreclosure action. The Failla’s filed for bankruptcy in 2011.

During the bankruptcy, the Failla’s filed a statement of intention under 11 U.S.C. § 521(a)(2) to surrender the home. The house had a negative value, so the trustee abandoned the home back to the Faillas, who continued to live in the home and contest the foreclosure.  Citibank filed a motion to compel the Faillas to surrender the home and the bankruptcy court granted that motion. The Faillas appealed to the district court, but lost that case.  The 11th Circuit Court agreed with the district court that opposing the foreclosure was in contradiction to surrender.  The Faillas were forced to vacate and surrender the home.

Does Everyone Lose Their Homes in Bankruptcy?

The short answer to this question is “no” not everyone loses their home when they file for Chapter 7 or Chapter 13 bankruptcy protection. Whether debtors are able to keep their homes depends on a variety of circumstances.  

Chapter 13 bankruptcy is often the better option for keeping a home because in a Chapter 13 bankruptcy, you are essentially working out a payment plan with your debtors to get caught up. If you are behind on mortgage payments, Chapter 13 may allow you to stop foreclosure proceedings. As long as you make all of your planned payments, the foreclosure is stayed.

Another benefit of a Chapter 13 bankruptcy is that you may be able to get rid of junior loans through a process known as lien stripping. If your loan exceeds the value of your property, you may be able to avoid paying that junior loan.  

If you file for Chapter 7 bankruptcy protection, you may be able to keep your home through certain statutory exemptions.  Your attorney will need to determine how much of a homestead exemption you have and whether you have more than that amount of equity available in your home. If your equity does not exceed the exemption, you should be able to keep your home.  

While some states allow you to apply a “wildcard” exemption to the equity in your home, Alabama does not.  Wildcard exemptions may only be used for personal property.

Thinking About Bankruptcy?

If you are in a tough financial situation and may be faced with losing your home, bankruptcy may be an option for you. The experienced Alabama bankruptcy lawyers at Padgett and Robertson can assess your situation and provide you with expert advice on how to save your home in bankruptcy. Call today at 251.342.0264 for a consultation.

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