Florida - Chapter 7 Trustee - Equity in Home

[suburu46]

I'm from Florida and have a question regarding the Trustee pursuing the equity in my home. I have the homestead exemption, live on 1/2 acre or less and live in the city limits. I have lived in the home 6 years. I do have a bankruptcy attorney and he is researching case laws regarding this as I'm told this is uncharted territory for the Trustee. In the meantime, I am curious if anyone has had the same problem. None of my internet research gave me any anwers to this. I filed Chapter 7 in October, 2019, and the 341 meeting was held last week (had to be rescheduled once due to Trustee being sick with the flu, now it looks like a continuance of the meeting). The meeting seemed to be preceeding well with the exception of her questioning the equity in my home. I did not want to keep my home, but my intention was to "pay and stay," that I read so much about, which was reflected on my bankruptcy paperwork. The Trustee says that she sees $30,000 in equity that she may be able to turn into an asset. With this said, would I be better off in reaffirming my mortgage (my payments are current)? Or, if I surrendered my home, how does that play out for the Trustee to get the equity? Including myself, I have six people living in my home so it's not that easy to up and move to another residence (my intentions were to move out of state after my bankruptcy - unfortunately, Hurricane Michael did me no favors towards that goal - have damages in the home). In summary, if I don't reaffirm the mortgage, how can the Trustee take the equity in my home if I continue to make payments to stay in the home? Suggestions and recommendations, if any, are welcomed. Thank you to anyone who responds.

[justbroke]

(I moved your topic into the general "Before the Discharge" for Chapter 7s.)

First, welcome to BKForum.

I filed Chapter 7 in October, 2019, and the 341 meeting was held last week (had to be rescheduled once due to Trustee being sick with the flu, now it looks like a continuance of the meeting). The meeting seemed to be preceeding well with the exception of her questioning the equity in my home. I did not want to keep my home, but my intention was to "pay and stay," that I read so much about, which was reflected on my bankruptcy paperwork.

The part I highlighted is where things can go bad in Florida when you're not using your homestead exemption to protect the property.

The Trustee says that she sees $30,000 in equity that she may be able to turn into an asset. With this said, would I be better off in reaffirming my mortgage (my payments are current)?

Never reaffirm the home especially when you're in arrears of more than 10% and without any mortgage modification already on the table. It's just a bad deal.

A "trustee may seek a 'carve-out' from a secured creditor and sell the property at issue if the `carve-out' will result in a meaningful distribution to creditors." -- Exec. Office for U.S. Trustees, U.S. Dep't of Justice, Handbook for Chapter 7 Trustees, 4-14 (2012)

Or, if I surrendered my home, how does that play out for the Trustee to get the equity?

Florida Chapter 7 Panel Trustees have come up with ways where they will get a minimum of $10,000 for the estate. The banks love that the Trustee has extraordinary powers and can sell a home "free and clear" within the bankruptcy. This saves the banks a ton of money because the bank doesn't need to proceed through the foreclosure route. It also allows the unsecured creditors to benefit from an absolutely guaranteed distribution (albeit "priority" unsecured debt, held by taxing authorities, would be paid first).

Including myself, I have six people living in my home so it's not that easy to up and move to another residence (my intentions were to move out of state after my bankruptcy - unfortunately, Hurricane Michael did me no favors towards that goal - have damages in the home). In summary, if I don't reaffirm the mortgage, how can the Trustee take the equity in my home if I continue to make payments to stay in the home? Suggestions and recommendations, if any, are welcomed. Thank you to anyone who responds.

See this thread from 2013. There were discussions going on about the exemptions and their affect. it's a really complex area, but if you're not claiming the homestead exemption then the Trustee "may" be able to sell the property. You'll have to lean on your attorney for this. I don't know if there are Florida Trustees still trying these "carve-out" and other tactics. In my case, the Trustee abandoned my home (thank God!). I did not claim the homestead exemption. However, I did talk the bank into doing a mortgage modification as part of the Chapter 7 and I didn't need to reaffirm.

[suburu46]

Thank you for such prompt response! Apparently I don't really understand the Florida Homestead Exemption. Isn't this separate from personal household exemptions? This is what I found on researching the subject...

"Protecting Your Home in Chapter 7

Florida exemption laws protect equity in your residence up to an unlimited amount. So in Florida, no matter how much equity you have in your home, you get to keep it if you file for Chapter 7 bankruptcy. (By contrast, most states don’t offer an exemption that covers near as much.)

Keep in mind that filing this chapter won’t help you if you’re behind on your house payment. While Chapter 7 will stop a foreclosure temporarily, in order to keep your house, you’ll have to be current on your payment when you file, and stay current going forward. Otherwise, your lender will be able to take the action afforded in your contract and under Florida law." [Bold added by me] .. Wouldn't this apply to my case?

I do claim the homestead exemption, and have never been late on my mortgage payments, so there is no arrears. I do not want to reaffirm my mortage but what options would I have if the Trustee wants to get my equity, which I assume means she can take my house and sell it and we are without a home? I am waiting for my attorney to get back with me, but I just wanted a heads-up for myself of what I may expect. Thank you for your time.

[justbroke]

I apologize for missing that you want to claim the homestead exemption but not reaffirm. You wrote that you wanted to "pay and stay" but didn't mention that you were claiming the homestead exemption. I see that you wrote that you ahve a homestead exemption, which is true that all owners in Florida may have applied for and received the homestead exemption, but that's different in the bankruptcy context when you file your petition.

On Schedule C, where you would actually use the homestead exemption (Article X Sec 4 of Florida's constitution... if I remember correctly) would be on that form. That would indicate actually using the exemption to protect the home in the bankruptcy. If you protect the home using that exemption you lose the so-called wildcard exemption in F.S. 222.25(4) (think it's there). If you tried to claim both the Article X Sec 4 homestead exemption and the unused homestead exemption (F.S. 222.25), then it would be an issue.

With that said, I don't understand why the (Chapter 7 Panel) Trustee suddenly became interested in the equity in your home. Perhaps there's a paperwork issue and you didn't actually exempt the home on Schedule C. Maybe only your attorney can answer this as I'm certainly now sufficiently confused.

I don't think that if you claimed the home exempt (on Schedule C), that the Trustee could entertain selling the home (period). Even if you don't "reaffirm" the debt on the home. I mean, I personally now that many debtors in Florida have claimed exemption and, on their Statement of Intentions (SOI) listed "stay and pay" (as I did personally do the same).

[suburu46]

I received a response from my attorney as stated below:

.... "The failure of to make a statement of intention is concerning to me. The bankruptcy code does require that you make a choice between surrender and reaffirmation. I do not know what remedy the trustee has if you do not identify your intention. I have not been able to find a case.

In this case, the 11th Circuit has an opinion that an intention must be given. Although no one has brought it up, but the bankruptcy judge can dismiss the case if no intention is declared. It is still my opinion that you are required to state your intention concerning your home."

I reviewed my petition regarding the Schedule C:

"Schedule C

3. Are you claiming a homestead exemption of more than $170,350?

Answer: No"

Huh, I guess I didn't claim homestead exemption... although I did stress to my attorney my intentions were to "stay and pay," it was not noted in Schedule C and probably woudn't have made a difference, so I guess I'm out of luck. Although many have stressed NOT to reaffirm a mortgage (Wells Fargo), seems that I have no choice but to reaffirm if I don't want to be left without a place to stay. I certainly can't afford for the bankrutpcy judge to dismiss my case. Thank you so much for hearing me out. You've been very prompt in responding to my messages and that alone has helped me. Thank you again.

[justbroke]

The question for Schedule C is whether the homestead (property) is actually listed on that form. The question regarding the amount has to do with a 2 year limitation imposed by some of the rules regarding States, such as Florida, that have an unlimited homestead exemption.

The case that your attorney refers to is likely In re Taylor, 3 F.3d 1512 (1993). That has been the precedential case in the 11th where the appellate judges ruled that you "must" choose to redeem, reaffirm or surrender.

You may have two issues in your petition; 1.) you may not have actually exempted the property, and 2.) you may be "forced" to redeem, reaffirm or surrender.