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Hurry Up and Strip Until the Supreme Court Tells Us We Can't
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Despite the recent improvement in the real estate market, many individuals in South Florida still have junior mortgages, association liens and judgment liens on real properties, where the value of the specific property is less than the amount due on the first mortgage. Since May 2012, these individuals have been able to file a Chapter 7 bankruptcy liquidation and "strip off" these junior liens and encumbrances. In fact, in our August 2013 Newsletter, we referenced an article that discussed the case of In re McNeal, an Eleventh Circuit Court of Appeals decision that allowed these "strip off" situations. Currently, the Eleventh Circuit (which includes all of Florida) is the only jurisdiction that allows a "strip off" in a Chapter 7 bankruptcy case.
However, the "stripping" may soon come to an end.
On November 17, 2014, the United States Supreme Court granted certiorari in two cases that may eliminate an individual's ability to "strip off" junior liens and encumbrances in a Chapter 7 bankruptcy. The cases are Bank of America, N.A. v. David B. Caulkett and Bank of America, N.A. v. Edelmiro Toledo-Cardona. The Supreme Court is expected to determine these cases by the end of the current term. This means it's time to hurry up and strip until the Supreme Court tells us we can't.
What is the difference between a "strip down" and a "strip off"?
A "strip down" of a lien occurs when the amount of a mortgage lien, association lien or judgment lien is greater than the value of the underlying real property, thereby reducing the lien to the current value of the collateral. A "strip off" of a lien occurs when the outstanding debt owed to a senior lienholder exceeds the current value of the underlying real property, rendering junior mortgages and liens wholly unsecured. This means that these mortgages and liens are removed and the underlying claims can be discharged in the bankruptcy.
When can an individual do a "strip down" of a lien?
An individual can do a "strip down" of a lien in a Chapter 11 or 13 reorganization, as long as the real property is not the individual's primary residence. An individual cannot do a "strip down" in a Chapter 7 liquidation.
When can an individual do a "strip off" of a lien?
An individual can do a "strip off" of a lien in a Chapter 11 or 13 reorganization or (for now) a Chapter 7 liquidation (unless and until the Supreme Court rules otherwise).
What is the advantage of doing a "strip off" of a lien in a Chapter 7 liquidation?
In the majority of Chapter 7 liquidation cases, the individual owns property valued below the allowable exemption limit(s), meaning that the individual can retain all of his or her property and obtain a discharge of eligible debts without paying anything to his or her creditors. This is usually a more favorable result than paying creditors over time in a Chapter 11 or 13 reorganization. A successful "strip off" in a "no asset" Chapter 7 would allow the individual to remove the junior lien(s) and discharge the underlying claim without paying anything to his or her creditors.
Keep in mind that every case is different and not every Chapter 7 liquidation results in an individual not paying anything to his or her creditors. Also, the ability to achieve a "strip down" or a "strip off" depends on a number of factors, including the value of the property, the amount of the secured claim(s) against the property, whether the lien being "stripped off" is an association lien (where some restrictions apply), how the property is being used, who the owner(s) of the property are, as well as other factors. It is important to speak to an experienced bankruptcy attorney to determine if you (or someone you know) are eligible for this type of relief.
Do I still have time to "strip off" of a lien in a Chapter 7 liquidation?
Yes. If you, one of your clients (if you are an attorney) or someone you know are otherwise eligible to "strip off" a lien in a Chapter 7 liquidation, you still have time. Usually, Supreme Court sessions end in late June or early July. This means that there are still a few months to "strip off" a lien in a Chapter 7 liquidation before the Supreme Court potentially decides the issue unfavorably to Chapter 7 bankruptcy debtors. Although the decision can obviously go either way, most judges and legal scholars believe that the Supreme Court will rule that Chapter 7 bankruptcy debtors will no longer be able to "strip off" liens.
If you think that you or someone you know may benefit from a "strip off" in a Chapter 7 case, or if you are an attorney who has a client that may benefit from this relief, contact Leiderman Shelomith, P.A. today for a no-cost consultation.
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April 23, 2015 - Broward County Bar Association, Bankruptcy Section - Issues in Individual Chapter 11 cases - Zach B. Shelomith is a panelist.
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Felipe Plechac-Diaz is among the distinguished young bankruptcy attorneys in the Southern District of Florida. He handles personal and corporate bankruptcy matters, Assignments for the Benefit of Creditors, bankruptcy litigation and student loan law matters.
Prior to joining the firm in July 2014, Felipe served as a law clerk for the Honorable Robert A. Mark of the United States Bankruptcy Court for the Southern District of Florida. Felipe obtained a B.A. from the University of Florida and a J.D. from the University of Miami, School of Law, where he participated in the prestigious Eleanor R. Cristol and Judge A. Jay Cristol Bankruptcy Pro Bono Assistance Clinic.
Felipe has quickly taken a leadership role with the Bankruptcy Bar Association for the Southern District of Florida, where he serves as a co-committee chair of the Young Lawyers Committee. Felipe resides in Hollywood, Florida, with his fiancé.
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A client retained our firm to represent her in a Chapter 7 bankruptcy. Her home was worth only $80,000, but the first mortgage was $114,000, the second mortgage was $19,000 and the condominium association was owed $20,000. In fact, prior to the bankruptcy, the condominium association filed a Claim of Lien and sought the foreclosure of the client's residence. This client was a perfect candidate for a Chapter 7 "strip off" of her second mortgage and condominium association Claim of Lien.
Through her bankruptcy, we were able to strip off and remove the second mortgage and the condominium association Claim of Lien. Since one of the liens being "stripped off" was a condominium association Claim of Lien, the "strip off" is only effective as to our client, and not any subsequent purchasers, who would be responsible for payment of these condominium association fees thereafter. However, since our client planned on living at the property for the remainder of her life, this restriction was not important to her. The client was also able to discharge $88,000 of other unsecured debt.
This is but one example of what a "strip off" of junior liens can achieve in a Chapter 7 bankruptcy case.
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Personal Chapter 7
There are numerous circumstances that may warrant a Chapter 7 bankruptcy, the most common type of case filed by individual consumers.
Many people are unaware that a Chapter 11 bankruptcy filing is available to individuals.
Personal Chapter 13
There are a number of reasons why a Chapter 13 filing may be right for you. We discuss all options with you and we provide full implementation of the best strategy moving forward.
A business that needs to restructure its finances is offered various beneficial tools in a Chapter 11 filing.
Creditor Representation
Creditors of bankrupt debtors have several avenues for recovering what is owed to them.
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About Leiderman Shelomith, P.A.
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Leiderman Shelomith, P.A. was founded by Jonathan Leiderman and Zach Shelomith in 2003. The firm quickly built an excellent reputation across South Florida as a boutique bankruptcy law firm, handling both personal and corporate bankruptcy matters, including Chapter 7, Chapter 11 and Chapter 13 bankruptcy cases, as well as state court Assignments for the Benefit of Creditors. Felipe Plechac-Diaz joined the firm as an associate attorney in 2014. The firm began representing borrowers with their federal, state, and private student loan matters in 2014, including the defense of student loan lawsuits.
The firm's attorneys, who have 38 years of combined legal experience, have been recognized as a South Florida Legal Guide Up and Comer, a Super Lawyer Rising Star for the State of Florida, a Florida Legal Elite Up and Comer, and a Florida Legal Elite. Our attorneys are members of the National Association of Consumer Bankruptcy Attorneys, the American Bankruptcy Institute, and the Bankruptcy Bar Association for the Southern District of Florida, among other organizations. The firm's attorneys are also frequent lecturers at seminars and community programs, speaking about bankruptcy law to attorneys and the general public.
The firm, Mr. Leiderman, and Mr. Shelomith, are AV® Preeminent Rated Attorney's, awarded by LexisNexis® Martindale-Hubbell®, for having obtained the highest possible peer-review rating for their ethical standards and legal ability.
The firm represents debtors, creditors, and bankruptcy trustees in all aspects of bankruptcy cases, including litigation and appeals, handling both liquidations and reorganizations. The firm also represents borrowers in all aspects of student loan law, including federal, state, and private student loans. Our office is conveniently located in suburban Fort Lauderdale, Florida, and is easily accessible from anywhere in Miami-Dade, Broward, and Palm Beach Counties. We handle bankruptcy debtor cases across the Southern District of Florida, particularly in Broward, Miami-Dade, Palm Beach, and Monroe Counties, and other bankruptcy cases and student loan matters throughout the entire State of Florida.
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Disclaimer
The information you obtain in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters, and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.
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