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Florida court's bankruptcy decision may affect Chapter 13 filers

A recent decision by the U.S. Bankruptcy Court for the Middle District of Florida may affect the outcome of some Florida debtors' Chapter 13 bankruptcy cases. The Court considered both a Chapter 7 and a Chapter 13 bankruptcy case in its decision, and ultimately held that a debtor who has surrendered property cannot take overt action to impede secured creditors from foreclosing on the creditors' interests in secured property.

Under the facts of the Chapter 13 case, a debtor had filed for Chapter 13 bankruptcy. There was an existing foreclosure proceeding that had been instituted by the mortgagee prior to the debtor filing for Chapter 13 bankruptcy. The debtor identified in her bankruptcy plan the intent to surrender the property that was the subject of the foreclosure, and the court confirmed the debtor's plan. Then, the debtor opted to contest the foreclosure proceedings after the court's confirmation.

The court considered that in surrendering property, a debtor has relinquished his or her rights to the property, and, therefore, must not prevent a secured creditor from foreclosing on the secured property. The court rejected the argument that a surrender of the property would simply mean a dissolution of the Bankruptcy Code's automatic stay. The bottom line of the court's decision is that a debtor who has surrendered property cannot then actively contest a post-bankruptcy foreclosure case.

What is legally permissible in a bankruptcy proceeding, and afterwards, may be confusing. As this case indicates, how courts interpret the law can evolve. If you are considering filing for Chapter 13 bankruptcy, or have questions about how this decision may affect an existing Chapter 13 proceeding or foreclosure action, it may be wise to seek legal advice.

Source: lexology.com, "Florida bankruptcy court holds debtor who 'surrenders' property in BK cannot impede foreclosure", Eric Tsai, Oct. 19, 2015

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