FL Bankruptcy in Florida

I. Introduction

The purpose of this webinar is to explain how title to real property is treated in bankruptcy and to educate title agents as to what is needed to insure title to real property when the title-holder has filed bankruptcy.

III. Bankruptcy Chapters

A. Chapter 7 – Liquidation

1. Trustee appointed to liquidate assets and pay claims 2. All assets, except property allowed as exempt, title vests in bankruptcy estate

B. Chapter 11– Reorganization

1. Reorganized business - more for creditors than a liquidation 2. Debtor in Possession - operates business 3. Plan of reorganization – approved by creditors and the court 4. Confirmed Plan vests title to all property of the estate in debtor (subject to terms of Plan)

IV. Bankruptcy Schedules

11 USC 521(a). Debtor shall file a list of creditors, a schedule of assets and liabilities, a schedule of current income and current expenditures, and a statement of the debtor’s financial affairs. A. Schedule A – lists all real property B. Schedule C - lists exempt real property C. Schedule F - lists debts

V. Bankruptcy Estate

Under 11 USC 541, upon filing a Petition for Bankruptcy, all of the debtor’s property becomes property of the bankruptcy estate until exempted, abandoned, sold or the bankruptcy case is closed. = Uniform Title Standard (“UTS”) 2.1 A. Who has title to real property? 1. 11 USC 541(a) Property of the Estate. 2. The commencement of case, creates a Bankruptcy Estate: a. All legal and equitable interests of debtor in property as of commencement of case. b. Including debtor’s interesting in entireties property, or tenants in common, or joint tenants are part of the bankruptcy estate until allowed as exempt. See 11 USC 363(h) and UTS 2.1 c. Property held by the debtor as trustee becomes part of the estate but only to the extent of the debtor’s interest as trustee and subject to the beneficiary’s interest. UTS 2.1 3. Any interest in property acquired by debtor within 180 days after filing Bankruptcy. 4. 11 USC 1306(a)(1). A Ch. 13 estate includes all property acquired by the debtor after commencement of the case before the case is closed, dismissed, or converted to a Ch. 7, 11 or 12. 5. Property remains property of the Bankruptcy Estate until it is allowed as exempt, is sold or abandoned. B. Debtor cannot sell or refinance without bankruptcy authority (Order or Notice of Intent to Sell) unless the property is allowed as exempt, is abandoned, or the bankruptcy is dismissed. C. Unscheduled property remains property of the estate. 1. 11 USC 554(d): “Unless the court orders otherwise, property of the estate that

   is not abandoned under this section and that is not administered in the case 
   remains property of the estate.”

VI. How Does Property Come Out of the Bankruptcy Estate?

A. Exempt Property Under 11 USAC 541, all of the debtor’s property becomes property of the bankruptcy estate until exempted under 11 USC 522(b) and FS 222.20. 1. 11 USC 522(b). A debtor may declare certain property exempt from the bankruptcy estate. a. Debtor’s claim of exemptions is presumed valid b. Any party objecting to claimed exemptions has the burden of proof. See In Re Nishi SWARUP, 521 B.R. 382 (Bankr. M.D. Fla. 2014). 2. FS 222.20. Florida opted out of the Federal Bankruptcy exemptions under 11 USC 522. Residents of Florida cannot use the Federal Exemptions but can use the Florida Exemptions under the Florida Constitution and Florida Statutes. In Re Nishi SWARUP, 521 B.R. 382 (Bankr. M.D. Fla. 2014). a. Art. X, Section 4: Homestead of half-acre in municipality and 160 acres outside a municipality

	3. How to Claim Property as Exempt 

a. Rule 4003 (11 USC 4003): (1) List the homestead on Schedule C (2) Creditors have 30 days after Meeting of Creditors (341

    Meeting) to object to any claimed exemptions.	

(3) The objecting party has the burden of proving that the

    exemptions are not properly claimed, Rule 4003(c).

(4) If objection filed, need court order denying the objection. 4. Limitation of Amount of homestead exemption when State Exemptions are Elected: a. Under 11 USC 522(p), a debtor may not exempt the amount of any

   interest acquired by the debtor during the 1215-day period (3 years 
   and 4 months) prior to filing bankruptcy in excess of $125,000.

b. Does not include any interest transferred from debtor’s previous

   homestead acquired prior to the 1215-day period.

c. Two debtors can stack and claim $250,000, In Re: Rasmussen, 349 B.R.

   747 (Bankr M.D. Florida 2006)
	5. What happens to the title if homestead not claimed as exempt on Schedule C?

a. Homestead not allowed as exempt and remains property of the bankruptcy estate. See Re: O’Malley, 601 B.R. 629 (Bankr ND Illinois 2019) B. Abandonment 1. Actual Abandonment: a. Applicable Law (1) 11 USC 554(a). “After notice and hearing, Trustee may abandon any property of the estate that is burdensome or of inconsequential value to the estate.”

   (2) 11 USC 554(b).  “Upon request of a party in interest and after notice 
   and a hearing, the court may order the trustee to abandon any 
   property of the estate that is burdensome or inconsequential value to 
   the estate.”

b. 11 USC 6007(a):

    Trustee or DIP shall give Notice of Intent to Abandon Property to:

(1) Trustee, debtor, and all creditors (2) A party in interest may file an objection within 14 days mailing

     the Notice unless court sets a different time.

(3) If a timely objection is filed, the court will set a hearing c. Documents to prove abandonment. Record certified copies of: (1) Notice of Intent to Abandon Property (2) Portion of bankruptcy docket showing no objection or request

   for hearing was filed.

(3) If objection is filed or a hearing is requested, a Court Order

    overruling the objection and authorizing abandonment.	

(4) Portion of bankruptcy docket showing no appeal of order was

    filed. 

2. Constructive Abandonment a. Applicable Law =11 USC 554(c). “Unless the court orders otherwise, any property scheduled under section 521(a)(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor and administered for purposes of section 350 of this title.” (1) Property Listed on Schedule A (2) Bankruptcy Case Closed (3) No deed out of Trustee = If the property is not listed on Schedule A: (1) It remains property of the estate after bankruptcy closed (2) Is not constructively abandoned after bankruptcy closed (3) 11 USC 554(d). “Unless the court orders otherwise, property of the estate that is not abandoned under this section and that is not administered in the case remains property of the estate.” b. Documents to prove Constructive Abandonment. Record certified

    copies of: 

(1) Schedule A showing Property (2) Portion of bankruptcy docket showing bankruptcy case is

   closed.

(3) Trustee’s final report showing that the property was not administered by the trustee. 3. Effect of Abandonment – property is no longer part of the bankruptcy estate so title re-vests in debtor. 4. See UTS 2.4 C. Plan Confirmed (Ch 11 and 13) 1. 11 USC 1327(b). Ch 13 Vests title back in debtor 2. 11 USC 1141(b). Ch 11 Vests title back in debtor

VII. Automatic Stay

A. Effect of Automatic Stay 1. 11 USC 362(a) 2. When bankruptcy is filed, it operates as a stay of: a. the commencement or continuation of any action against the

  debtor; 

b. the enforcement of a judgment against the debtor or against property

   of the estate;

c. any act to create, perfect, or enforce an lien against property of the

   Estate;

3. 11 USC 362(c) – stay is in effect until: a. as to specific property until the property is no longer part of the estate i.e. it is abandoned, exempt or sold b. earliest of: time case is closed, case is dismissed, or debtor is granted at discharge B. Violating the Stay 1. An action taken in violation of the stay is void. Franklin Sav. Ass’n v. Office of Thrift Supervision, 31 F.3d 1020 (10th Cir. 1994) C. Foreclosures 1. Effect of Stay a. Foreclosure has to stop – See UTS 2.3 b. Any action taken in violation of the stay is void c. Review Docket D. Motion For Relief From the Automatic Stay 1. 11 USC 362(d). Upon request of a party in interest and after notice and a hearing, the court may terminate, annul, modify, or condition the stay 2. 11 USC 4001(a)(1). Motion for relief shall be made per Rule 9014 i.e. a hearing is required 3. 11 USC 4001(a)(3). Order granting motion for relief from automatic stay is stayed until 14 days after the entry of the court orders otherwise. 4. Documents to record. Certified copies of the following: 5. Order granting motion for relief 6. Portion of docket showing Order not appealed E. Chapter 13 Order Confirming Plan 1. In rem proceedings authorized if mortgage is not provided for in Plan

     	F. Foreclosure Issue:

1. FS 702.12 Defenses due to bankruptcy filings a. Surrender in Bankruptcy is a waiver of defenses to Foreclosure

                          b. Judicial Notice

VIII. Postpetition Transactions

A. 11 USC 549(a) - Except as provided in subparagraph (c) the trustee may avoid a

                 transfer of property of the estate that occurs after the commencement of the case; 

B. 11 USC 549(c) – Trustee may not avoid a transfer of an interest in real property if: 1. Transferee was a good faith purchaser without knowledge of the bankruptcy; 2. Transferee paid the present fair equivalent value; 3. Transferee’s interest was recorded in the Official Records before the bankruptcy petition was filed. C. Rule 6001 - Any entity asserting the validity of a transfer has the burden of proof. D. See: In Re Zargaran, 216 F.Supp.3d 1340 (SD Florida 2016), UTS 2.1

IX. Sale or Mortgage of Exempt (Homestead) Property by Debtor

A. Documents needed to insure a sale or mortgage of homestead (Exempt) property. Record certified copies of the following: 1. Schedule C showing homestead listed as Exempt 2. Bankruptcy Docket showing no objection filed during 30-day

   period after meeting of creditors.  

3. Order denying the objection, if objection was filed 4. Portion of bankruptcy docket showing no appeal of the Order Authorizing Sale (or mortgage).

X. Sale of Non-Exempt (Non-Homestead) Property

A. 11 USC 363(c)(1) authorizes the trustee or a debtor in possession to sell property of the estate in the ordinary course of the business of the debtor without notice and without a hearing. However, the sale of real property is rarely in the ordinary course of a debtor’s business unless the debtor is a builder. B. 11 USC 363(b)(1) allows a trustee or a debtor in possession to sell property of the estate other than in the ordinary course of business “after notice and a hearing”. C. “After Notice and a Hearing” – What does that mean?

     	1. 11 USC 102(1):

a. “After notice and a hearing” means after such notice as is

                 appropriate in the particular circumstances, and such opportunity for a 

hearing as is appropriate in the particular circumstances. b. Rule 102(1)(B)(i) authorizes a sale without an actual hearing if notice is properly given and if a hearing is not requested by a party in

   interest. Filing an objection to the proposed sale is the equivalent of 
   requesting a hearing.
     	2. 11 USC 6004(a):
	a. A notice of a proposed sale of property not in the ordinary course of 

business shall be given pursuant to Rule 2002(a)(2). b. 11 USC 6004(b): An objection to a proposed sale of property shall be

   filed and served not less than seven days before the date set for the 
   proposed sale.

c. 11 USC 6004(e): If an objection is filed a hearing is scheduled - Rule

   9014 regarding contested matters governs the hearing.

d. 11 USC 6004(h): An Order authorizing the sale is stayed for 14 days

   after entry of the Order unless the court orders otherwise.
     	3. 11 USC 2002(a)(2) – The clerk, or some other person as the court may direct, 

shall give the debtor, the trustee, and all creditors at least 21 days’ notice by mail of a proposed sale of property of the estate other than in the ordinary course of business unless the court shortens the time or directs another method of giving notice. 4. 11 USC 2002(c)(1) – Content of Notice a. The Notice of Proposed Sale shall include: (1) Date and Time of Sale (2) Terms and conditions of any private sale (3) Time fixed for filing objections to the sale (4) A general description of real property is sufficient 5. 11 USC 363(m). Reversal or modification on appeal of a sale under 363(b) and (c) does not affect the validity of the sale to an entity that purchased the property in good faith. 6. See UTS 2.2 D. According to the forgoing provisions, a debtor in possession or a trustee may sell

    property of the estate by giving at least 21 days’ notice of the sale to the trustee, the 
    debtor, and all creditors of the sale.  If no objection to the sale is filed or a hearing 
    is not requested at least 7 days before the sale date, the trustee or debtor in 
    possession may sell the property without obtaining a court order.  If an objection to 
    the sale is filed or a hearing is requested, a court order authorizing the sale must be 
    obtained.

E. Documents needed to insure a sale of non-homestead (Non-Exempt) property by a

    Trustee or Debtor in Possession.  Record certified copies of:

1. Notice of Intent to Sell 2. Portion of Bankruptcy Docket showing no Objection to Sale or Request for hearing was filed 3. Order Authorizing Sale if objection or request for hearing was filed 4. Portion of Bankruptcy Docket showing no appeal of the Order Authorizing the Sale.

XI. Chapter 11, 13 – Sale Pursuant to Plan

A. Plan 1. 11 USC 1322(b)(9). Plan may provide for vesting of property of the estate in the debtor or any other entity, on confirmation of the Plan. B. Order Confirming Plan 1. 11 USC 1327(b) and 11 USC 1141(b). Except as otherwise provided in the Plan, the Order Confirming the Plan vests all property of the estate in debtor. 2. 11 USC 1327(c) and 11 USC 1141(c). Except as otherwise provided in the Plan, the property vesting the debtor is free and clear of any claim or interest of any creditor provided for by the plan. C. As long as the Plan provides that title vests in the debtor. The following documents are needed to insure a Sale of property pursuant to a Ch. 11 or 13 Plan. Record certified copies of the following: 1. Plan 2. Order Confirming the Plan 3. Portion of bankruptcy docket evidencing that the Order Confirming the Plan was not appealed

XII. Judgments

A. Judgment Listed in Bankruptcy on Schedule F

     1.  Albritton v. General Portland Cement Co., 344 So.2d 574 (Fla. 1977):

“A discharge in bankruptcy releases the bankrupt from personal liability for a

             judgment, but it does not affect a lien which arose from the judgment prior to 

bankruptcy and which attached to the property …”

      2. Discharge relieves debt but not the lien. 
      3. If not homestead, need release of the judgment.

B. After Acquired Property

    1. Albritton v. General Portland Cement Co., 344 So.2d 574 (Fla. 1977):

“judgment debt voided in bankruptcy cannot constitute a lien on after-acquired property.” 2. Judgment Does Not Attach to after-acquired property if: a. Judgment shown on Schedule F b. Discharge obtained (1) 11 USC 524(a)(1). Discharge voids any judgment at any time obtained to the extent the judgment is a determination of personal liability of the debtor (2) 11 USC 524(a)(2). Discharge operates as an injunction against the commencement or continuation of any action to collect on the debtor discharged as a personal liability of the debtor. (3) See Uniform Title Standard 2.5 3. What if property loses homestead status after bankruptcy filed? a. 11 USC 524(a)(3). Discharge operates as an injunction against the commencement or continuation of any action to collect against property of the debtor of the debtor acquired after commencement of the bankruptcy discharged as a personal liability of the debtor. 4. Documents to record as proof judgment discharged and is not a lien on after- acquired property: a. Certified copy of Schedule F showing debt listed b. Certified copy of Discharge of debtor C. Homestead 1. Article X, Section 4(a) of the Florida Constitution provides: “(a) There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement or repair thereof, or obligations contracted for house, field or other labor performed on the realty, the following property owned by a natural person: (1) a homestead, if located outside a municipality, to the extent of one hundred sixty acres of contiguous land and improvements thereon, which shall not be reduced without the owner’s consent by reason of subsequent inclusion in a municipality; or if located within a municipality, to the extent of one-half acre of contiguous land, upon which the exemption shall be limited to the residence of the owner or the owner’s family;” [emphasis added]. 2. 522(f) Order a. 11 USC 522(f)(1)(A): “Notwithstanding any waiver of exemptions … a debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs and exemption to which the debtor would have been entitled … if such lien is (A) a judicial lien …” b. “Comfort Order”? 3. Homestead Affidavit – Use it in lieu of a 522(f) Order

XIII. Motion to Strip Junior Mortgages

	A. What is it?
    1. WFG Bulletin FL2016-07 Stripping Liens (Junior Mortgages) in Bankruptcy 

2. Chapter 7

                 3. Chapter 13

4. Chapter 20 B. Law 1. 11 USC 506(a)(1) – Classify claim (for junior mortgage) as: a. Allowed Secured Claim; or b. Allowed Unsecured Claim 2. 11 USC 1322(b)(2) – Authorizes Chapter 13 Plan to modify rights of holders of allowed secured claims and allowed unsecured claims. Allows a Ch. 13 Debtor

         to modify the rights of the holder of a junior mortgage if there is no equity in the 
         property over and above the first mortgage to strip the junior mortgage from the 
         property. 
    3.  Cases

a. BOA v. Caulkett, 135 S.Ct 1995 (SC 2015) b. Dewsnup v. Timm, 112 S. Ct 773 (SC 1992) c. Nobelman v. American Savings Bank, 113 S.Ct 2106 (SC 1993)

		d. Frazier v. Real Time Resolutions, Inc., 469 B.R. 889 (E.D. California 2012)

C. Record certified copies of the following documents: a. Motion to Strip b. Order Granting Motion to Strip c. Debtor’s Discharge d. Wait 45 days

=XIV.	Sale Free and Clear Of Liens=  						

A. 11 USC 363(f). Authorizes a Trustee (Ch.7) or debtor in possession (Ch. 11 and 13) to sell property free and clear of liens based on the factors listed in 363(f). B. 11 USC 6004(c). A motion to sell property free and clear of liens shall be served on parties who have liens or other interests in the property to be sold. Notice required by Rule 2002(a)(2) must be provided to the debtor, trustee and all creditors and must include the date of the hearing on the motion and the time within which

    objections may be filed.

C. 11 USC 6004(h). Order authorizing sale is stayed 14 days from date of entry unless the Order states otherwise. D. Documents to record to insure a sale of property free and clear of liens by trustee or debtor in possession: 1. Certified copy of Motion to Sell Property Free and Clear a. Motion must identify liens by O.R. Books and Pages 2. Proof such as the mailing matrix that all interested parties and creditors whose lien is to be divested were provided notice of the motion and hearing.

   		3. Certified copy of Order Granting Motion to Sell Property Free and Clear

a. Order must identify liens by O.R. Books and Pages. 4. Portion of docket showing that the Order was not objected to or appealed

XV. Miscellaneous

A. 11 USC 363(h). A trustee may sell the debtor’s interest in property even if only an

    undivided interest as tenant in common, joint tenancy, or tenancy by the entirety.  A 
    Ch. 13 debtor in possession does not have this authority under 11 USC 1303.

B. 11 USC 1306(a)(1). Property of the Ch. 13 estate includes all property acquired by the

    debtor after commencement of the case before the case is closed, dismissed, or 
    converted to a Ch. 7, 11 or 12.

C. 11 USC 1303. Chapter 13 debtor in possession has the rights and powers of a trustee

    under 363(b),(c), and (f) to sell property of the estate.  See also 11 USC 1304.

D. 11 USC 1007(a). Chapter 11 debtor in possession has the rights and powers of a

    Trustee.

E. 11 USC 364(a)(b). Need court approval to obtain unsecured debt. F. 11 USC 802(a)(1). The appeal period is 14 days from the date of entry of an Order. G. 11 USC 1301. Stay against codebtor and relief. H. 11 USC 523. List of Non-Dischargeable Debts I. Florida Statute 55.145. Authority to cancel and discharge a judgment in State Court if

    the judgment was discharged in bankruptcy.

J. Discharged does not mean the case is closed