I have previously written in this blog about the pernicious impact of medical debt and how it has become a leading cause of personal bankruptcy for American citizens.
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I have previously written about the effect of marriage and divorce on debts and the ability to discharge them in a chapter 7 bankruptcy. A recent case decided in the Middle District bankruptcy court in Orlando shows how the death of a spouse may affect the outcome of a bankruptcy proceeding. In the case of In re: Taylor, a 72 year old married man filed for chapter 7 bankruptcy without his wife. They were residents of Palm Coast, Florida. Six weeks after filing for bankruptcy, the wife of 52 years died. At the time of her death, the couple owned together approximately $34,000 in a bank account; $6,000.00 in a CD, and another $6,000 in household goods and furnishings. Mr. Taylor’s bankruptcy lawyer helped him claim all of these assets as exempt from the bankruptcy. Had the wife remained alive, the husband could have claimed an exemption for all of this property, which would have allowed him to keep all of it after the chapter 7 bankruptcy, without having to turn it over to the trustee for liquidation for his creditors. That is because the property was considered to be held as “tenancy by the entireties.” Tenancy by the entireties (called TBE for short) is a special form of legal title for property owned jointly by married people. Under Florida law, when only one spouse is liable on a debt, the creditor of that single spouse cannot seize property that is owned by the married couple as tenancy by the entireties. (However, seizure is permitted when the debt is joint, because both the husband and the wife owe the debt to the creditor). A married individual who files a chapter 7 bankruptcy in Orlando, (or any other court in Florida), may exempt from the bankruptcy any property that is owned in the form of tenancy by the entireties, provided that their spouses do not join them in the bankruptcy (this is usually done if most or all of the debt is in the name of the filing spouse).
Balloon mortgages are not a common form of financing for a primary residence.
However, during the hot real estate market in Orlando, such financing arrangements were more frequently made. For those homeowners in Orlando who may have financed the acquisition of their residential home with a balloon mortgage, a little known provision of the bankruptcy code may bring relief
Orlando homeowners are struggling to hold on to their homes. In this market, maintaining homeownership is a challenge, particularly for homeowners who took second mortgage loans that were doled out like candy by banks during the real estate bubble. Many Orlando homeowners have already lost their homes in foreclosure; many are in foreclosure and fighting to hold on to their homes with promises from their banks of mortgage modification; and others are facing the prospect of a foreclosure on the horizon, as banks gear up for for new foreclosures after a temporary reprieve after being exposed for their unethical and illegal practices.
Orlando real estate investors probably never thought they would be consulting with a bankruptcy attorney to preserve their investments. Who would have thought that chapter 13 of the bankruptcy code would help them hold on to their real estate investments? Orlando real estate investors have been living through the nightmare of watching the loss of value brought on by market forces outside their control. Rampant speculation, bad government policy and massive fraud by Wall street thieves have lead to record deflation in the value of real estate. Who could have imagined ten years ago that a solid investment in owning land would leave owners with mortgage debts that exceeded fair market value of property? Before “short sale” became a household phrase, owning real estate, particularly rental homes, was considered a safe and prudent method of investing money. But now, owners of rental homes in Orlando are drowning in “underwater” properties that are worth less than the mortgages that encumber them. Investors are losing their properties in foreclosure on a unprecedented scale.