Bankruptcy Options for Florida Homeowners
Florida Bankruptcy Law allows homeowners a chance to protect their homes while getting out of debt.
Florida's Homestead Exemption
Florida law allows one of the most generous homestead exemption in the country: a filer can protect an unlimited amount of equity in a home, as long as the property is not larger than 160 acres.
This means that when filing Chapter 7, where assets of value are liquidated to pay off creditors, homeowners needn't worry about being forced to sell their home.
The Homestead Exemption means that all the value or equity in the home will be excluded from consideration by the bankruptcy court when looking for assets to sell in order to satisfy debts.
Homeowners Filing Chapter 7
When a Chapter 7 bankruptcy filer is current on his or her home mortgage, there is every reason to believe that he or she will remain in the home, during and after bankruptcy. By continuing to make mortgage payments, the homeowner remains in the home, and the mortgage continues as though bankruptcy had not been filed.
It's a different story if a homeowner is past due on mortgage payments. While filing Chapter 7 Bankruptcy can discharge the debt, leaving the homeowner with no further obligation to pay it, bankruptcy does not affect the bank's right to repossess the home when mortgage payments are delinquent. Homeowners who are behind on their mortgage would need to become current quickly in order to keep their home.
With Chapter 13 Bankruptcy, a filer keeps his or her property, including the home.
If the homeowner is current on the mortgage, he or she can continue making mortgage payments and remain in the home as though bankruptcy had not been filed.
If the homeowner is behind on mortgage payments, the homeowner has a chance to catch up with Chapter 13 Bankruptcy: any missed payments can be added to the court-approved bankruptcy plan going forward and paid off in a reasonable amount of time. As the homeowner sticks to the bankruptcy payment plan, the mortgage becomes current.
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When filing either Chapter 7 or Chapter 13 Bankruptcy, the filer is granted an "automatic stay" whereby all collection attempts must cease. The automatic stay also prevents a bank from filing for foreclosure.
This gives the homeowners time to complete the bankruptcy application process, and may buy a couple of months' time. But the bank can apply to have the automatic stay lifted if the homeowner is delinquent on mortgage payments. Once granted, they can proceed with the foreclosure.
Bankruptcy filers are wise to use the time allocated by the automatic stay to get current on their mortgage. Then, as debts become discharged and reduced with bankruptcy, needed funds become available which can be used for mortgage payments going forward.
What About Second Mortgages?
Those filing Chapter 13 Bankruptcy may have the option to have a second or third mortgage, or a home equity loan, completely removed or "stripped" from the debt they are required to pay back with their bankruptcy repayment plan.
If approved, the debt would change and become unsecured debt. Chapter 13 bankruptcy filers only pay pennies on the dollar toward unsecured debt.
Eligibility for lien stripping is dependent on the first mortgage exceeding the home's current value, and can be discussed with a qualified bankruptcy attorney.