Friday, August 19, 2011
Can a Chapter 7 Trustee Force You Out Of Your Home?
There are numerous properties in Florida that have market values less than their respective mortgages, otherwise know has being "upside down" or having "negative equity". In this case, when one files a Chapter 7 bankruptcy, the filer has the option of not claiming the property as homestead, and taking an additional $4,000 wild card personal property exemption pursuant to Florida Statute Section 222.25(4).
Recently a debtor filed a Chapter 7 bankruptcy in Jacksonville, failed to exempt the home as being homestead property, and took the additional wild card exemption. The Chapter 7 Trustee then sent a letter to the debtor telling him he had to move out of the house! This was an apparent attempt to coerce the filer into claiming the homestead exemption, thereby increasing the value of the bankruptcy estate for the Trustee to administer by $4,000.
Fortunately, this particular debtor hired a bankruptcy attorney to fight the Trustee in Court. The bankruptcy code has provisions for the trustee to abandon or administer assets, however, in this case, the trustee did not indicate he would do either. The is also a provision in the bankruptcy code for cooperating with the Trustee. However, if the debtor were to just abandon the property, as the trustee's letter suggest, it could expose the debtor liability pursuant to city ordinance. The abandoning of upside down property in Jacksonville has been a problem, resulting in some recently passed city ordinances.
The debtor's attorney filed a motion with the Court asking the Court for force the trustee to either administer or abandon the real property. The Court agreed, and the Trustee was given time within which to decide whether the property would be abandoned or administered.
The trustee also has a duty to maximize the bankruptcy estate for creditors. In administering the estate, the Trustee would be responsible for expenses associated with maintaining the property and selling the property. Which means, if the Trustee administers the property, he had better have someone willing to purchase it for more than what is owed on the property, which is above market, or the Trustee must abandon the property.