Bankruptcy

Debtor Surrenders Real Estate In Order To Circumvent Chapter 13 Secured Debt Ceiling

By Jonathan Alper

People with significant real estate investments have trouble qualifying for Chapter 13 bankruptcy because of Chapter 13 debt limits. Debtors cannot file bankruptcy if their secured debts exceed approximately $1 million or if their unsecured debt exceeds about $330,000. I read a case about a client with several million dollars real estate mortgages who came up with a creative plan to squeeze himself into a Chapter 13 bankruptcy.

The debtor?s petition stated that he intended to surrender all of the secured real property leaving him with no secured debt. Problem was that all the real estate was ?upside down? so the surrender and resulting foreclosure would subject the debtor to large unsecured deficiency claims totaling far more than the $330,000 unsecured debt ceiling. So, the debtor argued that because amount of the deficiency claims was undetermined, that is unliquidated, at the time he filed his petition these unliquidated claims could not be computed and assessed against the unsecured debt ceiling.

Nice try, but no cigar. The bankruptcy court ruled that the majority view on this issues is that uncertainty regarding the amount of a debt is insufficient to render the claim contingent or unliquidated for the sole purpose of determining the Chapter 13 debt limits. In re Hinds 09-23764, Southern District Florida

Full post as published by Florida Bankruptcy Law on November 10, 2010 (boomark / email).