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Appellate ruling favors lenders in Chapter 13 case

Florida residents may be interested in an appellate court ruling in March 2017 that serves as a reminder to both debtors and lenders about the importance of legal wording and the limits on modifying a loan in a Chapter 13 case.

A debtor attempted to argue that $137,000 should be turned into an unsecured claim due to a recent appraisal on his residence. The argument claimed that the loan was not secured only by the residence because the debtor had been forced to place money in escrow accounts for taxes and insurance. This would have allowed that value to be repaid only in part. The initial ruling favored the lenders, as did the appellate rulings. The debtor was ultimately barred from modifying the loan in his repayment plan.

The appellate court gave the mortgage industry an important reminder with its ruling. The court stated that its ruling was primarily based on the wording of the deed of trust. They found nothing in the deed of trust that created separate property. Thus, the escrow accounts were not separate from the residence secured by the loan. This a fine point in the law, and the decision could be easily altered with minor changes to the wording of the deed of trust.

A Chapter 13 bankruptcy is a tool for debtors to get control of their debt without losing assets so long as they have regular income and can maintain a repayment plan. One benefit of Chapter 13 is that some debt is likely discharged at the end of the payment plan. A bankruptcy attorney may be able to help clients understand how a Chapter 13 may benefit them and if it is appropriate for their situation.

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