Can You Modify Your Home Mortgage in a Chapter 11 Bankruptcy?

You often see stories about struggling Florida businesses filing for Chapter 11 bankruptcy. But did you know that individual debtors can also file under Chapter 11? While most individuals file under either Chapter 7 or Chapter 13 of the Bankruptcy Code, there are some cases where it makes more sense to go with Chapter 11.
One reason is that there are no income or debt requirements to file for Chapter 11 bankruptcy. A debtor who wishes to file under Chapter 13, for example, cannot have more than a certain amount of unsecured and secured debts. Chapter 11 has no such limits. That said, Chapter 11 cases are usually far more complicated, which is why they are primarily used by business and corporate debtors.
Three Rules for Applying “Anti-Modification” Rule in Florida Bankruptcy Cases
An important drawback of filing for Chapter 11 is its “anti-modification” provision. Under the Bankruptcy Code, a Chapter 11 debtor cannot submit a debt reorganization plan that modifies the rights of anyone who holds a claim secured “only by a security interest in real property that is the debtor’s principal residence.” In other words, you cannot use a Chapter 11 filing to try and modify the terms of your home mortgage.
The United States Court of Appeals for the 11th Circuit, which has federal appellate jurisdiction over bankruptcy cases from Florida, Georgia, and Alabama, recently explained the requirements for applying this anti-modification rule. The case before the Court, Lee v. US Bank National Association, involved an individual debtor from Georgia. In 2007, the debtor took out a mortgage on her 43-acre property, which included her personal residence. Most of the land was actually leased to a farming company.
The debtor later defaulted on her mortgage, at one point owing more than $250,000 to the lender. In 2020, the debtor filed for Chapter 11 bankruptcy. She submitted a reorganization plan to the court that would have reduced the total amount she paid on the mortgage to just $144,000. Not surprisingly, the lender was unhappy with this proposal. The lender asked the bankruptcy court to lift the automatic stay with respect to the property, thereby enabling the lender to proceed with foreclosure.
The bankruptcy judge granted the lender’s motion. A federal district judge, and subsequently the 11th Circuit, upheld that decision. In its opinion, the 11th Circuit held there were three requirements that must be met before a bankruptcy court can apply the anti-modification rule:
- The security interest must be in real property;
- The real property must be the only security for the debt; and
- The real property must be the debtor’s principal residence.
Here, the debtor’s mortgage met all three requirements, so she could not modify its terms in a Chapter 11 proceeding.
Contact Florida Law Advisers Today
If you have fallen behind on your mortgage payments, there may be options such as loan modification that can help you keep your house without going through bankruptcy. And if your lender has already begun the process of foreclosure, then you can act quickly to preserve your rights. Our Tampa foreclosure defense attorneys will be happy to review your case. Contact Florida Law Advisers, P.A., today to schedule a free consultation.
Source:
scholar.google.com/scholar_case?case=178703084440933967