The jurisdictional limit for unsecured debt in a chapter 13 is $360,475.00. One way around this limit is to consider the debt separately of a husband and wife who file bankruptcy. Essentially, a joint filing is really two individuals filing a case that is jointly administered. So, for example, if the husband owes $200,000 and the wife owes $250,000 in separate debt, then the court does have chapter 13 jurisdiction.

However, keep in mind that when a debtor has joint debt with the spouse, then this joint debt must be considered as debt when calculating both the husband’s and wife’s debt.

On August 4, 2011, Judge Olson sitting in the Broward County division of the bankruptcy court in the Southern District of Florida, held that debtors could treat separately their debt limit to remain in chapter 13. In re Hannon, 2011 Bankr Lexis 2949, Case No. 10-45771. However, on the facts of this case, the debtor has substantial joint debt which still placed each debtor over the jurisdication limit.

This decision will be of great help to those who file a Fort Lauderdale chapter 13 bankruptcy.

This past Wednesday the 11th Circuit Court of Appeals entered an important decision on sovereign immunity, In re Diaz, Florida Department of Revenue v Diaz, 2011 US App Lexis 15462 (11th Cir 2011). This is an important case for practitioners to review, but I am not going to review the sovereign immunity analyses of the case.

I do want to comment on how this affects chapter 13. Sometimes I just do not understand the 11th circuit decisions when they consider chapter 13 cases. In what appears to me to be directly contrary to the United States Supreme Court decision in US Student Aid Funds v Espinosa, the court held that a creditor with a non-dischargeable claim for child support as well as taxes is not bound by the claim allowed in the bankruptcy court. Even though the creditor was fully paid in the plan based on the allowed claim, the creditor could still claim moneys it is owed such as interest because the underlying debt could not be discharged.

Consider a homeowner who is behind on the mortgage payments but never signed the note or mortgage. It is likely the lender will not even speak with the owner to try and modify, because the homeowner was not the original party to the mortgage.

This could happen if the owner acquired the property by inheritance. More difficult might be a case where the owner transfers title by deed without paying off the existing mortgage and in violation of the due on sale clause in the mortgage.

Judge Glenn recently entered an opinion denying a creditor’s motion for relief from stay and permitting the debtor to treat the secured claim in a chapter 13 plan. In re Lozada, 444 BR 604(M.D. FL March 31, 2011) The debtor claimed ownership interest because of a quit claim and alternatively claimed she was the rightful heir of her mother’s estate. The court relied on In re Ramos, 357 BR 669(Bankr. S.D. FL 2006).

Two Florida bankruptcy judges have upheld a debtor’s right to cure a mortgage in a chapter 13 even though they were not the original owner. This is also consistent with long-running practice. As a Broward bankruptcy attorney filing bankruptcies in the Ft. Lauderdale area, I can say that these cases are good news for current homeowners to help them save their property.

A debtor can only have approximately $360,000 in unsecured debt to be eligible for a chapter 13. Otherwise, the debtor is above the jurisdictional limit.

Contingent claims do not count against the calculation. The problem is that the bankruptcy code does not define what is considered contingent or non-contingent.

A recent case may help debtors under the right facts. Consider a debtor who signed a guarantee for a corporation. Does the amount of the guarantee count as a non-contingent claim? In Glaubitz v Grossman, 2011 US Dist Lexis 6166(E.D. Wisc. 2011), the district court reversed a bankruputcy court decision. The bankruptcy court had included the guarantee as part of the unsecured debt. The district court reversed, finding that a guarantee was inherently contingent. However, the District Court stresses that the corporation was not in default so the contingency had not yet occurred. If a default had taken place, then the guarantee would no longer be contingent and would count against the jurisdictional limit.

As a Fort Lauderdale bankruptcy attorney, I recognize that the problem is that in the typical case where the debtor made a guarantee for his own corporation, the debtor is likely already in default.

In a recent court case decided by a panel of the three bankruptcy judges in the Miami division of the Southern District of Florida, the court held that a debtor who received a discharge in a chapter 7 and was not eligible to receive a discharge in a subsequently filed chapter 13 could not strip a second mortgage. In re Gerardin, 2011 Bankr Lexis 514(Bankr. S.D. FL. Feb. 17, 2011).

The court rejected contrary case law, but the decision does seem to be the prevailing view. The court also observed that it agreed with decisions finding that a second mortgage could not be stripped in a chapter 7. The decision is based on a technical reading of the statute(Section 506 valuation does not provide an independent basis to strip a second mortgage and chapter 13 does not provide any basis to strip a mortgage after discharge)

Debtors should be careful before filing a chapter 7 when they have a second mortage that could be stripped in a chapter 13. A debtor might not intend to keep his or her home in the long run, file a chapter 7, and then later wish they had filed a chapter 13. As a Ft. Lauderdale bankruptcy attorney in Broward County, I recognize that this is an important planning issue when deciding what chapter to file.

Note that a debtor can file a chapter 13 four years after filing a chapter 7 and would be eligible to obtain a discharge in the chapter 13, and thus strip a second mortgage.

The debt limits in the bankruptcy law continue to be a major restriction to filing chaper 13 bankruptcies. Section 109(e) provides that on the date of filing of the petition, the debtor must have less than $360,475 unsecured debt and less than $1,010,650 in secured debt. This becomes a major problem when the debtor has several properties or attempts to strip second mortgages. A debtor may have too large of a secured debt even though the debtor provides to surrender the properties in the plan. Also, a secured debt that is stripped becomes unsecured debt which can cause a failure of to meet the unsecured jurisdictional limit.

Judge Olson in In re Hinds,2010 Bankr. Lexis 3795, Case No 09-23764, (Bankr. S. D. FL July 20, 2010) rejected an attempt to avoid the chapter 13 jurisdictional limit. This was a Fort Lauderdale chapter 13 bankruptcy case. The debtor attempted to classify secured debt being surrendered as contingent and disputed. The court followed the majority view that merely classifying the debt as disputed does not mean the debt cannot be liquidated to a fixed amount by a definite procedure.

More recently, Judge Ray entered a similar decision in an opinion to be published. In re Strong, Case no 10-10142(November 17, 2010).

As a Fort Lauderdale bankruptcy attorney, we must address this issue in every chapter 13 case.   A chapter 13 plan is a minimum of  three and a maximum of five years.  Sometimes a client may need the full five years, such as to catch up on a mortgage.

The bankruptcy law changed in 2005 and provided that a debtor who earned below the median income of the state could file a chapter 13 plan for only three years.  A debor who earned above the median income of the state had to make payments during a five year plan.  However,  based on the statutory language, there  has been an argument that even above median debtors only had to make payments over three years if the means test showed nothing had to be paid to unsecured creditors.   Deductions from income could be made in the means test, such as high mortgage payments, medical expenses,  and health insurance.  After these deductions were made, the means test might show that nothing had to be paid to unsecured creditors.  In this circumstance, the argument was that if a debtor still needed to be in chapter 13, he or she only had to be in a chapter 13 for three years despite having a high income.

The Eleventh Circuit Court of Appeals,  in  Whaley v Tennyson,  held that the above median income debtor in chapter 13 must submit a five year plan.  The reasoning is in part based on the Supreme Court case Hamilton v Lanning,  which was discussed in a prior post.  This court opinion is binding in Florida bankruptcy cases.

As a Ft. Lauderdale bankruptcy lawyer, we have been able to file 3 year plans for above median debtors.  After Tennyson , we will need to submit 5 year plans in these cases.