Chapter 7 Bankruptcy: Preserving the “Fresh Start”
[important]Chapter 7 bankruptcy is well known as a “fresh start” bankruptcy, in that typically all debts are discharged and the Debtor is allowed to start over without the burden of his or her prior financial obligations.[/important]
In a recent rare move a Federal Bankruptcy Judge in Nashville, Tennessee, entered an order to protect and preserve the Debtor’s right to a fresh start in her Chapter 7 bankruptcy. The 2005 bankruptcy reform had removed a long held provision which prevented homeowner association fees from continuing past the filing of a Chapter 7 bankruptcy when the debtor surrendered the home. Under post-reform bankruptcy procedure the association or maintenance fees continue to be the responsibility of the debtor as long as the home remains in the bankruptcy debtor’s name.
Typically this has not been much of a problem, because once the property is surrendered the lender moves to foreclose or otherwise regain legal title to the home. But, there are times when the lender moves slowly allowing the home to remain in the debtor’s name, and allowing these fees to accumulate. In a recent Chapter 7 bankruptcy case in Nashville, TN, a Chapter 7 debtor surrendered her flood damaged condominium in a Chapter 7 bankruptcy. Bank of America refused to initiate foreclosure proceedings, or otherwise take legal title to the home, but locked up the home and left it sit vacant. As a result the Debtor continued to incur homeowner association fees, threatening her “fresh start”.
Protecting the Chapter 7 Fresh Start not an ordinary move
Bankruptcy Judge George C. Paine II, took an unprecedented step, ruling that Bank of America had in essence consented to a forced sale of the home by its own inaction. Thus Judge Paine ordered the home to be sold by the bankruptcy Trustee, and the delinquent homeowner association fees to be paid first then Bank of America. It is not yet clear if Bank of America will appeal the decision. It is typically well within the bankruptcy court’s discretion to fashion whatever remedy is necessary to achieve justice and administer the bankruptcy case effectively, achieving all of the goals of Chapter 7 bankruptcy, including ensuring the Debtor’s right to a “fresh start”.
Another option that has been successful is an order requiring the mortgage holder to indemnify and hold the Debtor harmless from all fess, taxes, etc. which accrue on the home. Purple Law firm has engaged this strategy and it has thus far been successful in protecting the Debtor and preserving the “fresh start”.
[notice]Update: Bankruptcy Judge John Cook recently declined to require a creditor to indemnify a debtor who surrounded a home which incurs monthly homeowner association fees. So what about his chapter 7 fresh start?[/notice]
If you are burdened by debt and are considering your debt relief options, consult with a bankruptcy attorney and review your situation to determine your options and rights in either Chapter 7 or Chapter 13 Bankruptcy.