Florida homeowners might get relief from secured debt liens

A recent federal appeals court decision might provide hope for Florida debtors seeking to remove the lien of a secured debt by filing for bankruptcy under Chapter 13 of the Bankruptcy Code. Care should be taken by debtors seeking to stop foreclosure by removing a creditor’s lien on real property based upon the court’s ruling. The unique facts upon which the appellate court based its decision might limit its application in other cases.

Generally, a debtor who achieved a fresh financial start a personal bankruptcy under Chapter 7 cannot file for bankruptcy under Chapter 13 within four years. The federal appeals court was asked to decide if the lien on real property of a secured debt discharged in a Chapter 7 could be avoided in a subsequent bankruptcy proceeding. The bank that held the lien objected to its removal, and the debtor responded with a claim that the secured debt was based upon a forged promissory note.

Instead of contesting the forgery claim, the creditor withdrew from the consumer bankruptcy case, and the bankruptcy court disallowed the secured claim. The consumer’s subsequent application to the court to remove the lien was granted based upon the prior order disallowing the secured debt. The bank’s argument on appeal to the federal appellate court claiming the removal of the lien amounted to a discharge in a Chapter 13 bankruptcy within the four years of a Chapter 7 was rejected.

Consumer bankruptcy can offer a fresh financial start to people who are overwhelmed by debt. However, there are strict eligibility and other requirements which a lawyer can describe to a client while exploring other forms of relief that may be available.