Articles Posted in Chapter 7

On October 1st, 2011, the Honorable Karen S. Jennemann became the Chief Bankruptcy Judge for the Middle District for a four year term. Judge Jennemann, a graduate of William & Mary has been practicing law in Florida for over 25 years. She presides in Orlando, Orange County, Florida.

Jennemann replaces the former Chief Judge, the Honorable Paul M. Glenn who presides here in Jacksonville, Duval County, Florida. Judge Glenn, who was appointed to the bench in 1993, has over 40 years of legal experience having graduated from Duke University in 1970.

Both Orange and Duval counties are in the Middle District bankruptcy court, so cases decided in either location are persuasive authority to one another when deciding new cases with similar facts. However, cases decided by the Chief Judge are generally considered to be more persuasive than those of a non-chief. This means that arguably, the most powerful decisions arising out of the bankruptcy court are now made in Orlando, not Jacksonville.

A gay couple was permitted to file a joint petition for Chapter 13 despite the Trustee’s argument that the Defense Against Marriage Act (DOMA) made their marriage illegal. Only legally married couples can file joint bankruptcy petitions.

On June 13, 2011 a California court ordered that a joint Chapter 13 case would not be dismissed for the sole reason of the debtors being a homosexual couple. 11 USC 302(a) permits a single petition for a debtor and such debtor’s spouse.

The court stated:

A finalized divorce may not be enough to protect you from marital debts. Just because a divorce decree states that your ex will “hold you harmless’ from a creditor does not mean that the creditor can no longer attempt to collect from you.

The division of property in a divorce is called property division. Often, one party gets an upside down house in exchange for not being ‘liable’ for a different debt. Each party is ordered to pay their allocated debts and to ‘hold harmless’ the other party. This order is enforceable in county court as a “Contempt Action” and can give such remedies as court fines, attorney’s fees and even imprisonment, but it can’t remove your name from that debt. Because your name is still on the debt, the creditor can attempt to collect from you if your ex stops paying. The most common ways to remove your name from a debt is to have the collateral refinanced or to remove your personal liability by bankrupting on the debt.

When the ex-spouse gets the home they often don’t have sufficient income to refinance. They often didn’t have sufficient income to refinance because they didn’t have sufficient income to make the payments on their own. Eventually, they get to the point of foreclosure or bankruptcy- sometimes without the other party’s knowledge. Many debtors don’t get notice of their ex’s non-payment until the house is in serious arrears. When this happens, they have the option of suing their ex for contempt, but even the threat of imprisonment will rarely solve the problem because you cannot get blood from a stone.

Because home mortgages often extend as long as thirty years, the risk of liability continues for a long duration. In these cases, a house left unpaid for decades after a divorce can still fall upon the credit of an otherwise innocent ex who simply wishes to move on with their life. When this happens the only ways to avoid foreclosure are often paying off the note in full or bankruptcy.
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Although we often think of Herman’s Hermits when we think of Henry the VIII we should note that it was during his reign that the English Statute of Bankrupts was enacted. This 1542 act allowed creditors to bring action against debtors so that they be involuntarily bankrupted, their properties sold and they themselves imprisoned to satisfy their debt. There have been a lot of changes over the last 450 years. Debtor’s Prisons, of course, have been abandoned, but involuntary bankruptcy is still alive and well.

To bring an involuntary case against a debtor, a creditor must show that the debtor owes at least *$14,425 in unsecured debt to less than twelve creditors. If the debtor owes money to more than twelve creditors (certain kinds of creditors don’t count), at least three of those must work in concert to bring action.

Although only Chapters 7 and 11 are available in involuntary bankruptcy mostly all individual debtors are fair game, except for commercial and family farmers. There are defenses to involuntary bankruptcy which are strongest when brought to the court’s attention as soon as possible.
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