Jacksonville, Florida Court Sustains Objection To Deficiency Claim

Jacksonville, Florida Chapter 13 bankruptcy cases rarely see claims for deficiencies on real properties. A deficiency occurs when a repossessed home is sold, but the sale price isn’t high enough to meet the value of the mortgage. The different between the sale price and the amount owed is the deficiency. In Florida, the borrower owes the deficiency amount to the lender. When the borrower files for Chapter 13 bankruptcy protection, the lender almost invariably writes the debt off as a tax loss, never filing a proof of claim against the debtor.
A proof of claim is just that -evidence that money is owed by the debtor to the creditor. Creditors who wish to make a claim must do so within the proper time constraints and the claim must be valid. If the claim is not valid, the debtor or debtor’s counsel can object to the claim and have it disallowed.
A claim may be invalid for a variety of reasons. Recently, a deficiency claim for over $95,000 was filed against one of my clients. Like many people, the debtors had owned a rental property which wasn’t worth enough to cover the second mortgage. Their income was too high to qualify for Chapter 7 due to the means test, so they were forced to file a Chapter 13. The claim was unexpected, but came after the case plan had already been confirmed. In every Chapter 13 case a payment plan must be presented to all of the creditors. If the plan has not been objected to by a certain date, it is “confirmed” a term which is similar to a blessing from the court. In my case, the payment plan proposed to return the rental property back to the creditor in full satisfaction of the debt my client’s owed. I indicated that the creditor had no valid claim against my clients because the creditor did not object to the proposed plan, that because the creditor didn’t object to the confirmation of the plan that proposed to pay them no money, that creditor had lost the right to file a claim.
When a claim is objected to, creditors have thirty days to request a hearing on the objection. If the creditor does not object within the time prescribed, the judge can enter an order sustaining the objection to the claim. In this case, the creditor never responded to our objection and the judge ordered the claim disallowed. The creditor may have some options to re-open this order, but it’s an uphill battle and if the case is finished faster than usual by virtue of making all payments to the trustee under a 100% plan, this creditor may never recover a dime.
If you are exploring the possibility of filing bankruptcy, you should seek the advice of an attorney. You can contact a Jacksonville Bankruptcy Lawyer or call us at (904) 685-1200 for a free consultation.