BANKRUPTCY COURT DISMISSES CHAPTER 13 | Key Points
- Last week the Bankruptcy Court for the Middle District of Florida dismissed a Chapter 13 bankruptcy proceeding brought by a debtor (“Johnson”) in an effort to “repay his mortgage debt.” In re Johnson, Case No.: 3:18-bk-659-JAF (Fla. Mid. Dist. October 1, 2018). Johnson had previously received a discharge of his debt in a Chapter 7 bankruptcy proceeding wherein he agreed to surrender his mortgaged property to Charles Schwab Bank (“Schwab”), the mortgagee. Despite his stated intention to surrender the property, subsequent to discharge, Johnson “vigorously fought” Schwab’s mortgage foreclosure for several years.
- Due to the holding of Failla v. Citibank, N.A. (In re Failla), 838 F. 3d 1170 (11th 2016), Johnson eventually entered into an agreed order at the foreclosure trial which explicitly precluded him from “defending the Foreclosure Case or taking any other action to delay the foreclosure of the Property…” The Court entered a foreclosure judgment and scheduled a sale. The day before the sale, Johnson filed for bankruptcy protection under Chapter 13 indicating a desire to modify the Schwab mortgage. The Bank moved to dismiss the bankruptcy petition “arguing the Debtor filed [his] case in bad faith and lost the right to retain his home when he surrendered the Property in his Chapter 7 Case and then again when he agreed a second time to surrender the Property under the Agreed Order [in the foreclosure proceedings].”
- The Middle District agreed with Schwab finding Johnson was “attempting to enjoy indefinite possession of the Property while simultaneously hindering and prolonging the state court process.” The Court noted Johnson’s decision to wait until the day before the foreclosure sale to file his Chapter 13 case demonstrated his true intention was delay, not modification of the Schwab mortgage. The Court concluded Johnson’s actions in this regard abused the provisions and purpose of the Bankruptcy Code and that he did not file his Chapter 13 petition in good faith. Although declining to award sanctions for the alleged frivolous bankruptcy filing, the Court dismissed Johnson’s bankruptcy case and enjoined Johnson and his wife from filing for bankruptcy relief for a period of 180 days.