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Northern District of Illinois Bankruptcy Court Weighs In on Chapter 20 Bankruptcy

Posted on in Bankruptcy

As Chapter 20 bankruptcy rulings are rounding the circuit court system and gaining momentum, there is one instance where the application of lien stripping second or third property liens may be hitting a snag.

Recently, the U.S. Court of Appeals, Eleventh Circuit concluded that if a Chapter 13 bankruptcy case is filed within four years of a Chapter 7 bankruptcy case, the Chapter 13 would wipe out second and third junior mortgages as unsecured debt, eliminating the requirements of repayment via a Chapter 20 bankruptcy ruling.

This is welcomed news to those facing financial hardship and possible foreclosure of their homes due to upside down mortgages. Who is entitled to take advantage of this new bankruptcy option poses another issue, especially for married couples seeking financial relief.

A recent case decided by the Northern District of Illinois Bankruptcy Court, 7th Circuit established precedent to cases involving property owned by those establishing joint tenancy by the entirety of property ownership by ruling just who can apply Chapter 20 bankruptcy.

For most states, joint tenancy is a form of property ownership. It varies in characteristics but most often it fundamentally permits married couples to own a home as one entity without one spouse claiming individual rights to said property. Further more, any action on real property in joint tenancy is to be conducted as one entity.

This comes into play with regard to liens. A creditor can not lien a couple's real property based upon the actions of one of the owners. The Northern District of Illinois Bankruptcy Court ruling states that when a property is held in tenancy by the entirety (both spouses), neither spouse has the right to individually petition for stripping wholly unsecured liens for the purpose of discharging the loan.

For example, a husband and wife both filed for Chapter 13 protection but the petition was denied because the husband received a Chapter 7 bankruptcy discharge outside a four year period. Was the wife able to request lien stripping or request to do so solely for her interest? The creditor argued that since the real property was held in joint tenancy, she could do neither. The Northern Illinois Bankruptcy court agreed. So if one spouse is not eligible, the joint tenancy spouse is not permitted to petition for protection under Chapter 20 bankruptcy as a method to discharge the note as unsecured debt.

Bankruptcy laws are complex. With the addition of Chapter 20 bankruptcy determinations, it has only become more complex and confusing, already adding stress to your current financial situation. If you and your spouse are considering bankruptcy and have additional questions regarding joint tenancy and your ability to petition for Chapter 20 protection it is best to consult with an experienced bankruptcy attorney.

Since 1993, partners, Stephen and Gary Newland have been fielding legal questions for clients throughout Cook, Lake, McHenry, DuPage and Will Counties. Backed by experience and quality legal skills, the Illinois Chapter 20 bankruptcy attorneys of Newland & Newland, LLP will provide you with the personalized attention you deserve. We offer a personal assessment of your financial situation to determine if bankruptcy is in your best interest as well as offering alternative options available to you and your spouse. Contact us today to schedule an initial consultation.

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