Kentucky Bankruptcy Law

Counsel with Care

File Chapter 7 – Lose your mobile home: How not to do this

A recent decision in the Bankruptcy Court for the Eastern District of Kentucky highlights a mistake made too often in Chapter 7s where the debtor lives in a mobile home. In Kentucky, mobile homes are not terribly mobile and often remain in place and are occupied for decades. The legal term for mobile homes is “manufactured home” which also seems silly because all homes are manufactured in one way or another. Anyway, mobile homes get fixed to the land and people stop thinking of them as titled property such as cars, boats, trucks and trailers. However, they are titled.

Now, when one files a Chapter 7, everything they own and everything they owe go into an estate. They pull things back out by using exemptions and/or reaffirming secured debts. Often debtors keep their homes because they have enough exemption to cover the equity in their home and are able to pay the secured debt payments (the mortgage) when all their other debts are discharged. Each person can claim over $20,000 in homestead exemption using the Federal exemptions. So, if you own a home worth $120,000 and you owe $100,000 secured on the house, then you can use the exemption and keep the house by reaffirming the $100,000 secured debt.

Here is where the problem comes in for mobile homes. The only way a loan is secured against a mobile home is on the title as described in KRS 186A.190. Actually, there is one other way, but it involves surrendering the title and filing stuff with the county clerk and effectively converting the mobile home into a house from a legal standpoint. Anyway, most people do not do that. So, if there is a defect with the security interest on the title, then the loan is not perfected (it doesn’t count) and cannot be reaffirmed.

Like in In re Owens, 09-62087 (Bankr.E.D.Ky., 2010), if the title is defective in regards to the security interest, then you could lose your home. In other words, if there is a problem with the title then you may have no secured loan to reaffirm and not enough exemption to cover the difference. Then, the trustee will keep the mobile home, sell it (if you can’t come up with money to redeem it), and distribute the proceeds to all unsecured creditors. So, if you live in a mobile home, be sure that your bankruptcy attorney examines the title and makes sure that any security interest is properly in place.

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June 23, 2010 - Posted by | Security interests | , , , , , , , , , ,

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