Not so mobile home and Chapter 7

A 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  for decades. So, the name “mobile home” is a bit misleading. 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 physically fixed to the land and people stop thinking of them as titled property such as cars, boats, trucks and trailers. However, they are titled. Even though physically fixed to the land, they may not be legally affixed to the land.

Now, when one files a Chapter 7, everything they own and everything they owe goes into an estate. They pull things back out by using exemptions and 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 almost $23,000 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 with the remainder exempted.

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 and cannot be reaffirmed. That may leave a very HIGH amount of equity in the mobile home requiring exemption.

If the mobile home is also on land that you own, then you have the challenge of applying the homestead exemption to your land and then also hoping you have sufficient exemption to cover the value of the mobile home. If the title has not been surrendered and the mobile home affixed to the land legally, then you must exempt two separate assets: the land and the manufactured home. If the home has been affixed, you are in far better shape because it is one asset, but you still must make sure the loan is properly secured.

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. 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.

The bottom line is that if your home is a manufactured home and you are looking at bankruptcy, make sure your attorney does a thorough check as to the title, security interest, and exemption issues.

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.