Having the right lawyer represent you in court can make all the difference, especially if you are trying to deal with banks that want money or want your real estate. This is something that petitioner Johnson found out during his federal case against Home State Bank. After defaulting on promissory notes that he secured with a mortgage on his farm, Home State Bank began foreclosure proceedings against Johnson in state court.

Johnson files for Chapter 7 bankruptcy

As these proceedings were awaiting a verdict, Johnson filed for Chapter 7 bankruptcy. Subsequently, the Bankruptcy Court discharged Johnson of any personal liability on the notes. However, because the bank’s right to proceed on his property survived the bankruptcy, the bank decided to reinstate the foreclosure proceedings after the automatic stay had been lifted.

Bankruptcy Court and the District Court

While the state court ruled in favor of the bank, Johnson filed for reorganization under Chapter 13. He listed his mortgage as a claim against his estate when filing. While the Bankruptcy Court did acknowledge Johnson’s intention to repay the bank in installments, the District Court again reversed the decision.

The District Court ruled that the Code does not allow a debtor to include a mortgage used to secure an obligation in a Chapter 13 plan after having been discharged from personal liability in Chapter 7 proceedings.

Finding in favor of Johnson

One important note is that the court did not agree with the alternative argument made by the bank that the Bankruptcy Court made a mistake in ruling that the plan was feasible and that Johnson had proposed his plan in good faith. The Court of Appeals acknowledged that because his personal liability had been cleared, the bank would no longer be able to file a claim under Chapter 13.

If you are considering bankruptcy or if your house is under the foreclosure process, then be sure to consult with a skilled attorney. Jayson Lutzky is a Bronx lawyer with over 31 years of legal experience in New York. He represents people in bankruptcy cases and offers free in-person consultations. To set up up an appointment call 718-514-6619 and visit www.MyNewYorkCityLawyer.com to learn more about Mr. Lutzky.