Florida Bankruptcy Law Blog

Could Prior Debtors File 7 Today?

I saw an interesting comment about the effect of the new bankruptcy law on Link: TPMCafe || The Bankruptcy Wars Continue. Apparently a study done by the Denver bankruptcy clerks office found that 80% of chapter 7 debtors who rushed to file just before the new bankruptcy law took effect would qualify for Chapter 7 under the new law. The primary difference between the old and new bankruptcy law for most debtors, the author says, is the amount of legal fees. He stated that his bankruptcy partner doubled his bankruptcy fee under the new law because of the amount of extra legal work required by the new bankruptcy law. Many consumers will be financially unable to file bankruptcy. The author doubts that credit card companies will actually see increased debt collections because more of their customers cannot take advantage of bankruptcy protection. If people can't afford a bankruptcy attorney they also likely cannot afford to repay credit card debt.

I agree with the comment to the TPM Cafe Blog. Most of my  own bankruptcy clients under the new law could qualify under the means test, and nearly all of our new clients in November are below median income and automatically qualify for the means test. It has always been my experience that people file bankruptcy as a last resort, and when they do file, they feel ashamed and embarassed about it. Few people who can afford to pay their debts seek bankruptcy as the easy way out. Most bankruptcy debtors have either little income or they have suffered devastating financial events such as illness or divorce.

posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida

Credit Ratings During Chapter 13 Plan

People file Chapter 13 bankruptcy in Florida most often to stop foreclosure of their home. The debtors file a Chapter 13 plan including normal monthly mortgage payments and a small part of the arrearage each month. Some clients complain that even though they are current in their payments to the Trustee under the Chapter 13 plan their mortgage company still reports to the credit bureau that the debtors are 120 days or more behind on their payments. Clients don’t understand why their credit continues to be adversely affected even though they are paying what they are supposed to pay.

I think that these mortgage companies are not doing anything illegal. My understanding is that mortgage companies are not required to report to credit bureaus that the account is current until the bankruptcy court issues a discharge order declaring the mortgage debt to be current. However, this is not an issue of bankruptcy law and is instead a question of banking laws and fair credit reporting.

posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida

New Barriers to "Eleventh Hour" Chapter 13 to Stop Foreclosure

The new bankruptcy law requires all debtors to take a credit counseling course before filing bankruptcy. This requirement is particularly troublesome for people who need to file Chapter 13 at the last minute to stop a foreclosure on their house. In many foreclosure cases, debtors try to work out repayment arrangements with their mortgage company until the last day or two prior to the foreclosure sale. If negotiations fail to bring about a reasonable repayment plan to save the house a Chapter 13 bankruptcy on or just before the sale date becomes the homeowners last defense. In such instances, the homeowner may not have time to complete a credit counseling course and also prepare an emergency bankruptcy petition.

The new bankruptcy law provides that debtors can complete their credit counseling after they file their petition if they can demonstrate to the court "exigent circumstances." There are at least three cases decisions issued by bankruptcy judges involving debtors who sought to complete the debtor counseling education after filing bankruptcy to stop an immanent foreclosure or eviction.

In each case the court dismissed the bankruptcy because the debtor did not certify that they had tried unsuccessfully to obtain debt counseling within the 5 days immediately preceding the filing of their petition as required by the new bankruptcy law. As soon as someone first considers bankruptcy as a possible defense to foreclosure or eviction they should complete a credit counseling course so they will be eligible to file bankruptcy in the event they cannot otherwise save their homes.

posted by Jonathan Alper, bankruptcy and asset protection lawyer, Orlando, Florida

Credit Counseling Strictly Enforced

I read an interesting post on the Bankruptcy Litigation Blog concerning bankruptcy court enforcement of creditor education requirements. Link: Bankruptcy Litigation Blog. Debtors who have filed under the new bankruptcy law on the brink of foreclosure or eviction have been refused bankruptcy relief because they failed to strictly comply with requirements for pre-bankruptcy debtor education.

The following is the conclusion of the post:

"The Bankruptcy Courts in both cases adopted the "plain meaning rule" of statutory interpretation and rejected each of the respective debtor's certifications for failing to strictly comply with all the requirements of Bankruptcy Code section 109(h). This section requires, at a minimum that the debtor make a request for credit counseling services during the five-day period preceding the filing, and then certify its inability to obtain those services. Because in each case, the debtor failed to comply with the strict requirements of Section 109(h), the Courts dismissed the petitions, notwithstanding the clear exigencies facing the debtors."

The lesson is that debtors must plan ahead. If bankruptcy looks like a possible solution to a legal problem it makes sense to take the credit counseling course in case a last minute filing becomes necessary.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando Florida

Marriage During A Bankruptcy

The new bankruptcy law adds many "curves" to consumer bankruptcy. One such issue is the effect of marriage after one spouse has filed bankruptcy. The new bankruptcy law in both Chapter 7 and Chapter 13 considers earnings of a non-filing spouse as well as changes in income and expense after the filing date. If a debtor who was unmarried when they filed bankruptcy chooses to get married to a working spouse reasonable soon after the filing date, the marriage could affect the bankruptcy. For example, a Chapter 13 debtor could be forced to amend the bankruptcy plan to increase monthly payments so as to take into consideration the earning contribution to family income of the new, working spouse. One way to prevent marriage from impacting an ongoing bankruptcy is for the spouses to enter into a marital contract that segregates by contract spousal earnings and expenses. In any event, marriage during a pending bankruptcy is more significant under the new bankruptcy law.

Liability of Authorized Credit Card User

A common question from bankruptcy clients concerns liability for credit card debt of a spouse is who an authorized user of a credit card issued in the name of the other spouse filing bankruptcy. Clearly, when both spouses sign the credit card agreement they are each individually liable for all charges regardless of who made the purchase. The general rule is that a spouse is not liable for credit card debt if he or she is authorized to use a card but did not agree to accept liability by signing the credit card agreement. Nevertheless, some banks have gone after authorized users for credit card debt balances on cards issued in the name of spouse who file bankruptcy.

None of my bankruptcy clients have ever asked me to research this issue. I have heard that some banks do go after authorized users on the theory that whoever signs the credit card charge slip is liable for the purchase amount even if the credit card was not issued in their name. Even then, the user could make collection difficult by insisting the credit card produce original credit card charge slips and verify signatures. The user could also defend collection by taking the position that purchase were on behalf of the bankrupt cardholder. Because it is difficult for banks to actual establish liability for the purchaser, other than the named cardholder, banks usually do not pursue collection against people other than named cardholders who are party to the credit card agreement.

posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida

Debtors' Tax Responsibilities

The IRS issued a publication FS-2005-18 about debtors' increased tax responsibilities under the new bankruptcy law. These responsibilities include filing all due tax returns and providing copies of recent returns to the bankruptcy trustee. You can read the IRS publication at: http://www.irs.gov/newsroom/article/0,,id=150241,00.html

Credit Cards After Bankruptcy

Many bankruptcy clients have asked me if they should reaffirm one or more credit cards during their bankruptcy. As alternative to reaffirming a debt, the clients could pay off a small credit card balance before filing and not list the bank as a creditor. I always explain to people that it rarely makes economic sense to reaffirm credit card balances which could be discharged in a Chapter 7 bankruptcy because the bankruptcy debtors will get new credit card offers in the mail soon after they file bankruptcy

There are subprime credit card lenders who seek out bankruptcy debtors as new customers. The interest rates are high, but the cards are available. For example, First Premier's credit card offer. 29% is the standard interest rate, and 39% is the default rate, plus other charges. The interest rate is not a problem if recent bankruptcy filers become disciplined to pay off monthly balances after all other unsecured debts are eliminated in bankruptcy.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Use of Exempt Property During Bankruptcy

All personal Chapter 7 bankruptcies claim some property as being exempt from the bankruptcy estate. The Chapter 7 Trustee and creditors have a limited period of time, 30 days, to object to the Debtor’s proposed exemptions. If they object, an adversary proceeding is created and the Debtor must defend his objections in bankruptcy court.

What happens when the Trustee and creditors miss the 30 day deadline, but upon filing a late exemption it appears clearly the debtor’s claim of exempted property has no basis and the property in question is part of the bankruptcy estate to be sold for the benefit of creditors.

The Supreme Court of the United States has strictly applied the 30 day exemption window. See: Freeland & Kronz, 503 U.S. 638. Bankruptcy courts have held that when a debtor lists property as exempt from the estate, and neither the trustee nor the creditors object during the 30-day time period, the property no longer belongs to the estate and the debtor may use it as his own. This means that if no party objects to your claim of exemption within 30 days after the meeting of creditors, you , as debtor, may freely sell or encumber the property without need for permission from the Trustee or the court. This often comes into play when a debtor claims a homestead exemption and seeks to sell the property while in bankruptcy. Thirty days after the creditor meeting the debtor can sell his homestead, obtain title insurance for the buyer, without leave of the bankruptcy court.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida