Florida Bankruptcy Law Blog

Bankruptcy Filings Remain Low

My experience is that inquiries about filing bankruptcy are gradually increasing. Activity in my office is at least double the level of the December through February period. Yet, I find that number of prospective bankruptcy debtors still is significantly below levels prior to 2006 which had unusually high filing rates due to the new bankruptcy law. Over the past few years a large amount of bankruptcy debtors in central Florida attributed their financial problems to economic disruption over their businesses or employment caused by the 2005 hurricanes. Some people still blamed 9/11 for their problems. It may be several more years before people in central Florida find causes for their financial woes other than the hurricanes and the terrorist attack.

About 25% of phone inquiries about bankruptcy inquire whether people can still file bankruptcy under the new bankruptcy law. I have heard other attorneys report similar questions from prospective clients. The new law seems to have changed people’s inclination look at bankruptcy as the easy solution to financial woes. The unemployment rate in central Florida is far below the national average. People who want work in our area can find a job. Absent deterioration in Florida’s economy or some other unexpected external interruption it appears that bankruptcy filings will remain low compared to the decade prior to the new law.

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

Creditor Not Sanctioned For Stay Violation

Overheard an interesting case in bankruptcy court concerning a debtor’s petition to sanction a creditor for pursuing a state court case against the debtor after he filed bankruptcy. The debtor’s attorney explained to the judge that he had repeatedly told the creditor’s collection agent and their attorney about the debtor’s bankruptcy and suggested they drop their action against the debtor. Nevertheless, the creditor’s attorney pursued discovery from the debtor and went as far as filing in state court a motion to show cause why the debtor should not be held in contempt of court. The debtor had to appear in state court with his attorney to personally explain to the judge that his bankruptcy stayed further discovery or any other activity in the state proceeding. The debtor appeared in bankruptcy court in a wheelchair breathing through an oxygen mask and unable to speak directly to the judge. His attorney showed that the debtor’s disability made it unusually difficult for him to go to state court because the creditor would not abide by the bankruptcy stay.

The debtor’s attorney stated that the debtor sought sanctions against the creditor company but not against the creditor’s attorneys. The judge denied sanctions. The judge reasoned that while the creditor’s attorney clearly knew that collection and discovery was going on after the bankruptcy there was no evidence that officers of the company knew their attorney was violating the stay. Since the debtor’s attorney had dropped demand against the creditor attorney the judge had insufficient evidence of intentional wrongdoing on behalf of the creditor company even though, as the debtor argued, the creditor’s attorney was acting as an agent of the client.

In this case a debtor’s attorney extended some professional courtesy to a fellow attorney to relieve them of personal liability and by doing so lost a recovery for the debtor at this hearing. It seemed clear that the bankruptcy judge would have entered a sanction against the creditor’s attorney in favor of the debtor. Before an attorney lets a fellow attorney off the hook he should make sure the client consents after the client understands what may be the loss of a potential source of monetary recovery.

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

Insurance Proceeds Received After Filing Bankruptcy

The bankruptcy estate extends to assets acquired after the filing of the petition in the case of money inherited from an estate, a trust, or an insurance policy on the life of a deceased relative. Most debtors are surprised when the trustee ask them to turn over money the acquired after filing bankruptcy because the general rule is that debtors may retain money earned or received after the filing date.

I recently represented a client whose father passed away a shortly after the child’s bankruptcy. The debtor found that the father had made the debtor a beneficiary of a life insurance policy, and the debtor testified about the policy at the trustee meeting. When the trustee made demands for the insurance proceeds the debtor resisted by giving a series of excuses why the debtor could not get the insurance proceeds. After a few months of requests and excuses the trustee filed an adversary complaint to deny the debtor a bankruptcy discharge and for an order to turnover all the insurance proceeds. A week later the debtor got the insurance money and paid the trustee. In fact, the trustee was interested in the turnover of the amount of insurance proceeds to pay creditors. The trustee did not require that the entire policy benefit be tied up in the bankruptcy proceeding and permitted the debtor to keep some money over an above the claim amount for the debtor’s personal expenses.

The point of the story is that insurance proceeds received within the initial months after bankruptcy filing are part of the bankruptcy estate under the law. This provision of the law is designed, in some part, to prohibit someone from filing bankruptcy when they anticipate a recovery from an estate so as to deprive their creditors of claims they might otherwise have when the debtor received said proceeds.

posted by Jonathan Alper, bankruptcy attorney, Orlando, Florida