Florida Bankruptcy Law Blog

Homestead Exemption Applied to Jointly Owned Property

Reader writes that he and his mother own a Florida condominium as joint tenants worth about $70,000 with no mortgage. His mother has lived there for several years. The reader recently moved to Florida and into the condominium. The reader used to live in New York which has a $50,000 homestead exemption. He wants to know what happens to the condo if he files Chapter 7 bankruptcy in Florida.

If the reader files bankruptcy he will use New York exemptions since he has lived in Florida less than two years. Even though his mother paid for the condo the Trustee will try to attribute ½ the value ($35,000) to the reader because he is now co-owner. Technically, the mother made a gift of half the equity when she put him on the deed. However, his N.Y exemption of $50,000 will be applied to only his share of the equity ($35,000) . The condo should be exempt property in his bankruptcy.

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

Lending Your Credit Can Lead to Bankruptcy

Sunday’s Washington Post included an article by syndicated columnist Michelle Singletary in which I was quoted as an expert on bankruptcy law and consequences of bankruptcy. http://www.washingtonpost.com/wp-dyn/content/article/2006/07/22/AR2006072200106.html?sub=new. I post the article primarily because the article’s lessons address a frequent financial planning mistake that can lead to ruined credit and bankruptcy. The article warns about risks you take when you let someone else become an authorized user on your credit card. The most frequent problems I see are parents who lend their credit card, or their signature, to children to help the children buy something a lower interest rates. If the child fails financially the well-intentioned parents bear the financial burden, often leading to their own bankruptcy. You should read the article and pay attention to what Ms. Singletary’s grandmother, "Big Mama" , had to say about this subject.

Bankruptcy And Future Credit Scores

A very common question is how long does bankruptcy negatively impact your credit rating. Most people believe that bankruptcy ruins your credit for seven years. This belief is based on the fact that the bankruptcy filing will be on your credit report of up to seven years. People considering bankruptcy think that it will be seven years or more before they can qualify for a new car or mortgage

Actually, the effect of bankruptcy on your credit is much shorter. Many of my former bankruptcy clients have worked for either banks, automobile finance companies, or mortgage brokers. These people evaluate credit for a living. For the most part, these clients tell me that their lending guidelines provide that a bankruptcy more than two years old will not disqualify prospective borrowers. If the former bankruptcy debtor has established reasonably good credit history after getting his bankruptcy discharge, most lender employees told me that the borrower will have a fairly normal credit score. Last week, a wife of one of my former bankruptcy clients consulted with me about herself filing bankruptcy. She said that her husband had established excellent credit within one year of his bankruptcy being completed.

Most people don’t realize that as soon as you file bankruptcy many banks will send you offers for new credit cards. Although the interest rate initially will be higher than normal, people in the middle of a bankruptcy still have the convenience of using credit cards. Bankruptcy is actually a credit-helper; after filing bankruptcy all debts and judgments are cleared away and your income ratios immediately improve. As long as you establish good credit habits after filing, your should see improved credit in a relatively short time after your bankruptcy.

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

Homestead Sale in Chapter 7

Chapter 7 debtors frequently ask if they can sell their house after filing bankruptcy and whether the court will provide an Order that their house is exempt homestead for the benefit of a title company writing title insurance. If you claim your residence as an exempt asset on your bankruptcy petition the trustee has a limited time after filing and your meeting with the trustee to challenge the claimed exemption. If the trustee does not challenge your homestead, or if the trustee challenges the exemption and the court upholds the exemption, then your house is exempt and may be sold. The exemption of the homestead, whenever finally determined, dates back to the date of filing bankruptcy.

Bankruptcy courts in Florida are reluctant to issued Orders stating the homestead is exempt when the trustee fails to make a challenge. Courts expect attorneys for the title companies to know the law and know when the homestead is exempt as a matter of bankruptcy law and procedure. The bankruptcy judges believe it is not their job to issue "comfort orders" to title companies, prospective buyers, or other parties who may be involved in the sale and purchase. The bankruptcy debtor sometimes must educate their real estate agent or title insurance company in order to close the sale of their homestead after filing Chapter 7 bankruptcy.

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

Bankruptcy and Family Car Loans

I was asked today to address a very common mistake people make before filing bankruptcy. The prospective debtor borrowed money from his parents to buy a car. The car was titled in the debtor’s name. The debtor signed a promissory note for the amount of the loan made payable to his parents, but the parents did not record a lien on the car title. Now the debtor is considering bankruptcy, and he wants to know how the legal status of his debt to his parents for the car. He also asks whether his parents should put a lien on the car title before he files bankruptcy.

This is not a good situation for either the debtor or his parents in bankruptcy. The car loan from his parents is unsecured. The debtor may pay his parents back if he wants to, but technically, the parents cannot ask for repayment after the bankruptcy is filed. The car is unencumbered, and if there is equity in the car, the trustee will demand payment for the equity over the $1,000 Florida car exemption. Also, as the car loan is not a secured debt, monthly payments to his parents will not count a secured debt in the debtor’s means test calculations which will make it more difficult for the debtor to qualify for Chapter 7 bankruptcy. If the debtor sells the car and purchases a new car subject to a car lien he still may be liable to the trustee for the excess equity he received from the loan and reinvests in a new car.

The lesson is that if you borrow money from a family member to buy a car, house, or any other item, make sure you document the loan the same way a bank would. If it’s a house, have the family member record a mortgage; in the case of a car, put the family member as a lienholder on the title. This protects both you and your family member if you later have creditor problems.

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

Bankruptcy's Moral Issues

The Christian Science Monitor ran an article on July 3, 2006, on moral issues involved in bankruptcy filing. I was interviewed for the article, and my picture and several quotes were included in the article.

I find the morality of bankruptcy, or of asset protection, to be a very interesting topic which most bankruptcy clients struggle with before filing. Very few people feel good about filing bankruptcy. Most bankruptcy debtors file as a last resort, and in many cases, they spend exempt assets which they could keep in bankruptcy trying to pay creditors. In my opinion, the morality of bankruptcy, as in most other moral issues, involves weighing competing moral considerations. As I told the reporter, people feel a moral obligation to repay debts but also a moral obligation to provide a home and support for their family. Different people will resolve that issued differently.

Another issue I discussed at length with the CSM reporter, but which was not included in the article, was a distinction between a moral obligation to repay a debt to a bank and an obligation to repay a debt to a friend or family member. A bank loans money to people for high interest rates in order to make a profit. A friend or family member loans money, usually with no or little interest, because they feel a moral obligation to help someone. In my opinion , there is a stronger moral obligation to repay a loan based on moral obligation than to repay a loan made at high interest to earn money. I recognize that other’s disagree.

Hopefully, articles like the CSM article will begin discussions through which people recognize that most bankruptcy debtors are moral and decent people.

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

Discharging Debts For Recent Purchase

Bankruptcy clients often ask me if its ok to buy a new car before they file bankruptcy because the bankruptcy will hurt their credit and make it difficult to find financing. I usually recommend that if the clients need a new car they do purchase it prior to filing bankruptcy. However, these clients have to continue making car payments after filing. In other words, if you buy a car or any other item with secured financing, you should expect to remain liable on the debt through and after bankruptcy.

One of my bankruptcy clients purchased an expensive car within a month of filing bankruptcy, and upon filing, surrendered the car to the creditor. Once the creditor sells the car the debtor will owe a substantial deficiency amount. The creditor will likely file an adversary proceeding to deny discharge of that debt. The debtor’s explanation is that just after he purchased the new vehicle a key employee quit his firm which lead to immediate financial problems. True or not true, it does not look good to an outsider.

Don’t incur significant debts, secured or unsecured, file bankruptcy soon thereafter, and expect to eliminate these debts in bankruptcy without a credible explanation and a battle with the creditor.

posted by Jonathan Alper, bankruptcy lawyer, Orlando, Florida