Florida Bankruptcy Law Blog

Potential Debtor Asks: Should I File Bankruptcy Before Moving to Florida?

A caller said he was about to move to Florida from Iowa and needed to file bankruptcy as soon as possible. He wanted to know if he would be better off filing bankruptcy in Iowa before he left or waiting until he established residence in Florida. Under the new bankruptcy law, it does not matter.

Regardless of which state he chooses to file bankruptcy his bankruptcy will be administered under exemption Iowa’s laws. If Iowa has elected to apply its state exemptions, then Iowa’s exemption laws will determine what assets are part of his bankruptcy estate. If Iowa has not elected to apply its state exemptions, this debtor’s bankruptcy will proceed under the default federal exemption system. In either event, the debtor will not be entitled to claim Florida exemptions even if he moves to Florida and establishes permanent residency in Florida before filing. Under the new bankruptcy law, this person would have to wait two years after coming to Florida to file bankruptcy under Florida’s exemption law. He could file bankruptcy in Florida, however, as soon as he establishes that Florida is his primary residence.

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

Joint Filing By Spouses Living in Different States

A new bankruptcy client retained me today to file a joint bankruptcy petition. The husband moved to Florida from Massachusetts within the past year and currently resides in Florida. His current wife remained in Massachusetts for her job, and the wife is a still a permanent resident of Massachusetts. Under the new bankruptcy law, the husband may file in Florida provided that his bankruptcy proceeds under Massachusetts exemption law. The client’s first question is whether he and his wife can file a joint bankruptcy in Florida while they are domiciled in different states.

I believe the husband and wife can file a joint petition in Florida so long as one of the spouses is currently domiciled in Florida. Generally, two spouses living in different states an filing jointly must choose which state exemptions they want to use. The two spouses cannot divide, split, or stack exemptions of different states. In this instance, there is no exemption issues as both spouses must file under Massachusetts exemptions.

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

Voluntary Dismissal of Your Own Chapter 7 Bankruptcy

Over the past year I have seen a few clients who had filed a Chapter 7 bankruptcy by themselves, without an attorney, and who decided they wanted to dismiss their own bankruptcy. A Chapter 7 debtor has no right to dismiss their bankruptcy. Once you file for Chapter 7 liquidation the Trustee, on behalf of you creditors, has an interest in your assets, and the Trustee or creditors can object to your dismissal. One of our Orlando judges recently issued a decision that discusses the legal standard for voluntary dismissal of a Chapter 7 bankruptcy

In case of In re McDaniel involved a motion to dismiss a Chapter 7 bankruptcy that had been filed primarily to discharge past-due income taxes. Unfortunately, the Debtor miscalculated the rules for tax discharges and found herself facing tax liability after the Chapter 7 would have been completed.

The judge said that Chapter 7 bankruptcy can be dismissed only for cause. The party seeking dismissal has the burden of establishing cause. The judge pointed out that courts have substantial discretion in ruling on a motion to dismiss a Chapter 7. The courts must consider the interest of the various parties involved, including the creditors. In the end, motions to voluntarily dismiss a Chapter 7 bankruptcy are evaluated under equitable principals including what the court see as the best interests of the debtor and prejudice to the creditors resulting from the dismissal.

In this case, the court found no bad faith on the part of the Debtor in filing for bankruptcy protection and no significant prejudice to the IRS. The judge granted the motion to dismiss.

Chapter 13 Bankruptcy and Secured Creditors

I received an email from a creditor asking when he could take back secured property from a debtor who file Chapter 13 when he has not received current payments. . Even if a creditor is secured by the Debtor’s property the secured creditor is prohibited by the bankruptcy stay from enforcing his security interest and taking the property. The debtor’s normal payments for secured debt is paid to the Chapter 13 trustee after the bankruptcy filing. It often takes a few months for the Trustee to disburse payments received to the secured creditors. That the Trustee is paying late does not mean the debtor is not making their payments on time to the Trustee. If the debtor is late in payments, the Trustee and the Bankruptcy Court will quickly dismiss the bankruptcy for non-payment in which event the stay will be lifted and the secured debtor can enforce their security interest.

A chapter 13 bankruptcy is not a bad thing for secured creditors. The bankruptcy trustee is enforcing payment collection on behalf of the secured creditors, and if the bankruptcy proceeds the secured creditor will get their payments. Neither a Chapter 13 or a Chapter 7 bankruptcy impairs the security rights of a secured creditor.

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

Bankruptcy Under Other State's Exemptions

I overheard one of our local Chapter 7 trustees told me that many people filing Chapter 7 pro se (without an attorney) and even some experienced bankruptcy attorneys are making big mistakes in advising recent Florida residents about their homestead exemptions. Any resident of Florida can file bankruptcy in Florida. Any resident of Florida is guaranteed unlimited protection of his homestead from creditors. But, when a Florida resident files bankruptcy in Florida the unlimited homestead protection applies in bankruptcy court only if the bankruptcy debtor has lived in his homestead (including a immediately preceding Florida homestead) for 40 months or more. If not, the homestead protection in bankruptcy court is limited to $125,000 under the new bankruptcy law.

This trustee has seen several cases where people moved to Florida from other states and purchased an expensive homestead thinking their house was sheltered from their debts incurred in their prior state of residence. When these people filed bankruptcy less than two years after moving to Florida they were surprised by this trustee, and other trustees, that their exemptions are based on their prior residence. Therefore, these Florida debtors did not benefit from Florida’s unlimited homestead protection.

I have found that except for homestead protection people recently moving from other states get more exemptions in bankruptcy court than they would get as a Florida resident. For instance, Florida’s $1,000 personal property exemption and its $1,000 car exemption is among the lowest in the country. For people without expensive homes, they are better off filing bankruptcy before they have been in Florida for two years. They will not receive the benefits of using prior state’s exemptions unless they or their attorneys are aware of this rule; unfortunately, too may people are unaware.

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

Tenants By Entireties Accounts in Bankruptcy: Interesting Decision

An Orlando Florida bankruptcy judge issued a decision in one of my client’s cases which included interesting holdings and valuable instructions on the issue of tenants by entireties bank accounts. My client and her future husband opened a joint bank account. They proceeded to marry. The money in the bank account on the date of their wedding was spent, and over the years it was replaced with new money acquired during their marriage up until the time the wife filed bankruptcy. The question was whether the money in the account was exempt as a tenants by entireties asset.

Tenants by entireties requires that the joint property in question is acquired under certain circumstances, one of which is that the property is acquired at the time the spouses were married. In this instance, the joint account was opened prior to the marriage, but the money in the account on the date of bankruptcy was acquired and put into the account after the marriage date. The question was whether it’s the bank account or the money in the bank account that has to be acquired during marriage. I argued that so long as the money in the account was acquired during marriage it did not matter that the money was deposited in an account set up prior to marriage. The Court disagreed. The Court said that the debtor and her husband should have signed new signature cards after marriage to convert the account to an entireties account. Having failed to do so, all money deposited in the unprotected, non-entireties account became non-exempt upon deposit. In other words, the tainted account removed tenants by entireties protection from jointly acquired marital money.

The lesson is that if you and your spouse had already established joint financial accounts before you were married you should re-sign the signature cards after your marriage or open new accounts after marriage in order to have exempt tenants by entireties accounts.

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

Does Second Chapter 13 Bankruptcy Stop Foreclosure?

Today I had my first hearing on a motion to extend the automatic stay in a Chapter 13 bankruptcy. In this instance, the debtor filed a Chapter 13 early this year, and the Court dismissed his bankruptcy for non-payment of his plan payments after the client lost his job. The bank started foreclosure after the dismissal. The client found a new, higher paying job. A few days before the sale date I helped the client file a new Chapter 13 plan. Under the old bankruptcy law the new filing would automatically stay the foreclosure and stop the sale so long as the new bankruptcy remained active and plan payments current. Under the new bankruptcy law, upon filing a repetitive bankruptcy ( that is , a bankruptcy within a few months of an earlier case) the new automatic stay is short lived.

The automatic stay triggered by my client’s second bankruptcy lasts only 30 days unless the debtor proves that he filed the second bankruptcy in good faith. The debtor has to show the court there are changed circumstances which explain why the second bankruptcy is feasible after the initial bankruptcy failed. Absent a showing that a second bankruptcy is filed in good faith bankruptcy protection terminates in 30 days, and the lender can restart foreclosure. In this instance the court found that the debtor’s new job was a sufficient financial improvement to warrant extension of the bankruptcy stay protection against foreclosure.

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

Bank Accounts In Trust For Others

Many people set up bank accounts for their minor children under Florida’s uniform gift for minors act. When a parent files bankruptcy all bank accounts in their name is generally part of the non-exempt bankruptcy administration. However, an account which a parent owns in trust for a minor child is usually not considered the parent/debtor’s property as the parent is acting as trustee for the minor child who is not old enough to have their own bank account.

A slightly different situation arose at a creditors meeting this week. My client told the trustee that her mother established and funded a bank account for the debtor’s child- the mother’s grandchild- and named the debtor as trustee over the account. The child/grandchild beneficiary was over 18 years of age. The beneficiary was entitled to the money in the account. The account is not under the uniform gift for minors act because the beneficiary is not a minor. I think I was able to persuade the bankruptcy trustee that the account is not the debtor’s property. Under Florida law, you can create an unwritten trust over personal property. The grandmother created an express, oral trust for her grandchild and made the debtor trustee. The debtor did not fund the trust and had no equitable interest in the account. In my opinion, the money in this account should not be part of the bankruptcy estate for the benefit of the debtor’s unsecured creditors.

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

Bankruptcy Options For Failing Small Business

Small business experiencing financial problems generally speaking fall into two categories: the hopeless or the impaired. The hopeless business is one who has put itself on an errant business track which is leading inextricably to financial disaster. For that business, chapter seven liquidation is often the answer in order to avoid an avalanche of lawsuits from trade creditors and customers. The impaired business is a business in trouble, but one which can turn itself around with a little bit of help and time. The impaired business may be in financial difficulty, but it also usually has valuable assets. For the business with assets and with hope, Chapter 7 is not the answer.

The business in difficult, but with hope, has two options. One option is Chapter 11 which provides time through a reorganization plan. Chapter 11, however, is very expensive for the small business. Another option is avoiding bankruptcy and simply closing operations. The business is not dissolve; it just stops taking customers and collects old receivables. The owners then try to reconstitute their business in a new business entity. Creditors will attack the new entity as the alter ego of the initial , debtor entity. The owners have to establish sufficient business reasons to start a new entity for their business other than avoiding their prior creditors. One possible business reason is bringing in new owners, possibly, a new owner who invests money to help the business but who refuses to be saddled with debts of the old business. This type of business reorganization should avoid bankruptcy because bankruptcy trustees will be relatively more effective in pursuing claims against the newly formed business under theories of alter ego or fraudulent conveyance.

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