Florida Bankruptcy Law Blog

Can Domestic Partners Stack Exemptions: Not In California

Married couples who file bankruptcy jointly are permitted to "stack" bankruptcy exemptions according to most court decisions. For example, married Florida debtors who do not qualify in bankruptcy for unlimited homestead protection could stack their $125,000 exemptions and claim a total of $250,000 homestead protection (the exemption increases April, 2007 to approximately $137,000 per person). A California bankruptcy court denied a request by "domestic partners" to stack California’s homestead exemption in their consolidated bankruptcy petitions. 

The domestic partners filed separate bankruptcy petitions. The two cases were consolidated for administration at the request of the Chapter 7 trustee. Pursuant to California Domestic Partner Rights and Responsibilities Act (DPRRA), registered domestic partners are treated as "spouses," and thus as "married" for purposes of the state's homestead statute. The California Legislature explained that the DPRRA was to be 'construed liberally in order to secure to eligible couples who register as domestic partners the full range of legal rights, protections and benefits, as well as all of the responsibilities, obligations, and duties to each other, to their children, to third parties and as to the state, as the laws of California extend to and impose upon spouses.

The bankruptcy court denied these debtors the ability to stack homestead exemptions. The court found that § 302 of the Bankruptcy Code limits joint filings, and the payment of a single fee, to married partners of the opposite sex and that as a matter of federal law a domestic partnership is not a disguised form of marriage.

To those requiring authority: In re Rabin, 2007 WL 315774.

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

New Resident's Immediate Tenancy By Entireties Protection In Bankruptcy

I came across a bankruptcy case which is important for debtors contemplating moving to Florida from another state and filing bankruptcy immediately. In this case, a debtor lived in a state which had little or no homestead protection. In April, the debtor and his wife moved to Florida and bought a piece of property titled in their joint names. Two months later, in June, they filed Chapter 7 bankruptcy, and one month after filing bankruptcy the moved into a house on the same property. The issue was whether the debtor could claim an exemption for the property. The bankruptcy judge said he could exempt the property. Here’s why and how:

The general rule is that a bankruptcy debtor cannot claim Florida exemptions, including Florida homestead, in bankruptcy unless he has been a Florida resident for two years prior to filing. This debtor lived in Florida for less than three months prior to filing bankruptcy. Therefore, his bankruptcy is under the exemptions of his former residence which has little or no homestead protection. Even if the debtor were under Florida exemptions, he would not get homestead protection in bankruptcy because he and his wife did not occupy the house until after he filed bankruptcy.

The judge found that his real estate purchased in April was exempt as tenants by entireties property. Property owned jointly by married couples is deemed to be owned in a tenancy by entireties (T by E). T by E property is not party of the bankruptcy estate and is therefore "exempt"(unless and to the extent the debtor and his non-filing spouse have joint debts). But is not really "exempt" because neither the Florida statutes nor the Florida constitution are the source of T by E protection. In the bankruptcy code, T by E property is not excluded from the bankruptcy estate by the code sections dealing with exempt property, which code sections include the two-year waiting period for new Florida residents. The bankruptcy judge pointed out that T by E property is excluded from the debtor’s bankruptcy property by a different code section which provides exclusion of T by E assets owned by the debtor immediately prior to his filing bankruptcy. The T by E section has no two year waiting period.

The case held that even though the debtor purchased the real estate with his wife just three months prior to filing bankruptcy it was "exempt" as T by E property. The judge found no evidence of fraudulent conveyance; the debtor simply moved to Florida and bought a home to live in. Under the strict language of the statute nothing more is required to exclude the T by E property from his bankruptcy.

This case provides non-resident debtors a possible plan to move to Florida, buy a homestead property or other assets with their spouse, and file bankruptcy immediately upon becoming a Florida resident. Only debtors with no significant joint debts can use this planning technique

For those who require a cite: In re Schwarz 2007 WL 247649

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

Canadian Citizen With Florida Property

A Canadian citizen ties to Florida inquired about filing bankruptcy in Florida . The caller owned a home in Canada with significant equity. He also owned a home in Florida with less equity, and he owned and operated a Florida business. He had guaranteed large amounts of business debt. The business is having financial difficult. The caller anticipates significant personal unsecured debt from the inevitable business failure

The caller could , if he wanted, file in Florida if he had a residence and property here. I suggested that the caller not file bankruptcy in Florida as he would face several problems. First, bankruptcy courts have jurisdiction over the debtor’s property outside the United States . Therefore, the trustee could seize and liquidate his valuable property in Canada (unless it was protected from creditors under Canadian law). The called stated he had not yet received a "green card" to permanently reside in the U.S. Under Florida law, he could not move into the Florida property as a homestead until he got the green card.

I suggested that if his business failed and he was sued personally that he consider abandoning the Florida property and move back to Canada. First, it will be more difficult for the trade creditors of a Florida business to find and sue this person in Canada. There may be ways to protect the Canadian home under Canadian law, but there is definitely no protection in Florida bankruptcy court. For people with assets, bankruptcy should be the last resort. Many people think bankruptcy court is friendly for debtors; in fact, in most cases where debtor’s have some assets the creditors as a whole do much better in bankruptcy court than they do trying to find and levy assets otherwise.

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

Pay Attention To Documents You Receive From Bankruptcy Court

Read documents sent to you by the bankruptcy court and don’t rely solely on your bankruptcy attorney to call you if the document is important. Its your bankruptcy, not your attorney’s bankruptcy. Here’s an example. A bankruptcy client whose case is closed called me to complain that a car lender is pursuing his co-debtor wife after the lender repossessed the car. The client says he mailed all the payments to the lender but they refused to accept them. He says that my secretary told him if he kept the payments current the lender would not hold his wife liable, and now he wants my office to fix the problem. Its true that maintaining the car payments would protect his wife, but the debtor failed to recall advice given about the necessity of also signing a reaffirmation agreement.

A signed reaffirmation was sent to the creditor, but the court scheduled a hearing to confirm the reaffirmation agreement. The debtor was sent notice of the hearing. The debtor did not attend the hearing. The court denied the reaffirmation agreement based on the debtor’s non-attendance. Without reaffirmation, the car creditor decided to repossess the car and pursue the jointly liable spouse. The debtor says he did not go to the hearing because he didn’t think it was important and nobody told him to attend. He did not call the office to discuss the hearing. As a result, his wife is liable for a large car debt.

Car reaffirmation and many other aspects of bankruptcy are more complicated under the new bankruptcy law. Your bankruptcy is a partnership between you and your attorney. Each of you has a role to play. Ultimately, you are responsible for the consequences of following directions from your attorney, providing accurate information, and responding to court documents. The more effort and involvement you put into your bankruptcy the greater your chances of a successful outcome. Pay close attention to any written notices you receive from the court and call your attorney if you have any doubts about what the notice means for your case.

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

Dollar Amount Changes in New Bankruptcy Law Effective April, 2007

There are changes in the new bankruptcy law of interest to Florida debtors. The new law provided for automatic inflation adjustments in certain dollar indices. There are many adjustments going into effect in April, 2007. Most important for Florida debtors is the homestead exemption in bankruptcy which increases from $125,000 to approximately $137,000 per person. Debtors who have lived in their homestead for two years or more have an unlimited homestead exemption in Florida. As previously pointed out on this Blog, all Florida residents who are not in bankruptcy have unlimited homestead exemption regardless of how long they lived in their house.

Another significant change April 1, 2007, are debt limited for filing Chapter 13 bankruptcy. The maximum amount of unsecured Chapter 13 debt increases from about $307,000 to approximately $337,000 on April 1, 2007. The maximum amount of secured debt increases from about $923,000 to approximately $1,010,000. Debtors whose debt exceeds the debt limits must look for relief under either Chapter 7 or Chapter 11.

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

Chapter 7 Risk For Wholly Owned Professional Corporation

A successful, licensed professional who operates his practice through a wholly-owned corporation decides to file Chapter 7 bankruptcy pro-se (on his own and without an attorney). The debtor fills out his own bankruptcy schedules and values his professional business as worth $0. He tells the bankruptcy trustee that the stock in the business is worthless even though he generates substantial professional fees through the business because the business depends totally on his own work. He argues that if  anyone else owned his stock he would stop working in which case the value would be $0. The bankruptcy trustee in this case didn’t accept the debtor’s position; the trustee demanded turnover of all the debtor’s stock in his own company and accused the debtor of trying to hide the value of the business’ current receivables and cash in bank.

This example- a condensed version of a case I’m involved in- illustrates the risk involved when an owner of a successful service business files a Chapter 7 bankruptcy. The Chapter 7 trustee may not accept a zero business value for a service business. If the trustee sees value in the business the trustee, by taking the stock, can effectively shut down the business ; the debtor is not going to work for the bankruptcy trustee. Goodwill and reputation are put in jeopardy by subjecting a service business to Chapter 7 bankruptcy. A debtor operating a successful service business will usually find a better result through Chapter 13 bankruptcy. In Chapter 13 the debtor stays in possession and control of his business; creditors are held at bay while the debtor’s business can generate income to pay his creditors.

This example also is useful to show the risk of do-it-yourself bankruptcy filings under the new bankruptcy law. Under the old bankruptcy law successful pro-se Chapter 7 bankruptcy was difficult, but possible. The new law has made it extremely risky for anyone other than a bankruptcy attorney to navigate through the choices and pitfalls of bankruptcy. A Chapter 7 bankruptcy is equivalent to a major financial surgery where all your assets are exposed, examined, and made subject to forfeiture. Doing your own bankruptcy to save some legal fees is usually the most expensive option.

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

Bank Freezes Check Account To Collect Credit Card Debt

A creditor can garnish a bank account after it obtains a money judgment and the Sheriff’s office issues a writ of execution. I am often asked whether a credit card company can freeze an account without a judgment and without even filing a lawsuit. The general answer is "no" but it does happen occasionally.

This week a prospective bankruptcy debtor called to complain that his bank had frozen his account without warning because he was delinquent on a credit card issued by the bank. Sometimes people don’t convey complete information to attorneys, and it could be that the credit card company had a judgment already. Another possibility is that the bank had issued a secured credit card and that there was a credit card agreement which gave the bank the right to collect by taking money from the borrower’s bank account without first going to court. In the absence of a secured credit card arrangement or a civil judgment the bank may have improperly collected its credit card debt in which case the borrower could have a claim against the bank.

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