Florida Bankruptcy Law Blog

Can Illinois Debtor Protect Florida Entireties Property?

A debtor domiciled in Illinois filed bankruptcy in Illinois. The debtor’s wife did not file bankruptcy. The debtor and his wife owned a vacation home in Florida. Florida common law exempts tenancy by entireties property; Illinois law does not exempt tenancy by entireties property. The bankruptcy trustee the debtor’s claimed exemption of his Florida property because the Trustee believed the law of Illinois applied to defining what is included in the debtor’s bankruptcy estate. The Trustee argued that the debtor could not exempt Florida property because the debtor does not reside on the property or anywhere else in Florida. The appeals court said Florida law applied and that the vacation home was exempt.

The appeals court used several lines of reasoning to reach the same conclusion. Bankruptcy law exempts assets which are otherwise exempt under applicable non-bankruptcy law, that is, exempt under state law. The court pointed out that the Bankruptcy Code does not require that state law always be the law of the state where the debtor is domiciled. Federal conflicts of law principles state generally that the laws applicable to real property are the laws of the state where the property is located, in this case, Florida. Therefore, the court applied Florida’s common law exempting tenants by entireties property to protect the vacation home. Application of bankruptcy exemptions is, as in this case, often determined by complex legal principles involving conflicts of laws in different jurisdiction. The case is In re Holland, decided March 30, 2007, N.D. Illinois.

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

Preferential Payment By Credit Card

I saw an interesting post on the Georgia Bankruptcy Law Blog edited by Scott Riddle. Outside of bankruptcy a debtor can choose to pay any creditor and avoid paying other creditors. In bankruptcy, all creditors have to be treated equally. If the debtor pays one creditor within 90 days of filing that payment is deemed a "preferential payment" which the Trustee may recover. The Trustee goes after the creditor for the money received from the debtor.

Scott’s blog discussed a Georgia bankruptcy case where within 90 days of the filing of his Chapter 7 petition a debtor used his credit card to pay $4,000 to the defendant optical company. The payment satisfied an obligation of another company, which obligation the debtor had guaranteed. The Chapter 7 trustee filed suit to recover the payment as a preferential transfer, and a motion for summary judgment. The key question was whether the payment, via credit card, constituted an interest in the debtor's property, as defined by §547(b).

The only preference element in issue was whether the transfer was of an interest of the debtor in property. Relying on definitions in prior bankruptcy cases the Georgia court found that a debtor's use of a credit card does not constitute a transfer of an interest of the debtor in property, and therefore payment by credit card was not a preferential payment. I assume the result would be different if the debtor used his own cash which otherwise would be part of the estate available to all creditors to pay the same preferred creditor within the 90 day time frame.

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

Florida Increases Personal Property Exemption

The Florida legislature passed a law increasing the personal property exemption in bankruptcy. Under Florida Statute 222.25 as written Florida debtors can claim a $1,000 exemption for miscellaneous personal property. Most bankruptcy debtors have applied this exemption to furniture, cloths, cash and other personal property. Effective July 1, 2007, the exemption is increased to $4,000 for those debtors not claiming or benefitting from a homestead exemption. Many Florida debtors not exempting a homestead can use the increased general property exemption to protect equity in automobiles not otherwise protected by the $1,000 exemption specifically allowed for automobiles.

People who could benefit from the increased personal property exemption may want to defer bankruptcy filing until the July 1 effective date. The wording of the statute appears to leave open issues for further court interpretation, such as the meaning of benefits of homestead exemption. For instance, I wonder if a debtor with a homestead owned jointly with a non-debtor spouse qualifies for the $4,000 property exemption if he exempts the residence as tenants by entireties property instead of claiming the exemption under homestead protection. As is the case in all new statutes, judicial clarification will ensue.

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

Moving Into Florida House Just Prior To Bankruptcy: Does It Work?

A prospective bankruptcy debtor purchased a single family house in Florida for investment several years ago. At time of purchase the investor lived up north. In 2005 he moved to Florida, and rather than evict his tenants he decided to rent an apartment. He refinanced the property to take out cash during the real estate bubble. The mortgage payment had an adjustable rate which is about to increase significantly. With the new mortgage rate he would not have a positive cash flow. There was over $125,000 of equity in the property. He asked whether he can move into his investment property an protect the house as homestead in a Chapter 7 bankruptcy.

The general rule is that Florida homestead protection in bankruptcy is limited to $125,000 for property acquired less than 1215 days prior to filing bankruptcy. The issue in this situation is whether the date of acquisition of the property for homestead protection is the date the debtor moves in and makes the house his homestead, which date would be within 1215 days of filing, or the date the investor purchased the house for rental income and investment.

Several courts have held that date of acquisition is the date the debtor acquires legal title rather than the date of occupancy. In this instance, the investor probably could protect all his equity in a Chapter 7 bankruptcy even if he moved into the house just prior to filing. These courts have liberally interpreted the new law in favor of homestead protection. People can protect valuable investment residential real estate by converting the real estate to their primary residence in Florida and filing bankruptcy shortly thereafter.

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