Florida Bankruptcy Law Blog

Florida Court Curtails Personal Property Exemptions

An Orlando bankruptcy court issued a decision which curtails the personal property exemptions for debtors who own their own residence.   The case is In re: James Matthew Franzese, Case No. 07-3944-KSJ.

In July, 2007, the Florida legislature created a $4,000 wildcard personal property exemption for people who do not receive benefits of a homestead exemption. Until now, debtors who owned a homestead which had no equity, or debtors who claimed their homestead exempt as tenants by entireties property, had been claiming the $4,000 wildcard exemption because they had relied upon the Constitutional homestead exemption on their bankruptcy petition. (Other courts have held that the new $4,000 wildcard personal property exemption is separate and above the basic $1,000 personal property exemption in the Florida Constitution.) This latest bankruptcy court decision ends this bankruptcy planning technique.

According to the Franzese decision a debtor who is eligible to claim homestead exemption in bankruptcy cannot avail themselves of the $4,000 personal property exemption whether or not they affirmatively seek the homestead exemption in bankruptcy. Any debtor who on the date of filing is entitled to a homestead exemption cannot claim the $4,000 additional personal property exemption regardless of whether the homestead has any equity to protect and the debtor intends to remain in the home. Debtors must state in a timely manner their intent to surrender their homes when they file bankruptcy if they want to claim the $4,000 wildcard exemption.

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

Student Loan Discharge: Bankruptcy Court Explains Undue Hardship

Bankruptcy clients usually accept the fact that student loans are not dischargeable. Some clients are aware of the "undue hardship" exception where these loans can be discharged. It is very difficult to wipe out student loans as an undue hardship. A recent bankruptcy court decision, issued in November, 2007, explained the undue hardship standard in detail and why it applies to so few debtors. The case is In Re Cynthia Matthews-Hamad, Case No. 02-15746-8W7 and Adv. Pro. No. 05-81.

The bankruptcy judge explained that there are three parts of the undue hardship test each of which the debtor must establish by a preponderance of evidence. First, the debtor must show that based on his current income and expenses he cannot maintain a "minimal" standard of living for himself and his dependents if forced to repay student loans. Minimal standard of living does not mean the debtor must live in poverty but it also does not mean the debtor is entitled to his existing comforts. Second, the debtor must establish circumstances indicating that his financial state of affairs is likely to persist for a significant portion of the loan repayment period. The debtor must show his will be unable to pay student loan debt in the future for reasons outside his control. The debtor must demonstrate circumstances that stongly suggest an inability to pay the loan over an extended period of time. The bankruptcy court stated that only a debtor with rare circumstances will satisfy this second part of the undue hardship test. Such circumstances include, for example, illness disability, or lack of suitable job skills. Finally, the debtor must show he has made a good faith effort to repay the student loan. Efforts to seek out option to make the student loan debt less burdensome is an important part of good faith.

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

Dealing With Annoying Debt Collectors

Many bankruptcy clients become upset and worried because they are harassed by credit card collectors. I usually advise people filing Chapter 7 to stop making credit card payments upon deciding to file bankruptcy. Ceasing payments increases collection activity. As a debtor you have rights to protect your privacy and your peace of mind. Federal law prohibits creditors from engaging in "over the top" collection tactics .

The Fair Debt Collection Practices Act (FDCPA) applies to collection of all personal, household, and family debts. Under the FDCPA:

Bill collectors may contact you only between 8 am and 9 pm

Bill collectors may not contact you at work if your employer disapproves of practice

Bill collectors may not harass, oppress, or abuse you.

Bill collectors may not lie.

Bill collectors may not threaten you with criminal prosecution

And most important, bill collectors must stop contacting you if you so request in writing.

The practical problem is that enforcement of the FDCPA requires you to file suit in a federal court. You will need to pay an attorney to effectively enforce FDCPA violations in federal court. On the other hand, a bankruptcy debtor can bring an action against a creditor as part of his federal bankruptcy proceeding.

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

Credit Rating After Bankruptcy or Foreclosure

Clients frequently asked me how bankruptcy or a mortgage foreclosure will affect their credit. rating. I usually respond by stating that one’s credit rating is not a legal issue unless there is a violation of federal credit reporting acts. Recently interviewed a new client who worked in mortgage lending. I asked the client to tell me, from his professional experience in lending, how foreclosure or bankruptcy impacts credit.

The client gave me the following guidelines which he said are typical in the lending industries. A Chapter 7 bankruptcy adversely affects credit for two years after the bankruptcy discharge. A Chapter 13 bankruptcy impacts credit for two years after the date the bankruptcy is filed. A foreclosure negatively affects credit for three years after the foreclosure complaint is filed.

If any reader who works in the lending industry has contrary opinion or information, please let me know so I can pass on that information to other readers.

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

Tax Rebate

Most people who are considering bankruptcy will soon receive the economic stimulus tax rebate recently passed by Congress and signed by President Bush. Someone asked me today whether a bankruptcy trustee will try to seize the refund as part of the bankruptcy estate. Normal tax refunds are part of the bankruptcy estate, and debtors must turn over future tax refunds to the bankruptcy trustee. The bankrutpcy trustees have not taken a position on this issue. However, the last time the government gave a special money distribution to jump start the economy the bankruptcy trustees adopted the policy of not asserting any claim to the money on the theory that the money was not a refund of the debtor's pre-filing assets. I expect that this year's stimulus payment will remain debtors' property.

Interpreting Florida's New $4,000 Personal Property Exemption

The Florida Constitution gives debtor’s a $1,000 exemption in all personal property such as cloths, furniture, and cash in financial accounts. The Florida legislature enacted a new law in July, 2007, providing debtors an additional $4,000 "wildcard" exemption in personal property provided that the debtor does not claim a homestead exemption. Several questions have come up in recent bankruptcy cases concerning the $4,000 statutory exemption: for instance, can debtors stack the $4,000 statutory wildcard exemption on top of the $1,000 Constitutional exemption? Do joint bankruptcy debtors each get the benefit of a $4,000 statutory exemption?; and if a debtor owns a homestead but elects to abandon the homestead in bankruptcy without claiming exempt homestead equity, can the debtor claim the $4,000 statutory exemption?

The bankruptcy courts have so far liberally construed the new, $4,000 statutory exemption for personal property. More than one bankruptcy judge has ruled that a debtor can stack the exemption on top of the $1,000 Constitutional exemption provided he does not claim a homestead exemption. Owning a homestead does not disqualify the $4,000 exemption when the debtor does not claim or seek benefit of the homestead exemption. (Therefore, where one spouse files bankruptcy and claims a tenants by entireties exemption in the marital home the debtor spouse should be able to claim the $4,000 wildcard personal property exemption.). When two qualified spouses file bankruptcy courts have held that  each spouse can claim the $4,000 exemption; so, where joint filers do not claim a homestead exemption. ( Or, when both spouses file and the house is "upside down" both spouses should qualify for the $4,000 statutory exemption, and the joint debtors would have a $10,000 exemption applicable to their personal property)

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