Florida Bankruptcy Law Blog

Bank of American Gets Tough On Credit Card Payments

People who bank at Bank of America and who have credit cards through the same bank are having problems when they don’t pay credit card payments. Bank of America, more than most banks, is enforcing a provision in their credit card agreements which allows them to take money out of customers’ bank accounts to pay the credit card. They are taking money without any advance notice. No client has asked me to review their Bank of American credit card documents, so I am assuming the bank has a legal contractual basis for their practice.

If you bank at Bank of American and have their Visa or Mastercard cards, and if think you may fall behind on credit card payments, you should consider moving your checking account to another bank. Even if you leave open the BOA checking account, open an account somewhere else and move most of your money. I don’t know if other banks have the same rights in their customer agreements. If you bank somewhere else you should find out whether your bank can automatically deduct credit card payments from your accounts at the same bank.

A bank cannot invade your checking account once you file bankruptcy.

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

Can You File Bankruptcy In Florida If You Work And Live Overseas Temorarily?

I received an email from a man who was working overseas on a long-term work assignment. His last residence in the United States was in Volusia County, Florida. He wanted to know if he could file bankruptcy and if his retirement pay, which he received monthly from a prior employer, was protected in bankruptcy. If you leave Florida to work overseas on a temporary basis you are probably still a Florida resident and can file bankruptcy in Florida. He would file in the Middle District of Florida because Volusia County is in the Middle District. Being stationed overseas for work does not forfeit Florida asset exemptions. Pension payments payable to Florida residents are exempt regardless of where the resident resides on a temporary basis.

Debtor Loses Car Titled Jointly With His Child

Parents who buy cars for a child often hold title to the car jointly with the child. In a recent case from the Orlando bankruptcy court a debtor asserted that a titled jointly by the adult debtor and his child was actually the child’s car. The debtor asserted that while his name was on the title, the child held the entire beneficial interest in the vehicle and therefore, the car should not be turned over the Chapter 7 trustee.

The bankruptcy court disagreed with the debtor’s argument. The Court held that Florida statutes govern car ownership. Florida statutes state that a car owned by two people is held as joint tenants. There are other statutes which state how a parent can own property in trust for a child, and this debtor did not follow that statute and did not show other evidence of intent to own the car in trust for his child. The Court ordered the debtor to give the car to the bankruptcy trustee.

If you want to buy your child a car you should put the car in the child’s name if you want to protect the car from your own creditors.  381 B.R. 800

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

How Do Bankruptcy Trustees Get Paid

Bankruptcy clients sometimes ask how much money a bankruptcy trustee gets paid and how are they paid. I read a good summary of Trustee compensation in a blog post by California attorney Michael Doan on the Bankruptcy Law Network: CHAPTER 7 BANKRUPTCY TRUSTEE FEES : Bankruptcy Law Network. Bankruptcy trustees are paid a small flat fee per Chapter 7 bankruptcy case plus a percentage of assets recovered, if any. Essentially, the Trustee is paid on commission to recover your money.

Mr. Doan describes the Trustee's incentive  as follows:

"The trustee’s commission percentage of what is sold is 25% of the first $5,000, plus 10% of any amount over $5,000, but less than $50,000, plus 5% of any amount over $50,000 and under $1,000,000, and 3% of any amount above $1,000,000. Of course, most Chapter 7 filers don’t have nonexempt property, so there is nothing for the trustee to sell, so she must settle for a small part of the filing fee."

Most trustees make very little money on the average case, but once in a while, they are assigned a large bankruptcy with substantial non-exempt assets. However, the new bankruptcy law places more work and responsibility on bankruptcy trustees. Being a trustee is not an easy job and in most cases not a high paying job.

Discharge Of Fraud Judgment With Credit Cards

A prospective client consulted with me for "pre-bankruptcy planning." The client had a judgment for over $100,000 from a civil suit where the prospective debtor was found liable for civil fraud. Debts from fraud are not dischargeable in bankruptcy. This debtor had a plan. He said he would get cash advances from different credit cards of about $10,000 per month for ten months being careful not to borrow more than $10,000 per card. He would then pay off the fraud judgment, file Chapter 7 bankruptcy and attempt to discharge the credit cards. He understood that one or more credit cards may object to the amount of charges within a year of bankruptcy, but he figured not all creditors would object. If a credit card company did object he said he was earning enough money to settle for an amount less than the face amount of the debt. In other words, his plan would effectively discharge a debt that he was not allowed to discharge.

This plan is substantially the same idea that I heard from another prospective filer last week who paid his taxes with credit cards and planned to file bankruptcy after making minimum payments for a year or more. These people know, and accept the risk, that one or more creditors may get wise to the scheme and demand payment, but they don’t care. They know that the alternative is liability for the entire fraud debt or tax debt. In realty, these people are more likely than not to get away with it in full or in part. If this practice is more common than I realize, or becomes common, the bankruptcy trustees could include in their standard questions at creditor meetings questions about the debtor’s use of credit cards to pay taxes or civil judgments. It may be unethical (and it is so,  in my opinion) for an attorney to give this type of advice to a prospective bankruptcy debtor. Those people with a duty to creditors also should be more alert to using credit cards to improperly discharge debts in bankruptcy.

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

Getting Banks To Pay Your Taxes: Some Debtors Are Discharging Credit Card Debt Used For Income Taxes

I have met three or four prospective Chapter 7 bankruptcy clients over the past few months who told me they paid their 2007 taxes with a credit card and that they now want to file bankruptcy to include the same credit card debt. The effect is that the credit card lender  will have paid the clients’ income taxes, and that the clients would have discharged their income tax bill. Income taxes are not dischargeable in bankruptcy.

I am not aware of any bankruptcy court decisions addressing this type of debtor strategy. The credit card company could challenge a significant credit card charge for taxes, or any other reason, close to filing bankruptcy. The debtor would have little or no defense. If the credit card company does not challenge the tax charge then the debtor could "get away with it." It could be that the amount of taxes paid by credit card is below the amounts that the lender finds economical to pursue in a bankruptcy adversary proceeding. If this practice comes to light, some bankruptcy trustees may start asking debtors during tax season if they have used a credit card to pay taxes at least to get the information on the record.

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