Florida Bankruptcy Law Blog

Unfiled Tax Returns: Chapter 13 Bankruptcy

I received an interesting email about Chapter 13 and income taxes from attorney Larry Heinkel from St. Petersburg. Mr. Heinkel specializes in the area of income taxation and bankruptcy and represents debtors in bankruptcy courts throughout Florida. (taxproblemlaw.com). Here’s what he said. "Over the last several month I have had several clients see me about owin taxes after filing chapter 13 bankruptcy. The usual fact pattern is that (the client files Chapter 13) even though there are unfiled tax returns. The client then has the returns prepared to file with the IRS and the trustee only to discover that the tax debts (all being priority...) are too large for the client to repay throu th chapter 13 plan. As a result, the case is either dismissed or converted which does not do the client/debtor any good at all."

Mr. Heinkel says that the better  approach is to prepare the returns before attempting Chapter 13, and then see if the client can afford to repay the tax debt in full as a priority debt in a five year plan. If not, then the client should not file bankruptcy just yet. Instead, Heinkel suggest filing the taxes and working out a payment agreement with the IRS. Then, after the returns have been viled for two years- and assuming the taxes are then three years old and meet other bankruptcy tests- file a Chapter 7 to discharge the taxes in full.

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

A Resident of Another Country Wants To File Bankruptcy in Florida

Can a person who currently resides in another country file bankruptcy in Florida? A client called to discuss elimination of his credit card debts which he accumulated while living in Florida. The client and spouse recently moved from Florida and now permanently reside in a foreign country. They own no real property in Florida. The client and spouse have a bank account in Florida with a small balance- under $1,000. Most of their assets are in the foreign county. They have no money in any state other than Florida. The client wants to file Chapter 7 bankruptcy in Florida.

In almost all cases, bankruptcy debtors file bankruptcy in the state where they permanently reside. However, the bankruptcy code does not make residency the only criteria for determining place of filing. Simply put, the bankruptcy Code allows you to file bankruptcy where you live, where you do business, or where you have most of your assets. After researching the issue I found two Florida bankruptcy cases which allowed a person to file bankruptcy in Florida after they moved abroad as long as they still had assets in Florida and in no other state. In one case, a debtor’s bank account with a $200 balance was sufficient contact with Florida to permit him to file Chapter 7 bankruptcy here.

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

Debtor's Discharge of Attorneys Fees Payable As Part of Divorce Judgment

A Chapter 7 debtor cannot discharge alimony or child support obligations. A bankruptcy client asked me whether he could discharge that part of a divorce judgment related to his spouse’s attorneys fees. I found that this issued had been addressed in a 2007 Florida bankruptcy court case. In the 2007 case, a family court judge ordered a bankruptcy debtor to pay his ex-spouse marital support and to pay the spouse’s attorneys fees. The order directed the fees be paid directly to the attorney. The former spouse argued that the attorneys fees award was incorporated within the support judgment, that payment of the fees was necessary for the ex-spouse’s support, and that the entire support award including the fees was non-dischargeable.

The bankruptcy court held that the debtor could discharge the attorneys fees portion of the court award. The court held that non-dischargeable marital debts include debts payable to a spouse or child. In that case, because the debt in question was payable directly to the attorney that debtor’s obligation was not in the class of debts payable to an ex-spouse or child and that the attorney debt was dischargeable in bankruptcy.

In my client's case, his divorce judgment was payable in its entirety to his ex-spouse. Even though the judgment included money for attorneys fees I think the entire judgment would not be dischargeable.

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

Are Joint Tax Refunds Protected As Entireties Property When One Taxpayer Files Bankruptcy?

Florida law presumes that personal property owned jointly by married couples is tenants by the entireties property which is exempt if one spouse files bankruptcy individually. A new client this past week asked me if a tax return he expects to receive would be protected if he filed bankuptcy. The prospective debtor files joint tax returns. The debtor make substantially more money than his spouse. Therefore, most of the tax refund relates to the debtor’s income. The question was whether the joint tax refund would be entireties property if the money mostly is attributable to the debtor’s earnings.

Many years ago bankruptcy courts did not protect joint tax refunds as entireties property. Following the Florida Supreme Court decision in Beal Bank in 2001, which decision expanded tenants by entireties, more than one bankruptcy court has held that joint tax refunds may be treated as entireties property regardless of the spouses’ relative income. The courts have considered whether the spouses throughout their marriage always filed joint tax returns and whether the refund check was made payable to both spouses. One court reasoned that when spouses file joint returns both spouses are liable jointly and severally for tax liability regardless of their relative earnings, and therefore, the spouses should share protection of the tax refund when either spouse files bankruptcy.

Workers Compensation Payments in Bankruptcy

I consulted today with a client who is the beneficiary of a workers’ compensation award. He currently receives monthly workers’ comp payments, and he expects an additional lump sum settlement in the near future. A creditor recently received a large court judgment against this client. The client wanted to know if the judgment creditor could garnish monthly workers’ comp payments or could levy upon the lump sum settlement after it is received and deposited in the debtor’s bank account.

Chapter 222 of the Florida Statutes included Florida’s property exemptions. None of the sections in Chapter 222 pertain to workers’ compensation benefits. However, the Florida Statutes treat workers’ compensation in a separate Chapter. Section 440.22 of the Florida Statutes provides that, "compensation and benefits shall be exempt from all claims of creditors, and from levy, execution and attachments or other remedy for recovery or collection of a debt." At least one bankruptcy court stated that compensation benefits remain protected if they are deposited in a financial account as long as the money is traceable to the workers’ comp payment.

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

Chapter 13: Court Determines Amount of Avoided Secured Liens

In Chapter 13 bankruptcy the debtor can wipe away part or all of some judicial liens. Judicial liens are liens placed on property by judgment creditors as opposed to purchase money liens which are placed on property by the vendor who sold you the property. A Chapter 13 debtor can wipe out judicial liens to the extent that the liens impair a property exemption to which the debtor is entitled under Florida law. That part of judicial liens not wiped off the property remains a reduced secured claim against the property.. A recent bankruptcy decision explored the property way to determine the amount of the remaining lien.

In this case, a debtor owned a truck fee and clear. A judgment creditor levied upon the otherwise unencumbered vehicle. The creditor’s lien was approximately $8,000. The truck value at time of filing was approximately $10,000, and the court found the debtor could apply to the truck a $6,000 property exemption. The court avoided the creditor’s judicial lien against the truck to the extent of the $6,000 exemption. The debtor claimed the remaining secured claim was $2,000 (the original lien amount less the exemption). The creditor claimed it retained a $4,000 secured claim (truck value less the exemption).

The court gave the creditor an secured claim for $4,000 representing the difference between the exemption and the current truck value, plus an unsecured claim for $2,000 representing the amount of the lien avoidance. In re: Mahendra Mootosammy, 07-6553

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