The Florida Bankruptcy Law Blog

Resulting Trust Theory Used To Exclude From Bankruptcy Assets Titled In Debtor's Name

Parents often add their children to the parent’s bank accounts or real estate title so that the child can use the assets for the parent’s benefit in the event of the parent’s disability or to avoid probate upon the parent’s death. Parents sometimes place their names on car titles for their younger child’s automobile so that the child can get better financing or insurance rates. For these, and many other reasons, people sometimes have partial ownership of assets paid for and used by other family members. This joint titling of family assets is a problem when one of the family members in my examples files bankruptcy and has to list all assets in his name. The debtors in my examples would have to list their parents bank accounts and real estate (in the first example) and their child’s car (in the second example) on their bankruptcy petition. The trustee could pursue these assets and seek a forced sale with a division of sale proceeds between the bankruptcy estate and the family co-owner.

Can Small Business Survive Owner's Personal Bankruptcy?

Many bankruptcy clients during the current recession own a small businesse, and they are concerned about the impact of their personal bankruptcy on their business. Can they continue to own and operate their small business while filing personal bankruptcy to discharge personal credit card and other unsecured debts. In most cases, their business will survive. In a typical business-owner bankruptcy the debtor’s business is not providing enough income to service the owner’s personal debts. The business may have customers and a few assets, but the business usually also has debts owed to suppliers and the business landlord. Most small business weakened by the recession are technically insolvent because whatever assets it owns is less than its liabilities. In a personal bankruptcy the debtor’s "business assets" is not those assets owned by the business; the owner’s asset is his stock or other interest in the business. If the owner states that his interest in his own business has no market value, then the debtor lists his stock on his individual petition at zero.

Bankruptcy Sometimes Involves Luck

Like most things in life bankruptcy involves some luck. Particularly, there is luck in the draw of your bankruptcy trustee. There is variation among Chapter 7 bankruptcy trustees in their policies concerning pursuit of non-exempt assets which can be taken from the debtor to pay unsecured creditors. Bankruptcy trustees are paid mostly by "commission"; they are paid a percentage of money recovered for creditors. They are not paid based on the time they spent trying to recover assets. The same is true for attorneys employed by bankruptcy trustees to handle legal proceedings- no recovery, no legal fee. Some trustees are more aggressive than others and will pursue relatively small assets while other trustees often ignore low-value non-exempt assets in order to spend more effort after potentially large recoveries.

Can Debtors File Bankruptcy in Florida While Caring For Parents in Another State?

In the past month two prospective bankruptcy clients presented the same issue with similar facts. The debtors had moved to Florida in the past year and rented apartments intending to get a job and reside in Florida. Soon thereafter, the debtors each had parents living outside Florida who suffered medical problems requiring ongoing care. The debtor’s moved in with their parents outside of Florida. Because they debtor’s job search had been interrupted by their parent’s illnesses they had continued to accumulate credit card debt which they could not repay. They wanted to file bankruptcy in Florida. They asked if they should be filing in Florida even though they currently resided with their parents in different states.

Homestead Exemption and Entireties Exemption Are Independent Protections

A joint debtor’s homestead can be exempt in bankruptcy either as homestead pursuant to the Florida Constitutional exemption or exempt as tenants by entireties pursuant to the exemption established by our state court judicial traditions. Suppose that five years prior to filing bankruptcy a couple is subject of a civil money judgment, and that they invests a large sum of cash in a Florida homestead in order to protect the money from their creditors. They take title to the homestead as tenants by entireties. During the five years they suffer additional judgments, incur more debt, and that today on of the spouses files Chapter 7 bankruptcy. The new bankruptcy law says that if debtors invest money in a homestead to avoid creditors within 10 years of filing bankruptcy the transfer is subject to reversal as a fraudulent conveyance and that the property loses its bankruptcy exemption. The issue is whether the debtors can exempt their home as entireties property. Tenants by entireties property is exempt in a Chapter 7 bankruptcy filed by one spouse to the extent there are no joint debts of the filing and the non-filing spouse.

Bankruptcy Attorney Doesn’t Return My Phone Calls

I found an interesting article about bankruptcy law practice written by a Oregon bankruptcy attorney named Karen Oakes. My Bankruptcy Attorney Doesn’t Return My Phone Calls. Why? : Bankruptcy Law Network.

All attorneys , not just bankruptcy attorneys, are reminded frequently by their professional associations that that clients’ most frequent complaint about attorneys is the latter’s failure to promptly return phone calls. Ms. Oakes points out why many attorneys who practice bankruptcy cannot return all client calls as promptly as their clients would like. Her explanations do not excuse attorneys who purposefully avoid client contact or those attorneys who feel so important that they do not have to respond to their clients. Yet, she correctly points out, I think , that bankruptcy attorneys too are affected when a recession creates economic stress and an increases in bankruptcy filings.

"Special Circumstance" Exception To Means Test Is Narrowly Construced By Florida Court

People who earn above median income and who fail the "means test" cannot file Chapter 7 bankruptcy. There is an exception for debtors who can demonstrate "special circumstances." I have had many clients who felt their circumstances were special so that they should be able to file Chapter 7 even in they "technically" failed the means test. The term "special circumstances" is obviously vague. Everyone seriously considering bankruptcy has financial problems and circumstances which require relief, but not all financial problems can meet the test of "special circumstances." A recent Chapter 7 court decision from the Middle District of Florida found that the "special circumstance" provision is intended to provide a narrow exception, and that the debtor has a difficult burden of showing why he can file Chapter 7 despite failure to pass the objection "means test."

Dismissals Of Chapter 7 Bankruptcy As Abusive When Debtor Passes Means Test

Many bankruptcy debtors do not understand eligibility for Chapter 7 bankruptcy. They rely  too much on the means test, and they assume that if they are exempt from or pass the means test they automatically are eligible for Chapter 7. The means test is one test of Chapter 7 qualification but it is not the only applicable standard. If a debtor passes the mathematical means test analysis he avoids a presumption of abuse; the law creates a presumption that debtors who cannot pass the means test should not be filing Chapter 7 bankruptcy. However, the means test is not the only test. Debtors who pass the means test, or are exempt from the means test, may still have their Chapter 7 filing dismissed or converted to Chapter 13 if the totality of circumstances of their financial and family situation shows that their Chapter 7 is an abuse of the bankruptcy system. A Chapter 7 filing is abusive if it was filed in bad faith or if the applicable circumstances show that the debtor has the ability to repay a significant portion of his unsecured debts.

Mortgage Companies Refusing Loan Modification To Some Chapter 7 Debtors

There was an article in the newspaper today concerning the increasing number of mortgage modifications for troubled homeowners. I have received inquires from some of my bankruptcy clients who are attempting to modify their home mortgage after filing Chapter 7 bankruptcy. These former bankruptcy debtors complain that the lender told them they could not modify their mortgage because, "the mortgage was not included in the bankruptcy." Initially, I could not understand what these people were trying to say because all bankruptcy petitions must include all unsecured and secured debts, including mortgages the debtor intends to modify for an exempt home they intend to retain. A call to one of the lender’s legal departments clarified the issue.