The Florida Bankruptcy Law Blog

Limited Homestead Protection Prior To Two-Year's Florida Residency

If you file Chapter 7 bankruptcy and own a non-exempt real property jointly with a non-filing co-owner (including your spouse) the bankruptcy trustee can for the sale of the jointly owned property regardless of the co-owner’s objection. The trustee’s authority to liquidate the debtor’s jointly owned property falls withing Section 363 of the Code. The trustee would split the sales proceeds with the non-filing co-owner. An interesting situation arises when the subject property is the debtor’s homestead owned by the debtor and occupied by the debtor and his non-filing spouse. Homestead protection is different in bankruptcy than it is outside of bankruptcy. Outside of bankruptcy full homestead protection vests upon occupancy whereas in bankruptcy full homestead protection does not fully vests for two years or more after ownership and Florida residency are established. Florida law fully exempts the owner’s homestead equity, and Florida law provides the non-owner spouse with a protected life estate in the home.

A Florida bankruptcy court commented on a situation where a debtor and family moved to Florida, and the husband bought a house. The husband filed Chapter 7 bankruptcy; the wife did not file bankruptcy. Under the bankruptcy rules the debtor was not eligible for Florida’s homestead exemption because he had not lived in Florida for two years. At the same time, the wife’s homestead life estate were vested under Florida state law. The issue addressed is whether the bankruptcy could liquidate the debtor’s non-exempt homestead property over the objection of the non-filing spouse.

Restablishing Good Credit After Bankruptcy

Most bankruptcy clients ask me during our initial consultation how bankruptcy will affect their credit and how long will it take them to reestablish their credit after bankruptcy. I have written a few blog posts on this issue. I recently read a blog post by bankruptcy attorney Jay Fleischman of New York which provides a clear and accurate summary Credit. Mr. Fleischman points out that although a bankruptcy may appear on your credit report for a long time, debtors with an otherwise good credit history may quickly recover their ability to borrow money.

Client Seeks Bankruptcy To Avoid Imputed Income After A Foreclosure On Investment Property

Some people facing mortgage foreclosure consider filing bankruptcy to preclude liability for deficiency judgments. Deficiency liability is not the only problem associated with foreclosure; another issue is income tax from imputed income when a lender foregives part of a mortgage note for a property other than a primary residence. Today, I met an elderly lady who had guaranteed a mortgage loan used by her son to buy the son’s primary residence. The mother resided in her own house even though her name was on the title and mortgage of her son’s house. The son’s house is about to go into foreclosure because the son is unemployed. The mother received an offer for a short sale. The mother wants to file Chapter 7 bankruptcy in order to avoid income tax liability from forgiveness of the debt following either foreclosure or the short sale. People who file bankruptcy do not recognize imputed income from mortgage debt forgiveness. This client had no credit card debt or other unsecured debts. She has no assets other than her exempt pension.

I advised the mother not to file bankruptcy. Most lenders who accept short sales are asking the debtor/owners to sign a note for the amount of debt forgiveness, ie, the "short amount." I advise people with assets not to sign the note even if it means killing the short sale. In this case, the mother would not be putting any assets at risk by signing a note. If the mother signs a promissory note as part of the short sale the lender would be forgiving nothing and there would be no imputed income. In the event the lender rejects the short sale, or if the lender does not accept a note for the "short amount", the mother’s best tax result would be to make sure the lender does not forgive any of the mortgage debt in the course of the foreclosure. The mother is defending the foreclosure in state court. I suggested her lawyer pursue a settlement that eliminates debt forgiveness; she wants to remain liable for the mortgage. The mother can later file bankruptcy if, for instance, it appears that the mortgage company will forgive the mortgage balance after a short sale or foreclosure, or if the mortgage lender pursues a deficiency judgment or note enforcement. In general, bankruptcy is a last resort to be used when there are no other options.

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

Can Debtor's Deduct In Means Test Mortgage Payments Owed But Unpaid?

Prospective bankruptcy debtors who earn above applicable median income must pass the means test in order to file Chapter 7 bankruptcy. The means test formula deducts from income certain allowable expenses to determine if your net income is under the applicable disposable income limits. Secured debt payments are among the allowable expenses. For most debtors, their mortgage payments are their biggest expense deduction in their means test. Many chapter 7 cases involve homeowners who are in the process of surrendering their home, or homes, to foreclosure. These debtors are not paying their mortgage payments and will not pay the mortgages in the future. Several U.S. Trustees have complained about different Chapter 7 debtors taking large mortgage expense deduction on their means test when the debtors have not paid and will not pay the mortgages. Should debtors be allowed to pass a means test using "phantom" expenses that are due on paper (the mortgage) but which are no longer being paid?

Debtor Is Responsible To Report Changes In Finances Or Assets Up To Day His Petition Is Filed

I read a blog post by attorney Craig Andresen, a Minnesota bankruptcy attorney, discussing a  problem which occured  when a debtor’s assets or finances changed just prior to the attorney’s filing of the debtor’s bankruptcy petition. Most bankruptcy clients complete a bankruptcy questionnaire or sample schedules which they give to their bankruptcy attorney’s office for preparation of a bankruptcy petition. When the debtor signs the final petition he is swearing to a financial situation that exists when the signs the petition and not the financial facts when he completed the questionnaire. It is the debtor’s duty to inform the attorney of any changes in his assets or financial situation up to filing the petition.

Man Dies Hours After Filing Joint Bankruptcy; Widow Loses Life Insurance Benefits

I received a call from an attorney from his car on the way back from a creditor meeting with the bankruptcy trustee. The attorneys clients, husband and wife, filed a joint bankruptcy petition. The petition was filed in the morning. The same afternoon, following the filing, the husband passed away. The husband had a life insurance policy which named the wife as the beneficiary. The bankruptcy trustee told the surviving spouse at the creditors meeting that she must hand over to the trustee all the death benefit from her husband’s insurance. The attorney wanted to know if the trustee could seize the wife’s insurance proceeds.

Roommates Sharing A Rented House With Separate Leases Are A Two-Person Household For Bankruptcy Means Test

A debtor’s income relative to the applicable median income is important. Debtor’s below median income are exempt from the means test, whereas those above median income must qualify under the means test to file Chapter 7 bankruptcy. Your applicable median income depends on the number of people in your "household." In some cases, the definition of "household" is crucial to determine your median income and your eligibility for Chapter 7 bankruptcy. In most traditional families household size is obvious; it’s the number of family members living under the same roof. I have one client who seeks to file Chapter 7, but the size of his household is not clear. This client is unmarried. He lives with an unrelated roommate in a rented house. Each roommate has a separate lease with the landlord. They have separate bedrooms, but otherwise share all other rooms in the house and share a common entrance.