Florida Bankruptcy Law Blog

People Without "Green Cards" May File Bankruptcy in Florida

Do you have to be a U.S. citizen or a permanent resident to file bankruptcy in Florida? A caller asked me today whether he had to have his "green card" before he could file Chapter 7 bankruptcy. You do not have to be a permanent resident of Florida or of any other state to file bankruptcy as long has you have substantial property in this country. Section 109 of the Bankruptcy Code states who may file bankruptcy. The Code says that, "a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title." A person with a business or property, including financial accounts, in Florida may file bankruptcy in Florida even if they are not permanent residents. These same people may not, however, be entitled to claim the Florida banrkuptcy exemptions.

Having permanent residency is important to qualification for certain property exemptions such as the important homestead exemptions. Homestead protection requires that the owner intend to permanently reside in the property. Several courts have held that Florida residents without "green cards" giving them the right to permanently reside in this County cannot have the intent to make a Florida home their permanent homestead.

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

Discharge Of Attorney Fees Awarded As Discovery Sanction In Civil Lawsuit

A caller and prospective bankruptcy debtor asked if attorneys fees awarded in a civil proceeding as a discovery sanction could be discharged in a Chapter 7 bankruptcy. The caller was concerned that "sanctions" imposed by a civil state court are in the nature of a "fine" or "penalty" for violation of court discovery orders. Section 523 of the bankruptcy code lists all types of debts which are non-dischargeable. All debts not listed in that Code section are dischargeable. Attorney fee sanctions in civil proceedings are not among the listed non-dischargeable debts.

Section 523 does include fines and penalties among non-dischargeable debts, but it specifically is limited to those fines and penalties payable to a governmental unit. Discovery sanctions in civil lawsuits are payable to the opposing party and not to the court or any unity of state or local government. There is nothing in Code section that describes civil sanctions awarded as part of civil judgment pursuant to a statute or contract. There are some exceptions where civil attorney fee awards will survive bankruptcy. At least one Florida bankruptcy court held that attorney fees awarded in a divorce case cannot be discharged if the proceeding is related to support or alimony. Also, fee sanctions awarded in the bankruptcy proceeding itself must be paid by the debtor. However, the general answer to the question is, I believe, that attorney fee sanctions and judgments for attorney fees in civil lawsuit can be discharged.

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

Interesting Question About Homestead Exemption In Bankruptcy

I enjoy getting challenging questions for readers, especially from other attorneys. I write my blog entries for "people" as opposed to attorneys, so I am flattered that any attorney would find my comments interesting. Here’s an interesting email from a Florida attorney:

I also have a fact pattern that I would like your opinion on. Assume that an individual refinanced a homestead property over three years ago and took the cash from the refinance and used it to purchase and renovate another property. He owns the second property as tenants in common with another unrelated individual. Following the completion of the renovation, the individual moves into the second property and makes it his homestead. He then rents out the original property to cover the costs of the mortgage.

Three years have now passed. He is no longer able to make the adjustable rate payments on the original property that is now rented. He also has other credit card debt that he would like to discharge and he is considering filing for Chapter 13. He would like to discharge the credit card debt as well as to surrender the original property (now $100,000 underwater) to the lender in the 13. He is concerned about protecting the equity in his homestead (approximately $50,000) from creditors in the 13.

Based upon my knowledge (and what I have learned from your analysis in the blog), I would assume that the trustee or the judge would need to find that he intended to file at the time of the transfer and that he knew the asset would not be exempt in the bankruptcy. If the potential debtor had no intention of filing and the asset was exempt at the time of the transfer (a homestead to homestead transfer), the equity would be safe from attack.

This is my opinion for what its worth: If the person sold the first house and put the $50,000 proceeds in a bank account while he searched for a new homestead the money would remain exempt homestead property until the new house was purchased. That’s not what happened. When the person purchased the new house as tenants in common I do not think the new house was protected homestead just because the person may have intended to occupy the house at some point. I think the person’s tenant in common (50%) interest in the new house is protected once he moves in and makes the new home his primary residence.

I do not think a bankruptcy court would deprive the debtor of a homestead exemption in the new home. The bankruptcy petition will have been filed over three years after the debtor moved into his new homestead. He purchased the property over three years ago (the purchase date is not specified in the question) The trustee would have to prove a fraudulent conveyance under Florida’s fraudulent conveyance statutes as opposed to the applicable sections of Bankruptcy Code. because the property became homestead and was purchased over two years before the filing. I do not see a strong case of the debtor’s intent to defraud creditors. Florida law is supposed to apply homestead exemptions liberally for the benefit of the debtor’s family. Also, I do not think there is such thing as a "fraudulent move" so I think the transfer date, for fraudulent conveyance purposes, would date back to the time of purchase of the second property as opposed to the time of occupancy. All things considered, this fact situation should withstand a challenge to the debtor’s homestead exemption.

 

 

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

Is There A "Hardship Exemption" Under Florida Law?

Florida law has many laws protecting the debtor’s ability to provide for his family. Creditors cannot take a family homestead, and creditors cannot garnish the wages of a debtor who supports a spouse or children. A debtor may own a car to get to work provided the car is worth less than $1,000, and there is no prohibition about debtors using cars owned by their spouses. Other than the generous exemptions of Florida’s asset protection law there are no laws which exempt assets necessary for the debtor to maintain his current lifestyle or his job. Most debtors who are unable to support themselves or their families as a result of a creditor’s successful collection effort are eligible to file bankruptcy and discharge all their debts. After bankruptcy, a creditor cannot attack the bankruptcy debtor’s future wages or any assets the debtor acquires in the future.

I have been asked several times over the past years if debtors can assert a "distress" defense to creditors’ collection tactics. Most often, people ask whether they can reverse wage garnishment or car attachment if, as a result of the collection, the debtor suffers severe financial difficulty. Last week a caller asked if a judge would dissolve a wage garnishment because without all of his income he would be unable to pay his home mortgage. Another person asked if a court would order a judgment creditor to return an automobile the creditor took to satisfy a judgment because the debtor needed the car to work. The general answer is "no." There are no hardship defenses to collection.

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

Is Motor Home Exempt Homestead In Chapter 7?

An asset protection client described the following homestead dilemma. The client lived in a mobile home on a lot he and his family rented in a trailer home park. The mobile home had a motor and was drive able, but the family had attached the home to utilities service on the lot and had not driven the home off the lot for several years. The family wanted to travel to Minnesota and live there temporarily in the motor home during a job assignment. The client assured me that the family would return to Florida as soon as he completed the temporary job assignment. He asked whether the mobile home would be exempt homestead property if he filed for bankruptcy soon after returning to Florida and living in the mobile home on the same rented lot.

There are several issues raised by this fact situation. As long as the client always intends to return to Florida I do not think he interrupts Florida residency for bankruptcy purposes by his temporary situation in another state. The more important issue is whether the mobile home is homestead property. Courts have protected all sorts of property under a homestead umbrella including cooperative apartments, mobile homes, and houseboats. Homestead law is liberally applied to protect the debtor’s family.

The motor home is closest in kind to a houseboat. Both the houseboat and motor home are motorized and capable of self-movement. Courts have denied homestead protections of houseboats which had a functioning motor and were used, or capable of use, as a sailing vessel. Houseboats permanently attached to a dock have been afforded homestead protection in Florida. When this client’s mobile home was permanently anchored to the rental lot it may have been protected homestead. I think a bankruptcy court may deny homestead protection after the client drives the motor home back and forth to Minnesota. Homestead protection would not be lost because this family moved away from Florida temporarily, but it may be lost because they drove their home out of state. If the client left the home anchored in Florida, traveled to Minnesota by other means, and rented a place in Minnesota I think he would have a better chance, but far from certainty, of protecting the mobile home if he were to file bankruptcy in Florida upon his return.

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

Are Investments Financed With Consumer Credit Cards Non-Consumer Debt For Means Test Qualification?

We are preparing a bankruptcy for a client whose household income is over $100,000 per year. He does not even come close to passing the means test. The client states that most of credit card debt is for cash advances which were invested in the stock market. He also took a second mortgage on the house and invested most of the money in the stock market. The recent stock market crash is causing him to default on the credit cards. The client insists that his credit card advances invested in the market constitutes "non consumer debt" and because most of his overall debt is "non-consumer" debt he is exempt from the means test.

The client is correct that people whose debts are primarily not consumer debt do not have to pass the means test and all other things being equal can file Chapter 7 bankruptcy regardless of whether they otherwise pass the means test analysis. The issue is whether a cash advance by a consumer on a personal credit card is "non-consumer debt" because the consumer invests the money in the stock market or another type of businss venture for profit.

I am not aware of any cases on this issue; nor, have I ever researched the issue. I did have the chance to speak with an attorney for the U.S. Trustee about another bankruptcy case,  and in the course of the conversation I raised the stock market/credit card issue. The attorney stated that the U.S. Trustee will treat stock market investments financed on credit cards as non-consumer debt for means test purposes if the debtor can clearly trace credit card advances to investments in the market or another business venture.

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

Hiring Debt-Relief Company To Negotiate With Credit Cards

Many prospective bankruptcy clients ask me during their initial consultation whether they should use a company to help them negotiate settlements with credit card companies prior to pursuing Chapter 7 bankruptcy. My experience is that credit negotiation companies can help people with a small number of credit cards, but they usually are unable to successfully settle with several different creditors. The bigger problem is that a significant percentage of credit negotiation companies are scams; they charge already overwhelmed consumers up-front fees and then do very little to solve the consumers debt problems. The Wall Street Journal on October 14 had an article on "debt relief firms. " The article conveys the story of a Florida consumer who hired a debt-relief company which never settled any of his debts. The consumer eventually had to file bankruptcy and says that "I wish I had done that to begin with." If you are considering hiring a company to settle your credit card debts, you should first read the Wall Street Journal Article.

The web address of the Article is : http://sec.online.wsj.com/article/SB122394458494631223.html

Watch What You Say When You Meet The Bankruptcy Trustee

I tell my bankruptcy clients that when they meet the Chapter 7 Trustee they should answer his questions truthfully and simply, but that they should not volunteer information which is not responsive to questions. Last week, one of my clients was progressing through an uneventful meeting with her Chapter 7 Trustee. The Trustee asked whether the client expected an income tax refund for 2008, and the client said she did not. The Trustee was then about to close the meeting when the client blurted out a question, "What do you want me to do with my IRS stimulus check?" The Trustee then explained that the client would have to turnover the $1,600 check to the bankruptcy estate.

After the meeting concluded and the client walked out the Chapter 7 Trustee explained to me that although stimulus checks issued pursuant to the governments economic stimulus program passed and implemented earlier this year are non-exempt assets and part of the estate, most bankruptcy Trustees in our area do not pursue this money as an unofficial concession to bankruptcy debtors in the midst of terrible economic times. However, if a debtor or his attorney raises the issue during a meeting being recorded the Trustee is obligated to demand the money.

This innocent and well-intentioned question by this client cost the client $1,600. The lesson for bankruptcy debtors is that they should always provide complete and honest answers to questions either on the bankruptcy petition or to a bankruptcy trustee; otherwise, do not speak unless spoken to. You do not have to assist the bankruptcy trustee who, if he wants information, he will ask for it.

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

Cash Value Life Insurance Owned Jointly With Non-Filing Spouse

The cash value of a life insurance contract may be exempt under Florida law. Cash value life insurance is exempt only to the extent of life insurance owned by the debtor insuring his own life. The exemption does not hinge on whether to debtor, his estate, or some other person is the beneficiary of the insurance policy. If a debtor purchases life insurance on the life of another person, such as his spouse, the cash value of such policy is not exempt under Florida law. A prospective bankruptcy client (husband) stated that he and his non-filing spouse own two separate life insurance policies with cash value; one policy insures the debtor’s life and the other policy insures the life of the non-filing spouse. The two policies have equal death benefits and cash value. The debtor ask is the cash value of each policy is exempt or is non-exempt property which will be taken by the bankruptcy trustee.

The debtor has a 50% interest in the cash value of both life insurance policies. The debtor’s 50% interest in the cash value of the policy insuring his own life is exempt. The wife’s interest in either policy is not part of the debtor’s bankruptcy estate. The cash value of the policy insuring his spouse is not exempt because it does not insure the debtor’s own life.. As the debtor owns only 50% of the cash value of the policy on his wife only 50% of the value is part of his bankruptcy estate. However, the debtor could argue that the cash value of the policy on his wife, owned jointly with his wife, is tenants by entireties property. If he and his wife have no joint unsecured debts all of the debtor’s tenants by entireties property is exempt in Florida. I am not aware of any case which exempted cash value life insurance as a T by E asset.

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

Does Creditor Commit Fraud By Using Credit Card and Filing Bankruptcy Soon Thereafter?

Many debtors express concern that a creditor will say they were defrauded when the debtor used the credit card filed bankruptcy wiping out the debt. I am often asked how far back will creditors look in deciding whether use of a credit card was fraudulent because the debtor did not have the intent or ability to repay the loan. Here is an interesting discussion of that question on another banruptcy website. Link: If I Charge On My Credit Card And Don’t Make A Payment, Is This Fraud? : Bankruptcy Law Network.