The Florida Bankruptcy Law Blog

Bankruptcy's Effect Upon Government Security Clearance And Job

People working for the U.S. government in sensitive positions are frequently concerned that filing bankruptcy will jeopardize their government security clearance. I have not heard from any of my own bankruptcy clients that their bankruptcy caused them to lose their government jobs or security status. I recently read a comprehensive article on this question written by Louisiana bankruptcy attorney Kevin Gipson. Concerned goverment workers should refer to this article. 

Bankruptcy Debtors Cannot Intentionally Delay Important Petition Amendments

The bankruptcy rules provide that a debtor may amend his bankruptcy schedules at any time prior to the case being closed. The debtor can file amendments which claim additional exemptions or new theories of exemption even when property was not claimed as exempt on the debtor’s initial schedules. 
There are, however, some limits on the debtor’s ability to make amendments. A creditor or trustee may object to an amendment which is made in bad faith or which prejudices the creditors. Of course, any amendment which increases the debtor’s exemptions will prejudice creditor recovery, but that is not what the rule refers to. An amendment may be in bad faith or prejudicial if the delay is purposeful or of the delay causes the trustee and creditors to spend significant time and money pursuing issues which are eliminated by the late amendment. 

A debtor should not be permitted to hold an amendment “in his pocket” while watching other parties spend their resources litigating issues or pursuing assets which the debtor knows will be made moot by the planned amendment. In such cases, the administrative expenses incurred by the trustee and others will be wasted and will reduce the money available for distribution out of estate assets. This type of delay in amendments, whether intentional or negligent, is prejudicial and will usually be denied. 

Can Bankruptcy Stop A Residential Tenant Eviction?

About one month ago I received a call from a blog reader about the effect of filing bankruptcy on residential evictions. The caller wanted to know if he could stop an eviction from his rental apartment by filing Chapter 7 bankruptcy.

The answer depends upon the status of the eviction process is at the time of the bankruptcy filing. If the landlord has not obtained a state court judgment entitling the landlord to possession of the property and the removal of the debtor then the bankruptcy will stay the eviction proceeding. If the state court has issued a judgment of possession the bankruptcy will not stop the eviction, but there are several exceptions. For example, the bankruptcy tenant can stay the eviction for thirty days if he has a right to cure the lease default under state law or he deposits in the court registry the amount of rent which will become due during the thirty day stay.

Even if the law permits the landlord to evict the bankrupt debtor the bankruptcy stay will prevent the landlord from executing remedies other than eviction to collect past due rent.

Book Deals And Movie Deals Are Not Part Of Bankruptcy Estate When Contract Is Signed

One of my new bankruptcy clients is a published author. His career stagnated. He piled up a large amount of unsecured debt to pay living expenses and keep his house. He just signed a substantial book deal to write a new book. His ship is not “in”, but he can see the sail on the horizon.

He has a signed contract with the publisher. When he completes his book the publisher will pay him big bucks. There is a small advance. The man wants to file Chapter 7 bankruptcy. He wants to know whether the trustee will take the proceeds of his book contract.

The book contract is what the bankruptcy law refers to as an executory contract. The debtor has to perform personal services in order to get paid. When he completes the book his right to the money will vest; no more services will be required. Contracts which are executory- there is work that the debtor still has to do- on the date of filing are not part of the debtor’s bankruptcy estate. The trustee cannot write the book on behalf of the debtor, and the trustee cannot force the debtor to write. No slave labor in bankruptcy.

This client can file bankruptcy, write the book, and keep the money. Book deals, movie deals, and public appearance contracts are not part of the bankruptcy estate until the debtor has performed what he agreed to do.

Bankruptcy For Illegal Immigrants

Here is some interesting bankruptcy trivia discussed in a blog post by Oregon bankruptcy attorney Kent Anderson. The issue is whether an illegal immigrant can file bankruptcy in the U.S. One would suspect the answer is “no” for any number of reasons. For example, filing bankruptcy requires that the debtor establish a permanent residence in one state or another for the prior year. Permanent residency presumes the debtor’s intent to live permanently in the state. But, can someone here illegally have the requisite intent to reside permanently? Also, bankruptcy trustees demand that debtors show proof of a social security number at the creditors meeting. Illegal immigrants could not show a social security number (unless the number is fake).

That’s what you would think, but as Mr. Anderson writes in his post the contrary is the law. He states than an illegal can file bankruptcy if he demonstrates he has lived primarily in the filing state for the greater part of the previous 90 days. The post states that the bankruptcy law has no U.S. citizenship requirement and that an illegal can circumvent the social security number requirement by getting an “Individual Taxpayer Identification Number.”

I have never been asked to file bankruptcy for an illegal alien so I do not know if Mr. Anderson’s analysis is correct. In any event, his post is thought provoking.

Should Casey Anthony File Chapter 7 Bankruptcy?

If I were a law school profession teaching an introductory consumer bankruptcy class I would consider the following question for a final exam: Would You Advise Casey Anthony To File Chapter 7 Bankruptcy? Assume That A Civil Jury Would Find Her Liable For Her Daughter’s Death, and Assume That Ms. Anthony Will Have Lucrative Media Related Income In The Future.

The answer to this question involves several interesting bankruptcy law issues. Qualification for Chapter 7 bankruptcy under the means test  appears initially not to be a problem since Ms. Anthony has been unemployed. There are media reports that people have been sending her money while in jail. There may be an issue whether these receipts are gifts or income earned because of her celebrity and therefore countable as means test income. Her future income is probably too speculative to support a trustee’s claim that the future earnings should disqualify her from Chapter 7.

She has not current assets except donations received while in jail. Future earnings from personal services such as speaking or interviews are not bankruptcy assets. However, a trustee could argue that Casey Anthony’s name and her story are current assets that will generate future income. This intellectual property issue is  most important in this bankruptcy analysis.  The question is whether future media rights are too speculative to be considered current assets in bankruptcy. If a third party offers to pay the trustee to buy this interest the debtor, Casey Anthony, may not pursue such business opportunities unless there is a settlement providing her the majority of income therefrom.

Chapter 11 Bankruptcy Often Too Expensive For Small Business

Many small businesses are struggling in a bad economy, and often a business owner will ask me if bankruptcy will help them save their business. Most of these people are looking for a way to restructure debt and get some breathing room from their creditors so they can rebuild their operations. Bankruptcy law provides for restructuring a business through a Chapter 11 bankruptcy

 Chapter 11 bankruptcy procedures are designed for all businesses, from the small mom-and-pop up to large public corporations. Small business have to go through the same Chapter 11 procedures and hearings as do the largest companies like GM , Delta Airlines etc. Chapter 11 bankruptcy is complicated and very expensive compared to the consumer bankruptcy chapters 7 and 13.

Most small businesses already in financial trouble cannot afford to file Chapter 11. The initial legal retainer fee usually ranges from $20,000 and up. I recently read a good blog post on Scott Riddle’s Georgia Bankruptcy Law Blog  which explains in  detail why Chapter 11 bankruptcy is so expensive. Scott lists many of the Chapter 11 requirements and points out that, “The items listed above are required in every Chapter 11 case, whether it is a single asset real estate entity or a large manufacturing company.”

Can Florida Bankruptcy Debtor Exempt Entireties Assets From Debt Incurred In A Community Property State?

Man lives in Idaho with his wife. Man borrows money. He can’t pay back the money. He and his wife move to Florida where they buy a house and open a joint bank account. The man files Chapter 7 bankruptcy. Is the bank account exempt as tenant’s by entireties property?

The general rule in Florida is that bank accounts owned jointly by the bankruptcy debtor and his non-filing spouse are exempt as tenants by entireties property. The above fact situation is complicated by the fact that Idaho is a community property state.  In most community property states the law provides for co-equal management of community assets and that when either spouse incurs a debt for the benefit of the marital community the creditor may seek satisfaction of his unpaid debt from all community property; the rule is the opposite of our tenancy by entireties concept of marital property.

Exemption Of Jointly Owned Sail Boat With Broken Motor

A man consulted with me about filing Chapter 7 bankruptcy. The client and his non-debtor spouse lived on their sailboat docketed at the marina. The boat’s motor was broken but the sails worked. The boat was registered on a national boat registry with a federal boat ownership certificate. The ownership was listed as: husband wife. Not husband and wife, not husband or wife, and there was not choice of specifying ownership as tenants by entireties, tenants in common, or even as joint tenants with rights of survivorship. The client wanted to know if his boat was exempt from creditors under Florida law.

There are two possible exempts applicable to this boat: homestead and tenancy by entireties. A boat can be a homestead so long as the boat is permanently docket and is not suitable for transportation. A seaworthy  boat is more like a “boat” than a “home.” This client’s boat could sail. However, the client explained that the boat could not reach open water without navigating though the docks and other docked boats which it could only do with a working motor. The client stated his boat could not sail away from its docket location without a motor.

In my opinion, this sailboat is currently not seaworthy. The client is using the boat more as a “home” than as transportation. I think this  boat would be exempt homestead. However, if the boat’s motor is easily repairable a court could find that the asset is primarily a “boat” which is only temporarily immobile.

Client Sells Former Residence And Pays Down Mortgage On Current Homestead: Fraudulent Conversion?

Five years ago one of my clients bought a new home pre-construction while he lived in his then current Florida homestead. The builder told him the new home would take 18 months to build. The builder finished early, in 12 months, and wrote my client a letter saying the home was soon complete and that under the construction contract he must purchase the new home in 30 days. The client had not yet put the existing home on the market (in the old days, it took only a month or two to sell a house). So, the client closed on the new home, then put the old home on the market. Three months after moving he sold the old home. He used all the sales proceeds to reduce the principal balance of the new mortgage on the new house. Now, he wants to file Chapter 7 bankruptcy and asks whether transferring the sales proceeds to the new house is a fraudulent transfer.

When the debtor moved to the new home he moved his homestead. The hold home ceased to be an exempt homestead property when the debtor moved in to the newer home as his principal residence. The use of sales proceeds to pay down the homestead mortgage was a conversion of non-exempt money to an exempt asset. The transfer cannot be attacked under Florida fraudulent transfer statutes because it occurred five years ago, beyond the statute of limitations. However, conversion of money to a homestead property within 10 years of filing bankruptcy may be avoided under bankruptcy law if the debtor intended to pay down his mortgage to avoid creditor claims.