Florida Bankruptcy Law Blog

Homestead Accounts Not Applicable For Sale After Filing Bankruptcy

I spoke with a person currently involved in a Chapter 7 bankruptcy and is involved in a dispute with the Trustee over her homestead exemption. Prior to filing bankruptcy the debtor listed her house for sale. She filed Chapter 7 bankruptcy, on day of filing, she still resided in her house. She claimed the house as exempt homestead. After filing bankruptcy she sold the house. The Trustee is arguing that the house is not homestead because either the debtor intended to abandon home by putting it on the market or because the proceeds from the sale were not reinvested in another homestead.

Bankruptcy exemptions are determined on date of filing. If an asset is exempt when a debtor files bankruptcy the asset is not part of the bankruptcy estate and the debtor can do with the asset whatever he or she wants to do after the filing. In this case, the debtor occupied the subject property as her homestead on date of filing. If she sold the property after filing she can do what she wants with the sales proceeds. She does not have to reinvest the proceeds in a new homestead.

If, on the other hand, the house were sold prior to filing bankruptcy the sales proceeds would be exempt only if the debtor intended to reinvest the proceeds in a replacement homestead after the sale and on or after date of filing bankruptcy.

There are court decisions which have held that putting a house on the market does not constitute intent to abandon the house. This debtor’s listing of her house should not forfeit her homestead protection.

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

Can You File Bankruptcy In Florida If You Work And Live Overseas Temorarily?

I received an email from a man who was working overseas on a long-term work assignment. His last residence in the United States was in Volusia County, Florida. He wanted to know if he could file bankruptcy and if his retirement pay, which he received monthly from a prior employer, was protected in bankruptcy. If you leave Florida to work overseas on a temporary basis you are probably still a Florida resident and can file bankruptcy in Florida. He would file in the Middle District of Florida because Volusia County is in the Middle District. Being stationed overseas for work does not forfeit Florida asset exemptions. Pension payments payable to Florida residents are exempt regardless of where the resident resides on a temporary basis.

Discharge Of Fraud Judgment With Credit Cards

A prospective client consulted with me for "pre-bankruptcy planning." The client had a judgment for over $100,000 from a civil suit where the prospective debtor was found liable for civil fraud. Debts from fraud are not dischargeable in bankruptcy. This debtor had a plan. He said he would get cash advances from different credit cards of about $10,000 per month for ten months being careful not to borrow more than $10,000 per card. He would then pay off the fraud judgment, file Chapter 7 bankruptcy and attempt to discharge the credit cards. He understood that one or more credit cards may object to the amount of charges within a year of bankruptcy, but he figured not all creditors would object. If a credit card company did object he said he was earning enough money to settle for an amount less than the face amount of the debt. In other words, his plan would effectively discharge a debt that he was not allowed to discharge.

This plan is substantially the same idea that I heard from another prospective filer last week who paid his taxes with credit cards and planned to file bankruptcy after making minimum payments for a year or more. These people know, and accept the risk, that one or more creditors may get wise to the scheme and demand payment, but they don’t care. They know that the alternative is liability for the entire fraud debt or tax debt. In realty, these people are more likely than not to get away with it in full or in part. If this practice is more common than I realize, or becomes common, the bankruptcy trustees could include in their standard questions at creditor meetings questions about the debtor’s use of credit cards to pay taxes or civil judgments. It may be unethical (and it is so,  in my opinion) for an attorney to give this type of advice to a prospective bankruptcy debtor. Those people with a duty to creditors also should be more alert to using credit cards to improperly discharge debts in bankruptcy.

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

Deficiency Judgments: Update On Tax Consequences

Mortgage deficiency judgments are main reason people express currently for seeking my asset protection advice. I have previously written on this Blog that most lenders do not pursue mortgage deficiencies and some of the reasons for this policy. I just recently spoke with an attorney who represents many mortgage lenders. He said that lenders continue to be inundated with foreclosures and are having difficulty managing the cases. None of the lenders he works for are pursuing deficiency judgments as a matter of course. Many lenders are planning to send 1099 tax forms to borrowers. The lenders file and send the 1099 forms to document their own tax loss. The borrower who receives a 1099 from a foreclosure must deal with its income tax consequences.

I have previously explained in prior Blog posts that borrowers can escape income tax liability associated with foreclosures, deeds in lieu of foreclosure, or short sales by filing a report of insolvency with the IRS. Most people lose properties because the mortgage debt exceeds property value, and the borrowers does not have enough other assets to continue mortgage payments. Most of these borrowers are insolvent. Also, anyone who files bankruptcy is presumed to be insolvent for tax purposes.

To be sure, borrowers concerned about tax consequences of mortgage foreclosure should consult with their CPA. The effect of receiving a 1099 from a mortgage lender is mostly a tax issue rather than a legal issue.

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

Preferential Repayment Of Parents' HELOC Loan

If a debtor repays a prior unsecured loan to another family member within one year of filing bankruptcy the trustee can recover the repayments from the family member as a preferential payment. Debtors are not permitted to prefer family members over unrelated unsecured creditors.

A prospective bankruptcy debtor stated that his parents used a home equity loan secured by the parents’ primary residence to borrow money to pay the debtor (their child) living expenses while he was looking for a job. The debtor did not sign a promissory note to the parents. The debtor found a job and started making the payments on the parents’ heloc loan. The debtor asked whether his payments to his parents’ lender are preferential repayments of an unsecured loan to his family members, or whether the payments are simply payments of a secured debt outside the scope of the preference statutes.

Although the home equity line of credit is a secure debt, it is not the debtor’s secured debt. In my opinion the debtor’s loan to the parents is an unsecured loan. It does not matter where and how the parents got the money to make the unsecured loan to their child. Repayment of the parents’ loan is a preferential repayment of an unsecured loan even though the debtor is writing checks to the parents’ home equity lender. I think a bankruptcy Trustee could go after money paid to the parents’ heloc lender within one year prior to a bankruptcy filing.

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

Credit Repair After Bankruptcy

Often I am asked about rebuilding credit after bankruptcy. Although credit rating is a lending issue and not a legal bankruptcy issue, I understand from reports of prior clients that most people find it easier than first throught to re-establish their credit ratings after bankruptcy. This past Sunday's Orlando Sentinel included an informative article about how bankruptcy debtor can repair their credit. Link: Rebuild your credit after bankruptcy -- OrlandoSentinel.com.

Based on the article most bankruptcy debtors are overly fearful of bankruptcy's effect on credit. The Orlando Sentinel  article points out that bankruptcy debtors will receive offers for new credit cards shortly after filing bankruptcy. Although bankruptcy is on your credit report for up to ten years it usually takes a much shorter time to repair the credit damage. Mortgage lenders tell me that bankruptcy debtors can qualify for new mortgages within two years of their Chapter 7 discharge or the filing of a Chapter 13.

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

Credit Rating After Bankruptcy or Foreclosure

Clients frequently asked me how bankruptcy or a mortgage foreclosure will affect their credit. rating. I usually respond by stating that one’s credit rating is not a legal issue unless there is a violation of federal credit reporting acts. Recently interviewed a new client who worked in mortgage lending. I asked the client to tell me, from his professional experience in lending, how foreclosure or bankruptcy impacts credit.

The client gave me the following guidelines which he said are typical in the lending industries. A Chapter 7 bankruptcy adversely affects credit for two years after the bankruptcy discharge. A Chapter 13 bankruptcy impacts credit for two years after the date the bankruptcy is filed. A foreclosure negatively affects credit for three years after the foreclosure complaint is filed.

If any reader who works in the lending industry has contrary opinion or information, please let me know so I can pass on that information to other readers.

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

Tax Rebate

Most people who are considering bankruptcy will soon receive the economic stimulus tax rebate recently passed by Congress and signed by President Bush. Someone asked me today whether a bankruptcy trustee will try to seize the refund as part of the bankruptcy estate. Normal tax refunds are part of the bankruptcy estate, and debtors must turn over future tax refunds to the bankruptcy trustee. The bankrutpcy trustees have not taken a position on this issue. However, the last time the government gave a special money distribution to jump start the economy the bankruptcy trustees adopted the policy of not asserting any claim to the money on the theory that the money was not a refund of the debtor's pre-filing assets. I expect that this year's stimulus payment will remain debtors' property.

Is Payment To Parents' Corporation A Preference To An Insider

Within six months of filing Chapter 7 bankruptcy a debtor paid back a $10,000 loan from his parents by taking a cash advance on a credit card. In fact, the parents made the loan from a business checking account from their wholly owned family business. The general rule is that the bankruptcy trustee can avoid repayments of loans to family members or other insiders within one year of the bankruptcy petition. The debtors asked whether the bankruptcy trustee could go after their parents for receipt of the loan repayment and whether their credit card company could go after them for borrowing $10,000 shortly before filing bankruptcy when they had no ability or expectation of repayment.

The loan repayment was not directly to the parents, but to a business. The Bankruptcy Code defines insiders to include relatives of the debtor such as a parent. The definition does not seem to include as an insider a corporation or other business entity owned by a relative. The trustee could argue that the repayment to the parents’ corporation was made indirectly for the benefit of the parents or that the corporation is the parents’ alter ego. The debtor’s intent was clearly to prefer the parents at the expense of other creditors.

The loan from the credit card company was similar to a balance transfer where debtors use one credit card to pay off another card. Balance transfers most often are not problematic because the debtor has not acquired property nor benefitted other than adjustment of interest rates. This transaction is somewhat different than a balance transfer among credit cards because the motivation was not an adjustment in payments or interest. The credit card company may assert that the money was borrowed in contemplation of bankruptcy to make a payment indirectly to the debtor’s family.

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

Childrens' Trust in Chapter 7 Bankruptcy

Parents establish an irrevocable trust for the benefit of their children and primarily for educational purposes. The parents serve as trustees. One of the children has special needs. Family friends want to help the parents out financially. Rather than give the parents money, the friend contribute money to the trust. Soon after the friends contribute money to the childrens’ trust the parents file Chapter 7 bankruptcy. The parents asked me whether any part of the trust could be claimed by the bankruptcy trustee.

Based on these facts, and assuming the trust has standard form language, I do not think any part of the trust is subject to the trustee or other creditors. The parents have stated a valid reason for creating an irrevocable trust other than shielding money from creditors. Recent contributions to the trust by friends are not fraudulent transfers because the transfers were by people other than the debtors. The parents’ control over the trust as trustees does not make the trust assets their property as long as the parents are not potential income or principal beneficiaries.

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

Mortgage Deficiency : Time Limits

A mortgage lender has the option to pursue a deficiency judgment following a foreclosure. Many people have asked me how long does the mortgage lender have to decide whether or not to get a deficiency judgment. Otherwise stated, what is the statute of limitations applicable to deficiency judgments. I do not practice civil litigation and have no personal experience litigating mortgage deficiency proceedings. I referred the question to a professional colleague who is involved in real estate and lender litigation. He said that there is a four year statute of limitations on deficiency judgments. If so, a lender has up to four years after a foreclosure judgment to file an action for a deficiency judgment against the borrower. As a practical matter, most lenders decide whether or not to seek a deficiency shortly after the foreclosure is complete. It is possible, but unlikely, a borrower will face a deficiency action years after the foreclosure judgment.

Exxon Dealers Class Action As Bankruptcy Asset

have received a few calls in the past months from people who had filed bankruptcy several years ago and have been notified recently that they are entitled to recover money as part of a class action lawsuit brought by a class of Exxon gas station owners against Exxon. The latest caller said that at the time he filed bankruptcy he had not filed a claim to be included in the Exxon class and did not know he was eligible to file a claim. Nevertheless, it turns out that he had a cause of action as part of the class action at the time he filed bankruptcy. The class action administrators are refusing to pay him his share of the recovery until he gets an order from the bankruptcy court stating whether or not the recover is part of his bankruptcy estate.

This claimant/debtor probably has to reopen the bankruptcy case to amend his schedule of assets. Based on the facts presented, the debtor did not act in bad faith by failing to list a cause of action against Exxon because he had no knowledge of his right. My guess is that even absent bad faith the Exxon recover should be part of his bankruptcy estate and notices should be sent to his creditors. Even then, is the value of the asset the amount which would have been the present value at the time of the bankruptcy, or is it value the amount of recovery today including substantial interest. It will be interesting to see how the bankruptcy judge resolves this issue.

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

Is Unmarried Girlfriend Or Boyfriend Part Of A Bankruptcy "Household?"

People whose annual income is under Florida median income do not have to pass a "means test" to file Chapter 7 bankruptcy. Applicable median income depends on the size of your household. Household size is not the same as "family size." Many people have family members not living with them in the same household. Last week I received a phone call from a prospective bankruptcy debtor who lived in the same household with his girlfriend. They had a child living with them. The question is whether an unmarried "girlfriend", "boyfriend" or even a friend splitting rent is part of a household for bankruptcy purposes where there is no legal relationship between the people involved. In that particular case, I think the debtor includes at least his child as part of the household, but I am not sure if the girlfriend is part of a household for bankruptcy purposes. I am not aware of any court decision defining the limits or definitions of "household" for purposes of the means test. There probably are some cases which have discussed the topic, and I would appreciate a reference if any reader is aware of case law on this issue.

Mortgage Deficiency Judgments: How Real Is The Risk?

Many callers and clients are concerned with deficiency judgments from foreclosures on investment properties. Some bankruptcy attorneys I’ve spoken with state their business is increasing largely because of their clients’ concern for deficiency judgments. I have written prior blog posts which explained the process mortgage lenders are required to follow to get a deficiency. I had questioned whether borrowers are exaggerating the risk of deficiency judgments. Today I received a call and email from a prospective client who gave me additional first-hand information about the prevalence of personal judgments against borrowers because of mortgage deficiencies.

The prospective bankruptcy client was facing a mortgage foreclosure on an investment property and was concerned about deficiency judgments. The borrower happened to be a clerk at a local courthouse and worked in the section that handled foreclosure suits. I asked the person to check with the civil clerk who handled mortgage deficiency actions to find out the extent to which lenders are actually pursuing personal money judgments against borrowers for deficiency amounts. The person handling deficiency actions reported that only one or two mortgage lenders have been pursuing any deficiency judgments and that a small percentage of foreclosures also involve deficiency actions. While there is always some risk of deficiency judgments, there is evidence that deficiency judgments are improbable in practice. Many people should wait until after the foreclosure process in complete before filing bankruptcy preemptively to avoid a deficiency action that likely will never occur.

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

Recovery In Class Action Lawsuit After Bankruptcy Closed

When you file a bankruptcy petition you are supposed to list all claims you have or may have against someone else. It doesn’t matter whether you believe your claim is likely to be successful or that you think you will ever collect any money; if you are aware of a potential, long-shot claim its best to list it. This week a new client told me a story about his bankruptcy that illustrates the importance of listing claims.

The client filed bankruptcy years ago- his case is now closed. Before he filed he filled out a form he received from a class action lawsuit. Many people receive these forms, and very few ever result in any recovery. His bankruptcy attorney suggested he not even list the claim because it had absolutely no value at the time he filed. A few months ago, without any warning, the client receives a letter from the class action attorneys saying that the defendants are interested in settling his claim for hundred of thousands of dollars. The class action attorneys found out he had previously filed bankruptcy after the class action case began. They will not finalized settlement of his claim until he resolves the rights of the bankruptcy trustee to the claim settlement.

If he has listed this class action on his bankruptcy schedules, even for a value of $1.00 or "value unknown", and put the claim under his schedule of exemptions the debtor would have been entitled to now keep the full value of the settlement according the majority of cases I found. However, because he failed to list the class action claim the entire claim is property of his bankruptcy estate after the case is reopened to report an additional asset and a potential recovery for his creditors. The lesson is: list all your potential assets and claims even if you are convinced they are worthless. If your claim appears worthless it is highly unlikely the bankruptcy will assert any rights in the claim and any windfall recovery after bankruptcy is yours to keep.

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

Removing Judgment Liens From Homestead

I often hear complaints from bankruptcy clients who find that judgment liens interfere with the sale or refinancing of their homestead property after their bankruptcy even though the listed the lien creditor on their bankruptcy petition and claimed their homestead as exempt property. A civil judgment becomes a lien on all real property owned by the debtor in any county where a certified copy of the judgment is recorded. The recorder of deeds does not know whether a particular property is the homestead of the debtor. Often, the debtor must take affirmative steps to remove the lien from homestead if the debtor wants to sell or refinance the homestead. Filing bankruptcy and naming the creditor with the lien does not by itself automatically remove the lien although the automatic stay prohibits the creditor from enforcing the lien or making any other attempt to collect the debt.

There are two ways a debtor can clear a lien from homestead after bankruptcy. Florida Statute 222.01 provides a method to clear a lien from a homestead when the owner wants to sell or refinance the home. The owner provides the lien creditor a Notice of Homestead, and thereafter, the creditor has 45 days to contest homestead status. Another method used frequently is to ask the bankruptcy court to avoid the lien from property which has been claimed as exempt homestead. The debtor could file a motion in the bankruptcy court to avoid the lien that impairs the exempt property. However, in 2006, one Florida bankruptcy court denied a petition to remove a lien from homestead. The court said that a judgment did not create a lien against homestead property as a matter of law and that bankruptcy courts cannot avoid a lien which could not be created in the first place. Other bankruptcy courts have avoided liens from homestead.

In my experience, the statutory lien avoidance procedure is the simplest and most economical way to rid homestead title of judicial liens appearing on the public record. Bankruptcy debtors should understand that while a bankruptcy may discharge an underlying debt, the bankruptcy does not automatically clear the recorded title of homestead properties.

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

Effect Of Marital Separation Upon Exemption Planning

A new bankruptcy client stated that he had separate from his wife, and that he was living with his girlfriend in her house. His wife lived in what had been his homestead property which he and his wife jointly owned. The former marital home had substantial equity and valuable contents. The client wanted to file Chapter 7. He asked me if his home owned jointly with his wife and its contents would be exempt in a Chapter 7 bankruptcy.

The former marital home was no longer entitled to homestead protection in the husband’s bankruptcy. The husband now permanently resided in his girlfriend’s house. Even though he still owned the house jointly with his wife, and the property was his wife’s residence, the husband lost homestead protection when he moved in with his girlfriend.

However, I think the husband could exempt the house and its contents as tenancy by entireties property. Tenants by entireties protection of marital property does not require residence. Even though separated, I believe the husband could still claim entireties protection even though he does not live in the home and does not use its contents in daily life. Divorce will end either spouse’s entireties exemption, but the exemption is not lost upon separation or the filing of a divorce action. I suggested that the husband file bankruptcy as soon as possible prior to his divorce becoming final.

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

Does Business's Bankruptcy Stop Lawsuits Against the Business Owners?

Many personal bankruptcies are filed by owners of failed small businesses. Sometimes the bankruptcy is filed by the owner to discharge personal liability, and other times the business entity files bankruptcy to reorganize or liquidate the business operation. I received an email from a business owner whose business had filed Chapter 11 bankruptcy and who was confused about the effect of his business’s filing on legal actions pending against him personally as the director, officer, and guarantor of the business. He stated that business creditors had filed state court actions for, among other things, fraud, breach of fiduciary duty, and fraudulent conveyances. The writer wants to know if his corporate bankruptcy prevents or stays the creditors’ state court proceedings.

The general answer is that the business bankruptcy does not stop creditors’ pursuit of claims against the business owner in state court. The business and the owner are distinct legal entities. Each may, or may not, seek bankruptcy protection. Even though the owner may be jointly liable with the business for the business debts the bankruptcy filing of the business will not generally stay separate suits against the owner. One exception to this general rule may be the fraudulent transfer actions in state court. If the creditors are alleging the business may fraudulent conveyances to the business owner (such as, distributions of money or property to avoid business creditors) the fraudulent conveyance claims probably belong to the bankruptcy trustee and are stayed in state court. The breach of fiduciary duty claim may also belong to the bankruptcy trustee. In many of these failed business situations both the business and the business owner end up filing their own bankruptcy petitions.

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

Opinions Wanted: Are There Punitive Damages For Fraudulent Conveyance Under the Bankruptcy Code?

I am aware that some readers of this blog are attorneys, and I write this post to seek their opinion.

I found an interesting issue in a California bankruptcy case concerning fraudulent conveyance. A bankruptcy corporation paid many expenses within one year of bankruptcy including salaries and other money due to corporate insiders who had provided services to the corporation. The Trustee filed a complaint alleging the payments to insiders were fraudulent transfers. Some corporate insiders were Florida residents. The bankruptcy trustee sued these Florida insiders under the fraudulent conveyance sections of the bankruptcy code and under Florida’s fraudulent conveyance statute. A jury returned a verdict against the insiders, in favor of the bankruptcy trustee, finding that there were fraudulent transfers and that such transfers were made "with malice." The court entered a verdict against the Florida insiders finding them jointly and severally liable for the total amount of fraudulent transfers by the debtor corporation and imposing $2 million punitive damages. The individuals are considering whether a fraudulent transfer judgment can include punitive damages.

I have not heard of any court decision that punitive damages are permitted for fraudulent conveyance under the bankruptcy code. I know one case from 1984 in Texas were a federal appellate court held there can be no punitive damages under the applicable bankruptcy code sections. I think some bankruptcy court have awarded punitive damages for fraudulent conveyance under applicable state fraudulent transfer statutes. Florida courts take a strict view of fraudulent conveyance remedies and have not allowed any damages other than the reversal of the transaction. Anyone’s informed thoughts would be appreciated. Is there a basis for punitive damages for fraudulent conveyance under the bankruptcy code?

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

Pay Attention To Documents You Receive From Bankruptcy Court

Read documents sent to you by the bankruptcy court and don’t rely solely on your bankruptcy attorney to call you if the document is important. Its your bankruptcy, not your attorney’s bankruptcy. Here’s an example. A bankruptcy client whose case is closed called me to complain that a car lender is pursuing his co-debtor wife after the lender repossessed the car. The client says he mailed all the payments to the lender but they refused to accept them. He says that my secretary told him if he kept the payments current the lender would not hold his wife liable, and now he wants my office to fix the problem. Its true that maintaining the car payments would protect his wife, but the debtor failed to recall advice given about the necessity of also signing a reaffirmation agreement.

A signed reaffirmation was sent to the creditor, but the court scheduled a hearing to confirm the reaffirmation agreement. The debtor was sent notice of the hearing. The debtor did not attend the hearing. The court denied the reaffirmation agreement based on the debtor’s non-attendance. Without reaffirmation, the car creditor decided to repossess the car and pursue the jointly liable spouse. The debtor says he did not go to the hearing because he didn’t think it was important and nobody told him to attend. He did not call the office to discuss the hearing. As a result, his wife is liable for a large car debt.

Car reaffirmation and many other aspects of bankruptcy are more complicated under the new bankruptcy law. Your bankruptcy is a partnership between you and your attorney. Each of you has a role to play. Ultimately, you are responsible for the consequences of following directions from your attorney, providing accurate information, and responding to court documents. The more effort and involvement you put into your bankruptcy the greater your chances of a successful outcome. Pay close attention to any written notices you receive from the court and call your attorney if you have any doubts about what the notice means for your case.

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

Question From Reader About Attorneys Fees

I often get questions from readers, including attorneys, to which I do not feel able to respond fully and accurately.  In such cases, I post the questions and invite answers for the benefit of the reader and myself. Here is one such inquiry:

"As a fairly experienced workers’ comp. attorney and a relative "newbie" as a bankruptcy practitioner (2 years), I have a question regarding debtor attorney fees. Obviously aware of Bethea and related decisions on the issue, would the courts be receptive to a fee agreement allowing debtor attorney fees to be paid out of a client’s future workers’ compensation settlement, assuming the client has an open w/c claim at the time of the Petition being filed? Such an agreement would also include language waiving the attorney fee lien for the debtor if attorney is unable to achieve a settlement in the w/c claim. Essentially, the attorney would maintain a lien on exempt proceeds"

I invite responses to the above question.

Trust Inheritance Within Six Months of Filing Bankruptcy

Someone called me and said he filed bankruptcy in September, 2005. In January 2006, five months after filing, his aunt died leaving money for the debtor in a discretionary spendthrift trust. A third party was the trustee. The trustee had total discretion over distributions. In September, 2006, the trustee distributed to the debtor all of his trust share which approached $100,000. The debtor/caller asked me if he had to turn the money over to the bankruptcy trustee. I think he can keep the money, but I’m not sure because I never before heard of this fact situation.

The bankruptcy law says, in general terms, that any money you inherit within 6 months after you file bankruptcy is captured by the trustee as part of the bankruptcy estate for the benefit of your creditors. Although this person’s relative died and left him money within that six month period, the debtor had no right to receive the money within six months. A beneficiary’s interest in a spendthrift trust is not part of a beneficiary/debtor’s bankruptcy estate. Because this beneficiary could not demand the money within six months, neither could the bankruptcy trustee. However, if the third party trustee distributed funds to other beneficiaries within the 6 month recapture period and selectively withheld the debtor’s money there may be a stronger argument for the trustee. Even then, in my opinion, if the trust document gave the trustee the discretion to make distributions to different beneficiaries in different amounts and at different times, or the document specifically prohibited the trustee from making distributions that could benefit a beneficiary’s creditors, I believe the debtor/beneficiary would still prevail.

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

Can Motor Home Be Homestead?

A client reports that he lives in a motor home. Most of the time he parks the motor home in a rented space in Florida, and for all other reasons, he maintains Florida as his residence. He neither owns nor rents any real property in Florida or anywhere else. He asked me whether the motor home qualifies as his homestead because it is the place where he resides with his spouse.

Motor homes are treated similarly to house boats under the majority of court decisions. My initial research indicates that the general rule is that if the motor vehicle or boat is licensed and operable then it is not sufficiently grounded to constitute a form of homestead property even if it is the debtor’s primary residence. Boats permanently attached to a dock or motor homes parked permanently have been afforded homestead protection. Court decisions addressing this issue vary in their analysis, and the particular facts of each motor home or houseboat are most important.

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

Does Debtor Who Files Bankruptcy After Moving From Florida To Another State Claim Florida Exemptions?

I would appreciate anyone’s thoughts on the following questions posed by a bankruptcy attorney in Kentucky. The attorney represented prospective bankruptcy debtors who moved to Kentucky from Florida within the past two years. Under the new bankruptcy law, they are ineligible to use Kentucky exemptions because they had not resided in that state for two years. The last state where they lived for two years was Florida. The attorney concluded that Florida exemptions would apply to his Kentucky case, except for one issue. He asked me whether a person has to be a resident of Florida to be eligible for Florida’s exemption under a Florida statute or the Florida constitution. If so, his clients, now Kentucky residents, could not use Florida exemptions and would file bankruptcy under federal default exemptions.

Only Florida residents can file bankruptcy in Florida. Any of my clients who filed bankruptcy, being Florida residents, were eligible for Florida exemptions in bankruptcy. I never have had to determine whether a person had to be a Florida resident to claim Florida exemptions because I never did, or could, file a bankruptcy in Florida for a non-resident. I cannot find any provision of the Florida statutes that specifically states that only Florida residents are protected by Florida’s exemptions. Clearly, only Florida residents can claim homestead protection of the Florida Constitution because the definition of homestead is one’s place of residence, and if your homestead is in Florida you are a resident of Florida.

I do not know the answer to the question facing the Kentucky attorney. If a reader knows authority that supports the position the person filing bankruptcy in Kentucky cannot take Florida exemptions and is under federal bankruptcy exemptions, please send me an email. Thanks.

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

Fradulent Transfer Question

Consider a man and his wife who moves from Georgia to Florida and purchase a homestead for $100,000 cash. Title to the homestead is in the name of the husband only. After he and his wife reside in the new home for a few months, the man gets an equity line second mortgage. He uses $50,000 of loan proceeds to purchase an investment property title to which is taken in the wife’s name only. A year later, the man encounters severe financial difficulty and files chapter 7 bankruptcy. Because he has not lived in Florida for two years prior to filing he is not eligible for Florida bankruptcy exemptions and must file with Georgia exemptions even though he is a Florida resident. Georgia has a relatively small homestead exemption which I’ll assume is $10,000. (exact amount is not relevant ). Therefore, only $10,000 of his homestead is an exempt asset in bankruptcy. The issue is whether the equity line loan used to purchase the $50,000 property for his wife is a fraudulent conveyance of $40,000 subject to attack in the bankruptcy.

I don’t know of any judicial decisions on point with this situation.. Whether a transfer is a reversible fraudulent transfer depends on the debtor’s intent. Facts and circumstances are evidence of intent, but there is not formula of fact to infer intent in every case; each case must be examined under its own facts.

Looking at the transaction solely within the bankruptcy context, there has been a conveyance to the wife of non-exempt equity to of $40,000 within a short time prior to bankruptcy. Yet, at the time the transfer occurred the man was under Florida’s unlimited homestead exemption law, and at that time his transfer of money to his wife was the transfer of proceeds from an exempt homestead. This case presents the question of whether a transfer of exempt property to another person can subsequently be reversed as a fraudulent conveyance if the transferor files bankruptcy and where the same asset transferred is not exempt under the bankruptcy law.

A bankruptcy trustee or bankruptcy judge could rule that the transfer of an asset not exempt in the bankruptcy context may be a fraudulent transfer. In my opinion, subject to finding a contrary decision, is that the transfer is not a fraudulent transfer because at the time of the transfer the asset was exempt homestead. The transferor/debtor could not have intended to make a transfer to avoid creditors if he did not then anticipate bankruptcy and knew that the asset would not be exempt in bankruptcy.

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