Florida Bankruptcy Law Blog

How Can Chapter 7 Debtors Learn To Properly Value Their Furniture On Their Bankruptcy Schedules

Florida bankruptcy law permits each debtor to exempt $1,000 of furniture and other personal property including cash. This exemption is small compared to personal property exemptions permitted bankruptcy debtors in other states. Fortunately, your personal property is valued for bankruptcy purposes at garage sale or flea market value. Bankruptcy trustees in the Orlando area are accustomed to seeing very low property valuations, and most will not go after personal property that is valued slightly above the $1,000 per-person exemption limit. Most of my clients understand how to value their belongings at garage sale value. Most do not overvalue their property, and few of my clients have been subject to trustee objections over the exemption of their personal property. Occasionally, I find clients who persistently over-value their property and end up paying money to their Chapter 7 bankruptcy trustee. Once a clients files his property schedules with the bankruptcy court it is difficult for him to amend schedules with lower valuations after a bankruptcy trustee insists on payment or surrender of property.

I cannot tell my bankruptcy clients the valuations of their own property. I do not inspect my clients’ homes or their property, and even if I did, I am not an expert in property valuation. My staff sometimes suggests to clients that their valuations are outside the range of what other clients have submitted in the past, but beyond that advice, we do not suggest what something is worth. I do not want my clients telling their bankruptcy trustees that I, or someone in my office, told them what values to place on their property.

One way to help prospective debtors value property is to suggest they look at property schedules submitted by other people who filed bankruptcy before them. I will not show bankruptcy property lists or values of any of my clients to subsequent clients because of attorney-client privilege. However, all bankruptcy petitions are public record and schedules can be examined using the federal courts’ Pacer computer system. Many of my clients tell me they have used Pacer. Prospective bankruptcy debtors can look at property schedules of any bankruptcy petition previously filed in the Orlando Division, or anywhere in Florida, to see examples of other bankruptcy debtors’ personal property lists and valuations. A debtor should not copy another person’s lists nor their values, but looking a the property schedules of several other debtors can help guide bankruptcy debtors in the valuation of their personal property for bankruptcy purposes and avoid unnecessary payments to trustees because of over-valuation.

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

Gambling Debt In Chapter 7 Discharge

From time to time I speak with prospective bankruptcy debtors who have accumulated gambling debts. Some of these callers have borrowed large amounts of money on their credit cards to fund their gambling enterprises. The issue is whether money borrowed to gamble is dischargeable in bankruptcy. There are many court decisions dealing with aspects of this issue. The bankruptcy Code lists debts which are not dischargeable. Gambling debt is not among the list nondischargeable debts. However, if someone borrows a large amounts of money for any purpose without the ability or the intent to repay the debt the creditor can file a complaint seeking an order that the debt is fraudulent and not included in the bankruptcy discharge.

Court decisions generally have looked at the amount of gambling debt in relation to the debtor’s income and history of repaying the debt. Where someone borrows large amounts of money for gambling purposes and makes no significant attempt to repay the debt, or where the debtor’s income and expenses show that repayment of the debt, absent gambling winnings, would not be reasonable possible, the courts are likely to sustain a creditor’s challenge. However, gambling debts that are not disproportionate in relation to the debtor’s other consumer debts, and where the debtor repaid a significant part of the debtor over time, would likely be included in a bankruptcy discharge.

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

Why Home Loans Should Not Be Reaffirmed

I saw a good blog entry written by San Diego attorney Miachael Doan about reaffirmation of home mortgages.Why Home Loans are not Reaffirmed : Bankruptcy Law Network. I have tried over the years to discourage my bankruptcy clients from reaffirming home mortgages. The problem is that some of the prominent mortgage companies, including Chase Home Mortgage for example, send letters to bankruptcy clients telling them to reaffirm. Some clients report that their mortgage company will not send monthly statements or payoff numbers if the borrower does not reaffirm. Mr. Doan's blog entry explains why reaffirmation of home mortgages is legally not required. If you reaffirm your mortgage after bankruptcy and subsequently are unable to make the mortgage payments you will be personally liable under the mortgage note if you signed a reaffirmation agreement. If you refuse to sign a reaffirmation agreement Chapter 7 bankruptcy eliminates personal liability in the event of future foreclosure.

Make Sure Your The Value Of Your Automobile On Your Bankruptcy Petition Reflects The Depressed Used Car Market

Bankruptcy trustees have in the past determined the value of a debtor’s car by using the average of the wholesale and retail value in the NADA car book (the yellow book). In the past few months car values have plummeted because of the credit problems in the economy and the overall recession. The NADA book has not kept pace with the decline in car values. This week I discovered that some bankruptcy trustees in our division are encouraging debtors to get trade-in appraisals from national car companies such as Carmax. The Trustees are accepting these appraisals in lieu of the NADA values.

For example, one of my clients filed a bankruptcy petition on which he valued a used car at $3,000. There was no lien on the car. The car had, therefore, $2,000 of non-exempt equity. At the creditors meeting the Trustee encouraged the debtor to get a current appraisal. The next day the debtor obtained from Carmax an appraisal of $500 for the same car. Bankruptcy debtors should get market appraisals for their cars before filling out bankruptcy petitions. Your bankruptcy attorney is not a car valuation expert, and he is unlikely to change your valuation of your vehicle. The market for used cars is almost as depressed as the real estate market. Debtors should insist that their vehicle equity is based on current market values rather than slow-changing valuations in used car price books.

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

Debtor's Decision To Surrender Car Was A $1,000 Mistake

A bankruptcy client owned a car with a small car loan. The client had thousands of dollars of equity in a car and stated on his bankruptcy petition that he wanted to reaffirm the loan and keep the car. I explained to the client that he would have to pay the bankruptcy trustee the amount of non-exempt car equity. This client's car exemption was $1,000 and the car equity was at least $5,000. After filing bankruptcy the client decided that he could not afford to both pay the trustee and pay future car payments because his salary had been decreased after filing. So, he called the car lender and surrendered the vehicle. The lender sold the car at auction for the loan value.

The client explained the car history to the Chapter 7 Trustee at the meeting of creditors. The Trustee told the client that he was not supposed to transfer or surrender an asset with equity. If the client had kept the car until the Trustee meeting (even if the client missed a payment) the Trustee would have sold the car and given the client $1,000 of exempt car equity from the sale proceeds. The client’s impulsive decision to turnover the car to the lender cost himself $1,000 and was technically a violation of the bankruptcy stay. The Trustee indicated he would take no action against the client who appeared to have acted without bad intent.

I understand, and I believe the Trustee agreed, that this bankruptcy debtor made a hasty decision because he was under financial stress. Still, if you change your mind about keeping or surrender assets with equity you should first consult with your bankruptcy attorney before implementing your decision.

Using Chapter 7 Bankrputcy To Battle Mortgage Lender Seeking Foreclosure

I probably get one or more calls and emails each day from someone who wants to file Chapter 7 bankruptcy because they are facing a mortgage foreclosure. People believe they should file bankruptcy to avoid a deficiency judgment that they believe will come with foreclosure. My advice is always the samd: Don’t Do It. There are several reasons. First, as previously stated on this Blog, most mortgage lenders have not been pursuing deficiency judgments. How this policy will change with the Economic Rescue Bill is uncertain. A Chapter 7 bankruptcy will not stop the foreclosure. (Chapter 13 can prevent foreclosure). If the mortgage lender does pursue a deficiency judgment the borrower usually can file a Chapter 7 bankruptcy at that time

I think borrowers will get better result for legal fees spent if they hire an attorney to defend the foreclosure, and by doing so, gain leverage to negotiate a release from personal liability in a way that will not result in imputed taxable income. I also do not recommend bankruptcy solely to escape income tax liability from foreclosure because people considering bankruptcy are likely to qualify under IRS definitions of insolvency without bankruptcy. Chapter 7 bankruptcy should be the last tool people use to battle a mortgage lender that is threatening foreclosure in the unlikely event of a deficiency judgment. .

Stay Of Residential Evictions Under New Bankruptcy Law

I received the following email from a landlord (creditor) concerning a tenant who filed bankruptcy on the eve of eviction.

"I got my final judgment for possession count 1 only Sept. 4 my tenant went to file bankruptcy September 5 to avoid the eviction. I got a call from the West Palm sheriff telling me there was a stay on them serving him the 24 hour they were to do that day Sept. 5. I was in disbelief that this guy could not pay rent just because he was now protected because of this bankrupt. "

Under the facts presented the bankruptcy probably will not stop the eviction.

The new bankruptcy law made it much harder for a tenant who has not paid rent to stop an eviction by filing bankruptcy. In many cases residential evictions are an exception from the bankruptcy stay. The general rule under the new law is that the eviction of a debtor from his residence is not stayed by bankruptcy is the lessor has obtained a judgment for possession prior to the bankruptcy filing. There are exceptions. The stay exception (no stay applies) is limited to actions seeking possession of the property or to exert control over the property. A landlord’s action to seeking a money judgment against the debtor is stayed by bankruptcy. Also, notwithstanding the general stay exception, a debtor may obtain a automatic 30 day stay by filing a "certification" that the debtor has a right to cure the monetary default under the lease and the debtor has deposited past due rent with the bankruptcy court.

Residential evictions are complicated under the new bankruptcy law. Landlords should make sure their real estate attorneys understand and fully explain the new law so they do not inadvertently violate a bankruptcy stay.

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

Trustee Pursues Next Year's Tax Refund This Year

In previous years Chapter 7 trustees would inquire about debtors’ income tax refunds after the first of the year through May or June. They would ask if the debtors had filed their tax returns, if they had received a refund which was still in their bank accounts, and if they had not filed, whether they expected a tax refund when they would file. If they had not filed taxes for the prior year the Chapter 7 trustee most often would ask the debtors to provide the trustee a copy of their tax return when it was filed. Thought the second half of a calendar year most trustees, in my experience, did not ask debtors about tax refunds. Some trustees are getting more aggressive

I attended a meeting of creditors this week where the Chapter 7 trustee made the debtors sign an agreement to provide their 2008 tax return when it was filed in 2009. Debtors who attend trustee/creditor meetings in August probably filed bankruptcy in July. If they receive a significant tax refund for 2008 the proportionate amount of refund allocated to income prior to filing bankruptcy in 2007 may be property of the bankruptcy estate. Not all trustees are pursuing refunds from next year’s tax returns, but debtors should be aware that a trustee may want to see next year’s tax return.

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

Person Earning $25,000 Per Month Wants To File Chapter 7 Bankruptcy

Most people would agree that a person who makes $25,000 per month should not be able to discharge his unsecured debts in a Chapter 7 bankruptcy. One such high-earning individual came to my office to discharge over $1million of unsecured debts. The unsecured debts were mostly business lines of credit used to finance his wholly owned real estate corporation. Because of the real estate crash, his business was insolvent. This person also owed substantial back taxes and gambling debts. He had little or no non-exempt assets. The "means test" enacted in the 2005 bankruptcy law was supposed to prevent Chapter 7 bankruptcy by people who could afford to pay a significant portion of their debts. This client can afford to pay his monthly debt service. Can a person earning $300,000 per year wipe out his debt obligations?

In this case, I think the client may qualify for Chapter 7 bankruptcy. The means test does not apply to all debtors. The means test applies only to those debtors whose debts are "primarily" consumer debts. Consumer debts include credit cards for personal use, home mortgages, and car loans. For this individual, I think that gambling debt, although dischargeable in bankruptcy, is also a consumer debt. However, business lines of credit, taxes, and credit card debt incurred by a business but guaranteed by the individual are usually not consumer debts. When I added up this debtor’s obligations I found that most of his debt was not consumer debt. His bankruptcy is not subject to means testing.

The debtor is not "home free." Many U.S. Trustees would challenge this bankruptcy as abusive because the debtor has substantial net income each month available to pay his debts. Others have argued that the means test is the exclusive measure of financially abusive Chapter 7 filings and that people who are exempt from the means test can file Chapter 7 bankruptcy regardless of income. I don’t believe this issue is decided definitively by bankruptcy courts. My experience is that high-income Chapter 7 debtors exempt from means testing draw extensive scrutiny from bankruptcy trustees. The trustee tends to examine all aspects of these Chapter 7 cases much more closely and requires extensive substantiating documents. People who make a lot of money tend to have a lot of assets; high-income Chapter 7 debtors exempt from means testing should be very careful to report all income and all assets.

Bankruptcy court is not a friendly environment for wealthy people. I usually advise clients with large amounts of assets (even exempt assets) or large amounts of income to avoid bankruptcy if at all possible.

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

Can An Undersecured Mortgage Lender Attack Tenants By Entireties Assets In Chapter 7?

I often get legal questions I can’t answer with certainty. For instance, I recently consulted with a man who had guaranteed a large business debt. His wife did not sign the guarantee. The man and his wife had most of their assets in joint financial accounts. He and his wife were both liable to pay three mortgages. The third mortgage is effectively unsecured because of the declining value of their home in today’s real estate market. The couple has no joint debts other than the three mortgages on their home. The husband is considering Chapter 7 bankruptcy. The issue is whether his joint financial accounts are exempt as tenants by entireties property.

Outside of bankruptcy all T by E assets are exempt from the husband’s creditors. The same assets are exempt in bankruptcy unless the debtor and his wife have joint unsecured debts in which case the bankruptcy trustee could liquidate joint assets to the extent necessary to pay joint unsecured creditors. This couple has no joint credit cards. However, there may be an issue whether their third mortgage loan is a secured or unsecured joint debt.

In Chapter 13 bankruptcies a debtor can discharge a junior mortgage with other unsecured debts if the junior mortgage is wholly unsecured, i.e., there is no house value securing any part of the junior mortgage. In this situation the couple’s third mortgage holder could benefit by making the argument that its mortgage is wholly unsecured. If its unsecured and the husband files bankruptcy the lender could get paid from the couple’s joint assets. Although courts just recently have permitted Chapter 13 debtors to treat unsecured mortgages as part of unsecured debt in Chapter 13 plans it is unclear whether in Chapter 7 the mortgage lender could succeed by making the same argument to get at otherwise exempt entireties assets.

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