The Florida Bankruptcy Law Blog

Protecting Your Child's Car In Chapter 7 Bankruptcy

It’s getting to the point where you need a lawyer to buy a car for your child. This is certainly true for people who buy a car in their own name for their minor child to use. People consider the car be their “child’s car” not understanding that Florida law considers the car to be the parents’ asset even though the parents do not drive the car. To make matters worse, parents typically get their minor children inexpensive cars which are already paid for. They will give the child the old, paid off clunker and then finance the purchase of new car for themselves.

When the parent files Chapter 7 bankruptcy they find that the bankruptcy trustee will ask them to turnover, or buy back, the “child’s car.” These bankruptcy debtors do not anticipate that the “child’s car” legally is their own car if it is titled in the parents’ names as it usually is because a minor child cannot own property in Florida.

What is the solution? A recent bankruptcy case from the Southern Division of Florida explained how parents properly can buy a car for their child’s use and protect the car from their creditors and the Chapter 7 bankruptcy trustee. The court said that bankruptcy debtors could own a car as a trustee for their minor child under Florida’s Uniform Transfers To Minors Act. The car can be titled as “parent name’ as custodian for “child name” under the FUTMA” or similar designation. The details of the Minors Act are in Florida Statute 710.11.

Not many bankruptcy debtors are going to understand this law when they are giving their child a car to drive. As I said, you almost need a lawyer to buy a car these days. See 10-19596

Can Joint Bankruptcy Filing Claim Entireties Exemption When Spouses Have Separate Debts?

I interviewed a married couple wanted to file joint Chapter 7 bankruptcy. Each spouse had separate credit cards and no joint unsecured debt. They have assets owed jointly free and clear of debt. My first thought was that their joint assets would not be protected in a joint bankruptcy. Joint marital assets owned as tenants by entireties are protected from the debts of either spouse provided the spouses do not have joint unsecured debts.

Then, I considered the point that a joint bankruptcy does not mean joint debt. My understanding, from reading some cases in the past, is that a joint bankruptcy estate is actually the joint administration of each spouse’s separate bankruptcy estate. If so, then debtor’s with separate debts filing a joint petition should be able to exempt their tenants by entireties property. I don’t recall ever filing a joint case with separate debt, but I think the analysis may work.

In any event, it will not be tested by these clients because at the end of our meeting they decided that just one spouse will file Chapter 7 bankruptcy. The filing spouse will exempt their entireties property.

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.

"My Name Is On The Account" Does Not Always Mean Account Money Is Part Of Your Bankruptcy Estate

Many bankruptcy debtor misunderstand what it means to have their name on a family member's bank account.  I usually ask prospective debtors how much cash they have in their bank account. Often the client tells me that they have almost no money in their primary, household account but that “there name is on an account with” their (parent, spouse, child, etc.). Some bankruptcy debtors who say their “name is on an account” mean that a third party, usually a family member, has authorized the debtor to sign checks on the family member’s account for convenience purposes. Other debtors mean that a family member added the debtor to the account title so they could more easily inherit the money after the family member’s death.

For bankruptcy purposes, as a general proposition, money in a bank account is part of your bankruptcy estate if the account balance represents your money, that is, money you deposited or are authorized to use for your own purposes. If some relative made you an authorized signor of their account, containing their money, to be used for their benefit, the account is not part of your bankruptcy estate. Similarly, if you are on the title of a bank account for convenience or inheritance purposes but none of the money in the account is your money or to be used for your benefit, then the account should not be considered part of your bankruptcy estate.

Make sure you explain to your bankruptcy attorney whether money in an account with your name on title or on the signature card is actually your own money or someone else's money.

 

Best Way For Chapter 7 Bankruptcy Debtor To List His Interest In His Insolvent Business

Many self-employed debtors file bankruptcy because they have personally guaranteed debt of their failing business. Some of these debtors want to discharge their guarantees of business bank loans or credit cards used for the business, and they want to try to resurrect the business after they have been cleared of personal liability. In such cases, the debtor has to value his interest in the business. The debtor must value his stock, membership interest, or other form of ownership in his business. Where the business had assets, but the business also has liabilities in excess of business assets the value of the debtor’s interest is probably zero because he could not sell to an unrelated third party his interest in his insolvent business. The business value is further reduced by the business’ dependence upon the debtor’s personal labor because a new buyer would have to pay someone to replace the debtor’s labor contribution.

There are two ways to list this type of insolvent business in the debtor’s personal Chapter 7 bankruptcy petition. The debtor could value his stock (or other interest) at zero, or he could value the stock at $1 and claim an exemption for the $1 interest as part of the debtor’s personal property exemption. The question is which is the best way to defend against a trustee challenge that the business interest is worth more money and is part of the debtor’s non-exempt bankruptcy estate.

Chapter 7 Discharge Of Attorney Fee Sanctions From Divorce Proceeding

One of my Chapter 7 bankruptcy clients wants to discharge a judgment in favor of his former wife’s attorney. A family law judge issued a judgment for sanctions against my client  for frivolous litigation during a dispute over enforcement of a property settlement. The judgment was issued in favor of the ex-wife’s attorney for his attorney fees defending my clients continued and baseless challenges to the ex-wife’s enforcement of the property settlement. The client wants to know if a Chapter 7 bankruptcy could discharge the debt to his ex-wife’s attorney.

Whether divorce related attorney fee judgments are dischargeable depends upon the underlying proceeding. Chapter 7 bankruptcy does not discharge obligations for “domestic support” including alimony and child support. Chapter 7 bankruptcy does not discharge attorney fee judgments when the fees were incurred to obtain or enforce domestic support obligations.

Equitable distribution judgments are dischargeable. I think that attorneys fee judgments related only to equitable distribution and property settlement awards would also be dischargeable in bankruptcy.

Bankruptcy Trustees Some Overlook Non-Exempt Annuities And IRAs

Almost all of my blog posts are intended to inform prospective bankruptcy debtors. This post is intended to help bankruptcy trustees.

I wrote a post on my asset protection blog about Florida’s annuity exemption being limited to annuities issued in Florida. The post explained that Florida residents who purchased an annuity while they resided in another state before moving to Florida may find that their annuity is not exempt under Florida law. Most annuity contracts state that the law applicable to the annuity is the law of the state where the annuity was issued which in most cases will be the state where the debtor resided when the annuity was sold. The question is  in not where the annuity company is located; it’s where the debtor/owner lived when he entered into the annuity contract.

Florida debtors cannot export Florida’s exemptions to another state. I believe that an annuity which was purchased and issued in another state whose laws do not exempt annuities may not be exempt when the debtor subsequently files bankruptcy in Florida. The same issue applies to other assets outside Florida, such as IRAs, which were opened and still maintained in offices and accounts in another state.

Chapter 7 Bankruptcy Trustee May Challenge Increased Unsecured Debt Within Six Months Prior To Filing

Bankruptcy trustees seem to be getting tougher on debtors who incur significant credit card debts and large secured debt obligations prior to filing Chapter 7 bankruptcy. I am seeing challenges asserted against significant credit card charges within six months prior to filing bankruptcy. That does not mean that you cannot use a credit card for six months before you file. It means that large charges or a substantial increase in credit within the prior six months could draw scrutiny.

In my experience, more than half of my clients have increased unsecured borrowing in the months leading up to their bankruptcy. Some for good reason; some for not good reasons. Some people, after they see bankruptcy as a good option, will intentionally run up credit cards to buy things they want but do not need. These people are trying to take advantage of their creditors and the bankruptcy system; trustees should come down hard of this type of debtor abuse.

Other people file bankruptcy reluctantly after a financial setback such as a job loss, pay decrease, or unexpected large debt. These people will use credit cards to buy necessities because they hope that their fortunes will improve and they can avoid bankruptcy. In my opinion, such individuals should not be penalized for increasing debts.

However, as a practical matter, if creditors and trustee do not distinguish properly the good and bad reasons for credit card debt prior to bankruptcy these people with good motives are taking a big risk when they borrow in order to buy time to work out of their financial situation. If they are unable to increase income, or decrease expenses, these well-intentioned debtors may have recent debts challenged in Chapter 7 bankruptcy.

Repeated Chapter 7 Bankruptcy To Capture New Debts: One Creative Plan

Once you file Chapter 7 bankruptcy you are committed; you do not have the right to dismiss a Chapter 7 bankruptcy without court approval. If  soon after you file bankruptcy you incur a large debt which cannot be added to the case already filed you may be stuck with this debt.

I read an interesting exchange among some attorneys dealing with this problem. A debtor was hit with a huge, unexpected unsecured debt soon after they filed a Chapter 7 bankruptcy. The attorneys discussed a creative of way for the client to file a new bankruptcy to include the new debt.

The bankruptcy law prohibits filing a Chapter 7 bankruptcy within eight years of filing date of a previous bankruptcy in which the debtor obtained a discharge. One of the attorneys in this discussion suggested that the affected debtor intentionally not take the financial management class required of debtors after their petition is filed. The court will issue a reminder, and if the debtor still does not file a certificate that he completed the class the court will close the current bankruptcy case without issuing the debtor a discharge. As soon as that happens, the same debtor can file a new Chapter 7 bankruptcy including the new debt. Because no discharge was entered in the first bankruptcy the debtor will not be affected by the eight year time limit.

Homeowners Association Can Lien House For Post-Filing Monthly Dues

One of my bankruptcy clients calls my office to complain that his homeowner association has threatened to put a lien on his house for non-payment of HOA dues. The client complained that he had listed the HOA as a creditor on his Chapter 7 bankruptcy petition.

HOA dues are an ongoing debt, and new payments are due each month. The client’s Chapter 7 bankruptcy may discharge personal liability on HOA debts accrued prior to filing which had not been perfected by a lien. The bankruptcy does not discharge new dues assessments for months after the bankruptcy filing and during the bankruptcy case. Not paying HOA dues post-filing will result in a lien.

Look at it this way. You discharge debts; you do not discharge creditors. Listing a creditor in bankruptcy for your old debts does not stop the same creditor from pursuing debts to the creditor incurred after filing.