Florida Bankruptcy Law Blog

Mobile Home Owner Eligible For "Wildcard" Personal Property Exemption in Chapter 7 Bankruptcy

People who do not claim or benefit from a homestead exemption are entitled to an additional personal property exemption in the amount of $4,000 in Chapter 7 bankruptcy. The $4,000 property exemption can be added to the debtors Constitutional exemptions of $1,000 for all personal property. Bankruptcy debtors who intend to keep their primary residence in bankruptcy do not get the additional $4,000 exemption according to several Florida bankruptcy court decisions. In a recent case, a court considered whether someone who lives in a mobile home situated on a rental lot Mobile homes used as a debtor’s primary residence are exempt in bankruptcy pursuant to Florida Statute 222.05

A bankruptcy court held that a Chapter 7 debtor who claims an exemption for a mobile home, when the same debtor does not own the underlying land, may also claim an additional $4,000 personal property exemption provided by Florida Statute 222.25(4). The court distinguished the mobile home exemption under 222.05 from the Constitutional homestead exemption even though in either case the exemptions apply to owner occupied dwelling. The court said that the Constitutional homestead exemption is applicable only where the debtor the land and the improvements on the land; Florida Statute 222.05 addresses specifically those situations where the debtor owns the improvement (the mobile home) but does not own the underlying land. Because a debtor claiming exemption for a mobile home under 222.05 does not benefit from the Constitutional homestead exemption that debtor is eligible for the additional $4,000 personal property exemption under 222.25(4). In re: Richard Lisowski, 07-bk-8495-PMG.

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

Can Debtor Avoid Judgment Lien Existing Prior To Homestead Purchase?

A judgment lien automatically and immediately attaches to any real property the debtor owns in any county where the creditor records a certified copy of the lien. If a debtor owns investment property where a judgment lien is recorded the lien attaches to that property. If the debtor subsequently moves into the property as his primary residence the debtor cannot thereafter strip the judgment lien from what is now the debtor's homestead. A lien that has attached to property prior to that property becoming the debtor's homestead defeats the homestead exemption. A recent Florida bankruptcy case considered a different situation where a debtor acquired a property in a county where a judgment lien was previously recorded, and the debtor moved into the property at time of purchase.

The bankruptcy court held that the homestead exemption defeated the judgment lien in this case where the property was acquired simultaneous with occupancy. The court held that where the debtor's homestead rights and prior lien attach simultaneously, as where purchase and occupancy are essentially simultaneous, the priority is accorded to the claimant of the homestead right. Under these facts, the court permitted this debtor to avoid the judgment lien on the homestead. See: in Re:Perez Case No. 08-15023.

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

Joint Tax Refund Not Protected As Entireties Asset

There have been several cases in recent years, after 2001, dealing with exemption in bankruptcy of joint tax refunds where only one spouse has filed bankruptcy. The general rule is that property owned jointly by husband and wife is exempt in the bankruptcy of either spouse individually so long as the filing spouse and then non-filing spouse do not have any joint unsecured debts (joint mortgages don’t count because they are secured debts). The tax issue is whether a joint tax refund is exempt as tenants by entireties property.

The court found in this case the joint tax refund was part of the bankruptcy estate of the filing spouse because the refund was attributable solely to the debtor’s income and not to the non-filing spouse. The court also referred to prior decisions which apportioned ownership of tax refunds based on taxes withheld and paid by respective spouses. The court noted a prior ruling of another Florida bankruptcy court where a joint tax refund check was deposited into a joint bank account a significant time prior to the bankruptcy filing and where the judge exempted the money in the joint account as tenants by entireties money. (Case No. 07-bk-8726)

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

Appeals Court Upholds Discharge Denial For Homestead Purchase and Improvement Shortly Before Bankruptcy

Purchasing a homestead in Florida shortly prior to filing bankruptcy could be deemed a fraudulent transfer and lead to a denial of your bankruptcy discharge. Purchasing or improving a Florida homestead and then filing bankruptcy soon thereafter is, by itself, not grounds for discharge denial or sanction. Only where the debtor evidences fraudulent intent in the transaction may the homestead purchase have bad consequences in an ensuing bankruptcy. The importance of demonstrable fraudulent intent separate from the homestead purchase just prior to bankruptcy is illustrated in a recent decision by the Eleventh Circuit Court of Appeals in a Florida bankruptcy case.

The facts in the bankruptcy of Bruce Jennings are summarized as follows. (Bkr Case No. 03-4926-JAF). A California lawsuit was filed against Jennings in 2001, and the trial was scheduled in May, 2003. In 2002 Jennings purchased a Florida homestead for $1 million and moved to Florida. In 2002, he invested $100,000 in refurbishing the house. Late 2002, he contracted with a builder to expand a hanger adjacent to the house for a total price of $200,000 with a $50,000 initial payment. In April, 2003, the California jury found Jennings liable for damages. Shortly thereafter, Jennings paid his builder $130,000 toward the hanger project even though no money was then due under their contact other than the initial $50,000 payment.

The appeals court stated that the sequence of events was insufficient to establish, by themselves, that Jennings intended to defraud his creditors. Even though Jennings purchased a Florida homestead after he was sued and refurbished and expanded the home after purchase a during the lawsuit, the court said the actions could be explained by considerations and motives other than creditor fraud. However, what convinced both the bankruptcy court and the appellate court was the debtor’s "lack of candor" during the trial when he was asked to give his explanations. While there were possible defensible explanations, the courts found that Jennings explanations were not credible.

I was surprised how much leeway the court extended to the purchase and improvement of a Florida homestead after a lawsuit was filed and within a year or two of filing bankruptcy. Apparently, just because a debtor invests large amounts of money in a Florida homestead is not per se fraudulent if there are credible reasons other than evasion of creditors. (21 Fla. L. Weekly Fed. C206).

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

Court Denies Entireties Ownership Of Law Practice

An attorney formed a corporation to own his law practice. He formed the corporation under Florida’s general corporation statute instead of the professional corporation statute. He issued all the stock to himself and his wife jointly. The lawyer then filed Chapter 7 bankruptcy. He sought to exempt the jointly owned stock in his law business as tenants by entireties stock. The Chapter 7 Trustee argued that the stock could not be exempt as joint property because only individuals who are licensed attorneys can own in a law firm. The debtor responded that since he owned the stock with his wife jointly there was no "individual" stock owner and therefore his ownership was exempt from regulations that all "individual" owners be licensed attorneys.

The bankruptcy court rejected the attorney/debtor’s argument. The court denied the claimed exemption of the stock as a tenants by entireties asset. The judge cited the Florida statute that states only licensed attorneys can have any ownership interest in a law firm or law firm corporation. Unless both spouses are licensed Florida attorneys, a law business cannot be owned as tenants by the entireties in Florida. The same rule would apply to other licensed professionals. Case No. 05-29501 (Adams)

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

Debtor's Discharge of Attorneys Fees Payable As Part of Divorce Judgment

A Chapter 7 debtor cannot discharge alimony or child support obligations. A bankruptcy client asked me whether he could discharge that part of a divorce judgment related to his spouse’s attorneys fees. I found that this issued had been addressed in a 2007 Florida bankruptcy court case. In the 2007 case, a family court judge ordered a bankruptcy debtor to pay his ex-spouse marital support and to pay the spouse’s attorneys fees. The order directed the fees be paid directly to the attorney. The former spouse argued that the attorneys fees award was incorporated within the support judgment, that payment of the fees was necessary for the ex-spouse’s support, and that the entire support award including the fees was non-dischargeable.

The bankruptcy court held that the debtor could discharge the attorneys fees portion of the court award. The court held that non-dischargeable marital debts include debts payable to a spouse or child. In that case, because the debt in question was payable directly to the attorney that debtor’s obligation was not in the class of debts payable to an ex-spouse or child and that the attorney debt was dischargeable in bankruptcy.

In my client's case, his divorce judgment was payable in its entirety to his ex-spouse. Even though the judgment included money for attorneys fees I think the entire judgment would not be dischargeable.

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

Chapter 13: Court Determines Amount of Avoided Secured Liens

In Chapter 13 bankruptcy the debtor can wipe away part or all of some judicial liens. Judicial liens are liens placed on property by judgment creditors as opposed to purchase money liens which are placed on property by the vendor who sold you the property. A Chapter 13 debtor can wipe out judicial liens to the extent that the liens impair a property exemption to which the debtor is entitled under Florida law. That part of judicial liens not wiped off the property remains a reduced secured claim against the property.. A recent bankruptcy decision explored the property way to determine the amount of the remaining lien.

In this case, a debtor owned a truck fee and clear. A judgment creditor levied upon the otherwise unencumbered vehicle. The creditor’s lien was approximately $8,000. The truck value at time of filing was approximately $10,000, and the court found the debtor could apply to the truck a $6,000 property exemption. The court avoided the creditor’s judicial lien against the truck to the extent of the $6,000 exemption. The debtor claimed the remaining secured claim was $2,000 (the original lien amount less the exemption). The creditor claimed it retained a $4,000 secured claim (truck value less the exemption).

The court gave the creditor an secured claim for $4,000 representing the difference between the exemption and the current truck value, plus an unsecured claim for $2,000 representing the amount of the lien avoidance. In re: Mahendra Mootosammy, 07-6553

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

Joint Tax Refund: Is It Exempt As Entireties Asset?

I would expect that tax refunds payable to husband and wife who filed taxes jointly would be considered tenants by entireties property exempt from the creditors of either spouse. A bankruptcy trustee challenged the exemption of a joint tax refund in a recent Orlando, Florida bankruptcy case. The trustee argued that either spouse, acting alone, can unilaterally revoke the couple’s election to file a joint taxt return (and therefore receive a joint refund) in a number of different ways even after the joint return has been filed. The trustee argued that the ability to unilaterally revoke a prior decision to file a joint tax return prevents married couples who file joint returns from owning tax refunds as tenants by entireties.

The bankruptcy court overruled the trustee exemption. The judge decided that just because future circumstances can cancel tenancy by entireties does not mean that entireties cannot exist during the time that ownership meets all the entireties requirements. Florida law, the judge said, does not prevent tenancy by the entireties, just because one of the spouses sometime in the future may decease, divorce, or take any other action to cancel the entireties. The court upheld tenancy by entireties exemption for the debtor’s joint tax refund. In re: Sabina Freeman 07-bk-05516

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

Debtor Loses Car Titled Jointly With His Child

Parents who buy cars for a child often hold title to the car jointly with the child. In a recent case from the Orlando bankruptcy court a debtor asserted that a titled jointly by the adult debtor and his child was actually the child’s car. The debtor asserted that while his name was on the title, the child held the entire beneficial interest in the vehicle and therefore, the car should not be turned over the Chapter 7 trustee.

The bankruptcy court disagreed with the debtor’s argument. The Court held that Florida statutes govern car ownership. Florida statutes state that a car owned by two people is held as joint tenants. There are other statutes which state how a parent can own property in trust for a child, and this debtor did not follow that statute and did not show other evidence of intent to own the car in trust for his child. The Court ordered the debtor to give the car to the bankruptcy trustee.

If you want to buy your child a car you should put the car in the child’s name if you want to protect the car from your own creditors.  381 B.R. 800

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

Florida Court Curtails Personal Property Exemptions

An Orlando bankruptcy court issued a decision which curtails the personal property exemptions for debtors who own their own residence.   The case is In re: James Matthew Franzese, Case No. 07-3944-KSJ.

In July, 2007, the Florida legislature created a $4,000 wildcard personal property exemption for people who do not receive benefits of a homestead exemption. Until now, debtors who owned a homestead which had no equity, or debtors who claimed their homestead exempt as tenants by entireties property, had been claiming the $4,000 wildcard exemption because they had relied upon the Constitutional homestead exemption on their bankruptcy petition. (Other courts have held that the new $4,000 wildcard personal property exemption is separate and above the basic $1,000 personal property exemption in the Florida Constitution.) This latest bankruptcy court decision ends this bankruptcy planning technique.

According to the Franzese decision a debtor who is eligible to claim homestead exemption in bankruptcy cannot avail themselves of the $4,000 personal property exemption whether or not they affirmatively seek the homestead exemption in bankruptcy. Any debtor who on the date of filing is entitled to a homestead exemption cannot claim the $4,000 additional personal property exemption regardless of whether the homestead has any equity to protect and the debtor intends to remain in the home. Debtors must state in a timely manner their intent to surrender their homes when they file bankruptcy if they want to claim the $4,000 wildcard exemption.

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