Florida Bankruptcy Law Blog

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

Student Loan Discharge: Bankruptcy Court Explains Undue Hardship

Bankruptcy clients usually accept the fact that student loans are not dischargeable. Some clients are aware of the "undue hardship" exception where these loans can be discharged. It is very difficult to wipe out student loans as an undue hardship. A recent bankruptcy court decision, issued in November, 2007, explained the undue hardship standard in detail and why it applies to so few debtors. The case is In Re Cynthia Matthews-Hamad, Case No. 02-15746-8W7 and Adv. Pro. No. 05-81.

The bankruptcy judge explained that there are three parts of the undue hardship test each of which the debtor must establish by a preponderance of evidence. First, the debtor must show that based on his current income and expenses he cannot maintain a "minimal" standard of living for himself and his dependents if forced to repay student loans. Minimal standard of living does not mean the debtor must live in poverty but it also does not mean the debtor is entitled to his existing comforts. Second, the debtor must establish circumstances indicating that his financial state of affairs is likely to persist for a significant portion of the loan repayment period. The debtor must show his will be unable to pay student loan debt in the future for reasons outside his control. The debtor must demonstrate circumstances that stongly suggest an inability to pay the loan over an extended period of time. The bankruptcy court stated that only a debtor with rare circumstances will satisfy this second part of the undue hardship test. Such circumstances include, for example, illness disability, or lack of suitable job skills. Finally, the debtor must show he has made a good faith effort to repay the student loan. Efforts to seek out option to make the student loan debt less burdensome is an important part of good faith.

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

Interpreting Florida's New $4,000 Personal Property Exemption

The Florida Constitution gives debtor’s a $1,000 exemption in all personal property such as cloths, furniture, and cash in financial accounts. The Florida legislature enacted a new law in July, 2007, providing debtors an additional $4,000 "wildcard" exemption in personal property provided that the debtor does not claim a homestead exemption. Several questions have come up in recent bankruptcy cases concerning the $4,000 statutory exemption: for instance, can debtors stack the $4,000 statutory wildcard exemption on top of the $1,000 Constitutional exemption? Do joint bankruptcy debtors each get the benefit of a $4,000 statutory exemption?; and if a debtor owns a homestead but elects to abandon the homestead in bankruptcy without claiming exempt homestead equity, can the debtor claim the $4,000 statutory exemption?

The bankruptcy courts have so far liberally construed the new, $4,000 statutory exemption for personal property. More than one bankruptcy judge has ruled that a debtor can stack the exemption on top of the $1,000 Constitutional exemption provided he does not claim a homestead exemption. Owning a homestead does not disqualify the $4,000 exemption when the debtor does not claim or seek benefit of the homestead exemption. (Therefore, where one spouse files bankruptcy and claims a tenants by entireties exemption in the marital home the debtor spouse should be able to claim the $4,000 wildcard personal property exemption.). When two qualified spouses file bankruptcy courts have held that  each spouse can claim the $4,000 exemption; so, where joint filers do not claim a homestead exemption. ( Or, when both spouses file and the house is "upside down" both spouses should qualify for the $4,000 statutory exemption, and the joint debtors would have a $10,000 exemption applicable to their personal property)

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

Can Recently Moved Debtor Apply Florida Homestead In Another State?

I came across an interesting case in the course of research for a client who had moved from Florida to Georgia and intended to file bankruptcy in Georgia where he had purchased a home. The client wanted to apply Florida’s homestead exemption to protect the new Georgia home. Because the client would file having lived in Georgia for less than two years Georgia law would not apply to the bankruptcy. If Florida law, the place of the most recent residence, did apply then the client assumed he could use Florida’s homestead law to protect the Georgia house.

I found that this same issue was addressed in another bankruptcy case in September, 2007. In that case, the court ruled the debtor could not transport Florida’s homestead protection to his new state of residence. The court stated that the new bankruptcy law required that the court apply Florida "laws" but not Florida "exemptions." Under Florida law, only homes situated in Florida could be protected by the States’ homestead exemptions. Because this debtor’s new home was not located within Florida the application of Florida’s laws forbid application of homestead exemption to a property in Georgia. The case is In re Adams, 2007 Bankr. Lexis 3064.

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

Can Chapter 7 Be Dismissed If You Pass The Means Test?

Jordon Bublick reports in his Miami Florida Bankruptcy Law Blog an interesting court decision about dismissal of Chapter 7 bankruptcy for substantial abuse. Link: ABI Bankruptcy Exchange » Miami Florida Bankruptcy Law. 

A chapter 7 bankruptcy can be dismissed if the debtor is abusing the bankruptcy process, most often because he makes too much money relative to expenses. Most debtor attorneys have argued that the new bankruptcy law makes the "means test" the exclusive test of substantial abuse. If you pass the means test then you qualify for chapter 7 regardless of other analysis of income and expense. Mr. Bublick's blog states that In the case of Perlin v. Hitachi Capital America Corp., ___ F.3d ___, 2007 WL 2215602 (3rd Cir. 2007), the court held that even if you pass the means test a creditor or trustee can move to dismiss your case because you make too much money.

Which State's Exemptions Apply To Bankruptcy

I recently read about a court decisions which illustrates the difficulty in determining what exemption laws apply when a debtor files bankruptcy under the new bankruptcy law. In this case, the debtor filed for bankruptcy in Florida after moving from Colorado.. The debtor properly filed in Florida because he was a Florida resident on filing date. The debtor initially claimed exemptions under Colorado law because he had not resided in Florida for two years. However, according the Colorado’s state constitution only Colorado residents are eligible to claim that states’ bankruptcy exemptions. Florida has no similar constitutional provision.

The court held that this debtor could not claim bankruptcy exemptions of either Florida nor Colorado. He was unable to claim Florida exemptions because he had not lived in Florida for two years, and he could not claim Colorado exemptions because of the constitutional rule. The court decided that by default the Bankruptcy Code’s federal exemptions would apply. See, In re Underwood from Northern District of Florida decided in 2006.

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

Can Illinois Debtor Protect Florida Entireties Property?

A debtor domiciled in Illinois filed bankruptcy in Illinois. The debtor’s wife did not file bankruptcy. The debtor and his wife owned a vacation home in Florida. Florida common law exempts tenancy by entireties property; Illinois law does not exempt tenancy by entireties property. The bankruptcy trustee the debtor’s claimed exemption of his Florida property because the Trustee believed the law of Illinois applied to defining what is included in the debtor’s bankruptcy estate. The Trustee argued that the debtor could not exempt Florida property because the debtor does not reside on the property or anywhere else in Florida. The appeals court said Florida law applied and that the vacation home was exempt.

The appeals court used several lines of reasoning to reach the same conclusion. Bankruptcy law exempts assets which are otherwise exempt under applicable non-bankruptcy law, that is, exempt under state law. The court pointed out that the Bankruptcy Code does not require that state law always be the law of the state where the debtor is domiciled. Federal conflicts of law principles state generally that the laws applicable to real property are the laws of the state where the property is located, in this case, Florida. Therefore, the court applied Florida’s common law exempting tenants by entireties property to protect the vacation home. Application of bankruptcy exemptions is, as in this case, often determined by complex legal principles involving conflicts of laws in different jurisdiction. The case is In re Holland, decided March 30, 2007, N.D. Illinois.

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

Preferential Payment By Credit Card

I saw an interesting post on the Georgia Bankruptcy Law Blog edited by Scott Riddle. Outside of bankruptcy a debtor can choose to pay any creditor and avoid paying other creditors. In bankruptcy, all creditors have to be treated equally. If the debtor pays one creditor within 90 days of filing that payment is deemed a "preferential payment" which the Trustee may recover. The Trustee goes after the creditor for the money received from the debtor.

Scott’s blog discussed a Georgia bankruptcy case where within 90 days of the filing of his Chapter 7 petition a debtor used his credit card to pay $4,000 to the defendant optical company. The payment satisfied an obligation of another company, which obligation the debtor had guaranteed. The Chapter 7 trustee filed suit to recover the payment as a preferential transfer, and a motion for summary judgment. The key question was whether the payment, via credit card, constituted an interest in the debtor's property, as defined by §547(b).

The only preference element in issue was whether the transfer was of an interest of the debtor in property. Relying on definitions in prior bankruptcy cases the Georgia court found that a debtor's use of a credit card does not constitute a transfer of an interest of the debtor in property, and therefore payment by credit card was not a preferential payment. I assume the result would be different if the debtor used his own cash which otherwise would be part of the estate available to all creditors to pay the same preferred creditor within the 90 day time frame.

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

Moving Into Florida House Just Prior To Bankruptcy: Does It Work?

A prospective bankruptcy debtor purchased a single family house in Florida for investment several years ago. At time of purchase the investor lived up north. In 2005 he moved to Florida, and rather than evict his tenants he decided to rent an apartment. He refinanced the property to take out cash during the real estate bubble. The mortgage payment had an adjustable rate which is about to increase significantly. With the new mortgage rate he would not have a positive cash flow. There was over $125,000 of equity in the property. He asked whether he can move into his investment property an protect the house as homestead in a Chapter 7 bankruptcy.

The general rule is that Florida homestead protection in bankruptcy is limited to $125,000 for property acquired less than 1215 days prior to filing bankruptcy. The issue in this situation is whether the date of acquisition of the property for homestead protection is the date the debtor moves in and makes the house his homestead, which date would be within 1215 days of filing, or the date the investor purchased the house for rental income and investment.

Several courts have held that date of acquisition is the date the debtor acquires legal title rather than the date of occupancy. In this instance, the investor probably could protect all his equity in a Chapter 7 bankruptcy even if he moved into the house just prior to filing. These courts have liberally interpreted the new law in favor of homestead protection. People can protect valuable investment residential real estate by converting the real estate to their primary residence in Florida and filing bankruptcy shortly thereafter.

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

Can Domestic Partners Stack Exemptions: Not In California

Married couples who file bankruptcy jointly are permitted to "stack" bankruptcy exemptions according to most court decisions. For example, married Florida debtors who do not qualify in bankruptcy for unlimited homestead protection could stack their $125,000 exemptions and claim a total of $250,000 homestead protection (the exemption increases April, 2007 to approximately $137,000 per person). A California bankruptcy court denied a request by "domestic partners" to stack California’s homestead exemption in their consolidated bankruptcy petitions. 

The domestic partners filed separate bankruptcy petitions. The two cases were consolidated for administration at the request of the Chapter 7 trustee. Pursuant to California Domestic Partner Rights and Responsibilities Act (DPRRA), registered domestic partners are treated as "spouses," and thus as "married" for purposes of the state's homestead statute. The California Legislature explained that the DPRRA was to be 'construed liberally in order to secure to eligible couples who register as domestic partners the full range of legal rights, protections and benefits, as well as all of the responsibilities, obligations, and duties to each other, to their children, to third parties and as to the state, as the laws of California extend to and impose upon spouses.

The bankruptcy court denied these debtors the ability to stack homestead exemptions. The court found that § 302 of the Bankruptcy Code limits joint filings, and the payment of a single fee, to married partners of the opposite sex and that as a matter of federal law a domestic partnership is not a disguised form of marriage.

To those requiring authority: In re Rabin, 2007 WL 315774.

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

New Resident's Immediate Tenancy By Entireties Protection In Bankruptcy

I came across a bankruptcy case which is important for debtors contemplating moving to Florida from another state and filing bankruptcy immediately. In this case, a debtor lived in a state which had little or no homestead protection. In April, the debtor and his wife moved to Florida and bought a piece of property titled in their joint names. Two months later, in June, they filed Chapter 7 bankruptcy, and one month after filing bankruptcy the moved into a house on the same property. The issue was whether the debtor could claim an exemption for the property. The bankruptcy judge said he could exempt the property. Here’s why and how:

The general rule is that a bankruptcy debtor cannot claim Florida exemptions, including Florida homestead, in bankruptcy unless he has been a Florida resident for two years prior to filing. This debtor lived in Florida for less than three months prior to filing bankruptcy. Therefore, his bankruptcy is under the exemptions of his former residence which has little or no homestead protection. Even if the debtor were under Florida exemptions, he would not get homestead protection in bankruptcy because he and his wife did not occupy the house until after he filed bankruptcy.

The judge found that his real estate purchased in April was exempt as tenants by entireties property. Property owned jointly by married couples is deemed to be owned in a tenancy by entireties (T by E). T by E property is not party of the bankruptcy estate and is therefore "exempt"(unless and to the extent the debtor and his non-filing spouse have joint debts). But is not really "exempt" because neither the Florida statutes nor the Florida constitution are the source of T by E protection. In the bankruptcy code, T by E property is not excluded from the bankruptcy estate by the code sections dealing with exempt property, which code sections include the two-year waiting period for new Florida residents. The bankruptcy judge pointed out that T by E property is excluded from the debtor’s bankruptcy property by a different code section which provides exclusion of T by E assets owned by the debtor immediately prior to his filing bankruptcy. The T by E section has no two year waiting period.

The case held that even though the debtor purchased the real estate with his wife just three months prior to filing bankruptcy it was "exempt" as T by E property. The judge found no evidence of fraudulent conveyance; the debtor simply moved to Florida and bought a home to live in. Under the strict language of the statute nothing more is required to exclude the T by E property from his bankruptcy.

This case provides non-resident debtors a possible plan to move to Florida, buy a homestead property or other assets with their spouse, and file bankruptcy immediately upon becoming a Florida resident. Only debtors with no significant joint debts can use this planning technique

For those who require a cite: In re Schwarz 2007 WL 247649

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

Court Challenges Exemption of Inherited IRAs

Most people, including myself, understood that all IRAs were exempt from creditors outside of bankruptcy and were exempt from the bankruptcy estate for debtors who filed bankruptcy. I received an email from attorney Tye Klooster about an Illinois bankruptcy case which holds that some IRAs are not exempt. If followed in Florida bankruptcy courts this ruling would diminish IRA protection for Florida residents

Illinois, like Florida, has state statutes which exempt IRAs from creditor collection process. The Illinois statute and the Florida statute protect IRAs that are "exempt from taxation" under Section 408 of the Internal Revenue Code. This Illinois bankruptcy judge said that IRAs which a beneficiary inherits after the death of the owner are not exempt from taxation because the inherited beneficiary is not able to make tax deferred contributions to the IRA and cannot roll over the IRA tax free to a subsequent beneficiary. The judge concluded that inherited IRAs are not within the class of IRAs protected by the Illinois statute or the bankruptcy law.

If this reasoning is followed by Florida courts it could significantly impact asset protection planning for Florida residents in or out of bankruptcy.

The case is In re Taylor, decided May 9, 2006, in the central district of Illinois. Bankruptcy Case No. 05-93559

Homestead Court Decision

A bankruptcy court in Tampa issued an interesting decision on the extent of homestead protection in Florida under the new bankruptcy law. The new bankruptcy law limits homestead protection of Florida bankruptcy debtors to $125,000 if they acquired their homestead interest within 1215 days prior to filing bankruptcy. Florida bankruptcy debtor’s who acquired their homestead prior to 1215 days of bankruptcy have unlimited homestead exemption under the Florida Constitution.

The new bankruptcy Code does not specify whether spouses filing jointly are entitled to aggregate separate $125,000 exemptions, and the Code did not fully define the type of legal and financial interest subject to the $125,000 cap. The Tampa bankruptcy court held that a husband and wife filing a joint bankruptcy petition may aggregate separate $125,000 homestead exemptions so that in a joint bankruptcy filing the spouses may exempt a total of $250,000 of homestead interest acquired within 1215 days of filing. The court further defined the "interest" subject to the applicable caps to exclude appreciation in value during the 1215 day period. So, for example, if a single debtor paid $100,000 down payment to purchase a homestead within 1215 days of filing, and that during the same period, the value of his homestead appreciated by another $100,000, the debtor could exempt in bankruptcy the total equity of $200,000.

If, on the other hand, assume the same debtor had no post-purchase appreciation, but prior to filing and within the 1215 day period he paid an additional $100,000 cash to reduce his principal mortgage balance so that on filing date he had $200,000 equity ($100,000 down payment and a subsequent $100,000 principal reduction). The bankruptcy court said that under those circumstances the debtor’s homestead exemption would be $125,000, and the debtor would have $75,000 non-exempt and unprotected equity in the homestead.

Of course, if the debtor in this example did not file bankruptcy his entire homestead equity would be protected from creditors regardless of his investments of cash in the property. If all cash investments were made prior to 1215 days of filing bankruptcy, the entire homestead interest would be protected in bankruptcy (with some exceptions).

The case is In re Rasmussen, issued September 6, 2006, by Judge Williamson.

Tenants By Entireties Accounts in Bankruptcy: Interesting Decision

An Orlando Florida bankruptcy judge issued a decision in one of my client’s cases which included interesting holdings and valuable instructions on the issue of tenants by entireties bank accounts. My client and her future husband opened a joint bank account. They proceeded to marry. The money in the bank account on the date of their wedding was spent, and over the years it was replaced with new money acquired during their marriage up until the time the wife filed bankruptcy. The question was whether the money in the account was exempt as a tenants by entireties asset.

Tenants by entireties requires that the joint property in question is acquired under certain circumstances, one of which is that the property is acquired at the time the spouses were married. In this instance, the joint account was opened prior to the marriage, but the money in the account on the date of bankruptcy was acquired and put into the account after the marriage date. The question was whether it’s the bank account or the money in the bank account that has to be acquired during marriage. I argued that so long as the money in the account was acquired during marriage it did not matter that the money was deposited in an account set up prior to marriage. The Court disagreed. The Court said that the debtor and her husband should have signed new signature cards after marriage to convert the account to an entireties account. Having failed to do so, all money deposited in the unprotected, non-entireties account became non-exempt upon deposit. In other words, the tainted account removed tenants by entireties protection from jointly acquired marital money.

The lesson is that if you and your spouse had already established joint financial accounts before you were married you should re-sign the signature cards after your marriage or open new accounts after marriage in order to have exempt tenants by entireties accounts.

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

Taking Florida Exemptions to Another State

A debtor has to file bankruptcy in the state where he resides at the time of filing his petition. Under the new bankruptcy law a debtor must reside in a state for two years before the debtor is eligible to use the exemptions available to citizens filing bankruptcy in that state. For example, a Florida resident who files bankruptcy within two years after moving to Florida from Georgia has to file in Florida using the bankruptcy exemptions under Georgia law. The reverse is not always true. For instance, a person sells his exempt Florida homestead and moves to Georgia where he buys a new homestead. Within two years of moving to Georgia the same person files bankruptcy in Georgia. The issue is whether the Georgia debtor can take advantage of Florida bankruptcy exemptions including Florida’s unlimited homestead protection.

In this example, the Georgia debtor probably cannot avail himself of Florida exemptions after moving to another state and filing bankruptcy within two years. Florida law applies Florida’s property exemptions only to residents of Florida. The day a person relinquishes Florida residency he also gives up Florida’s creditor protections in and out of bankruptcy. A bankruptcy court ruled in the 1989 case of In re Schulz that a person who has to file bankruptcy in another state after leaving Florida but prior to qualifying for the exemptions of the new state of residence may claim the default federal bankruptcy set of exemptions provided under Section 522 of the Bankruptcy Code. Other than Florida’s homestead protection, the federal exemptions are generally more liberal than Florida exemptions.

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

Homestead Protection Denied For Rented Duplex

I had previously written a post about homestead protection of a duplex where one half is owner occupied and the other unit is rented. The issue is whether the constitutional homestead protection includes a rental unit attached to the dwelling where the two units cannot be subdivided. The prior post cited precedent that the constitution protects dwellings and businesses located on the same property outside a municipality but that homestead properties within a municipality are limited to the actual dwelling unit. Other cases have protected dwellings and attached units used for business where the property could not be subdivided.

A recent bankruptcy decision in the Middle District of Florida dealt with the claimed exemption of a debtor’s duplex situated within a municipality . The two units are not legally divisible. The bankruptcy court denied homestead protection of the duplex. The court pointed out prior to 1968 the Florida Constitution protected the residence and business house of the owner, but a 1968 amendment deleted the reference to "business house." Although a minority of prior bankruptcy decisions protected the entire duplex where the units were not divisible the majority of prior bankruptcy cases denied homestead protection to rental units attached to the residence. The court recognized that this ruling may force the debtor to lose the house and speculated that the Florida Legislature may not have contemplated this unfortunate result when drafting and enacting the 1968 amendment to the Constitution. Nevertheless, the court found that denial of homestead protection of that part of the property rented for income is mandated by the law.

There ruling may have been different if the debtor’s duplex was located outside a municipality because, as stated above, courts have previously protected businesses on homesteads located in the county. Secondly, all the cases cited by the bankruptcy court were prior bankruptcy decisions, and state courts may reach a different conclusion when homestead protection of duplexes is considered outside of the bankruptcy context. This was a tough case to decide, and in my humble opinion, the decision was technically correct because the duplex was within a municipality. (Memorandum Opinion, In re: Angela D. Bornstein)

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

Court Rules Social Security Payment May Be Seized

Social securities payments cannot be garnished under Florida law. Social security income is not counted as income under the means test. However for those people who owe student loans, social security income is at risk. The MSN website recently had an article about a Supreme Court ruling that subjected social security to garnishment for student loan debt. Link: Court: Social Security can be used to pay debt - The Changing Court - MSNBC.com.

People nearing retirement with old and forgotten student loan debt are at risk under this Court ruling. People may find the government waiting to pounce on their social security checks to collect past due student loans. Student loans, tax debt, as well as child support and alimony, are very difficult obligations to evade under bankruptcy and other federal law

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

Home Appreciation Not Subject To Homestead Cap

The new bankruptcy law caps homestead protection at $125,000 for debtors who first acquired a Florida homestead within the past 40 months prior to filing bankruptcy. The American Bankruptcy Institute Blog reports the first case, from a Texas bankruptcy court, which considered whether appreciation in value during the applicable 40 months prior to bankruptcy counts against the cap. Link: ABI's BAPCPA Blog. The case held that only the value of interest acquired by the debtor, excluding appreciation in value, is applicable to the homestead cap.

Consider a hypothetical florida debtor who purchases a homestead for $125,000 41 months before filing. If the home appreciates to $250,000 during the ensuing 40 months, and the debtor then files for Chapter 7 bankruptcy, his homestead will still be exempt in the bankruptcy even though its value is double the amount of the $125,000 homestead cap.

I am not aware of any Florida case which has considered this same issue.

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

Credit Counseling Strictly Enforced

I read an interesting post on the Bankruptcy Litigation Blog concerning bankruptcy court enforcement of creditor education requirements. Link: Bankruptcy Litigation Blog. Debtors who have filed under the new bankruptcy law on the brink of foreclosure or eviction have been refused bankruptcy relief because they failed to strictly comply with requirements for pre-bankruptcy debtor education.

The following is the conclusion of the post:

"The Bankruptcy Courts in both cases adopted the "plain meaning rule" of statutory interpretation and rejected each of the respective debtor's certifications for failing to strictly comply with all the requirements of Bankruptcy Code section 109(h). This section requires, at a minimum that the debtor make a request for credit counseling services during the five-day period preceding the filing, and then certify its inability to obtain those services. Because in each case, the debtor failed to comply with the strict requirements of Section 109(h), the Courts dismissed the petitions, notwithstanding the clear exigencies facing the debtors."

The lesson is that debtors must plan ahead. If bankruptcy looks like a possible solution to a legal problem it makes sense to take the credit counseling course in case a last minute filing becomes necessary.

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

Georgia Judge Excludes Attorneys From "Debt Relief Agencies"

Under the new bankruptcy law all people who provide bankruptcy assistance to prospective bankruptcy filers are disclose that they are "debt relief agencies." Under the strict language of the new law all bankruptcy attorneys are required to disclose that they and their law firms are "debt relief agencies" to their prospective clients and in their public advertising including yellow page ads. In a decision issued October 17, 2005, the effective date of the new bankruptcy law, a Georgia bankruptcy judge, Judge Lamar W. Davis, Jr. issued a rulling that, "attorneys regularly admitted to the Bar of this Court... are not covered by the provisions of the Code regulating debt relief agencies and are excues from compliance ...." with disclosure provisions. This is a common sense ruling which hopefully will be followed by Florida bankruptcy judges.