Upon the filing of a Chapter 13 bankruptcy all creditors have a limited time (60 days after the creditor meeting) to file unsecured claims. A lender could not within the 60 day claim period both complete a foreclosure (stayed by the bankruptcy) and pursue a motion for a deficiency claim resulting in a state court determination of the amount of deficiency. Therefore, the client believed that the first mortgage holder would have only a secured claim for the secured portion of the mortgage but would not have time to file an unsecured claim for a deficiency amount within the unsecured claim period.

I do not think this plan would work. I think the first mortgage holder can timely file both a secured claim and a general unsecured claim for the amount of the unliquidated deficiency. There is a bankruptcy court  decision dealing with a second mortgage holder filing an unsecured deficiency claim on a partially secured second mortgage. The court held that the lender is entitled a general unsecured deficiency claim which would share pro rata in distributions

I believe that a mortgage holder’s deficiency claim will not be precluded by claim filing deadlines. The creditor can file both the secured and unsecured claim with the amount of the unsecured deficiency determined in accordance with state law procedures.

The post Does Chapter 13 Bankruptcy Preclude Mortgagee Filing Unsecured Deficiency Claims? appeared first on Orlando Bankruptcy Law Blog.

Florida statutes provided that a personal representative is entitled to compensation for his work in the administration of a probate estate. The statutory fee is up to three percent of the probate estate value. In this particular case, the personal representative’s fee may be significant. The fee is not payable until approved by the court. The probate court has yet to approve payment to the bankruptcy debtor of any fees. The question is whether all or any part of the debtor’s personal representative fee is part of the debtor’s bankruptcy estate.

Initial legal research found no cases on point. On one hand, the trustee could argue that the debtor had acquired a right to be paid as soon as he was appointed by the court as personal representative prior to filing bankruptcy. On the other hand, the personal representative fee requires that the person actually do the work required to administer the probate estate, and there is no final entitlement until the personal representatives’s work and fee request is approved.

In my opinion, I think that if the probate court approves payment of a personal representative fee the trustee is entitled to part of the fee representing work the debtor did prior to filing bankruptcy. Probate work after bankruptcy is in the nature of compensation for future labor which is not part of a Chapter 7 estate. In this particular probate the bulk of the probate administration work remains to be done, so it may be that the amount of work prior to bankruptcy does not warrant the trustee investing much time in trying to assert a right to the personal representative fee.

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This Wells Fargo practice is annoying, but most bankruptcy debtors have only small amounts of cash in their bank accounts when they file Chapter 7 bankruptcy. A couple weeks ago I heard that Wells Fargo froze a debtor’s retirement account with over $100,000 when the debtor filed bankruptcy. Accounts clearly labeled as IRAs or other retirement accounts are clearly exempt in Florida. There is no reason why a bank should freeze a debtor’s IRA because the debtor files bankruptcy.

My advice: if you are considering bankruptcy you should move all your bank accounts out of Wells Fargo bank.

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Florida Statute 443.051(2) protect from creditors unemployment compensation due to the debtor. The statute does not state whether the exemption attaches to the money after the debtor’s receipt of the funds. Other Florida statues protect proceeds received from exempt assets. The Florida wage exemption, in Statute 222.11, expressly protections head of household wages for six months after the debtor receives the earnings and deposits the money in the bank. Florida courts have read other exemptions to apply to the “proceeds” of the exempt assets in the debtor’s hand- annuities and pension proceeds are prominent examples.

This bankruptcy court found that the plain language of the unemployment benefit statute does not apply to proceeds after receipt. Therefore, the court ruled that once received proceeds from unemployment compensation lose their exemption. For planning purposes, debtors should not confuse employment earnings and unemployment compensation. Money received as earning from a job which is exempt under 222.11 remains protected in the bank; money received for not working loses its protection when its received.

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One of my bankruptcy clients presented a slightly different type of contract issues. The client, a man, entered into a marital settlement agreement with his former wife which agreement included a provision that said if a bankruptcy court discharges either party’s obligations under the settlement agreement the bankrupt former spouse agrees to reinstate the contract obligation after the bankruptcy discharge is entered, In other words, the martial settlement agreement does not attempt to prevent either spouse from filing bankruptcy, but rather, it attempts to nullify the effect of the bankruptcy discharge. Marital settlement debts and obligations may be discharged in bankruptcy while alimony and support obligations may not be discharged.

I do not think that a court would enforce this part of the marital settlement agreement. If the bankruptcy court discharges the debtor spouse’s obligations under the Agreement then the debt is discharged notwithstanding the Agreement’s provisions. Actually, if the non-bankrupt spouse attempted to enforce this Agreement provision after the debtor spouse had filed bankruptcy I think the bankruptcy spouse might seek bankruptcy sanctions for a violation of the bankruptcy discharge.

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The requirements to meet the exception and discharge student loans are very strict. Most attorneys tell their bankruptcy clients that it is almost impossible to obtain an undue hardship exception and eliminate their student loans. While student loan debt is a significant contribution to debtors’ financial problems few even try to discharge this debt in bankruptcy.

I read an article in the Huffington Post  recently about a study on student loans in bankruptcy which was conducted by a professor at Princeton University. The study took an empirical look at student loan discharges in bankruptcy. The study found that in fact four of ten people who attempted to discharge student loans in bankruptcy under the undue hardship rule. The author concluded that many people who could have qualified for a student loan discharge never even tried.

Costs is one reason why most Chapter 7 debtors do not consider seeking student loan hardship exception. The debtor has to file a separate adversary proceeding to discharge student loan debt. Most attorneys will charge more legal fees to seek a student loan discharge. The amount of legal work and fees for the student loan case will in most cases exceed the cost of the underlying bankruptcy.

Most bankruptcy debtors can barely afford to file bankruptcy after draining their resources to avoid bankruptcy in the first place. When they consider that most petitions to discharge student loan debt will not be successful few Chapter 7 debtors are able and willing to invest in an attempt to wipe out these loans even if the loans will otherwise continue to impose a substantial debt burden.

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I find that many prospective Chapter 13 debtors, and some attorneys, are not aware that many people cannot file Chapter 13 bankruptcy because they have too much debt. Particularly, during the real estate boom many investors bought multiple real estate properties subject to mortgages, or they invested in one or two commercial real estate venture where they personally guaranteed the mortgage debt. As real estate values were inflated the amount of mortgage debt also rose in absolute dollars. Real estate investors during the boom now find that these high debt mortgages exceed the maximum secured debt limits for Chapter 13. Congress did not change the debt limits even though typical mortgage debts went up during with real estate value inflation.

Many such people have asked me what alternatives they have when their debt levels disqualify them from Chapter 13. One option is to wait until one or more of the mortgage lenders forecloses so that the loan is not longer part of secured debt calculations. The issue then is whether a deficiency claim brings the debtor over the unsecured debt limits. For many debtors, the only option is filing Chapter 11 bankruptcy. Generally, Chapter 11 enables debtors to enter into a repayment plan similar to Chapter 13, but Chapter 11 does not have debt ceilings. The problem with Chapter 11 is that those cases are much more complex and expensive.

Too many real estate investors whose debts exceed Chapter 13 ceilings find that bankruptcy does not offer any alternative practical solutions.

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The client asked me whether the gets to keep the property recovered and the money received as part of the restitution. On one hand, the debtor’s bankruptcy property consist of asset owned on the date of the filing, and money obtained post filing are not included in the bankruptcy estate. The debtor did not list a claim against the unknown thief because he had no expectation that his property would be recovered or that he would receive restitution.

On the other hand, the debtor did technically have a claim to the lost property on the date he filed. The recovery satisfied the claim that existed on filing date. In that sense, the property and restitution should be listed on amended schedules.

I am not sure what the answer is. I am also not clear what is an attorney’s obligation if the client decides to take the position that the property was acquired after filing and not amend schedules. Is the client then taking an aggressive but defensible position, or is the client hiding assets of the estate?

The post Stolen Property Recovered After Bankruptcy Is Filed: Who Keeps It? appeared first on Orlando Bankruptcy Law Blog.

This single creditor can initiate an involuntary bankruptcy if the debtor has less than 12 creditors. However, this particular creditor, itself, does not qualify as a “creditor” for purposes of filing an involuntary petition. The reason is that only those creditors with liquidated and uncontested claims may join in an involuntary petition. If the debtor has a bona fide dispute over the liability or the amount of the claim the creditor holding the claim may not file an involuntary petition.

A debtor’s appeal of a final judgment does not disqualify the creditor. However, this particular creditor has not even filed suit let alone obtained a judgment for an amount certain. If the creditor does sue, the debtor’s defense of the lawsuit would probably create a bona fide dispute that would postpone an involuntary petition.

I suggested to this client that the creditor’s threats of filing involuntary bankruptcy were premature. The debtor should make sure he has at least 12 qualifying creditors so that the aggressive creditor could not alone force him into bankruptcy.

The post Is Involuntary Bankruptcy Petition Possible Before Creditor’s Judgment? appeared first on Orlando Bankruptcy Law Blog.

A recent bankruptcy court decision in the Southern District of Florida found that a single debtor may not exempt as entireties property a joint tax refund received after the bankruptcy filing date. The court said that when each spouse has a separate job and separate paycheck of differing amounts, each pouse has a separate interest in a tax refund. Because of each spouse’s divisible interest in a joint refund the efund does not have the necessary unity of interest to support a claim that the refund is tenants by entireties property.

The bankruptcy judge acknowledge that prior bankruptcy courts have decided different, but this judg did not find the other courts rationales to be persuasive.

The court noted that if the joint tax refund had been received prior to the debtor spouse’s filing and then deposited in a joint bank account that the money might be exempt as tenants by entireties because joint accounts are presumed to be exempt entireties funds. .

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