The Florida Bankruptcy Law Blog

Does Means Test Include Income Earned By Non-filing Live-in Companions?

Many Chapter 7 means tests involve issues about the size of a household and computations of household income. Consider the following questions posed in an email. A prospective debtor lives with his young child and the child’s mother. The debtor and mother are not married. The debtor and his girlfriend have separate bank accounts, ad they share payment of household bills. The debtor wants to know if his means test includes income earned by the unmarried girlfriend.

Where Does Mobile Debtor File Bankruptcy?

It is often said that we live in a mobile society. Under the new bankruptcy law, mobility sometimes creates a puzzle when a debtor has to decide where to file bankruptcy and what state’s exemptions apply. Consider the example posed by a caller who last week told me he wanted to file Chapter 7 bankruptcy. The prospective debtor rented an apartment in Florida for over two years. Then, he resided in his brother’s apartment in Nevada, but he kept his lease for the Florida apartment. The Nevada lease was in his brother’s name. He helped pay his brother’s expenses. Last month, he moved to Colorado where he rented another apartment. He stated he intends to stay in Colorado and look for permanent work. The Florida lease is still current. He has a Nevada drivers license. He did not file tax returns for 05 or 06, but the last time he did file a tax return in 04 he listed Florida as his residence. Where does he file bankruptcy, and what state’s laws determine his exemptions.

Dollar Amount Changes in New Bankruptcy Law Effective April, 2007

There are changes in the new bankruptcy law of interest to Florida debtors. The new law provided for automatic inflation adjustments in certain dollar indices. There are many adjustments going into effect in April, 2007. Most important for Florida debtors is the homestead exemption in bankruptcy which increases from $125,000 to approximately $137,000 per person. Debtors who have lived in their homestead for two years or more have an unlimited homestead exemption in Florida. As previously pointed out on this Blog, all Florida residents who are not in bankruptcy have unlimited homestead exemption regardless of how long they lived in their house.

Protecting Successive Florida Homesteads in Bankruptcy

A reader asked me to address a situation where a Florida resident owned a homestead property for 30 months and sold the house. Within a reasonable time after the sale, he bought a new homestead where he then lived for 45 months prior to filing bankruptcy. The question is whether the reader would in bankruptcy get Florida’s unlimited homestead protection which is available for people who have owned their homestead for 40 months or more.

Which Homestead Exemption Applies to Filing Prior to October, 2005?

Bankruptcy cases involving debtors who file bankruptcy after recently moving to Florida involve interesting issues. I discussed with another bankruptcy attorney this week a debtor who filed bankruptcy in September, 2005, one month before most provisions of the new law went into effect. He invested about $70,000 in a Florida homestead one year prior to filing and about the same time he had moved to Florida from a state with a small homestead exemption of $25,000. The homestead provisions of the new bankruptcy Act which limit Florida debtors to no more than a $125,000 if they purchased their homestead within 40 months of filing went into effect in April, 2005, when the Act was passed. A trustee argued that since he purchased the homestead after April, 2005, all homestead issues are under the new bankruptcy law. One part of the new bankruptcy law says that if you move to Florida within two years of filing bankruptcy in Florida, your exemptions are determined under the laws of the state you came from. The Trustee concludes that as to this debtor’s homestead, his exemption is limited to the $25,000 applicable in the state of his previous residence.

Post-Filing Debtor Education

The new bankruptcy law has two separate debtor education requirements. Bankruptcy debtors must complete a financial education class prior to filing bankruptcy, and after filing they must complete a financial management class in order to get their bankruptcy discharge. One of my clients had their case closed without their discharge because they did not file a certificate of completing the second class, the financial management course.

An Alternative Attack On Florida Homestead

Most people think the main impact of the new bankruptcy law upon Florida homestead protection is the $125,000 limitation on the exemption for debtors who acquired equity in their home within 40 months of filing bankruptcy. I am involved in a case where another feature of the new bankruptcy law is being used to attack the debtor’s homestead exemption. A new Section 522(q)(1) of the Code provides that a debtor may not exempt more than $125,000 of homestead equity regardless of when he acquired the homestead if the debtors owes a debt on account of a criminal act, an intentional tort, reckless misconduct or a civil remedy under RICO laws. Civil fraud, often alleged in civil complaints, falls within the category of intentional tort.

Disability Income From Private Disability Insurance

The new partnership law excludes social security disability from computations of monthly income when the debtor determines whether he is under the applicable median income and exempt from means testing. A client today received both social security disability and additional disability income from a private disability insurance policy. As far as I can tell, the private disability is counted in computing his monthly income and means test eligibility. In most cases, people who are receiving disability will not be making enough money overall relative to their expenses to flunk the means test. I would appreciate hearing if my treatment of private disability income is incorrect.

Definition of "Household" For Means Test

The new bankruptcy law says that you automatically can file for Chapter 7 bankruptcy without further means testing if your average monthly income over the prior six months is below Florida's median income. The applicable median income depends on your household size. Many people are unclear how to determine the size of your household, and particularly, how household size is related to family size. More than one blog reader has asked me questions about household definition. The new bankruptcy law does not make clear the definition of household for determining if a particular debtor is below the applicable median income.

Marriage During A Bankruptcy

The new bankruptcy law adds many "curves" to consumer bankruptcy. One such issue is the effect of marriage after one spouse has filed bankruptcy. The new bankruptcy law in both Chapter 7 and Chapter 13 considers earnings of a non-filing spouse as well as changes in income and expense after the filing date. If a debtor who was unmarried when they filed bankruptcy chooses to get married to a working spouse reasonable soon after the filing date, the marriage could affect the bankruptcy. For example, a Chapter 13 debtor could be forced to amend the bankruptcy plan to increase monthly payments so as to take into consideration the earning contribution to family income of the new, working spouse. One way to prevent marriage from impacting an ongoing bankruptcy is for the spouses to enter into a marital contract that segregates by contract spousal earnings and expenses. In any event, marriage during a pending bankruptcy is more significant under the new bankruptcy law.