Florida Bankruptcy Law Blog

Chapter 7 Trustee Goes After 2009 Prospective Tax Refunds

Bankruptcy trustees may be more aggressively seeking your income tax refunds. Tax refunds are non-exempt money in most bankruptcy cases. If you file bankruptcy during the first four or five months of the calendar year, and you are due or expecting a tax refund for the prior tax year, the trustee will take your tax refund. The asset at issue is the refund that was due the debtor at the end of the prior year, based on the prior year’s income and withholding, to be reported on the income tax return. I have received emails from two attorneys reporting that a Chapter 7 trustee at a creditor meeting has required that the debtor pay the trustee the year-to-date portion of the debtor’s expected tax refund for 2009, even though the tax return is not due until next year and the amount of refund is not set until the end of the tax year.

The trustee has the right to the debtor’s 2009 tax refunds. There are several bankruptcy cases holding that at any time a debtor’s tax refund is property of the bankruptcy estate. The refund must be prorated so that only the refund attributable to the time prior to filing the petition is estate property. The law does not limit the trustee’s rights to prior years tax returns so that the trustee may go after your 2009 refund even though the tax year is not over. The issue is how to determine the amount of the 2009 refund before the end of the year. Many factors between the bankruptcy filing date and the end of the year may increase or decrease the debtor’s tax refund. A debtor may defend a trustee’s reach for current year tax return on the basis that the amount of refund is speculative until the return is filed next year. Most trustees will not want to keep open a large number of current bankruptcy cases until debtor’s tax returns are filed sometime in 2010. It will be interesting to see how bankruptcy courts handle this type of trustee collection effort.

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

Financing Car Purchase During Chapter 7 Bankruptcy

Many Chapter 7 bankruptcy clients would like to surrender a car and escape an upside-down car loan, but they are afraid they will not be able to buy a replacement car. Many people have destroyed their credit by the time they consider bankruptcy and believe no one will loan them money to buy a car after there a bankruptcy filing appears on their credit report. I recently attended an attorneys luncheon in Orlando, Florida where one of the attorneys said many of her bankruptcy clients obtained car financing after surrendering an upside-down car in a Chapter 7 bankruptcy.

The attorney said that Payless Car Sales in Fern Park, Florida (Orlando suburb) has a relationship with a lender who will finance used cars purchase by people in bankruptcy. The lender will approve loans to bankruptcy debtors who have no history of car repossessions. It does not matter that the debtor elects to surrender a car to a prior lender after the debtor files bankruptcy. Interest rates are approximately 18%. Buying a car which is not upside-down at a high interest rate is usually preferred to reaffirming an upside-down car at a lower interest rate because the monthly car payment is lower for the less expensive car.

People considering bankruptcy in central Florida who may want to surrender a vehicle in bankruptcy and then buy a replacement car may want to contact Bill Anderson, owner of Payless Car Sales, 407-599-7253.

To date, non of my own clients have told me they have purchased a car from Payless, and therefore, I have no opinion about the company other than what I heard from another attorney at the above-described luncheon meeting.

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

Mortgage Modification Program Enacted By Federal Government

I receive several emails and calls daily from people with problem home mortgages. This week several people have asked me whether they qualify for help under the government’s new mortgage assistance program. I read an article in the Wall Street Journal that described the two mortgage assistance programs implemented this past week. The Journal article included a chart that helped explain the program benefits and qualifications. I have reproduced the Wall Street Journal chart to assist Blog readers.  WHO WOULD QUALIFY

I know nothing other about the new mortgage program other than what is in the Journal’s chart. I am following the proposed Chapter 13 bankruptcy amendments which would allow people with upside-down primary residences to reduce mortgage principal to current market value with conditions. A Chapter 13 law has been passed by the house and a similar law is awaiting Senate consideration.

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

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

Attorney Helps Re-establish Credit After Bankruptcy

An Orlando attorney contacted me recently to discuss his law practice that focuses on resolving credit report issues and debt collection matters. I was happy to receive his call because many of my bankruptcy clients ask me for assistance dealing with collection agencies and repairing their credit score after they file bankruptcy. The attorney’s name is Walter Benenati, and he deals primarily in Fair Credit Reporting Act (FCRA) and Fair Debt Collection Practices Act (FDCPA) litigation.

Mr. Beneati said the number of post bankruptcy discharge violations by credit reporting agencies are on the rise. He told me that debt collectors have become more brazen with their overzealous collection tactics as the economy deteriorates. He frequently hears from clients stories of debt collectors threatening consumers-calling them twenty times a day, etc. Mr. Benenati told me that even though the sheer number of debt collection lawsuits have obviously increased in light of the poor economy, debt collection lawyers have informed him it doesn’t mean they are collecting any more money. He says that the news of the recent bailout of Congress has empowered consumers to not be concerned with paying their credit cards on time anymore, if at all.

If you are having difficulty repairing credit after bankruptcy I suggest you try contacting Mr. Walter Benenati. www.orlandocreditlawyer.com

Florida Bar Homeowner Assistance Article

A recent blog post described a voluntary program initiated by the Florida Bar to help homeowners negotiate with mortgage lenders. An article about this program appears in the current issue of the Florida Bar News. Link: Fighting against foreclosure. The Bar News is a trade publication distributed every other week to attorney members of the Florida Bar.

U.S.Trustee Seminar Helps Clarify Means Test Exemptions

The U.S. Trustee’s office in Orlando held a seminar to discuss their application of the Means Test. Among many interesting topics were the characterization of debts as either consumer debts or business debts. The distinction is important to determine if a prospective Chapter 7 debtor is exempt from the means test. If a debtor’s debts are primarily non-consumer debts the debtor is eligible to file Chapter 7 regardless of whether he passes the means test.

I frequently meet debtor’s who moved from an expensive home into a less expensive house as their principal residence. They rent the expensive house and use the rental income to pay the mortgage. The question is whether the mortgage on the expensive home is a business debt because it is rented at time of filing bankruptcy or a consumer debt because the mortgage was taken to purchase a primary residence for personal use. The Trustee’s position is that a house formerly occupied but currently rented will be a non-consumer debt if the debtor shows the mortgage was treated as business debt on a prior income tax return.

After taking out a first mortgage to purchase a residence some debtors use a second mortgage to finance their own business. When the proceeds from a second mortgage are used mostly to pay business expenses the second mortgage is a non-consumer debt for means test purposes.

Similarly, if a debtor’s obligation to a particular credit card company had been incurred primarily to pay business, or other non-consumer expenses the balance owed to that credit card company is non-consumer debt. The Trustee’s position is that the entire credit card balance is non-consumer debt and not just those charges used to pay non-consumer expenses.

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

Could Prior Debtors File 7 Today?

I saw an interesting comment about the effect of the new bankruptcy law on Link: TPMCafe || The Bankruptcy Wars Continue. Apparently a study done by the Denver bankruptcy clerks office found that 80% of chapter 7 debtors who rushed to file just before the new bankruptcy law took effect would qualify for Chapter 7 under the new law. The primary difference between the old and new bankruptcy law for most debtors, the author says, is the amount of legal fees. He stated that his bankruptcy partner doubled his bankruptcy fee under the new law because of the amount of extra legal work required by the new bankruptcy law. Many consumers will be financially unable to file bankruptcy. The author doubts that credit card companies will actually see increased debt collections because more of their customers cannot take advantage of bankruptcy protection. If people can't afford a bankruptcy attorney they also likely cannot afford to repay credit card debt.

I agree with the comment to the TPM Cafe Blog. Most of my  own bankruptcy clients under the new law could qualify under the means test, and nearly all of our new clients in November are below median income and automatically qualify for the means test. It has always been my experience that people file bankruptcy as a last resort, and when they do file, they feel ashamed and embarassed about it. Few people who can afford to pay their debts seek bankruptcy as the easy way out. Most bankruptcy debtors have either little income or they have suffered devastating financial events such as illness or divorce.

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