The Florida Bankruptcy Law Blog

Chapter 7 Bankruptcy Leads To Financial Success For Hard-Working Couple

People are afraid of filing bankruptcy. Most of my bankruptcy clients are worried about the effect of bankruptcy on their future, and they think they may never recover financially. Consider this true story.

Five years ago I filed bankruptcy for a married couple. The husband had been fired by a a national corporation where he had earned a six figure income for many years. The wife worked for a local home decorating firm. After the husband lost his job the couple had spent all their savings and accumulated substantial credit card debt in an effort to save their house and pay other expenses.

This past month the wife came to see me for help with a new legal issue. She gave me a report on their current work and financial situation. The husband after bankruptcy started a new job placement company. His prior corporate experience was in the personnel department. The husband’s new company earned net revenue of $1 million. That’s net revenue, not gross. The wife owns and operates a successful interior design firm which, she says, is profitable and has increased revenues every year during the recession. Both spouses are clearly very successful.

The wife told me that bankruptcy taught them valuable lessons including keeping overhead low in their businesses and limited personal expenditures to only things they could afford with money they already had in the bank. Both spouses enjoy what they do and they work hard. Bankruptcy did not ruin these people. The wife told me that her husband’s getting fired by his company and their joint bankruptcy was the best thing that ever happened to them.

Improper Ownership Of Life Insurance Policy Is Windfall For Creditors.

I saw another example of how sloppy financial and estate planning causes problems in bankruptcy. In this instance, a man took out a $100,000 life insurance policy on his own life. The man died at a time when he and his wife had substantial amounts of  credit card debt. The wife wanted to file bankruptcy. I explained to the  that the life insurance proceeds would be part of her bankruptcy estate if she were the insurance beneficiary.  I suggested that she collect the life insurance, but that she avoid filing bankruptcy. She could use some of the life insurance to negotiate some debt at a discount and find ways to spend or protect the balance of funds from creditors.

When I looked at the insurance policy I saw that the husband neglected to name his wife, or anyone else, as a beneficiary. Therefore, the life insurance proceeds would not be payable to his wife, but would be part of the husband’s estate. The husband’s estate would have to file a probate proceeding to administer the insurance. During the probate the credit card companies could file claims against the estate and the insurance proceeds. The insurance proceeds are still part the wife’s bankruptcy estate because she is her husband’s heir under his will.

There is no way for the wife and her family to escape the credit cards in this situation. In effect, the credit card companies are the primary beneficiary of the husband’s insurance policy.

Bankruptcy Debtors Often Try To Hide Their Own Claims And Potential Lawsuit Recoveries

Your potential lawsuits against some else, such as personal injury suits or class action suits, are assets in your bankruptcy case. Many people innocently overlook a potential claim that has not yet been filed as a lawsuit; other people intentionally try to “play games” with their claim in order to justify, to themselves at least, omitting their claim and potential lawsuit from their bankruptcy case.

Today’s case in point comes from an exchange I heard in bankruptcy court while waiting for my own client’s case to be called. A man filed Chapter 7 bankruptcy pro-se, that is, without an attorney. After he filed his bankruptcy he initiated a lawsuit in Florida to recover money damages. The defendant settled and agreed to pay the debtor a significant amount of money. The defendant wrote a check to the trust account of the debtor’s attorney. By this time, the debtor’s bankruptcy case has been closed and a discharge entered.

Then the debtor’s civil attorney does something his debtor client did not expect. The attorney checks the public legal records, and he finds out about the bankruptcy filing. The attorney does not want to pay the debtor money which the attorney now knows, as a result of the search, may belong to the bankruptcy trustee. The attorney contacts the trustee. The trustee files a motion to reopen the bankruptcy case to intercept the damage award and distribute the money to the debtor’s creditors. The civil attorney will still get paid. The judge granted the trustee’s motion so the creditors will get the money.

Wachovia Bank Goes Wild: Freezes The Bank Account Of Bankruptcy Debtor's Boss

One of my clients files Chapter 7 bankruptcy. The client is an accounts manager for a one doctor medical practice. The doctor gave the client signature authority on the office account at Wells Fargo Bank so the client could easily pay the office bills. The account is titled in the name of the boss’s medical corporation. All the money in the account is from the medical practice receipts; the debtor deposits none of her personal money in the account. The account is set up under the business’s tax ID number.

After the client filed personal bankruptcy Wells Fargo froze the account because the debtor had signature authority. The doctor cannot pay his business bills with his own money. My office called a manager at Wells Fargo Bank and  wrote emails to Wells Fargo demanding they release the account freeze, but the bank ignored our calls and letters. Next, we wrote an email to the Chapter 7 trustee in the hope that he would contact Wells Fargo and get them to correct their error. The Chapter 7 trustee has done nothing. Perhaps the trustee is not interested in my client’s boss’s problem  because money in the business account is not part of the debtors bankruptcy estate.

Exemption Of Jointly Owned Sail Boat With Broken Motor

A man consulted with me about filing Chapter 7 bankruptcy. The client and his non-debtor spouse lived on their sailboat docketed at the marina. The boat’s motor was broken but the sails worked. The boat was registered on a national boat registry with a federal boat ownership certificate. The ownership was listed as: husband wife. Not husband and wife, not husband or wife, and there was not choice of specifying ownership as tenants by entireties, tenants in common, or even as joint tenants with rights of survivorship. The client wanted to know if his boat was exempt from creditors under Florida law.

There are two possible exempts applicable to this boat: homestead and tenancy by entireties. A boat can be a homestead so long as the boat is permanently docket and is not suitable for transportation. A seaworthy  boat is more like a “boat” than a “home.” This client’s boat could sail. However, the client explained that the boat could not reach open water without navigating though the docks and other docked boats which it could only do with a working motor. The client stated his boat could not sail away from its docket location without a motor.

In my opinion, this sailboat is currently not seaworthy. The client is using the boat more as a “home” than as transportation. I think this  boat would be exempt homestead. However, if the boat’s motor is easily repairable a court could find that the asset is primarily a “boat” which is only temporarily immobile.

This Bankruptcy Client's Repayment Of Loan To Father Is Not A Reversible Creditor Preference

If you pay back debts owed to family members or business partners within one year prior to filing Chapter 7 bankruptcy the trustee can go after the people you paid to return the money to the bankruptcy estate. You cannot pay your family and partners first and leave your general unsecured creditors, such as credit cards, to “pound sand” in your Chapter 7 bankruptcy. It’s called a “preference”, and the trustee can get the money back.

One of my ongoing clients is considering filing bankruptcy. When I asked him whether he had repaid any loans to family members recently he said that over the past year he had paid his father over $50,000 during the year. I told him that these repayments would be a big issue in a bankruptcy. I asked how he paid so much money to his father when he had also told me he wasn’t making much money and had no assets.

The man had a business that rebuilt and sold old automobiles. The business was a separate LLC. He and his father had an ongoing loan arrangement in which his father would advance funds to buy old cars and the parts to rebuild the cars. The client would fix the car, sell the restored car, and then repay his father with interest from the sale proceeds. This was a revolving and ongoing arrangement. Without his father’s loans and his repayment of the loans from sales the client could not conduct his business because he was not credit worthy at banks, especially in today’s lending environment. The $50,000 loan repayment amount is the sum of all money repaid from the sale of the cars.

To The Carpenter, Everything Looks Like A Nail. To Some Bankruptcy Attorneys, Filing Bankruptcy Is The Best Solution For All Debtors.

There is the well-known proverb that, to a carpenter everything in the world looks like a nail. Or, surgeons want to operate to cure any and all ailments. The same is applicable to some bankruptcy attorneys. I assisted a couple with asset protection last year. The couple faced joint liability from a failing business investment. They had $150,000 liquid cash, and they were expecting another $200,000 from the proceeds of a real estate sale. I explained that they would lose the cash in bankruptcy. I advised them to spend down the cash and possibly invest in a new homestead which would be exempt I they were sued.

Since my advice, the creditor sued and obtained a judgment against the couple. The couple too al their liquid cash remaining, about $310,000, about bought a $400,000 homestead with a small mortgage. The creditor began aggressive collection efforts. The collection fight made the couple nervous and fearful about their assets so they consulted a bankruptcy attorney with the hope of putting the problem behind them.

As the couple reports, the bankruptcy attorney told them that the money used to purchase the house was not exempt in a Chapter 7 bankruptcy first, because the amount of equity invested in the homestead exceeded the bankruptcy exemption(about $275,000) permitted within 40 months of purchase, and two, because the conversion of substantially all their cash to a homestead could be attacked as a fraudulent conversion in bankruptcy. He told these people to file a Chapter 13 bankruptcy so that their house would not be liquidated and they could pay only their available monthly cash flow to their creditors.

My First Chapter 13 Mortgage Mediation: A Waste Of Time Because Bank Unprepared

I was involved in my first mortgage modification today under the Orlando bankruptcy court’s mortgage mediation program for Chapter 13 debtors. The scheduled mediation was a complete waste of time.

The bankruptcy court issued its newly adopted standard mediation order requiring attendance of a bank representative with full settlement authority. A mediation conference was scheduled at the office of the creditor’s attorneys. Before the scheduled mediation conference my office prepared a notebook containing all of the debtor’s relevant financial information such as pay stubs, bank statements etc. My client, I , and the mediator (a bankruptcy attorney himself) showed up on time at the designated location. The location was a 35 minute drive to and from my office and about the same distance from my client’s location.

When we all sat down to begin discussions the bank  representative announces he is unable to proceed with the mediation because he does not have escrow information from his own bankruptcy department. He says the bank will need a few days to acquire their own data and compute offers to present my client. The mediation is continued; the meeting adjourns with nothing accomplished. A total waste of two hours of time for my client and myself.

Two Chapter 7 Debtors In Separate Cases Get Cars From A Family Member: One Debtor Loses Car; Other Debtor Keeps Car

I had two trustee meetings today with clients who acquired new cars not long prior to filing bankruptcy. Both debtors got help from more affluent family members to get their cars, but the two debtors and their respective families chose different ways to title the car and structure the transaction. Debtor Number One was driving a new car paid for by his father when he filed bankruptcy.. His father purchased the car in his own name for cash and then gave the car to his son, the debtor, to use. Debtor Number Two borrowed money from his brother in law to purchase a new car before bankruptcy. Debtor Two purchased the car with the brother in law’s money prior to filing and shortly after filing bankruptcy he recorded a lien on the title in favor of his brother in law.

Debtor One keeps the car. Debtor Two loses the car. Because the lien on Debtor 2's car was recorded after the bankruptcy the trustee can avoid the lien and treat the car as owned free and clear by Debtor 2. Debtor One keeps his car because even though this debtor drives the car exclusively, pays for gas, repairs, and insurance, the car title was never in the debtor’s name and the debtor never had legal title.

The morale of this true story is that if a family member wants to help you out getting you a car before you file Chapter 7 bankruptcy have the family member title the car in their name. After you file the petition the same family member can gift the car title to you. Alternatively, if the family member does not want the liability of ownership he can loan you money for your car, but make sure the family member puts a lien on the car at the same time you buy the car (just like a bank would do).

Sometimes, Bankruptcy Debtors Just Get Lucky: Chapter 7 Debtor Keeps Non-Exempt Car

I went to a trustee meeting last week with a single debtor who owned a car free and clear. The car blue book value was $10,000. The debtor said the car "needed work" and that she had a repair estimate of $3,000. I looked at the estimate and most of the items were normal maintenance- new plugs, new belts, brake job etc. There was a single scratch on the exterior. In the debtor’s best case, this car had approximately $6,000 non-exempt equity which amount the bankruptcy trustee could demand from the debtor. 

Before the meeting, my client was very upset about her car. She was unemployed. She lived with a family member who also was unemployed. She had no money and no prospect of future employment to buy back the non-exempt car equity from the trustee. Without a car, she said she had no way to look for a job or to go to a job if she found one. Things looked bleak- I explained that the trustee is not a bad person who is only doing his job by going after the $6,000 car equity.