Chapter 13

Published on: April 30, 2012

Florida Middle District Judge Alexander Paskay Dies

Florida Middle District Judge Alexander Paskay passed away on Friday after an extraordinary life. He was born in Hungary in 1922 and after being conscripted into the German army, he defected to the American side of the war. He proved useful as he spoke four languages -Hungarian, Italian, French and English. Although he had been an lawyer in Hungary, the Florida Bar required him to attend law school again, which he did. He became a judge in 1963 and served until 1999 when he retired for a brief period, then served again until December 2011. Federal records show that he handled over 150,000 bankruptcy cases in his many years, making him one of the longest-serving bankruptcy judges in our nation’s history.
He was known to have a strong sense of humor and a firm grasp on bankruptcy law, always keeping abreast of recent changes. His wisdom will undoubtedly be missed by those in the bankruptcy community.

Published on: April 27, 2012

More Student Loans Getting Discharged Due To Neglectful Lenders

By David M. Goldman

Let’s face it, when student loans were made nearly impossible to discharge in bankruptcy, lenders realized they could hand over as much money as they wanted to to kids with no risk. Schools could then charge whatever exorbitant fees they could convince students to sign up for and could give them an altogether useless degree in underwater basket weaving. Since parents have ritualistically repeat the mantra, “Go to college.” since the child was a mere babe, it’s easy to see why our young graduates owe more than $1 trillion dollars in total.

Rule 11 U.S.C. 523 (8) governs the discharging of student loans in bankruptcy cases. In summary, it requires that an undue hardship to the debtor or their dependent would occur were the loan(s) not discharged.

Judges have had fun in deciding what an “undue hardship” is, but have basically boiled it down to the following: An undue hardship occurs if a debtor can show that they (1) cannot maintain, based on current income and expenses, a “minimal” standard of living for themselves and their dependents if forced to repay the loans, (2) additional circumstances exist indicating that the debtor’s financial situation is likely to persist for a significant portion of the repayment period for the student loans, and (3) they have made good faith efforts to repay the loans. As each of these three prongs must be proven to discharge the debt, this is a hefty standard. This has been made especially difficult since the passage of the 2007 “College Cost Reduction Access Act“, which created the Income Based Repayment plan. Income Based Repayment reduces Federal Student Loan payments to 15% of the difference between the debtor’s gross income and 150% of the poverty line. Without forcing you to do complicated mathematics, I will say that it makes student loan payments very manageable. As a result, hardships are impossible to prove if the loans can qualify for the Income Based Repayment option. Income Based Repayment allows you to pay a fraction of your income for ten to twenty-five years depending on the type of employment you have. At the end of the repayment period, the U.S. Government discharges your remaining debt, i.e. pays your loan.

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Published on: April 26, 2012

The Importance Of Listing All Personal Property

By David M. Goldman

If somebody broke into my home while I was gone and took all of my personal property, I would want to be compensated for my loss, and I should be, right?
Imagine that like many in Florida today, you live in a home that is underwater on it’s mortgage. You consult an attorney and because you fear a deficiency judgment or a 1099 for debt forgiveness income, either of which could result from a foreclosure. That attorney suggests that you file bankruptcy, which you do. You indicate in the bankruptcy petition that you want to surrender the home to the creditor. You are also required to provide a list of personal property to the court, but because you know you’re only allowed to keep a certain amount of property in a bankruptcy, you decide to omit some valuable items. You rent a side apartment, but don’t completely move out of the house. One day you return to the house to pick up some items and find it completely bare. You call your attorney and find out that the mortgage company violated the bankruptcy rules by entering your home and that you can sue them to recover the value of the lost property. You quickly create a list for your attorney of all the property that is missing and the attorney stops you. You did not list all of these items on your petition. This brings about at least two problems: first, you lied to the court under oath. This is perjury and your attorney may have to withdraw from representation because you used their services to perpetrate a fraud. Second, when you filed your petition you swore that you provided a complete list of your personal property and at the 341 hearing, you were sworn in and asked if the list was complete. If you now sue the creditor for taking your property, you’re going to have to explain to the court why you failed to disclose property on your schedules and show that the property did, in fact, exist in the first place.
Listing all of your assets is a requirement of the Title 11 bankruptcy code. This is in the code because you’re only allowed to keep a limited amount of non-exempt property in a bankruptcy. Situations like the one above turn the law on it’s head, but really do stress the importance of honestly and accuracy on bankruptcy schedules. If you’re considering a bankruptcy, it is important to get legal advice. Contact a Jacksonville Bankruptcy Attorney or call us at (904) 685-1200 for a free consultation.

Published on: April 23, 2012

Bankruptcy Filers Need To Know What Is An Asset

By David M. Goldman

When a person files for bankruptcy, they must list all of their assets and liabilities on their bankruptcy schedules. This is to help the court administrate and determine which assets the debtor should be permitted to keep and which assets will be subject to liquidation by the trustee for the benefit of the creditors. If someone is going to keep property during a bankruptcy case, it will need to be listed in their bankruptcy schedules with the proper exemption provision (if any) indicating why that property is allowed to be retained.

Often times, people forget what may be included as an asset. The following are commonly overlooked assets that if not listed in the bankruptcy schedules, could lead to seizure of the assets by the bankruptcy trustee: Accrued vacation pay, unpaid insurance claims, class action lawsuits, liquor licenses, timeshares, trademarks, season tickets, and security deposits.

I have even had the circumstance where the debtor disclosed at their 341 hearing that they had forgotten that their daughter’s home was in fact titled jointly in both their names. Fortunately for the debtor, that home had very little equity and the debtor’s bankruptcy petition was easily modified to protect the asset. Had the property had a lot of equity, this could have been a fatal mistake.

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Published on: April 20, 2012

Matrimony With The Bankrupt

By David M. Goldman

“What happens when I marry someone whose filed bankruptcy?” Is a common question. People want to know what affect a spouses’ prior bankruptcy may have on their own credit or borrowing power. The classic attorney answer is, “It depends.”

Generally speaking, the fact that your fiance filed a bankruptcy in the past is irrelevant to your current or future credit score. Marriage does not merge scores or credit histories, what it does do is require you both to sign some kinds of contracts when a lender extends you more credit.

One of the few ways having a spouse who has a bankruptcy in their past can effect you is when it comes to borrowing. You can only borrow as much as your credit allows. Married couples are allowed to borrow as much as their combined credit allows. So, if your spouse has a low credit score, your combined credit score will be lower, thereby limiting your combined borrowing power. There are ways around this. A co-signer with a strong credit score can help you qualify for a larger loan amount. Some banks, such as Bank of England even have programs by which you start a mortgage with a cosigner and then after one year of proper payments they may offer you a refinance to remove that cosigner’s name. Another way to deal with your spouses’ credit problems is to take time and work on increasing their credit score. By taking out a secured credit card, you can help build your spouse’s credit score but you must be sure that the card actually reports your history of good payments to the credit bureaus. Capital One offers a Visa that is supposed to report to the three bureaus. Some of these cards have annual fees, so shop around to find the best rates. After a year of good payment history, you should then have your spouse apply for a unsecured credit card with the same company -this time in only their name. They are more likely to get approved this way and once the card is in their name only, their credit should be able to build faster.

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Published on: April 18, 2012

Debt Forgiveness Income

By David M. Goldman

The economic squalor many of us have been enduring over the last year has lead to foreclosures, bankruptcies and a larger than usual amount of debt settlement.

Debt settlement is a useful tool in improving an individuals financial situation, but it is not without pitfalls. When someone has a large unsecured debt, such as a credit card, they can offer their creditor an alternative payment plan. For example: Marc owes $7,000 to a credit card company. Marc has had a severe drop in income and hasn’t been able to make payments to his creditor for several months. Marc wants to pay his debt, but can’t afford the large payment the company requires. He goes to his attorney friend and the attorney negotiates with the creditor on his behalf. Creditors often prefer large initial payments, with a promise to pay small incremental amounts thereafter. If the credit card company agrees, Marc can pay them $1,000 today and make $200 payments each monthly for twenty-four months. They may agree to this because he hasn’t been making payments thus far and it is well known that his attorney friend files bankruptcy cases. If Marc were to file a bankruptcy, this creditor knows they would get little to nothing in payment. When they agree, Marc has struck a deal that has him paying $5,800 to satisfy a $7,000 debt obligation. This is a $1,200 dollar savings which makes Marc happy because it’s more manageable and less than he originally owed. Just before taxes are due, when Marc’s debt is long forgotten, he gets a letter in the mail from the IRS. He nervously opens it to find a Form 1099-C for $1,200 in income, the exact amount he saved in his settlement. This is called “Debt Forgiveness Income”. The IRS’ theory is that because Marc’s overall worth has gone up by a net $1,200, he has in effect earned $1,200 in value and should be taxed on it.

In Marc’s situation he can probably handle the tax liability from an extra $1,200 in income for the year, but as the debt forgiven gets larger, the ability to absorb that liability decreases.

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Published on: April 17, 2012

Debtors Can Continue to Tithe During Chapter 13

By David M. Goldman

A Chapter 13 bankruptcy requires the commitment of all the debtor’s disposable income to their unsecured creditors. Disposable income is calculated by taking the debtor’s gross income, subtracting all payments “reasonably necessary” for the care and support of the debtor and their dependents. If there is any money left, it is considered disposable income that must be paid to their creditors each month.

Often times people want to know if they can keep paying into their 401k retirement or 529 college fund for their child. Many also want to know if they can still give tithe to their religious institution. Fortunately for those filing bankruptcy, the answer to each of these is almost always, “Yes.”

Again, all things reasonably necessary for the maintenance or support of the debtor and their dependents can be paid for through their bankruptcy plan. Since a 401k is used to take care of themselves in old age, contributing to it is reasonably necessary. The 529 college savings plan is reasonably necessary for the support of their child and tithe, interestingly, is reasonably necessary for the spiritual well being of the debtor.

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Published on: April 16, 2012

Being A Cosignor Or Codebtor Can Lead To Bankruptcy

By David M. Goldman

If someone needs automobile financing but lacks the necessary credit, a second person can cosign for them. When someone cosigns on a loan, they are just as liable for the debt as the person their signing for. So, if Jon needs to borrow $5,000 for a car and his friend Charlie cosigns on the debt with him, they are both liable for the payment. This means if for some reason Jon loses his job or can’t pay, Charlie has to pay. This happens most often in the context of a divorce. Even if a family court judge orders a wife to make payments on the mortgage, this doesn’t remove the liability from the husband. This often leads to bankruptcy for both parties since most couples borrow as much as they can, leaving them with a debt that neither can pay individually. This is why cosigners are given special notice when the party they signed for files a bankruptcy.
However, just because a party files bankruptcy, it doesn’t mean that the non-filer can’t finish making the payments. If Jon were quit paying on the loan in the example above, Charlie could make the payments for him to preserve his own credit. This often happens in the context of student loans. I personally know a husband and wife who cosigned on their son’s private student loans. Upon graduating, the loans came due and he’s been unable to find employment that would enable him to make payments for over a year. His parents, now well into their 50’s, are now saddled with tens of thousands of dollars in debt for his apparently unmarketable education.
If you are a codebtor on a loan and the borrower or yourself are filing for bankruptcy, you should consult with an attorney about what your rights and obligations may be, contact a Jacksonville Bankruptcy Lawyer or call us at (904) 685-1200 for a free consultation.

Published on: April 11, 2012

Property Division Through Divorce, Enforcement, and Bankruptcy

By David M. Goldman

Divorce in Jacksonville, Florida is not a rare thing. According to Daily Beast, the city of Jacksonville has the ninth highest divorce rate of all cities in the United States. Many of these couples are jointly liable on home mortgages when they file for divorce. Since 46% of homes that have mortgages are underwater, many people are “left holding the bag” for mortgage payments they can’t make, refinance or otherwise settle with. Often times the only option for these people is bankruptcy. Bankruptcy and Refinancing are often the only options for debtors to have their personal liability removed from un-payable mortgage notes.
When one ex-spouse files for bankruptcy, it almost invariably causes the other to file. Of course this depends on whether or not couple had purchased a home using combined credit scores and on whether or not the non-filing individual can handle the mortgage payment on their own. If the individual is able to make the payment on their own, they may be able to refinance the mortgage, allowing for the other party to be removed from the liability on the note.
If you have questions relating to the interplay of bankruptcy and divorce, contact a Jacksonville Bankruptcy Lawyer or call us at (904) 685-1200 for a free consultation.

Published on: April 10, 2012

“Use It Or Lose It.” Right To Amend Claim Of Exemptions

By David M. Goldman

When one files for bankruptcy, a petition must be created. That petition is made up of several different sections called, “Schedules”. Each of these sections deals only with one specific issue, for instance, Schedule A deals with real estate, Schedule B with personal property, and so on. It is generally accepted that these schedules can be amended at any time, however a recent case out of the Middle District of Florida has limited this freedom somewhat.

Although every schedule is important, the schedule most debtors are interested in is Schedule C. Schedule C is where the debtor lists which property (s)he wishes to keep a exempt from collection by creditors. The rules allowing for property to be kept are called “exemptions” and are outlined by either state or federal statutes.

In Florida the use of one such exemption may forbid the use of another. As such, debtors can choose only door A or door B, but not both. Since there are so many rules in the bankruptcy code and because those rules are not always clear, it is often the case that people filing bankruptcy without a lawyer (pro se) mistakenly choose incompatible exemptions. This forces the Trustee to file an Objection to Claim of Exemptions, which requires a hearing for the judge to determine whether or not the objection is valid. If the objection is valid and the exemptions are denied, the trustee can then file a motion for turnover. The motion for turnover is the trustee’s way of asking the judge to force the debtor to surrender their rights in the property to the trustee. This is where the turning point is. Up to and until the judge orders turnover, the debtor can amend their Schedule C list of exemptions and change the amount and type of property they wish to keep, but once the judge signs an order requiring the debtor to surrender their rights, the debtor can no longer amend.

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