Chapter 13

Published on: March 26, 2012

Florida Debtors Sometimes Allowed To Keep Unexempt Property

One of the first questions I’m asked by a person considering bankruptcy is what effect filing has on the property they own. If you’ve lived in Florida for a while, you are allowed to keep property that is exempt from the collection of creditors under Florida law. While there are a large number of somewhat complicated exemptions, you can generally think of exemptions as follows: You may keep $1,000 in personal property, $1,000 in vehicle equity and then either a homestead property that has equity or $4,000 in additional personal property. So, if the homestead property was retained in the bankruptcy case, but it had no equity, the debtor could keep $1,000 in vehicle equity and $5,000 ($4,000 + $1,000) of personal property. Any property the debtor has beyond that amount is subject to the whim of a trustee appointed by the court to preserve the debtor’s assets for the benefit of the debtor’s creditors. The trustee takes the debtor’s non-exempt property in a method similar to repossession and then auctions those goods off. The funds from this liquidation are used to pay the repossessing agent, the auctioneer’s fee and the trustee’s portion (typically 25%). The remaining funds are paid on a pro rata share to the debtor’s creditors who timely file claims.

Just because a debtor has property that is non-exempt does not mean the trustee will claim an interest in the property. Sometimes repossession and auctioning are impractical. When determining whether to liquidate an asset, the trustee must decide on the likelihood of sale and the cost benefit analysis of using estate proceeds to repossess and sell an item which may not render a sufficient sale to cover it’s own cost.

There is no clear-cut amount on which trustees rely when deciding to abandon an asset, but many trustees will occasionally leave an asset that will not earn more than $1000. Because these decisions are so subjective, trustees will almost always consider a debtor’s request to keep the asset in exchange for a cash settlement. As the old cliché goes, “There is no harm in trying.”

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Published on: March 23, 2012

Bankruptcy Can Make Cars More Affordable

By David M. Goldman

Car payments seem to be unavoidable. Unless you’re one of the rare people who have the luxury of being able to ride a bicycle to work, you must have a car. Everyone knows that the value of a car drops as soon as you drive it off the lot and as a result, many people who drive financed vehicles owe more to the lender than the asset is worth. Wouldn’t you love to be able to pay what you vehicle is worth right now, rather than what you owe on it? You can, and here’s how:

11 USC 722 allows a bankruptcy debtor to pay the secured portion of the debt owed on the car to satisfy the lien. “Security” for a loan the physical asset which can be exchanged to satisfy a lien. A typical security is a house or car. If you stop paying on the lien, the lender can take the house or car to satisfy the lien amount. Any value in the house or car above and beyond what is required to satisfy the lien (and associated fees) is returned to the borrower. A “Deficiency” occurs when the house or car sell for less than the lien amount. Deficiencies are unsecured debts for which a lender may sue. Deficiencies are very typical in the housing market these days.

When a debtor elects to use 11 USC 722, the court bifurcates the lender’s single claim into two claims, one secured which is equal to the fair market value of the car and one unsecured which represents the remainder. This way the borrower can discharge the unsecured portion, pay the secured portion and keep the vehicle. This is relatively easy in a Chapter 13 because the debtor can re-amortize the secured debt to be paid over the length of the Chapter 13 repayment plan, typically over five years. However, in Chapter 7 the payoff must occur immediately which is often impossible for people who’re already bankrupt.

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Published on: March 21, 2012

Florida Garnishment Exemption Used in Bankruptcy

By David M. Goldman

The head of family exception to wage garnishment also applies in an application for Chapter 13 Bankruptcy. Under the statutory exemption, an individual is considered to be the head of the family when (s)he “provid[es] more than one-half of the support for a child or other dependent.” Fla. Stat. Ann. § 222.11(1)(c). This statute allows for the head of family whose disposable earnings do no exceed the statutory amount to exempt all of his or her earnings from garnishment or attachment. Additionally, the disposable earnings of a head of family exceeding that amount may not be attached or garnished unless the individual agrees otherwise in writing, and then the amount available for garnishment is limited by 15 U.S.C. § 1673.
However, if the individual filing is only claiming a spouse as a dependent, the dependent spouse’s income must be insufficient to support him or herself without the income of the spouse claiming them. The purpose of the head of family exemption is to preserve the home and shelter for the family, so as to prevent the family from becoming a public charge.
The head of family exemption is intended to protect the family unit; therefore, when an individual filing for bankruptcy and claims the head of a family exemption, the dependent she is supporting must be receive income insufficient to independently support himself without the claimant’s income. If the claimant’s dependent is able to independently support himself, the claimant will not qualify under this exemption.

Published on: March 19, 2012

Florida Debtors With Investment Properties Get Reprieve

By David M. Goldman

When in 2005 Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), a flurry of people ran to file their cases before the changes occurred. Everyone had heard that the new law would make it impossible to file for Chapter 7 and that everyone would now be required to file Chapter 13 cases, making payments for five years. Well, Chapter 7 bankruptcy is still alive and well and the big change that was put into place is called, “The Means Test”. The Means Test requires the debtor to show that their income, based on their family size, is less than the average American in their area. It’s that simple. The problem debtors are having is that they don’t want to file Chapter 13 cases, where they have to pay a trustee their disposable income for five years, they want to file Chapter 7 cases where their case can be closed in five months with no payments made.

Congress thought that by forcing higher income debtors to file Chapter 13, creditors would get paid some of what they’re owed and creditors deserve to get paid what the debtor is able to pay. Fortunately for the many residents of Jacksonville, Florida who have heavily invested in rental properties, Congress thought of them as well. When BAPCPA was drafted someone realized the chilling effect a means test would have on small businesses and other small investors. Since only Chapters 7 and 11 are available to corporations, most small businesses would have to be liquidated in Chapter 7 or would have to pay the enormous cost of filing a Chapter 11. Small investors would be forced to file Chapter 13, which would prevent them from doing business for the five year period it took to complete their payment plan. These are the reasons why Congress created an exception to the means test for those individuals whose consumer debts make up less than half of their debt, i.e. if more than half of your debts are business, you can file Chapter 7 without taking the means test at all.

During the housing boom many residents of Jacksonville purchased homes to rent in speculation that their value would keep increasing. Instead, the market tanked to the point where nearly half of all homes owe more money on their mortgages than the homes are worth. Many of these people have higher incomes than average and wouldn’t be permitted to file under Chapter 7 due to the means test but because these properties were purchased as investments, they should all be able to bypass the means test and file Chapter 7 automatically.

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Published on: March 16, 2012

Florida Trustee Can “Undo” Payments Made Before Bankruptcy

By David M. Goldman

Jacksonville, Florida Trustees look for payments made by debtors to creditors within ninety days of the debtor’s bankruptcy filing. The trustee can recover these funds under the theory of “Preferential Payment”. A “Preferential Payment” is any payment made by a debtor to a creditor within ninety days of filing bankruptcy. The theory behind allowing return of those funds is this: the debtor paid one creditor and not the others, the debtor preferred that creditor over the others and that is unfair, so the court will require the money to be returned so it can be distributed evenly among the existing creditors.

This ninety day period is extended to two years if the creditor is considered an “insider” a.k.a. friends or relatives. So, if you paid your father back $2,000 on a debt last year and you file bankruptcy today, he may have to pay the $2,000 back to the trustee. This two year period can be extended should there be a case of actual fraudulent intent on behalf of the debtor.

There is a disagreement among the courts as to whether or not a debtor can use their available exemptions on money they used to pay creditors before a bankruptcy. Exemptions refers to property limits established by the legislature that say what the debtor can keep in a bankruptcy as it is exempt from collection. In the example of the father above, there are some jurisdictions where the debtor could use their available remaining exemptions to protect the father from having the pay back the funds on the premise that if the funds were in the control of the debtor, they could be protected. In other jurisdictions, those funds would not be protected because by paying them to the father, the debtor did not have the proper mental state of desiring to keep the funds; the very root of the cause for keeping exempt property is that the debtor seeks to keep the property.

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Published on: March 9, 2012

Jacksonville, Florida Court Sustains Objection To Deficiency Claim

By David M. Goldman

Jacksonville, Florida Chapter 13 bankruptcy cases rarely see claims for deficiencies on real properties. A deficiency occurs when a repossessed home is sold, but the sale price isn’t high enough to meet the value of the mortgage. The different between the sale price and the amount owed is the deficiency. In Florida, the borrower owes the deficiency amount to the lender. When the borrower files for Chapter 13 bankruptcy protection, the lender almost invariably writes the debt off as a tax loss, never filing a proof of claim against the debtor.

A proof of claim is just that -evidence that money is owed by the debtor to the creditor. Creditors who wish to make a claim must do so within the proper time constraints and the claim must be valid. If the claim is not valid, the debtor or debtor’s counsel can object to the claim and have it disallowed.

A claim may be invalid for a variety of reasons. Recently, a deficiency claim for over $95,000 was filed against one of my clients. Like many people, the debtors had owned a rental property which wasn’t worth enough to cover the second mortgage. Their income was too high to qualify for Chapter 7 due to the means test, so they were forced to file a Chapter 13. The claim was unexpected, but came after the case plan had already been confirmed. In every Chapter 13 case a payment plan must be presented to all of the creditors. If the plan has not been objected to by a certain date, it is “confirmed” a term which is similar to a blessing from the court. In my case, the payment plan proposed to return the rental property back to the creditor in full satisfaction of the debt my client’s owed. I indicated that the creditor had no valid claim against my clients because the creditor did not object to the proposed plan, that because the creditor didn’t object to the confirmation of the plan that proposed to pay them no money, that creditor had lost the right to file a claim.

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Published on: March 5, 2012

Jacksonville Bankruptcy Attorney Can Stop Foreclosures

By David M. Goldman

With about half of Jacksonville, Florida homes under water combined with the decrease in overall income for people across the country, it comes as no surprise that people are getting behind on their mortgage payments. Many of those people, especially those in homes that are seriously underwater, would probably benefit most from a mortgage modification or the surrender of the property altogether. However, there is a segment of the population whose home is still worth near if not more than their mortgage(s). Some of these people think that the only way to catch up on their home mortgage is to convince a bank to grant them a modification -often the kind where there are lots of penalties and fees and where the arrearages are tacked on the end of the loan as a balloon payment. These mortgages are not always available and can take so much time to achieve that the penalties become unmanageable.

In many cases, filing a traditional Chapter 13 bankruptcy will help these people catch up on the arrearage on their home. This is especially helpful if there has been a recent increase in income. In a Chapter 13 we submit a plan for repayment which includes the regular monthly mortgage payment, but also amortizes the arrearage to a sixty month period to make payment more manageable. This way, if the debtor can afford it, they can catch up on their mortgage without the arduous frustration of trying to negotiate with the lender.

Filing a bankruptcy stalls any collection attempts so a case filed the morning of a foreclosure sale will cancel the sale or, if the sale occurs, will require the Judge to vacate the sale upon motion by the debtor’s counsel. As long as the debtor intends to catch up on their home mortgage and indicates the ability to do so in their bankruptcy plan, the foreclosure will end there.

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Published on: March 4, 2012

Who Gets To Know You Filed?

By David M. Goldman

Jacksonville Bankruptcy cases are a matter of public record. That means that anyone who wants to know whether someone has filed for bankruptcy can look it up. That being said, unless they’re already setup to do so, it’s not the easiest system to access. They have to use a credit card to sign up for the court docket service and must page $0.8 per page (changes depending on where they are) to view documents and search. If they don’t know the debtor’s social security number, this search can be difficult if not impossible, especially if they’re looking for a common name such as, “John Smith”. If they do find your case filing, they will not be able to view everything as some documents are kept private.

People who will get notice of a case filing are those to whom the debtor owes money, those with whom the debtor owes money, the debtor’s lawyer and the trustee appointed by the court.

Everyone who files for bankruptcy is required by 11 USC §341 to attend a hearing called a “341 Hearing”, it’s easy to see where it gets it’s name. This hearing is public, but is generally attended by only lawyers and other people filing for bankruptcy. There is a chance that a debtor could run into someone they know at a 341 hearing, but unless that person was a lawyer, they’re almost definitely declaring bankruptcy as well.

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Published on: March 2, 2012

Effect A Raise Has On Your Jacksonville Bankruptcy

By David M. Goldman

The effect a raise will have on your Jacksonville Bankruptcy depends on which Chapter you’ve filed and the amount of the raise. “Material” is a term often referred to in the legal world. Prior to law school, I would have thought this had to do with fabric, but no, “Material” in the legal sense means, “Significant”. You may have heard the term, “Material Witness”. The same term can be used to describe a raise. Is the raise a big enough raise to have a “material” effect on the debtor’s income? If the answer is yes, then it may have an effect on your case.

With few exceptions qualifying for a Chapter 7 requires you to demonstrate that your income is less than the average American for your family size. This is called the, “Means Test”. To calculate your income, the last six months of your income is added up and multiplied by two. This gives a quasi-accurate report of what your income will be going forward. If your raise occurs after you’ve filed your Chapter 7 and you qualified on the date of filing, you’re case probably won’t be effected by the raise. That being said, there is a forward looking aspect to the “Means Test” which requires you to declare any anticipated changes in your income. If you know the raise is coming, you need to report it.

In a Chapter 13 case a raise has a very different effect. A Chapter 13 is a reorganization of your debt. Generally, secured creditors get paid in full and unsecured creditors get paid what’s left, your disposable income, if anything of your paycheck after paying living expenses and secured creditors. When you get a raise, the amount of money going to your unsecured creditors can increase because you have more disposable income. So, if you have unsecured creditors in a Chapter 13 who aren’t getting paid in full, you won’t see any money from your raise until your case is over because that increase in pay will go to the unsecured creditors. However, if your unsecured creditors are getting paid all of the money they’re owed, then an increase in income means that you’ll be able to pay everyone off sooner. Once everyone is paid in full, your case can be closed and you can get on with your life.

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Published on: March 1, 2012

Who Lives With You Can Matter in relation to a bankruptcy.

By David M. Goldman

Means Test, Bankruptcy
Jacksonville Bankruptcy Courts take into account who lives with you when you file bankruptcy and, depending on the chapter of bankruptcy you file, they may consider those people in different ways. I don’t mean to imply that the character of the people you live with matters. It makes no difference if you’re living with Tim Tebow or Timothy McVeigh. What matters is whether those living with you are dependent on you for most of their care and if they aren’t, the court wants to know if they make regular contributions to the household.

A regular contribution to the household is any payment of money to or on behalf of the person filing bankruptcy. A good example of this is when someone’s mother pays their phone bill every month. Their mother’s intent is to help them out a bit and have them call more frequently. By paying for that utility, it frees up more money for the debtor and so that debtor has more money to pay bills. A regular contribution from anyone counts, but most contributions come from people who live in the same home, such as boyfriends, girlfriends and roommates.

When figuring out which chapter of bankruptcy best suits your situation (if any), your lawyer should take your basic income information and preform a cursory, “Bankruptcy Means Test“. The Means Test was created by the U.S. Legislature in 2005 and requires that anyone wishing to file a Chapter 7 bankruptcy show that their income is lower than average for their family size than the average American household of the same size in their area. There are exceptions to this test for active military and some business holders, but generally this income test is required.

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