Whether their  lay offs are permanent or temporary,  people are looking for ways to save money on goods and services that they need. With the advent of the Internet, people have become used to finding information and deals on items they need. The Internet Age has made  people used to getting things fast and cheap, or even free. It has also made people believe in do-it-yourself. Just watch a video and you can do anything yourself.  The recent lockdowns have had people searching for Youtube videos on how to cut their own hair, since most salons and barber shops have been closed.

Some people who are facing overwhelming debt also look for do-it-yourself solutions to deal with their debt. They often file for bankruptcy without an attorney. There are signs in Jacksonville along I-95 exits saying “Bankruptcy $150.” These signs are placed along the interstate by non-lawyers or “petition preparers” who will take $150 from you to type the documents necessary to file a bankruptcy case. The thought is that bankruptcy is just filing out some forms and filing them with a court.  (This author once had a boss, who is a lawyer. This lawyer  declared, “Bankruptcy isn’t rocket science; it is just filling out a bunch of forms about your finances.”  When this person filed for bankruptcy a few years later, she hired a competent lawyer.)

The filing of a bankruptcy case creates an estate similar an estate that is created after someone dies. This estate is made up of one’s assets that are not exempt under the law. The United States government appoints a trustee in a Chapter 7 bankruptcy case to liquidate (or sell) any non-exempt assets and use the proceeds to pay unsecured creditors like credit cards. In order to be able to protect property and keep the trustee from taking from you when you file bankruptcy, the Debtor must claim the property is exempt under Florida or federal law. (Florida has “opted-out” of federal Bankruptcy exemptions, so Debtors may only use exemptions under Florida law or non-bankruptcy federal laws.)

The only part of tax refunds that is specifically exempt under Florida law is the part of the refund from the Earned Income Tax Credit. (Although Judge Jennemann in Orlando recently held that Child Tax Credit is exempt in Chapter 7 cases.)  The rest of your tax refund falls under the personal property exemptions under Florida law, which are among the stingiest in the nation. There are no specific exemptions under  Florida law to project the Child Tax Credit; the American Opportunity Tax Credit (which helps families pay for postsecondary exaction); the Lifetime Learning Credit (which helps people who go to college later in life or have to change jobs due to down-sizing or loss of jobs because of technology or free trade agreements); or the Child and Dependent Care Credit (which helps pay daycare costs for working parents). Many of these tax refunds are refundable and therefore give taxpayers a much larger refund than they otherwise would have received. If these refunds cannot be exempt under the law, you could lose them to the Chapter 7 trustee and not be able to spend them  the way in which you intended.

What is an ESOP?

Employee Stock Ownership Plan, better known as an “ESOP,” is a way for employees to have ownership in the company they work for. They are used by several large successful companies because of the various tax benefits they can offer to the company as well as to the employee. Most commonly, employees obtain ownership of the company’s stocks as an award to help motivate and reward the employee. They are also a great way for employees to plan for retirement.

Because of how an ESOP works as a trust fund, employees generally do not have much control or access to their shares until they reach retirement age, or when their shares vest. Because of this lack of access, most ESOPs are treated just like a 401K, or any other retirement plan that is qualified under ERISA, when they file bankruptcy; therefore, ESOPs are treated as an exempt asset.

How does an ESOP work?

Just like a trust fund or spendthrift trust, all shares are retained in an ESOP trust until retirement age or termination of employment. Basically, when a company decides to set up an ESOP, they create a trust that the company makes yearly contributions to. The company then creates a formula that controls how employees receive stock in the company. Before an employee can have access to their stocks, their stocks must first vest.

My ESOP and bankruptcy.

As mentioned above, ESOPs are generally treated just like any other retirement plan in bankruptcy and are therefore an exempt asset, but your ESOP must first pass a two-step test.

First, you must figure out whether or not the ESOP is actually even a part of your bankruptcy estate. As long as there is an anti-alienation clause written in your ESOP documents that restricts your ability to access or transfer your stock, then it should be excluded from your bankruptcy estate. This anti-alienation clause also qualifies the ESOP under ERISA.

In Florida, courts have compared ESOPs to spendthrift trusts. One of the most important things about a spendthrift trust that makes it safe in bankruptcy is that they are set up by someone other than the beneficiary for the beneficiary’s benefit. Therefore, whether your ESOP is safe in bankruptcy really boils down to your access to the stock.

Florida courts have determined that ESOPs are safe where the debtor is unable to reach the stock after leaving employment until they reach retirement age and where they are unable to borrow money from the plan.

On the other hand, if a debtor’s interest in the stock vests and they can reach the stock upon termination or withdrawal proceeds prior to retirement age, then the debtor’s access or control over the stocks disqualifies the ESOP from the exemption and the ESOP will be subject to your bankruptcy estate.

Making sure that your ESOP is safe when you file bankruptcy is very important as they are most often an individual’s biggest asset. This is why it is so paramount to consult with an experienced bankruptcy attorney before filing bankruptcy. Contact the Law Office of David M. Goldman, PLLC.

If your small business is a corporation or a limited liability company, then the business is a completely different entity that is separate and apart from the owner(s). Outside of bankruptcy, this means that the debts of the owner are not the debts of the business, and the debts of the business are not the debts of the owner. This also means that any assets the business has only belongs to the business and not to the owner(s).

However, inside of bankruptcy things are little different. When you file a personal bankruptcy and are the owner of a corporation or limited liability company, the debts of the business are still not the debts of the owner and vice versa. What is different is that the assets of the business will be considered the assets of the owner for bankruptcy purposes. Whether the business assets are safe will depend on whether you file a Chapter 7 or a Chapter 13 Bankruptcy and whether the business has any assets. If the business does not have any assets, then the business should not be affected by the owner filing a personal bankruptcy, regardless of which bankruptcy chapter is being filed. Things can get a lot more difficult if your business has assets.

For example, if you own an LLC and are filing a personal Chapter 7 bankruptcy, then a Chapter 7 Bankruptcy is a strict liquidation of your assets. Let’s say that the only asset your LLC owns is medical equipment worth around $20,000 on the day you file your personal Chapter 7. Therefore, your LLC is worth around $20,000, and this is considered your asset. Since there is not a bankruptcy exemption that would allow you to protect all of the medical equipment, the medical equipment will be considered an asset of your bankruptcy estate. What this means is that your Trustee will want to sell the medical equipment and distribute the proceeds to your creditors. However, if your LLC is a multi-member LLC it is more difficult for the Trustee to take the assets of the LLC. Since there is no guarantee that even the assets of a multi-member LLC would be safe in a Chapter 7 Bankruptcy, the safer route is to file a Chapter 13 Bankruptcy.

A Chapter 13 Bankruptcy is a reorganization of your debt, which requires you to make payments to the Trustee monthly for three to five years. The payments comprise of as much as is practical from your monthly income, which is then distributed to your creditors. In a Chapter 13, your small business, whether it be a corporation, LLC, multi-member LLC or sole proprietorship, will be virtually unaffected by your personal bankruptcy other than the fact that the income you receive from the business will be used when determining your Chapter 13 Plan payments.

If you are contemplating filing a personal bankruptcy and are a small business owner, is it always a good idea to first speak with an experienced bankruptcy attorney. Understanding the effects of bankruptcy on your small business before filing will help you decide which course of action is best for you. Contact the Law Office of David M. Goldman, PLLC today at (904) 685-1200.

When filing bankruptcy, this means the person who established the prepaid college fund for must disclose the fund in their bankruptcy petition as an asset. I am sure you are now wondering whether or not you will loose the prepaid college fund if you have to file bankruptcy, since it must be disclosed. The answer is, it depends. There are Federal and Florida specific exemptions for these types of accounts. If the exemption applies, then the funds should be safe from your creditors and you will get to keep it if you find yourself in the dire position of having to file for bankruptcy.

In Florida, Florida Statute 222.2 defines Florida’s exemption of assets in qualified tuition programs as:

“Moneys paid into or out of, the assets of, and the income of any validly existing qualified tuition program authorized by s. 529 of the Internal Revenue Code of 1986, as amended, including, but not limited to, the Florida Prepaid College Trust Fund advance payment contracts under s. 1009.98 and Florida Prepaid College Trust Fund participation agreements under s. 1009.981, are not liable to attachment, levy, garnishment, or legal process in the state in favor of any creditor of or claimant against any program participant, purchaser, owner or contributor, or program beneficiary.”

While it appears that Florida offers a 100% exemption for these types of education savings accounts, it is important to be aware of the Federal exemption as well. Why? Because if your Trustee notices that you have been putting large amounts of money into the prepaid college fund while knowing that filing for bankruptcy in the near future is a major possibility, it could be viewed that you were doing so in order to hide that money from the bankruptcy court. The rules for the Federal exemption are as follows:

1. All money placed into the education savings account 2 years and longer before filing bankruptcy will be 100% exempt when filing bankruptcy.

2. Money placed into the education savings account within 1 and 2 years of filing bankruptcy will only be exempt up to a certain amount. This means that any money placed into the savings plan above this set amount can be taken from the savings plan and distributed to your creditors.
3. All money placed into the education savings account within 1 year from filing bankruptcy is not protected. All of it can be taken from the savings account by your Trustee and distributed to your creditors accordingly.

If you are contemplating filing bankruptcy and have established a Florida Prepaid College Plan or a Florida 529 Savings Plan for your child, it is very important to first speak with an experienced bankruptcy attorney prior to filing. The timing of your bankruptcy could potentially be the difference between being able to protect your child’s prepaid college fund and loosing it to your bankruptcy estate. Contact the Law Office of David M. Goldman, PLLC today for a free initial 30 minute consultation at (904) 685-1200.

But what if you cannot wait to file bankruptcy due to an imminent foreclosure sale date or garnishment? Can anything be done to save your inheritance? An even less thought about concept is the planning your parents, or any other person who may leave you an inheritance, can do. By simply establishing the right kind of estate plan, your parents, or anyone else for that matter, can protect your inheritance from being taken by a bankruptcy trustee. By having any person who may leave you an inheritance include something known as a “spendthrift provision” in their will or other estate planning documents, your inheritance should be able to be protected if you find yourself in the difficult position of having to file for bankruptcy.

What is a “spendthrift provision” you may ask yourself? It is a provision found in a will or trust document that allows a personal representative or the trustee of a trust to first look to see if a beneficiary is in the middle of a bankruptcy or if they are about to file for bankruptcy before giving the beneficiary their inheritance. Simply put, the personal representative or trustee can first look both ways before crossing the street to make sure it is safe to give the inheritance to the designated beneficiary. If it is not safe, then the personal representative or trustee can take the appropriate steps to ensure the inheritance will not be lost.

First and foremost, there is a duty in a Chapter 13 to update your schedules when you acquire new assets until your Chapter 13 Plan is completed. This rule applies to property you acquire pre-confirmation as well as property acquired post-confirmation. Luckily, not every little piece of property you acquire post-confirmation requires you to update your schedules. It is suggested that only major ones require disclosure.

As a general rule, the following post-petition acquired types of property will always be considered to be a part of your bankruptcy estate and require disclosure to your Chapter 13 Trustee:

Causes of action: causes of action arising from a car accident, slip and fall incident, and the like must all be disclosed to your Chapter 13 Trustee. If you fail to disclose a cause of action by amending your bankruptcy schedules, you can be prevented from being able to pursue the cause action on the basis of judicial estoppel. In other words, you cannot pursue a cause of action in one court while at the same time telling the bankruptcy court you have no causes of action. However, the Chapter 13 Trustee may still be able to pursue the cause of action on your behalf.

Inherited property: property that is inherited even after 180 days after filing your bankruptcy petition will be considered a part of your bankruptcy estate. This even includes an inherited 401(k).

Life Insurance Proceeds: even if acquired more than 180 days after the Chapter 13 bankruptcy was filed.

Winning the lottery- winning the lottery has been considered a post-petition windfall and must be disclosed.

Gifts.

Proceeds received from refinancing or selling real property.

Tax refunds.

Withdrawals from a retirement account: even though most types of retirement accounts can be fully exempted in a Chapter 13 Bankruptcy, as soon as you withdrawal any of those funds, those funds lose their exempt status and are considered to be income.

If your Chapter 13 is post-confirmation, and you have ot might be acquiring new property, it is very important to consult with an experienced bankruptcy attorney immediately. In specific circumstances, a motion might be able to be filed asking the court to allow you to keep the post-confirmation acquired asset. Contact the Law Office of David M. Goldman, PLLC today to discuss your set of circumstances today.

Section 365(n) of the United States Bankruptcy Code provides specific protections for licenses, but does not provide any protection for trademarks. All other types of intellectual property (patents, copyrights and trade secrets) are generally determined to be an executory contract and are treated as such in bankruptcy.

If it is the licensor who is filing bankruptcy, then they have the right to either assume or reject the license. If they choose to assume the license, then they must meet the very specific requirements for assuming an executory contract in bankruptcy. In order to assume an executory contract while in bankruptcy, the debtor licensor must cure all outstanding defaults and make sufficient assurances for continued performance moving forward. If both of these criteria are met, the licensee generally will not take issue with the assumption as long as the debtor licensor actually performs. If the licensor chooses to reject the license, safe guards have been put in place to prevent the licensee from losing their rights to use the intellectual property. Specifically, the licensee has the ability to choose to keep its rights to the intellectual property, but must make any mandatory royalty payments.

The most commonly held joint-property is property held by a husband and wife. In Florida, property owned by a husband and wife is presumed to be by Tenancy by the Entirety unless specifically specified otherwise. This type of joint ownership protects the property from the bankruptcy estate if only one spouse is filing bankruptcy and there are not any unsecured joint debts. Property held by a husband and wife as joint tenants with the right of survivorship is not afforded this type of protection.

The second most commonly held property is property inherited by siblings from a passing parent or other family member. Unless the property can be protected by a bankruptcy exemption, your siblings or other family member could lose their title to the property due to a bankruptcy filing. Unfortunately, the bankruptcy court does not care how you acquired the property. It could be through a gift, inheritance, purchase, etc., but once you have acquired the property, you have acquired it, and it is part of your bankruptcy estate. This means that if it is not protected by an exemption, the trustee could ask the court to order the sale of the property in order to settle your debts. This causes your joint owners to lose their title to the property. This is true for property held as joint tenants, joint tenants with the right of survivorship, and tenants in common.

In a Chapter 13 bankruptcy, the debtor gets to keep his or her property, but must pay back a certain amount of their debt through a repayment plan. A debtor will usually make monthly payments to the bankruptcy trustee who distributes the money to the debtor’s secured and unsecured creditors. After this three to five year period, the court will discharge the debts.

Any property a debtor acquires during their Chapter 13 bankruptcy most likely will become property of the bankruptcy estate as well. This means an inheritance received during this period can become part of the estate.