Jacksonville Bankruptcy Lawyer Blog

Published on: October 14, 2011

An Ex-spouse Filing Bankruptcy May Effect You.

A finalized divorce may not be enough to protect you from marital debts. Just because a divorce decree states that your ex will “hold you harmless’ from a creditor does not mean that the creditor can no longer attempt to collect from you.

The division of property in a divorce is called property division. Often, one party gets an upside down house in exchange for not being ‘liable’ for a different debt. Each party is ordered to pay their allocated debts and to ‘hold harmless’ the other party. This order is enforceable in county court as a “Contempt Action” and can give such remedies as court fines, attorney’s fees and even imprisonment, but it can’t remove your name from that debt. Because your name is still on the debt, the creditor can attempt to collect from you if your ex stops paying. The most common ways to remove your name from a debt is to have the collateral refinanced or to remove your personal liability by bankrupting on the debt.

When the ex-spouse gets the home they often don’t have sufficient income to refinance. They often didn’t have sufficient income to refinance because they didn’t have sufficient income to make the payments on their own. Eventually, they get to the point of foreclosure or bankruptcy- sometimes without the other party’s knowledge. Many debtors don’t get notice of their ex’s non-payment until the house is in serious arrears. When this happens, they have the option of suing their ex for contempt, but even the threat of imprisonment will rarely solve the problem because you cannot get blood from a stone.

Because home mortgages often extend as long as thirty years, the risk of liability continues for a long duration. In these cases, a house left unpaid for decades after a divorce can still fall upon the credit of an otherwise innocent ex who simply wishes to move on with their life. When this happens the only ways to avoid foreclosure are often paying off the note in full or bankruptcy.
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Published on: October 14, 2011

Social Security Benefits Exempt From Chapter 13 Payments

By David M. Goldman

The Jacksonville Bankruptcy court is part of the Middle District and a Middle District Court ruled on October 11, 2011 that Social Security benefits need not be included in either the Means Test or in the disposable monthly income (DMI) paid to unsecured creditors in a Chapter 13.

To quote the Honorable Judge Steele:
“Therefore, a Chapter 13 plan need not provide that social security benefits be included as projected disposable income which will be applied to payments for unsecured creditors.” See Vandenbosch v. Waage

Now we know that Social Security funds will not be used in calculating Chapter 13 payments, but what about cases that have already been filed? Judge Steele stated in his opinion that these benefits, “need not… be included as projected disposable income”. I would analyze this to say that they can be included if the debtor desires or needs to use the funds to show that they can fund a plan to overcome the “Good Faith” requirement of Chapter 13, but that the debtor cannot be required to use these funds if the debtor chooses not to.

What is yet to be seen is whether we can reduce payments on already confirmed plans that contemplated including the social security as income on Form B22C (Means Test). The court requires that a plan be modified if there is a, “change of circumstances” as to income. Historically, this meant an increase or decrease of income, not a reclassification of what income means. I take the position that this is a change of circumstances sufficient to justify a modification, though we will have to wait and see.
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Published on: October 13, 2011

Stripping Mortgages in “Chapter 20” Bankruptcy

By David M. Goldman

“Chapter 20” is the informal name given to the unique situation that occurs when a debtor files a Chapter 7 bankruptcy to discharge their unsecured debts and follows up that bankruptcy with a Chapter 13 (7+13=20) to deal with other debt issues.

A debtor cannot receive a discharge under Chapter 13 if they received a discharge in a Chapter 7 in the last four years per 11 U.S.C. 1328(f)(1). However since discharge is obtained at the end of a case, rather than at the beginning, a Chapter 13 case can be filed the day after the debtor receives a Chapter 7 discharge so long as the Chapter 13 is going to last at least the next four years.

Many people know that a Chapter 7 can usually only be achieved by passing the “means test”, but not a lot of people are aware that one must “qualify” for a Chapter 13 as well.

Under 11 U.S.C. 109(e) a debtor wanting to file a Chapter 13 must show that their secure debts are less than *$250,000, and that their unsecured debts are less than *$750,000 to file under Chapter 13.

If someone’s debt exceeds the limits for Chapter 13, but they make too much money to pass the means test and file a Chapter 7, they are often forced to file a far more expensive Chapter 11. One of the purported benefits of the “Chapter 20” is the ability to discharge some of the secured and/or unsecured debt in a Chapter 7, then follow that up with the desired Chapter 13.

An opportunity unique to Florida is the filing of a Chapter 7 to discharge secured/unsecured debts, but retaining the homestead. Then, the debtor files a Chapter 13 and uses lien stripping to remove the second mortgage. As long as the case is proposed in good faith they will leave the Chapter 13 free of their unsecured debts and will only have to pay their first mortgage to keep their house. This can save the debtor tens of thousands of dollars and give them a better chance of making it through their Chapter 13 plan.
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Published on: October 13, 2011

I Would Like To File Bankruptcy. What’s Next?

By David M. Goldman

If you would like to file for bankruptcy, come in and speak with our Jacksonville Bankruptcy Attorney during a free consultation. Call 904-685-1200 to schedule an appointment that is convenient for you. During the consultation, the attorney will discuss your particular situation. Next you need to fill out a bankruptcy questionnaire, which will aid us in drafting your bankruptcy schedules. You will be given this questionnaire at your consultation and can fill it out at your leisure. Before we file for you, you will need to complete your credit counseling. There are many different online sources that offer this service. If you supply them with our fax or email address, they will send over a certificate after you have completed your counseling. After we have drafted your schedules, you need to review them to make sure that they meet with your satisfaction. Then we can file your case!

The process is designed to be convenient and as seamless as possible. Contact our Jacksonville Bankruptcy Lawyer today to get started!

Published on: October 11, 2011

The Classification of Debt

By David M. Goldman

Debt can be classified as secured, unsecured, or priority. A secured debt is one that is collateralized by property. This means that if you default on the debt, the creditor can take the property that secures the loan. Your mortgage loan is probably secured by your home. Your auto loan is probably secured by your auto.

An unsecured debt is when you make a promise to repay the debt, but the debt is not secured by any collateral. If you default on the promise, the creditor cannot take your property without obtaining a judgment.

A priority debt is a debt that is entitled to repayment ahead of other debts that you owe. Taxes and some attorney fees are priority debts. A list of priority debts can be found in 11 U.S.C. §507.

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Published on: October 11, 2011

Can you pay off a Chapter 13 to end it early?

By David M. Goldman

For those of you who don’t know, a Chapter 13 requires you to make payments to your creditors, typically from 3 to 5 years. What most people don’t know is that there are two different payoff schemes in a Chapter 13, the Disposable Monthly Income (DMI) plan and the 100% plan. Which plan you get depends on the facts of the situation but it basically works as follows:

In a DMI plan, your monthly payment to the trustee for unsecured creditors is calculated based on your monthly income minus the established by the IRS reasonable and necessary living expenses allocated to your family size. The idea is that you get to keep enough money to live, which is important, but that any money you earn in excess of living must be paid to your creditors. This is the more difficult plan to succeed in, as it requires you to go a number of years living off of the IRS standard, which requires a strict budget. This plan cannot get paid off early unless it’s first transformed into a 100% plan, which would only happen if you had a significant increase in income.

In a 100% plan, your monthly payment to the trustee is calculated based on your total debt rather than your monthly income. We add all of your debts together, add 10% to pay the trustee (see how the bankruptcy trustee gets paid), and divide the total by the number of months you need to pay (typically 60 months/5 years). This payment is less than what your DMI payment would be. If the payment is higher, then you should be a DMI plan instead of a 100% plan. Since you’re paying 100% of your debts in this plan, you can pay off your bankruptcy early.

When in a Chapter 13 bankruptcy you have an ongoing obligation to report any increase or decrease in your gross income. You also must annually provide a copy of your tax return to the trustee. Changes in your income will require recalculation of your plan, which can increase or decrease your plan payment. Changes in your income can also mean the difference between your being a DMI plan and a 100% plan.
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Published on: October 10, 2011

Debts That Are Not Dischargeable

By David M. Goldman

Most debts are dischargeable in bankruptcy. However, there are a few debts that are not:

1. Debts arising from fraudulent conduct 2. Government-backed student loans (unless severe hardship can be shown)

3. Debts stemming from death or personal injuries related to your operation of a motor vehicle while intoxicated 4. Certain taxes and fines 5. Some debts not listed on your bankruptcy 6. Domestic support obligations (alimony, child support, etc.)

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Published on: October 9, 2011

Involuntary Bankruptcy

By Charles Fyler

Although we often think of Herman’s Hermits when we think of Henry the VIII we should note that it was during his reign that the English Statute of Bankrupts was enacted. This 1542 act allowed creditors to bring action against debtors so that they be involuntarily bankrupted, their properties sold and they themselves imprisoned to satisfy their debt. There have been a lot of changes over the last 450 years. Debtor’s Prisons, of course, have been abandoned, but involuntary bankruptcy is still alive and well.

To bring an involuntary case against a debtor, a creditor must show that the debtor owes at least *$14,425 in unsecured debt to less than twelve creditors. If the debtor owes money to more than twelve creditors (certain kinds of creditors don’t count), at least three of those must work in concert to bring action.

Although only Chapters 7 and 11 are available in involuntary bankruptcy mostly all individual debtors are fair game, except for commercial and family farmers. There are defenses to involuntary bankruptcy which are strongest when brought to the court’s attention as soon as possible.
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Published on: October 8, 2011

The Fair Credit Reporting Act

By David M. Goldman

The Fair Credit Reporting Act (FCRA) was originally enacted in 1970, and was amended in 2003. It applied to consumer reporting agencies, which are companies that collect and distribute information about people’s credit. Under the FCRA, consumer reporting agencies must provide you, upon your request, with a free copy of your credit report once per year. This is so you can verify the information contained in your credit report and dispute anything that disagree with. You can request your free report via phone, mail, or www.annualcreditreport.com. The FCRA also dictates how long negative information can be retained on your credit report. This is usually seven years, though bankruptcies stay for ten years.

If you feel that you have an issue with your credit report, contact a Jacksonville Consumer Law Attorney today at 904-685-1200.

Published on: October 7, 2011

What Should I Do If I Cannot Make My Chapter 13 Plan Payments?

By David M. Goldman

If you find that you cannot make your payments under your confirmed Chapter 13 Plan, you should call and write your trustee’s office and let the trustee know when and why you cannot make your payments, and whether the situation is temporary or permanent. If it is temporary, the trustee will usually agree to give you time to catch up. If, however, you permanently cannot make your Plan payment, the trustee may move to dismiss your case or convert your bankruptcy to another chapter. If your situation is permanent, there is another solution. Your Jacksonville Bankruptcy Attorney can file a motion with the court to modify your Chapter 13 Plan payments. Call us today to discuss your case.