January 8th, 2012
We have had previous discussions that the jurisdictional limit in chapter 13 cases creates a major problem for many debtors to successfully confirm a chapter 13 plan. However, a recent case, In re Kevin Rosa, Case NO 6:10-bk-07799-ABB, recognized that if no one timely objects, the chapter 13 jurisdictional limit is waived. In this December 15, 2011 decision, Judge Arthur Briskman in the Middle District of Florida, citing In Re Sullivan, 245 BR 416(N.D. FL 1999), denied a motion to dismiss or convert to chapter 7 filed by a creditor(it appears the creditor was the former wife).
Robin Weiner, Chapter 13 Trustee in Broward and Palm Beach County, Florida, has announced that, depending on the case, she will not assert that the debtor is over the jurisdictional limit.
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January 7th, 2012
Some interesting information was presented at this week’s South Broward Bar Association luncheon by the current foreclosure judge, Judge Marina Garcia-Wood.(All residential foreclosures are now assigned to her; commercial foreclosures and association foreclosures are still assigned to other judges) Approximately 42,000 foreclosures are pending in Broward County. About 1500 foreclosures are being filed per month with about the same number being completed. Approximately 8500 cases are dormant.
At each morning motion calendar and at each 1:30 p.m calendar there are typically over 100 cases scheduled. Special settings are not being scheduled to June. The judicial assistant receives 100 voice messages a day, so do not expect a call back. If a true emergency hearing is needed, come to chambers.
Meanwhile, as reported in the press this week, David Stern is being sued for $60,000,000 for fraud when he took his mortgage processing company public(his law firm was the only client, which is now out of business)
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December 17th, 2011
How can a Florida debtor protect a $185,000 tax refund? We all know that homesteads in Florida are fully exempt from creditors(I am overgeneralizing). Under Florida law, savings or similar assets can be used to purchase a house or pay down a mortgage, and the homestead is exempt, even if there were creditors at the time. However, the new bankruptcy law in 2005 provides for a 10 year fraudulent transfer period to challenge the homestead exemption in these circumstances.
Recent debtors received an amazing holiday present. In re Cook, 2011 Bankr. Lexis 4757 (Bankr. N. D. FL Dec. 7, 2011), the debtors had lost their home that was once worth $5,000,000. The joint debtors received a $185,000 tax refund in 2010, and used this as a downpayment on an $800,000 home. The chapter 7 trustee and a creditor objected to the homestead. Judge Killian held in favor of the debtors. Even though there were some badges of fraud, the Court did not find that there was fraudulent intent and recognized the importance of Florida homestead protection.
Frankly, I might not have filed this case. There is a huge risk for a debtor to file bankruptcy in these circumstances, and a bankruptcy judge in South Florida including Broward County might have ruled against the debtor.
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December 13th, 2011
Chapter 7 debtors in Fort Lauderdale bankruptcies will have a tougher time retaining vehicles that have value or equity. In Florida, debtors only have a $1,000 exemption against motor vehicles. (An additional $4,000 is available when the debtor does not receive the benefit of a homestead, but that’s a completely different issue).
A debtor with equity in a vehicle is subject to the chapter 7 trustee taking and selling the vehicle. The trustee is more than willing to accept a lump sum payment so the debtor can retain the vehicle. The issue is whether the chapter 7 trustee will accept payments over typically 6 months or will the trustee demand lump sum payment. There are three new trustees for Chapter 7 Broward County bankruptcies. Two of them who practice in that far and away location of Palm Beach County will require a lump sum payment. (They are concerned about liability if the debtor is in an accident during a payment plan. The trustee, they fear, could be considered as the owner).
Debtors must be aware of the risk of losing the vehicle with equity prior to making the decision to file chapter 7 bankruptcy. They need to be prepared to either pay the trustee from non-exempt assets or surrender the vehicle. Note that the trustee’s approach could be self-defeating. More debtors will file chapter 13 because they can have a 3-5 year payment and retain the vehicle.
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December 10th, 2011
Just to update prior posts, the Florida Legislature has provided in Section 222.21(c)(3)(2011) that inherited IRAs are protected from creditors. But as a further observation on exemptions, it is still necessary to be sure that the debtor has resided in Florida for at least 2 years. Otherwise, Florida exemption statutes will not protect the debtor in bankruptcies.
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December 4th, 2011
On November 30, 2011, the 11th Circuit Court of Appeals (which is binding upon bankruptcy decisions in Florida) entered a decision pertaining to interest that an oversecured creditor may obtain during a chapter 13 plan. In re Garner, 2011 US App Lexis 23811, involved a secured creditor that had a contract rate of interest of 10.5%. The creditor wanted to be paid in the plan at this rate until it used up its equity cushion. The creditor objected to a plan that proposed under Section 506 a reduced interest rate. The bankruptcy court had allowed the cram down interest rate of 4.25%. (Till rate)
Garner held the creditor was entitled to contract interest rate post-petition until confirmation, but was only entitled to the cram down interest rate of 4.25% post-confirmation.
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November 27th, 2011
In Re Gentry, 2011 Bankr. Lexis 4283(Bankr. M. D. FL Nov 15, 2011), Judge Delano held that the debtor could claim on the Statement of Intentions that he was surrendering the property and still claim the home as exempt. The debtor wanted to retain the home until the bank finished the foreclosure. The chapter 7 trustee wanted to sell the property based on the Statement of Intention.
The court held that the Statement of Intention pertains only as to the secured creditor, not to the trustee. The trustee could not sell the property despite the surrender language in the Statement of Intentions. The case is under appeal by the trustee.
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November 20th, 2011
In Re Quaid, 2011 US Dist Lexis 132299, (D. Ct. M.D. FL Nov 15, 2011) the United States District court reversed the decision of the bankruptcy court, Judge Briskman. Debto’s spouse had set up a trust. Funds were later transferred from a tenants by the entireties account to the trust. Non-debtor spouse died. The district court held that the trust was not a self-settled trust and the spendthrift clause shielded the asset from the bankruptcy trustee. The deceased spouse had the right to withdraw funds and revoke the trust, so the debtor was not the settlor, so the spendthrift clause controlled.
So what really happened here? We know that husband and wife can own property as tenancy by the entireties. This means that a creditor of one spouse cannot reach or split the asset held as tenants by the entireties. But the tenancy ends upon death or divorce. So if one spouse passes away, the surviving spouse becomes the 100% owner of the asset which is now subject to that person’s creditors.
In Quaid, Mr. and Mrs. Quaid transferred over $300,000 from a tenancy by the entireties bank account into a trust. Only one party had control of the trust, causing a loss of tenancy by the entireties protection, the court observed. Tommie, the wife, had set up the trust originally and was the only person who could withdraw or revoke funds. Upon her death, the debtor and his son became co-trustees. A $3,000,000 judgment was entered against the surviving spouse, Mr. Quaid. If he had been the sole owner of the funds, the assets would have been subject to his creditors. Since the funds were not in a self-settled trust, the district court held that the bankruptcy trustee could not reach these funds. The court reviewed Florida law and discussed the characteristics to determine whether or not a trust is self-settled.
Note there was no discussion of a fraudulent transfer issue, but under Florida law cannot fraudulently transfer property held as tenants by the entireties.
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November 15th, 2011
Chapter 13 attorneys must understand this case.
Judge Olson is one of the two bankruptcy judges based in Fort Lauderdale, FL. In a consolidated case, with lead case name and number In re MacFarland, Case No. 11-13345, Judge Olson sanctioned several chapter 13 bankruptcy attorneys suspending them from practicing in bankruptcy court from 30-60 days. The court concluded that attorneys acted either in bad faith or with concerted conduct amounting to fraud on creditors and the court by engaging in a pattern of filing baseless objections to claims.
Attorneys here and across the country have attempted to help their clients by objecting to claims to help meet chapter 13 jurisdictional limits or to reduce the amount debtors would have to pay during a chapter 13 plan to meet a “liquidation” test. Without advance warning, Judge Olson entered Orders to Show Cause which led to the order. According to the court, “The orders to show cause entered in these cases have a singular aim-to address what was become a pervasive problem within this district stemming from wholesale unjustified claim objections, and to stop that practice.” The sanctions were expressly imposed not just as sanctions against the “offending attorney”, but also to deter other attorneys from taking the risk of engaging in this conduct.
In other words, the Court concluded: don’t object to claims unless you really have what the court considers a basis to object.
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November 12th, 2011
An article by Kimberly Miller of the Palm Beach Post, published today in the SunSentinel, reflects what may seem to be a stunning portrait of ortgage delinquencies in Florida. A report shows that 56% ofFlorida foreclosures involve homeowners who are more than 24 months behind on their payments.
Based on my experience, this really is not that surprising based on the situation that many of my clients confront. Mortgage servicers are taking forever to review modifications with excuse after excuse that they need the same documents over and over again. Foreclosures were put on hold with the closing of foreclosure mills and the robosigning fraud issues. Many lenders don’t want the properties back, especially condominiums with association fees. And it is generally understood that banks don’t want to write off all the loans so that their capital requirements are not met, and that they don’t want too many homes on the market which would further depress prices. On the other hand, some lenders are increasing their interest in short sales and deeds in lieu even to the extent of offering cash incentives to the homeowners to move.
The foreclosure delays have had a great impact on the slowdown of bankruptcy filings. Perhaps nothing motivates a debtor to proceed to file bankruptcy and clear up debt issues then a pending foreclosure sale(not to mention service of a writ of garnishment)
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May 23rd, 2010
BAPCPA is the name of the new bankruptcy law. (I still call it the new law but it is not so new anymore), The banking lobby had pushed this legislation for years to combat supposed fraud by debtors and the alleged influence of attorneys wrongully encouraging individuals to file needless bankruptcies. The name of the new statute, the Bankruptcy Abuse Prevention and Consumer Protection Act, is really an insult to the typical individual debtor who due to loss of job, illness,divorce or other reason has no choice but to file bankruptcy. As a Fort Lauderdale bankruptcy attorney, it has long been apparent that it is vary rare that fraudulent activity is the basis for filing bankruptcy.
These thoughts came to mind to express here after reading a recent article in Time Magazine, with the title and cover, “The New Sheriffs of Wall Street.” (May 24, 2010). One of these new sheriffs, Elizabeth Warren, is a Harvard professor who has studied consumer bankruptcies. (She now heads the congressional panel that is a watchdog for TARP funds and is an advocate of new consumer finance regulations.) The following quote from the Time article is of no surprise to this fort lauderdale bankruptcy lawyer.
“In 1978, Congress passed a revamped bankruptcy code, making it easier for businesses and individuals to start anew. Warren was teaching law as the time in Houston and decided to investigate, initially expecting to find that the system was filled with sleazy debtors. She found instead that most bankruptcies resulted from job loss or illness at home, a situation made worse by banks that were increasingly learning to trap people in costly debt cycles. How? Partly by confusing them.”
The causes for people needing to file bankruptcy were not eliminated or reduced by the new law, and again bankruptcies are booming. And many an honest debtor would not file bankruptcy if the banks did not unilaterally greatly increase interest rates on charge accounts.
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June 5th, 2010
As a Fort Lauderdale bankruptcy attorney, I have seen that a major cause of bankruptcies are what I describe to my clients as an epidemic of foreclosures. (Though perhaps it is better to say that foreclosures are not the cause, but are really a symptom resulting from numerous causes.)
On June 3, 2010, the chief judge of the Broward Circuit Courts, Judge Victor Tobin, spoke to the South Broward Bar Association and reported on the effects on the court system of the foreclosure crisis. Approximately 54,000 pending foreclosures cases in Broward County have created a huge strain on the courts trying to administer these cases. Though there has been an increase in state funding to help process foreclosure cases, the new requirement of the Florida Supreme Court for mandatory mediation will cause further delays until that system can be implemented.
On June 5, 2010, in the Miami Herald Business section, based on an article written by Kimberly Miller and Laura Green of the Palm Beach Post, it is clear that the foreclosure epidemic is continuing and is likely increasing. The article titled “Rise in troubled loans is forecast” reports that 3.5 million homes will go into foreclosure in the next year. About 44.3% of homes in Palm Beach, Broward and Miami-Dade are underwater, according to a report from Zillow. The article states that the Mortgage Bankers Association reports that 1 in 5 Florida homeowners are in foreclosure or seriously behind on their mortgage, making Florida No 1 in this dubious category.
Moreover, the article reports what has been expected for some time, that foreclosures will increase not just for low income earners but for higher earners who had creative negative amortization and adjustable mortgages. I see this every day in my ft. lauderdale bankruptcy practice. Even high income earners, often with reduced income, can no longer afford their higher mortgage payments. Others used equity lines and invested in other properties. As a result, many homeowners have needed to file a chapter 13 bankruptcy to save their homes or chapter 7 bankruptcy to move on with their lives and surrender the underwater homestead.
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June 20th, 2010
The Supreme Court entered a major decision interpreting the means test. In an 8-1 decision, the Supreme Court in Hamilton v Lanning settled conflicting case law as to the proper interpretation of construing projected disposable income during a chapter 13 case. The court adopted the forward looking approach instead of the historical approach, but it appears that the historical income and expenses remain the starting point on how to analyze available income to pay in a chapter 13 plan.
What I am talking about? As you may have read on my website about the means test, we first look at the income for the 6 month period of time ending in the month prior to filing bankruptcy. Suppose the income average was $6,000 per month, and the allowed expenses are $5,000 per month. Based on the historical approach, the debtor would pay $1,000 per month to the trustee to pay creditors for 60 months. One interpretation of the new bankruptcy law essentially says this figure controls despite a change of circumstances whether or not the debtor can actually pay that much or could actually pay more.
A forward looking approach looks at expected future income and expenses and is not bound by the prior 6 months. What if the debtor received a one time $ 7,000 bonus during the prior 6 months? Then the debtor’s ongoing income will be lower and the debtor will not be able to afford the $1,000 per month payment. Suppose both husband and wife were working, but the month before the bankruptcy, one spouse was laid off. Again, the debtors will not be able to pay the $1.000 per month and the chapter 13 plan is doomed to failure.
On the other hand, what if the debtor was unemployed, and then 2 months prior to filing bankruptcy, received a job making $100,000 per year? Now the debtor can make a far higher payment than the historical means test would require.
Courts throughout the country disagreed on the appropriate statutory construction of BAPCPA, the new bankruptcy act passed in 2005. I will not discuss the legal arguments here. The US Supreme Court concluded that known or virtually certain changes as of the date of confirmation of the chapter 13 plan would enable an adjustment to the amount that the means test would have required to be paid. Some might consider that the historical approach is no longer relevant, but the Supreme Court essentially kept the historical approach as the starting point.
The key issue will be how local bankruptcy judges and chapter 13 trustees determine what is an acceptable known change. Issues will arise with increased or decreased overtime, seasonal pay, second jobs, isolated or routine bonuses, and many other fact patterns. Legal issues remain as to what expenses can be used to offset income. In practice, it remains to be seen as to how much weight is actually given to the means test and whether what I describe as the real income and expenses on bankruptcy forms Schedule I and J will determine the monthly payment.
As a Fort Lauderdale bankruptcy attorney, I will be applying the Lanning case to assist clients in Ft. Lauderdale chapter 13 bankruptcy cases. Many open questions remain as to how to apply changes in income and changes in expenses on a case by case basis. The Supreme Court did not actually settle all issues of legal interpretation of the means test.
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June 27th, 2010
As a Ft. Lauderdale Bankruptcy attorney, the issue of which property is exempt from creditors and that may be retained by the debtor must be reviewed in every case. A recent case brings to mind one intriguing issue I want to mention here. What if a person moves to Florida from another state? The debtor may use the Florida exemption law only if the person resided in Florida for more than 730 days. That’s the easy part. But if the debtor has not resided in Florida for that long of a period of time, than the debtor must use the law based on where the debtor resided the majority of time in the 6 months prior to 730 days ago. There is a split in case law on how to interpret this issue. The details on this issue can be reviewed by Attorneys and non-attorneys in the article I wrote for attorneys at www.solomonlawoffice.com Here, I want to mention the recent case of In re Houston, 2010 Bankr Lexis 1164(Bankr S. D. Tex. March 11, 2010). The court concluded that BAPCPA preempts state law on this issue, disagreeing with reported Florida bankruptcy decisions. Essentially, the court held that certain exemptions must be applied as if the debtor still resided in the prior state, and even if the property is located in the new state. This view differs from the view that if the prior state’s law says its exemption laws do not apply to non-residents, than only federal exemptions apply.
What does all this mean? For most debtors, probably nothing. But in certain cases, the assets that the debtor who moves between states can retain might differ depending on the interpretation. In particular, the proper interpretation might have a greater effect on debtors who move from Florida which has an unlimited homestead protection to a new state which does not but might have a way of protecting an unlimited homestead if bankruptcy is filed within 730 days. If you have moved to Florida, contact Ft. Lauderdale bankruptcy attorney Jeffrey Solomon to review whether you should file bankruptcy sooner or later than the 730 days.
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July 18th, 2010
As a Fort Lauderdale bankruptcy attorney, we must address this issue in every chapter 13 case. A chapter 13 plan is a minimum of three and a maximum of five years. Sometimes a client may need the full five years, such as to catch up on a mortgage.
The bankruptcy law changed in 2005 and provided that a debtor who earned below the median income of the state could file a chapter 13 plan for only three years. A debor who earned above the median income of the state had to make payments during a five year plan. However, based on the statutory language, there has been an argument that even above median debtors only had to make payments over three years if the means test showed nothing had to be paid to unsecured creditors. Deductions from income could be made in the means test, such as high mortgage payments, medical expenses, and health insurance. After these deductions were made, the means test might show that nothing had to be paid to unsecured creditors. In this circumstance, the argument was that if a debtor still needed to be in chapter 13, he or she only had to be in a chapter 13 for three years despite having a high income.
The Eleventh Circuit Court of Appeals, in Whaley v Tennyson, held that the above median income debtor in chapter 13 must submit a five year plan. The reasoning is in part based on the Supreme Court case Hamilton v Lanning, which was discussed in a prior post. This court opinion is binding in Florida bankruptcy cases.
As a Ft. Lauderdale bankruptcy lawyer, we have been able to file 3 year plans for above median debtors. After Tennyson , we will need to submit 5 year plans in these cases.
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August 7th, 2010
As a Fort Lauderdale bankruptcy attorney, I have repeatedly seen clients attempt debt settlement plans where they pay for months to a company who first retains large sums of moneys as fees and then holds funds to try and settle at discounts, one creditor at a time. Credit is still ruined, the clients often cannot continue to make payments, and the clients need to file bankruptcy after having wasted their hard earned income. If you can save money to settle, you can try this on your own. (Be aware if you do settle you will receive a 1099 for taxable income for forgiveness of debt.)
On July 31, 2010, the Sun Sentinel reported that the Federal Trade Commission is cracking down on debt settlement companies. Some of these companies have actually stolen client’s funds. The new rules will prohibit companies from charging a fee prior to a settlement, require safeguarding of client funds in separate accounts, and disclose the time period it will take to settle. Hopefully, these new rules will prevent abuses that have led to state attorney generals in over 20 states to sue debt management companies. If you chose a debt management company and plan, be sure you understand the terms of the plan, consider whether the payment terms make sense, and attempt to verify the legitimacy of the company.
Consult an attorney prior to entering any debt management plan.
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August 21st, 2010
Millions of Americams have built up 401k retirement accounts and IRA’s. I recently saw an article describing how more and more people have taken out loans against their 401K’s. As a Ft. Lauderdale bankruptcy attorney, I have routinely seen clients who are strapped by payroll deductions for 401k loans. Also, I have seen clients withdraw large sums of moneys from IRAs to pay bills. This creates a tax penalty and income tax liability and also depletes retirement accounts.
Now it may often be true that these loans and withdrawals can solve the debt problem in particular cases. But all too often these actions merely delay the inevitable crushing burden of debt. Retirement assets are depleted, income taxes are owed, and the individual still must file bankruptcy.
I strongly recommend that any one who considers borrowing from a 401k or making an early withdrawal from an IRA first consult with a Ft.Lauderdale bankruptcy attorney or other professional.
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September 5th, 2010
I just thought I would make a general observation. Personal chapter 7 bankruptcies generally run very smoothly with no complications. Individuals can eliminate their debts and move on with their lives. But as a Fort Lauderdale bankruptcy attorney, I must emphasize that this is a court process and there is an obligation under penalties of perjury to tell the truth. And at some point, I just have to say what is fair is fair. Sometimes at the end of my bankruptcy free consultation, the prospective client discloses additional information. I have land free and clear in, for example, Costa Rica. I have $20,000 in a bank account, can I give it to my mother to hold for me? I just transfered my vehicle to my brother so creditors could not seize it. Can I deed my investment property to my sister? Whether the perspective is you don’t want to get caught, have your bankruptcy denied, or perhaps go to jail, or as a simple matter of ethics, full disclosure is required
Always provide full disclosure to your attorney. However, even though you currently have assets that are not exempt from creditors, there are legitimate techniques that can maximimize the use of the assets on your behalf. Pre-bankruptcy planning can include exemption planning and a review of necessary expenditures.
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October 3rd, 2010
Florida bankruptcy attorneys know that there is an exemption in Florida for IRAs that protects the assets from creditors. As a Fort Lauderdale bankruptcy attorney, I recognize the critical importance of protecting exempt assets. But recent case law must give practioners cause to be careful. Though an IRA is exempt, and apparently so is the spouse’s interest upon the death of the IRA owner, what about the IRA that is inherited by another relative? A recent bankruptcy decision held that the inherited IRA is not exempt. In re Szmansky, 2010 WL 3400368,(Bankr. MD FL Aug. 19, 2010) relied on a recent Florida state court decision interepreting Florida Statute 222.21(2), Robertson v Deeb, 16 So.3d 936( Fla. 2d DCA 2009).
Florida bankruptcy attorneys must be alert to the issue of inherited IRAs.
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October 25th, 2010
Many people assume that you cannot eliminate income taxes in bankruptcy. Actually, income taxes can be eliminated in bankruptcy under certain conditions. As a Fort Lauderdale bankruptcy attorney, I have helped individuals use the bankruptcy law to discharge taxes.
The basic rule is that the income taxes must be from a tax year more than three years ago. For example, for 2006 income taxes, the tax return was due on April 15, 2007. Add three years to April 15, 2010, and we can file bankruptcy after that date to eliminate these taxes. But there are other factors to consider to analyze the dischargeability of taxes. If the taxpayer filed an extension with IRS to file the tax return, the taxpayer must wait that additional time to commence the starting of the three year period. Also, there is a different rule for late filing taxpayers. The IRS debt cannot be eliminated unless the debtor waits two years from the time of filing the return. So if the 2006 tax return was not filed until April, 2010, the debtor must wait until April 2012 to file the bankruptcy to eliminate the tax debt.
I have been discussing eliminating the debt, but if an IRS lien is filed, the lien continues to attach to the property owned by the debtor at the time of filing the bankruptcy. A chapter 13 bankruptcy might be helpful in reducing the lien against property including a homestead.
There are other technical issues when examining how to treat IRS debt in bankruptcy, but the key point here is that bankruptcy can provide a remedy to income tax debt.
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November 22nd, 2010
A chapter 13 bankruptcy is a payment plan bankruptcy. There are many circumstances where chapter 13 can save your car from seizure from a creditor or from a chapter 7 trustee. A chapter 13 bankruptcy plan can save your car and can also reduce car payments, stretch out car payments, and cure defaults.
In Florida, a debtor only has a $1,000 exemption against a motor vehicle. (A renter can now claim an additional $4,000 exemption). If the debtor needs to file chapter 7 and there is a lot of equity, the debtor will have to surrender the car to the chapter 7 trustee or make arrangements to pay the trustee over a relatively short period of time. A chapter 13 plan allows the debtor to payoff the equity over 3-5 years. (One local trustee is now selling cars on ebay for a higher value which creates a greater risk to debtors).
I generally recommend to clients that whenever possible that it is not worth being in bankruptcy 3-5 years just for a car, but sometimes the client really wants and needs to keep the car and prefers the chapter 13 plan.
A chapter 13 plan can extend the term of the car payment. For example, if the payoff is $15,000 and there are 36 months of payments left, the plan can provide that this amount can be paid over 5 years. The debtor can also reduce the interest rate based on a Supreme Court decision. This “Till” rate is now typically 5.25%, which can enable a substantial reduction in the car payment.
The car owner can also reduce the secured amount of the loan. For example, if a car is worth $10,000 but the loan balance is $15,000, the debtor only has to submit a chapter 13 plan that pays $10,000 plus interest. This bankruptcy right became more restrictive when BAPCPA was passed in 2005. The stripping of car loans can only be implemented if the loan occurred more than 910 days before filing bankruptcy. However, there are exceptions to the 910 day requirement that can still permit the loan reduction in chapter 13. Substantial litigation has taken place to apply these exceptions. Contact Fort Lauderale attorney Jeffrey Solomon to discuss whether your car loan can be reduced.
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December 4th, 2010
The debt limits in the bankruptcy law continue to be a major restriction to filing chaper 13 bankruptcies. Section 109(e) provides that on the date of filing of the petition, the debtor must have less than $360,475 unsecured debt and less than $1,010,650 in secured debt. This becomes a major problem when the debtor has several properties or attempts to strip second mortgages. A debtor may have too large of a secured debt even though the debtor provides to surrender the properties in the plan. Also, a secured debt that is stripped becomes unsecured debt which can cause a failure of to meet the unsecured jurisdictional limit.
Judge Olson in In re Hinds,2010 Bankr. Lexis 3795, Case No 09-23764, (Bankr. S. D. FL July 20, 2010) rejected an attempt to avoid the chapter 13 jurisdictional limit. This was a Fort Lauderdale chapter 13 bankruptcy case. The debtor attempted to classify secured debt being surrendered as contingent and disputed. The court followed the majority view that merely classifying the debt as disputed does not mean the debt cannot be liquidated to a fixed amount by a definite procedure.
More recently, Judge Ray entered a similar decision in an opinion to be published. In re Strong, Case no 10-10142(November 17, 2010).
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December 12th, 2010
We all know foreclosures have been a mess for years. Homeowners trying to communicate with their lenders and the loan servicing companies cannot obtain straight answers, submit documents which are lost and must be sent over and over, and are kept in limbo for months if not years.
Two recent newspaper articles give a prime examples of the left hand not knowing what the right hand was doing. As reported in the SunSentinel on December 5, 2010, one home was sold twice. The owner was approved for a short sale and the closing took place. The new owner moved in to the home. However, the bank’s attorney did not cancel the foreclosure sale at the courthouse. Another individual bought the home at the foreclosure sale. (The second purchaser later agreed to vacate the foreclosure sale).
In the December 11, 2010 Miami Herald, an article reprinted from the Palm Beach Post, describes a case in with the homeowner lost ownership of the home in foreclosure. The owner did not know the foreclosure sale had taken place, and had tried to obtain a loan modification. After moving out and losing title, the bank notified the foreclosed homeowner that they had been appoved for a loan modification. It is common practice for the modification process to be ongoing waiting for approval while the attorneys continue with the foreclosure. A chapter 13 bankruptcy is often necessary on an emergency basis because the homeowner has been led to believe that the loan would be or has been modified, but nothing is finalized and the foreclosure sale date is about to take place.
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January 2nd, 2011
Debtors should not maintain bank accounts at the same bank where they owe money on a credit card. The depository agreement provides a right of set-off against the account. In other words, if you owe Bank of America on a $5,000 credit card and you have a bank account with Bank of America, the bank can seize the money from your bank account.
Wells Fargo has been freezing bank accounts even if the depositor does not owe it any money when the depositor files bankruptcy. The bank is concerned that a bankruptcy trustee will claim the bank has a duty not to permit the debtor to use his or her bank account because the trustee might claim the money. A debtor might be stuck not being able to pay his bills because Wells Fargo denied access to the account. The validity of this freezing of the account is being litigated accross the country. Though it is unlikely for accounts with small balances that Wells Fargo would freeze the account, the best advice is don’t use Wells Fargo(and remember if you have a Wachovia account it is now Wells Fargo).
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January 5th, 2011
As a Fort Lauderdale Bankruptcy attorney and Fort Lauderdale foreclosure attorney, I repeatedly see the delays, frustrations and eventual rejections of mortgage modification applications. The following information is taken from the Sun-Sentinel on December 30, 2010.
“Mortgage aid trailing off-foreclosures rising.
Fewer troubled homeowners are receiving help with their mortgages as government efforts to prevent foreclosures are slowing.
…(The number of modifications had) a 17 percent drop from the previous quarter and a decline of 32% from the same period last year.
The pool of homeowners eligible to have their mortgages modified is declining, federal regulators says, as banks have concluded many distressed borrowers can’t be helped…That is pushing up the number of foreclosed homes, which keeps prices low…”
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January 7th, 2011
On December 3, 2010, Judge Paul Hyman decided an important tenancy by the entireties case. In re Aranda, 2010 Bankr Lexis 4264, (case no 08-26059). In this Southern District of Florida bankruptcy case, West Palm Beach division, Judge Hyman upheld the exemption of tenancy by the entireties in property that was also claimed as homestead even though the deed was ambiguous as to how title was taken. Additionally, this case is important because it discusses the differences between the new bankruptcy restrictions on the Florida unlimited homestead exemption and the tenancy by the entireties protection under Florida law.
Property owned as husband and wife is owned as tenants by the entireties. There are many issues as to whether a court would consider property as owned in this manner, but if the tenancy by entireties applies, then a debt of one spouse cannot be recovered against property owned as husband and wife as tenants by the entireties. As a Fort Lauderdale bankruptcy attorney, I understand that tenants by entireties provides a strong tool under Florida law to retain property in bankruptcy.
Judge Hyman upheld the tenancy by the entireties in homestead property even though there were recent efforts to clarify the title by executing several deeds on the property. The trustee, Michael Bakst, had argued that the 10 year look back period enacted by BAPCPA would defeat the exemption. BAPCPA restricted homestead rights if there had been a fraudulent transfer into the homestead during the past 10 years. Judge Hyman ruled this restriction on homestead exemptions does not apply to tenancy by the entireties property. Similarly, the new dollar limits established in BAPCPA for recently acquired homestead do not apply to tenancy by the entireties. For more details on BAPCPA and other case law consistent with Judge Hyman’s decision, see my article for attorneys on homestead at www.solomonlawoffice.com
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January 11th, 2011
On January 7, 2011, the Supreme Court of Massachusetts entered a major decision that may have far reaching consequences across the country. Though the case relies upon Massachusetts statutes and case law, it may be highly influential with judges in Florida.
In US Bank National Association, Trustee v Ibanez, Case NO SJC-10694(in a consolidated appeal with a second case), the Supreme Court reviewed many of the issues that have long been raised by foreclosure defense attorneys. These issues go to what has been commonly known as the “who owns the note” defense. As is typical of modern day home mortgages, the note was sliced and diced and sold through several investment trusts. Notes and mortgages have been mysteriously assigned without proven documentation. To satisfy these proof problems, some foreclosure firms in Florida have been accused of participating in the widespread providing of fraudulent documents to the court to establish that the foreclosing entity is the proper party. Affidvaits have been signed by “robo-signers” who sign without verifying huge numbers of affidavits to obtain foreclosure judgments.
Basically, the Massachusetts Supreme Court upheld the legal requirement that the foreclosing entity must establish with proper proof that it owns the note and received a timely and valid assignment and is the correct entity to foreclose.
This case may be of great benefit to Fort Lauderdale foreclosure attorneys and Fort Lauderdale bankruptcy attorneys.
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January 16th, 2011
On January 11, 2011, the United States Supreme Court entered its decision on a means test issue that had split courts accross the country. Ransom v FIA Card Services, NA., fka MBNA America Bank. involved the issue of whether the debtor could deduct the applicable IRS allowed budget expense as a car owner whether or not the debtor had a car payment.
When a debtor is over median income, the debtor must complete the expense portion of the means test. Some items are based on IRS guidelines, such as an allowed expense for food, clothing and utilities. Other items are based on actual expense, such as health insurance costs, child care and mortgage payments.
The statutory language was confusing as to car ownership. For example, let’s say the IRS allowance is $480.00 per month. If the debtor’s car payment over the next 5 years was $520.00 per month, the debtor could deduct the full secured debt expense of $520.00 per month. If the car payment was $380.00 per month, it was generally recognized that the debtor could deduct the full $480.00. What if there was no car payment? Was the applicable amount that could be deducted still $480.00 or was it now zero? The Supreme Court held that it was zero.
Keep in mind the anomaly that the court recognized that the debtor might be entitled to the full $480 deduction even if only one payment on the car remained to pay it off in full.
One might think that there is no reason why a debtor should obtain a deduction in the budget if no payments were being made. But keep in mind there is an expense to owning any car, they depreciate in value, have a useful life, and need to be replaced. This is a budget item because realistically savings are needed for the next car. Also, it seems unfair that a person can have a high car payment, and thereby have less available to pay credit cards, while a a more budget conscious person with a free and clear car must pay more to credit cards.
This case creates a dilemma for bankruptcy attorneys. BAPCPA provides that attorneys cannot advise a debtor to incur a debt. Often a debtor has a car owned free and clear and would only become eligible for chapter 7 by obtaining financing on a newer vehicle. Or debtors might be sharing a car to save money, but obtaining a second car would enable them to file chapter 7 or 13. Similarly, if a debtor must file chapter 13, their plan payment to credit cards would be lower with a car payment.
As a Fort Lauderdale bankruptcy attorney, I recognize that I cannot advise clients in violation of the bankruptcy code. But there is no restriction on explaining the bankruptcy law and the consequences of certain actions. South Florida Bankruptcy attorneys will have to adjust their practice as a result of the Ransom decision. In some parts of the country Ransom will not change existing practice, but for Broward bankruptcy attorneys and surrounding areas there will be a substantial impact.
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January 31st, 2011
Atttorneys can get themselves in trouble if they are not careful. There are many pitfalls in BAPCPA, but this post is not about all the burdens and duties placed on bankruptcy attorneys.
Suppose an attorney accepts money in trust from a client with instructions on how to disburse the funds. Normally, this would not be a problem. But the attorney might be held liable to a bankruptcy trustee as an “initial transferee” in a fraudulent transfer of assets. Attorneys should read In re Hartwell, 2010 US App Lexis 26367(11th Cir Dec 29, 2010). Attorneys and banks can claim they are a mere conduit or have no control on the proceeds. Trust accounts, of course, are really still the client’s funds and the attorney is bound to listen to instructions. But the Court found that to establish this equitable defense the attorney must establish he acted in good faith and was an innocent participant in the fraudulent transfer.
So attorneys beware, if a client is in debt, has a judgment against him and asks you to hold funds for him and to disburse the funds to relatives, you may be found liable to a bankruptcy trustee. For this Fort Lauderdale bankruptcy attorney, Harwell provides a warning on conduct that is going too far to help a client.
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February 5th, 2011
The Florida Supreme Court entered its long awaited decision on February 3 in Osborne v Dumoulin , Case no. SC09-751. the Court held that a debtor who owns a homestead may still elect to take the $4,000 “wildcard” exemption pursuant to Section 22225(4) if the debtor does not assert the homestead exemption on Schedule C. There would appear to be no requirement that the debtor must surrender the property to the secured creditor, however, the debtor is effectively surrendering the home to the trustee if the trustee chooses to administer the property.
This decision resolves a substantial split of authority across the state on this recent amendment to the Florida statutes to try to provide some additional exemption to those who do not have a homestead exemption, but still leaves questions open as to what trustees will attempt to do with underwater residences.
However, the court also held that the mere fact that the debtor did not list the homestead exempt does not end the inquiry which should be on a case by case basis. (such as homestead property jointly owned with a non-debtor spouse).
Planning issues remain, such as whether a debtor will take the risk that the trustee will demand rent or attempt to sell the property. Since the trustee likely does not plan to turnover rent to the mortgage holder and is not really administering the property, such conduct would seem to be improper by the trustee to try to force the homeowner to pay rent.
Broward County bankruptcy attorneys as well as all bankruptcy attorneys in Florida now have a basis to assert additional exemptions for many Florida debtors, but there remain some risks to this approach when the debtor is a homeowner. As a Fort Lauderdale bankruptcy attorney, I recognize the great importance this case will have to consumer debtors.
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February 9th, 2011
As chair of the Broward County Bar Bankruptcy Section, I would like to report on recent and future programs. In October, 2010, we conducted a seminar on the four United States Supreme Court decisions of 2010 pertaining to consumer bankruptcy. A summary of the four cases can be seen at www.solomonlawoffice.com. On February 24, 2011, we are sponsoring a commercial bankruptcy seminar at the Broward County Bar Association.
As a Fort Lauderdale bankruptcy attorney, I will be speaking at the foreclosure division of the real property section on treatment of mortgages in chapter 13 on March 10, 2011. On April 8, 2011, we will have a seminar entitled “Everything You Wanted to Know About the Means Test But Were Afraid to Ask”.
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March 7th, 2011
In a recent court case decided by a panel of the three bankruptcy judges in the Miami division of the Southern District of Florida, the court held that a debtor who received a discharge in a chapter 7 and was not eligible to receive a discharge in a subsequently filed chapter 13 could not strip a second mortgage. In re Gerardin, 2011 Bankr Lexis 514(Bankr. S.D. FL. Feb. 17, 2011).
The court rejected contrary case law, but the decision does seem to be the prevailing view. The court also observed that it agreed with decisions finding that a second mortgage could not be stripped in a chapter 7. The decision is based on a technical reading of the statute(Section 506 valuation does not provide an independent basis to strip a second mortgage and chapter 13 does not provide any basis to strip a mortgage after discharge)
Debtors should be careful before filing a chapter 7 when they have a second mortage that could be stripped in a chapter 13. A debtor might not intend to keep his or her home in the long run, file a chapter 7, and then later wish they had filed a chapter 13. As a Ft. Lauderdale bankruptcy attorney in Broward County, I recognize that this is an important planning issue when deciding what chapter to file.
Note that a debtor can file a chapter 13 four years after filing a chapter 7 and would be eligible to obtain a discharge in the chapter 13, and thus strip a second mortgage.
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March 19th, 2011
As discussed more on my website, the starting point for the means test analysis is determining whether the debtor is above the median income for the state. The median income depends on the household size of the debtor.
The question is how do you determine the household size for the means test? A recent case summarized case law on the three approaches to determining household size. In re Morrison, 2011 Bankr. Lexis 103(Bankr. M.D. N.C. 2011). Several cases had used the “heads on beds” approach, which counts everyone physically residing in the debtor’s premises. A second approach is to only use individuals who could be dependents on a federal tax return. The court concluded that the first approach was too broad and the last approach was too narrow.
The court used the”economic unit” approach. Thus 2 roommates who are just sharing rent are really 2 separate households for means test purposes. But an unmarried couple with joint bank accounts sharing income and expenses would be a household of 2.
Which approach is best for a debtor? This depends on a case by case basis. If we include more members living in the same premises as part of the same household, the median income figure goes up and the allowed expenses also increase. However, then both incomes must be included.
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March 26th, 2011
New median income figures for the Means Test became effective on March 15, 2011. In Florida, the figures increased from the prior change(which had a significant reduction in median income).
The current Florida median income figures for a household of 1 is $40,029, for a household of 2 is $50,130, for a houshehold of 3 is $54,594, and for a household of 4 is $65,125. Each additional member of the household is an additional $7500.00.
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April 2nd, 2011
More and more articles have been published documenting the continuing problems with the foreclosure crisis. A few observations here about the relationships between the subject of these articles and how they are impacting the court system and homeowners.
The Florida court system is short of money. This is largely due to the reduction in the expected filing fees from foreclosure cases. The lenders are holding off on filing these cases. Banks have delayed filing foreclosures, largely due to the conduct of their foreclosure mills. Robo-signers have become a new term in our vocabulary as a symbol of massive foreclosure fraud. Statewide foreclosure firms are being investigated by the state, and the banks and servicers have been firing their attorneys. In some instances, the banks are suing the law firms for return of their court files, and the law firms are claiming they are owed millions of dollars in legal fees. There is a scramble to hire new law firms to take over hundreds of thousands of case.
No wonder pending cases are just sitting with the court and there are fewer foreclosures being filed than expected. Simple motions filed on behalf of the homeowner can delay a foreclosure for a year.
By the way, homeowners should seriously question hiring a foreclosure defense attorney who charges by the month to delay a foreclosure. A case can be delayed indefinitely with only minimal services by the homeowner’s attorney as a result of the problems facing the banks and servicers.
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April 9th, 2011
Yesterday, April 8, 2011, as Chair of the Bankruptcy Section of the Broward County Bar Association, I moderated a panel discussion on the means test. We had 50 registrants(more than capacity) and 10-15 more called at the last minute and could not attend due to the number of registrants. Due to the interest in this program, it is likely we will attempt to repeat the means test seminar.
Some of the attendees were “veterans” in bankrutpcy practice who attended means test seminars back when the law changed in 2005. Most attending were new to bankruptcy and had never attended a means test seminar. Even for the experienced practitioners, we are aware that there are still many open issues, and that there are several techniques that can be used for the means test. Strategies and planning are important to obtain the best results for consumer debtors.
As a Fort Lauderdale bankruptcy attorney, I continually strive to be up to date on all means test issues to properly represent our consumer debtor clients. We can also better represent our business clients by understanding when the means test is not required.
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April 16th, 2011
As I previously reported, the decline in foreclosure files has led to a decrease in court filing fees which provide a dedicated source of funds for the courts.
The large decrease in foreclosure filings was reported in the April 14 Sun-Sentinel. Relying upon figures from RealtyTrac, Florida foreclosures fell by 62% from the prior year.
The large reduction in foreclosure filings does not imply that the corner has turned on the foreclosure crisis. Lenders have been forced to finally deal with the robo-signers and fraud issues that have become so widespread. Foreclosure mills have been fired, replaced, or as for David Stern, closed. Hundreds of thousands of files have to be transferred, and new attorneys have to be hired. Also, there has been litigation with state attorney generals across the country. A new consent decree between loan servicers and bank regulators also will have an impact on the processing of foreclosures.
There is still no end in sight to the foreclosure mess.
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April 17th, 2011
A completed foreclosure may well not be the end of the legal process for the homeowner. In Florida the lender has 5 years to seek a deficiency judgment. For example, if the home at the time of foreclosure is worth $100,000, but the mortgage balance is $180,000, the homeowner can be sued for $80,000.
There have been very few deficiency cases so far, but it is expected that lenders will eventually pursue these claims. These claims might be sold to debt buyers, similar to the sale of delinquent credit card accounts.
As a Fort Lauderdale bankruptcy attorney, I have seen the greater prevalence of suits by second mortgage holders including equity lines on the promissory note. The lenders are not bothering trying to foreclose since they would have to take over the first mortgage. Many clients have been forced into bankruptcy by these claims.
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April 21st, 2011
As discussed in a previous post, the United States Supreme Court in the Ransom case held that a debtor could not use the car ownership allowance when the debtor did not have a car payment.
However, based on the Internal Revenue Service Collection Financial Standards, a taxpayer can use an additional operating allowance for vehicles older than 6 years old or with more than 75,000 miles. This allowance is $200.00. Though Ransom hedged and said the standards are not incorporated into the bankruptcy code, the Supreme Court observed that the IRS guidelines are persuasive.
As a Broward County bankruptcy attorney representing debtors in the Fort Lauderdale area and surrounding counties, I can tell you that the United States Trustee does not object to claiming additional old car allowance in the means test, nor does the chapter 13 trustee.
A recent case reiterated the applicability of this additional exemption. In re Baker, 2011 Bankr. Lexis 490(Bankr. M. D. Montana Feb. 9, 2011), (citing prior consistent authority).
The additional operating allowance for cars that are older than 6 years or have more than 75,000 miles can mitigate the harm to debtors from the Ransom decision.
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April 26th, 2011
Debtors often have property they can no longer maintain and that will be foreclosed. Typically, the debtor wants to keep the collateral such as a home or car as long as possible.
But sometimes the debtor really wants to surrender the property back to the lender to avoid potential further liability as an owner. This issue has been litigated, and sometimes the bankruptcy court has held that the lender must either take back the property or surrender its lien. The argument is that the lender is interfering with the debtor’s discharge by failing to accept the property or release the lien. However, this strategy apparently has only worked with motor vehicles with little value, not real estate. And the common underlying property law point is that a lender is not required to take back its collateral.
Why would a real estate owner want to give the property back? As long as the debtor owns the property, the debtor has liability issues. There could be code enforcement issues for failure to maintain the property. There could be ongoing association fees.
Two recent cases followed the common view that the lender does not have to take the property back or release the lien. In re Canning, 442 BR 165(Bankr D. Me Feb. 17, 2011); In re Heck 2011WL 133015(Bankr. N. D. Cal., Jan 13, 2011)
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April 23rd, 2011
Recent case law addresses an issue that all bankruptcy attorneys in Florida should be fully familiar with. BAPCPA made substantial changes to restrict the unlimited homestead protection. (For a detailed article, see my discussion at www.solomonlawoffice.com , look for seminars for attorneys, homestead.)
One of the homestead changes in BAPCPA is that a debtor cannot take non-exempt assets and use them to increase the equity in the homestead with the intent to hinder, delay or defraud creditors. This would be permitted under Florida law(unless perhaps the funds were tainted, such as acquired by theft or embezzlement).
In a recent Broward bankruptcy case, a debtor sold over $40,000 in securities and paid down the home mortgage. The funds were used to improve the homestead a few months before the bankruptcy. This Pembroke Pines resident did not initially disclose this information in the bankruptcy papers filed with the court, according to the court. One of the bankruptcy judges in Broward, Judge Olson, held that the home was not exempt to the extent of this transfer of funds. In re Osejo, 2011 Bankr Lexis 582, (Bankr. S.D. Fla. Feb. 24, 2011). The court also cited Judge Isicoff’s decision in In re Garcia, 2010 Bankr Lexis 2194(Bankr. S.D. FL 2010).
The statutory basis is Section 522(o)(4) which permits a 10 year look back period. But the trustee would still have to establish the transfer was made with the intent to hinder, delay or defraud a creditor.
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April 30th, 2011
The foreclosure mill fallout has continued. As reported in the Sun-Sentinel from an article in the Palm Beach Post by Kimberly Miller, Ben-Ezra & Katz is closing its foreclosure practice and has provided layoff notices to its employees. This follows the closure of David Stern’s foreclosure practice in March. Each of these firms is headquartered in Broward County but handle foreclosures statewide. Meanwhile, perhaps 100,000 pending foreclosure cases still have Stern’s firm as attorney of record with no staff to file motions to withdraw.
On another front, an appellate court, the 4th District Court of appeals, has ruled that the Florida Attorney General’s office does not have the authority to investigate with subpoenas Shapiro and Fishman under Florida’s Deceptive and Unfair Trade Practices Act. (a criminal investigation would be permitted but is not at issue). The Florida Bar is known to have opened investigations of numerous attorneys on foreclosure practices.
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May 2nd, 2011
I have received calls recently from other attorneys inquiring as to what I think about the treatment of student loans in bankruptcy. This may have something to do with my being the attorney in In re Harding, 423 BR 568(Bankr S.D. FL. 2010). As a result of these conversations, I thought it would be a good time to update my prior post as to student loans.
I had attempted to separately classify a student loan in a chapter 13 to permit the debtor to make these payments separately from other unsecured creditors. Otherwise, the debtor would incur additional interest during the plan and could end up owing more at the end of the chapter 13 case then at the beginning. I attempted to argue based on a technical reading of the statute and some case law(admittedly a minority) that the debtor could separately classify to maintain the long term student loan debt without this being construed as an unfair discrimination to other unsecured creditors.
Keep in mind that student loans are with limited exceptions non-dischargeable.
Judge Olson of the Ft. Lauderdale division of the Southern District of Florida ruled to the contrary that a chapter 13 plan cannot unfairly discriminate against other unsecured creditors. The court did find that the student loan company could not charge late fees, collection costs or penalties during the chapter 13 plan(and penalties can be 25% as cost of collection). Interest would continue to accrue.
But the issue still remains whether a specific plan unfairly discriminates. In a case Judge Olson had previously decided, In re Kalfayan, 415 BR 907(Bankr. S. D. FL 2009), a medical practitioner would lose his license if the medical student loan was not paid. Since he would lose his job, clearly an exception had to be made so this was considered not to be unfair.
Two other circumstances should pass judicial muster in the Southern District of Florida. One, it would seem obvious that there is no unfair discrimination if the debtor is paying 100% of the remaining unsecured debt. But most chapter 13 plans do not pay 100%.
A second example is if the prorations work so that the non-student loan creditors would get the same percentage in the plan whether or not the student loan debt is separately classified. But it may be rare for a case for there to be no or virtually no difference in the percentage paid to unsecured creditors with or without separate classification. A more difficult scenario would be if there is some difference, with an argument to be made that the difference is minimal and therefore not unfair.
Essentially, on a case by case basis, there could be a finding that there is no unfair discrimination if there is separate classification to maintain long term student loan debt. For more recent decisions referring Harding, see In re Boscary, 2010 Bankr. Lexis 3702(BAnkr N. D. Miss 2010), and In re Edmonds, 2010 Bankr Lexis 3944(Bankr. E.D. Wis. 2010).
A third possibility for separate treatment is based on the student loan being a joint debt with a co-debtor.
As a bankruptcy attorney in Broward County including Fort Lauderdale and surrounding areas, I will continue to monitor this important issue to better represent my clients.
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May 6th, 2011
Reverse mortgages can at times be extremely beneficial to senior citizens to be able to obtain use of the equity in their homestead. The homeowner can eliminate the requirement to pay on a mortgage and may be able to receive an income stream from the lender.(This is not actually income but is a steady receipt of loan proceeds)(Also note that for practitioners in other states care must be given to the amount of homestead protection, which is unlimited in Florida.)
But timing is everything. A potential client saw me for a consultation last week. The client already obtained a reverse mortgage and took a lump sum of cash from the reverse mortgage. Meanwhile, the client had existing credit card debt which would easily justify a bankruptcy. Clearly, the bankruptcy should have come first, all debts would be discharged, and then the owner could safely get cash out.(Also, the client transferred the funds for the family to purchase property for her out of state to be the new residence.)
(Note that in the above case there is an argument that the funds taken out from the reverse mortgage, if still traceable, are the proceeds of the homestead and therefore exempt. But this was not a sale, and loan proceeds would likely be challenged as exempt by the trustee.)
In this case, as a Fort Lauderdale bankruptcy attorney in Broward County, Florida, it was certainly apparent that there would be great problems if a bankruptcy were to be filed.
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May 21st, 2011
Robin Weiner, Broward and Palm Beach County chapter 13 bankruptcy trustee, clarified her position on separate classifications of student loans in chapter 13 during confirmation hearings this past week. Fort Lauderdale bankruptcy attorneys and Broward County bankruptcy attorneys as well as Palm Beach bankruptcy attorneys would find this information quite useful.
Recall from prior posts that student loans cannot be separately classified in chapter 13 if this would unfairly discriminate against other unsecured creditors. A chapter 13 plan must provide that unsecured creditors receive at a minimum the greater of the liquidation value of the debtor’s non-exempt assets and the amount required under the means test. According to Robin Weiner, if the debtor can pay this amount, then the debtor can in addition propose a plan to make the regular payments on the student loans.
For example, if the means test shows the debtor must pay $300 per month, times 60 months for a total of $18,000; and if the liquidation test shows that the debtor has $20,000 in non-exempt assets that would have to be surrendered in a chapter 7, then the debtor’s plan must pay at least $20,000 plus the trustee’s 10% fee. Robin Weiner would not object if the debtor’s plan provides for an additional payment of the regular student loan payment.
Please be aware that I can still envision a creditor’s argument that would not permit this method of classification. On the other hand, there could be other plans that also could be proposed that would not unfairly discriminate.
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May 29th, 2011
On May May 25, 2011, I spoke at a seminar conducted by Lorman Educational Services. I have spoken on two prior occasions on their behalf. The day long seminar involved issues concerning bankruptcy, foreclosure and repossessions. My portion of the seminar provided an overview of the means test, reasons for filing chapter 13, homestead restrictions in bankruptcy, as well as chapter 13 plans and strategies for protecting secured property.
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June 4th, 2011
Recently a client informed us that she had used her tax refund to pay her property taxes and other necessary expenses. That’s just fine. However, when we looked at her checkbook, it became clear that the client had paid relatives instead. One relative advanced the money to pay the taxes, and the debtor wrote a check repaying the relative. Other relatives were also reimbursed. Instead of waiting to use the tax refund to directly pay expenses, the debtor has created a serious problem.
The debtor has now set up a preference claim in which the trustee can demand reimbursement from the relative. The debtor made a repayment of a loan to “an insider”, and the trustee now has a right to recover this money unless the debtor waits one year to file bankruptcy.
As a Fort Lauderdale bankruptcy attorney in Hollywood, Florida, we will have to properly consult with the client to review the options and strategy she will want to pursue.
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June 1st, 2011
Consider a homeowner who is behind on the mortgage payments but never signed the note or mortgage. It is likely the lender will not even speak with the owner to try and modify, because the homeowner was not the original party to the mortgage.
This could happen if the owner acquired the property by inheritance. More difficult might be a case where the owner transfers title by deed without paying off the existing mortgage and in violation of the due on sale clause in the mortgage.
Judge Glenn recently entered an opinion denying a creditor’s motion for relief from stay and permitting the debtor to treat the secured claim in a chapter 13 plan. In re Lozada, 444 BR 604(M.D. FL March 31, 2011) The debtor claimed ownership interest because of a quit claim and alternatively claimed she was the rightful heir of her mother’s estate. The court relied on In re Ramos, 357 BR 669(Bankr. S.D. FL 2006).
Two Florida bankruptcy judges have upheld a debtor’s right to cure a mortgage in a chapter 13 even though they were not the original owner. This is also consistent with long-running practice. As a Broward bankruptcy attorney filing bankruptcies in the Ft. Lauderdale area, I can say that these cases are good news for current homeowners to help them save their property.
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May 29th, 2011
A debtor can only have approximately $360,000 in unsecured debt to be eligible for a chapter 13. Otherwise, the debtor is above the jurisdictional limit.
Contingent claims do not count against the calculation. The problem is that the bankruptcy code does not define what is considered contingent or non-contingent.
A recent case may help debtors under the right facts. Consider a debtor who signed a guarantee for a corporation. Does the amount of the guarantee count as a non-contingent claim? In Glaubitz v Grossman, 2011 US Dist Lexis 6166(E.D. Wisc. 2011), the district court reversed a bankruputcy court decision. The bankruptcy court had included the guarantee as part of the unsecured debt. The district court reversed, finding that a guarantee was inherently contingent. However, the District Court stresses that the corporation was not in default so the contingency had not yet occurred. If a default had taken place, then the guarantee would no longer be contingent and would count against the jurisdictional limit.
As a Fort Lauderdale bankruptcy attorney, I recognize that the problem is that in the typical case where the debtor made a guarantee for his own corporation, the debtor is likely already in default.
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June 2nd, 2011
A common concern amongst bankruptcy attorneys is the filing of a bankruptcy when the divorced spouse no longer lives in the prior marital residence. For example, husband and wife have 2 children. Divorce decree permits wife and children to remain at the marital residence. Former husband now lives elsewhere. Can the debtor claim the former marital residence as exempt from creditors and the bankruptcy trustee?
As a Fort Lauderdale bankruptcy attorney, I have filed these cases without a problem, though the issue does still give me concern. A recent Florida state court decision further supports this homestead protection even though the debtor no longer resides at the former marital residence. The debtor(judgment defendant) no longer lived at the former marital property, but his family continued to live there. In Beltram v Kolb, 2011 Fla App Lexis 3482(Fla. 3rd DCA March 16, 2011), the court reversed the trial court and upheld the exemption. Since Florida law applies to interpreting the Florida homestead exemption in bankrupty, this case can be used to support a Florida homestead exemption claim in bankruptcy.
But consider if the debtor purchased a new homestead. An individual cannot have two homesteads. If anyone has had this issue, kindly post a response.
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June 8th, 2011
The Florida Supreme Court held that a debtor could own the homestead and still claim the new $4,000 personal property exemption if the debtor did not claim the property exempt in the bankruptcy petition. Osborne v. Dumoulin, 35 So. 3d 577 (2011). There was no requirement that the debtor had to state an intention to surrender the property to the lender. However, the court did find that the bankruptcy trustee could administer the debtor’s property. So bankruptcy trustees are still trying to threaten debtors that they will take their home or collect rent if they try to exercise the $4,000 personal property exemption($8,000 for husband and wife).
Trustees would have the right to sell the property. In one case that was appealed, the United States District Court affirmed the bankruptcy court order that the trustee could not force the debtor to vacate so that the trustee could try and sell. Iuliano v Brook, Trustee, 2011 U.S. Dist Lexis 47136(D.Ct. M.D. FL April 29, 2011). The court recognized that in that case there was no equity in the property and that it would be meaningless for the trustee to try to administer the property. The district court opinion was entered after the Osborne decision. (Note that the court recognized that the trustee could try to sell with the debtor still in possession, though in this case there was no equity.)
But the right to try and sell the residence remains with the trustee, and I have heard that at least one trustee is trying to short sell properties to an investor who will then demand rent from a tenant. Also, trustees have threatened to collect rent from the debtors, but this demand is improper. The trustees are not committing to pay the mortgage with the rent, and if they were, then unsecured creditors are not benefitting. The role of the chapter 7 trustee is to collect for unsecured creditors.
This issue will continue to be a problem, especially since most debtors would rather avoid any risk as to their home. The additional $4,000 savings often is not worth that risk. As a Fort Lauderdale bankruptcy attorney, I will discuss with each client how to deal with this exemption issue.
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June 11th, 2011
I am pleased to make the following announcement. The Broward County Bar Association has numerous sections of practice areas. I was honored as the section chairperson of the year for the Bankruptcy Section of the Broward County Bar Association, together with Gary Singer for the Real Property section.
The award was the result of the interest of attorneys in attending seminars on bankruptcy that we sponsored. The bankruptcy section was able to provide distinguished panelists on several topics of great interest to bankruptcy practitioners. Experienced bankruptcy attorneys as well as many attorneys new to the field attended. The economic downturn has led to numerous attorneys entering the bankruptcy field.
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June 25th, 2011
The homestead protection under Florida law was restricted by BAPCPA. One of the major changes was to permit a chapter 7 trustee to recover against homestead if non-exempt assets were transferred into the home. Section 522(o) essentially superseded Florida law on this issue. This issue remains a major risk for debtor attorneys to avoid filing a case that risks losing the debtor’s home.
But the trustee or any creditor objecting to homestead must satisfy the proof requirements of Section 522(o) to establish that the transfer was made “with the intent ot hinder, delay, or defraud a creditor…” These cases are fact specific. In the recent case of In re Klinglesmith, 2011 Bankr Lexis 2230, (Bankr. M. D. FL. June 2, 2011), Judge Jennemann rejected the trustee’s objection. The debtor actually went on a “debt repayment spree”. The facts are too complicated to discuss here, but this is a case that should be reviewed whenever a case involves a large transfer of non-exempt to exempt assets. As a Ft. Lauderdale bankruptcy attorney, one of the first questions I ask of any new client involves what funds were used to purchase or upgrade a homestead.
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July 5th, 2011
Judge Kimball, bankruptcy judge sitting in West Palm Beach in the Southern District of Florida, addressed the issue of the debtor’s change of mind on which Florida exemption to take. Recall that the debtor can take an additional $4,000 exemption if the debtor does not receive the benefit of the homestead, FL Stat. 222.25(4). In re Allen, 2011 Bankr. Lexis 24269, (Bankr. S.D. FL. June 21, 2011) involved the debtors’ election to change their mind about which exemption to take. They originally claimed the homestead exempt, but after the deadline for creditors and the trustee to object, the debtors amended their exemption to delete the homestead election and claim the additional personal property exemption. Relying on the Eleventh Circuit Court’s decision in Osborne v Dumoulin, 2011 U.S. App. Lexis 9702(11th Cir. May 10, 2011), Judge Kimball recognized that the clear holding of the Eleventh Circuit was to permit the amendment to exemptions.
However, it should be noted that the amendment must be granted unless there is an allegation of bad faith or prejudice to creditors.
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July 16th, 2011
A July, 8, 2011 decision may provide great assistance to over median debtors. In re Johnson ,2011 Bankr. Lexis 2518, Case No. 8:11-bk-00810-MGW.(Bankr. M.D. FL 2011)
The operating expense allowance on the means test for above median income debtors permits the deduction of the allowance for two vehicles. There is no provision to use an operating allowance for three cars. The IRS table for Local Transportation Expenses only provides for this expense for 2 vehicles.
Debtors often have more than two vehicles. Consider husband and wife have two vehicles and both work. They have a minor child who has use of a third car for school and perhaps for extracurricular activities. But the IRS Collection Financial Standards, which were in part relied upon by the Supreme Court this year in Ransom, provide that other reasonable and necessary expenses may be allowed if for the health and welfare of the family or for the production of income. (Note that these collection standards also contain the provision for an additional $200 operating allowance for vehicles that are more than 6 years old or have more than 75,000 miles.)
Over the United States Trustee’s objection, Judge Williamson in the Middle District held that though the operating expense amount is fixed, that the debtor could deduct three operating expense allowances for three vehicles, subject to appropriate proof at an evidentiary hearing.
There is some bad news here. It would be nice for a debtor to be able to claim an expense higher than the authorized operating expense. Insurance costs, gasoline, tolls, and repairs may well exceed these costs. Special circumstances might have to be claimed, but this can be a difficult claim.
Note that the difference between allowing two and three operating expenses could mean the difference between eligibility of chapter 7 and chapter 13. But even if a debtor is in chapter 13, the extra allowance can reduce the required plan payment.
As a bankruptcy attorney in the Southern District of Florida, I would expect (hope) that the Johnson decision would be applied here as well.
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July 30th, 2011
This past Wednesday the 11th Circuit Court of Appeals entered an important decision on sovereign immunity, In re Diaz, Florida Department of Revenue v Diaz, 2011 US App Lexis 15462 (11th Cir 2011). This is an important case for practitioners to review, but I am not going to review the sovereign immunity analyses of the case.
I do want to comment on how this affects chapter 13. Sometimes I just do not understand the 11th circuit decisions when they consider chapter 13 cases. In what appears to me to be directly contrary to the United States Supreme Court decision in US Student Aid Funds v Espinosa, the court held that a creditor with a non-dischargeable claim for child support as well as taxes is not bound by the claim allowed in the bankruptcy court. Even though the creditor was fully paid in the plan based on the allowed claim, the creditor could still claim moneys it is owed such as interest because the underlying debt could not be discharged.
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August 5th, 2011
UPDATED August 25:
Judge Olson, at the end of an Order to Show Cause against several attorneys, in a short discussion, said that an issuance of a 1099 is not a basis to object to a Proof of Claim. Case no 10-49318(also can be seen at Case no 11-13345 JKO (DE 148) >(In re MacFArland)
The question often arises for a debtor as to the pros and cons of settling credit cards at a discount or a completing a short sale. The filing of a chapter 7 bankruptcy prior to any short sale or settlement should eliminate this problem because no debt is forgiven. Sometimes creditors on their own charge off an account and issue a 1099-c creating a taxable event for the recipient. This forgiveness of debt income is taxable, though an IRS Form 982 to show insolvency might often be used to avoid tax liability.
But does the filing of a 1099-c by the creditor mean the debt is released and that the creditor, or a debt purchasing company, can’t sue? Many would assume that the creditor cannot sue and that the issuance of the 1099 would be a defense. Similarly, could a creditor file a proof of claim in a bankrupcy after it had already issued a 1099C?
Bankruptcy courts have determined that the 1099c does not imply that the creditor has released its right to recover on the underlying debt or deficiency. In re Zilka, 407 BR 684(Bankr. W. D. Pa 2009). However, the debtor may have been forced to pay income taxes on the 1099. The creditor would then have to withdraw its 1099c reporting to IRS so that the debtor could receive a tax refund. Also see USA v Reed, 2010 U.S. Dist Lexis 96079(US D. Ct. E.D. Tenn.)
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August 7th, 2011
The jurisdictional limit for unsecured debt in a chapter 13 is $360,475.00. One way around this limit is to consider the debt separately of a husband and wife who file bankruptcy. Essentially, a joint filing is really two individuals filing a case that is jointly administered. So, for example, if the husband owes $200,000 and the wife owes $250,000 in separate debt, then the court does have chapter 13 jurisdiction.
However, keep in mind that when a debtor has joint debt with the spouse, then this joint debt must be considered as debt when calculating both the husband’s and wife’s debt.
On August 4, 2011, Judge Olson sitting in the Broward County division of the bankruptcy court in the Southern District of Florida, held that debtors could treat separately their debt limit to remain in chapter 13. In re Hannon, 2011 Bankr Lexis 2949, Case No. 10-45771. However, on the facts of this case, the debtor has substantial joint debt which still placed each debtor over the jurisdication limit.
This decision will be of great help to those who file a Fort Lauderdale chapter 13 bankruptcy.
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August 21st, 2011
South Florida bankruptcy attorneys know that if a debtor inherits property within 180 days after filing of the bankruptcy, that the property becomes property of the estate subject to administration by a chapter 7 trustee. More specifically, this means that if a person dies within 180 days after the bankruptcy is filed, and the debtor has the right to receive an inheritance including life insurance proceeds, that the property belongs to the bankruptcy estate even if the asset has not yet been received by the debtor.
A couple of recent cases raised issues of great concern for debtors and had favorable rulings. In re Cutiignola, 450 BR 445, (Bankr. S.D. N.Y. 2011) upheld the debtors’ claim that that they could assert their bankruptcy exemptions to protect inherited property even though they had no interest in the property at the time of filing the bankruptcy petition. The debtors could claim as exempt property including homestead and an IRA that became property of the estate as a result of inheritance. The court relied in part on a decision binding in the Southern District of Florida, In re Wilson, 694 F. 2d 236 (11th Cir. 1982)(refund of attorney’s fees to the debtor could be claimed as exempt).
What if a person dies more than 180 days after the bankruptcy is filed, does the property belong to the bankrutptcy estate? In a chapter 7, clearly no. And one would think that the same rule applies in a chapter 13. But an 11th Circuit case raises a serious concern for a debtor who inherits property during the term of the plan, which can be up to five years. In re Waldron, 536 F. 3d 1239, (11th Cir 2008). In Waldron, the court concluded that a post-petition uninsured motorist claim was property of the estate.
This inheritance issue was addressed in In re Walsh, 2011 Bankr Lexis 2602(Bankr. S. D. Ga. June 15, 2011) The court stressed that unlike an accident claim, there was a specific time period of 180 days for inheritances for property of the estate in Section 541. Walsh noted there were conflicting earlier opinions in the Middle District of Florida. Walsh upheld the debtor’s position against a claim by the chapter 13 trustee that the inheritance should be added to the bankruptcy estate.
Fort Lauderdale bankruptcy attorneys should remain concerned about the issue of inherited property in a chapter 13.
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August 21st, 2011
Chapter 13 plans are typically from 3-5 years. In Florida, which is bound by decisions of the 11th Circuit Court of Appeals, a debtor who is above median income on the means test must be in a 5 year plan. In re Tennyson. 611 F. 3d 873(11th Cir. 2010). The idea under BAPCPA is that the applicable commitment period for an above median income debtor is 5 years during which time the debtor must pay his disposable income.
What if the debtor is able to pay off the chapter 13 plan early? This could not be from increased income, because the debtor would have greater disposable income and would be able to increase the chapter 13 payments. But what if a family member could make a gift, or the debtor could fund the plan from exempt funds such as an IRA?
In the past, I have obtained early payoffs with the consent of Robin Weiner, Chapter 13 Trustee for Broward and Palm Beach counties in Florida. But Tennyson has caused a concern for the trustee that a chapter 13 case should perhaps remain open for the required term because the debtor could have additional income.
A recent case from the Middle District of Florida expressly authorized the early payoff of a chapter 13 plan when a motion was filed with clear notice to the creditors. In re Smith, 449 BR 817(Bankr. M. D. FL June 6, 2011). The court examined the Tennyson case and concluded it did not prevent an early payoff.
As a Fort Lauderdale bankruptcy attorney, I recognize that the early completion of a chapter 13 bankruptcy is extremely beneficial to clients who are able to obtain an independent source of funds to complete plan payments.
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September 3rd, 2011
Some banks have recently announced that they are essentially entering the payday loan business. These loans have traditionally led to high costs and abuses greatly jeopardizing the well being of consumers. It may be true that an employee desperately needs immediate funds and an advance on his or her paycheck might be needed for the rent, utility bill, or other necessity. But payday loans have high fees and lead to a need for a loan on each additional check creating a never-ending cycle of high fees and inability to catch up.
Payday loan companies are often the nastiest and toughest trying to call and collect when the loans are not repaid. They often lie threatening criminal prosecution for a bad check. But the checks they hold are post dated; the debt is based on a promise to pay. There is no current exchange of goods and services for a current check.
Payday loans can be discharged in bankruptcy like any other debt.
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October 16th, 2011
I have previously discussed how the trustees do not like the $4,000 wildcard personal property exemption when the debtor owns a Florida homestead but elects not to claim it as homestead in the bankruptcy. Trustees do not want to lose out on the collection of funds on personal property while the debtor is effectively still keeping the home that is undersecured. The home is not really sellable so there would be no asset for the bankruptcy estate.
However, in In re Luban, 2011 WL 4344548, 2011 Bankr Lexis 3509, (Case NO. 11-13633)(Sept 15, 2011), the trustee tried to sell the home to, as Judge Cristol described, a vulture investor, so that the debtor would then have to pay rent to the investor. The debtor was still making payments on the first and second mortgage. Judge Cristol found that the trustee’s conduct selling to a vulture investor was “misguided and wholly inappropriate”. The trustee, simply to obtain funds that would primarily pay for the trustee and professionals, would cause mortgage payments to go into default and could lead to the debtor and disabled child losing their home.
However, debtors should still be careful on relying too much on this decision. Judge Cristol found that the trustee’s fiduciary duty applies to all creditors including first and second mortgages. The debtor had been paying the mortgages. In many cases, the debtor is in default and perhaps even in foreclosure. Perhaps there would be a different result in such case. A debtor might still be trying to modify the mortgages, but the fact remains that there is still a risk if the debtor is trying to retain the home and exercise the wildcard personal property exemption. It is imperative to consult with your bankruptcy attorney
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October 22nd, 2011
BAPCPA changed the law and restricted cramming down car values unless the car was financed more than 910 days prior to filing. But a debtor can still extend the term and payoff the note during the chapter 13 plan. Additionally, the debtor can reduce the contractual rate to the so-called Till rate, which has been 5.25% for some time in the Southern District of Florida.
But in a recent case, Judge Olson held that the good faith requirements of chapter 13 to confirm a plan are relevant as to recently financed vehicles. In the case In re Blackmon, , 2011 Bankr Lexis 3619, 2011 WL 4543923(Case NO 10-41452)(September 29, 2011), the debtors had already met with bankruptcy counsel, financed 2 vehicles at high interest, and filed bankruptcy within less than 80 days after obtaining the vehicle. Judge Olson denied confirmation of the plan which reduced the interest rate.
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October 30th, 2011
Florida bankuptcy attorneys must use new median income figures as of November 1.The median income for the State of Florida for a household of one was increased slightly to $40,766. However, the other income figures have decreased: for a household of 2, $49,729; for a houshold of 3, $52,840; and for a household of 4, $62,742. For a household of 4, this is a $2400 decrease in the median income.
There was a significant change in the means test expenses that may help numerous over median debtors. Debtors who are over median income must complete the balance of the means test which deducts authorized expenses to determine eligibility for chapter 7 (or to determine the amount of required payments to unsecured creditors in a chapter 13) The allowed expenses for renters for Broward County bankruptcies was increased by over $200 per month for each household size. For example, for a household of 1, the allowance is now $1272, and for a household of 4, the allowance is now $1784.
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November 3rd, 2011
Bankruptcy filing fees increase on November 1. Chapter 7 filing fees will be $306.00, and chapter 13 filing fees will increase to $284.00. The costs to individuals to have access to the bankruptcy court system have steadily increased.
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