Amending Schedule C To Claim “Wild Card” Exemption

July 8, 2011

I recently read a case in which a West Palm Beach bankruptcy judge answered the question of whether Chapter 7 debtors, who initially claimed their homestead as exempt, may amend their Schedule C (schedule of exempt property) after the initial objection deadline (30 days after the conclusion of the meeting of creditors) to delete the homestead and add personal property under the Florida “wild card” personal property exemption. This particular judge ruled that the debtors could do so.

When the debtors filed their bankruptcy petition, despite the fact that they indicated that their home was worth significantly less than the mortgage that was on the property, they claimed the property as exempt, and indicated that they intended to retain the property. At that time, they only utilized the $1,000.00 personal property exemption provided by Article 10, Section 4, of the Florida Constitution. The Trustee timely filed an objection to the debtors’ claimed exemptions, challenging the value of personal property claimed exempt by the debtors as exceeding the $1,000.00 provided by that section of the Florida Constitution. Shortly thereafter, the debtors filed an amended Schedule C. They no longer claimed their home as exempt. Instead, they each claimed the $4,000.00 “wild card” exemption. The filing of the amendment triggered a new objection deadline of 30 days after the amendment was filed. Within the 30 days, the trustee objected to the amended claimed exemptions.

The trustee argued that the passage of the original objection deadline for exemptions prevented the debtors from amending their list of exempt personal property to delete their homestead and add personal property under the “wild card” exemption. Since the debtors have the right to amend at any time before their case is closed (absent an allegation of bad faith or prejudice to creditors (the trustee alleged neither)), the judge overruled the trustee’s objection to the debtors’ amended claimed exemptions.

Please keep in mind that every case is different, so if you are thinking of filing bankruptcy, and would like to schedule a free consultation, please contact our office by completing the form on this website, calling us at 954-920-5355, or e-mailing us at info@lslawfirm.net.

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Common Causes of Individual Bankruptcy

July 5, 2011

We are often asked what causes someone to file personal bankruptcy. I came across a study on the internet which listed the top 10 reasons an individual files bankruptcy in the United States.

1. Medical expenses. The study indicated that 78% of those individuals who filed for this reason had health insurance.
2. Unemployed. An unemployed individual is much more likely to file bankruptcy than someone who is employed, and there are currently millions of Americans who are unemployed.
3. Credit card bills, large mortgages, and expensive car payments. Uncontrolled spending habits or spending outside of one’s financial means, can put someone on the path of needing to file bankruptcy.
4. Divorce. Legal fees, child support, alimony, and the stress of supporting a household on 1 income can result in financial stress.
5. Unexpected disasters, such as earthquakes, floods, hurricanes, and tornados are almost impossible to prepare for. If a homeowner is uninsured, such a disaster can lead to a bankruptcy.
6. Foreclosure. Some individuals have spent years saving money to purchase a home. Some will file bankruptcy to avoid foreclosure and re-organize their debt or try to modify their mortgages.
7. Not having a sound financial plan. Many individuals don’t build up savings to protect against sudden or unexpected expenses.
8. The risk of losing utilities. Keeping the lights and the air conditioning on can be a factor for some individuals.
9. Student loans. Although they are generally not dischargeable in a bankruptcy, some individuals may choose to file bankruptcy to try to consolidate their student loans.
10. The possible return of repossessed personal property. If an individual’s vehicle has been repossessed by a creditor, it is possible that filing bankruptcy may force the creditor to return the vehicle, and any other personal property that may have been repossessed.

Please keep in mind that every case is different, so if you are thinking of filing bankruptcy, and would like to schedule a free consultation, please contact our office by completing the form on this website, calling us at 954-920-5355, or e-mailing us at info@lslawfirm.net.

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Can a same-sex couple file a joint bankruptcy petition in Florida?

June 28, 2011

We have been approached by same-sex couples and asked if they can file bankruptcy jointly with their partner in Florida. Currently, the answer is no. If you are a member of the LGBT community and need to file bankruptcy in Florida, the bankruptcy laws do not provide equal protection. At least as of today, each partner has to file a separate bankruptcy petition. Unfortunately, that causes additional expenses and complications for them.

The Defense of Marriage Act (DOMA), signed into law by President Clinton on September 21, 1996, defines marriage as a legal union between one man and one woman. Under the law, no state may be required to recognize as a marriage a same-sex relationship considered a marriage in another state. Bankruptcy laws are federal laws, and therefore, the bankruptcy laws don’t benefit same-sex couples who must file for bankruptcy.

However, in what may be a sign of things to come, a bankruptcy judge in California recently held that the DOMA is unconstitutional because it violates a same-sex couple’s equal protection rights under the due process clause of the Fifth Amendment. The judge held that 2 legally married California men who filed a Chapter 13 bankruptcy petition should be allowed to file jointly and should be afforded the same bankruptcy rights as any other legally married couple.

Please keep in mind that every case is different, so if you are thinking of filing bankruptcy, and would like to schedule a free consultation, please contact our office by completing the form on this website, calling us at 954-920-5355, or e-mailing us at info@lslawfirm.net.

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Can federal income tax liability be discharged in a Chapter 7 bankruptcy?

June 23, 2011

We are often asked by our bankruptcy clients whether they can discharge federal income tax liability. In fact, we recently met with a potential client who had filed an action to determine the dischargeability of federal income tax liability totaling approximately $6,000,000.00.

The Bankruptcy Code (11 U.S.C. 523(a)(1)(A), 507(a)(8), and 727(b)) does allow for the discharge of personal income tax debt in certain circumstances. A Chapter 7 bankruptcy should wipe out all personal income tax liability except:
• Taxes for which a return was due to be filed within 3 years (plus extensions) prior to the filing of the bankruptcy petition
• Taxes assessed within 240 days prior to the filing of the bankruptcy petition
• Taxes for which a return was filed late and filed within 2 years prior to the filing of the bankruptcy petition
• Taxes of an individual who committed fraud with respect to the filing of a tax return
• Taxes of an individual who attempted to evade taxes

Please keep in mind that every case is different, so if you are thinking of filing bankruptcy, and would like to schedule a free consultation, please contact our office by completing the form on this website, calling us at 954-920-5355, or e-mailing us at info@lslawfirm.net.

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How long can a Chapter 7 debtor remain in a home he is surrendering in bankruptcy?

June 8, 2011

We are often asked by our Chapter 7 clients how long they will be able to remain living in their home that they are surrendering in bankruptcy. Most often, the home is being surrendered because it is worth significantly less than the mortgages attached to it. Up until recently, we have been able to tell our clients that they will most likely be able to remain in their home until the home is sold in a foreclosure sale. However, that may no longer be the case.

We recently had Chapter 7 clients (a husband and wife) who surrendered their home in bankruptcy. The home was worth $938,111.00. The mortgages on the home totaled $2,223,539.77. We expected that they would be able to remain in the home until it was sold at a foreclosure sale. However, much to our surprise, the Chapter 7 Trustee, who had initially planned to abandon his interest in the property, found someone who was willing to buy his interest in the property in a private sale for $4,000.00. Since the Trustee was going to otherwise abandon the property, the sale for $4,000.00 was going to benefit the bankruptcy estate. The bankruptcy court approved the private sale pursuant to 11 U.S.C. 363(B). Now, our clients are most likely facing an eviction action from the new owner of the home. Practically speaking, they will most likely have to vacate the home much faster than they would have had the private sale not taken place.

Please keep in mind that every case is different, so if you are thinking of filing bankruptcy, and would like to schedule a free consultation, please contact our office by completing the form on this website, calling us at 954-920-5355, or e-mailing us at info@lslawfirm.net.

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Chapter 7 Debtor Can Claim Wildcard Personal Property Exemption While Intending To Remain In Home

June 2, 2011

The following is a common fact pattern we are seeing recently: A client files a Chapter 7 bankruptcy. On the client’s schedule of assets, the client lists his home. The value of the home is significantly less than the amount owed under the mortgages. The client does not claim the home as exempt on his Schedule C. On his Chapter 7 Statement of Intention, the client indicates that he intends to retain the home. On his Schedule B, the client lists certain financial accounts valued at $1,000.00, and household furnishings valued at $4,000.00. On the client’s Schedule C, the client lists his financial accounts as exempt pursuant to Article X, Section 4(a)(2) of the Florida Constitution, which provides an exemption for personal property to the value of $1,000.00. The client lists his household furnishings as exempt pursuant to Florida Statutes Section 222.25(4)’s “wildcard exemption”, which provides that a debtor may claim personal property up to the value of $4,000.00 as exempt, unless the debtor either claims a homestead exemption or receives the benefits of a homestead exemption under Article X, Section 4 of the Florida Constitution.

Some Chapter 7 Trustees are objecting to the claim of exemption under 222.25(4) in this scenario because they assert that the client is receiving the benefits of a homestead exemption pursuant to the Florida Constitution. Last month, a judge in the Middle District of Florida overruled a Trustee’s objection to such a claim of exemption, and ruled that the exemptions claimed by the debtor pursuant to 222.25(4) are allowed.

Does a debtor receive the benefits of a homestead exemption where the Chapter 7 Trustee is unlikely to administer the home because it has no value for the bankruptcy estate (since the mortgages against the home exceed the home’s value), and where the debtor intends to remain living in the home? The Middle District of Florida judge answered “no”, and ruled that a debtor who does not claim the homestead exemption in his bankruptcy case is entitled to claim the $4,000.00 personal property exemption under 222.25(4), even if he declares his intent to remain in the property. Only time will tell how the Chapter 7 Trustees and the judges in the Southern District of Florida will handle this scenario.

Please keep in mind that every case is different, so if you are thinking of filing bankruptcy, and would like to schedule a free consultation, please contact our office by completing the form on this website, calling us at 954-920-5355, or e-mailing us at info@lslawfirm.net.

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Will I have to give my 2010 tax refund to the Chapter 7 Trustee?

May 19, 2011

Clients who are expecting to receive a tax refund from their 2010 individual tax returns, often ask whether a Chapter 7 bankruptcy should be filed before the tax return is filed or after the tax return is filed.

Our response is typically that if one is expecting to receive a tax refund and can otherwise wait a few months to file bankruptcy, they should file their return, receive their refund, spend the money on everyday living expenses, and then file bankruptcy.  If the client were to file the return before filing bankruptcy and before receiving the refund, there is a good probability that the client will have to turn over the refund (or some portion of it) to the Chapter 7 Trustee.  Similarly, if the client were to file bankruptcy before filing the tax return, the Chapter 7 Trustee would most likely ask the client to provide a copy of the tax return once it is filed, and, if the client is scheduled to receive a refund, there is a good probability that the client will have to turn over the refund (or some portion of it) to the Chapter 7 Trustee.

Please keep in mind that every case is different, so if you are thinking of filing bankruptcy, and would like to schedule a free consultation, please contact our office by either completing the form on this website, calling us at 954-920-5355, or e-mailing us at info@lslawfirm.net.

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