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Chapter 7 Bankruptcy

Florida Bankruptcy Lawyer” What Property Can I Keep? Part 3

Will you lose all your property if you file bankruptcy? NO! You will most likely get to keep most if not all your property. When someone files bankruptcy, they can keep certain “exempt” property. In a chapter 7 case, the amount of property is limited yet includes many large assets such as a persons home, some equity in their car if fully owned and their qualified retirement account.

A Chapter 13 bankruptcy is a re-organization and the amount of property that can be kept is broader. A significant difference between a Chapter 7 and the Chapter 13 limitations as to how much property someone can keep is most significant to the self-employed. In the Chapter 7, the value of the stock or worth of the company must be surrendered to the Trustee, or bought back, once the exemption limitation is exceeded. In a Chapter 13, since it is a re-organization, there is surrender of the value that exceeds exempt amounts but is repurchased from the trustee at the fair value of the stock or liquidation value which is significantly lower than ongoing profit potential of the business. The business can then operate as it normally would and any buy back can be put in the plan.

This does not mean that all property can be kept. The Trustee would likely object to someone trying to keep “luxury” items. These items include timeshares, extra vehicles not needed for the business, motorcycles, watercraft – can’t keep that yacht and non-homestead land or buildings.  There is one important distinction when looking at buildings other than a person’s homestead which is when these buildings or land are leased. The Trustee looks upon these as a business, producing income that would help support the plan. They are, therefore, exempt. However vacant land or second investment properties would have to be forfeited. Proper planning prior to filing a bankruptcy can save these properties. Unfortunately, while in the Chapter 13 plan period, you will also forfeit your tax refund except that portion that is earned income credit.

Popularity: 10% [?]

Florida Bankruptcy Lawyer: What property can I keep? Part 2

Many clients ask me if they will lose everything when they file bankruptcy. The answer is a resounding NO! It is likely that they will keep most, if not all of their property.  Florida has exemptions which is property that is not included in the bankruptcy estate.  The debtor who files bankruptcy can keep this exempt property.

Chapter 7 is a “liquidation” bankruptcy.  Debtors are eliminating all their unsecured debt – debts usually comprised of credit cards, medical bills or judgments not based on intentional acts.  They may choose to walk away from secured assets as well.  Secured assets are any property that is protected by some form of agreement that keeps ownership of the property in the creditor until it is paid for.  Homes, leased or financed vehicles or even expensive TVs and the like are examples of secured assets.  These assets can be forfeited in bankruptcy and the debtor is relieved of any deficiency or liability on the debt.

In exchange for this “liquidation”, debtors can only keep a certain limited amount of property.  Florida allows $1000.00 dollars applied to any personal property of each debtor filing; $1000,00 dollars of equity in one vehicle titled in each debtor; their home, if it is current in it’s payments or $4000.00 dollars in additional exemption applied to any property the debtor wishes if they do not keep their home.  Their qualified retirement funds are exempt as well and client’s are cautioned never to touch these funds for any reason.  Death benefits, annuity contracts, disability benefits and life insurance cash values are also exempt.  Exemptions exist for Alimony and child support as well as crime victims funds, public assistance and social security.

For the self employed, unfortunately, tools of the trade are not exempt nor is the value of their company.  The business has value and the Trustee will likely seize the value of the stock or what the company is worth if that value exceeds the exemption limits.  For those businesses that have significant value, debtors can turn to Chapter 13 for relief as that bankruptcy is a re-organization and debtors are allowed to continue their normal business activities, thereby keeping business assets.

Popularity: 8% [?]

Florida Bankruptcy Lawyer: What property can I keep? Part 1

Many clients ask me if they will lose everything when they file bankruptcy. The answer is a resounding NO! It is likely that they will keep most, if not all of their property.

When someone files, an “estate” is created and all property belonging to the debtor becomes property of the estate, which is then administered by the US Trustee. However, certain property is exempt which vests back to the debtor. The one question that seems to be the most important to my clients is whether they will be able to keep their home.

Most States have homestead exemptions and Florida has one of the strongest protections in the country when it comes to protecting the home from creditors. Obviously, if there is a Note and Mortgage on the home, the creditor holding that note owns the home until it is paid for. They have superior rights to the house, should the debtor not adequately protect it, and can foreclose as the home is a secured asset. If the home is current, the homestead in Florida works to protect the home if it sits on 1/2 an acre or less when located in a municipality or 160 acres or less when located elsewhere. If the house is owned by tenancy by the entirety (two people who are married) and only one has a creditor seeking relief against the property, then homestead works to protect the entire property.

The homestead exemption protects unlimited equity in the home so long as the home is owned for at least 40 months prior to filing the bankruptcy. If owned less than that time, then only $137,000.00 per person is protected. In the event the home is not current, people can use the Chapter 13 plan to catch up on the deficiency and still claim the homestead exemption, saving their home from all creditors, including the secured creditor that holds the Note!

Popularity: 5% [?]

Florida Bankruptcy Lawyer:The Meeting of Creditors

After filing a bankruptcy petition, all clients must attend the 341 meeting of creditors. The meeting is presided by the Trustee and creditors may attend and ask questions of the debtor about his/her petition, schedules,statements and finances. Typically, only the Trustee does the questioning and it is rare that any creditor shows at all. The meeting is usually recorded and is held under oath.
Debtors must produce a form of identification such as a driver’s license and their social security card to the Trustee.

Documents are submitted to the Trustee before the meeting which usually include proof of income and tax returns. Additional documents may be requested by the trustee to clarify potential discrepancies in the petition or other supporting documents. It is not a time where the debtor will be intimidated or be asked embarrassing or humiliating questions.

The Trustee usually asks about the debtors background, assets and liabilities as well as income and expenses. They will inquire whether the debtor realized he filed his documents under the penalties of perjury; whether the documents were reviewed for their accuracy, completeness and truthfulness; whether anything needs to be added or changed regarding the petition, schedules or statements; if they have any interest in any real estate; if any transfer of property occurred in the year preceding the bankruptcy; if anyone holds property that belongs to the debtor; if they are owed any monies or are a party to a lawsuit or anticipate receiving funds in the near future. In the event of the debtor being self employed, the Trustee will look into the financial aspects of the business as well. Though this sounds like it may take a while, the typical meeting is concluded in 5 to 10 minutes.

When the meeting is concluded, creditors then have a limited time to object to the debtors claimed exemptions.

Popularity: 2% [?]

How to determine “Current Monthly Income”

Anyone filing bankruptcy must determine what their current monthly income is. The information is used for the means test to determine eligibility of filing for one of the chapters as well as to calculate what must be paid in a chapter 13 plan. Form 22c must be attached to the petition for bankruptcy and there debtors must state their current income.
Current monthly income is defined as the average monthly income from all sources the debtor receives. It doesn’t matter that the income is or isn’t taxable. It is the average income that is derived during the 6 month period ending on the last day of the calendar month just before filing the petition or as determined by the Court. Any amounts paid from any sources on a regular basis for the household expenses are included except benefits under social security, payments to victims of crimes and payments to victims of terrorism.

Pay advices are usually filed with the petition as evidence of income, but are not the only source of proof. Bank statements, dividend statements, CD’s or other financial documentation can be examined and act as proof of income. The Court may order additional documentation to be filed and tax returns are normally given to the trustee at least 7 days before the 1st hearing in the case. In chapter 7, two years past returns are submitted, in chapter 13, three years returns are given. If the case is filed at the beginning or near the new year, trustee’s will require the debtor to produce the most recent return, therefore debtors should prepare and file their returns as soon as possible. In a chapter 13, returns are submitted each year as proof of current income.

Popularity: 3% [?]