Articles Posted in Chapter 7 Bankruptcy

Personal Property

Bankruptcy is a way for you to actually keep most of your personal assets and say goodbye to the creditors and debt collectors. The truth is that debt collectors cannot touch MANY of your assets when you declare bankruptcy, most are protected. The magic of this protection is exemption. Yes, some assets are exempt from seizure under the protection of the local bankruptcy laws. Now, the keyword in that last sentence was “local”. The bankruptcy exemption laws differ from jurisdiction to jurisdiction, so that means an asset exempt in Dallas might not be in New York; it all depends on the local laws. Sound complicated? Well, it can be, but that is even more reason to retain a law firm that specializes in your local bankruptcy laws.  In Florida, the state law exemptions can be found in Florida Statutes Section 222.  However, if you have moved to Florida within the past two years, you may instead be governed by the State you moved from or the federal exemptions.  It is important to use the correct exemptions or you could waive your right to keep your personal property, vehicles or even your home.  To understand the exemption process, it helps to know what type of debt you have. In bankruptcy, there are two types of debt: secured and unsecured.

Secured Debt

Florida has a history of being unusually lenient when it comes to debtor protections in bankruptcy.  For one, we’ve opted out of the federal exemptions and have our own.  The homestead protections are some of the best in the country.  In some ways Florida’s exemptions are good, in others they are outdated.  For instance if a debtor owns a home they are allowed only $1,000 in personal property exemptions (plus other retirement account and homestead exemptions etc).  A middle class family filing bankruptcy when they are overwhelmed with bills, have personal belongings that total more than $1,000 particularly when they own a home.  This amount is outdated and not reflective of the times.

A recent switcharoo regarding a debtor’s homestead has caught many debtors unaware.  For the past several years, many debtors’ attorneys advised their clients to waive their homestead rights and instead select an option on their Statement of Financial Affairs (“SOFA”) to “surrender” their home even though they continued to live there.  Some of those clients wanted to defend a pending foreclosure or obtain a loan modification.  Some ran into trouble years later and then wanted to defend a foreclosure.  Perhaps a client ran into a mortgage loan servicer with poor recording skills that failed to correctly apply their payments and had to defend a foreclosure that should never have taken place.  Selecting “surrender” on the SOFA can have long reaching consequences because it can forever bar a client from challenging a foreclosure even years after the fact due to a new interpretation of what the term “surrender” should mean.

On October 4, 2016, the Eleventh Circuit Court of Appeals ruled that chapter 7 debtors who file a statement of intention to surrender real property in bankruptcy cannot later contest a foreclosure action, and bankruptcy courts have broad power and authority to sanction violations.  Failla v. CitiBank, N.A., case no. 15-15626 (11th Cir. October 4, 2016).   While Failla is a Chapter 7 case, there is a strong probability it will be argued in a Chapter 13 as well.

Do you realize that if you are constantly robbing Peter to pay Paul and cannot ever get ahead, you could be debt free by the holidays if you qualify for a Chapter 7.  Many clients who come to see us have been struggling with debt for a long long time.  No one rushes to file bankruptcy.  Most everyone tries to pay their bills until they finally can’t.

But a Chapter 7 case takes less time start to finish than traffic court in many cases.  Of course there are exceptions.  But ordinarily a Chapter 7 discharge takes approximately 90 days.

There are some instances where it could take longer:  the bankruptcy trustee needs more information, you’ve delayed the personal financial management course, you are trying to discharge student loans, a creditor or the trustee objects or disagrees with your exemptions.  Hiring competent bankruptcy counsel will make everything go much smoother.

  One of the common questions we get is whether or not someone filing bankruptcy can keep their car.  The answer is Yes, but you do have to pay to keep it.  How you do that depends upon how much equity is in the car, whether you own or lease, whether it is jointly owned, and whether you are current on the payments.  The information below applies to Florida exemptions, the laws may be different in other states and you may still be governed by another state’s exemptions if you’ve recently moved to Florida.

Chapter 13:  A Chapter 13 can be used to catch up on missed payments.  It also can be used to value an underwater vehicle that you have owned for more then 910 days to what it is worth now.  I’m sure you know this, but just in case, the phrase “underwater” means you owe more than it is worth.  If you are current on payments, and the vehicle is worth more or equal to what you owe you would just “pay direct” and simply inform the court that you are continuing to make monthly payments.  There is no need to reaffirm the vehicle, as the original credit agreement continues to exist throughout the bankruptcy.

Chapter 7:  You can also keep a vehicle in a Chapter 7.  In Florida, you are able to keep certain exempt property which includes $1,000 personal property, $1,000 vehicle equity, and a special exemption of $4,000 if you rent, or you do not own a home that you are keeping or otherwise receiving the benefit of a homestead.  So if you are able to claim all three exemptions, for a single debtor, that would mean you can keep $6,000 worth of vehicle or belongings.  Anything more than $6,000 you can make arrangements with the bankruptcy trustee to pay to keep.  So for example, if your vehicle is worth $10,000, but you still owe $8,000, that means you have $2,000 in equity.  If you also had $1,500 in personal belongings and $1,000 in the bank, you would have a total of $4,500 which would fall with the allotted $6,000 exemption.  You could keep the vehicle and just continue to make the payments.  In order to do so, the creditor will require you to sign a reaffirmation agreement which is essentially a new agreement to pay for the vehicle.  The terms are generally the same although in some cases the amount owed or interest rate can be negotiated down.