Articles Posted in Chapter 7 Bankruptcy

A January 11, 2011 opinion by the U.S. Supreme Court is expected to drastically increase potential disposable income in Chapter 7 and 13 bankruptcy cases in Tampa, Florida. This may cause someone who previously qualified for a Chapter 7 bankruptcy not to qualify, or to increase the Chapter 13 plan payment by $500.

You see prior to Ransom v. FIA Card Services, N.A., our local (often considered debtor friendly) Tampa Division would generally allow a $496 ownership credit toward a vehicle (two credits were allowed if debtors were married or had reason for an additional vehicle). This $496 credit would be allowed even if the car payment was less than $496 or if there was no car payment and it was owned free and clear. A debtor only needed to own or lease a vehicle to claim the ownership credit. A separate credit is used for vehicle operating expenses. The reasoning in the Tampa Bay area was in part if the debtor was driving an older paid off vehicle, at some point during a 3-5 year plan the debtor would have to purchase a replacement vehicle. Allowing the credit would permit the debtor to both save some money for the down payment as well as afford the payment when the replacement vehicle was purchased.

Following the 8-1 decision in Ransom, our local Chapter 13 Trustees and Judges can no longer allow a debtor to reduce disposable monthly income (DMI) by claiming a vehicle ownership expense when the debtor has no associated loan or lease payment for the vehicle. In some other areas of Florida or elsewhere around the country, debtors already were not allowed to claim the expense, so this won’t have any effect on them. But here in Tampa, this is a major disappointment.

Contrary to popular opinion, a bankruptcy debtor does not have to give up his or her vehicle immediately upon filing bankruptcy.

First, many debtors choose to keep their vehicles and can do so as long as they continue to make the regular monthly payment and sign a reaffirmation agreement to repay the debt.

Second, free and clear vehicles can be retained provided the values of the vehicles are within the permitted exemptions or provisions to pay to keep them is set forth in the Chapter 13 Plan.

In a recent study by Stetson University College of Law in Pinellas County, Florida soon to be published by the Georgetown Journal on Poverty Law and Policy, entitled The Elderly in Bankruptcy and Health Reform, the most cited reason for financial difficulties of the elderly as reported by Florida attorneys is “credit card debt”. The second most common difficulty cited is “lack of income”. Twenty-five percent of our country’s elderly live at or under the poverty line and over 50% report social security as their sole income.

For the past few decades, the elderly have had multiple sources of income during retirement. Social security, pension and savings formed a three legged stool which supported elderly Americans throughout their retirement. Nowadays though, pensions and savings have often dissipated and only Social Security remains. Not many people can live on Social Security alone and debt quickly starts to accumulate in a day to day struggle to pay the bills.
Many of these same Americans own their homes outright or have other assets. Rather than losing these assets to creditors, filing a bankruptcy may be the best option. As an added bonus it avoids the time consuming, lengthy and often expensive probate process. Most people on a fixed income of social security would easily qualify for a Chapter 7 bankruptcy. In Florida, homes are generally exempt in a bankruptcy as well as 401k, IRAs and annuities. Once a Chapter 7 bankruptcy is completed in three months, the debt owed to credit cards and other unsecured creditors such as hospital bills are fully discharged and no longer owed. No more need to open a probate.