Reboot Your LifeTampa Student Loan and Bankruptcy Attorney Blog

This debtor in South Florida recently lost his free and clear car in bankruptcy (actually the debtor was allowed to pay for the one-half interest in a Chapter 13 so it wasn’t quite as bad as it initially appears). Joint ownership is getting murkier and legal advise is definitely needed to preserve vehicles, money in bank accounts and even real property. Other bankruptcy cases in South Florida have recently attacked the “bare legal title” concept. These situations often arise when debtors share bank accounts, vehicles or even real property with parents, children or other relatives. Generally, we can show that the debtor held bare legal title only for probate or other purposes and the property is not subject to turnover by the bankruptcy court. However, the law in this area is getting rather murky. The facts in this case were as follows: a vehicle purchased by a debtor’s mother, but titled in the name of the debtor and his mother, and the debtor paid the insurance and maintenance. In re Fletcher, 2012 WL 2062394 (Bankr. S.D. Fla., March 6, 2012).

Under Florida law, when a person’s name appears on title to property, a rebuttable presumption arises in bankruptcy that the person has a beneficial interest in the property, although that interest may be an equal interest or a factional share. The burden then shifts to the debtor to prove by competent, clear, and compelling evidence she does not hold a beneficial interest in the property. In re Kirk, 381 B.R. 800 (Bankr. M.D. Fla. 2007).

Thus, here, although the debtor’s mother supplied the funds to purchase a motor vehicle, the debtor held a beneficial interest in the vehicle, and the vehicle was subject to turnover to the Chapter 7 trustee, where the vehicle was titled in the name of the debtor and the debtor’s mother, and the debtor paid for the insurance on, and the maintenance of, the vehicle.

To cram down property owned jointly, both spouses have to file a Chapter 13 bankruptcy. The Bankruptcy Court for the Southern District of Florida held recently that a Chapter 13 debtor whose spouse does not join in the debtor’s bankruptcy petition is not permitted to cram down a claim secured by a lien on property owned by the debtor as a tenant by the entireties. If the debtor were allowed to cram down the claim, the court reasoned, his nonfiling wife would be granted the benefit of having filed for bankruptcy without having to carry any of the burdens, and the Code does not permit this. In re Alvarez, 2012 WL 1425097 (Bankr. S.D. Fla., April 24, 2012).

Another approach is that the non-filing spouse could quit claim their interest in the property to the debtor. That way when the debtor files the bankruptcy, he or she is the sole owner of the property. We have found this works just as well.

Transfers of property especially shortly before filing a bankruptcy is a complex matter and should only be done after consultation with a qualified bankruptcy attorney. For a free consultation, please consider Arkovich Law

Many people think it is advantageous to only list certain creditors in their bankruptcy. This is not permissible in a bankruptcy because all creditors must be listed. You cannot favor one creditor over another. However, you can always voluntarily pay a creditor back after a bankruptcy if you wish.

Besides the creditors have their own subscription system with a third party that monitors PACER filings where they will generally learn of a client’s bankruptcy filing even if not listed. Moreover, if the bankruptcy is an asset case, by not listing the creditor, you’ve actually cheated them of monies they would have received in the bankruptcy.

You only become legally obligated to repay a creditor after filing a Chapter 7 bankruptcy if you sign and file a Reaffirmation Agreement with that creditor. A Reaffirmation Agreement reaffirms the debt and sometimes can be advantageous to the debtor if he wants to retain an asset but can’t pay for it outright and in full.

Many more bankrupt debtors will be able to keep their house in a Chapter 7 now!

In a surprising decision by a court of appeals not noted for its sympathy for debtors’ positions, the Eleventh Circuit Court of Appeals, held in a unanimous decision that a Chapter 7 debtor may strip off a second mortgage. Prior to this O’Neal decision on May 11, 2012, debtors could only do this in a Chapter 13 case. The Eleventh Circuit is the federal appellate court for the Middle District of Florida which includes the Tampabay area.

Twenty-three years earlier, the Court of Appeals had reached this conclusion in Matter of Folendore, 862 F.2d 1537 (11th Cir. 1989), and the present court reasoned that the decision in Folendore survived the Supreme Court’s decision in Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992), which held that a Chapter 7 debtor may not cram down an undersecured claim to the value of the collateral. Here, the Court of Appeals reasoned, the creditor’s junior mortgage lien was both allowed under Code § 502 and wholly unsecured under § 506(a), and the lien was therefore voidable under the plain language of § 506(d). In re McNeal, Case No. 11-11352 (11th Cir., May 11, 2012).