Former NFL star Warren Sapp recently filed for Chapter 7 Bankruptcy in the Southern District of Florida.   Although Sapp’s Chapter 7 filing will no doubt be more complicated than most Chapter 7 cases, it is still governed by the same underlying rules and laws.   The basic premise of Chapter 7 is that a debtor turns over his non-exempt assets to a trustee who then liquidates the assets and uses the proceeds to pay the debtor’s creditors.  The debtor then receives a discharge of most if not all of his debt.  In most of the Chapter 7 cases that our firm files, the debtor is able to exempt all or close to all of his assets.   In cases where we can’t exempt all of the debtor’s assets, the debtor is usually able to “buy-back” his non-exempt assets from the trustee.

Warren Sapp’s bankruptcy is obviously much different than the typical Chapter 7 case.  Sapp still has significant assets and still generates a huge monthly income.  His bankruptcy schedules list his monthly income at over $115,000 per month and his monthly expenses are close to this amount.  Normally there is a Means-Test in order to qualify for Chapter 7.  However, since the majority of Sapp’s debt is non-consumer and primarily business debt, he was still able to qualify for Chapter 7.

Sapp also looks to be able to exempt a significant amount of his assets as well.  His NFL 401k and pension should be fully exempt under Florida law.  His primary residence and most if not all of his other retirement accounts are also exempt.  Sapp’s furniture, bank accounts, and jewelry are non-exempt and would need to be either surrendered or repurchased from the Trustee.  Interestingly, Sapp claims that he lost his Super Bowl and National Championship rings.  As these rings would now be property of the bankruptcy estate, Sapp would face significant penalties if it is proven that he lied about losing these rings.

Most of Sapp’s debt will be discharged among completion of his petition.  The most notable exception is child support and alimony.  Sapp owes a significant amount of child support and alimony; none of which will be dischargeable in bankruptcy.

Jonathan Bierfeld is an attorney with Martin Law Firm, P.L., whose practice focuses in Bankruptcy Law and Civil Litigation.  He is admitted to practice law in the State of Florida and the Federal Court for the Middle District of Florida.  He primarily practices in Lee County Florida in Cape Coral and Fort Myers, Florida.

Prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BABCPA”), a debtor was eligible to receive a Chapter 13 discharge upon completion of the Chapter 13 plan regardless of whether the debtor had received a discharge in a prior case.  BAPCPA added section 1328(f) of the Bankruptcy code which provided that a court shall not grant a discharge to a debtor under Chapter 13 if the debtor had filed a previous case within 4 years.  This is assuming the debtor received a discharge in the previous case.  Even though a debtor would not be eligible to receive a Chapter 13 discharge within 4 years of filing a previous case, section 1328(f) does not restrict a debtor from being able to actually file for Chapter 13 protection.

“Chapter 20” cases (where a debtor’s prior Chapter 7 discharge bars a Chapter 13 discharge) can still offer substantial relief from creditors.  The most significant of which would be in the case of a struggling homeowner who has fallen behind on his mortgage payments.   Filing for Chapter 13 would allow that debtor to spread out the missed payments over the course of the Chapter 13 plan.  He would be eligible for this relief even if he has already filed and received a discharge in a prior Chapter 7 case.

One of the most attractive features of normal Chapter 13 cases is the ability for a homeowner to “strip” the second mortgage on his home.  If a homeowner owes more on his primary mortgage than the value of the home, than a second mortgage’s claim is considered wholly unsecured.  The lien is “stripped-off” and is treated the as regular unsecured debt such as credit card.  Upon completion of the Chapter 13 plan, the second mortgage is discharged along with the other unsecured debt.

Courts have been split about whether a Chapter 13 debtor who is ineligible for a discharge due to a prior filing could still strip a second mortgage .   A recent Florida case, however, answered this question in the negative.  In a recent decision in the Southern District of Florida, the bankruptcy judge ruled that Chapter 13 debtors who received a prior Chapter 7 discharge and were, accordingly, ineligible for Chapter 13 discharge could not use Chapter 13 to strip wholly unsecured junior mortgages.

See In Re Quiros-Amy, 23 Fla. L. Weekly Fed. B125 (Bankr. S.D. Fla. 2011)

Jonathan Bierfeld is an attorney with Martin Law Firm, P.L., whose practice focuses in Bankruptcy Law and Civil Litigation.  He is admitted to practice law in the State of Florida and the Federal Court for the Middle District of Florida.  He primarily practices in Lee County Florida in Cape Coral and Fort Myers, Florida.

Both Chapter 7 and Chapter 13 bankruptcy have eligibility requirements which can prevent individuals from being able to file under that particular chapter.  The most well known of which is the mean-test requirement under Chapter 7.  Basically if an individual earns above a certain amount, that person might not be eligible for Chapter 7 protection, and may only be eligible to file for Chapter 13.  Unlike Chapter 7, however, Chapter 13 has debt restrictions which have increasingly caused more and more people to not be eligible to file.

Section 109(e) of the Bankruptcy code places limitations on the amount of debt that an individual may have in order to file for Chapter 13.  In order to be eligible to file for Chapter 13, an individual must have less than $360,475 of unsecured debt, and must have less than $1,081,400 of secured debt.  Since these numbers on first glance seem very high, many of our clients are usually surprised when they discover that they might not be eligible because they exceed those debt limits.

The reason why more and more of our clients are having issues with exceeding the debt restrictions of 109(e) is due to the lack of equity in their homes.  The collapse of the housing market hit Southwest Florida as hard as anywhere else in the country.   A direct consequence of the housing market collapse is that many people in Southwest Florida now owe more on their home than it is worth.  The amount that a homeowner is underwater on their home counts towards the $360,475 unsecured debt limit.  Also, if a homeowner is underwater on their first loan and they also have a second mortgage, that entire second mortgage would be considered unsecured.  Since so many homeowners are underwater on their homes, many of them are finding out that they might exceed the unsecured debt limit even if their other debt is minimal.

Recent Florida cases have eased these restrictions somewhat, at least for married debtors who file jointly.  In In Re Scholz and In re Hannon the bankruptcy court held that married couples can “stack” their debt limits so long as each spouse would be able to file his or her own individual Chapter 13.  In In Re Scholz, a married couple filed a Chapter 13 petition with $386,221.31 of unsecured debt and the Chapter 13 Trustee moved to dismiss the case for exceeding the unsecured debt limitation.  The Judge overruled the Trustee’s objection and allowed the couple to proceed with their joint Chapter 13 because as individuals, each debtor was below the $360,475 limit.  It was only when their debt was combined that they exceeded the debt limits.  If married debtors are each eligible to file individual Chapter 13 Petitions, they may file a joint Chapter 13 petition notwithstanding a combined debt total which exceeds the 109(e) limits.

See In re Scholz, no. 6:10-bk-08466-ABB (Bankr. M.D. Fla. 2011) and In re Hannon, 23 Fla. L. Weekly Fed. B132 (Bankr. S.D. Fla. 2011).

Jonathan Bierfeld is an attorney with Martin Law Firm, P.L., whose practice focuses in Bankruptcy Law and Civil Litigation.  He is admitted to practice law in the State of Florida and the Federal Court for the Middle District of Florida.  He primarily practices in Lee County Florida in Cape Coral and Fort Myers, Florida.

In 2005 Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act(BAPCPA) which greatly overhauled existing bankruptcy laws.  One such provision in the code seemed to be a direct response to some high profile debtors who would relocate to Florida and shortly thereafter become eligible for Florida’s Homestead Exemption.   In short, many of these debtors were basically converting non-exempt assets into exempt assets in order to protect as much property as possible from their creditors.   OJ Simpson is one such example.

In response Congress enacted Section 522(o)(4) in order to to preclude Florida’s “virtually limitless” homestead exemption in instances of fraud.  See In re Osejo, 447 B.R. 352, 354 (Bankr. S.D. Fla. 2011).  Under this section, Florida’s homestead exemption may be denied or reduced to the extent a debtor, acting with the intent to hinder, delay or defraud his creditors, converted non-exempt assets into exempt assets within ten years of filing his bankruptcy petition.

The conversion of non-exempt property into exempt property prior to filing is not necessarily fraudulent.  This is still especially true when it comes to Florida’s Homestead Exemption.   Courts have repeatedly held that a debtor’s homestead claim is presumptively valid.  This means that an objecting party would need to establish by a preponderance of evidence that the debtor acted with intent to hinder, delay, or defraud creditors.   The mere conversion of non-exempt assets into exempt assets is not enough to prove intent without extrinsic evidence of fraud.

See In Re: Cook, 23 Fla. Law Weekly B190 (Bankr.N.D. Fla 2011).

Jonathan Bierfeld is an attorney with Martin Law Firm, P.L., whose practice focuses in Bankruptcy Law and Civil Litigation.  He is admitted to practice law in the State of Florida and the Federal Court for the Middle District of Florida.  He primarily practices in Lee County Florida in Cape Coral and Fort Myers, Florida.

If you are in a financial situation in which bankruptcy might be an option you should be wary if you have a bank account with Wells Fargo.  Wells Fargo has a national policy in place in which they automatically freeze the accounts of any customer who files a Chapter 7 Bankruptcy.  Normally when an individual files for bankruptcy, a bankruptcy estate is created which consists of that person’s non-exempt assets.  A Bankruptcy Trustee is appointed to administer the estate.  In most instances an individual can exempt a good portion of their assets from the bankruptcy estate meaning that they get to keep those assets.  This includes bank accounts.

Wells Fargo’s policy is that they automatically freeze bank accounts and wait for directions from the Trustee on when or if they should release the funds.  Wells Fargo does this even if you do not owe them any money, and even if it is likely that the all the funds in the account will be exempt.  If all or a portion of the funds are exempt then the Trustee will order Wells Fargo to release the money back to you.  However, it usually takes the Trustee about a month or so to determine if the funds are exempt.

Currently, Wells Fargo is the only bank that will freeze your account if you do not owe them money.  They have recently merged with Wachovia so it is possible that Wachovia might also institute the policy.  If you are in a situation in which bankruptcy might be an option, it is recommended that you do not have an account with either of these institutions.  Wells Fargo says that they will only freeze accounts if there is a balance of more than $5,000 in the account, but you are probably better off to not risk it.

A Federal Court in Florida recently upheld Wells Fargo’s Policy in In re Young, 439 B.R. 211 (Bankr. M.D. Fla. 2010).  Other jurisdictions have rejected the practice, but Wells Fargo is now appealing those decisions.  However, Wells Fargo is still continuing the policy of freezing accounts while they appeal.

Jonathan Bierfeld is an attorney with Martin Law Firm, P.L., whose practice focuses in Bankruptcy Law and Civil Litigation.  He is admitted to practice law in the State of Florida and the Federal Court for the Middle District of Florida.  He primarily practices in Lee County Florida in Cape Coral and Fort Myers, Florida.

Congress adopted the Fair Debt Collections Practices Act (FDCPA) among growing concerns of abusive, deceptive, and unfair debt collection practices by debt collectors.  The most important thing to remember about the Act is that it only applies to third party debt collectors.  This means that the provisions and protections of the Act do not apply to the actual lender or the bank itself, but it does apply to collection agencies and collection attorneys who are contacting you on behalf of the bank or primary lender.  Among other protections, the Act provides that a debt collector may not communicate with a consumer:

1. Before 8:00am or after 9:00 PM.
2. If the debt collector knows that the consumer is represented by an attorney.
3. At the consumer’s place of employment if the debt collector knows or has reason to know that the consumer’s employer prohibits the consumer from receiving such communication.

The act also forbids harassment, abuse, and false or misleading statements.   A debt collector also cannot use obscene language or threaten you with violence or criminal prosecution.   You cannot go to jail for not paying a debt.

One of the strongest provisions of the FDCPA is found under section 1692(c).  Pursuant to this section if a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector needs to cease communication with that debtor or face penalties.   Also, once you inform a debt collector that you are represented by an attorney, he cannot communicate with you any further.

Please keep in mind that although the FDCPA limits the collection behavior of debt collectors, the original creditor or debt collector will still be able to pursue a judgment in a court of law.  At that point your only remedy is to contest the suit or to try to have the debt discharged pursuant to Bankruptcy Law.

Jonathan Bierfeld is an attorney with Martin Law Firm, P.L., whose practice focuses in Bankruptcy Law and Civil Litigation.  He is admitted to practice law in the State of Florida and the Federal Court for the Middle District of Florida.  He primarily practices in Lee County Florida in Cape Coral and Fort Myers, Florida.

One of the most effective and financially damaging ways in which a creditor can collect a debt is through a process known as garnishment.  Garnishment is a court-ordered method of debt collection in which the personal property of a debtor, in the hands of a third party, is seized in order to satisfy a debt.  Generally, garnishment begins after a creditor receives a judgment, and then a writ of garnishment from the court to collect what is owed. 

 The most common form of garnishment is wage garnishment which is usually accomplished in two ways.  The first is by seizing your bank account in which the creditor is able to gain access to your account and make withdrawals directly from it.  The second method is when the creditor has received a court order allowing it to collect a percentage of your wages directly from your employer in order to satisfy the debt.

 Although the seriousness of wage garnishment cannot be understated, in most cases the debtor will at least have some notice that his wages might be seized, or that his bank account is about to be frozen.  Thanks to Due Process protections, a creditor cannot garnish your wages without first having a judgment.  This means that the creditor needs to have filed a successful lawsuit before it can move for the writ of garnishment to be issued.  Once the writ of garnishment has been issued, however, the debtor will usually not have further notice until after the wages have been withheld, or a hold has been placed on a bank account.

 When a writ of garnishment is ordered, it is sent directly to the debtor’s employer ordering it to withhold a certain percentage of the debtor’s income.  If the employer fails to withhold this money then the employer itself is potentially liable for the full amount.  Even though an employer is legally not allowed to discriminate against an employee who is having his wages garnished, it is still a potentially embarrassing situation for both parties.  Also, we have found that many employers find this process to be troublesome in many ways as abiding by the court’s judgment often requires extra work for the employer, and can be quite time consuming.

 Debtors do have some remedies at their disposal in order to help reduce the effects of garnishment.  The most common method is to try to file for one of Florida’s garnishment exemptions from the court that issued the writ.  The most generous of these exemptions is Florida’s Head of Household exemption which potentially allows a debtor, who earns more than 50% of his household income, to fully exempt his wages.  It is not uncommon, though, for a debtor to learn that they have waived at least a portion of this exemption when they applied for the loan or line of credit.  Another complication that arises is with small business owners, as a lot of times their income is not considered to be wages under the definition of the statute.

 Filing for bankruptcy protection is also another option to stop garnishments.  The moment that you file a bankruptcy petition, the bankruptcy court will issue an order called an “automatic stay.”  The automatic stay requires all creditors to at least temporary halt their efforts of debt collection.  This can sometimes last the duration of the case, or until the bankruptcy judge signs an order lifting the stay.  This means that all phone calls, lawsuits, foreclosure actions, and garnishment needs to immediately stop or your creditors will face legal action.  Futhermore, by filing for bankruptcy there is a good chance that the judgment can be cancelled, and the debt owed to that judgment creditor will be discharged along with your other debts.

 There are many different defenses to garnishment available to debtors that are facing a lawsuit or have creditors who have already received a judgment.  Many of these defenses are usually quite complicated.  If you are contemplating pursuing an exemption or filing for bankruptcy, it is important to contact an experience attorney who can help guide you through your options.

Jonathan Bierfeld is an attorney with Martin Law Firm, P.L., whose practice focuses in Bankruptcy Law and Civil Litigation.  He is admitted to practice law in the State of Florida and the Federal Court for the Middle District of Florida.  He primarily practices in Lee County Florida in Cape Coral and Fort Myers, Florida.

One of the underlying themes of the bankruptcy laws in Florida is that a debtor should be allowed a “fresh start” after successfully completing the bankruptcy process. Consistent with this theme has been the development of Florida’s bankruptcy exemptions. When an individual files for bankruptcy, a bankruptcy estate is created. When an item is claimed as exempt, in essence that item is removed from the bankruptcy estate and is no longer available to satisfy the claims of the creditors.

Many people go into the bankruptcy process terrified that they will lose their home, cars, or other personal property. Exemption statutes permit a debtor to keep a certain amount of property, and are one way that individuals can protect their assets when they file for a Chapter 7 or 13 bankruptcy.

Although the Federal bankruptcy law provides a list of uniform exemptions, it allows for individual states to opt out of these exemptions. Florida has taken advantage of this provision and has developed its own exemptions independent of the bankruptcy code. In order to be eligible for Florida’s bankruptcy exemptions, an individual needs to have been a permanent resident of the state of Florida for two years immediately preceding the bankruptcy filing date. If you have not been a permanent Florida resident for this time period, your bankruptcy exemptions will be those from the state in which you were previously domiciled.

Florida is considered by many to have generous bankruptcy exemptions. The most notable of which is Florida’s Homestead Exemption. Guaranteed in the state constitution, with some exceptions, Florida has an unlimited homestead exemption which allows you to keep your home out of the bankruptcy estate. In order to qualify for this exemption, you must have owned your home for more than 1,215 days. If you have not owned your residence for this amount of time, Florida still allows you to claim this exemption, however this amount is limited to $136,875 of equity per person. If a married couple files together, and they both are on the deed to the house, this amount is doubled. The Homestead Exemption, however, is limited to homes that are situated on a ½ an acre of land if you live in a municipality or 160 acres if you live outside of a municipality.

Florida law also provides for an automobile exemption which allows you to keep $1,000 worth of equity in a vehicle. There is also a general exemption which can be applied to any of your personal property. The value of this exemption depends on whether you take advantage of the Homestead Exemption or not.

If you use the Homestead Exemption to keep your home, you are limited to $1,000 of personal property per person. However, if you are surrendering your home, you are given an additional exemption of $4,000 for a total exemption of $5,000 for personal property.

Our clients are often surprised to learn that a lot of other property interests are also exempt from the bankruptcy estate, and thus protected from creditors. Certain types of life insurance policies along with retirement plans might be exempt from the bankruptcy estate. With some exceptions, this includes 401k, IRAs, and most pension plans. Bankruptcy laws can also prevent creditors from seizing your retirement, disability, and other types of government assistance that you might receive in the future.

Although Florida does have generous bankruptcy exemptions, in many cases there will be non-exempt property. The non-exempt property becomes part of the bankruptcy estate and a trustee will be appointed to administer it. The non-exempt property that has any value will then be sold and repaid back to the creditors.

Applying exemptions correctly is one of the most important aspects of preparing a bankruptcy petition. At the Martin Law Firm we analyze every case carefully in order to maximize the amount of property that you are allowed to keep under the bankruptcy laws. Making sure that you receive the maximum amount of exemptions is just one of the ways that we can protect your assets when you file for Chapter 7 or Chapter 13 bankruptcy.