Section § 522(b)(3) of the Bankruptcy Code allows an individual debtor to fully exempt any interest in property that the debtor owns as tenant by the entirety provided that such interest is exempt under state law.  It is well established that under Florida law property held by husband and wife as tenants by the entireties belongs to neither spouse individually.  Therefore, it is exempt from process to satisfy debts owed to individual creditors of either spouse.  Entireties property is not exempt from process to satisfy joint debts of both spouses.  Thus, a Florida debtor filing an individual bankruptcy petition can fully exempt tenancy by the entirety property as long as there is no joint debt with the non-filing spouse.

There are six characteristics that joint property must possess in order to be held as tenancy by the entirety: (1) unity of possession (joint ownership and control); (2) unity of interest (the interests in the account must be  identical); (3) unity of title (the interests must have originated in the same instrument); (4) unity of time (the interests   must have commenced simultaneously); (5) survivorship; and (6) unity of marriage (the parties must be married at the time the property became titled in their joint names).  In summary, most joint property acquired during a marriage will be considered tenancy by the entirety property, and fully exempt in bankruptcy, so long as the debtor and non-filing spouse do not have any joint debt.

A tax refund received post-petition is property of the estate if it is attributable to wages earned and withholding payments made during prepetition years.  Most of the time a debtor will still have remaining personal property exemptions and can at least exempt a portion of the refund.  However, courts have been split on whether an individual debtor can claim that his interest in a joint tax refund received post-petition is held as a tenant by the entirety with the non-filing spouse and is therefore exempt.

A recent bankruptcy court decision in the Southern District of Florida, however, ruled that a single debtor may not exempt as entireties property a joint tax refund received after the bankruptcy filing.  The court reasoned that since the debtor and the non-filing spouse have separate jobs and income then they would have a separate interest in the tax refund.  Thus, the unity of interest is not met and the refund cannot be considered tenancy by the entirety property.  The portion of the refund that is attributable to the debtor is therefore property of the estate to the extent that it exceeds the debtor’s personal property exemptions.

The court noted, however, that if the refund is receive prior to the bankruptcy filing and then deposited in a joint bank account then the money might be exempt because joint accounts are presumed be held under tenancy by the entirety.  The case is In Re: Ascuntar, 1:12-bk-13965.

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.

Bankruptcy is a legal proceeding which allows a debtor to repay a portion of their debt either by liquidating their non-exempt assets or entering into a court approved repayment plan.  Once the bankruptcy estate is administered or the debtor completes the repayment plan, the debtor is awarded a discharge of their remaining debt.   Most loans and debt are dischargeable in bankruptcy, but there are a few exceptions.

11 U.S.C. § 523 of the Bankruptcy code outlines the various types of debts which are non-dischargeable.  Some of the most common types of non-dischargeable debt includes, but is not limited to, domestic support obligations, debts incurred by fraud, and student loans.  With regards to student loans, the code specifically excepts from discharge debts that are an “obligation to repay funds received as an educational benefit, scholarship or stipend” unless excepting this debt from discharge would impose an undue burden on the debtor or the debtor’s dependants.  On the surface this language implies that bankruptcy courts would allow for students loans to be dischargeable if they are a burden on the debtor, however, in reality bankruptcy courts and judges rarely allow for a discharge of student loan debt.

The argument against allowing for student loans to be discharged in bankruptcy is that when a student graduates from college or grad school, they usually have very little assets and little disposable income in relation to their debt.  Although they would have the potential to earn significant income in the future, they could simply file Chapter 7 upon graduation before they begin their professional careers, and the student loan debt would be discharged in a few months with little or no repayment.

Recently, both the U.S. House and Senate have introduced bills to allow for some types of student loan debt to be dischargeable in bankruptcy.  S. 114 and H.R. 532 would allow for the dischargeability of student loans issued by private lenders such as SLM Corp’s Sallie Mae, Wells Fargo Corp. and Discover Financial Services.  The bills would not apply to federal education loans, which comprise about 85 percent of the roughly $1 trillion in outstanding student debt in the U.S.   This is the fifth time that these types of bills have been introduced in the House or Senate.  Both bills have been referred to their respective Judiciary Committees.

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 key provisions of the “Fiscal Cliff” compromise recently signed into law was the one year extension of the Mortgage Forgiveness Debt Relief Act.  Congress originally passed this legislation in 2007 which generally allows taxpayers to exclude the forgiveness of mortgage debt from being counted as taxable income by the Internal Revenue Service.  Debt on a homeowner’s primary residence that is reduced through a short-sale, foreclosure, or other forms of mortgage restructuring now continue to qualify for this type of relief, at least for another year.

Normally when you borrow money from a commercial lender and the debt is cancelled or forgiven, absent certain exceptions, you may have to include the cancelled amount as income for tax purposes.   The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.  The Mortgage Forgiveness Debt Relief Act, scheduled to expire at the end of last year, exempts the forgiveness of mortgage debt from being counted as taxable income by the IRS.

The extension of this Act is extremely important to Southwest Florida where many homeowners are underwater, and contemplating a short-sale or loan modification on their home.  Without the extension, a homeowner who owes $175,000 on the mortgage and shorts sells for $125,000 would have been taxed on the $50,000, if the lender forgave the entire deficiency.  This would have placed the struggling homeowner in a considerably higher tax bracket.

Homeowners need to keep in mind that this legislation only applies to debt relief on their primary residence.  Rental property is not included.  There are other common situations, however, in which the cancellation of debt is not considered a taxable event.  Debts discharged through bankruptcy are not considered taxable income.  Further, if you are considered insolvent when the debt is cancelled then some or all of the cancelled debt may not be taxable to you.

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 passed the Bankruptcy Abuse Prevention and Consumer Protection Act also known as BABCPA.  At the heart BABCPA’s consumer bankruptcy reforms was that it created a “Means Test” and other income restrictions in order to qualify for Chapter 7 bankruptcy.  If a debtor’s current monthly income exceeds a certain threshold amount, than the United States Trustee can try to file a motion to dismiss the case as an abuse under Section 707(b) of the bankruptcy code.   707(b) outlines two tests a court should consider in determining if a Chapter 7 proceeding is appropriate.  The first is known as the Means Test which is an objective measure used to determine whether the Court “shall presume” that the case is abusive under the Code.   If the presumption does not arise, the second step of the 707(b) process permits the Court to consider whether the case is nevertheless abusive because of the “totality of the circumstances” test.

The Means Test is a mechanical formula for establishing a presumptive bar to obtaining relief under Chapter 7.  In short, the means test is a formula in which the debtor takes various deductions from their current monthly income.   If after taking these deductions the debtor is below a threshold level then the presumption of abuse does not arise  The deductions that an above-median income debtor is allowed to use are outlined in Section 707(b)(2) of the  bankruptcy code.

In most cases the largest deduction would be the deduction for the monthly payment on the Debtor’s mortgage.   An issue that has arisen in many cases is whether the debtor can still take the mortgage deduction in the Means Test on property that they intend to surrender in the bankruptcy.  A bankruptcy court in the Middle District Florida recently answered this question in the affirmative.  The Court’s reasoning was that the Chapter 7 Means Test calculation is based on a “snapshot” of a Debtor’s financial situation on the date the petition is filed.  If the Debtor is contractually obligated to make the mortgage payment on the date the petition is filed, then the debtor can deduct the mortgage payment in the Means Test even if the debtor intends to surrender the property or is no longer currently making the payments.   However, the Court cautioned that although the Chapter 7 Debtor can still deduct the mortgage payment on the Means Test even if they are surrendering the property, the second step in the 707(b) process permits the court to consider whether the case is still abusive based on the totality of the circumstances test.  Nevertheless the Bankruptcy Judge held that the case was not an abuse under either 707(b)(2) or 707(b)(3).  The Case is In Re: Rivers, 11-2440.

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 advantages of filing for Chapter 13 bankruptcy was that it allowed for a homeowner to “strip” their second mortgage.  If the homeowners were underwater on their first priority mortgage, meaning they owed more on that loan than the home is worth, chapter 13 bankruptcy provided a process for those homeowners to remove their second loan.  The homeowners would propose a chapter 13 payment plan and then file a motion to eliminate the second mortgage as part of the plan.  Upon completion of their chapter 13 plan, the second mortgage would be discharged along with their unsecured debt.

Until now Courts have not allowed a debtor to strip a second mortgage in Chapter 7 Bankruptcy.  The Eleventh Circuit Appeals Court, which controls the law in Florida bankruptcy courts, just issued a decision permitting a debtor to remove their second mortgage in Chapter 7 bankruptcy.  The case is In Re: Mcneal, 11-11352

There are several advantages to being able to strip a second mortgage in Chapter 7 bankruptcy rather than Chapter 13.  Usually, a debtor can receive a discharge in Chapter 7 in only a few months while most Chapter 13 payment plans take 3 or 5 years.  A debtor also pays less money in Chapter 7 than they would in Chapter 13.  Not all debtors though can qualify for Chapter 7 though as there is a “means test” in order to be eligible.  Chapter 13 is also a better option than Chapter 7 if the Debtor has a lot of non-exempt assets which might need to be surrendered in a Chapter 7.

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.

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.