Bankruptcy Attorney Tampa

Advantages of Revocable Living Trusts Over Intestacy, Wills, Joint Tenancies and Living Gifts

Establishing a revocable living trust has several advantages over alternatives such as: (1) doing nothing and passing without will or trust, (2) having a will, (3) a joint tenancy with right of survivorrship, or (4) gifting assets while the person is alive.

Disadvantages of Passing Intestate (Without a Will)

If you have assets and die without a will, that person’s estate has to go through the probate court process. Normally all assets that would have passed through a will go through the probate process where the court applies the intestate succession laws passed by the Florida Legislature to determine which of your closest relatives, if any, will inherit from your estate.  If you have minor children at death, the court will determine their guardians and control their inheritances.  Going through probate has several disadvantages as it can be expensive, is a public process that can take between 9 months to 2 years, and involve the court making decisions about your family’s affairs that might have been different from what you would have preferred.

Disadvantages of a Will

Having a will allows a person to determine who will inherit their estate.  However, all wills have to go through the probate process.  In the event a person becomes mentally incapacitated while they are alive, the court will still have to step in to determine who will be appointed that person’s guardian even if they left a will.

Disadvantages of a Joint Tenancy with Right of Survivorship

If you have property which is owned with another person as a joint tenancy with right of survivorship and you die, the surviving joint tenant will take that property.   Because of this unique feature of a joint tenancy, even a person with a will could find that a joint tenancy could defeat the objectives of their will with respect to the property which is joint owned in this manner.  Further, having joint owned checking or savings account with another person – such as a child – can expose your accounts to that child’s creditors.

Disadvantages of Gifting Assets or Property While Alive

If a person gifts assets while they are alive they lose control over that asset once it is given away.  If the person gifting the asset finds themselves in financial difficulty in the future, there is no way to get back an asset that was given away as a gift.  Further, a gift to a child who is married could have to share in that gift if they divorce.  Similarly, once the gifted asset is transferred, for example, to a child, it could be exposed to that child’s creditors.   Finally, there could be federal gift tax consequences to consider.

Advantages of a Revocable Living Trust

With a revocable living trust, the trustmaker avoids probate, it prevents a court from controlling your assets if you become incapacitated, and because is revocable, the trustmaker has complete discretion to change or revoke the trust.  Further, depending on the size of your estate, a revocable living trust could reduce or eliminate estate taxes due upon death.

If you want to learn more about revocable living trusts, feel free to give our office a call.

Bankruptcy Petition

Things to Do and NOT Do If You Are Filing for Chapter 13 Bankruptcy


Chapter 13 bankruptcy is generally used by two types of individual debtors: (1) either debtors who own an asset or assets – such as a home, investment property, vehicles, etc. which are secured by a loan – on which they are behind on payments, want to keep the asset, and need time to catch up and repay any amounts in arrears, or (2) who make “too much” income to qualify for Chapter 7 bankruptcy protection.

The amount a debtor has to repay creditors through the Chapter 13 Payment Plan is dictated by how much monthly disposable income they have.  Generally speaking, and as a very simplified approximation, a debtor’s disposable income is the difference between their gross income and their necessary and ordinary expenses.  (Please note that the actual calculation of a debtor’s monthly disposable income is a bit more complex, particularly in cases where a debtor’s gross income is above the median income for a household of similar size. For a detailed explanation of how a debtor’s disposable monthly income is calculated given the facts and circumstances of your case, always consult an attorney.)   The analysis, however, does not end there.  Even if a debtor has disposable monthly income (DMI), those amounts must be enough to allow a debtor to pay for: 1) all amounts that they are behind on for secured assets, such as a home, which they want to keep, 2) the bankruptcy trustee’s fee, 3) any attorney fees paid through the Plan, 4) any regular monthly amounts such as a mortgage or car payment that have to be paid through the Plan, and 5) any amounts to which unsecured creditors may be entitled (which in some cases may be zero dollars, but in cases of debtor’s with unexempt property may be higher.)

Things to Do and NOT Do Before You File

Before you file for Chapter 13 bankruptcy, every debtor should get:

  • Copies of pay stubs and/or other sources of income for the 6-months prior to the calendar month in which you expect to file for bankruptcy. For example, if you expect to file your case any day in May, you should get pay stubs for the November 1 – April 30 period;
  • Copies of your last 4 years of federal tax returns;
  • Copies of 6 months of any bank statements and investment accounts in your name.

A debtor should, naturally, also consult an attorney about the facts and circumstances of their case.  Equally as important, a debtor should NOT transfer title of any of their property prior to filing for bankruptcy without first consulting an attorney in order to ensure no potential fraudulent transfer issues can arise from such a transfer and complicate the debtor’s potential bankruptcy case. Finally, other than for a car loan or mortgage payment, a debtor should avoid paying any creditor more than $600 in the 90 days prior to the filing of their case in order to avoid the allegation that the debtor has given preferential treatment to one creditor over others.

Things to Do After You File

If you are current on your mortgage and/or car loan, try to have those payments be made through automatic debits from your bank or credit union accounts for at least the 6 months prior to your bankruptcy.  If you are current on your mortgage and/or car loans and have been making those payments via automatic debit prior to the filing of your bankruptcy, you can elect to keep making those payments directly and outside the Chapter 13 Plan.  The advantage of making direct payments outside of the Plan is that it saves you money as the bankruptcy trustee fee is normally 10% of any payments made through the Chapter 13 Plan.  The less you pay through the Plan, the smaller the bankruptcy trustee fee.

Also, if already have direct debit for your mortgage or car loan and are current on payments prior to filing, then ask your attorney to give you a letter which you can send to your mortgage or car lender and which authorizes them to continue to pull debits from your bank or credit union accounts and allows them to talk to you directly about your account status.  This is necessary as, absent this type of letter, many lenders will suspend automatic debits and refuse to talk to debtor in order to avoid running afoul of the injunction which prevents collection actions and is created automatically when a debtor files for bankruptcy.

Finally, make sure you make your Chapter 13 payments on time and keep your attorney appraised if any circumstances come up – such as job loss or medical emergency – which could affect your ability to continue making full and timely Chapter 13 payments.

As always, if you have questions about this article or bankruptcy in general, please feel free to contact us!

Bankruptcy Attorney

The Different Types of Bankruptcy for Individuals

The Bankruptcy Code is divided into chapters. The chapters which usually apply to consumer debtors are chapter 7, known as a Liquidation, and chapter 13, known as an Adjustment of the Debts of an Individual with Regular Income.

An important feature applicable to all types of bankruptcy filings is the automatic stay. The automatic stay means that the mere request for bankruptcy protection automatically “stays” or forces an abrupt halt to repossessions, foreclosures, evictions, garnishments, attachments, utility shut-offs, and debt collection harassment. It offers debtors a breathing spell by giving the debtor and the trustee assigned to the case time to review the situation and develop an appropriate plan. Creditors cannot take any further action against the debtor or the property without permission from the bankruptcy court.

Chapter 7

In a chapter 7, or liquidation case, the bankruptcy court appoints a trustee to examine the debtor’s assets and divide them into exempt and nonexempt property. Exempt property is limited to a certain amount of equity in the debtor’s residence, motor vehicle, household goods, life insurance, health aids, specified future earnings such as social security benefits and alimony, and certain other personal property. The trustee may then sell the nonexempt property and distribute the proceeds among the unsecured creditors. Although a liquidation case can rarely help with secured debt (the secured creditor still has the right to repossess the collateral), the debtor will be discharged from the legal obligation to pay unsecured debts such as credit card debts, medical bills and utility arrearages. However, certain types of unsecured debt are allowed special treatment and cannot be discharged. These include some student loans, alimony, child support, criminal fines, and some taxes.  Attorney’s fees in Chapter 7 cases are usually charged on a flat fee basis (with the court’s filing fee over and above the attorney’s fee).

Chapter 13

In a chapter 13 case, the debtor puts forward a plan, following the rules set forth in the bankruptcy laws, to repay all creditors over a period of time, usually from future income. A chapter 13 case may be advantageous in that the debtor is allowed to get caught up on mortgages or car loans without the threat of foreclosure or repossession and is allowed to keep both exempt and nonexempt property. The debtor’s plan is a simple document outlining to the bankruptcy court how the debtor proposes to pay current expenses while paying off all the old debt balances. The debtor’s property is protected from seizure from creditors, including mortgage and other lien holders, as long as the proposed payments are made. The plan generally requires monthly payments to the bankruptcy trustee over a period of three to five years.  Arrangements can be made to have these payments made automatically through payroll deductions.  Attorney’s fees in Chapter 13 cases are usually charged on a flat fee basis (with the court’s filing fee over and above the attorney’s fee).

Chapter 11

A case filed under Chapter 11 of the United States Bankruptcy Code is frequently referred to as a “reorganization” bankruptcy. Generally, the debtor, as “debtor in possession,” operates the business and performs many of the functions that a trustee performs.  A written disclosure statement and a plan of reorganization must be filed with the court that will voted on by creditors.

While individuals are not precluded from using chapter 11, it is more typically used to reorganize a business, which may be a corporation, sole proprietorship, or partnership. A corporation exists separate and apart from its owners, the stockholders. The chapter 11 bankruptcy case of a corporation (corporation as debtor) does not put the personal assets of the stockholders at risk other than the value of their investment in the company’s stock.

Attorney’s fees in Chapter 11 cases are usually charged on an hourly fee basis (with the court’s filing fee over and above the attorney’s fee) and since Chapter 11 cases are complex in nature, fees tend to be substantial.

Chapter 12

Chapter 12 of the Bankruptcy Code was enacted by Congress in 1986, specifically to meet the needs of financially distressed family farmers. The primary purpose of this legislation was to give family farmers facing bankruptcy a chance to reorganize their debts and keep their farms.  Attorney’s fees in Chapter 12 cases are usually charged on a flat fee basis (with the court’s filing fee over and above the attorney’s fee).

Bankruptcy Attorney Tampa

Will I Keep My Tax Refund in a Chapter 7 Bankruptcy Case?

The timing of the filing of your Chapter 7 bankruptcy case can help determine whether you get to keep your tax refund in full or in part.

The Bankruptcy Estate

The date of filing of a Chapter 7 bankruptcy case determines what debtor property – if any – becomes part of the bankruptcy estate.  Any debtor property that is acquired prior to the filing of the Chapter 7 petition and cannot be claimed as exempt goes into what is called the bankruptcy estate.  This estate then liquidates any of these non-exempt assets to pay creditors some of what they are owed.  The upside for the debtor is that any property or income he acquires after the filing date belongs solely to the debtor and cannot be seized and liquidated to pay off any of the debtor’s pre-filing debts.

Section 541 of the Bankruptcy Code defines property as “all legal or equitable interests of the debtor in property as of the commencement of the case.”  This includes proceeds and profits from property that became part of the estate but was not received prior to filing.

Tax Refunds

As an example, assume that a debtor files for Chapter 7 bankruptcy in January 2016.  Further assume that the debtor is entitled to a tax refund for tax year 2015, but has not received it at the time he files for Chapter 7 bankruptcy.  Under Section 541 of the Code the debtor’s tax refund for year 2015 becomes part of the bankruptcy estate because the debtor became legally entitled to it in year 2015 – the year prior to filing.  For that reason, I normally counsel debtors to, if possible, think about the effect of the timing of their bankruptcy on their tax refund.

Florida exemption laws give an individual debtor can exempt up to $1,000 in personal property and an additional $4,000 in exemptions that the debtor can apply toward any property if they do not own a home.  For these debtors the timing of their Chapter 7 bankruptcy filing is immaterial as use of these exemptions can protect some or all of their tax refund.  For debtors that are expecting tax refunds significantly larger than the dollar value of their exemptions, my advice is to delay their filing by a few weeks or months.  Once they received their tax refund, it is entirely permissible for a debtor to use the money from their refund to pay for rent, food, other necessities as well as the costs of their bankruptcy case.  At that point, it is safe for the debtor to file for bankruptcy.  That said, it is important to note that if the debtor spends their tax refund on luxuries or on property that cannot be exempted, those luxury purchases or non-exempt property will have to be turned over to the bankruptcy estate.

Bottom line: If you are expecting to receive a prior-year tax refund after you file for bankruptcy, it is important to talk to you attorney about either exempting the refund or the timing of your bankruptcy filing.  If you have questions about your tax refund and a potential bankruptcy filing feel free to give our office a call. Initial consultations are always free.

Bankruptcy Attorney Tampa

An Overview of the Different Categories of Liens

Debts are either secured or unsecured.  With a secured debt – such as a mortgage – the debtor’s personal obligation to pay the debt is accompanied by a creditor’s right against certain property of the debtor.  Unsecured debts – such as credit card debt – only create a personal obligation by the debtor to pay the debt.  Unsecured debts do not give the creditor a right against any of the debtor’s property.

If the creditor fails to pay a secured debt, the secured creditor then has the right exercise its security interest in order to terminate the debtor’s ownership in the property at issue, seize it, sell the property, and use the proceeds to recoup some or all of what it is owed.  This security interest of the creditor is what is known as a lien.

Generally speaking, liens on either real or personal property fall into one of five categories:

  • Consensual liens;
  • Judicial lines;
  • Statutory liens;
  • Common law liens; &
  • Equitable liens.

Within each of these five categories, there are many different lien types.

Consensual Liens

A consensual lien is created by a contract between the debtor and the creditor.  The most common example of consensual liens are security interests created when folks purchase an automobile or a home.  The granting of the lien by the debtor is usually part of the creditor’s price for extending the credit necessary to purchase the home or automobile at issue.  If a debtor defaults on the car loan or home mortgage, the creditor can then exercise its lien and terminate the debtor’s ownership interest in the property at issue.

Judicial Liens

Judicial liens are created after an unsecured creditor initiates court proceedings for recovery of a debt.  If an unsecured creditor obtains a judgment and records it against some of the debtor’s property, that unsecured creditor may now be partly secured.

Statutory Liens

Statutory liens are liens that legislatures have codified into law and are not created by contract or by a court.  An example of a statutory lien is the construction lien.  Under this lien, if a contractor or subcontractor, or material supplier is not paid for their work on the debtor’s real property (such as a home), then under construction lien statutes, the provider of the work or supplies is entitled to assert a lien on the property that was constructed, repaired, or improved.

Common Law Liens

Common law liens – like statutory liens – arise by operation of law and not by contract or the judicial process.  An example of a common law lien is the lien given to landlords in property brought in to their premises in order to secure the price of room and board.

Equitable Liens

Finally, equitable liens, like judicial liens, arise out of the judicial process. Equitable liens can only be granted by a court after a creditor shows that traditional legal remedies are inadequate. For example, a creditor may have been entitled to a statutory lien, but failed to follow one of the steps outlined in the statute to perfect the lien.  In that case, the creditor may ask the court to overlook that defect and, out of fairness, create an equitable lien in their favor so as to recoup some or all of what they are allegedly owed.

Bottom line: Secured debts put creditors in a much stronger position in the event of the debtor’s default than an unsecured creditor.  These differences between secured and unsecured debts are extremely important in bankruptcy cases.  If you have questions about how your debts and property will be treated if you file for bankruptcy give our office a call.  Initial consultations are always free.

Bankruptcy Attorney Tampa

What is the Homestead Exemption?

Bankruptcy law allows an honest individual that has fallen on hard financial times to obtain a fresh start by eliminating some or all of their debt.  The goal of bankruptcy law is not to leave the debtor destitute.  To that end, bankruptcy law allows a debtor to keep some or all of their property.  Property that the debtor is allowed to keep and that cannot be seized to pay off creditors is called exempt property.  In order to protect property from seizure, the debtor must be able to claim the property as exempt by relying on the appropriate federal or state exemption statute.

That said, not all property is deemed as exempt.  While one of the goals of bankruptcy is to give a debtor a fresh start and not leave them destitute, another goal of bankruptcy law is to ensure that, if a debtor makes a high enough income or has property above a certain value, that “extra income” or “extra equity” is used to pay creditors some of what they are owed.

Equity Defined

Equity is the difference between market value and how much the property at issue still owes. For example, in the case of an automobile, if a debtor owes $18,000 on their car loan and the car’s market value is $20,000, then the debtor has $2,000 in equity in the vehicle.  If, on the other hand, the debtor owes $18,000 on the car loan and the car is worth $17,000, the debtor has no equity in the vehicle.

Bankruptcy law allows a debtor to exempt some of their equity in certain assets they own – including homes and automobiles.  That said, if a debtor has equity above the exempt amount set by law, then that asset can be seized and sold so that the excess unexempt equity can be used to pay off some of what creditors are owed.  Continuing with the vehicle example, here in Florida, the state law exemption for equity on a vehicle is $1,000 per individual. That means that if an individual has equity above $1,000 it is theoretically possible that the vehicle would have to be turned over for sale so that the excess equity can be used to repay creditors.

Homestead Exemption

What about homes?  Luckily, Florida homeowners have an unlimited homestead exemption.  That means that debtors can claim the equity in their home as exempt regardless of the dollar value of that equity.  So how does that come into play in bankruptcy?

In a Chapter 7 bankruptcy – and provided a debtor is current on their home mortgage or mortgages, HOA fees and property taxes – a debtor can use the homestead exemption to protect and keep their home regardless of how much equity they have in their residence. In a Chapter 13 case, a debtor can generally keep their home even if they have fallen behind on their mortgage payments as Chapter 13 is designed to allow debtors to “catch up” on any past due payments.  Furthermore, by exempting the full value of a debtor’s home, the Chapter 13 plan payments a debtor must make to unsecured creditors are a lot less than they would be if the debtor could not exempt a significant portion of the home equity.

Bottom line: The Florida homestead exemption is a great tool that allows debtor who are current on their mortgages to keep their homes in Chapter 7 and to limit what Chapter 13 plan payments would be if some of their home equity were not exempt.  If you have questions about whether your home qualifies for the homestead exemption feel free to give our office a call. Initial consultations are free.

Bankruptcy Petition

Does Business Bankruptcy Affect Owner Credit

Will a Business Bankruptcy Affect the Owner’s Credit?

Sometimes a business owner needs to have his business – and not the owner as an individual – file for bankruptcy protection.  In those instances, I am often asked if a business bankruptcy filing will affect the owner’s personal credit.  The answer to that question will depend on how the business was organized, whether the owner personally guaranteed some or all the business debts, and whether certain tax debts are at issue.

Type of Business Organization

How a business is organized will determine how the business debts are treated with respect to its owners.  Generally speaking, there are three types of business organizations: sole proprietorships, partnerships, and incorporated businesses.

In a sole proprietorship, the business and the owner are considered as being the same entity.  As a result, any business debts are also considered the personal debts of owner.  The only way to eliminate the business debts is for the owner to file for personal bankruptcy protection.  In these types of cases, the owner’s credit will be affected.

If the business is a general partnership, then the partners will be liable for the debts of the business.  A partnership can file for bankruptcy as its own entity.  Such a business bankruptcy will not show up on a partner’s credit report.  That said, the partnership’s creditors can come after a partner’s personal assets to recover on a partnership debt and can report any delinquent partnership debt on a partner’s personal credit report.  (Please note that limited liability partnerships are different from general partnerships and are beyond the scope of this article.)

Finally, if the business has been incorporated as a regular corporation or a limited liability company (LLC), the general rule is that the owners are not personally liable for the business debts.  Furthermore, any business bankruptcy will not affect the owners’ credit in any way.

Owner as a Personal Guarantor of Business Debt

While owners are generally not liable for any of debts of an incorporated business, if the owner or owners personally guarantee a debt as a condition of the business receiving credit, then the owner or owners providing such a guarantee are personally liable on that business debt.   That means that if liquidated business assets are not enough to cover a guaranteed business debt, then the owner or owners will be personally liable for any deficiency.  In these instances, only a personal bankruptcy could potentially protect the individual owners. 

Certain Types of Tax Debts

Certain taxes such as sales taxes or employee withholding taxes can become a personal liability for a business owner.  If the business owner collected the sales taxes and withholding taxes and failed to transmit them to the appropriate taxing authority, the owner becomes personally liable for those balances even if business is incorporated.

Bottom line:  The type of business organization, whether the owner personally guaranteed a business debt, and whether certain taxes are owed are factors that determine whether a business bankruptcy filing will affect the creditworthiness of the individual owners.  If you have questions about whether your business’ debts may affect your credit as an individual, feel free to give our office a call.  Initial consultations are always free.

Bankruptcy Attorney Tampa

What Are Priority Debts?

The Congress has deemed certain debts as being so important that they must be paid in full and cannot be wiped out in a bankruptcy. These types of debts are called priority debts or claims.

Classification of Debts Under the Bankruptcy Code

Generally speaking, the Bankruptcy Code classifies debts under one three categories: (1) secured debts; (2) priority unsecured debts; and (3) non-priority/general unsecured debts.

Secured Debts

Secured debts are debts in which the creditor has a lien against the debtor’s property. The typical example of secured debts are debts such as mortgages and auto loans where the creditor and the debtor agreed that the creditor should have a lien against the home or car as a condition for the debtor obtaining financing from the creditor to purchase the underlying asset. The lien allows a creditor to seize the property purchased by the debtor in case the debtor’s defaults on the debt. The creditor then sells the property to recoup some or all of what they are owed.   Although home mortgage and auto liens are consensual, non-consensual liens also exist and are considered secured debts. Examples of non-consensual liens include IRS tax liens, HOA liens, and property tax liens.

If the property at issue is either liquidated or surrendered in a bankruptcy, any balances owed to the creditor after the lienholder sells the property becomes a general unsecured non-priority claim. For example, if a home is worth $500,000, but owes $540,000 on its mortgage, the $40,000 deficiency would become a general unsecured non-priority claim which could be eliminated in a bankruptcy.

Priority Unsecured Claims

Debts not secured by a lien are considered unsecured. Some unsecured debts have been deemed so important by policymakers that they cannot be eliminated in a bankruptcy. They must either be paid in full during the life of a Chapter 13 bankruptcy case or they must be paid after the conclusion of a Chapter 7 case.

Examples of priority unsecured claims include but are not limited to: (1) domestic support obligations, (2) some wages and salaries owed to employees, (3) various taxes, and (4) claims for wrongful death or personal injury result from the debtor’s driving while intoxicated.

General/Non-priority Unsecured Claims

Non-priority unsecured claims include credit card, medical and attorney bills. These types of non-priority debts can be eliminated in a bankruptcy if the debtor does not have enough non-exempt assets that can be used to pay some or all of what these types of creditors are owed. In fact, in most bankruptcies these types of creditors get nothing or just pennies on every dollar they are owed.

Pre-Bankruptcy Planning

In many instances, debtors who have a lot of priority debts are well served by a Chapter 13 bankruptcy. Because a Chapter 13 bankruptcy lasts anywhere from 3-5 years, the debtor can stretch the payments of these debts during that time period.

Similarly, if a debtor has a lot of non-priority unsecured debts such as credit card bills, and if eliminating these types of debt would allow the debtor to pay his priority debts on-time, Chapter 7 might be a good option.

Bottom line: If you have questions about the types of debt you have and how they will be treated in bankruptcy, feel free to give our office a call. Initial consultations are always free.

Bankruptcy Attorney Tampa

Things a Debtor Should NOT Do Prior to Filing for Bankruptcy

Bankruptcy allows individuals to get a fresh start by wiping out some or all of their debts. In addition, because bankruptcy is not meant to leave a debtor destitute, debtors are allowed to keep certain property which is deemed as exempt from seizure and liquidation to pay off creditors. However, to obtain the full benefits afforded by bankruptcy law, a debtor should be careful to avoid certain critical mistakes that can put in jeopardy the discharge of some or all of their debts and the loss of assets that would otherwise be exempt.

Common Mistake #1: Using an Exempt Asset to Pay Debt

Most people do not know, for example, that most 401K retirement plans are fully exempt from the reach of creditors during a bankruptcy. Because many debtors do not know this, and in an effort to pay some of what they owe, many folks deplete or borrow against their retirement savings before even considering bankruptcy as option.   If you are facing financial difficulties, consult an attorney to ensure you do deplete what would otherwise be an exempt and protected asset during a bankruptcy.

Common Mistake #2: Leaving a Creditor off the Bankruptcy Schedules Filed with the Court

For a debt to even be eligible for discharge by a bankruptcy it has to be listed on the debtor’s bankruptcy schedules. If a debt is not listed by a debtor, then the creditor does not get a notice of filing and an opportunity to, if appropriate, object to having their debt wiped out. Accordingly, as a general rule, a debt that is not listed is not wiped out by a bankruptcy discharge order.

Common Mistake #3: Attempting to Hide an Asset Prior to the Bankruptcy

One of the worst things a debtor can do is attempt to hide an asset prior to or during a bankruptcy filing. Attempting to hide an asset from the court and the bankruptcy trustee is a federal crime. In fact, it is a federal felony. Attempting to hide an asset will also likely result in the denial of a discharge order.

This type of conduct can include transferring an asset to family member, friend, or related businesses with the intent to keep the asset hidden from the court, bankruptcy trustee and creditors. It is important to note that the law gives the bankruptcy trustee and the bankruptcy court the power to unwind these types of transfers.

Common Mistake #4: Repaying Family or Friends before a Bankruptcy

Many clients naturally feel a moral obligation to pay family or friends for any loans they have granted them. My advice is to clients is to stop making payments on these types of loans prior to the bankruptcy. Under certain circumstances, payments to family and friends could be deemed to be preferential transfers by a bankruptcy trustee. The trustee has the power to claw back these types of preferential payments. For that reason, it is important to first list all creditors in the bankruptcy petition – including family or friends who have lent the debtor money – and to stop making payments prior to the bankruptcy. After the bankruptcy is over, a debtor can always voluntarily pay back her family and friends for any amounts owed.

Bankruptcy Attorney Tampa

Overcoming the Presumption of Abuse Under Section 707(b)(2)

In 2005, Congress adopted several amendments to the Bankruptcy Code. One of those amendments, the changes to Section 707(b) of the Code, was meant to make it easier for the bankruptcy trustee or the court to dismiss cases in which the debtor’s financial resources exceed a statutorily determined amount. In essence, if the individual consumer debtor’s income is such that he has enough disposable income to repay creditors some of what they are owed – defined as the debtor making a yearly income above the his state’s median income for a household of similar size and having enough disposable income after subtracting certain allowed expenses – then the Code creates a presumption that the debtor’s Chapter 7 filing abuses the purposes of the Bankruptcy Code. The debtor must then rebut the presumption to remain under Chapter 7 protection and avoid having his case dismissed.
If the debtor makes less than his state’s median income for a household of similar size, the presumption does not arise. In those cases, the individual consumer debtor’s case will only be dismissed if the party seeking dismissal can establish grounds based on the debtor’s bad faith or the totality of circumstances.
How Does A Debtor Rebut a Presumption of Abuse under 707(b)(2)?
So how does a debtor rebut a presumption of abuse? If presumption arises because the debtor’s disposable income exceeds the limits set by 707(b)(2), the debtor has an opportunity to rebut the presumption. To rebut the presumption a debtor must show special circumstances that justify an increase in expenses or an adjustment to current monthly income for which there is no reasonable alternative. Congress provided two examples of what constitutes special circumstances: serious medical condition or a call to active military duty. However, these examples were not meant to be exhaustive.
Courts have differed on how stringent a test to apply in deciding whether a debtor has shown sufficient special circumstances to rebut the presumption of abuse. Some courts reject special circumstances unless they are deemed to be as severe as the two examples provided by Congress and are beyond the debtor’s control. Others have adopted a more flexible approach and have been willing to overturn the presumption on a showing by the debtor of a reasonable basis for finding that the disposable income projected by the formula is unrealistic.
It is important to note that the Code places the burden on the debtor to provide full itemization, documentation, and an explanation of any claim of adjustment. The Code also requires the debtor to attest under oath to the accuracy of the information. If the adjustments the debtor proposes are allowed by the court, the adjustments must have the effect of reducing the debtor’s disposable income below the statutorily threshold level to find abuse in order for the presumption to be overcome.
Bottom line: Just because an individual consumer debtor does not pass the “means test” under Section 707(b)(2) of the Code does not mean that the debtor does not qualify for Chapter 7 protection. If the debtor can overcome the presumption of abuse by showing special circumstances with respect to their expenses or income, the debtor may still be able to qualify for Chapter 7 protection.