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As the nation enters Phase 2 of the Coronavirus Lockdown, millions of Americans are still behind on their monthly bills. Many lenders have implemented programs to help people manage debt payments during this economic uncertainty.  However, while people with student loans, mortgages and automobile loans were offered helpful alternatives to survive the Corona-induced downturn, people with credit card debts often were not. Debtors with medical debt have not fared well either.

A recent article in the California Law Review Online declared that, “The coronavirus pandemic is set to metastasize into a debt collection pandemic. This is because while evictions, foreclosures and student loan payments have been stayed by various government  orders and federal regulations, there is no blanket moratorium or order stopping debt collection lawsuits. Many debt collection law firms have ramped up credit card collections lawsuits since they have not been able to bring or finish foreclosure lawsuits. Many credit card collection lawsuits end up with the consumer getting a default judgment entered against them, since they believe there is nothing that they can do to stop these lawsuits. Debt collection law firms nationwide kept filing new cases during the shutdown, consumers be damned. For example, in Maryland, two major debt collectors alone filed over 2,000 suits in April.  These law firms must keep their gravy train rolling, even if many Americans have lost their jobs or part of their income, through no fault of their own.

After a homeowner gets a judgment against him or her, the law firm will usually attempt to get paid–voluntarily at first, and then by using court process to take the homeowner’s income and assets. There are several ways in Florida that a judgment creditor can collect on a judgment.

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With the effects of Coronavirus still impacting the economy, many people are facing loss of income. This reduction in  income makes it harder for working people to pay their bills.  Things might not get better. One economist estimates 42 percent of recent layoffs will result in permanent job loss.

Whether their  lay offs are permanent or temporary,  people are looking for ways to save money on goods and services that they need. With the advent of the Internet, people have become used to finding information and deals on items they need. The Internet Age has made  people used to getting things fast and cheap, or even free. It has also made people believe in do-it-yourself. Just watch a video and you can do anything yourself.  The recent lockdowns have had people searching for Youtube videos on how to cut their own hair, since most salons and barber shops have been closed.

Some people who are facing overwhelming debt also look for do-it-yourself solutions to deal with their debt. They often file for bankruptcy without an attorney. There are signs in Jacksonville along I-95 exits saying “Bankruptcy $150.” These signs are placed along the interstate by non-lawyers or “petition preparers” who will take $150 from you to type the documents necessary to file a bankruptcy case. The thought is that bankruptcy is just filing out some forms and filing them with a court.  (This author once had a boss, who is a lawyer. This lawyer  declared, “Bankruptcy isn’t rocket science; it is just filling out a bunch of forms about your finances.”  When this person filed for bankruptcy a few years later, she hired a competent lawyer.)

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Last  Friday approximately 140 million American households started  receiving Economic Impact Payments, or Stimulus “checks.” Most Americans will be receiving these payments, of at least $1,200 or more, this week. (The amount of your payment depends on your gross income and whether you have dependents.)  The Treasury Department will be directly depositing the funds into the same bank accounts where it directly deposited your 2019 tax refund. (The Stimulus payments are also being sent to people who don’t usually  file or pay federal income taxes, for example, most people who receive monthly payments from the Social Security Administration.) You can track the status of your payment at this IRS site starting today.

The reason for these payments is that the federal government wants to try to “stimulate” the economy, which COVID-1, or the coronavirus, has wrecked.  Millions of Americans have lost their jobs or seen their pay reduced since March. It has been estimated that nearly 1 out of 5 Americans has lost a job or wages because of the virus.  When consumers don’t have money to spend, the ripple effect causes most businesses to struggle. People are not buying goods and services from brick and mortar businesses, which in turn have to lay off employees who can no longer buy goods and services from other merchants. Goldman analysts see the U.S. economy contracting 24% in second quarter, a rate nearly five times as large as bank’s previous forecast

While the government wants us to spend this money to keep the wheels of commerce rolling, some banks want to seize this money to recover money owed to them by their customers. When Congress passed the CARES Act authorizing these payments, it did not characterize the funds as federal benefits, but as tax credits. This means that private debt collectors may take the money once they are in a bank account.

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With tax season upon us, many Americans are looking forward to getting big tax refunds. Many of us use these refunds to  replace aging appliances, catch up on car payments or put into a vacation fund for when warmer weather finally comes back.   However, many people are also worried about how to deal with debt that they racked up during the holiday season. In order to get relief from this debt, and with holiday ornaments finally put away, many consumers contemplate filing bankruptcy after the New Year begins.  Filing bankruptcy gives consumers a fresh start in their financial life. However, there is a trade-off involved: while filing bankruptcy will wipe out most of your debt, you might have to give up or buy back property that is not “exempt.” Filing for bankruptcy could require you to pay for an asset (usually a car) for which you already paid.

The filing of a bankruptcy case creates an estate similar an estate that is created after someone dies. This estate is made up of one’s assets that are not exempt under the law. The United States government appoints a trustee in a Chapter 7 bankruptcy case to liquidate (or sell) any non-exempt assets and use the proceeds to pay unsecured creditors like credit cards. In order to be able to protect property and keep the trustee from taking from you when you file bankruptcy, the Debtor must claim the property is exempt under Florida or federal law. (Florida has “opted-out” of federal Bankruptcy exemptions, so Debtors may only use exemptions under Florida law or non-bankruptcy federal laws.)

The only part of tax refunds that is specifically exempt under Florida law is the part of the refund from the Earned Income Tax Credit. (Although Judge Jennemann in Orlando recently held that Child Tax Credit is exempt in Chapter 7 cases.)  The rest of your tax refund falls under the personal property exemptions under Florida law, which are among the stingiest in the nation. There are no specific exemptions under  Florida law to project the Child Tax Credit; the American Opportunity Tax Credit (which helps families pay for postsecondary exaction); the Lifetime Learning Credit (which helps people who go to college later in life or have to change jobs due to down-sizing or loss of jobs because of technology or free trade agreements); or the Child and Dependent Care Credit (which helps pay daycare costs for working parents). Many of these tax refunds are refundable and therefore give taxpayers a much larger refund than they otherwise would have received. If these refunds cannot be exempt under the law, you could lose them to the Chapter 7 trustee and not be able to spend them  the way in which you intended.

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When filing for bankruptcy, many consider the IRA (Individual Retirement Arrangement) and 401K exemption as the most well-known of the exemptions. This exemption allows individuals who must file bankruptcy the ability to keep their treasured retirement accounts out of their bankruptcy estate and safe from their creditors. In turn, this allows the individual to emerge from bankruptcy with their retirement accounts still 100% intact and en route to a fresh start.

But what happens if the IRA was not originally yours? What if it was inherited? Is it still safe from your creditors in bankruptcy? The answer is yes and no. If you inherited your IRA from your spouse, then it will still have the same protections as if the IRA was originally yours. However, if you inherited the IRA from someone other than your spouse, then it will not qualify for the exemption. Thus, it will be considered part of your bankruptcy estate and subject to the claims of your creditors. Continue reading →

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protect-money-umbrella-150x150One of the best bankruptcy exemptions offered to those filing bankruptcy is the retirement account exemption. As long as your 401K or IRA is ERISA (Employee Retirement Income Security Act of 1974) qualified, then your 401k or IRA will be protected if you file bankruptcy. Amazingly, there are not a lot of limitations to this rule. This is a wonderful law as it is very common for a person’s biggest asset to be their retirement account. Some of the qualified ERISA retirement accounts include 401(k)s, 402(b)s, IRAs (Roth, SEP, and SIMPLE), Keoghs, profit-sharing plans, money purchase plans, and defined-benefit plans. It is important to note that most employer-sponsored retirements plans are ERISA safe in bankruptcy.

401k Loans

Many who file bankruptcy may have also taken out a 401k loan in an effort to avoid having to file bankruptcy. It is important to understand how your 401k loan will be treated in your bankruptcy. First of all, a 401k loan is not considered a regular debt and will not be treated as any other creditor. In other words, a 401k is not dischargeable through bankruptcy and you will still have to repay it after your bankruptcy is completed. Additionally, in a Chapter 7 in which assets are available to be liquidated, your 401k loan would not receive any portion of the liquidated funds as a normal creditor would. In a Chapter 13, your 401k loan would not be part of your chapter 13 plan. However, you most likely will be allowed to still make payments towards the loan through automatic deductions on your paystubs. Continue reading →

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Assets-3-150x150What is an ESOP?

Employee Stock Ownership Plan, better known as an “ESOP,” is a way for employees to have ownership in the company they work for. They are used by several large successful companies because of the various tax benefits they can offer to the company as well as to the employee. Most commonly, employees obtain ownership of the company’s stocks as an award to help motivate and reward the employee. They are also a great way for employees to plan for retirement.

Because of how an ESOP works as a trust fund, employees generally do not have much control or access to their shares until they reach retirement age, or when their shares vest. Because of this lack of access, most ESOPs are treated just like a 401K, or any other retirement plan that is qualified under ERISA, when they file bankruptcy; therefore, ESOPs are treated as an exempt asset.

How does an ESOP work?

Just like a trust fund or spendthrift trust, all shares are retained in an ESOP trust until retirement age or termination of employment. Basically, when a company decides to set up an ESOP, they create a trust that the company makes yearly contributions to. The company then creates a formula that controls how employees receive stock in the company. Before an employee can have access to their stocks, their stocks must first vest. Continue reading →

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payday-150x150Having been unemployed for some time, you have accumulated a lot of debt and are now behind on paying those debts. You are considering filing bankruptcy, but happen to have two vehicles that are paid off and want to sell one of them. Can you sell one of those vehicles and then file a Chapter 7 Bankruptcy? The short answer is it depends, and this is why.

Selling one of the vehicles would be considered a pre-bankruptcy transfer of property, and there are several factors that determine whether a person can complete a pre-bankruptcy transfer. Your bankruptcy trustee will look at whether the property in question would have been exempt when you filed your bankruptcy, the price you received for the property, how those proceeds were spent, and the reason for the transfer.

If the property would have been exempt when you filed bankruptcy, then transferring the property prior to filing bankruptcy should not be an issue. However, it could cause a delay in the bankruptcy process as your trustee makes this determination. Your trustee will want to make certain that you received the fair market value of the property and that it was in fact exempt. In Florida, a debtor is allowed $4,000 in personal property and $1,000 in a motor vehicle if they do not claim the homestead exemption. If a debtor claims the homestead exemption, then they are only allowed $1,000 in personal property and $1,000.00 in a motor vehicle. Continue reading →

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Abby Lee Miller of the famous reality television show “Dance Moms” recently plead guilty to bankruptcy fraud and was sentenced to 1 year and 1 month in a federal prison to be followed by supervised release for another 2 years. Fraud is not something taken lightly by the federal court system and can have devastating and life changing consequences.

Fraud in bankruptcy can take a couple of different forms.

  1. When a debtor, the person who is filing for bankruptcy, tries to hide their assets in order to prevent losing them. When filing bankruptcy, you are provided certain exemptions that allow you to protect a portion of your assets. Any asset that is not protected by one of these exemptions can be taken from you by the trustee and then distributed to your creditors.
  2. When a debtor tries to bribe the bankruptcy trustee.
  3. When a debtor deliberately files falsified or incomplete bankruptcy forms in order to protect their assets from being seized by the trustee.
  4. When a debtor files for bankruptcy multiple times this can be viewed as an abuse of the right to file bankruptcy and enjoyment of the protections that bankruptcy affords. As soon as someone files for bankruptcy, an automatic stay is put into place that prevents any of their creditors from continuing to collect the debt that is owed to them. This is often seen when someone is facing foreclosure. The debtor files for bankruptcy on the eve of a foreclosure sale date with no intention of completing the bankruptcy. The intentions are to have more time in the home. The bankruptcy is later dismissed by the court because the forms are incomplete or because the debtor does not comply with the bankruptcy court, or the debtor dismisses the case themselves. Once the bankruptcy case has been dismissed and a foreclosure sale date has been reset, the debtor again files bankruptcy on the eve of the sale date with the same intentions as the prior bankruptcy. Some debtors do this over and over again, and this is an abuse of the bankruptcy system.

Continue reading →

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house-150x150Florida’s Bankruptcy Laws offer a very generous Homestead Exemption for those filing bankruptcy here in the Sunshine State. As long as you have owned your homestead property for 1,215 days or more prior to filing bankruptcy, the Florida Homestead Exemption is unlimited! How awesome? Right?

However, don’t get too worried just yet if you have not owned your homestead for 1,215 days. You can still take advantage of the Florida Homestead Exemption and protect up to $125,000 of the equity in your home per Debtor. That means that a couple can still protect up to $250,000 of the equity in their home when filing bankruptcy together, which is still pretty awesome!

But what happens when you file a Chapter 7 Bankruptcy with other real property that is not your homestead? Can that property be protected? How the property is treated will completely depend on whether or not the property is mortgaged and/or if there is any equity in the property. If the property is encumbered by a mortgage and there is no equity in the property, then you should be able to simply continue making those normal monthly mortgage payments, and the bankruptcy should not have any effect on the property whatsoever. However, if there is any equity in the property, then the Trustee will most likely take possession of the property and sell it in order to reach the available equity. Unfortunately, there is no exemption available to protect real property that is not your homestead.

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