Articles Posted in Non-Exempt Assets

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A debtor who sells or transfers property shortly before filing bankruptcy could be putting his or her bankruptcy and property at risk. Depending on the circumstances, a trustee may be allowed to recover the transferred property as part of the bankruptcy estate.

There are a few factors that determine whether a person may be allowed to perform a pre-bankruptcy transfer of property. Those factors include:

1. Whether the property was exempt or nonexempt;

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exempt-fullOne of the first questions I’m asked by a person considering bankruptcy is what effect filing has on the property they own. If you’ve lived in Florida for a while, you are allowed to keep property that is exempt from the collection of creditors under Florida law. While there are a large number of somewhat complicated exemptions, you can generally think of exemptions as follows: You may keep $1,000 in personal property, $1,000 in vehicle equity and then either a homestead property that has equity or $4,000 in additional personal property. So, if the homestead property was retained in the bankruptcy case, but it had no equity, the debtor could keep $1,000 in vehicle equity and $5,000 ($4,000 + $1,000) of personal property. Any property the debtor has beyond that amount is subject to the whim of a trustee appointed by the court to preserve the debtor’s assets for the benefit of the debtor’s creditors. The trustee takes the debtor’s non-exempt property in a method similar to repossession and then auctions those goods off. The funds from this liquidation are used to pay the repossessing agent, the auctioneer’s fee and the trustee’s portion (typically 25%). The remaining funds are paid on a pro rata share to the debtor’s creditors who timely file claims.

Just because a debtor has property that is non-exempt does not mean the trustee will claim an interest in the property. Sometimes repossession and auctioning are impractical. When determining whether to liquidate an asset, the trustee must decide on the likelihood of sale and the cost benefit analysis of using estate proceeds to repossess and sell an item which may not render a sufficient sale to cover it’s own cost.

There is no clear-cut amount on which trustees rely when deciding to abandon an asset, but many trustees will occasionally leave an asset that will not earn more than $1000. Because these decisions are so subjective, trustees will almost always consider a debtor’s request to keep the asset in exchange for a cash settlement. As the old cliché goes, “There is no harm in trying.”

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Inheritance can be an issue in bankruptcy law. One might think that after you receive a discharge in your bankruptcy case, your case is done and the court does not have an interest in your finances. This is not always so.

In a Chapter 7 case, if a loved one dies and leave you an inheritance within 180 days from the date of filing your case, then this money becomes part of your bankruptcy estate. The trustee may want some or all of the inherited funds to distribute to creditors. The important thing to remember is that the date that you become eligible for the inheritance that is the date to use in this 180 day analysis. This is the date of the loved one’s death, not when you actually receive the money or property.

In a Chapter 13 case there is an ongoing obligation to keep the trustee appraised of what property you own. Once they learn of an inheritance, they will likely take those funds for the benefit of your creditors. This can occur any time during the case. Since Chapter 13 cases are often as long as five years, it is important to make arrangements with relatives who may pass on during this time.

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As is most legal processes, bankruptcy can be a difficult thing to maneuver. There is a lot of misinformation out there, you need to be careful to get your information from a trusted source. Here are some myths regarding bankruptcy:

Myth 1: If I file for bankruptcy, everyone will know.

Like most legal proceedings, most bankruptcy documents are public record. Since I work at a law firm in the bankruptcy department, I search these records all the time. I even have a special username and password that allows me access online. However, how many times do you think your friends, family, or co-workers search through federal court records? The truth is that while your bankruptcy documents will be public information, it is unlikely that those you know would search to find them.

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Yes, you can still file for bankruptcy. However, a very important part of every bankruptcy case is your exemptions. Exemptions allow you to keep your real and personal property. There are federal exemptions, but most states have adopted their own exemption laws. To use Florida exemptions in your bankruptcy, there are residency requirements. If you have lived in Florida for the 730 days prior to your filing, you can use Florida’s exemptions. If you have not lived here for that long, then your exemptions will be those of the state in which you resided for during the 180 days prior to your filing or the federal exemptions, whichever your prior state’s law indicates.

Florida is often seen as having a liberal homestead exemption, as it allows you to keep your home despite unsecured creditors. However, to use the Florida homestead exemption, you must have owned the home for 1215 days, otherwise you can only protect up to $125,000 in equity. Since nearly half the homes in Florida are underwater on their mortgage, it is a rare circumstance that anyone has more equity that the federal system allows. If you are unclear what exemptions you are allowed to use, contact a Jacksonville Bankruptcy Attorney today to discuss your specific case and what exemptions would be best for you.

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Bankruptcy, Honesty, Oath, PerjuryWhen filing for bankruptcy, it is very important to be very honest and disclose everything. If you do not, you risk having your bankruptcy denied, discharge revoked or even prison time in the worst case scenario. When you sign your bankruptcy documents, you are doing so swearing that they are true under penalty of perjury. If the trustee finds out that something you have in your schedules is incomplete or untrue, this will raise a red flag and the trustee will scrutinize your bankruptcy schedules even more.

A common way that people fail to disclose everything in bankruptcy is trying to hide assets. Debtors might leave off a gold watch or a private bank account. This is a big mistake. When filing for bankruptcy, you must list all of your assets. Even if you think an asset is inconsequential or minute, you should list it. It is better to have overkill than to raise a red flag.

Another thing debtors sometimes fail to list is creditors that happen to be friends or relatives. Or maybe the debtor does not want a specific creditor to know that they have filed for bankruptcy, so they do not want to list that creditor. You should not do this. You need to list all creditors to whom you currently owe any kind of debt on your bankruptcy papers. The trustee wants to make sure that all of your creditors get their fair share of your estate. No matter your intentions, make sure to list every creditor. If you do not and the trustee finds out, this will raise a red flag.

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AMR, the parent company of American Airlines, announced November 29, 2011 that they filed for Chapter 11 bankruptcy in the Southern District of New York. The company said that in the first nine months of 2011, they lost $868 million and project that they will lose around $1.1 billion by years end. AMR, a Fort-Worth based company, listed $24.7 billion in assets and $29.6 billion in debt in their bankruptcy Schedules.

An article in the Financial Times says “the move brings to end a nearly decade-long effort to avoid Chapter 11. In 2003, American chose to avoid bankruptcy, while its rivals used the process to shed their pension plans and reduce structural costs, leaving it at a substantial disadvantage.”

The company’s CEO, Gerard Arpey, was not in favor of the company filing for bankruptcy. In fact, he had spoken out several times saying that he did not want AMR to file for bankruptcy. So he retired. Tom Horton, previously the company’s president, will now step in as the new CEO.

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Most debts are dischargeable in bankruptcy. However, there are a few debts that are not:

1. Debts arising from fraudulent conduct 2. Government-backed student loans (unless severe hardship can be shown)

3. Debts stemming from death or personal injuries related to your operation of a motor vehicle while intoxicated 4. Certain taxes and fines 5. Some debts not listed on your bankruptcy 6. Domestic support obligations (alimony, child support, etc.)

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When you file for Chapter 13 bankruptcy, you will pay off your debts through a Chapter 13 Plan that lasts anywhere from 3-5 years. A Chapter 13 Plan allows a debtor to catch up on most any debt, including mortgage arrearages, owed taxes, missed payments on vehicles, HOA dues, legal fees, fines owed to the city or state, and more.

Your unsecured creditors might also get some payments through the Chapter 13 Plan. If they will and how much will they receive is determined by your means test and the amount of unexempt property that you have. Any amount of unsecured debt that you have over this amount will be discharged at the successful conclusion of your Chapter 13 bankruptcy. For example, if you owe $20,000 in unsecured debt and your case only dictates that you must repay $5,000 to unsecured creditors, the $15,000 balance gets discharged or forgiven when you successfully complete your Chapter 13 Plan. If your case dictates that no money must be paid to unsecured creditors, then the entire balance of $20,000 would be forgiven.

To see how a Chapter 13 Plan would be structured for your specific situation, contact a Jacksonville Bankruptcy Attorney today for a free consultation.

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Ray Guy, who used to play for the Oakland Raiders, auctioned his Super Bowl rings as part of his bankruptcy case. Guy won 3 Super Bowls throughout his career, in 1976, 1980, and 1983. Guy had filed for bankruptcy in Georgia in April 2010.

You may be wondering if you must give up your personal property if you file for bankruptcy. You might. If you have any unexempt personal property, you will either have to surrender that property or buy back its value from the trustee. To see if your personal property is exempt, call a Jacksonville Bankruptcy Lawyer at 904-685-1200 to discuss your options.

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