The Bankrupter - Law Offices of Michael E. Zapin

08/10/2024

That took a surprise turn.

11/08/2022

Should I file for bankruptcy before, during or after my divorce?

There are a few competing interests here to consider. Both of these procedures ordinarily have their own independent timelines. A “fresh start” Chapter 7 bankruptcy typically takes several months to complete. Depending on how complex the divorce case is, it ordinarily takes several months for a simple uncontested divorce to complete, or a year if not longer for a more complex or contested divorce to complete. If you file for bankruptcy and divorce together, these “independent” timelines collide, sometimes with unpredictable results discussed below. You’ll want to keep this in mind.

Benefits to filing for bankruptcy first: Tenancy by the Entireties.

If you live in Florida or you have property in Florida to be included in the bankruptcy, you can take advantage of a property right or bankruptcy exemption known as “Tenancy by the Entireties” often abbreviated as T by E. This is only available to married couples and it is one of the most valuable “bankruptcy exemptions” you can use to protect pure marital assets (assets acquired by you and your spouse simultaneously during the term of your marriage, titled to both you and your spouse.)
It is a “legal fiction” that states that both you and your spouse have an undivided 100% interest in the asset. Read that last sentence again! It is dramatically different from saying you and your spouse each have a 50% interest in the asset. Because it is an undivided 100% interest, it means that any single creditor that is owed money by only one of you, will NOT be able to levy against or liquidate T by E property! T by E is used as a powerful bankruptcy exemption.
Think of bankruptcy exemptions as laws that protect a modest amount of property types or property value from the claims of your creditors or the claims of your bankruptcy case trustee, who is appointed to represent your creditors in a general capacity.

In Chapter 7, property that is unprotected by an exemption and of a “reasonably significant value” can be sold off (“liquidated”) by the bankruptcy trustee appointed to represent your unsecured creditors in a general capacity and to raise money for those creditors. Sometimes a small pie is split between many creditors and they each get pennies on the dollar. The trustee will also earn a commission if your case is an “asset case,” meaning property is liquidated.

All it takes in the Southern District of Florida (sometimes but not always —- it’s really up to the trustee) is a few thousand dollars worth of unprotected assets to warrant the cost of administration of your assets. Suppose you had a right to receive an income tax refund of $5,000.00. There is very little expense involved in the trustee liquidating that asset. The refund check could be intercepted by the trustee merely by writing a letter to the IRS. But suppose you had a vehicle worth $5,000.00?

If the vehicle was titled in your name, you would benefit (in Florida) from a motor vehicle exemption worth $1,000.00. That means if the vehicle is liquidated, the trustee would have to pay you the amount of your exemption in cash. Thus, from the $5,000.00 vehicle the trustee would pay out $1,000.00 to you.

But wait, there’s more. The trustee has to hire an auctioneer to store the vehicle and to pay a buyer’s premium that could run up another $1,000.00 in costs. That would mean the most the trustee could make (for the bankruptcy estate) on that vehicle is $3,000.00. If there is a secured loan against the vehicle, that would further reduce the amount the trustee could hope to net on a sale, because the trustee would have to pay off the loan from the sale proceeds.

Many times, the cost to liquidate the asset outweighs the benefit of the actual sale. But now, suppose you had a vehicle that was worth $10,000.00 and there was no loan against it. Even using your $1,000 automobile exemption and factoring in the trustee’s cost of sale (let’s assume $1,000.00), the trustee could still net $8,000.00. You could have a problem here. Although there’s usually an option to “buy back” your interest from the trustee (and usually for a discount) what if there was a better way?

That “better way” would be to have purchased the vehicle with your spouse as Tenants by the Entirety. Remember, the devil is always in the details, and words matter here!

The use of the conjunctive “and” is very important on the title whether we are talking about bank accounts, automobiles or even real property (e.g., “Tom Jones and Betty Jones”) or no conjunctive at all (e.g., Tom Jones Betty Jones) or even a more formal designation (“Tom Jones and Betty Jones, His Wife”) will all be sufficient to obtain a presumption that title is held as Tenancy by the Entireties.

You do NOT want to title your property in a manner that is contradictory to Tenancy by the Entireties (e.g., “Tom Jones or Betty Jones”) since the use of the conjunctive “or” means that either party may act independently of the other, without the other’s permission, unlike Tenancy by the Entirety, where both spouses are (in theory) required to act jointly in decisions concerning the asset.

In reality, many banks will accept a written designation by the spouses that each may act independently of the other even though the account is designated or treated as a Tenancy by the Entireties bank account.

The beautiful thing here in Florida is that Tenancy by the Entireties applies to both real and personal property. And if you’re coming from a long-term marriage, you won’t have to hunt down receipts from years ago to prove that you purchased the property together with your spouse. The presumption will be that you purchased the property as Tenants by the Entirety so long as you assert it and the words of title don’t contradict it.

Unlike the motor vehicle exemption and many others, there is no dollar limit to the value of protection of Tenancy by the Entireties making this property right one of the most valuable tools in your bankruptcy arsenal.

BUT TAKE HEED: once your marriage is terminated, so is your Tenancy by the Entireties property right!

It will automatically convert to a tenancy in common property right, where each of you (ex-spouses) will have a divisible 50%-50% interest in the asset, reachable by even single creditors (creditors of only one of you) and accordingly reachable by the bankruptcy trustee for liquidation purposes.

Preservation of T by E, is a compelling reason to go bankrupt first, and divorce second.
Other Reasons to Go Bankrupt First: Save on fees!

If both spouses have a lot of debt (sadly, one of the most common reasons for divorcing) as a married couple, you can file a joint bankruptcy petition and the cost will usually be a lot less than if you were to each file separate bankruptcy cases. (Most law offices will only charge a few hundred dollars more for handling a joint bankruptcy case.)
Discharge Potentially Non-Dischargeable Debt from Divorce Court.

Particularly if you are the “breadwinner” of your household, you might want to encourage your spouse to join in on your bankruptcy case, in order for both of you to exit the marriage with as close to a fresh start as possible.
Often the “breadwinner” in divorce, is charged with continuing to pay for many of the household financial obligations, even obligations that may have been incurred by the other spouse. Divorce judges in Florida handle many complex issues, not only division of marital assets, but also division of marital debts.

The “bright line” tests in bankruptcy as to who owns an asset and who owns a debt are far more blurred in Divorce Court, and Divorce Court Judges can slice through the formalities of title like a steak knife going through butter.

Those words of title that matter so much in Bankruptcy Court? Well, they mean a whole lot less in Divorce Court.

Picture a situation where you plan on divorcing first, and filing for bankruptcy second. You are the breadwinner. Your divorce judge decides not only will you pay child support but you will also pay alimony to your spouse because of the long-term duration of your marriage.

As part of “alimony” your divorce judge orders you to continue to pay down and pay off your spouse’s credit card debt. If this “decree” is in the nature of alimony, then you are cooked, carrying this debt into your own subsequently-filed bankruptcy case. You will NOT be able to discharge this debt if it is considered alimony.

Maybe after your divorce, when things cool down, you may be able to convince your ex-spouse to file her own bankruptcy case to discharge the debt, but it is far better to strike while the iron is still hot (while you are still married).

Proceed with caution: There is case law out there that will cause you a lot of grief. If the debt is in the nature of non-dischargeable alimony, even if your ex-spouse is able to discharge it in her own bankruptcy case, guess what? Her creditors are now YOUR creditors and they may argue that you cannot discharge her marital debt since it was deemed to be non-dischargeable alimony. Yikes!

NOTE: If the debt is categorized as part of an equitable distribution of assets and liabilities you may be able to discharge the debt using Chapter 13 (plan of repayment) but not under Chapter (“fresh start”) 7.
Reasons to File for Divorce First, and Bankruptcy Second.

In a typical chapter 7 consumer bankruptcy case, your eligibility to file is determined by a complicated formula (the “Means Test”) that factors in ALL household income (income from you and your spouse and others contributing to your support) regardless of whether your spouse is filing for bankruptcy with you, and pits it against a series of actual monthly expenditures and/or IRS standardized deductions for certain expenditures, to determine the amount of your “disposable monthly income.”

If your non-filing spouse is a high-income earner, under the formula it is possible that her income will jeopardize your ability to qualify for Chapter 7 bankruptcy relief, Chapter 7 being the fastest form of bankruptcy relief. Your spouse’s high income, could mean that your only recourse would be to file under chapter 13 (plan of repayment for debts), and usually chapter 13 bankruptcies have a 5-year duration.

Do you really want to stay married for another 5 years simply to fund your Chapter 13 bankruptcy plan? Only you can answer that question.

Filing for divorce and bankruptcy simultaneously is not recommended.

The multiple proceedings will add a layer of complication to both cases. When you file for bankruptcy the appointed trustee legally “steps into your shoes” as respecting your unprotected assets. Sometimes it is not immediately known whether an asset is protected or unprotected, and the issue will need to be resolved the trustee, or if an agreement cannot be reached with the trustee, then with your bankruptcy judge.
The trustee would have a right to intervene in your divorce case because the nature of divorce involves a division of marital assets which will often include assets otherwise belonging to the bankruptcy estate.

The formalities that a bankruptcy trustee must adhere to in making decisions that affect your general creditors, is sure to slow the divorce process down, as well as the bankruptcy process. Injecting the bankruptcy trustee into the divorce will also limit some of the power, discretion and influence you would otherwise have in the decision-making process.

If the bankruptcy trustee is not fully versed in matters of divorce and family law, the trustee could be forced to hire his own lawyer to represent the bankruptcy estate’s interest in the divorce, adding an additional layer of complication, expense and time resources to both cases.

12/30/2012

How to get a Fresh Start in the New Year http://conta.cc/RnJ8RL

11/15/2010

Asset Protection and Bankruptcy: Pigs get fat, but hogs get slaughtered.

I’m going to focus this discussion on Chapter 7 “fresh start” bankruptcy – also sometimes referred to as a “straight liquidation.” I want to dive right into the belly of the beast so to speak, so if you don’t understand the basic concepts of “fresh start” and “liquidation” or the different types of bankruptcy, head on over to my website at www.thebankrupter.com and then come back. (Don’t worry. I’ll wait.)

YOU: You’re sharp. Intelligent. A good thinker. And a pretty good businessperson. Unfortunately, you, like many others, have fallen on hard times due to the depressed economy. Your hemorrhaging cash every month, possibly borrowing from Peter to pay Paul. You’re not in steerage, but you’re not in first class either. Any which way, it doesn’t matter, because you’re still on the Titanic, and you know it’s only a matter of time. And so you try to think ten steps ahead. To do what any good businessperson ought to do – to plan for the future. And therein lies the problem.

Many states have what’s called an “anti-fraud” statute. The language is usually similar to that found in the bankruptcy code at 11 U.S.C. § 727, which basically says, if you transfer property within one year of your bankruptcy filing, and you do it with “intent to hinder, delay or defraud a creditor” (or the trustee), for one, the bankruptcy court can “unravel” or reverse your transaction (i.e., recover the property), and at worst, the court can throw your case out of bankruptcy court.

Now, you’re probably wondering, what in the world does “intent to hinder, delay or defraud a creditor” really mean? I’m going to be honest with you. I don’t know. And frankly, neither do the courts.

What makes construing the law particularly difficult is that most courts say that a modest and reasonable amount of “pre-bankruptcy planning,” or “exemption planning” is okay. Yet other courts find this behavior unacceptable.

The analysis of those courts that permit exemption planning, seems to be based on the maxim, “pigs get fat, but hogs get slaughtered.” And most courts agree that they know a hog when they see one. The difficulty, however, is trying to identify the pig.

The courts will tell you that the intent to “hinder, delay or defraud” a creditor must be an actual intent as opposed to a constructive intent. However, this is really just a term of art. Any way you slice it, the court is going to find “actual intent” based on the circumstances of the transfer.

Most courts will look to what they call “badges of fraud” to make a determination if you did a transfer with an actual intent to “hinder delay or defraud.”

Some of these common badges of fraud are:
1. Your transfer was to an “insider” (i.e., a close relative, friend or someone who has the power to influence your decision making);
2. You retained possession or control of the property transferred, after you made the actual transfer.
3. Your transfer or obligation was concealed from the court.
4. Before you made your transfer or before your new obligation was incurred, you were sued or you were threatened with suit.
5. Your transfer was of substantially all of the your assets.
6. You fled the jurisdiction after your transfer.
7. You removed or concealed assets from the court.
8. The value of what you received for your transfer was less than a reasonably equivalent value.
9. You were insolvent or became insolvent shortly after your transfer was made or your obligation was incurred.
10. Your transfer occurred shortly before or shortly after you incurred a substantial debt.
11. You transferred the essential assets of your business to a lienor (an alleged business creditor of your company) who then turns around and transfers the assets to an insider of your business."

Now sure enough, if you answered “yes” to all of the above “badges,” your transfer will trigger the anti-fraud statutes. But, what if you answered yes to some, but not all of the above badges?

That’s where the analysis can get really sticky. And some jurisdictions will weigh these badges differently. In other words, the badges that seem more intrinsically “evil” will be afforded greater weight. Such as, “concealment” from the court ( #7 above); or incurring new debt to fund an exempt asset ( #10 above); or retaining control over an asset after the transfer - a form of deception ( #2 above).

Interestingly, consultation with a bankruptcy attorney has not been labeled an outright badge of fraud, but your mileage on the consultation will vary, depending on which jurisdiction you file your case in. There are some cases that say that engaging in these transfers after consulting with an attorney (particularly a bankruptcy attorney) is another factor the court can consider as to whether your transfer was with actual intent to hinder, delay or defraud a creditor.

It’s quite a quagmire for us bankruptcy attorneys. A delicate dance, if you will, between coldly advising clients of their rights and the consequences of filing a case under the client’s present circumstances, or more directly telling a client outright what he or she should do with his/her assets in order to “maximize” the use of the client’s exemptions (i.e., the laws that protect the particular asset).

In some jurisdictions, it can be considered a malpractice to not appropriately advise your client as to the exemptions he or she may avail of, or to not advise your client how to maximize his or her exemptions. And yet, in other jurisdictions, this kind of advice can apparently get the client (and possibly the lawyer) into a whole lot of trouble, if viewed as evidence of intent to hinder, delay or defraud. (Can you say "conspiracy to commit fraud???")

So the best advice to maximize your use of bankruptcy exemptions?

Don’t wait for rain before you purchase your umbrella. Do it while the sun is still shining. Trigger as few badges of fraud as possible and put as much time in between whatever it is you are doing, and the ultimate filing of your bankruptcy case.

Boca Raton bankruptcy attorney, Boca Raton bankruptcy lawyer, Boca Raton chapter 13, Boca Raton chapter 7, Boca Raton debt settlement

04/24/2010

Use bankruptcy as a pivot point in your life. Check your feelings of guilt at the door. You're of no help to anyone if you can't help yourself. Repay anyone you really want to repay, when the case is through. It's roughly a 4 month process ("fresh start" chapter 7). Most people can't believe when the case is actually over. They say, "that's it???" Usually I get to say, "yeah, that's it!"

04/08/2010

So many myths about bankruptcy! So little time to dispel them! Visit our website www.thebankrupter.com where we bust open the most widely held myths about bankruptcy. I can't tell you how many times in a week I have clients tell me "isn't it true if I file for bankruptcy I won't have any credit for ten years?" Whew! People are surprised to learn that if they come to us with a low credit score, in many instances by the time they are through with their bankruptcy case, they can see a projected 100 ++ gain in their credit score simply because of the elimination of significant debt coupled with timely payments over the course of a year. Yes, an actual IMPROVEMENT in your credit score is possible with bankruptcy, depending on what you are starting out with.

The Law Office of Michael E. Zapin - Bankruptcy Attorney 2385 NW Executive Center Drive Boca Raton, FL 33431 (561) 367-1444

03/21/2010

Short sales and bankruptcy - NOT such a bad mix after all

Short Sales Revisited in a Bankruptcy Context

03/15/2010

03/15/2010