Chapter 7

[Collan]

Hello Dear Michael,

I know that it is not easy to answer all questions in regards of Bankruptcy,but if possible to at least give me some ideas or direction to what can be done.

I have been laid out,of course with all that comes all debt that is there,we have about Credit card debt of around $ 45k. and then we have two homes that we stopped paying and plus two second mortgages,which totals to about $ 450k..I wanted to ask two questions:

*** can we do chapter 7,if its possible to do it,are we able to keep our cars(my wife and mine,worth together about $ 14k.)

*** I am thinking to start my own business,with little bit of cost(which I am getting from my brother),but if I am to do bankruptcy,should I worry if I do it after i start my business or it would be better to do it before.(just so i know if there is any affect to the business in regards of bankruptcy)

Micheal,we are in Florida(Orlando),my wife works and I am currently receiving unemployment benefits.

My wife gross monthly pay is about $ 1850 and I get $ 1100.

Thank you very much for all you can help us and I greatly appreciate your time in this.

Brad M.

[Sumarville]

I am no expert on Florida bankruptcy exemptions, but I did find this summary online:

1. Homestead. Your homestead is exempt property under Article X, Section 4 of the Florida Constitution. This protection is afforded homestead properties situated on one-half acre or less within a municipality and properties up to 160 acres outside a municipality. There is no dollar limitation. The homestead exemption applies to all Florida residents. The new bankruptcy law does not affect homestead protection for Florida residents in state court proceedings.

The new bankruptcy law does change the homestead exemption for Florida residents who file bankruptcy. Under the new law you can protect unlimited equity in your homestead provided you purchased the residence 40 months or more prior to filing bankruptcy. If you purchased your home within 40 months the new law exempts up to $137,000 of equity. The exemption amount is increased(effective April, 2010) from the original $125,000 to approximatley $137,000 per person. Additionally, if you injected excess cash in your home within the 40 months, such as by paying down the mortgage or building a home addition, the amount of investment made within the 40 months will not be exempt even if you purchased the home 40 months prior to filing. The $137,000 homestead exemption limit applies only in bankruptcy cases. Several courts have held that a married couple filing jointly can claim two homestead exemptions for a total homestead protection of $274,000. 2. Statutory Exemptions Chapter 222 of the Florida Statutes includes several categories of exempt property, including: pensions, 401K plans, tax deferred retirement plans, Social Security income, disability income, IRAs, annuities, cash value of life insurance, college investment plans(including 529 Plans), health savings accounts, and hurricane savings accounts.

3. Automobile Exemption: You are allowed to exempt $1,000 of equity in an automobile. Spouses who jointly own a car may exempt $2,000 of value in that car. Most bankruptcy trustees accept the trade-in or loan value from the yellow NADA book, adjusted for the condition of your car. If the balance of your car loan is greater than the car value(“upside down”) then you have no car equity and your car is protected in bankruptcy so long as you keep your car payments current. 4. Miscellaneous personal property exemption. Each bankruptcy debtor is allowed to exempt $1,000($2,000 for joint filings) of all other personal property including furniture, cloths, tools, and estimated cash on hand. For bankruptcy purposes the value of your personal property is its current fair market value at a public market such as a garage sale or flea market sale. A new Florida statute effective July 1, 2007, provides a $4,000 "wildcard" personal property exemption to bankruptcy debtors who do not claim a homestead exemption. Joint debtors can claim a $8,000 wildcard exemption.

In order to qualifiy for the $4,000 wildcard exemption, you must either not own a home or not claim exempt homestead equity using the Constitutional homestead exemption. You can claim the wildcard if you intend to surrender your home. If you want to stay in your home and do not use the homestead exemption because your home is under water financially, the trustee may still attempt to administer the home as part of the bankruptcy estate. Basically, you can keep your home(if you can afford to keep paying the mortgages), but you would then only get to exempt $2000 in a car.  If you aren't keeping any house, then you could add another $4000 as a "wildcard" exemption to either car.

It sounds as though there would still be non-exempt value which you would have to buy from your trustee.

The effect of bankruptcy on a business depends on whether you could ged to get accounts for materials, or a lease, or a small loan.  If you're just going to be working out of your home, it's not likely that bankruptcy would have that much effect(particularly if your brother is providing the funds). If you start your business before you file, your business assets would be property of the bankruptcy estate.  (Of course, your brother could start the business and hold all the assets and you could work for him, but then he would have to get involved until you filed and he could thereafter transfer everything to you).

If your brother can loan you the money(say, $12,000), you could give him a properly drawn up encumbrance on each of the motor vehicles to protect the loan amount(that would protect the cars).  You would then have to put the money into a form which is exemptible, such as a health savings account or a paid up life insurance policy(Fla. Code 222.14)(apparently, such policies are completely exempt).  You would need to ask a Florida bankruptcy lawyer whether encumbering your cars to purchase such life insurance for the purposes of filing bankruptcy is attackable by the trustee.  However, in California we're allowed to do such "bankruptcy planning."