Divorce settlement funds are only exempt if used for a limited purpose of reinvesting those funds into another homestead. Let’s say for example there is a martial home. One spouse moves out and the other spouse stays in the home. Both spouses are on the deed to the property.
The divorce is pending. No settlement has been reached. Property is not yet for sale. The spouse living in the house can file for bankruptcy and exempt the home as homestead. They would need the permission of the court to sell it while the bankruptcy is pending. Ordinarily the proceeds of the home sale would be exempt as homestead, provided that those funds are segregated and used only to purchase another home.
This must be done within a reasonable period time, typically within one year. If part of those funds are used to pay bills, pay creditors, or pay rent until he/she finds a house the remaining proceeds would not be exempt. There is no specific exemption for property settlement funds received from a divorce if they are not used for a home. If the spouse who is not living in the home wants to file for bankruptcy while the divorce is pending, the home would not be exempt because he/she is not residing in the home. You must be residing in the home for the homestead exemption to apply.
If you have any question as to whether you should file your bankruptcy case before or after your divorce and how property transfers will be viewed by the trustee its best to consult with our office.
The short answer to that question is sometimes. You cannot lower your interest rate in a Chapter 7.
If your vehicle is underwater or has no equity you have the option to surrender the vehicle to the lender and find another vehicle. There is also another option called redemption which allows you to file a motion to reduce the principal balance. For example, if you owe the lender $50,000 and your vehicle is worth $35,000 you can reduce the principal balance to $35,000 and refinance with another company.
In a Chapter 13, this is called a “cram down”. However, you would need to have owned the vehicle over 910 days prior to filing bankruptcy to be eligible for a “cram down”. A Chapter 13 will allow you to lower your vehicle’s interest rate. This is only a practical solution if you need to file a Chapter 13 for other reasons – like you are paying back mortgage arrears or you’re over the income threshold to file a Chapter 7.
You can also file a motion to value secured property to reduce the interest rate. The interest rate used is called the “till” rate . It’s usually 1% higher than the federal prime rate to account for a possible default. If the federal prime rate is 6.25% then till rate would be a least 7.25%.
There is also a trustee fee of 10% , so unless the federal prime interest rates are very low or you are paying a very exorbitant interest rate, its usually cost prohibitive.
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There are three types of tax debt. The first type is unsecured priority tax debt which is not dischargeable in bankruptcy. That includes recent tax debt within the last three years.
The second type is unsecured non-priority tax debt. This type of tax debt is dischargeable in bankruptcy. This would include tax debt for returns that were due and filed over three years ago or assessed by the IRS over 240 days prior to filing your bankruptcy case. We can verify the date the tax got assessed by the IRS if you obtain an account transcript.
Interestingly, there are times when the tax return was timely filed over three years ago, but the IRS assesses the tax liability years later. This often occurs during an audit where additional tax debt is assessed.
Tax debt will not be dischargeable if the taxes haven’t been timely filed or filed within two years of filing for bankruptcy. Fraud or tax evasion would also be grounds for having your debt be non-dischargeable.
The third type of tax debt is secured tax debt where the IRS files a lien against your property. This occurs less frequently. We recommend contacting the IRS Insolvency Unit approximately 60 days after receiving your discharge to confirm that your tax debt is discharged.
We have clients who move here from other states who are behind on their state income tax. Fortunately, we don’t see this issue too often since Florida has no state income tax.
State income tax essentially follows the same rules as federal income taxes in terms of whether those taxes would be dischargeable or not in a bankruptcy. If you have specific questions about your outstanding tax debt, feel free to contact my office.
It is quite a bit of work for both the client and our office to make sure we have all the proper documentation to analyze your case and prepare the bankruptcy petition. The bankruptcy petition is not a “simple” or “basic” form. Clients are surprised to learn that the petition is between 50-60 pages. It has to be filled out accurately and completely.
There is a burden on both you as the client, as well as myself, as the attorney to do our due diligence to make sure we do not miss any information. We need six months of payroll, or if self-employed, you would need to provide six months of profit and loss statements by month; two years of income tax returns; two years of corporate returns if you own a business; vehicle titles and/or car registrations; identification, three months minimum of all bank statements for every account, including retirement accounts such as IRAs, ESOP plans, FRS plans if working for the government.
If you are on social security we need the social security benefits letter confirming your monthly payment. The same is true for pensions, annuities, or veterans benefits to confirm the amount of your monthly payment. Additional information that we may need to review are: a martial settlement agreement if you have been divorced within the last two years, payoff statements for your mortgage and vehicles, paperwork for any lawsuits, deeds to any real property, trust documents, HUD or bill of sale for any home or vehicle sales or trade ins for the last two years.
We also need information regarding the value of all of your assets and we go through questions also to make sure you are an eligible bankruptcy candidate. That is why people hire an attorney. It can definitely be a daunting task without help. There are many aspects of analysis to evaluate if you have non-exempt property, is there anything the trustee could make you pay back such as insider payments to family members, or friends. Having legal guidance will prove to be valuable and make the process go much more smoothly.
A 2004 exam is something you do not want to happen in your case. This is not to be confused with a 341 hearing. A 341 hearing is a 10–15 minute hearing that happens in every bankruptcy case where the trustee asks you questions and clarifies information listed in your petition. A 2004 exam is more like a deposition where any interested party can compel your testimony (deposition) or force production of additional documents.
Typically, this is something that would be initiated by the United States Trustee’s office/Department of Justice in cases where they suspect a debtor has not filed their case in good faith, is hiding assets or income, or did not properly disclose information on their bankruptcy schedules. Once the additional information, such as bank statements, are obtained, you will likely be examined under oath.
The scope is broad. It is very important to always disclose all information to your attorney so they can properly advise you on whether filing bankruptcy is a good course of action or if the timing or circumstances of the filing are ideal. You do not want your attorney surprised with facts after your case is filed. Unlike regular civil state court actions, if the plaintiff no longer wants to pursue their case, they can just dismiss it.
You cannot “dismiss” or get out of a Chapter 7 bankruptcy once it is filed. Once it is filed, its filed and there is no turning back. Your then required to participate. If there is a finding of fraud or lack of good faith, it usually results in one of the following: 1) converting your case to a Chapter 13; 2) paying more money to the bankruptcy estate; 3) being permanently ineligible for a discharge; or 4) having your case dismissed where you are barred from refiling your case for a designated period of time.
While these situations are not routine, every case should be filed by your attorney with the attention to detail required as if it is getting audited. That is why communication and disclosure are so essential between client and attorney.
