I filed for Chapter 7 and I am expecting a tax refund, will the trustee take my tax refund?

The trustee in a Chapter 7 case will often want an unprotected tax refund.    When a Chapter 7 case is filed, the trustee may become entitled to claim a portion of the debtors tax refund for one or more tax years.      For instance, if a debtor has not filed a tax return for the last tax year or received any tax refund, when a bankruptcy is filed, then the trustee could have an interest in the refund received or to be received depending on whether there is another exemption to protect the refund.      In addition, the trustee has an interest in the debtors tax refund which accrued during the current year before the bankruptcy case was filed.  For instance, if the case is filed two-thirds into a tax year, then the trustee will have an interest in two-thirds of the tax refund for that year.

A debtor may have a portion of their personal property exemption remaining to protect the debtors tax refund.       If there is enough exemption left remaining to protect the tax refund, the debtor would be permitted to keep the tax refund.

Any part of the debtors tax refund that is an earned income credit, has a separate exemption and the debtor can keep this part of the tax refund.   This is the case without the debtor being required to use part of the debtors personal property exemption.

If the debtor files individually, and the tax refund is a joint refund, then the tax refund might be protected by status as tenancy by the entirety.       

If the trustee is entitled to a refund on a pro-rated basis for the current year, then the debtor may be able to remedy the problem by adjusting their withholding for the rest of the year to eliminate or reduce a tax refund for the current year, reducing or eliminating the trustee’s entitlement to a portion of the refund.

 

 

 

How does the filing of a Chapter 13 affect the foreclosure timeline?

The first issue is whether you want it to affect the foreclosure timeline or not.     A stay goes into effect with the filing of most bankruptcy cases which would stop the mortgage company from going forward.     In a Chapter 13 the Debtor can waive the stay if it not useful for the debtor.    If the Debtor wants to keep the stay in a Chapter 13,  whether that is possible is a question of the specific factual situation.

If a debtor intends to give up real property to a secured creditor in a bankruptcy case, the debtors plan which provides for this treatment also has the effect of waiving relief from stay.     The debtor may effect some small delay pending the filing of a plan or waiting in an abundance of caution for the situation to play out.   

Where a debtor has filed previous bankruptcy cases, the stay may be limited.   To some extent this is judge and fact specific.    An attorney will likely be able to give you a prediction of the likely outcome of a filing in this regard.      Generally, the stay becomes more difficult to benefit from with each successive filing.    A repeat debtor does not come into court with the same presumption of entitlement to the stay and must be ready to explain the differences in a new case that make it more likely to succeed if earlier cases failed.

In order to allow a debtor to affect the mortgage with respect to land, the Debtor must file a bankruptcy prior to the sale date in a foreclosure case.     The sale date is a point near the end of the process, and typically occurs about 30 to 45 days after the hearing on the motion for summary judgment.      Notice of the hearing date is typically provided in the summary judgment order or a separate notice and requires publication of legal notices.    A filing after the sale date will typically not affect the sale, if it is otherwise sound.    An attorney should be consulted early in the process to aid in monitoring the timing of the case and a prompt and timely filing.

In Chapter 13, to keep the primary residence, the debtor must propose a plan that provides for the payment of the regular mortgage payment going forward, as well as an additional amount necessary to cure the default in the mortgage.    Most Chapter 13 debtors are eligible to cure the default over up to 60 months.    (Under median debtors can file a plan as short as 36 months even if all unsecured creditors are not paid in full.)     The default amount is described as a pre-petition arrearage and is determined based upon the date the bankruptcy case is filed.    The arrearage is made up of the payments missed before the case was filed, typically including any late charges, costs advanced by the mortgage company such as taxes and insurance for an escrowed mortgage, some costs incurred by the mortgage company which may include inspections and appraisals where reasonable, and attorneys fees and court costs expended.   

In most instances the plan is proposed based upon an educated guess as to the amount of the arrearage based upon the information available.   The mortgage company is to file a proof of claim which provides for the exact amount of the pre-petition arrearage and what their numbers are based on.    If appropriate, the debtors attorney can file an objection to the claim or request more information from the creditor about how the proof of claim amount was determined.

A debtors chapter 13 plan may also have to meet other requirements depending on the debtors other creditors, income, assets and other requirements.    A confirmation hearing is held before the court, typically several months into a case at which the court may confirm the case which means that the judge has determined that the case meets all the requirements of the bankruptcy laws and the plan is confirmed.   

When the debtor makes all the payments pursuant to the plan, then the default in the debtors mortgage should be resolved.    The Debtors mortgage should be current and the debtor able to resume making a regular mortgage payment to the creditor going forward once the plan is complete.

 

What does the Florida homestead exemption protect?

Under Florida law, the homestead exemption provided under the state constitution, protects a Debtor’s homestead, with very few limitations.     Those limitations of the Florida homestead exemption include:

• consensual liens (mortgages) if properly recorded
• judgment liens for the purposes of enforcing certain aspects of relief in a domestic relations case – including division of property, child support and alimony (legal advice would likely be required to determine whether the relief granted would be a lien permitted against homestead.)
• mechanic’s liens – labor and materials used to improve the property.
• tax liens for property taxes
• tax liens for debts owed to the Internal Revenue Service
• and, in the event a Debtor files for bankruptcy, the debtor may have certain limitations placed on his homestead exemption limiting the Debtor to an exemption in a certain monetary amount if the Debtor obtained the property within the 1215 days (about 41 months) before the bankruptcy case is filed.   The amount of equity currently protected in this instance is $146,450.00 and adjusts.  The Debtor may also be permitted to shelter equity transferred from another exempt homestead within the same state.    Or, where the Debtor has made lump sum payments towards the equity in the home or paid in excess of the regular monthly payments on any indebtedness against the home in an attempt to avoid paying creditors.    This is sometimes a fine distinction which should be discussed with an attorney if it seems applicable.
• In rare instances the Courts will place an equitable lien on a debtor’s homestead in situations of extreme fraud where the proceeds of the fraud were invested in the home such as when a debtor defrauds someone while in a position of trust and takes advantage of their ward.

While listing the exceptions makes it sound like the exceptions swallow the rule but the homestead exemption is quite generous.   It will allow a debtor to retain a free and clear home if the payments were paid over the customary period of time in most instances.   

It is important to note that some individuals may voluntarily refrain from asserting their homestead exemption in bankruptcy, to gain additional personal property exemptions ($4000.00 individual or $8000.00. married couple filing jointly.

It is important to note that homestead is a matter of intent.     However, the Court, if faced with a dispute, will look to other evidence for indications that intend to permanently reside in your home.    Therefore, you should do all of the things the one who permanently resides somewhere would do:

• Move in and actually reside there.   Refrain from actions that may be considered indicative that you do not reside there such as having your mail sent to a different address, regularly sleeping or keeping the majority if your belongings at another location,  renting the property to someone else, or otherwise doing anything inconsistent with your intent to permanently reside in the home.
• Change the address on your driver’s license, voter’s registration, and any other records that require a permanent address.    Children should attend school in their home district or any other district where it is permissible for them to attend based upon your address.    Unless you have a post office box for the receipt of mail, you should change your mailing address to the residence.
• Register for the homestead exemption in your county within the appropriate timeframe.    The award of the homestead exemption for taxes is administrative so that the County can more easily keep track of the homestead exemption.   In order to be entitled to the exemption, an owner needs to be residing in the home beginning prior to January 1 of the year in question and does not lose the exemption for the residence until the next year, even if the owner moves out prior to the end of the year.    Because the County uses this administrative convenience to determine homesteads for purposes of the property taxes, it possible that the debtor’s exemption for tax purposes and exemption for creditor protection purposes might not be the same.     This is not usually the case.
• Residents who have been in Florida for less than 730 days may not be permitted the Florida homestead exemption because the bankruptcy laws may require the use of different exemptions.

The assertion of the homestead exemption is an important decision that I recommend discussing with a lawyer as the implications can be far-reaching.