Planning for Bankruptcy
Some individuals and companies need some well thought out planning before filing bankruptcy.
Not all people and companies facing overwhelming debt can immediately file for bankruptcy protection. Occasionally some planning is required. Taking advantage of available property exemptions and protections is not improper if handled in an appropriate way. Our office can guide you through this difficult process.
One key factor for an individual to consider is the homestead protection. Most states offer some form of homestead protection from creditors (not to be confused with the homestead real estate tax exemption). Florida is one of a hand full of states that offer an unlimited homestead exemption. That is often a focal point of bankruptcy planning. For more information on other exempt assets see our page on Asset Protection.
Other factors to consider before filing for bankruptcy include payments to creditors, particularly family and business associates. Payments to general creditors within 90 days of filing for bankruptcy protection may be considered preferential and may be taken back from the creditor and redistributed to all creditors. The ‘preference period’ for insiders (family, business associates, partners, etc.) is one year. Inadvertent preference payments may justify a delay in filing.
Proper planning may also allow for a Chapter 7 filing rather than the more extended Chapter 11 or Chapter 13. By waiting for preference periods to run and other possible challenges to pass you may be able to file a Chapter 7 and complete the case in four months. A delay of even one year will still allow you to complete the bankruptcy in less time than a Chapter 13 or 11.
Planning and Bankruptcy Reform
Bankruptcy planning has changed as a result of the 2005 bankruptcy reform laws. Responsible planning should be conducted with an eye towards the effect of the current law. With appropriate planning most people can still file for bankruptcy protection.
One aspect of the reform legislation requires that you reside in a State for a period of two years in order to take advantage of the State’s exemption laws. Another limits the homestead exemption for an initial period. Five states (including Florida) now offer their residents an unlimited homestead exemption. This has lead to numerous abuses. Many people facing large money judgments have moved to states like Florida, purchased a home with their available funds, waited an appropriate time period (usually one year) and filed for bankruptcy. The revisions to the new bankruptcy laws were designed to limit this form of planning.
One provision limits the homestead protection available in bankruptcy if the Debtor has not owned and lived in his or her home for a period of 1215 days. This may dramatically increase the time period some individuals must wait before filing. A second provision prevents a debtor in bankruptcy from claiming as exempt any equity fraudulently transferred into the home within the past ten years. This may lead to an unusual situation where an individual’s home may be protected from creditors as long as the debtor steers clear of bankruptcy for the ten year period. Bankruptcy planning must then take into consideration the possibility that a creditor may file an involuntary bankruptcy. Competent planning involves all of these factors and many others. Call us for a free initial consultation to see if bankruptcy planning may benefit you.
David W. Langley is licensed to practice only in the State of Florida and handles bankruptcy cases in Miami, Hollywood, Fort Lauderdale, Plantation, Pompano, Coral Springs, Deerfield, Boca Raton, Delray and West Palm Beach.