Last May, we wrote about an 8th Circuit decision which held that inherited IRAs were protected assets in bankruptcy. Florida is part of the 11th Circuit, not the 8th Circuit, which means that bankruptcy judges and federal court judges are not bound to follow 8th Circuit Court of Appeals precedent, although circuit court decisions are often influential.
In the 8th circuit case, a bankruptcy trustee argued that inherited IRAs deserved less protection that IRAs that contained money from the debtor's own labors. The 8th Circuit judges disagreed and found that IRAs are protected retirement accounts, regardless of their origin.
Relatively few debtors in Florida or elsewhere have huge IRAs so Florida bankruptcy judges rarely address this question. However, Florida lawyers have not had any specific direction about what federal judges in Florida would do with the question of whether inherited IRAs are protected in bankruptcy.
Now, it appears we have an answer. Florida asset protection lawyer Jonathan Alper report on his blog that Florida statute section 222.21 will be amended to specifically included inherited IRAs as well as rollover IRAs. This is favorable news for Florida residents and should provide some reassurance to individuals who need to file bankruptcy but who have been left an IRA or who expect to be the beneficiary of an estate that includes an IRA.
As always, consult with your lawyer before actually filing bankruptcy for an opinion specific to your situation at the time you need to file.
Filed under Bankruptcy legislation, Consumer Protection by 
Judicial foreclosure laws in Florida require lenders to file a lawsuit against a homeowner. These lawsuits should include documentation showing that the plaintiff has standing to sue and that the homeowner is in fact delinquent.
Some mortgage servicing companies, however, are not following the requirements of the law. In some cases, documents are being forged and delinquency claims are based on nothing but someone's imagination.
In this video, Florida representative Alan Grayson describes some of the abuses that his constituents have reported.
If you believe that a foreclosure associated with your home is or was tainted like some of the foreclosures described by Mr. Grayson, you should seek appropriate legal counsel.
Filed under Mortgages, Scams and Fraud by
In previous posts, we have been discussing some of the rights debtors have under bankruptcy law, such as the ability to choose when to file and the protection from having to pay creditors after debts have been discharged fair and square. Here, we talk about yet another way in which bankruptcy law seems to favor the debtor, this time in regard to the way in which Inherited IRAs are protected in bankruptcy (in a way similar to how normal IRAs are protected).
When you file for bankruptcy, your IRA (short for Individual Retirement Account) is typically protected from creditors, which means they can't get their hands on it. However, a debate has risen over whether an Inherited IRA should have the same protection in bankruptcy.
Initially, the courts ruled that Inherited IRAs should not be protected under bankruptcy in the same manner as regular IRAs are. However, when this decision was taken to an appeals court, the decision was overturned.
At the appeals court, the 8th Circuit’s Bankruptcy Appellate Panel disagreed that the funds should not be protected. Rather than focusing on who contributed the funds, the court concluded that the federal bankruptcy exemption only requires the funds to be “retirement funds” to be protected. In short, Inherited IRAs are protected if you file for bankruptcy.
In 2005 when Congress amended the bankruptcy law, most of the provisions did not benefit the consumer. However, Congress did add the provision that protected IRAs and retirement fund assets and also required states to do the same. So here again we have a pro-consumer law that favors the debtor in bankruptcy.
If you are thinking of filing for bankruptcy and have knowledge that you may be inheriting a relative's IRA or any other assets, it is always recommended that you contact an experienced bankruptcy who is well-versed in matters involving bankruptcy and inherited assets. With some types of inheritances, the debtor is not so protected, so hiring an attorney is advisable if you want to maximize the outcome of any inheritances.
Filed under Bankruptcy legislation, Consumer Protection by
Bankruptcy and short sales
What is a short sale? A short sale is when a lender allows a person to sell their house for a quantity that is not large enough to pay off the mortgage owed. Lenders wanting to avoid the foreclosure process, for example, will agree to a short sale and a foreclosure will thus be prevented. When people are experiencing financial problems, it is common for them to consider selling their house using this method to get out of a taxing mortgage. Unfortunately, a short sale leads to obvious complications when bankruptcy is involved.
The problems associated with proceeding with a short sale before filing bankruptcy are outlined in a Bankruptcy Law Network post on bankruptcy and short sales. Please refer to this blog post for a detailed run-down of this topic. For our purposes, we will focus on a couple main reasons why it is not wise to proceed with a short sale if a bankruptcy is inevitable in your case.
First, keep in mind that a short sale can be useful if the mortgage is the main (possibly the only) source of your financial problems. If this is the case, then sure, a short sale may be a good idea. However, if you face multiple financial problems and bankruptcy is inevitable, a short sale is often unnecessary and a bad idea.
Think about it like this: when you file bankruptcy, you are likely to be relieved of your mortgage debt anyway. Also, as the Bankruptcy Law Network post mentions, a short sale can be worse for your credit score than can a bankruptcy; a sale will inevitably be reported to your credit report since you failed to pay the entire balance on the mortgage.
Another thing to think about is whether your mortgage is considered “underwater.” If you have an underwater mortgage, meaning you owe more on the house than it is even worth, then not all of your mortgage debt will be erased; you may still be responsible for the remaining debt on the house even after the short sale (known as the deficiency).
The above are just some of the reasons why it is not necessarily the best idea to do a short sale if you are considering bankruptcy. Because the topic of short sales and bankruptcy is complicated, it is also obviously advisable that you consult with a bankruptcy attorney if you are considering either.
Now, there may be cases in which a bankruptcy and a short sale can both be done, but as the Bankruptcy Law Network reports, the best way to do this is to do a short sale after bankruptcy has been filed. A short sale can be feasible after the bankruptcy case has ended, but again, it can be a complicated matter and it is recommended that you consult with your bankruptcy attorney before moving forward.
Filed under What not to do by
In our last post, we discussed the right of debtors to choose when to file bankruptcy and a court case which helped confirm these rights. In this post, we discuss yet another recent court ruling which seems to favor the debtor. In this case, the ruling provides bankruptcy filers more protection from creditors.
Here’s the case: A man filed for Chapter 13 bankruptcy and began a repayment plan approved by the bankruptcy court. All of the creditors that the man owed were told about the payment schedule and none had any objections. The man successfully fulfilled the repayment plan and the debts were discharged by bankruptcy court. After the debts were discharged, however, the company that had issued the man’s student loans protested that he still owed them $4,000 in interest, even though it was not included in the original payment plan. The case was taken to the Supreme Court, which ruled in favor of the debtor, who held that the debtor had fulfilled his Chapter 13 bankruptcy obligations and therefore did not owe the additional $4,000. The court's reasoning was because the creditor did not ever protest when they were originally told about the payment schedule.
This ruling is a positive precedent for all bankruptcy filers and provides them even more protection from creditors. If creditors fail to object to payment plans within the time they are allowed to protest, they will not be able to successfully object after the debts are discharged. In short, once your debts are discharged by the bankruptcy court, you no longer need to worry about creditors collecting any more debt.
For bankruptcy filers and debtors, this ruling should be considered a breath of fresh air. This is because ever since 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act was passed, debtors' rights under bankruptcy laws have been limited. With these two recent rulings, however, at least some important rights of debtors during bankruptcy are being established by the courts.
Filed under Bankruptcy legislation, Consumer Protection, Student Loans and Bankruptcy by
