The purpose of filing bankruptcy is to eliminate as much of your debt as you can without having to repay your creditors anything. Depending on the type of bankruptcy you file, you may have to pay back unsecured creditors (credit cards or medical bills for example) a small portion of what you actually owe.
The goal in a Chapter 7 bankruptcy is to have zero attachable assets (assets over and above your exemptions). In a Chapter 13 bankruptcy, you will be required to pay back some of your unsecured debt, but that amount depends mainly on the assets you own over and above your allowed exemptions. Exemptions are explained below. The exemptions you are allowed under the Florida Constitution are the same exemptions allowed in Chapter 7 bankruptcy and Chapter 13 bankruptcy. The job of your bankruptcy attorney is to have the client pay as little to the bankruptcy creditors as possible. The end result of a bankruptcy should be that all of your unsecured debts are forgiven, and any secured debts (a mortgage or a car loan) are caught up. You will not be behind on your mortgage, and your vehicle will be paid off. This is in a Chapter 13 bankruptcy. Chapter 7 bankruptcy deals with the elimination of your unsecured debt. A Chapter 13 bankruptcy deals mainly with curing mortgages that you are behind on, or stripping the car loan down to the value of the car rather than the amount you owe and reducing the interest rate to make the payment more affordable. There are many other benefits of a Chapter 13 bankruptcy, but the discussion deals with how to get your attachable assets as low as possible so that your creditors cannot attach your assets in state court or that you can file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy with having little to no payments to these creditors.
Depending on the type of law that a lawyer practices will change the advice given to a client. Just because you get advice from a lawyer doesn’t mean that advice is good for all aspects of your life. For example, there is a theory in law called tenants by the entirety. Under this theory, the assets of a husband and wife are exempt from the collection by creditors if the creditor is owed money by only one spouse. So if you have been married for ten years, it’s most likely that all of the furniture in your house was purchased after the marriage. If that is the case, a creditor of the husband or wife cannot count the value of the furniture in the allowed exemptions of whichever spouse owes the money. Because of this theory of the law, an asset protection lawyer would advise this married couple to have their assets owned jointly. This includes bank accounts, and any other assets the couple might own. However, this advice for asset protection may work to the couples detriment if they are going to get divorced. Since you have transferred all of the assets you might have owned into a joint asset for asset protection, when you get divorced, the spouse who had no ability to the other spouse’s asset , now does have an interest in that asset. Even though you have accomplished the asset protection aspect of the advice the lawyer has given you, it may not be the best advice if you are getting divorced. So you have to know that the asset protection advice you are getting is for that specific purpose. The advice you are getting for asset protection from creditors may negatively affect you if some other issue comes up that has nothing to do with the asset protection purpose you saw that original lawyer for. This theory is used many times in either Chapter 7 bankruptcy and Chapter 13 bankruptcy.
There are several requirements for property to be held as tenants by the entireties for successful asset protection. The most important is that the asset was owned from the beginning by husband and wife. Otherwise it is the burden of the debtor to show that the intent to own this property was to own it as tenants by the entireties. So if you have a bank account and you add your spouse to that account, tenants by the entireties will not be a valid asset protection device for that account. You would have to close that account and open an entirely new account with your spouse. However, if you just add a change to the account when you have an asset that is transferred to your spouse that says it will now be as tenants by the entireties, you must say on the account that it is jointly owned as tenants by the entireties. For example, if you own a piece of real estate and then get married, you can protect that asset by transferring that property to you and your spouse by adding your spouse to the deed with the words that the property is now jointly owned with my spouse as tenants by the entireties. Now, creditors cannot touch that property. However, none of this matters if your debts are joint because joint creditors can attach joint assets. Tenants by the entireties is not a valid defense if you have joint debt and joint assets up to the value of those joint assets and the assets owed individually by either spouse. Those assets are at risk. There are more elements to tenants by the entireties in asset protection than just that the property is owned from the beginning as husband and wife, but those can be discussed during your consultation with the attorney.
In Florida, the Florida Constitution grants everyone who lives in a home a homestead exemption with rare exceptions. If you live within a municipality, your homestead is exempt if the property is one half acre or less. If you live outside an incorporated municipality, you can live on property that is 160 acres or less and still have exempt property. This is a great asset protection device in Florida. If you bought your property before it was incorporated, and then it becomes incorporated, you still get the 160 acre exemption. That is called the grandfather exception. You will get that exemption as long as you own the property. If you sell the property, the new owners will only get the one half acre exemption. What this means is that if a creditor sues you and gets a judgement, that judgement will not attach to your homestead property. Florida is one of the few states that has a 100% homestead exemption with the exceptions noted above.
Other asset protection benefits include other exemptions granted by the Florida Constitution or Florida Statutes. Under the Florida Constitution, you get an exemption of $1,000.00 of personal property. This doesn’t seem like a lot, and it isn’t. From this exemption, you must value all of your assets and they must total less than $1,000.00 for you to keep all of your property. This property includes things including, but not limited to, cash on hand, security deposits with your landlord or utility companies, the value of the money in your checking or savings accounts, the value of your clothing, jewelry and furniture, tax refunds that are not from earned income credit (earned income credit is exempt), the equity you have in a car, if you can sue someone or if someone has died and left you money. All of this must add up to less than $1,000.00 so a creditor cannot touch your assets. There are other exemptions however. Florida Statutes Section 222 grants additional exemptions. For example, any qualified retirement is fully exempt, as is Florida prepaid college accounts and cash surrender value of your life insurance. The proceeds of life insurance is also exempt as long as it is not commingled with other money. So if you get $10,000.00 in life insurance proceeds and put it in a separate account, that money is exempt. But if you just deposit it into your regular checking or savings account with other money in that account, it is no longer exempt. Florida Statute Section 222 also gives numerous other exemptions. For example, if you do not own a homestead, you get an additional $4,000.00 in personal property exemptions. If you have a checking or savings account that is only holding wages or money earned from your work and if you are the head of your household with dependents, like children or parents, that money is also exempt. Florida Statutes Section 222 also allows you to get a $1,000.00 exemption in equity in a vehicle over and above the other exemptions you are allowed. Also, your Social Security benefits are also exempt as are your Social Security Disability benefits, even if they are deposited into a segregated account. If they are commingled with other money, it loses its exemption. All of these exemptions are helpful in asset protection. But these are only asset protection benefits from the Florida Constitution and Florida Statutes. There are also other asset protection devices including family limited partnerships and irrevocable trusts. Again, these asset protection benefits may be great for asset protection, but may be harmful for other aspects of your life. Any time you transfer assets, including for asset protection, you have to take into consideration the gift and estate tax consequences as well as any possible income tax consequences.
There are other exemptions which can be helpful in protecting your assets from being attached by creditors. All of these exemptions are used in the Chapter 7 bankruptcy and Chapter 13 bankruptcy process. So if you need asset protection or you want to file a bankruptcy, these are related legal subjects. If you file for Chapter 7 or Chapter 13 bankruptcy, these asset protection planning devices are great. However, these transfers cannot be made in contemplation of filing for bankruptcy. If you are insolvent(owe more money than you have) at the time you make these transfers, a court can say the transfers were fraudulent and undo them. Please see a legal professional to discuss your options before you do anything. Bankruptcy is a great option for people who are in debt, and as unlikely as it seems, bankruptcy is one of the best and fastest tools to reestablish your credit.
