If a second mortgage on your principal residence is wholly unsecured, you may be able to strip a 2nd mortgage lien from a homestead property in a Chapter 13 case (meaning convert it to an unsecured loan and ultimately obtain a discharge upon completion of the Chapter 13 Plan). A motion and hearing is required, but if successful the 2nd mortgage lien is treated as unsecured and may be compromised in a Chapter 13 Plan.
Robert Gilmore
Pensacola Bankruptcy Attorney
In Osborne vs. Dumoulin, the Florida Supreme Court rephrased and answered the following certified question in the negative:
Whether for the purpose of the statutory personal exemption in section 222.25(4), a debtor in bankruptcy receives the benefit of Florida’s article X, section 4, constitutional homestead exemption where the debtor owns homestead property but does not claim the homestead exemption in bankruptcy and the trustee’s administration of the property is not otherwise impeded by the existence of the homestead exemption.
The underlying issue (which has been hotly contested and litigated in Florida) is this: whether or not an individual can take advantage of the additional $4,000 wild card exemption for personal property if the individual owns a homestead, but does not claim the homestead as exempt in his/her bankruptcy schedules because there is no equity in the homestead to exempt?
Although it appears the law is headed toward allowing the wild card exemption, the issue is still not settled, especially if you reside in a Florida district that has yet to litigate the specific issue. If a debtor does not claim the homestead as exempt because their is no equity to exempt (and with the goal of taking the $4k wild card exemption), there is a risk that comes with that strategy in that the trustee may administer the homestead, demand rent, or take other action to administer the homestead.
If a debtor is married, but is filing as a single chapter 7 debtor, the trustee could object (successfully) to the wild card exemption on the basis that the non-filing spouse (and therefore the filing spouse) still has benefit of the homestead under applicable state law, which would impede the trustee’s administration of the homestead. In cases like this, the debtor gets his cake and can eat it too and thus the wildcard exemption will not be allowed. There may be other circumstances as well.
I welcome comments.
Rob Gilmore
The Gilmore Law Firm, P.A.
Personal Bankruptcy Professionals . . .
Although first posted as a comment, I wanted to add a post for the Automobile Exemption in Florida.
First, you must determine if you have any equity in the car. Find the retail value under a third party appraisal source such as N.A.D.A. or Kelley Blue Book for your specific model car (including options), then deduct the balance of any loan secured by the car title, this will give you the net equity in the car.
Under Fla. Stat. Section 222.25(1), Florida residents can exempt up to $1,000 in equity in one automobile. Thus, you can exempt/deduct $1,000 from the equity in the car. If you still have equity after the loan balance and the $1,000 automobile exemption is deducted, there are some additional options that may be available.
First, depending on your homestead and how it is treated in the bankruptcy, you may be able to qualify for Florida’s Wild Card Exemption (explained below). If you can qualify for the Wild Card, then depending on how much your other personal property is worth, you may be able to use (stack) all or part of the Wild Card exemption against the remaining equity in your car.
Second, if you cannot exempt all of the equity in a car, you may want to consider buying the equity back from the case trustee (a “Buyback”). The trustee will often offer terms of 12 months at 0% interest. There are also redemption finance companies that may finance the buyback balance for you (giving a longer term, lower payments, but at a much higher interest rate). It depends on your situation and circumstances.
Wild Card Exemption in Florida: Under Fla. Stat. Section 222.25(4), you may be able to exempt an additional $4,000 in value of any personal property. This exemption is often called the “Wild Card” Exemption. Importantly, there is additional analysis that has to be done to determine if you can qualify for or use this Wild Card exemption in Florida. You should consult with a knowledgeable bankruptcy attorney to determine if you can take the Wild Card exemption.
Also, depending on your marital status and other specific legal and factual requirements, you may qualify to exempt the full value of a vehicle under what is known as the “tenants by entireties” exemption (the “TBE Exemption”). There are specific legal and factual requirements that have to be met before you can qualify personal property for exemption under the TBE Exemption. Again, you should consult a knowledgeable bankruptcy attorney to determine if the TBE Exemption is available in your situation.
The above is only general information and not intended as legal advice. You should consult a knowledgeable bankruptcy attorney to determine the specific exemptions available for your situation and circumstances.
I welcome comments from others on property exemptions in Florida (both personal and real property).
Robert Gilmore
Personal Bankruptcy Professionals
Section 525(a) of the bankruptcy code prohibits a government unit from discriminating in hiring decisions based on bankruptcy. Section 525(b) of the bankruptcy code prohibits private employers from terminating employment based on a bankruptcy filing.
The result is a private employer can discriminate in hiring decisions based on a prior bankruptcy, but cannot terminate employment based on a bankruptcy. A government unit cannot discriminate in hiring based on bankruptcy.
See Myers v. TooJay’s Management Corp., Case No. 10-10774 (11th Cir. May 17, 2011) addressing discrimination against an individual who had applied for employment with a private company after filing for bankruptcy.
R. Gilmore
I get questions from clients about the tax consequences of short sales and what happens if the lender files a 1099.
I listened to a great presentation by Ron Mason, CPA, today regarding potential tax traps for sellers/owners in short sale or other debt forgiveness cases. There are multiple factors to consider including possible exclusions that apply to reduce/eliminate taxes on cancellation of debt (“COD”) income including: bankruptcy or insolvency; qualified exclusion for principal residence (up to $2MM); qualified real property business; and qualified farm indebtedness.
As I understood from the presentation, if the cancellation of debt involves a principal residence, there is an exemption for up to $2MM of cancellation of debt income (“COD Income”). This is different and separate from the one-time $500k exemption from capital gain taxes upon the sale of a principal residence. The situation is different if a rental or second home is involved. Presumptively, no exemptions apply to rental property or second homes, except possibly the “insolvency test” the IRS prescribes.
Comments are requested regarding: whether or not the “insolvency test” applies to exempt COD Income for short sales of rental properties or second homes, please feel free to respond to this post.
Mr. Mason’s presentation was very informative. A few pertinent points/issues included:
(A) 1099 Issues: 1099’s are required to be filed by the end of February in the year following the year the COD Income occurred; however, there is no absolute deadline for filing a corrected 1099 thereafter if an initial 1099 is filed. If no 1099 is filed before the deadline, the lender cannot issue a 1099 in the next or subsequent years. Notwithstanding that no 1099 is filed, individual taxpayers have a duty to report COD Income (along with applicable capital gain/loss) regardless if a 1099 is issued by the lender or not.
(B) Grey Areas: There are a lot of questions involving lender’s issuing 1099’s on foreclosure judgments that have not be reduced to a deficiency money judgment, or situations where the lender has not foreclosed and/or the auction of the property has not been completed on the underlying foreclosure property. Arguably, if there is no auction there can be no 1099 issued because the auction sale in effect is the trigger that cancels the mortgage debt (but this does not prevent the lender from obtaining a deficiency judgment which is a separate proceeding). This issue could also come up where lender sues on the promissory note and obtains a judgment before the foreclosure auction occurs.
(C) Capital Loss and Non-Exempt COD Income. Arguably, a rental property could be short sold resulting in COD Income which could not be exempted, but based on the original cost of the property, there would be a capital loss. However, as I understood from today’s presentation, the capital loss could not be simply offset against the COD Income because capital losses are only offset against capital gains (if any are had in that tax year) and if there are no capital gains to offset there is a $3k per year limitation on the capital loss. Thus, in the example given, only $3k capital loss could be offset against COD Income (instead of the full amount of the capital loss).
One of the exemptions for COD Income is bankruptcy. But there are unanswered questions such as: what happens if a 1099 is issued and the debtor files bankruptcy the next year (after a 1099 is filed), or if the bankruptcy is filed after the 1099 is filed but before the tax return is filed. In the end, the tax consequences of short sales and deed in lieu situations need to be considered for anyone thinking about filing bankruptcy.
My Disclaimer: I am not a CPA nor am I a tax attorney, the above is merely my understanding from Mr. Mason’s presentation today. For more information, I would recommend going to Mr. Mason for his professional advice. Mr. Mason works with James Moore & Co. and can be reached in Tallahassee at Tel: (850)386-6184
Robert Gilmore, Esq.
The Gilmore Law Firm, P.A.
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