Exemptions and Bad Conduct in Chapter 7

CAN I LOSE MY EXEMPTIONS FOR ALLEGED BAD CONDUCT IN BANKRUPTCY?

            When you make the difficult decision to file for a Chapter 7 or Chapter 13 Bankruptcy, there are certain assets that are declared exempt in your case. Typically, the biggest exemption is a person’s home equity. If you own a home that is worth $150,000.00 and you owe $125,000.00 on the home, the $25,000.00 of equity is exempt in Florida due to the unlimited homestead exemption in this State.

            With the recent decline in Chapter 7 filings, it is becoming very evident that Chapter 7 Trustees are seeking to make more from any possible asset in any case, whether it is exempt or not. Normally, a Chapter 7 Trustee will make $60.00 as an administrative fee from a “no asset” Chapter 7 case. The possibility of tapping into exempt equity is very appealing to the Chapter 7 Trustees in rough economic times (fewer assets in each case) combined with lower numbers of filings. Thankfully, such a possibility seems to have been recently ruled out by the Supreme Court.

            In Law v. Siegel, (http://bankruptcy.cooley.com/wp-content/uploads/sites/245/2014/03/Law-v-Siegel-SCOTUS-Opinion.pdf) issued on March 14, 2014, the Supreme Court held that a bankruptcy court cannot surcharge a debtor’s homestead exemption to pay for the Chapter 7 trustee’s administrative expenses, even if those expenses were incurred as a result of the debtor’s fraudulent misrepresentations.

            Why should anyone care about a claim of fraudulent conduct by a Chapter 7 Debtor? While the vast majority of Chapter 7 cases are relatively routine, there are some cases that have considerable litigation involved where a Debtor may fight to maintain assets which a Debtor legitimately feels are not property of the Chapter 7 Trustee. In such a case, the threat of a Chapter 7 Trustee claiming fraudulent conduct and attempting to reach exempt property is a possibility. This type of conduct by a Trustee could have a chilling effect on a legitimate rights of Chapter 7 Debtors to dispute claims by Chapter 7 Trustees. Forced settlements and other bad results would certainly follow.

At Mickler & Mickler, we attend Court on a regular basis. We have the experience and knowledge to ensure that you receive the correct advice when confronted with difficult financial decisions related to filing bankruptcy. Contact us at 904.725.0822 orbkmickler@planlaw.com.

 

Bryan K. Mickler