Creditors Are Cracking Down on Debtors Who Keep Property

Bankruptcy can be a challenging and confusing process; debtors often face a variety of consequences, such as damaged credit ratings and surrender of personal property. Typically when a debtor agrees to enter bankruptcy, the debtor also agrees to surrender property that is encumbered with debt – but a recent trend has resulted in some debtors trying to hang on to their property even after agreeing to “surrender” it.

Surrendering Property

According to the Bankruptcy Site, when a debtor owes money for real property, such as a home or real estate, and files for bankruptcy, the property may fall under an exemption – in which case the debtor would not be required to give it up; property that is given up is generally sold to satisfy the debt owed. Exemptions are determined on a state-by-state basis; while in some states, debtors can decide whether to use federal or state bankruptcy exemptions, according to Florida law, debtors are not permitted to use Federal bankruptcy exemptions. In terms of their home, a debtor generally has the option of taking a homestead exemption. That exemption prevents the property from being sold to satisfy outstanding debts. According to Florida law, debtors who do not surrender their home are allowed to keep up to $1,000 of personal property – such as jewelry, clothing, and furniture. If a home is being surrendered, then the debtor can keep up to $5,000 of personal property. This rule encourages debtors to voluntarily surrender their homes during bankruptcy proceedings, so that they can reap the benefit of keeping more of their personal property.

Debtors Refuse to Let Go

While the ability to keep more personal property due to surrendering a homestead may entice some debtors into surrendering their home during bankruptcy, a number of debtors have been trying to use a loophole to trick the legal system. A recent report by the Tampa Bay Times details how a number of debtors agree to surrender their homes in federal bankruptcy proceedings, thus receiving the ability to keep more of their personal property, but then challenge the need to surrender their homes in state courts. Success at the state level means that these debtors are allowed to take advantage of the federal personal property rules, while also using the state courts to help them keep the homes they have already agreed to surrender.

Courts Responding to the Trend

According to the Tampa Bay Times article above, recently judges have been holding against debtors who agree to surrender their homes and then refuse to give the property to their creditors. Noting that the idea of surrendering property in federal court means that the debtors are agreeing to give up the ability to retain the property, judges have been ruling in favor of creditors who are seeking to gain possession of the homes at issue. Additionally, some judges have been considering imposing sanctions or other increased punishments upon debtors who agree to surrender their property in bad faith.

Coping with Bankruptcy

Bankruptcy can be an emotionally stressful and frightening experience for debtors. The temptation of keeping one’s home may drive some creditors to renege on their promises of surrender, but may eventually lead to disastrous results for the debtor in the courtroom. If you or a loved one is currently navigating the bankruptcy process, the attorneys at Carnal & Mansfield, P.A. can help guide you through the bankruptcy proceedings and can advise you on your legal rights and how best to exercise them.