Exempt Entireties Property not Subject to 522(p) Limitation

Judge Williamson of the Middle District of Florida issued his decision in the case of In re Buonopane, ___ B.R. ____, 2007 WL 247888 (Bkrtcy. M.D. Fla.) on January 26, 2007 in which he held that the cap imposed by the BAPCPA on the state homestead exemption that a debtor can claim in residential property acquired within 1,215 days of the petition date applied only to the Florida homestead exemption that the debtor could claim under 522(b)(3)(A) and not to the separate entireties exemption available under section 522(b)(3)(B). Section 522(b)(3)(B) provides for the exemption of property held as a tenant by the entireties. This decision is in accord with Judge Olson’s recent decision in the Southern District of Florida in the case of In re Schwarz, __ B.R. ___, 2007 WL 247649 (Bkrtcy. S.D. Fla.).

The Court stated while its ruling would appear to provide a way for a debtor to “end run” the $125,000 cap contained in section 522(p), that its ruling is consistent with the legislative history of section 522(p)(1) which was directed to close the “mansion loophole” and not against a state’s common law on tenancy by the entireties property.

Jordan E. Bublick, Attorney at Law, Practice Limited to Bankruptcy Law, Board Certified Specialist in Consumer Bankruptcy Law (American Board of Certification), Member of the Florida Bar since 1983

The Two Schools of Thought Construe BAPCPA

The Court in In re Grydzuk, 353 B.R. 564 (Bankr.N.D.Ind. 2006) submitted that there are two major schools of thought now prominent among bankruptcy scholars and bankruptcy judges as to the manner in which the BAPCPA is to be construed.

The first school of thought is the “literalist” movement which holds that “it says what is says it says” even though if it does not make any sense. Under the literalist movement, the law must be construed in strict accordance with the statutory language.

The other school of thought is the “common sense” approach which accepts the fact that the BAPCPA in many instances makes no sense whatsoever and that it must be construed against the background of what it is presumed the drafters intended to change from the prior law.

Jordan E. Bublick, Attorney at Law, Practice Limited to Bankruptcy Law, Board Certified Specialist in Consumer Bankruptcy Law (American Board of Certification), Member of the Florida Bar since 1983

Florida Bankruptcy Filing, Maryland Exemptions, Real Property Exempt under Florida Tenants by Entireties Law

The January 30, 2007 case of In re Schwarz, __ B.R. ___, 2007 WL 247649 (Bankr. SD Fla. Olson) held certain real property as exempt from administration in the estate under 11 USC 522 (b)(3)(B) which allows for the exemption of any interest in property which the debtor held as tenants by the entireties to the extent that it is exempt from process under applicable nonbankruptcy law.

In this case, the debtor was unable to exempt his real property under the Florida homestead provision of Art. X Section 4 (a)(1) of the Florida Constitution as the new provisions of BAPCPA of 11 USC 522 (b)(3) required the debtor to use the Maryland exemptions as the debtor had not been a domiciliary of Florida for the entire 730 day period prior to filing of the bankruptcy case. The parties agreed that Maryland does not provide for a specific homestead exemption. Nonetheless, the debtor was able to exempt his entire interest in the real property in Florida as he held it as tenants by the entireties on the date of filing pursuant to section 522 (b)(3)(B).

It is significant that the Court looked to Florida tenants by the entireties law as the “applicable nonbankruptcy law” for such determination and not Maryland law.

Property held by a debtor in a tenancy by the entireties is exempt from the claims of individual creditors in bankruptcy under Florida common law with certain exceptions for joint creditors or fraudulent conveyances. In this case, there were no joint creditors nor any indication of a fraudulent conveyance.

Interestingly enough, section 522 (b)(3)(B) does not require the debtor to be residing in the property on the date of filing, but only requires that the debtor hold an interest in the property as a tenant by the entireties immediately before the commencement of the case. In this case, the debtor did not move into the property until after the filing of the case but held an interest in the property as a tenant by the entireties before the commencement of the case.

Jordan E. Bublick, Attorney at Law, Practice Limited to Bankruptcy Law, Board Certified Specialist in Consumer Bankruptcy Law (American Board of Certification), Member of the Florida Bar since 1983

BAPCPA Provisions Held Unconstitutional

In the December 7, 2006 decision in the case of Milavetz, Gallop & Milavetz, P.A. vs. USA, 2006 WL 3524399 (D. Minn.) a Federal District Court in Minnesota found the section of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) containing advertising disclosure requirements [11 USC 528(a)(4) and 528 (b)(2)] and the section prohibiting “debt relief agencies” from advising client to incur more debt in contemplation of bankruptcy [11 USC 526 (a)(4)] to be unconstitutional as applied to attorneys.

The Court analyzed section 528(a)(4) and 528(b)(2) by applying “intermediate scrutiny” under which the government may only regulate truthful bankruptcy assistance advertisements if the regulation 1. directly advances 2. a substantial government interest and 3. is narrowly drawn. The Court found that these BAPCPA provisions failed all three parts of this intermediate scrutiny.

The Court found section 526 (a)(4) to be a content-based restriction on protected speech and found that it did not meet the “strict scrutiny” test. The Court explained that “Attorneys have a First Amendment right – let alone established professional ethical duty – to advise and zealously represent their clients”.

The Court further found that attorneys are beyond the scope of a BAPCPA “debt relief agency”. The Court stated that this view is support by the doctrine of constitutional avoidance under which the Court must opt for a construction that avoids grave constitutional questions. For these reasons, the Court held that the “debt relief agency” provisions of BAPCPA found in sections 526, 527, and 528 do not apply to attorneys.

Jordan E. Bublick, Attorney at Law, Practice Limited to Bankruptcy Law, Board Certified Specialist in Consumer Bankruptcy Law (American Board of Certification), Member of the Florida Bar since 1983

Important Homestead Decision Under 2005 Bankruptcy Act

In the recent decision of In re: Kaplan, 2005 WL 2508151 (Bankr.S.D.Fla.), Judge Robert A. Mark of the Bankruptcy Court of the Southern District of Florida upheld the application of one of the homestead limitations imposed by section 522(p) the 2005 Bankruptcy Act (BAPCPA). The Court upheld the validity of the provision that limits the Florida homestead exemption to $125,000 if the property was acquired within 1215 days of the filing for bankruptcy. In doing so, the Court refused to follow the reasoning of a recent Arizona Bankruptcy Court decision which held that such provision does not apply in “opt out” states such as Florida.

Jordan E. Bublick, Attorney at Law, Practice Limited to Bankruptcy Law, Board Certified Specialist in Consumer Bankruptcy Law (American Board of Certification), Member of the Florida Bar since 1983

New Bankruptcy Laws Go into Effect

On April 20, 2005, President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). This 512 page Act makes significant changes to the Bankruptcy Code. On October 17, 2005, the majority of the provisions of the new law went into effect although certain provisions became effective upon enactment and others have individualized effective dates.

Jordan E. Bublick, Attorney at Law, Practice Limited to Bankruptcy Law, Board Certified Specialist in Consumer Bankruptcy Law (American Board of Certification), Member of the Florida Bar since 1983

2005 Bankruptcy Reform Act – "BAPCPA"

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) Public Law 109-8, 199 Stat. 23 was enacted by the US Senate on 3/10/05 and the US House on 4/14/05. It was signed by President George W. Bush on 4/20/05.

BAPCPA is generally effective in 180 days from the President’s signing ie. Monday, 10/17/05, except for certain sections such as 308 [522 (o), 522 (p), 522 (y)] 322, and 330

Jordan E. Bublick, Attorney at Law, Practice Limited to Bankruptcy Law, Board Certified Specialist in Consumer Bankruptcy Law (American Board of Certification), Member of the Florida Bar since 1983