The Supreme Court made a possible landmark ruling on March 4 that could impact those who have filed for bankruptcy in Florida and across the U.S. The Supreme Court ruled that a bankruptcy court cannot go after funds or property that are legally protected from creditors, even in the case of debtor misconduct.
The ruling reversed a previous decision that was handed down from a federal bankruptcy court that had ruled that exempted funds could be used to cover attorney costs that are incurred from the process of uncovering fraud or other misconduct. According to reports, a man filed for Chapter 7 bankruptcy and claimed $75,000 of his house’s value under a homestead exemption, making it exempt from the estate of the bankruptcy.
It was later found, however, that the man had fraudulently kept part of his assets from his creditors. The federal bankruptcy court ruled that the exempted assets could be used to cover the fees associated with uncovering the fraud, and the decision was appealed. A federal appeals court upheld the federal bankruptcy court’s decision, but the Supreme Court reversed it.
While hiding assets from creditors is never a good idea, courts must respect the laws that allow certain assets to be exempt in a bankruptcy. These exemptions are in place to allow debtors to file for bankruptcy to seek a fresh financial start. These exemptions are available to qualifying filers, but it is important for those thinking about declaring bankruptcy to understand whether they can claim them and what the possible effects, positive and negative, may be.
Source: Yahoo! Finance, “Court: Exempt funds protected in bankruptcy” Associated Press, Mar. 04, 2014