A debt, in the context of bankruptcy, is a legal obligation to pay money to another. It is the connection between a debtor and a creditor, and while there are specific non-dischargeable debts, the vast majority of debts are dischargeable in bankruptcy.

    (1)   Yes, it is a debt, but do you owe it? Just because your name appears on a bill or credit card does not mean that you have personally obligated yourself to pay the debt. You should require the creditor to provide you with a credit application bearing your signature.

        (a)   Permissive User – A permissive user is someone who is allowed to utilize another person’s credit without being liable for paying the debt, which is often the case with credit cards. Do not rely on the fact that your name appears on a credit card or bill. If you did not sign a credit application, you are not legally bound to pay the debt. The debt should not even be listed in your bankruptcy schedules.

        (b)   Joint Obligor – A joint obligor is one of (usually) two people that owes the same debt. If you have signed a credit application or other promise to pay a debt, you owe the debt regardless of whether you were the actual person that received a benefit. So, if your estranged spouse runs up a jointly-held credit card or line of credit, you owe the balance “jointly and severally,” which means that you each owe 100% of the obligation, and the creditor can choose to pursue only one of you for payment of the whole debt. You must list joint obligations in your bankruptcy schedules, and you must identify the joint obligor’s name and address. The joint obligor will be given notice of your bankruptcy filing.

    (2)   Secured Debts – A secured debt is an obligation to pay money that is guaranteed by either the debtor’s pledge or by operation of law to surrender specified property (known as “collateral”) in the event of default. A secured debt can be discharged in bankruptcy, but the debtor must surrender the collateral. There are basically five types of security interests: perfected interest, purchase money security interest (PMSI) , non-PMSI, judicial lien and tax lien.

        (a)   Perfected Interest – A perfected interest is a voluntary lien placed on the debtor’s property as a result of the debtor’s written permission that is then properly recorded in accordance with law. Examples are the mortgage on your home or the appearance of the finance company’s name on your car title. If the creditor fails to properly record the security interest, it is unperfected, and the debt is unsecured. In the haste to close a home sale or refinance, the bank may actually forget to record the mortgage, and this happens more than one might think. In 2003, Chip Parker, one of the attorneys of Parker & DuFresne, P.A., sold his home, and in the process learned that GMAC failed to record the refinance mortgage he executed a few years earlier! Weeks following the closing of his home sale, GMAC voluntarily refunded the recording fees it had required Mr. Parker to pay years earlier.

        (b)   Purchase Money Security Interests – A purchase money security interest (known as a “PMSI”) is a voluntary lien placed on the debtor’s property as a result of the debtor’s written permission that is automatically “perfected” without being recorded. This type of secured creditor is created when a debtor buys personal property using money borrowed directly from the seller. The most common example is a store credit card, like Rooms to Go or Sears. If a bedroom suite is purchased from Rooms to Go using store credit, the debt is automatically secured by the furniture. If the same bedroom suite is purchased using a Visa or MasterCard, the debt is totally unsecured.

        (c)   Non-PMSI – A non-PMSI is a voluntary lien placed on the debtor’s property as a result of the debtor’s written permission that is then properly recorded in accordance with law. The creditor records something called a UCC-1, which is a document reflecting the pledge of certain personal property (sometimes referred to as “chattels”). Debtors often get offers in the mail from companies like Wells Fargo and Beneficial to borrow money, and as part of the application process, the debtor is required to list his personal property (bicycle, stereo, TV, lawn mower, etc.) on a UCC-1 to secure the loan. This is just like a perfected interest with a major exception. If the collateral is property that would otherwise be the exempt under Florida law, such as the debtor’s household goods, the non-PMSI lien can be stripped in bankruptcy by filing a Motion to Avoid Lien, and the creditor becomes unsecured!

        (d)   Judicial Lien – A judicial lien is an involuntary lien obtained by a creditor as a result of filing a certified copy of a final judgment in the Florida county in which the debtor owns real property. Florida’s Constitution specifically states that no judgment shall be a lien on a homestead (Fla. Const. Art. X, § 4), so the judicial lien technically only applies to non-homestead property. The problem is that when a judgment debtor sells her home, the buyer will usually not be able to obtain title insurance because of the appearance of the final judgment in the official records. No title insurance means the sale will fall through unless the judgment debtor satisfies the final judgment. There is a very successful motion a bankruptcy debtor can file to wipe out the appearance of the judicial lien, known as a Motion to Avoid Judicial Lien.

        (e)   Tax Lien – Unlike a judicial lien, Florida’s Constitution specifically allows federal tax liens and ad valorem (property tax) assessments to encumber a debtor’s homestead property. (Fla. Const. Art. X, § 4). In reality, these are the only involuntary liens against homestead property that exists in Florida. If the debtor chooses to surrender his home in bankruptcy, he will not be liable for the ad valorem taxes, and he may not be liable for federal income taxes older than 3 years.

    (3)   Unsecured Debts – Unsecured debts are “naked” obligations not guaranteed by the debtor’s assets. The most common examples are credit cards, gas cards, medical bills and unsecured lines of credit. These debts are always discharged in bankruptcy unless they otherwise fall into one of the very rare exceptions to discharge.

    (4)   Non-Dischargeable Debts – Non-dischargeable debts cannot be wiped out in bankruptcy. They are:

  • Debts not listed in your bankruptcy schedules, whether you chose not to list them or you forgot

  • Support obligations like child support and alimony. If you are ordered to pay your ex-spouses’ attorney’s fees, those fees are not dischargeable because they are in the nature of support.

  • Debts for personal injury or death caused by driving while intoxicated or under the influence of drugs.

  • Student loans, unless the debtor can show that repayment creates an undue hardship.

  • Any fines penalties or restitution for violating the law.

  • Most federal, state, and local taxes less than three years old.

  • Any debt incurred within 90 days of filing bankruptcy.

  • Any debts denied discharge in a previous bankruptcy due to fraud.
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