Bankruptcy is a method of relieving oneself or a company of
burdensome debts through the federal court system. This relief includes
unsecured debts (credit cards, medical bills, etc.), a ceasing of creditor
harassment, and depending upon which chapter you file under, forcing a
repayment scheme on certain kinds of secured debts (car payments, house
payments, etc.).
This relief allows you to get a fresh start by either entirely
eliminating most of your debts (Chapter 7 bankruptcy) or forcing a plan
(Chapter 13 reorganization) on many kinds of creditors so that you may continue
on with your life uninterrupted.
2. What is a Chapter
7 bankruptcy?
Chapter 7 of the Bankruptcy Code is known as a liquidation.
Don’t panic when you here that word though! The laws have been designed
to let you keep certain things so that you are not completely stripped of
everything! Essentially the State of Florida exempts certain assets from
your estate and gives you a dollar value amount for other assets that you can
apply to personal property. Anything that is not exempt and exceeds the
dollar value amount could be subject to liquidation by the person appointed to
handle your bankruptcy estate (the trustee) for the benefit of your creditors.
After turning over any non-exempt assets for the benefit of
creditors, the judge will order a discharge. This is a court order that
forever prevents any of your creditors from taking any action to collect on
your personal liabilities existing at the time you filed for bankruptcy.
Certain requirements must be met for filing in Chapter 7. You
may not be permitted to file under Chapter 7 if you fail a means test or if
you’d have enough money after meeting expenses to make a “meaningful payback”
to your unsecured creditors. In that case a Chapter 13 bankruptcy may be
appropriate.
3. How long does a Chapter 7 take?
This can vary depending on the complexity of the case.
Typically, however, if there are little or no assets that need to be
liquidated, a case will probably take 4-6 months from the day you file to the
day you get a discharge
4. What is a Chapter 13 bankruptcy?
Chapter 13 of the Bankruptcy Code is known as a payment plan bankruptcy. It’s
available to most individuals and married couples. Filing under Chapter
13 allows you to impose a repayment plan typically yielding pennies on the
dollar to most of your unsecured creditors (this figure may be more if you want
to hold onto more non-exempt assets) while keeping your non-exempt
assets. You may also be able to restructure past-due amounts on secured
debts, force reasonable interest rates on secured debts, and if for other than
a home you owe more than the secured property is worth, you may be able to
“strip” off the excess amount owed and pay a fraction of the excess back in the
repayment plan as an unsecured debt.
Chapter 13 is much more flexible than chapter 7 but more complicated
and takes longer to complete than a chapter 7.
5. How long does a Chapter 13 take?
These cases are much more complex than a Chapter 7 and because
they require a repayment plan to creditors, will take significantly longer than
a Chapter 7. Typically, Chapter 13 payment plans will range anywhere
between 3 to 5 years.
6. What is a Chapter 11 bankruptcy?
When the debtor owes more than the maximum amounts that can be
supported in a Chapter 13 (contact your attorney for these figures), Chapter 11
may be the answer. Chapter 11 is far more complex than any of the other
bankruptcy chapters. Few debtors will need to file Chapter 11, and those who
will probably know it already.
7. What is considered exempt property?
Important: This applies only to debtors filing in
Florida
The term “exempt” applies to certain kinds of property that can’t be reached by
your creditors and therefore cannot be reached by the trustee in bankruptcy.
The extent to which your various possessions, investments, and the like are
exempt or not is critical for determining how much of your property will have
to be turned over to the trustee in chapter 7 or paid for in chapter 13.
Exemption selection has become a bit more complicated under
recently passed federal laws. This remainder of this section only applies to
individuals who’ve resided in Florida for two years continuously.
Some frequently claimed exemptions in Florida are unlimited
equity in your homestead property if owned for 1,215 days or more ($125,000.00
if less), $1,000 in personal property ($5,000 if not claiming homestead, $1,000
equity in one vehicle owned by the debtor, certain earnings of a head of
household, retirement accounts, social security, annuities, and life insurance
policies. Other exemptions are available; your attorney should be consulted as
this is a special topic in a specialized practice area.
8. How does the Court determine the value
of my bankruptcy estate?
When filing a bankruptcy petition, your attorney will assist you
with determining the value of your personal property and how to list it.
Most personal property is determined at “yard sale value”. For example,
if you purchased a flat screen tv for $1000.00 two years ago, its “yard sale”
value will be significantly less and would be an estimate as to what it is worth
if selling at a yard sale.
Vehicle value is much more straightforward. This is
calculated based on appraisals such as NADA and blue book values.
9. What is secured property?
Secured property is any kind of property in which someone other
than yourself has a “security interest.” Generally speaking, a security
interest is some piece of ownership in an item of property entitling another to
claim the property if some event occurs or doesn’t occur. For example, a
financed car is often secured by some entity that can repossess the car if
payments aren’t made. In this example your default on the note is the
relevant event that allows another entity to repossess the property.
10. Can I keep my house if I am behind on
my mortgage payments?
It depends. Filing in either Chapter 7 or 13 may buy you
some time to come up with a plan to save the house. In Chapter 7 however the
time may be quite short, and frankly there is little that can be done in a 7 to
save secured property (such as a mortgaged home, or a financed vehicle) if the
payments are overdue.
Chapter 13 on the other hand may allow you an extended period of
time (three years but sometimes up to five years) to repay the overdue balance
on your mortgage through the Chapter 13 repayment plan.
11. Creditors are calling me all the time.
Can bankruptcy help?
Yes. Once you have retained a bankruptcy attorney you may
instruct your creditors to call your attorney rather than you. That should stop
the harassing calls. Even more effective at stopping any collections
against you is actually filing. Once you’ve filed, Federal Law prohibits
creditors who know about your bankruptcy from taking any action to collect on
your personal liability for debts you’ve incurred before filing. The
courts are so serious about this that if creditors attempt to collect while
knowing that you are in bankruptcy proceedings, they can be heavily fined and
sanctioned as well. As a result, creditors, for the most part, will stop
immediately.
12. I’ve heard of credit counseling. Can it
help?
It could help, however, it is quite rare that this will resolve
your problems. When the new bankruptcy laws were enacted, they made it a
requirement that all debtors do a credit counseling course prior to filling by
a third party. There are several out there and your attorney can help
recommend one for you.
13. How does bankruptcy affect my credit?
It will affect your credit but it is really dependent on a case
by case basis. Most debtors already have a very low credit score and are
a high credit risk due to their burdensome unpaid debts prior to filing. If a
credit score is very low prior to filing, it is not uncommon to see a credit
score be higher within 6 months after discharge due to the fact that you will
no longer be a high credit risk for two main reasons: 1.) you no longer have
these debts looming over you so credit agencies don’t need to worry as much
whether you will be able to pay them back if credit is extended and 2.) once a
bankruptcy is filed and you get a discharge of debts, you cannot refile another
for several years. This means that the credit agencies know that if they
extend credit to you, you cannot simply file another bankruptcy to wipe them
out for a long time.
A bankruptcy remains on your credit history for ten years (more
in some circumstances). However, after discharge most debtors find they
are able to obtain credit within 6-12 months after discharge.
For those debtors who file under Chapter 13, during the life of
the plan they may not obtain new credit without the permission of the Chapter
13 Trustee, which is typically not unreasonably withheld.
14. Help! I’ve been sued, can I file
bankruptcy and stop the state court civil lawsuit?
Filing bankruptcy will almost always stop (“stay”) a state court
civil lawsuit for a time. A lawsuit related to an unsecured debt (such as most
dischargeable credit card debts) may be stopped permanently upon filing and
subsequent receipt of your discharge on the unsecured debt. There are timing
aspects to be careful of here though. If the lawsuit proceeded to the point
where a judgment was rendered then there may be judicial liens in play. Time is
of the essence in these cases.
Lawsuits related to secured debts, such as foreclosures on a
home, are stayed by the bankruptcy filing but depending upon the chapter you
file in the stay may afford only temporary relief.
15. What is the
difference between secured and unsecured debt?
Simply stated, unsecured debts are debts whereby if they’re not
paid, there is no specifically identified item of property for the creditor to
repossess. The distinction is far more complex than this; consult your attorney
for more information.
16. Can I discharge taxes, fines and
government penalties in bankruptcy?
Debts owed on federal taxes cannot be discharged in bankruptcy
unless they are for taxes that could have been last paid three years prior to
filing without penalty. There are other tests for dischargability as well. Note
that even though newer tax debts usually can’t be discharged in bankruptcy they
may be susceptible to repayment over time in a chapter 13 plan.
Fines and penalties are usually not dischargeable in bankruptcy.
17. Will I owe taxes on discharged debts?
No, not if they’re discharged in bankruptcy.
18. Do I have to go to Court?
Every debtor (with very limited exceptions) will have to attend
a Creditor’s meeting. The Meeting is conducted by the Chapter 7 or
Chapter 13 trustee and typically takes place about 4-5 weeks after the initial
filing. It is a chance for the Trustee to ask you questions about your
debts and assets as well as an opportunity for any creditors to show up and ask
questions as well. Typically, unless they are complicated cases, the
hearings are quite straightforward and very short. Your attorney may be
required to attend several more hearings, but typically a debtor’s presence is
not a requirement.
There are unusual circumstances where further appearances are
required or would be to your advantage. You should consult with your attorney
to discuss these circumstances.
19. I am not a U.S. citizen. Can I file
bankruptcy in the U.S?
Yes, provided you have a domicile, place of business, or
property in the U.S. But note that there may be certain complications regarding
claims of exemptions by undocumented immigrants.
20. I’ve filed bankruptcy on my own (pro-se) but
I’m in over my head. Can a bankruptcy attorney still help me?
An attorney may still be able to help but it depends on how big
of a mess you have made! This is done on a case by case basis and is best
discussed with an attorney.
IMPORTANT: THE INFORMATION CONTAINED IN THIS FAQ IS NOT INTENDED
AS LEGAL ADVICE. THIS FAQ IS NO SUBSTITUTE FOR YOUR OWN CONSULTATION WITH AND
REPRESENTATION BY A LICENSED ATTORNEY. BANKRUPTCY MAY APPEAR TO BE SIMPLE BUT
IT IS QUITE NUANCED AND VERY FACT SPECIFIC.
CUENANT & NAZARETH, PA IS NOT YOUR ATTORNEY
UNLESS YOU HAVE A WRITTEN RETAINER AGREEMENT WITH THE FIRM.
MOST OF THE INFORMATION IN THIS FAQ IS APPLICABLE ONLY IN
FLORIDA,
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