Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the most common type of bankruptcy and is often referred to as a "liquidation bankruptcy."  In Chapter 7, all of the debtor's assets, other than those types of assets specifically exempt from liquidation by statute, are turned over to a bankruptcy trustee for sale.  Sale proceeds, if any, are distributed among the creditors.  Most Florida Chapter 7 debtors have little non-exempt personal property because of Florida's liberal exemption laws.  Chapter 7 bankruptcy is used to eliminate, or discharge, primarily unsecured debts such as credit cards or medical bills.  Chapter 7 does not eliminate secured debts, such as vehicles (unless the secured item is surrendered).  Chapter 7 will not save a house from foreclosure nor a car from repossession if you are delinquent in payments. 

Any person residing, domiciled, or having property or a place of business in the United States may file Chapter 7.  A business may also file a Chapter 7.  There are currently no minimum or maximum income limits or other income requirements or limitations for people whose unsecured debts are primarily non-consumer debts such as investment liability, business losses, taxes, or student loans.

The new bankruptcy law includes a "means test" which applies an income vs. expense test in order to file Chapter 7 bankruptcy.  If your income is below the median income for families in Florida, based on Census Bureau statistics, you will be eligible. If you make more than the median income for families in Florida, your income over the past six months is considered, along with mortgage and car payments, back taxes and child support due, and school expenses up to $1,500 per year. You won't be eligible for a Chapter 7 bankruptcy if, after deducting these amounts, and the living expenses provided in the Internal Revenue Service's national collection standards, you can still pay at least $6,000 ($100/month) to unsecured creditors over five years. If you don't qualify for a Chapter 7 bankruptcy, your only option would be a Chapter 13 bankruptcy.

Under the new bankruptcy law, only people who pass the "means test" may file a Chapter 7 bankruptcy. People who fail the means test have to file Chapter 13 bankruptcy. The means test is a complicated mathematical formula. Your bankruptcy attorney can run a means test using bankruptcy software after he collects necessary information from you.

In Florida, for cases filed after February 1, 2008, the median income for a single wage earner is $40,036; for a family of two, it is $50,636; for three, $56,923; and for four, $66,876. Add $6,900 for each individual in excess of 4.

Starting on October 17, 2005, you must obtain approved credit counseling before you can file bankruptcy. Federal bankruptcy requires that you must file any overdue tax returns within weeks of filing a Chapter 7 bankruptcy.

Filing Chapter 7

A bankruptcy starts with the filing in bankruptcy court of the official petition and a lengthy document called a Statement of Financial Affairs. This statement contains extensive schedules requiring a detailed list of all your debts, including:

• All priority debts (including taxes)  
• All "secured" debts (including home mortgages and auto loans) that have property as "collateral"  
• All unsecured debts of any kind  

Other information that must be provided on the Statement of Financial Affairs includes:

• The names and addresses of the creditors  
• A list of all assets, including real estate and all forms of personal property   

It is extremely important that the statement of financial affairs be completed accurately. Debts that are not listed in the statement will not be discharged at the completion of the bankruptcy proceeding. Failing to list assets in an attempt to hide them from creditors may result in serious consequences, including the denial of discharge or charges of bankruptcy fraud.

Creditors are immediately prevented from trying to collect on your debts through what is called an automatic stay. The stay is designed to preserve your property and to give you a break from litigation.

Anyone you owe - or anyone who wants to continue collection proceedings during the bankruptcy process - must show the bankruptcy judge, after a hearing, that there is "cause" to be allowed to continue with collection action (for instance, by showing that the property might deteriorate in value during the bankruptcy process).

The trustee takes control of any property you do not get to keep. From the sale of your property, the trustee pays the expenses of the administration of the case, and then gives any remaining money to creditors with allowed claims, according to the priority of the claims (with claims that are "secured" by property being paid first). Any wages you earn after you file the case are yours, beyond the reach of creditors who had claims on the date you filed for bankruptcy.

341 Meeting 

After the bankruptcy is filed, you must appear at the first meeting of creditors. The trustee can ask you questions under oath about your property and debts. Creditors can also question you on those subjects, but seldom do.

Generally, the only responsibility you have after the 341 meeting is to cooperate with the trustee in providing any requested information.

Creditors have 60 days after the 341 meeting to convince the bankruptcy court you shouldn't be allowed to jettison your debts.

The trustee may review your income and expenses to see if you have enough money left after your current living expenditures to pay something to creditors.

What you can keep

You can claim a homestead exemption and keep the property you live on, as long as it's not larger than 1/2 acre inside a municipality or 160 connected acres elsewhere.

A bankruptcy doesn't wipe out voluntary liens, like mortgages and deeds of trust, or tax liens. So the lender still has the right to foreclose if you don't pay. If you pay, everyone is happy. Remember, the lender doesn't want the property; it wants you to pay regularly on the loan. Foreclosure is a last resort for the lender if it concludes it can't get the owed money any other way.

You can exempt a motor vehicle up to $1,000 in equity, any personal property up to $1,000 (spouses can double), and any health aids. If you still owe money on the car, you can choose to reaffirm the debt to the secured lender. Under the new law, you have to reaffirm your car loan within 45 days after the "341 meeting." You no longer have the option of continuing your car payments without reaffirming the loan. Once the loan is reaffirmed, if you default on your payments and the car is repossessed, you are liable for the repossession deficiency.

You also have the option to redeem the car within 45 days of the 341 meeting by buying it from the secured creditor in a single payment for its present value."

Under Florida bankruptcy laws, you can keep:

• Unemployment, disability, veterans' and social security benefits  
• Alimony   
• Retirement plan and life insurance proceeds  
• Business partnership property  
• Any personal property, up to $1,000 in value  
• Any professionally prescribed health aids  
• Crime victim and workers' compensation  

 If you have any questions or would like to retain us to represent you, please contact us.