Personal Bankruptcy – Chapter 7 and Chapter 13
A Fresh Start
Bankruptcy allows people to wipe away overwhelming debt, as well as the worry and stress that accompany it. Bankruptcy exists because even honest, hard-working people can have financial problems through no fault of their own. These problems are often caused by job loss, health issues, or change in family circumstances. The bankruptcy laws recongnize that when a person can’t pay back their debts, no matter how hard they try, it is better for both the individual and the economy to give that person a “fresh start” Call or email our office for a free bankruptcy consultation to talk to an attorney about how bankruptcy may help you.
Bankruptcy Frequently Asked Questions
What is Bankruptcy?
Bankruptcy is a process to allow an honest debtor a “fresh start” and to treat the debtor’s creditors in a uniform manner, depending on whether they are secured or unsecured. Most individuals will file a Chapter 7 or a Chapter 13 bankruptcy. A business or individual with a high net worth may file a Chapter 11 bankruptcy.
What is Chapter 7 Bankruptcy?
A Chapter 7 bankruptcy is often referred to as a “straight bankruptcy” because it liquidates the debtor’s assets. In this type of bankruptcy, the debtor is obligated to disclose, under oath, all the property he or she owns and surrender all the unexempt property to the Chapter 7 Trustee. Upon filing of the petition, all of the unexempt property is owned by the Trustee. The Trustee will sell or auction the property and distribute the proceeds to the creditors. The Trustee earns a fee from the proceeds as well. After all the proceeds are distributed, the debtor receives as discharge of all remaining debt. The Trustee may send an appraiser to the debtors house to appraise the value of their personal property.
In some cases, all of the debtor’s property will be exempt. This is called a “no asset case”. n those cases, all the debtor’s debts are discharged without the loss of any property.
A Chapter 7 bankruptcy usually last 4 to 5 months from filing the petition to receiving the final discharge.
Not everyone can file a Chapter 7 bankruptcy. Only persons whose income is below the median income under the “means test” may file a Chapter 7 bankruptcy.
A debtor may be able to keep their house or vehicle if they are current with their mortgage or car payment, although they may be required to sign a “reaffirmation agreement”. If the debtor is past due on a secured debt, such as mortgage or car loan, the creditor may seek permission to foreclose or repossess the vehicle.
Once a Chapter 7 bankruptcy is filed, it may not be voluntarily dismissed. However, the case may possibly be converted to a Chapter 13 case.
What is a Chapter 13 Bankruptcy?
A Chapter 13 bankruptcy is a payment plan bankruptcy available to persons with regular monthly income.
The amount of debt paid in a Chapter 13 plan depends on two factors, the debtor’s “disposable monthly income” and the value of the debtor’s unexempt property. The final payment is usually due about 30 days after the petition is filed. All payments under the plan must be paid to receive a discharge. The case can be dismissed if any plan payments are missed.
A debtor may be able to reinstate a past due mortgage in a Chapter 13 bankruptcy plan, or remove a wholly unsecured second or junior mortgage from real property.
In a Chapter 13 plan, the debtor may also reinstate a past due vehicle loan or loan secured by personal property. If the debtor has owned their vehicle for more than 910 days (2 1/2 years), they may even be ale to adjust the loan amount down to the current value of the vehicle. Sometimes, the interest rate can be adjusted as well. Loans secured by personal property owned more than one year may also be reduced to current value in the plan.
The Trustee in a Chapter 13 bankruptcy case is responsible for reviewing the case to make sure the debtor is paying as much as is required under the Bankruptcy Code. The Trustee is also responsible for collecting the plan payments and disbursing the proceeds to the creditor. In the Middle District of Florida, FortMyers Division, the Trustee charges a 10% fee of all play payments. This fee is used to fund the Trustee’s office.
A Chapter 13 may be dismissed voluntarily at any time.
What is the Cost of Filing Bankruptcy?
Chapter 7 Bankruptcy: The attorney fee for a Chapter 7 bankruptcy, depending on your assets and income, ranges from $1,000 to $2,500. The filing fee payable to the Bankruptcy Court is $335. Our office may open a file with a down payment of $350. The remainder of the attorney fee and filing fee must be paid prior to filing the bankruptcy petition. The Bankruptcy Code does not allow our office to acceptance payments after the case is filed because otherwise our office would be a creditor in your bankruptcy case. All payments made to our office are non-refundable.
Chapter 13 Bankruptcy: The attorney fee for a Chapter 13 bankruptcy ranges from $3,000 to $4500, depending on the factors of each case and the term of plan. $1500 is required when the contract for legal services is entered into. The filing fee payable to the Bankruptcy Court is $310, Any fees not paid prior to filing the bankruptcy case are included in the Chapter 13 payment plan. The Chapter 13 Trustee will pay our office the balance of the attorney free from your plan payments. All money paid to our office are non-refundable.
NOTE: If you have unexempt assets (see section: What is “Exempt” and “Unexempt” property), in many cases, it may be beneficial for you to pay the attorney free upfront because the expense of paying the attorney fee and filing fee will lower your assets and may result in your paying less overall in the plan. In other cases, it may be beneficial to pay the attorney fee up front because the current Bankruptcy Judge has a rule that unsecured creditors cannot be paid less than the amount of the attorney fees in the plan. This may result in you paying a larger amount in your bankruptcy case. Our office will discuss these issues with you prior to filing your case.
What is a Debtor in Bankruptcy?
A person who files bankruptcy is called a debtor. A corporation or business entity can be a “person” under the Bankruptcy Code.
What is a Creditor in Bankruptcy?
A creditor is any person or entity which can make a claim against the debtor or the Bankruptcy Estate.
What is the “Means Test” and “Disposable Monthly Income” in Bankruptcy?
The “means test” was enacted as part of the bankruptcy reform enacted in 2005. Its purpose is to force of the bankruptcy reform enacted in 205. Its purpose is to force above median income debtors to file a Chapter 13 bankruptcy rather than a Chapter 7 bankruptcy. To calculate the “means test’, we first determine the household income for the debtor or debtors over the six month period proceeding the month the bankruptcy is filed. We then take the six month average of that figure and multiply it by 12. This determines the average yearly income of the debtor. If this average yearly income is greater than the local median income for family of the same size, then the debtor or debtors are considered over median income. If a debtor is over median income, they cannot file a Chapter 7 bankruptcy.
In a Chapter 13 bankruptcy, once a debtor’s “current monthly income” is determined, the Bankruptcy Code requires that certain expenses are deducted from the debtors “current monthly income” to determine a debtor’s “disposable monthly income”. Some expenses which may be deducted under the “means test” are determined by a schedule of expenses established by the IRS. The schedule provides an average amount that a family needs for food, rental expenses, household expenses, and transportation. Other expenses on the mans test will be the debtor’s actual expenses, such as a house or car payment. An over median income debtor must commit all of his or her “disposable monthly income” to the Chapter 13 plan for a period of 60 months. An under median income debtor can have a 36 month Chapter 13plan. Many Chapter 13 debtors pay only a small percentage of their total unsecured debt back in the Chapter 13 Plan and the balance of the debt is discharged. A debtor with a larger amount of disposable monthly income may pay all of their unsecured debt through the plan but they do so without paying interest or late penalties. Past due taxes can also be paid in a Chapter 13 Plan.
In a Chapter 13 Bankruptcy, a debtor may reinstate a past due mortgage in the plan by paying the regular payment and repaing hte past due payment over a period of 36 to 60 months.
If a debtor has a second or junior mortgage or equity line, that debt could possibly be eliminated if the value of the house is less than the amount of the first mortgage.
Can I Save my House from Foreclosure in Bankruptcy?
In a Chapter 13 Bankruptcy a debtor may reinstate a past due mortgage in the Chapter 13 Plan, by paying the regular payment and repaying the past due payment over a period of 36 to 60 months. If a debtor has second or junior mortgage or equity line, that debt can possibly be eliminated if the value of the house is less than the amount of the first Mortgage. Currently the Bankruptcy Law does not allow a first mortgage to be reduced to current value or to adjust the interest rate or terms of the mortgage. If there are other foreclosure defenses available to you, those defenses can be raised in Bankruptcy Court.
What property can I keep? What is “Exempt” and “Unexempt” property?
People in bankruptcy are allowed to keep some property. Debtors are given an exemption in bankruptcy that can be applied against the property they would like to keep. Think of an exemption as a tag you place on your property which says ” I am going to keep this item.” In Florida, a person’s exemptions are determined by Florida Law. This is because Florida has opted out of the Federal list of exemptions. Things you can exempt under Florida Law include your homestead (the house you currently reside in), retirement accounts such a pension, IRA, or 401k, and a credit of $1000 against a vehicle for an individual and $2000 for a married couple. There is also a general exemption which can be applied to any personal property. The amount of the exempt depends on whether you have a homestead or if you rent. If you’re keeping your homestead the personal exemption is $1000 per individual or $2000 per married couple. If you rent or are surrendering your homestead in the bankruptcy your exemption would be $5000 for an individual or $10000 as a married couple. In a Chapter 7 Bankruptcy you have to surrender any property
you did not apply your exemption against to the Trustee. If the value of all your property is less than your total exemptions the case called a no asset case and you do not lose any property. In a Chapter 13 Bankruptcy, you can keep your unexempt property, however, you have to pay the value of the unexempt property over the life of the plan.
Must I disclose everything I own?
A debtor in bankruptcy must disclose under oath all the property that he or she owns. This includes both real and personal property owned by the debtor.
Real Property is land, houses, and buildings. Personal property is everything else. It includes tangible things such as cash, furniture, jewelry, antiques, appliances, televisions, and other electronics, tools, vehicles, boats, and mobile homes not attached to real property.
Personal property also includes intangible property such as bank or financial accounts, accounts receivables, money owed to the debtor, interests in corporations or businesses, stocks, bonds, tax refunds, deposits on leases or contracts, and rights to sue for any type of claim including personal injury claims.
If a debtor fails to disclose all property, he or she could be subject to criminal charges for perjury and will lose the property.
Will the Bankruptcy Stop the Debt Collectors?
When a bankruptcy is filed, an “Automatic Stay Order” from the bankruptcy judge automatically goes into effect. All creditors listed in the case will receive notice of the bankruptcy filing. Once the creditor receives notice of filing, the automatic stay prohibits the creditor from taking any steps to collect the debts. The creditors may then submit a Proof of Claim in the bankruptcy case, stating how much they believe they are owed and the basis for the claim. If the creditor’s debt is secured by a lien or mortgage on property and if the debtor is past due on the debt, the secured creditor may file a motion with the Bankruptcy Court for permission to complete a foreclosure in the case of real property or repossession of personal property.
What is a Proof of Claim?
A Proof of Claim is a claim made by a creditor of the debtor or the estate that states the amount claimed to be owed, the legal basis for the claim, and whether the claim is secured or unsecured. The debtor or the Trustee may object to a proof of claim which is barred by law or otherwise inadequate.
What is a Bankruptcy Trustee and a 341 Meeting?
A bankruptcy trustee is a person appointed by the Bankruptcy Court to ad minister the bankruptcy estate. The Trustee is usually an attorney. The Trustee does not represent the debtor or the creditors. The Trustee’s job is to review the case to make sure that the debtor is paying the full amount required under the bankruptcy code in a Chapter 13 case or is surrendering all unexempt property in a chapter 7 case. The Trustee will also review all proof of claims filed by creditors and may object to the claim if it is not valid. In addition, the trustee will interview the debtor under oat at a “341 Meeting”.
A 341 Meeting is also called a “meeting of the creditors” because creditors may appear and question the debtor along with the Trustee. The debtor’s attorney attends the 341 meeting with the debtor. The meeting is generally scheduled within 45 days of filing the case. It is not a court hearing, but the debtor must respond tot he Trustee’s questions while under oath. At the meeting, the Trustee usually asks the debtor about the petition, their assets, income, and their financial situation. Debtors should be prepared to document the information they provided on the petition. The meetings generally last between 10 to 20 minutes, depending on the complexity of the case.
What is a Discharge in Bankruptcy?
A discharge in Bankruptcy is the final order given by the bankruptcy judge is the final Order given by the judge which says that all your dischargeable debts are forever extinguished. This means that the creditors are forbidden to try to collect or enforce the debt.
What should I avoid doing prior to filing bankruptcy?
- Don’t use your credit cards once you have made your decision to file bankruptcy. Consumer debts incurred for luxury goods and serves owed to a single creditor in excess of $600 within 90 days of filing are presumed to be nondischargeable and may be found to be due and owing. Cash advances of more than $750.00 within 120 days of filing are presumed to be nondischargeable. Don’t jeopardize your “fresh start” by running up your credit cards prior to filing.
- Do not transfer any property out of your name or pay money back to a friend, family member, or business associates within the year prior to filing bankruptcy. If you have paid money or given property to someone, the Trustee can sue that person for the return of the property or money. It can also be deemed a fraudulent act under bankruptcy and state law.
- Do not cash out your retirement accounts or use your retirement accounts to pay debts. Retirement accounts are exempt under state and federal law. You can eliminate your debt and keep whatever you hold in IRA or 401k or other retirement accounts allowed under the IRS Code. Many individuals drain their retirement accounts in futile attempt to pay down credit card debt.
- Don’t take a loan against your home in an effort to reduce the equity or pay off credit card debts. often, mortgage brokers will tell you that this is a good way of consolidating credit card debt with a lower rate. Florida has an unlimited homestead exemption. No matter how much equity you have in your house creditors cannot touch it under the Florida constitution. A mortgage or lien placed on the house cannot be removed in bankruptcy unless it is fully unsecured.
- Do not miss an important deadline in a collection case or any other case pending outside of bankruptcy court. Consult with your bankruptcy attorney regarding any non-bankruptcy court hearings which are scheduled prior to the time you are going to file bankruptcy.
If you fail to file before a hearing is held on an issue or you miss a court hearing , you may waive important defenses or the decision of the non-bankruptcy judge may be considered binding even in the bankruptcy. - Do not lie or give false or incomplete information to your attorney. Your attorney will advise you based upon the information you provide. Your failure to disclose all your assets or to answer any of the questions truthfully on the bankruptcy petition or the questions from the Trustee may result in the loss of assets and in come cases, fines and imprisonment
How long will my bankruptcy affect my credit?
The answer to this question often depends on the individual. The fact that you filed bankruptcy will be listed on your credit report for 10 years. However, since after bankruptcy you will start with a clean slate, it is possible to have a decent credit score again within two to three years after filing if you pay your future obligations timely and use credit wisely.
Are There Any Debts Which Cannot Be Eliminated by Bankruptcy?
While bankruptcy will eliminate most debts, debts which cannot be eliminated include:
- student loans (in most cases)
- taxes which were incurred within the three years prior to filing bankruptcy
- debts associated with fraud or damages caused by crimes or driving under the influence of alcohol or other controlled substances.
- Domestic support obligations such as alimony and child support. You must be current with alimony or child support or pay the past due amount in the plan. Domestic support obligations are priority debts which are paid prior to any other creditor being paid in the plan.
What is a “Reaffirmation Agreement”?
Reaffirmation Agreements are required by most secured lenders of personal property including vehicles in a Chapter 7 bankruptcy. If you are current with the payment on a vehicle or other personal property, you can keep the property. However, the reaffirmation agreement states that you will be liable for the entire amount of the contractual debt if you fail to make your payments after the bankruptcy is filed. This means that if the creditor later repossesses the property they may seek a judgement against you for the difference between the amount the property was sold for after the repossession and the amount you promised to pay. If you refuse to sign the reaffirmation agreement, many creditors will repossess the property vehicle after you have filed bankruptcy even if you are current with.
What is the Bankruptcy Litigation Model?
Our office practices the “Bankruptcy Litigation Model”. Some attorneys treat bankruptcy as a limited event. Once you receive a discharge on your own. Even though the bankruptcy automatic stay and the bankruptcy discharge forbids creditors from attempting to collect on your debts in the future. Many creditors or bad debt buys restart their attempts to collect your debts after you receive a discharge. If you are reinstated a mortgage in a bankruptcy many services will add illegal fees and penalties or fail to show your account current even though you are under bankruptcy protection.
The Trunkett Law Firm aggressively defends your bankruptcy rights during the bankruptcy case and post bankruptcy. If debt collectors violate your bankruptcy protection, we can file an Adversary Proceeding against them in the Bankruptcy Court. In some cases, we may obtain a money judgment against the creditor on your behalf.
What do you have to do?
In order for the “Bankruptcy Litigation Model” to work, you have to help. You need to extensively document every attempt to collect debts made by a debt collector or creditor. You need to write down the date and time of each phone call and write down the phone number name of the caller, name of the creditor and any other information you can obtain concerning the identity of the collector. You also need to retain your phone bills as proof that you received the calls. We also suggest that you use a tape recorder when a bill collector calls. However, you must notify the debt collector that their call is being recorded and must ask for permission to record the call. If you fail to notify the debt collector, you may be violating the law.
Please notify our office immediately at 239-790-4529 if a creditor contacts you by phone or in writing in an attempt to collect a debt at any time after the case is filed.
What if I Owe Income Taxes or Other Taxes or Have Not Filed My Tax Returns Yet?
You must have filed all tax returns due for the four years prior to filing bankruptcy. You are required to provide a copy of the past two years tax return to the Trustee. Taxes on income for returns filed within the 4 years prior to filing your bankruptcy case are not dischargeable. Taxes are considered priority debts in bankruptcy. In a Chapter 13 case, all payments made to the Chapter 13 plan are paid to priority debts first. The IRS debt would be paid through the plan and incur no interest or penalties during the bankruptcy. Taxes that are more than 3 years old are usually discharged in bankruptcy. However, if a tax lien has been attached to real property, that lien cannot be removed from the property in most cases. Property taxes on real property must be paid if you are retaining the property. If the property taxes are not escrowed with the mortgage payment, past due property taxes can be paid over the life of the plan but an 18% interest rate would apply. If you are surrendering real property, your liability for property taxes would be discharged.
What is My Future After Bankruptcy?
The Trunkett Law Firm believes that bankruptcy is only the first step to your return to financial health. Our firm will aggressively defend your bankruptcy rights during the bankruptcy and after your discharge. We instruct you how to dispute inaccurate information on your credit reports.
Just because you file bankruptcy does not mean that you cannot build a good credit rating again. Although the fact that a bankruptcy was filed will appear on your credit report for p to 10 years, the negative effect of the bankruptcy will diminish yearly. In fact, your credit score after bankruptcy will be affected more by your future use of credit.
If you retained a house loan or a car loan that you had prior to bankruptcy and made payments on time, this may be a positive account on your credit report.
Generally, you need three trade lines to build a credit score. IF you do not have any trade lines ope after filing, you will need to apply for credit starting as year after you file. You do n0t have to have large credit lines to have a decent credit score. The most important factors in your credit sore is never paying late. Another important factor is not borrowing more than 1/2 of your credit limit. Most lenders consider a good credit score to be 680 and above.
You should also obtain your free credit report each year. You can order your report from www.annualcreditreport.com. Please contact our office before you decide to purchase a new home. Our attorneys also practice Real Estate Law and have extensive knowledge about mortgages and obtaining a loan. Unfortunately, during the real estate boom, few buyers sought the advice of an attorney that represented them in the transaction. Our office can assist you in finding a house, qualified real estate agent, mortgage, and issuing title insurance and closing the transaction. Please call us at 239-790-4529.