If you find yourself unable to pay your bills, crushed under a mountain of debt, we know the stress, anxiety, and sadness you are feeling. Ignoring unpaid debts can have serious consequences, so it is important that you take steps to conquer your debts and put yourself back on the road to financial stability.
Filing for Chapter 7 bankruptcy is one of the most common methods people use to resolve their unmanageable debts and give themselves the opportunity for a new start in life.
Our Fort Lauderdale bankruptcy attorneys have decades of experience helping people pursue Chapter 7 bankruptcy. Let our attorneys work with you to help you understand whether Chapter 7 is a viable option for your situation and help you achieve the debt management solutions that will allow you to conquer your debt.
Contact us now for a free discussion about your situation and your best options.
How Does Chapter 7 Bankruptcy Work?
Chapter 7 is the process of liquidation of a debtor’s estate under the Bankruptcy Code. This is in contrast to Chapter 11 and Chapter 13 that govern the process of reorganization of a debtor’s finances. Chapter 7 bankruptcy works slightly differently for businesses and for individuals.
When a business files for Chapter 7 bankruptcy, it must immediately cease operations unless a trustee appointed by the bankruptcy court continues business operations. The trustee has authority to review the debtor’s business affairs and is responsible for liquidating, or selling, the business’s assets and distributing the sale proceeds to the business’s creditors.
Typically, secured creditors are paid first, since they have a legal right to the value of the collateral securing their loans. A creditor is considered fully secured if the value of the collateral equals or exceeds the value of the debt. A fully secured creditor cannot participate in distributions of liquidated assets.
Although Chapter 7 is considered a liquidation, for a business debtor once the bankruptcy case is closed and all assets administered, any remaining debts of the business are not discharged and continue to exist until the end of the statute of limitations
An individual may file for Chapter 7 bankruptcy provided he or she has not had a prior bankruptcy petition dismissed within the last 180 days. In a liquidation bankruptcy for an individual, the debtor is allowed to keep certain exempt property. In addition, certain liens or debts – such as mortgages, car loans, student debts, recent income tax liabilities, and domestic support orders – will survive the bankruptcy.
Otherwise, any non-exempt assets belonging to the debtor are sold off with the proceeds used to pay creditors. Most unsecured debts are discharged at the end of the bankruptcy once all assets have been administered and proceeds paid out to the creditors. Generally speaking, unsecured creditors will only receive a fraction of the debt owed to them.
Florida Chapter 7 Means Test
In Florida, if a person wishes to file for Chapter 7 bankruptcy, they must meet the specific means test for Chapter 7 petitions filed in the bankruptcy courts in Florida. A debtor is exempt from the means test if his or her debts are primarily not consumer debts or if the debtor is a disabled veteran who incurred his or her debts during active duty or homeland defense activities.
A debtor automatically meets the Chapter 7 means test if his or her annual household income (the total income being earned by all individuals in the debtor’s household, not just the debtor’s income) is below the median annual household income in Florida for an identically sized household.
If a debtor’s household income exceeds the median Florida household income, then the debtor must complete the means test by calculating income and expenses. The means test looks at a debtor’s last six months of disposable income to determine whether the debtor’s disposable monthly income is greater than a specific portion of their debts.
Even if a debtor’s disposable income is greater than a specific portion of their debts, a debtor can still obtain a Chapter 7 bankruptcy by establishing “special circumstances,” usually by providing evidence of additional expenses, loss of income, medical emergencies, or being called up to active military duty.
Florida Chapter 7 Bankruptcy Exemptions
Much of the litigation in a Chapter 7 bankruptcy revolves around the debtor trying to exempt various assets and property from liquidation. The Bankruptcy Code sets forth a list of property that can be exempt from liquidation in a bankruptcy estate.
However, the Code also allows states to “opt out” of the federal exemptions and establish their own list of exemptions. Florida is one such “opt out” state. A debtor in Florida must use the Florida Chapter 7 bankruptcy exemptions if he or she has lived in Florida for at least two years prior to filing for bankruptcy. If he or she has lived in multiple states, the debtor must use Florida exemptions if he or she has lived in Florida for a majority of the 180-day period immediately preceding the two years prior to filing.
Florida’s Chapter 7 bankruptcy exemptions include:
- Homestead exemption – A debtor can exempt an unlimited amount of equity in a homestead so long as the property isn’t larger than half an acre in a municipality or 160 acres elsewhere. The debtor must have also owned the homestead for at least 1,215 days prior to the bankruptcy filing.
- Personal property – A debtor may exempt up to $1,000 of personal property, such as furniture, electronics, or clothing. A debtor may also exempt education, health, and hurricane savings, prescribed health aids, a prepaid medical or health savings account, tax credits, and particular partnership property.
- Motor vehicle – A debtor may exempt up to $1,000 of equity in a motor vehicle.
- Wages – The wages for the head of a household are exempt up to $750 per week, or the greater of 75 percent or 30 times the federal minimum wage. Wages for persons other than a head of household are subject to the latter exemption.
- Pensions and retirement funds – Includes most ERISA-qualified retirement plans and pensions, such as IRAs, 401(k)s, and SEP plans, in addition to public employee retirement benefits, firefighter and police pensions, and teachers’ retirement benefits.
- Life insurance and annuities – This includes proceeds from a life insurance policy, the cash surrender value of a life insurance policy or annuity, disability income benefits, and fraternal society benefits.
- Public benefits – This includes veterans’ benefits, reemployment assistance, local public assistance, workers’ compensation benefits, unemployment compensation benefits, and social security benefits.
- Alimony and child support payments – These are exempt to the extent reasonably necessary for the support of the debtor and dependents of the debtor.
- Wildcard exemption – A debtor may exempt up to $4,000 in any property if he or she is not using the homestead exemption.
Many of the exemptions with dollar limits have increased dollar limits if a debtor is filing for bankruptcy jointly with a spouse.
What Debt Can Be Discharged in Chapter 7 Bankruptcy?
Chapter 7 bankruptcy typically allows for the discharge of most unsecured debts and some secured debts. Examples of unsecured debts that are frequently discharged in Chapter 7 bankruptcy include:
- Most credit card debts
- Medical bills
- Utility bills
- Unpaid rent
- Personal loans
Many secured debts can also be discharged. However, a discharge does not operate to terminate the creditor’s lien on the secured property. As a result, the creditor will still retain the right to recover the property if any debt balance remains outstanding after discharge. Thus, in order to secure a discharge of secured debts in Chapter 7 bankruptcy it is usually necessary to surrender the property that serves as collateral for the secured.
What Debt Cannot Be Discharged in Chapter 7 Bankruptcy?
Certain kinds of debt cannot be discharged in a Chapter 7 bankruptcy, including:
- Student loan debt – unless the debtor is able to demonstrate to the bankruptcy court’s satisfaction that not discharging the debt would pose an “undue hardship” to the debtor
- Debt incurred through fraud or false pretenses – including items purchased on credit that the debtor had no intention of repaying, or credit obtained via misrepresentations
- Luxury purchases (more than $725) or cash advances (of more than $1,000) obtained immediately prior to bankruptcy – unless the debtor can prove the purchase was reasonable under the circumstances
- Money judgments from a lawsuit
- Recent income tax liabilities
What Is a Reaffirmation Agreement?
A reaffirmation agreement is an agreement between a debtor and a creditor that waives the discharge of a debt that would otherwise be discharged in a bankruptcy. A valid reaffirmation agreement has the effect of modifying the discharge ordered by the bankruptcy court such that the discharge has no effect against the debt that is the subject of the agreement.
Typically, reaffirmation agreements are used by debtors to keep assets that would otherwise be liquidated in a Chapter 7 bankruptcy, such as a vehicle. A creditor who issued a car loan for the vehicle, and therefore has right to the vehicle as collateral, may allow the debtor to keep the vehicle if the debtor promises to continue paying the car loan in a reaffirmation agreement.
Reaffirmation agreements are completely voluntary but must in most cases be approved by the bankruptcy court. A debtor may rescind a reaffirmation agreement by the entry of the discharge order or 60 days after the reaffirmation agreement is filed with the court, whichever is later.
How Can Our Chapter 7 Bankruptcy Lawyers Help You?
At Loan Lawyers, we understand that overwhelming debt can negatively impact every aspect of your life. Our bankruptcy lawyers can help you by reviewing your case and helping you understand your rights and options for resolving your debt, helping you to choose the best option for your situation.
If Chapter 7 bankruptcy is you best choice for resolving your debts, our attorneys stand ready to work hard to prepare your bankruptcy filings and help you through the Chapter 7 bankruptcy process. We will fight to keep as much of your property and assets as you are entitled to under the law. We will work with your creditors to resolve as much of your debts as possible so that you exit bankruptcy with a fresh start.
If you are considering Chapter 7 bankruptcy, contact the bankruptcy attorneys at Loan Lawyers today to schedule a free consultation to learn more about your rights and options and how our legal team can help you find the peace of mind you deserve.