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 General Bankruptcy Questions

 

What is a Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy is the most commonly known type of bankruptcy, a federal court procedure which offers individuals and corporations relief from their debts through a discharge of most, if not all, debts.

A chapter 7 bankruptcy is also referred to as a liquidation bankruptcy because the Trustee (the court-appointed administrator of your case) can sell or liquidate your assets for the benefit of creditors.

What is a Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy allows you to keep all of your property (unlike the Chapter 7), but you will have to pay back all or a portion of your debts during a payment plan which can last anywhere between 3-5 years. This Chapter 13 Plan is submitted to the court as an initial proposal and  is subject to confirmation by the Trustee assigned to your case.

Your payment plan’s length is determined by your income and the total amount of your debt.  You will have to present a five year plan if your average monthly income over the previous six months before you file bankruptcy is greater than the median income of a family of the same size in your state (Click here to see median incomes by state). If your average monthly income over the previous six months before filing is less than the median amount, you can present a three year plan. You can choose to repay the debt to the court earlier than the proposed plan, and the plan will come to an end at that point.

Should I file for Bankruptcy?

Deciding to file for bankruptcy is a serious choice, and should generally be considered once you have tried all other options. Consider some of the following questions:

Do you find that your debts have become unmanageable?
Have you lost a job or income due to the recession and are struggling to keep up with just the minimum payments on your debts?
Have you or your spouse incurred significant debts due to an illness, divorce, or other change in circumstances?
Are you experiencing significant stress  and difficulty functioning in your daily responsibilities due to worry over unpaid debts?
Have you tried other methods of dealing with debt, including negotiating with creditors, seeking financial counseling, and joining debt management programs?

If you answered yes to one or more of the above, then bankruptcy may be the right choice for you. However, this is a complex question that should not be answered lightly, and would be best consulted with a qualified and knowledgeable attorney who can help you determine if filing for bankruptcy is the best option for you.

Click here to contact us and schedule a free consultation with the attorney.

 

Which Type of Bankruptcy is best for me?

If you have decided to file for bankruptcy, you should consult with a qualified bankruptcy attorney before determining which type of bankruptcy you should file.

If you meet eligibility for both a Chapter 7 and Chapter 13 bankruptcy, you may be able to choose which type to file depending on which one would provide the greatest benefit in your situation. See below for more information regarding eligibility.

The first criteria the court looks at when determining eligibility for a Chapter 7 is whether your income is higher than the median income of a family of the same size in the state of Florida. If it is higher than this median, you will have to satisfy  another requirement to be eligible for a Chapter 7 -  if your disposable income, after deducting certain allowable expenses (expenses determined by IRS guidelines) and required debt payments, would allow you to pay back some portion of the unsecured debt over a five-year repayment period, you will be required to file a Chapter 13 bankruptcy.

However, filing a Chapter 13 bankruptcy can and does have its benefits, especially for debtors who are behind on payments, such as mortgage payments in arrears, and would like to catch up on these payments within the Chapter 13 payment plan. See the question “What are the benefits to a Chapter 13 Bankruptcy?” for a more comprehensive understanding of those benefits.

 

Click here for more information regarding Chapter 7 eligibility.

Click here for more information regarding Chapter 13 eligibility.

Will filing for bankruptcy wipe out all of my debts?

If you are granted a discharge of debts in a Chapter 7 Bankruptcy, most, if not all, of your debts will be removed.  This means that a creditor cannot legally continue collection efforts or legal remedies against you for a debt that has been discharged in the bankruptcy.

There are some debts that are considered non-dischargeable in a Chapter 7 Bankruptcy, however, and these include debts involving alimony and child support, certain taxes, debts for certain educational benefit overpayments, student loans made or guaranteed by a governmental unit, debts for willful and malicious injury by the debtor to another entity or to the property of another entity, debts for death or personal injury caused by the debtor’s operation of a motor vehicle while intoxicated, and debts for certain criminal restitution orders.

If you have incurred any of the types of debts mentioned, you will still be responsible to pay these. Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for willful and malicious injury by the debtor to another entity or to the property of another entity will be discharged unless a creditor timely files and prevails in an action to have such debts declared nondischargeable. 11 U.S.C. § 523(c); Fed. R. Bankr. P. 4007(c).

In addition, consumer debts owed to a single creditor and totaling more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the Order of Discharge are considered nondischargeable, as well as cash advances totaling more than $750 that were obtained through an open end credit plan of the individual debtor on or within 70 days before the Discharge.

When considering which of your debts can and will be discharged in a bankruptcy we advise you to consult with a qualified and knowledgeable attorney who will be able to counsel you on the dischargeability of your debts in a bankruptcy.

How will filing for Bankruptcy affect my credit?

Many of our clients are concerned that filing for bankruptcy will end their creditworthiness forever. This is because a bankruptcy filing will stay on your credit report for ten years and can result in a huge drop in your FICO score. 

However,  filing for bankruptcy will not hurt your credit much more than the current financial circumstances which lead you to file – having large and past due debts as well as foreclosure lawsuits will have a negative impact on your credit.

Other items that can adversely affect your credit are high credit card and revolving account balances, continuously paying late on your accounts, having a debt charged off, settling or negotiating a debt with a creditor, deed-in-lieu of foreclosure, short sales, and unpaid judgments from collections lawsuits. These negative items will stay on your credit report for up to seven years, and can stay on your report even longer if you choose to do nothing about them. Ruling out bankruptcy just because you are worried about your credit score is not a good idea.

Bankruptcy can help you qualify for a loan modification…

One important thing to consider is that having outstanding debt can greatly affect your chances of obtaining a mortgage loan modification. Because banks use a simple debt-to-income ratio to approve clients for modification (not your credit score), choosing not to file for bankruptcy may be a big mistake.

Will I still be able to obtain credit after filing?

Though you may not be able to obtain credit with favorable interest rates, the fact is that many of our clients receive credit card offers and credit solicitations right after filing for bankruptcy. These offers will usually require high annual fees and will have more limitations, but there are plenty of companies willing to offer credit, even to bankruptcy filers.

It is probably a good idea to assess your financials and spending habits before obtaining credit right after a bankruptcy, since rebuilding your credit will require discipline and much caution. Evaluate the reasons that led you to file for bankruptcy in the first place and avoid accumulating debt right away – be advised that there are strict rules on when you can file for bankruptcy again.

We generally advise debtors to try to obtain a secured credit card card or secured line of credit to rebuild their credit. And most importantly we urge individuals to remember that the point of a bankruptcy is to help you get out of debt and be able to save, not help you borrow more money in the future.

Do I have to list all of my debts in a bankruptcy?

Yes, you must include a list of all of your debts on your bankruptcy schedules, even debts that are non-dischargeable or secured.

However, you can choose to reaffirm any debt you choose after the filing.  Or, you can voluntarily pay a creditor after you receive a discharge, without becoming legally liable to continue paying.

Thus listing a creditor does not prevent you from paying creditors you wish to pay after bankruptcy.

Also, omitting a credit card company from your schedules, because you want to retain the use of the card, does not assure continued access to the card:  most major credit card issuers use a national data base to determine who has filed bankruptcy, independently of the court’s notice to them of bankruptcy filings. They routinely cancel cards of everyone who has filed bankruptcy, whether or not a balance is owed.

You can’t assure that your creditors won’t find out about your bankruptcy by not listing a debt.  And omitting a debt constitutes perjury which could result in your discharge being denied.  See denial of discharge

 

Can I keep a credit card after the bankruptcy?

 

 

Chapter 7 Bankruptcy Questions

Will I have to pay money to the court if I file Chapter 7?

It is a common misconception that filing for Chapter 7 Bankruptcy means anyone can walk away from their debts free and clear and keep all of their property. Although this may be true for some individuals, for many others filing a Chapter 7 Bankruptcy may require paying back some amount to the Trustee, who then distributes this to the creditors. This amount is determined by the value of your non-exempt assets.

What is a non-exempt asset? Well, first you must understand how the bankruptcy court arrives at the value of your assets in general. The attorney handling your case will ask you to provide a thorough inventory of all of your assets and the current day market value of those assets. Then, the attorney protects the assets by applying Florida exemption statutes to them, in essence making them legally “exempt” from your creditors. The exemptions available to each debtor will differ based on various factors such as whether they are filing an individual or joint bankruptcy, whether they will be keeping their home and applying the homestead exemption, and whether the individual filing is head of a household, among others.

Any value in your assets that cannot be protected is technically considered non-exempt, and the Trustee may require that you either turn in these assets or pay back to the court the total value of these.

Also, some individuals may have to give up their tax refunds for the following tax year, depending on when you file bankruptcy.

Due to the various issues involved in application of Exemption Laws to your property, it is best to consult with a qualified bankruptcy attorney who can tell you whether your assets will be classified as non-exempt, as well as develop a strategy for when to file and how to apply exemptions in your case.

Click here to contact our office.

Chapter 13 Bankruptcy Questions

Will filing for bankruptcy wipe out all of my debts?

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