1. What is bankruptcy?

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.




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