—–The most important thing about bankruptcy to understand is that everyone’s financial situation is unique and how a bankruptcy effects you depends on many things, especially where you live. States can adopt federal exemptions or create their own, and districts within states may adopt their own “local rules” so there can be a lot of inconsistency from state to state or district to district. While the differences between Chapter 7 and Chapter 13 may seem clear cut there are many issues, rules, and rights you need to understand about the bankruptcy process before you come to a decision on what’s best for you. Bankruptcy may not solve all your problems but it can give you the breathing room to recover and the opportunity to rebuild your financial security.
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277-0777
Consultations must be in person! If you can’t travel to the Panama City region, search for an experienced consumer attorney in your area at www.NACA.net.
Bankruptcy Basics
—–The U.S. Bankruptcy Code offers consumers two forms of bankruptcy protection: Chapter 7 and Chapter 13. In general Chapter 7 bankruptcy is used to discharge unsecured debt like credit cards and medical bills, while Chapter 13 bankruptcy is typically used to help people facing foreclosure or vehicle repossession keep certain property (and continue to pay for it) by catching up on the arrearages through a repayment plan. A Chapter 7 is called “straight liquidation” and a Chapter 13 is called “reorganization.” While most people believe that bankruptcy “wipes out debt” this is not legally true. What bankruptcy really does is to make discharged debt FOREVER uncollectible by anyone or entity. It is also not true that you will lose everything by filing. Every state has exemptions and basically you can keep any secured property you can afford to keep paying for.
Pre-Filing Credit Counseling and Post-Filing Debtor Education
—–As part of the new bankruptcy law, you must obtain a credit counseling briefing from a United States Bankruptcy Trustee certified agency prior to filing a Chapter 7 or Chapter 13 bankruptcy, and a financial management briefing prior to discharging a Chapter 7 or 13. (See Links). These courses are typically called Credit Counseling (taken within 6 months of filing) and Debtor Education (taken prior to the Discharge Order entry.) The US Trustee’s office has a list of certified providers. Most providers offer the class online as well as in other formats. The classes are easy but unfortunately way too little, way to late and so are really intended to punish you for having financial trouble. Our office will recommend an inexpensive provider you can trust and walk you though all the requirements.
First, let’s define some terms.
- Bankruptcy Estate: the virtual but legal entity created when a bankruptcy is filed.
- Exemptions: the dollar value of property that you get to automatically keep (exempt) from the bankruptcy estate.
- Discharge: the elimination of personal liability (responsibility) for paying a debt. Note: not all debts are dischargeable!
- Bankruptcy Automatic Stay: the Court imposed prohibition of any continued or new debt collection actions outside of the bankruptcy estate. Creditors and collectors must gain permission from the Court to begin or continue any collection action once a case is filed, and post-filing collection activities are pre-defined, specific and limited.
- Chapter 13 Plan: the financial repayment plan or reorganizational plan to catch up arrearages and/or to pay off some or all debt.
- Bankruptcy Petition: the legal documents and forms that report your particular financial picture to the Court and the appointed Trustee.
- Trustee: (in Florida) a contracted attorney who is appointed to administer the bankruptcy estate. Basically, a trustee is a court appointed debt collector.
- Secured Debt: debt that is secured (tied to with a lien) by real or personal property. Typical examples are mortgage, vehicle, boat, motorcycle loans and some financial accounts. Basically, if a creditor can legally take it from you if you default (stop making payments) then it is secured.
- Unsecured Debt: debt not under lien or secured. Examples are credit card debt, medical bills, or other deficiencies such as judgements or garnishments. IRS debt is usually unsecured but unfortunately not dischargeable.
- Equity: Generally speaking, it is the difference between what your secured property is worth (fair market value) and balanced owed on it. For example if your car is worth $7,000 and you owe $5,000 on it then you have $2,000 in equity. If you owe more than the property’s worth then you have no equity– you are upside down.
- Means Test: the financial criteria that determines what chapter of bankruptcy a person is eligible to file. In Florida, your income must be at or below the median for a family of your size in order to file a Chapter 7.
Chapter 7 Bankruptcy:
—–Under this chapter, unsecured debt is “discharged” which means once the bankruptcy is final the debtor never has to pay those debts again ever. Chapter 7 is often referred to as “liquidation” because the bankruptcy trustee in your case has the option of liquidating (selling) your non-exempt assets in order to pay back some or all of your creditors. However, the fact is MANY Chapter 7 bankruptcy filiers DO NOT HAVE ANY UN-EXEMPT PROPERTY, meaning that there may be nothing or not enough left over to sell. Since BAPCA, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, you must pass a Chapter 7 means test in order to qualify.
Chapter 13 Bankruptcy – The Repayment Plan
—–Under this chapter, you will enter into a repayment plan with your creditors through the Court (administered by a trustee) over a three to five year period. The plan will pay off some or all of your debt and no interest will be charged on any arrearages. Chapter 13 will stop foreclosure or repossession provided you can afford to begin making the original scheduled payments and make the plan payments at the same time. Generally the plan payment is the difference between your gross income and allowable expenses. While Chapter 13′s can solve many issues, they are extremely detailed and all sorts of rules, laws, and situations can affect the payment and outcome. You must be able and committed to successfully complete this type of bankruptcy.
WHICH CHAPTER IS RIGHT FOR ME?
Consider Chapter 7 bankruptcy if you:
- have limited and/or fixed income below the state median for a family of your size.
- have little personal property except basics like furniture, late model vehicles, and clothing. (In Florida you can usually exempt your homestead under most circumstances.)
- have little to no money left after paying your basic monthly expenses.
- are being garnished or sued on debts you can’t afford to pay.
- have secured property and debt you can no longer afford and want to surrender without incurring a deficiency or judgement.
- have unsecured debt you cannot afford to pay now or in the foreseeable future.
Consider Chapter 13 bankruptcy if you:
- are above the median income for a family of your size.
- have regular income and the ability to pay your living expenses plus a repayment plan.
- have a LOT of equity in a home or another piece of property that you want to keep.
- got behind on secured debt on property you want to keep but now have the income to catch up over time.
- have secured property you want to legally surrender without incurring a deficiency.
- are in or about to be in foreclosure and can afford to catch up arrearages in a plan over time.
- are being garnished or sued on debts you can afford to pay in a plan over time.
FOR A FREE INITIAL CONSULTATON CALL (850) 277-0777
Consultations must be in person! If you can’t travel to the Panama City region, search for an experienced consumer attorney in your area at www.NACA.net.
850-277-0777, PO Box 330, Lynn Haven, FL 32444, email: mikelawbk@gmail.com.
Nothing contained on this website constitutes legal advice, and no attorney-client relationship exists either expressed or implied. If you have specific legal questions seek the advice of an attorney.