Should I file Bankruptcy?

If you cannot afford to pay your debts, generally the answer is yes. If you are being sued or harassed by creditors or if your property is in foreclosure, you should definitely give it consideration. If your affairs have been fraudulent or if you can afford to pay your debts and you just don't want to, the answer is probably no. For credit cards and other unsecured debt, you should figure as a rule of thumb that you should be able to pay at least $300 a month from your earnings for every $10,000 you owe. If you cannot afford this kind of payment, you will probably never be able to get out of debt. If the interest and late charges are piling up faster than you are reducing the outstanding balances, ultimately you will reach a financial breaking point. Balance transfers just postpone the inevitable.

What Is Bankruptcy?

Bankruptcy is a legal proceeding in which a person who cannot pay his or her debts can get a fresh financial start. Its purpose is to obtain a federal injunction, called a stay that does basically two things. First it stops harassment. Once you have filed for bankruptcy, creditor calls and letters must stop. If you have retained a bankruptcy attorney, usually creditors will voluntarily leave you alone for a short period until you do file your case. Second, bankruptcy stops most lawsuits and legal actions against you, including wage garnishments, bank account garnishments, foreclosures, sheriff's levies and IRS levies. It generally does not stop actions for alimony or child support or criminal proceedings. The right to file for bankruptcy is provided by federal law. All bankruptcy cases are handled in federal court, which has paramount jurisdiction over all other courts.

Is Bankruptcy Morally Right?

Bankruptcy is provided for in the United States Constitution. In the Bible Deuteronomy 15 debts are canceled every 7 years. Credit card companies generally write off 2-3% of their accounts receivable, which is more than offset by the 18% interest they charge, in addition to the excessive late charges, annual fees and merchant discounts. It is the most profitable area of banking, which is why so many solicitations for credit cards are sent out. The credit card companies are not losing any money, and are less in need of sympathy than the person who has been through an illness, job loss, divorce or business loss. Bankruptcy is strictly a protection from creditors. It does not prevent you from paying back creditors later, if you morally feel obligated to do so. Creditors can take bankruptcy debt as a tax write off so they don't mind in most cases, as it saves them time on fruitless collection action.

What Can Bankruptcy Do for Me?

Bankruptcy may make it possible for you to:

  1. Eliminate the legal obligation to pay most or all of your debts. This is called a "discharge" of debts. It is designed to give you a fresh financial start.
  2. Stop foreclosure on your home and allow you an opportunity to catch up on missed payments. Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment. However in some cases, where the liens are more than the value of the collateral, the liens may be "stripped."
  3. Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
  4. Reinstate driver's licenses suspended for non-payment of accident damages.
  5. Remove judgments and other liens from your home and property.
  6. Discharge income taxes over three years old, under certain conditions.
  7. Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
  8. Restore or prevent termination of utility service.

What Can Bankruptcy Not Do?

Bankruptcy cannot, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:

  1. Eliminate certain rights of "secured" creditors. A "secured" creditor has taken a mortgage or other lien on property as collateral for the loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy caneliminate your obligation to pay any additional money if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt.
  2. Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and some taxes.
  3. Protect cosigners on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.
  4. Discharge debts that arise after bankruptcy has been filed.

What Different Types of Bankruptcy Cases Should I Consider?

There are basically two types of bankruptcy cases most commonly used by consumer debtors.

Chapter 7 is known as "straight" bankruptcy or "liquidation." It requires a debtor to give up property, which exceeds certain limits called "exemptions," so the property can be sold to pay creditors.

Chapter 13 is called "debt adjustment". It requires a debtor to file a plan to pay debts or parts of debts from current income. It allows a debtor to save a home from foreclosure and not to have to liquidate their property.

There are also Chapter 11, known as "reorganization", which is used by businesses and a few individual debtors whose debts are very large, and Chapter 12 for family farmers.

Which Type of Bankruptcy is Best?

Generally, people who have little property and little income and whose debts are primarily credit cards, medical bills and unsecured debt should file for Chapter 7. If you are facing foreclosure and need to save your home or other property, you need to file Chapter 13. If you have always had excellent credit and may be able to afford to pay a portion of your debt, or if you have a substantial amount of property, Chapter 13 would be best. This is a decision that should be discussed carefully with your attorney. Occasionally, filing Chapter 7 can turn out to be a mistake. Chapter 13, if advisable, is usually a safe bet.

What Will Happen to My Home and My Car If I File Bankruptcy?

In Florida you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value You can keep your home in Chapter 7 if you are current in the payments and your car if you have no more than $1,000 of equity in it. In Chapter 13 you can keep your home and car even if you are behind in your payments, but can catch up. If you are underwater with the car, you can readjust the loan to pay the value of the car at a reasonable rate of interest.

Some of your creditors may have a lien on your home, automobile or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not usually make mortgages go away. If you don’t make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.

There are several ways that you can keep collateral or mortgaged property after you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth.

How Long Does Bankruptcy Take?

Both types of bankruptcy give you immediate protection from creditor action and harassment as soon as it is filed. You do not need to wait to go to court to receive the protection of the bankrupt court. It is immediately and automatically granted. Generally, the entire Chapter 7 procedure may take about 6 months, but it is over for all intents and purposes after you go to court for the meeting of creditors, which occurs about a month after the case is filed. A Chapter 13 usually takes from three to five years, depending on how much of a payment you can afford, and how much your debt is. A Chapter 7 case begins with the filing of the case and ends with the closing of the case by the court. If the debtor has no nonexempt assets for the trustee to collect the case will most likely be closed shortly after the debtor receives his or her discharge, which is usually about six months after the case is filed, If the debtor has nonexempt assets for the trustee to collect, the length of the case will depend on how long it takes the trustee to collect the assets and perform his or her other duties in the case.

Must I List All of My Debts and All of My Property If I File Bankruptcy?

Yes. You will be asked if you have listed all of your debts and property under penalty of perjury. All of your debts include mortgages, car loans, car accidents, alimony, child support, co-signed loans, leases, contracts, taxes, medical bills, bank loans, personal loans, and credit cards. Just because you list them, does not mean you can’t continue paying them if you want.

All of your property includes real estate, cars, furniture, clothing, jewelry, appliances, sporting goods, retirement plans, personal injury claims, money owed to you, tax refund claims, boats, motorcycles, businesses, equipment, tools, bank accounts, investments, trusts, stock, security deposits, and accounts receivable. Failure to list all of your property can be grounds for denial of discharge, or possibly criminal charges if it is substantial and intentional

What Are My Chances of Being Approved If I File Bankruptcy?

Excellent. Almost all Chapter 7 cases are approved, so long as there is no fraudulent conduct and the debtor complies with the requirements of the court and the bankruptcy trustee. In Chapter 13, as long as payments continue to be made and the plan meets the requirements of the court, the case is generally approved.

What Is Chapter 13 and How Does it Work?

Chapter 13 is that part of the Bankruptcy Code under which a person may repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. In a Chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. The plan must be approved by the court to become effective. An experienced attorney can help you prepare a plan that the Court will be most likely to approve. The Chapter 13 Trustee may have many requirements that must be met for the Plan to be approved. If the court approves the debtor's plan, most creditors will be prohibited from collecting their claims from the debtor during the course of the case. The debtor must make regular payments to the Chapter 13 trustee, who collects the money paid by the debtor and disburses it to creditors in the manner called for in the Plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts. If a mortgage is being reinstated, it will return to being in good standing and may be paid directly after all arrearage has been paid.

How Does Chapter 13 Differ from Chapter 7?

The basic difference between Chapter 7 and Chapter 13 is that under Chapter 7 the debtor's nonexempt property if any exists is liquidated to pay as much as possible of the debtor's debts, while in most Chapter 13 cases a portion of the debtor's future income is used to pay as much of the debtor's debts as possible considering the debtor's circumstances. Under Chapter 7 the debtor may lose all, some or perhaps none of his or her nonexempt property and will receive a Chapter 7 discharge, which releases the debtor from liability for most debts. Under Chapter 13, the debtor usually retains his or her nonexempt property, must pay off as much of his or her debts as possible, and receives a Chapter 13 discharge a superdischarge, which is broader than a Chapter 7 discharge and which releases the debtor from liability for several types of debts that are not dischargeable under Chapter 7. Chapter 13 may also help you deal with IRS taxes, real estate taxes, or other tax debt, and pay a percentage of taxes over term of the Plan.

When Is Chapter 13 Preferable to Chapter 7?

Chapter 13 is usually preferable for a person who 1) wishes to repay a portion of his or her unsecured debts and has the income with which to do so within a reasonable time, usually 3 -5 years, 2) has valuable nonexempt property or has valuable exempt property securing debts, either of which would be lost in a Chapter 7 case, 3) is not eligible for a discharge under Chapter 7, 4) has one or more substantial debts that are dischargeable under Chapter 13 but not under Chapter 7, or 5) has sufficient assets with which to repay most debts, but needs temporary relief from creditors in order to do so.

How Does Chapter 13 Differ from a Private Debt Consolidation Service?

Chapter 13, in practice, feels similar to a debt consolidation service in that you send in one monthly payment and all of your proposed debts are paid for you. In a Chapter 13 case, the bankruptcy court can aid you in ways that a private debt consolidation service cannot. For example, the court has the authority to prohibit creditors from attaching or foreclosing on a debtor’s property, to force unsecured creditors to accept a Chapter 13 plan that pays only a portion of their claims, and to discharge a debtor from unpaid portions of debts. Private debt consolidation services have none of these powers. If a private debt consolidation service is charging a lot for its services, expect it to be a rip-off.

What Is a Chapter 13 Discharge?

It is a court order releasing a debtor from all dischargeable debts and ordering creditors not to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay. A full Chapter 13 discharge is broader and discharges more debts than a Chapter 7 discharge, while a partial Chapter 13 discharge is similar to a Chapter 7 discharge. A full Chapter is 13 discharge granted upon the completion of all payments required in the plan discharges debtor from all debts except:

  1. debts that were paid outside of the plan and not covered in the plan,
  2. debts for alimony, maintenance, or support, debts for death or personal injury caused by the debtor's operation of a motor vehicle while unlawfully intoxicated,
  3. debts for restitution or criminal fines included in a criminal sentence imposed on the debtor,
  4. debts for government guaranteed student loans or educational obligations.
  5. installment debts whose last payment is due after the completion of the plan, and
  6. debts incurred while the plan was in effect that were not paid under the plan.

What Is a Chapter 13 Plan?

It is a written plan prepared by a debtor and presented to the bankruptcy court which states how much money or other property the debtor will pay to the Chapter 13 trustee, how long the debtor's payments to the Chapter 13 trustee continue, how much will be paid to each of the debtor's creditors, which creditors will be paid outside of the plan and certain other technical matters. It may provide for mortgage payments and arrears, car loans, condo association fees, taxes, credit card and other debt, and payment of attorney's fees and administrative expenses.

What Is Required for Court Approval of a Chapter 13 Plan?

The court may confirm a Chapter 13 plan if: 1 the plan complies with the legal requirements of Chapter 13 2 all required fees, charges and deposits have been paid, 3 all priority claims will be paid in full under the plan 4 the plan was proposed in good faith, 5 each unsecured creditor will receive under the plan at least as much it would have received had the debtor filed under Chapter 7, 6 it appears that the debtor will be able to make the required payments and comply with the plan, and 7 each secured creditor has been properly dealt with.

What If the Court Does Not Approve a Debtor's Chapter 13 Plan?

A good bankruptcy attorney generally, barring unforeseen circumstances, will not put a debtor in a plan that will not be approved. There are often amendments to the original plan that may be required to obtain the approval of the Trustee and creditors. These are usually easily made and the amended plan can be confirmed. If more money is to be paid, the plan can be lengthened so that the monthly payment is not increased, or otherwise the payment can be increased. After confirmation the plan may be modified if unusual circumstances arise or the debtor is not able to make the proposed payments. If the court will not approve the plan proposed by a debtor and the debtor is unable to modify it to obtain approval, a debtor who may either convert the case to Chapter 7 or dismiss the case. In rare instances, there may also be grounds to appeal the bankruptcy court's ruling.

What Is a Chapter 13 Trustee?

A Chapter 13 trustee is a private person appointed by the United States trustee to collect payments from the debtor, to make payments to creditors in the manner set forth in the debtor's plan, and to administer the debtor's Chapter case until it is closed. The debtor is always required to cooperate with the Chapter 13 trustee. In Miami Dade County the Trustee is Nancy Herkert and in Broward County the Trustee is Robin Weiner.

What Debts May Be Paid under a Chapter 13 Plan?

Any debts whatsoever, whether they are secured or unsecured. Even debts that are non-dischargeable, such as debts for student loans, alimony or child support, income taxes and real estate taxes may be paid under a Chapter 13 plan.

Must All Debts Be Paid in Full under a Chapter 13 Plan?

No. While priority debts, such as debts for alimony, child support, taxes within the past 3 years, and fully secured debts must be paid in full under a Chapter 13 plan, only an amount that the debtor can reasonably afford must be paid on most debts. The unpaid balances of most debts that are not paid in full under a Chapter 13 plan are discharged upon completion of the plan.

How Much of a Debtor's Income must Be Paid to the Chapter 13 Trustee?

Usually all, or at least 90%, of the disposable income of the debtor and the debtor's spouse for a three-year period must be paid to the Chapter 13 trustee. Disposable Income is income received by the debtor and his or her spouse that is not reasonably necessary for the support of the debtor and the debtor's dependents.

When must the Debtor Begin Making Payments to the Chapter 13 Trustee?

The debtor must begin making payments to the Chapter 13 trustee within 30 days after the debtor's plan is filed with the court, and the plan must be filed with the court within 15 days after the case is filed. Failure to make these payments will result in automatic denial of the Plan. A Chapter 13 debtor must be current in the payments for the Plan to be confirmed. The payments must be made regularly, usually on a bi-weekly, or monthly basis. If the debtor is employed, the court will usually require the payments to be made by the debtor's employer pursuant to a Wage Deduction Order, unless that would cause a particular problem at work. Otherwise, the payments can be made by the debtor. Failure to make the payment from the beginning will result in denial of confirmation of the Plan, and failure to make the payments after confirmation of the plan will result in dismissal of the case. The most important thing the Chapter 13 debtor can do is to keep making the plan payments.

How Long Does a Chapter 13 Plan Last?

A Chapter 13 plan must last from three to five years, depending on how high your income is, unless all debts can be paid off in full in less time. However, a Chapter 13 plan can last for as long as five years, if necessary.

Is it Necessary for All Creditors to Approve a Chapter 13 Plan?

No. To become effective, a Chapter 13 plan must be approved by the court, not by the creditors. The court, however, cannot approve a plan unless secured creditors are properly dealt with. Creditors are permitted to file objections to the debtor's plan, and these objections must be ruled on by the court before it can approve the debtor's Chapter 13 plan.

How Are Secured Creditors Dealt with under Chapter 13?

There are basically five methods of dealing with secured creditors under Chapter 13: 1 the creditor may accept the debtor's proposed plan, 2 the creditor may retain its lien and be paid the full amount of its secured claim under the plan, 3 the creditor may be paid the value of its collateral, and the remainder of the debt may be discharged, 4 the debtor may surrender the collateral to the creditor, or 5 the creditor may be paid or dealt with outside the plan. It is important to understand that a creditor has a secured claim only to the extent of the value of its security, which cannot exceed the value of the property securing the claim. If the debtor is in default to a secured creditor, the default must be cured made current within a reasonable time also. Interest may have to be paid on secured claims.

How Are Co-signed or Guaranteed Debts Handled under Chapter 13?

If a cosigned or guaranteed consumer debt is being paid in full under a Chapter 13 plan, the creditor may not collect the debt from the cosigner or guarantor. However, if a consumer debt is not being paid in full under the plan, the creditor may collect the unpaid portion of the debt from the cosigner or guarantor. A consumer debt is non-business debt. The plan may allow discrimination in favor of a higher payment to cosigned consumer debt.

Who Is Eligible to File under Chapter 13?

Any natural person may file under Chapter 13 if the person 1) resides in, does business in, or owns property in the United States, 2) has regular income, 3) has unsecured debts less than $3250,000, 4) has secured debt less than $1,000,000, 5) is not a stockbroker or a commodity broker, and 6) has not been a debtor in another bankruptcy case that was dismissed within the last 180 days on certain technical grounds. A person meeting the above requirements may file under Chapter 13 regardless of when he or she last filed a bankruptcy case or receive a bankruptcy discharge. Corporations, partnerships, and limited liability companies may not file under Chapter 13.

May a Married Couple File Jointly?

Yes. A husband and wife may file jointly under Chapter 13 if each of them meets the filing requirements, except that only one of them need have regular income and their combined debt must meet the debt limitations. A husband and wife may also file jointly under Chapter 7, with somewhat different considerations. If both spouses are liable for any significant debts, they should file jointly under Chapter 13, even if only or of them has income. Also, if both of them have regular income, they should file jointly. However, it is not required that anyone file bankruptcy if they do not want to.

May a Self-Employed Person File under Chapter 13?

Yes. A self-employed person meeting the eligibility requirements may file under Chapter 13. A debtor engaged in business may continue to operate the business during the Chapter 13 case. A corporation may not file Chapter 13. A self-employed person will have to complete a business questionnaire and provide additional information regarding their income.

May a Chapter 7 Case Be Converted to Chapter 13?

A pending Chapter 7 case may be converted to Chapter 13, with the approval of the court, upon the request of the debtor, if the case has not been previously converted to Chapter 7 from Chapter 13. A Chapter 13 case may be converted to Chapter 7, once as a matter of right.

Where Is a Bankruptcy Case Filed?

A bankruptcy case is filed in the bankruptcy court in the district where the debtor has lived or maintained principal place of business for the greatest portion of the last 180 days. The bankruptcy court is a unit of the federal district court. In Miami it is located in the Claude Pepper Federal Building at 51 S.W. First Avenue. It accepts filings from Dade and Monroe Counties. Debtors who live in Broward County file in the federal courthouse in Fort Lauderdale, and in Palm Beach in the bankruptcy court in West Palm Beach. We do bankruptcy filings electronically now, so actually all the filings are done from the office.

What Fees Are Charged in a Chapter 13 Case?

There is a $284 filing fee charged when the case is filed, The 13 trustee assesses a fee of 10 percent on all payments made under the plan. These fees are in addition to the fee charged by the debtor’s attorney. There is an approved fee established by the court of $3500, but some attorneys charge more with the approval of the court. In a foreclosure action, the debtor may be liable for the bank’s attorney’s fees, but these can be paid in installments.

Will a Person Lose Any Property If He or She Flies under Chapter 13?

Usually not. The purpose of Chapter 13 is to allow a person to retain all of their property and make a payment plan instead of surrendering their property. Under Chapter 13, creditors are usually paid out of the debtor's income and not from the debtor's property. However, if a debtor has valuable nonexempt property and has insufficient income to pay enough to creditors to satisfy the court, some of the debtors property may be liquidated to pay creditors.

How Does Filing Chapter 13 Affect Legal Proceedings and Foreclosures?

The filing of a Chapter 13 case automatically stops stays all lawsuits, attachments, garnishments, foreclosures, and other actions by creditors against the debtor or the debtor's property. A few days after the case is filed, the court will mail a notice to all creditors advising them of the automatic stay. Certain creditors may be notified sooner, if necessary. Most creditors are prohibited from proceeding against the debtor during the entire course of the Chapter 13 case. If the debtor is later granted a Chapter 13 discharge, the creditors will then be prohibited from collecting the discharged debts from the debtor after the case is closed. It is very important to remember that a Chapter 13 filing will usually not undo a foreclosure sale after it has occurred. Therefore it is critical that the Chapter 13 case be filed before the foreclosure sale takes place, and not at the last minute.

How Does Filing under Chapter 13 Affect a Person's Credit Rating?

It may improve it somewhat upon completion. Chapter 13 stays on a person's credit report for 7 years. If most of a person's debts are ultimately paid off under a Chapter 13 plan, that fact may be taken into account by credit reporting agencies and mortgage lenders. If very little is paid on most debts, the credit-rating effect of a Chapter 13 case may be similar to that of a Chapter 7 case. It is also beneficial for the debtor to avoid having property foreclosed, and if a person can reinstate and later pay off their mortgage, it is a plus. A foreclosure or repossession is considered worse than a Chapter 13. Creditors usually prefer debtors who are debt free to those that are sinking in debt.

Is a Person's Employer Notified When He or She Files under Chapter 13?

In most cases a wage deduction order is required. If this may cause a particular problem with the employer, the court will usually waive that requirement.

Does a Person Lose Any Legal Rights by Filing Bankruptcy?

Absolutely not. Filing for bankruptcy under Chapter 7 and 13 is a civil proceeding and not a criminal proceeding. Therefore, a person does not lose any legal or constitutional rights by filing a bankruptcy case.

May Employers or Government Agencies Discriminate Against Persons Who File Bankruptcy?

No. It is illegal under federal law for either private or governmental employers to discriminate against a person as to employment because that person has filed bankruptcy. It is also illegal for local, state, or federal governmental agencies to discriminate against a person as to the granting of licenses, permits, student loans, and similar grants because that person has filed bankruptcy. Driver's licenses that have been suspended for non-payment of accident damages may be reinstated if that debt is discharged by the Bankruptcy Court.

When Does a Debtor Have to Appear in Court in a Chapter 13 Case?

Most debtors have to appear in court only once for a hearing called the meeting of creditors. The meeting of creditors is usually about a month after the case is filed. If all goes well at the meeting of creditors, appearance at the confirmation hearing may be unnecessary. If difficult or unusual circumstances arise during the course of a case, additional court appearances may be necessary. All of the other hearings are usually handled by the attorney.

How Are the Claims of Unsecured Creditors Handled under Chapter 13?

Unsecured creditors must file their claims with the bankruptcy court within 90 days after the first date set the meeting of creditors in order for their claims to be allowed. Unsecured creditors who fail to file claims within that period are barred from doing so, and upon completion of the plan their claims will be discharged. The debtor may file a claim on behalf of a creditor, if desired. After the claims have been filed, the debtor may file object to any claims that he or she disputes. When the claims have been approved by the court, the Chapter 13 trustee begins paying unsecured creditors as provided for in the Chapter 13 plan. Payments to secured creditors, priority creditors, and special classes of unsecured creditors may begin earlier, if desired.

What If the Debtor Is Temporarily Unable to Make the Chapter 13 Payments?

If the debtor is temporarily out of work, injured, or otherwise unable to make the payments required under Chapter 13 plan, the plan can usually be modified so as to enable the debtor to resume the payments when he she is able to do so. If it appears that the debtor's inability to make the required payments will continue indefinitely or for an extended period, the case may be dismissed or converted to Chapter 7.

What If the Debtor Incurs New Debts or Needs Credit During a Chapter 13 Case?

Only two types of credit obligations or debts incurred after the filing of the case may be included in a char 13 plan. These are: 1 debts for taxes that become payable while the case is pending, and 2 consumer debts arising after the filing of the case that are for property or services necessary for the debtor's performance under the plan and that are approved in advance by the court. All other debts or credit obligations incurred after the case is flied must be paid by the debtor outside of the plan.

What Should the Debtor Do If He or She Moves While the Case Is Pending?

The debtor should immediately notify the bankruptcy court and the trustee in writing of the new address. Most communications in a bankruptcy case are by mail, and if the debtor fails to receive an order of the court or a notice from the trustee because of an incorrect address, the case may be dismissed.

What If the Debtor Later Decides to Discontinue the Chapter 13 Case?

The debtor has the right to either dismiss a Chapter 13 case or convert it to Chapter 7 at any time for any reason. If the debtor simply stops making the required Chapter 13 payments, the debtor will be required to modify the Plan to make up the past due payments or the case will be dismissed.

What Is Chapter 7 and How Does it Work?

Chapter 7 deals with liquidation. In a Chapter 7 case, the debtor must turn his or her nonexempt property, if any exists, over to a trustee, who then converts the property to cash and pays the debtor's creditors. In return, the debtor receives a Chapter 7 discharge, if he or she pays is eligible for such a discharge, and obeys the orders and rules of the court.

Does the Chapter 7 Always Liquidate Property?

No. There are different Chapter 7 trustees who administer cases differently. They may be less interested in liquidating used furniture and appliances than cars, jewelry and cash equivalents. A Chapter 7 debtor usually has the option of surrendering property to the trustee or negotiating an arrangement to buy it back. A Chapter 7 trustee may choose to abandon his or her claims to a debtor's property.

What Property Can I Keep and How Do I Claim it as Exempt?

In a Chapter 7 case, you can keep all property which the law says is exempt from the claims of creditors. Under Florida law you can keep:

  1. your home, no matter the value,
  2. your car, up to a value of $1,000.00.
  3. your personal property, up to a value of $5,000.00.
  4. your retirement plan, no matter the value.
  5. your wages, if you are the head of a household.
  6. your Workmen's compensation benefits.
  7. your Social Security benefits.

If one spouse files alone, property held jointly by both spouses may also be exempt. The amounts of the exemptions are doubled when a married couple files together.

Under Federal law there are other exemptions available, such as Social Security benefits, unemployment compensation, veteran's benefits, public assistance, and pensions—regardless of the amount.

In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth now. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement.

You also only need to look at your equity in property. This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $12,000 car with a $10,000 loan, you count your exemptions against the $2,000 which is your equity if you sell it.

While your exemptions allow you to keep property n in a Chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to foreclose or repossess the property to cover the debt if you are behind in the payments.

In order to claim property as exempt, it must be listed on Schedule C of the bankruptcy forms, with the value of the property, the amount of the claimed exemption, and the statutory basis for the claimed exemption. That is why it is particularly important to disclose all of your property to your attorney and to the court so that the appropriate exemptions may be properly claimed.

Can I Own Anything After Bankruptcy?

Yes! That's the whole purpose of bankruptcy, to give you a fresh start. Many people believe they cannot own anything for a period of time after filing for bankruptcy. This is not true. You can keep your exempt property and anything you obtain after the bankruptcy is filed. However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors if the property or money is not exempt. After Bankruptcy buy a lottery ticket., start a business, get a new job.

Will I Have to Go to Court?

Yes. In most Chapter 7 cases, you only have to go to a proceeding called the "meeting of creditors" to meet with the bankruptcy trustee and any creditor who chooses to come. Usually none show up. Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation. This hearing usually takes place about a month after the case is flied. At this hearing the debtor is put under oath and questioned about his or her debts and assets by the Chapter 7 trustee. In most Chapter 7 consumer cases no creditors appear in court; but any creditor that does appear is usually allowed to question the debtor briefly. If the bankruptcy court decides not to grant the debtor a discharge or if the debtor wishes to reaffirm a debt and is not represented by an attorney, there will be another hearing about three months later, which the debtor will have to attend.

What Happens after the Meeting of Creditors?

After the meeting of creditors, the trustee may contact the debtor regarding the debtor's property, and the court may issue certain orders to the debtor. These orders are sent by mail and may require the debtor to turn certain property over to the trustee, or provide the trustee with certain information. If the debtor fails to comply with these orders, the case may be dismissed and the debtor may be denied a discharge.

What Is a Chapter 7 Discharge?

It is a court order releasing a debtor from all of his or her dischargeable debts and ordering the creditors not to attempt to collect tern from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay. Some debts, however, are not dischargeable under Chapter 7, and some persons are not eligible for a Chapter 7 discharge.

What Debts Are Not Dischargeable under Chapter 7?

All debts of any kind or amount, including out-of-state debts, are dischargeable under Chapter 7 except the debts listed below. The following is a list of the most common debts that are not dischargeable under Chapter 7:

  1. Most tax debts within the past three tax years.
  2. Debts for obtaining money, property, services, or credit by means of false pretenses, fraud, or a false financial statement, if the creditor files a complaint in the case included here are debts for luxury goods or services and debts for cash advances made within 60 days before the case is filed.
  3. Debts not listed on the debtor's Chapter 7 forms, unless the creditor knew of the case in time to file a claim. It is therefore crucial that the debtor provide a complete list of all their debts to their attorney.
  4. Debts for fraud, embezzlement or larceny, if the creditor files a complaint in the case.
  5. Debts for alimony, maintenance, or support and, if the creditor files a complaint in the case, certain other divorce-related debts including property settlement debts.
  6. Debts for intentional or malicious injury to the person or property of another, if the creditor files a complaint in the case.
  7. Debts for certain fines or penalties.
  8. Debts for government guaranteed student loans.
  9. Debts for personal injury or death caused by the debtor's operation of a motor vehicle while intoxicated.
  10. Debts that were or could have been listed in a previous bankruptcy case of the debtor in which the debtor did not receive a discharge.

What Persons Are Not Eligible for a Chapter 7 Discharge?

The Following Persons Are Not Eligible for a Chapter 7 Discharge:

  1. A person who has been granted a discharge in a Chapter 7 case filed within the last eight years.
  2. A person who has been granted a discharge in a Chapter 13 case filed within the last eight years, unless 70 percent or more of the unsecured claims were paid off in the Chapter 13 case.
  3. A person who files a reaffirmation of debt or waiver of discharge that is approved by the court in the Chapter 7 case.
  4. A person who conceals, transfers, or destroys his or her property with the intent to defraud his or her creditors or the trustee in the Chapter 7 case.
  5. A person who conceals, destroys, or falsifies records of his or her financial condition or business transactions.
  6. A person who makes false statements or claims in the Chapter 7 case, or who withholds recorded information from the trustee.
  7. A person who fails to satisfactorily explain any loss or deficiency of his or her assets.
  8. A person who refuses to answer questions or obey orders of the bankruptcy court, either in his or her bankruptcy case or in the bankruptcy case of a relative, business associate, or corporation with which he or she is associated.

What Persons Are Eligible to File under Chapter 7?

Any person who resides in, does business in, or has property in the United States may file under Chapter 7, except a person who has been involved in another bankruptcy case that was dismissed within the last 180 days on certain grounds. A person with business debts is eligible to file. A person with consumer debts may be eligible to file subject to means testing, meaning if that person has a higher than average income whereby he could afford to pay towards his debts, he may not be eligible. This is a very simplistic answer. There is a complicated formula to determine eligibility which would need to be reviewed before filing.

What Persons Should Not File under Chapter 7?

A person who is not eligible for a Chapter 7 discharge should not file under Chapter 7. Also, a person who has substantial debts that are not dischargeable under Chapter 7 should not file under Chapter 7. In addition, it may not be wise for a person with current income sufficient to repay a substantial portion of his or her debts within a reasonable period to file under Chapter 7, because the court may dismiss the case as constituting an abuse of Chapter 7. The Office of the U.S. Trustee reviews Chapter 7 cases, and cases of apparent abuse may be questioned.

How Much Is the Chapter 7 Filing Fee and When must it Be Paid?

The filing fee is $306 for either a single or a joint case. If a debtor is unable to pay the filing fee when the case is filed, it may be paid in installments, with the final installment due within 120 days. The entire filing fee must ultimately be paid, however, or the case will be dismissed and the debtor will not receive a discharge. The fee charged by the debtor's attorney for handling the Chapter 7 case is in addition to the filing fee.

Under What Conditions Should Both Spouses File under Chapter 7?

Both husband and wife should file if one or more substantial dischargeable debts are owed by both spouses. If both spouses are liable for a substantial debt and only one spouse files under Chapter 7, the creditor may later attempt to collect the debt from the non-filing spouse. However, it is not required that both spouses file if they both do not want to.

When Should a Chapter 7 Case Be Filed?

The answer depends on the status of the debtor's dischargeable debts, the nature and status of the debtor's nonexempt assets, and the actions taken or threatened to be taken by the debtor's creditors. If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, a Chapter 7 case probably will not be the right choice for you. That is because Chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt. The following rules should be followed:

  1. Don't file under Chapter 7 until all anticipated debts have been included, because it will be another eight years before the debtor is again eligible for a Chapter 7 discharge. For example, a debtor who has incurred substantial medical expenses should not file under Chapter 7 until the illness or injury has either been cured or covered by insurance, as it will do little good to discharge, say, $50,000 of medical debts now and then incur another $50,000 in medical debts in the next few months.
  2. Don't file under Chapter 7 until the debtor has received all nonexempt assets to which he or she may be entitled, If the debtor is entitled to receive an income tax refund or a similar nonexempt asset in the near future, he or she should not file under Chapter 7 until after the refund or asset has been received and expended. Otherwise, the refund or asset will become the property of the trustee.
  3. Don't file under Chapter 7 if the debtor expects to acquire property through inheritance, life insurance or divorce in the next 180 days, because the property will have to be turned over to the trustee unless it is exempt.
  4. If hostile creditor action threatens a debtor's exempt assets or future income, the case should be filed immediately to take advantage of the automatic stay that accompanies the filing of a Chapter 7 case. If a creditor has threatened to attach or garnishee the debtor's wages or if a foreclosure action has been instituted against the debtor's residence, it may be necessary to file a Chapter 7 case immediately in order to protect the debtor's interest in the property. Usually, however, Chapter 13 is preferred for dealing with foreclosures.

How Does the Filing of a Chapter 7 Case Affect Collection and Other Legal Proceedings That Have Been Filed Against the Debtor in Other Courts?

Just as in Chapter 13, the filing of a Chapter 7 case automatically stays or stops virtually all collection and other legal proceedings pending against the debtor. A few days after a Chapter 7 case is filed, the court mails a notice to all creditors ordering them to refrain train any further action against the debtor. If necessary, this notice may be served earlier by the debtor or the debtor's attorney. Any creditor who intentionally violates the automatic stay may be held in contempt of court and may be liable to the debtor in damages. Criminal proceedings and actions to collect alimony, maintenance, or support from exempt property or property acquired by the debtor after the Chapter 7 case was filed are not affected by the automatic stay. The automatic stay also does not protect cosigners and guarantors of the debtor, and a creditor may continue to collect debts of the debtor from those persons after the debtor files a Chapter 7 case.

How Does Filing under Chapter 7 Affect a Person's Credit Rating?

It usually makes little difference since your credit is already bad or soon will be. Different creditors view it differently. American Express usually cancels immediately. Most other creditors are a lot more understanding. Some creditors accept business from persons who have filed under Chapter 7, because it will be at least eight years before they can again file under Chapter 7. A Chapter 7 debtor is eligible for consideration of a mortgage after 2 years under FNMA rules. Most automobile lenders prefer a customer who is debt free than one who is laden with debt they cannot pay and may file bankruptcy at any time. Many bankruptcy clients boast that they have all their old credit cards back after two years. A lot of it depends upon how able you are to get back on your feet after bankruptcy.

Are Employers Notified of Chapter 7 Cases?

Virtually never. There is usually no reason to unless the debtor's employment information is questioned.

What Is a Trustee in a Chapter 7 Case, and What Does He or She Do?

The trustee Is an officer of the court, appointed to examine the debtor, collect the debtor's nonexempt property, and pay the expenses of the estate and the claims of creditors. The trustee is a private independent contractor. In addition, the trustee has certain administrative duties In a Chapter 7 case and is the officer in charge of seeing to it that the debtor performs the required duties in the case. A trustee is appointed in a Chapter 7 case, even if the debtor has no nonexempt property.

What Are the Debtor's Responsibilities to the Trustee?

The law requires the debtor to cooperate with the trustee in the administration of a Chapter 7 case, Including the collection by the trustee of the debtor's nonexempt property. If the debtor does not cooperate with the trustee, the Chapter 7 case may be dismissed and the debtor may be denied a discharge.

What Happens to the Property That the Debtor Turns over to the Trustee?

It is usually converted to cash, which is used to pay the fees and expenses of the trustee and to pay the claims of unsecured creditors. The trustee's fee is usually $60 plus a percentage of the amount collected from the debtor.

What If the Debtor Has No Non- Exempt Property for the Trustee to Collect?

This in fact is usually the case, and most cases are closed as "no asset" cases. If, from the debtor's Chapter 7 forms, it appears that the debtor has no nonexempt property, a notice will be sent to the creditors advising them that there appears to be no assets from which to pay creditors, that it is unnecessary for them to file claims, and that if assets are later discovered they will then be given an opportunity to file claims. This type of case is referred to as a no-asset case.

How Are Secured Creditors Dealt with in a Chapter 7 Case?

Secured creditors are creditors with valid mortgages or liens against property of the debtor. Property of the debtor that is encumbered by a valid mortgage or lien is called secured property. A secured creditor is usually permitted to repossess or foreclose its secured properly, unless the value of the secured property greatly exceeds the amount owed to the creditor. The claim of a secured creditor is called a secured claim and secured claims must be collected from or enforced against secured property. Secured claims are not paid by the trustee. A secured creditor must prove the validity of its mortgage or lien and obtain a court order before repossessing or foreclosing on secured property. The debtor should not turn any property over to a secured creditor until a court order has been obtained. The debtor may be permitted to retain or redeem certain types of secured personal property. A debtor can usually maintain the mortgage on their home and their auto loan by reaffirming the debt.

How Are Unsecured Creditors Dealt with in a Chapter 7 Case?

An unsecured creditor is a creditor without a valid lien or mortgage against property of the debtor. If the debtor has nonexempt assets, unsecured creditors may file claims with the court within 90 days after the first date set for the meeting of creditors. The trustee will examine these claims and file objections to those deemed Improper. When the trustee has collected all of the debtor's nonexempt property and convened it to cash, and when the court has ruled on the trustee's objections to improper claims, the trustee will distribute the funds in the form of dividends to the unsecured creditors according to the priorities set forth In the Bankruptcy Code. Administrative expenses, claims for wages, salaries, and contributions to employee benefit plans, claims for the refund of certain deposits, claims for alimony, maintenance support, and tax claims, are given priority, in that order, in the payment of dividends by the trustee. If there are funds remaining after the payment of these priority claims, they are distributed pro rata to the remaining unsecured creditors.

What Secured Property May a Debtor Retain or Redeem in a Chapter 7 Case?

A debtor may retain and redeem certain secured personal and household property, such as household furniture, appliances and goods, wearing apparel, and tools of trade, without payment to the secured creditor, if the property is exempt and if the mortgage or lien against the property was not incurred for the purpose of financing the purchase of the property. A debtor may also retain and redeem without payment to the secured creditor any secured property that is both exempt and subject only to a judgment lien. Finally, a debtor may redeem certain exempt personal, family, or household property by paying to the secured creditor an amount equal to the value of the property, regardless of how much is owed to the creditor. Deadlines are imposed on the enforcement of these rights by the debtor during the bankruptcy case.

How Can a Debtor Minimize the Amount of Money or Property Which must Be Turned over to the Trustee in a Chapter 7 Case?

In a Chapter 7 case the debtor is required to turn over to the trustee only the nonexempt money or property that he or she possessed at the time the case was filed. The debtor may to some extent to engage in some negative estate planning so as to minimize the value or amount of these assets on the day that the Chapter 7 case is filed. Such planning must be handled with great care and must not be abusive.

The debtor should have little or no cash on hand when the Chapter 7 case is filed. Further, if the debtor has received cash or the equivalent of cash in the form of a paycheck or the closing of a bank account before the filing of the case, the debtor should obtain receipts when disposing of the funds in order to prove to the Trustee and the court that the funds were expended prior to the filing of the case. Money possessed by the debtor on or before the filing of a Chapter 7 case may be spent on such items as food and groceries, the Chapter 7 filing fee, the attorney's fee and other professional services, and the payment of up to $600 to creditors whom the debtor may continue paying after the filing of the Chapter 7 case. Payments should not be made to friends, relatives or business associates who may later be sued by the Trustee to recover these payments. Preferential payments to creditors may be avoided by the bankruptcy trustee.

The best practice Is keep bank accounts as close to zero as the bank will allow or to close it and all outstanding checks must clear the account before the case is filed.

In Florida, the wages of a head of household are exempt. The earnings of independent contractors are not.

A tax refund is not exempt and becomes the property of the trustee if it has not been received by the debtor prior to the filing of a Chapter 7 case. Therefore, if the debtor is scheduled to receive a tax refund, a Chapter 7 case should not be filed until after the refund has been received and expended.

May a Utility Company Refuse to Provide Service to a Debtor If the Company's Utility Bill Is Discharged under Chapter 7?

If, within 20 days after a Chapter 7 case is filed, the debtor furnishes a utility company with a deposit or other security to insure the payment of future utility services, it is illegal for a utility company to refuse to provide future utility service to the debtor, or to otherwise discriminate against the debtor, if its bill for past utility services is discharged in the Chapter 7 case.

How Is a Debtor Notified when his or her Discharge Has Been Granted?

By mail. The court will send a form called "Discharge of Debtor" to the debtor and to all creditors. This form is a copy of the court order discharging the debtor from his or her dischargeable debts, and it serves as notice that the debtor's discharge has been granted. It is usually mailed about six months after a Chapter 7 case is filed,

What If a Debtor Wishes to Repay a Dischargeable Debt?

A debtor may repay as many dischargeable debts as desired after filing under Chapter 7. By repaying one creditor, a debtor does not become legally obligated to repay any other creditor. The only dischargeable debt that a debtor is legally obligated to repay is one for which the debtor and the creditor have signed what is called a "reaffirmation agreement" if the debtor was not represented by an attorney in negotiating the reaffirmation agreement with the creditor, the reaffirmation agreement must be approved by the court to be valid, if the debtor was represented by an attorney in negotiating the reaffirmation agreement the attorney must file the agreement and the attorney's statement with the court in order for the agreement to be valid, if a dischargeable debt is not covered by a reaffirmation agreement a debtor is not legally obligated to repay the debt even if the debtor has made a payment on the debt since filing under Chapter 7, has agreed in writing to repay the debt, or has waived the discharge of the debt.

What Should a Person Do If a Creditor Later Attempts to Collect a Debt That Was Discharged under Chapter 7?

When a Chapter 7 discharge is granted, the court enters an order prohibiting the debtor's creditors from later attempting to collect any discharged debt from the debtor. Any creditor who violates this court order may be held in contempt of court and may be liable to the debtor in damages. If a creditor later attempts to collect a discharged debt from the debtor, the debtor should give the creditor a copy of the order of discharge and inform the creditor in writing that the debt has been discharged under Chapter 7. If the creditor persists, the debtor should contact an attorney. If a creditor files a lawsuit against the debtor on a discharged debt, it is important not to ignore the matter, because even though a judgment entered against the debtor on a discharged debt can later be voided, voiding the judgment may require the services of an attorney, which could be costly to the debtor.

How Does a Chapter 7 Discharge Affect the Liability of Cosigners and Other Parties Who May Be Liable to a Creditor on a Discharged Debt?

It doesn't. A Chapter 7 discharge releases only the debtor. The liability of any other party on a debt is not affected by a Chapter 7 discharge. Therefore, a person who has consigned or guaranteed a debt for the debtor is still liable for the debt regardless of the debtor's Chapter 7 discharge.

What Is the Role of the Attorney in a Bankruptcy Case?

The Debtor's Attorney may perform the following functions in a typical Consumer Bankruptcy:

  1. Analyzing the amount and nature of the debts owed by the debtor and determine the best remedy for the debtor's financial problems.
  2. Advising the debtor of the relief available under both Chapter 7 and Chapter 13 of the Bankruptcy Code, and of the advisability of proceeding under each Chapter.
  3. Assemble the information and data necessary to prepare the Chapter 7 forms for filing.
  4. Preparing the petitions, schedules, statements and other Chapter 7 forms for filing with the bankruptcy court.
  5. Assisting the debtor in arranging his or her assets so as to enable the debtor to retain as many of the assets as possible.
  6. Filing the petitions, schedules, statements and other forms with the bankruptcy court, and, if necessary, notifying certain creditors of the commencement of the case.
  7. If necessary, assisting the debtor in reaffirming certain debts, redeeming personal property, setting aside mortgages or liens against exempt property, and otherwise carrying out the matters set forth in the debtor's statement of intention.
  8. Attending the meeting of creditors with the debtor and appearing with the debtor at any other hearings that may be held in the case.
  9. If necessary, preparing and filing amended schedules, statements, and other documents with the bankruptcy court in order to protect the rights of the debtor.
  10. If necessary, assisting the debtor in overcoming obstacles that may arise to the granting of a discharge.
  11. Examining the debtor's financial situation and determining whether Chapter 13 is a feasible alternative for the debtor, and if so, whether a single or a joint case should be filed.
  12. Assisting the debtor in the preparation of a budget.
  13. Examining the liens or security interests of secured creditors to ascertain their validity or avoidability, and taking the legal steps necessary to protect the debtor's interest in such matters.
  14. Devising and implementing methods of dealing with secured creditors.
  15. In Chapter 13, assisting in devising a plan that meets the needs of the debtor and is acceptable to the court.

Should I Pay a Debt Counseling Service or Bankruptcy Preparer?

NO. Paying for debt counseling is almost never a good idea. There is almost nothing that a paid debt counselor can offer other than a recommendation about whether bankruptcy is appropriate and a list of highly priced debt consolidation lenders. There is no good reason to pay someone for this service. A reputable attorney will generally provide counseling on whether bankruptcy is the best option. This avoids the double charge of having to pay a counselor and then an attorney. If bankruptcy is not the right answer for you, a good attorney will offer a range of other suggestions. Debt counseling is available for a very nominal cost through Consumer Credit Counseling Service, an agency of the United Way.

Document preparation services also known as "typing services" or "paralegal services" involve non-lawyers who offer to prepare bankruptcy forms for a fee. Problems with these services often arise because non-lawyers cannot offer advice on difficult bankruptcy cases and they offer no services once a bankruptcy case has begun. There are also many shady operators in this field, who give bad advice and defraud consumers. They are generally grossly overpriced for the little service they provide, and they do not stand by you in court or assist you with any problems that may arise with creditors and the Bankruptcy Court Trustee.

What Should I Do When I Meet with the Attorney?

When first meeting a bankruptcy attorney, you should be prepared to answer the following questions:

  1. What are all your debts, and approximately how much do you owe to each creditor?
  2. It is an excellent idea to bring with an informal list of all your debts?
  3. What types of debt are causing you the most trouble?
  4. What are your significant assets?
  5. How did your debts arise and are they secured?
  6. Is any action about to occur to foreclose or repossess property or to shut off utility service?
  7. What are your goals in filing the case?

Can I File Bankruptcy Without an Attorney?

Although it may be possible for some people to file a bankruptcy case without an attorney, it is not a step to be taken lightly. The process is difficult and you may lose property or other rights if you do not know the law. It takes patience and careful preparation. The Court will expect you to meet all the requirements that you would have to if you had an attorney. Ignorance of the law will be absolutely no excuse.

Remember: The law often changes. Each case is different. This pamphlet is meant to give you general information and not to give you specific legal advice about your case.